Goodbye Price Stability, Hello Exchange Rate Volatility

Erinç Yeldan

Over the last six months, many developing emerging market economies had witnessed large, unforeseen, and unpredictable swings in their exchange rates.  With rumors, and counter-rumors of likely tapering of the U.S. Federal Reserve’s Quantitative Easing (QE) programme, such swings resulted in abrupt depreciations by 16.7% in Indonesia, 7.3% in Thailand, 10.4% in Turkey, 9.3% in Brazil, 13.4% in India, and 8.8% in South Africa…

A recent policy brief by the Peterson Institute for International Economics provided Estimates of Fundamental Equilibrium Exchange Rates and revealed that many of these depreciations were, in fact, overshooting the fundamental equilibrium exchange rates that are consistent with the current account balances of these economies.  Now it is found that Indonesia needs its currency to appreciate by 3.9%; Thailand, by 2.4%; the Philippines, by 3.8%; Malaysia, by 4.3%. Meanwhile, Turkey has to let its currency depreciate by 18.1%; South Africa, by 6.8%; Poland, by 4%; Brazil, by 3.4%.  Table 1 below summarizes the relevant data.

Table 1

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The Speculative Spread: Some Notes

Sara Hsu

I’m obsessed about this idea that I call the “speculative spread.” A bit more about it and some precisions.

This idea, which I referred to in a previous blog post (and a working paper, and an article), says that if the shadow banking system (non-traditional financing) rises far above the level of financial deepening (measured by M3), financial instability will arise. For the US and Europe, I believe that if the shadow banking system is greater than M3 the financial system is in peril—for the United States, this was the case until 2012, while for Europe, this was not really a problem except, tellingly, in the pre-global crisis period. For China and other less developed countries, I believe that if the size of the financial system (measured in China’s case by total social financing, or bank loans plus non-traditional financing) is greater than M3, instability will arise.

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Inclusive Growth: What the Experiences of Argentina and Brazil Tell Europe

Juan O’Farrell and Soledad Villafañe, Guest Bloggers

Latin American countries’ experiences over the last decade have been widely described as a success story for reducing income inequality. In a work to be published this month, we analyze how the coordination between labor and macroeconomic policies with a clear objective of employment creation and welfare expansion explains the progress made in Argentina and Brazil towards income redistribution with economic growth. Under different macroeconomic regimes, but with similarly active promotion of wage increases and labor institutions, both countries achieved an expansion of employment, wages, and social protections, breaking a long period of downward trends. These factors are behind the reduction in the gap between the rich and the poor.

What these experiences show is that, contrary to the view of labor institutions (like the minimum wage, collective bargaining, etc.) as “rigidities,” these can be key drivers of inclusive development. This holds significant relevance beyond Latin America for an important reason: despite the evidence and increasing consensus of the role of declining wage shares in the unfolding of the global financial crisis, policymakers (especially in Europe) still resist abandoning the mantra of labor market “flexibilization” and internal devaluation as a way out of the crisis. Furthermore, there was an attempt this year to reintroduce the idea of flexibilization in G20 documents.

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How Filipinos Can Obtain “Climate Justice” in the Wake of Super-Typhoon Haiyan

James Boyce

Cross-posted from The Real News Network.

Transcript

JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.

Super Typhoon Haiyan struck the Philippines, causing widespread devastation, while the latest rounds of international climate negotiations were opening in Warsaw. The juxtaposition brought the issue of climate justice from the periphery of world attention onto center stage. The Philippines’ chief climate negotiator, Yeb Saño, announced that he would voluntarily fast for the duration of the conference to underscore the plight of his people in the face of ever more frequent climactic disasters. Here is Saño addressing the UN COP 19 climate conference.

~~~

YEB SAÑO, CLIMATE CHANGE COMMISSIONER, PHILIPPINES: I speak for the countless people who will no longer be able to speak for themselves after perishing from the storm. I speak also for those who have been orphaned by the storm. I speak for those–the people now racing against time to save survivors and alleviate the suffering of the people affected.

We can take drastic action now to ensure that we prevent a future where super typhoons become a way of life. Can we ever obtain the ultimate objective of the convention, which is to prevent dangerous anthropogenic interference with the climate system? By failing to meet the objectives of the convention, we may have ratified our own doom.

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How Filipinos Can Obtain "Climate Justice" in the Wake of Super-Typhoon Haiyan

James Boyce

Cross-posted from The Real News Network.

Transcript

JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.

Super Typhoon Haiyan struck the Philippines, causing widespread devastation, while the latest rounds of international climate negotiations were opening in Warsaw. The juxtaposition brought the issue of climate justice from the periphery of world attention onto center stage. The Philippines’ chief climate negotiator, Yeb Saño, announced that he would voluntarily fast for the duration of the conference to underscore the plight of his people in the face of ever more frequent climactic disasters. Here is Saño addressing the UN COP 19 climate conference.

~~~

YEB SAÑO, CLIMATE CHANGE COMMISSIONER, PHILIPPINES: I speak for the countless people who will no longer be able to speak for themselves after perishing from the storm. I speak also for those who have been orphaned by the storm. I speak for those–the people now racing against time to save survivors and alleviate the suffering of the people affected.

We can take drastic action now to ensure that we prevent a future where super typhoons become a way of life. Can we ever obtain the ultimate objective of the convention, which is to prevent dangerous anthropogenic interference with the climate system? By failing to meet the objectives of the convention, we may have ratified our own doom.

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Post-Apartheid Economic Policy in South Africa: Putting Mandela’s Legacy in Perspective

Matías Vernengo

Cross-posted from Naked Keynesianism.

The coverage on Mandela, no doubt one of the greatest leaders of the 20th century and essential for the ending of Apartheid, was as  is often the case a bit simplistic, which actually reduces the struggles he had to fight to relatively simple and manicheistic choices between good and evil (e.g., like in Bush’s famous “if you’re not with us, you’re against us,” ‘against us’ meaning with the terrorists). His actual legacy is considerably more complex, and a few publications had noted it (see here for three myths about his political legacy, including the racist notion that without him blacks would have murdered all whites; hat tip Butch Montes).

His economic legacy is also considerably more complicated than what one might expect, and there was virtually no coverage in the press about it. John Pilger in Counterpunch relates how Mandela was in neogotiations with the Apartheid regime since the early 1980s, and that “the apartheid regime’s aim was to split the ANC [African National Congress] between the ‘moderates’ they could ‘do business with’ (Mandela, Thabo Mbeki, and Oliver Tambo) and those in the frontline townships who led the United Democratic Front (UDF).” He further quotes an ANC Minister suggesting that their policies were Thatcherite and saying: “You can put any label on it if you like … but,  for this country, privatisation is the fundamental policy.”

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Post-Apartheid Economic Policy in South Africa: Putting Mandela's Legacy in Perspective

Matías Vernengo

Cross-posted from Naked Keynesianism.

The coverage on Mandela, no doubt one of the greatest leaders of the 20th century and essential for the ending of Apartheid, was as  is often the case a bit simplistic, which actually reduces the struggles he had to fight to relatively simple and manicheistic choices between good and evil (e.g., like in Bush’s famous “if you’re not with us, you’re against us,” ‘against us’ meaning with the terrorists). His actual legacy is considerably more complex, and a few publications had noted it (see here for three myths about his political legacy, including the racist notion that without him blacks would have murdered all whites; hat tip Butch Montes).

His economic legacy is also considerably more complicated than what one might expect, and there was virtually no coverage in the press about it. John Pilger in Counterpunch relates how Mandela was in neogotiations with the Apartheid regime since the early 1980s, and that “the apartheid regime’s aim was to split the ANC [African National Congress] between the ‘moderates’ they could ‘do business with’ (Mandela, Thabo Mbeki, and Oliver Tambo) and those in the frontline townships who led the United Democratic Front (UDF).” He further quotes an ANC Minister suggesting that their policies were Thatcherite and saying: “You can put any label on it if you like … but,  for this country, privatisation is the fundamental policy.”

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Will China’s Trusts Get ‘TIC’ed?

Sara Hsu

As China’s economy rapidly changes, we ask: Will the trust companies that currently operate in the shadows undergo the dramatic restructuring that the country’s Trust and Investment Companies (TICs) have experienced in the past twenty years—will they get ‘TIC’ed?

China’s trust companies are wily institutions. They currently hold over nine trillion renminbi (RMB) in assets under management, and they are quite apt at skirting regulation. Before 2010, trusts gladly removed risky bank loans from bank balance sheets and repackaged them as securities for banks to sell to customers. When this practice was banned, trusts continued to extend loans themselves or through third parties and sell them to banks to bundle as wealth management products. Many borrowers are companies that are too risky to qualify for a bank loan—not a good sign.

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Will China's Trusts Get 'TIC'ed?

Sara Hsu

As China’s economy rapidly changes, we ask: Will the trust companies that currently operate in the shadows undergo the dramatic restructuring that the country’s Trust and Investment Companies (TICs) have experienced in the past twenty years—will they get ‘TIC’ed?

China’s trust companies are wily institutions. They currently hold over nine trillion renminbi (RMB) in assets under management, and they are quite apt at skirting regulation. Before 2010, trusts gladly removed risky bank loans from bank balance sheets and repackaged them as securities for banks to sell to customers. When this practice was banned, trusts continued to extend loans themselves or through third parties and sell them to banks to bundle as wealth management products. Many borrowers are companies that are too risky to qualify for a bank loan—not a good sign.

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“Loss & Damage” beyond charity, into solidarity, and suffused with Climate Justice?

Patrick Bond

An important article about one facet of the Warsaw Conference of Polluters 19, “Loss & Damage”, was published last week in The Star (Malasia) by the very highly-regarded political-ecologist/economist [and regular TCB blogger] Martin Khor (New climate deal on loss and damage). As always, the South Centre and Third World Network provide invaluable information, and Martin has taught me incalculable amounts since we first met in Johannesburg in 1990.

Good reading. Yet from the outset I must propose, with full respect, that Martin is absolutely wrong here: “There were two other pieces of good news – the adoption of a programme for reducing emissions from forest-related activities (known as REDD-plus) and pledges from developed countries up to US$100 million for the adaptation fund whose resources had dried up after the drastic fall in carbon prices.”

The March 2013 World Social Forum in Tunis witnessed the establishment of a No-REDD-in-Africa network, which was extended at a conference in Maputo hosted by Justica Ambiental in September: http://www.redd-monitor.org/2013/09/25/no-redd-in-africa-network-maputo-statement-redd-does-not-reduce-emissions-redd-does-not-halt-deforestation/. The activists there, and in many other countries suffering REDD attacks, will be surprised to hear that UN confirmation of REDD+ is ‘good news’.

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