Sources:
AFP: World Bank Encouraged on Myanmar
Reuters: World Bank Says Reengaging with Myanmar After 25 Years
Wall Street Journal: World Bank Supports Reforms in Myanmar
World Bank: Myanmar and the World Bank
The World Bank stopped lending to Myanmar, formerly known as Burma, in 1987 due to the country’s lack of economic and social reform, as well as failing to make payments owed on World Bank loans. The former military government recently handed power to a new civilian government that is reopening communication with the international community. The World Bank, based on Myanmar’s recent openness, has begun discussions with the country about potentially initiating developmental programs in the near future.
Myanmar, once known as the “rice bowl of Asia” due to its strong agricultural sector, had a strong economy before economic mismanagement and civil war transformed the country into one that is now deeply impoverished. For example, the World Health Organization ranks Myanmar’s health system as the worst in the world. The military government gave up power in an attempt to reverse the country’s negative economic and social trends. This new government has initiated dialog with outside countries and organizations, began speaking with the political opposition and ethnic minorities, and released some political prisoners. Additionally, to boost economic development, Myanmar is planning to offer eight-year tax-exempt status to all foreign investors.
The World Bank is satisfied with the country’s recent political and economic decisions, and is now considering new lending programs to Myanmar. However, World Bank regulations do not allow it to provide funding to any country that is behind on debt payments. Therefore, before Myanmar will be able to receive new World Bank loans, the country must first make arrangements to pay its past due debts to the World Bank. While the World Bank has not released exact numbers, financial experts estimate that Myanmar owes $700 million in arrears to the World Bank.
If Myanmar and the World Bank solve the issues surrounding Myanmar’s past debts, new World Bank projects would likely focus on improving public services (such as education and sanitation), upgrading the antiquated banking and finance sectors, and facilitating private sector job creation (for example, by promoting open communications throughout the country). World Bank programs will also support sustained peace, especially in regions where ethnic fighting has torn communities apart since the country gained independence from Britain in 1948, by developing jobs for past combatants. If the World Bank and Myanmar can agree on financial action that will improve the lives of Myanmar’s citizens, it will provide hope to the citizens of other oppressive governments that the international community is willing to help if a peaceful government can be installed.
Showing posts with label Development Aid. Show all posts
Showing posts with label Development Aid. Show all posts
Tuesday, February 28, 2012
Thursday, November 10, 2011
The World Bank and Others Suspend Funding to Malawi
Sources:
CIA World Fact Book: Malawi Country Profile
Maravi Post: World Bank to Malawi: Put Your House in Order
Nyasa Times: World Bank Tells Malawi: Address Concerns to Get Aid
Reuters: Malawi Donors to Continue Withholding Aid: Paper
The Star: Malawi Abandons Tobacco for Crop Diversification, Food Security
Malawi, a small, landlocked country in southeastern Africa, currently has one of the fastest growing economies in Africa. Despite the strong growth, Malawi is still struggling with economic and political issues associated with being an underdeveloped country. Adding to these problems is the recent decision of the World Bank and a large number of other donors to withhold $500 million in aid until certain political and economic concerns are addressed. The funding issues are particularly sensitive due to recent economic problems.
Among the political policy concerns that lenders want Malawi to address are threats to media freedom, overall poor governance, deteriorating human rights, and the government’s handling of anti-government demonstrations where twenty protestors were killed. In addition to political concerns, the World Bank is concerned about an economic policy calling for the adherence to a zero-deficit budget, meaning that the country’s spending is higher than its revenues. Many economists believe running a deficit can help reverse an economic downturn. In times of financial hardship demand for goods decreases, which reduces sales and, therefore, profits, which leads to job and wage cuts, which further reduces demand. Governments, in some instances, can reverse this cycle by spending money to increase demand. To do so, however, the government may have to borrow money, and, thus, run a deficit.
If the Malawi Government addresses the above political and economic concerns, budgetary funding from the international community will resume. The funding is especially important given the country’s current economic problems. Tobacco accounts for 70% of the country’s export revenue, but a combination of the global economic recession, overproduction, and anti-tobacco campaigns have reduced its global demand and price, putting deflationary pressure on the Malawian currency. A currency’s value is affected by many factors, one of which is the number of individuals who need to purchase a currency to pay for goods purchased from that country. With the demand and price of tobacco declining, fewer people are buying tobacco from Malawi, which means fewer people need to purchase Malawian currency. This reduced demand leads to a decline in the exchange rate.
The International Monetary Fund (IMF) recognized that the decreased demand for Malawian goods has lead to its currency being overvalued because its value has remained the same even though demand has fallen due to the government’s use of a fixed exchange rate system. During the summer of 2011, the IMF suggested that the exchange rate should be lowered to encourage foreign investment (a cheaper currency means lower costs for foreigners) and align the Malawian exchange rate with what it would be if determined by the free market. The Malawi government followed the IMF’s suggestion and devalued their currency by approximately 10%. Because the Malawian currency is now worth less on the international market, the cost of importing food and oil has increased, which has lead to hardship for many of the country’s citizens, and made the need for international aid especially pressing.
CIA World Fact Book: Malawi Country Profile
Maravi Post: World Bank to Malawi: Put Your House in Order
Nyasa Times: World Bank Tells Malawi: Address Concerns to Get Aid
Reuters: Malawi Donors to Continue Withholding Aid: Paper
The Star: Malawi Abandons Tobacco for Crop Diversification, Food Security
Malawi, a small, landlocked country in southeastern Africa, currently has one of the fastest growing economies in Africa. Despite the strong growth, Malawi is still struggling with economic and political issues associated with being an underdeveloped country. Adding to these problems is the recent decision of the World Bank and a large number of other donors to withhold $500 million in aid until certain political and economic concerns are addressed. The funding issues are particularly sensitive due to recent economic problems.
Among the political policy concerns that lenders want Malawi to address are threats to media freedom, overall poor governance, deteriorating human rights, and the government’s handling of anti-government demonstrations where twenty protestors were killed. In addition to political concerns, the World Bank is concerned about an economic policy calling for the adherence to a zero-deficit budget, meaning that the country’s spending is higher than its revenues. Many economists believe running a deficit can help reverse an economic downturn. In times of financial hardship demand for goods decreases, which reduces sales and, therefore, profits, which leads to job and wage cuts, which further reduces demand. Governments, in some instances, can reverse this cycle by spending money to increase demand. To do so, however, the government may have to borrow money, and, thus, run a deficit.
If the Malawi Government addresses the above political and economic concerns, budgetary funding from the international community will resume. The funding is especially important given the country’s current economic problems. Tobacco accounts for 70% of the country’s export revenue, but a combination of the global economic recession, overproduction, and anti-tobacco campaigns have reduced its global demand and price, putting deflationary pressure on the Malawian currency. A currency’s value is affected by many factors, one of which is the number of individuals who need to purchase a currency to pay for goods purchased from that country. With the demand and price of tobacco declining, fewer people are buying tobacco from Malawi, which means fewer people need to purchase Malawian currency. This reduced demand leads to a decline in the exchange rate.
The International Monetary Fund (IMF) recognized that the decreased demand for Malawian goods has lead to its currency being overvalued because its value has remained the same even though demand has fallen due to the government’s use of a fixed exchange rate system. During the summer of 2011, the IMF suggested that the exchange rate should be lowered to encourage foreign investment (a cheaper currency means lower costs for foreigners) and align the Malawian exchange rate with what it would be if determined by the free market. The Malawi government followed the IMF’s suggestion and devalued their currency by approximately 10%. Because the Malawian currency is now worth less on the international market, the cost of importing food and oil has increased, which has lead to hardship for many of the country’s citizens, and made the need for international aid especially pressing.
Sunday, September 25, 2011
Historic U.N. Meeting Addresses the Global Impact of Non-Communicable Diseases
Sources:
CNN: U.N. Adopts Political Declaration on Non-Communicable Diseases
Council on Foreign Relations: Global Action on Non-Communicable Disease
Reuters: UN Assembly Backs Steps to Fight Chronic Disease
UN: High-Level Meeting on Non-communicable Diseases
In a landmark United Nations (U.N.) summit, world leaders converged for the first ever high-level meeting to address non-communicable diseases (NCDs)—the leading cause of death across the globe. Non-communicable diseases, such as cancer or heart disease, are diseases that do not pass from one person to another. The General Assembly (GA) addressed prevention and control of four groups of NCDs: cancer, cardiovascular disease, chronic respiratory diseases and diabetes. This week’s session represents only the second time in U.N. history that a global health issue commanded the attention of the GA, after it addressed the global AIDS epidemic nearly ten years ago.
In addition to lost lives, the economic costs of NCDs add to their total impact. NCD’s kill more than 36 million people each year and the World Economic Forum estimates that NCDs will cost the global economy $47 trillion over the next 20 years. Though NCDs are increasing dramatically world-wide, most developing nations are ill-equipped to effectively deal with major health problems due to a lack of equipment, well-trained doctors, and medicines. This reality is especially problematic considering more than 80% of NCD deaths occur in low- and moderate-income nations. With the exception of Africa, NCDs cause more deaths and illness world-wide than communicable diseases like HIV and malaria that generally receive more attention from the international community. Even in developed nations, NCDs create a substantial drag on the economy and highlight the issue of unequal access to medical care.
To combat NCDs, member nations unanimously adopted a “political declaration” calling for implementation of collaborative efforts between governments and the private sector to reduce risk factors, such as obesity and tobacco and alcohol use. The declaration highlights the need for comprehensive health care, calls for assistance to developing countries, and mandates the coordination of local, national, and international efforts to promote healthier lifestyle choices. The broad language of the declaration also touches on key health issues such as breast feeding, cancer screenings, and medical research. The declaration calls on the World Health Organization to prepare global target goals and an international monitoring framework by the end of 2012.
The practical effect of a U.N. political declaration elevates NCD’s on the global health agenda and provides the basis for governmental action at national and global levels. Private and public funding for such initiatives will likely increase as collective awareness rises. The declaration will be part of the U.N.’s permanent record delineating global development priorities and will provide a foundation for further collaborative efforts among member nations. By recognizing the impact of NCDs and addressing root causes, the measures proposed by the U.N. seek to limit the negative effect of NCDs on social and economic development worldwide.
CNN: U.N. Adopts Political Declaration on Non-Communicable Diseases
Council on Foreign Relations: Global Action on Non-Communicable Disease
Reuters: UN Assembly Backs Steps to Fight Chronic Disease
UN: High-Level Meeting on Non-communicable Diseases
In a landmark United Nations (U.N.) summit, world leaders converged for the first ever high-level meeting to address non-communicable diseases (NCDs)—the leading cause of death across the globe. Non-communicable diseases, such as cancer or heart disease, are diseases that do not pass from one person to another. The General Assembly (GA) addressed prevention and control of four groups of NCDs: cancer, cardiovascular disease, chronic respiratory diseases and diabetes. This week’s session represents only the second time in U.N. history that a global health issue commanded the attention of the GA, after it addressed the global AIDS epidemic nearly ten years ago.
In addition to lost lives, the economic costs of NCDs add to their total impact. NCD’s kill more than 36 million people each year and the World Economic Forum estimates that NCDs will cost the global economy $47 trillion over the next 20 years. Though NCDs are increasing dramatically world-wide, most developing nations are ill-equipped to effectively deal with major health problems due to a lack of equipment, well-trained doctors, and medicines. This reality is especially problematic considering more than 80% of NCD deaths occur in low- and moderate-income nations. With the exception of Africa, NCDs cause more deaths and illness world-wide than communicable diseases like HIV and malaria that generally receive more attention from the international community. Even in developed nations, NCDs create a substantial drag on the economy and highlight the issue of unequal access to medical care.
To combat NCDs, member nations unanimously adopted a “political declaration” calling for implementation of collaborative efforts between governments and the private sector to reduce risk factors, such as obesity and tobacco and alcohol use. The declaration highlights the need for comprehensive health care, calls for assistance to developing countries, and mandates the coordination of local, national, and international efforts to promote healthier lifestyle choices. The broad language of the declaration also touches on key health issues such as breast feeding, cancer screenings, and medical research. The declaration calls on the World Health Organization to prepare global target goals and an international monitoring framework by the end of 2012.
The practical effect of a U.N. political declaration elevates NCD’s on the global health agenda and provides the basis for governmental action at national and global levels. Private and public funding for such initiatives will likely increase as collective awareness rises. The declaration will be part of the U.N.’s permanent record delineating global development priorities and will provide a foundation for further collaborative efforts among member nations. By recognizing the impact of NCDs and addressing root causes, the measures proposed by the U.N. seek to limit the negative effect of NCDs on social and economic development worldwide.
Wednesday, April 27, 2011
Possible Conflict May Arise Over Jamaica’s Stand-by Agreement with IMF Over 5% Tax Cut in Fuel
Sources:
Jamaican Gleaner: IMF Open to New Standby Agreement with Jamaica
Business Content Jamaica: Jamaica Shaves 5% Off Controversial Gas Tax
Business Content Jamaica: 1.2% Decline in Jamaica’s Economic Growth
On April 12, 2011, the Jamaican government successfully avoided protest by opposition party, the Peoples National Party (“PNP”). The PNP, had originally scheduled the protest to oppose the Jamaican government’s implementation of a 15% tax increase on fuel. Consumers had already been hit hard by the international increase of fuel prices and the 15% tax increase would have only increased costs for cash-strapped consumers. Currently Jamaican motorist pay more than $4.40 per gallon for gasoline. The 15% tax increase would have sent the price of gasoline to over $5.00 per gallon, something the PNP was unwilling to accept. In response to the possible protest, the Jamaican government agreed to reduce the tax by 5% and successfully quelled the party’s protest.
Although the Jamaican government avoided the immediate fear of political protest, reducing the fuel tax has only created another imminent fear for the Jamaican government. The 15% increase in tax fuel was one of the conditions negotiated in a medium-term economic stand-by agreement with the International Monetary Fund. This agreement between the Jamaican government and the IMF provides the Jamaican government with a 3-year $1.27 billion dollar loan in order to help the government implement new economic reforms and cope with the global downturn. However, the agreement comes with conditions and clearly states that the Jamaican government must meet certain markers and goals for ensuring greater fiscal discipline. One of these markers included increasing cash supply through increased taxation, which the 15% fuel tax increase was supposed to be a part of. The 5% decrease assented to by the Jamaican government, will now force them to explain an unexpected budgetary cost of 3.5 billion Jamaican dollars (roughly $41 million U.S. dollars) to the IMF. It is clear from the terms of the stand-by agreement with the IMF, that Jamaica faces possible legal sanctions for failing to meet these markers. Already identified as a government with a “terminal point problem,” or a problem with failing to meet financial and structural markers, the Jamaican government is unsure if this decrease in tax fuel will have a legal affect for the country. However, in the February review of the agreement, IMF technocrat Trevor Alleyne said the IMF is working with the Jamaican government to ensure that resort to legal sanctions is avoided.
Although some support the stand-by agreement between the IMF and the Jamaican government, critics point to Jamaica’s 1.2% GDP contraction in the 2010 year as an indicator that the reforms imposed by the terms of the agreement are not stimulating growth. Alleyne contends that increasing GDP was never the major goal of issuing the loan, but providing insurance for banks in case of a sharp demand for loans during a debt exchange shock, or fallout, was. Maintaining the economic confidence of companies is crucial toward the growth of the country, Alleyne stated.
However, when a sharp GDP contraction in Jamaica’s September quarter, did not send companies running to the bank for cash bailouts, critics viewed the loan as an attempt to swindle the Jamaican government into paying interest on a overly excessive loan, since $950 million of the $1.27 billion loaned by the IMF had been allocated for such a shock. Alleyne contends that the loan was created to prepare Jamaican banks against the worst possible scenario, not as a reflection of the IMF’s belief that the worst case scenario would actually happen.
Despite criticisms of the loan, the Jamaican government will continue to work with the IMF to make improvements in their fiscal planning. If nothing else the existence of the loan will encourage much needed cheap budgetary support from the World Bank and the Inter-American Development Bank.
Jamaican Gleaner: IMF Open to New Standby Agreement with Jamaica
Business Content Jamaica: Jamaica Shaves 5% Off Controversial Gas Tax
Business Content Jamaica: 1.2% Decline in Jamaica’s Economic Growth
On April 12, 2011, the Jamaican government successfully avoided protest by opposition party, the Peoples National Party (“PNP”). The PNP, had originally scheduled the protest to oppose the Jamaican government’s implementation of a 15% tax increase on fuel. Consumers had already been hit hard by the international increase of fuel prices and the 15% tax increase would have only increased costs for cash-strapped consumers. Currently Jamaican motorist pay more than $4.40 per gallon for gasoline. The 15% tax increase would have sent the price of gasoline to over $5.00 per gallon, something the PNP was unwilling to accept. In response to the possible protest, the Jamaican government agreed to reduce the tax by 5% and successfully quelled the party’s protest.
Although the Jamaican government avoided the immediate fear of political protest, reducing the fuel tax has only created another imminent fear for the Jamaican government. The 15% increase in tax fuel was one of the conditions negotiated in a medium-term economic stand-by agreement with the International Monetary Fund. This agreement between the Jamaican government and the IMF provides the Jamaican government with a 3-year $1.27 billion dollar loan in order to help the government implement new economic reforms and cope with the global downturn. However, the agreement comes with conditions and clearly states that the Jamaican government must meet certain markers and goals for ensuring greater fiscal discipline. One of these markers included increasing cash supply through increased taxation, which the 15% fuel tax increase was supposed to be a part of. The 5% decrease assented to by the Jamaican government, will now force them to explain an unexpected budgetary cost of 3.5 billion Jamaican dollars (roughly $41 million U.S. dollars) to the IMF. It is clear from the terms of the stand-by agreement with the IMF, that Jamaica faces possible legal sanctions for failing to meet these markers. Already identified as a government with a “terminal point problem,” or a problem with failing to meet financial and structural markers, the Jamaican government is unsure if this decrease in tax fuel will have a legal affect for the country. However, in the February review of the agreement, IMF technocrat Trevor Alleyne said the IMF is working with the Jamaican government to ensure that resort to legal sanctions is avoided.
Although some support the stand-by agreement between the IMF and the Jamaican government, critics point to Jamaica’s 1.2% GDP contraction in the 2010 year as an indicator that the reforms imposed by the terms of the agreement are not stimulating growth. Alleyne contends that increasing GDP was never the major goal of issuing the loan, but providing insurance for banks in case of a sharp demand for loans during a debt exchange shock, or fallout, was. Maintaining the economic confidence of companies is crucial toward the growth of the country, Alleyne stated.
However, when a sharp GDP contraction in Jamaica’s September quarter, did not send companies running to the bank for cash bailouts, critics viewed the loan as an attempt to swindle the Jamaican government into paying interest on a overly excessive loan, since $950 million of the $1.27 billion loaned by the IMF had been allocated for such a shock. Alleyne contends that the loan was created to prepare Jamaican banks against the worst possible scenario, not as a reflection of the IMF’s belief that the worst case scenario would actually happen.
Despite criticisms of the loan, the Jamaican government will continue to work with the IMF to make improvements in their fiscal planning. If nothing else the existence of the loan will encourage much needed cheap budgetary support from the World Bank and the Inter-American Development Bank.
Wednesday, February 02, 2011
The Countries of the “Northern Triangle” Rise as the New Launch Pad for Drug Distribution in Central America
Sources:
The Economist: Organized Crime in Central America: The Rot Spreads
The Economist: El Salvador’s President: So Far, So Good
Federation of American Scientists: U.S.-Mexican Security Cooperation: the Mérida Initiative and Beyond
The Central American countries of El Salvador, Guatemala and Honduras have in the past two years risen to the forefront of the war on drugs. With harsher crackdowns on the drug cartels in Mexico, the cartels have looked to launch their drug supplies from nearby locations with less police pressure. The major source of cartel pressure in Mexico has come from the Merida Initiative, a “counterdrug and anticrime assistance package” launched in 2007 between the United States and Mexico. The Merida Initiative has provided a total of $1.8 billion in the form of arms and police training for various countries throughout Central America and the Caribbean, and $1.5 billion of this funding has gone directly to counter the drug cartels in Mexico. Ten years ago this would have been a good strategy given that Mexico was the largest “staging post” for drug distribution to the United States. However, with the recent pressures placed on the cartels in Mexico, they have simply moved south into the countries of Honduras, El Salvador and Guatemala. Over the past ten years these three countries have simultaneously grown into the major launch pad for drugs imported from Columbia and Venezuela into the United States and have achieved the highest rates of murder in the world. As such, these countries are now notoriously known as the “Northern Triangle,” a region fraught with poverty and violence.
The “Northern Triangle” has been fertile ground for the Mexican drug cartel— many point to the dire poverty of these countries as the major reason. The average income in these countries is near $2,700 per person, barely a third that of Mexico. Amid the global financial crises, El Salvador’s economy shrank by 3.6%, one of the biggest drops in the region. The country is not expected to reach its pre-recession norm until 2012 because its economic growth is largely dependent on the growth of the United States, which has been slow. Considering the $2.1 billion worth of drugs, arms, and cash seized earlier this year in Guatemala, equal to roughly the same as 5% of the country’s GDP, it is not hard to see why many in financial distress have looked to join with one of the few lucrative ventures in their countries. Mexican mafias, “Zetas” and “Sinaloa,” have found willing and lethal new recruits to ferry drugs, extort, and kidnap, in the countries’ 70,000 street youth gang members known as “Maras.”
Honduras’s Attorney-General Roy David Urtecho, recently stated “Maras” were seeking “to establish themselves as legitimate traffickers instead of street-level thugs.” The 2009 coup in Honduras broke cooperation efforts with foreign states and suspended foreign aid into the country, aid and cooperation necessary to combat organized crime, making Honduras an easy target for increased trafficking. In 2009, 154 drug trafficking flights were logged, up from almost none in 2005. Add to this the assassination of Honduras’s top anti-drugs official in 2009, which seems to have been a Sinaloa hit, and the prospect of these countries freeing themselves from the drug trade appears grim. However the recent adaptation of social, verses militant approaches to countering drug trafficking, may be the solution these countries have been looking for. President Funes of El Salvador initially took a hard-line approach to the drug trade by ordering the army into the streets and banning gang membership, but the effect of this tactic tapered. However, Funes was successful in building other social programs in the country, an approach that could indirectly diminish the strength of the cartel. El Salvador, for example, now has free basic education, and disadvantaged children are given school uniforms and shoes. This year an additional 22,000 children have enrolled in school, which means 22,000 fewer children are likely to become “Maras.”
President Obama appears to believe in the same “social” strategy for curtailing the drug trade. As the term for the initial Merida Initiative draws to an end, President Obama has proposed a new “four-pillar” strategy. Although the first two pillars consist of much of the same tactics as the original initiative, the last two focus on “(3) building a 21st century border between the United States and Mexico, and (4) building strong and resilient communities.” These last two pillars seek to increase the secure flow of people and goods between the United States and Mexico and to improve conditions in cities prone to cartel violence through social programs and alleviating poverty. Although initial implementation of the last two pillars will largely be in Mexico, hopefully the combined efforts of presidents from the United States, the countries of the Northern Triangle and Mexico will give this strategy greater success than initiatives of the past.
Discussion:
1) Given the assassination of drug officials in Honduras in 2009, are efforts to counter drug cartels by ordering armies and police into the streets a good strategic approach to the problem, or does the approach just lend to more violence?
2) Can social programming be justifiably funded by and through the Merida Initiative, an initiative specifically started to counter the “war on drugs?”
The Economist: Organized Crime in Central America: The Rot Spreads
The Economist: El Salvador’s President: So Far, So Good
Federation of American Scientists: U.S.-Mexican Security Cooperation: the Mérida Initiative and Beyond
The Central American countries of El Salvador, Guatemala and Honduras have in the past two years risen to the forefront of the war on drugs. With harsher crackdowns on the drug cartels in Mexico, the cartels have looked to launch their drug supplies from nearby locations with less police pressure. The major source of cartel pressure in Mexico has come from the Merida Initiative, a “counterdrug and anticrime assistance package” launched in 2007 between the United States and Mexico. The Merida Initiative has provided a total of $1.8 billion in the form of arms and police training for various countries throughout Central America and the Caribbean, and $1.5 billion of this funding has gone directly to counter the drug cartels in Mexico. Ten years ago this would have been a good strategy given that Mexico was the largest “staging post” for drug distribution to the United States. However, with the recent pressures placed on the cartels in Mexico, they have simply moved south into the countries of Honduras, El Salvador and Guatemala. Over the past ten years these three countries have simultaneously grown into the major launch pad for drugs imported from Columbia and Venezuela into the United States and have achieved the highest rates of murder in the world. As such, these countries are now notoriously known as the “Northern Triangle,” a region fraught with poverty and violence.
The “Northern Triangle” has been fertile ground for the Mexican drug cartel— many point to the dire poverty of these countries as the major reason. The average income in these countries is near $2,700 per person, barely a third that of Mexico. Amid the global financial crises, El Salvador’s economy shrank by 3.6%, one of the biggest drops in the region. The country is not expected to reach its pre-recession norm until 2012 because its economic growth is largely dependent on the growth of the United States, which has been slow. Considering the $2.1 billion worth of drugs, arms, and cash seized earlier this year in Guatemala, equal to roughly the same as 5% of the country’s GDP, it is not hard to see why many in financial distress have looked to join with one of the few lucrative ventures in their countries. Mexican mafias, “Zetas” and “Sinaloa,” have found willing and lethal new recruits to ferry drugs, extort, and kidnap, in the countries’ 70,000 street youth gang members known as “Maras.”
Honduras’s Attorney-General Roy David Urtecho, recently stated “Maras” were seeking “to establish themselves as legitimate traffickers instead of street-level thugs.” The 2009 coup in Honduras broke cooperation efforts with foreign states and suspended foreign aid into the country, aid and cooperation necessary to combat organized crime, making Honduras an easy target for increased trafficking. In 2009, 154 drug trafficking flights were logged, up from almost none in 2005. Add to this the assassination of Honduras’s top anti-drugs official in 2009, which seems to have been a Sinaloa hit, and the prospect of these countries freeing themselves from the drug trade appears grim. However the recent adaptation of social, verses militant approaches to countering drug trafficking, may be the solution these countries have been looking for. President Funes of El Salvador initially took a hard-line approach to the drug trade by ordering the army into the streets and banning gang membership, but the effect of this tactic tapered. However, Funes was successful in building other social programs in the country, an approach that could indirectly diminish the strength of the cartel. El Salvador, for example, now has free basic education, and disadvantaged children are given school uniforms and shoes. This year an additional 22,000 children have enrolled in school, which means 22,000 fewer children are likely to become “Maras.”
President Obama appears to believe in the same “social” strategy for curtailing the drug trade. As the term for the initial Merida Initiative draws to an end, President Obama has proposed a new “four-pillar” strategy. Although the first two pillars consist of much of the same tactics as the original initiative, the last two focus on “(3) building a 21st century border between the United States and Mexico, and (4) building strong and resilient communities.” These last two pillars seek to increase the secure flow of people and goods between the United States and Mexico and to improve conditions in cities prone to cartel violence through social programs and alleviating poverty. Although initial implementation of the last two pillars will largely be in Mexico, hopefully the combined efforts of presidents from the United States, the countries of the Northern Triangle and Mexico will give this strategy greater success than initiatives of the past.
Discussion:
1) Given the assassination of drug officials in Honduras in 2009, are efforts to counter drug cartels by ordering armies and police into the streets a good strategic approach to the problem, or does the approach just lend to more violence?
2) Can social programming be justifiably funded by and through the Merida Initiative, an initiative specifically started to counter the “war on drugs?”
Monday, January 24, 2011
One Year After Earthquake Reconstruction for Haiti Looks Slow
Sources:
BBC.com: Haiti PM Criticises Post-Earthquake Rebuilding Efforts
TheWashingtonPost.com: Foreign Aid Keeps the Country from Shaping Its Own Future
CIRH.ht: Interim Haiti Recovery Commission, Mission Statement
CNN.com: Charges Filed Against ‘Baby Doc’ Duvalier in Haiti
Economist.com: The Year of Surviving in Squalor
Ten days ago marked the one-year anniversary of the 7.0 earthquake that rocked Haiti, killed an estimated 250,000 thousand Haitians, and left over a million homeless. The international community responded by pledging $5.8 billion toward the reconstruction of Haiti. However, one year after the earthquake, not much has changed since that devastating day. Nearly one million Haitians remain homeless and are living in tents sprawled across the nation’s capital, Port-au-Prince. If anything, the situation has worsened given the cholera outbreak that claimed the lives of more than 3,000 Haitians and infected more than 150,000 others. The nationwide rioting following the failed December 2010 elections and the recent return of former Haitian dictator, “Baby Doc” Duvalier, only highlight the Haitian government’s inability to cure current problems and free itself from past problems.
Haiti’s unstable government has deterred investors and donors from investing in the country because they dont know if the funds will be properly managed and allocated to areas that need it most. The unstable government has earned it the moniker “Republic of NGOs,” connoting how investments into Haiti bypass the government and go directly to support NGOs in the country.
Many blame the unstable government for why over half the pledged aid has not been delivered to the country. Thus far, the majority of outside funding has gone to pay the country’s debt and not for reconstruction efforts. In an effort to speed reconstruction and build investor confidence, the Haitian Government created the Interim Haiti Recovery Commission (“IHRC”) by presidential decree on April 21, 2010. Co-chaired by Haitian Prime Minister Jean-Max Bellerive and former U.S. President Bill Clinton, the goal of the IHRC is to develop a reconstruction plan for Haiti by assessing the needs and investment priorities of the country, coordinating reconstruction efforts, and allocating donor investments accordingly.
Unfortunately many criticize the IRHC’s action plan as “more of the same” old policies focused on making Haiti a source of cheap labor in the region and reducing protective tariffs on imported goods—policies Haitians claim failed to work for the country in the past. Critics further allege that although the IHRC is comprised equally of both foreigners and Haitian members, Haitians are largely left out of planning reconstruction policies. Without incorporating Haitian people into the creation of a plan for reconstruction, many believe foreigners will encourage policies that continue to fail. However, some see signs of hope. Pamela Cox, a World Bank official who sits on the IHRC, claims that although IHRC efforts toward reconstruction should have started earlier, reconstruction is indeed happening and the economy has “held up.”
Discussion:
1) IHRC member and World Bank official, Pamela Cox claims that the commission has made progress toward reconstruction. Given that nearly 1 million people are homeless and living in tent shanty towns, should Haitians continue to trust the commission to provide actual and substantial reconstruction for the country?2) There has been rioting in the country over the December elections. Should funding and aid continue to bypass the Haitian government and go directly to NGOs while the state of the government is so precarious?
BBC.com: Haiti PM Criticises Post-Earthquake Rebuilding Efforts
TheWashingtonPost.com: Foreign Aid Keeps the Country from Shaping Its Own Future
CIRH.ht: Interim Haiti Recovery Commission, Mission Statement
CNN.com: Charges Filed Against ‘Baby Doc’ Duvalier in Haiti
Economist.com: The Year of Surviving in Squalor
Ten days ago marked the one-year anniversary of the 7.0 earthquake that rocked Haiti, killed an estimated 250,000 thousand Haitians, and left over a million homeless. The international community responded by pledging $5.8 billion toward the reconstruction of Haiti. However, one year after the earthquake, not much has changed since that devastating day. Nearly one million Haitians remain homeless and are living in tents sprawled across the nation’s capital, Port-au-Prince. If anything, the situation has worsened given the cholera outbreak that claimed the lives of more than 3,000 Haitians and infected more than 150,000 others. The nationwide rioting following the failed December 2010 elections and the recent return of former Haitian dictator, “Baby Doc” Duvalier, only highlight the Haitian government’s inability to cure current problems and free itself from past problems.
Haiti’s unstable government has deterred investors and donors from investing in the country because they dont know if the funds will be properly managed and allocated to areas that need it most. The unstable government has earned it the moniker “Republic of NGOs,” connoting how investments into Haiti bypass the government and go directly to support NGOs in the country.
Many blame the unstable government for why over half the pledged aid has not been delivered to the country. Thus far, the majority of outside funding has gone to pay the country’s debt and not for reconstruction efforts. In an effort to speed reconstruction and build investor confidence, the Haitian Government created the Interim Haiti Recovery Commission (“IHRC”) by presidential decree on April 21, 2010. Co-chaired by Haitian Prime Minister Jean-Max Bellerive and former U.S. President Bill Clinton, the goal of the IHRC is to develop a reconstruction plan for Haiti by assessing the needs and investment priorities of the country, coordinating reconstruction efforts, and allocating donor investments accordingly.
Unfortunately many criticize the IRHC’s action plan as “more of the same” old policies focused on making Haiti a source of cheap labor in the region and reducing protective tariffs on imported goods—policies Haitians claim failed to work for the country in the past. Critics further allege that although the IHRC is comprised equally of both foreigners and Haitian members, Haitians are largely left out of planning reconstruction policies. Without incorporating Haitian people into the creation of a plan for reconstruction, many believe foreigners will encourage policies that continue to fail. However, some see signs of hope. Pamela Cox, a World Bank official who sits on the IHRC, claims that although IHRC efforts toward reconstruction should have started earlier, reconstruction is indeed happening and the economy has “held up.”
Discussion:
1) IHRC member and World Bank official, Pamela Cox claims that the commission has made progress toward reconstruction. Given that nearly 1 million people are homeless and living in tent shanty towns, should Haitians continue to trust the commission to provide actual and substantial reconstruction for the country?2) There has been rioting in the country over the December elections. Should funding and aid continue to bypass the Haitian government and go directly to NGOs while the state of the government is so precarious?
Tuesday, November 02, 2010
The World Bank in Africa
Sources:
Bloomberg: World Bank's IFC to Double Lending Commitments to East Africa in 2010-11
Bloomberg: World Bank Unit to Increase Investments in Sub-Saharan Africa, CEO Says
The East African: DTB to Disburse $26 in World Bank Funding to SME's in EA
Engineering News: Telecoms Towers Seen as Investment Opportunity in Africa - IFC
The World Bank’s International Finance Corporation (IFC), its private lending arm, plans to double its lending commitments to five East African nations in 2011. The aid will increase from $150 million to $300 million. The nations set to enjoy the increase are: Kenya, Burundi, Tanzania, Rwanda and Uganda. The loans will go through banks to small and medium sized enterprises (“SME”) that focus in energy and agriculture.
SMEs are viewed as an essential component to a developing nation and a strong economy. Many poor nations only have massive western corporations and rural farming. To promote domestic growth, there needs to be domestic corporations to stimulate economic growth and increase incomes. The main reason the World Bank is lending to firms involved in energy and agriculture is that East Asian and East Asian energy demands continue to rise as these economies develop. Also, as food demand rises globally, East Asian demand for food is growing the most.
One beneficiary of the increased lending is the Diamond Trust Bank (“DTB”), a bank that will receive $26 million from the World Bank. It, and similar banks, will be able to use the increased funds to increase the number of bank branches and lend companies more money, facilitating savings and increasing the strength of the regional economy. Some of the $26 million is consigned for use in trade facilitation to encourage trade and regional integration.
Also, the World Bank is willing to invest more heavily in the region because of its high growth rate and recent government implementation of more business-friendly policies. According to the IMF, the region’s economy is expected to grow by 5.5% in 2011. This is higher than the world’s expected growth-rate, which is 4.2% for 2011. Increasing commercial policies favoring the free market, and thus business, has also induced the World Bank to increase its loans. With more favorable policies, the loans are more likely to attract businesses. The loans will be more effective than they were under previous policies that entailed greater government regulation and market interference.
Other industries outside energy and agriculture have taken an interest in East Africa too. Information and technology companies view East Africa as underdeveloped in terms of broadband service and cell phone use for an emerging economy. Thus, companies view the area as a great opportunity for new customers, but also as an area that requires a lot of investment. The World Bank loaned $100 million last year to build telecommunications infrastructure, giving telecommunications companies a chance to find customers and remain profitable, and then pay back the World Bank loan when feasible. Because of its high growth and reformed commercial policies, East Africa is becoming an attraction for the world’s capital.
Discussion:
1. Is there any reason East Africa is faring so much better than the rest of the world, especially the West?
2. Is focusing on increasing agricultural production the best way to develop a nation, or should the World Bank encourage more services and manufacturing?
3. Are SME’s really the driving force of an economy? Couldn’t a large firm do the same work at a lower cost?
Bloomberg: World Bank's IFC to Double Lending Commitments to East Africa in 2010-11
Bloomberg: World Bank Unit to Increase Investments in Sub-Saharan Africa, CEO Says
The East African: DTB to Disburse $26 in World Bank Funding to SME's in EA
Engineering News: Telecoms Towers Seen as Investment Opportunity in Africa - IFC
The World Bank’s International Finance Corporation (IFC), its private lending arm, plans to double its lending commitments to five East African nations in 2011. The aid will increase from $150 million to $300 million. The nations set to enjoy the increase are: Kenya, Burundi, Tanzania, Rwanda and Uganda. The loans will go through banks to small and medium sized enterprises (“SME”) that focus in energy and agriculture.
SMEs are viewed as an essential component to a developing nation and a strong economy. Many poor nations only have massive western corporations and rural farming. To promote domestic growth, there needs to be domestic corporations to stimulate economic growth and increase incomes. The main reason the World Bank is lending to firms involved in energy and agriculture is that East Asian and East Asian energy demands continue to rise as these economies develop. Also, as food demand rises globally, East Asian demand for food is growing the most.
One beneficiary of the increased lending is the Diamond Trust Bank (“DTB”), a bank that will receive $26 million from the World Bank. It, and similar banks, will be able to use the increased funds to increase the number of bank branches and lend companies more money, facilitating savings and increasing the strength of the regional economy. Some of the $26 million is consigned for use in trade facilitation to encourage trade and regional integration.
Also, the World Bank is willing to invest more heavily in the region because of its high growth rate and recent government implementation of more business-friendly policies. According to the IMF, the region’s economy is expected to grow by 5.5% in 2011. This is higher than the world’s expected growth-rate, which is 4.2% for 2011. Increasing commercial policies favoring the free market, and thus business, has also induced the World Bank to increase its loans. With more favorable policies, the loans are more likely to attract businesses. The loans will be more effective than they were under previous policies that entailed greater government regulation and market interference.
Other industries outside energy and agriculture have taken an interest in East Africa too. Information and technology companies view East Africa as underdeveloped in terms of broadband service and cell phone use for an emerging economy. Thus, companies view the area as a great opportunity for new customers, but also as an area that requires a lot of investment. The World Bank loaned $100 million last year to build telecommunications infrastructure, giving telecommunications companies a chance to find customers and remain profitable, and then pay back the World Bank loan when feasible. Because of its high growth and reformed commercial policies, East Africa is becoming an attraction for the world’s capital.
Discussion:
1. Is there any reason East Africa is faring so much better than the rest of the world, especially the West?
2. Is focusing on increasing agricultural production the best way to develop a nation, or should the World Bank encourage more services and manufacturing?
3. Are SME’s really the driving force of an economy? Couldn’t a large firm do the same work at a lower cost?
Friday, October 01, 2010
WiderNet 10-Year Anniversary
The WiderNet Project at the University of Iowa will be celebrating its 10 Year Anniversary this fall. Launched in 2000, the WiderNet Project distributes millions of digital materials via the innovative eGranary Digital Library. This library offers resources off-line to schools and institutions in developing countries that have little or no access to the Internet. WiderNet also refurbishes donated computers and printers, shipping them to schools throughout the developing world. Over 350 eGranary Digital Libraries have been installed in the field, $1,177,344 hardware and software donations have been received, 13,613 volunteer hours have been given to this project, and over 4,000 people have gone through the WiderNet training programs.
Learn more about the WiderNet project at www.widernet.org
Learn more about the WiderNet project at www.widernet.org
Wednesday, September 29, 2010
Obama Announces a New U.S. Global Development Policy
Sources:
BBC: Obama Pledges Revamp of Foreign Aid Policy
CNN: Obama Announces Development Plan at U.N.
CBS News: Obama Announces New U.S. Approach on Development
The U.N. Millennium Developmental Goals Website
President Obama announced his plans to aid global development last week at the U.N. summit on the Millennium Development Goals (MDGs). Obama pledged the United States’ continued help in aiding poor and developing countries. Obama also announced new plans for the United States’ global development policy, taking a step towards fulfilling his promises to reform United States’ foreign aid programs in order to improve efficiency and to increase the amount of U.S. international aid to $50 million by 2012.
The U.N. adopted the MDGs in 2000. The MDGs are a group of goals that the U.N. is committed to reaching by 2015, including improving access to education, promoting gender equality, advancing health care and reducing poverty levels.
Obama encouraged the U.N. to increase its actions, asserting that if it continued with the status quo it would be unable to meet any of the MDGs. The President announced that the U.S. would update its current foreign aid, by not just doling out supplies such as food and medicine, but by working with nations over time to improve and establish sustainable economies. Obama declared that supplying goods only helped poor countries temporarily; it did not facilitate these countries’ development.
The President stated that the U.S. would help cooperative nations that wished to develop investments and trade. He emphasized that in order for an economy and nation to prosper, its government must be honest and free from corruption. Obama pledged that the United States would help countries which previously had authoritative governments, but now had democracies in place. Obama praised Liberia as a model country that has started to transform its government and economy after being riddled with years of governmental corruption and violent civil wars.
The President also voiced his belief that the U.S. should not be the sole country initiating reform in its foreign aid policies. Obama stressed that not only other governments, but also the private sector entities such as foundations and NGOs needed to continue to be committed to fixing the world’s poverty and economic problems.
Discussion:
1. Will working with nations to develop economic and social policies help developing countries? Are there any disadvantages to this kind of reform?
2. What factors should the U.S. consider when deciding which countries to support with foreign aid? Should the type of government of the country matter?
BBC: Obama Pledges Revamp of Foreign Aid Policy
CNN: Obama Announces Development Plan at U.N.
CBS News: Obama Announces New U.S. Approach on Development
The U.N. Millennium Developmental Goals Website
President Obama announced his plans to aid global development last week at the U.N. summit on the Millennium Development Goals (MDGs). Obama pledged the United States’ continued help in aiding poor and developing countries. Obama also announced new plans for the United States’ global development policy, taking a step towards fulfilling his promises to reform United States’ foreign aid programs in order to improve efficiency and to increase the amount of U.S. international aid to $50 million by 2012.
The U.N. adopted the MDGs in 2000. The MDGs are a group of goals that the U.N. is committed to reaching by 2015, including improving access to education, promoting gender equality, advancing health care and reducing poverty levels.
Obama encouraged the U.N. to increase its actions, asserting that if it continued with the status quo it would be unable to meet any of the MDGs. The President announced that the U.S. would update its current foreign aid, by not just doling out supplies such as food and medicine, but by working with nations over time to improve and establish sustainable economies. Obama declared that supplying goods only helped poor countries temporarily; it did not facilitate these countries’ development.
The President stated that the U.S. would help cooperative nations that wished to develop investments and trade. He emphasized that in order for an economy and nation to prosper, its government must be honest and free from corruption. Obama pledged that the United States would help countries which previously had authoritative governments, but now had democracies in place. Obama praised Liberia as a model country that has started to transform its government and economy after being riddled with years of governmental corruption and violent civil wars.
The President also voiced his belief that the U.S. should not be the sole country initiating reform in its foreign aid policies. Obama stressed that not only other governments, but also the private sector entities such as foundations and NGOs needed to continue to be committed to fixing the world’s poverty and economic problems.
Discussion:
1. Will working with nations to develop economic and social policies help developing countries? Are there any disadvantages to this kind of reform?
2. What factors should the U.S. consider when deciding which countries to support with foreign aid? Should the type of government of the country matter?
Wednesday, September 22, 2010
The Paris Club’s Cancellation of $1.26 Billion for Liberia Helps Combat National Debt
Sources:
The Wall Street Journal: Paris Club Agrees To 100% Debt Relief For Liberia
The Wall Street Journal: Liberia Cuts Foreign Debt By $1.2 Billion
BBC News: Liberia Hails $1.2bn Debt Pardon By Paris Club
The Paris Club Website
The Paris Club announced this week that it would help Liberia with its debt, agreeing to forgive $1.26 billion of the money the West African country owes to creditors within the organization. This comes as an enormous help to the Liberian government, which has been trying in recent years to get national debt under control. At the end of June 2007 the country owed around $4.9 billion to creditors. This amount of debt was eight times Liberia’s gross domestic product, making it the highest debt-to-GDP ratio among all developing countries according to the World Bank. Much of Liberia’s debt is the aftermath of a fourteen-year span of civil wars from 1989 to 2003.
The Paris Club is an organization of nineteen creditor countries that is dedicated to helping debtor countries establish and secure their economies. Several creditor countries formed the Paris Club in 1956, when Argentina decided to meet its public creditors in Paris to try and find a solution to their national debt. Since its establishment, the Paris Club has worked with 87 debtor countries to relieve $543 billion of debt.
Augustine Ngafuan, Liberia’s Finance Minister, reported that a large portion of the country’s budget had been allocated to paying off its debt. This $1.26 billon relief should free up funds for the country to use on social and developmental programs. The Paris Club stated that the debt cancellation was due to Liberia’s continued dedication to reducing the country’s poverty and the implementation of an economic strategy for sustainable growth. Ngafuan indicated that after the debt relief, Liberia would not borrow money again because the country is able to operate on a balanced budget and has not borrowed money from creditor countries since 2006.
This is not the first time Liberia has been able to cut its debt dramatically. In April of 2009, the country paid off $1.2 billion in debt by reaching a deal with commercial creditors. Commercial creditors accepted to receiving three cents for every dollar they were owed by the African country. This recent debt relief by the Paris Club should be another step in the right direction for Liberia by helping it further its economic and social development.
Discussion:
1.Should the Paris Club have agreed to relieve $1.26 billion of Liberia’s debt? Why do these creditor countries agree to forgive developing countries debt?
2.Should more developed countries be taking steps like debt forgiveness to help less developed countries like Liberian build sustainable economies? What are the advantages and disadvantages of this?
The Wall Street Journal: Paris Club Agrees To 100% Debt Relief For Liberia
The Wall Street Journal: Liberia Cuts Foreign Debt By $1.2 Billion
BBC News: Liberia Hails $1.2bn Debt Pardon By Paris Club
The Paris Club Website
The Paris Club announced this week that it would help Liberia with its debt, agreeing to forgive $1.26 billion of the money the West African country owes to creditors within the organization. This comes as an enormous help to the Liberian government, which has been trying in recent years to get national debt under control. At the end of June 2007 the country owed around $4.9 billion to creditors. This amount of debt was eight times Liberia’s gross domestic product, making it the highest debt-to-GDP ratio among all developing countries according to the World Bank. Much of Liberia’s debt is the aftermath of a fourteen-year span of civil wars from 1989 to 2003.
The Paris Club is an organization of nineteen creditor countries that is dedicated to helping debtor countries establish and secure their economies. Several creditor countries formed the Paris Club in 1956, when Argentina decided to meet its public creditors in Paris to try and find a solution to their national debt. Since its establishment, the Paris Club has worked with 87 debtor countries to relieve $543 billion of debt.
Augustine Ngafuan, Liberia’s Finance Minister, reported that a large portion of the country’s budget had been allocated to paying off its debt. This $1.26 billon relief should free up funds for the country to use on social and developmental programs. The Paris Club stated that the debt cancellation was due to Liberia’s continued dedication to reducing the country’s poverty and the implementation of an economic strategy for sustainable growth. Ngafuan indicated that after the debt relief, Liberia would not borrow money again because the country is able to operate on a balanced budget and has not borrowed money from creditor countries since 2006.
This is not the first time Liberia has been able to cut its debt dramatically. In April of 2009, the country paid off $1.2 billion in debt by reaching a deal with commercial creditors. Commercial creditors accepted to receiving three cents for every dollar they were owed by the African country. This recent debt relief by the Paris Club should be another step in the right direction for Liberia by helping it further its economic and social development.
Discussion:
1.Should the Paris Club have agreed to relieve $1.26 billion of Liberia’s debt? Why do these creditor countries agree to forgive developing countries debt?
2.Should more developed countries be taking steps like debt forgiveness to help less developed countries like Liberian build sustainable economies? What are the advantages and disadvantages of this?
Sunday, October 04, 2009
China expands presence in Africa via trade and aid
Sources
Financial Times: Africa-China trade report, 2008, China seeks big stake in Nigerian oil, China tops South Africa’s trade league
New York Times: Uneasy engagement- China spreads aid in Africa, but with a catch
China is putting its vast foreign currency savings to use in the developing world, attempting to establish diplomatic alliances, to stimulate markets for its domestic companies and to obtain access to natural resources. Though Chinese investment occurs across the globe— from Pakistan and Kyrgyzstan, to Senegal and Angola— the Chinese involvement has had a particularly significant impact on the African continent.
In South Africa, China has climbed the ranks to become the country’s largest trading partner. Rising Chinese demand for South African minerals contrasts with a decrease in traditionally more important markets, those harder hit by the financial crisis. Official figures show that South Africa exported R32.4 billion ($4.4 billion) to China during the first seven months of 2009, only slightly less than the export total for the whole of 2008 (R35.9 billion). China is also projected to become South Africa’s largest source of imports, a shift which helped reduce the severity of the recession in the country. The Chinese, eager to develop strong trade connections with emerging markets, value the South African partnership.
Elsewhere on the continent, oil negotiations are underway. A Chinese state-owned oil company hopes to purchase large stakes in Nigeria, acquiring some of the world’s richest oil blocs. The purchase would surpass all of China’s previous efforts to secure overseas crude oil and toss the Chinese company into the ring with the largest western oil groups, including Shell, Chevron, Total and ExxonMobil. This effort to establish traction in Nigeria highlights China’s long-term ambitions to secure economic power and access to energy resources across the globe. The oil deal, if completed, would be far from the country’s first Nigerian investment. Last year’s Nuctech dealings, in which the Chinese provided a sizeable credit line in order to finance new Nigerian trade equipment, were tainted by allegations of money laundering. Three of the Nuctech dealmakers were arrested on suspicion of violating Nigeria’s new anti-corruption law.
Chinese foreign aid to Africa typically arrives in the form of cut-rate loans, sometimes combined with more standard, commercial lines of credit. African leaders have largely embraced the easy credit and the results are hard to ignore. The money has produced striking improvements in infrastructure, including new roads, power plants and telecommunication networks across the continent. Development experts are wary however, arguing that Chinese investment almost always comes with a catch. In virtually all cases, the money must be used to purchase goods or services from Chinese companies, hand-selected by Chinese officials. As developing African nations increase their indebtedness to China, some experts feel concern about China’s increasing power on the continent.
Discussion
1. Chinese funding is appealing to developing Africa for multiple reasons. The cut-rate loans are often unaccompanied by many of the stipulations that Bretton Woods Institutions (the IMF and World Bank) include, like demands for political reform or economic restructuring. Should we be concerned that these factors are not included in Chinese loan negotiations?
2. Strong Chinese demand helped South Africa weather the financial crisis. How will China’s relationship with other, indebted African nations evolve in the aftermath of the crisis?
Financial Times: Africa-China trade report, 2008, China seeks big stake in Nigerian oil, China tops South Africa’s trade league
New York Times: Uneasy engagement- China spreads aid in Africa, but with a catch
China is putting its vast foreign currency savings to use in the developing world, attempting to establish diplomatic alliances, to stimulate markets for its domestic companies and to obtain access to natural resources. Though Chinese investment occurs across the globe— from Pakistan and Kyrgyzstan, to Senegal and Angola— the Chinese involvement has had a particularly significant impact on the African continent.
In South Africa, China has climbed the ranks to become the country’s largest trading partner. Rising Chinese demand for South African minerals contrasts with a decrease in traditionally more important markets, those harder hit by the financial crisis. Official figures show that South Africa exported R32.4 billion ($4.4 billion) to China during the first seven months of 2009, only slightly less than the export total for the whole of 2008 (R35.9 billion). China is also projected to become South Africa’s largest source of imports, a shift which helped reduce the severity of the recession in the country. The Chinese, eager to develop strong trade connections with emerging markets, value the South African partnership.
Elsewhere on the continent, oil negotiations are underway. A Chinese state-owned oil company hopes to purchase large stakes in Nigeria, acquiring some of the world’s richest oil blocs. The purchase would surpass all of China’s previous efforts to secure overseas crude oil and toss the Chinese company into the ring with the largest western oil groups, including Shell, Chevron, Total and ExxonMobil. This effort to establish traction in Nigeria highlights China’s long-term ambitions to secure economic power and access to energy resources across the globe. The oil deal, if completed, would be far from the country’s first Nigerian investment. Last year’s Nuctech dealings, in which the Chinese provided a sizeable credit line in order to finance new Nigerian trade equipment, were tainted by allegations of money laundering. Three of the Nuctech dealmakers were arrested on suspicion of violating Nigeria’s new anti-corruption law.
Chinese foreign aid to Africa typically arrives in the form of cut-rate loans, sometimes combined with more standard, commercial lines of credit. African leaders have largely embraced the easy credit and the results are hard to ignore. The money has produced striking improvements in infrastructure, including new roads, power plants and telecommunication networks across the continent. Development experts are wary however, arguing that Chinese investment almost always comes with a catch. In virtually all cases, the money must be used to purchase goods or services from Chinese companies, hand-selected by Chinese officials. As developing African nations increase their indebtedness to China, some experts feel concern about China’s increasing power on the continent.
Discussion
1. Chinese funding is appealing to developing Africa for multiple reasons. The cut-rate loans are often unaccompanied by many of the stipulations that Bretton Woods Institutions (the IMF and World Bank) include, like demands for political reform or economic restructuring. Should we be concerned that these factors are not included in Chinese loan negotiations?
2. Strong Chinese demand helped South Africa weather the financial crisis. How will China’s relationship with other, indebted African nations evolve in the aftermath of the crisis?
Monday, June 22, 2009
Ambitious plans and lapsed commitments: challenges for development funding in wake of financial crisis
Sources
Reuters: G8 should use any stimulus easing to help Africa
Financial Times: Kenya unveils record ‘stimulus’ budget
Italy and France draw fire over aid
African bank tries to triple capital base
This year marked the end of a five-year upward trend in Kenyan economic growth. A bitter combination of drought, inflation, post-election violence, and a deepening global financial crisis ground the nation’s once accelerating growth to a halt. In response, the government has unveiled an ambitious budget that includes more than $11 billion in fiscal stimulus spending. A sizeable portion of the budget is devoted to development spending (overall, an increase of 83 percent over last year’s development budget); aimed at road improvements, irrigation, water supply and energy programs. The plan will bring Kenya’s budget deficit up to 6.6 percent of gross domestic product in the fiscal year starting in July, with national debt rising to 44.5 percent of GDP. Government leaders plan to manage the budget without increasing taxes, hoping to meet targets by reducing wasteful, non-priority government spending.
While Kenya strives to fund its own development efforts in the face of global crisis, French and Italian leaders are receiving criticism for their failure to follow through on development aid commitments. By the end of 2009, the G7 countries as a whole will have delivered only half of their 2005-2010 promise, with Italy and France responsible for 80 percent of the shortfall. Reviews of Italy’s performance are especially critical, as it has delivered only an estimated 3 percent of the increase it promised in 2005. Italy acknowledged the figures but cited financial constraints as the cause of the failure, stating that it remained “fully committed to the objectives set at Gleneagles.” While other G7 countries are still fighting to keep pace with the 2010 goals, Italy is a striking example of the financial crisis’ harmful effects on development funding.
Donald Kaberuka, president of the African Development Bank (ADB), expects African economies to be affected more deeply and to recover more slowly than the rest of the world. In remarks timed to correspond with recent G8 meeting in Italy, he called for developed economies to devote “robust and greater attention” to the challenges facing low income countries as they plan their post-crisis exit strategies. In May of 2009, the ADB announced plans to triple its capital base in response to the financial crisis. An increase on that scale will require a large boost in funds from foreign donor shareholders. The foreign donors the ADB is counting on, like the French and Italian governments failing to meet their aid commitments, may struggle to prioritize development spending in today’s economic climate. Kenyan leaders hope they’re on the right track; welcoming aid and foreign investment, but working hard domestically to push their own economy back toward an upward trajectory.
Discussion
1. Is the Kenyan budget, with the significant increase in national debt that it entails, a prudent plan for the developing nation? How would a tax increase affect the feasibility and effectiveness of the budget?
2. Jamie Drummond, co-founder and executive director of One, an anti-poverty organization, says that Italian Prime Minister Silvio Berlusconi “needs to be censured by his peers” for his country’s failure to meet African aid commitments. As developed countries plan for economic recovery, to what extent should their leaders be bound by aid commitments?
Reuters: G8 should use any stimulus easing to help Africa
Financial Times: Kenya unveils record ‘stimulus’ budget
Italy and France draw fire over aid
African bank tries to triple capital base
This year marked the end of a five-year upward trend in Kenyan economic growth. A bitter combination of drought, inflation, post-election violence, and a deepening global financial crisis ground the nation’s once accelerating growth to a halt. In response, the government has unveiled an ambitious budget that includes more than $11 billion in fiscal stimulus spending. A sizeable portion of the budget is devoted to development spending (overall, an increase of 83 percent over last year’s development budget); aimed at road improvements, irrigation, water supply and energy programs. The plan will bring Kenya’s budget deficit up to 6.6 percent of gross domestic product in the fiscal year starting in July, with national debt rising to 44.5 percent of GDP. Government leaders plan to manage the budget without increasing taxes, hoping to meet targets by reducing wasteful, non-priority government spending.
While Kenya strives to fund its own development efforts in the face of global crisis, French and Italian leaders are receiving criticism for their failure to follow through on development aid commitments. By the end of 2009, the G7 countries as a whole will have delivered only half of their 2005-2010 promise, with Italy and France responsible for 80 percent of the shortfall. Reviews of Italy’s performance are especially critical, as it has delivered only an estimated 3 percent of the increase it promised in 2005. Italy acknowledged the figures but cited financial constraints as the cause of the failure, stating that it remained “fully committed to the objectives set at Gleneagles.” While other G7 countries are still fighting to keep pace with the 2010 goals, Italy is a striking example of the financial crisis’ harmful effects on development funding.
Donald Kaberuka, president of the African Development Bank (ADB), expects African economies to be affected more deeply and to recover more slowly than the rest of the world. In remarks timed to correspond with recent G8 meeting in Italy, he called for developed economies to devote “robust and greater attention” to the challenges facing low income countries as they plan their post-crisis exit strategies. In May of 2009, the ADB announced plans to triple its capital base in response to the financial crisis. An increase on that scale will require a large boost in funds from foreign donor shareholders. The foreign donors the ADB is counting on, like the French and Italian governments failing to meet their aid commitments, may struggle to prioritize development spending in today’s economic climate. Kenyan leaders hope they’re on the right track; welcoming aid and foreign investment, but working hard domestically to push their own economy back toward an upward trajectory.
Discussion
1. Is the Kenyan budget, with the significant increase in national debt that it entails, a prudent plan for the developing nation? How would a tax increase affect the feasibility and effectiveness of the budget?
2. Jamie Drummond, co-founder and executive director of One, an anti-poverty organization, says that Italian Prime Minister Silvio Berlusconi “needs to be censured by his peers” for his country’s failure to meet African aid commitments. As developed countries plan for economic recovery, to what extent should their leaders be bound by aid commitments?
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