Growth in the South: Resilience, Decoupling, Recoupling

Yilmaz Akyuz

Rapid acceleration of growth in developing countries (DCs) and the widening of their growth gap with advanced economies (AEs) before the outbreak of the global financial crisis were widely interpreted as decoupling of the South from the North.  In the early days of the crisis, there were also widespread expectations that growth in the South would be little affected by the difficulties facing AEs.  In fact, DCs slowed considerably in 2009 as a result of contraction of exports to AEs and financial contagion.  However, they recovered rapidly, with growth rates in 2010-11 matching or exceeding the levels seen before the crisis, while recovery in the US has remained weak and erratic, and Europe has gone into a second dip.  This has again revived the decoupling thesis, notwithstanding the sharp slowdown in many major DCs over the course of the current year.

This change of sentiment about decoupling reflects lack of sound knowledge and understanding of the evolution of growth fundamentals in DCs and their global linkages.  In an earlier IMF Working Paper Kose, Otrok and Prasad (2008) analysed global business cycles and found decoupling between DCs and AEs, but increased coupling within each group.  Wälti (2009) challenged this and argued that assessment of decoupling should not be based on actual growth rates but deviations from trend (or potential output). On that basis there is no decrease in the synchronicity between DCs and AEs.  Rose (2009) came to broadly the same conclusion, while Yeyati (2009) showed that in fact the 2000s witnessed an increase in the correlations of DCs and G7 cycles.

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Putin Expands State's Role In Energy Policy

Michael Klare, Guest Blogger

Ever since he first assumed the presidency in 2000, Vladimir Putin has sought to bring Russian energy production under state control, reversing the effort made by his predecessor, Boris Yeltsin, to transfer state assets into private hands.  Putin made considerable progress in implementing this goal during his first two terms, when the Kremlin employed questionable tax litigation to seize the assets of privately-owned Yukos (then the largest oil company in Russia) and transferred them to state-controlled Rosneft, and has continued with renewed vigor after he regained the presidency in May.  Already, Putin’s quest has been rewarded by Rosneft’s acquisition of BP-TNK, Russia’s third-largest oil firm, bringing more than half of the country’s oil production under state control for the first time since the 1990s.  But while applauded by some in Moscow, this effort has caused increasing concern in Europe, which relies to a considerable degree on Russian oil and gas and so fears the implications of Putin’s growing sway over Russian energy policy.  The Kremlin’s growing control over energy policy also raises questions about the depth of Russia’s commitment, made at the November 2011 G-20 Summit in Cannes, to increase transparency in international energy markets – questions made all the more salient as Russia assumes the G-20 presidency in 2013.

Even before he assumed the presidency, Putin indicated that state control over oil and other natural resources was essential to the restoration of Russia’s status as a great power.  In the years immediately following the disintegration of the Soviet Union, when Russia’s power was at its lowest ebb, Putin – then a functionary in the St. Petersburg municipal government – began arguing against the selloff of state-owned oil and natural gas fields to private firms and wealthy individuals (the so-called oligarchs).  Such sales, he claimed, were depriving Russia of the resources it needed to fuel its comeback as a major world contender; only by renationalizing these assets could Russia acquire the wherewithal to command respect on the international stage.

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Putin Expands State’s Role In Energy Policy

Michael Klare, Guest Blogger

Ever since he first assumed the presidency in 2000, Vladimir Putin has sought to bring Russian energy production under state control, reversing the effort made by his predecessor, Boris Yeltsin, to transfer state assets into private hands.  Putin made considerable progress in implementing this goal during his first two terms, when the Kremlin employed questionable tax litigation to seize the assets of privately-owned Yukos (then the largest oil company in Russia) and transferred them to state-controlled Rosneft, and has continued with renewed vigor after he regained the presidency in May.  Already, Putin’s quest has been rewarded by Rosneft’s acquisition of BP-TNK, Russia’s third-largest oil firm, bringing more than half of the country’s oil production under state control for the first time since the 1990s.  But while applauded by some in Moscow, this effort has caused increasing concern in Europe, which relies to a considerable degree on Russian oil and gas and so fears the implications of Putin’s growing sway over Russian energy policy.  The Kremlin’s growing control over energy policy also raises questions about the depth of Russia’s commitment, made at the November 2011 G-20 Summit in Cannes, to increase transparency in international energy markets – questions made all the more salient as Russia assumes the G-20 presidency in 2013.

Even before he assumed the presidency, Putin indicated that state control over oil and other natural resources was essential to the restoration of Russia’s status as a great power.  In the years immediately following the disintegration of the Soviet Union, when Russia’s power was at its lowest ebb, Putin – then a functionary in the St. Petersburg municipal government – began arguing against the selloff of state-owned oil and natural gas fields to private firms and wealthy individuals (the so-called oligarchs).  Such sales, he claimed, were depriving Russia of the resources it needed to fuel its comeback as a major world contender; only by renationalizing these assets could Russia acquire the wherewithal to command respect on the international stage.

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Hurricane Sandy and the Global Coastal Crisis

Edward Barbier

In the deadly and destructive aftermath of Hurricane Sandy, the Northeastern United States is rethinking its strategy to reduce coastal vulnerability to future storms and natural disasters.  This should become a global discussion, given the recent, large-scale disasters that have occurred worldwide: the December 2004 Indian Ocean Tsunami, the 2005 Hurricanes Katrina and Rita in the US Gulf Coast, the 2011 earthquake, tsunami and Fukushima nuclear disaster in Japan, and of course, last month’s Hurricane Sandy.

When major coastal storms strike, often the first question asked is whether global climate change is increasing the severity and frequency of such storms.  With respect to Hurricane Sandy, that issue was raised just days after the event.

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Derivatives and Inequality in Agriculture

Sasha Breger Bush, Guest Blogger

Over the past several years it has become increasingly clear that derivatives markets and instruments have played a large role in the global food crisis.  Masters and White, Ghosh, Wise and, most recently, a paper co-authored by the World Bank, IMF, UNCTAD, and FAO (among other agencies), have all pointed to the role of speculative commodity index trading in aggravating the food price crisis in 2007-8 – perhaps by as much as 20% – as well as the run-up in global food prices in 2011.

Derivatives markets and instruments are thus implicated as levers of inequality, as food price volatility does not affect all people in the same way. Indeed, in the presence of food price risk, the poor tend to suffer disproportionately.  Food purchases are generally a greater proportion of one’s income the lower that income is, meaning that food price increases have a disproportionately negative effect on low income people and households. Food price shocks often lead poorer individuals and families to coping strategies that ensure adequate food in the short-term but have longer-term costs, such as pulling kids out of school or liquidating hard assets.  Those with higher incomes, more assets or access to credit do not face the same vulnerabilities. This generates inequalities on a global scale, especially as food price volatility becomes a more permanent feature of the global economic landscape.

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From Argentina to Greece: A Global Roller-coaster

Diana Tussie

In October 2012, a Cayman Islands-based fund, NML Capital Limited, controlled by Elliot Management (EM) won a court order in Ghana to seize the Argentine teaching ship Libertad . The fund claimed that Argentina owed it $350 million, and offered to let the ship leave if Argentina’s government put up a $20 million bond to be forfeited. EM´s CEO is Paul Elliot Singer, who specializes in piling up insolvent country debt. Singer is a major donor to the Republican Party.

If the court order goes into effect, Argentina would be prevented from discriminating between restructured bondholders and holdouts, thus potentially preventing the next payment due in December and leading to a technical default. Everyone who had accepted restructuring would be entitled to better terms if the funds’ demands are met. If the EM demands are accepted, the ruling will be a tipping point in the financial order.

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U.S. Export Strategy: The Saudi Arabia of Coal?

Frank Ackerman

The United States has been called “the Saudi Arabia of coal” since the energy crises of the 1970s; politicians of both parties have embraced this metaphor. It’s certainly true that both countries have more fossil fuel reserves than they can use for decades to come, located in their remote, empty regions; we call ours Wyoming.

Fossil fuel exports are also becoming a potential growth sector of the American economy. As in Saudi Arabia, energy export earnings can be used to pay for high-technology imports from more advanced economies. (And the parallels don’t stop there: does energy production somehow go along with politics based on fundamentalist religion, committed to restricting the lives of women? Let’s leave that for another day; today’s topic is economics.)

Coal use in the United States – almost exclusively for electricity production – is declining, thanks to competition from natural gas and wind power, along with stricter environmental regulation. This might seem like good news for the environment, but to the coal industry, it’s a looming disaster that can only be prevented by increased exports. Five new coal export terminals have been proposed in Oregon and Washington, leading to intense battles over the local and global impacts of increased coal shipments.

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What to expect when you are electing

Matías Vernengo

Today, the United States will choose between a moderate Republican, with a pro-business agenda, or Mitt Romney. Yes President Obama has saved the economy from a 1930s-like catastrophe with a smaller than necessary, but still very effective, fiscal package, and monetary easing has prevented a collapse of the banking and financial sector like the Great Depression one. Yet, his economic views and policies remain to the right of Richard Nixon. Obama agreed with Mr. Romney that government does not create jobs, and has accepted the anti-Keynesian rhetoric regarding the need of reducing the fiscal deficit, even though the recovery has been very slow.

If Obama wins (and I do believe that Nate Silver is right and his chances are greater than Romney’s) we should not simply expect a continuation of the current policies. Yes, Ben Bernanke will maintain interest rates close to zero in nominal terms and continue the gradual Quantitative Easing which, precluding a collapse of the euro and the flight to dollar denominated bonds, will lead to a more depreciated dollar. But the US cannot expect to grow through exports, particularly to developing countries like China (China bashing was one the silliest and most disingenuous issues raised during the campaign).

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Triple Crisis Roundup: Hurricane Sandy

Eli Epstein-Deutsch, Triple Crisis Assistant Editor

It was as though the world had gone off its tilt. Half of Manhattan skyline lay dark, giving the island the appearance of Two-Face, when viewed from the borough of  Brooklyn, where many the downtown gentry had taken refuge from the blackout. Across New York City, casual social gatherings turned into week-long campouts. Meanwhile, residents of housing projects in the Lower East Side, many unable to evacuate, have struggled with the lack of food, water, and electricity. The impromptu community, the forced immobility, and the humanitarian demand posed by Hurricane Sandy have all combined to make the period one of introspection and reflection.

The disaster leaves behind disquieting thoughts and hard questions. Even the most affluent have been shown their precariousness; a major financial center lay paralyzed in a fashion associated with developing world cities. At the same time, the extremes of economic inequality were visible in the outcomes, with the poorest areas especially ill-equipped to respond to the disaster. The  island of Haiti, whose agricultural production was devastated by flooding, faced by far the highest death toll and still suffers an ongoing food crisis. If anything is really to be salvaged from the  destruction, it will be if the sense of temporary solidarity grows into a real reckoning with challenges that face us from here: of creating a safe and stable supply of energy in the era of catastrophic climate change, and  of confronting the widening social disparities that make some of us much more vulnerable than others to the consequences of that change.

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The West almost succeeds in marginalizing the UN Conference on Trade and Development

Robert Wade, Guest Blogger

When the UN Conference on Trade and Development (UNCTAD) was being established in 1964 in Geneva as a kind of think tank for developing countries, developing countries argued that it must have a mandate for financial issues because of the close link between finance and trade. Western states said “over our dead bodies”: finance is for us and our organizations.

The deadlock was broken at the last minute when Ted Heath, then President of the British Board of Trade (later Prime Minister) came to Geneva for the final round of negotiations and met up with one of the leaders of the developing country side, an Algerian who had been his Oxford college mate years before. They went into a small private room and emerged with a compromise: that UNCTAD could appropriately concern itself with the “invisible account” in the balance of payments as it related to trade. The invisible account included finance. The western side reluctantly agreed.

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