tag:theconversation.com,2011:/africa/topics/international-monetary-fund-10551/articlesInternational Monetary Fund – The Conversation2023-11-09T09:37:22Ztag:theconversation.com,2011:article/2172802023-11-09T09:37:22Z2023-11-09T09:37:22ZGrattan on Friday: When Labor states don’t dance to the Albanese government’s tune<p>It’s helpful for the Albanese government to have all mainland states in Labor hands – but only up to a point. </p>
<p>This week we’ve seen the Queensland government bite back at federal plans to curb the national infrastructure program, while Victorian resistance to changes to the Murray-Darling water plan prompted Environment Minister Tanya Plibersek to lash out. </p>
<p>Infrastructure is always a vexed issue. The program is full of pork barrelling, whoever is in power. Even when that’s not involved, what to build and when it should be built is often contested. </p>
<p>In May, the government announced a 90-day review of the $120 billion infrastructure pipeline it inherited from the Coalition.</p>
<p>Infrastructure Minister Catherine King said projects had increased from about 150 to 800. The government’s aim was to reduce the number of projects (many of them small) and rearrange priorities.</p>
<p>High inflation, cost overruns and shortages of labour and materials are plaguing the program.</p>
<p>The political difficulties of abolishing or changing projects, often involving negotiation with states and territories, are obvious enough. Now they have become significantly worse. </p>
<p>The government has received its stocktake, and Treasurer Jim Chalmers says the overall cost of the program has blown out by some $33 billion. </p>
<p>Also, <a href="https://www.imf.org/en/News/Articles/2023/10/31/cs103123-australia-staff-concluding-statement-of-the-2023-article-iv#:%7E:text=Australia's%20economy%20has%20been%20resilient,after%20a%20correction%20in%202022.">an International Monetary Fund report</a> last week said infrastructure projects should be rolled out at a “more measured and co-ordinated pace, given supply constraints, to alleviate inflationary pressures”.</p>
<p>Chalmers is pushing this message, but it’s not being received well in Queensland. </p>
<p>State Treasurer Cameron Dick was blunt. “Queensland is Australia’s growth state and we need more infrastructure, not less,” <a href="https://twitter.com/camerondickqld/status/1720977443337691323">he said in a tweet</a>. “If infrastructure cuts are needed, they should be made to southern states with low growth and high debt.” (Fun fact: the electorate offices of Queenslanders Chalmers and Dick share a common wall.)</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1720977443337691323"}"></div></p>
<p><a href="https://www.couriermail.com.au/news/queensland/qld-politics/road-rail-projects-need-to-be-cut-to-take-heat-out-of-inflation-treasurer/news-story/a99b728bdff427ae13cb879700b19ed1">Queensland Police Minister Mark Ryan said</a>:</p>
<blockquote>
<p>I’ve got a clear message for Jim. Jim’s a mate of mine. Jim, those projects better not be in Queensland.</p>
</blockquote>
<p>The last thing the Palaszczuk government wants is for projects to be cancelled, slashed or delayed. It is in a particularly precarious position – it faces an election in a year’s time and will be fighting for survival.</p>
<p>Queensland has an obvious political self-interest in resisting infrastructure cuts, but there’s a national point too. With large numbers of migrants coming into Australia, the demand for transport and other infrastructure will be increasing, rather than decreasing. Whatever cuts and slowdowns are made will need to be well judged. </p>
<p>The federal government argues the existing pipeline is unrealistic and without change could not be delivered anyway. But even if the decisions about what to cut, scale back or defer are economically sound, in political terms they could store up electoral time bombs for the government. </p>
<p>Even minor and unworthy projects can be sensitive in marginal seats. Scrapping them could open opportunities for the opposition. Also, available funds for new projects presumably will be limited. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/grattan-on-friday-transport-minister-catherine-king-struggles-to-find-a-landing-strip-amid-qatar-turbulence-213076">Grattan on Friday: Transport Minister Catherine King struggles to find a landing strip amid Qatar turbulence</a>
</strong>
</em>
</p>
<hr>
<p>When the government finishes its negotiations with the states and the outcomes are announced, King will be the main minister defending the decisions. </p>
<p>As we saw in the row over the rejection of Qatar Airways’ bid for extra flights, she struggles when under pressure. She could find the task challenging. </p>
<p>The fight over the government’s water changes centre on its planned amendments to the Murray-Darling Basin plan. </p>
<p>The legislation, soon to be considered by the Senate, broadens the activities that can be funded and extends the times for delivery of water-recovery projects. Most importantly, it removes the cap on the federal government’s “buybacks” of extra water for the environment. </p>
<p>The Murray-Darling plan is always fraught, because the interests of upstream and downstream users and their governments differ. Nevertheless, Queensland, South Australia and New South Wales have signed on – although NSW has done so reluctantly. </p>
<p>But Victoria, where the Andrews government has built a close relationship with irrigators, has held out, defending its position on the basis of work done by Frontier Economics. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/grattan-on-friday-cost-of-living-crisis-is-the-dragon-the-government-cant-slay-216441">Grattan on Friday: Cost-of-living crisis is the dragon the government can't slay</a>
</strong>
</em>
</p>
<hr>
<p>Its report argues that “previous water recovery has resulted in less irrigation […] putting the viability of major irrigation districts and the industries and communities they support under pressure”.</p>
<p>“Further water recovery from irrigators (buybacks and on-farm projects) will add to the impacts already being felt and undermine the ability of irrigation communities to plan for the future.”</p>
<p>Plibersek declared, <a href="https://www.tanyaplibersek.com/media/transcripts/abc-radio-national-breakfast-with-patricia-karvelas/">in an interview with the ABC</a>, that it was “extraordinary that we’ve got a Labor government using dodgy modelling to join up with Barnaby Joyce and David Littleproud”. </p>
<p>Victoria’s Water Minister Harriet Shing retorts: “This isn’t about party politics, and it’s disappointing to see it framed that way. We don’t apologise for standing up for Victorian communities and environments.”</p>
<p>But Plibersek has backing from Jamie Pittock, from the Australian National University’s Fenner School of Environment and Society. He says: </p>
<blockquote>
<p>The Victorian government can usually be relied on to make decisions based on solid data. In the case of the Murray-Darling Basin, bizarrely, it has relied on low-quality consultants’ reports that exaggerate the socio-economic costs and ignore the benefits from water buybacks.</p>
</blockquote>
<p>The legislation will come to a vote in the Senate this year, and there will be wrangling with the crossbench. </p>
<p>Assuming the legislation passes, the federal government can override Victoria and proceed with the buybacks of water for the environment. But it will still face the opposition of farming and irrigator groups, and some local communities. </p>
<p>It would be hard to find political observers who believe Peter Dutton can win the next election, due by May 2025. But there is increasing talk about the possibility that Labor, given it has a very narrow majority, could find itself in minority government. (Contrast a year ago, when all the talk was about Labor’s prospects for increasing its majority.)</p>
<p>Being pushed into minority is something Albanese – a senior figure in the minority Gillard government – would want to avoid at all costs. It would hamper the government’s flexibility to pursue its program, mean constant negotiation with crossbenchers including bolshie Greens, and encourage the Coalition to run maximum disruption. </p>
<p>The challenge of keeping out of minority increases the importance of the “ground game” in Labor’s marginal electorates. And it could make controversies over local issues – scrapped infrastructure projects, or unpopular new ventures including ugly transmission lines for renewable energy – potentially dangerous for the incumbents in those seats.</p><img src="https://counter.theconversation.com/content/217280/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Infrastructure is always a vexed issue. The program is full of pork barrelling, whoever is in power. Even when that’s not involved, what to build and when it should be built is often contested.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2156662023-10-16T14:12:10Z2023-10-16T14:12:10ZThe World Bank and the IMF need to keep reforming to become fit for purpose<p>The World Bank and the International Monetary Fund are being challenged to make substantial reforms so that they become fit for purpose in the 21st century.</p>
<p>Some suggest that they cannot be sufficiently reformed and should be shut down. Others, including myself, contend the world needs effective international financial institutions. If they did not exist, we would have to create them. Consequently, we must try to make them more credible, legitimate, inclusive, responsible and effective. The challenge is doing so within the constraints of their founding treaties. </p>
<p>This article is based on my book <a href="https://global.oup.com/academic/product/the-law-of-international-financial-institutions-9780192862839?lang=en&cc=us">The Law of International Financial Institutions</a>. It provides some background on these institutions and discusses the problems they are confronting and their potential for reform. </p>
<h2>Some history</h2>
<p>Prior to 1944, countries fixed the value of their currencies in terms of gold. This system collapsed with tragic consequences in the inter-war years. </p>
<p>The purpose of the <a href="https://2001-2009.state.gov/r/pa/ho/time/wwii/98681.htm">1944 Bretton Woods conference</a> was to create a new international monetary order. It was an exclusive affair. Only 44 out of the then 99 officially recognised countries were represented. A large portion of humanity was living under colonial domination and didn’t take part in the negotiations.</p>
<p>Four characteristics of this new international order are noteworthy. </p>
<p>First, it created the first rules-based international monetary system. The participating states agreed that the IMF would oversee the new order. In return, both the IMF and World Bank offered their member states financing. The financing came with terms and conditions and the IMF and the World Bank could hold the states accountable for failing to comply with them. </p>
<p>Second, the member states accepted that the governance of the institutions would be based on weighted voting, with each member state receiving a vote that corresponded to its economic size and financial contribution. This effectively modified the principle of sovereign equality which is at the core of the international legal order. A state could be outvoted and forced to comply with policies that it opposed. </p>
<p>Third, the legal status and powers of these new institutions was only clarified over time. Most significantly, they were given immunity to mitigate the risk that a member state would use its authority to interfere with their operations in that state. Therefore, they cannot be sued in any court in the world. </p>
<p>Fourth, the treaties are silent on their environmental and social responsibilities. </p>
<h2>Evolution</h2>
<p>By the mid-1970s, the two institutions were operating in a very different world. Many states in Africa and Asia had become independent and had joined them. They had different needs and priorities from the original member states. However, because of their relative level of economic development, they lacked the votes to change policies and priorities. </p>
<p>Second, the system created at Bretton Woods <a href="https://www.imf.org/external/about/histend.htm#:%7E:text=of%20the%20dollar.-,End%20of%20Bretton%20Woods%20system,the%20dollar's%20convertibility%20into%20gold.">collapsed in 1973</a>. It was replaced by a system in which markets played a great role in determining the value of currencies and each state could decide for itself how to conduct its own monetary policy. </p>
<p>Third, concerns about the environmental and social impacts of economic activity were beginning to grow around the world. It resulted in controversies involving projects funded by the World Bank and programmes funded by the IMF. </p>
<p>Fifth, civil society organisations were becoming more important actors. They were concerned that the operations of these institutions were causing substantial harm to local communities and the environment. They began to campaign for the World Bank and IMF to become more transparent and accountable. </p>
<p>The two institutions have made some efforts to respond to these developments.</p>
<p><strong>Governance</strong>. The number of member states increased by over four times between 1946 and 2023. However, the size of their boards of executive directors has only doubled. This means that it is harder for many states to have their concerns about policies, procedures and operations raised at the board level. </p>
<p>Consequently, the institutions are likely to be less responsive to the concerns of their smaller and poorer member states than to their richer and more powerful member states.</p>
<p>This problem is exacerbated by the institutions’ declining financial capacity. When the IMF opened for business, its total resources were equivalent to 3% of a global GDP of about US$10 trillion (in 2011 dollars). Today, they are equivalent to about 1% of a global GDP of about <a href="https://ourworldindata.org/grapher/world-gdp-over-the-last-two-millennia">US$100 trillion</a>. </p>
<p><strong>Responsibility.</strong> The institutions have acknowledged their responsibility for the environmental and social impacts of their operations and that there are some human rights issues that are relevant to their operations. However, they have struggled to develop an effective and sustainable approach to these issues. </p>
<p>One reason is that there is no agreement on which standards they should use in addressing these issues. </p>
<p>A second reason is that understanding these issues requires them to do impact assessments and to consult with affected stakeholders. But both require them to interact with a broader range of stakeholders in their member states than was originally envisaged. It may also require them to engage with groups that are opposed to the projects or policies. </p>
<p>In response, the World Bank has developed its own operational policies and procedures for its staff. They also educate external actors about what they can expect from the bank in regard to environmental and social issues. This is not always acceptable to their member states.</p>
<p>The IMF has maintained that, because it focuses on macro-economic issues and policy based finance, it is difficult to establish causal links between its operations and their environmental and social impacts. But it has <a href="https://academic.oup.com/jiel/article/26/1/17/7003371">now acknowledged that these issues can be “macro-critical”</a> and that it needs to pay attention to them. It has not yet adequately explained how it will do this. </p>
<p><strong>Accountability.</strong> The expanding role and responsibilities of the World Bank and IMF raise complex issues. There is a risk that they will make mistakes that result in some stakeholders having to assume an unreasonably high share of the costs of these projects or policies. </p>
<p>In 1993, the World Bank created an independent accountability mechanism, <a href="https://www.inspectionpanel.org/">the Inspection Panel</a>. Despite its shortcomings, it was an important international legal development.</p>
<p>The IMF has not established its own independent accountability mechanism. It is one of the few international organisations that does not offer its external stakeholders any means for holding it accountable. </p>
<h2>What next?</h2>
<p>The World Bank and IMF need to continue evolving if they are to remain fit for purpose in the 21st century. They need to develop governance arrangements, operational policies based on international norms and standards, and accountability structures that respond adequately to the challenges of climate, poverty, inequality and discrimination. Their richer member states need to provide them with adequate resources to fulfil their mission.</p><img src="https://counter.theconversation.com/content/215666/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow receives funding from the Open Society Foundation for a project on sovereign debt. He is a compliance officer with the Social and Environmental Compliance Unit of the United Nations Development Programme, UNDP's independent accountability mechanism. </span></em></p>The World Bank and IMF need to continue evolving if they are to remain fit for purpose in the 21st century.Danny Bradlow, Professor/Senior Research Fellow, Centre for Advancement of Scholarship, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2057042023-05-25T12:34:11Z2023-05-25T12:34:11ZImproving how the IMF does business could help billions of people worldwide — by giving governments money to spend on public goods and increasing accountability. Podcast<figure><img src="https://images.theconversation.com/files/526826/original/file-20230517-23266-2g9fwb.jpg?ixlib=rb-1.1.0&rect=258%2C64%2C8368%2C5678&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People march with a banner that reads in Spanish 'Stop the adjustment, out with the IMF,' in Buenos Aires, Argentina on May 9, 2023.</span> <span class="attribution"><span class="source">(AP Photo/Victor R. Caivano)</span></span></figcaption></figure><p>In countries across the Global South, the launch of IMF programs often <a href="https://theconversation.com/when-the-imf-comes-to-town-why-they-visit-and-what-to-watch-out-for-188302">sparks considerable concern</a>. This is because of the IMF’s reputation: during the 1980s, many nations in Africa, Asia and Latin America turned to the IMF seeking loans to mitigate economic challenges. <a href="https://theconversation.com/imf-says-it-cares-about-inequality-but-will-it-change-its-ways-120105">These loans were accompanied by stringent conditions</a>, and countries faced pressure to reduce public subsidies and social spending, downsize the public sector workforce, and increase taxes.</p>
<iframe src="https://embed.acast.com/60087127b9687759d637bade/6465e8588c9c6a001136a2a9" frameborder="0" width="100%" height="190px"></iframe>
<p><iframe id="tc-infographic-561" class="tc-infographic" height="100" src="https://cdn.theconversation.com/infographics/561/4fbbd099d631750693d02bac632430b71b37cd5f/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>Originally <a href="https://www.imf.org/external/about/histcoop.htm">founded after the second world war</a>, the IMF aimed to provide a framework for countries to cooperate in managing their exchange rates and to facilitate international trade. Since then, it has evolved to provide financial assistance and support to countries facing economic crises and emergencies worldwide. Member countries contribute a certain amount of money to the IMF based on their economic size, and in turn, they are able to access loans as a means of aid. </p>
<p>During the recent COVID-19 pandemic, <a href="https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker">the IMF extended loans to over 80 countries</a>. Presently, <a href="https://www.imf.org/external/np/fin/tad/balmov2.aspx?type=TOTAL">more than 90 countries remain indebted</a> to the IMF, with such loans being accompanied by policy conditions.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/when-the-imf-comes-to-town-why-they-visit-and-what-to-watch-out-for-188302">When the IMF comes to town: why they visit and what to watch out for</a>
</strong>
</em>
</p>
<hr>
<p>In this episode of <em>The Conversation Weekly</em>, we speak with two researchers about the impact of IMF loans on recipient countries and why countries continue to rely on IMF loans. We also discuss potential alternatives to this system.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4031%2C3024&q=45&auto=format&w=1000&fit=clip"><img alt="a plaque on a building showing the IMF logo and the text INTERNATIONAL MONETARY FUND" src="https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4031%2C3024&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The International Monetary Fund has 190 member countries.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<h2>Ongoing impact of colonialism</h2>
<p><a href="https://www.chr.up.ac.za/centre-staff/daniel-bradlow">Danny Bradlow</a>, a professor of international development law and African economic relations and senior fellow at the University of Pretoria in South Africa, highlights the harmful effects of IMF-imposed austerity measures. </p>
<p>The ongoing impact of colonialism means many countries in the Global South “were in a very dire situation to begin with,” Bradlow explains. “The IMF said if you follow our policy prescriptions, things will turn around and you’ll do much better.” </p>
<p>The measures imposed by the IMF limited access to healthcare and education for poorer people. Throughout the 1980s, the IMF pressured country after country — in what’s often known as <a href="https://theconversation.com/imf-says-it-cares-about-inequality-but-will-it-change-its-ways-120105">Structural Adjustment Programs</a> — with lasting damage on economies and populations.</p>
<p>The policy measures dictated by the IMF also had detrimental environmental consequences. To encourage economic growth, many countries were pressured to shift “from producing food to producing agricultural products that you could sell on the global markets,” Bradlow says. “Often that meant you were using more environmentally damaging fertilizers, or you were doing extractive mining projects that were environmentally damaging. In some cases it was logging, so countries would tear down forests.”</p>
<h2>Prolonged debt and austerity</h2>
<p><a href="https://profiles.uonbi.ac.ke/attiya/">Attiya Waris</a> is associate professor of fiscal law and policy at the University of Nairobi in Kenya, and an <a href="https://www.ohchr.org/en/special-procedures/ie-foreign-debt/attiya-waris">expert on foreign debt and international financial obligations</a> and their implications for human rights.</p>
<p>As part of her work, Waris sheds light on the experiences of Argentina and Pakistan. Both countries have received multiple loans since the 1950s to address economic challenges such as inflation, currency devaluation, and external debt crises. <a href="https://www.imf.org/en/Countries/ARG">Argentina currently holds the highest outstanding debt</a> of US$46 billion, <a href="https://www.imf.org/en/Countries/PAK">while Pakistan ranks fifth</a> with US$7.4 billion.</p>
<p>“Pakistan is one of 14 countries across the world that has a loan with the IMF that has a surcharge on it. A surcharge means that if you are paying a 1% interest rate and you default on your payments, then you’ll be paying 3%. So you’re being penalized for being unable to pay,” Waris explains. This in turn increases the likelihood of prolonged debt and austerity.</p>
<p>But for Waris, one of the biggest problems is that the contracts around IMF loans are extremely opaque, meaning it’s difficult to hold the institution to account or even evaluate what impact it has beyond the austerity measures.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="a woman draped in a black, yellow and red — the colours of the Ugandan flag — shouts at a protest" src="https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Demonstrators with the ‘People Power Movement,’ protesting the Ugandan government, join protests outside of the IMF and World Bank Spring Meetings on April 14, 2023, in Washington.</span>
<span class="attribution"><span class="source">(AP Photo/Mariam Zuhaib)</span></span>
</figcaption>
</figure>
<p>“This is problematic because there can be no societal oversight over what a group of human beings in their country are deciding to take on, on their behalf,” she says. “Representative, democratic or otherwise, people need to know what their governments are doing on their behalf.”</p>
<p>For Bradlow there are signs for positive change. <a href="https://doi.org/10.1093/jiel/jgac064">A recent research paper shows</a> that the IMF acknowledges some of the devastating impacts it has had on countries. In the paper, it identifies areas of enhanced focus, including climate change, gender, inequality, and social protection. However, while the IMF has adapted its focus and policies to address some of the negative consequences, it remains uncertain how it will achieve these goals.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/government-debt-wont-necessarily-burden-future-generations-but-austerity-will-194658">Government debt won't necessarily burden future generations – but austerity will</a>
</strong>
</em>
</p>
<hr>
<p>The Conversation has reached out to the International Monetary Fund for comment regarding the issues covered in this episode and is awaiting response.</p>
<p>Listen to the full episode of <em>The Conversation Weekly</em> to learn more about the impact of IMF loans on recipient nations, the potential benefits of allocating funds for public services in the Global South, and the importance of implementing accountability mechanisms within the IMF.</p>
<hr>
<p>This episode was written and produced by Mend Mariwany, who is also the executive producer of <em>The Conversation Weekly</em>. Eloise Stevens does our sound design, and our theme music is by Neeta Sarl.</p>
<p>You can find us on Twitter <a href="https://twitter.com/TC_Audio">@TC_Audio</a>, on Instagram at <a href="https://www.instagram.com/theconversationdotcom/">theconversationdotcom</a> or <a href="mailto:podcast@theconversation.com">via email</a>. You can also subscribe to The Conversation’s <a href="https://theconversation.com/newsletter">free daily email here</a>.</p>
<p>Listen to “The Conversation Weekly” via any of the apps listed above, download it directly via our <a href="https://feeds.acast.com/public/shows/60087127b9687759d637bade">RSS feed</a> or find out <a href="https://theconversation.com/how-to-listen-to-the-conversations-podcasts-154131">how else to listen here</a>.</p><img src="https://counter.theconversation.com/content/205704/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Attiya Waris does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p><p class="fine-print"><em><span>Danny Bradlow receives funding from South Africa’s National Research Foundation. He does not work for, consult or own shares from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The conditions placed on countries borrowing money from the International Monetary Fund have further disadvantaged these countries economically.Mend Mariwany, Producer, The Conversation Weekly, The Conversation Weekly PodcastNehal El-Hadi, Science + Technology Editor & Co-Host of The Conversation Weekly Podcast, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2056702023-05-15T15:43:24Z2023-05-15T15:43:24ZUK economy: why the Bank of England is now more upbeat than the IMF<p>The Bank of England has changed its mind about the prospects for the UK economy. Having been predicting a recession in 2023 as <a href="https://www.bankofengland.co.uk/monetary-policy-report/2023/february-2023">recently as February</a>, its latest <a href="https://www.bankofengland.co.uk/monetary-policy-report/2023/may-2023">May report</a> is expecting a soft landing from the bout of high inflation and a year of interest rate hikes. </p>
<p>One reason is that global demand for goods and services is expected to be higher. The central bank now expects weak GDP growth of 0.25% in 2023 compared to a predicted 0.5% contraction in the previous report, and thinks growth will be 0.75% in both 2024 and 2025. It said:</p>
<blockquote>
<p>Growth over much of the forecast period will be materially stronger than in the February report. This reflects stronger global growth, lower energy prices, the fiscal support in the spring budget, and the possibility of lower precautionary saving by households than previously assumed in turn related to a lower risk of job loss …</p>
</blockquote>
<p>This is quite a different picture to the one depicted by the IMF (International Monetary Fund) <a href="https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023">in April</a>. The IMF said UK GDP would fall 0.3% in 2023 but then rebound to 1% in 2024. </p>
<p>Its reasons for being more pessimistic are that the UK was <a href="https://www.reuters.com/world/uk/uk-economy-set-smaller-hit-2023-than-previously-feared-imf-2023-04-11/#:%7E:text=British%20gross%20domestic%20product%20will,the%20Fund%20predicted%20in%20January">heavily exposed</a> to the recent global shock in energy prices, its banks are vulnerable to the <a href="https://www.imf.org/en/Blogs/Articles/2023/04/04/nonbank-financial-sector-vulnerabilities-surface-as-financial-conditions-tighten">crisis engulfing the US</a>, interest rates are high and the public finances are somewhat precarious. </p>
<p>Even the <a href="https://theconversation.com/spring-budget-2023-experts-react-to-uk-governments-plan-to-get-the-economy-moving-201893">recent efforts</a> by Chancellor Jeremy Hunt to <a href="https://www.bbc.co.uk/news/business-64789405">revitalise the economy</a>, such as encouraging business investment and simplifying international trade, were not met with enthusiasm by <a href="https://www.ft.com/content/530f07a4-992d-462c-9b0a-87267685f36c">IMF economists</a>. The chancellor was left vowing that the UK economy will “<a href="https://news.sky.com/story/chancellor-jeremy-hunt-insists-he-will-prove-imf-forecast-wrong-12857155">prove the IMF wrong</a>”.</p>
<p>The difference between these two sets of forecasts is striking. The question then becomes, is the Bank of England too optimistic about the future UK economic outlook or is the IMF painting too gloomy a picture?</p>
<h2>Understanding the difference</h2>
<p>The IMF has been one of the most pessimistic forecasters about the UK economy of late. As the <a href="https://www.gov.uk/government/speeches/spring-budget-2023-speech">chancellor said</a> during his spring budget, “our IMF growth forecasts have been upgraded by more than any other G7 country”. Indeed, even the IMF’s April forecast is a revision upwards from the 0.6% contraction for 2023 that it was fearing <a href="https://www.imf.org/en/Publications/WEO/Issues/2023/01/31/world-economic-outlook-update-january-2023">back in January</a>, bringing it closer in line with the 0.2% contraction that the government’s <a href="https://obr.uk/docs/dlm_uploads/OBR-EFO-March-2023_Web_Accessible.pdf">Office for Budget Responsibility (OBR) predicted</a> at the time of the budget. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526247/original/file-20230515-20429-ummfq5.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Jeremy Hunt standing outside 10 Downing Street" src="https://images.theconversation.com/files/526247/original/file-20230515-20429-ummfq5.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526247/original/file-20230515-20429-ummfq5.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=480&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526247/original/file-20230515-20429-ummfq5.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=480&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526247/original/file-20230515-20429-ummfq5.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=480&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526247/original/file-20230515-20429-ummfq5.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=603&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526247/original/file-20230515-20429-ummfq5.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=603&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526247/original/file-20230515-20429-ummfq5.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=603&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Chancellor Jeremy Hunt is determined to prove the IMF wrong.</span>
<span class="attribution"><a class="source" href="https://www.alamy.com/chancellor-of-the-exchequer-jeremy-hunt-leaves-11-downing-street-to-deliver-his-spring-budget-to-parliament-image542606529.html?imageid=9F8CE291-9998-4CED-BFE5-73286164C445&p=794922&pn=1&searchId=9350fb8e8188e73bd9469defcb152ddb&searchtype=0">Thomas Crych/Alamy</a></span>
</figcaption>
</figure>
<p>This apparent lag in the IMF forecasts may be linked to how often it updates its economic models. The Bank of England and OBR do this routinely as new data becomes available, ensuring that the projections adapt more quickly to changes in the underlying economic signals. In forecasting, data revisions play an important role in updates. For instance, the OBR updated its assessment of the public finances <a href="https://obr.uk/docs/dlm_uploads/March-2023-PSF-commentary-1.pdf">in late April</a> on the back of new data about the spending deficit. </p>
<p>In contrast, global institutions like the IMF and OECD (Organisation for Economic Co-Operation and Development) conduct their reassessments much less frequently (usually twice a year). This means that institutional forecasters have less chance to update their projections and that when they do so, they’re usually a few months behind the curve. </p>
<h2>What next</h2>
<p>Be that as it may, is the Bank of England is likely to be right? On the prospect of increased household spending, the bank is seeing consumers dipping into their COVID savings because they’re feeling more secure in their jobs at a time when the <a href="https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/redundancies">redundancy rate</a> has dipped sharply from pandemic levels. </p>
<p><strong>Household savings ratio 2000-22</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526232/original/file-20230515-19465-ummfq5.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph showing household savings ratio over time" src="https://images.theconversation.com/files/526232/original/file-20230515-19465-ummfq5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526232/original/file-20230515-19465-ummfq5.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526232/original/file-20230515-19465-ummfq5.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526232/original/file-20230515-19465-ummfq5.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526232/original/file-20230515-19465-ummfq5.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526232/original/file-20230515-19465-ummfq5.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526232/original/file-20230515-19465-ummfq5.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The data is seasonally adjusted.</span>
<span class="attribution"><span class="source">Office for National Statistics</span></span>
</figcaption>
</figure>
<p>I would certainly agree that this will give a decent boost to the UK economy if the trend continues. The risk is that unemployment may start rising again and consumer confidence will tank. This would probably cause people to hold on to their savings and essentially shut down this growth channel. </p>
<p>As for interest rates, the latest Bank of England report sees the base rate peaking at 4.75% in the final quarter of 2023 and then coming down to around 3.5% by 2026. With the base rate already now at 4.5%, this means the bank is signalling that the hiking cycle is almost over. </p>
<p>We know that households and firms base their spending decisions not only on current interest rates but also on this “forward guidance”. So an expectation of lower rates might indeed increase spending and investment, as well as having a positive effect on the housing market, which currently <a href="https://www.ft.com/content/dc19e220-1451-40e1-8c0f-f9e4040eea86">seems to be stabilising</a> after a few months in decline. However, the latest bank forecast is also that interest rates will come down more slowly than before, so this might actually weaken spending and investment. </p>
<p><strong>Interest rate projections (UK, US, eurozone)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526239/original/file-20230515-23646-uevzio.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph showing likely interest rate movement in UK, eurozone and US" src="https://images.theconversation.com/files/526239/original/file-20230515-23646-uevzio.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526239/original/file-20230515-23646-uevzio.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=262&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526239/original/file-20230515-23646-uevzio.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=262&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526239/original/file-20230515-23646-uevzio.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=262&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526239/original/file-20230515-23646-uevzio.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=329&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526239/original/file-20230515-23646-uevzio.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=329&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526239/original/file-20230515-23646-uevzio.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=329&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">Bloomberg Finance and Bank of England calculations</span></span>
</figcaption>
</figure>
<p>Then there is inflation. The bank expects inflation to fall sharply this year and get back below the 2% target in 2024, which is good news. Nonetheless, the risks of higher inflation remains in the form of firms passing on past energy hikes to their customers via higher prices. There could well be more of this to come, so it could be that the bank is too optimistic here. </p>
<p>If so, interest rates will probably have to stay higher and the economy will have a harder time than the bank currently thinks. So while the bank is very likely a better judge of the UK economy than the IMF, there are still numerous reasons why it could be wrong on this occasion.</p><img src="https://counter.theconversation.com/content/205670/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Luciano Rispoli does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The bank has set hares running by forecasting actual growth of the UK economy in 2023, while most other forecasters are more downbeat.Luciano Rispoli, Senior Lecturer in Economics, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2039332023-04-17T14:24:51Z2023-04-17T14:24:51ZDebt dangers in Africa: how defaults hurt people, and why forgiveness isn’t the answer<figure><img src="https://images.theconversation.com/files/521244/original/file-20230417-16-m5jkvl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>Public debt repayments in some African countries <a href="https://debtjustice.org.uk/press-release/lower-income-country-debt-payments-set-to-hit-highest-level-in-25-years">are at their highest levels since 1998</a>. The Conversation Africa’s founding editor Caroline Southey talks to dean and economics professor Philippe Burger about the danger of debt problems some African countries face.</em></p>
<hr>
<h2>What’s behind the spike in debt servicing repayments?</h2>
<p>For most countries experiencing new highs in debt servicing costs, it is not so much a spike, but rather a gradual increase over several years. As Figure 1 <a href="https://www.imf.org/en/Publications/WEO/weo-database/2023/April/download-entire-database">which uses data from the International Monetary Fund (IMF)</a> shows, the Gross Debt of General Government (which includes central, provincial/state, and local government levels) steadily increased as percentage of GDP over the last 15 years (for brevity we will call this ratio the debt ratio). This period includes the global financial crisis as well as the COVID periods. </p>
<p>For emerging market and developing economies the <a href="https://www.imf.org/en/Publications/WEO/weo-database/2023/April/download-entire-database">debt ratio increased</a> from 33.5% in 2008 to 64.6% in 2022. </p>
<p>Though at a slightly lower level, the same scenario played itself out for sub-Saharan African countries. With higher debt comes higher debt servicing costs. Although the COVID pandemic caused an accelerated increase in the debt ratio, the ratio was on an upward trajectory well before the pandemic.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/521265/original/file-20230417-20-y0uv5m.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/521265/original/file-20230417-20-y0uv5m.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=380&fit=crop&dpr=1 600w, https://images.theconversation.com/files/521265/original/file-20230417-20-y0uv5m.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=380&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/521265/original/file-20230417-20-y0uv5m.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=380&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/521265/original/file-20230417-20-y0uv5m.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=477&fit=crop&dpr=1 754w, https://images.theconversation.com/files/521265/original/file-20230417-20-y0uv5m.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=477&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/521265/original/file-20230417-20-y0uv5m.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=477&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 1.</span>
<span class="attribution"><span class="source">IMF, World Economic Outlook (for some countries 2022 is an estimate)</span></span>
</figcaption>
</figure>
<p>This trajectory can also be seen in individual countries. In Zambia the debt ratio was a mere 21.9% in 2007, but increased to 140.2% in 2020, when <a href="https://www.imf.org/en/Publications/WEO/weo-database/2023/April/download-entire-database">the government defaulted</a>. In Ghana <a href="https://www.imf.org/en/Publications/WEO/weo-database/2023/April/download-entire-database">it was 22.6% in 2007, before quadrupling to 88.8% in 2022</a>. The increase in the debt ratios in Zambia and Ghana can also be seen in the increase in their governments’ interest payments as percentage of GDP. <a href="https://www.imf.org/en/Publications/WEO/weo-database/2023/April/download-entire-database">In the case of Ghana</a>, it increased from 1.4% in 2007 to 7.2% in 2022, while in Zambia it increased from 1.4% to 6%.</p>
<h2>Ghana and Zambia have defaulted: what impact will this have?</h2>
<p>A default often has a significant fallout in the economy, with governments, companies and households facing forced austerity. Governments must then cut back significantly on their expenditure, often in the face of shrinking tax revenues. </p>
<p>This often negatively affects social expenditure on for instance health and education. If such a country must knock on the door of the IMF for assistance, as <a href="https://www.imf.org/en/News/Articles/2022/12/12/pr22427-imf-reaches-staff-level-agreement-on-a-3-billion-three-years-ecf-with-ghana">both Ghana</a> and <a href="https://www.imf.org/en/News/Articles/2023/04/05/pr23108-zambia-imf-reaches-sla-first-review-ecf-discussions-2023-art-iv-consultation">Zambia</a> had to do, the institution usually prescribes several tough policy and economic adjustments. </p>
<p>In early 2023 eleven of the top-20 borrowers from the IMF <a href="https://www.imf.org/external/np/fin/tad/balmov2.aspx?type=TOTAL">were African countries</a>. </p>
<p><a href="https://www.imf.org/external/np/fin/tad/balmov2.aspx?type=TOTAL">Egypt is the second largest borrower from the IMF,</a> incurring loans in the aftermath of the political and economic instability that followed the Arab Spring in 2011. </p>
<p>The period leading up to a default is also often characterised by companies and households facing much higher inflation. This inflation often originates from a deep depreciation of the local currency because of capital flight of foreign and domestic investors losing confidence. </p>
<p>Both the <a href="https://tradingeconomics.com/ghsusd:cur">Ghanaian Cedi</a> and <a href="https://tradingeconomics.com/zambia/currency">Zambian Kwacha</a> depreciated significantly in the period leading up to their government’s default.</p>
<h2>Which other African countries are on the watchlist: what stress signs should we be alive to?</h2>
<p>Which countries to watch is a complex question. Although economists sometimes use rules of thumb, such as a debt ratio that exceeds say 60% or 90%, the answer depends on several variables. Thus, a high debt ratio is not always considered a problem. </p>
<p>For instance, <a href="https://www.imf.org/en/Publications/WEO/weo-database/2023/April/download-entire-database">at 121.7%</a>, the debt ratio of the US is much higher than that of Ghana. Yet Ghana defaulted because the interest cost of its debt as percentage of GDP was much higher than that of the US (2.1% for the US).</p>
<p>In addition to the level of the debt ratio, the variables used to populate a watch list also include the rate at which the ratio changed over say 10 or 15 years, and closely related to that, the level and change in the size of the government’s borrowing. </p>
<p>Also included are the level and size of the governments primary balance (which is the deficit excluding interest payments and receipts), the interest cost on its debt, and the rate at which that cost changes.</p>
<p>Take the case of Zambia. Its debt ratio increased from 21.9% in 2007 to 140.2% in 2020, thus 6.4 times its 2007 level (see Table 1). At the same time its government annual borrowing increased from 1.04% of GDP in 2007 to 13.8% in 2020. The government’s primary balance deteriorated from a primary surplus of 0.34% of GDP in 2007 to a primary deficit of 7.8% in 2020. This also meant, as mentioned above, that its interest payments increased from 1.4% of GDP to 6% of GDP.</p>
<p>Whereas interest cost on government debt as percentage of GDP topped 6.3% in Zambia in 2020 and 7.2% in Ghana in 2022, no other African country with the exception of Egypt at 6.2% had an interest cost over 5% of GDP in 2022. Hence, most countries were in a fiscally healthier position than Ghana, Zambia and Egypt.</p>
<p>The debt ratios in Eritrea, Sudan, Cabo Verde, Republic of Congo, Sierra Leone, and Zimbabwe are all higher than Zambia’s at the time of its default (see Table 1). However, unlike Zambia and Ghana, their debt ratios did not increase as fast as either Zambia or Ghana (their 2022 debt ratios were between 0.81 and 2.38 times as high as in 2007 – also see Table 1). </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/521268/original/file-20230417-24-k0oy6h.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/521268/original/file-20230417-24-k0oy6h.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=293&fit=crop&dpr=1 600w, https://images.theconversation.com/files/521268/original/file-20230417-24-k0oy6h.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=293&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/521268/original/file-20230417-24-k0oy6h.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=293&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/521268/original/file-20230417-24-k0oy6h.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=368&fit=crop&dpr=1 754w, https://images.theconversation.com/files/521268/original/file-20230417-24-k0oy6h.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=368&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/521268/original/file-20230417-24-k0oy6h.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=368&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Table 1.</span>
<span class="attribution"><span class="source">IMF (2023a) World Economic Outlook (2022 values are IMF estimates) and author’s calculations</span></span>
</figcaption>
</figure>
<p>And while the 2022 debt ratios in Senegal, Namibia, Malawi, and Angola are three to four times what it was in 2007, the debt ratios are not yet as high as that in Ghana and Zambia.</p>
<p>In Angola the debt ratio is also falling significantly following a steep increase in the ratio in the preceding decade (see Figure 2). This was largely due to higher oil revenues and an appreciation of its currency that reduced the domestic currency value of its foreign-denominated debt. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/521271/original/file-20230417-26-ozwhcp.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/521271/original/file-20230417-26-ozwhcp.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=377&fit=crop&dpr=1 600w, https://images.theconversation.com/files/521271/original/file-20230417-26-ozwhcp.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=377&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/521271/original/file-20230417-26-ozwhcp.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=377&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/521271/original/file-20230417-26-ozwhcp.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=474&fit=crop&dpr=1 754w, https://images.theconversation.com/files/521271/original/file-20230417-26-ozwhcp.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=474&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/521271/original/file-20230417-26-ozwhcp.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=474&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Figure 2.</span>
<span class="attribution"><span class="source">IMF, World Economic Outlook (2022 values are IMF estimates)</span></span>
</figcaption>
</figure>
<p>Two further countries that need to tighten up their fiscal policies are Rwanda and South Africa, which both saw their debt ratios almost triple <a href="https://www.imf.org/en/Publications/WEO/weo-database/2023/April/download-entire-database">between 2007 and 2022</a>. </p>
<p>Thus, although the debt situation in no African country is as bleak as the situation in Ghana and Zambia was at the time of their defaults, the situation in several countries is still not rosy. </p>
<h2>Is debt forgiveness a possible solution?</h2>
<p>Forgiveness can occur before or after default.</p>
<p>Let’s first consider forgiveness before default. Two decades ago, domestic debt markets in low- and middle-income countries were underdeveloped, and their governments depended on access to international financial markets to finance their debt. Debt forgiveness thus largely entailed foreign investors (often in advanced economies) taking a voluntary loss on their investments. This has changed. </p>
<p>Today domestic financial markets, in which local pension and insurance funds invest, play a much bigger role in the financing of government debt in low- and middle-income countries. </p>
<p>Forgiveness before default will therefore entail domestic investors taking voluntary losses on their investments to reduce the future tax liability that domestic debt implies for domestic taxpayers. Given that domestic pension funds also represent low-income members, the distributional effect of debt
forgiveness is not necessarily progressive (meaning that higher income earners do not necessarily carry the bulk of the burden in the event of forgiveness). Thus, forgiveness of domestic debt is probably a political non-starter. </p>
<p>Of course, in the event of a default, when debt is restructured, investors, including domestic investors, might have to accept haircuts (losses) or reduced returns on their investments. That would be involuntary forgiveness.</p>
<p>In addition, forgiveness may reduce the debt ratio, but it does not necessarily eradicate the initial mismatch between government revenue and expenditure that gave rise to the increasing debt ratio. It might even worsen the problem, because having debt forgiven once gives rise to the expectation that it will be forgiven again. </p>
<p>Forgiveness can thus give rise to a moral hazard problem and lead to a government becoming fiscally less prudent. Fiscal history is replete with countries that are serial defaulters.</p>
<h2>Take-aways</h2>
<p>The data show that the increased interest burden that some African countries face results from years of steadily rising debt ratios. And while Ghana and Zambia might have been the most serious cases, there are several other countries that can be placed on a “watch list”. To prevent a fiscal crisis, the governments in these countries will need to take steps to stimulate economic growth and reign in their public finances to arrest the steady, ongoing rise in their debt ratios.</p><img src="https://counter.theconversation.com/content/203933/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Opinions disclosed in this article by Philippe Burger are made in his private capacity and do not represent the views of any of the institutions from which he received research funding. Philippe Burger received funding from the National Research Foundation as rated researcher. He is also a Non-Resident Senior Research Fellow, United Nations University World Institute for Development Economics Research (UNU-WIDER), in which capacity he is the lead for the Macro-Fiscal workstream for the SA-TIED II project. He is also a 2016/17 Fulbright Exchange Scholar.</span></em></p>Debt forgiveness isn’t the answer. History is replete with examples of countries that are serial defaulters.Philippe Burger, Dean: Faculty of Economic and Management Sciences, and Professor of Economics, University of the Free StateLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2022702023-03-24T09:35:26Z2023-03-24T09:35:26ZThe World Bank used to cause untold harm – but 30 years ago it started reforming. What went right<figure><img src="https://images.theconversation.com/files/516958/original/file-20230322-1702-1ribfs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Photo by Celal Gunes/Anadolu Agency via Getty Images</span></span></figcaption></figure><p>Development projects can have profound impacts on their societies. There are many benefits that flow from building new roads and power plants, and from modernising agricultural practices. But they can also have permanent negative consequences. </p>
<p>For example, communities may be involuntarily relocated to make way for roads or power plants. These projects can change the way natural resources are used in a particular area, making it difficult or impossible for communities to continue their traditional agricultural practices. The job opportunities that they create can challenge traditional values and ways of living.</p>
<p>Historically, many of these projects have been owned or sponsored by governments, eager to bring the benefits of modernisation to their citizens. They have often been funded by multilateral institutions like the World Bank, <a href="https://www.worldbank.org/en/archive/history/exhibits/Bretton-Woods-and-the-Birth-of-the-World-Bank">which was established </a> in 1944 to fund the reconstruction and development of its member states. </p>
<p>These institutions were not unaware of the environmental and social impacts of the projects they funded. However, they maintained that each state had to decide for itself how it wished to manage these impacts. They would argue that they were merely the funders, and so should defer to the government on how to manage them. It would be an affront to the state’s sovereignty for them to interfere with the government’s decisions on these aspects of the project.</p>
<p>The World Bank’s confidence in its ability to avoid responsibility for its project related decisions and actions was bolstered by the fact that it was <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2963050">immune from being sued in any national court</a>.</p>
<p>The result was that the bank supported some projects that were environmentally and socially damaging. As a result, during the 1980s the World Bank was <a href="https://brucemrich.com/book/mortgaging-the-earth-the-world-bank-environmental-impoverishment-and-the-crisis-of-development">the target of sustained protests by affected communities and their allies</a> around the world.</p>
<p>To its credit, 30 years ago the bank, following an international campaign in which this author participated, recognised that its position was untenable. In <a href="https://www.inspectionpanel.org/sites/ip-ms8.extcc.com/files/documents/Resolution1993.pdf">1993 it established</a> the world’s first citizen driven independent accountability mechanism, the <a href="https://www.inspectionpanel.org/">World Bank Inspection Panel</a>.</p>
<p>This article argues that the panel’s 30th anniversary is a moment to celebrate its accomplishments. The panel has significant limitations. Nevertheless, its impact on development and the international development financing institutions has been profound. </p>
<h2>Accomplishments</h2>
<p>The three-member panel is independent of the World Bank’s management. It receives and investigates complaints from communities who allege that they have been harmed or threatened with harm because of the World Bank’s failure to comply with its own policies and procedures in funding a particular project. In other words, the panel’s focus is exclusively on the conduct and decisions of the Bank’s staff and management. </p>
<p>It sends its findings to the bank’s board. In cases of noncompliance, the bank’s management is expected to submit an action plan to the board that explains how it will correct the noncompliance and its consequences. Both the report and the action plan are made public.</p>
<p>Since it was established, the panel’s investigations have resulted in some relief for affected communities. For example, 70,000 people, previously ignored by the World Bank, received compensation for their losses <a href="https://www.inspectionpanel.org/panel-cases/jamuna-new-multipurpose-bridge-project">in a bridge project in Bangladesh</a>. In the <a href="https://www.inspectionpanel.org/panel-cases/transitional-support-economic-recovery-credit-and-emergency-economic-and-social">Democratic Republic of Congo</a>, a forestry project was revised to provide greater protection to indigenous communities who had not been adequately consulted about the project.</p>
<p>The panel has also succeeded in establishing the principle that international financial organisations must be accountable for their own actions to the communities whose lives are affected by the projects and policies they finance.</p>
<p>Since its establishment, over 25 multilateral and national development banks and institutions <a href="https://accountabilityconsole.com/iams/">have established</a> their own independent accountability mechanisms. In total, these mechanisms have received <a href="https://accountabilityconsole.com/complaints/">1,634 complaints</a>, of which about 330 have been from 27 countries in Africa. Forty-five of the African cases have resulted in findings on compliance or noncompliance. </p>
<p>All findings of noncompliance have led to management action plans intended to correct the noncompliance.</p>
<p>The reports of these mechanisms are used both by their own institutions to improve their performance in development projects and to reduce the risk that they repeat old mistakes. They can also help ensure that they are held accountable when they do repeat these mistakes.</p>
<p>Many of these mechanisms now offer dispute resolution services in addition to compliance reviews. Many of them now also publish reports documenting the lessons they have learned about specific aspects of development projects.</p>
<p>It is important to note that many of the issues that arise in these cases also arise in private sector projects. This means that the reports provide guidance and help develop good practice standards for all development projects. They are also used to develop best practice in regard to the human rights and environmental responsibilities of business.</p>
<h2>Challenges</h2>
<p>To be sure, independent accountability mechanisms face significant challenges. </p>
<p>The first is that bringing cases to the mechanisms is not simple. Many of the successful cases have required communities to obtain the assistance of technical experts. This means that the cases that are brought come from communities that have access to sophisticated NGOs and advisers rather than because they are the most urgent cases.</p>
<p>Second, they cannot make binding decisions or determine that the communities should be given a remedy. There have been cases in which those who have been harmed by the action of the banks have been compensated. But this is not the norm. In fact, there is only one case in Africa in which a panel investigation led to victims receiving monetary compensation. The panel’s report <a href="https://www.inspectionpanel.org/panel-cases/transport-sector-development-project-additional-financing">in a case in Uganda</a> resulted in the World Bank developing a new policy on gender-based violence and establishing a trust fund to compensate, and support the girls and women who were the victims of this violence. </p>
<p>Designing and funding remedies that can be used in all similarly situated cases is politically and technically complicated. But it is not acceptable that those who have been harmed by the Bank’s own failures do not receive an effective remedy that compensates them for their loss.</p>
<p>Third, the bravery required to bring complaints to these mechanisms must be noted. They require the complainants to go to an international forum in opposition to their own governments or powerful interests in their own countries who support the projects the banks are funding. It is therefore inevitable that in some cases, the supporters of the project will retaliate against the complainants. This suggests that the mechanisms and the banks have a responsibility to take action to protect the complainants. </p>
<p>To their credit, the banks and the mechanisms have foreseen this problem and do allow for confidential complaints. But the procedures that seek to protect the complainants from reprisals have not always been fully effective.</p>
<p>It is now standard practice for multilateral financing institutions like the World Bank to have an independent citizen driven accountability mechanism that focuses exclusively on the responsibilities of the institution. The only exception to this general rule is the International Monetary Fund.</p>
<p>The mechanisms have also demonstrated that they can evolve and adapt to new challenges. While their limitations have also become clear, we should celebrate the Inspection Panel’s <a href="https://www.inspectionpanel.org/node/4966">30th anniversary</a>.</p><img src="https://counter.theconversation.com/content/202270/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow receives funding from the Open Society Initiative for Southern Africa (OSISA) for an unrelated project. He is a Compliance Officer in the Social and Environmental Compliance Unit (SECU), the independent accountability mechanism for UNDP. He has also conducted invesitgations for the independent accountability mechanisms at the African Development Bank and the European Bank for Reconstruction and Development and has been a consultant to the World Bank on independent accountability issues.</span></em></p>Thirty years ago the World Bank recognised that its position was untenable. It put in place mechanisms to make the bank more accountable to ordinary people.Danny Bradlow, Professor/Senior Research Fellow, Centre for Advancement of Scholarship, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1938932022-11-04T12:29:43Z2022-11-04T12:29:43ZImran Khan shot: How attack will affect protest campaign led by Pakistan’s ousted leader<figure><img src="https://images.theconversation.com/files/493376/original/file-20221103-19-slhwu6.jpg?ixlib=rb-1.1.0&rect=13%2C90%2C4615%2C2991&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Imran Khan addresses his supporters during an anti-government march.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/pakistans-former-prime-minister-imran-khan-addresses-his-news-photo/1244400755?phrase=Imran%20Khan&adppopup=true">Arif Ali/AFP via Getty Images.</a></span></figcaption></figure><p><em>Pakistan’s former prime minister Imran Khan survived what <a href="https://www.reuters.com/world/asia-pacific/shots-fired-near-convoy-former-pakistan-pm-imran-khan-media-2022-11-03/">supporters described as an assassination attempt</a> on Nov. 3, 2022, as he led protests against the government.</em></p>
<p><em>Khan, a <a href="https://www.bbc.com/news/world-asia-india-19844270">former national sports hero turned political leader</a>, was shot in the leg, as he led a march to the country’s capital Islamabad.</em></p>
<p><em>The Conversation asked Ayesha Jalal, a <a href="https://fletcher.tufts.edu/people/faculty/ayesha-jalal">history professor at Tufts University</a>, to explain how the attempt on his life may affect Khan’s campaign – and what happens next in the country.</em></p>
<h2>What was Khan doing when the assassination attempt was made?</h2>
<p>Khan was in the process of <a href="https://www.bloomberg.com/news/articles/2022-10-28/pakistan-s-imran-khan-starts-rally-to-push-for-early-elections">leading a lengthy protest march</a> when the attack happened.</p>
<p>Having been <a href="https://theconversation.com/whats-next-for-pakistan-after-imran-khans-ouster-181212">ousted from power</a> in a no-confidence motion earlier in the year, Khan is pushing for new elections to take place immediately in a bid to oust his successor, Prime Minister Shehbaz Sharif. The current government has said <a href="https://www.hindustantimes.com/world-news/pak-will-not-hold-elections-before-2023-warns-imran-khan-against-gravedigging-101653378715263.html">elections will take place in a year’s time</a>, as planned, despite the ongoing protests.</p>
<p>Khan says that his ouster in April was caused by <a href="https://www.dw.com/en/pakistan-why-is-imran-khan-blaming-the-west-for-his-downfall/a-61316499">outside forces</a>, including the United States. He is also protesting a recent decision by the Election Commission of Pakistan to <a href="https://www.cnn.com/2022/10/21/asia/imran-khan-pakistan-election-commission-disqualified-intl-hnk">ban him from holding public office</a> for five years.</p>
<p>The protest march <a href="https://www.dawn.com/news/1716867">began on Oct. 28, 2022</a>, and has been inching towards Islamabad, the country’s capital, from the city of Lahore. It is part of a strategy to increase Khan’s popularity and exert pressure on the government to hold new elections. Khan has said that he is prepared to continue his protest for months, if necessary. The tactic follows a similar successful series of rallies after the 2013 elections that helped propel Khan to office in 2018.</p>
<h2>Why is he seeking immediate elections?</h2>
<p>First off, he doesn’t accept the legitimacy of his ouster. But a big part of this is the appointment of <a href="https://timesofindia.indiatimes.com/blogs/strategic-insights/pakistans-next-army-chief/">Pakistan’s next army chief</a>. The current head of the army, General Qamar Javed Bajwa, is due to retire on Nov. 29. Under Pakistan’s constitution, it is the <a href="https://www.voanews.com/a/pakistan-ex-pm-s-comments-over-appointment-of-army-chief-fuel-tensions/6732273.html">prerogative of the serving prime minister</a> to appoint the army chief – so at present, that would be Khan’s political rival Sharif, who took over as the country’s leader in April.</p>
<p>The reason this is so important is that <a href="https://www.foreignaffairs.com/articles/south-asia/2011-04-15/getting-military-out-pakistani-politics">support of the military has traditionally been crucial</a> for governments in Pakistan. Put simply, without the support of Pakistan’s army, no political party can remain in power for long.</p>
<p>As a result, Khan sees it as crucial for any future success that he have a say in who is appointed the next army chief – and for that to happen he, or his party, needs to be in government. </p>
<p>But the idea of a loyal Army chief is a myth. The current chief was given an extension by Khan and although their relationship started off well, <a href="https://foreignpolicy.com/2022/08/31/imran-khan-pakistan-army-political-crisis-zulfikar-ali-bhutto/">it later soured</a>.</p>
<h2>How popular is Khan’s campaign?</h2>
<p>His protests have <a href="https://www.bbc.com/news/av/world-asia-61189745">garnered huge crowds</a> and seen his <a href="https://www.ft.com/content/1f623241-5dfd-4ab2-8cc7-a5062f112020">popularity surge</a> – with a big chunk of the Pakistani youth seemingly behind him.</p>
<p>You have to remember that Khan was already a hugely popular figure in the country – he is a former captain of the national cricket team who presents himself as an anti-corruption politician.</p>
<p>Khan has also been able to play on the unpopular decisions by the current government. It was forced into an <a href="https://www.ft.com/content/d3d57c66-35a8-4815-82e7-20057638129d">unpopular financial bailout</a> from the International Monetary Fund and has suffered over its handling of <a href="https://www.unicef.org/emergencies/devastating-floods-pakistan-2022">devastating floods in the country</a> – about <a href="https://news.climate.columbia.edu/2022/09/12/the-flood-seen-from-space-pakistans-apocalyptic-crisis/#:%7E:text=One%2Dthird%20of%20Pakistan%20is,wide%20and%2060%20miles%20long.">a third of the country was under water</a> in September and some <a href="https://asia.nikkei.com/Economy/Natural-disasters/In-flooded-Pakistan-11m-people-deal-with-severe-food-insecurity2">11 million people are facing severe food insecurity</a>.</p>
<p>With this as a backdrop, I think it is fair to say that Imran Khan is currently winning the propaganda battle with the government.</p>
<h2>What is happening with Khan’s campaign now?</h2>
<p>It was clearly an unfortunate incident, but the attempt on his life might work to his advantage. It could <a href="https://www.eurasiareview.com/03112022-pakistan-the-shot-in-the-leg-is-a-shot-in-the-arm-for-imran-khan-analysis/">draw sympathy, invigorate the campaign</a> and add to his popularity.</p>
<p>But will it solve the political stalemate or increase the chances of early elections? Or mean he has a say in who gets appointed the next Army chief? I don’t know, but I think it is unlikely.</p>
<p>In Pakistan, it is easy to muster up anti-establishment, anti-government sentiment, but a lot harder turning that into action. Khan can certainly exert pressure on the government. But the question is: will that be enough to force it into giving in to his demands or cutting a deal?</p>
<p>That said, Khan has been resolute that he will not give up his campaign. He has previously said that what is happening with his march <a href="https://www.thenews.com.pk/print/1005373-revolution-could-be-soft-or-thru-bloodshed-imran">amounts to a revolution taking over the country</a> – with the only question being whether the revolution will be brought about via the ballot box or through bloodshed. I – and many others – will be hoping for the former.</p>
<h2>Is political violence unusual in Pakistani politics?</h2>
<p>Tragically, no. The history of Pakistan has been dotted by assassinations and attempts on the lives of both serving and former prime ministers.</p>
<p>Pakistan’s first Prime Minister Liaquat Ali Khan <a href="https://www.dawn.com/news/1213461">was shot in front of a crowd in 1951</a>, and later died in a hospital. More recently, former prime minister – the country’s first female leader – <a href="https://www.bbc.com/news/world-asia-42409374">Benazir Bhutto was assassinated</a> in a gun and suicide bomb attack while campaigning in Rawalpindi in 2007. Imran Khan himself has been subjected to numerous threats in the past.</p>
<p>Some of these acts of political violence have led to lasting consequences. Liaquat Ali Khan’s assassination led to a shift away from democracy for Pakistan, for example.</p>
<h2>What happens next?</h2>
<p>The next few weeks will be crucial and the fear is there will be an escalation of violence. Khan’s party, Pakistan Tehreek-e-Insaf, or PTI, has <a href="https://www.republicworld.com/world-news/pakistan-news/in-a-fiery-first-response-pti-vows-to-avenge-assassination-attempt-against-imran-khan-articleshow.html">vowed to “avenge</a>” the attack but the wounded leader himself <a href="https://www.aljazeera.com/news/liveblog/2022/11/3/live-news-ex-pakistan-pm-khan-shot-and-wounded-at-rally">has called on supporters to remain peaceful</a>. Meanwhile, the PTI has said it will continue with the protest march.</p>
<p>In an apparent attempt to tamp down tensions, the Pakistani government has said it is <a href="https://tribune.com.pk/story/2383814/pm-forms-committee-to-hold-talks-with-pti-over-long-march">willing to negotiate with Khan</a> – but it isn’t clear yet what the substance of the proposed negotiations will be, what they could yield or whether Khan will agree to talks.</p><img src="https://counter.theconversation.com/content/193893/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ayesha Jalal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Former prime minister emerges from assassination attempt wounded, but vowing to continue protest against government.Ayesha Jalal, Professor of History, Tufts UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1902292022-09-11T20:10:14Z2022-09-11T20:10:14ZOne year on, El Salvador’s Bitcoin experiment has proven a spectacular failure<p>A year ago, El Salvador became the first country to make Bitcoin legal tender – alongside the US dollar, which the Central American country adopted in 2001 to replace its own currency, the colón.</p>
<p>President Nayib Bukele, a cryptocurrency enthusiast, promoted the initiative as one that would deliver multiple economic benefits. </p>
<p>Making Bitcoin legal tender, <a href="https://www.abc.net.au/news/2021-06-07/el-salvador-to-introduce-bitcoin-as-official-currency/100194700">he said</a>, would attract foreign investment, generate jobs and help “push humanity at least a tiny bit into the right direction”.</p>
<p>His ambitions extended to building an entire “Bitcoin city” – a tax-free haven <a href="https://www.afr.com/technology/why-the-world-s-first-bitcoin-city-is-a-disaster-in-the-making-20211207-p59fid">funded</a> by issuing US$1 billion in <a href="https://www.ft.com/content/67515f23-ccdc-4dbc-a184-70848e183ac3">government bonds</a>. The plan was to spend half the bond revenue on the city, and the other half on buying Bitcoin, with assumed profits then being used to repay the bondholders.</p>
<figure class="align-center ">
<img alt="El Salvador's President Nayib Bukele announced his plan for 'Bitcoin City' at a conference for cryptocurrency speculators in November 2021." src="https://images.theconversation.com/files/483661/original/file-20220909-16-1dpxdp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/483661/original/file-20220909-16-1dpxdp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/483661/original/file-20220909-16-1dpxdp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/483661/original/file-20220909-16-1dpxdp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/483661/original/file-20220909-16-1dpxdp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/483661/original/file-20220909-16-1dpxdp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/483661/original/file-20220909-16-1dpxdp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">El Salvador’s President Nayib Bukele announced his plan for ‘Bitcoin City’ at a conference for cryptocurrency speculators in November 2021.</span>
<span class="attribution"><span class="source">Salvador Melendez/AP</span></span>
</figcaption>
</figure>
<p>Now, a year on, there’s more than enough evidence to conclude Bukele – who has also called himself “<a href="https://www.theguardian.com/world/2021/sep/26/naybib-bukele-el-salvador-president-coolest-dictator">the world’s coolest dictator</a>” in response to criticisms of his creeping authoritarianism – had no idea what he was doing. </p>
<p>This bold financial experiment has proven to be an almost complete failure.</p>
<h2>Making Bitcoin legal tender</h2>
<p>Making Bitcoin legal tender meant much more than allowing Bitcoin to be used for transactions. That was already possible, as it is in most (<a href="https://tile.loc.gov/storage-services/service/ll/llglrd/2021687419/2021687419.pdf">but far from all</a>) countries. </p>
<p>If a Salvadoran wanted to pay for something in bitcoins, and the recipient was willing to accept them, they could. </p>
<p>But Bukele wanted more. Making bitcoins legal tender meant a payee had to accept them. As the <a href="https://twitter.com/nayibbukele/status/1402446890466217985/photo/2">2021 legislation</a> stated, “every economic agent must accept Bitcoin as payment when offered to him by whoever acquires a good or service”.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/can-bitcoin-be-a-real-currency-whats-wrong-with-el-salvadors-plan-162348">Can Bitcoin be a real currency? What's wrong with El Salvador's plan</a>
</strong>
</em>
</p>
<hr>
<p>To encourage Bitcoin uptake, the government created an app called “Chivo Wallet” (“chivo” is slang for “cool”) to trade bitcoins for dollars without transaction fees. It also came preloaded with US$30 as a bonus (the median weekly income <a href="https://worldsalaries.com/average-salary-in-el-salvador/">is about US$360</a>).</p>
<p>Yet despite the law and these incentives, Bitcoin has not been embraced.</p>
<h2>Greeted with little enthusiasm</h2>
<p>A <a href="https://www.nber.org/system/files/working_papers/w29968/w29968.pdf">nationally representative survey</a> of 1,800 Salvadoran households in February indicated just 20% of the population was using Chivo Wallet for Bitcoin transactions. More than double that number downloaded the app, but only to claim the US$30.</p>
<p>Among respondents who identified as business owners, just 20% said they were accepting bitcoins as payment. These were typically large companies (among the top 10% of companies by size). </p>
<hr>
<p><strong>Business acceptance of Bitcoin in El Salvador</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/483632/original/file-20220909-16-l4bcjm.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/483632/original/file-20220909-16-l4bcjm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/483632/original/file-20220909-16-l4bcjm.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=249&fit=crop&dpr=1 600w, https://images.theconversation.com/files/483632/original/file-20220909-16-l4bcjm.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=249&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/483632/original/file-20220909-16-l4bcjm.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=249&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/483632/original/file-20220909-16-l4bcjm.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=313&fit=crop&dpr=1 754w, https://images.theconversation.com/files/483632/original/file-20220909-16-l4bcjm.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=313&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/483632/original/file-20220909-16-l4bcjm.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=313&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.nber.org/papers/w29968">NBER Working Paper 29968</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>A survey for the El Salvador Chamber of Commerce in March found <a href="https://www.bloomberg.com/news/articles/2022-03-18/el-salvador-s-businesses-barely-bother-with-bitcoin-study-finds?sref=LjvtXsd7">only 14%</a> of businesses were transacting using Bitcoin. </p>
<h2>Making huge losses</h2>
<p>Fortunately for Salvadorans, nothing has come of the US$1 billion Bitcoin bonds scheme. But the Bukele government has still spent <a href="https://www.latimes.com/world-nation/story/2022-07-01/el-salvador-president-bukele-buys-more-bitcoin">more than US$100 million</a> buying bitcoins – which are now worth less than US$50 million.</p>
<p>When Bukele announced his plans in July 2021, Bitcoin’s value was about US$35,000. By the time the legislation came into effect, on September 7 2021, it was about US$45,000. Two months later, it peaked at US$64,400. </p>
<p>Now it is trading at around US$20,000.</p>
<p>Bukele has made <a href="https://twitter.com/nayibbukele/status/1439821189279625217?lang=en">self-congratulatory tweets</a> about “buying the dip” but almost all the bitcoins bought by the government have been for more than US$30,000, at an average price of more than US$40,000. </p>
<p>A year ago, Bukele was urging his citizens to hold their money in bitcoins. For anyone who did, the losses would be devastating. </p>
<h2>Flawed analyses</h2>
<p>Bukele’s misunderstanding of Bitcoin – and economics more generally – has been demonstrated repeatedly.</p>
<p>In June 2021 he <a href="https://twitter.com/nayibbukele/status/1401335885497524226?lang=en">tweeted</a>: “Bitcoin has a market cap of US$680 billion. If 1% of it is invested in El Salvador, that would increase our GDP by 25%.” </p>
<p>This suggests he seemed to think Bitcoin was some sort of investment fund. It also showed <a href="https://theconversation.com/can-bitcoin-be-a-real-currency-whats-wrong-with-el-salvadors-plan-162348">he did not understand GDP</a>. Foreign investment is not a component of GDP. There has been no surge in foreign investment nor GDP.</p>
<p>In a January 2022 <a href="https://twitter.com/nayibbukele/status/1488018025223704583">tweet</a> he argued a “gigantic price increase is just a matter of time” because there will only ever be 21 million bitcoins while there are 50 million millionaires in the world. “Imagine when each one of them decides they should own at least ONE #Bitcoin,” he proclaimed. Bitcoin’s value has since halved.</p>
<h2>The rest of the world is not impressed</h2>
<p>The Bitcoin plan has adversely affected El Salvador’s credit rating and relations with the International Monetary Fund. With investors more wary of lending to the country, local borrowers have had to offer higher interest rates. </p>
<p>In January the IMF <a href="https://archive.ph/RO7j1">urged El Salvador</a> to reverse Bitcoin’s legal lender status <a href="https://www.imf.org/en/Publications/CR/Issues/2022/01/26/El-Salvador-2021-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-512245">because of</a> the “large risks for financial and market integrity, financial stability and consumer protection”. Bitcoin is notorious for its use in scams and other illegal activities, as well as its volatility.</p>
<p>Bukele <a href="https://twitter.com/nayibbukele/status/1486162932224479235?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1486162932224479235%7Ctwgr%5Ee9c4f2005b666c8d41a8c46b48de25776f26bdd8%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fambcrypto.com%2Fbukele-goes-all-simpsons-after-imfs-bitcoin-warning%2F">tweeted</a> a dismissive response involving a Simpsons-themed meme.</p>
<hr>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/483651/original/file-20220909-12-b9agut.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/483651/original/file-20220909-12-b9agut.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=486&fit=crop&dpr=1 600w, https://images.theconversation.com/files/483651/original/file-20220909-12-b9agut.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=486&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/483651/original/file-20220909-12-b9agut.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=486&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/483651/original/file-20220909-12-b9agut.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=610&fit=crop&dpr=1 754w, https://images.theconversation.com/files/483651/original/file-20220909-12-b9agut.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=610&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/483651/original/file-20220909-12-b9agut.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=610&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">El Salvador’s President Nayib Bukele’s response to the IMF’s warnings about the risk of making Bitcoin legal tender.</span>
<span class="attribution"><a class="source" href="https://twitter.com/nayibbukele/status/1486162932224479235?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1486162932224479235%7Ctwgr%5Ee9c4f2005b666c8d41a8c46b48de25776f26bdd8%7Ctwcon%5Es1_&ref_url=https%3A%2F%2Fambcrypto.com%2Fbukele-goes-all-simpsons-after-imfs-bitcoin-warning%2F">Twitter</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>This seems particularly rash, given El Salvador has been <a href="https://www.bloomberg.com/news/articles/2022-01-25/imf-board-urges-el-salvador-to-ditch-bitcoin-as-legal-tender?leadSource=uverify%20wall">seeking a loan</a> of more than $1 billion from the IMF.</p>
<p>International credit rating agencies <a href="https://www.fitchratings.com/research/sovereigns/fitch-downgrades-el-salvador-long-term-idr-to-ccc-from-b-09-02-2022">Fitch</a> has downgraded El Salvador’s credit rating this year, citing concerns about its Bitcoin policies. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cryptocurrencies-are-great-for-gambling-but-lousy-at-liberating-our-money-from-big-central-banks-173901">Cryptocurrencies are great for gambling – but lousy at liberating our money from big central banks</a>
</strong>
</em>
</p>
<hr>
<p>No other country with its own currency, not even ones such as Zimbabwe and Venezuela with discredited currencies, has followed suit and made Bitcoin legal tender. </p>
<p>Given El Salvador’s record, it is is unikely any ever will.</p><img src="https://counter.theconversation.com/content/190229/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins was formerly a senior economist with the Bank for International Settlements.</span></em></p>El Salvador’s President Nayib Bukele thought making Bitcoin legal tender would revolutionise his country’s economy, He was wrong.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1883022022-08-10T14:35:40Z2022-08-10T14:35:40ZWhen the IMF comes to town: why they visit and what to watch out for<figure><img src="https://images.theconversation.com/files/478088/original/file-20220808-22-qapske.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Kristalina Georgieva, the Managing Director of the International Monetary Fund, speaking in Senegal in 2019. </span> <span class="attribution"><span class="source">Photo by Seyllou/AFP via Getty Images</span></span></figcaption></figure><iframe id="noa-web-audio-player" style="border: none" src="https://embed-player.newsoveraudio.com/v4?key=x84olp&id=https://theconversation.com/when-the-imf-comes-to-town-why-they-visit-and-what-to-watch-out-for-188302&bgColor=F5F5F5&color=D8352A&playColor=D8352A" width="100%" height="110px"></iframe>
<p>In most rich countries the news that a mission from the International Monetary Fund (IMF) is coming to visit is met with indifference. But, in most African countries the news can cause great consternation. </p>
<p>Why the difference?</p>
<p>History has a lot to do with it. The citizens of many African countries have suffered through their governments, under IMF pressure, cutting subsidies and social spending, firing public sector workers and increasing taxes. For example, a <a href="https://www.oxfam.org/en/press-releases/imf-must-abandon-demands-austerity-cost-living-crisis-drives-hunger-and-poverty">2021 Oxfam study</a>, found that the IMF encouraged 33 African countries to adopt austerity policies in the wake of the COVID pandemic. </p>
<p>On the other hand, with a few exceptions, <a href="https://www.project-syndicate.org/commentary/imf-grexit-help-by-arvind-subramanian-2015-08?utm_term=&utm_campaign=&utm_source=adwords&utm_medium=ppc&hsa_acc=1220154768&hsa_cam=12374283753&hsa_grp=117511853986&hsa_ad=499567080219&hsa_src=g&hsa_tgt=aud-1249316001597%3Adsa-19959388920&hsa_kw=&hsa_mt=&hsa_net=adwords&hsa_ver=3&gclid=CjwKCAjw6MKXBhA5EiwANWLODEhCxGybNz8HRf-qI8JRu3lL3L1cDewSi_WcPpZLHtaBGcbFMJWtThoCWQoQAvD_BwE&barrier=accesspay">such as Greece</a>, citizens of rich countries have not experienced the IMF having any direct impact on their lives.</p>
<p>Another important reason is lack of knowledge. Usually, when the IMF comes to town, the public gets little information about the purpose of the IMF’s visit – or its likely outcomes. In other cases, people are concerned that they have limited ability to influence the outcome of the visit or its impact on their lives.</p>
<p>This article seeks to remove some of the mystery surrounding IMF visits to a country. It explains the two basic reasons for the IMF sending its staff on “missions” to a country. And what can be expected in each case.</p>
<h2>The IMF’s remit</h2>
<p>According to its <a href="https://www.imf.org/external/pubs/ft/aa/pdf/aa.pdf">Articles of Agreement</a>, the IMF’s purposes include promoting monetary cooperation among its 190 member states so that they can more sustainably manage their macroeconomic situations and their international financial relations. This should help them promote and maintain high levels of employment and real income and develop their productive resources. </p>
<p>The IMF also provides financing to countries that do not have sufficient foreign exchange to meet all their needs and obligations so they do not have to resort to measures that are destructive of “national or international prosperity”. </p>
<p>To fulfil these responsibilities, the IMF sends its staff on two basic types of missions to member countries.</p>
<h2>Surveillance missions</h2>
<p>The first are <a href="https://www.imf.org/external/about/econsurv.htm">surveillance missions</a>. <a href="https://www.imf.org/external/pubs/ft/aa/pdf/aa.pdf">Article IV</a> says that the IMF should exercise “firm surveillance” over the efforts of its member states to try and direct their economic and financial policies towards the objective of fostering orderly economic growth with reasonable price stability. </p>
<p>Thus, the IMF regularly – usually annually – sends a staff team to assess the state of each country’s macro economy, the risks it faces and its capacity to continue evolving in a sustainable way. This team usually meets with officials in each country’s ministry of finance and central bank. In addition, they can ask to meet other government officials. For example, during COVID, the IMF might have been interested in meeting with health department officials. </p>
<p>The IMF staff will also normally meet with members of parliament and with representatives of business and labour. They may also meet with representatives of civil society.</p>
<p>There are four important points to note about these missions.</p>
<p>First, while the IMF provides some guidance to its staff, it does not require them to follow any particular procedures for informing interested parties that it is visiting the country. The result is that it’s difficult for anybody interested in the visit to learn how they might engage with the mission or provide it with information.</p>
<p>Second, in principle, there is no limit on what issues the IMF can focus on during its mission. Consequently, IMF staff can raise any issue and request whatever information they think is relevant to assessing the state of the country’s macroeconomic situation. This has led to a gradual expansion in the range of issues the IMF may raise in these missions. They now range from fiscal policy, inflation and unemployment rates, and balance of payments deficits to issues about how the country is dealing with climate change, gender discrimination, public health and wealth inequality. </p>
<p>Third, the outcome of the mission is a report prepared by the staff that is discussed by the IMF’s Board of Executive Directors. The report is usually made public after the discussion, together with a press release. </p>
<p>The IMF also uses the information in preparing its reports on the global economy.</p>
<p>Fourth, the IMF can make recommendations to the government on actions that it should take to deal with any challenges that have been identified.</p>
<p>These recommendations are purely advisory. In principle, the country is free to ignore them. This may be the case if the country is confident that it will not need IMF financing in the future. This is the reason that the citizens of rich countries do not usually care that an IMF mission is visiting their countries. However, this is a luxury that a country cannot afford if it thinks it may need IMF financial support. Or that its access to international financial markets may be influenced by the IMF’s view. This, of course, is the case for most African countries. </p>
<h2>Financing missions</h2>
<p>The second type of mission is initiated by requests for IMF financing. </p>
<p>Their purpose is to assess the country’s need for financial support. And to negotiate the terms on which it will be provided.</p>
<p>The IMF effectively acts as a lender of last resort. Consequently, governments are reluctant to ask for IMF financing unless they cannot get enough foreign exchange from other sources. </p>
<p>The IMF provides the financing on an unsecured basis. It tries to ensure that it will be repaid by making the financing subject to policy conditions, known as conditionalities. The premise of these conditionalities is that the country is essentially living beyond its means and must reduce its expenditures to the level of its income, including the funds contributed by the IMF. In short, the IMF is demanding that the country makes sacrifices. </p>
<p>This means, inevitably, that the terms of IMF financing are controversial. First, the scale of the sacrifices necessary to restore a country to macroeconomic health are not easily determined. They depend on perceptions of the causes of the country’s crisis, assumptions about future economic developments and the capacity of the government to implement policy changes and the public to accept and absorb these changes. Reasonable people can, of course, have different views on these issues. </p>
<p>Second, the scope, terms and number of conditionalities the IMF chooses to attach to its financing can be very broad, or quite specific. For example, it can merely state the size of budget cuts that the country must make or the amount of additional revenues it must raise and then leave it up to the country to decide how to meet these conditions. Alternatively, it can specify which budget items should be cut, which taxes should be increased, and which structural reforms must be implemented in order to get IMF financing.</p>
<p>This effectively means that the conditionalities are matters for negotiation between the government and the IMF and that they depend on the balance of bargaining power between them. This means that the IMF is effectively a player in the domestic economic policy making process of countries that need its financing. </p>
<p>However, the IMF is not subject to the same legal requirements regarding participation or transparency as other players in this process. It is also less accountable to those who will be affected by its policy choices than the government itself.</p><img src="https://counter.theconversation.com/content/188302/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow's SARCHI chair is funded by the National Research Foundation. He also receives funding from the Open Society Initiative for Southern Africa or unrelated projects.</span></em></p>The IMF sends its staff on two types of mission to member countries: to assess the state of the country’s macro economy or to assess the need for financial support.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1829372022-05-12T03:34:19Z2022-05-12T03:34:19ZThe Sri Lankan state is using violence to unleash fury on its citizens, as its political and economic crisis deepens<p>The Sri Lankan state is descending into a full blown political and economic crisis, as more people contend with starvation, death and severe disruptions. Now they are also facing the brutal violence of the state. </p>
<p>The BBC <a href="https://www.bbc.com/news/world-asia-61403510">reports</a> at least nine people died and more than 200 were injured as vehicles and houses were set alight during fighting between government supporters and critics this week.</p>
<p>The island is facing its worst economic crisis since independence, and the responses of the state indicate it is incapable of protecting its citizens.</p>
<p>The deployment of military force, however, is unlikely to quell unrest. The anger and frustration displayed by the public, aggravated by pro-government protesters, is only likely to grow – fuelling further distrust in the ruling government.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/462597/original/file-20220512-14-tp7a94.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/462597/original/file-20220512-14-tp7a94.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/462597/original/file-20220512-14-tp7a94.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/462597/original/file-20220512-14-tp7a94.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/462597/original/file-20220512-14-tp7a94.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/462597/original/file-20220512-14-tp7a94.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/462597/original/file-20220512-14-tp7a94.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/462597/original/file-20220512-14-tp7a94.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The island is facing its worst economic crisis since independence, and the responses of the state indicate it is incapable of protecting its citizens.</span>
<span class="attribution"><span class="source">AP Photo/Eranga Jayawardena</span></span>
</figcaption>
</figure>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/sri-lanka-protests-spread-as-petrol-prices-rise-by-90-182105">Sri Lanka: protests spread as petrol prices rise by 90%</a>
</strong>
</em>
</p>
<hr>
<h2>The use of force</h2>
<p>The <a href="https://www.bbc.com/news/world-asia-61389189">army was this week given orders to shoot</a> “law-breakers” on sight, as people gathered in the street to protest shortages in food, fuel and medicines.</p>
<p>Economic problems underpin the recent political unrest, with Sri Lanka confronting the very real prospect of bankruptcy as its foreign reserves run dry.</p>
<p>As I wrote recently in the <a href="https://www.internationalaffairs.org.au/australianoutlook/the-ongoing-crisis-in-sri-lanka/">Australian Institute of International Affairs</a>, the country’s 22 million citizens are now suffering thanks to a legacy of government corruption, nepotism and poor economic management. The island is deeply in debt to China and unable to raise enough revenue due to a slew of tax cuts.</p>
<p>Its nationalist president, Gotabaya Rajapaksa, came to office in November 2019 after campaigning on national security and appealing to Sinhala-Buddhist nationalism. </p>
<p>The Rajapaksa family has since grown increasingly powerful; Gotabaya installed his brother Mahinda (himself a former president) as prime minister and appointed other relatives to ministerial positions.</p>
<p>Recent constitutional changes have increased the power of the president to suppress political opposition, erode democratic institutions and further entrench discrimination against minority Tamils and Muslims.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1524560403870539776"}"></div></p>
<h2>A predictable economic crisis</h2>
<p>Poor economic mismanagement is not new in Sri Lanka, with consecutive governments failing to manage inflation, debt and spending. </p>
<p>But the decisions of the current government have brought the island to the brink of bankruptcy.</p>
<p>It is the worst economic crisis Sri Lanka has faced since it gained independence from British rule in 1948. </p>
<p>One significantly disastrous policy under Gotabaya Rajapaksa’s presidency was the banning of chemical fertiliser. This caused farmers’ livelihoods to collapse and led to lower crop yields as well as plantation closures, job losses and food shortages.</p>
<p>This triggered inflation and effectively crushed key export industries like tea and rubber. </p>
<p>Meanwhile, COVID wrecked the tourism industry, a key revenue generator for Sri Lanka.</p>
<p>The war in Ukraine has affected fuel shortages and crippled tourism, with Russia and Ukraine being <a href="https://www.aljazeera.com/news/2022/4/6/crisis-hit-sri-lanka-is-hosting-thousands-of-stranded-ukrainians">key tourist markets</a>. </p>
<h2>Militarisation is the norm in Sri Lanka</h2>
<p>Authoritarianism by the state is not new in Sri Lanka, as minority Tamils and Muslims well know. These groups faced horrifying violence before, during and after the <a href="https://www.theguardian.com/world/2022/mar/26/tamils-fear-prison-and-torture-in-sri-lanka-13-years-after-civil-war-ended">civil war</a> fought between 1983 and 2009. </p>
<p>This week’s <a href="https://www.bbc.com/news/world-asia-61389189">deployment</a> of security forces is a rapid development in the recent crisis, but militarisation has been a central pillar of Sri Lankan governance for years. </p>
<p>The ministry of defence received <a href="https://www.colombotelegraph.com/index.php/defense-expenses-in-sri-lanka/">12.3%</a> of total estimated government expenditure in 2022 – the highest allocation for any ministry in the budget. This is despite its civil war ending 13 years ago. </p>
<p>The Tamil population in the north and east of the island face the brunt of this militarisation, which encroaches on their everyday lives.</p>
<p>The military runs civilian life, from schools, to recreation and religious activities. There is an estimated one military personnel per six civilians <a href="https://pearlaction.org/wp-content/uploads/2022/03/State-Sponsored-Sinhalization-of-the-North-East-March-2022.pdf">in the north and east</a>.</p>
<p>The same military massacred tens of thousands of Tamils during the war, resulting in a <a href="https://theconversation.com/rwanda-and-sri-lanka-a-tale-of-two-genocides-116135">genocide</a>. </p>
<p>The United Nations continues to call for investigations into violations of international humanitarian and <a href="https://www.ohchr.org/en/hr-bodies/hrc/oisl">human rights law and international crimes</a>. </p>
<p>At least 115 Tamil parents have died since the civil war ended without knowing the whereabouts of loved ones forcibly disappeared by Sri Lankan security forces as the war ended.</p>
<p>One 75-year old woman, <a href="https://www.tamilguardian.com/content/i-want-see-them-once-i-die-tamil-mothers-final-words">Thangarasa Selvarani</a>, had been protesting on the roadside over her abducted son for five years; she recently died without finding out what had happened to her child.</p>
<h2>So what’s next?</h2>
<p>The prime minister, Mahinda Rajapaksa, resigned as violence in the country escalated. </p>
<p>Protesters gathered at the Trincomalee port after unconfirmed reports he had gone there with family after <a href="https://www.bbc.com/news/world-asia-61389189">fleeing his Colombo residence</a>. </p>
<p>Anti-government protests across the island will continue, as President Gotabaya Rajapaksa holds firm and politicians shelter in safe houses to avoid the public. </p>
<p>Gotabaya is so far refusing to resign, instead seeking to appoint a new cabinet.</p>
<p>A new cabinet will not solve the problem, and the growing crackdown on civilians will only further erode trust in this government.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/whats-happening-in-sri-lanka-and-how-did-the-economic-crisis-start-181060">What's happening in Sri Lanka and how did the economic crisis start?</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/182937/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Niro Kandasamy volunteers at the Tamil Refugee Council.</span></em></p>Sri Lankans are contending with growing levels of starvation, death and disruption. Now they are also facing the brutal violence of the state.Niro Kandasamy, Lecturer, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1700622021-10-24T12:25:27Z2021-10-24T12:25:27ZCOP26: 4 ways rich nations can keep promises to curb emissions and fund climate adaptation<figure><img src="https://images.theconversation.com/files/427040/original/file-20211018-30-1cmfym.jpg?ixlib=rb-1.1.0&rect=112%2C1248%2C4034%2C2033&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The United Kingdom will host the upcoming COP26 UN Climate Summit in Glasgow, Scotland. </span> <span class="attribution"><span class="source">(Jeremy Selwyn/Pool via AP)</span></span></figcaption></figure><p>The time has come for Canada and other rich nations to pony-up and pay for <a href="https://www.dw.com/en/the-global-injustice-of-the-climate-crisis-food-insecurity-carbon-emissions-nutrients-a-49966854/a-49966854">the devastation they have caused countries in the Global South</a>. That means, for a start, providing far greater climate adaptation financing to low-income countries and plugging the holes that siphon their limited fiscal resources to tax havens.</p>
<p>Two Canadians have prominent roles at the <a href="https://ukcop26.org/uk-presidency/what-is-a-cop/">COP26 climate meeting in Glasgow, Scotland</a>. United Nations Ambassador Bob Rae, is co-chair of the COP26 finance panel, and Mark Carney is the UN special envoy for COP26, responsible for getting financial institutions to join the new <a href="https://unfccc.int/news/new-financial-alliance-for-net-zero-emissions-launches">Glasgow Financial Alliance for Net-Zero</a>. They are experienced and highly respected individuals with solid reputations as mediators.</p>
<p>However, despite Prime Minister Justin Trudeau’s recent climate plan, <a href="https://www.nationalobserver.com/2021/02/04/analysis/canada-pledges-strengthen-2030-climate-targets">Canada’s record on greenhouse gas emissions reduction has been abysmal</a>. Furthermore, <a href="https://i2.wp.com/group78.org/wp-content/uploads/2021/10/Oped.png?ssl=1">its failure to meet its climate finance commitments to developing countries</a> will not be viewed favourably as Ambassador Rae attempts to negotiate a meaningful international climate agreement. </p>
<p>The <a href="https://www.nationalnewswatch.com/2021/10/07/environment-lobby-calls-out-carneys-climate-finance-credibility-2/#.YWA88i297fZ">UN says more than 160 financial firms are signed onto the alliance</a>. The “Big Six” Canadian banks — BMO, CIBC, National Bank, RBC, Scotiabank and TD — signed on days before the summit was to begin. Their pledge will undoubtedly be met with allegations that this was merely a public relations exercise. Since the Paris deal was signed in 2015, <a href="https://www.thestar.com/news/canada/2021/08/11/since-paris-was-signed-our-banks-have-funded-climate-chaos-to-the-tune-of-700b.html">Canada’s five largest banks have provided $700 billion in financing to fossil fuel companies</a>.</p>
<h2>Canada, one of the worst carbon emitters</h2>
<p>Canada is, historically, the 10th largest carbon emitter and the <a href="https://cdn.odi.org/media/documents/ODI_WP_fairshare_final0709.pdf">worst contributor to carbon emissions</a> on a per capita basis. The federal government has committed to reducing carbon emissions to 45 per cent below 2005 levels by 2030. However, it has not committed to end fossil fuel company subsidies or provide an end-date for fossil fuel production, despite the <a href="https://www.un.org/sg/en/content/secretary-generals-statement-the-ipcc-working-group-1-report-the-physical-science-basis-of-the-sixth-assessment">urging of the UN secretary general to hold the line</a>. </p>
<p>Low-income countries are tiny emitters of greenhouse gases, least responsible for climate change, yet bearing its worst consequences. In the past 15 years, 90 per cent of deaths from <a href="https://www.theguardian.com/global-development/2021/sep/30/the-climate-crisis-is-destroying-the-human-rights-of-those-least-responsible-for-it">heat wave-related disasters</a> have occurred in low- and middle-income countries. The UN refugee agency estimates that <a href="https://www.unhcr.org/uk/news/latest/2016/11/581f52dc4/frequently-asked-questions-climate-change-disaster-displacement.html">21.5 million people are displaced by climate change-related disasters</a> every year. For these countries, adaptation, not mitigation, is the overriding priority.</p>
<figure class="align-center ">
<img alt="Water almost covers the ground-floor windows and doors of a pink fort." src="https://images.theconversation.com/files/427038/original/file-20211018-21-ar1flv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/427038/original/file-20211018-21-ar1flv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/427038/original/file-20211018-21-ar1flv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/427038/original/file-20211018-21-ar1flv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/427038/original/file-20211018-21-ar1flv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/427038/original/file-20211018-21-ar1flv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/427038/original/file-20211018-21-ar1flv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Lalbagh Fort in Dhaka, Bangladesh, could be partially submerged by rising seas by mid-century if the world maintains its current carbon emissions and hits 3 C of global warming.</span>
<span class="attribution"><a class="source" href="https://picturing.climatecentral.org/">(Climate Central)</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<h2>Create zero-interest loans</h2>
<p>Twelve years ago, at the Copenhagen summit, rich countries promised to provide developing countries US$100 billion a year in climate finance by 2020. <a href="https://www.un.org/sites/un2.un.org/files/100_billion_climate_finance_report.pdf">They have yet to meet this target</a>. </p>
<p>Canada has contributed less <a href="https://cdn.odi.org/media/documents/ODI_WP_fairshare_final0709.pdf">than 20 per cent of its fair share</a>. Even with the Trudeau government’s promise to double climate financing to US$4.2 billion over five years, US$840 million per year, this is still only 24 per cent of its fair share. The <a href="https://group78.org/">Group of 78</a>, of which I am a member of the executive, has called for a quadrupling of Canada’s financing commitment as a bare minimum. </p>
<p>Moreover <a href="https://www.climatechangenews.com/2021/08/09/climate-crisis-climate-finance-drying/">80 per cent</a> of rich country financing is in the form of loans, increasing the stress on countries already struggling to manage their debt burdens.</p>
<p>International Monetary Fund-created money, or <a href="https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR">special drawing rights</a>, which is allocated to countries based on their economic size, is largely unused by rich countries. Although discussions are ongoing, there has been no commitment to recycle these funds into zero-interest loans to low-income countries.</p>
<h2>Tax havens harm climate action</h2>
<p>Tax havens have disproportionately siphoned off wealth from low-income countries, a <a href="https://www.newstatesman.com/ideas/2020/12/end-empire-and-rise-tax-havens">post-Second World War legacy of former colonies gaining independence</a> that prompted the exit of colonial wealth via the proliferation of tax havens. Their losses have been accentuated during the pandemic.</p>
<p>According to a <a href="https://www.taxjustice.net/reports/the-state-of-tax-justice-2020/">report by the tax justice network</a> these countries are losing the equivalent to more than half of their yearly public health budgets due to the shifting of <a href="https://www.icij.org/investigations/pandora-papers/">multinational corporations profits to tax havens</a>. The loss is equivalent to eight per cent of rich countries’ health budgets.</p>
<p>More than 130 countries, including Canada, have reached an agreement, co-ordinated by the OECD, that would establish a <a href="https://www.icij.org/investigations/paradise-papers/136-countries-agree-to-global-minimum-tax-for-corporations-in-historic-oecd-deal/">minimum of 15 per cent corporate tax to restrict tax avoidance and evasion</a>. However, it has been sharply criticized as being rife with loopholes and carveouts. Oxfam accused it of pandering to corporations, having “practically no teeth” and offering no revenue for the world’s poorest countries.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/paid-millions-to-hide-trillions-pandora-papers-expose-financial-crime-enablers-too-169326">Paid millions to hide trillions: Pandora Papers expose financial crime enablers, too</a>
</strong>
</em>
</p>
<hr>
<p>Tax havens are enabled by an infrastructure of lawyers, accountants and bankers, including some from Canada. Rich countries’ efforts to restrict and bring greater transparency to international tax rules have largely fallen short. </p>
<p>Even by that standard Canada has been a laggard. The Liberal government recently <a href="https://www.advisor.ca/tax/tax-news/liberal-propose-15-minimum-tax-on-highest-earners/">increased the investigative resources of the Canada Revenue Agency</a> and promised in its most recent budget to address cross-border tax avoidance and evasion schemes. How effective these will be in reining in these actions by wealthy individuals and corporations; past inaction does not bode well going forward. Carney will have his work cut out for him if, or when, he addresses these issues at COP26.</p>
<h2>No more blah, blah, blah</h2>
<p>To its credit, Canada, along with several other developed countries, is a member of the <a href="https://www.highambitioncoalition.org/">High Ambition Coalition</a>, a group at the UN talks comprising many of the poorest and most vulnerable developing countries. But good intentions and empty promises will not pass muster. We don’t need more “blah blah blah,” to quote Greta Thunberg.</p>
<p>The UN Human Rights Council recently <a href="https://news.un.org/en/story/2021/10/1102582">recognized access to a clean and healthy environment as a fundamental right</a> and established a <a href="https://www.ohchr.org/en/Issues/environment/SRenvironment/Pages/SRenvironmentIndex.aspx">special rapporteur on the human rights impacts of climate change</a>. These developments have the potential to make major emitting companies, including Canada’s, legally liable for human rights violations arising from climate change. </p>
<p>Hopefully, this will put additional pressure on rich countries to get serious about climate financing, debt restructuring and development funding for poor nations. Inaction is a luxury we can no longer afford.</p>
<hr>
<figure class="align-right ">
<img alt="COP26: the world's biggest climate talks" src="https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/424739/original/file-20211005-17-cgrf2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p><strong>This story is part of The Conversation’s coverage on COP26, the Glasgow climate conference, by experts from around the world.</strong>
<br><em>Amid a rising tide of climate news and stories, The Conversation is here to clear the air and make sure you get information you can trust. <a href="https://page.theconversation.com/cop26-glasgow-2021-climate-change-summit/"><strong>More.</strong></a></em> </p>
<hr>
<p><em>This is a corrected version of a story originally published on Oct. 24, 2021. The earlier story said the Copenhagen summit occurred 20 years ago instead of 12 years ago. It also said that no Canadian banks were part of the Net-Zero Banking Alliance when, in fact, BMO, CIBC, National Bank, RBC, Scotiabank and TD, joined the alliance on Oct. 19.</em></p><img src="https://counter.theconversation.com/content/170062/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bruce Campbell is affiliated with the Canadian Centre for Policy Alternatives, the Group of 78, the Rideau Institute for International affairs, The Polaris Institute </span></em></p>Rich nations need to provide far greater climate adaptation financing to low income countries and plug the holes that siphon their limited fiscal resources to tax havens.Bruce Campbell, Adjunct professor, faculty of environmental and urban change, York University, CanadaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1696912021-10-15T11:35:12Z2021-10-15T11:35:12ZScandal involving World Bank’s ‘Doing Business’ index exposes problems in using sportslike rankings to guide development goals<figure><img src="https://images.theconversation.com/files/426498/original/file-20211014-15-8gsd5p.jpg?ixlib=rb-1.1.0&rect=89%2C52%2C4902%2C2702&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The World Bank's ease of doing business index incentives countries to do whatever they can to improve their ranking. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/winners-podium-royalty-free-image/1139509402">Jongho Shin/iStock via Getty Images</a></span></figcaption></figure><p>The World Bank, a <a href="https://www.worldbank.org/en/about/unit">behemoth of an organization</a> that provides tens of billions of dollars in aid to mostly developing countries, is in the middle of one of its biggest scandals <a href="https://www.worldbank.org/en/about/history">since being founded in 1944</a>.</p>
<p>The crux of the crisis relates to its <a href="https://www.doingbusiness.org/en/doingbusiness">Doing Business Index</a>, which ranks the ease of opening and operating companies in 190 countries. In September 2021, an <a href="https://thedocs.worldbank.org/en/doc/84a922cc9273b7b120d49ad3b9e9d3f9-0090012021/original/DB-Investigation-Findings-and-Report-to-the-Board-of-Executive-Directors-September-15-2021.pdf">investigation alleged</a> that senior leadership at the bank manipulated the index’s data in response to pressure from China and Saudi Arabia. </p>
<p>The scandal has already caused the bank to <a href="https://www.worldbank.org/en/news/statement/2021/09/16/world-bank-group-to-discontinue-doing-business-report">suspend publication of the index</a> and prompted calls for <a href="https://hill.house.gov/uploadedfiles/20210922treasuryltr.pdf">further investigations</a>. Some have also <a href="https://www.economist.com/leaders/2021/09/25/why-the-head-of-the-imf-should-resign">demanded the resignations</a> of officials identified in the report, such as Kristalina Georgieva, who was formerly CEO at the World Bank and now heads the International Monetary Fund.</p>
<p>On Oct. 11, 2021, the IMF – which along with the World Bank is currently holding its annual meeting in Washington – <a href="https://www.nytimes.com/2021/10/11/business/kristalina-georgieva-imf.html">said it would leave Georgieva in her job</a>. </p>
<p>I’m a <a href="https://www.jstor.org/stable/26425479?seq=1#metadata_info_tab_contents">comparative legal scholar</a> who studies the <a href="https://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=680281">rule of law</a> in multilateral institutions like the World Bank. As I show in my forthcoming book on the topic, I believe the real problem here is less about whether or not officials meddled, and more about the <a href="http://www.doi.org/10.1093/acprof:oso/9780199658244.001.0001">problematic role the Doing Business Index and similar indicators</a> play in aid to developing countries. </p>
<h2>‘Everyone wants to win’</h2>
<p>The World Bank’s <a href="https://www.doingbusiness.org/en/about-us">Doing Business Index ranks</a> countries around the world across 11 different economic indicators, such as registering property and paying taxes, and <a href="https://ssrn.com/abstract=3219641">has become an authoritative source</a> for <a href="https://digitalcommons.bryant.edu/honors_finance/13/">international business and funding decisions</a> since its inception in 2002. It’s akin to <a href="https://www.usnews.com/rankings">U.S. News and World Report’s rankings</a> of colleges, countries and other categories.</p>
<p>A change in a country’s rankings can have a huge impact on how much money it receives from foreign investors. The World Bank has found that a 1 percentage point improvement in a country’s overall Doing Business score <a href="https://www.doingbusiness.org/en/reports/thematic-reports/does-doing-business-matter-for-foreign-direct-investment">correlates with US$250 million to $500 million</a> in additional foreign direct investment. </p>
<p>The <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3318360">main idea behind the ranking system</a> was that it would be very simple for politicians, journalists and others to use, and therefore publicity surrounding it would prompt reforms. </p>
<p>“The main advantage of showing a single rank,” according to a 2005 World Bank staff report, is “as in sports, once you start keeping score everyone wants to win.” </p>
<p>And in effect, even though the World Bank technically has no mandate to guide countries’ regulatory regimes, in practice its index has had significant influence on how governments behave. For example, countries in <a href="https://www.cambridge.org/core/books/ruling-the-law/1A07B10358D8011B8338AB3DCDACA531">Latin America</a> and <a href="https://works.bepress.com/james_gathii1/67/">Africa</a> have restructured their entire corporate governance regimes to fit Doing Business’ <a href="https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2731&context=faculty_scholarship">one-size-fits-all reforms</a>. </p>
<p>But this wide influence has a negative side, as <a href="https://www.washingtonpost.com/opinions/2021/09/26/cost-doing-business-world-bank">it serves as an incentive</a> for governments to try to “game the system – or corrupt it,” as The Washington Post editorial board put it recently. </p>
<figure class="align-center ">
<img alt="Kristalina Georgieva sits at a table adorned with a floral bouquet during a speech" src="https://images.theconversation.com/files/426499/original/file-20211014-17-1s6g2l8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/426499/original/file-20211014-17-1s6g2l8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/426499/original/file-20211014-17-1s6g2l8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/426499/original/file-20211014-17-1s6g2l8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/426499/original/file-20211014-17-1s6g2l8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/426499/original/file-20211014-17-1s6g2l8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/426499/original/file-20211014-17-1s6g2l8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">International Monetary Fund Managing Director Kristalina Georgieva was CEO of the World Bank when Doing Business rankings were allegedly being manipulated.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/GlobalFinance/d0b8ce0b687b47deb9c0d304e32e6e97/photo?Query=Georgieva&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=290&currentItemNo=0">AP Photo/Mark Schiefelbein</a></span>
</figcaption>
</figure>
<h2>Problems with Doing Business</h2>
<p>The most recent Doing Business scandal began around June 2020, when <a href="https://www.worldbank.org/en/news/statement/2020/08/27/doing-business---data-irregularities-statement">employees began spotting data irregularities</a> in two recent reports. </p>
<p>In January 2021, the law firm WilmerHale was asked to investigate. On Sept. 15, <a href="https://thedocs.worldbank.org/en/doc/84a922cc9273b7b120d49ad3b9e9d3f9-0090012021/original/DB-Investigation-Findings-and-Report-to-the-Board-of-Executive-Directors-September-15-2021.pdf">Wilmerhale said it found that senior World Bank leadership</a> pressured employees to improve China’s Doing Business ranking in the 2018 report as it sought Beijing’s support for a major capital injection. The law firm also found problems with changes to rankings of Saudi Arabia, the United Arab Emirates and Azerbaijan in the 2020 report but didn’t blame senior leaders directly. </p>
<p>But a big part of the problem here is that the rankings incentivize this kind of behavior, often because not all countries can enact the market-friendly legal reforms required to rise up. </p>
<p>One way they can do this is by paying the World Bank fees for “reimbursable advisory services,” such as advice on how to better implement the kinds of reforms it favors. Of course, it is not hard to see the <a href="https://www.reuters.com/business/external-review-finds-deeper-rot-world-bank-doing-business-rankings-2021-09-20">potential for institutional conflict of interest and corruption</a> here. The report noted that both China and Saudi Arabia made extensive use of these contracts while pressuring bank officials to change their rankings.</p>
<p>The bigger concerns about the Doing Business Index is more fundamental. <a href="https://doi.org/10.5131/ajcl.2008.0025">Comparative</a> <a href="https://doi.org/10.5131/ajcl.2008.0023">legal</a> <a href="https://doi.org/10.5131/ajcl.2008.0024">scholars</a>, including me, have found that the legal reforms favored by the index always appear biased in favor of systems based on common law followed by countries such as the U.S. and U.K. </p>
<p>For instance, France, one of the world’s largest economies operating under a civil legal code, <a href="https://doi.org/10.5131/ajcl.2008.0024">has performed rather poorly</a> in the <a href="https://www.doingbusiness.org/en/rankings">initial rankings</a> because of low scores on the “registering property” and “getting credit” metrics. And, in turn, that <a href="https://www.howwemadeitinafrica.com/demystifying-doing-business-in-francophone-africa/25407/">means countries such as Algeria</a>, <a href="https://www.doingbusiness.org/content/dam/doingBusiness/media/Fact-Sheets/DB19/FactSheet_DoingBusiness2019_MENA_Eng.pdf">Lebanon</a> and <a href="https://devpolicy.crawford.anu.edu.au/acde/publications/publish/papers/wp2006/wp-econ-2006-12.pdf">Indonesia</a> that built legal systems based on <a href="https://www.jstor.org/stable/pdf/40753084.pdf">France</a> or other non-Anglo legal traditions <a href="https://doi.org/10.1007/s40804-018-0116-4">are also unfairly hurt</a> by the rankings.</p>
<p>The rankings have been controversial since their very launch. Joseph Stiglitz, who was chief economist at the World Bank in the late 1990s, said in a recent op-ed that <a href="https://www.project-syndicate.org/commentary/coup-attempt-against-imf-managing-director-georgieva-by-joseph-e-stiglitz-2021-09">he thought it was a “terrible product” from the beginning</a>. </p>
<p>“Countries received good ratings for low corporate taxes and weak labor regulations,” he wrote. “The numbers were always squishy, with small changes in the data having potentially large effects on the rankings. Countries were inevitably upset when seemingly arbitrary decisions caused them to slide in the rankings.”</p>
<p>In other words, the Doing Business Index ends up pushing countries toward a shareholder-focused corporate and business model molded on U.S.-style capitalism. This is at odds with many other models, such as those in <a href="https://igitalcommons.law.yale.edu/%20social%20cgi/viewcontent.cgissocialsssarticle=7501&context=ylj">Japan and Germany</a>, that put more emphasis on workers and social goals like gender equality. <a href="https://doi.org/10.4337/9781788975339">Corporate governance scholars have found</a> these may be better models for some countries than U.S.-style capitalism.</p>
<h2>Does it ‘deserve to die’?</h2>
<p>The recent scandal underscores the degree to which the index doesn’t square with the bank’s wider purpose. </p>
<p>The World Bank’s <a href="https://www.worldbank.org/en/who-we-are">stated mission</a> is to “end extreme poverty and promote shared prosperity.” It was set up in the wake of the Second World War to achieve this mission through financing agreements with developing countries. </p>
<p>The Doing Business Index fails in this purpose because it compels governments to <a href="https://doi.org/10.1177/1023263X9700400202">commit to “transplanted” legal reforms that may not be right</a> for those countries, and in fact may end up backfiring and delivering bad outcomes for residents. </p>
<p>I’m not sure whether the index “<a href="https://www.bloomberg.com/opinion/articles/2021-09-19/world-bank-s-ease-of-doing-business-list-deserved-to-die?sref=Hjm5biAW">deserves to die</a>” or should be reformed and shifted to another institution, such as a university, but I do believe its time at the World Bank is likely coming to an end.</p><img src="https://counter.theconversation.com/content/169691/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>As Director of the Program on International Organizations, Law and Development, Fernanda Nicola organizes events at American University and the World Bank on law and development that are mostly geared towards students and alumni. She also facilitates student’s internships at the World Bank and other international organizations. </span></em></p>Allegations that World Bank officials manipulated country rankings in its much-used ease of doing business index highlight a deeper problem with these types of rankings.Fernanda G Nicola, Professor of Law, American UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1663022021-08-19T14:35:44Z2021-08-19T14:35:44ZHow Africa can seize the moment and start resetting its relationship with the IMF<figure><img src="https://images.theconversation.com/files/416962/original/file-20210819-17-1fztfz2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">IMF to inject $650 billion in Special Drawing Rights into the global economy</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>The International Monetary Fund (IMF) <a href="https://www.imf.org/en/News/Articles/2021/07/30/pr21235-imf-governors-approve-a-historic-us-650-billion-sdr-allocation-of-special-drawing-rights#:%7E:text=The%20general%20allocation%20of%20SDRs,existing%20quotas%20in%20the%20Fund.">will inject</a> $650 billion in <a href="https://www.imf.org/en/Topics/special-drawing-right">Special Drawing Rights</a> into the global economy. It will allocate them among its member states, which can then decide for themselves how they want to use their Special Drawing Rights. </p>
<p>This injection, which will take place on 23 August 2021, is <a href="https://www.imf.org/en/Topics/special-drawing-right#:%7E:text=How%20many%20SDRs%20have%20been,a%20one%2Dtime%20special%20allocation.">more than double</a> the total number of Special Drawing Rights the IMF has ever issued and is <a href="https://www.statista.com/statistics/247281/development-of-foreign-exchange-reserves-worldwide/">equal to about 5%</a> of total global reserves.</p>
<p>The IMF will allocate the Special Drawing Rights among its member states based on their quotas, which are determined by the size of a country’s economy and its role in the global economy. Therefore, about <a href="https://www.eurodad.org/imf_s_new_sdrs_allocation#:%7E:text=How%20much%20goes%20to%20developing,get%20around%20one%20per%20cent.">60% of these funds</a> will go to rich countries that do not need them. African countries will receive <a href="https://www.devex.com/news/african-nations-expect-33-6b-in-special-drawing-rights-99611">$33.6 billion</a>, with the lion’s share going to the five largest economies on the continent – South Africa, Nigeria, Algeria, Morocco and Egypt.</p>
<p>The IMF and many countries recognise that this division of the new resource is both inequitable and inefficient. They are talking of creating a mechanism for reallocating some of the funds – <a href="https://www.devex.com/news/imf-approves-650b-special-drawing-rights-allocation-100534">an amount of $100 billion is mentioned</a> – to developing countries. If done effectively, the reallocation could help African countries deal with COVID-19, climate change and their many other economic and social challenges. </p>
<p>It is also an opportunity for African countries to begin reforming their relationship with the IMF. But this will require them taking the initiative to ensure that the reallocation mechanism is fully responsive to African needs and is accountable to Africans. </p>
<p>To understand what Africa needs to do, it’s helpful to review the history of Special Drawing Rights.</p>
<h2>A short history</h2>
<p><a href="https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR">In 1969</a>, the IMF member states authorised the organisation to issue Special Drawing Rights. At the time, the leading member states were becoming concerned that countries might not be able to obtain enough dollars to meet their trade and financial needs, which would adversely affect the global economy. They thought Special Drawing Rights could help overcome this shortage. </p>
<p>To encourage states to hold Special Drawing Rights, they decided that there would be no policy conditions attached to their use. However, in order to ensure that countries would not use Special Drawing Rights imprudently, they decreed that their use would carry an interest charge.</p>
<p>The membership also decided that the Special Drawing Rights would be allocated to the members according to <a href="https://www.imf.org/en/About/executive-board/members-quotas">their quotas in the IMF</a>. This meant that the majority would always go to the richest and most powerful IMF member states, which were unlikely to actually use them. Their use was also restricted to transactions with the IMF, other IMF member states and any other organisations that the IMF explicitly authorised to hold Special Drawing Rights — <a href="https://www.imf.org/en/About/FAQ/special-drawing-right#:%7E:text=Currently%20there%20are%2015%20prescribed,American%20Reserve%20Fund%2C%20and%20Arab">today there are 15 such organisations</a>. </p>
<p>Special Drawing Rights have not played a major role in global finance over the past 50 years. One reason is that the IMF had the financial resources and bargaining power to convince states to adopt policies that made it unnecessary to issue new Special Drawing Rights.</p>
<p>This is now changing. </p>
<p>Comparing the IMF’s role in the 1982 sovereign debt crisis and its role in the current COVID pandemic helps illustrate the changes.</p>
<h2>Then and now</h2>
<p>In 1982, many Latin American sovereign borrowers were in danger of <a href="https://www.federalreservehistory.org/essays/latin-american-debt-crisis">defaulting on their debts</a>. This had serious implications for their largest creditors, the big US banks. This situation threatened the US banking system as well as the stability of the international financial system and the global economy. </p>
<p>Both debtors and creditors turned to the IMF for help. It responded by providing financing to the debtor states on condition that they adopted tough policy reforms, that their creditor banks provided new financing and that they renegotiated their debts. For example, the IMF provided <a href="https://economics.rabobank.com/publications/2013/september/the-mexican-1982-debt-crisis/">Mexico with US$3.4 billion</a> to meet its debt obligations in exchange for the country substantially cutting its budget deficit and implementing structural reforms and the commercial banks extending $1.5 billion in new funds and rescheduling $23 billion of Mexico’s total debt.</p>
<p>Forty years later a very different scenario unfolded. </p>
<p>In the early days of the pandemic the fortunes of most countries were more influenced by the actions of the world’s key central banks and by private investors than by the IMF. Unlike in 1982, the IMF no longer had the resources or bargaining power to drive the global response to a financial crisis.</p>
<p>In March 2020, investors, panicked by the onset of the COVID-19 pandemic, withdrew from domestic and international financial markets, thereby reducing the financing available to sovereigns, corporations and households. The major <a href="https://www.bis.org/publ/work934.pdf">central banks responded</a> swiftly by injecting over US$10 trillion in dollars and other convertible currencies into financial markets, and taking actions to support other central banks. These actions provided support to commercial banks and other financial institutions which, in turn, decided how to allocate the trillions among their many sovereign, corporate and household clients.</p>
<p>The IMF response was much weaker and slower. From the advent of the pandemic until 30 June 2021, it has provided <a href="https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker">about $115 billion to 85 countries</a> and <a href="https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker#CCRT">$726.75 million in debt relief to 29 low-income</a> member countries.</p>
<h2>Opportunity to gain lost ground</h2>
<p>This month’s issuance of Special Drawing Rights is an opportunity for the IMF to regain some of its lost influence in global economic governance. It is working with its membership to create a mechanism through which rich countries can reallocate a substantial portion of their Special Drawing Rights to help poorer countries. </p>
<p>So far, these discussions have focused on an existing, but controversial, IMF trust fund, the <a href="https://www.imf.org/en/About/FAQ/low-income-countries-concessional-financing-support%20%20and%20https:/www.imf.org/en/About/Factsheets/IMF-Support-for-Low-Income-Countries">Poverty Reduction and Growth Trust</a>. The IMF has historically used the fund to provide concessional financing to low-income countries in return for them <a href="https://d3n8a8pro7vhmx.cloudfront.net/eurodad/pages/1063/attachments/original/1608122652/arrested-development-FINAL.pdf?1608122652">adopting harsh policies</a>, including raising taxes and cutting social spending. </p>
<p>There is therefore also talk of creating a new mechanism, the <a href="https://news.trust.org/item/20210624025043-g0beh/">Resilience and Sustainability Trust</a>. But this would take time and would depend on the outcome of complex and unpredictable negotiations among the IMF member states.</p>
<p>Time, however, is of the essence. Neither the IMF nor developing countries can afford to wait too long for the reallocated Special Drawing Rights to begin flowing and being used effectively to help those most in need. </p>
<p>This creates an opportunity for Africa to work with the IMF to ensure that the reallocation mechanism meets Africa’s needs as closely as possible.</p>
<h2>What should Africa do?</h2>
<p>Africa should call for reforms that will make the Poverty Reduction and Growth Trust more responsive to African needs and more accountable to Africans. In particular, the IMF should take the following three actions. All can be implemented by the IMF management and board on their own initiative:</p>
<ul>
<li><p>Create a third African chair on its board of executive directors. Currently, sub-Saharan Africa only has two seats on the 24-member board, each representing over 20 African countries. A third chair would help ensure that Africa had a louder and more effective voice on matters relating to the use of the trust and other IMF policy matters.</p></li>
<li><p>The IMF should follow the example set by all other international financial institutions and draft and publish operational policies applicable to the use of all IMF resources, including Special Drawing Rights. This is becoming more necessary as the IMF begins to add new, important but complex topics such as climate, inequality and gender-based budgeting to its areas of interest and operation.</p></li>
<li><p>The IMF should establish an <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=805805">independent ombudsman</a> that can receive and investigate complaints from stakeholders who claim that the IMF has not acted in full compliance with its own policies and procedures and that they have been harmed as a result.</p></li>
</ul><img src="https://counter.theconversation.com/content/166302/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow's SARCHi chair is funded by the National Research Foundation. He also has received funding from the Open Society Initiative for Southern Africa (OSISA) for a book project on sovereign debt in the SADC region.</span></em></p>The IMF’s injection of US$650 billion worth of Special Drawing Rights into the global economy opens a window for African countries to reform their relationship with the fund.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1659912021-08-13T15:13:08Z2021-08-13T15:13:08ZNixon’s decision to delink the dollar from gold still hounds the IMF, South Africa and Africa<figure><img src="https://images.theconversation.com/files/416028/original/file-20210813-19-18z04vk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">US President Richard Nixon's decision to end the US promise to convert dollars into gold changed the global financial system</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Five decades ago this month, <a href="https://www.youtube.com/watch?v=iRzr1QU6K1o">US President Richard Nixon</a> informed the world that the US would no longer honour its commitment to exchange US dollars for gold on demand. The commitment had been the foundation of the international monetary system created in 1944 at Bretton Woods, a conference established to regulate international financial order after the conclusion of the second world war. <a href="https://www.cvce.eu/obj/agreement_of_the_international_monetary_fund_22_july_1944-en-736e2f6e-fcd2-49d7-8b62-d601a3a8b839.html">This system</a> required each participating state to maintain a fixed par value for its currency in terms of the US dollar. In return, the US promised to freely exchange dollars for gold at the agreed price of US$35 dollars per ounce of gold.</p>
<p>Nixon’s action – announced on 15 August 1971 – had profound and long-lasting effects on the <a href="https://www.imf.org/en/About">International Monetary Fund </a>, South Africa and Africa.</p>
<p>Nixon’s decision breached the US’s treaty obligations. But he had little choice. </p>
<p>By 1970, the rest of the industrialised world had accumulated such large dollar holdings that the US did not have sufficient gold to credibly keep its gold window open. The situation was likely to continue deteriorating because in 1971 the US experienced its <a href="https://www.nytimes.com/1972/01/26/archives/us-trade-deficit-first-since-1888-nations-surplus-of-imports-over.html">first trade deficit</a> of the Twentieth Century.</p>
<p>In short, the US lacked the resources to manage the Bretton Woods system on its own.</p>
<p>Five years after Nixon’s decision, <a href="https://www.elibrary.imf.org/view/books/054/14098-9781451920857-en/ch01.xml">IMF member states</a> agreed to end gold’s monetary role and, in effect, to move to a market-based system of floating exchange rates.</p>
<p>Nixon’s action 50 years ago continues to influence global economic governance. At the time the ripple effects for southern Africa were also profound.</p>
<p>One unintended consequence was that South Africa, at the time the world’s largest producer of gold, lost its position as a central player in the international monetary system. As a result, the South African apartheid regime became less important to the Western world. This contributed to <a href="https://projects.kora.matrix.msu.edu/files/210-808-1051/african_activist_archive-a0a7h9-b_12419.pdf">South Africa colluding with the US</a> to fight the Cubans and the Russians who were supporting the People’s Movement for the Liberation of Angola (MPLA) in their struggle for Angolan independence. </p>
<p>It also made it easier for other nations to support sanctions against South Africa, and, in the 1980s, to oppose future IMF and later commercial bank support for South Africa.</p>
<p>Nixon’s announcement and its aftermath also changed the IMF’s mission. </p>
<h2>Change of direction for the IMF</h2>
<p>During the Bretton Woods era, the IMF would meet annually with each of its member states to establish that they were following policies consistent with the maintenance of the par value of their currency. This placed limits on the issues the IMF would raise during these visits as well as on the range of officials with whom it needed to consult. </p>
<p>It also meant that, since all member states were participants in the same international monetary system, their ability to maintain the par value of their currency were influenced by the same variables. Moreover, since they were all potentially consumers of the IMF’s financial services – and during this time all member states did draw on its finances – they all would need to pay comparable attention to the IMF’s advice. </p>
<p>This was particularly relevant because the conditions that the IMF attached to its financial support was likely to be based on this advice.</p>
<p>The end of the par value system changed all this. If countries had no obligation to maintain any particular value for their currency what exactly was the IMF supposed to be monitoring in its <a href="https://www.imf.org/en/About/Factsheets/IMF-Surveillance">annual mission to each country</a>.</p>
<p>The treaty establishing the IMF had been <a href="https://www.imf.org/external/pubs/ft/aa/index.htm">amended</a>. It now merely stipulated that the IMF should ensure that the member states were contributing to a stable system of exchange rates. This meant that the IMF had to monitor all the factors that could influence each countries’ ability to pay all their international obligations and keep the price of their exports competitive. Since almost any aspect of a state’s economy could affect the exchange rate, the IMF began to slowly expand the range of issues that they raised in their annual country visits. They began to incorporate issues such as food subsidies, labour policies, social spending, regulatory policies, trade policy, and the role of the state in the economy.</p>
<p>While the IMF’s surveillance reports were purely advisory, their impact varied according to the situation of each country. Countries that were rich and knew that they would not need IMF financial support could comfortably ignore its advice. After 1976 no rich country requested IMF financing until the European debt crisis in 2010. They thus regained the monetary sovereignty that they had surrendered to the IMF at Bretton Woods. </p>
<p>On the other hand, countries that anticipated that they would need IMF financing or the IMF’s approval of their policies, were forced to take the advice seriously. They knew it would determine either the conditions the IMF attached to financial support or their access to other sources of finance</p>
<h2>To a differentiated world</h2>
<p>The result was that after 1976 the IMF became an organisation that engaged with member states on <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=928467">a differentiated basis</a>. </p>
<p>Some, knowing they would not need its services, could engage with the IMF essentially on a voluntary basis. Others, anticipating that in one way or another they would need to consume IMF services, were forced to treat the IMF with deference, knowing that that they had limited capacity to oppose its advice. </p>
<p>Unfortunately, given the weighted voting arrangements in the IMF, this differentiation also meant that the states with the dominant voice in the organisation did not depend on its services. Consequently, they could place demands on it without worrying about being accountable to those who would be most affected by their decisions. </p>
<p>This was a situation ripe with potential for abuse. For example, in the 1996 Asian crisis, the IMF’s most influential member states could refuse to support IMF financing for Asian countries unless they <a href="https://www.piie.com/publications/chapters_preview/6741/05iie6741.pdf">adopted</a> economic policies that benefited the rich countries. </p>
<p>The IMF also found a new role for itself in the 1980s as the discipliner of countries in Africa, Asia and Latin America facing <a href="https://www.federalreservehistory.org/essays/latin-american-debt-crisis">debt crises</a>. It offered these states some financial support in return for their other creditors offering them complimentary relief and their compliance with various IMF policy conditions. Given the broad scope of the IMF’s mandate, these conditions were both intrusive into the affairs of their members states and consistent with the <a href="https://economics.rabobank.com/publications/2013/september/the-mexican-1982-debt-crisis/">free market ideological preferences</a> of its rich member states.</p>
<p>This resulted, for example, in the <a href="https://books.google.co.za/books?hl=en&lr=&id=mICuCwAAQBAJ&oi=fnd&pg=PR9&dq=structural+adjustment+in+africa+and+gerry+helleiner&ots=hvrfIl1L8v&sig=ljS6YjSPBzqC1jYIHRtf_vvLDeg#v=onepage&q=structural%20adjustment%20in%20africa%20and%20gerry%20helleiner&f=false">controversial structural adjustment policies</a> that the IMF forced African states to follow in this period. </p>
<h2>Long term impact</h2>
<p>Nixon’s decision marked the end of exclusive US hegemony over the Western world. It also left the IMF without a clearly defined role. Under the leadership of the industrialised countries, it began to fashion a new more intrusive and ideological role as advisor to and financier for developing member states, including in Africa.<br>
In addition, by unshackling exchange rates, Nixon began the process of globalising finance and <a href="https://peri.umass.edu/fileadmin/pdf/programs/globalization/financialization/chapter1.pdf">creating today’s global economy</a>in which companies make decisions based on short term financial considerations rather than on the real needs of people and society.</p><img src="https://counter.theconversation.com/content/165991/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow's SARCHi chair is funded by the National Research Foundation. He also has received funding from the Open Society Initiative for Southern Africa (OSISA) for a book project on sovereign debt in the SADC region. </span></em></p>Nixon’s decision left the IMF without a clearly defined role. Under the leadership of the industrialised countries, it began to fashion a new more intrusive and ideological role.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1619052021-07-12T14:24:07Z2021-07-12T14:24:07ZLots of IMF programmes are never completed – because they’re unworkable<figure><img src="https://images.theconversation.com/files/404540/original/file-20210604-19-ind6sq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Photo by Ting Shen/Xinhua via Getty</span></span></figcaption></figure><p>The International Monetary Fund <a href="https://www.imf.org/en/Home">(IMF)</a> gives loans to countries in economic trouble. In exchange, countries must implement a programme of painful policy reforms. Countries rarely <a href="https://doi.org/10.1111/1467-9701.00465">complete</a> these programmes. </p>
<p><a href="https://onlinelibrary.wiley.com/doi/full/10.1111/gove.12605">We set out to uncover why</a>.</p>
<p>IMF programmes usually last one to three years. Countries must meet policy conditions in regular reviews – typically every three to six months – to gain access to tranches of funding. Failure to implement them interrupts the programme.</p>
<p>Of 763 programmes between 1980 and 2015, 512 were interrupted, of which 291 did not resume – as our <a href="http://www.imfmonitor.org/">data</a> from the IMF Monitor Database shows. This is a very high failure rate given that the IMF enters into every agreement on the basis that it wants to see it completed. </p>
<p>We argue that reform programmes may be unimplementable by design. We show that they simply entail too many policy conditions. Even reform-minded governments struggle to implement them.</p>
<p>Our <a href="https://doi.org/10.1111/rego.12422">research</a> also investigated financial market responses to programme interruptions. We found that programme failure has serious repercussions for economic development. Failure sends a negative signal to markets, causing them to lose confidence in the ability of governments to stabilise the economy and undertake reforms. The result very often is a rise in <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=879009">inflation</a> and increases in <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.0038-4941.2005.00360.x">capital flight</a> that deprive countries of much-needed capital for investment in public goods and services. </p>
<h2>Behind the failure rate</h2>
<p>Some scholars have blamed the failure rate on a lack of <a href="https://books.google.no/books?hl=de&lr=&id=7fpv5C2u-sEC&oi=fnd&pg=PP1&dq=imf+lack+of+political+will+failure&ots=c0jEbV21WB&sig=2FWGOBVlgOuG74xS2VULUmyjaWI&redir_esc=y#v=onepage&q=imf%20lack%20of%20political%20will%20failure&f=false">motivation</a> by borrowing governments. Facing pressures from special interest groups, such as labour unions and business groups, governments often <a href="https://link.springer.com/article/10.1007/s11558-017-9295-y">backpedal</a> from previous commitments. </p>
<p>In addition, scholars have found that countries that are friends with powerful donors like the US also experience more implementation failure. They receive favourable treatment, such as regaining access to IMF loans much <a href="https://www.jstor.org/stable/4145326#metadata_info_tab_contents">faster</a> than other countries, creating a moral hazard problem. In other words, encouraging bad behaviour.</p>
<p>Our paper breaks new ground in trying to understand why so many programmes fail by looking at their actual design. </p>
<p>We looked at whether the programmes themselves were in fact unimplementable. To do this we collected detailed compliance data for all 763 IMF programmes between 1980 and 2015. Our aim was to test if the number of conditions was related to programme interruption. </p>
<p>We found that each additional condition increases the likelihood of a programme interruption by at least 1.1% — a moderate effect given the average failure rate of 58.6%, but programmes typically include 22 such conditions, which boosts the failure probability accordingly.</p>
<p>Conditions to privatise state-owned enterprises, liberalise prices and overhaul the public sector were especially prone to cause implementation failure. This is because these conditions mobilise domestic opposition that can <a href="https://www.imf.org/external/pubs/ft/wp/2002/wp0273.pdf">thwart</a> programme implementation.</p>
<p>Our research also ruled out that implementation failure was driven by the occurrence of a financial crisis, macroeconomic instability, domestic opposition to policy reform, or geopolitical factors.</p>
<p>Our explanation for our findings was that that over-ambitious programme designs were the result of intra-organisational bargaining within the IMF bureaucracy. While an area department within the IMF drafted the initial reform programme, functional departments used their amendment power to include policy conditions that they cared about, without due consideration of local circumstances, which led to overambitious programmes. </p>
<p>We are not the first to voice such concerns about the complexity of the IMF’s programmes. The fund’s own Independent Evaluation Office <a href="https://www.imf.org/external/pubs/ft/EPUI/2002/pdf/Report.pdf">noted</a> in relation to the 1994 programme of the Philippines: </p>
<blockquote>
<p>The IMF was simultaneously pushing for reforms to the oil pricing system and to tax policy, each of which required congressional approval … In the view of some staff, this may have been overambitious, exceeding the capacity of the political system to digest several major reforms at the same time.</p>
</blockquote>
<h2>The dependency trap</h2>
<p>Our <a href="https://doi.org/10.1111/rego.12422">research</a> also investigated financial market responses to programme interruptions. Using annual <a href="https://www.institutionalinvestor.com/">data</a> for all developing countries, we found that investors rate a country lower when it had a permanent interruption of an IMF programme. Monthly <a href="https://datacatalog.worldbank.org/jp-morgan-emerging-markets-bond-indexembi">data</a> from 30 emerging market economies showed that a permanent interruption increased the cost of borrowing by governments by about 3%.</p>
<p>Programme interruptions lead to adverse financial market reactions. When investors lose confidence in a country’s ability to undertake market-liberalising reform, they require higher interest rates on their loans.</p>
<p>Borrowing countries that failed to implement IMF programmes therefore faced the risk of more volatile capital flows and higher refinancing costs. Ultimately, higher financing costs made them even more dependent on the Fund, entrapping them in a cycle of dependency.</p>
<h2>What to do about it</h2>
<p>Our findings have important implications for theories of compliance as well as for policymaking in international organisations. </p>
<p>Given the detrimental effects of IMF programme interruptions for developing countries, it is puzzling that the reform of IMF conditionality is lagging.</p>
<p>The IMF has often blamed <a href="https://www.imf.org/en/Publications/WP/Issues/2016/12/30/The-IMF-Approach-to-Economic-Stabilization-3177">weak capacity</a> and lack of “<a href="https://www.imf.org/external/np/pp/eng/2005/030405.pdf">political will</a>” for poor implementation. This predominant view was challenged by Horst Köhler, a former IMF managing director, who launched a “<a href="https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp070402">streamlining initiative</a>”. Its goal was to reduce the number of conditions.</p>
<p>But the number of conditions remained <a href="https://www.tandfonline.com/doi/abs/10.1080/09692290.2016.1174953">high</a>. This is partly because of the rigid <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/gove.12605">process</a> by which new IMF programmes come about. When a country requests a programme, the draft agreement must be approved by all nine of the IMF’s <a href="https://www.imf.org/en/About/Organization-Chart">sector</a> departments. This empowers departments to include their “pet issues”, which results in overambitious programmes.</p>
<p>An implication of our findings is a need for greater leadership to ensure policy coherence in IMF programmes. This is even more important right now with a record-high number of <a href="https://www.imf.org/en/About/FAQ/imf-response-to-covid-19">80 new IMF lending arrangements</a> due to the COVID-19 crisis in developing countries.</p>
<p>Under the dual COVID-19 health and economic crises, these programmes run the risk of having too many conditions. This may drive countries into financial disaster … and back to the IMF again.</p><img src="https://counter.theconversation.com/content/161905/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>IMF programmes run the risk of having too many conditions. This may drive countries into financial disaster. And back to the IMF again.Bernhard Reinsberg, Lecturer in International Relations, University of GlasgowThomas Stubbs, Senior Lecturer in International Relations, Royal Holloway University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1641182021-07-08T12:37:25Z2021-07-08T12:37:25ZHaiti’s president assassinated: 5 essential reads to give you key history and insight<figure><img src="https://images.theconversation.com/files/410218/original/file-20210707-19-vhpeoj.jpg?ixlib=rb-1.1.0&rect=0%2C7%2C1597%2C1058&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Haitian police patrol outside the presidential residence in Port-au-Prince on July 7, 2021, after President Jovenel Moïse was assassinated. </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/members-of-the-haitian-police-and-forensics-patrol-the-area-news-photo/1233850932?adppopup=true">Valerie Baeriswyl/AFP via Getty Images</a></span></figcaption></figure><p>The <a href="https://www.nytimes.com/live/2021/07/07/world/jovenel-moise-assassinated-killed">assassination of Haitian President Jovenel Moïse</a> risks destabilizing the Caribbean country, which was already in crisis over alarmingly high violence and Moïse’s increasingly undemocratic behavior.</p>
<p>Here’s some essential background on Haiti, starting with the painful history that underlies so much of Haiti’s modern struggles. </p>
<h2>1. France’s ‘extortion’</h2>
<p>Haiti officially declared its independence from colonizer France in 1804 after a revolutionary war staged by enslaved laborers and inspired by the American Revolution. </p>
<p>But the French “never quite gave up on reconquering their former colony,” <a href="https://theconversation.com/when-france-extorted-haiti-the-greatest-heist-in-history-137949">according to Marlene Daut, a historian of Haiti at the University of Virginia</a>. </p>
<p>Between 1814 and 1825, France sent repeated delegations to Haiti to negotiate with its new leaders about restoring some formal relationship with France. When that failed, King Charles X in 1825 decreed that France would recognize Haitian independence, but only if the new country paid France the exorbitant price of 150 million francs. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/335367/original/file-20200515-138639-aqm00i.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/335367/original/file-20200515-138639-aqm00i.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/335367/original/file-20200515-138639-aqm00i.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1068&fit=crop&dpr=1 600w, https://images.theconversation.com/files/335367/original/file-20200515-138639-aqm00i.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1068&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/335367/original/file-20200515-138639-aqm00i.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1068&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/335367/original/file-20200515-138639-aqm00i.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1342&fit=crop&dpr=1 754w, https://images.theconversation.com/files/335367/original/file-20200515-138639-aqm00i.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1342&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/335367/original/file-20200515-138639-aqm00i.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1342&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A facsimile of a bank note for 30 million francs that Haiti borrowed from a French bank.</span>
<span class="attribution"><a class="source" href="https://babel.hathitrust.org/cgi/pt?id=hvd.32044094146602&view=1up&seq=131">Lepelletier de Saint-Remy, 'Étude Et Solution Nouvelle de la Question Haïtienne.'</a></span>
</figcaption>
</figure>
<p>“The sum was meant to compensate the French colonists for their lost revenues from slavery,” says Daut. “Rejection of the ordinance almost certainly meant war.” </p>
<p>Under threat of violence, the Haitian leader, Jean-Pierre Boyer, signed a document agreeing to pay France “in five equal installments … the sum of 150,000,000 francs, destined to indemnify the former colonists.”</p>
<p>The deal forced Haiti to take out enormous loans. The young nation defaulted on them, despite Boyer’s levying punishing taxes on the Haitian people in his failed effort to pay them off. Its debt to France took 122 years to pay off.</p>
<p>“This was not diplomacy,” Daut says of France’s demand for payment. “It was extortion.”</p>
<h2>2. US occupation</h2>
<p>By the 20th century, the United States was the foreign country exerting undue control over Haiti’s ailing economy. </p>
<p>It did so through a <a href="https://theconversation.com/gas-shortages-paralyze-haiti-triggering-protests-against-failing-economy-and-dysfunctional-politics-116337">combination of military might, political maneuvering and private investment</a>, writes Florida State University Professor Vincent Joos, who studies Haiti’s economy.</p>
<p>The American military occupied Haiti from 1915 to 1934 and controlled its government. During that period, the U.S. designed Haiti’s economic and social policies to attract foreign investment. </p>
<figure class="align-center ">
<img alt="Marines march with palm trees in the background." src="https://images.theconversation.com/files/229156/original/file-20180724-194146-g900a0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229156/original/file-20180724-194146-g900a0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=426&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229156/original/file-20180724-194146-g900a0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=426&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229156/original/file-20180724-194146-g900a0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=426&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229156/original/file-20180724-194146-g900a0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=535&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229156/original/file-20180724-194146-g900a0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=535&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229156/original/file-20180724-194146-g900a0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=535&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">U.S. Marines marching in Haiti in 1934.</span>
<span class="attribution"><span class="source">Bettman/Corbis</span></span>
</figcaption>
</figure>
<p>“In practice, that meant keeping Haitian wages, corporate taxes and tariffs low,” says Joos. “In exchange, the theory went, foreign investment would bring infrastructure development and jobs, benefiting all Haitians.”</p>
<p>Part of the Americans’ plan worked: American agricultural firms did begin profitably growing cash crops like coffee, bananas and sugar in Haiti in the 1910s and 1920s. Later, U.S. businesses and military agencies established rubber plantations and textile factories there.</p>
<p>But Haiti’s export-focused economic model hasn’t benefited its people.</p>
<p>“After decades of extremely business-friendly policies, three-quarters of Haitians still live on less than US$2.40 a day,” writes Joos.</p>
<h2>3. The earthquake</h2>
<p>On Jan. 12, 2010, a massive earthquake left Haiti in shambles – physically, economically and politically. Upwards of 300,000 people were killed and nearly 1.5 million of Haiti’s 10 million people instantly became homeless.</p>
<p>Researcher Joseph Jr Clormeus was in Port-au-Prince that day and survived the earthquake. Some of his colleagues “lost their lives while others were having limbs amputated to escape certain death under the rubble,” he recalls. “Outside, corpses littered the streets of the capital.”</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/410217/original/file-20210707-23-ewb8rz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A man walks over the remains of several homes where bodies of earthquake victims had yet to be pulled from the rubble." src="https://images.theconversation.com/files/410217/original/file-20210707-23-ewb8rz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/410217/original/file-20210707-23-ewb8rz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/410217/original/file-20210707-23-ewb8rz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/410217/original/file-20210707-23-ewb8rz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/410217/original/file-20210707-23-ewb8rz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/410217/original/file-20210707-23-ewb8rz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/410217/original/file-20210707-23-ewb8rz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Scenes of rubble in Port-au-Prince on Jan. 29, 2010, a few weeks after the earthquake.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/haitian-man-walks-over-the-remains-of-several-homes-where-news-photo/107430062?adppopup=true">Benjamin Lowy/Getty Images</a></span>
</figcaption>
</figure>
<p>Last year, on the 10th anniversary of the quake, Clormeus and co-authors Jean-François Savard and Emmanuel Sael <a href="https://theconversation.com/a-decade-after-the-earthquake-haiti-still-struggles-to-recover-129670">wrote a story assessing Haiti’s stalled recovery</a>.</p>
<p>“Haiti hasn’t recovered from this disaster, despite billions of dollars being spent in the country,” they concluded. </p>
<p>One big problem, according to their analysis: Haiti’s government was weak after decades of dictatorship in the 20th century and a series of unstable democratic administrations in the 21st. </p>
<p>Clormeus, Savard and Sael also blame the international-led disaster recovery effort for Haiti’s continued struggles. </p>
<p>After the earthquake, hundreds of foreign aid agencies and international organizations like the Red Cross flooded into Haiti, intending to help. But “there was no coordination in the interventions of friendly countries in order to optimize the efforts on behalf of the victims,” write Clormeus, Savard and Sael. </p>
<p>The international community “failed to meet a humanitarian challenge of such magnitude.”</p>
<h2>4. Austerity and foreign influence</h2>
<p>The international community has also failed in its efforts to alleviate the privation and struggle of the Haitian people. The average income is $5 a day, and many people live on much less.</p>
<p>Haiti’s government, likewise, remains cash-strapped. It is frequently unable to provide basic services like trash collection or to hold timely elections.</p>
<p><a href="https://theconversation.com/haitis-deadly-riots-fueled-by-anger-over-decades-of-austerity-and-foreign-interference-100209">The country “runs on borrowed funds,”</a> says Florida State’s Vincent Joos. </p>
<p>Loans sometimes fund 20% of Haiti’s national budget. That gives lending institutions like the International Monetary Fund outsized influence on domestic policies. In 2018, deadly protests erupted over gas prices after Haiti’s creditors recommended ending petroleum subsidies.</p>
<figure class="align-center ">
<img alt="Protesters block a street with debris." src="https://images.theconversation.com/files/229154/original/file-20180724-194149-1gbrp1e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/229154/original/file-20180724-194149-1gbrp1e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/229154/original/file-20180724-194149-1gbrp1e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/229154/original/file-20180724-194149-1gbrp1e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/229154/original/file-20180724-194149-1gbrp1e.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/229154/original/file-20180724-194149-1gbrp1e.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/229154/original/file-20180724-194149-1gbrp1e.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Protesters set up roadblocks to disrupt traffic and commerce along key streets in Port-au-Prince, Haiti’s capital, in 2018.</span>
<span class="attribution"><span class="source">AP Photo/Dieu Nalio Chery</span></span>
</figcaption>
</figure>
<p>The International Monetary Fund’s “de facto control over the economy” of Haiti dates back decades – as do popular uprisings against it, says Joos. </p>
<h2>5. Crisis under Moïse</h2>
<p>Long-standing discontent with Haiti’s unequal economy and its ineffective government grew during President Jovenel Moïse’s 4 ½-year term. </p>
<p>Moïse’s killing followed months of sustained protests demanding his resignation after he refused to vacate the presidency, which was meant to end in February. Moïse said he planned to modify the Haitian constitution to allow presidents to run for reelection, potentially enabling him to stay in office even longer. </p>
<p>“Moïse had been ruling by decree,” Tamanisha John, a Caribbean studies scholar at Florida International University, explained <a href="https://theconversation.com/slain-haitian-president-faced-calls-for-resignation-sustained-mass-protests-before-killing-164131">after the president’s assassination</a>. “He effectively shuttered the Haitian legislature by refusing to hold parliamentary elections scheduled for January 2020 and summarily dismissed all of the country’s elected mayors in July 2020, when their terms expired.”</p>
<figure class="align-center ">
<img alt="President Moïse in a black suit, raising his hands in front of an orange backdrop." src="https://images.theconversation.com/files/410188/original/file-20210707-17-1kr806h.jpeg?ixlib=rb-1.1.0&rect=44%2C29%2C4947%2C3293&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/410188/original/file-20210707-17-1kr806h.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/410188/original/file-20210707-17-1kr806h.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/410188/original/file-20210707-17-1kr806h.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/410188/original/file-20210707-17-1kr806h.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/410188/original/file-20210707-17-1kr806h.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/410188/original/file-20210707-17-1kr806h.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Moïse at the 2018 Summit of The Americas in Lima, Peru. He was assassinated on July 7, 2021.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/president-of-haiti-jovenel-moise-greets-the-press-during-news-photo/946589254?adppopup=true">Manuel Medir/Getty Images</a></span>
</figcaption>
</figure>
<p>Moïse – the chosen successor of Haiti’s unpopular last president, Michel Martelly – lost the trust of the Haitian people early, according to John. In 2017, the first year of his administration, Moïse was implicated in an embezzlement scandal in which at least $700,000 of public money was allegedly funneled into the banana business he owned.</p>
<p>Though Moïse is dead, his party retains power. Prime Minister Claude Joseph, appointed by Moïse on an interim basis in April after the <a href="https://www.ibtimes.com/who-claude-joseph-haiti-pm-steps-after-presidents-assassination-3246445">sitting prime minister resigned</a>, controls Haiti for now. The country, he says, is in a “state of siege.”</p>
<p><em>This story has been updated to more accurately characterize Moïse’s proposed change to the Haitian Constitution.</em></p><img src="https://counter.theconversation.com/content/164118/count.gif" alt="The Conversation" width="1" height="1" />
Expert background on Haiti, where President Jovenel Moïse’s July 7 killing is the latest in the Caribbean nation’s long list of struggles.Catesby Holmes, International Editor | Politics Editor, The Conversation USLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1621462021-06-08T14:20:01Z2021-06-08T14:20:01ZCOVAX is failing to halt the COVID-19 pandemic: here’s why, and how to fix it<figure><img src="https://images.theconversation.com/files/404847/original/file-20210607-13-17xkc3m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A ground crew member transports the COVID-19 vaccines from COVAX at Bole international airport in Addis Ababa.</span> <span class="attribution"><span class="source">Xinhua/Michael Tewelde via Getty Images</span></span></figcaption></figure><p>The International Monetary Fund (IMF) recently called for an <a href="https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2021/05/19/A-Proposal-to-End-the-COVID-19-Pandemic-460263">accelerated global effort to distribute vaccines</a> to end the COVID-19 pandemic. It was a welcome step because <a href="https://www.reuters.com/article/us-health-coronavirus-eu-austria-idUSKBN2B50F5">past official statements</a> by world leaders have fallen short of delivering specific policies to reach desperate populations, particularly in low- and middle-income countries. </p>
<p>The IMF was also right to recognise that the cost of containing the COVID-19 pandemic is far less than the overall benefits for the global economy of full vaccine coverage. But it could have gone further by recognising that the inefficient vaccine allocation rules currently in place must be replaced by new cooperative institutional structures and more concrete steps by the Group of Twenty (G20) countries.</p>
<p>The IMF is approaching the problem too narrowly. It strongly supports vaccine donations and distribution to be carried out solely through the <a href="https://www.who.int/initiatives/act-accelerator/covax">COVAX facility</a>. COVAX is one of three pillars of the initiative known as the Access to COVID-19 Tools (ACT) Accelerator, which was <a href="https://www.piie.com/blogs/realtime-economic-issues-watch/current-vaccine-proposals-are-not-enough-end-pandemic?utm_source=update-newsletter&utm_medium=email&utm_campaign=piie-insider&utm_term=2021-06-02#_ftn1">launched</a> in April 2020 at an event co-hosted by the World Health Organisation (WHO), the European Commission, French president Emmanuel Macron and the Bill and Melinda Gates Foundation.</p>
<p>COVAX was created to facilitate equitable access to vaccines. The first two pillars were focused on equitable access to diagnostics and treatment. As helpful as the arrangement has been, its model of approaching the problem has become out of date. </p>
<p>Since its creation last year, vaccines have become <a href="https://www.nytimes.com/interactive/2021/world/covid-vaccinations-tracker.html">more available</a> but <a href="https://www.bworldonline.com/poor-nations-face-logistical-hurdles-in-vaccine-distribution/">distribution and other problems</a> have become more apparent.</p>
<p>COVAX provided a good baseline model for expected public health needs. It was also useful for setting priority targets. The key one was <a href="https://www.who.int/news/item/15-07-2020-more-than-150-countries-engaged-in-covid-19-vaccine-global-access-facility">to vaccinate about 20%</a> of each country’s population as quickly as possible. </p>
<p>But the facility suffers from two major flaws. </p>
<p>Firstly, it primarily allocates vaccines in proportion to population sizes, which is not the best public health metric.</p>
<p>Secondly, it does not consider countries’ capacities to roll out massive immunisation campaigns.</p>
<h2>Flaws</h2>
<p>Setting vaccine distribution goals on the basis of population size is flawed for a number of reasons.</p>
<p>Firstly, it disregards the complexity of the problem. Countries are at very different stages of the pandemic. Some are suffering horrific losses and their health systems <a href="https://theconversation.com/indians-stepping-up-to-try-to-save-lives-during-covid-19s-catastrophic-second-wave-159898">have collapsed</a>. Others have a lack of adequate public health measures, and inadequate social adherence to these measures. </p>
<p>On the other hand, others face far less daunting scenarios. </p>
<p>Much has been said about the lack of vaccines in many African countries. But as precarious as this problem is on the continent, African countries aren’t currently experiencing the extremely aggressive outbreaks seen in India, Nepal, Brazil, and many other Latin American countries. </p>
<p>These cases lay bare the shortcomings of distributing vaccines on the basis of a population yardstick: the metric fails to capture the severity of the underlying public health problems facing different nations.</p>
<h2>Criteria for allocation</h2>
<p>Vaccine allocation, whether done through COVAX or directly, should be based on public health metrics. These include:</p>
<ul>
<li>The <a href="https://sphweb.bumc.bu.edu/otlt/MPH-Modules/PH717-QuantCore/PH717-Module3-Frequency-Association/PH717-Module3-Frequency-Association4.html">incidence rate</a>. This measures the number of new cases of COVID-19 that occur during a specified period of time in a population at risk for developing the disease. Usually expressed as incidence per a certain number of persons (1,000, 10,000, 100,000), the rate is a measure of events, that is, the transition from a non-diseased to a diseased state, and thereby a measure of risk. </li>
</ul>
<p>Countries at higher risk levels calculated using the incidence rate should have priority in vaccine allocations.</p>
<ul>
<li>The <a href="https://www.britannica.com/science/attack-rate">attack rate</a>. This measures the number of susceptible people who become ill within a set period of time as a share of the total number of susceptible persons. Increases in the attack rate may suggest that a viral variant that is more transmissible is becoming dominant in a certain country.</li>
</ul>
<p>Indeed, higher attack rates were associated with the emergence of <a href="https://www.cdc.gov/coronavirus/2019-ncov/science/science-briefs/scientific-brief-emerging-variants.html">Alpha, or B.1.1.7, in the UK</a>, <a href="https://science.sciencemag.org/content/372/6544/815">Gamma, or P.1, in Brazil</a> and <a href="https://www.nature.com/articles/d41586-021-01274-7">Delta, or B.1.617, in India</a>.</p>
<p>Therefore, without widespread genomic surveillance, the attack rate may help in mapping the spread of dangerous variants of concern.</p>
<ul>
<li>Health system capacity. This is measured by the number of intensive care beds per 1,000 people in a given country, for example.</li>
</ul>
<p>Abiding by these and other metrics for vaccine allocation would ensure that vaccines went to countries that had the greatest immediate need.</p>
<p>Vaccine allocation also needs to take into account the capacity that countries have to distribute them internally. Recently, <a href="https://www.reuters.com/world/africa/malawi-burns-nearly-20000-expired-covid-19-shots-despite-assurances-shelf-life-2021-05-19/">Malawi</a> burned 20,000 doses of the Oxford/AstraZeneca vaccine only 18 days after receiving them due to the risk of expiration.</p>
<p><a href="https://www.voanews.com/africa/south-sudan-focus/south-sudan-returning-72000-covid-vaccine-doses">South Sudan</a> has announced that the government will send back to COVAX 72,000 doses of the Oxford/AstraZeneca vaccine, again because of the risk of expiration. </p>
<p>While these events are associated with increased vaccine hesitancy following rare <a href="https://www.bmj.com/company/newsroom/study-sheds-more-light-on-rate-of-rare-blood-clots-after-oxford-astrazeneca-vaccine/">blood clotting events</a> associated with the Oxford/AstraZeneca vaccine, it is also the case that many countries in Africa, as well as in other regions, lack the resources to <a href="https://blogs.worldbank.org/health/world-health-day-fair-access-covid-19-vaccines-developing-countries">mount effective vaccination campaigns</a>. </p>
<p>Without the necessary funding for these campaigns, donation of doses is not only insufficient but also a waste of life-saving vaccine doses, as the cases of Malawi and South Sudan illustrate.</p>
<h2>What’s needed</h2>
<p>Vaccine allocation efforts need to be guided by both equity and efficiency principles. By focusing chiefly on equity, COVAX and other initiatives are currently failing at delivering vaccine doses to address public health emergencies around the globe. </p>
<p>Moreover, the excessive focus on equitable distribution leaves out the capacities and resources that countries have for mounting mass vaccination campaigns. </p>
<p>Improving the existing structure requires concrete steps in global cooperation. This includes an agreement on the public health guidelines and metrics for vaccine distribution, actual donations of doses according to these guidelines in lieu of open-ended commitments or pledges to donate surplus doses, and mechanisms to ensure that vaccine supply chains can operate smoothly. </p>
<p>Designing this structure should be the main objective of the G20 in the coming months both to fight the current pandemic and to prepare for future ones.</p>
<p><em>This article originally appeared as <a href="https://www.piie.com/blogs/realtime-economic-issues-watch/current-vaccine-proposals-are-not-enough-end-pandemic?utm_source=update-newsletter&utm_medium=email&utm_campaign=piie-insider&utm_term=2021-06-02">a blog</a> on the PIIE website.</em></p><img src="https://counter.theconversation.com/content/162146/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Monica de Bolle is a senior fellow at the Peterson Institute for International Economics.</span></em></p>The inefficient vaccine allocation rules currently in place must be replaced by new cooperative institutional structures and more concrete steps by the Group of Twenty (G20) countries.Monica de Bolle, Professor, Johns Hopkins UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1611072021-05-31T15:24:11Z2021-05-31T15:24:11ZMozambique’s difficult decade: three lessons to inform next steps<figure><img src="https://images.theconversation.com/files/403090/original/file-20210527-21-a1fdlt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A child plays in a street in the port village of Paquitequete near Pemba, northern Mozambique. The region suffered decades of neglect, and major gas projects have failed to deliver local benefits.</span> <span class="attribution"><span class="source">Photo by Alfredo Zuniga/AFP via Getty Images</span></span></figcaption></figure><p>At the start of the last decade, Mozambique’s prospects looked stellar. Following from the early 1990s, when peace finally arrived after a devastating and protracted armed conflict, this vast country in Southern Africa could look back proudly on a sustained period of <a href="http://cdm15738.contentdm.oclc.org/utils/getfile/collection/p15738coll2/id/87288/filename/87289.pdf">rapid growth and poverty reduction</a>. </p>
<p>Mozambique was a <a href="https://www.chathamhouse.org/sites/default/files/public/Research/Africa/0810brown_weimer.pdf">darling of the international development community</a>, enjoying significant direct support to the government budget, and investment possibilities in the natural resources sector seemed bright.</p>
<p>By 2016, much of this <a href="https://theconversation.com/how-mozambique-can-contain-its-debt-crisis-and-avoid-long-term-damage-59180">lustre had been lost</a>. In part this was due to an economic crisis heralded by the discovery of <a href="https://theconversation.com/how-mozambique-can-avoid-stepping-into-the-abyss-57356">illegal debts</a> taken on by newly formed state companies. Ultimately, these appeared to have been designed to enrich a small political elite and their overseas collaborators. And this led international donors to freeze much of their support. </p>
<p>But mounting debts have not been the only challenge. By the early 2010s, prospects for the coal sector – which, under conservative assumptions, had been <a href="https://www.iese.ac.mz/%7Eieseacmz/lib/publication/III_Conf2012/IESE_IIIConf_Paper19.pdf">projected</a> to deliver $1 billion in annual government revenue by now – had been slashed. The exit of Rio Tinto in 2014, at a <a href="https://www.mining.com/rio-tintos-3-7bn-mozambique-coal-business-sold-for-50m-72265/">loss to the company</a> of over US$3 billion, was indicative.</p>
<p>Fast-forward to the present day. The macro-economy has stabilised somewhat. Yet little of the promise of 10 years ago has been fulfilled. Even though massive private investment inflows have continued, <a href="https://edi.opml.co.uk/research/mozambique-institutional-diagnostic/">real economic growth has fallen sharply</a>. <a href="https://www.wider.unu.edu/publication/evolution-multidimensional-poverty-crisis-ridden-mozambique">Poverty and other indicators of deprivation</a> have also remained stubbornly high. </p>
<p>And serious conflicts have emerged, especially in the north of the country. An <a href="https://www.iom.int/news/communities-displaced-recent-violence-mozambique-offered-respite-assistance-new-transit-centre">estimated</a> 700,000 people – that’s 2% of the country’s population – have been internally displaced due to conflict. </p>
<p>Large investments in the natural gas sector have been delayed or cut back. And the largest potential investment, by the French giant Total, has now been placed on indefinite (if not permanent) <a href="https://www.reuters.com/world/africa/frances-total-declares-force-majeure-mozambique-lng-project-2021-04-26/">hold</a>, citing security concerns. </p>
<p>COVID-19 has only added to the list of complex, protracted challenges facing the country.</p>
<p>In sum, Mozambique has experienced a difficult decade. It’s time to recognise that the development strategy of this period has not delivered.</p>
<h2>Drawing lessons</h2>
<p>A few lessons are emerging as to why Mozambique’s recent development path has failed to live up to expectations. These are relevant to avoid further mistakes. They also serve as a warning to other low-income countries betting heavily on large-scale inward foreign direct investment. </p>
<p>Three lessons stand out:</p>
<p><strong>Don’t believe the hype:</strong> A consistent and defining feature of the engagement of foreign companies in Mozambique’s natural resource sector has been their tendency to make extremely bullish predictions of their own success. One example was Rio Tinto, which proclaimed in 2011 that its newly acquired Mozambique operations represented the “<a href="https://www.reuters.com/article/rio-tinto-plc-fraud-timeline-idUSL4N1MT21Y">greatest underdeveloped seaborne coking coal in the world</a>”.</p>
<p>Projected project timelines have been routinely highly optimistic, suggesting production and government revenues will quickly come on stream, to the benefit of all parties. Alas, as the US Securities and Exchange Commission <a href="https://www.sec.gov/news/press-release/2017-196">complaint</a> against managers at Rio Tinto notes:</p>
<blockquote>
<p>On-the-ground realities in Mozambique quickly undermined {their optimistic} narrative.</p>
</blockquote>
<p>Both international partners and government officials have often sung the same tune. Indeed, the International Monetary Fund’s <a href="https://www.imf.org/external/pubs/ft/dsa/pdf/2016/dsacr1609.pdf">2015 debt sustainability assessment</a> projected new liquefied natural gas (LNG) production would start as early as 2021. And that it would yield annual growth rates of 50% in the value of exports. </p>
<p>Similarly, Mozambique’s 2016 <a href="https://www.open.ac.uk/technology/mozambique/sites/www.open.ac.uk.technology.mozambique/files/files/Presentation_by_the_Ministry_of_Economy_and_Finance_-_25_October_2016.pdf">presentation</a> to commercial creditors suggested new LNG production should come online as early as 2022/23, generating double-digit growth in real GDP. In a stroke the country’s external debt problems would be resolved. </p>
<p>These projections were wildly over-optimistic.</p>
<p>Of course, hindsight has clear advantages. But excessively bullish predictions, which are then used as <a href="https://www.wider.unu.edu/publication/extractive-industries-and-development">key assumptions to forecast future macroeconomic sustainability</a>, have been repeated on multiple occasions. </p>
<p><strong>Foreign investment is a means, not an end:</strong> The theme of natural resource investments has dominated policy discussions in Mozambique over the last decade. Assuring these projects move ahead has often seemed like the only objective, automatically guaranteeing Mozambique becomes a middle-income country, perhaps even the “<a href="https://www.businesswire.com/news/home/20150527006452/en/Research-and-Markets-Mozambiques-Potential-to-Become-the-Qatar-of-Africa">Qatar of Africa</a>”. </p>
<p>Sadly, emerging macroeconomic challenges have only entrenched the salience of finalising these investments. The <a href="https://www.elibrary.imf.org/view/journals/002/2016/009/article-A003-en.xml">IMF’s message</a> has been clear:</p>
<blockquote>
<p>Ensuring that LNG production materialises remains important to underpin Mozambique’s long-run debt sustainability.</p>
</blockquote>
<p>But natural resource investments in low-income countries have <a href="https://global.oup.com/academic/product/mining-for-change-9780198851172?q=mining%20for%20change&lang=en&cc=dk">rarely delivered widespread developmental gains</a>. As the experiences of Nigeria and Angola show, benefits are often extremely narrow and captured by a small elite. At worst, the distortionary effects can undermine competitiveness in the rest of the economy, leaving the poorest even poorer. </p>
<p><a href="https://edi.opml.co.uk/resource/mozambique-institutional-diagnostic-chapter-12/">Arguably</a>, some of these effects have already been apparent in Mozambique. Millions of dollars have been poured into the capital city, fuelling multiple high-end real estate investments. Any dividend for the poor has yet to emerge. And public investment has collapsed.</p>
<p>The more general lesson is that managing large-scale private investments so that they deliver broad-based (inclusive) developmental gains <a href="https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2018-140.pdf">is never easy</a>. </p>
<p>At the minimum, alongside genuine political will, it demands pro-active upgrading of the capabilities of the state. This includes strengthening institutions and the quality of economic governance. Without this, weaknesses are easily exploited to the private benefit of the companies and corrupt local factions.</p>
<p><strong>Don’t forget the poor:</strong> A flip side of the focus on natural resource investments has been a lack of attention to other sectors, as well as the increasingly unbalanced regional and rural-urban patterns of development. A pronounced north-south gradient has been <a href="https://edi.opml.co.uk/research/mozambique-institutional-diagnostic/">evident</a> in a range of socio-economic outcomes for decades. But the imbalance has worsened over recent years. </p>
<p>Many <a href="https://www.bbc.com/news/world-africa-56773012">commentators</a> suggest that current conflicts, particularly in the north, directly reflect these growing inequalities. The lesson is that rising inequality, particularly in countries such as Mozambique where nation-building remains a work in progress, can represent a very serious threat to developmental success.</p>
<h2>What comes next?</h2>
<p>In addition to the immediate cessation of conflict, Mozambique requires a coherent set of policies, not projects, based on a clear vision for the development of the country as a whole.</p>
<p>These cannot be formulated from the luxury of air-conditioned offices in Maputo, Brussels or Washington. Without a genuine understanding of the complexities of “on-the-ground realities”, including weaknesses in state capacity and <a href="https://www.econ.ku.dk/derg/wps/08-2021.pdf">political dynamics</a>, earlier mistakes are likely to be repeated. Listening to poor communities, learning from local successes, and building a common – yet realistic – vision of the future is fundamental. </p>
<p>This takes time. Delegating it to external consultants or political apparatchiks will be a recipe for failure.</p>
<p>But the process of building an inclusive developmental vision also represents an opportunity – to build state capability as well as to renew today’s fragile social compact. </p>
<p>Nurturing engines of economic growth outside the natural resources sector will be critical for long-term development and sustainability. In their absence, it may not be so bad if some natural resources stay in the ground.</p><img src="https://counter.theconversation.com/content/161107/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The development strategy based on foreign investment in natural resources projects has not delivered economic growth or security. What’s needed is an inclusive vision based on local realities.Sam Jones, Research Fellow, World Institute for Development Economics Research (UNU-WIDER), United Nations UniversityFinn Tarp, Professor of Economics, University of CopenhagenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1560192021-03-17T12:15:26Z2021-03-17T12:15:26ZWhy cash payments aren’t always the best tool to help poor people<figure><img src="https://images.theconversation.com/files/389926/original/file-20210316-19-phdn4r.jpg?ixlib=rb-1.1.0&rect=135%2C216%2C5871%2C3791&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">More governments and aid organizations are giving poor people cash.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/closeup-of-a-hands-of-a-man-holding-indian-rupee-royalty-free-image/1008274522">Mayur Kakade/Moment via Getty Images</a></span></figcaption></figure><p>The concept is simple and seductive: Give people cash, lift them out of poverty. It’s a strategy increasingly being used in both lower- and higher-income countries to help poor people.</p>
<p>International organizations such as the <a href="https://projects.worldbank.org/en/projects-operations/projects-list?qterm=%22cash%20transfer%22">World Bank</a>, <a href="https://www.theatlantic.com/ideas/archive/2018/09/ab-testing-foreign-aid/570325/">USAID</a> and the <a href="https://www.unicef.org/lac/sites/unicef.org.lac/files/2019-11/Making%20cash%20transfers%20work%20for%20children%20and%20families.pdf">United Nations</a> are funding more projects that focus on giving people cash, while charities like <a href="https://www.givedirectly.org/">GiveDirectly</a> have been set up to do only that. <a href="https://www.pbs.org/newshour/show/in-mexico-a-plan-to-beat-poverty-with-health-care-and-education">Mexico</a>, <a href="https://www.theguardian.com/global-development/2013/dec/17/brazil-bolsa-familia-decade-anniversary-poverty-relief">Brazil</a> and <a href="https://www.givedirectly.org/ubi-study/">Kenya</a> are leading examples of countries that have already implemented ambitious guaranteed income programs of their own.</p>
<p>The U.S. is also experimenting more with cash payments. The <a href="https://www.washingtonpost.com/business/2021/03/10/what-is-in-the-stimulus/">US$1.9 trillion relief package</a>, for example, will give recurring payments to most families with children. Stockton, California – the <a href="https://www.washingtonpost.com/nation/2021/03/03/stockton-universal-basic-income/">first U.S. city</a> to give low-income people cash with no strings attached – just completed a two-year pilot program. And a <a href="https://www.mayorsforagi.org/">number of U.S. mayors</a> are attempting to do the same as the list of <a href="https://www.businessinsider.com/elon-musk-basic-income-tweet-mayors-explore-pilots-2020-6">high-profile</a> <a href="https://www.businessinsider.com/pope-francis-it-might-be-time-to-consider-universal-basic-wage-2020-4">supporters</a> <a href="https://www.newyorker.com/news/our-local-correspondents/andrew-yangs-ideas-on-universal-basic-income-earned-him-fans-but-can-he-win-votes">continues to grow</a>. </p>
<p>In short, there seem to be a growing consensus that cash is the best tool in the fight against poverty. But is it?</p>
<p>As an economist studying poverty and development, <a href="https://scholar.google.com/citations?user=TyeGzrUAAAAJ&hl=en&oi=ao">I have devoted my career to researching</a> questions like this one. While cash can be an effective tool, I don’t believe it’s always the best one. </p>
<h2>The limitations of cash</h2>
<p>There is ample evidence that cash transfers have positive impacts on people living in poverty, at least on average. For example, <a href="https://doi.org/10.1017/S0047279418000715">a recent review of 165 studies</a> found that cash assistance tends to increase spending on food and other goods, while also improving education and health outcomes. The authors further found little to no evidence of unintended consequences, such as people working less because they had higher nonlabor incomes.</p>
<p>Similarly, a recently released <a href="https://socialprotection.org/discover/publications/preliminary-analysis-seed%E2%80%99s-first-year">study of Stockton’s basic income experiment</a>, which gave randomly selected residents $500 a month for two years, found that the cash payments stabilized recipient incomes, <a href="https://ktla.com/news/california/employment-rose-among-those-in-stocktons-universal-basic-income-experiment-study/">helped them get more full-time jobs</a> and reduced depression and anxiety.</p>
<p>But this doesn’t mean that cash is the best strategy for fighting poverty, as <a href="https://www.brookings.edu/blog/future-development/2017/02/06/how-to-end-poverty-give-the-poor-cash-and-access-to-mobile-money-and-text-them-reminders-to-save-and-take-their-meds-not/">some people</a>, such as <a href="https://www.newyorker.com/news/our-local-correspondents/andrew-yangs-ideas-on-universal-basic-income-earned-him-fans-but-can-he-win-votes">New York City mayoral candidate Andrew Yang</a>, have argued. I believe there are, in fact, several reasons policymakers should view this evidence with caution. </p>
<p>For one thing, it is often difficult to identify people who are actually poor and need the money so that cash assistance can be given to the right people. A <a href="https://doi.org/10.1016/j.jdeveco.2018.05.004">recent study</a> examined data from nine sub-Saharan African countries to evaluate the performance of a common method anti-poverty programs use to target poor people. It found that about half of the households selected by the method were not poor, while half of the households that were actually poor were not selected. </p>
<p>This targeting problem is not unique to developing countries. For example, the <a href="https://socialprotection.org/discover/publications/preliminary-analysis-seed%E2%80%99s-first-year">Stockton experiment</a> limited eligibility to people living in neighborhoods with a median income below the citywide median, meaning that more affluent people in these neighborhoods were eligible. Furthermore, eligible households were notified via physical mail to register online, implying that the program excluded the homeless and less tech-savvy people.</p>
<figure class="align-center ">
<img alt="A hand holds a debit card used in the Stockton, California, basic income experiment." src="https://images.theconversation.com/files/389927/original/file-20210316-15-netjio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/389927/original/file-20210316-15-netjio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/389927/original/file-20210316-15-netjio.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/389927/original/file-20210316-15-netjio.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/389927/original/file-20210316-15-netjio.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/389927/original/file-20210316-15-netjio.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/389927/original/file-20210316-15-netjio.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Susie Garza displays the debit card Stockton, California, gave her to receive $500 monthly payments as part of its basic income experiment.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/CaliforniaUniversalBasicIncome/94755ef6e5c14d8a8a9865a62cfce439/photo?Query=stockton%20basic%20income&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=29&currentItemNo=1">AP Photo/Rich Pedroncelli</a></span>
</figcaption>
</figure>
<p>Another problem relates directly to the definition of poverty, which is more precisely <a href="https://harvardmagazine.com/2011/01/who-is-poor">defined as a lack of well-being</a> instead of a lack of income. In short, giving cash does not directly improve somebody’s well-being; rather, it’s a tool that can be used to purchase things – such as food and shelter – that do directly contribute to well-being. </p>
<p>Even if the poor can be successfully identified, some people may not receive the typical or average benefit because of problems converting cash into improvements in their well-being. </p>
<p>For example, people may be experiencing mental or physical health issues, or they may be affected by the subtle ways that <a href="http://www.doi.org/10.1126/science.1238041">poverty itself compromises economic decision-making</a>. Similarly, in some cases, cash may not do much good because some of the things that contribute to improved well-being – such as <a href="https://www.doi.org/10.1196/annals.1425.011">health care</a> or <a href="https://doi.org/10.1016/S1574-0692(06)02016-2">schooling</a> – may be inaccessible or of low quality. </p>
<p>Put simply, cash can’t buy everything. </p>
<p>A final problem is that direct cash assistance does not combat the structural issues – such as <a href="https://openknowledge.worldbank.org/handle/10986/29865">discrimination</a>, <a href="https://www.sciencedirect.com/science/article/pii/S1574068405010063#bib043">weak democratic governance</a> and <a href="https://www.doi.org/10.1596/978-0-8213-8184-7">unfair international trade practices</a> – that cause poverty in the first place. Reforms in these areas typically require collective action to create change at the national or global level.</p>
<p>Problematically, <a href="https://www.doi.org/10.1086/674102">recent research suggests</a> that cash programs can actually be counterproductive because conflicts can arise over who receives assistance. This can erode social capital within communities.</p>
<p>The failure of cash to remedy structural issues may be one reason its long-term effects are often limited. For example, <a href="https://www.doi.org/10.1257/aeri.20190224">a recent study in Uganda</a> looked at the impacts of cash transfers nine years after people were given money. While the researchers found positive effects on employment and earnings after four years, these impacts virtually disappeared after nine. <a href="https://doi.org/10.1093/wbro/lky005">Other long-term studies also have found</a> “a fair share of results that are not statistically different from zero.”</p>
<h2>Empowering people</h2>
<p><a href="https://doi.org/10.1017/S0047279418000715">Cash can certainly help some people</a>, and this is undoubtedly an important consideration, especially in emergency situations when immediate assistance is critical – such as during a pandemic.</p>
<p>But there is simply no one-size-fits-all approach to poverty alleviation. Different countries, communities and individuals have unique needs and face different obstacles to escaping poverty. Sometimes that means investing in structural reforms, sometimes it means providing food aid and sometimes, yes, it means direct payments.</p>
<p>[<em>Get the best of The Conversation, every weekend.</em> <a href="https://theconversation.com/us/newsletters/weekly-highlights-61?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=weeklybest">Sign up for our weekly newsletter</a>.]</p>
<p>More generally, the idea of a cash consensus misses the point: Promoting human development means empowering people to make decisions for themselves, and this includes allowing them to choose the type of assistance that is appropriate for their situation. </p>
<p>And when given a choice, <a href="https://doi.org/10.1016/j.foodpol.2014.03.009">people don’t always choose cash</a>.</p><img src="https://counter.theconversation.com/content/156019/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Heath Henderson does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite evidence that cash payments can help improve well-being, they have limitations as well, according to a development economist.Heath Henderson, Assistant Professor of Economics, Drake UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1553082021-02-22T14:50:25Z2021-02-22T14:50:25ZThe basis of South Africa’s annual budgets needs an overhaul. Here’s why, and how<figure><img src="https://images.theconversation.com/files/385545/original/file-20210222-15-19y6588.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">This week South Africa's finance minister Tito Mboweni will deliver the country's medium term budget review.</span> <span class="attribution"><span class="source">Photo by Jeffrey Abrahams/Gallo Images via Getty Images</span></span></figcaption></figure><p>Governments in most developing countries use medium-term expenditure frameworks as fiscal policy instruments to match the imperatives of policy, planning and budgeting over the medium-term horizon. </p>
<p>South Africa <a href="http://www.treasury.gov.za/documents/mtbps/1998/speech.pdf">adopted the framework</a> in 1998.</p>
<p>Countries with strong ties to the Bretton Woods institutions – the International Monetary Fund (IMF) and the World Bank – have <a href="https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/2157.pdf">adopted the medium-term expenditure framework</a> as the main driver of budget policy. Like macroeconomic management orthodoxy, the <a href="https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/2476.pdf">Washington consensus</a> forms the basis of this approach. The World Bank’s push for the adoption of frameworks has been subtle. For instance since 1991, they have been an integral part of the Bank’s products such as <a href="https://www.imf.org/external/np/seminars/eng/2013/fiscalpolicy/pdf/brumby.pdf">technical assistance, lending operations, and analytical and advisory services</a>. </p>
<p>The <a href="https://www.imf.org/external/np/seminars/eng/2013/fiscalpolicy/pdf/brumby.pdf">thrust</a> of medium-term expenditure frameworks is budgeting and public financial management. Indeed, the planning inherent in them is financial planning. That is the problem. They facilitate multi-year budget planning. Since the framework is an expenditure planning tool, it pays little attention to comprehensive economic development. </p>
<p>Budgeting is an important feature of economic management, the precursor to any development plans. Just like households, the limited resources that accrue to government have to be distributed across many competing demands. The question is, budgeting to what ends? It is here that we seem to have lost the plot. We lack a cogent development plan that drives the budget process. </p>
<p>Medium-term expenditure frameworks can be useful only when they are based on comprehensive medium-term development plans. </p>
<h2>Economic transformation</h2>
<p>No country since the Second World War has transitioned from a developing to a developed country without recourse to <a href="https://www.dbsa.org/EN/About-Us/Publications/Documents/DPD%20No%208.%20Comparative%20development%20planning.pdf">systematic economic development planning</a>. <a href="https://www.ndc.gov.tw/en/Content_List.aspx?n=16081B8F505ABB7B">Taiwan</a>, <a href="https://www.jstor.org/stable/pdf/30172285.pdf?casa_token=KOsd_90OAngAAAAA:2C_V2-uHndhWRAOlMget6CemjZbLD38IjzA3PGOiI59y_X2AjvSbyW3abhMdSA1DWFT22i8FJ49ATWqt3GFD2l9lCB1B6qpyp4IhExYqzHfhnLZSz3U">South Korea</a>, <a href="https://academic.oup.com/cje/article-abstract/19/6/735/1688941?redirectedFrom=fulltext">Singapore</a>, and <a href="https://en.ndrc.gov.cn/">China</a> are some of the countries that have seen an incredible transformation over the past 50 years. </p>
<p>Each has adopted (mostly five-year) medium-term economic development planning as an instrument of development. The budgets of these countries have always been premised on the requirements of the medium-term plans. </p>
<p>Over two decades, South Africa has developed its own ritual. This involves a <a href="https://www.gov.za/state-nation-address">state of the nation address</a> by the president to mark the opening of parliament, followed – usually a week later – by the presentation of the budget by the finance minister. This <a href="http://www.treasury.gov.za/publications/guidelines/2021%20MTEF%20guidelines.pdf">involves</a> setting out policy priorities, tax policies, and division of revenue among various tiers of government. </p>
<p>But the lack of progress on crucial development benchmarks over the past two decades suggests that it’s time to reflect and question the effectiveness of the medium-term expenditure frameworks as an instrument of true economic development.</p>
<p>Since the turn of the century average incomes in South Africa have been stagnant – the average annual growth rate is 1.1%. At this rate it would take two generations for average incomes today to double. The Human Development Indicator, a broader measure of economic development, also shows that South Africa’s economic development over the past two decades has been well below comparator countries in the <a href="http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/ZAF.pdf">high human development group</a>. </p>
<p>Nor is pursing economic growth the panacea. Take <a href="https://www.worldbank.org/en/country/botswana/overview">Botswana</a>, which has recorded impressive economic growth numbers for more than 50 years. According to the <a href="https://databank.worldbank.org/source/world-development-indicators#">World Bank Group’s database</a>, Botswana recorded a real GDP growth rate of 8% a year over the period 1971 to 2019.</p>
<p>Yet one out of five people is poor and without a job. </p>
<p>Over the same period, South Korea, like the three other East Asian countries that underwent a phenomenal rate of industrialisation between the 1960s and the 1990s, recorded a growth rate of 7%. </p>
<p>So why has Botswana not achieved the same level of economic development as South Korea, Singapore or Taiwan? </p>
<p>The answer is: it failed to adopt an economic policy strategy that could produce real economic development. Even though Botswana has had <a href="https://www.finance.gov.bw/index.php?option=com_content&view=category&id=28&Itemid=126">development plans</a>, they have not had the preeminent role in economic management as compared to those of the East Asian countries. As a result they have been ineffective: the incredibly low level of industrialisation and high level of unemployment in Botswana after decades of economic growth points to this.</p>
<p>The stark contrast in economic development between Botswana and South Korea is instructive. South Korea has drawn on economic development planning and the allocative strengths of markets. </p>
<p>The Korean economy, which was largely agrarian, has been transformed into an industrial giant over <a href="https://www.palgrave.com/gp/book/9783030107697">four decades</a>. The country can also boast of global corporate giants such as Samsung, SK Holdings and the Hyundai Group, among many others. </p>
<p>The country’s unemployment rate of 5.4% reported in January 2021 is reckoned to be <a href="https://asian-links.com/gdp/south-korea-largest-companies">the highest in two decades</a>. </p>
<p>The country has used medium-term development plans since the Korean Development Board was set up in 1961. Each plan has had very clear economic development objectives. The development plans have then informed the expenditure framework. South Korea – and most of the successful Asian countries – drew on the positives of centralised planning and a price-mediated market system to drive economic development. </p>
<p>Even today, most of these countries continue to guide their economic development path with the aid of well thought through medium-term national development plans.</p>
<p>A distinctive feature of the development planning structures in the East Asian countries was the way they operated. They ensured <a href="https://www.kdi.re.kr/kdi_eng/publications/publication_view.jsp?pub_no=13671">an effective integration</a> of planning, financial resource allocation, monitoring and evaluation. </p>
<h2>What’s needed</h2>
<p>The international financial institutions have often <a href="https://www.dbsa.org/EN/About-Us/Publications/Documents/DPD%20No%208.%20Comparative%20development%20planning.pdf">denigrated centralised planning</a> </p>
<p>In the 1960s when most newly independent countries in Africa took to planning, it was seen as anathema by neoclassical economists. Rather, the West and the international financial institutions promoted unbridled free-market ideals. Yet there has not been a single country in the global South that has developed by strict adherence to free-market ideals. </p>
<p>It is in this vein that South Africa’s quest for economic development and improved well-being of its population has to be interrogated. The <a href="https://www.gov.za/issues/national-development-plan-2030#">National Development Plan</a>, which was released in 2012, only constituted a vision. It is thus not surprising that most of its objectives have eluded the country. The country has failed to distil its vision into medium-term development plans that could drive the national budget cycles. </p>
<p>What South Africa needs now is a comprehensive medium-term economic development plan. This would ensure that the country’s intractable social and economic problems are addressed in an integrated fashion. The problems are often interrelated. </p>
<p>Implementation should be coordinated by a super-ministry. In the case of South Korea the “super-ministry” controlled four levers of economic management: planning, budgeting, material resource mobilisation and the statistical service. The ministry was headed by the deputy prime minister. </p>
<p>A poignant observation that forms a thread that runs through the diverse East Asia development models is the role of government. The acute limitation of the market in facilitating efficient allocation of resources underscores the critical role of government intervention in fostering economic development. The dominant view that countries can outsource the economic development enterprise to the private sector is a ruse. </p>
<p>The developed countries in the West, the chief proponents of the Washington consensus, don’t even believe in the pre-eminence of markets. The massive government intervention in the wake of the pandemic and the pivoting towards <a href="https://www.industryweek.com/the-economy/public-policy/article/21154441/the-us-has-an-emerging-industrial-policy-biden-should-build-on-it">the overt adoption of industrial policies</a> by the US is ample demonstration of why South Africa has to look East for economic development lessons.</p><img src="https://counter.theconversation.com/content/155308/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Matthew Kofi Ocran does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Medium-term expenditure frameworks can be useful only when they are based on comprehensive medium-term development plans.Matthew Kofi Ocran, Professor of Economics, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1481672020-10-15T19:08:51Z2020-10-15T19:08:51ZSome say neoliberals have destroyed the world, but now they want to save it. Is Scott Morrison listening?<figure><img src="https://images.theconversation.com/files/363604/original/file-20201015-15-fkmfms.jpg?ixlib=rb-1.1.0&rect=45%2C0%2C5961%2C4007&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The International Monetary Fund this week delivered a somewhat surprising message. It warned Earth was on course for “potentially catastrophic” damage under climate change, and called for green investment and carbon prices to put the global economy on a stronger, more sustainable footing. </p>
<p>Of course, the message itself makes a lot of sense. The surprising part is that the IMF is the outfit delivering it. </p>
<p>The Washington-based IMF cannot be dismissed as a bunch of latte-sipping leftists. The organisation has traditionally been a bastion of free market economics and fiscal austerity, long detested by socialists.</p>
<p>It’s now abundantly clear Australia’s climate policies are at odds with even the most conservative approach to economic management. Increasingly, the Morrison government is an outlier on the world stage. </p>
<figure class="align-center ">
<img alt="Person with umbrella walks past IMF building" src="https://images.theconversation.com/files/363606/original/file-20201015-15-fpluot.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/363606/original/file-20201015-15-fpluot.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=461&fit=crop&dpr=1 600w, https://images.theconversation.com/files/363606/original/file-20201015-15-fpluot.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=461&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/363606/original/file-20201015-15-fpluot.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=461&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/363606/original/file-20201015-15-fpluot.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=580&fit=crop&dpr=1 754w, https://images.theconversation.com/files/363606/original/file-20201015-15-fpluot.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=580&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/363606/original/file-20201015-15-fpluot.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=580&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The IMF has called for a green-led pandemic recovery.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>IMF calls for climate action</h2>
<p>The IMF’s biannual <a href="https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020">World Economic Outlook</a> projected a deep recession for 2020, as a result of the COVID-19 pandemic. Global economic output is expected to shrink by 4.4% this year.</p>
<p>The IMF noted while the recession has reduced emissions, the decline is temporary. It warned policies to reduce greenhouse gas emissions were “grossly insufficient to date” and global temperatures could increase by up to 5°C by the end of this century. This would lead to “physical and economic damage, and increasing the risk of catastrophic outcomes across the planet”. </p>
<p>It said “an initial green investment push, combined with steadily rising carbon prices, would deliver the needed emissions reductions at reasonable output effects”. It went on:</p>
<blockquote>
<p>The package would initially boost global GDP, supporting the recovery from the COVID-19 crisis, but then weigh on global activity for a period, as the impact of the investment push wanes and carbon prices continue to rise.</p>
<p>In the second half of the century, the reduction in emissions would place the global economy on a stronger and more sustainable path.</p>
</blockquote>
<p>So in other words, the IMF recognises that now is a good time to undertake green investment, because it has long-term benefits <em>and</em> can act as a useful short-term stimulus. </p>
<p>The outlook suggests the stimulus effect of the investment push fades after the first decade. But any slowing in annual economic growth is trivial. The longer term economic benefits of avoiding catastrophic climate change far outweigh any transitional costs.</p>
<p>And in a transition to a low emissions economy, fears of net job losses appear misplaced. The IMF says says “the evidence indicates that environmental policies have succeeded in reallocating jobs from high- to low-carbon sectors”.</p>
<figure class="align-center ">
<img alt="Solar panels" src="https://images.theconversation.com/files/363608/original/file-20201015-19-1qrpmcw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/363608/original/file-20201015-19-1qrpmcw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/363608/original/file-20201015-19-1qrpmcw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/363608/original/file-20201015-19-1qrpmcw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/363608/original/file-20201015-19-1qrpmcw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/363608/original/file-20201015-19-1qrpmcw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/363608/original/file-20201015-19-1qrpmcw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The transition to a low-carbon future will not lead to net job losses, the IMF says.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>What is the IMF proposing?</h2>
<p>The IMF’s proposed package involves the following tools:</p>
<ul>
<li><p>an 80% subsidy rate for renewable energy production</p></li>
<li><p>a 10-year green public investment program in renewable energy, low-carbon transport and energy efficient buildings</p></li>
<li><p>carbon pricing, calibrated to achieve an 80% reduction in emissions by 2050, after accounting for emission reductions from the green fiscal stimulus</p></li>
<li><p>compensation for poor households whose purchasing power is dampened by a carbon price.</p></li>
</ul>
<p>The IMF says the plan is “growth friendly”, especially in the short term. The policies are designed to increase the price of fossil fuel energy relative to low-carbon energy, and reflect the harm fossil fuels cause through air pollution and global warming. </p>
<p>The IMF is not alone in its thinking. Some <a href="https://www.ft.com/content/e9fd0472-19de-11e9-9e64-d150b3105d21">27 Nobel laureates</a> in economics have endorsed a price on carbon. And <a href="https://theconversation.com/carbon-pricing-works-the-largest-ever-study-puts-it-beyond-doubt-142034">recent research</a> has conclusively found carbon pricing lowers growth in greenhouse gas emissions.</p>
<figure class="align-center ">
<img alt="Skyline filled with polluting industries" src="https://images.theconversation.com/files/363610/original/file-20201015-17-1c7tedh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/363610/original/file-20201015-17-1c7tedh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/363610/original/file-20201015-17-1c7tedh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/363610/original/file-20201015-17-1c7tedh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/363610/original/file-20201015-17-1c7tedh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/363610/original/file-20201015-17-1c7tedh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/363610/original/file-20201015-17-1c7tedh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The IMF has called for a price on carbon.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<h2>An unexpected turn</h2>
<p>The IMF has <a href="https://link.springer.com/chapter/10.1007/978-94-6091-561-1_1">long been</a> a cheerleader for neoliberalism – a belief in free markets, free trade and small government. </p>
<p>But in this case it’s calling for market interventions: a new tax and government subsidies for certain industries. It’s not the first time the IMF has looked to be <a href="https://www.imf.org/external/pubs/ft/fandd/2016/06/ostry.htm">questioning</a> its own neoliberal agenda, but it’s a twist nonetheless.</p>
<p>The IMF’s calls contrast starkly with the approach of the Coalition government. It dismantled the Gillard government’s carbon price <a href="https://www.abc.net.au/news/2014-07-17/carbon-tax-repealed-by-senate/5604246?nw=0">in 2014</a>, and has remained opposed to the measure ever since. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/china-just-stunned-the-world-with-its-step-up-on-climate-action-and-the-implications-for-australia-may-be-huge-147268">China just stunned the world with its step-up on climate action – and the implications for Australia may be huge</a>
</strong>
</em>
</p>
<hr>
<p>The Morrison government has <a href="https://www.abc.net.au/news/2020-09-20/scott-morrison-refuses-to-commit-net-zero-carbon-emissions-2050/12682714">refused to commit</a> to net-zero emissions by 2050, nor will it target any further increases in renewable energy beyond this year. </p>
<p>Most recently, it is pushing for a “<a href="https://theconversation.com/no-prime-minister-gas-doesnt-work-for-all-australians-and-your-scare-tactics-ignore-modern-energy-problems-146196">gas-led</a>” recovery from the pandemic. This month’s federal budget included A$52.9 million to support the gas industry – including opening up five new gas basins.</p>
<p>It also allocated money to refurbish the Vales Point coal-fired power station in New South Wales, and A$50 million for carbon capture and storage technologies. Investment in renewable energy was scarce.</p>
<figure class="align-center ">
<img alt="PM Scott Mlorrison" src="https://images.theconversation.com/files/363611/original/file-20201015-15-rvwr1x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/363611/original/file-20201015-15-rvwr1x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/363611/original/file-20201015-15-rvwr1x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/363611/original/file-20201015-15-rvwr1x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/363611/original/file-20201015-15-rvwr1x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/363611/original/file-20201015-15-rvwr1x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/363611/original/file-20201015-15-rvwr1x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Morrison government’s federal budget included money for gas and coal.</span>
<span class="attribution"><span class="source">Lukas Coch/AAP</span></span>
</figcaption>
</figure>
<h2>Australia adrift</h2>
<p>As the IMF notes, limiting global temperatures will require a global effort. Calls to address climate change though a global green-led recovery have come from far and wide, including <a href="https://institutional.anz.com/insight-and-research/Jun-20/a-green-led-recovery">banks</a> and <a href="https://www.aap.com.au/calls-for-virus-recovery-to-be-green-led/">investors</a>.</p>
<p>South Korea has seizing the opportunity presented by the pandemic recovery, through a US$61.9 billion <a href="https://theconversation.com/south-koreas-green-new-deal-shows-the-world-what-a-smart-economic-recovery-looks-like-145032">green plan</a> aiming to create 659,000 jobs by 2025. China <a href="https://theconversation.com/china-just-stunned-the-world-with-its-step-up-on-climate-action-and-the-implications-for-australia-may-be-huge-147268">recently committed</a> to net-zero emissions by 2060, and the European Union’s <a href="https://www.forbes.com/sites/davekeating/2020/10/05/eus-new-2030-climate-target-could-mean-exit-from-coal-by-2030/#429ac1151ac5">new climate target</a> may see it exit the coal industry by 2030. </p>
<p>Democratic US presidential candidate Joe Biden, the election favourite, is running on a highly ambitious US$2 trillion <a href="https://www.theguardian.com/us-news/2020/jul/14/joe-biden-climate-jobs-plan">climate platform</a>, leaving Scott Morrison <a href="https://theconversation.com/under-biden-the-us-would-no-longer-be-a-climate-pariah-and-that-leaves-scott-morrison-exposed-144870">exposed.</a></p>
<p>It’s clear Australia is being left on the wrong side of history. And when even the IMF starts calling for dramatic climate action, Australia starts looking more isolated than ever.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/backwards-federal-budget-morrison-government-never-fails-to-disappoint-on-climate-action-147659">'Backwards' federal budget: Morrison government never fails to disappoint on climate action</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/148167/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The IMF wants government intervention on climate change. It’s now abundantly clear Australia’s climate policies are at odds with even the most conservative approach to economic management.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1435532020-07-28T13:05:30Z2020-07-28T13:05:30ZThe IMF’s $4bn loan for South Africa: the pros, cons and potential pitfalls<figure><img src="https://images.theconversation.com/files/349884/original/file-20200728-15-19u89b5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's finance minister Tito Mboweni says the IMF loan will limit the country's economic vulnerabilities which have been exacerbated by COVID-19.</span> <span class="attribution"><span class="source">Gallo Images/Brenton Geach</span></span></figcaption></figure><p><em>The International Monetary Fund (IMF) has approved a R70 billion (US$4.3 billion) loan for South Africa to help the country manage the immediate consequences of the fallout from COVID-19. The Conversation Africa’s editor, Caroline Southey, asked Danny Bradlow to shed some light on what South Africans should expect.</em></p>
<h2>What conditions has the IMF attached to the disbursement?</h2>
<p>The IMF has provided the funding through its <a href="https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/19/55/Rapid-Financing-Instrument">Rapid Financing Instrument</a>. This is designed to support countries facing an urgent need for financing due to a crisis such as the COVID-19 pandemic. The goal is to help the country face the immediate financial consequences of the crisis. As a result the IMF provides the financing quickly and without strict conditions. The country merely needs to show the IMF that it is facing a crisis, that it will use the funds to deal with the crisis, that it will cooperate with the IMF to solve the balance of payments problems caused by the crisis and to describe the economic policies that it proposes to follow. </p>
<p>In some cases, the IMF may require the country to undertake certain policy actions before it can access the funds.</p>
<p>In South Africa’s case, the country’s payments problem relates to the fact that the economy is expected to contract by about 7% this year and the budget deficit to increase to <a href="https://www.gov.za/speeches/minister-tito-mboweni-2020-supplementary-budget-speech-24-jun-2020-0000">about 15% of GDP</a>. This means that the government will need to increase the amount it has to borrow. Given that it has been <a href="https://www.fitchratings.com/research/islamic-finance/fitch-downgrades-south-africa-to-bb-outlook-negative-03-04-2020">downgraded</a> by <a href="https://www.reuters.com/article/safrica-ratings/moodys-downgrades-south-africa-sovereign-rating-to-junk-idUSL8N2BK8M5">credit rating agencies</a>, and that the economy is in bad shape, there is a substantial risk that both local and foreign investors will have a limited appetite for South African debt. This will complicate the government’s efforts to finance the deficit. </p>
<p>The IMF loan helps resolve this problem. </p>
<p>South Africa provided the requisite information to the IMF in the form of a letter of intent signed by the minister of finance and the governor of the Reserve Bank. The letter has not yet been made public. But, according to the <a href="https://www.imf.org/en/News/Articles/2020/07/27/pr20271-south-africa-imf-executive-board-approves-us-billion-emergency-support-covid-19-pandemic">IMF press release</a>, South Africa seems to have informed the IMF that it intends to take certain steps to stabilise the country’s finances. This means that the government will cut government spending to reduce its need to borrow. The current disputes over public sector wages and funding for state owned enterprises are examples of steps it could take. The government has also said it will improve the governance of state owned enterprises, and introduce reforms to stimulate a growing and inclusive economy. These reforms could include measures to improve competition in different sectors of the economy. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/south-africans-should-accept-that-the-imf-is-neither-their-worst-enemy-nor-their-saviour-143199">South Africans should accept that the IMF is neither their worst enemy nor their saviour</a>
</strong>
</em>
</p>
<hr>
<p>South Africa made these undertakings in last October’s <a href="http://www.treasury.gov.za/documents/mtbps/2019/mtbps/FullMTBPS.pdf">medium term budget statement</a> and in the supplementary budget statement in <a href="https://www.gov.za/speeches/minister-tito-mboweni-2020-supplementary-budget-speech-24-jun-2020-0000">June this year</a>. </p>
<p>This suggests that the IMF is merely expecting the country to implement the policies already announced by the government.</p>
<h2>How will the money be disbursed?</h2>
<p>This kind of financing is provided in one payment. The IMF press statement doesn’t say when the funds will be disbursed but the goal is to make the funds available “rapidly”. That could be as early as August. </p>
<p>Once the funds are disbursed, the government will be free to spend them. According to the national treasury’s <a href="https://www.gov.za/speeches/treasury-imf-approval-us43-billion-financial-support-south-africa-deal-coronavirus-covid-19">statement</a>, it plans to use the money to support health and frontline services, to protect the vulnerable, drive job creation, support economic reform and stabilise public debt. </p>
<p>These are all consistent with the purpose of the Rapid Financing Instrument and the government’s stated intentions. </p>
<p>But these purposes are very general and we will need to see more detail about what exactly the government will spend the funds on.</p>
<h2>What restrictions are there on the government’s ability to use the money?</h2>
<p>The IMF loan <em>does not</em> impose any conditions over and above what is in South African law on how the funds can be used. Consequently, the funds will be subject to the same procurement and accounting requirements as all other budgetary expenditure. </p>
<p>In addition, the government will have to account in its future budget statements and reports to parliament on how the funds have been used. South Africans will also be able to demand that the government demonstrate that the funds have been spent consistently with the requirements of the constitution and bill of rights. This means the government should show that it is using the maximum available resources, from whatever source, to help realise all the rights that the constitution and South Africa’s international commitments grant to South Africans.</p>
<p>The IMF requires that South Africa repay the funds to the IMF over 20 months beginning 40 months after the loan is disbursed. This means that South Africans will need to ensure that the funds to repay the IMF are properly budgeted for.</p>
<h2>What are the upsides of the loan?</h2>
<p>The most important benefit is that South Africa is getting $4.2 billion at about 1.1% interest. This is a very cheap source of funds. If the government tried to raise the same amount either on domestic markets or from other international sources it would pay a considerably higher interest rate – the current rate for government bonds of comparable maturity is about <a href="http://www.worldgovernmentbonds.com/country/south-africa/#:%7E:text=The%20South%20Africa%2010Y%20Government%20Bond%20has%20a%209.155%25%20yield.&text=Normal%20Convexity%20in%20Long-Term,last%20modification%20in%20July%202020">7%</a>.</p>
<p>The second potential benefit is that the IMF loan will catalyse other funds for the country. In other words investors in South Africa and abroad will interpret the IMF’s action as an expression of support for South Africa and this will give them the confidence to invest in South African debt. Given that foreign investors hold about <a href="https://sec.report/Document/0001104659-20-044565/">30% of South African government’s rand denominated debt</a> this boost to confidence could be important. It will both reduce the incentive of these investors to sell their government bonds, potentially pushing up interest rates, and enable the government to issue new debt if needed.</p>
<p>The third benefit is that by helping to stabilise South Africa’s situation, it will limit the damage that may be inflicted on the neighbouring countries. This, in turn, could help South African exports and thus help preserve jobs and income in South Africa.</p>
<h2>What are the downsides?</h2>
<p>The most significant downside is that the loan is denominated in foreign exchange. Thus South Africa has to bear the risk that if the rand depreciates, the loan and the interest on it will become more expensive. Given the state of the South African economy, this is not an insignificant risk. </p>
<p>But it’s important to keep in mind that the IMF denominates the loan and the repayment obligations in Special Drawing Rights. These are the IMF’s special form of money and its value is made up of a composite of a basket of currencies. These include the US dollar, the euro, the Japanese yen, the Chinese renminbi and the pound sterling. The values of these currencies tend to fluctuate against each other so that some appreciate while others depreciate. This helps mitigate the foreign exchange risk that South Africa must bear.</p>
<p>The second risk is that if South Africa does not use the funds from the IMF wisely, the country’s economic situation will deteriorate and it will struggle to pay back the debt. </p>
<p>If this happens or the pandemic lasts longer than anticipated, the country could be forced to seek additional support. In either case South Africa’s negotiating position would be significantly weaker.</p><img src="https://counter.theconversation.com/content/143553/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Danny Bradlow's SARCHI chair is funded by the National Research Foundation. He also has a grant from the Open Society Initiative of Southern Africa (OSISA) for a project on sovereign debt in the SADC region. </span></em></p>The IMF loan does not impose any conditions over and above what is in South African law on how the funds can be used; it only seems to expect the country to implement policies already announced.Danny Bradlow, SARCHI Professor of International Development Law and African Economic Relations, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1164052019-05-06T14:04:43Z2019-05-06T14:04:43ZHow Sudan’s economic crisis had a role in protests that toppled al-Bashir<figure><img src="https://images.theconversation.com/files/272520/original/file-20190503-103057-y9htw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Protesters in Sudan demanding the end of military rule.</span> <span class="attribution"><span class="source">EPA-EFE/Stringer</span></span></figcaption></figure><p>The trigger for the demonstrations that brought the downfall of President Omar al-Bashir in April was the <a href="https://www.france24.com/en/20181220-sudan-protest-corruption-bashir-food-prices-bread-sadeq-al-mahdi-economy">trebling of the price of bread</a> last December. It came after a <a href="https://www.bloomberg.com/news/articles/2018-10-07/sudan-revalues-exchange-against-u-s-dollar-to-47-5-from-29">major devaluation</a> of the Sudanese pound in an effort to make the official rate for the pound drop to that of the black market. With the International Monetary Fund pushing for austerity and the rate of inflation hovering <a href="https://tradingeconomics.com/sudan/inflation-cpi">around 70%</a>, the camel’s back was finally broken. </p>
<p>In fact the immediate cause of the economic crisis that brought many thousands of Sudanese out onto the streets in December last year and continued up to and beyond al-Bashir’s downfall lay in the structure of the economy itself. </p>
<p>Sudan’s inherited economy from the colonial era consisted primarily of agricultural exports, particularly cotton. But after independence in 1956 that went into a long decline in the face of man-made fibres and a lack of success in developing of alternative crops – with the partial exception of sugar.</p>
<p>In the 2000s the country experienced <a href="http://documents.worldbank.org/curated/en/809251468102891015/pdf/754930BRI0Suda00Box374332B00PUBLIC0.pdf">something of a boom from oil</a>. But the new wealth wasn’t funnelled into the productive economy – particularly agricultural renewal. Rather it went into short-term rent seeking activities such as urban construction and the expansion of commercial activities. </p>
<p>At the same time the country’s radical Islamism brought US economic sanctions that limited international capital and the prospect of economic diversity. And under the Islamist military regime – in place since 1989 – new wealth went largely to the security apparatus, the government created ruling party and ethnic and regional friends. </p>
<p>This all added up to a highly corrupt system of “crony capitalism”. In addition, Sudan’s <a href="https://www.reuters.com/article/us-sudan-politics-debt/bashir-ouster-rekindles-interest-in-long-defaulted-sudan-loans-idUSKCN1RO24S">large long running debts</a> hung over the country.</p>
<h2>The role of oil</h2>
<p>The development of oil in Sudan was delayed for many years by civil war in the south, where most of the oil fields are located. But by the end of the 1990s security had permitted development with the southern rebels being pushed back, though not defeated. </p>
<p>Under growing international pressure the military rulers and the southern rebels finally moved towards peace, and in 2005 <a href="https://www.un.org/press/en/2005/sc8306.doc.htm">an agreement was reached</a>. It aimed at a national government but conceded that if that proved unworkable the south, including most of the oil fields, would have a right to a referendum on independence. </p>
<p>In 2011 southerners overwhelmingly chose independence and South Sudan became the <a href="https://www.bbc.com/news/world-africa-14069082">world’s newest state</a>. Since then the Sudan government’s oil income has shrunk by about 75%. One reason has been the fluctuating world price of oil, but others are more local. </p>
<p>Oil from South Sudan is pumped north through Sudan to be exported via the Red Sea. After South Sudan’s independence a dispute between the two states about pipeline rents led at one stage to South Sudan closing all its oil production for a year. The flow later restarted, but was once more restricted when South Sudan itself plunged into <a href="https://www.bbc.com/news/world-africa-25427965">civil war</a> in 2013, ended only by a <a href="https://www.reuters.com/article/us-southsudan-sudan/south-sudan-frets-over-whether-sudan-coup-will-derail-fragile-peace-idUSKCN1RN29U">fragile peace</a> last year.</p>
<p>The cuts in revenue from oil, combined with sluggish economic growth, led to rising discontent. This came to a head when the government cut subsidies on basics such as bread and oil. </p>
<p>In 2015 a particularly widespread series of demonstrations was met with a violent response. But the causes of discontent remained largely unaddressed and the situation for many people continued to deteriorate, in spite of a partial easing of US sanctions.</p>
<h2>What needs to be done</h2>
<p>This time around the first mass demonstrations started, unusually, not in the capital but in the regions and in particular in the city of Atbara – which has long been a centre of radical secular thinking – before spreading to the capital in Khartoum. </p>
<p>With memories of the killings of 2015 still fresh there was a good deal of planning going on among the different opposition groups. The security forces also remembered 2015 and this time there was little use of live ammunition, trying to contain rather than shoot the demonstrators in their increasingly well planned and growing efforts.</p>
<p>To restore the economy the post-Bashir government will need to clean up corruption; revive small-scale agriculture in the regions; restore health and education services; and attract investment for productive jobs for underemployed, educated young people who have been the backbone of the uprising.</p><img src="https://counter.theconversation.com/content/116405/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Robert Woodward received funding from The Leverhulme Trust.</span></em></p>The immediate cause of the economic crisis that brought many thousands of Sudanese onto the streets and continued beyond al-Bashir’s downfall lay in the structure of the economy itself.Peter Robert Woodward, Emeritus Professor of Politics and International Relations, University of ReadingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1045292018-10-12T13:26:22Z2018-10-12T13:26:22ZArgentina bets 60 percent interest rates – and $50B international bailout – will revive its economy<figure><img src="https://images.theconversation.com/files/240363/original/file-20181012-154573-1mxharx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Argentines protest the austerity measures of the IMF bailout. </span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/APTOPIX-Argentina-Economy/42ae5e1435f74296a09b6b3a713a6749/70/0">AP Photo/Natacha Pisarenko</a></span></figcaption></figure><p><em><a href="https://theconversation.com/reactivara-la-economia-argentina-un-rescate-internacional-de-50-000-millones-de-dolares-105008">Leer en español</a></em>.</p>
<p>An economy in <a href="https://www.bloomberg.com/news/articles/2018-09-04/argentina-to-go-deeper-into-recession-central-bank-survey-says">recession</a>. Pesos <a href="https://money.cnn.com/2018/05/04/investing/emerging-markets-argentina-turkey/index.html">fleeing the country</a>. The <a href="https://www.wunderground.com/cat6/most-expensive-weather-disaster-2018-39-billion-drought-argentina-and-uruguay">worst drought in decades</a>. The world’s <a href="https://www.cbc.ca/news/business/argentina-central-bank-interest-rates-1.4805032">highest interest rates</a>. The <a href="https://www.businessinsider.com/argentina-bailout-50-billion-loan-biggest-in-imf-history-2018-6">biggest bailout</a> in the history of the International Monetary Fund. </p>
<p>Sound scary? </p>
<p>For Argentina, it’s more of the same, as it has suffered through many <a href="https://www.reuters.com/article/us-argentina-debt-chronology/chronology-argentinas-turbulent-history-of-economic-crises-idUSKBN0FZ23N20140730">economic crises in recent decades</a>. And pretty much every time, the catastrophic meltdowns ended with some combination of unsustainable national debt, high unemployment, rising poverty rates, looting, bank runs, capital flight and hyperinflation. </p>
<p><a href="https://theconversation.com/profiles/robert-h-scott-iii-380235">We’ve</a> been <a href="https://www.monmouth.edu/directory/profiles/ken-e-mitchell/">following</a> the ebbs and flows of the Argentine economy for two decades and are currently wrapping up a book on economic and fiscal policy in Argentina, Brazil and Chile. We’ve been wondering, could Argentina’s latest crisis turn out differently than the others? </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/240341/original/file-20181011-154583-19pyvz4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/240341/original/file-20181011-154583-19pyvz4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/240341/original/file-20181011-154583-19pyvz4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/240341/original/file-20181011-154583-19pyvz4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/240341/original/file-20181011-154583-19pyvz4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/240341/original/file-20181011-154583-19pyvz4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/240341/original/file-20181011-154583-19pyvz4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A man serves food at a soup kitchen along a main avenue.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Argentina-Economy/fd9fe6e06f2b4eb596951adf69498747/22/0">AP Photo/Natacha Pisarenko</a></span>
</figcaption>
</figure>
<h2>It didn’t have to be this way</h2>
<p>It’s not terribly hard for us to pinpoint what went wrong, since <a href="https://monthlyreview.org/2017/06/01/old-malbec-in-new-bottles/">we predicted</a> it last summer. </p>
<p>But it didn’t have to happen this way. Only two years ago, Argentina’s leadership had appeared to learn lessons from the past and were governing the economy pretty effectively. </p>
<p>After the country’s last crisis ended in <a href="https://www.economist.com/special-report/2002/02/28/a-decline-without-parallel">default</a> and massive poverty in 2002, the government was operating under strict financial constraints. Argentina’s leaders had to find ways to support its currency, increase tax revenue, lower poverty and increase employment. And they <a href="https://doi.org/10.2753/0577-5132570605">largely succeeded</a>, which led to a stronger financial sector and peso, Argentina’s currency, for three main reasons. </p>
<p>First, while past governments responded to crises by adopting austerity policies, in 2003 the newly elected President Nestor Kirchner instead increased government spending using pesos (instead of borrowed dollars) to assist the poor, which in turn helped spur consumer spending. This <a href="https://www.wilsoncenter.org/sites/default/files/LAP_090716_Lustig%20Bulletin%20ENG_1.pdf">led to less poverty</a>, unemployment and income inequality.</p>
<p>Second, capital controls were implemented to keep pesos in Argentina. This ensured there wouldn’t be another run on the currency. </p>
<p>Finally, and most importantly, the government began using direct deposits to pay salaries and provide benefits, which <a href="https://www.tandfonline.com/doi/abs/10.1080/01603477.2018.1431797">significantly increased</a> the percentage of the population in the formal banking system. Before then, more than half of citizens didn’t have a bank account or credit card, making it harder for the government to know their true earnings and tax them. </p>
<p>Thanks to the changes, the share in the banking system jumped to 90 percent, leading to record value-added tax collections, the Argentine government’s <a href="https://read.oecd-ilibrary.org/taxation/revenue-statistics-in-latin-america-and-the-caribbean-2015/the-oecd-classification-of-taxes-and-interpretative-guide_rev_lat-2015-7-en-fr#page3">most important revenue stream</a>. As a result, the country’s tax-to-GDP ratio – which is a measure of how well the government is collecting revenue – soared from an average of around 19 percent in the 1980s and 1990s to 32 percent in 2015, the <a href="https://www.iadb.org/en/news/news-releases/2017-03-23/tax-revenues-continue-to-rise-in-latin-america-in-2015%2C11749.html">highest in the region</a> – something unthinkable only a decade prior. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/240340/original/file-20181011-154577-1987fya.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/240340/original/file-20181011-154577-1987fya.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/240340/original/file-20181011-154577-1987fya.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/240340/original/file-20181011-154577-1987fya.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/240340/original/file-20181011-154577-1987fya.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/240340/original/file-20181011-154577-1987fya.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/240340/original/file-20181011-154577-1987fya.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Macri’s end of capital controls may have been a mistake.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Argentina-Economy/4b525f00ec0a493fb53ba85c03610e5f/5/0">AP Photo/Natacha Pisarenko</a></span>
</figcaption>
</figure>
<h2>Stoking a crisis</h2>
<p>So when Mauricio Macri became president at the end of 2015, there was a foundation of beneficial policies in place that supported the government’s coffers.</p>
<p>He also had <a href="https://www.worldfinance.com/special-reports/a-history-of-economic-trouble-in-argentina">some challenges</a> to contend with. Government spending was rising too quickly, while inflation was hitting 30 percent a year. But instead of tightening the reins on spending and pursuing a path of fiscal responsibility, the center-right Macri decided to cut taxes for businesses and <a href="https://www.reuters.com/article/us-argentina-economy-idUSKBN0U71AV20151224">borrowed record amounts</a> in dollars to do so – all without reducing government spending. At the same time, he eliminated the capital controls put in place in 2002. </p>
<p>Unsurprisingly, all of this made the country more vulnerable to a crisis, which began in May when a particularly bad drought – the <a href="https://www.wunderground.com/cat6/most-expensive-weather-disaster-2018-39-billion-drought-argentina-and-uruguay">most expensive in Argentina’s history</a> – dried up important export crops, such as soybeans and corn. Argentina is the world’s <a href="https://www.worldatlas.com/articles/world-leaders-in-soya-soybean-production-by-country.html">third-largest exporter of both</a>.</p>
<p>Foreign investors, concerned about the government’s ability to meet its obligations, <a href="https://www.businesslive.co.za/bd/world/americas/2018-10-09-argentinas-peso-extends-rally-as-central-bank-frets/">began dumping short-term central bank debt</a>. Meanwhile Argentines, well-versed in any whiff of economic trouble, began to get rid of their pesos too. </p>
<p>By June, Argentina was seeking help from the International Monetary Fund in the form of a <a href="https://www.theguardian.com/business/2018/jun/08/argentina-loan-imf-protests-peso">US$50 billion line of credit</a>, which is the <a href="https://www.businessinsider.com/argentina-bailout-50-billion-loan-biggest-in-imf-history-2018-6">most a country has ever received</a> from the institution.</p>
<p>But the injection of credit, as well as the central bank’s decision to <a href="https://www.bloomberg.com/news/articles/2018-09-11/argentina-holds-rate-at-world-high-60-percent-to-fight-inflation">hike interest rates</a> to a world-high 60 percent, did little to stem the peso’s slump. The peso <a href="https://www.xe.com/currencycharts/?from=ARS&to=USD&view=1Y">is down</a> almost 50 percent in value since April versus the dollar. </p>
<h2>Where will it lead</h2>
<p>Fast forward to today.</p>
<p>The crisis <a href="https://frontera.net/news/latam/argentinas-new-currency-crisis-what-happened-this-time/">has eased a bit</a> as the peso stabilizes at just under 40 pesos per dollar – near its worst ever – which cost $15 billion of the IMF’s money to achieve. And the central bank is selling lots of bonds with interest rates over 60 percent to hold it there. </p>
<p>In other words, three months of 60 percent interest rates and billions of IMF cash have proved it’s expensive to wrestle the peso into submission. Even worse, all that borrowed money will need to be paid back, which puts further stress on the economy.</p>
<p>Meanwhile the IMF, which agreed to send over an additional $7 billion, is <a href="https://www.bloomberg.com/news/articles/2018-10-09/imf-sees-deeper-recession-in-argentina-slower-growth-in-brazil">forecasting</a> a deeper-than-expected recession. </p>
<p>While this does in fact look rather scary, fortunately, there’s room for optimism. And to answer our earlier question, yes, we do believe Argentina is not doomed to follow past crisis missteps and can return to a sustainable path of growth. </p>
<p>It’ll depend, however, on whether Argentina follows through on the IMF’s condition to eliminate the budget deficit by 2019. And whether it adopts other prudent policies such as increasing public revenue by re-instituting export taxes and putting in place currency controls to ensure a stable peso. </p>
<p>This is the approach Macri should have taken in December 2015. Still, it’s better late than never.</p><img src="https://counter.theconversation.com/content/104529/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A deep recession, a severe drought and a plunging currency have led to the biggest bailout in IMF history. The government hopes it can avoid the meltdowns that followed past crises.Robert H. Scott III, Professor of Economics & Finance, Monmouth UniversityKenneth Mitchell, Associate Professor of Latin American Politics, Monmouth UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1019392018-08-22T10:37:33Z2018-08-22T10:37:33ZVenezuela’s ‘desperate’ currency devaluation won’t save its economy from collapse<p><a href="https://theconversation.com/la-devaluacion-desesperada-de-la-moneda-de-venezuela-no-evitara-un-colapso-economico-102019"><em>Leer en español</em></a>.</p>
<p>Venezuela <a href="https://www.bloomberg.com/news/articles/2018-08-19/venezuela-s-95-devaluation-adds-to-turmoil-after-drone-attack">recently announced</a> one of the most dramatic currency reforms in history in a move that essentially devalues the bolivar by about 95 percent.</p>
<p>Its ironically named bolivar fuerte, meaning “strong,” first introduced 10 years ago, will be replaced by a new “sovereign” version at a conversion rate of 100,000 to one sovereign. At the same time the government’s official exchange rate will be bumped from 285,000 bolivars per dollar to 6 million.</p>
<p>In my experience as a <a href="https://scholar.google.com/citations?user=A68mHsQAAAAJ&hl=en">scholar of currencies</a>, I have rarely seen a devaluation this large. In effect, Venezuela has confessed that its money has become virtually worthless and it is time to start over. </p>
<p>But is a new start even possible? </p>
<h2>Hyperinflation on steroids</h2>
<p>The reason for the reform is clear: inflation. </p>
<p>In recent years, price increases in Venezuela have accelerated exponentially and have long since entered the realm of hyperinflation, which is like inflation on steroids. Almost all countries experience some inflation but rarely at a rate higher than low double digits. Hyperinflation is when the rate surpasses 50 percent or more and begins to accelerate uncontrollably to triple digits and beyond. </p>
<p>In today’s Venezuela, domestic prices <a href="https://www.bloomberg.com/news/articles/2018-08-19/venezuela-s-95-devaluation-adds-to-turmoil-after-drone-attack">are rising</a> at an annualized rate of 108,000 percent. And economists at the International Monetary Fund <a href="https://www.bloomberg.com/news/articles/2018-07-23/venezuela-s-inflation-to-reach-1-million-percent-imf-forecasts">estimate</a> that by the end of the year the rate could top 1 million percent – imagine the price of milk tripling every minute. </p>
<p>For families on fixed incomes, the effect of this is devastating. Money that once sufficed to put a full meal on the table suddenly cannot even buy a loaf of bread. Household essentials that were once easily affordable require wheelbarrows of cash.</p>
<p>That’s why I believe these are the desperate acts of a harried government rapidly running out of options.</p>
<h2>Odds of success</h2>
<p>Venezuela is hardly the first country to respond to out-of-control inflation with a currency redenomination. <a href="https://www.nytimes.com/1983/02/20/world/brazil-s-currency-is-devalued-30.html">Many other nations</a> over the years have found themselves in the same bind. </p>
<p>In one decade, from the mid-1980s to the mid-1990s, neighboring Brazil <a href="http://www-personal.umich.edu/%7Ekathrynd/Brazil.w06.pdf">burned</a> its way through no fewer than four currencies, from the cruzeiro to the cruzado to the cruzado novo to the cruzeiro real, each time lopping off three zeros. During the same period, Argentina <a href="https://economics.rabobank.com/publications/2013/august/the-argentine-crisis-20012002-/">did the same</a>. And more recently, in the first decade of the new millennium, Zimbabwe <a href="https://www.forbes.com/sites/stevehanke/2017/07/31/zimbabwe-from-disaster-to-disaster/">repeated the agony</a>, lopping off six and later nine zeros as one new dollar followed another.</p>
<p>Regrettably, redenomination on its own can do little to rein in inflation. Mainly, all it does is make life easier for ordinary citizens for a while.</p>
<p>In Venezuela, a cup of coffee that last week cost as much as two million bolivars will now sell for a mere 20 bolivars. Venezuelans will no longer need a calculator and a backpack or two of cash when they go out to buy groceries. Prices will descend from the stratosphere. </p>
<p>But the benefit will be short-lived if nothing else is done to slow inflation. If prices in the local café or produce market continue to rise, purchasing power will again be eaten away. Prices will return to the stratosphere.</p>
<h2>What devaluation is supposed to do</h2>
<p>The key element of a currency reform is devaluation, which in principle is meant to stimulate domestic economic growth. </p>
<p>In the conventional textbook model, a devaluation simultaneously lowers the foreign price of exports and raises the domestic price of imports, hence expanding demand for domestic exportables and import substitutes. In other words, foreigners buy more of a country’s goods because they’re suddenly cheaper. At the same time, foreign goods become more expensive, encouraging locals to buy more domestic substitutes. The greater production that results, in turn, would then be expected to ease inflationary pressures.</p>
<p>But textbook models, as any student of economics quickly learns, are simple – if not simplistic – affairs that rely on a lot of hidden assumptions that may turn out to be misleading. In the real world, complications are everywhere. </p>
<p>In Venezuela’s case, <a href="https://www.forbes.com/sites/stevehanke/2017/07/31/zimbabwe-from-disaster-to-disaster/">98 percent of export revenues</a> are derived from oil, whose price is set in world markets in dollars, not locally in bolivars. Devaluation of the bolivar will not change the price paid for Venezuelan crude. </p>
<p>This is a problem faced by many developing nations that rely extensively on commodity exports, including Brazil and Zimbabwe. Their lack of control over world market prices is ignored in standard textbook models.</p>
<p>Likewise, in an economy like Venezuela’s, which has become so specialized in terms of what it produces, there’s little domestic capacity to manufacture goods that can substitute easily for imports, regardless of their price. Venezuelans cannot suddenly start producing the vehicles or medical equipment or heavy machinery that in recent decades have been purchased abroad. That is another complication unaccounted for in conventional models.</p>
<p>Worst of all, devaluation may actually exacerbate the very problem it was meant to ease – namely, inflation. The more an economy relies on imports – as Venezuela does – the more the rising prices of imports will add to the cost of living, thus reinforcing the expectation among citizens that inflation will continue to accelerate, driving up wages and prices even more. </p>
<h2>Misery loves company</h2>
<p>Venezuela is not alone in its misery.</p>
<p><a href="https://books.google.com/books?hl=en&lr=&id=AK8JgJHYEfwC&oi=fnd&pg=PR7&dq=hyperinflation+devaluation&ots=ZI_zH2-hh6&sig=kby8lyTTroX-bM1pFiBZ3ka_fKA">Economic</a> <a href="https://www.cambridge.org/core/journals/journal-of-latin-american-studies/article/centralbank-distress-and-hyperinflation-in-argentina-198990/2DE46241D4627A2D6A28B9EBE955FA15">history</a> is <a href="https://www.tandfonline.com/doi/abs/10.1080/05775132.1989.11471303?journalCode=mcha20">littered</a> with <a href="https://www.taylorfrancis.com/books/e/9781134825837/chapters/10.4324%2F9780203030066-13">examples</a> of nations that have found themselves enmeshed in a vicious circle of inflation leading to devaluation leading to further inflation, and so on. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=898&fit=crop&dpr=1 600w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=898&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=898&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1129&fit=crop&dpr=1 754w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1129&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/232936/original/file-20180821-149478-omqi78.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1129&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Brazil also has a long history of hyperinflation and currency devaluation.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Watchf-AP-I-F-BRA-APHS460685-Brazil-Inflation/0c95fa2e27af497eb81e573ea1fa98a1/110/0">AP Photo/Altamiro Nunes</a></span>
</figcaption>
</figure>
<p>This happened to many European countries, especially Britain and <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/jae.610">Italy</a>, following the <a href="https://history.state.gov/milestones/1969-1976/oil-embargo">oil crisis of 1973</a>, when petroleum prices quadrupled. It happened to Brazil along with many other Latin American nations during the region’s “decade of lost growth” in the 1980s. </p>
<p>And it is <a href="https://www.reuters.com/article/us-turkey-currency/trump-vows-no-concessions-turkeys-lira-stays-under-pressure-idUSKCN1L60K7">happening today to Turkey</a>, where the Turkish lira has lost 40 percent of its value since January and inflation is rapidly accelerating. </p>
<p>To alleviate Venezuela’s inflationary spiral – and Turkey’s – it will be necessary to go to the source, which is excessive spending by the government funded by printing more money. In reality, it does not matter how the currency is denominated or how often it is devalued if the central bank keeps the printing press running night and day to satisfy fiscal appetites. </p>
<p>A saner monetary policy will not solve all of Venezuela’s economic and political problems, but it is the place to start. Without a cap on the financing of public debt, the vicious circle of inflation cum devaluation will go on without end.</p><img src="https://counter.theconversation.com/content/101939/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Benjamin J. Cohen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Venezuela recently devalued its bolivar by 95 percent to tame rabid hyperinflation that has been sending prices on everyday goods through the roof. If history is a guide, it won’t work.Benjamin J. Cohen, Professor of International Political Economy, University of California, Santa BarbaraLicensed as Creative Commons – attribution, no derivatives.