GOP & Dems Agree: Whack Agricultural Subsidies

♠ Posted by Emmanuel in , at 4/14/2011 12:01:00 AM
I will soon have more on the shameful budgetary shenanigans being waged Stateside, but something international trade followers can probably cheer is this: both parties' much-ballyhooed fiscal plans involve major rollbacks to American agricultural subsidies. As you would expect, states with large agricultural interests are looking warily on. Indeed, the Republicans are split given that the plan forwarded by Paul Ryan (R-Wisc) is calling for bigger cuts than those just outlined by the so far impotent Fiscal Commission. From the Fergus Falls Journal [!]:
The Republican head of the House Budget Committee, Rep. Paul Ryan, R-Wis., may find opposition from his own party regarding the cutback of agriculture subsidies by $30 billion over the next 10 years. He’s also meeting opposition from fellow House members such as Seventh District U.S. Rep. Collin Peterson, a DFLer [Democratic-Farmer-Labor Party] from Detroit Lakes.

Rep. Frank Lucas, R-Okla., chairman of the House Agriculture Committee, said, “Members of the House Agriculture Committee and I will write the next farm bill.”

Peterson said Monday that President Barack Obama’s deficit commission called for $10 billion in savings from farm programs over 10 years. “That’s something people can live with,” said Peterson. “However, there’s no justification for a $30 billion cut. Overall, we’re talking about a 25 percent cut for ag, and we’re not seeing 25 percent cuts to other parts of the budget bill.”

Ryan has proposed cutting $30 billion over 10 years by spending less on a crop subsidy program called direct payments and giving smaller subsidies to crop insurance. Direct payments were already expected to be a major target in the 2012 farm bill. That farm bill will cover the years from 2013 to 2018.
Reining in agricultural interests will be a challenge insofar as the House Agricultural Committee obviously authors the Farm Bill. Whatever budget is ultimately passed, keeping the lawmakers who decide on subsidies in line is obviously required.
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'WTO a Success...Advancing Rich Nation Interests'

♠ Posted by Emmanuel in , at 4/13/2011 12:02:00 AM
And now for a characteristically pessimistic assessment of the WTO from trade commentator Rorden Wilkinson of Manchester University. As with many other international organizations, the WTO was undoubtedly structured to advance the interests of its creators. Read: the United States when Americans used to dream about the future (does anyone remember that bygone era?) Seen in this light, Professor Wilkinson says that the WTO has, actually, been quite a success in facilitating the interests of wealthy countries instead of the usual metrics of advancement such as completing trade rounds and so forth. What he now writes is that, historically speaking, successive WTO rounds demonstrate how the deck has been stacked--including some things in negotiations (manufactures in which developed countries have a comparative advantage) but not others (agriculture in which developing countries do), while strong-arming LDCs with quotas and suchlike if it suited (textiles). At the current time, you can certainly think of American unwillingness to even put temporary migration provisions of GATS into effect. Some fair trade regime; same old, same old.

What follows are the abstract and some policy implications on how this lopsided situation can begin to be remedied, while the rest can be read at the link provided. Given that rich country cheerleaders for trade liberalization aren't getting their way, perhaps it's time to look at wider-ranging changes to WTO governance to make a more decisive break with the past:

Abstract

This article offers an alternative account of the performance of the World Trade Organization (WTO) – an institution whose performance is usually assessed in terms of its capacity to function as a forum for the exchange of mutually beneficial trade concessions, its ability to act as an arena in which trade rules can be negotiated and its capacity to serve as a forum for settling trade disputes. The article argues that when understood in these ways, the performance of the WTO inevitably appears lacklustre. However, the fact that member states remain committed suggests that the criteria on which an assessment of the institution’s performance ought to be based are different and the way in which we conceive of the institution is flawed. The article argues that if WTO performance is measured as the institution’s capacity to act as a strategic device to maintain and exacerbate the advantages of a group of industrial states over their less powerful and developing counterparts (an aim that is much closer to the institution’s intended purpose), then it has actually been quite successful, albeit undesirably so.

Policy Implications
  • An alternative assessment of the performance of the WTO suggests that it has been far from lacklustre, as is commonly held to be the case, and has actually been quite successful in satisfying the interests of the leading industrial states.
  • However, such an assessment also shows how developing countries as a group have consistently been net losers in the multilateral trading system.
  • This situation is no longer tenable. There is a pressing need to reform the institution fundamentally to rebalance the economic opportunities afforded to developing countries, especially the poorest and most vulnerable, as well as to think seriously and differently about the design of the institution and the interests it serves.
  • Meaningful reform of the WTO cannot, however, come from minor adjustments to its operating procedures. What is needed instead is a much more wide-ranging discussion about its purpose, form and function, as well as the value of trade liberalisation (currently constructed or otherwise) as a vehicle for development and poverty reduction.
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How Commodity Boom Killed Georgia's Internet

♠ Posted by Emmanuel in at 4/12/2011 12:04:00 AM
Friends, you are looking at the image of a stone-cold Internet killer. I almost forgot about this story which just goes to show you how the commodity boom has resulted in all sorts of crazy activity. Due to the free-money policies of the world's largest economies, funding for speculative activities is not hard to find. Where to park these funds? More and more, folks are turning to commodities. It's not a terribly original idea; while the value of fiat money is coming under increased suspicion, a lot of tangible stuff whose worth is intrinsic has become more valuable.

A long time ago, I blogged about the second gold rush in California as every Tom, Dick and Arnie started searching for the ever-dearer precious metal. Recently, we also received news of an even weirder by-product of the commodity craze. In various parts of the UK, those stealing manhole covers for scrap metal have created a major road safety hazard for obvious reasons. So, they've started installing--get this--plastic grates in Manchester.

But this new story takes the cake: an old lady knocked out Internet access in nearly the whole of Georgia (the Eastern European country) and Armenia while scavenging for scrap metal. Apparently, she instead succeeded in cutting the Internet backbone into these countries. Detained by Georgian authorities, she was understandably quite apoplectic:
A 75-year-old woman arrested for single-handedly cutting off the Internet in Georgia and Armenia on Friday tearfully insisted she was innocent and said she had never heard of the web. In a case that has attracted worldwide interest, pensioner Hayastan Shakarian is accused of forcing thousands of people in both countries offline for hours after hacking into a fibre-optic cable while digging for scrap metal.

But Shakarian, a Georgian of Armenian origin, told AFP that she was just a "poor old woman" who was not capable of committing such a crime. "I did not cut this cable. Physically, I could not do it," she said, repeatedly bursting into tears as she spoke. Shakarian, who lives in the poverty-stricken Georgian village of Armazi, around 15 kilometres (10 miles) from the capital Tbilisi, said that she had only been collecting firewood. "I have no idea what the Internet is," she added.

The pensioner has been charged with damaging property and could face up to three years in prison if convicted. "My mother is innocent. She is crying all the time. She is so scared," said her son, Sergo Shakarian. The Georgian interior ministry said that despite her claims to innocence, Shakarian had already confessed to cutting the fibre-optic cable.

The incident on March 28 provoked lengthy debates on global Internet discussion forums after it was widely publicised this week. Around 800 people posted comments about the case on the Engadget technology website, some arguing that the authorities should show leniency because of Shakarian's age and her impoverished situation.

The company that owns the fibre-optic cable, Georgian Railway Telecom, said that the damage was serious, causing 90 percent of private and corporate Internet users in neighbouring Armenia to lose access for nearly 12 hours while also hitting Georgian Internet service providers.

But although Georgian Railway Telecom insists that the 600-kilometre (380-mile) cable has "robust protection", this was not the first time that it has been damaged. Many Georgians' Internet connections were also briefly cut off in 2009 by another scavenger who hacked into the cable while hunting for scrap metal to sell.
I wouldn't have the heart to jail this poor old woman. Would you? Whenever in doubt, blame the speculators--as I'll do here. If there's something messed up in this world concerning finance, it probably has something to do with (a) Americans and (b) speculators. And of course, American speculators are the worst of the lot...who's the biggest free-money enthusiast of them all, after all?
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Eurofighting: UK, Dutch Will Beat Iceland's Stuffing

♠ Posted by Emmanuel in , at 4/11/2011 12:08:00 AM
The Eurofighter (Typhoon) is as sleek fighting machine as you can imagine; the very epitome of European aerospace know-how. Today, though, we won't be talking about the Eurofighter but about Eurofighting. What is Eurofighting, you ask? It is a rather sloppy quarrel involving two of the most subprime economies in Western Europe: those of Iceland and the UK, with the more competent Netherlands thrown in for good measure. I once described the UK v Iceland fight as the clash of the pygmies by two countries laid low by the financial crisis; it's now time we returned to the hostilities.

Most memorably, the British used anti-terror rules to freeze Icelandic assets in the UK insofar as the bust Icesave online bank was unable to insure British depositors. Having reimbursed them, the British authorities are now expecting payment from Iceland for their troubles. This didn't go down too well with Iceland's then-government and people, to say the least. Insofar as the Icelanders were now being made to pay for Icesave's offences to the tune of $5 billion, this tiny country has had mighty woes thrust upon it.

Now, Europeans--those of the EU variety at least--have a trick of asking for re-votes from wayward countries until they get their way. Think of subjecting the Irish to referenda until they voted for the Lisbon Treaty. The Irish voted it down once, but were not brave enough to do so again as it found itself in the teeth of a banking crisis. But here's the odd thing about the prickly Icelanders. Not only did they vote down paying the UK and Dutch once, but they have now done so again. Considering how much bigger their own opponents are, let's say the Icelandic folks are brave if perhaps foolhardy as the full force of the European heavyweights will soon be upon them:
Iceland faces more economic uncertainty and a drawn-out European court case after its voters rejected for a second time a plan to repay $5 billion to Britain and the Netherlands from a bank crash. The British and Dutch governments voiced disappointment with the result of Saturday's referendum, in which almost 60 percent of voters opposed the repayment deal.

"We must do all we can to prevent political and economic chaos as a result of this outcome," Prime Minister Johanna Sigurdardottir told state television. The issue will now be settled by the court of the EFTA Surveillance Authority (ESA), the European trade body overseeing Iceland's cooperation with the European Union. [Iceland is a member of the lesser-known and ever-shrinking EFTA and not the EU.] "My estimate is that the process will take a year, a year and a half at least, Finance Minister Steingrimur Sigfusson told a news conference.

The debt was incurred when Britain and the Netherlands compensated their nationals who lost savings in online "Icesave" accounts owned by Landsbanki, one of three overextended Icelandic banks that collapsed in late 2008, triggering an economic meltdown in the country of 320,000 people. Economists have said failure to resolve the issue means Iceland faces delays ending currency controls, boosting investment and returning to financial markets for funding.

But the centre-left coalition government said it would not resign despite the defeat. "The government will emphasize maintaining economic and financial stability in Iceland and continuing along the path of reconstruction which it began following the economic collapse of 2008," it said in a statement.
This behaviour hasn't gone down well with those trying to steady Iceland's situation, as you can imagine:
It said a fresh round of talks on further funding from the International Monetary Fund, which led a bailout for the island, would be delayed several weeks, but that it had enough foreign exchange reserves to cover debts maturing this year and next. The proposed deal at issue in Saturday's vote set a clear timetable for repaying the Dutch and the British, including interest. But voters rejected the idea that taxpayers should foot the bill for what they see as bankers' irresponsibility. "I know this will probably hurt us internationally, but it is worth taking a stance," Thorgerdun Asgeirsdottir, a 28-year-old barista, said after casting a "no" vote.

Dutch Finance Minister Jan Kees de Jager said: "This is not good for Iceland, nor for the Netherlands. The time for negotiations is over. Iceland remains obliged to repay. The issue is now for the courts to decide." Economists have said the court route could be much costlier. The government still hopes most of the debt will eventually be paid back from the estate of the bankrupt Landsbanki. Ratings agencies were following the vote closely. Moody's had said it might lower Iceland's rating in case of a 'no'. Standard & Poor's analyst Eileen Zhang said a 'no' vote "might possibly result in a lengthy legal process and further uncertainties regarding the ultimate fiscal cost".
Obviously this is a very unsavoury matter for the Icelanders to accept, but they've now set themselves on a harder path in the name of righteousness. Consider:

1. Their exit from IMF lending may be prolonged with all the stigmas attached to it;
2. Their credit rating may be downgraded further;
3. In light of (1) and (2), their return to international debt markets will likely be harmed;
4. They now have incurred the wrath of the lawyer-heavy UK and EU bigwigs the Dutch;
5. Their bid for joining the Eurozone to avoid currency-related issues in the future is probably mortally wounded as a consequence.

I understand that accepting a $5 billion liability would have been equivalent to its 320,000 population taking on $15,625 each in debt. Given the above, however, I wouldn't be surprised if the Europeans exact more than that much in grief. Sometimes you just have to give in--especially when you have no good bargaining chips like Iceland. The Icelandic leadership's inability to get that message across is regrettable. Some folks are just asking for it.
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How to Spend $1B+; Not Win Champions League

♠ Posted by Emmanuel in , at 4/09/2011 12:58:00 AM
It's time for another weekend feature! Having just visited Battersea Park by crossing Chelsea Bridge, my associational memory was jogged about a brace of articles I read in the Evening Standard that pretty much sum up the elusive quest of Roman Abramovich for a Champions League title for loathsome Chelsea FC. It's surely one of the funner jobs you can have: accountant at Stamford Bridge. Probably the most coveted and richest prize in club football, its theme adapted from Handel's "Zadok the Priest" is likely the most recognizable piece of classical music to run-of-the-mill football fans who are not exactly the last word in cultural sophistication. Meanwhile, Abramovich's example is probably not a highlight of sports management and something tournament organizers want to expunge.

Anyway, the aforementioned publication combed through the finances of Chelsea FC and claims that the Russian oligarch has pumped £740 million (nearly $1.2B) in interest-free loans into it without reaching Abramovich's ultimate aspiration of hoisting the Champion League winner's trophy. Sure Chelsea was a John Terry penalty shootout kick away from winning the title, but a famous slip-up prevented this happy outcome. And so Abramovich has continued spending as well as hiring and firing managers like crazy while adopting a highly interventionist approach to club management. It reminds me of the late George Steinbrenner whose club the New York Yankees always did best when he entrusted the manager and did not meddle so much in club affairs.

Let's just say Abramovich has mowed through managers and wads of cash at a rate that would make Steinbrenner blush. Worse yet, Abramovich has nothing to show for (yet?)
The desperation which greeted Chelsea's Champions League [quarterfinals] defeat to Manchester United deepened today after the club's latest financial figures revealed an increasing reliance on owner Roman Abramovich's wealth. Chelsea's holding company, Fordstam Limited, revealed the club owe just under £739.5million in loans underwritten by Abramovich since he bought the club from Ken Bates in 2003.

It comes after the club announced in January losses of £71m for the year ending 30 June 2010 despite winning the Premier League and FA Cup in that time and spending just £1m net on transfers.None of the figures revealed today include the £75m spent on Fernando Torres and David Luiz in January. That spending is highly likely to be the final throw of the dice in Abramovich's willingness to bankroll Chelsea's pursuit of Champions League glory.
The reason why Chelsea's free-spending ways are likely coming to an end is the 2012/2013 phased UEFA introduction of "financial fair play" rules. It disallows clubs to spend more than they earn in a three-year period. As I have mentioned before, this may still disadvantage clubs of lesser means with smaller revenue bases. Chelsea though will not be able to count on Abramovich-like cash infusions if this rule is properly implemented:
UEFA's Financial Fair Play regulations are set to be introduced from the beginning of the 2012-13 season and require clubs to break even over a three-year period when a club cannot spend more money than they generate...The key figures that UEFA will look at will be the yearly losses, turnover, wage bill and expenditure on transfer fees.

Chelsea's wage bill now represents 82 per cent of turnover - much higher than the 70 per cent UEFA will allow - and does not compare well to other leading clubs; Real Madrid (46 per cent), Barcelona (68) and Manchester United (44). UEFA will allow owners to make up the shortfall between turnover and expenditure to the tune of £38m for the first two years with that figure falling to £26m in 2014 with further reductions thereafter.

It is possible for clubs to strike sponsorship or naming rights deals with their owners to help close the gap but UEFA will test any such agreements to ensure the price agreed is in line with market valuations [to ensure that artificially inflated values don't become the vehicle for cash transfers]. The Blues have implemented a variety of cost-cutting measures but such frugality was at odds with the dramatic deadline day spending that appeared to undermine much of their good work this season.
The latter, of course, refers to splurging for the non-performing £50M in transfer fees man Fernando Torres--whose questionable form has continued since the 2010 World Cup--and the thankfully more impressive £25M defender David Luiz.

If there is one certainty in the run-up to 2012, it's probably managerial uncertainty at Chelsea. You wouldn't bet against Abramovich firing Carlo Ancelotti just a year after winning the Premier League and FA Cup double. Both are fine domestic prizes, but for Roman anything less than a Champions League title is coming up short. See Roman splurge!
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Like Greece & Ireland, IMF Shouldn't Help Portugal

♠ Posted by Emmanuel in ,, at 4/08/2011 09:16:00 PM
Now I'm hopping mad! I know that I'm beginning to sound like a broken record on this, but in the interest of fairness, I will fight the good fight even if no one else will do so. Bravely I must soldier on in this bleak and unbearable world. Previously, I have argued that the IMF should not have bailed Greece out because its problems were primarily of the fiscal sort (accumulating a debt too large to service), not the balance-of-payments sort (having insufficient foreign exchange to pay for necessary imports like food and energy).

I've also said that bailing out Ireland was an indecent financial proposal since its woes stem primarily from the state guaranteeing its banks' solvency without fully realizing the magnitude of such commitments. Insofar as the IMF remains an institution dedicated to dealing with balance of payments problems, we have an identical main problem with IMF lending to Ireland and Portugal. While theirs are somewhat dissimilar woes, what they have in common with Greece is not having a BOP problem which would oblige the IMF to act according to its Articles of Agreement.

Even the IMF describes its activities in Ireland as support for recapitalizing nearly insolvent lenders which have, in turn, tested the solvency of the Irish state. Witness:
Ireland’s banks are at the heart of the current crisis. Massive lending during the boom years left banks heavily exposed to the Irish property market, which has yet to stabilize despite a steep fall in housing prices of 36 percent since the peak in 2008. At the height of the boom, the assets of domestic banks amounted to five times Ireland’s gross domestic product, with real estate loans making up close to 30 percent of all loans in 2006.

Such an oversized banking system is no longer sustainable, not least because of the ongoing weakness of the property market in Ireland. The problems have resulted in a loss of deposits and market funding, and have made Irish banks overly dependent on financing from the European Central Bank. The banking sector therefore needs to be restructured and recapitalized.
There isn't even an allusion to balance of payments woes, precisely because Ireland doesn't suffer from them.

And so it is the case once more with Portugal. Sharing a common currency with its main trading partners in the Eurozone, the euro is also a standard global reserve currency that is second only to the US dollar in terms of reserve holdings. But Portugal may have trouble obtaining euros, you say? As late as February, the ECB had a facility for purchasing sovereign issuances which it used to help out Portugal. So, Portugal could have just issued more IOUs and sold them to the ECB:
The European Central Bank has intervened in eurozone bond markets for the first time in weeks, buying Portuguese debt amid fears that the country could yet seek an international rescue. The ECB returned to the market on Thursday as Portugal’s cost of borrowing on 10-year debt jumped to a euro-era high of 7.63 per cent, traders said. The ECB temporarily suspended its bond-buying programme in mid-January.
The real triggers for Portugal asking for help from the European Financial Stability Facility (EFSF)/IMF are a nuber of things. First, the outgoing PM Jose Socrates failed to pass austerity measures, displeasing powers-that-be in Brussels who had hoped Portugal could avoid another massive bailout episode. Absent political leadership (Socrates resigned and there will be parliamentary elections come June 5) and a credible plan for getting its fiscal woes under control, the ECB inevitably tired of purchasing Portugese debt as a lifeline and asked Lisbon to formally ask for help. Financially, servicing EUR 10B of maturities due in June is virtually impossible. Hence the cry for mercy.

My argument in the Portugese case is similar to the Greek one: In the main, fiscal woes--overindebtedness--is to blame, not BOP problems. Although the IMF may be giving its support to Eurozone countries to help quell systemic disturbances in the international monetary system, that isn't what it was tasked for as I keep repeating.

It's also a matter of fairness to LDCs. Most likely, poor countries aren't contributing to the IMF so that their funds will be used to bail out rich countries suffering not from BOP problems but from fiscal ones. So, not only is it a misallocation of funds, but also a miscarriage of global governance. By all means, let the Europeans help out one of their own--but without IMF funds.

The world is an unfair place, but it was like that long before I got here.
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Mapping Chinese Investment in Africa

♠ Posted by Emmanuel in , at 4/08/2011 12:03:00 AM
Like in practically every other continent, China has made itself a force to reckon with in Africa. I have thus had a very long string of posts [1, 2, 3, 4, 5, 6, 7, 8] examining its role and the views other have of China investing there. These range from the helpful and benign ("South-South cooperation") to the exploitative and malign ("the yellow man's burden"). While I still very much recommend Jian Ye-Wang's IMF research paper "What Drives China's Growing Role in Africa?" for those looking for a more comprehensive review, our friends at the World Policy Journal have a handy single-page geographic review depicting where and how much China is investing in various African nations.

Here's hoping you find it informative!
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West Complains About Yunus Ouster from Grameen

♠ Posted by Emmanuel in at 4/07/2011 12:05:00 AM
[NOTE: This is the second of two posts reflecting on the ouster of Muhammad Yunus from Grameen as demanded by the Bangladeshi government.] Well it's finally happened: the Bangladeshi authorities have forced the removal of microfinance pioneer Muhammad Yunus from Grameen Bank. Although Yunus has his critics--witness Jagdish Bhagwati portraying him in a negative light in the post below as being Grameen v Bangladesh--I am still shocked that their government would treat someone of such renown so harshly. Yes, it's like bashing the Dalai Lama or criticizing Aang San Suu Kyi--something which won't go down too well with Western audiences. Once more invoking rather odious comparisons, Yunus' defenders are likening his treatment to the political persecution of Mikhail Khodorkovsky in Russia--too influential to meddle with electoral politics.

At any rate, the Western backlash has started more quickly than you can say "Moammar." First out of the chute are those diplomatic dervishes, the French (to no one's real surprise). From Auntie:
Both the US and France have lamented the removal of Nobel laureate Muhammad Yunus from the Grameen micro-finance bank he founded. French President Nicolas Sarkozy has said his government will monitor developments and discuss the issue with the Bangladesh in the next few days. The US has warned Professor Yunus's removal could harm bilateral ties.

Meanwhile Bangladesh's Supreme Court has adjourned hearing two last-ditch petitions challenging the removal. Correspondents say neither of the petitions, which will now be heard on 2 May, has much chance of success and that Professor Yunus appears reconciled to leaving his job as managing director of the Grameen Bank.

President Sarkozy expressed his strong support to Professor Yunus in a letter released to the French press by Friends of Grameen, a voluntary organisation established to promote the microcredit activities of the bank and its affiliates. He wrote that the creation of the Grameen Bank "was an audacious initiative, which has been an ongoing source of inspiration for the international community".

"I know the difficulties you are going through at the present moment. I trust the institutions of your country will find a fair resolution to these...The French government will closely monitor the situation and will definitely address the issue with Bangladeshi authorities over the next few days."
As Hillary Clinton had already sided with Yunus instead of the Bangladeshi incumbent PM Sheikh Hasina prior to his ouster, the American response has unsurprisingly been negative as well:
The US Assistant Secretary of State for South Asia, Robert Blake, said on Tuesday said that his country had a "strong interest in maintaining close relations" with Bangladesh, which he called "a democratic and moderate Muslim country". But he told a congressional hearing he had, during a visit last month to Dhaka, "warned that a failure to find a compromise that respects Dr Yunus's global stature and maintains the integrity and effectiveness of Grameen could affect our bilateral relations".

On Tuesday the Supreme Court upheld the argument of the Bangladesh central bank that Professor Yunus had been improperly appointed while past retirement age. But Professor Yunus said the attempt to remove him from Grameen Bank had been politically motivated. The Grameen Bank has pioneered micro-lending to the poor by giving small loans to millions of borrowers.

It was in effect Prof Yunus's last legal option to keep his job as managing director of the Grameen Bank. In March Bangladesh's High Court ruled that his dismissal was legal. His supporters say he fell out with Bangladesh's Prime Minister Sheikh Hasina after trying to launch his own political party in 2007.
The BBC also has another story on the seemingly rapid downfall of Professor Yunus after signalling his intention of entering politics. Very Khodorkovsky-like, I must observe. It's odd but yes, I'll probably side with Missus Clinton in giving the microfinance pioneer the benefit of a doubt here.

At any rate, it is no longer unimaginable that the US will apply sanctions against poor Bangladesh over this incident (as if it needed more troubles aide from political instability and chronic flooding among others). Think of China being ostracised for the longest time, or Myanmar up to the present. Given that the US has provided Bangladesh with $5 billion in aid since it became a nation on one hand and that Bangladesh owns 25% of Grameen on the other, it's an interesting tug-of-war:
The U.S. has provided more than $5 billion of development assistance since 1971 to Bangladesh, according to U.S. government data...Bangladesh’s government owns 25 percent of Grameen, Yunus said, while customers hold the balance. The bank has lent $10.3 billion since it began operations in 1976 and had a loan recovery rate of 97 percent as of the end of February, according to the lender’s website.
It's depressing news, but don't shoot the messenger. For all his foibles, it makes you appreciate the tightrope industrialist-politician Silvio Berlusconi has navigated for years and years when canny operators like Yunus stumble at the first hurdle.
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Dev't Battle: Jagdish Bhagwati v Muhammad Yunus

♠ Posted by Emmanuel in , at 4/07/2011 12:01:00 AM
[NOTE: This is the first of two posts reflecting on the ouster of Muhammad Yunus from Grameen as demanded by the Bangladeshi government.] Here is a clash of the titans from the Indian subcontinent if there ever was one. On one side we have Jagdish Bhagwati, arguably the most influential international economist of his generation. On the other side we have Muhammad Yunus, Nobel Peace Prize winner and the man recognized by most for having popularized microfinance.

I make these qualifiers about Yunus and microfinance for a reason: Apparently, his fame has not gone down so well with a number of economic commentators--including Bhagwati. To wit, the venerable Professor Bhagwati highlights four criticisms of Yunus in a recent op-ed in Al Jazeera:

1. It wasn't Muhammad Yunus who invented microfinance but rather Ela Bhatt who founded the Self-Employed Women's Association (SEWA) in April 1974--two years before the former made his start in Jobram Bangladesh;
2. Yunus has relied on periodic inflows of foreign cash to keep Grameen afloat, whereas SEWA has never been reliant on foreign donors;
3. What is more, SEWA has been regulated by Indian authorities practically since its inception, while the same doesn't hold true for Grameen which resists such regulation;
4. Microfinance does not promote large-scale development.

There are interesting points which Muhammad Yunus would probably be better served rebutting himself. However, I can offer some counterpoints and suggestions here:

1. Yunus' innovation was perhaps more a case of marketing; that much is true. Prior to him, the term "microfinance" had barely entered the lexicon and was certainly not widespread worldwide. That said, why begin with SEWA? Those who've worked in development studies for any period of time are familiar with the Rotating Savings and Credit Association (ROSCA) which has similar features of credit pooling and turn-based lending among a small group. As far back as 1962, the famous anthropologist Clifford Geertz had already written about "The Rotating Credit Association: A 'Middle Rung' in Development." It's hardly an obscure work since Google claims it has 397 citations. ROSCA was already operative long before Geertz described it, so the origin of ROSCA certainly predates SEWA by an even more considerable margin. But if neither the ROSCA nor the SEWA folks coined the term "microfinance" despite having essentially similar mechanics, then I'll give Yunus the nod for doing so.

2. It would of course be good if Bhagwati came up with evidence to back his claim that could be very damaging to Yunus' operation not being self-sustaining by relying on periodic cash infusions from abroad.

3. It is incorrect to say that Bangladeshi microfinance institutions (MFIs) do not face banking regulation. Instead, they have a separate banking regulator in the Microcredit Regulatory Authority (MRA) which oversees their operations and has the power to impose sanctions. Instead of saying Grameen gets by with lax regulation, it would have been better if Bhagwati could explain why microfinance and conventional banking are similar enough to warrant coming under the same regulatory body (such as the Reserve Bank of India). Given India's own woes with allegedly usurious interest rates, the specificities of microfinance may warrant having a separate regulator as Bangladesh has decided to do. Yunus, after all, has been instrumental in creating a microfinance monitoring body in Bangladesh and calls for one in India as well:
“We have been lobbying for a regulatory authority in Bangladesh and as a result created the microcredit regulatory authority in Bangladesh,” Yunus said. “That’s what I have been recommending for India also.”
Speaking of which, Bhagwati should note this provision of Bangladesh's MRA:
MFIs should not be permitted to accept deposits from the non-member/ general public.
4. Alike many other things in development--remittances come to mind, personally--it is unlikely that microfinance is the "magic bullet" to development. Although some folks do a disservice as styling it as such, perhaps Yunus is even culpable to an extent. I personally think Clifford Geertz suggested as much since he termed ROSCA as a "middle rung" in development long before the chattering classes arrived on the scene. Microfinance is an intermediate stage in the development of financial institutions. That is, habituating folks climbing up the income ladder in the disciplines of borrowing, investment, and repayment is certainly not a bad thing when it comes to administering credit. Certainly the Americans--its government, states, municipalities and citizens--do not have a firm grip on such fundamentals given the parlous state of their finances at virtually every level of society.

It's interesting times for Grameen,to say the least.
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Post Fukushima, French Still [Heart] Nuclear Power

♠ Posted by Emmanuel in ,,, at 4/06/2011 12:02:00 AM
Just when a nuclear power revival was supposedly in full flower, troubles with the technology at Japan's Fukushima facility are prompting a global reassessment of its costs and benefits. Yes, it's a virtually carbon-free technology. Yes, it weans you somewhat from importing fossil fuel from perpetually unstable parts of our world. But, as Fukushima reminds, safety challenges associated with the technology come in all sorts of shapes and forms. End result? The Germans are actually going backwards in forsaking nuclear power for old-fashioned coal power. Some progress.

However, the same sentiment is not shared by their French counterparts. As you probably know, over three-quarters of France's energy needs are accounted for by atom splitting. Such is their overall level of public comfort with the technology that few have complained about it in Fukushima's wake. The prestige of being the chief of France's nuclear power firm remains undimmed as its current head and that of the nuclear services firm EDF are battling for the honour of leading Areva (whose famous ad featuring the 70s disco hit "Funkytown" is featured above).

Part of the reason why nuclear power is so firmly entrenched domestically in France is that it sets an export base to sell these engineering wares. Although the French haven't developed cold feet in using nuclear power, the fear is that foreign customers may be. So, a primary task is assuaging them that, yes, modern French technology is more advanced (read: safer) than that of 70s-era nuclear plants in Japan.

For reasons familiar to those who've studied some European history, the French usually punch above their weight in international diplomacy, whether it's dealing with the aftermath of the global financial crisis or erstwhile arms customer Moammar's slaughter of Libyan civilians. Hence, it should be of no surprise to anyone that the French are once again at the forefront of proposing international rules to ensure the safety of nuclear power. To say that they are self-interested would be an understatement, but you can't argue with the sheer energy they put into jumping the gun. From the coverage of President Sarkozy's visit to Japan a few days ago in Reuters:
France -- the most nuclear-dependent in the world -- called for new global nuclear rules and proposed a global conference in France for May as President Nicolas Sarkozy paid a quick visit to Tokyo on Thursday to show support. "We must look at this coldly so that such a catastrophe never occurs again," said Sarkozy, who chairs the Group of 20 bloc of nations, during his brief stopover.

It was the first visit by a foreign leader since a March 11 earthquake and tsunami battered northeast Japan, leaving nearly 28,000 people dead or missing. The damage may top $300 billion, making it the world's costliest natural disaster.

Prime Minister Naoto Kan, under enormous pressure as he struggles to manage Japan's toughest test since World War II, welcomed the gesture of solidarity. "I told him a Japanese proverb -- 'a friend who comes on a rainy day is your true friend', and thanked him for coming to Japan from the bottom of my heart," he said.
While there is of course a humanitarian concern in assisting the Japanese deal with their nuclear woes, you can't help but believe that the French are eager to lend their disaster containment expertise to once again demonstrate their engineering prowess to would-be clients:
France is a global leader in the nuclear industry, and Paris has flown in experts from state-owned nuclear reactor maker Areva to work with Japanese engineers. "Areva is one of the companies that will make the most out of a nuclear revival and therefore will be in most trouble if there isn't a nuclear revival," said Malcolm Grimston, an expert from London's Imperial College. "Certainly Sarkozy or France generally have a very strong interest in getting things moving as quickly as possible and trying to ensure that there isn't a major backlash (to nuclear power). France would be one of the biggest losers from that."

Other nations are also scrambling to help Japan. The United States and Germany are sending robots to help repair and explore the damaged Fukushima Daiichi plant. Kyodo said some 140 U.S. military radiation safety experts would soon visit to offer technical help.

The International Atomic Energy Agency (IAEA), which says the situation at the Fukushima plant remains very serious, already has two teams in Japan, monitoring radiation levels. The Japanese disaster, the worst nuclear accident since Chernobyl in 1986, has appalled the world and revived heated debate over the safety and benefits of atomic power.
It isn't hard to decipher where the French stand on this issue alongside their nuclear national champions. As the events in Japan unfold, they're busy lauding loan guarantees the US is making for developers of new nuclear power plants Stateside. The business of atom splitting will go on for the French.
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