New Food for the Vultures?

Lack of state insolvency regime undermines Ukraine debt deal

By Bodo Ellmers, Guest Blogger

Bodo Ellmers is Policy and Advocacy Manager at Eurodad, the European Network on Debt and Development.

Ukraine has reached a debt restructuring agreement with a creditor committee representing 50% of outstanding government bonds. Substantial debt reduction is essential to bring Ukraine’s debt down to sustainable levels. But the agreed deal falls short of what is needed. And the participation of the other 50% of bondholders is not secured, and cannot be secured in absence of a multilateral debt restructuring framework that can make binding and enforceable decisions. The Western powers’ reluctance to help build such a framework might have fed their ally to the vulture funds and their aggressive litigation strategies.

The Ukraine debt deal

According to information obtained by the Financial Times, Ukraine has reached a deal with a creditor committee led by the investment fund Franklin Templeton. The deal agrees a 20% haircut to Ukrainian government bonds worth US$18bn. It will also extend the repayment period by four years to ease Ukraine’s liquidity needs. As a sweetener, participating creditors receive a higher interest rate of 7.75% instead of 7.2%. In addition, reports the FT, “a GDP ­linked warrant will be provided from 2021 to 2040 that will pay out up to 40 per cent of the value of annual economic growth above 4 per cent.”

Too little, too late

The deal comes after Ukraine’s economy fell into a deep recession following the outbreak of the civil war and the annexation of the Crimean peninsula by neighboring Russia. Last year, Western powers used their influence in the IMF to unleash bailout loans of €9.6bn under the Extended Fund Facility. The programme came with brutal austerity and structural adjustment conditionality attached.

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What We’re Writing, What We’re Reading

Follow Triple Crisis on Twitter (@TripleCrisis) and get immediate updates when new posts appear!

Updated and expanded version of Harry Konstantinidis’ “What’s Next for Greece,” originally published on Triple Crisis on July 22. A lot has happened since then. See it on the Dollars & Sense webpage, here.

What We’re Writing

C.P. Chandrasekhar, Why the Fight for a GST?

Gerald Epstein, Financialization: There’s Something Happening Here

Martin Khor, Need to Tackle Economic Woes

Matias Vernengo, China and Secular Stagnation

What We’re Reading

Radhika Balakrishnan, James Heintz, and Diane Elson, What Does Inequality Have to Do With Human Rights?

Bilge Erten and Jose Antonio Ocampo, Super-cycles of commodity prices since the mid-nineteenth century. This paper had gotten recent attention in Bloomberg View and Marketplace.

Triple Crisis welcomes your comments. Please share your thoughts below.

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Governance Matters

It is time we focused on strengthening the capacity of regulatory agencies

Sunita Narain

It is time we recognised that the current ways of fixing the environment are not working. Rivers are more contaminated; air is more polluted and cities are filling up with garbage we cannot handle. The question is: where are we going wrong? What do we need to do?

For this, we first need to recognise that India and countries like ours have to find new technical solutions and approaches to solve environmental problems. It is a fact that the already industrialised world had the surplus money to find technologies and fund mitigation and governance, and they continue to spend heavily even today. We have huge demands—everything from basic needs to infrastructure—on the same finances and will never be able to catch up in this game. So, we need to build a new practice of environmental management, which is affordable and sustainable.

In this way, environmental management options will have to be explored carefully and leaps made.

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Household Labor, Caring Labor, Unpaid Labor

Nancy Folbre, Guest Blogger

Nancy Folbre is a professor emerita of economics at the University of Massachusetts-Amherst. She is the author of numerous books—including Who Pays for the Kids? Gender and the Structures of Constraint (1994), The Invisible Heart: Economics and Family Values (2001), and Valuing Children: Rethinking the Economics of the Family (2008)—related to household and caring labor. She is the director of the new Political Economy Research Institute (PERI) Program on Gender and Care Work and the author of the blog Care Talk. This interview originally appeared in the September/October Annual Labor Issue of Dollars & Sense.

Dollars & Sense: You’ve written about the tendency in economics to view household labor (and especially women’s labor) as “unproductive.” Can you explain how this is reflected in conventional macroeconomic measures.

Nancy Folbre: Non-market household services such as meal preparation and childcare are not considered part of what we call “the economy.”This means they literally don’t count as part of Gross Domestic Product, household income, or household consumption.

This is pretty crazy, since we know that these services contribute to our living standards and also to the development of human capabilities. They are all at least partially fungible: time and money may not be perfect substitutes, but there is clearly a trade-off. You can, in principle, pay someone to prepare your meals (as you do in a restaurant), or to look after your kids.

If you or someone else in your household provides these services for no charge (even if they expect something in return, such as a share of household earnings) that leaves more earnings available to buy other things. In fact, you could think of household income after taxes and after needs for domestic services have been met as a more meaningful definition of “disposable income” than the conventional definition, which is simply market income after taxes.

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China’s RenMinBi Strategy

C.P. Chandrasekhar and Jayati Ghosh

When the value of the Chinese currency – the RenMinBi – started falling on 11 August, there was more than just surprise among international observers. The surprise came from the fact that hitherto, ever since the RMB was officially taken off the US dollar peg in 2005, the Chinese government had managed the value of the RMB so that it would change in relatively gentle and barely noticeable movements – as evident even from Chart 1 that covers movements over the past three months only. Yet the 1.8 per cent decline on 11 August was followed by two further days of decline, such that over these three days the currency fell against the US dollar by nearly 4.6 per cent.

Chart 1: RenMinBi per US$

Ghosh Chandrasekhar--fig1--renminmi to dollar

Only on Friday 14 August did the RMB appear to stabilize against the US dollar, after the People’s Bank of China (the central bank) raised the value slightly through its open market operations, to close the day at 6.3975 per dollar, compared to the low of 6.4010 per dollar of the previous day. An official of the bank has announced that “there is no basis for the exchange rate to continue to depreciate,” but this story is not over, and most analysts expect that there will be some further depreciation of the RMB in the medium term.

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German Wage Repression: Getting to the Roots of the Eurozone Crisis 

Originally published in the September/October Annual Labor Issue of Dollars & Sense.

John Miller, Guest Blogger

Germany has been insistent that the so-called peripheral countries increase their competitiveness through slower wages rises or even wage cuts. Wage increases in Germany are an equally important, and symmetrical, part of this necessary adjustment process.
The wage increases are steps in the right direction, but relatively small steps. More gains for German workers in the future would be both warranted and a win-win proposition for Germany and its trade partners.
— Ben Bernanke, “German wage hikes: A small step in the right direction,” Brookings Institution, April 13, 2015.

Ben Bernanke not only supports recent German wage increases, he also thinks further wage increases for German workers are “warranted and a win-win proposition for Germany and its trade partners”?

Now that’s a jaw-dropper. Has the former head of the Federal Reserve Board—the guardian of “price stability,” which makes policy designed to keep U.S. wages in check—switched sides in the class war, now that he is retired?

Hardly. Rather, it’s that catering to the demands of German high finance and other elites has been so disastrous that even the former chair of the Fed cannot deny the undeniable: unless Germany changes course and boosts workers’ wages, the euro crisis will only worsen.

Let’s look more closely at just how German wage repression and currency manipulation pushed the eurozone into crisis, ignited a conflict between northern and southern eurozone countries (with Germany as the enforcer of austerity), and left Greece teetering on the edge of collapse.

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From “Development” to “Poverty Alleviation”: What Have We Lost?

Jayati Ghosh

There was a time when economists were inevitably concerned with development. Early economists of the 16th and 17th centuries to those of the mid 20th century were all essentially concerned with understanding the processes of economic growth and structural change: how and why they occurred, what forms they took, what prevented or constrained them, and to what extent they actually led to greater material prosperity and more general human progress. And it was this broader set of “macro” questions which in turn defined both their focus and their approach to more specific issues relating to the functioning of capitalist economies.

It is true that the marginalist revolution of the late 19th century led economists away from these larger evolutionary questions towards particularist investigations into the current, sans history. Nevertheless it might be fair to say that trying to understand the processes of growth and development have remained the basic motivating forces for the study of economics. To that extent, it would be misleading to treat it even as a branch of the subject, since the questions raised touch at the core of the discipline itself.

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As QE Wanes, Real Costs of Employment Subsidies Surface

Erinç Yeldan

Global finance centers have been holding their breath for almost a year by now: will the U.S. Federal Reserve (the “Fed”) finally start “tapering” off from its monetary expansion programs, known as quantitative easing (QE)?  By way of three QE operations, the Fed had amassed a total of $3 trillion worth of assets from the financial markets over a course of less than four years. This was equal to roughly 20% of U.S. GDP. In turn, interest rates fell all around the globe to virtually zero.  While short-term low-risk interest rates in the United States fell to zero, interest rates in some countries remained much higher, so large interest rate spreads emerged between the United States and other countries. Notable “carry trade” emerged, for this reason, between the U.S. and Brazil; and yet, unemployment only slowly fell back to the pre-recession period, despite the fact that the labor force participation rate declined sharply to its 1970s level.

Now, seeing the expansion of the monetary base barely made a dent in stimulating real productive activity (see my January 2015 Triple Crisis blog post), the Fed declared in early Spring that “from now on it will be patiently waiting to start raising its policy interest rate and quitting QE operations.” This means bad news for global finance capital, which was drugged with the inflow of cheap liquidity, with zero credit costs.

Now that the financial smoke is clearing, we are in a better position to see the real costs of public programs aimed of stimulating employment and real activity.

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The GM Labeling Law to End All Labeling Laws

As the vitriol intensifies in what passes for debate over the safety of genetically modified foods, scientific inquiry, thankfully, continues. A Tufts researcher, Sheldon Krimsky, recently published his assessment of the last seven years of peer-reviewed evidence, finding 26 studies that “reported adverse effects or uncertainties of GMOs fed to animals.”
If recent history is any indication, Sheldon Krimsky should expect to be slammed as a “science denier.”
The current vehemence is the product of a well-funded campaign to “depolarize” the GMO debate through “improved agricultural biotechnology communication,” in the words of the Gates Foundation-funded Cornell Alliance for Science. And it is reaching a crescendo because of the march of the Orwellian “Safe and Accurate Food Labeling Act of 2015” (code-named “SAFE” for easy and confusing reference) through the U.S. House of Representatives on July 23 on its way to a Senate showdown in the fall.
In an April New York Times op-ed, Alliance for Science affiliate Mark Lynas follows the party line, accusing environmentalists of “undermining public understanding of science,” even more than climate deniers and vaccine opponents. Slate’s William Saletan goes further in his July feature, calling those who want GM labeling “an army of quacks and pseudo-environmentalists waging a leftist war on science.”
Who would have known that depolarization could feel so polarizing—and so stifling of scientific inquiry.
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China’s Clean Energy Plans—Enough to Stave Off Climate Change?

Sara Hsu

I have written previously on China’s environmental status and the creation of “green” jobs, noting that more must be done to win Premier Li Keqiang’s “war on pollution.” More news has come out, including the statement that China is set to spend $2.5 trillion in the coming 15 years on clean energy, according to Rae Kwon Chung, principal advisor on climate change for the UN Secretary-General. The statement was made at the China Summit on Caring for Climate, a UN Global Compact Network event. China intends to cut carbon dioxide emissions and increase the supply of renewable energy, in an attempt to reach its goal of obtaining 20% of its power from renewables and nuclear power by 2030. Will this be enough to stave off climate change?

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