India Budget Exercise

Financial Stability at the Expense of the Real Economy

Sunanda Sen

Sunanda Sen is a former professor of economics at Jawaharlal Nehru University (JNU). She can be reached at

The success achieved by the Indian economy, as highlighted in the central government’s recent budget, rests on four pillars: a current GDP growth rate of 7.6%, a decline in inflation (as measured by the CPI) to around 6%, record official reserves of $350 billion, and most importantly, a reduced fiscal deficit of 3.5% of GDP.

Looking beyond the official figures, one comes across reservations: First, the GDP growth, if calculated by the long-standing earlier method, would have generated a rate around 5%. Second, the stock of official reserves depends on inflows of short term and volatile capital, which may evaporate without much warning. Third, the comfortable inflation rate may also not last very long if the current lows in oil and commodity prices reverse. Finally, to come to the much-touted claim of achieving growth via financial stability with reductions in the fiscal-deficit-to-GDP ratio, the argument, as shown below, just does not stand up to scrutiny.

Read the rest of this entry »

Venezuela: Dismantling a Weapon of Mass Destruction

Mark Weisbrot

Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, D.C., and the president of Just Foreign Policy. He is also the author of the new book “Failed: What the ‘Experts’ Got Wrong About the Global Economy” (2015, Oxford University Press).

The government of Venezuela has often denounced an “economic war” against it, and of course this is part of the current situation. The primary weapon of mass destruction in this war is the black market for the dollar. It is no coincidence that the main source of information for this market — the extreme right-wing “DolarToday” — is run by someone who played an important role in the U.S.-backed military coup in 2002. He was then an army officer — Colonel Gustavo Díaz Vivas — and he now resides in Alabama, with DolarToday operating out of the U.S.

This is also no coincidence. Washington has been trying to topple the Venezuelan government for at least 15 years, and almost every journalist I have talked to during this time — including from every major international media outlet — has been well aware of this effort; although they almost never write about it.

The black market for the dollar is especially destructive because it is part of an inflation-depreciation spiral that has been growing since the fall of 2012. When the price of a dollar on the black market rises, importers must pay more for the dollars that they need, and this increases inflation. But then the higher inflation encourages more people to buy dollars on the black market, as a store of value. This pushes up the black market dollar price, which increases inflation, in a continuing spiral. In October 2012, inflation was at 18 percent and the black market dollar was at 13 Bf (Bolivares Fuertes). At the end of 2015, inflation hit 181 percent, and the black market dollar had passed 800.

The main reason that the current spiral does not get even worse is that the economy is in recession. It shrank by 5.7 percent last year. But attempts to stimulate the economy through government spending would likely feed the inflation-depreciation spiral. This means that the economy is currently trapped in recession.

The government must therefore incapacitate this weapon of mass destruction. The only way to do that is to unify the exchange rate.

Read the rest of this entry »

Interest Rate Conundrum

C.P. Chandrasekhar and Jayati Ghosh

Across the developed world the persistence of a phenomenon that was initially seen as a freak occurrence—negative interest rates—is now a cause for concern. One form the tendency takes is for central banks to set their policy rates, which signal their monetary stance, below zero. The process was triggered by the European Central Bank (ECB). Under pressure to forestall deflation in the region, the ECB reduced its deposit rate to (minus) 0.1 per cent in June 2014. Since then, according to the Bank for International Settlements (BIS), till January 2016 four national central banks, from Denmark, Sweden, Switzerland and Japan, have moved the interest ‘paid’ on part of their deposits with them to negative territory.

After the Great Recession began in late 2008, there was a widespread trend observed for policy rates to be cut to stall and reverse the economic downturn. This process has now gone so far in some countries, that rates have breached the zero-barrier. The ECB itself has in three steps cut its deposit rate to (minus) 0.2, (minus) 0.3 and (minus) 0.4 in September 2014, December 2015 and March 2016 respectively (Chart 1).

Chandrasekhar-Ghosh--ECB interest rate

Underlying this trend is a much more pro-active role for monetary policy in countering deflationary trends. Thus, in March 2016 the ECB reduced the interest it pays on deposits (or further lowered the negative rate from -0.3 to -0.4 per cent). In addition, it offered zero interest loans to banks, with the promise that if they use that money to lend 2.5 per cent or more than they were previously doing, then the ECB would pay them the equivalent of 0.4 per cent of what they borrowed from it as interest. In sum, the central bank is promising to pay banks that borrow from it, as long as they increase their lending to households and firms.

Read the rest of this entry »

Political Integration and Fiscal Policy in the European Union

Philip Arestis and Malcolm Sawyer

The recent negotiations between the UK and the EU concluded with a series of decisions on the position of the UK within the EU (European Council, 2016). Following these decisions, whether the UK remains or leaves the EU will now be put to a referendum on June 23. Whatever the outcome of that referendum, the recent negotiations have implications for the future of the EU, and more perhaps for the Economic and Monetary Union.

The agreed document reaffirmed “the process of creating an ever closer union among the peoples of Europe,” but in effect recognized that “Treaty provisions also allow for the non-participation of one or more Member States in actions intended to further the objectives of the Union … Therefore, such processes make possible different paths of integration for different Member States, allowing those that want to deepen integration to move ahead.” This document also acknowledged that “in order to fulfill the Treaties’ objectives to establish an economic and monetary union whose currency is the euro, further deepening is needed.” We have long argued that monetary union without political union has a chequered history, and that steps in the direction of de facto political union will be required if the euro is to be consistent with economic prosperity.

Read the rest of this entry »

Live Stream: Leontief Prize for Advancing the Frontiers of Economic Thought

Annual Leontief Prize Ceremony
Development and Equity
Amit Bhaduri and Diane Elson
Thursday, March 10 at 4:00
Coolidge Room, Ballou Hall, Tufts University

Live Stream Available Below

2016 Leontief Prize ceremony and lectures by Amit Bhaduri and Diane Elson on the theme “Development and Equity.” The award recognizes these researchers for their contributions to our economic understandings of development, power, gender, and human rights.

2016 Leontief Prize Winners

Dr. Amit Bhaduri is Professor Emeritus at Jawaharlal Nehru University, Delhi, and is currently the Visiting Chair Professor in Political Economy at Goa University. His research spans several important fields including capital and growth theory, Keynesian and Post-Keynesian macroeconomics, and development economics. He has published more than 60 papers and has written ten books. Learn more about Dr. Bhaduri.

Dr. Diane Elson is Emeritus Professor of Sociology at the University of Essex and a member of the UN Committee for Development Policy, and an adviser to UN Women. She has published on gender equality, economic policy, and human rights. A prolific writer, she is currently writing a book entitled Economic Policy for Social Justice: The Radical Potential of Human Rights. Learn more about Dr. Elson.


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

Triple Crisis is published by

Sustainability Goals to Get Action Going

Martin Khor

The newest fashionable term coming from the United Nations system is “sustainable development goals”.

These are goals that all countries, represented by their top political leaders, have signed up to strive to achieve by the year 2030.

There are 17 goals altogether, and they cover three main aspects – economic, social and environmental, which are the components of “sustainable development”.

There is also the global partnership for development, in which developed countries pledge to assist the developing countries to fulfil their goals.

The SDGs were adopted at a UN Develop-ment Summit in New York in September 2015, attended by top political leaders.

The Summit adopted the 2030 Agenda for Sustainable Development. Its centrepiece is the SDGs.

These goals may seem like something obvious, which few can quarrel with.

In fact, it took a long and arduous process of negotiations to agree on them.

Read the rest of this entry »

A Note on Development Under Risk in the Arab World, Part 3

Ali Kadri

The Failure of Resource-Based and Finance-Based Development

(Part 3 in a Four-Part Series)

In every Arab summit since of the early 1980s, one could hear the refrain that development required diversification away from primary products. However, transforming countries into regional building-blocs to expand markets requires investment in intraregional infrastructure. Given the low rate of regional integration (intra-regional trade and investment are quite low, by global standards, UN 2011), moving away from oil appears to have never been a seriously pursued goal.

Other palpable indicators of diversification would include nurturing national industrialisation through protection and market expansion, and complementary development of physical and human capital. Both, however, exhibited declining rates. (Industrialisation, as measured by manufacturing, declined (UNIDO 2014), while structural unemployment rose (ILO 2014).) Once a merchant or extractive mode—as opposed to an industrial mode—takes hold of an economy, the extraction of surplus does not depend on value added. Exchange-based trade alone creates little added value—and entrepreneurs become economic introverts whose spoils arise from raising their income shares within their own fiefdoms.

Read the rest of this entry »

Could this Lawsuit be the Straw that Breaks the TPP’s Back?

Robin Broad

In November 2015, just after President Obama finally stood up to the fossil fuel industry and rejected the TransCanada Corporation’s application for its tar sands pipeline through the United States, I issued a warning: In The Hill, I applauded the Obama decision and laid out the reasons why, under current trade and investment rules, TransCanada had grounds to sue the United States under the 1994 North American Free Trade Agreement (NAFTA).  I hardly need remind readers that NAFTA launched the modern era of corporate-biased investment rules, and serves as the model for the investment chapter in the TransPacific Partnership (TPP) that now awaits votes in the U.S. Congress and in the legislative bodies of the 11 other TPP countries.

Lo and behold, TransCanada came to the same conclusion that I did.  They hired a giant corporate “K Street” law firm, Sidley Austin, and in January 2016, the fossil-fuel giant put the U.S. government on notice of a potential lawsuit under the investment chapter of NAFTA.  To get the U.S. government’s attention, they claimed to have suffered $15 billion in losses because of the rejection.  In TransCanada’s “notice of intent,” they argue that the United States has never before rejected a cross-border pipeline and that repeated studies by the U.S. State Department showed that the pipeline would not have a deleterious environmental impact on climate.  They conclude that the U.S. rejection of their pipeline, some seven years after their application, is a political decision and is not permitted under the NAFTA rules.

It is vital that people pause and ponder:  TransCanada, in its legally justified yet totally outrageous reaction, is reminding us of the reality of the investment rules our governments, under heavy pressure from global corporations, have inserted into thousands of trade and investment agreements.   And, we need to contemplate the assault on democracy that these rules and the TransCanada complaint represent.

Read the rest of this entry »

World Bank Must Push for Greater Transparency in PPP Projects, Urge CSOs

María José Romero

María José Romero does research and analysis on private finance and Development Finance Institutions (DFIs) at the European Network on Debt and Development.

Public Private Partnerships (PPPs) are not transparent enough, and face criticism from civil society organisations (CSOs) and others for being too expensive, and a risky use of taxpayers’ money. On Monday (29 February) more than 50 CSOs have written to the World Bank Group asking the institution to push for more financial transparency around PPPs.

The organisations, which come from more than 20 countries in addition to regional and international networks, have written to the Bank as part of a consultation process in response to the publication of A Framework for Disclosure in Public-Private Partnerships. The submission calls on the Bank to explicitly endorse practices that ensure that all costs of PPPs are made public – in other words are put “on balance sheet.” Currently a lot of the associated costs, such as contingent liabilities, are “off balance sheet,” hiding the true costs to governments – which encourages bad decision-making, hampers oversight by parliaments and others, and can store up major problems for the future.

A Note on Development Under Risk in the Arab World, Part 2

Ali Kadri

Politics, Economics, Industry, and Trade

(Part 2 in a Four-Part Series)

It is true, but more so a truism, to assert that reviving the debilitated economies of the Arab World requires an end to conflicts and the creation of a politically stable environment, conducive to both domestic and foreign investment—investment of the higher output to capital ratio type—along with rising internal demand. Yet, as true as this assertion may seem, the regional security/insecurity arrangement is now anchored in a bellum americanum, or continuous war condition, emerging from more acute international divisions over regional control. The spinoffs of war on the political and economic side are regressive. On the national political scene, a process of “selective democracy” similar to the one practiced in ancient times—as opposed to universal or popular democracy—enshrines the right of the few at the expense of the many. On the macroeconomic side, policies may have taken a turn into a sort of extreme neoliberalism, as in lifting subsidies on essential commodities in countries that already experience a high rate of child malnutrition (Everington 2014).

Politics and Economics

The current policy interface between external shocks/conflicts and the national economy is based almost entirely on the unrealistic assumptions of an even playing field, a risk-free environment, and a market that works best with little government intervention. Not that demanding a limited role for the government in the economy would be necessarily functional anywhere, but to propose a small government under war or war-like conditions, as did the international financial institutions (IFIs), is beyond the pale. When the elephants in the room–the wars or their resonances and the lopsided institutional context–are overlooked, then it is no longer myopia which is causing the past errors to be repeated, it is rather its marked lack of will to carry out development.

Read the rest of this entry »