Spotlight G20: What should developing countries demand?

Matías Vernengo (also available in Portuguese)

Last weekend, strange news circulated by the Sunday Times claimed that the Chinese government would be willing to inject money to rescue the euro.  The idea would be that China would buy large amounts of European sovereign debt, supposedly in exchange, even more bizarrely, for a greater commitment to fiscal austerity.  Basically, China wants to be the new International Monetary Fund (IMF). If this is true, it is exactly what China and the other developing countries in the G20 should NOT do!

First, it must be understood that the European crisis is not a typical debt crisis, since the Greek debt (and the other peripheral countries’ debt) is denominated in euros, and the European Central Bank (ECB), an European institution, has the power to create euros, if the member countries deem it necessary.  In other words, they do NOT need yuans, dollars, yens, or pesos for that matter, as it would be the case in a foreign debt crisis. [For that point see the interview with Jamie Galbraith linked here].

Read the rest of this entry »

Spotlight G20: More Fodder for the Food Price Debates: Ethanol, speculation drove prices

Timothy A. Wise, part of our 2011 Spotlight G20 series

As the G20 takes its November meetings into the belly of the eurozone crisis, its food security agenda drifts toward irrelevance. Or worse. Early promises to address commodity speculation and market volatility have given way to tepid recommendations from G20 agricultural ministers in June and last month’s underwhelming communiqué from its Washington meeting on development, with its one snappy paragraph on food security issues. Now that finance ministers on their gilded steeds have turned and fled from the dragons of commodity speculation, the G20 is unlikely to slay any of the monsters threatening global food security – biofuels expansion, land grabs, speculation, price volatility, low public investment.

Fortunately, new research keeps coming, and it should inform the debate. The latest is from a group of researchers at New England Complex Systems Institute (NECSI). As their name would indicate, these are modelers, and their paper, “The Food Crises: A quantitative model of food prices including speculators and ethanol conversion,” offers evidence that the underlying cause of rising food prices over the last decade is primarily the US corn ethanol program, while the cause of the two recent price spikes is speculation.

Read the rest of this entry »

Spotlight G20: Speeding from Hopeful to Hopeless

Ilene Grabel, part of our 2011 Spotlight G20 Series

Remember the WTO– the institution that we loved to hate? We haven’t been hearing much from or about the institution since its 2003 meeting in Cancun Mexico. That meeting marked the emergence of open conflict between wealthy and developing nations on a number of issues (such as agricultural protection). The conflict left the institution frozen and irrelevant. It now stands on the sidelines as policymakers crisscross the globe signing bi- and multi-lateral agreements.

The G20 seems to be outpacing the WTO in the march toward irrelevance.  When it was organized in the early days of the financial meltdown, many progressives (including me) viewed the G20 as an embryo from which new and at least somewhat more inclusive discussions of global economic policy could emerge. In its early days the shock of the global crisis seemed to have engendered a genuine “Keynesian moment.” G20 leaders collectively declared the death of the Washington Consensus, indicted the financial sector for its misdeeds, acknowledged the economic firepower of the rapidly growing developing countries that became new lenders to the IMF, and took tentative steps toward amplification of the voice of developing countries at the IMF and World Bank.

Read the rest of this entry »

Spotlight G20: G20 Defers Decision on Financial Transaction Tax Despite Global Support

Kavaljit Singh, Guest blogger

The G20 finance ministers and central bankers have put off an immediate decision to weigh up a global financial transaction tax (FTT) proposal at the forthcoming G20 Summit (Cannes, 3-4 November 2011).

The two-day Ministerial Meeting (14-15 October) in Paris took place against the backdrop of huge protests in US and Europe, galvanized by the Occupy Wall Street movement. At the Paris meeting, G20 finance ministers discussed myriad policy and implementation issues concerning world economy and financial markets. As anticipated, eurozone sovereign debt crisis dominated the discussions and the communiqué pressed Europe to act decisively on resolving the crisis at the forthcoming EU summit next week.

Read the rest of this entry »

Spotlight G20: Tax “Bads” and not “Goods”

Edward B. Barbier

A fundamental problem impeding global economic progress, growth and job creation is that all economies base their tax systems on raising revenues from “goods”, such as income, wealth and employment of labor.  And, perversely, governments rarely tax, and in fact often subsidize, “bads”, such as natural resource use, pollution and financial speculation.

The result is two major distortions in the world economy.  First, investment, innovation and job employment are discouraged, while pollution, environmental degradation, and financial speculation are encouraged.  Second, these perverse incentives perpetuate the “no win” political stalemate over whether additional taxes on income, wealth and labor should be used either to reduce chronic budget deficits or boost public spending and aggregate demand in economies.  As I argue in a recent article in the UN’s sustainable development journal, Natural Resources Forum, this policy failure is also inhibiting the long-run transition to more sustainable and “greener” economies.

Read the rest of this entry »

Spotlight G20: Tax "Bads" and not "Goods"

Edward B. Barbier

A fundamental problem impeding global economic progress, growth and job creation is that all economies base their tax systems on raising revenues from “goods”, such as income, wealth and employment of labor.  And, perversely, governments rarely tax, and in fact often subsidize, “bads”, such as natural resource use, pollution and financial speculation.

The result is two major distortions in the world economy.  First, investment, innovation and job employment are discouraged, while pollution, environmental degradation, and financial speculation are encouraged.  Second, these perverse incentives perpetuate the “no win” political stalemate over whether additional taxes on income, wealth and labor should be used either to reduce chronic budget deficits or boost public spending and aggregate demand in economies.  As I argue in a recent article in the UN’s sustainable development journal, Natural Resources Forum, this policy failure is also inhibiting the long-run transition to more sustainable and “greener” economies.

Read the rest of this entry »

The G-20’s opportunity on food reserves

Sophia Murphy, Guest Blogger

G-20 development ministers meet on Friday in Washington, D.C. One of the items on their agenda is a proposal developed in June for the G-20 agriculture ministers to allow the World Food Program to develop a pilot proposal for an emergency food reserve. The decision was possibly the most important outcome in an otherwise thin summit communiqué: however circumscribed, we know that food price volatility correlates with low stocks, and that providing stocks is a proven way to curb excessive volatility. We also know that in emergencies, in most of the poorest countries, it takes an average of 90 days to bring food into food-deficit areas. 90 days is too long. The costs of working in emergency conditions are also too high, in both resources and human life. There are cheaper, better ways to ensure food is available when it’s needed: a reserve in the food-vulnerable regions is one of them.

Read the rest of this entry »

The G-20's opportunity on food reserves

Sophia Murphy, Guest Blogger

G-20 development ministers meet on Friday in Washington, D.C. One of the items on their agenda is a proposal developed in June for the G-20 agriculture ministers to allow the World Food Program to develop a pilot proposal for an emergency food reserve. The decision was possibly the most important outcome in an otherwise thin summit communiqué: however circumscribed, we know that food price volatility correlates with low stocks, and that providing stocks is a proven way to curb excessive volatility. We also know that in emergencies, in most of the poorest countries, it takes an average of 90 days to bring food into food-deficit areas. 90 days is too long. The costs of working in emergency conditions are also too high, in both resources and human life. There are cheaper, better ways to ensure food is available when it’s needed: a reserve in the food-vulnerable regions is one of them.

Read the rest of this entry »

Spotlight G20: Identifying the Drivers of Price Volatility

Timothy A. Wise

Sophia Murphy and her colleagues have produced an excellent report as part of the Commission on Food Security’s coordinated effort to respond to recent food price increases. The report, “Price Volatility and Food Security,” is one of several from the so-called High Level Panel of Experts (HLPE) to help inform the CFS’s fall meetings on the crisis. As Sophia points out in a recent post on the IATP blog, their report offers a strong challenge to the G20, which recently convened its agriculture ministers for a lackluster effort to take strong action to address volatility and food security. (See recent posts in our Spotlight G20 series.)

Among the intriguing findings in the HLPE report is the analysis of the evolution of demand for agricultural products and the dominant role that biofuels is playing in that demand.  The authors rightly point out that while there remains some debate about the role of financial speculation in driving up food prices, there is near-consensus that biofuel policies, primarily in the United States and the European Union, are contributing significantly to price increases and that current policies to encourage biofuels use should be ended. The G20, of course, is only a reluctant part of that consensus.

Read the rest of this entry »

Spotlight G20: New Evidence on speculation in financialized commodities markets

Timothy A. Wise

The G20 agriculture ministers dodged most of the tough issues in their meeting last month in Paris, leaving the heavy lifting on France’s ambitious G20 agenda to finance ministers later this year. Among the dodged issues were agricultural price volatility and the so-called “financialization” of commodity markets. Despite a relatively ambitious set of reforms proposed by an interagency group, the agriculture ministers “action plan” took very few actions beyond pushing for better information on grain inventories, as Jennifer Clapp and Sarah Martin explained on this blog. Action was missing, too, on a more serious consideration of grain reserves to curb price volatility (see Sophia Murphy’s recent post).

For their part, volatility and speculation celebrated the continued inaction by further roiling commodity markets, driving global food prices to new highs. And the debate rages on over the extent to which financialization and speculation are to blame for the spike in commodity prices. As I noted in earlier posts and subsequent comments (here and here), the disagreement is less over whether financial speculation causes volatility on commodities futures markets than it is over whether volatile futures markets drive up real commodity prices.

Fortunately, new research from UNCTAD is drawing light from the heat of the debate. The June report “Price Formation in Financialized Commodity Markets,” reviews the evidence and concludes that while market fundamentals determine medium and long-run commodity prices, financial speculation can lead to significant short-term price distortions in real commodity prices.

Read the rest of this entry »