Archive for the 'IMF' Category

Apr 03 2009

Global fiscal stimulus and the plight of Africa: what’s really needed, more aid or more trade? Africa: G20 Leaders Promise Billions for Low-Income Nations

While the G20 leaders meet in England to formulate their plan for increasing aid to Africa, the message from the continent seems to be that not aid, bur more trade, foreign direct investment and the establishment of free markets is the key to achieving meaningful economic growth and development. Dambisa Moyo explains the problem with aid on Colbert Nation on April 1:

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What, exactly do the G20 leaders have planned for the less economically developed nations of Africa in the $1.1 trillion global stimulus package?

The leaders of the world’s 20 biggest economies, recognizing that the global financial crisis has “a disproportionate impact” on vulnerable people in poor countries, have promised to make hundreds of billions of United States dollars available to these countries as part of a $1.1 trillion plan to rescue the world economy.

In a communiqué released by the Group of 20’s London Summit on Thursday, the leaders announced what they called “a global plan for recovery on an unprecedented scale.”

They said the rescue package would include resources totalling $850 billion, to be channelled through global financial institutions, “to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt rollover, and social support.”

Outlining allocations for materially poor nations, they promised:

  • An increase in lending of at least $100 billion by multilateral development banks, including loans to low-income countries;
  • An amount of $50 billion for social protection, to promote trade and to safeguard development in low-income countries; and
  • The selling of gold reserves to help the International Monetary Fund (IMF) provide $6 billion for the world’s poorest countries over the next two to three years.

The increase in aid from the rich world to sub-Saharan Africa comes mostly in the form of loans from the IMF and the World Bank. Development aid such as this is meant to help poor countries improve their human capital through investments in education, health and infrastructure. Historically, loans from the “multilateral development banks” have been made on the condition that the recipient nations adopt certain “structural adjustment policies”:

Some of the conditions for structural adjustment can include:

Critics of such SAPs, which developing countries are forced to adopt as conditions of receiving loans from the IMF and World Bank, say that they limit the extent to which the poor country can direct the loan money towards combating poverty, reducing inequality, and thereby achieving meaningful economic development for the poor.

Recently TIME magazine had an article in which the efficacy of such financial aid from the rich world to the poor world is challenged.

Africa is hopeless, a place of war and famine seemingly populated almost entirely by tyrants and children with flies in their eyes. According to this view, if Africa generates any kind of growth, it is in suffering — and in the overseas aid sent to address that, now a $40-billion-a-year industry. Naturally, with a new appeal every year and a new disaster every other, some people have begun to wonder if all that money is doing any good. They argue that aid creates dependence, fuels corruption, undermines democracy and stifles development.

Aid in any form, at a fundamental level, positions Africa as a dependent child, and the “rich world” as the paternalistic benefactor. Aid, despite the good intentions of the west, does little to do promote meaningful economic development in poor countries:

Though it rarely occurs to Westerners who’ve been instructed that Africa needs their help, charity is humiliating. Not emergency charity, of course: when disaster strikes, emergency aid is always welcome, whether in New Orleans or Papua New Guinea. But long-term charity, living life as a beggar, is degrading. Andrew Rugasira, 40, runs Good African Coffee, a Ugandan company he set up in 2004 to supply British supermarkets under the motto “Trade, not aid.” He is emblematic of a new generation of African antiaid, antistate entrepreneurs. For Rugasira, aid not only “undermines the creativity to lift yourself out of poverty” but also “undermines the integrity and dignity of the people. It says, These are people who cannot figure out how to develop.” Aid even manages to silence those it is meant to help. “African governments become accountable to Western donors,” says Rugasira, “and Africa finds itself represented not by Africans but by Bono and Bob Geldof. I mean, how would America react if Amy Winehouse dropped in to advise them on the credit crisis?”

The G20 nations should keep this view of aid in mind as they further develop their plans to help the poor nations of the world achieve economic growth and development. Trade, not aid, is what Africa needs to achieve meaningful progress towards economic development, defined as an improvement in the quality of life, health, education, and incomes of the people of a nation. Despite over $40 billion a year of aid that has flowed into Africa over the last decade, it is foreign investment and trade that has only recently led to sustained economic growth for the continent.

In 2006, according to the Organization for Economic Cooperation and Development, foreign investment in Africa reached $48 billion, overtaking foreign aid for the first time. That gap has only widened, reflecting a quadrupling of foreign investment since 2000. As the senior adviser in Africa for the International Monetary Fund (IMF), David Nellor, noted in a report last September, sub-Saharan Africa today resembles Asia in the 1980s. “The private sector is the key driver,” wrote Nellor, “and financial markets are opening up.” War is down. Democracy is up. Inflation and interest rates are in single digits. Terms of trade have improved. Crucially, said Nellor, “growth is taking off.” The IMF puts Africa’s average annual growth for 2004 to ’08 at more than 6% — better than any developed economy — and predicts the continent will buck the global recessionary trend to grow nearly 3.3% this year.

Despite the platitudes from Barack Obama, Gordon Brown and Ban Ki Moon about the “disproportionate impact” of the financial crisis on the poor nations of the world, it is Africa that is likely to achieve economic growth this year, even while the rich nations of the world enter recession. It is little thanks to aid that the people of Africa are finally experiencing meaningful growth; rather, the economic ties between the continent and, not the West, but China, have fueled this movement towards higher incomes and quality of life. Perhaps it’s more and fairer trade, not aid, that Africa needs now. And maybe that’s what we in the West need too in this time of economic chaos.

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May 22 2007

Hog Heaven!

High corn price mean pigs eat candy bars, french friesAnother Reeces, please!

Oh, the life of a pig… Due to the rising price of corn (thanks to increased production of corn ethanol), farmers all over America are substituting relatively cheap junk food to keep their porkies plump!

“Besides trail mix, pigs and cattle are downing cookies, licorice, cheese curls, candy bars, french fries, frosted wheat cereal and peanut-butter cups. Some farmers mix chocolate powder with cereal and feed it to baby pigs,” writes Lauren Etter.

My wife calls that last one “puppy chow” when she makes it! It’s mmm… good!

“California farmers are feeding farm animals grape-skins from vineyards and lemon-pulp from citrus groves. Cattle ranchers in spud-rich Idaho are buying truckloads of uncooked french fries, Tater Tots and hash browns.”

Mom’s, don’t let your kids read this article, you’ll never hear the end of it: “But MOOOMMM, even FARMERS let their animals eat french fries, peanut butter cups and licorice for dinner, why can’t you let ME??!!”

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Apr 22 2007

Globalization’s winners and losers, and losers, and losers…

Globalization for Whom? (July-August 2002)

Thanks to Katie Daily for posting the above article to the new Wikinomics page “AP Econ in the News”. Several very interesting articles were linked to this page over the weekend, but this one just jumped out at me as particularly interesting.

This piece looks at the question of whether globalization reduces poverty. Many critics of globalization (you know, those union members and see turtle costumed folks who protest at WTO and IMF meetings, and millions like them in the develop and developing worlds), claim that the record of the 1990s shows that a more integrated global economy does not necessarily mean less poverty in poor countries. The author here claims that while global poverty may not have been eliminated during this decade of global integration, this is only because some of the poorest countries have not yet become “globalizers”, rather have remained “non-globalizers”

“…countries that have the best shot at lifting themselves out of poverty are those that open themselves up to the world economy.”

The author points to several figures supporting the positive impact globalization has had on countries that have chosen to participate in the integration of global markets, such as China and India.

“By selling its products on world markets, China has been able to purchase the capital equipment and inputs needed for its modernization. And the surge in foreign investment has brought much-needed managerial and technical expertise. The regions of China that have grown fastest are those that took the greatest advantage of foreign trade and investment.”

Read: SHANGHAI folks. This article points perfectly to the phenomenal growth we’ve observed here in our own home. China’s decision in 1978 with Deng’s “Reform and Opening” to participate in, rather than isolate itself from the global marketplace has resulted in a doubling of life expectancy, a near doubling in literacy rates, rapid development of the country’s infrastructure and the emergence of China as a dominant and undeniable force in the economic and political landscape.

The author explores the idea that China’s (as well as its East Asian neighbors’) economic emergence may have been achieved by shunning free market principles and turning instead to protectionist methods such as quotas, tariffs on imports, subsidies to domestic producers, etc…

Perhaps China has unlocked a secret of successful integration in the global economy. Despite the West’s desire to liberalize and open the economies of all poor nations and their claim that this is the best means to eradicate poverty rapidly, China’s experience shows that a healthy dose of government control and protectionist policy may actually result in the greatest economic gains for the world’s poorest countries. I’m interested to know what students think about China in the world today. Does the high level of government control over the economy stifle further growth and prevent the total eradication of poverty? Or should the government continue to meddle in the market, protecting domestic industries and hope that its interference does not limit the country’s growth, thus halting continued improvements in standard of living experienced by the majority of Chinese over the last 40 years? This may be a good topic to bring up over dinner with your families this week! Share your thoughts here!

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