Inter Press Service » Financial Crisis http://www.ipsnews.net News and Views from the Global South Fri, 05 Feb 2016 23:42:58 +0000 en-US hourly 1 http://wordpress.org/?v=4.1.10 Brazil 2015: The Year When Everything Went Wronghttp://www.ipsnews.net/2015/12/brazil-2015-the-year-when-everything-went-wrong/?utm_source=rss&utm_medium=rss&utm_campaign=brazil-2015-the-year-when-everything-went-wrong http://www.ipsnews.net/2015/12/brazil-2015-the-year-when-everything-went-wrong/#comments Wed, 30 Dec 2015 08:15:23 +0000 Fernando Cardim de Carvalho http://www.ipsnews.net/?p=143469

Fernando J. Cardim de Carvalho, economist and professor at the Federal University of Río de Janeiro.

By Fernando J. Cardim de Carvalho
RIO DE JANEIRO, Dec 30 2015 (IPS)

As 2015 approaches its end, Brazilians live a period of extraordinary uncertainty. The recession seems to get worse by the day. Inflation is high and shows unexpected resistance to tight monetary policies applied by the Central Bank. The sluggish international economy has largely neutralized incentive and the strong devaluation of the domestic currency could represent a reality to exporters and to producers who compete with now more expensive imports. After an initial resistance, employment levels began to fall.

Fernando J. Cardim de Carvalho

Fernando J. Cardim de Carvalho

All this, however, is not just a “normal” recession. It takes place against a background of a major corruption scandal, which has all but paralyzed investment by major firms, like Petrobras. It also raises the concrete possibility of seeing political figures such as the president of the Federal Chamber of Deputies go to jail. The government leader at the Federal Senate is already in jail, as are many former authorities in President Luíz Inácio -Lula- da Silva’s administration (2000-2011). Hardly a day goes by without any news about new scandals or arrests of authorities and businessmen. On top of it all, in the early days of December, the embattled president of the Chamber of Deputies accepted a request to open impeachment proceedings against President Dilma Rousseff for alleged violations of the Fiscal Responsibility Act.

Any subset of that list of events would be enough to generate widespread instability. All of them put together created a hitherto unheard of situation of political and economic crisis of which one has to make extraordinary efforts to see any way out.

Impeachment procedures against the president did not come out of the blue. The revelation of the Petrobras scandal has brewed rumors and suspicions, if not against the president herself, certainly against many of those who surround, or have surrounded, her (she is a former minister of energy in Lula’s government and a former chairman of the administration council of Petrobras.) So far, however, no accusations or evidence emerged against Rousseff. In fact, she does not even seem to be a major target of investigators, who seem to be zeroing in on Lula (and his immediate family.) The piece of accusation justifying the opening of impeachment proceedings relies on the use of accounting artifices to violate the constraints on public expenditure imposed by the Fiscal Responsibility Act, which a majority of opinion makers seem to consider too weak a case to sustain an impeachment. What makes the whole process more menacing is in fact her acute political fragility. Rousseff is universally seen as Lula’s creation, but never really relinquished his power over the party and the coalition it led.

Soon after Rousseff was reelected in November 2014, she announced a radical change of orientation in her administration’s economic policies. Austerity policies, cutting expenditures and raising taxes, seemed to be unavoidable in the face of the increased federal expenditure made to ensure her victory in the presidential elections.

The incumbent president repeatedly stated during the campaign that she rejected those policies, only to announce their implementation a few days after the result of the popular vote became known. Despite the apparent support of Lula, the change in orientation was badly received by the official Workers Party (PT), which grudgingly announced support for her, but conditioning it to a change in macroeconomic policies.

The party seemed to ignore the fact that during 2014, the increase in fiscal deficits failed to have any expansionary impact on the economy, which did not grow at all. The perception that the president had no political support of her own, however, stimulated her adversaries to aggressively advance proposals for her impeachment, based on whatever reason one could find, or the annulment of the election itself, or if nothing else worked, to force her to resign. With an aggressive opposition and unable to count on a supporting political base, the government was paralyzed for the whole year.

No relevant austerity measure has obtained Congress’ approval. Despite the effort of leftist parties to blame the pro-austerity Finance Minister Joaquim Levy for the contraction of the economy, it is impossible to ignore the fact that the failed attempts to get the proposed policies approved by Congress just made explicit the lack of political power that characterized Rousseff’s position. The impasse created by the inexistence of an effective government in the face of an aggressive opposition led decision-makers to postpone any but the most immediate decisions. Investment has fallen, workers have been fired in increasing numbers, consumption has been negatively impacted, etc.

The political crisis has transformed an expected recession into something that threatens to become a major depression, both in depth and duration. The situation is made more difficult by the difficulty to visualize any sustainable solution for the crises in the mediate horizon, let alone the coming months. If the impeachment process prospers, one could expect for sure increased political instability as a result, on the one hand, of attempts by PT and the social movements that are close to it to react somehow, and, on the other, by the fact that there is no organized opposition ready to take the place of the current administration. If the impeachment initiative is defeated, the problem remains that the president does not have any vision or power and it is overwhelmingly difficult to imagine how she could recover enough initiative to last the three remaining years of her term in office.

Paraphrasing the late historian Eric Hobsbawn, who observed that the Twentieth Century had been very short (beginning in 1914 and ending in 1991), 2015 may be a long year for Brazilians. The incompressible minimal duration of an impeachment process will take it to 2016, when the social situation may be more tense than it is now, with high inflation and increasing unemployment. If a national agreement of some sort, be it in terms of allowing Rousseff’s government to work or by removing it altogether, is not reached to avoid the worse, 2015 can last even longer. The country may dive into an unknown abyss of a combination of economic, political and social crises of which it is hard to see how, when and in what conditions it will recover.

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2016: The Forthcoming Adjustment Shockhttp://www.ipsnews.net/2015/12/2016-the-forthcoming-adjustment-shock-2/?utm_source=rss&utm_medium=rss&utm_campaign=2016-the-forthcoming-adjustment-shock-2 http://www.ipsnews.net/2015/12/2016-the-forthcoming-adjustment-shock-2/#comments Thu, 10 Dec 2015 14:24:17 +0000 Isabel Ortiz http://www.ipsnews.net/?p=143284 Isabel Ortiz, is the director of the Social Protection Department at the International Labour Organization (ILO). This column is based on the working paper “The Decade of Adjustment: A Review of Austerity Trends 2010-2020 in 187 Countries” by Isabel Ortiz, Matthew Cummins, Jeronim Capaldo and Kalaivani Karunanethy, and its policy brief, published by the ILO Social Protection Department, the Initiative for Policy Dialogue at Columbia University and the South Centre.]]> Isabel Ortiz, is the director of the Social Protection Department at the International Labour Organization (ILO). This column is based on the working paper “The Decade of Adjustment: A Review of Austerity Trends 2010-2020 in 187 Countries” by Isabel Ortiz, Matthew Cummins, Jeronim Capaldo and Kalaivani Karunanethy, and its policy brief, published by the ILO Social Protection Department, the Initiative for Policy Dialogue at Columbia University and the South Centre.]]> http://www.ipsnews.net/2015/12/2016-the-forthcoming-adjustment-shock-2/feed/ 0 Blackmail Politics Is the Name of the Game in Brazilhttp://www.ipsnews.net/2015/12/blackmail-politics-is-the-name-of-the-game-in-brazil/?utm_source=rss&utm_medium=rss&utm_campaign=blackmail-politics-is-the-name-of-the-game-in-brazil http://www.ipsnews.net/2015/12/blackmail-politics-is-the-name-of-the-game-in-brazil/#comments Thu, 03 Dec 2015 22:45:32 +0000 Mario Osava http://www.ipsnews.net/?p=143211 Brazilian President Dilma Rousseff next to advisers with worried faces, after addressing the media, shortly after the announcement of the impeachment trial. Credit: Lula Marques/ Agência PT

Brazilian President Dilma Rousseff next to advisers with worried faces, after addressing the media, shortly after the announcement of the impeachment trial. Credit: Lula Marques/ Agência PT

By Mario Osava
RIO DE JANEIRO, Dec 3 2015 (IPS)

The aim to impeach President Dilma Rousseff is no longer merely a threat that was poisoning politics in Brazil. Now it may be a traumatic battle, but in the light of day.

On Wednesday, Dec. 2 the speaker of the lower house, Eduardo Cunha, gave the go-ahead to impeachment proceedings to remove Rousseff from office. The motion was introduced by three jurists, including Helio Bicudo, a co-founder of the governing Workers Party (PT), and Miguel Reale Junior, a former justice minister.

Cunha announced his decision shortly after it came out that the PT would vote against him in the lower house ethics council, which is investigating the money he has in Swiss bank accounts, presumably the product of graft and embezzlement in the state oil company, Petrobras – a scandal that has already affected 170 politicians and businesspersons.“The game has changed, there is another chess board now, with some light shining, after months of uncertainty. An impeachment process triggers radical positions not only in Congress, but in society at large. But the hope is that the game will be more transparent, with all the cards out on the table.” -- Fernando Lattman-Weltman

This confirms what the media has been commenting on, but which has not been publicly acknowledged by those involved: that there was a tacit agreement between the presidency and Cunha, which previously stood in the way of legal proceedings that could lead to the removal of Rousseff and Cunha.

Behind the “embrace” between the president and the speaker, both of whom faced the threat of legal action, was Cunha’s opposition to the government, even though he is a member of the Brazilian Democratic Movement Party, the PT’s chief ally in the governing coalition.

The PT has three seats in the 21-member ethics council. Its votes are considered decisive in the case of Cunha, who as speaker of the lower house has the authority to accept or dismiss requests for impeachment of the president.

The three PT members on the council opted to align themselves with the leadership of their party and with public opinion, which is overwhelmingly opposed to Cunha, resisting the pressure from the presidency, which is more concerned about keeping the president in office and cobbling together enough votes to push through the legislative measures needed to help the economy recover from the current crisis.

“The game has changed, there is another chess board now, with some light shining, after months of uncertainty,” said Fernando Lattman-Weltman, a professor of political science at the Rio de Janeiro State University.

“An impeachment process triggers radical positions not only in Congress, but in society at large,” he told IPS. “But the hope is that the game will be more transparent, with all the cards out on the table.”

The analyst said “Cunha is finished, he won’t survive any longer now that he played his last card; he relinquished the weapon of blackmail” – the impeachment of Rousseff that he had been delaying.

The speaker of the lower house, controversial since he was named in February, has been accused of violating “parliamentary decorum” by lying in March when he testified in the committee investigating the Petrobras corruption scandal, claiming he did not have bank accounts abroad.

But the Swiss attorney general’s office refuted his claim several months later, and sent documents about his accounts to prosecutors in Brazil.

Eduardo Cunha, speaker of the lower house of Congress in Brazil, announcing his decision to allow the impeachment trial to go ahead against President Dilma Rousseff. Credit: Alex Ferreira/Cámara de Diputados

Eduardo Cunha, speaker of the lower house of Congress in Brazil, announcing his decision to allow the impeachment trial to go ahead against President Dilma Rousseff. Credit: Alex Ferreira/Cámara de Diputados

Cunha had already been accused of taking bribes from companies that were rewarded lucrative Petrobras contracts, in the testimony given by four people facing prosecution in the scandal, who decided to cooperate with the justice system, revealing what they knew in order to reduce their possible sentences.

This means it is unlikely that he will hold on to his seat in Congress. He will lose it if the ethics council rules that he violated parliamentary decorum and if a majority of the 513 lawmakers in the lower house vote in favour of that accusation.

But his downfall would take several months.

Moreover, he and dozens of other legislators under investigation could go to prison, but only with authorisation by the Supreme Court – the only legal body that can decide whether members of the executive and legislative branches should be tried.

The impeachment trial against Rousseff is more uncertain, according to Lattman-Weltman. The most likely outcome is that the president “will manage to overcome the challenge, after a tough battle with the opposition, and depending on how society reacts.”

The removal of a president in Brazil requires a two-thirds majority in the lower house to authorise the impeachment trial, which is held by the Senate, where a two-thirds majority is also needed to find the accused guilty.

Brazilian President Dilma Rousseff’s political fate will be decided in the next few months in this emblematic building in Brasilia, the seat of the national Congress. Credit: Brazilian Congress

Brazilian President Dilma Rousseff’s political fate will be decided in the next few months in this emblematic building in Brasilia, the seat of the national Congress. Credit: Brazilian Congress

It is a lengthy process, because it begins in a committee of legislators from all parties, represented in proportion to each party’s number of seats in the house. In this case, Rousseff is accused of violating Brazil’s fiscal responsibility law by signing decrees that increased public spending without authorisation from the legislature. The president denies any wrongdoing.

Impeachment requires that a concrete crime be committed during the president’s current term. But it is a political trial, based on criteria that differ from legal trials. Former president Fernando Collor de Mello was found guilty in 1992 by the Senate, which barred him from holding public office for eight years, even though the Supreme Court failed to find sufficient grounds to convict him for corruption.

One serious effect of the new political dispute is its impact on the economy, in recession since 2014, which many now describe as depression. GDP was 4.5 percentage points lower in the third quarter of this year than in the same period last year. Economists forecast a slight recovery in 2017.

With unemployment standing at 7.9 percent in October against 4.7 percent in the same month in 2014, and annual inflation at 10 percent, Brazil is suffering one of its worst crises in history. The political chaos is making the situation even worse, by standing in the way of the adoption of necessary measures and generating uncertainty that has led to a reduction in investment, consumption and credit.

To make matters worse, there was a threat of a paralysis of government this month, due to failure to meet the budget’s fiscal deficit target. But the government managed to get approval Wednesday to change this year’s fiscal target, allowing it to end the year with a primary deficit of 31 billion dollars, which eased the tension.

Without that it would be necessary to cut all public expenditure, including water and energy in public buildings and travel by the president herself, such as her trip to the swearing-in ceremony of Argentine president-elect Mauricio Macri on Dec. 10.

It was a triumph by the government, which won approval of several economic measures in the last few weeks, after suffering numerous defeats this year, especially in the lower house, where the speaker has a strong influence.

“Cunha’s leadership is hollow, he no longer has power or legitimacy to demand loyalty from his allies,” said Antonio Augusto de Queiroz, director of documentation of the Inter-Parliamentary Advisory Department.

Given the political bickering and the government’s difficulties, legislators “are responding to pressure from society and from economic players, on the argument that the political crisis must not paralyse the country,” he told IPS.

“All politicians are worried” about the scandal unleashed by Operação Lava Jato or Operation Car Wash, the investigation by prosecutors and police of the fraud and corruption scheme designed to embezzle assets from Petrobras, especially since the Nov. 25 arrest of Delcidio do Amaral, the leader of the PT in the Senate.

Recent laws, such as the one to combat organised crime and money laundering, gave “unprecedented power and instruments enabling them to take action” to oversight and law enforcement bodies like the prosecutor’s office, the federal police and the courts of auditors, “combating the culture of secrecy and strengthening transparency,” with positive effects for politics, said Queiroz.

Edited by Estrella Gutiérrez/Translated by Stephanie Wildes

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Did Argentina’s Elections Mark Start of Shift to the Right in South America?http://www.ipsnews.net/2015/11/did-argentinas-elections-mark-start-of-shift-to-the-right-in-south-america/?utm_source=rss&utm_medium=rss&utm_campaign=did-argentinas-elections-mark-start-of-shift-to-the-right-in-south-america http://www.ipsnews.net/2015/11/did-argentinas-elections-mark-start-of-shift-to-the-right-in-south-america/#comments Tue, 24 Nov 2015 23:45:55 +0000 Mario Osava http://www.ipsnews.net/?p=143105 In the near future it will become clear whether the triumph of Mauricio Macri, to become president of Argentina on Dec. 10, marked the start of a new era in South America, with the emergence of conservative governments in a scenario where leaders identified as left-wing have been predominant so far this century. Credit: Mauricio Macri

In the near future it will become clear whether the triumph of Mauricio Macri, to become president of Argentina on Dec. 10, marked the start of a new era in South America, with the emergence of conservative governments in a scenario where leaders identified as left-wing have been predominant so far this century. Credit: Mauricio Macri

By Mario Osava
RIO DE JANEIRO, Nov 24 2015 (IPS)

Different degrees of economic problems are a common denominator in South American countries where governments that identify as leftist may start to fall, in a shift that began in Argentina and could continue among its neighbours to the north.

“It is not possible yet to say whether this is the end of a cycle, because the reasons for it are still very present…but there is a very complex crisis affecting the governments that I call ‘distributionist’, which are facing difficulties, especially in Brazil, Argentina and Venezuela,” Professor Tullo Vigevani of the São Paulo State University told IPS.

For his part, retired diplomat Marcos Azambuja, a former Brazilian ambassador to Argentina and France, told IPS: “It’s not the end of a cycle in Latin America, but the waning of a group of governments tending towards populism associated with nationalism.”“My fear is that the dying Chavismo will come to an undemocratic end, given the fragile position of President Nicolás Maduro, while in Brazil the change will surely be democratic.” -- Marcos Azambuja

“Left” is a concept that has lost validity, he added, preferring to talk about populist governments, stressing the ones along South America’s Atlantic coast. “The ones along the Pacific coast are more modern,” he said.

Argentina is experiencing “the end of a cycle in a completely normal democratic manner, which should be celebrated,” after 12 years of presidency by the Kirchners, he said, referring to the consecutive terms of the late Néstor Kirchner (2003-2007) and his widow and successor Cristina Fernández, who steps down on Dec. 10. Both belonged to the Justicialista – Peronist – party.

“But any non-Peronist government will face great difficulties in that country,” Azambuja warned.

Neither of the last two non-Peronist presidents, Raúl Alfonsín (1983-1989) and Fernando de la Rua (1999-2001), managed to serve out their full terms; they were both forced to resign.

That will be a challenge for Mauricio Macri, mayor of Buenos Aires since 2007, who won the elections for president in the Nov. 22 runoff, representing the centre-right opposition Cambiemos (Let’s Change) coalition, made up of his conservative Republican Proposal (PRO) party and the traditional Radical Civic Union (UCR).

Helping him win the elections were the division of the Justicialista Party, on the political front, and the economic crisis.

But now he will have to deal with the country’s economic woes.

The problems include stagnation and the subsequent high unemployment, high inflation – close to 30 percent, say analysts, but only half that according to the authorities – dwindling foreign reserves, and a black market where the dollar is worth nearly 50 percent more than the official exchange rate.

There are also distortions, such as protectionist measures in some sectors, export duties on agricultural products, and subsidies that affect national production and trade with Brazil, whose main market for industrial exports used to be Argentina.

The economic changes promised by Macri, such as the removal of currency controls and restrictions on foreign trade, will affect relations with Argentina’s neighbours. But it is his foreign policy that could drastically modify things in the region.

He wants, for example, to exclude Venezuela from the Southern Common Market (Mercosur) as long as the current government there remains in power, by citing the bloc’s democratic clause, which already led to the suspension of Paraguay’s membership for over a year, due to the impeachment and removal of former president Fernando Lugo in 2012.

A return to warmer ties with the United States, trade accords with the European Union and Pacific rim blocs, and greater openness to trade in general form part of Macri’s plans, in contrast to the protectionist tendencies of governments described as leftist, populist, “distributionist” or Bolivarian, depending on the vocabularies used by different ideological currents.

But regional organisations like Mercosur, the Union of South American Nations (UNASUR) and the Community of Latin American and Caribbbean States (CELAC) will not fall into crisis as a result of the political changes in the region, according to Vigevani.

These kinds of organisations are slow to react, which “has adequately served a few limited objectives,” he said.

The change in Argentina and the crises in Brazil and Venezuela, which have political as well as economic aspects, point to a probable wave of right-leaning, neoliberal governments in Latin America, that put a higher priority on the economy than on the social policies of their predecessors.

The situations are different. In Venezuela, where the economy is virtually in a state of collapse, “my fear is that the dying Chavismo will come to an undemocratic end, given the fragile position of President Nicolás Maduro, while in Brazil the change will surely be democratic,” Azambuja predicted in his conversation with IPS.

In those three countries along the Atlantic coast of South America governments “did not adequately administer economic policy, leading to low levels of investment, low savings rates, and scarce technological training, and failed to develop policies to expand, rather than reduce, consensus. Thus, the capacity to prevent neoliberal advances was decisively reduced,” said Vigevani.

Brazil has been suffering from an economic recession since late 2014, aggravated by nearly 10 percent annual inflation and a fiscal deficit that scares off investors. To all of this was added a corruption scandal involving the state oil giant Petrobras as well as all of the country’s major construction companies and around 50 politicians.

In addition, the campaign that led to the reelection of left-leaning President Dilma Rousseff in October 2014 was marked by an unprecedented degree of violence, with clashes and accusations that destroyed the chances of dialogue and negotiation.

As a result, the contradictions between the government’s election promises and its actual practices became so obvious that they undermined the legitimacy and popularity of the president, who had the approval of less than 10 percent of the population according to the latest polls, and is facing the threat of impeachment.

The political bickering has made it impossible to cobble together a stable majority in Congress, which has stood in the way of a fiscal adjustment programme that requires legislative approval of public spending cuts and a rise in taxes.

The economic crisis, blamed by the government on an adverse international environment and by the opposition on mistakes by the government, thus drags on.

“Economic results are important factors in the shift in favour of conservative candidates,” said Vigevani. “But besides the crises and the recession, there are underlying theoretical problems to be addressed, which the neoliberals don’t have answers to either, and this leads to a balance, even in the case of Argentina.”

“Distributionism without a capacity for investment, innovation and adjustment of the productive system is not sufficient, although it is necessary,” he said.

Underestimating or poorly managing economic questions would seem to be the Achilles’ heel of governments seen as leftist or populist in Latin America.

That curse has not affected leaders who, even though they are distributionist or “Bolivarian”, adopted orthodox economic policies, such as Evo Morales, in power in Bolivia since 2006, or Rafael Correa, who has governed Ecuador since 2007.

At the same time, it does not seem to be possible for new or future leaders, even right-leaning ones, to eliminate or even reduce social programmes that “populist” governments have used to pull millions of families out of poverty. Macri has already announced that he will keep them in place.

Everything would seem to indicate that these programmes are now a new dimension incorporated into regional politics, while poverty and social inequality remain unacceptably high in a majority of the countries in Latin America which, despite these “inclusion policies,” remains the world’s most unequal region.

Edited by Estrella Gutiérrez/Translated by Stephanie Wildes

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Not Yet Curtains for BRICshttp://www.ipsnews.net/2015/11/not-yet-curtains-for-brics/?utm_source=rss&utm_medium=rss&utm_campaign=not-yet-curtains-for-brics http://www.ipsnews.net/2015/11/not-yet-curtains-for-brics/#comments Tue, 24 Nov 2015 15:50:16 +0000 N Chandra Mohan http://www.ipsnews.net/?p=143102

Chandra Mohan is an economics and business commentator.

By N Chandra Mohan
NEW DELHI, Nov 24 2015 (IPS)

With Goldman Sachs folding up its haemorrhaging BRIC fund, is it curtains for the acronym that defined the investment bankers’ fancy for emerging markets? It certainly appears so after China’s stock market crash and a fast slowing economy triggered fears that the dragon will set off the next global recession.

N Chandra Mohan

N Chandra Mohan

Brazil’s economy is experiencing its deepest recession in 25 years. Russia, too, is contracting due to the crash in oil prices and sanctions. India remains a haven of stability. South Africa’s growth is sluggish with very high unemployment. Against this dismal backdrop, what are the prospects of BRICs playing a vital role in the world economy?

Fourteen years ago, BRICs was very much an idea whose time had come. Goldman Sachs projected them as the future growth engines of the world economy. This acronym soon became a self-fulfilling buzz word with a life of its own. A focus on these leading emerging economies, especially since 2006, provided handsome returns that peaked five years ago. Since 2010, however, BRIC Fund assets plunged from $842 million to $98 million in end-September 2015 according to Bloomberg. With no hope for “significant asset growth” in the near future, Goldman Sachs threw in the towel on October 23, the last trading day for this fund.

These financials clearly reflect the fast-deteriorating growth prospects of the BRIC economies. They were expected to overtake the US in size by 2015. But this isn’t likely to happen. A decelerating Chinese economy, in fact, threatens the first global recession in 50 years without help from the US, says a rival investment bank. Russia and Brazil are doing much worse as they are highly dependent on commodity exports to drive their growth. As China is the biggest importer of oil, iron ore and other raw materials, this is bad news for their commodity-driven prospects. Only India’s track record is creditable as the fastest growing economy in the world.

Such concerns can only make this grouping – which globally accounts for one-fifths of GDP, 42 per cent of population, 17.3 per cent of trade, 41 per cent of forex reserves and 45 per cent of agricultural production – less cohesive to have geo-economic significance in the world economy. Analysts consider the BRICs to represent an alliance of middle -sized economies that could lead to a serious attempt to counter-balance the US, the most powerful economy in the world. This is far from obvious except, perhaps for Russia, that has faced the full brunt of US-led sanctions due to its intervention in Ukraine. This is less true of India that is deepening its relations with the US.

But the BRICs are far from happy with the US-led global financial architecture. A striking feature of all the seven statements issued at BRIC summits from 2009 to 2015 is that this grouping aims to promote peace, security, prosperity and development in a multi-polar, equitable and democratic world order. The grouping seeks a greater voice and participation in institutions of global governance like the IMF, World Bank, WTO and UN. The Durban summit in 2013, for instance, indicated that the WTO required a new leader who demonstrated a commitment to multilateralism and that he or she should be a representative of a developing country.

The formation of a New Development Bank (NDB) is in fact a concrete expression of the desire of BRICs to set up its own alternative to the US-led World Bank and IMF. NDB President KV Kamath has indicated that the bank would blaze a different trail than the Bretton Woods twins who impose an unacceptable conditionality on their loan assistance. In sharp contrast, the NDB is expected to place a greater priority on borrowers’ interests instead of the lender’s interests; that it would better reflect the expectations and aspirations of developing countries. BRICs, however, are not keen to position the NDB as a rival to the World Bank or IMF.

At a BRICs meeting ahead of the recent G-20 summit in Turkey, India’s PM Narendra Modi stated that India will guide the NDB to finance inclusive and responsive needs of emerging economies. India will assume the chairmanship of BRICs in February 2016 and the theme of its chairmanship will be Building Responsive, Inclusive and Collective Solutions – the acronym lives on! PM Modi added for good measure that there was a time when the logic of BRICs and its lasting capacity were being questioned. But group members have provided ample proof of its relevance and value through action at a time of huge global challenges.

The good news is that the BRICs are cooperating and competing with one another for a place under the global sun. The seven summits from St Petersburg to Ufa testify to this. BRICs are the new growth drivers for low-income countries, especially in Africa, considering the growing importance of their trade and foreign direct investments in such economies. The BRICs may be passing through troubled times, but they do constitute a major consumer market. Incomes have grown as more and more people have joined the ranks of the middle class, resulting in greater demand for oil, cars and commodities in leading member countries like China and India.

But the grouping must seriously address the serious challenges of kick-starting its pace of expansion to power global growth as before. The BRICs may not be yielding returns to investment banks but they are in no immediate danger of fading into the sunset. Member countries after all take it seriously enough to set up a potential rival to the World Bank and IMF dominated by the US and Europe. Even if its creator has pulled the plug on the BRIC fund, the acronym will remain relevant in the future as well. Its resilience only exemplifies the profound truth of what the famous economist John Maynard Keynes stated long ago that the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else!

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Decent Work Crucial To Eliminating Poverty and Hungerhttp://www.ipsnews.net/2015/11/decent-work-crucial-to-eliminating-poverty-and-hunger/?utm_source=rss&utm_medium=rss&utm_campaign=decent-work-crucial-to-eliminating-poverty-and-hunger http://www.ipsnews.net/2015/11/decent-work-crucial-to-eliminating-poverty-and-hunger/#comments Tue, 03 Nov 2015 15:28:43 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=142886

Jomo Kwame Sundaram is the Coordinator for Economic and Social Development at the UN Food and Agriculture Organization and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

By Jomo Kwame Sundaram
ROME, Nov 3 2015 (IPS)

Over the eight years since the onset of the global financial crisis in 2008, the ranks of the unemployed have swollen to over 200 million worldwide. That number captures only a fraction of those who remain vulnerable and insecure, since more than four-fifths of the global workforce is outside the formal sector, with poor access to unemployment or other traditional social security benefits.

Jomo Kwame Sundaram. Credit: FAO

Jomo Kwame Sundaram. Credit: FAO

In order to survive in the absence of social protection, unemployment is not an option for most poor people in the world. Instead, their fate is more likely to be that of the working poor – of low incomes due to underemployment, low productivity or limited survival options. According to the latest estimates of the World Bank, the number of extreme poor (living on no more than $1.25 per capita a day) has declined from 1.93 billion in 1981 to 1.91 billion in 1990 and 1.01 billion in 2011, projected to 835.5 million in 2015.

With the worsening global economic slowdown, especially following the collapse of agricultural commodity prices since late 2014, many wonder whether the bases for the Bank’s projections make sense. Evidently, the economic growth the global economy enjoyed in the half decade before 2008 did not bring enough jobs in terms of quantity or quality, catalyzing the “jobless growth” discourse.

Briefly, in 2009, significant resources were deployed by rich countries to save their financial systems, reflate their economies and strengthen social safety nets. But only a few rich countries have eschewed excessive fiscal austerity. Apparently successful expansionary monetary measures by the US Federal Reserve have been belatedly emulated by other rich countries with mixed consumers.

Employment conditions

Beyond the rising number of the unemployed and underemployed, the conditions of many of those employed have been deteriorating as well. Globally, informal employment and short-term contracts, which give workers few entitlements and little security in their jobs, are becoming the norm for far too many. Outsourcing and subcontracting have become more common, causing more insecurity for workers, now dubbed the “precariat.” Such worsening employment conditions have been taking place in many countries, especially for workers with low education and low skills.

National policies aimed at counteracting these trends and lowering unemployment have had limited success at best. In their desire to remain or become competitive, governments and employers around the world have taken many steps to increase labour market flexibility, thus increasing insecurity among most workers. Such labour market flexibility has exacerbated economic insecurity and inequality, undermining prospects for decent work.

Meanwhile, the employment share of the service sector in total global employment exceeded the share of agriculture over a decade ago. For decades now, the world has seen employment increasingly dominated by the service sector, in which many jobs are low-paying and precarious, and not covered by formal social security provisions. Thus, entitlement to unemployment benefits has ceased to be a social right for many in the developed world.

Decent work for all

Still elusive for the working poor, the goal of decent work for all, introduced by the International Labour Organisation in 1999, means productive, rewarding and secure occupations with fair income and social protection for the employed and their families. Decent work implies equality of opportunities and treatment, and offers good prospects for both personal development and social inclusion. It ensures freedom for people to express their concerns, organize and participate in decisions that affect their lives.

Strategies promoting productive employment and decent work must address income and other inequalities. They should promote social progress and ensure equal treatment for all regardless of gender, culture, age or national origin, as well as protect the rights of persons with disabilities. Policies should ensure that conditions of work steadily improve, especially for the lowest-paid and those facing the most unacceptable and hazardous employment conditions.

Governments should employ those needed to provide basic services, including for infrastructure construction and maintenance as well as for social services, expected by the people and needed to ensure human resources for sustainable development. Greater incentives are needed to encourage private investments while better regulations can help improve employment opportunities.

Civil society and the private sector can play vital roles in promoting decent work for all. Governments and the private sector should step up efforts to promote corporate social responsibility to help realize decent work for all. Through full employment and decent work, the benefits of economic recovery and growth can be better shared within as well as among countries.

Ultimately, people will judge changes by what it brings to their lives. Secure and decent employment is surely on top of most personal agendas, and should also be national and international priorities. Decent work is the surest way for the poor to escape poverty, and must therefore be a priority of any serious effort to reduce hunger and poverty on a sustained basis.

(End)

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OPINION: Time to Reform the Global Casinohttp://www.ipsnews.net/2015/10/opinion-time-to-reform-the-global-casino/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-time-to-reform-the-global-casino http://www.ipsnews.net/2015/10/opinion-time-to-reform-the-global-casino/#comments Tue, 20 Oct 2015 10:12:18 +0000 Hazel Henderson http://www.ipsnews.net/?p=142740

Hazel Henderson, president of Ethical Market Media (U.S. and Brazil) is a futurist, science policy advisor and author of Mapping he Global Transition to the Solar Age and other books.

By Hazel Henderson
ST. AUGUSTINE, Florida, Oct 20 2015 (IPS)

The year 2015 highlights the global shift from traditional money-based, gross domestic product (GDP)-measured economic growth to the new models of sustainable, inclusive human development embodied in the United Nations Sustainable Development Goals (SDGs) ratified by its 193 member nations.

Hazel Henderson Credit:

Hazel Henderson

This historic shift still involves ideological and political struggles between incumbent industries of the earlier Industrial Revolution and the disruptive forces and technologies of our succeeding Information Age. The battles continue between the fossilized economic and financial sectors and those rising in the knowledge-richer technologies and cleaner, greener companies based on efficiency, renewable energy and “shareconomies.”

This multi-generational shift also involves deeper processes of changing world views, social organisations and evolving cultures in our global human family of some 7.5 billion people.

These historic changes in 2015, now visible in the SDG 17’s intertwined goals, go far beyond the earlier Millennium Development Goals (MDGs). They embrace the major problems and opportunities for continuing the successful evolution of human societies on planet Earth. The SDGs close the obsolete textbooks on money-based, GDP-measured economic growth. Today, the social and environmental costs of this earlier GDP model are evident to all in pollution, ecological and social disruption, widespread effects of climate change, global warming and rising sea levels – all measured daily by 120 Earth-observing satellites.

All this physical evidence of humans stressing ecological limits and planetary boundaries also led to the focus on finance as driver of these failed models of GDP-growth and short-term profits. The “free market” models of Britain’s prime minister Margaret Thatcher and US president Ronald Reagan in the 1980s drove “financialisation” and globalization which privatized and deregulated economic activities – divorcing them from their social context and consequences.

Finance became a global casino, the servant of fossilized industrialization and its overemphasis on investing in coal, oil and gas. This is highlighted in the research of the British NGO Carbon Tracker: trillions of “assets” in fossil fuel companies balance sheets became potential liabilities because they could not be burned without further damage to the climate. Client Earth, a public interest law firm, announced it is monitoring 250 corporations and their directors for possible legal action pursuant to the Companies Act of 2006.

Many science policy analysts, including this writer, and millions of citizens have been pointing out the failures of economics and its GDP-growth fetish which still drives financial markets. Yet, it took decades before today’s physical evidence, growing crises and millions of ethical investors produced the global transitions now recognized in the UN’s SDGs. This fossilized global finance is addressed in the two-year, ground-breaking United Nations Environment Programme (UNEP) Inquiry: Design of a Sustainable Financial System, whose report The Financial System We Need was released October 8, 2015.

This two-year Inquiry was steered by a global advisory board of central bankers, stock exchange and pension fund executives, regulators led by UNEP administrator Achim Steiner, and was co-directed by Nick Robins and Simon Zadek. It explores how to reshape and align crisis-prone global financial markets with the new SDGs – beyond short term speculative high speed trading toward serving needs of the real world economies. The UN Inquiry report contains many innovative studies including Greening China’s Financial System; Exploring Financial Policy and Regulatory Barriers to Private Climate Finance in South-East Asia; Scaling Green Bond Markets for Sustainable Development; Financial Reform, Institutional Investors and Sustainable Development; Fiduciary Duty in the 21st Century; Values BasedBanking; Insurance 2030 – Harnessing Insurance for Sustainable Development; and reports on these issues from India, Brazil, Indonesia, Bangladesh, Africa and Colombia.

Many innovative critiques are also referenced, including Ethical Markets’ Reforming Electronic Markets and Trading; Britain’s New Economics Foundation’s Financial System Impact of Disruptive Innovation, on the electronic shareconomy, crowdfunding, peer-to-peer lending – all bypassing conventional finance. Canada contributed research from CIGI (Center for International Governance Innovation) on environmental risk disclosure, its new FALSTAFF model and Central Banks Can and Should Do Their Part in Funding Sustainability, which boldly calls for central banks to use their quantitative easing (i.e., money printing) to buy new green bonds to grow the next economy for real people rather than bailing out past mistakes of big banks.

The Inquiry’s 4th progress report: The Coming Financial Climate reviewed all the findings on how governments, regulators, standard-setters and market actors are starting to incorporate sustainability factors into the rules that govern the financial system. Although there is much still to be done to de-risk and transform conventional finance, this Inquiry has broken down major barriers and brought together many of the progressive forces taming speculative markets and reforming practices that led to the 2008 crises and resulting human misery. The battle lines are drawn. Ending tax breaks and subsidies to fossil fuels and nuclear power will accelerate the new cost advantages of the more efficient renewable sectors worldwide.

(End)

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Opinion: Misinformation Hides Real Dimension of Greek “Bailout”http://www.ipsnews.net/2015/08/opinion-misinformation-hides-real-dimension-of-greek-bailout/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-misinformation-hides-real-dimension-of-greek-bailout http://www.ipsnews.net/2015/08/opinion-misinformation-hides-real-dimension-of-greek-bailout/#comments Thu, 20 Aug 2015 11:14:47 +0000 Roberto Savio http://www.ipsnews.net/?p=142057

In this column, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, writes that the purpose of Greece’s third bailout is clear – all but seven percent of the 86 billion euros will go to pay debt with the other European governments, recapitalize Greek banks, pay interest on Greece’s debt and pay the debt of the state with Greek enterprises, while the country’s citizens will see none of it.

By Roberto Savio
SAN SALVADOR, Aug 20 2015 (IPS)

The long saga on Greece is apparently over – European institutions have given Athens a third bailout of 86 billion euros which, combined with the previous two, makes a grand total of 240 billion euros.

Roberto Savio

Roberto Savio

There is no doubt that the large majority of European citizens are convinced that this is a great example of solidarity, and that if Greece is not now able to walk on its own feet, the responsibility will lie solely with Greek citizens and their government.

But this is only due to the fact that the media system has, by and large, ceased to provide alternative views … and some people even ignore that the bailout is a loan, and therefore increases the country’s debt.

In fact, the productive economy of Greece saw very little of that money because the bailouts were merely financial operations and Greek citizens, not only did not see anything, they have even had to pay a brutal price.

The truth behind the operation has been aptly described by Mujtaba Rahman, the respected chief Eurozone analyst for the London-based Eurasia Group, who said: “The bailout is not really about a growth plan for Greece, but a plan to make sure the European Central Bank (ECB) and the International Monetary Fund (IMF) get paid, and the euro area does not break up.”

And the purpose of this third bailout is clear. Of the famous 86 billion, 36 billion will go to pay the debt with the other European governments (and first of all Germany). Another 25 billion will go to recapitalize the Greek banks, because much capital left the country, heading for safer European banks. Another 18 billion will go to pay interest on the debt which Greece has been piling up. And, finally, seven billion will go to pay the debt of the state with Greek enterprises.“How could any economist, even in the first year of studies, fail to understand that, by cutting consumption and raising taxes you are bound to depress an already depressed economy?”

So, seven will go to the real economy and nothing to the citizens, who will have now to go through several new drastic measures of austerity, which will further depress their standards of living and their ability to spend.

Financially, the bailouts have been a success. All the losses and bad exposure of European institutions have been passed on to Greece. Before the first bailout, French banks were exposed with bad bonds for 63 billion euros, now only for 1.6 billion with no losses. German banks have gone from 45 to five billion.

What is intriguing is that a number of studies show that until the very last moment, when it was widely known that Greece was in deep crisis, European banks and investors continued to buy Greek bonds.

Were they certain that Greece would pay? No, but they were confident that the Greek government would be rescued, and that they would therefore recover their investments, which is exactly what happened.

The financial system has now a life of its own and has nothing to do with real economy, which it dwarfs by being 40 times larger (if we judge by the volumes of daily financial transactions against the production of goods and services). Capital is untouchable and circulates freely in Europe, unlike its citizens. And now there is a great wave of legislation to introduce lower taxation for the richest one percent!

During the negotiations, one frequent accusation levelled against the Greeks was that they were unable to have their rich ship-owners pay their share of taxes. Of course, ship-owners place their money where it cannot be reached.

But is this not hypocritical when we know that there are at least two trillion euros stashed in fiscal paradises, and that, just to give one example, nobody has got Ryanair to really pay taxes? Not to mention the fact that when he was prime minister of Luxembourg, European Commission President Jean-Claude Juncker granted secret tax rebates to over a hundred international companies?

Now Agence France Press has circulated a new astonishing study from the German Leibnitz Institute of Economic Research, which says that Germany has profited from the Greek crisis to the tune of 100 billion euros, saving money through lower interest payments on funds the government borrowed amid investor “flights to safety” and “these savings exceed the cost of the crisis – even if Greece were to default on its entire debt.”

Meanwhile, a large number of studies point out how, by having a positive balance of trade with its European partners, Germany is in fact sucking capital from Europe.

Interpreting the third bailout and its conditions of austerity as a mere economic operation would be to commit a great error.

No economist can believe that Greece will be able to pay back and not only because it has always had a fragile economy, with little industry and with tourism as its main source of income (aggravated by decades of mismanagement and the corruption of its traditional parties, the very parties that European leaders would like to see come back).

Greece is already in recession and now the doubling of VAT is going to compress consumption further, also because there will now be further reductions in pensions and public salaries (which have been already cut by 20 percent).  It is widely believed that the Greek debt will now reach 200 percent of its GDP, up from 170 percent prior to the bailout.

How could any economist, even in the first year of studies, fail to understand that, by cutting consumption and raising taxes you are bound to depress an already depressed economy?

Well, it is no coincidence that the IMF, which is the Rotary Club of conservative economists, has refused to join this bailout. The IMF has said it will not put in any money unless European creditors (which is a diplomatic way of saying Germany) accept a restructuring of the Greek debt.

It is clear that the bailout has not been a technical but a political operation. Many European leaders, starting with Juncker himself, intervened in last month’s internal Greek referendum, asking Greeks to vote against Prime Minister Alexis Tsipras. They indicated clearly and openly, in a campaign that the Wall Street Journal repeated in the United States, that the revolt against austerity and the neoliberal economy should be stopped dead in its tracks to avoid political contagion.

For her part, German Chancellor Angela Merkel has declared on German television that she has come to the conclusion that °Tsipras has changed°. This has an air of dejà vu … was it not then British Prime Margaret Thatcher who, intent on destroying the trade unions, launched her famous TINA slogan – There Is No Alternative?

And is there no alternative to this kind of Europe? (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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Time to Work Out a Plan C for Greecehttp://www.ipsnews.net/2015/08/time-to-work-out-a-plan-c-for-greece/?utm_source=rss&utm_medium=rss&utm_campaign=time-to-work-out-a-plan-c-for-greece http://www.ipsnews.net/2015/08/time-to-work-out-a-plan-c-for-greece/#comments Tue, 18 Aug 2015 16:14:04 +0000 Pavlos Georgiadis http://www.ipsnews.net/?p=142029 Original illustration courtesy of Stéphane Roux

Original illustration courtesy of Stéphane Roux

By Pavlos Georgiadis
ATHENS, Aug 18 2015 (IPS)

Just over a month ago, Greek citizens were asked to go to the polls for a referendum that posed the country with an unprecedented existential dilemma and challenged the EU with the possibility of its collapse.

The question that shook the world was a choice between a Plan A – more of the same, evidently failed austerity policies that made the country lose 25 percent of its GDP in five years – and a Plan B – a poorly designed Grexit, with unpredictable consequences that could mean the country’s sudden death.Instead of viewing Greece as a scapegoat, Europe should take this unique opportunity to capitalise on the solutions created by the civil society in the country.

It is an indisputable fact that Greece requires major reforms and Greeks know this better than anyone else. These are related, among others, to major existing legislative gaps, the country’s geography which generates huge transaction costs, a cultural gap between cities and rural areas, and the decision making processes in the country.

Such reforms are of systemic nature, something that no politician in Greece seems able to grasp or advocate. The old guard that still rules the country’s affairs, despite being fully aware of its own failure, is still opting for quick and flaky solutions that hardly address the causes of this crisis.

The same goes for Europe’s leaders, who seem to be more cloistered than ever, limited to their national egos and political clientele. They seem to lack the capacity, both morally and intellectually, but above all the vision to steward Europe’s human face, while addressing this crisis.

A project of “unity in diversity” is threatened by its outdated, largely opaque decision making structures that govern its economics. This explains why European leaders, in the past years, instead of solutions have been offering no more than a narrative based on the worst possible stereotypes.

A top-down approach that plundered Greece into depression and made Greeks, especially the youth, feel like little hamsters in some sort of sick socio-economic experiment.

The Birth of a New Solidarity Economy

Some impressive civil society projects are already being implemented at the local grassroots level, piloting a parallel solidarity and needs-based economy and participa-tory governance.

Every day, a community kitchen called “The Οther Ηuman” is supplying free meals to hundreds of Greeks in need, and lately to immigrants from Syria and Afghanistan, camping in the parks of Athens.

The Metropolitan Community Clinic at Helliniko near the old Athens airport, a 1.2 hectare plot of prime land on the beachfront of Athens, set to be privatised in a scan-dalous low price, is delivering free medicine, health check ups and preventive treat-ments to citizens with no insurance.

Both initiatives have no legal structure nor bank accounts, basing their operations in a currency that survives the capital controls: solidarity and humanity. Speaking of new ways of transaction, a bartering system is making a comeback in response to the closed banks, especially in rural areas.

Open access technologies are driving this transition, as they always do with initiatives promoting public dialogue, knowledge exchange, political participation and account-ability between citizens and politicians.

Politeia 2.0, a grassroots initiative for citizens’ engagement which is pioneering methods for participatory design of a new constitution and Vouliwatch, an independ-ent parliament watchdog, are just two of them.

With such prototypes launched, tested and operating at different levels, the challenge now is to scale and communicate them in every neighbourhood, village and city of the country.

This crisis never had its crisis manager, exposing the EU’s deficiencies and the distance that splits the politicians’ realities with those of citizens. This is not only evident in the way political leaders handle the Greek case, but other challenges too, such as the TTIP, climate change and immigration.

A new political arena is thus emerging within the EU, that has nothing to do with traditional ideological divides of the left or the right. This new political arena struggles to balance top-down versus bottom-up approaches to our ways of making decisions and planning the future.

Based on this recognition, it is clear that besides a “Plan A” (a politically humiliating and financially unsustainable agreement) and a “Plan B” (the risk of a Grexit), Greece is in dire need of working out a “Plan C”.

A roadmap for advancing towards a real transition back to the Commons, based on civil engagement for participatory mapping and collective management of the assets that influence what is currently under attack: the everyday lives of the people.

Greece needs to put in an unprecedented effort in order to overcome an unprecedented challenge, engaging the best actors in key social fields such as health, food, education and social welfare, just to name a few. At this point, this is absolutely necessary in order to maintain social cohesion and explore systemic solutions during the difficult times to come.

The starting point should probably be in the fields, which a recent study by Endeavor Greece identified as the only dynamic sectors that survive the crisis: agriculture, product manufacturing and Information and Communications Technology (ICT).

The food sector, especially, can pave the way since it is already an integral part of the country’s cultural fabric. With around 13 percent of the Greek workforce engaged in agriculture (the EU average is just over 5 percent), a carefully structured plan for a transition towards agroecology can become an extremely powerful vector of change and a drive for Greece’s new economy.

Community gardens like Per.Ka., located inside an abandoned army camp in Thessaloniki, and peer to peer networks like Peliti -Europe’s largest seed-swap community- are already carving out new food system paradigms.

This new process can only be led by the youth of Greece. Highly skilled, socially networked and internationally educated, many of them are looking back to the land to seek ways out of unemployment.

All these years, these young Greeks have been deprived access to bank loans, while others were transferring 250 billion euros outside the country. Should they be connected with food business incubators, seed funding opportunities and open source technologies, they could catalyse this transition towards a quality, climate-friendly agrifood system which connects the land with health, education, tourism, energy, transport and other services.

Of course, this would require the types of reforms against existing institutional barriers and an outdated legal framework in Greece. Unfortunately, in the last five years, such reforms have never been put on the table by successive Greek governments nor their creditors.

Agrifood is only one example of the few sectors that can generate considerable social, economic and environmental benefits which are necessary towards a more resilient future for the country.

Moreover, it is possibly one of the very few ways to create jobs for the youth, who are challenged by a staggering 52.4 percent unemployment rate, the highest in the EU. Citizens are in need of new options and new development indicators need to be considered in rebuilding the country’s economy.

This change needs to start at the local level, leveraging the potential of the aforementioned initiatives and many more that are acting at the grassroots.

The conditions are ripe, as the 2014 municipal elections brought staff with fresh ideas into office in Greek local authorities. The cities of Athens and Thessaloniki, home to half of the country’s population, received the Mayors Challenge and 100 Resilient Cities awards respectively.

Each one offers one million euros to their budgets for delegating, implementing and scaling strategies for civic participation and urban regeneration. It remains to be seen whether the tools and opportunities offered by those grants and networks will be used efficiently, and not from obsolete mismanagement attitudes and the nepotism of the past.

The challenge is also huge for the citizens of the rest of Europe, who are largely misinformed by reporters of mainstream media, landing in Athens with a mandate from their editors to mainly report on horror stories and misery icons.

This is the time to change this agenda of shame, and instead of viewing Greece as a scapegoat, Europe should take this unique opportunity to capitalise on the solutions created by the civil society in the country.

Again, the youth can play a major role in strengthening the vision of a unified Europe, despite the power games that unfold at the political level. After all, we are the first true European generation.

Evidently, Greece was turned into an experiment in suffocating austerity. But what if Greece became the testing ground for visualising, prototyping and scaling a new economic paradigm that is socially inclusive, climate friendly and economically viable?

I am not sure whether the “Plan C” is the right name for this process. It is quite likely that populist politicians in Greece and Europe might abuse the term, like they did with so many others.

But the essence remains: this is a plan of solidarity, collaboration and resilience. And it is time that this dialogue opened all over Europe, if it wants to remain a Union, and maintain its leading role in the world.

Follow Pavlos Georgiadis on  Twitter: @geopavlos

Edited by Kitty Stapp

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Opinion: Crisis, Emergency Measures and Failure of the ISDS System: The Case of Argentinahttp://www.ipsnews.net/2015/08/opinion-crisis-emergency-measures-and-failure-of-the-isds-system-the-case-of-argentina/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-crisis-emergency-measures-and-failure-of-the-isds-system-the-case-of-argentina http://www.ipsnews.net/2015/08/opinion-crisis-emergency-measures-and-failure-of-the-isds-system-the-case-of-argentina/#comments Wed, 12 Aug 2015 05:40:36 +0000 Federico Lavopa http://www.ipsnews.net/?p=141942

In this column, Federico Lavopa, Professor, University of San Andrés and University of Buenos Aires, argues that the way in which the investor-state dispute settlement (ISDS) system was used to handle a spate of claims from foreign investors against Argentina following its economic and financial crisis of 2001/2002 has shown up flaws in the system and the need for its reform.

By Federico Lavopa
BUENOS AIRES, Aug 12 2015 (IPS)

The investor-state dispute settlement (ISDS) system has come under increasing criticism in recent years.

Inconsistent decisions, poorly reasoned awards, lack of transparency, parallel proceedings, serious doubts about arbitrator’s impartiality and the sheer size of the compensations sought by investors and awarded by arbitration tribunals are just some examples of the flaws that have been pointed out by detractors of the system.

Federico Lavopa

Federico Lavopa

The dozens of cases that were initiated against Argentina as a result of the outburst of one of its worst economic and financial crises in late 2001 became an often-quoted sad illustration of many of these shortcomings of the ISDS system.

Apart from the tragic consequences entailed by the economic and political crisis which was faced by Argentina, in particular in 2001/2002, which included a fall in gross domestic product (GDP) per capita of 50 percent, an unemployment rate of over 20 percent, a poverty rate of 50 percent, strikes, demonstrations, violent clashes with the police, dozens of civil casualties and a succession of five presidents in 10 days, Argentina received a flood of claims from foreign investors that were filed under different ISDS mechanisms and, in particular, before the International Centre for Settlement of Investment Disputes (ICSID).

Indeed, in the period 2003-2007, claims against Argentina represented one-quarter of all the cases initiated within the framework of the ICSID Convention. These claims before international arbitral tribunals challenged the changes to the economic rules that Argentina had implemented to contain the effects of perhaps the worst economic cycle of its history.

After 1991, Argentina had embarked on an economic deregulation and liberalisation programme. Among others, this programme included the convertibility of the Argentine peso and the creation of a currency board to maintain parity between the peso and the U.S. dollar by limiting the local money supply to the amount of Argentina’s foreign exchange reserves. “If all investors that sued Argentina had obtained 100 percent of their claims, the total amount that the country should have had to bear would have been at around 80 billion dollars”

This economic and pro-market programme was accompanied by a strong emphasis on the attraction of foreign investment which, among other aspects, resulted in the conclusion of 58 bilateral investment treaties (BITs) – 55 of which came into effect.

It also included a mass privatisation process of public companies which, at that time, represented an important part of the domestic economy.

This market-oriented model reached its limits in the late 1990s, and in May 2003 a new president took office, whose government reformed the regulatory framework for the economy – particularly that for the public services privatised over the 1990s – and introduced a package of emergency laws which implied a considerable change in the conditions under which foreign investors and, in particular, public services providers had to run their business in Argentina.

As a consequence, many of them decided to resort to the investor-state dispute settlement mechanisms embodied in the dozens of bilateral investment treaties that Argentina had signed in the 1990s. In total, in the period 2001-2012, exactly 50 cases were filed against Argentina.

A striking characteristic of the Argentinian experience is the amount of requests for compensations made by the companies that sued Argentina. According to estimates made when the peak of cases following the crisis was reached, if all investors that sued Argentina had obtained 100 percent of their claims, the total amount that the country should have had to bear would have been at around 80 billion dollars.

This sum would have been practically impossible to pay, even if Argentina had not been undergoing a period of acute economic crisis, because it represented approximately 13 percent of Argentina’s GDP for 2013.

Although Argentina’s response to this flood of cases was varied and it is still early to offer definite figures, it is already possible to conclude that, in general, arbitration tribunals were prone to render awards in favour of investors.

Almost 45 percent of the cases have received a condemnatory award, although most of these cases could still be reversed by annulment proceedings, whereas only 15 percent of the arbitration proceedings ended up with a final decision completely in favour of Argentina. The remaining 30 percent are mostly cases which resulted in an agreement between the parties or which were altogether suspended.

All in all, of the 80 billion dollars of the possible amount of compensations calculated when the peak of cases against Argentina was reached following the crisis, Argentina has so far received final rulings involving the payment of 900 million dollars.

The first salient conclusion is that the ISDS system has a very low capacity to adapt to totally exceptional circumstances for which it does not seem to have been designed. Despite the efforts of Argentinian attorneys to show that the measures implemented in the post-crisis period were adopted in an emergency context, being so exceptional as to justify any breach of the substantial clauses of the BITs, few tribunals were prepared to sustain this defence.

This notwithstanding, and with most of these cases having already been dealt with, the upcoming scenario for Argentina seems much less drastic than that forecast when the peak of cases was reached.

While they represent a heavy burden for a developing country like Argentina, so far the compensations actually paid amount to a small portion of the sum initially estimated.

The Argentinian case also represents a worrisome example of the failure of the ISDS system to ensure coherence and soundness in its decisions.

Although the dozens of cases submitted against Argentina addressed exactly the same package of measures (the post-crisis emergency laws) and  had to assess very similar arguments of the different claimants and a practically identical series of defences put forward by the Argentinian government, the conclusions at which they arrived have shown striking differences.

Additionally, some of the decisions have been subject to strong criticism and/or declared null and void by annulment committees.

Finally, the experience of Argentina shows the difficulties that arbitration tribunals might encounter when trying to scrutinise the economic policy choices made by governments. On top of the sensitiveness of examining sovereign decisions of States, arbitrators might find themselves in the awkward situation of deciding on highly technical matters which they are clearly ill-equipped to assess.

The case of Argentina thus represents a sad example of the urgent need to reconsider and reform the ISDS system. Yet, the lessons to be drawn from this experience do not seem to lead to clear conclusions about which direction to take.

On the one hand, the system has proved to be extremely inflexible, which prevented it from addressing the exceptional peculiarities of the Argentinian case. On the other hand, however, the wide margin of discretion available for the arbitral tribunals resulted in the adoption of inherently poor decisions, and with high levels of incoherence among them. (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

*  This column is based on a paper with the same title published as South Centre Investment Policy Brief No 2, July 2015, available here.

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Opinion: The Sad Historical Consequences of the Greek Bailouthttp://www.ipsnews.net/2015/08/opinion-the-sad-historical-consequences-of-the-greek-bailout/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-the-sad-historical-consequences-of-the-greek-bailout http://www.ipsnews.net/2015/08/opinion-the-sad-historical-consequences-of-the-greek-bailout/#comments Sat, 01 Aug 2015 16:59:06 +0000 Roberto Savio http://www.ipsnews.net/?p=141832

In this column, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, writes that what lies behind the recent convoluted negotiations over Greek debt is nothing other than a dramatic demonstration that Europe is no longer about solidarity, which was the original European dream, but all about fiscal and monetary considerations.

By Roberto Savio
SAN SALVADOR, Aug 1 2015 (IPS)

In recommendations to German Chancellor Angela Merkel at the end of July, the German Council of Economic Experts outlined how a weak member country could leave the Eurozone and called for strengthening the European monetary union.

German Finance Minister Wolfgang Schäuble wants Greece out because he does not believe that it will ever be able to refund the loans it has received so far, and because he thinks it is question of principle to be strict. In an interview with Der Spiegel a few days after the historical date of Jul. 13, at the end of negotiations on Greece, he said: “My grandmother used to say: benevolence comes before dissoluteness.”

Roberto Savio

Roberto Savio

Explaining the recommendations of the Council of Economic Experts, however, its chairman Christoph M. Schmidt expressed another opinion. “To ensure the cohesion of monetary union, we have to recognise that voters in creditor countries are not prepared to finance debtor countries permanently … A permanently uncooperative member state should not be able to threaten the existence of the euro.”

This is the best illustration of Germany’s Europe. Any country which does not fit into the German scenario will have to quit. Europe is no longer a question of solidarity, it is all about fiscal and monetary considerations.

Germany now says that federalism has exceptions – whenever a member of the Eurozone is perceived to be challenging the rules of the monetary union, it will be subject to complete annihilation of its state sovereignty and national democracy. This is the kind of federalism that Germany has now proclaimed.

This German position on its vision of Europe, where political and ideal considerations are no longer the basis of the European project, has triggered a strong response from a normally obedient France.“We should all realise that the idea of Europe as a political project, based on solidarity and mutual support, is on the wane. Monetary union is no longer just a step towards a democratic political union”

President François Hollande, who appears to have suddenly woken up, has come out with a call to reinforce European integration through the establishment of a “Eurozone government”, which run in the opposite direction from that of Berlin.

Germany will of course go ahead and pursue its own course, but the Paris-Berlin axis which was conceived as the fulcrum of European integration has now been seriously weakened after Germany’s imposed agreement on Greece on Jul. 13. So we have now a major realignment.

France has been the country which has always blocked any substantial progress on European integration, by continually voting against any radical step towards integration in order to preserve as much of its national sovereignty as possible.

Now it is Germany which is intent on changing the course of integration, from a political project to a fixed exchange monetary system based on creditor countries – a system in which some democracies are more equal than others.

Schäuble has been reported as expressing concern over the European Commission’s increased political role, interfering in political issues for which it has no mandate. And it is a stark fact that the Jul. 13 Brussels agreement has sought to remove politics and discretion from the functioning of the monetary union, an idea that has long been very dear to the French, and now are the French who want more European integration as protection from a German Europe.

We should all realise that the idea of Europe as a political project, based on solidarity and mutual support, is on the wane.

Monetary union is no longer just a step towards a democratic political union, as Helmut Kohl and François Mitterand sought at the reunification of Germany, and the creation of the Euro.

We are, in fact, going back to a more toxic version of the old exchange-rate mechanism of the 1990s that left countries trapped in a mechanism which worked primarily for Germany, and which led to the exit of the British pound and the temporary exit of the Italian lira.

But the euro, as Nobel laureate in economics Paul Krugman says, “has turned into a Roach Motel, a trap that’s hard to escape.” Once you’re in, you cannot get out, and you have to accept the diktat of the creditors.

Another Nobel laureate in economics, Joseph Stigliz, who was Chief Economist of the World Bank, says that the current European policy of austerity at any cost, is like going back to a “19th century debtors’ prison. Just as imprisoned debtors could not make the income to repay, the deepening depression in Greece will make it less and less able to repay.”

Of course, what is never said openly (except by Stigliz) is that in the Greek bailout one central reason for the extremism of the new package of conditions was to teach a lessons to a radical left-wing party, Syriza, and to the Greek people who had had the audacity to reject the calls from European leaders to vote against that party.

It is not by chance that countries like Poland, which were asking to be admitted to the Eurozone, have withdrawn their applications.  The euro has become a rallying political issue, with parties from all over Europe asking to withdraw. It has become the first line of action for those who oppose European integration.

Until now, the answer of European governments has been that withdrawal is impossible under the European constitution. But now that the German Council of Economic Experts has come out with a concrete proposal on how to do that, that line of defence is crumbling.

According to many analysts, Angela Merkel is playing with fire. Germany cannot remain a credible leader of a coalition of Northern and Eastern European countries and ignore the realities and needs of Southern Europe. This is unsustainable, even in the medium term.

Meanwhile, the world goes on. Within seven years India will have overtaken China as the most populous country in the world, while within a few decades Nigeria will have a larger population than the United States.

And Europe? Europe will have become the continent with most old people and lower productivity, and will have to face its four horses of the apocalypse:

  • a solution to relations with Russia;
  • common agreement on how to deal with the dramatic flow of immigrants, when countries are not even able to relocate 40,000 people in a region of 450 million;
  • a real policy on the explosive Middle East and terrorism; and soon
  • the request of United Kingdom for a new agreement on the European Union, or else it will exit Europe.

We can safely bet that those negotiations, which will be based purely on economic issues, will be the kiss of death for the original European dream. (END/COLUMNIST SERVICE)

Edited by Phil Harris    

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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Civil Society Sceptical Over “Action Agenda” to Finance Developmenthttp://www.ipsnews.net/2015/07/civil-society-sceptical-over-action-agenda-to-finance-development/?utm_source=rss&utm_medium=rss&utm_campaign=civil-society-sceptical-over-action-agenda-to-finance-development http://www.ipsnews.net/2015/07/civil-society-sceptical-over-action-agenda-to-finance-development/#comments Wed, 15 Jul 2015 23:38:10 +0000 Thalif Deen http://www.ipsnews.net/?p=141608 Secretary-General Ban Ki-moon (left) addresses a press conference before departing from Addis Ababa, after attending the Third International Conference on Financing for Development. At his side is Wu Hongbo, UN Under-Secretary-General for Economic and Social Affairs. Credit: UN Photo/Eskinder Debebe

Secretary-General Ban Ki-moon (left) addresses a press conference before departing from Addis Ababa, after attending the Third International Conference on Financing for Development. At his side is Wu Hongbo, UN Under-Secretary-General for Economic and Social Affairs. Credit: UN Photo/Eskinder Debebe

By Thalif Deen
UNITED NATIONS/ADDIS ABABA, Jul 15 2015 (IPS)

Despite high expectations, the third International Conference on Financing for Development (FfD) ended on a predictable note: the United Nations proclaimed it a roaring success while most civil society organisations (CSOs) expressed scepticism over the final outcome.

Hours after the conclusion of the conference in the Ethiopian capital, the United Nations trumpeted the Addis Ababa Action Agenda (AAAA) as a “ground-breaking agreement that provides a foundation for implementing the global sustainable development agenda that world leaders are expected to adopt this September.”“The outcome will not deliver the reforms we need in areas like tax, that most in civil society had hoped for and, that are needed to increase the resources available for development." -- Dr. Danny Sriskandarajah

U.N. Secretary-General Ban Ki-moon sounded optimistic when he said the agreement was a critical step forward in building a sustainable future for all since it provides a global framework for financing sustainable development.

He added, “The results here in Addis Ababa give us the foundation of a revitalized global partnership for sustainable development that will leave no one behind.”

But Dr. Danny Sriskandarajah, Secretary-General of the Johannesburg-based CIVICUS, was blunt: “This week we saw a further sign that we are at the beginning of the end of the post-World War II (WWII) development world order.”

Rich countries seem unable or unwilling to increase official aid flows, which stand at a fraction of what they themselves promised years ago, he said.

“We are disappointed that the FfD process has not yielded new resources to fund the investments needed to end poverty or taken meaningful steps to address problems in the international financial system,” he said at the conclusion of the conference Wednesday.

He added: “The outcome will not deliver the reforms we need in areas like tax, that most in civil society had hoped for and, that are needed to increase the resources available for development.”

Asked about the failed proposal for the creation of a global tax body, ActionAid’s international tax power campaign manager, Martin Hojsik, told IPS: “The decision is an appalling failure and a great blow to the fight against poverty and injustice.”

He said it means that developing countries, which are losing billions of dollars a year to tax dodging, are not being given an equal say in fixing unjust global tax rules.

“This lost money could have gone to the provision of education, healthcare and other poverty-reducing public services. While the multinationals prosper, the poor and marginalised will suffer,” he said. “The fight for a fair global tax system should not and cannot falter.”

In a statement released here, Oxfam International said unresolved rigged tax rules and privatised development are the major drawbacks of the FfD outcome.

However, after such tense negotiations there can be no doubt that developing countries’ determination to call for true global tax reform and tax cooperation has been noted, and cannot go unheeded for long.

Oxfam International Executive Director Winnie Byanyima said: “Today, one in seven people live in poverty and Addis was a once in a decade chance to find the resources needed to end this scandal. But the Addis Action Agenda has allowed aid commitments to dry up, and has merely handed over development to the private sector without adequate safeguards.”

She said developing countries held firm in Addis on the need to set up an intergovernmental tax body that would give them an equal say in how the global rules on taxation are designed.

“Instead they are returning home with a weak compromise meaning rigged rules and tax avoidance will continue to rob the world’s poorest people.”

Byanyima said fair taxation is vital in the fight against poverty and inequality.

“Citizens must be able to depend on their own governments to deliver the services they need. But it is just not logical to ask developing countries to raise more of their own resources without also reforming the global tax system that prevents them doing this,” she added.

Eric LeCompte, executive director of the Jubilee USA Network, told IPS “while compromised language on a tax committee was reached, we have the first global agreement that notes the harm of illicit financial flows and calls to stop them by 2030.”

Right now the developing world is losing a trillion dollars a year to corruption and tax evasion, he said, pointing out, “those are resources we need to end poverty.”

In a joint statement released late Wednesday, Global Financial Integrity (GFI), the Africa Progress Panel (APP) and Jubilee USA applauded the global commitment to reduce the massive flow of illicit funds from developing country economies.

For the first time international consensus was reached on the importance of an issue that has been at the forefront of efforts by hundreds of research and development organisations for the last 10 years.

Specifically, the FfD3 Outcome Document requires member states to “redouble efforts to substantially reduce illicit financial flows (IFFs) by 2030, with a view to eventually eliminate them, including by combatting tax evasion and corruption through strengthened national regulation and increased international cooperation.”

Additionally, the final text calls on “appropriate international institutions and regional organizations to publish estimates of IFF volume and composition”

The statement said the ability to measure illicit flows was at the heart of significant disagreement during the FfD3 preparatory negotiations in New York earlier this year with the 132-member Group of 77 developing countries calling for country-level estimates of illicit flow volumes.

In its statement, the United Nations said the Addis Ababa Action Agenda contains more than 100 concrete measures.

It also addresses all sources of finance, and covers cooperation on a range of issues including technology, science, innovation, trade and capacity building.

The Action Agenda builds on the outcomes of two previous Financing for Development conferences, in Monterrey, Mexico, and in Doha, Qatar.

Wu Hongbo, the Secretary-General of the Conference, said, “This historic agreement marks a turning point in international cooperation that will result in the necessary investments for the new and transformative sustainable development agenda that will improve the lives of people everywhere.”

Edited by Kitty Stapp

The writer can be contacted at thalifdeen@aol.com

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Opinion: U.N. Can Help Reform the International Financial Systemhttp://www.ipsnews.net/2015/07/opinion-u-n-can-help-reform-the-international-financial-system/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-u-n-can-help-reform-the-international-financial-system http://www.ipsnews.net/2015/07/opinion-u-n-can-help-reform-the-international-financial-system/#comments Tue, 14 Jul 2015 10:03:21 +0000 Jomo Kwame Sundaram http://www.ipsnews.net/?p=141569 Jomo Kwame Sundaram. Credit: FAO

Jomo Kwame Sundaram. Credit: FAO

By Jomo Kwame Sundaram
ROME, Jul 14 2015 (IPS)

The growth in global interdependence poses greater challenges to policy makers on a wide range of issues and for countries at all levels of development.

Yet, the mechanisms and arrangements put in place over the past three decades have not been adequate to the challenges of coherence and coordination of global economic policy making. The recent financial crises have exposed some such gaps and weaknesses.The U.N. was among the very few warning Mexico in 1994 and the East Asian countries in 1997 that excessive liberalisation threatened crisis.

Reforming the international economic governance architecture, through the United Nations system, can address these problems.

Although sometimes seemingly slow, the U.N. has a clear advantage in driving discussion on reform because of its more inclusive and open governance.

Lop-sided influence in the current international financial system is a principal reason why many countries lack confidence in the existing arrangements. Rebuilding confidence in such arrangements will require that all parties feel they have a stake in the reform agenda.

But the U.N. is also suited to drive the discussion because of its long tradition of reliable work on international economic issues.

The United Nations secretariat has developed and maintained an integrated approach to trade, finance and sustainable development, with due attention to equity and social justice issues.

The ongoing ‘secular stagnation’ has again highlighted the interdependence of global economic relations, exposing a series of myths and half-truths about the global economy.

These include the idea that the developing world has become “decoupled” from the developed world; that unregulated financial markets and the new financial instruments have ushered in a new era of “great moderation” and “stability”; and that macroeconomic imbalances — due to decisions made in the household, corporate and financial sectors — are less dangerous than those involving the public sector.

The U.N. secretariat has long doubted such arguments, and warned that any unravelling of global macroeconomic imbalances would be unruly.

Also, persistent asymmetries and biases in global economic relations have particularly hit developing countries, both emerging and least developed.

Not surprisingly, the U.N. Secretariat has also drawn attention to the close links between the financial crisis and the food and energy crises.

A more integrated approach to handling these threats is needed, particularly to alleviate the downside risks for the poorest and most vulnerable communities.

The U.N. Secretariat has a strong track record of identifying systemic threats from unregulated finance, warning against a misplaced faith in self-regulating markets and offering viable solutions to gaps and weaknesses in the international financial system.

Special drawing rights (SDRs), the 0.7 per cent aid target and debt relief, for example, were all conceived within the U.N. system during the 1960s and 1970s.

From the 1980s, the U.N. secretariat – both in New York and Geneva — have consistently warned against the excessive conditionalities attached to multilateral lending, promoted the idea of rules for sovereign debt restructuring, and cautioned that the international financial institutions were moving away from their traditional mandates of guaranteeing financial stability and providing long-term development finance.

During the 1990s, U.N. agencies warned against the dangers to economic stability, particularly in developing countries, from volatile private capital flows and the speculative behaviour associated with unregulated financial markets.

The U.N. was among the very few warning Mexico in 1994 and the East Asian countries in 1997 that excessive liberalisation threatened crisis.

The U.N. system was also almost alone among international institutions to identify growing inequality as a threat to economic, political and social stability, and insisted early on measures for a fairer globalisation.

Many of these concerns culminated in the 2002 Financing for Development Conference in Monterrey, Mexico.

More recently, the U.N. has insisted on the importance of policy space for effective development strategies and particularly on the need for macroeconomic policies to support long-term growth, technological upgrading and diversification.

Some countries have sometimes resisted such work by the U.N. secretariat.

However, the combination of a strong track record and a core secretariat steeped in its tradition of an integrated approach to policy-oriented research places the U.N. secretariat in the best position to advance current discussions to reform the international financial architecture.

Edited by Kitty Stapp

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Opinion: “Slight Deceleration” in G20 Trade Restrictions but Continued Vigilance Neededhttp://www.ipsnews.net/2015/06/opinion-slight-deceleration-in-g20-trade-restrictions-but-continued-vigilance-needed/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-slight-deceleration-in-g20-trade-restrictions-but-continued-vigilance-needed http://www.ipsnews.net/2015/06/opinion-slight-deceleration-in-g20-trade-restrictions-but-continued-vigilance-needed/#comments Mon, 29 Jun 2015 06:43:56 +0000 Roberto Azevedo http://www.ipsnews.net/?p=141284

In this column, Roberto Azevêdo, sixth Director-General of the World Trade Organization (WTO), writes that the continuing increase in the G20’s stock of new trade-restrictive measures since the financial crisis of 2008 remains of concern in the context of an uncertain global economic outlook; individually and collectively, he says, the G20 must show leadership and refrain from implementing new measures taken for protectionist purposes while removing existing ones.

By Roberto Azevêdo
GENEVA, Jun 29 2015 (IPS)

The latest report by the World Trade Organisation (WTO) on G20 trade measures shows a slight deceleration in the application of new trade-restrictive measures by G20 economies, with the average number of such measures applied per month lower than at any time since 2013.

According to the thirteenth such WTO report, issued on Jun. 15, G20 economies had applied 119 new trade-restrictive measures since mid-October 2014, an average of 17 new measures per month over the period.

Roberto Azevêdo

Roberto Azevêdo

A slight decrease in the number of trade remedy investigations by G20 economies has also contributed to this overall figure.

But it is not yet clear that this deceleration will continue and the WTO calls on G20 leaders to show continued vigilance and reinforced determination towards eliminating existing trade restrictions.

The longer term trend remains one of concern, with the overall stock of trade-restrictive measures introduced by G20 economies since 2008 continuing to rise.

Of the 1,360 restrictions recorded by this exercise since 2008, less than one-quarter have been eliminated, leaving the total number of restrictive measures still in place at 1,031. Therefore, despite the G20 pledge to roll back any new protectionist measures, the stock of these measures has risen by over seven percent since the last report.

The broader international economic context also supports the need for continuing vigilance and action. According to the WTO’s most recent forecast (14 April 2015), growth in the volume of world merchandise trade should increase from 2.8 percent in 2014 to 3.3% percent 2015 and further to four percent in 2016, but remaining below historical averages.“The longer term trend [vis-à-vis protectionism] remains one of concern, with the overall stock of trade-restrictive measures introduced by G20 economies since 2008 continuing to rise”

The overall response to the 2008 financial crisis has been more muted than expected when compared with previous crises. The multilateral trading system has proved an effective backstop against protectionism.

During this period, G20 economies also continued to adopt measures aimed at facilitating trade, both temporary and permanent in nature.

These developments confirm that G20 economies overall have shown a degree of restraint in introducing new trade restrictions. However, it is not yet clear that the deceleration in the number of measures introduced will continue in future reporting periods. It is also relevant that the slow pace of removal of previous restrictions means that the overall stock of restrictive measures is continuing to increase.

The broader international economic context also supports the need for continuing vigilance and action.

Trends in world trade and output have remained mixed since the last monitoring report, as merchandise trade volumes and GDP growth picked up in the second half of 2014 but appear to have slowed in the first quarter of 2015.

Economic activity remained uneven across countries as the United States and China slowed in the first quarter, while growth in the Euro area and Japan picked up.

Plunging oil prices and strong exchange rate fluctuations, including an appreciation of the U.S. dollar and a depreciation of the Euro contributed uncertainty to the economic outlook.

Lower prices for oil and other primary commodities were expected to provide a boost to importing economies, but reduced export revenues weighed heavily on commodity exporters.

In light of these developments, our most recent forecast (14 April 2015) predicted a continued moderate expansion of trade in 2015 and 2016, although the pace of recovery was expected to remain below historical averages.

In the area of government procurement, work from the Organisation for Economic Cooperation and Development (OECD), identifying 65 measures implemented since the financial crisis, suggests that discriminatory government procurement policies have become increasingly popular and potentially affect 423 billion dollars of government procurement in the implementing economies.

This report shows that G20 economies implemented 48 new general economic support measures during the period under review, with the majority targeting the manufacturing and agricultural sectors through various incentive schemes, often, but not exclusively, in the context of exports.

The overall assessment of this thirteenth report on G20 trade measures is that the continuing
increase in the stock of new trade-restrictive measures recorded since 2008 remains of concern in the context of an uncertain global economic outlook.

Individually and collectively, the G20 must show leadership and deliver on the pledge to refrain from implementing new measures taken for protectionist purposes and to remove existing ones. (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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Opinion: Greece – A Sad Story of the European Establishmenthttp://www.ipsnews.net/2015/06/opinion-greece-a-sad-story-of-the-european-establishment/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-greece-a-sad-story-of-the-european-establishment http://www.ipsnews.net/2015/06/opinion-greece-a-sad-story-of-the-european-establishment/#comments Tue, 09 Jun 2015 11:40:11 +0000 Roberto Savio http://www.ipsnews.net/?p=141035

In this column, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, writes that the latest development in the tug of war which has been going on between Greece and a German-dominated Europe is the desire to punish an anti-establishment figure like Greek Prime Minister Alexis Tsipras and show that the radical left cannot run a country.

By Roberto Savio
ROME, Jun 9 2015 (IPS)

Only 50 years of Cold War (and the fact that German Chancellor Angela Merkel grew up in East Germany) can possibly explain the strange political power of the United States over Europe.

After a bilateral meeting between Merkel and U.S. President Barack Obama (so much for transparency and participation), the Jun. 7-8 G7 summit opened in Germany and we found out that there had been a trade-off.

Roberto Savio

Roberto Savio

Merkel agreed that Europe should continue the sanctions against Russia – and so the other members of the G7 duly agreed – and Obama toned down the U.S. position on Greece.

That position had been forcefully expressed by U.S. Treasury Secretary Jacob Lew a few days earlier to European leaders: solve the Greek problem, or this will have a global impact that we cannot afford. This had suddenly accelerated negotiations, with the hope then that everything would be solved before the G7 summit.

But Greece did not accept the plan of the President of the European Commission, Jean-Claude Juncker, which was suspiciously close to International Monetary Fund (IMF) positions.

At the G7 summit, Obama softened the U.S. position on Greece, and even said that “Athens must implement the necessary reforms.”

Obstinacy on sanctions against Russia ignores the fact that, in a very delicate economic moment, Europe has lost a considerable part of its exports because of Russia’s retaliatory block on European imports. It is also difficult to see what advantage there is for Europe in pushing Russia into the arms of China. We will soon be seeing joint naval exercise between the two countries, which will only escalate tensions.

But let us look at Greece given that its tug of war with Europe has now been going on for five years.

Let us recall briefly. Greece had been spending much more than it could by distributing public jobs under any government, by giving easy pensions to everyone, and so on. Then, in 2009, the centre-left Panhellenic Socialist Movement (PASOK) won the elections and we found out that the figures Athens had been giving Brussels were false.

The real deficit stood at almost 12.5 percent of gross domestic product (GDP), confirmation of what the European Union and its bodies had long suspected but which it had done nothing about.“Europe is now led by Germany and the Germans are convinced that what they did at home is valid everywhere. Together with the countries of northern Europe, they look on the people of southern Europe as unethical, people who want to enjoy life beyond their means”

To avoid going into the agonising details of the continuous negotiations between Greece and the European Union, I jump to the January elections this year which the left-wing Syriza party won and its leader Alexis Tsipras was named Prime Minister on a clear programme: stop the austerity programme imposed by the “Troika” – IMF, EU and the European Central Bank (ECB) – on behalf of the European countries, led by Germany, Netherlands, Austria and Finland.

Greece is on its knees. Officially, unemployment has gone from 11.9 percent in 2010 to 25.5 percent today, but it is widely considered to be around 30 percent. Among young people, it is close to 60 percent. GDP has gone into a 25 percent decline, Greek citizens have lost about 30 percent of their revenues and public spending has been slashed to the point that hospitals have great difficulty in functioning.

Yet, the request (order) of the “Troika” is simple – cut everything the deficit has been eliminated.

So, for example, cut pensions, which have been already been cut twice. In any case, this would reap a paltry 100 million euros but would cripple people who are living on less than 685 euro a month. Or, raise VAT on tourism, from the present 6.5 percent to 13.6 percent, which would be a deadly blow to Greece’s only important source of income.

This is the plan presented by Juncker, whose arrival as head of the European Commission was accompanied by a grandiose Marshall Plan for Europe, a plan which has since disappeared totally from the scene.

In an article a few days ago titled ‘Europe’s Last Act?”, Joseph E. Stiglitz, Nobel laureate in economics, argues that the idea of austerity as a uniform recipe for Europe is missing reality.

“The troika badly misjudged the macroeconomic effects of the program that they imposed. According to their published forecasts, they believed that, by cutting wages and accepting other austerity measures, Greek exports would increase and the economy would quickly return to growth. They also believed that the first debt restructuring would lead to debt sustainability.

“The troika’s forecasts have been wrong, and repeatedly so. And not by a little, but by an enormous amount. Greece’s voters were right to demand a change in course, and their government is right to refuse to sign on to a deeply flawed program.”

It is on austerity that the paths of the United States and the European Union divide.

The United States has embarked on investing for growth, despite pressure from the Republican party for austerity, and the U.S. economy is picking up again.

But Europe is now led by Germany and the Germans are convinced that what they did at home is valid everywhere. Together with the countries of northern Europe, they look on the people of southern Europe as unethical, people who want to enjoy life beyond their means. As The Economist put it in an article on the Greek crisis: “In German eyes this crisis is all about profligacy”.

It did not help that another very minor crisis – that of Cyprus between 2012 and 2013 – confirmed Germany’s view about the profligacy of the south of Europe. In the case of Cyprus, the “Troika” settled the crisis at a cost of 10 billion euros.

There is widespread agreement that the crisis of Greece, which represents just two percent of the total European budget, could have been settled at the beginning with a 50-60 billion euro loan. But only since Tsipras became prime minister, and with popular support started to refuse to accept the creditors’ plan, has Greece has become a very important issue.

There is now talk of a “Grexit”, or Greece’s exit from the European Union. This would have a cascade effect, and it would mean the end of Europe as a common dream, of a Europe based on solidarity and communality.

In the G7, Obama has insisted on investments and demand as a way out of the crisis. Merkel has again repeated that Europe does not need stimulus financed by debt, but stimulus coming from the reform of inefficient economies. At this point, perhaps “everything is always about something else”, as the late award-winning Sri Lankan journalist Tarzie Vittachi once told me.

An enlightening comment on the Greek situation has come from Hugo Dixon writing in The New York Times of Jun. 7. The Greek prime minister “will have to choose between saving his country and sticking to a bankrupt far-left ideology. If he is smart, he can secure a few more concessions from creditors and a goodish deal for Greece. If not, he will drag the country into the abyss.”

And then, it is interesting to note that one of the main reasons for being so hard with Syriza is that the citizens of Spain, Portugal and Ireland, who were the first to swallow the bitter pill of austerity, would revolt if they saw a different path for Greece, and it just happens that those countries have conservative governments.

The entire European political system reeled with shock at the victory of Syriza, and again a few days ago at the victories of the left-wing anti-establishment Podemos party in municipal elections in Spain.

For some reason, the very authoritarian and conservative government of Viktor Orbán in Hungary, the victory of the very conservative Andrzej Duda as president in Poland, as well as the rise of Matteo Salvini’s anti-European and anti-immigration Lega Nord party in Italy create no panic, not even if Salvini looks to Russian President Vladimir Putin and Marine Le Pen, leader of France’s right-wing Front National, as figures of reference.

So, the real issue now in the case of Greece is to punish an anti-establishment figure like Tsipras and show that the radical left cannot run a country.

Who really believes that there will masses of citizens in Madrid, Lisbon or Dublin taking to the streets to protest if Europe does a somersault of solidarity and idealism, and lowers its requests or dilutes them over more time? (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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Opinion: G20 Turkish Presidency Keen to Benefit the Global Communityhttp://www.ipsnews.net/2015/06/opinion-g20-turkish-presidency-keen-to-benefit-the-global-community/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-g20-turkish-presidency-keen-to-benefit-the-global-community http://www.ipsnews.net/2015/06/opinion-g20-turkish-presidency-keen-to-benefit-the-global-community/#comments Sun, 07 Jun 2015 17:05:43 +0000 Selim Yenel http://www.ipsnews.net/?p=141016 Ambassador Selim Yenel. Credit: Permanent Delegation of Turkey to the EU

Ambassador Selim Yenel. Credit: Permanent Delegation of Turkey to the EU

By Selim Yenel
BRUSSELS, Jun 7 2015 (IPS)

Turkey assumed the Presidency of the Group of 20 (G20) on Dec. 1, 2014. It will culminate in the Antalya Summit on Nov. 15-16. Our priorities build upon the G20 multi-year agenda, but also reflect particular themes we see as important for 2015.

(The G20 comprises a mix of the world’s largest advanced and emerging economies, representing about two-thirds of the world’s population, 85 per cent of global gross domestic product and over 75 per cent of global trade. They include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union.)We have a moral obligation to address inequality, which also hinders economic growth.

We want to channel the influence of the G20 also for the benefit of the global community. Spain, Azerbaijan, Singapore and the Chairs of ASEAN (Malaysia), African Union (Zimbabwe) and NEPAD-New Partnership for Africa’s Development (Senegal) are invited to G20 meetings.

We have an ambitious agenda, a clear focus and an intense work plan. We frame our priorities as ‘3 Is’. – Implementation, Inclusiveness, Investment.

Implementation:

– Turning words into actions. Implementing our collective G-20 commitments.

– G20 members committed themselves to policy measures over 1,000 in total, estimated to lift collective G20 growth by an additional 2.1 percent over the next five years. (the so-called “2 in 5” target)

– The IMF and OECD calculate that implementing G20 growth strategies can generate additional two trillion dollars to the world economy, an output equivalent to the size of the Indian economy.

– The first accountability report on how much progress we have collectively made towards our growth target will be presented to the G20 Summit in Antalya.

Inclusiveness:

– The G20’s overarching aim has been to foster strong, sustainable and balanced growth. One of our primary goals is to add “inclusive” growth to this, both at the national and international level.

– We have a moral obligation to address inequality, which also hinders economic growth. It has been worsened by the effects of the global financial crisis. (Among OECD countries, inequality is at its highest level in 30 years)

– Last year, the G20 made a commitment to reduce the gender gap in labour force participation by 25 percent until 2025 (our 25 by 25 target). Its implementation will bring additional 100 million women into the workforce.

– We will strive to achieve a collective G20 target for youth unemployment.

– SMEs (small and medium enterprises) are another important element. They are the powerhouse of employment, innovation and entrepreneurial spirit.

– We launched the World SME Forum (WSF) on May 23. Turkey’s Deputy Prime Minister Ali Babacan announced the official launch of this forum, a major new initiative to drive the contributions of SMEs to global economic growth and employment. For the first time, there will now be a united and global voice of SMEs.

– Low Income Developing Countries (LIDCs) are an important focal point. Our message: the G20 is not only concerned about its own interests but its policies should also benefit the entire community, resulting in a better global dialogue.

Investment:

– Investment is key to unlocking growth and generating new jobs.

– The public sector cannot meet the global investment gap alone. Effective public and private sector partnership is a must. Nine out of 10 new jobs are created as a result of private investment.

– We proposed that G20 countries prepare national investment strategies to support their national growth strategies adopted last year. We have started to work on our national investment strategies and plan to have them submitted for the approval of at the Antalya Summit.

2015 is a critical year for shaping the global sustainable development agenda for the future.

We have the Sustainable Development Goals (SDG) Summit in New York in September. It is important that the G20’s decisions and actions strengthen the work of the U.N. (SDGs will follow and expand on the Millennium Development Goals agreed in 2000, due to expire at the end of 2015)

We aim to support the universal nature of the post 2015-development agenda. Our work on food security and nutrition, access to affordable and reliable energy to all, efforts to reduce the gender gap in female labour force participation, skills development and infrastructure are directly relevant to many of the proposed goals and targets.

The main topics of the G20 Agriculture Ministers Meeting on May 8, the second in G20 history (first was in 2011), were developing sustainable food systems and the challenges of food loss and waste.

Some 1.3 billion tonnes of food is lost or wasted each year. If we can reduce food losses and waste to zero, it would give us additional food to feed two billion people.

Our work on energy access in Sub Saharan Africa is another important element of our agenda. We are working in partnership with various African institutions.

Almost one-fifth of the global population still does not have access to electricity. Nearly 2.6 billion people lack access to modern cooking facilities. In Sub-Saharan Africa the problem is most acute. More than 620 million people, out of the region’s total population of 915 million, have no access to electricity.

A high-level conference with the participation of African leaders, investors, private sector and relevant international organisations back to back with the G20 Energy Ministers meeting is also planned. The G20 Energy Ministers Meeting on Oct. 2 will be a first in G20 history.

We are also working closely with the ILO and other international organisations on a range of employment and labour market outcomes.

Trade is an important part of our agenda. Representing 76 percent of world trade, G20 should lead by example in collective work to ensure an open and functioning multilateral trading system.

We are also working to strengthen outreach with engagement groups and non-members. Under our Presidency, G20 countries agreed to establish a new G20 engagement group: The Womens-20, to promote gender inclusive growth and enhance the role of women in business.

We also value direct outreach and dialogue with countries, regional groups and institutions. On Apr. 13, we convened in Washington the first Caribbean Region Dialogue with the G20 Development Working Group together with the Central Bank of Trinidad and Tobago. This was an opportunity to deepen the G20-Caribbean relationship.

Overall, Turkey believes it has a responsibility to use its Presidency of the G20 as a positive influence regarding growth, sustainability and development in all areas. Independent of the G20, Turkey in the last decade has been more and more involved with the African, Caribbean and Pacific (ACP) Group of States.

It has developed its relations in the political, economic, commercial and development fields. Turkey has opened a large number of embassies in all the ACP countries and will continue to increase its contacts in the years to come for a mutually beneficial relationship.

Edited by Ramesh Jaura / Kitty Stapp

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service.

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Opinion: Finance Like a Cancer Growshttp://www.ipsnews.net/2015/05/opinion-finance-like-a-cancer-grows/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-finance-like-a-cancer-grows http://www.ipsnews.net/2015/05/opinion-finance-like-a-cancer-grows/#comments Tue, 26 May 2015 07:18:16 +0000 Roberto Savio http://www.ipsnews.net/?p=140797 By Roberto Savio
ROME, May 26 2015 (IPS)

It is astonishing that every week we see action being taken in various part of the world against the financial sector, without any noticeable reaction of public opinion.

It is astonishing because at the same time we are experiencing a very serious crisis, with high unemployment, precarious jobs and an unprecedented growth of inequality, which can all be attributed, largely, to speculative finance.

Roberto Savio

Roberto Savio

This all began in 2008 with the mortgage crisis and the bursting of the derivatives bubble in the United States, followed by the bursting of the sovereign bonds bubble in Europe.

It is calculated that we will need to wait until at least 2020 to be able to go back to the levels of 2008 – so we are talking of a lost decade.

To bail out the banks, the world has collectively spent around 4 trillion dollars of taxpayers’ money. Just to make the point, Spain has dedicated more than its annual budget on education and health to bail out the banking sector … and the saga continues.

Last week, five major banks agreed to pay 5.6 billion to the U.S. authorities because of their manipulations in the currency market. The banks are household names: the American JPMorgan Chase and Citigroup, the British Barclays and the Royal Bank of Scotland, and the Swiss UBS.“To bail out the banks, the world has collectively spent around 4 trillion dollars of taxpayers’ money”

In the case of UBS, the U.S. Department of Justice took the unusual step of tearing up a non-prosecution agreement it had reached earlier, saying that it had taken that step because of the bank’s repeated offences. “UBS has a ‘rap sheet’ that cannot be ignored,” said Assistant U.S. Attorney General Leslie Caldwell.

This is a significant departure from the Justice Department’s guidelines issued in 2008, according to which collateral consequences have to be taken into account when indicting financial institutions.

“The collateral consequences consideration is designed to address the risk that a particular criminal charge might inflict disproportionate harm to shareholders, pension holders and employees who are not even alleged to be culpable or to have profited potentially from wrongdoing,” said Mark Filip, the Justice Department official who wrote the 2008 memo.

Referring to the case of accounting giant Arthur Andersen, which certified as valid the accounts of the Enron energy company that went into bankruptcy for faking its budget, Filip said that “Arthur Andersen was ultimately never convicted of anything, but the mere act of indicting it destroyed one of the cornerstones of the Midwest’s economy.”

This was in fact a declaration of impunity, which did not escape the managers of the financial system, under the telling title of “Too Big to Fail”.

Two weeks ago, a judge from the Federal District Court of Manhattan, Denise L. Cote, condemned two major banks – the Japanese Nomura Holdings and the British Royal Bank of Scotland – for misleading two mortgage public institutions, Fannie Mae [Federal National Mortgage Association] and Freddie Mac [Federal Home Loan Mortgage Corporation], by selling them mortgage bonds which contained countless errors and misrepresentations.

“The magnitude of falsity, conservatively measured, is enormous,” she wrote in her scathing decision.

Nomura Holdings and the Royal Bank of Scotland were just two of 18 banks that had been accused of manipulating the housing market. The other 16 settled out of court to pay nearly 18 billion dollars in penalties and avoid having their misdeeds aired in public.

Nomura Holdings and Royal Bank of Scotland refused any settlement and instead went to court against the U.S. government, arguing that it was the housing crash which caused their mortgage bonds to collapse. Judge Cote, however, wrote that it was precisely the banks’ criminal behaviour which had exacerbated the collapse in the mortgage market.

It is worth noting that, until now, the cumulative fines inflicted by the U.S. government on just five major banks since 2008 amount to a quarter of a trillion dollars. No one has yet gone to jail – fines have been paid and the question closed.

Now the question: is all this due to the misconduct of a few greedy managers or is it due to the new “ethics” of the financial sector?

By the way, let us not forget that it was revealed recently that 25 hedge fund managers took close to 14 billion dollars only last year and that the highest paid manager took for himself the unthinkable amount of 1.3 billion dollars, equal to the combined average salaries of 200,000 U.S. professionals.

Well, just a week ago, the respected University of Notre Dame was reported as having published a startling report, based on a survey of more than 1,200 hedge fund professionals, investment bankers, traders, portfolio managers from the United States and the United Kingdom, in which about one-third of those earning more than 500,000 dollars a year said that they “have witnessed or have first-hand knowledge of wrongdoing in their workplace.”

The report went on to say that “nearly one in five respondents feel financial services professionals must sometimes engage in unethical or illegal activity to be successful in the current financial environment” and in any case,  nearly half of the high income professionals consider authorities to be ”ineffective in detecting, investigating and prosecuting securities violations.”

A quarter of respondents stated that if they saw that there was no chance of being arrested for insider trading to earn a guaranteed 10 million dollars, they would do so.

And nearly one-third “believe compensation structures or bonus plans in place at their companies could incentivise employees to compromise ethics or violate the law.”  It should also be noted that the majority were worried their employer “would likely to retaliate if they reported wrongdoing in the workplace.” So, the bonus that goes to those in the financial sector every year practically amounts to a bribe for silence on misconduct.

At the same time, we have learned that in Guatemala the Governor of the Central Bank has been arrested for embezzling 10 million dollars. Of course, everything is a question of scale…but in sociology there is a mechanism called “demonstration effect”.

The example of Wall Street and the City will increasingly seep down once a new “ethic” is in place. It will propagate if it is not stopped … and this is not happening.

A final note. In the same week (how many things have happened in such a short space of time), the Federal Trade Commission of Columbia accused four respected cancer charities of misusing donations worth millions of dollars.

One of them, the Cancer Fund of America, declared that it spent 100 percent of proceeds on hospice care, transporting patients to chemotherapy sessions and buying medication for children. The Federal Trade Commission found in fact that less than three percent of donations was spent on cancer patients.

The “new ethic” is in reality a cancer, and it is metastasising rapidly. (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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Opinion: Pillar of Neoliberal Thinking is Vacillatinghttp://www.ipsnews.net/2015/04/opinion-pillar-of-neoliberal-thinking-is-vacillating/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-pillar-of-neoliberal-thinking-is-vacillating http://www.ipsnews.net/2015/04/opinion-pillar-of-neoliberal-thinking-is-vacillating/#comments Mon, 20 Apr 2015 14:27:03 +0000 Roberto Savio http://www.ipsnews.net/?p=140225

In this column, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, argues that the latest figures from the IMF only confirm what many citizens already know – that the economic situation is worsening. However, he notes, what is new that there are now signs that the IMF has woken up to reality, indicating that “an important pillar of neoliberal thinking is vacillating”.

By Roberto Savio
ROME, Apr 20 2015 (IPS)

This month’s World Economic Outlook released by the International Monetary Fund (IMF) only confirms that consequences of the collapse of the financial system, which started six years ago, are serious. And they are accentuated by the aging of the population, not only in Europe but also in Asia, the slowing of productivity and weak private investment.

Roberto Savio

Roberto Savio

Average growth before the financial crisis in 2008 was around 2.4 percent. It fell to 1.3 percent between 2008 and 2014 and now the estimates are that it will stabilise at 1.6 percent until 2020, in what economists call the “new normal”. In other words, “normality” is now unemployment, anaemic growth and, obviously, a difficult political climate.

For the emerging countries, the overall picture does not look much better. It is expected that potential growth is expected to decline further, from an average of about 6.5 percent between 2008 and 2014 to 5.2 percent during the period 2015-2020.

The case of China is the best example. Growth is expected to fall from an average 8.3 percent in the last 10 years to somewhere around 6.8 percent. The result is that the Chinese contraction has worsened the balance of exports of raw materials everywhere.

The crisis is especially strong in Latin America, and in Brazil the fall in exports has contributed to worsening the country’s serious crisis and increasing the unpopularity of President Dilma Rousseff, already high because of economic mismanagement and the Petrobras scandal.“Progressive parties were able to build their success during economic expansion but the Left has not developed much economic science on what to do in period of crisis”

This, by the way, opens up a reflection which is fundamental. From Marx to Keynes, redistribution theories were all basically built on stable or expanding economies.

Progressive parties were able to build their success during economic expansion but the Left has not developed much economic science on what to do in period of crisis. What it tends to do is mimic the receipts and proposals from the Right and, when the crisis is over, it has lost its identity and has declined in the eyes of the electorate.

From this perspective, the situation in Europe is exemplary. All those right-wing xenophobic parties which have sprouted up – even in countries long held to be models of democracy such as the Nordic countries – have developed since 2008, the beginning of the financial crisis. In the same period of time, all progressive parties have lost weight and credibility. And now that the IMF sees some improvement in the European economy, it is not the traditional progressive parties that are the beneficiaries.

The term that the IMF gives to the current economic moment is “new mediocrity” – which is a franker way of saying “new normal” – and it observes that in the coming five years, we will face serious problems for public policies like fiscal sustainability and job creation.

In fact, every day, the macroeconomic figures, which have become the best way to hide social realities, are becoming less and less realistic if we go back to microeconomics as we have done during the last 50 years.

The best example is the United Kingdom, which is the champion of liberalism. Each year it has cut public spending and now claims to have growth in employment, with 600,000 new jobs in the last year. The only problem is that if you look into the structure of those jobs, you will find that the large majority are part-time or underpaid, and employment in the public sector is at its lowest since 1999.

A clear indicator is the number of people who visit the food banks created to meet the needs of the indigent. In the world’s sixth largest economy, their numbers have grown from 20,000 before the crisis seven years ago to over one million last year. And the same has happened all over Europe, albeit to a lesser extent in the Nordic countries.

U.K. economists have published studies on how austerity has affected growth. According to the Office for Budgetary Responsibility, established by the U.K. government, austerity blocked economic growth by one percent between 2011 and 2012. But, according to Simon Wren-Lewis of Oxford University, the figure is actually about five percent (or 100 billion pounds).

In other words, fiscal austerity reduces growth, and this creates large deficits which call for more fiscal austerity. It is a trap that Nobel laureate Keynesian economists Joseph Stiglitz and Paul Krugman have described in detail to no avail. We are all following the “liberal order” of Germany, which think its reality should be the norm and that deviations should be punished.

Now, while we can all agree that much of this is obvious to the average citizen in terms of its impact on everyday life, what is important and new is that the IMF, the fiscal guardian which has imposed the Washington Consensus (basically a formula of austerity plus free market at any cost) all over the Third World with tragic results, has woken up to reality.

Don’t get me wrong – I’m not implying that the IMF is becoming a progressive organisation, but there are signs that an important pillar of neoliberal thinking is vacillating.

Of course, those responsible for the global crisis – bankers – have come out with impunity. The world has exacted over three trillion dollars from its citizens to put banks back on their feet. The over 140 billion dollars in fines that banks have paid since the beginning of the crisis is the quantitative measure of illegal and criminal activities.

The United Nations calculates that the financial crisis has created at least 200 million new poor, several hundred millions of unemployed, and many more precarious jobs, especially for young people. And, yet, nobody has paid, while prisons are full of people who are there for minor theft, the social impact of which is infinitesimal by comparison.

In 2014, James Morgan, the boss of Morgan Stanley, cashed in 22.5 million dollars, Lloyd Blanfein, the boss of Goldman Sachs, 24 million, James Dimon, the boss of J.P. Morgan, 20 million. The most exploited of all, Brian Moynihan of the Bank of America, a paltry 13 million. Nobody stops the growth of bankers.

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

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Opinion: A Long History of Predatory Practices Against Developing Countrieshttp://www.ipsnews.net/2015/04/opinion-a-long-history-of-predatory-practices-against-developing-countries/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-a-long-history-of-predatory-practices-against-developing-countries http://www.ipsnews.net/2015/04/opinion-a-long-history-of-predatory-practices-against-developing-countries/#comments Mon, 06 Apr 2015 19:11:12 +0000 Kinda Mohamadieh http://www.ipsnews.net/?p=139820

In this column, Kinda Mohamadieh, a researcher at the South Centre, argues that the predatory practices of ‘vulture funds’ and their systemic implications represent a threat to the development of indebted poor countries.

By Kinda Mohamadieh
GENEVA, Apr 6 2015 (IPS)

The world’s attention turned to the practices of vulture funds after the U.S. Supreme Court affirmed a lower court opinion in the NML Capital vs Argentina case, which forbids the country from making payments on its restructured debt.

Argentina had defaulted in 2001 and went through two rounds of negotiations to restructure its debt, both in 2005 and 2010. In June 2014, the court ordered Argentina to pay the ‘vulture funds’ that held out and did not accept the terms of the debt swaps.

Kinda Mohamadieh

Kinda Mohamadieh

The vulture funds had held out with the aim of achieving what amounts to a 1,600 percent return on their original investment. The funds concerned had purchased the Argentinian bonds in 2008 at 48 million dollars and the court ruling ordered Argentina to pay them 832 million dollars.

Nobel laureate Joseph Stiglitz noted that this was “the first time in history that a country was willing and able to pay its creditors, but was blocked by a judge from doing so”.

While this case brought the term ‘vulture funds’ into the public sphere, the predatory practices of these entities did not start with Argentina.

According to a former U.N. independent expert on the effects of foreign debt and other related financial obligations of states on the full enjoyment of all human rights, the term ‘vulture funds’ describes “private commercial entities that acquire, either by purchase, assignments or some other form of transaction, defaulted or distressed debts, and sometimes actual court judgments, with the aim of achieving higher returns.”

Basically, vulture funds are hedge funds whose modus operandi focuses on three main steps including: (1) purchasing distressed debt on the secondary market at deep discounts far less than its face value; (2) refusing to participate in restructuring agreements with the indebted state; and (3) pursuing full value of the debt often at face value plus interest, arrears and penalties, including through litigation, seizure of assets or penalties.“The African Development Bank has reported that at least twenty heavily indebted poor countries have been threatened with or have been subjected to legal actions by commercial creditors and vulture funds since 1999”

Many developing countries have been exposed to the predatory practices of vulture funds, especially African and Latin American countries.

The African Development Bank has reported that at least twenty heavily indebted poor countries have been threatened with or have been subjected to legal actions by commercial creditors and vulture funds since 1999. These countries include Sierra Leone, Cote d’Ivoire, Burkina Faso, as well as Angola, Cameroon, Congo, Democratic Republic of the Congo, Ethiopia, Liberia, Madagascar, Mozambique, Niger, Sao Tome and Principe, Tanzania, and Uganda.

Peru was targeted by NML Capital in the year 2000. According to media reports, the fund spent almost four years in the courts to win a ruling that forced Peru to settle for almost 56 million dollars on distressed debt, which the fund had initially bought for 11.8 million dollars.

The African Development Bank has documented that up until the year 2007, 25 judgments in favour of vulture funds had yielded nearly one billion dollars. Out of this amount, 72 percent of the judgments have been against African countries. The reported number of outstanding cases against debtor countries has doubled since 2004.

According to the World Bank and the International Monetary Fund (IMF), 54 court cases were instituted against 12 heavily indebted poor countries between 1998 and 2008. The IMF estimates that in some cases claims by vulture funds constitute as much as 12 to 13 percent of a country’s gross domestic product.  The World Bank estimates that nearly one-third of countries that are eligible for debt relief and other poverty alleviation programmes are the targets of nearly 26 vulture funds.

Concerned about the extent of the threat posed by such predatory practices and their systemic implications, several international authorities and multilateral institutions have voiced their concern about the matter.

The African Development Bank has warned that by precluding debt relief and costing millions in legal expenses, these vulture funds undermine the development of the most vulnerable African countries.

In June 2014, the heads of state and government of the Group of 77 and China, in their declaration issued on the occasion of the ‘For a New World Order for Living Well’ summit held in Santa Cruz de la Sierra, Bolivia, reiterated the importance of “not allowing vulture funds to paralyse the debt restructuring efforts of developing countries” and stressed that “these funds should not supersede the state’s right to protect its people under international law.”

The IMF had cautioned that upholding the decision against Argentina would harm future sovereign debt restructuring attempts. In 2013, the IMF stated that “if upheld, [the Court of Appeals decision] would likely give hold-out creditors greater leverage and make the debt restructuring process more complicated”.

In 2007, G8 finance ministers had expressed concern about actions of some litigating creditors against heavily indebted poor countries, and agreed to work together to identify measures to tackle this problem based on the work of the Paris Club.

In September 2014, a resolution on the activities of vulture funds and the effects of foreign debt and other related international financial obligations of states on the full enjoyment of all human rights, particularly economic, social and cultural rights, was presented by Argentina and adopted at the 27th session of the U.N. Human Rights Council which took place in Geneva.

It is also worth noting that the 26th session of the Human Rights Council in June 2014 had adopted a resolution titled ‘Elaboration of an international legally binding instrument on Transnational Corporations and Other Business Enterprises with Respect to Human Rights’.

This resolution sets in place a process of negotiations towards an international legally binding instrument on transnational corporations and their liability in the area of human rights. (END/IPS COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This column is based on a longer version published in published in the South Centre’s South Bulletin 83 of 12 February 2015.

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Opinion: Crisis Resolution and International Debt Workout Mechanismshttp://www.ipsnews.net/2015/03/opinion-crisis-resolution-and-international-debt-workout-mechanisms/?utm_source=rss&utm_medium=rss&utm_campaign=opinion-crisis-resolution-and-international-debt-workout-mechanisms http://www.ipsnews.net/2015/03/opinion-crisis-resolution-and-international-debt-workout-mechanisms/#comments Mon, 30 Mar 2015 08:34:01 +0000 Yilmaz Akyuz http://www.ipsnews.net/?p=139924

In this column, Yilmaz Akyüz, chief economist at the South Centre in Geneva, looks at the role of international debt workout mechanisms in debt restructuring initiatives and argues, inter alia, that while the role of the IMF in crisis management and resolution is incontrovertible, it cannot be placed at the centre of these debt workout mechanisms because its members represent both debtors and creditors.

By Yilmaz Akyüz
GENEVA, Mar 30 2015 (IPS)

Debt restructuring is a component of crisis management and resolution, and needs to be treated in the context of the current economic conjuncture and vulnerabilities.

International debt workout mechanisms are not just about debt reduction, but include interim arrangements to provide relief to debtors, including temporary hold on debt payments and financing.

They should address liquidity as well as solvency crises but the difference is not always clear. Most start as liquidity crises and can lead to insolvency if not resolved quickly.

Yilmaz Akyuz

Yilmaz Akyuz

Liquidity crises also inflict serious social and economic damages as seen in the past two decades even when they do not entail sovereign defaults.

International mechanisms should apply to crises caused by external private debt as well as sovereign debt. Private external borrowing is often the reason for liquidity crises. Governments end up socialising private debt. They need mechanisms that facilitate resolution of crises caused by private borrowing.

Only one of the last eight major crises in emerging and developing economies was due to internationally-issued sovereign debt (Argentina). Mexican and Russian crises were due to locally-issued public debt; in Asia (Thailand, Korea and Indonesia) external debt was private; in Brazilian and Turkish crises too, private (bank) debt played a key role alongside some problems in the domestic public debt market.

We have had no major new crisis in the South with systemic implications for over a decade thanks to highly favourable global liquidity conditions and risk appetite, both before and after the Lehman Brothers bank collapse in 2008, due to policies in major advanced economies, notably the United States.

But this period, notably the past six years, has also seen considerable build-up of fragility and vulnerability to liquidity and solvency crises in many developing countries."There are problems with standard crisis intervention: austerity can make debt even less payable; creditor bailouts create moral hazard and promote imprudent lending, and transform commercial debt into official debt, thereby making it more difficult to restructure”

Sovereign international debt problems may emerge in the so-called ‘frontier economies’ usually dependent on official lending. Many of them have gone into bond markets in recent years, taking advantage of exceptional global liquidity conditions and risk appetite. There are several first-time Eurobond issuers in sub-Saharan Africa and elsewhere.

In emerging economies, internationally-issued public debt as percentage of gross domestic product has declined significantly since the early 2000s. Much of the external debt of these economies is now under local law and in local currency.

However, there are numerous cases of build-up of private external debt in the foreign exchange markets issued under foreign law since 2008. Many of them may face contingent liabilities and are vulnerable to liquidity crises.

An external financial crisis often involves interruption of a country’s access to international financial markets, a sudden stop in capital inflows, exit of foreign investors from deposit, bond and equity markets and capital flight by residents. Reserves become depleted and currency and asset markets come under stress. Governments are often too late in recognising the gravity of the situation.

International Monetary Fund (IMF) lending is typically designed to bail out creditors to keep debtors current on their obligations to creditors, and to avoid exchange restrictions and maintain the capital account open.

The IMF imposes austerity on the debtor, expecting that it would make debt payable and sustainable and bring back private creditors. It has little leverage on creditors.

There are problems with standard crisis intervention: austerity can make debt even less payable; creditor bailouts create moral hazard and promote imprudent lending, and transform commercial debt into official debt, thereby making it more difficult to restructure; and risks are created for the financial integrity of the IMF.

Many of these problems were recognised after the Asian crisis of the 1990s, giving rise to the sovereign debt restructuring mechanism, originally designed very much along the lines advocated by the U.N. Conference on Trade and development (UNCTAD) throughout the 1980s and 1990s (though without due acknowledgement).

However, it was opposed by the United States and international financial markets and could not elicit strong support from debtor developing countries, notably in Latin America. It was first diluted and then abandoned.

The matter has come back to the attention of the international community with the Eurozone crisis and then with vulture-fund holdouts in Argentinian debt restructuring.

After pouring money into Argentina and Greece, whose debt turned out to be unpayable, the IMF has proposed a new framework to “limit the risk that Fund resources will simply be used to bail out private creditors” and to involve private creditors in crisis resolution. If debt sustainability looks uncertain, the IMF would require re-profiling (rollovers and maturity extension) before lending. This is left to negotiations between the debtor and the creditors.

However, there is no guarantee that this can bring a timely and orderly re-profiling. If no agreement is reached and the IMF does not lend without re-profiling, then it would effectively be telling the debtor to default. But it makes no proposal to protect the debtor against litigation and asset grab by creditors.

There is thus a need for statutory re-profiling involving temporary debt standstills and exchange controls. The decision should be taken by the country concerned and sanctioned by an internationally recognised independent body to impose stay on litigation.

Sanctioning standstills should automatically grant seniority to new loans, to be used for current account financing, not to pay creditors or finance capital outflows.

If financial meltdown is prevented through standstills and exchange controls, stay is imposed on litigation, adequate financing is provided and contractual provisions are improved, the likelihood of reaching a negotiated debt workout would be very high.

The role of the IMF in crisis management and resolution is incontrovertible. However, the IMF cannot be placed at the centre of international debt workout mechanisms. Even after a fundamental reform, the IMF board cannot act as a sanctioning body and arbitrator because of conflict of interest; its members represent debtors and creditors.

The United Nations successfully played an important role in crisis resolution in several instances in the past.

The Compensatory Financing Facility – introduced in the early 1960s to enable developing countries facing liquidity problems due to temporary shortfalls in primary export earnings to draw on the Fund beyond their normal drawing rights at concessional terms – resulted from a U.N. initiative.

A recent example concerns Iraq’s debt. After the occupation of Iraq and collapse of the Saddam Hussein regime, the U.N. Security Council adopted a resolution to implement stay on the enforcement of creditor rights to use litigation to collect unpaid sovereign debt.

This was engineered by the very same country, the United States, which now denies a role to the United Nations in debt and finance on the grounds that it lacks competence on such matters, which mainly belong to the IMF and the World Bank.

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

* This article is partly based on South Centre Research Paper 60 by Yilmaz Akyüz titled Internationalisation of Finance and Changing Vulnerabilities in Emerging and Developing Economies.

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