The FT has got its hands on a leaked copy, as has der Spiegel (a different draft, it seems, but I can’t find that one on the net). The FT version is nice and short (24 paras). Here’s what it says on Oxfam’s main asks for the summit, namely: Read More …
As part of Oxfam’s flurry of studies of the development impact of the global crisis (for an overview click here), here’s a summary of a new paper of mine on the impact of the global crisis on Zambia. The main story is perhaps how the mining lobby has used the crisis to reverse some progress on taxing copper revenues. Read More …
I finally got round to reading the report of the UN Commission of Experts on reforms of the international monetary and financial system, chaired by Joseph Stiglitz. It’s very sensible, comprehensive and solution-oriented. Trouble is, is anyone listening? Regrettably, the UN process seems largely delinked from the G20/IMF/World Bank leadership on the crisis (see previous post on this).
Highlights from the report – apologies for long post, but there’s a lot of meat in here: Read More …
A powerful new Oxfam report is released today, ahead of this week’s crisis summit in London. Written by my colleague Bethan Emmett, it pulls together preliminary research in 10 countries across Asia and Latin America to show that women working in export manufacturing industries, e.g. garments and electronics, are often first to be laid off, frequently without pay or compensation. In Asia, there are reports of sex traffickers approaching women who have been laid off from factory jobs, asking them if they want to go and work in the West. The behaviour of companies under pressure to cut costs, and the lack of support from governments, mean that the health and welfare of women and their families are seriously threatened. Read More …
The physics of God; China channels Keynes; the Turner Report; Dani Rodrik on the London summit and the Paul Krugman song: links I liked
The physics of God – what does the ‘veiled reality’ of quantum mechanics mean for religious belief?
Alex Evans sees China’s sudden assertiveness in the crisis response discussion as a sign of a possible Bretton Woods moment. Zhou Xiaochuan – the governor of China’s central bank is apparently channeling Keynes.
‘The financial sector no longer enjoys the benefit of the doubt: it may burn up the world.’ Martin Wolf gets as excited as he ever does about the Turner Report on reforming the UK financial system (and beyond)
Dani Rodrik muses on the fate of the London Summit, along with HG Wells
And finally, Paul Krugman – the song (h/t Global Dashboard). This could provide the model for plenty of us over this side of the Atlantic. ‘Hey Polly Toynbee’ anyone?
As we approach the London Summit on 2 April, I’ll be putting up some findings from research Oxfam has been doing on the impact of the crisis in a range of developing countries. First up, some early results from our hyperactive Viet Nam team on the impact of the global crisis on what has been one of the world’s most successful economies in recent years. A joint research exercise between the Vietnamese Academy of Social Sciences and Oxfam, supported by the World Bank, conducted a rapid qualitative assessment at several sites in and around Ha Noi in February 2009 to identify any emerging impacts of the global economic crisis. Sites were chosen to capture the groups where substantial first round impacts were expected i.e. a sample of five “mobile labour markets” in Ha Noi, two export-oriented craft villages (Bat Trang and Ha Thai), and Thang Long Industrial Park. 105 people were interviewed in total.
What did they find? Overall, thousands of migrant labourers who have flocked to Ha Nao from the Vietnamese countryside are facing reduced income, and many are returning home. In the mobile labour market, there are fewer jobs, especially in civil construction (which used to be their primary source of work). Although daily wages in late 2008 increased by 10-20 percent compared with late 2007 to respond to the increased cost of living, the average days worked per month fell by around 50 percent in the same period.
Craft villages, which rely significantly on exports, have seen a sudden decrease in orders since late 2008. Interviews with commune/village leaders and enterprise owners in Ha Thai lacquer and Bat Trang ceramic/porcelain villages reveal that around 70-80 percent of craft sale revenue is from exports. Sale revenue in Ha Thai already dropped by 35-40 percent in 2008, as compared with 2007. Craft workshops are laying off thousands of low-skill migrants in order to retain their core of skilled artisans.
Informal enterprises are being hit particularly hard as they cannot access government stimulus programmes – they have no investment plan at this difficult time and often work on the basis of informal transactions without adequate paperwork to show to the banks.
Many export firms in the Thang Long Industrial Park report decreased sales. Some of the enterprises have cut labour costs by reducing the number of employees and working time (i.e. let the workers take turns staying home, only receiving 70 percent of the basic wage). The representative of the developer (landlord) of Thang Long says that of 50,000 workers in the Park, 3000 have lost their jobs since late 2008; and the current demand for new workers is zero. Other sources report an even larger number of job losses. Migrant workers constitute 70% of the workforce in Viet Nam’s industrial parks, and so are particularly hit. Companies are looking for excuses to fire workers, rather than pay redundancy and other benefits, and now offer only short term contracts with fewer labour rights attached.
That’s the analysis for wonks – here are some real people
‘Normally I buy meat for my children 3-4 times per month. But since Tet this year, I have received much less work, thus could not buy meat. The little money I earn is only sufficient for some oil, vegetables and some soya curd every meal”.
‘If the difficult situation continues and my husband and I can not remit enough money home, my elder girl may have to quit schooling to go to Ha Noi to work as a housemaid to sustain the schooling of my two younger children”.
[Interviews with two women day labourers]
“we have low education, no skills, little farmland at home; thus our only choice is to follow this work. If we come back home what we will do? Just sit looking at each other? How to earn money for our living ?”.
[male day labourer]
The research is continuing, so I’ll keep you posted as stuff is published.
Time for a little attention to the rising aid sceptic tide. A number of books (Dambisa Moyo, Jonathan Glennie, Michela Wrong), blogs etc have been trashing aid with both good and bad consequences. Good in that, as From Poverty to Power argues, there is lots wrong with the aid system that urgently needs fixing (and some deeper questions on the potential impact of aid in weakening the social contract between states and citizens). Bad in that if the arguments are too sweeping and crass, they just come across as a ‘aid is a waste of money’ pitch, which is hugely irresponsible in the current climate, when developing countries are actually having to revert to aid finance because all other sources are drying up. We need more aid, not less.
The latest exchange is between two high octane bloggers: William Easterly, who has been getting increasingly vitriolic about aid on his new-ish Aid Watch blog, and Owen Barder, a former DFID big cheese who now writes a blog from Ethiopia.
Bill Easterly (with Laura Freschi): ‘In 2007, the UK gave 20 percent of their total bilateral ODA in the form of budget support to 13 countries: Tanzania, Ethiopia, Pakistan, Ghana, Uganda, Mozambique, Vietnam, Malawi, Zambia, India, Sierra Leone, Nepal, and Nicaragua.
Of this list, only Ghana and India were classified as “free” by the annual Freedom House ratings on democracy (according to either the 2007 or 2008 rating). For the 11 other countries that did get British budget support, how much is there “country ownership” when the government is not democratically accountable to the “country”?
… There is nothing that says you have to give aid meant for the poorest peoples directly to their governments, if the latter are tyrannical and corrupt. With the examples above, which side are UK aid officials on, on the side of poor people or on the side of the governments that oppress them?
And Owen’s brilliantly-argued reply: ‘With all due respect to Aid Watch, I don’t think they have got this right. For example, they say:
“Ethiopia’s autocratic government, which is inexplicably the largest recipient of UK budget support in Africa, won 99% of the vote in the last “election”.”
Nice point, except:
a. according to the official results of the 2005 election, the ruling party won 59.8% of the votes; the Coalition for Unity and Democracy got 19.9% and the United Ethiopian Democratic Forces got 9.5%. I have no idea if those accurately reflect how people voted, but it is nonsense to say that the government received 99% of the vote;
b. the UK does not give budget support to the Federal Government of Ethiopia. Through the Protection of Basic Services scheme, which was introduced after worries about the election, the UK Government provides finance to local government (albeit through the existing financial transfer mechanism via central government). As well as funding health and education, the project includes significant components to increase transparency and accountability of federal and regional parliaments.
Aside from getting the facts wrong, Aid Watch seem to be criticising this form of aid by slinging mud rather than by way of a proper analysis of the advantages and disadvanges. We should be asking what benefits arise from giving aid through government, and what harm may come from it. Aid Watch acknowledge the possible benefits: lower transaction costs, more coherence in development policies, building capacity of government. There is another crucial possible benefit: putting money through government budgets is also a way to make the government more accountable to its own citizens, rather than to a bunch of foreign donors.
But Aid Watch don’t try to spell out what the harm might be if aid is given to governments with unpleasant records on human rights or corruption. I personally think there is a case to be made against giving money to many governments, for example if there is reason to believe that the money will not be spent on poverty reduction, or if it will sustain in power a government which might otherwise be booted out of office. But let’s set out these reasons coherently, and let’s try to assess their importance relative to the possible benefits. Aid Watch seems to suggest that guilt-by-association is enough to damn the whole enterprise.
As it happens, the governments mentioned in this piece (Ethiopia, Vietnam and Malawi) all make demonstrably good use of the money they have received. Here in Ethiopia the expansion of public services such as free education and publich health workers financed by Protection of Basic Services is transforming the quality of lives across the country; and Vietnam has made quite staggering progress in bringing down poverty. Personally I think there are important questions to be answered about the quality of democracy in both countries: but that doesn’t mean I want to kill some of the citizens of those countries, or deprive them of basic services, by giving less effective aid.
The British Government’s approach of giving some aid in the form of budget support (too little, in my view) is motivated by evidence that in some circumstances this is an important way of building more effective, responsive and accountable institutions. Developing countries don’t want to receive aid forever, any more than industrialised countries want to give it forever. Building effective and accountable public services is a way of financing the delivery of public services in the short run, while at the same time making it more likely that countries have an exit strategy from aid in the long run.
That is not preferring governments to poor people: it is preferring poor people to giving aid in a way which maximises the publicity you get and covering your back but doing little to build accountable and sustainable public services.
Giving aid as budget support should not be promoted ideologically: it should be used where the advantages (in terms of better service delivery and the long term benefit to accountability and institutions) outweigh the disadvantages (such as the risk of sustaining a bad government in power). Equally it should not be opposed ideologically. Budget support has not been shown to be at any greater risk of corruption or of fungibility than other forms of aid (these are the two main arguments that are offered against budget support). It should be assessed case-by-case. Where it can be used, it represents a very powerful mechanism for both the short term benefits of service delivery and the long term benefits of institutional development. Where it cannot be used, donors should be focusing on what they can do to help create an environment where it can be used in future.
If Aid Watch want to be taken seriously as an aid watchdog, then (a) they’d better get their facts straight and (b) they need to do some proper analysis of the costs and benefits of different choices for aid delivery in different contexts, rather than simply asserting that it is wrong to give aid to and through governments of which they disapprove.
Incidentally, last year Easterly and Pfutze (”Where Does the Money Go? Best and Worst Practices in Foreign Aid.”) ranked the UK as the best bilateral donor. That doesn’t mean that the UK is perfect, by any means, and it doesn’t mean that they get every judgement right; but it does suggest that UK aid officials might not deserve the allegation in this blog entry that they prefer poor governments to poor people.
Declaration of interest: I used to work for the UK Department of International Development.’
The debate between them continues on the Aid Watch blog here, if you’re interested.
It’s been bugging me for months that we are still talking about a ‘food price crisis’ even though world commodity prices, including food, have come down a long way since their peak in mid 2008. Should we still be talking about 150m people being pushed below the poverty line by high food prices? Won’t they have reemerged from poverty as food prices come down again? In turns out that the answer is no – retail prices seem to have become delinked from world prices, according to a new FAO database.
According to the FAO’s Henri Josserand, ‘Although prices for all 55 countries have declined somewhat in the second half of 2008, they have, in the vast majority of cases, declined relatively much less than have international food commodity prices. Since most of the countries in the sample of 55 are low income, net importing countries, the obvious implication is that the ‘food crisis’ is indeed far from being over, for poorer households in these countries, which spend the better part of their incomes on food.
The reasons for this ’stickiness’ are not fully understood at this time. We hypothesize that there are several factors, possibly interacting in complex way. So far, we have not found any set of explanatory variables that apply to the whole sample. Actually, we are pretty sure that understanding the reasons will require in-depth analysis at the national or regional levels.’
According to a summary in the Financial Times, ‘Retail rice in Malawi was quoted at 210 kwacha ($1.50, €1.11, £1.05) a kilogram, almost double that of a year ago. In Zambia, white maize, the main staple, cost in local markets 28,185 kwacha ($4.97, €3.69, £3.48) per 20kg, up from 17,500 kwacha a year ago.
In Kenya, wholesale maize prices were at $367 (€273, £258) a tonne, up from $222 a year ago, while in Burkina Faso, the cost of sorghum, the country’s staple, had risen to 13,500 CFA francs ($27.71, €20.58, £19.43) per 100kg, up from 11,500 CFA francs a year ago.
The situation was similar in Central America, where prices remained at levels similar to last year in spite of a drop in international benchmarks. However, food prices had fallen in most Latin American countries.
In Asia, local food prices were mostly higher than a year ago, although they had fallen in a few countries, including China. The cost of rice in India had risen to 22 rupees ($0.43, €0.32, £0.30) a kilogramme, from 18 rupees a year ago. The cost of wheat in Pakistan, the country’s staple, was 24 per cent higher than a year ago.’
There goes the silver lining – the global economic crisis has not just hit growth, government revenues, remittances, jobs etc etc, but it has not even brought down prices for poor consumers (although it’s hard to imagine that this stickiness will persist for ever) – the rise in global hunger experienced in 2008 will persist as one shock is laid on top of another that has already left poor communities vulnerable and hungry. What about farmers, especially small producers? Are they seeing the prices they receive fall in line with world markets, or stay high along with retail prices? The FAO is collecting data on the link between world and farmgate prices, but it is not yet ready.
To add to the confusion, an agriculture guy from the World Bank recently told me that his real worry was volatility, not absolute prices. Many large farmers planted at the top of the market, paying big money for fertilizers etc, but have now lost money as crop prices have fallen. His concern is that they will not be planting this time around, and output may fall.
Vacuous declarations; carbon neutral Maldives; Dani Rodrik, heretic; the case for over-regulation and why watching soaps leads to fewer babies but more lovers: links I liked
The FT impales a vacuous G20 finance ministers declaration
The Maldives becomes the first country to go carbon neutral. Unfortunately it’s everyone else who has to do likewise to save it from sinking beneath the rising seas.
Dani Rodrik as heretical and original as ever, arguing for stronger national regulation, not the global variety, on the basis that financial diversity strengthens resilience, among other arguments. ‘It is necessary, for political economy reasons, to rush new comprehensive regulation of the financial sector. The reason is that the private financial sector is on its uppers – down and out – and will not be able to put together much of a fight, let alone its usual boom-time massive lobbying effort to veto radical measures. It is better to over-regulate now and subsequently to correct the mistakes than to risk another era of self-regulation and soft-touch under-regulation of financial markets, instruments and institutions.’ The ravings of some rabid trot? Nope, a blog by Willem Buiter, Professor of European Political Economy at the European Institute of the London School of Economics and Political Science, former member of the Monetary Policy Committee of the Bank of England and former Chief Economist at the European Bank for Reconstruction and Development (EBRD). Buiter then sets out an excellent sketch of what such regulation should look like, on tax havens, demanding the same level of pre-approval screening for new financial products as currently applies for new drugs etc etc.
And finally, some off-piste research on Brazil from the Inter-American Development Bank (!), arguing that the national obsession with soaps (telenovelas) has reduced domestic violence and encouraged women to have fewer babies, but more lovers.
IMF finally calls it – the world economy will shrink in 2009, and developing countries are hit harder than we thought
Every revision of global growth predictions has been heading towards zero, and now the IMF, in its report to the G20 finance ministers’ meeting last weekend, has taken the next step. It predicts the world economy will shrink in 2009, (by minus 0.5-1%) for the first time in 60 years. It’s pretty safe to assume that this won’t be the last downward move.
Take a look at the chart. Developing country growth is the only positive bar left (though well below the rate of population growth), but it was the largest downward revision in the forecast, marking the increasingly rapid contagion via finance, trade, remittances, commodity prices etc. In terms of the difference between growth in 08 and 09 only Japan takes a bigger hit than the developing world.
And the difference of course, is that most developing countries are much less able to protect themselves or the poorest communities from the downturn. ‘Automatic stabilizers’ such as social protection are much more threadbare and access to finance is getting harder as the rich countries’ fiscal stimulus gobbles up capital. The IMF concludes:
“As the crisis becomes more prolonged, a growing number of emerging economies will find room for policy maneuver becoming increasingly limited. Large-scale official support is likely to be needed from bilateral and multilateral sources.”