The so-called Great Gatsby diagram that Alan Krueger presented recently shows that there is a positive correlation between inequality and lack of social mobility. The graph below shows a full version.
Sunday, January 22, 2012
Inequality and mobility
Sunday, December 25, 2011
The risks for Latin America in 2012
Nope, not a collapse of China, and also, not clear that it would be a severe collapse in the center, in particular Europe, although that one cannot be completely ruled out. The big risk comes from the macroeconomic policies adopted by Latin American economies.
A study by Esteban Pérez and Ramón Pineda, from ECLAC, shows that Latin American economies are, from a regional comparative perspective, good at withstanding the negative effects of contractions and bad at taking advantage of expansions to achieve convergence with the developed world.
While it is true that during this last crisis Latin American economies did recover fast, and pursued counter-cyclical fiscal policy, it is also true that the willingness to maintain expansionary policies has waned pretty fast. The IMF fear about overheating and the obsession with inflationary pressures has become dominant in the region (see my discussion of that earlier this year here).
The graph below shows government spending as a share of GDP in the big four (Argentina, Brazil, Chile and Mexico). As it can be seen only in Argentina spending did not shrink in 2011 (an election year by the way), whereas in the other three the reduction were of 0.3, 0.5 and 1.2 of GDP. With a multiplier of around 2, ceteris paribus, there is a potential for a significant slowdown in the region.
In fact, in Brazil the economy already stalled to almost zero growth in the third quarter of the year (see here). Following Pérez and Pineda, one could hope for 2012 that countries in the region "instead of viewing expansions through the lens of ‘crisis management,’ expansions should be seen and understood as an opportunity to grow and expand and promote greater levels of well-being, employment and equity in the region." That's this blogger's hope for the New Year. Happy Holidays!
PS: Data from ECLAC here.
PS: Data from ECLAC here.
Tuesday, March 22, 2011
Saturday, March 19, 2011
Tuesday, March 15, 2011
Adios Panama Canal: PRC's Colombia Railway Plan
It's been a longstanding ambition of many a would-be-conquistador that may finally come true. For, here's an interesting bit of realpolitik that you may have missed of the early Chinese bird catching the Latin American worm. Among Latin American countries, Colombia is regarded as having among the best ties with the United States in recent times. Aside from the Bush-Uribe conservative rapport of years gone by, the two countries also have an FTA-in-waiting.
Yet, we also know that there's a new sheriff in the world economy spreading its largesse far and wide while attempting to win friends and influence people--the PRC. As Washington's megadeficits plunge the US into an infinite abyss, the loaded Chinese are using their coffers runneth over to this end. As it turns out, even the Colombians are hedging their bets. After all, it doesn't take a genius to figure out that it's probably better to catch a rising star than to be dragged down by one that's fading fast.
In this article, mooted plans to build a railway running across Panama to the Pacific stem from a number of things: First, it could well be an easier overland route for commodities to get to the Pacific, from which they journey on to China. Panama remains in the PRC's doghouse [woof-woof] for continuing to recognize the Republic of China or Taiwan as "China," and this diplomatic tussle has marred their trade relations. Second, the wily Colombians are said to be annoyed with American delays in passing the aforementioned FTA, and think pressure can be applied by appearing to side closer with the PRC. Third, on the Chinese side this time, I personally think it would be a huge blow to American prestige if a landmark infrastructure project were to be completed in the United States' backyard by the PRC. Then again, given the pathetic state of modern America, it has little choice but to sit back and watch those that can show those that can't. From TIME:
...Bogotá and Beijing are in talks to build a multi-billion-dollar railway connecting Colombia's Caribbean and Pacific coasts. Said [Colombian President Juan Manuel] Santos, in a poke at U.S. superpower self-esteem, "Asia is the new motor of the world economy..."That'll show those Yanks up, indeed. It also begs the question, will the ongoing Panama Canal enlargement to accommodate larger vessels pay off if the Chinese decide to route their business elsewhere? The answer is likely yes because it's large oil tankers that'd more easily pass through, but still, it demonstrates how the world has moved on.
In the past 10 years, annual Latin American exports to China have gone from negligible to more than $40 billion as the Asian giant reaches for commodities like oil, copper and soy beans to fuel its roaring economic growth (10% last year). China is now the top purchaser of exports from Brazil and Chile; and according to the U.N.'s Economic Commission on Latin America & the Caribbean (ECLAC), within five years it should replace the European Union as Latin America's second-largest trading partner after the U.S. In the process, Beijing is lavishing billions of dollars in financing on the region, from hydro-electric projects in Ecuador to development funds in Argentina.
And now, perhaps, a major railway in Colombia to compete with the nearby Panama Canal as an Atlantic-to-Pacific shipping shortcut. Chinese officials confirmed this week that their country has agreed to invest in the $7.6 billion project, which would stretch about 140 miles (220 km) from Colombia's northern Caribbean region, near Cartagena, to an as-yet undesignated site on its western Pacific coast, mainly to ferry Colombia's abundant coal to Asia.
What's less certain, however, is whether a trans-Colombian railway would really be more efficient than using the Panama Canal — especially since that shipping lane is undergoing a $5.25 billion expansion to accommodate more massive cargo ships. (Relations between China and Panama are also cool due to Panama's strong ties with Taiwan.) Ever since the canal was completed in 1914, rail, particularly across southern Nicaragua, has been discussed as an alternative...
Still, both Colombia and China seem to think it's worth the risk. China sees the country "as a good strategic opportunity," says [Inter-American Dialogue President Michael] Shifter, "a good location for conveying a lot of South American commodities but also a place with more sophisticated governance today." The rail partnership is also a pragmatic move for Bogotá, he says...
Many Colombia watchers believe a key impetus for Santos is to make Washington nervous about China's growing involvement with the U.S.'s top South American ally, in the hopes of getting Congress to expedite the free-trade agreement (FTA). But analysts like Shifter doubt that's a consideration, since the Colombians are well aware that the FTA is being held up mostly because of opposition from U.S. labor unions (based partly on concerns about human rights for Colombian workers). Either way, recently leaked U.S. cables, based on conversations with Colombian diplomats, help explain why Colombia, despite its realization that China is out to exploit its natural resources, is building the partnership. "Colombia is wary of Chinese motives," says a March 2009 message from the U.S. embassy in Beijing, released last month by WikiLeaks. "However, Colombia needs new economic partners, particularly given the lack of progress on a U.S.-Colombia [FTA]."
And particularly because Colombia wants to fuel its own boom. Its economy is expected to grow 5% or more this year and next; the World Bank now rates it the 39th best nation to do business with, up from 76th place just five years ago, and Santos has pledged to put it in the top 20 by 2014. He wants its coal production to increase 70% by then, to 124 million tons a year; its oil output by 75%, to 1.4 million barrels per day; and its value-added products to jump from 29% of total exports to 40%.
It's looking to China to help it get there in large part because the Harvard-educated Santos is said to be especially impressed with Beijing's commitment to getting things done. In other words, the can-do spirit Latin America used to expect from the U.S. — the kind that built the Panama Canal.
Thursday, January 13, 2011
Brazil-PRC Trade: Bikini Wars & Beyond
A few days ago, I featured Brazilian Finance Minister Guido Mantega citing China for its unfair trade practices. Today, we feature a rather racy application of this complaint. While the affinity of the Chinese people for intimates is certainly beyond my realm of expertise (even if can vouch that Western-style billboards featuring underwear models are common in Chinese megalopolises), you can be sure that Chinese garment manufacturers love making them for the rest of the world. Only a few years back when Peter Mandelson was exiled to Brussels and served as the EU trade commissioner, he famously prosecuted the "bra wars" that involved invoking safeguard clauses under the terms of China's WTO accession as the multifibre agreement (MFA) was being phased out in 2005 and Europe was being inundated with intimates from the PRC.
Fast-forward to today and it appears our Chinese friends are once again involved in a trade row over their knickers--this time with fellow BRICs nation Brazil. There are two sides to this story that portray the economic relationship differently. On one hand, Brazilian commodity exporters are glad to have the Chinese market fuelling demand for their wares. On the other hand, Chinese imports are proving to be a tough challenge for domestic competition--especially in garments. Brazil is famous for coming up with all sorts of variations on--how should I describe 'em--slinky swimwear. However, inventing or popularizing something is no guarantee of continuing dominance. Think of the British in cricket, football, golf, tennis, etc.
And so it has come to pass that Brazil's bikini industry is up in arms against Chinese competition. I can hear it coming: Unfair trade! Undervalued currency! Slave wages! Like others have found, it's no picnic being in direct export competition with the mighty Chinese manufacturing machine. Let's begin with the happier side of this relationship with jet-setting Brazilian billionaire Eike Batista, purportedly the world's eighth richest person, riding the crest of a massive eastbound commodity wave. From Auntie:
Indeed, the real purpose of our helicopter trip was to view Eike Batista's latest project, a vast superport north of Rio, built with this customer in mind. The centrepiece of the complex is a two-mile-long pier jutting straight out into the South Atlantic, which has been dubbed "the highway to China". Mr Batista's companies control enormous reserves of iron ore and oil - commodities the Chinese economy desperately needs.But then we get to the domestic bikini industry:
In fact, Chinese demand for the raw materials Brazil has in abundance has pushed prices to record highs and, as a result, Mr Batista's business - and the Brazilian economy - is booming. Eike is confident the boom will continue and that Chinese demand will help power him yet further up the world wealth rankings.
"I told Carlos Slim," he recalled with a grin - referring to the world's richest man, the Mexican telecommunications tycoon - "clean your rear-view mirror on the right hand side and clean your rear-view mirror on your left hand side because I don't know which side I will be overtaking you."
But, down on the beaches below Mr Batista's office [down at the Copa for you Barry Manilow fans], the fit doesn't seem quite so perfect. There are few products as emblematic of Brazil as the bikini but Brazil's bikini industry is in trouble, fighting off stiff competition from - you guessed it - China...Even on Copacobana beach, the thong [sic] remains the same in the trade realm, it seems. Mayhaps it's a sexed-up version of the commodity curse.
Then, three years ago, the Chinese entered the market. Within 12 months the export business that [Brazilian bikini designer] Ieura had been building up had disappeared completely. "My biggest competitors used to be other Brazilian companies," Ieura said ruefully, "now it is the Chinese."
And it is not just the bikini industry that is suffering. A recent study found that more than 80% of Brazil's manufactured exports are being adversely affected by competition from China. That is a real danger to the Brazilian economy because mining and commodities are not very labour intensive. The bulk of the Brazilian workforce is employed in manufacturing industries. The problem is that, natural resources aside, Brazil has a similar competitive advantage to China - cheap unskilled labour. As a result, the two countries tend to compete in similar sectors and, just as in most other economies around the world, China tends to win.
UPDATE: See this (surprisingly informative and unbiased) USDA feature for a brief description of the multifibre agreement mentioned in the context of the "bra wars."
Castronomics, From Fidel to Li'l Brother Raul
What must this island nation do to work around the long-running US embargo against it? First came the foreign exchange-bringing tourists. Then came the Venezuelan doctors-for-oil deal. Vile consumerist filth like DVD players and cell phones came along shortly thereafter. Let's just say that since assuming leadership from his quite ill brother, erstwhile "Maximum Leader" Fidel, Raul Castro has set about dismantling Soviet-style central planning. Oh, the irony. To keep the revolution going, you must soft-pedal its more socialist elements.
Anyway, the good news as far as Cuba is concerned is that its trade surplus reportedly doubled in 2010 as Raul moves to consolidate the process of reforms he set into motion:
Cuba racked up a $3.9 billion trade surplus last year as President Raul Castro's efforts to cut imports and earn more abroad bore fruit for a second consecutive year, the government's statistics office reported on Friday. The surplus was nearly twice the $2 billion reported in 2009 -- good news for Cuba but only a first step toward getting its debt-ridden economy out of the woods.Meanwhile, Raul the reformer is still at it. Heck, if retaining government employees that can't be paid for is a measure of socialism, then many parts of the United States are more communistic than Cuba circa early 2011:
The country has been struggling with severe financial problems since 2008, when hurricanes, the international financial crisis and internal inefficiencies left it without funds to pay its bills. The National Statistics Office reported on its web page, www.one.cu, that exports increased 12.9 percent to $13.6 billion in 2010, led by the selling of services at $9.4 billion. Imports fell 3.3 percent to $9 billion.
Higher prices for Cuba's main exports -- nickel, petroleum derivatives and medical and other technical services -- likely accounted for most of the increase, while revenues from tourism and communications were also reportedly up.
Some 75 percent of Cuban exports come from services such as tourism, communications and the export of doctors and other professionals to oil-rich countries such as Venezuela, Angola, Algeria and Qatar, which pay for the services on a sliding scale linked to oil prices. Prices for oil increased significantly in 2010, as they did for Cuban exports nickel and sugar.
Raul Castro has hammered away at the need for Cuba to get its economic house in order and pay its bills since taking over as president from his brother Fidel in 2008. The country's growing debt and service payments are a key reason for Castro's push to overhaul Cuba's Soviet-style economy, according to government insiders.The revolution will continue...if fuelled with foreign exchange, that is.
The reforms, to be discussed at a Communist Party congress in April, include drastic budget cuts and layoffs and ending most state subsidies. They also would grant state-run companies more autonomy and encourage more small private businesses, foreign investment, cooperatives and other "non-state" forms of running enterprises.
Monday, January 10, 2011
Brazil FinMin: From Currency War to Trade War
If nothing else, you gotta love this guy for his military-industrial complex of sorts where economic misunderstandings forever threaten to take us to the brink of all-out conflict. A few months ago, Brazilian Finance Minister Guido Mantega had the international press corps by the ear after his statement that the world was engaged in "international currency war." Perhaps tired of that phrase and desiring attention once again, he's now moved on from that shtick in proclaiming that we are on the brink of outright "trade war." Being more of an equal opportunity complainer this time around, Mantega now identifies not just the US but also China as being currency manipulators. I'm somewhat surprised that he would so vocally single out another important emerging economy, but hey, maybe things are really becoming dire in Brazil when it now runs a current account deficit with the United States, of all countries:
“This is a currency war that is turning into a trade war,” Mr Mantega said in his first exclusive interview since Dilma Rousseff, Brazil’s new president, took office on January 1. His comments follow interventions in currency markets by Brazil, Chile and Peru last week and recent sharp rises in the Australian dollar, the Swiss franc and other currencies amid an exodus of investment from the sluggish economies of the US and Europe...If not necessarily approving of them, you have to acknowledge the thoroughness of Brazil's countermeasures to keep the real low--intervening in spot and forward markets; making its voice heard at the G20 and WTO, etc. they're playing for keeps and have gone beyond what most other countries have done despite their similar bellyaching.
Mr Mantega, [Brazil's] finance minister since 2006, coined the term “currency war” in September before launching controls on foreign portfolio investments in Brazil aimed at stemming an increase of 39 per cent in the real against the dollar over the past two years. He said that most of Brazil’s measures last year were directed at the spot market but the focus had switched to the futures markets, which he said were now behind the upward pressure on the currency.
On Thursday, Brazil’s central bank launched a surprise measure to curb short selling of the dollar against the real by onshore banks. “You can expect more measures on the futures market,” he said.
He said currency manipulation would be on the G20 agenda this year. Brazil would also lobby to have the WTO define exchange-rate manipulation as a form of veiled export subsidy. Any attempt to change WTO rules to incorporate exchange rates would be difficult, however, as China could be expected to veto it, analysts said.
Mr Mantega said that Brazil’s trade with the US had slipped from an annual surplus of about $15bn (£9.6bn) in Brazil’s favour to a deficit of $6bn since the US began trying to reflate its economy through loose monetary policy. He said China’s undervalued currency was also distorting world trade. “We have excellent trade relations with China ... But there are some problems ... Of course we would like to see a revaluation of the renminbi.”
So how would Brazil line up if the United States were to pursue the inclusion of undervalued exchange rates as an actionable subsidy at the WTO? Do Brazil's loyalties lie with the US, China, or mostly just with itself? That would be interesting to watch. Latin melodrama--don't leave home without it.
Friday, December 10, 2010
WikiLeaks: Shell 'Infiltrates' Nigeria, Hugo Bossed
I can hardly believe that this is my third post on WikiLeaks. After cataloguing typical American double-speak on "Internet freedom" (whatever that is) and suggesting that WikiLeaks move to Montenegro if survival is its goal, we now have two interesting entries.
First, I have in the past featured the highly controversial activities of Royal Dutch Shell in Nigeria. To say that its activities in the Niger Delta and relationship with the Ogoni tribe are controversial is to put things mildly. Now we have these cables in which American officials claim that a Shell executive boasted of infiltrating the Nigerian government. From WikiLeaks' media partner The Guardian:
The oil giant Shell claimed it had inserted staff into all the main ministries of the Nigerian government, giving it access to politicians' every move in the oil-rich Niger Delta, according to a leaked US diplomatic cable.There's another story that caught my eye. I have never been much of a fan of Venezuela's so-called Bolivarian Revolution insofar as it has done rather worse by its people in the aftermath of expropriating several Western oil companies. If you kick the foreigners out, I'd be a heck of a lot more impressed if you could at least sustain output at pre-nationalization levels. Let's just say Hugo Chavez hasn't achieved this feat. Talk about ideology trumping reality. Worse, for lack of technical expertise, it's said that he's asking same Western companies he kicked out to come back on terms more favourable to them. Not very impressive; Simon Bolivar probably wouldn't approve:
The company's top executive in Nigeria told US diplomats that Shell had seconded employees to every relevant department and so knew "everything that was being done in those ministries". She boasted that the Nigerian government had "forgotten" about the extent of Shell's infiltration and was unaware of how much the company knew about its deliberations.
The cache of secret dispatches from Washington's embassies in Africa also revealed that the Anglo-Dutch oil firm swapped intelligence with the US, in one case providing US diplomats with the names of Nigerian politicians it suspected of supporting militant activity, and requesting information from the US on whether the militants had acquired anti-aircraft missiles.
Venezuela's tottering economy is forcing Hugo Chávez to make deals with foreign corporations to save his socialist revolution from going broke. The Venezuelan president has courted European, American and Asian companies in behind-the-scenes negotiations that highlight a severe financial crunch in his government. Venezuela's state-owned oil company, PDVSA, is the engine of the economy but buckled when given an ultimatum by its Italian counterpart and has scrambled to attract foreign partners, according to confidential US embassy cables released by WikiLeaks.And then there's the humiliation of Hugo as he calls back the conquistadores:
The memos depict an unfolding economic fiasco and suggest some of Chávez's key allies – Argentina, Brazil and Cuba – are gravely concerned at Venezuela's direction. "President Chávez, for his part, is acutely aware of the impact the country's general economic trajectory has had on his popularity," says one cable...
However, in separate private conversations with the [American] ambassador, Patrick Duddy, industry figures detailed the parlous state of the industry. A senior manager from Chevron estimated the state oil company's output at 2.1m to 2.3m barrels per day, well below official declarations of 3.3m.
Italy's ambassador to Caracas, Luigi Maccotta, told his US counterpart that [national] Italian oil company ENI squeezed PDVSA over an Orinoco belt deal in January this year knowing it had no one else to turn to. The Italians delayed the signing by two days to reinforce the Venezuelan government's "need for ENI". Paolo Scaroni, the company's CEO, then faced down Venezuela's oil minister, Rafael Ramirez, over changes to terms and conditions.Colour me unimpressed, Hugo.
"Thirty minutes before the ceremony was supposed to begin Scaroni told Ramirez: 'Take it or leave it, I can get on my plane and move on.' Ramirez apparently used that half an hour to convince President Chávez to accept all of ENI's proposed changes or risk losing the deal," according to the US cable. The Italians said they would not pay PDVSA a standard signing bonus because the company already owed them $1bn.
Friday, November 5, 2010
Those Poor Brazilian Victims of Currency War
Having coined the endearing term "international currency war," Brazilian Finance Minister Guido Mantega and his erstwhile superiors are now complaining about the (largely anticipated) $600 billion greenback aerial bombardment the Fed will soon mount with extreme prejudice. With the Brazilian real up nearly 40 percent since early 2009, the country's industries are running into serious headwinds in export markets and are understandably keen on the government doing something about it. While Brazil has slapped taxes on foreigners buying local bonds, it hasn't done a heck of a lot to curb inflows. So, President Lula and President-Elect Rousseff are jetting of to the G20 to protest pretty soon. Oh my, what hath the Americans done?
Brazil, the country that fired the gun on the so-called “currency wars”, is girding itself for further battle. Brazilian officials from the president down have slammed the Federal Reserve’s decision to depress US interest rates by buying billions of dollars of government bonds, warning that it could lead to retaliatory measures.International currency war? Competitive devaluations leading to World War II? Let's just say the boys and girls from Brazil have a major military-industrial complex going on. Yo Guido Mantega, fire your guns!
“It’s no use throwing dollars out of a helicopter,” Guido Mantega, the finance minister, said on Thursday. “The only result is to devalue the dollar to achieve greater competitiveness on international markets.” At a joint press conference with president-elect Dilma Rousseff, outgoing president Luiz Inácio Lula da Silva said on Wednesday he would travel to the G20 summit in Seoul with Ms Rousseff, ready to take “all the necessary measures to not allow our currency to become overvalued” and to “fight for Brazil’s interests”. “They’ll have to face two of us this time!” he said.
Ms Rousseff added: “The last time there was a series of competitive devaluations[,] it ended in world war two.” Brazil has been an early casualty in the currency wars, as the real has risen by 39 per cent against the dollar since the start of 2009, prompting fears it will hollow out Brazil’s industrial base by making manufactured exports uncompetitive. Data released on Thursday showed September industrial output was 2 per cent lower than in March. “Brazilian industry is well and truly stuck in a rut, due in part to the recent strength of the real,” Capital Economics, a London-based research firm, said in a note to clients on Thursday.
“[The Fed’s decision] is cause for concern. These are policies that impoverish those around them and end up prompting retaliatory measures,” Brazil’s foreign trade secretary, Welber Barral, said separately.
With local benchmark interest rates at 10.75 per cent – the G20’s highest after stripping out 5 per cent inflation – international capital has flooded into Brazil. To curb that, the country has imposed a 6 per cent tax on bond inflows, but with limited effect so far. Emerging market fund managers say the tax, paid on point of entry, has had some impact on short-term bond investors – but not on long bonds held to maturity which, after netting off the tax, still provide a yield of about 11 per cent. “That’s higher than you can get anywhere else, especially for an investment- grade credit,” said Kieran Curtis, emerging markets fund manager at Aviva investors, which has £1.3bn under management.
Economists agree that one reason why Brazilian interest rates are so high is loose fiscal policy. Federal government spending has grown by 18 per cent this year. Ms Rousseff has pledged to trim government spending, although there are doubts that she will be able to push through cuts.
Thursday, October 21, 2010
Chile, From Rescuing Miners to Rescuing the US$
This week, the Chilean President Sebastian Pinera Echenique did his victory lap here at the LSE after the successful and heartwarming rescue of the stranded miners. Again, do bear with me as I wasn't able to attend that event since LSE IDEAS' own Niall Ferguson was presenting at the same time. However, you can of course listen to President Pinera's presentation via video and podcast which you can follow through the link above.
And speaking of Chile, we turn to the more nitty-gritty, nasty business of protecting oneself from serial dollar bombardment from the US. Almost exactly a month ago, I discussed the many different countries keen on keeping the value of their currency reasonable howsoever defined by--how do I phrase this--actively participating in the currency markets. With undimmed prospects for American-led international currency war, even the in recent years passive Chile is keen on putting the brakes on the US-led jihad on fiscal sanity. Simply put, a mighty Chilean peso is not on the cards for them. Fancy that; all sorts of pesos are becoming hot property throughout Latin America after it being a term of abuse for permanently devaluing currencies during the seventies through the nineties:
Chile may take new measures as soon as this week to control its sharply appreciating currency, which has tested the Andean country's hands-off approach to markets as it aims to become a regional financial hub. Countries from Thailand to Peru have taken steps to curb their strengthening currencies as investors chase high interest rates provided by fast-growing emerging economies.Actively purchasing US dollars, imposing capital controls, promoting outward portfolio investment, raising taxes on FDI...the list of potential countermeasures goes on and on. After rescuing miners, Chile finds itself in the odd position of, well, saving the US dollar.
Chile Finance Minister Felipe Larrain warned, "We may have something to say this week" as the country studies "alternatives" for controlling the peso. The peso has strengthened more than 12 percent against the dollar since the end of June. But the country has held off so far on buying dollars in the local foreign exchange market, like Colombia, or raising taxes on foreign investment in local assets, as Brazil has done twice since the beginning of October.
As its peso hovers around 485 per U.S. dollar, near 28-month highs, here are some of Chile's options: One likely approach would be to offset incoming investment with increased capital outflows. President Sebastian Pinera, a billionaire businessman, said this week in London that he is not planning capital controls, and he would like to stem the peso's appreciation by encouraging more Chilean investment abroad.
Last month Peru raised the amount of assets that pension funds can hold overseas in an effort to increase dollar demand and lessen the pressure placed on its currency by capital inflows.
UPDATE: Can streamlining customs procedures for exporters help offset a stronger peso? It's one measure you can try, but still...
Tuesday, October 12, 2010
Vile Capitalists Invade Cuba...With Microfinance
[NOTE: Inspired by the story in question, what follows is my finest World Socialist Website impression at the moment. See what you make of it.] Friends, comrades, lend me your ears. The imperialists are once more attempting to take over the island of Cuba with their financial chicanery. Their latest attempt involves subjugating our free peoples via the evil machinations of "microfinance." Sure, they like to portray it as some sort of grassroots movement by the proletariat, but no, it's a full-blown assault planned and orchestrated by the global rentier class. Having sucked the life out of the rest of the developing world and even turned inward to destroy some of its workings in the imperialist's metropoles, its sights are now set on Cuba. The spinners of capitalist propaganda at Reuters have the details. It's as if the conquistadors never left...
Some European countries are quietly working to bring hard-currency loans to Cuban farmers, an idea the communist-led government has traditionally resisted but now looks ready to accept to help its economic reforms. A small flow of Spanish money for credits in Cuba is set to start up in 2011 and there are hopes it can grow as Cuba modernizes its state-dominated socialist economy.My goodness...doi moi for the hoi polloi! First came DVD players. Then came cell phones. Pretty soon the remaining sanctity of Cuban labour will be further encroached by these lecherous usurers. They've softened us up real good with various crises endemic to capitalism. With our resistance crumbling, they now want to turn us into "market socialists"--code words for imperial corporate takeover. If Comrade Fidel were in good health, he'd have none of these bourgeois affectations. But alas, the revolution limps along meekly.
The first loans will be financed by Spain's Agency for International Development Cooperation, which next year will donate 490,000 euros ($680,000) for agriculture, a priority for the cash-strapped Caribbean state dependent on food imports. "We are trying to help create a financial instrument currently nonexistent in Cuba to provide the agriculture sector with credit in hard currency," said Juan Diego Ruiz, local coordinator of the Spanish government aid agency.
Cuban officials have for long been wary of "microcredits" -- first developed in the 1980s to provide financial services to the poor in Bangladesh -- because they worry the small loans to groups of individuals could undermine the country's socialist principles, especially if coming from abroad.
But Western diplomats say Cuba's government now appears ready to give such financing a try, even though it does not want to talk openly about "microcredits". Hard currency loans would allow groups of Cuban farmers, who lease land from the state, to buy the imported supplies, ranging from irrigation systems to seeds, they badly need to increase production, Ruiz said.
Cuban President Raul Castro has made a series of reforms aimed at boosting agricultural output and he unveiled plans last month to lay off 500,000 state workers in the next six months. The government says many of those being laid off will be allowed to enter the private sector in the boldest reform since Castro succeeded his older brother Fidel Castro in 2008.
Those changes have made Cuba more appealing for European policymakers and Ruiz said the hard currency small loans "could eventually become an instrument linked to the ongoing process of economic adjustments." Spain has offered 4 million euros ($5.5 million) to finance potential future loans for microcredit in Cuba under very favorable terms that take into account the island's current acute liquidity shortage.
The 27-nation European Union also has been discussing providing up to 2 million euros ($2.8 million) for credit. "The European Commission is willing to accompany or facilitate the process of economic reforms at the request of the Cuban government," said the EU representative in Cuba, Javier Nino-Perez...
Western diplomats say Cuba's resistance to microcredits in the past seems to have eased following sharp economic shocks in recent years. The island was battered by three hurricanes in 2008, which did an estimated $10 billion in damage and dragged down the already struggling economy. The global financial crisis that followed delivered another blow.
Traditionally, the government blames the long U.S. trade embargo against Cuba for most of its financial woes. When last month's ground-breaking labor reforms were announced, state media said the central bank was studying the idea of offering credits to small private enterprise, but specifics were not spelled out.
Because of the political sensitivities, diplomats said the loans will not go directly from foreign providers to individuals. Instead, the initial Spanish funds will be channeled through the state-owned Bank of Credit and Commerce to groups of farmers leasing land from the state.
But Cuba would have to allow microcredit recipients to open bank accounts in hard currency. Cuba does not belong to multilateral financial institutions such as the International Monetary Fund or World Bank, so its success in microfinancing will depend on credits from friendly nations.
"The main challenge is scale. Microfinances only work when there is sufficient scale to have an impact, and in order to reach that, external financing is critical," said Sergio Navajas, an expert with the Inter-American Development Bank in Washington. Experts say Cuba appears headed down a path taken by its communist ally Vietnam, which has developed a market socialism often seen as a model for Raul Castro's current reforms. Microfinances played a key role in the Vietnamese economic transformation. "At first, Vietnamese authorities were also cautious," a Western diplomat in Cuba said.
Friday, October 1, 2010
Tired of Austerity? Gas Your Leader (in Ecuador)
Here's another nifty IPE-related article I found just on the front page of Yahoo! It seems that enforcing austerity is difficult all over the world. Here in Europe, there were demonstrations across the continent yesterday over axes falling over and over on the public sector as plotted by EU bigwigs. In Latin America, however, public sector workers have come up with an ingenious strategy to (literally) Stick It to the Man.
A few months back, I wrote about the leftist stylings of Ecuador's President Rafael Correa. However, some on the Ecuadorean police force have apparently not taken kindly to imminent reductions in their pension plans. Where art thou workers of the world uniting and so forth? From the Associated Press comes this remarkable story of the gendarmes beating the stuffing out of Correa:
Hundreds of police angry over a law that would cut their benefits plunged this small South American nation into chaos Thursday, roughing up and tear-gassing the president, shutting down airports and blocking highways in a nationwide strike. Incensed officers shoved President Rafael Correa around, pelted him with water and doused him in tear gas when he tried to speak at a police barracks in the capital. Hours later, surrounded by rebel cops in a hospital, Correa declared himself "practically captive." Correa, 47, was hospitalized after being nearly asphyxiated by the tear gas.This police-led disturbance is being called a coup by some, though others are more reluctant to do so. Meanwhile, Colombia and Peru have locked down borders in sympathy for Correa. Colombia doing so is remarkable given its right-leaning government:
The government declared a state of siege, putting the military in charge of public order, suspending civil liberties and allowing soldiers to carry out searches without a warrant. The insurgent police took over police barracks in Quito, Guayaquil and other cities. Some set up roadblocks of burning tires, cutting off highway access to the capital.
Colombian President Juan Manuel Santos said on Thursday Bogota was closing the border with neighboring Ecuador where unrest erupted over austerity measures. "I spoke with (Peru's president) and the two countries decided to close the borders with Ecuador as a political sign of solidarity with President Correa and with Ecuador's democracy," Santos told reporters before getting on a flight for a regional meeting in Argentina on Ecuador's unrest.Now that's what I call real "militant labour." Say what you will, but it certainly looks like a novel manoeuvre to catch the attention of deficit cutters. With law enforcers like these, who needs criminals?
UPDATE: It looks like the military is at least still loyal to Correa as they helped liberate their beleaguered leader:
Ecuadorean soldiers stormed a hospital early today and rescued Rafael Correa from mutinous police who had besieged the president and plunged the country into anarchy. Army units blazed their way into the hospital with automatic gunfire and stun grenades in a battle which left at least two dead, dozens injured and enabled Correa's swift and triumphant return to the presidential palace.Coming from another country with a long history of these sorts of stunts, I must say it's amazing how vulnerable many states are to such petulance. It only takes a few to seriously threaten any number of governments with existential crises. I feel like having a banana right about now.
The leftist leader, emotional and euphoric, addressed crowds of cheering supporters from the balcony. "What loyalty, what support," he shouted to loud applause. "This will serve as an example for those who want to stop the revolution not through the ballot box but with weapons..."
The protests were triggered by a law passed by Congress on Wednesday that would end the practice of giving medals and bonuses with each promotion, part of Correa's effort to save costs and slim bureaucracy.
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