Will the U.S.-Colombia FTA benefit Colombia? No

Kevin P. Gallagher

The now-official U.S.–Colombia Free Trade Agreement (FTA) will dampen growth and make it harder for Colombia to put in place policies for innovation and industrialization. Colombia will also have fewer tools to confront financial instability, thus forcing it to work twice as hard to maximize the benefits of the agreement.

The agreement will bring only small gains to Colombia—and these will come at a significant cost. In terms of growth, the impact will be negligible, given that much of the U.S. market was already open to Colombia. Indeed, the impact may even be slightly negative. The Economic Commission for Latin America and the Caribbean (ECLAC) estimated in a 2007 study that Colombia will suffer losses of up to $75 million, or 0.1 percent of GDP, as a result of the trade agreement. According to the study, competition from U.S. imports will generate losses to Colombia’s textiles, apparel, food, and heavy manufacturing industries, outweighing the gains from increased petroleum, mining and other exports to the United States.

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The World Bank in Yemen prior to the Arab Spring

Ali Kadri

Not all bad economic policies kill people slowly, some do so very quickly. One such policy was the lifting of subsidies on fuel and other essentials in Yemen in 2005. Immediately after a presidential decision to bypass parliament and remove subsidies, people demonstrated their anger and many died as police and army forces fired into the crowds. The advice to carry out these draconian reforms was contemplated late in 2004 at a conference organised by the World Bank aimed at reducing the government deficit by removal of subsidies.

At the time of the conference, real GDP growth was anticipated at 3.9 percent. Inflation had gone down to 12 from 14 percent. Reserves were at 17 months of imports (7.5 billion) and the deficit was at 5.5 percent of GDP. External debt was at 41 percent of GDP or about 5 billion US$. Unemployment figures were flimsy, but there were two figures set forth: either 18 or 34 percent with the latter estimate being slightly more acceptable. These were relatively encouraging figures for Yemen, which is a Least Developed Country. In the midst of abjection, unemployment figure are meaningless anyways. Nearly half of Yemeni children suffer malnutrition. The average salary for a family of six was about one hundred dollars a month in the city- while conditions are worse in the countryside. More than half of the population reside in absolute poverty.

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Exciting Job Opportunity: Outreach Coordinator, help staff the Triple Crisis Blog

The Global Development and Environment Institute at Tufts University has an immediate opening, a great opportunity for someone with background in globalization, economics, and the environment and experience in communications. The position is Outreach Coordinator, an 80%-time position in our Medford, Massachusetts office managing the institute’s growing outreach and communications work, from books and publications to the Triple Crisis Blog. We’re looking for a motivated person who has a good understanding of economics and the issues GDAE works on and brings good training and hands-on experience in communications and outreach. This is a particularly good opportunity for someone who might want to pursue an advanced degree at Tufts part time, because Tufts’ benefits include tuition coverage for most courses.

This is an immediate opening. To see the full job description and to apply, go to:
http://www.ase.tufts.edu/gdae/resources/index.html

There you will find instructions for submitting your application through Tufts’ online application process.

Read more on GDAE and on the institute’s Globalization and Sustainable Development Program.

The inconvenient truth

Sunita Narain

Many years ago, in a desperately poor village in Rajasthan, people decided to plant trees on the land adjoining their pond so that its catchment would be protected. But this land belonged to the revenue department and people were fined for trespass. The issue hit national headlines. The stink made the local administration uncomfortable. They then came up with a brilliant game plan—they allotted the land to a group of equally poor people. In this way the poor ended up fighting the poor. The local government got away with the deliberate murder of a water body.

I recall this episode as I watch recent developments on climate change. At the recent Durban climate change conference small island nations—from the Maldives to Granada —believed, rightly so, that the world has not delivered on its promise to cut emissions and is jeopardising their future. But they do not have the power to fight the powerful. So, this coalition of climate victims turned against its partner developing countries, targeting India, for instance, for inaction. These nations pushed for India to take legal commitments to reduce emissions, dismissing its concerns of equity as inconsequential.

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U.S. Elections vs. the Environment: The stigma of successful regulation

Frank Ackerman

What will the presidential election in November mean for U.S. environmental policy? Although we don’t yet know who the Republican candidate will be, we know all too well what will be on his environmental agenda. The endless televised debates have exposed what the New York Times called “the broken windows of the Republican idea factory.” It’s not a pretty sight.

The candidates all share the same approach to the environment. Ron Paul plans to govern primarily by abolishing things. His hit list includes America’s foreign wars, but also the Federal Reserve, most federal taxes, the Environmental Protection Agency (EPA), and all limits on offshore drilling and the use of coal and nuclear power. Rick Santorum agrees that energy companies must be entirely deregulated. Newt Gingrich will build a moon colony by 2020, and will replace the EPA with a new agency that “will operate on the premise that most environmental problems can and should be solved by states and local communities.” Mitt Romney promises to “eliminate the regulations promulgated in pursuit of the Obama administration’s costly and ineffective anti-carbon agenda,” and to slow down or block regulations in general whenever industry complains about their costs (i.e., always).

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Will Germany Bully Europe Over the Brink?

Jeff Madrick

The audacity Germany has shown in floating a demand to manage Greece’s finances is a window on the leaders of that country and how much perspective they’ve lost. Let’s be clear; not all in Germany agree with this narrow, insensitive stance and the uninformed and uneducated demands for austerity economics in debt-ridden and recessionary nations. For example, there are political parties in Germany that want their country to take the lead on a Marshall Plan for the periphery of the eurozone. But they are not the ones setting policy.

I am tempted to say that antediluvian economics is ruling in Germany, but it may not really be about economic theory, but rather superior pride, irrational fear of inflation, and perhaps vindictiveness. It’s as if a German version of our own Tea Party is now running economic policy in Europe. Germany reduced its unit labor costs beginning in the late 1990s, which were higher than much of the rest of the EU, but with the euro fixed, they benefited as their export prices remained low. Could they have done well without their eurozone trading partners buying more from them than they were selling? And they lent them the money to do so. Do they have no moral obligation here? Without the fixed euro, the DM would have soared.

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Could Ecuador be the most radical and exciting place on Earth?

Jayati Ghosh

Ecuador must be one of the most exciting places on Earth right now, in terms of working towards a new development paradigm. It shows how much can be achieved with political will, even in uncertain economic times.

Just 10 years ago, Ecuador was more or less a basket case, a quintessential “banana republic” (it happens to be the world’s largest exporter of bananas), characterised by political instability, inequality, a poorly-performing economy, and the ever-looming impact of the US on its domestic politics.

In 2000, in response to hyperinflation and balance of payments problems, the government dollarised the economy, replacing the sucre with the US currency as legal tender. This subdued inflation, but it did nothing to address the core economic problems, and further constrained the domestic policy space.

A major turning point came with the election of the economist Rafael Correa as president. After taking over in January 2007, his government ushered in a series of changes, based on a new constitution (the country’s 20th, approved in 2008) that was itself mandated by a popular referendum. A hallmark of the changes that have occurred since then is that major policies have first been put through the referendum process. This has given the government the political ability to take on major vested interests and powerful lobbies.

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The culture of debt

Edward B. Barbier
(also available in Portuguese from INESC)

In an article in Newsweek, Niall Ferguson argues that, the main reason why Americans should care about the European debt crisis is that “what is happening in Europe today could ultimately happen here.”

I have news for Professor Ferguson.  He has his diagnosis the wrong way around.

An important reason why Europe is in its current debt crisis is because for decades it has been emulating the US example of creating a permanent “culture of debt”.

I use the term “culture” here deliberately.  The global debt crisis is not just about the growing government debt burdens of economies, nor about the financial liquidity crisis plaguing banks.  The true debt crisis is much deeper than that.  It involves entire economies and societies evolving towards a mind-set in which more and more benefits are expected today –  but any costs are either increasingly postponed to the future, or preferably, dumped on others.

The problem with such a mind-set is that it ultimately leads to economies creating debt rather than wealth.

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Capital controls are not beggar thy neighbour

Kevin P. Gallagher

Emerging markets have fallen victim to unstable capital flows in the wake of the financial crisis. In an attempt to mitigate the accompanying asset bubbles and exchange rate pressures that come with such volatility, a number of emerging markets resorted to capital controls. Although these actions have largely been supported by the International Monetary Fund, some policy-makers and economists have decried capital controls as protectionist measures that can cause spillovers that unduly harm other nations.

Recently-published research shows that these claims are unfounded. According to the new welfare economics of capital controls, unstable capital flows to emerging markets can be viewed as negative externalities on recipient countries. Therefore regulations on cross-border capital flows are tools to correct for market failures that can make markets work better and enhance growth, not worsen it.

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The role China plays

C.P. Chandrasekhar

Growth in China, it is said, is slowing. GDP growth has reportedly fallen from 9.7 per cent in the first quarter of 2011, to 9.5 per cent in the second quarter, 9.1 per cent in the third and 8.9 per cent in the fourth. Much is being made of these numbers, though the 9.2 per cent average over 2011 is still high and the government has itself attempted to slow the system to rein in inflation.

One can sense an element of schadenfreude here. For too long now China has been showing up the rest of the world with its high rates of growth. This is especially true of the United States, which imports much from China, depends on inflows of capital from that country to finance its deficits, and is always looking for the next country to challenge its global supremacy.

However, if China’s growth is indeed slowing, this is no cause for even the US government to celebrate. A poorly performing China can drag the US down as well. Not just because China, with its large geographical size and population, is the growth pole that prevents the multi-speed global economy from sinking into another crisis. But because China is too important a market for the large multinational corporations that symbolise US economic power.

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