The Great Land Giveaway in Mozambique

Timothy A. Wise

From the March/April issue of Dollars & Sense magazine.

I introduced myself to Luis Sitoe, economic adviser to Mozambique’s minister of agriculture, and explained that I’d spent the last two weeks in his country researching the ProSavana project, decried as the largest land grab in Africa. This ambitious Brazil-Japan-Mozambique development project was slated to turn 35 million hectares (over 85 million acres) of Mozambique’s supposedly unoccupied savannah lands into industrial-scale soybean farms modeled on—and with capital from—Brazil’s savannah lands in its own southern Cerrado region.

Mr. Sitoe smirked. “Did you see ProSavana?” I hadn’t, in fact. “So far there is no investment in ProSavana,” he said, with surprising satisfaction considering that the project’s most ardent supporter had been his boss, agriculture minister José Pacheco.

A firestorm of controversy had dogged the project since its “Master Plan” had been unceremoniously leaked in 2013. Farmers were actively resisting efforts by foreign investors and the government to take away their land. And Brazilian investment was almost nowhere to be found.

Had the land-grab boom gone bust? Was ProSavana’s stuttering start a sign that African farmland had lost its luster? No, but it turns out to be easier to get a government to give away a farmer’s land than it is to actually farm it.

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The Trans-Pacific Partnership and China’s Reality

Sara Hsu

The Trans-Pacific Partnership (TPP) is a proposed trade and investment treaty that would promote free trade among countries on both side of the Pacific Ocean—including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. This proposal has been under closed-door negotiation since 2002, with the United States joining the negotiations in March 2008. Attempts have been made in recent months by President Obama and Republican leaders to fast-track the deal into law. China is notably missing from the agreement, although state officials have publicly commented that the nation is open to joining.

This is no small free trade agreement—it covers over 40% of the world’s GDP. The TPP would potentially eliminate tariff and nontariff barriers in trade and investment, providing expanded market access to participating countries. Rules will be more rigorous than those in the World Trade Organization; intellectual property laws would be strengthened. For example, the pharmaceutical industry would receive much stronger patent protections. Well-known figures such as Robert Reich have publicly criticized the TPP for its orientation toward big business and financial interests, and its omission of sufficient protections for workers and the environment. The secret negotiations have also been a target of criticism, as they have excluded public participation.

Amidst these negotiations, China’s stance has been unclear. In the beginning of its formation, after the United States joined the talks, some Chinese scholars viewed the treaty as an attempt by the U.S. to counterbalance China’s power in the Pacific region. In the past couple of years, however, China has been officially open to the treaty while remaining outside of negotiations. While President Xi is explicitly open to trade cooperation, the rumored high labor, free data movement, and intellectual property standards imposed by the treaty present barriers to China’s participation. While the details of the high labor and environmental standards are unknown and controversial, a Wikileaks post on the intellectual property standards reveals strong pro-big business protections for patents. China was invited to join the TPP in 2012 by then-U.S. Secretary of State Hillary Clinton, but continues to analyze its potential gains from joining.

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Walk the Talk on Carbon Tax, Mr Finance Minister

Sunita Narain

Budget 2015, presented by Finance Minister Arun Jaitley, has a first. In it, India has accepted that it has a de-facto carbon tax—on petroleum products and dirty coal. Arguably, the only big green initiative of this budget is the increase of cess on coal—from Rs 100 per tonne to Rs 200 per tonne. But the question is: is this carbon tax, imposed on the carbon content of fuel, doing what it should—reduce greenhouse gas emissions that are responsible for climate change? In other words, is there a design behind the carbon tax to ensure we move beyond polluting fossil fuels?

The budget follows from the Economic Survey, which states that high price on diesel and petrol are important price signals to limit consumption and, hence, CO2 emissions. In 2014, taking advantage of the global fall in fuel prices, subsidy or under-recovery has gone and the government has increased excise duty on both petrol and diesel. So even though fuel is cheaper, the tax component is higher. The Economic Survey estimates that based on emission factors, currently, India imposes an implicit carbon tax of US $140 per tonne of CO2 on petrol and US $64 on diesel. This is substantial.

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A New Wave of Trade Protection?

Martin Khor

Two bills introduced in the United States Congress last week could lead to a new kind of trade measure that in the short run may wreck the Trans-Pacific Partnership Agreement (TPPA) and in the longer run could cause havoc in the global trading system.

The sponsors of the bills aimed at preventing “currency manipulation” claim to have majority support among Republicans and Democrats in both the Senate and the House of Representatives. Thus, these bills are being taken seriously, even if the Obama administration is known to be against linking the currency manipulation issue to trade measures.

The Congress members and their intellectual backers claim that some governments are deliberately manipulating to make their currencies artificially low so as to reduce the prices of their exports, enabling them to sell more to the world market. The manipulating countries’ imports are also made more expensive, thus discouraging goods from other countries, the Congress members allege. They cite studies that claim that the United States has lost five million jobs in the last decade because foreign governments have manipulated their currencies. The main target of the bills is China, which has long been blamed by Congress members and some economists as currency manipulators. But other countries that have been mentioned are Japan, Malaysia and Singapore, in the context of the TPPA.

In an opinion article, Senators Sherrod Brown and Jeff Sessions and Representatives Sandy Levin and Mo Brooks (who are among the bills’ sponsors) argued that the United States’ high trade deficits with China are caused by the Chinese government’s action to devalue its own currency against the U.S. dollar. “This puts American manufacturers at a serious disadvantage and makes it more difficult for American companies to compete against Chinese companies,” they claimed. Though China is prominently targeted, the legislation can affect any country deemed to be “currency manipulators.”

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The G20 in 2015: What’s the Plan?

Jesse Griffiths, Guest Blogger

Jesse Griffiths is Director of the European Network on Debt and Development (Eurodad).

Last weekend, G20 Finance Ministers met in Turkey, and although the resulting communiqué covers a whole host of issues, it is becoming clear that two areas dominate in terms of actual work planned this year: infrastructure financing and financial sector reform.

As Eurodad noted in our scorecard analysis of the G20’s work last year, infrastructure has featured prominently on the G20’s agenda, particularly its push to harness private financing for infrastructure. Actual concrete initiatives have been limited: a tiny Global Infrastructure Hub with an information sharing mandate was the underwhelming centrepiece of last year’s G20 Global Infrastructure Initiative.

However, the underlying efforts to set a new agenda for infrastructure financing continue to be significant, driven by the World Bank and the Organisation for Economic Co-operation and Development (OECD). Existing agendas include the promotion of the idea of an ‘infrastructure asset class’ for institutional investors such as pension funds to invest in – despite the fact that there is very little evidence of any appetite for this – and a push to promote public-private partnerships (PPP), with only limited recognition of their chequered history.

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The Euro Greek Crisis Again Shows the Poverty of Austerity

Philip Arestis and Malcolm Sawyer

One rather obvious conclusion which should be drawn from the experiences of Greece in the past four years or so is that fiscal austerity does not work—in the sense of bringing economic recovery. The IMF forecasts of what would happen under the austerity programme were already indicating that unemployment would increase in the initial phase but recovery would come. The forecasts were that from 2011 there would be positive growth, though output would be some 3½% below its 2008 level. (All the statistics in this piece are derived from OECD Economic Outlook 96 November 2014, Statistical Annex.) Unemployment was forecast to peak at just under 15%. The actual results were much grimmer; unemployment up to 25%, some glimmer of growth only in 2014 (and then nominal GDP declined) with GDP in 2014 some 25% below the 2008 level. These are spectacular failures of forecasting—some of which, at least, could be ascribed to the general IMF failures over the value of the multiplier and hence of the effects of austerity on GDP (see on this score, Blanchard and Leigh, 2013).

The debt to GDP ratio rose from 111% in 2011 (having declined from 135% in 2009) to over 180% in 2014—which looks as though the Greek government ran up further debt. But, of course, the reality was that the ratio rose because GDP shrank by 25%. A high and rising debt ratio appears to go with low (and here negative) economic growth. Is this a confirmation of the Reinhart and Rogoff (2011) thesis? Not really, it is more a refutation since the causation runs from negative growth to rising debt.

The “fiscal compact” is based on two principles—a balanced structural budget and “structural reforms.” Greece has massively reduced its budget deficit (with the consequences that has had for unemployment) to 1% of GDP for 2014. Its primary budget position (that is excluding interest payments on debt) is in surplus to the extent of over 3% of GDP. Further, its cyclically adjusted budget surplus is near 4% and its underlying primary budget surplus over 7%. Against the criteria of the “fiscal compact” this is a massive surplus for which there is no justification.

Read the rest of this entry »

The Euro Greek Crisis Again Shows the Poverty of Austerity

Philip Arestis and Malcolm Sawyer

One rather obvious conclusion which should be drawn from the experiences of Greece in the past four years or so is that fiscal austerity does not work—in the sense of bringing economic recovery. The IMF forecasts of what would happen under the austerity programme were already indicating that unemployment would increase in the initial phase but recovery would come. The forecasts were that from 2011 there would be positive growth, though output would be some 3½% below its 2008 level. (All the statistics in this piece are derived from OECD Economic Outlook 96 November 2014, Statistical Annex.) Unemployment was forecast to peak at just under 15%. The actual results were much grimmer; unemployment up to 25%, some glimmer of growth only in 2014 (and then nominal GDP declined) with GDP in 2014 some 25% below the 2008 level. These are spectacular failures of forecasting—some of which, at least, could be ascribed to the general IMF failures over the value of the multiplier and hence of the effects of austerity on GDP (see on this score, Blanchard and Leigh, 2013).

The debt to GDP ratio rose from 111% in 2011 (having declined from 135% in 2009) to over 180% in 2014—which looks as though the Greek government ran up further debt. But, of course, the reality was that the ratio rose because GDP shrank by 25%. A high and rising debt ratio appears to go with low (and here negative) economic growth. Is this a confirmation of the Reinhart and Rogoff (2011) thesis? Not really, it is more a refutation since the causation runs from negative growth to rising debt.

The “fiscal compact” is based on two principles—a balanced structural budget and “structural reforms.” Greece has massively reduced its budget deficit (with the consequences that has had for unemployment) to 1% of GDP for 2014. Its primary budget position (that is excluding interest payments on debt) is in surplus to the extent of over 3% of GDP. Further, its cyclically adjusted budget surplus is near 4% and its underlying primary budget surplus over 7%. Against the criteria of the “fiscal compact” this is a massive surplus for which there is no justification.

Read the rest of this entry »