Video: Africa Lost 1.6 Trillion in Capital Flight and Odious Debt Over Forty Years

Léonce Ndikumana: $619 billion of embezzled capital flight from North Africa with the connivance of big banks according to new research.

Léonce Ndikumana is a Professor of Economics at the University of Massachusetts, Amherst. He served as Director of Operational Policies and Director of Research at the African Development Bank, Chief of Macroeconomic Analysis at the United Nations Economic Commission for Africa (UNECA), and visiting Professor at the University of Cape Town.

Austerity is not working in Europe

Philip Arestis and Malcolm Sawyer

The GDP figures published in the Eurostat press release on the 15th of November 2012 for the Economic and Monetary Union (euro area) marked the confirmation of a double-dipped recession (with negative growth in quarters 2 and 3 of 2012). Gross domestic product was 0.6 per cent lower in the third quarter of 2012 compared with 12 months earlier. Germany and France have so far managed to escape the double dip for the present, but most other countries, including the more hawkish on fiscal austerity (such as Netherlands, Finland) recorded lower output in 2012 Q3 compared with 2011 Q3. For other European Union (EU) countries, the UK had emerged from its double-dip recession with Olympic boosted growth in Q3 after three quarters of negative growth, leaving 2012Q3 GDP at same level as 12 months earlier. Output remains below its 2007 level in the EU and in the European Monetary Union (EMU) — indicating, in effect, at least a lost half-decade.

The return of recession is symbolic of the failure of the austerity programmes, which have been striking down economic activity throughout the EU and EMU. It should give rise to some thoughts as to why the austerity programmes are not working to bring down budget deficits without damaging economic activity. There have been many claims that austerity does work in that the so-called fiscal consolidation brings down deficits and restores full employment – under the heading of expansionary fiscal consolidation. The national income accounts equality between income, output and expenditure necessarily means that a rise in output has to go alongside a rise in expenditure. A cut back in public expenditure can then only go alongside a rise in output if there is a more than compensating rise in private expenditure. The mainstream argument (wrapped up in arguments such as the Ricardian Equivalence Theorem) is that indeed cutting public expenditure will “restore confidence”, lower interest rates, etc., leading to higher private expenditure.

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Putting a Spotlight on the Arbitration Industry

Nick Buxton and Cecilia Olivet, Guest Bloggers

“There is little use in going to law with the devil while the court is held in hell.” These words from an unlikely source – Humphrey O’Sullivan, a 19th Century Irish schoolmaster  – became a widely used argument by multinational companies in the last decade as they justified the construction of an international arbitration system to decide state-investor disputes.

Agreeing with the questionable premise that national courts could not be expected to make unbiased decisions regarding investments by foreign parties, and believing that it was the only way to attract investment, governments worldwide signed 3000 international investment treaties over the last few decades. These treaties all relied on international tribunals such as the World Bank-hosted International Center for Settlement of Investment Disputes. With these treaties came a boom in cases and the emergence of a powerful new industry of arbitration lawyers that earn up to $1000 dollars an hour.

A new report by Transnational Institute (TNI) and Corporate European Observatory (CEO), Profiting from Injustice: How law firms, arbitrators and financiers are fuelling an investment arbitration boom, has decided to turn the spotlight on this hitherto secretive industry.

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Biofuels and the Right to Food: Time for the US to get its head out of the sand

Timothy Wise

Olivier De Schutter, the UN Special Rapporteur on the Right to Food, speaks today (Nov. 27) at 3:00 pm EDT at Tufts University. The distinguished lecture will be webcast live. Click for webcast information and for more information on the event, which is open to the public.

The U.S. Environmental Protection Agency recently decided to keep the nation’s head buried deep in the sand when it comes to biofuels policy, refusing to waive the U.S. ethanol mandate in order to ease price pressures in corn and soybeans following the severe U.S. drought. Europe, the other major market feeding its cars at the expense of the world’s people, lifted its collective head from the depths long enough last month to reduce from 10% to 5% the mandated share of transportation fuel that can come from food sources. No such acknowledgment of reality here, where 40% of our corn crop goes to make ethanol.

The right to food, now recognized worldwide, demands action. So too does Olivier De Schutter, the UN Special Rapporteur on the Right to Food. “It is imprudent to support, let alone to mandate, extra agrofuel production when food prices are high and volatile,” he wrote last month. Indeed, De Schutter has established himself as one of the world’s most passionate and effective advocates for decisive action on biofuels and a wide and impressive range of other issues he has taken on under his UN mandate.

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How can BRICS improve its bargaining position in international trade?

Mehdi Shafaeddin

In my previous blog piece I mentioned that although the member countries of BRICS have exchanged views a number of times to cooperate on trade issues, so far they have taken little concrete measures. The press in the West so far has argued that “big is not the same as cohesive,” rather than discussing how BRICS can mobilize their bargaining power to strengthen their position in trade relations with developed countries.

BRICS need to enhance access to markets for their actual and potential export products, and to obtain access to technology for developing comparative advantage in new products. In both cases, they need to enhance their negotiating/bargaining capacity. I have also shown that together they account for a significant proportion of world trade, and are a significant market for exports and source of imports for developed countries. Imports and exports can be regarded as bargaining assets as well as bargaining liabilities.  While bargaining is a complicated issue involving multiple factors, I will confine myself here to the use of trade itself as a means of bargaining. In this piece, I will briefly explain how the net bargaining position of BRICS could be improved by mobilizing their bargaining assets and minimizing their bargaining liabilities. The question then is how trade itself can be used as a means of bargaining: what sort of measures can be taken? How can they shift demand and supply (not through trade restrictions) from one source of supply to another as a tool of bargaining?

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A Turning Point for European Austerity?

Lilia Costabile, Guest Blogger

Massive strikes and demonstrations in Europe last week marked an important turning point in our history, and they may coalesce into an anti-austerity consensus among European citizens. It is as if these masses understood better than their governments the real size of the fiscal multipliers, which, as the IMF has recently pointed out, are large in a recession, implying that fiscal retrenchment has turned the rebalancing of public finances in the Eurozone periphery into a Sisyphean task.

Macroeconomic imbalances are at the root of the Eurozone crisis, which matured after the introduction of the Euro. It is vital to understand the nature of these imbalances in order to devise the proper remedies.

When the sovereign debt crisis exploded, the first to be blamed were the peripheral countries, gently dubbed the PIGS: Portugal, Ireland, Greece, Spain. I will call them GIPS. (NOTE: The PIGS became the PIIGS when Italy joined in as the target of financial speculation in the summer 2011. I will write on the Italian case, which is different from the others, in another post.)

Excessive state spending in these countries, so the narrative went, led to unsustainable levels of public debt and deficits, thus fuelling speculation and opening the stage for the debt crisis. Austerity was the remedy, to be complemented by severe sanctions and finally expulsion from the Eurozone for non-abiding countries: see e.g. Wolfgang Schauble, the Federal Finance Minister of Germany, and Mark Rutte and Jan Kees de Jager, respectively prime minister and finance minister of the Netherlands.

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ACAS Bulletin 87 – Africa's Capital Losses: What Can Be Done?

Africa’s capital losses from illicit financial flows far outweigh inflows from aid or direct foreign investment. But what can be done?  Guest edited by Triple Crisis bloggers Léonce Ndikumana and James Boyce, the latest bulletin from the Association of Concerned African Scholars tackles the issue head on, with contributions from a wide variety of leading scholars.
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ACAS Bulletin 87 – Africa’s Capital Losses: What Can Be Done?

Africa’s capital losses from illicit financial flows far outweigh inflows from aid or direct foreign investment. But what can be done?  Guest edited by Triple Crisis bloggers Léonce Ndikumana and James Boyce, the latest bulletin from the Association of Concerned African Scholars tackles the issue head on, with contributions from a wide variety of leading scholars.
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Financial Instability as a Threat to Sustainable Development

Yilmaz Akyuz

As seen over and again during recurrent financial crises in both developing and advanced economies (DEs and AEs), financial instability and boom-bust cycles undermine all three ingredients of sustainable development – economic development, social development and environmental protection.

Financial bubbles generate excessive investment, which remains unutilized for an extended period even after full recovery from the ensuing financial crisis. This includes investment in industry, as in Japan in the late 1980s and early 1990s, as well as in property, as seen during the current crisis in the US and Europe. This is the main reason why recoveries from financial crises see little investment.

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Capital inflows to Latin America: Blessing or curse?

Martin Rapetti, Guest Blogger

Since the early 2000s, emerging market economies have attracted growing flows of foreign capital. This trend was briefly interrupted by the eruption of the global financial crisis, but it quickly resumed in mid-2009 with even more impetus. Most Latin American countries have been part of this process. The expansion of liquidity drove risk premia and interest rates down to historical minima in most countries of the region. The EMBI+ index published by JP Morgan is now around 150 basis points in Brazil, Chile, Colombia, Mexico, Peru and Uruguay. Current levels are significantly lower than the 350 basis points that Latin American countries reached in mid-1997 before the South East Asian crises.

The ability to borrow at low cost is certainly beneficial if funds are channeled to productive uses, especially investment in tradable activities and infrastructure. Experience has shown, however, that capital inflows can also end up financing private and public consumption, generating large current account deficits and inflating financial and real estate prices. Latin America has vast experience with boom-and-bust cycles driven by capital inflows that culminated in debt and financial crises with severe economic and social costs. Partly influenced by these experiences, the IMF has recently warned about the potential dangers of capital inflows to Latin America. In its 2011 Regional Economic Outlook , the IMF explicitly pointed to the widening of current account deficits as a source of external fragility that could  lead —as it did in the past— to a sudden reversal of capital flows and crises.

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