Restructuring Greece's debt Crisis

Triple Crisis Blogger Kevin P. Gallagher originally published this article in The Guardian, showing how sovereign debt restructuring in Greece and beyond could get snared in trade and investment treaties.

What happens when a country goes broke? Ask Argentina: bondholders sue under trade agreements. We need a fairer system.

Greece may have managed to kick the can down the road once again, but will eventually have to restructure its debt. If Greece or any other nation restructures, they will find that one of the most glaring gaps in global economic governance is the lack of an agreed-upon regime for resolving debt crises. New research shows that in the absence of conscious global economic governance, we may be left with a de facto regime: the thousands of international trade and investment treaties that have jurisdiction over government debt. Just ask Argentina.

A number of commentators have pointed to Argentina’s “success” after its bond restructuring as a lesson for Greece. Indeed, Argentina has experienced impressive growth alongside debt restructuring. But asothers have pointed out, the two cases are not all that comparable. One additional reason for Argentina’s swift recovery is due to the fact that Argentina devalued its currency, which Greece cannot do under the euro. It is also true that Argentina happened to be endowed with key primary products in the middle of a commodity boom. Greece is not so lucky.

Read the full post at The Guardian.

Digital Dumps

Jayati Ghosh

I teach in a University in New Delhi, the capital city of India. In one section of the building that houses my faculty, there is an enormous and motley collection of discarded computer-related items, stacked and piled in an unwieldy mess. This has been lying around for a while now, more than a year, not only because of the prolonged bureaucratic procedures involved in getting material “written off”, but also because no one knows what to do with the stuff once it has actually been written off.

It is a sight that that is increasingly only too common in urban India, and now even in some more prosperous rural areas of the country: ramshackle piles of dismembered pieces of discarded electronic equipment such as computers, CD players, televisions and cell phones lying around in the odd corners of offices and homes. Or else simply dumped in the open in garbage heaps, and then being painstakingly searched through by rag-pickers of all ages, who look for any elements that can be resold.

In most developing countries, where recycling occurs as a matter of course because of the widespread poverty and sharp inequality that mark our consumption patterns, this may seem as something quite obvious and hardly worthy of comment. Some may even see this as evidence of our greater ability to use and re-use material items more effectively than the wasteful West. Yet this cavalier attitude to electronic waste is a major hazard to the environment and human health.

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Global Monetarism Strikes Back

Matías Vernengo

Olivier Blanchard, the chief economist at the International Monetary Fund (IMF) announced in a triumphalist tone that “earlier fears of a double-dip recession—which we did not share—have not materialized” and defended the need for “fiscal consolidation that is neither too fast, which could kill growth, nor too slow, which would kill credibility.” For Blanchard fiscal expansion has done its job, since “private demand has, for the most part, taken the baton.”  The risks are associated to the higher prices of commodities and inflation.  The Bank of International Settlements (BIS) has added to the IMF’s view that inflation is the main risk on an otherwise recovering world economy.  In their recent Annual Report they argue that: “spread of inflation dangers from major emerging market economies to the advanced economies bolsters the conclusion that policy rates should rise globally.”  That is, add monetary contraction to the policy mix.

However, it is far from clear that private demand is sufficiently strong to maintain the recovery by itself, or that slacking capacity, beyond commodity prices, imply that inflation has become the major risk to the global economy.  The two-speed recovery – sluggish in developed countries and fast in developing countries – remains a fragile one, and the possibilities of rates of growth that are insufficient to bring back the prosperity of the boom years, and increase employment and living standards around the globe are still strong.

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Revisiting Financial Regulation

Triple Crisis Blogger C.P. Chandrasekhar originally published this post on the IDEAs Network.

Don Kohn, deputy to former Federal Reserve Chairman Alan Greenspan at the time when the financial crisis broke, has won himself an unexpected and unusual job. He has been appointed to a new committee which has the mandate to guide the United Kingdom (note not the US) to financial stability. Speaking to British MPs at a confirmation hearing he chose to confess his guilt. According to the Financial Times (May 17, 2011) , he said: ”I deeply regret the pain that was caused to millions of people in the US and around the world by the financial crisis … Most of the blame should be on the private sector: the people that bought and sold those securities, on the credit rating agencies that rated them. But I also agree that the cops weren’t on the beat. The regulators were not as alert to the risks as they could have been and, to the extent they saw the risks, were not as forceful in bringing them to the attention of management, or taking actions, as they could have been.”

Read the full post at the IDEAs Network website.

Let the Doha Round be Buried: No Agreement is Better than a Bad Agreement

Mehdi Shafaeddin

The Doha Development Round (DDR) negotiations at the WTO have reached a deadlock. Various views have been expressed on the issue in the media (including in CUTS-Trade Forum). Some believe that the DDR talks are ready for burial (e.g. Susan Schwab, former USA trade representative). Others, including Mr. Lamy (Director-General of WTO), proposed a plan “B” as an “early harvest” – agree on some LDCs issues by the end of the year and on continuing negotiation on other issues. Some others have argued that the lack of agreement on DDR will be at the cost of the credibility and legitimacy of the WTO. Yet others have been in favour of separating the credibility of the WTO from the DDR issues. Professor Jagdish Bhagwati, a guru of free trade, has proposed that the death of Bin Laden is an opportunity to close DDR, which started after September 11, successfully by the end of 2011! And life without the Doha could destroy the hope for fair trade.

Mr. J.P. Lehman correctly regarded Bhagwati’s comment as pure “fantasy”. So do I. And I do not intend to dwell on it. More importantly, to my knowledge, nobody has thoroughly analyzed the reasons for the deadlock in the negotiations. Following the collapse of the talks for the preparation of  the new Round in Seattle in 1999, Jeffrey Garten, a distinguished scholar, said that “What Seattle showed was that there is a lot more angst beneath the surface” (International Herald Tribune, 9 December 1999). Despite the initiation of DDR, such angst, I believe, has continued because of the lack of credibility in the GATT/WTO rules and in the position of its main developed country members in the process of the negotiations during DDR.

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Africa’s Odious Debts

Triple Crisis Blogger James Boyce originally published this article with Léonce Ndikumana in Project Syndicate, on the effects of the crippling debt many countries have  inherited from previous corrupt governments.

One side effect of the American/British occupation of Iraq is that it sparked public debate on a dark secret of international finance: the debts taken on by odious regimes.

As Iraq’s new rulers debate what to do about the billions of dollars in foreign debts inherited from Saddam Hussein’s regime, voices ranging from the charity Oxfam-International to US defence guru Richard Perle are calling for debt repudiation on the grounds that the debts Iraq now bears were contracted to sustain a corrupt, oppressive regime.

Iraq is not the only country burdened by such debts. Across sub-Saharan Africa, many of the world’s poorest people struggle with the crippling legacy of profligate lending to corrupt, oppressive rulers.

During his 32-year dictatorship, Congo’s former president Joseph Mobutu accumulated a personal fortune estimated at $4 billion, while his government ran up a $12 billion foreign debt. More of the same in Angola, where last year an IMF investigation revealed that $4 billion disappeared from Angola’s treasury over the past five years. It so happens that the Angolan government borrowed a similar sum from private banks in this period, mortgaging future oil revenues as security.

Read the full article at Project Syndicate.

Africa's Odious Debts

Triple Crisis Blogger James Boyce originally published this article with Léonce Ndikumana in Project Syndicate, on the effects of the crippling debt many countries have  inherited from previous corrupt governments.

One side effect of the American/British occupation of Iraq is that it sparked public debate on a dark secret of international finance: the debts taken on by odious regimes.

As Iraq’s new rulers debate what to do about the billions of dollars in foreign debts inherited from Saddam Hussein’s regime, voices ranging from the charity Oxfam-International to US defence guru Richard Perle are calling for debt repudiation on the grounds that the debts Iraq now bears were contracted to sustain a corrupt, oppressive regime.

Iraq is not the only country burdened by such debts. Across sub-Saharan Africa, many of the world’s poorest people struggle with the crippling legacy of profligate lending to corrupt, oppressive rulers.

During his 32-year dictatorship, Congo’s former president Joseph Mobutu accumulated a personal fortune estimated at $4 billion, while his government ran up a $12 billion foreign debt. More of the same in Angola, where last year an IMF investigation revealed that $4 billion disappeared from Angola’s treasury over the past five years. It so happens that the Angolan government borrowed a similar sum from private banks in this period, mortgaging future oil revenues as security.

Read the full article at Project Syndicate.

Lagarde at the IMF: A lot of stones to touch, but the only way to cross the pond

Kevin P. Gallagher

Christine Lagarde will be giving an acceptance speech of sorts today.  She has a lot to cover.  First and foremost she will have to show that she has fully taken off her French Finance Minister hat and put on a global financial institution hat.  She no longer represents French banks and citizens.  She will have to strike a delicate balance that on the one hand shows she is serious about the Eurozone crisis but on the other shows that she recognizes that there are many other global challenges to be concerned with.

On the Greek crisis she should call for a fresh approach that puts all possible tools on the table, including a negotiated debt restructuring.  She should then quickly recognize that there are other key problems that need to be addressed globally, such as the massive surge in “hot money” to East Asia and Latin America, and the need for a diverse set of tools (that includes capital controls) to address that problem as well.  Furthermore, she should call on the need to address the problem of odious debt in Africa and beyond.  And of course, she should also note the debt ceiling debate in the United States and send a signal to the US of the disastrous consequences of not raising the ceiling.

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Grassing the State

Triple Crisis Blogger CP Chandrasekhar originally published the following article in the Indian magazine Frontline, on the liberalization of India’s oil exploration and production policy.

The real problem facing the country is the neoliberal reform that seeks to attract private capital into a lucrative and sensitive area such as petroleum.

The Comptroller and Auditor General’s (CAG) performance audit of some production-sharing contracts (PSCs) instituted as part of the liberalisation of India’s oil exploration and production policy may turn out to be the next big scam, with more than a whiff of corruption. But, in this season of scams, danger lurks. The danger that much of society can for a considerable period of time miss the wood for the trees. Circumstances strengthen this tendency. In particular, the surprising coincidence of a host of revelations of lack of due diligence, bending of rules, outright manipulation or a combination of all of this that hugely enriches a few individuals and corporations in the private sector and a few functionaries of the state, most often at the expense of the exchequer. Not a day passes without evidence of some new scam.

Whatever may be the cause for this recent increase in scam-related revelations, the surge feeds the notion that corruption has reached unprecedented levels and constitutes the fundamental problem facing India today. The fact that corruption, besides being ethically wrong or morally abhorrent, can influence growth in ways that serve the interests of a few and can therefore be deeply inequalising cannot be denied. But the reason for these developments – which are seen as mere instances of corruption – multiplying in number could be systemic and reflect policy shifts that aim to use state resources to inflate private profit.

Read the full article at Frontline.

When business rules our kitchen

Triple Crisis Blogger Sunita Narain published this article in the Business Standard on the problems with the way the world is producing food and managing food safety regulations.

Once again there is a food safety scare. A deadly strain of E coli bacterium has hit Germany, where it has so far taken the lives of 25 people and affected another 2,300. German food inspectors on the trail of the source of contamination first blamed Spanish cucumbers and are now indicting organic bean sprouts — eating healthy will soon be bad.

This is because food inspectors refuse to look where it matters. The fact is that something is seriously wrong with the way the world is producing food and even more with the way it is managing its regulations for safety. But we just don’t get it.

Let’s recap past food scares to understand the crisis and the response.

In 2005, avian influenza hit the chicken we eat. The world went on the rampage, killing chickens and wild birds to contain the deadly virus spreading across the connected world. But nobody targeted the real problem: the nature of the modern world’s poultry business, which is highly vertically integrated and globalised, and produces factory chickens, not food. In this business, companies strive for lower cost of production because agri-business requires scale and global reach.

Read the full post at the Business Standard.