2010 » TripleCrisis

Lessons from NAFTA: Interview with Gallagher and Wise

Kevin Gallagher and Timothy A. Wise were interviewed in March 2010 about two recent reports they helped co-author on the impacts of the North American Free Trade Agreement (NAFTA) on Mexico and the reforms needed to ensure that U.S. trade agreements have a positive impact on its developing country trading partners. In a Policy Outlook paper with the Carnegie Endowment’s Eduardo Zepeda, they offer a detailed look at Mexico’s poor economic performance under the “NAFTA model.” In a Task Force Report with other NAFTA experts assembled by Boston University’s Pardee Center, they detail the needed reforms to current and future trade agreements in the areas of manufacturing, agriculture, services, intellectual property, investment, labor, environment, and migration. In this interview at the Pardee Center, they outline the main findings of the reports, with a particular emphasis on NAFTA’s controversial investment chapter (one of Gallagher’s ongoing research areas) and the impacts on agriculture (Wise’s specialty). The work is based on ten years of research by the Global Development and Environment Institute on the Lessons from NAFTA.

Global Financial Crisis: Hardest on the Least Developed

Mehdi Shafaeddin

The recent global economic crisis has been unprecedented since the great depression of 1929-32. The low-income countries have been affected by the crisis severely, particularly because of their low capacity to take external shocks. The commodity boom of 2003-08 allowed increases in national savings, investment and the acceleration of GDP and market value added (MVA) of low-income countries. Nevertheless, it was followed by a “bust” with detrimental impact on their long-term industrialization and development. Food and fuel importing countries, in particular, suffered from both the “boom” and the “bust”; the emergence of the financial crisis took place at the time they were facing high international prices of food and petroleum. In other words, they faced three ‘F’(food, fuel, financial) crises.

As a result of the global economic crisis, the prices of non-oil primary commodities and petroleum fell, from the peak to the trough, by over 36 per cent and 68 per cent, respectively. Nevertheless, food prices did not fall as much as the prices of other commodities and have picked up faster than other commodities after they reached their trough in December 2008.

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Going Beyond Immigration Policy

Timothy A. Wise

Democratic Party leaders recently introduced their latest proposal to reform U.S. immigration policy. The proposal, which is given little chance of passage in a polarized election year, offers carrots and sticks in an attempt to bring some semblance of order to a broken and outdated policy that has left nearly 12 million people in the United States without legal documents.

The carrots are few and shriveled: an arduous path to U.S. citizenship for those already in the country. The sticks are large: a further crackdown on border enforcement and increased policing to catch and punish those without papers. No combination of carrots and sticks will address the immigration issue unless reform efforts also take up the agricultural, trade, and labor policies that feed migration.

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Defending the Indefensible: Behind the Alleged Financial Fraud at Goldman Sachs

Jeff Madrick

Goldman Sachs’ arrogant public response to the Securities & Exchange Commission accusation of fraud is another example of self-righteous overconfidence on Wall Street. Not that the SEC suit will be won by the government. In fact, that’s partly what’s given Goldman its chutzpah. Odds are pretty high the investment bank will prevail in court. Whether it told investors that the hedge fund manager John Paulson shorted the portfolio of mortgage bonds in which they invested—or synthetically invested, so to speak — may be beside the point legally.

What is not defensible ethically or economically were the ratings on the collateralized debt obligation (CDO) itself — the structured investments that Goldman repeatedly sold, and the likes of which Merrill Lynch and Citigroup sold more of.

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Jayati Ghosh on Restructuring the Bretton Woods Twins

Losing Control: Capital Controls and Trade Agreements

Kevin P. Gallagher

Do nations have the policy space to deploy capital controls to prevent and mitigate financial crises? In a new report for the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G-24) I examine the extent to which measures to mitigate the global financial crisis and prevent future crises are permissible under a variety of bi-lateral, regional, and multi-lateral trade and investment agreements. I find that the United States trade and investment agreements, and to a lesser extent the WTO, leave little room to maneuver when it comes to capital controls. This is the case despite the increasing economic evidence showing that capital controls can be useful in preventing or mitigating financial crises.

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Ask an Economist: India's Capital Account Convertibility

C.P. Chandrasekhar

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: Why is India moving towards full capital account convertibility, even though it knows about financial market volatility and the recent crisis?

Chandrasekhar: India has adopted a peculiar position on the issue of convertibility. Just before the East Asian financial crisis of 1997 broke, India was all set to make the rupee fully convertible on the capital account. A road map for full convertibility had been drawn up. This would have allowed residents in India to convert their wealth into foreign exchange and transfer it abroad. The crisis sent out a clear signal that this is bad policy and can pave the way for instability and even a currency crisis. That signal prevented the government from opting for such a misguided policy.

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Ask an Economist: India’s Capital Account Convertibility

C.P. Chandrasekhar

Triple Crisis Blog has invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: Why is India moving towards full capital account convertibility, even though it knows about financial market volatility and the recent crisis?

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Capital and Development: Coping with the Carry Trade

Jayati Ghosh

Once again, emerging markets have become the (often unwilling) “beneficiaries” of a surge in private capital flows. Once again, this is not really being used within most receiving economies, since they continue to add to their external reserves. And once again, this is creating additional and often complicated problems of macroeconomic management, with conflicts between different domestic goals.

Some of this renewed capital inflow relates to the perceptions of private investors about better long term economic growth prospects in countries like China, India, Brazil and so on. But much of this is simply what is known as the “carry-trade”, which is essentially the attempt to benefit from different rates of return on assets in different currencies.

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Ask an Economist: The Value of the Yuan, part 2

C.P. Chandrasekhar

Triple Crisis Blog invited readers’ questions in advance of the April 24-25 IMF/World Bank meetings in Washingon. See all of the questions and answers here. A reader asked:

Q: There has been a lot of discussion recently about the over-valuation of the Chinese currency. How do we know how much it is overvalued? What would the implications be for US and Chinese workers if the government were to decide to devalue it?

Chandrasekhar: The argument really is that the Chinese currency is undervalued (because it is pegged to the dollar through central bank intervention) and needs to appreciate so as to make the dollar prices of Chinese exports higher and the RMB price of Chinese imports lower.

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