And now the hurly burly’s done. With Brazil’s presidential run-off last weekend, this year’s elections in the five big deficit-plagued emerging markets are now complete.
Growth in all the fragile five – Brazil, India, Indonesia, Turkey and South Africa – has slowed, and ongoing current account deficits leave them vulnerable to a tightening of global credit. Perhaps unsurprisingly, the elections saw shifts against incumbents. Yet how far that move went, and what it is likely to mean for future policy, has divided those countries and may well determine their performance in the future. Read more >>
If there’s one subject on which policymakers around the world seem to agree, it’s that foreign direct investment is a Good Thing.
The annual tables of inward foreign direct investment (FDI) are treated by governments of rich and poor economies alike much as football fans treat rankings in the English Premier League, crowed over by countries in the leading pack and quietly forgotten by those in the relegation zone.
There is no doubt that FDI can do a lot of good: it can add to an economy’s productive capacity and import not just capital but technology, production skills and better management. China, which not only welcomed FDI but witnessed intense competition between different provinces to attract it, stands as a shining example. Read more >>
As if to add substance to complaints from emerging market policymakers about being ignored, a matter mainly affecting middle-income countries became the subject of close global attention only when it emerged as a bone of contention between the US and Europe.
The snappily-titled “investor-state dispute settlement” (ISDS) process, where companies have the right to sue governments for disadvantaging their businesses, has been the subject of deep controversy for years. But since the most vocal discontents were nations like Argentina and Venezuela that complain about more or less everything, it took well-organised campaigning and official German opposition to an ISDS chapter in the US-EU Transatlantic Trade and Investment Partnership (TTIP) to make it a central concern. Read more >>
Two behemoths of the global economy finally reach a deal to resolve a trade dispute that has rumbled on for a decade. Good news, right? No. The settlement of Brazil’s WTO case against the US over cotton subsidies, announced last week, raises the profoundly disturbing possibility that yet another part of the multilateral governance of trade is now being undermined.
The issue dates from 2004, when Brazil won a famous victory at the WTO’s dispute settlement process against US subsidies to cotton farmers, the first big victory for an emerging market country. The arbitration panel authorised Brazil to retaliate with trade restrictions totalling $830m. Washington dragged out the case by every means possible – first appealing against the decision, then wrongly claiming it had changed its subsidies to comply with the ruling, then saying that the matter could only be dealt with in the multilateral so-called “Doha round”, and then finally and absurdly, paying Brazilian cotton farmers nearly $150m per year in protection money from 2010 onwards to avert trade sanctions. Read more >>
And so the fall in emerging market currencies continues. Over the past month, the third episode of taper tantrum has pushed exchange rates down almost across the board against the dollar, bringing with it the now familiar round of hand-wringing about the vulnerability of emerging economies.
Once again, however, at least as far as currencies are concerned, the latest bout of weakness falls somewhat short of full taper tantrum catastrophe. The depreciation of emerging market exchange rates looks a lot like a subset of the sharp appreciation of the dollar, which has also shot higher against the yen and the euro, than it does a weakness of the entire asset class. Read more >>
Financial market traders kicking their heels for much of this year over the (to them) maddening lack of volatility have at last been given something to work with. Several commodity prices have dived lower over the past few months, setting off reactions across a range of different markets.
The usual response would be to worry about emerging markets across the board, particularly net commodity exporters, which have been benefiting from juicy export earnings over the past decade. Indeed, if the current movements mark the end of the up phase of a commodity super-cycle, emerging markets could be in for a tough time for a long while. Ghana and Zambia, which recently called in the IMF after falls respectively in gold and copper prices punched holes in their fiscal and current account positions, are cautionary tales.
Yet there are two reasons to be cautious about hurtling to sweeping conclusions. Read more >>
Africa is, or has been, rising: on that most people seem agreed. The question is: which parts, and for how long?
The two-decade period of growth enjoyed by many sub-Saharan African economies has raised hopes and doubts in equal measure. It could be another episode of temporary natural resource earnings fuelling growth, which will fall as commodity prices drop and interest rates rise. (The travails of Ghana and Zambia provide some support for this notion.) Or has there been the kind of genuine diversification that could survive a serious shift in the terms of trade? Read more >>
Raising a standard against happiness is never going to be popular, but here goes.
The mountain kingdom of Bhutan has got a lot of mileage out of its practice, first adopted in 1972, of using a broad “Gross National Happiness” (GNH) measure of its people’s welfare rather than a narrow measure like income.
According to the many people who have fallen in love with the idea – the UN went as far as declaring March 20 the “International Day Of Happiness” – a holistic approach to welfare reflects more accurately the many dimensions of wellbeing in the human condition. The philosophy has been urged upon rich and developing economies alike as the proper goal of government policy. Read more >>
“Anyone who says that Africa is missing the Millennium Development Goals is missing the point.” You might expect such a tart statement about a canonical organising principle of development policy to come from one of the aid industry’s many curmudgeonly sceptics.
That it came instead from Jan Vandemoortele, a Belgian economist who helped create the United Nations MDGs in the first place, raises questions whether propagating a single set of targets to drive government policy across the entire developing and emerging world is worth doing at all. The “sustainable development goals”, successors to the MDGs, are currently being developed, but the unfortunate signs are that they will be yet more complex and yet less meaningful than the originals.
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Pity any Russians wanting to sit down to their regular Sunday lunch of kangaroo steak, medium-rare. Thanks to the trade restrictions Vladimir Putin announced last week, Australia – along with the EU, US, Norway and Canada – found its food exports to Russia blocked forthwith.
As it happens, uninterrupted access to the Russian market is not something any food producer can take for granted. Russia, Australia’s largest market for kangaroo meat, also suspended trade (on bogus health grounds) between 2009 and 2013. And while Australian kangaroo exporters may bound off happily into other markets, Moscow’s consumers will struggle to source their marsupials from Russia’s remaining trading partners. Read more >>
When a country cuts power to its aluminium smelters so its people can watch the World Cup on TV, you have to conclude that its economic policy isn’t all about investing for the future.
Ghana this week called in the International Monetary Fund after a depreciation in its currency threatened to turn into a rout. The episode is an excellent illustration of the injunction to be careful what you wish for, in this case Ghana’s discovery of oil. Its fellow minerals exporter, copper-rich Zambia, has also called in the IMF.
The two nations have become object lessons in how easy outside financing and high but volatile export prices give countries enough rope to strangle themselves. Their experience is unlikely to be a bad as similar countries in previous decades, but it still represents another chapter in the sad history of resource-dependent economies going wrong. Read more >>
Argentina’s national motto is En unión y libertad (In Union and Liberty). Should it, perhaps, consider changing it to Sui Generis?
Having found a variety of ways throughout its history to break new ground in macroeconomic and sovereign debt mismanagement, Buenos Aires this week may be forced into a new one.
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Of course, it all goes back to Peter the Great at the turn of the eighteenth century. On the one hand, the Russian Tsar worked in the Dutch shipyards incognito to import modern boatbuilding techniques to his empire. On the other, he systematically seized the estates of unhelpful nobles in a manner which suggested that western European notions of property rights had yet to sink in.
Russia’s traditional simultaneous fascination with and repulsion towards foreign ideas and institutions, the latter generally winning out at times of stress, is reflected in the difficulties the EU and US have encountered in trying to shift Moscow’s behaviour in Ukraine.
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Some things in life happen often enough that they take on a reassuring familiarity. Germany win the World Cup. Belgium struggles to form a government. And India throws stones at a deal at the World Trade Organisation.
Having already in effect pushed the demolition button on the Doha round of world trade talks in 2008, India is now being obstreperous over a tiny part of the deal that managed to crawl out of the wreckage – a “trade facilitation” agreement supposedly making it easier to do business across borders. It has threatened to block the agreement over a completely unrelated issue of particular interest to itself, a commitment to “food security” which will in effect hand Delhi yet another tool to enforce agricultural protectionism. Indeed, it was over a similar issue that hopes for Doha as a comprehensive deal died in 2008.
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If you’re an emerging market and there’s a geoeconomic grouping you’re looking for, you’ve got a few to choose from. In Asia there is Asean - ten countries in search of common ground. In Latin America there is Mercosur - five countries in search of common tariffs. And from the Atlantic west to the Black Sea there is Asia-Pacific Economic Co-operation – four adjectives in search of a noun.
But none of these has the distinction of having been a marketing campaign by Goldman Sachs got out of control. The Brics nations, apparently noticing a small clearing in the densely-thicketed field of international relations, seized on the designation to set up their own diplomatic process. The sixth leaders’ summit will take place next week in Fortaleza, Brazil, with the host nation hopefully performing better than at its other major international gathering.
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