Matias Vernengo
Economics is an essential part of foreign policy. One cannot think of the Cold War without the Marshall Plan that allowed reconstruction in Western Europe and containment of the Soviet Union in Western Europe. In Latin America one cannot dissociate the Cuban Revolution and the subsequent Alliance for Progress, which basically provided credit for allies in the region, pushed by Kennedy to contain Communism in the region. Geopolitics is, however, often ignored by economists, and political scientists tend to use only mainstream economics when discussing political economy issues.
In the case of US-Latin American affairs, the inability to understand the political elements of the economic process, and the incapacity to comprehend the deep causes of underdevelopment in the region explain, in part, the problematic relationship of the Obama administration with the left of center governments in the region. The Obama administration has compounded old mistakes and aggravated the mistrust from progressives in Latin America (for an early discussion of the topic go here; subscription required). John Kerry, the Secretary of the State, has referred recently to Latin America as the American “backyard,” and the Obama administration has not recognized the democratically elected government of Nicolás Maduro in Venezuela.
Read the rest of this entry »
Nancy Alexander, Guest Blogger
The Communique of G20 Finance Ministers & Central Bank Governors Meeting (April 18-19, 2013) was recently released.
The Communique “underscores the importance of long-term financing for investment, including in infrastructure, in enhancing economic growth and job creation.” In addition, it emphasizes the G20′s latest views on a variety of issues, including the European financial architecture, medium-term fiscal consolidation in the US and other advanced economies, currency “wars,” IMF quota and governance reform, public debt management, regional financial arrangements, financial (and shadow banking) regulation, tax avoidance/evasion.
The Russian Goals
According to presentations in Washington by Russian Deputy Finance Minister Sergey Storchak and Sherpa Ksenia Yudaeva, “growth and jobs” are the headline issues for their Presidency. However, the means to achieve these goals is through progress on “financing for investment” (especially in infrastructure public-private partnerships (PPPs).
The issue of “financing for investment” (FfI) has surged to the top of the G20 agenda. The Sherpa stressed the ambitiousness of the work program of the study group, co-chaired by Germany and Indonesia. The work program is contained in the annexes of this “umbrella paper” prepared by the World Bank in coordination with OECD, IMF, UNCTAD, UN-DESA, and FSB: http://www.g20.org/news/20130228/781245645.html.
Read the rest of this entry »
James Heintz, Guest Blogger
The Group of 20 (G20) has declared itself the “premier global economic forum” and was created to tackle the most pressing challenges confronting the world economy today, including reducing instability and preventing future financial crises. The G20 has committed itself to a goal of shared and inclusive growth. Given this commitment, it is striking how little attention has been paid to issues of gender equality in its policy frameworks, summits, and declarations.
This report examines the G20’s strategies and their effects on gender equality. It finds that the G20 has not seriously considered the consequences for women and men when formulating policies and setting its agenda. There are indications that this situation has changed somewhat, with a commitment to gender equality made at the 2012 Los Cabos Summit in Mexico. Nevertheless, questions remain over whether gender equality will be taken seriously. Representation within the G20 is unbalanced – only 25 percent of the heads of state of the G20 member countries are currently women. The figure for the official government representatives, the “sherpas,” is lower – just 15 percent are women.
Read the rest of this entry »
M. Shafaeddin
This coming spring, a new Director General of the World Trade Organization (WTO) is to be chosen. Nine candidates have thrown their hats into the ring to replace Pascal Lamy, the current Director General (DG). A recent forum and debate was held with five of the candidates at the Institute of Management and development (IMD-Lausanne, Switzerland), which prompted a lively discussion as to why the press is not paying more attention to the contest to replace Lamy or the candidates vying for this position.
In my view, the main issue is not the question of awareness of the press on the appointment of the DG. Far more important are key issues surrounding the functions and the philosophy behind GATT/WTO rules.
Read the rest of this entry »
Kevin Gallagher and Estefanía Marchán
China’s presence grows ever larger in Latin America. Yet it is still unclear whether the Asian giant’s expanding influence will favor sustainable development in the region.
Latin America’s abundance of oil, minerals, and other natural resources attract China to the region and the numbers prove it: our study “The New Banks in Town: Chinese Finance in Latin America,” estimates that, since 2005, China has provided approximately $86 billion in loan commitments to Latin American countries. Sixty-nine percent of these loans were loans in exchange for oil.
Putting the data in context, in 2010, for example, China offered more loans to Latin America than the World Bank, the Inter-American Development Bank, and the Export-Import Bank of the United States combined. What does this deepening of ties with China mean for the region?
Read the rest of this entry »
Robert Wade
The current dispute between China and Japan over a few barren islands inhabited by goats – called Diaoyu in Chinese and Senkaku in Japanese – looks at first sight to be a mere territorial spat. But it has escalated to a very dangerous level in recent months — first words, then actions of police forces, now actions of air forces, and, behind all these, both sides have mobilised all their military, political, economic, diplomatic, and cultural energies to engage in the dispute. It is more fundamental than normal territorial disputes, because the very identities of the two countries are at stake.
A strong narrative has taken hold in the West and much of East Asia about China’s behaviour, which starts with the proposition that China is the provocateur. Examples include, “China sows new seeds of conflict with neighbours”;[1] China has adopted an “increasingly sharp-elbowed approach to its neighbors, especially Japan”;[2] “China…has launched a new campaign of attrition against Japan over the Senkaku islands…. Beijing has sought to challenge Japan’s decades-old control, despite the risk that an accident could spiral out of control”.[3]
Read the rest of this entry »
Ilene Grabel
I’m imagining that things have gotten a little chilly for some in the IMF’s cafeteria. Why? Two important studies coming from different quarters of the Fund validate important and long-standing criticisms of the institution.
The first is a recent report by the IMF’s Independent Evaluation Office (the IEO), an internal body that conducts notably refreshing and often critical audits of various aspects of IMF performance. In an especially hard hitting (and on target) report, the IEO takes on the IMF’s work on exchange rate issues and specifically on “excess” foreign reserve accumulation in some countries during the period 2000-2011. After 2009, we should recall, IMF economists began to argue that excess reserve accumulation contributed to global financial instability. The report provides support for what many Fund watchers have long argued—namely, that the Fund has used the charge of excess reserve accumulation as a Trojan horse to advance the interest of its most powerful members in pushing countries like China to move toward more flexible exchange rates.
The same IEO report finds that the Fund’s analysis of excess reserve accumulation was analytically deficient on several grounds. First, the report’s authors argue that there is scant academic evidence for setting upper or lower limits to countries’ reserve levels (though the IMF has attempted to do so via a reserve adequacy metric since 2011). Second, the obsessive focus on reserves meant that Fund staff overlooked the precautionary motives that caused some countries (in East Asia and elsewhere) to amass massive reserves.
Read the rest of this entry »
C.P. Chandrasekhar
In a move that went contrary to what is expected of regulators, the Securities and Exchange Commission of the US approved in mid-December a controversial JP Morgan-created exchange-traded fund (ETF) backed by physical supplies of copper. The fund will use investor money to buy and hold copper, presumably to earn a profit when prices rise. According to a NASDAQ analysis the investment vehicle will register 6.18 million shares backed by 61,800 metric tonnes of copper in physical form stored in warehouses approved by the London Metal Exchange or located in the Netherlands, Singapore, South Korea, China and the US, and not approved by the LME. With this decision of the SEC, copper joins metals such as gold, silver, platinum, and palladium that are already traded through ETFs. If the JP Morgan proposal goes through so would another ETF proposed by Blackrock titled iShares Copper Trust, which awaits SEC approval.
Copper is a metal much in demand for electricity wiring and various industrial uses that are growth areas in many emerging markets. The result is that copper has been trading in rather tight markets. According to the International Copper Study Group, apparent global usage of copper rose by grew by 5.2 per cent during the the first nine months of 2012 as compared with the corresponding period of 2011, driven largely by a 19 per cent increase in China’s apparent usage. China accounted for 43 per cent of world usage over this period. As a result the refined copper balance for the first nine months of 2012 points to a deficit of 594,000 tonnes, which was more than a third of refined copper production with capacity utilised to the extent of 80 per cent. While slowing growth in China may have led to accumulation of inventories, the market is indeed tight. According to the Economist Intelligence Unit, copper will be the strongest performer among metals in 2013, with prices rising by 12 per cent thanks to the supply-demand balance.
Read the rest of this entry »
Sunita Narain
India’s solar power policy is now entering round two. And there is much that needs to be reviewed and reworked as the business of solar energy has seen massive turbulence in India as well as globally. In the first phase (2010 to 2013) of the Jawaharlal Nehru National Solar Mission (JNNSM) the target was to set up 1,000-2,000 MW of grid-based solar power in the country. By 2013, the country has indeed commissioned some 1,000 MW of solar power, but 700 MW of this target comes from the non-JNNSM state of Gujarat.
The next phase of the national solar mission kicks in from 2013. The Union Ministry of New and Renewable Energy has set a target of 9,000 MW of solar power by 2017, of which 5,400 MW will be paid by cash-strapped states. But three years is a long time in this fast-moving business. There have been drastic changes—for the good and the bad—in this sector since the mission began in 2010.
First, the good news: the price of solar energy has come crashing down in the past two-three years. In November 2010, when the first tender for solar photovoltaic (PV) power was opened, the lowest tariff was Rs 10.85 per kWh. A year later in December 2011, when new bids were opened, the tariff was down to Rs 7.49 per kWh. This makes solar energy attractive as it is now close to grid parity, with energy utilities buying power at Rs 4-5 per kWh.
Read the rest of this entry »
Martin Khor
The issue of foreign debt has made a major comeback. This is due to the crisis in Europe, in which many countries had to seek big bailouts to keep them from defaulting on their loan payments.
Before this, debt crises have been associated with African and Latin American countries. In 1997-99, three East Asian countries also joined the indebted countries’ club.
This year, European countries, notably Germany, insisted that private creditors share the burden of resolving the Greek crisis. They had to take a “haircut” of about half, meaning that they would be repaid only half the amount they were owed.
It is increasingly realised that bailouts, where new loans are given to indebted countries in order to enable them to keep up to date with paying their old loans in full, are not enough and may be counter-productive, when the countries are facing a problem of insolvency and not just temporary lack of liquidity.
The restructuring of some Greek debt that was owed to private creditors is an example of what needs to be done.
However, the ad hoc restructuring undertaken in the case of Greece is not enough. There needs to be a more systematic framework available to countries on the verge of debt default to conduct a proper debt workout, with principles agreed to internationally.
Read the rest of this entry »
.