Monday, March 30, 2009
El Comercio.com, “El 20 de abril se revelará plan para reestructurar la deuda”
Bloomberg.com, “Costa Rica Seeks IMF Credit Line to Shield Economy”
The New York Times, “Rising Powers Challenges U.S. on Role in I.M.F.”
El Universal.com.mx, “México pedirá al G-20 mayor financiamiento a países emergentes”
Once again, many Latin American countries will be incrementing their foreign debt by requesting global financial actors, such as the IMF, for loans as the made-in-America international financial crisis endures in the region. Latin America is on its way to the worst economic performance in three decades, mostly due to the drying up of credit and capital inflows in the region. Other crucial factors include a decline in tourism, contracting rates at 4%, lower levels of remittances from abroad and decreasing trade levels. All these factors influence Latin American countries’ demand for international assistance.
The IMF believes that growth could resume next year, so long developed countries “fix” their financial systems in a “timely and effective” manner. While IMF predictions hope for the best, the IMF admits the need to prepare for the worst. The IMF is providing more options to needy countries, including a short-term credit provision called the Flexible Credit Line, which eliminates lending conditions for countries with low inflation, moderate foreign debt and levels and sound financial policies. The real challenge is to find countries that are perfect candidates for such loan incentive in Latin America, because even open economies such as Costa Rica are struggling to obtain a stand-by credit from the IMF.
The panorama for the region is not promising, according to the IMF’s Western Hemisphere Director Nicolas Eyzaguirre, who would not be surprised if capital inflows to Latin America halve and the IMF doubles or triples the numbers of loan programs in the region by the end of the year. Meanwhile, countries like Mexico, Argentina and Brazil are working together to improve the profile of Latin America through the G20 summit, as a way of demonstrating to institutions like the IMF and the Inter-American Development Bank that the region is trying to keep up with their homework. Other countries like Costa Rica try to strengthen their economies by utilizing multilateral lenders such as the Inter-American Development Bank and the IMF to shore up confidence in the countries’ limping economies and to help banks increase financing options for exporters.
One thing is true, with more Latin American countries slipping into crisis weekly, there is a general consensus that the IMF needs additional resources. The wave of increased demand for IMF resources and renewed growing relevance of the IMF at international level has given the Fund a sort of higher hand to reshape the post-crisis landscape of Latin American countries and to fortify the region’s leaders to push for increased investment in the IMF.
What are some of the long-term implications of increased IMF lending in Latin America?
Do the benefits of borrowing from the IMF outweigh the costs? Do Latin American countries have options other than the IMF?
Sunday, March 29, 2009
While the role of the IMF and of its members will be an important focus of the April 2nd Group of Twenty Summit in London, the IMF itself has an agenda for the G-20 leaders to address. IMF Managing Director Dominique Strauss-Kahn emphasized the paradigm-shifting potential of the upcoming meeting in his recent talk with international journalists. In the meantime, the IMF is undergoing its own “huge change” in lending practices and country representation in order to reduce the stigma attached to IMF loans.
The IMF highlighted five areas of focus that it believes must be addressed in order for the summit to be successful. Financial sector “cleanup” must be a top priority as a healthy financial sector is key to increasing world growth. Next, though 2009 has seen significant fiscal stimulus in many major economies, the G-20 nations must ensure that it will continue to be available in 2010.
The final three goals in the IMF agenda address the effects of the global financial crisis on emerging economies and low-income countries. The IMF wants the G-20 nations to ensure that it has the resources to help emerging markets and low-income nations deal with the global slump in economic growth and the drop in commodities prices. To accomplish these goals, the IMF hopes that the G-20 nations will agree to double its lending capacity to more than $500 billion. The IMF’s so-called “war chest” has been depleted by the $50 billion in loans that it has made to nations struggling to cope with the crisis. The United States has made increasing contributions to the IMF a key part of its agenda for the G-20 meeting, though the U.S.’s own commitment is unclear because Congress must approve it.
As earlier reported in this blog, the IMF also announced major changes in the way it makes loans and the conditions the loans require. In the interview, Strauss-Kahn highlighted that these changes were to be followed by changes in country representation at the IMF in order to give low-income and emerging-market countries greater voice. He expects these changes to be commenced at the G-20 summit as well, an agenda shared by China, Russia, and many other G-20 participants.
Will the G-20 summit have a significant impact on the global financial system? Or are the views and goals of the participant nations now too disparate to reach any real agreement? Is increasing the IMF’s “war chest” an important goal for the Summit?
The IMF has recently taken three major steps to reform its lending policies and make funds more accessible to countries that have been hit hard by the financial crisis. The first major reform is the new Flexible Credit Line (FCL), which has already been dubbed by some as the "EZ loan." To be eligible to receive funds through the FCL, a country must have "very strong fundamentals, policies, and track records of policy implementation," says the IMF. In other words, receiving a loan through the FCL will not be so "easy."
The FCL is different from the IMF's other lending tools in that it permits a country to receive funds without having to commit to specific policy changes. The IMF justifies the FCL's flexibility by noting that only countries that already have strong policy records are eligible to receive funds through the FCL. Moreover, a country's eligibility to use the FCL will be determined on a case by case basis; as such, IMF officials will have quite a bit of discretion in determining whether or not a country is in a position to take out a loan with no strings attached.
The FCL is also considerably more flexible than its predecessor, the Short-Term Liquidity Facility (SLF). For example, while the SLF required that countries repay their loans in 9 months (at the latest), the FCL gives countries 3 1/4 to 5 years to repay their loans. The SLF also limited the amount of money that participating countries could borrow from the IMF. The FCL does not; instead, it provides for a case by case analysis of the amount of money a participating country needs. Finally, the SLF did not allow countries to borrow funds as a precautionary measure. IMF leaders, such as Managing Director Dominique Strauss-Kahn, have explicitly stated that they expect countries to use the FCL as a precautionary tool. The IMF's approval of the FCL will discontinue use of the SLF.
The IMF's second major reform move has been to increase access to its most widely-used lending tool: the stand-by agreement (SBA). The IMF has updated the SBA in two ways: first, it has increased the amount of money that will be available to countries that use this tool, and second, it will allow countries to receive greater amounts of money at the outset of the agreement. The IMF also expects to decrease the number of times it reviews certain countries' policy improvements. If a country has relatively strong policy frameworks to begin with, IMF officials will not review that country's policies as frequently as they would have in the past.
Lastly, the IMF is increasing the total amount of funds available to countries. At this time, IMF officials expect limits on funds that countries may borrow to double. This last change is a response to the growing consensus among international leaders that both advanced and emerging economies increasingly need IMF funds to respond to the financial crisis.
According to Strauss-Kahn, the combination of these three major reform moves will make the IMF a more accessible source of financial support in a time of great need. Specifically, he expects that these reforms will address three major criticisms that the IMF has received since the onset of the crisis: (1) that the IMF conditions its loans on too many factors, (2) that the IMF has not provided pre-crisis financing, and (3) that the IMF's rescue packages have thus far not been large enough. The efficacy of these reforms is sure to be tested as the number of countries affected by the crisis continues to grow.
1- There seem to be significant differences between the IMF's earlier responsive tool to the crisis, the Short-Term Lending Facility, and the new Flexible Credit Line. Do you think that these changes are positive?
2- Given that the Flexible Credit Line is only available to countries with strong policy frameworks, do you think that there will be backlash against the IMF on the part of countries that are struggling both financially and politically? What are the policy reasons against making it easier for countries who are already "strong" in many respects (i.e., in their ability to enact policies) to receive large amounts of money with no strings attached?
3- Should we be concerned that countries' access to the Flexible Credit Line will be determined on a case by case basis, and not according to specific, publicly-available criteria? What factors do you think the IMF will take into account when deciding what countries are eligible to access the FCL and what amounts they may borrow?
All Africa - Ngaire Woods
Kofi Annan recently wrote a piece for AllAfrica.com that calls for reform in the world’s economic institutions. Mr. Annan says that Africa is being hit twice by the current global financial crisis: first, African economies are hit as demand for the exports decreases, and second, when developed countries pass their own stimulus spending it causes capital to flow out of Africa. Thus, Mr. Annan feels that Africa is in dire need of funds to protect its economies and shelter the world’s most vulnerable people. Mr. Annan writes that “trillions of dollars are being found, at short notice, for stimulus plans and bail outs in the richer countries, the least developed countries find themselves lacking access to credit and faced with lending policies and practices that minimise their chances of receiving loans.”
To achieve its goals, Mr. Annan says that Africa can no longer sit on the sidelines as the world’s most developed countries dictates the recovery of the global economy. Instead, African leaders must use this crisis as an opportunity to push for substantive changes in the World Bank, the IMF, the G20 and other major financial players. If the G20 is going to lead the recovery, then, Mr. Annan argues, Africa should have major representation at the discussions. Additionally, the World Bank should have more African representation and a fairer voting system in order to increase its reach and legitimacy in the World. Mr. Annan, however, mentions that these changes will not occur unless there is a political will to reform and also that more developed countries must be willing to cede some of their power to emerging economies.
Along the same lines of Mr. Annan, Ngaire Woods also argues for reform at the IMF and World Bank. Ms. Woods lays out four demands that she feels African leaders should make. First, the IMF and World Bank should give “unconditional assistance to deal with emergencies related to food security or political and security crises.” Second, IMF should be easier to obtain during this liquidity crisis. Third, she calls for a more powerful African Development Bank and finally for the IMF and World Bank should offer practical advice for central banks to follow during the immediate financial crisis. Mr. Woods also advocates better representation of Africa on the IMF and World Bank staffs and also fairer voting systems. (For a great discussion of governance issues related to multilateral banks, please see the UICIFD’s main website here.)
Mr. Annan recognized that institutional reform, alone, would not solve all of Africa’s problems. He concludes as follows:
Africa must do its part too. If they are to profit from the new multilateralism outlined in the contributions published below, the continent's states must heed their commitments regarding governance, accountability and transparency and find ways to act in a more coordinated and concerted fashion.
1) What are ways to increase Africa’s representation at the G20? Right now, South Africa is the only Africa country to sit on the G20. Gordon Brown recently met with many African leaders in order to solicit African opinions prior to the G20 meeting. Is this enough, or is more needed?
2) Why would rich countries be willing to give poorer countries more representation in global financial institutions? Is it for moral obligations, or would it also benefit the rich countries to have more opinions? Would increasing African representation lead to more efficient lending at the World Bank and IMF, which would in turn be a better use of the rich countries’ investments?
Saturday, March 28, 2009
The Kuwaiti cabinet finally passed a $5.2 billion economic stimulus package on Thursday. After weeks of delays due to a standoff with parliament, the cabinet was able to put the plan proposed by the Central Bank into action after the emir dissolved parliament on Wednesday. The dissolution of parliament enabled the outgoing cabinet to go ahead with urgent bills—like this one—without approval from parliament.
The cabinet approved the bailout plan to aid the country’s fledging financial firms. The plan is designed to enable banks to lend about $13.86 billion within two years, of which the government would guarantee up to fifty percent to encourage lending. The government also plans to increase liquidity by purchasing unsubscribed stock—newly issued securities that have not seen much interest from investors or have not been offered by brokerages.
Investment firms, which make up more than half of all listed firms on the Kuwaiti bourse, are welcoming the package with open arms, as they had been appealing to the government to approve the stimulus package for weeks.
Kuwait has been hit hard by the current economic crisis and is an illustration of the expansive reach of the global credit crunch. However, as of yet, it is the only Gulf country that has had to step in to save a big bank.
1. Does the dissolution of parliament strip legitimacy away from this economic stimulus bill? Was it a necessary move? What could the U.S. Administration do if, hypothetically, Congress crippled any attempts at stimulating the economy? Should they be able to do anything?
2. Why do you think that Kuwait has seemingly been hit harder than the other Gulf states?
USA Today - Poll: Outlook Improving About Economy
U.S. consumer views of the economy have become more optimistic in the past few weeks as several economic indicators have brightened. 29% of respondents in a recent Gallup poll say the economy is improving; that is nearly double the percentage who said that just weeks ago. Nevertheless, nearly two-thirds of respondents felt the economy was getting worse and only 9% would classify the U.S. economy as "good".
Increased consumer optimism has blossomed on the heels of several positive (even if temporary) economic indicators. The Dow Jones Industrial Average rose for the third week in a row and has recouped 20% since it hit bottom a few months ago. Consumer spending increased by a small amount in February, and new housing has stemmed its decline.
The current recession started in December 2007, and Americans' increased optimism comes amid the 17th straight month of recession. Analysts are attempting to predict when the trough of the current downturn will occur, and they recently discovered a bit of good news: in past recessions, unemployment applications reached their peak several months before the trough of the recession. U.S. unemployment applications peaked at 650,000 in mid-March. Although that fact gives reason for optimism, overall U.S. unemployment numbers continue to climb upward. The current indicator of 8.1% is the highest in the past 25 years, and many economists predict it will continue to rise even if the U.S. economy begins growing again.
U.S. consumers continue to exhibit high levels of anxiety about their economic prospects. The personal savings rate was 4.2% in February, whereas the savings rate prior to the recession was near zero. Their anxiety appears justified: average after-tax income fell in February, as it had in several prior months.
1) How much does consumer confidence influence tangible economic and financial recovery?
2) Is the trough in the current recession near, or are the current indicators merely temporary ledges before further falls?
Friday, March 27, 2009
The IMF and Serbia have agreed on a loan package that will extend a standby credit of $4.1 billion over a two-year period, but the money comes with strict conditions. Like other countries in the region, Ukraine being one notable example, Serbia may have trouble adhering to the conditions placed on the loan, especially considering societal expectations of public spending in the formerly socialist country.
There is some leeway in the conditions – for example, the agreed-upon number for the budget deficit is now three percent, as opposed to an earlier agreement at one and a quarter percent. Major discretionary spending cuts will be necessary, but not social spending cuts. However, there will be a temporary six percent surcharge tax on all incomes, in addition to an existing two-year freeze on nominal wages and pensions. The government will try to protect its poorest citizens by doubling the minimum threshold income needed to qualify for regular income tax, but the surcharge will be painful for many Serbians.
This package replaces the initially-agreed-upon €520 million standby loan, negotiated in January, which Serbian officials had hoped not to need at all. However, as the economic picture worsens, it is evident that Serbia will need access to funding and will have to swallow the IMF's conditions to receive it. The IMF expects Serbian GDP to contract by two percent in 2009, and to remain at the same level through 2010. The loan, in turn, will strengthen currency reserves and stabilize the slumping dinar. Once Serbia meets the necessary conditions, the loan is expected to go through final IMF approval in May.
1) Do you think this crisis, and the IMF loans to emerging economies that have come out of it, will affect the expectations of people living in the former Eastern Bloc regarding public spending and significantly change public attitudes towards government support for its citizens?
2) Do you think the IMF's conditions on Serbia and other emerging economies are reasonable in this crisis, or are they incompatible with a government's desire to boost the economy through spending?
Monday, March 23, 2009
Treasury Secretary Timothy Geithner unveiled details of the Obama Administration’s plan to clean up toxic assets in the financial system—the long-awaited and politically risky “Public Private Investment Plan” (PPIP). The announcement sent the stock market skyward on Monday, with the Dow gaining 500 points at its biggest one-day point gain since October 2008.
To get troubled assets off of banks’ books, the government and private investors will invest between $500 billion and $1 trillion in buying real-estate-related loans and securities from banks, using $100 billion from the Troubled Assets Relief Program, the Bush Administration’s program to rescue the nation’s failing institutions. The idea is that once the assets are off their books, banks will resume lending and the credit freeze that has crippled world economies will start to thaw. The government and private investors will hold those assets long-term and will be on the hook should the assets lose value (and stand to gain if those assets appreciate in value).
President Obama said that while the financial system is still very fragile, he believes “we are moving in the right direction.” He also commented that the PPIP will position the Treasury more appropriately to lay regulatory groundwork to prevent another crisis of this magnitude. Geithner admitted that the government is taking a huge risk with this plan but underscored that it is better than the alternatives and that “you can’t solve a financial crisis without the government taking on risk.” Treasury officials are banking on the theory that toxic assets’ values have been driven so low due to excessive fear—and not reasonable beliefs in how the economy will actually perform. The hope is that new purchases of those troubled assets will kick-start the markets to functional normally again.
The PPIP has been carefully crafted to serve three diverse goals: giving private investors plenty of incentive to buy the distressed assets, getting banks to willingly sell these assets and protecting taxpayers from unreasonable risk. Private investors could end up putting only 7% of the purchase price down with government contributions and private lenders (who will receive government guarantees). Private investors could receive up to 50% of potential profits—a stance that Treasury officials say will give government and private investors equal stakes, and more of a “we’re all in this together” feeling about the plan.
Some believe that the Treasury is giving up too much to private investors—that if the plan works, it could be very profitable and the government will not have enough of a stake to get the windfall that taxpayers deserve. Banks are concerned about the program, too—mainly that their troubled assets are worth more than current market prices and that they would be forced to incur losses on those assets if they are forced to sell now.
Questions for Discussion:
Do you think the plan will work? Reflecting on past “radical” government actions whose goals were to bring the U.S. out of recessions and depressions—such as FDR’s nearly socialist programs in the 1930s—do you think this controversial plan will bring calm and stability back to the financial markets?
Last Thursday, as many as 3 million took to the streets to protest the French government’s handling of the financial crisis in what is being deemed a war between the classes. The state’s bailout of banks and acceptance of executive bonuses were at the top of the public’s list of grievances. Many students joined the Unions at the front lines, demanding university reform and strides towards combating France’s 20 percent youth unemployment rate. The strike was the second this year; 2.5 million protested on January 29th, which resulted in an extra €2.6bn being devoted to welfare payments and tax cuts for low-income families.
After the strike, the government convened to address possible solutions which may include a second
economic stimulus package (a €26 billion package was implemented earlier this year), tax incentives for companies who retain or hire recently-graduated young professionals, or even government-issued subsidies to keep struggling companies from laying off more workers. Sarkozy has thus far rejected tax breaks or minimum wage increases to boost the economy.
According to Ifop, the French institute of public opinion, Sarkozy’s approval rating has dropped to a mere 27 percent. Two more strikes are planned for the coming week.
Sources: China calls for new reserve currency to replace dollar, Financial Times; China Urges New International Reserve Currency Over Time; Dow Jones Deutschland
China’s central bank proposed the creation of a new international finance system today. The system would be controlled by the International Monetary Fund (IMF) and its primary goal would be to create a reserve currency that is not dependent on the financial health of individual nations. This new currency is intended to replace the US dollar as the international reserve currency. The proposal was presented in an essay written by Zhou Ziaochuan, governor of the People’s Bank of China, and posted on the bank’s website. Analysts suspect the proposal is an indication that the Chinese government fears that actions taken to stabilize the domestic US economy could have a negative impact on China.
Zhou’s essay did not specifically mention the US dollar, but it is considered a critique of the current monetary system, which is centered primarily around US currency. The essay suggested that depending on a national currency to act as an international currency is no longer desirable and that the international community should work towards creating an international reserve currency that is able to remain stable over time. Continued stability would be more likely in the new system than in the current one because problems in individual nations, such as the financial crisis rocking the US and the rest of the western world, would be less likely to unbalance the entire international financial system if the system is not centered around one national currency.
In place of the current system, Zhou suggested expanding the role of Special Drawing Rights (SDRs). SDRs were first introduced as part of the Bretton Woods international financial system, which collapsed in the 1970s. Today, SDRs are based on four currencies, the US dollar, the Yen, the Euro and the Pound Sterling, and they are used as units of account by the IMF. China proposes adding more currencies to the SDR system to include all major economies and setting up a settlement system between SDRs and other currencies so that they could all be used in international trade and financial transactions. The proposal would also require that member countries entrust portions of their SDR reserves to the IMF to manage collectively on their behalf so that the SDRs would eventually replace existing reserve currencies. This system is not expected by anyone, including China, to be implemented immediately. Rather, China urges that the international community work to develop this system in the future and expects that its development will take a great deal of time. A similar system was proposed by John Maynard Keyes in the 1940s.
(1) Is the creation of a new international currency a good idea? What are the pros and cons of instituting such a system?
(2) What impact would the demotion of the US dollar from being the primary international currency have on the US financial system? How would it affect the US economically? Politically?
Madagascar's New Leader Stays Defiant
African Union Suspends Madagascar
Tanks Storm Madagascar Presidential Palace
Madagascar Scraps Daewoo Farm Deal
In an investiture ceremony on Saturday, Andry Rajoelina assumed the presidency of Madagascar capping off a tumultuous few months in the country. Madagascar has been in turmoil since December when mass protests against former president Marc Ravalomanana began. Thousands of poor and hungry Malagasy protestors rioted against Mr. Ravalomanana and the perception that he no longer represented his people. Recently, Mr. Ravlomanana purchased a $60 million private jet, used his power to further his dairy conglomerate, and offered to lease half of Madagascar’s arable land to South Korea at no charge, and these actions did not please citizens, many of whom earn less than $2 a day.
On March 16, Malagasy army tanks stormed the presidential palace, and although Mr. Ravlomanana was not in the palace, he ceded power of the country to the army. The army then appointed Mr. Rojoelina the president of Madagascar. This transition of power has been considered an unconstitutional coup by the majority of the international community. This may lead to a variety of repercussions for the new presidential administration and could effect development in the country.
First, the African Union has suspended Madagascar from participation in the Union. which could potentially lead to economic sanctions. Second, aid to the country has been frozen by many countries. The United States and Norway will stop all payments to Madagascar except for humanitarian aid. Finally, the recent actions of the Malagasy army and Mr. Rojoelina threatens the ability of Madagascar to raise foreign direct investment. Upon assuming the presidency, Mr. Rojoelina cancelled the land lease with Daewoo and South Korea. Though Madagascar was not to benefit financially from this deal, it has made other foreign investors nervous about putting money in the country. Madagascar has large reserves of titanium and bitumen, and they need large foreign investments to develop these industries.
Amid the international uproar, Mr. Rojoelina and his administration has remained steadfast in their claim that his presidency is legitimate. “What can they say about a fight for liberty and democracy? What crime has been committed? We will explain to the whole world our cause ... The people demanded liberty and the military rallied to the popular movement but it did not seize power ... We are confident the international community will understand,” said Roindefo Monja, the new prime minister.
1) Do you think the power shift was constitutional? Even if it was not constitutional, is it justified given the large public support for Mr. Rojoelina?
2) The land-lease deal with South Korea was probably not in Madagascar’s best interest, but it may have lead to some investment in infrastructure. Do you think Mr. Rojoelina will be able to find alternatives?
3) How will this transition affect perceptions of Africa as a whole for foreign investors? Recently, Africa has become much more stable politically. Does this change things?
Sunday, March 22, 2009
On March 19th, the IMF made public its newest study regarding global economic growth for 2009. In the study, the IMF predicts that global economic activity will decrease by .5% to 1% next year. This is the first time in sixty years that the IMF has predicted that the global economic activity will contract to such a degree.
According to IMF officials, one of the major problems facing the global economy is the fact that advanced economies have been slow to implement policies to stabilize their economies. In their view, the longer it takes for advanced economies to implement these policies, the darker the future of the global economy will be come 2010. Implementing these policies is crucial, they argue, because currently, advanced economies' real economies have "stalled" in response to their crumbling financial sectors. How will new policies help address this problem? IMF officials believe that this is a "crisis of confidence." They maintain that new policies will help curb investors' confidence in their national economies and encourage them to spend more money and improve the real economy. On the other hand, if advanced economies continue to falter in implementing new policies, the crisis will continue to take hold of both advanced and emerging economies.
With respect to the United States, for example, the IMF predicts that, if the current administration and Congress successfully enforce its recovery plan during the second half of 2009, the U.S. may see positive economic growth in 2010. While the IMF's study notes that the "euro area" has adopted more moderate policies than the U.S., it also predicts that the stronger presence of welfare and unemployment payments there may make a (positive) difference. The IMF's study also analyzes how the crisis has spilled over to Japan, central and eastern Europe, Latin America, emerging Asia, Africa, and the Middle East. The IMF's study did not comment on the policymaking prospects of those areas, which were originally not at the epicenter of the crisis, but are now nevertheless increasingly feeling its repercussions.
The IMF prepared this study for a recent G-20 meeting in the United Kingdom on March 13th and 14th. The G-20 is the Group of Twenty biggest industrialized emerging and market economies. The G-20 countries have asked the IMF to track international responses to the financial crisis. The meeting that took place in the UK was a pre-cursor to the upcoming G-20 summit, which will take place on April 2nd. During that meeting, financial leaders from the G-20 countries pledged their support to efforts to counteract the financial crisis. According to a recent IMF press release, most advanced and emerging G-20 countries have in fact implemented stimulus packages. A caveat: Though these countries have implemented stimulus packages, they fall short of the rate that the IMF recommends, which is 2% of each respective country's Gross Domestic Product.
1- Why do you think advanced economies have delayed in issuing and implementing policies to address the financial crisis? Could there be political reasons for doing so? Do you think that emerging economies would have acted differently? Would they have taken less, or more, time to implement policies?
2- What do you think the effects of this new study will be on investor confidence around the world? If this is a "crisis of confidence," should IMF officials think twice about releasing these figures? What would be the alternative? Does the IMF have a duty to inform the global investor/consumer about the progress advanced economies have made in responding to the crisis?
Despite small improvements in production, figures released by Ukraine's central bank indicate the country's continuing economic problems. Though the Ukrainian government has stopped releasing monthly GDP figures, the central bank's indicators show GDP continuing to fall in 2009. Experts expect a contraction of at least five percent this year after a 2.1% growth in GDP for 2008. Falling steel and chemical prices are a major source of Ukraine's problems, along with a falling currency and falling consumer demand.
On Wednesday, Prime Minister Yulia Tymoshenko announced that she and her Cabinet would be cutting their salaries in half in response to Ukraine's economic troubles. The Cabinet also asked parliamentarians to join them in the salary reductions, which will be effective until January 2010.
Compounding Ukraine's problems is the suspension of its IMF loan in February. The IMF refused to release a tranche of the loan when Tymoshenko refused to comply with required social spending cuts, and so Ukraine is in desperate need of a new funding source. Next month, Tymoshenko will ask Russia for a $5 billion loan despite warnings from the Ukranian president that such a dependency on Ukraine's giant neighbor would be disastrous for the country. Russia and Ukraine have been on shaky terms since a gas dispute that cut off supplies to Europe last year, and many Ukranians are concerned that indebtedness to Russia could lead to Russian control of the gas line and less bargaining power in the future.
1) Do you think Tymoshenko should avoid asking Russia for help at all costs to maintain Ukrainian political independence, or is seeking a loan from Russia a good way to get around the IMF and avoid unpopular spending cuts?
2) Is it dangerous for Ukraine to be continuing social spending when its economy is performing so poorly?
Geithner to Unveil Toxic Asset Plan, Financial Times
On Monday, the Obama administration, specifically Treasury Secretary Timothy Geithner, will announce plans to assist U.S. banks in removing toxic assets from their balance sheets. The long-awaited plan, which was originally set to be announced much earlier in President Obama's term, is designed to purchase, either directly or through loans, up to $1 trillion of toxic assets from banks and financial institutions. Economists and industry analysts are widely anticipating the details of the plan, as the estimated $2 trillion dollars in toxic assets, including troubled mortgages and related securities, are still widely believed to be dragging down the financial sector and the U.S. economy generally.
The plan is not expected to provide for the direct government purchase of the toxic assets, but rather will likely involve making heavily subsidized, low interest loans made to institutions who purchase the assets at government-managed auctions. While the Treasury Department, under Sec. Geithner's leadership, will be the primary steering agency of the toxic asset plan, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) will also play roles in the administration and distribution of the funds.
In addition to the potential economic impact of the new toxic asset purchase plan, it has also become very politically significant to the Obama administration, especially Sec. Geithner. Geithner and the administration have weathered days of criticism regarding the awarding of over $150 million in federal bailout money as bonuses to AIG executives and are seen by many to be depending on a warm reception of the toxic asset plan to reverse their current political fortunes.
1. Should further public funds be invested in private corporations?
2. Is the Obama administration's toxic asset plan a good strategy to spur economic recovery?
3. Will the political impact of the plan be sufficient to alleviate criticism of Sec. Geithner?
Monday, March 16, 2009
On March 10th and March 11th, the IMF and Tanzanian president Jakaya Kikwete hosted Changes: Successful Partnerships for Africa's Growth Challenge, an international conference that united African finance ministers, central bank governors, and other international leaders such as former UN Secretary General Kofi Annan. One of the objectives of the conference was to showcase Africa's economic success over the past decade. Conference attendees also discussed how Africa will respond to the challenges posed by the global financial crisis and the types of partnerships that the region should forge with outside actors to weather the crisis.
One topic of discussion during the conference was the threat that the financial crisis poses to sub-Saharan economies. According a recent IMF report, over the past decade, sub-Saharan Africa has seen high rates of economic growth and rising income levels. IMF officials are now concerned that the credit crisis will counteract the region's economic progress.
Last week, the IMF released a report entitled "The Impact of the Global Financial Crisis on Sub-Saharan Africa." In the report, the IMF predicts that economic growth in sub-Saharan Africa for 2009 is going to decrease to 3.25%. This figure is a new one: last year, the IMF predicted that the region's growth for 2009 would be twice as high. Sub-Saharan Africa's growth rate for 2008 was 5%.
The IMF's African Department director, Antoinette Sayeh, African policymakers face two competing goals. On one hand, they should try to support domestic activity and focus on helping their poorest citizens. On the other, they should try to maintain macroeconomic stability. According to Sayeh, achieving both of these goals may be a challenge for those sub-Saharan countries that cannot afford to help their poor citizens due to constrains on their national budgets. Creating a "safety net" for the region's poorest is likely to be a more attainable goal for the countries who can afford to be more flexible with their fiscal policy.
It is possible that donations from outside actors may be the saving grace for countries that currently cannot afford to help their poor citizens. In Sayeh's opinion, this is a trying time for the region, and African policy makers can only do so much with the resources that they currently have to work with. In her view, it is time for donors to demonstrate their commitment to development in the region and step up their support.
1- Do you think that involving outside donors will cause additional problems for sub-Saharan African countries? What do you think the political, financial, and cultural consequences would be of accepting an outside donation?
2- What are the additional issues that African policy makers are dealing with, aside from maintaining the balance between helping their poor and keeping their economies afloat? Should the IMF also be mentioning health issues or educational issues?
Chinese environmental groups are worried that the financial crisis will cause China to fall short in reaching its “green” goals. The environmentalists are concerned that, in its efforts to shore up economic growth and jobs, the Chinese government may put the 4 trillion yuan ($585 Billion) set aside for its stimulus plan towards the poorly regulated cement, steel and coke plants, rather than towards more environmentally friendly products.
Chinese leaders have said that their top priority is to maintain an eight percent expansion rate in 2009. To do so, the Chinese government has cut environmental funding in is stimulus plan from 350 billion yuan to 210 billion yuan—a 40 percent decrease. The government also plans to reduce the time needed for environmental-impact assessments from five days to 2 days.
There are some possible environmental positives, however. A breakdown of the stimulus plan provided by the Chinese National Development and Reform Commission showed that funding for technology innovation and structural adjustment has been doubled to 370 billion yuan. Funds are also going to housing construction and infrastructure projects, such as improving the Chinese electrical grid system. Additionally, China plans to shut down 25 million tons of obsolete steelmaking capacity and 72 million tons of iron making capacity. The plans for the auto industry aim to build up to 500,000 units of production capacity for electric vehicles by 2011. All of these projects are likely to have an impact on cleaning up pollution-heavy industries and improving energy efficiency.
(1) In light of the global financial crisis, is China justified in scaling back its environmental initiatives?
(2) What impact will China's lack of focus on the environment have on the rest of the world? How should other countries react?
(3) Although China reduced environmental funding in its stimulus plan, spending in other areas may have a positive environmental impact. Is this enough of an effort on China's part or should it be doing more?
Thursday, March 12, 2009
According to Rand Merchant Bank, business confidence in South Africa has dropped to its lowest level in over a decade. The business confidence index is at 27, and marks the 10th consecutive quarterly decline. The recessions in the US, Europe and Japan has hit South Africa’s exporters particularly hard (these countries represent 60% of South Africa’s exports). Officials at the Rand Merchant Bank said that “the poor state of the global economy will continue to stifle the manufacturing sector for some time. There is also a risk that rising job losses could dampen retail sales.” The South African economy is set to contract for the first time in a decade, as well.
South Africa can take some comfort in the fact that it will be the only African country that will attend the upcoming G20 meeting with the world’s 20 leading economies. Unlike every other country on the continent, South Africa will at least have its voice heard as the G20 meets to discuss a way out of the world-wide recession caused for the credit crisis. In order to allow other African countries an opportunity to offer their views, English Prime Minister Gordon Brown is set to meet with African leaders on March 16.
The World Bank, on the other hand, is attempting to find a way to make the bank more representative of its members. The World Bank announced its intention to form a high level committee, chaired by former Mexican President Ernetso Zedillo that will look at ways to give poorer countries a greater voice in the World Bank governance. World Bank managing director Ngozi Okonjo-Iweala said that reforms need to be made or many African nations risk being “innocent bystanders” in the credit crisis.
1) Should the G20 allow more countries a seat at their table? Does it make sense to invite countries that do not have as much clout as the G20 countries have? What type of input could poorer countries contribute?
2) What effect does business confidence have on the economy. Does it effect the economy or is it just a reflection of attitudes in the economy? Is it both?
Tuesday, March 10, 2009
Muammar Qaddafi, the leader of Libya since 1969, has recently suggested that the West has stolen and utilized many of his ideas in dealing with the current global financial crisis.
Specifically, in a speech in Ukraine in November, Qadaffi suggested that Western attempts to deal with the current global financial crisis were nothing more than an underhanded attempt to steal ideas he had first expressed three decades earlier in The Solution of the Economic Problem “Socialism,” part two of his infamous Green Book.
The Green Book, first published in 1976, outlines Qaddafi’s views on democracy and politics. In the book, Qaddafi completely rejects modern liberal democracy and encourages the institution of a form of direct democracy. Specifically, he proposes an abolition of the wage-system, discourages the rental of housing or transportation, and refutes the concept of private property.
Although the “s” word has been used by some conservatives in the U.S. to characterize President Obama’s fiscal policies surrounding the credit crisis, President Obama persistently refutes those charges. Recently, after an interview with a reporter from the New York Times, President Obama called the reporter to clarify his answer to a question about his political philosophy, reaffirming that he is not a socialist. President Obama noted that, in fact, his administration has been operating in “a way that has been entirely consistent with free market principles.”
Thus, although he has not commented on Qaddafi’s remarks, President Obama surely disagrees—as does the rest of the Western world. Although some fiscal conservatives, especially in the United States, have expressed strong disagreement about the government’s ever-broadening role in responding to the global financial crisis, no one except Qaddafi himself would equate the West’s actions with Qaddafi’s philosophy.
1. Should the current financial crisis motivate Western nations to more seriously consider other economic philosophies?
2. Does Qaddafi really believe that the West is moving toward socialism? If not, why would he accuse the West of stealing his socialist ideals?
Monday, March 09, 2009
More than 43,200 investors of the real-estate fund will be affected by this decision because their money will be “trapped” for two years. This exceptional decision by the Stock Exchange Commission is provided for in a regulation issued in 2005 on real-estate funds. These funds usually lack of liquidity to start because the sale of a real-estate is not as easy and quick as the sale of other assets. For this reason, the actual regulation requires management companies to maintain 10% of their total equity in liquidity in order to satisfy the refund petitions of their clients.
This is the first time that the Spanish Stock Exchange Commission has received such a petition from a fund like Banif Inmobiliario, which is backed by the biggest bank in the Eurozone by market value. Santander Banif Inmobiliario currently has a negative profitability due to the real-estate crisis in Spain. In fact, at least a million of new houses remain unsold. Combined with the haste of its clients for reimbursement, this has resulted in an avalanche of refund petitions that the entity simply cannot satisfy.
As a result, between March 9 and May 5, 2009, and again in February 2011, Santander will only make reimbursements from the 10% of liquid equity required by the 2005 regulation, prorated among all the refund petitions received until February 27, 2009. From that point on, the entity will try to sell residential assets to increase its liquidity. Santander holds that this strategy will assure an equitable distribution among its clients while avoiding to sell real-estate at a loss. The bank has stated that if it cannot fulfill its reimbursement obligations in two years, it will close down the real-estate fund permanently.
Some analysts suggest that this situation could mean the end of the real-estate funds in Spain. In fact, Santander’s downfall was preceded by that of Spanish bank BBVA, which plans to liquidate BBVA Real-Estate Fund in 2010 by reimbursing its clients with 95% of its total equity. While there are no hints of similar situations arising in other real-estate funds, analysts are not ruling out the possibility of a chain reaction.
1) The regulation concerning real-estate funds was issued before the real-estate crisis. Do you think that, due to the present situation, the Spanish Government should enact new regulations in order to deal with the foreseeable avalanche of new petitions from the investors of the real-estate funds?
Sunday, March 08, 2009
Latin Business Chronicle
The Inter-American Development Bank (“IDB”) recently released an interview with the IDB President Alberto Moreno. Mr. Moreno mostly focused on what the IDB is doing to help mitigate the effect the global credit crisis has on Latin America. Moreno first said that the IDB has set aside about $6 billion emergency liquidity fund so that companies can continue to obtain financing. He said that Costa Rica, El Salvador and Jamaica have all used this fund so far. Moreno said that the IDB will also have $12 billion in its usual capital available for countries to borrow from. If the IDB uses both the emergency fund and the usual capital, the total lending in 2009 could reach $18 billion, which would be a record for the IDB.
The President said that the crisis will affect Latin America because there will be less credit available for emerging economies and because the demand for commodities will continue to drop. He noted that the region’s strong banking regulations have helped limit the direct effects of the crisis, but that many international banks have reduced their presence and that it could negatively affect Latin American banks.
In terms of poverty, Mr. Moreno offered somber statistics. He said that based on the region’s experience in previous economic downturns, as many as 12.7 people could fall back below the poverty line. In order to avoid this possibility, Mr. Moreno said that the IDB had to be flexible to the countries’ needs. Since 2003 over 48 million people have been brought out of poverty, and in order to protect these gains it is important that countries provide the necessary social nets for their poorest citizens. He cited a recent $400 million loan for Mexico’s Oportunidades program as a good example of such a net. The program seeks to ensure educational funding for Mexico’s poorest children.
Finally, Mr. Moreno urged countries to continue to invest in infrastructure projects and to avoid protectionism. On infrastructure, he said that these projects would provide jobs and also lay the foundation for future growth. On protectionism he said that “it is important to have in mind that there is no proven alternative to trade and integration as a path to prosperity and poverty eradication.”
1) Mr. Moreno said that many countries in the region would not be able to pursue the same aggressive counter-cyclical strategies of rich nations because they do not have enough money. Will $6 billion in emergency funds be enough for the whole region? Will $18 billion be enough?
2) What reason would Latin American countries have for engaging in protectionism? Unlike larger industrial countries, it doesn’t seem that Latin American countries could provide for all of their needs without some type of trade.
Obama Sees 'Pillars' of Recovery in Place This Year, AFP
While economic indicators, including the recent staggering unemployment numbers, continue to point toward increasingly grave economic circumstances, President Barack Obama expressed measured confidence this week that the coming months would bring the foundation of recovery from the current recession.
These expressions came during President Obama's discussions, both during and after recent meetings with British Prime Minister Gordon Brown, regarding the upcoming G20 summit in London. While meeting with Brown, Obama committed the United States to a global effort to overhaul the global system of financial regulation, which both men agreed was outdated. One central element of the regulatory overhauls will be what Brown described as "a crackdown on shadow banking and tax havens."
In addition to a renewed committment to regulatory reform, Obama also touted the recently-enacted $787 billion stimulus and the reservation in pending budget legislation of $250 billion in further stimulus or bailout money as being the "pillars" of a recovery of the United States' economy--a recovery Obama hopes will being before the end of the year. Obama called on Brown and the rest of the world community to join the United States in a global fiscal stimulus effort. This theme of coordinated global stimulus will likely be at the top of Obama's and his administration's agenda at the upcoming G20 Summit.
1) Is a global system of financial regulation, as opposed to individual, national systems realtistic? Is it desirable?
2) Is fiscal stimulus the best approach to addressing the global financial crisis? If not, what is a better strategy?
3) What is the most favorable outcome of the upcoming G20 Summit?
Saturday, March 07, 2009
Bloomberg - Surging U.S. Unemployment Rate Puts Pressure on Obama
The jobless rate in the United States jumped above eight percent when the government released figures on Friday, going from 7.6% to 8.1%. The new unemployment figure is the highest since 1983.
The total number of unemployed in the U.S. is now around 12.5 million, and economists expect that number to continue to rise during 2009. In all, the U.S. has shed around 4.4 million jobs since December 2007. The jump in unemployment recently announced was greater than that projected (7.9%) and has already surpassed what the Obama administration had predicted would be the average rate for 2009.
One economist predicted the unemployment percentage to hit 10% by the end of 2009, despite measures in the recent stimulus bill that were projected to create 3.5 million jobs. Certain U.S. economic sectors are being particularly hard-hit by the economic crisis: the manufacturing and construction sectors lost 250,000 jobs and the service sector lost 350,000. The only areas of the U.S. economy that saw a jobs increase in February were the government and the health care industry.
Declining consumer spending has helped contributed to the U.S. job losses. Consumer spending declined during the second half of 2008 and is predicted to decline for at least the first half of 2009. That would be the longest decline since records starting tracking that indicator in 1947.
1. Will the stimulus bill halt the decline in jobs, or will unemployment only drop when the U.S. economy's financial sector begins to recover?
Friday, March 06, 2009
Dambisa Moyo has been called the “Anti-Bono” because of her somewhat controversial view that all Western donors should stop sending financial aid to Africa. On the subject of Bono, the famous leader of the rock group U2 who has championed the cause of Africa, she thinks that Africans should be perturbed that a Western rock star is the leading voice for African issues. She jokes that it would be like the United States allowing a British pop star lecture it on how to solve the housing crisis. But Moyo’s arguments are far more serious than her joking lets on.
In her recently released book entitled Dead Aid, Moyo argues that within five years all aid to Africa should stop. She says that Western aid, which is essentially free money with very limited strings attached, has promoted a culture of dependency in Africa that stifles entrepreneurship. The aid crowds outs private industries that will give rise to self-sufficient economic growth in Africa. She also feels that African governments are not accountable to their own citizens, but are accountable to the Western governments that provide the aid. The aid process is also inefficient, she claims, and encourages corruption at the top, and that many poor citizens do not even see the money from western governments. The only way to stop this vicious cycle is to stop all Western aid – and she views the current financial crisis as a great opportunity for Africa to start weaning itself from foreign aid.
In the place of Western Aid, Moyo believes that African countries should continue to develop its trading partners. She also thinks that African countries should explore the possibilities of issuing bonds in foreign markets, particularly China, a country with large foreign reserves. The last component of Moyo’s argument is micro-financing. She says that if people from Western countries still feel like they want to help out Africa than they can issue mico-loans directly to African entrepreneurs.
Her argument has not fallen on deaf ears. For instance, the country of Rwanda has begun to implement her arguments in their economic plans. According to the Principle Private Secretary to President Paul Kagame, Dr. David Himbara seeks to phase out Western aid. He states that Rwanda used to rely 100% on foreign aid, but in the last four year that number is only 44%. Dr Himbara says that it all begins with the mindset of the country. If they believe that they can function without relying on aid, then the country can begin to embrace new methods for financing economic growth.
Moyo is not without her critics, and she does acknowledge some of the positive things that Western aid has brought African, including increased focus on transparency. However, she believes that organizations such as the World Bank have not adequately phased out aid. Moyo says that during her parents generation there was a feeling of “yes we can” in Africa, but that as Western aid has increased her generation is of the “no we can’t” sentiment. That’s exactly what she’d like to change, and stopping aid and increasing self-reliance is the key to achieving such change.
1) Can’t there be a combination of aid and self-dependency or are they as mutually exclusive as Moyo would argue?
2) Another component of Moyo’s argument is that Africa should rely on foreign-direct investment. The current credit crisis has severely limited the willingness of Westerners to send their capital to Africa. Will this hamper her plans?
Thursday, March 05, 2009
In an interview with CNN Monday, Russian Finance Minister Alexei Kudrin admitted that Russia spent oil revenues too quickly during the boom, did not sufficiently diversify the economy, and did not pay enough attention to inflation. He claims personal responsibility for the failure to diversify and admitted that the government should have saved more of its oil revenues for a rainy day such as this crisis. He described the crisis as setting Russia back five years, but did not place blame on the United States or other foreign countries in an unusual admission of responsibility.
Russia will have an eight percent budget deficit in 2009, Kudrin confirmed, and also will run a deficit in 2010 and 2011, though the percentage will decrease. Overall spending decreases are not planned, but wiser prioritizing is, including cutting wasteful spending and decreasing funding to some projects. The priorities are social spending and infrastructure programs, for which funding will remain the same or increase.
In more positive news, Kudrin noted that the capital outflows have stopped due to the lack of an expected devaluation in the currency after January. He also quantified the budget deficits for the next two years, with the deficit for 2011 falling to three percent. Though Kudrin expects further contraction of the Russian economy in 2009, he predicted two to three percent growth in GDP for 2010.
According to Kudrin, private demand is key for growth, and the government should respond with such measures as lower taxes and tarrifs, salary support, and reduced administrative barriers. Though the government is using its public spending for a similar purpose, private demand is important and government investment cannot replace private spending. Instead, Kudrin describes government demand as a "mitigating factor," and government spending as a temporary measure that will be rolled back once private demand returns.
1) Do you think these optimistic predictions about Russia's economic recovery, combined with Medvedev's pulling away gradually from Putin's policies, will prompt a return of foreign investment to Russia?
2) Is private demand likely to return and stay in place for the foreseeable future, driving sustainable growth, or will the need for the government to step in continue given Russia's volatile emerging market economy?
Sunday, March 01, 2009
Inter-American Development Bank
Costa Rica is in negotiations with the Inter-American Development Bank (“IDB”) for a $500-$750 million loan. Costa Rica states that the loan is merely a precaution against any sudden downturn in their economy. The country has about $4 billion in foreign reserves and views this to be an adequate amount, but is seeking the IDB loan in order to “bullet-proof” its economy.
Costa Rica’s economy has been strong in recent years, growing at an average rate of 3%. However, like most other Latin American countries, Costa Rica is facing falling foreign investment and reduced demand for their exports. Costa Rican Central Bank President, Francisco de Paula Gutierrez, said that it is “not possible for an economy as open as Costa Rica to escape a decline in external demand.” Because of the global crisis, many experts project Costa Rica to have between 0%-1% growth in 2009.
The loan from the IDB comes from its Liquidity Program for Growth Sustainability, whose purpose is to “help Latin American and Caribbean governments alleviate the effects of the international turmoil on their countries' macroeconomic stability, growth, and employment.” Costa Rica will use the money in order to provide capital, in US dollars, to its export industry. The export industry has had trouble securing financing because of the global credit crunch, and the loan would fill that role in addition to providing money to other domestic industries in the export chain.
The influx of money may be coming at the right time for Costa Rica’s exporters. One of Costa Rica’s largest exporters, Intel Corp.—which accounts for one-fifth of Costa Rica’s total exports—has seen its fourth quarter exports down 32% compared to last year’s fourth quarter. Though the money won’t help demand problems, it will help stabilize its exporters and mitigate any financing problems they are facing.
In addition to securing a the IDB loan, the Costa Rica government is addressing the financial crisis by raising pensions by 15% and is also investing in school and road construction in order to create jobs.
1) It is certainly important to ensure that exporters have access to capital, but if foreign demand does not increase will the investment in exporters be fruitful?
2) Would it be better to spend the money on other projects or industries?
In a recent column for the New York Times, Tom Friedman argues that the United States should encourage highly-skilled workers to immigrate to the US. Friedman argues that the way to get out of the current financial crisis is not to resort to protectionism, but rather to have an “open door” policy that ensures the world’s best and brightest come to the US and work. This would help spur innovation because, as Friedman describes, the “more knowledge workers you have is an economy, the faster your incomes will rise.” Though, some recent actions by the US—including the “Buy American” clause in the stimulus bill and a restriction on banks receiving bailout money from hiring highly-skilled immigrants who work on a temporary basis—signal a reluctance to follow such policy prescriptions, it is unclear how the US will proceed.
Leon Issacson, a South African Immigration expert, is advocating a similar strategy for South Africa. Issacson believes that the global credit crisis presents a unique opportunity for South Africa to use foreign labor to develop key industries; such as, information technologies, construction and engineering. Countries like the US and the UK are seeing their construction industries shrink, while South Africa’s construction industry continues to grow. Issacson see that this as a chance to convince skilled construction workers to move to South Africa for construction jobs. Though Issacson acknowledges that South Africa might not be the most attractive place to move, he states that South Africa has many attributes—like low cost of living—that make it attractive. He summarizes his argument as follows: “Through this unexpected credit crisis, South Africa has an opportunity where it didn’t before. It is essential to make use of this while it is available to us. Learning from skilled foreigners will empower our growing economy ten fold. We look on government to set an example in this respect.”
Also on the African front, President Obama’s administration is close to choosing a head of the African Bureau at the State Department. This position is likely to be filled by Johnnie Carson, a career diplomat who has extensive experience serving as ambassador to many African nations. President Obama and Vice President Joe Biden also recently met with George Clooney to discuss the administration’s position on Sudan. The administration said that it was conducting a policy review of the situation. With many other issues taking precedence, it will be a while before the administration announces any type of plan for Africa.
1) How successful will South Africa be in encouraging workers to immigrate? Do you think the US should follow Tom Friedman’s advice?
2) President Obama has already stated that it is unlikely that the US will be able to increase international aid, much of which would have gone to Africa. Do you think it is important for the Obama administration to move quickly in building relationship with African countries? If the administration waits, do you think this will be interpreted by Africans as ambivalence on the US’s part?