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8| Economic By marTin feldsTein can nBe... ConT`d banks, in spite of the overall economic interest (reducing inflation), had defended their position opposing the credit ceiling. Bankers who talked to The Reporter at the time, more or less, reflected that cap stifled their main line of business—deposit mobilization and lending. In fact some of the banks, especially as the end of credit cap drew close, were more reluctant even to accept deposit. Though, it is neither possible to assort that the lift of the credit cap is a signpost that the bank being caught up between the two worlds, nor it is know where the balance tilts between these objectives, the fact that there are tough choices facing the bank every now and then is apparent, he argues. “This is what necessitating separating two roles, among other range of reasons, in other economies.” That being the case, the recent move by the central bank towards a secondary market structure for the newly emerging security markets is also inducing the same kind of criticism. According to the plan, a study which will lay out the market structure for what could be the next capital market structure is underway. With the state-owned Development Bank of Ethiopia (DBE) and Commercial Bank of Ethiopia (CBE) offering the first saving bonds in Ethiopia with interest rates slightly Eye www.ethiopianreporter.com The Reporter | Saturday |April 30, 2011 the G-20’s Cont`d from empty page 9 gestures The world’s 20 most important finance ministers and 20 most important central bankers traveled to Washington this month from every part of the globe to accomplish, predictably, exactly nothing. The subject of the G-20’s recent meeting was “global imbalances.” According to the communiqué issued by the group, the meeting focused on developing a procedure for identifying which G-20 countries have “persistently large imbalances” and why they have them. This delicate analytical task was assigned to the International Monetary Fund, which is to complete its work before the ministers’ next meeting in October. It hardly takes a team of IMF economists to answer these questions. Anyone who has taken a first-year undergraduate course in economics would have no difficulty in identifying the countries with the largest trade surpluses and deficits. The United States wins first prize with a trade deficit of more than USD 650 billion in the most recent 12 months. No other country comes close enough to be awarded second prize. The broader current-account indicator (which includes trade in services and net investment income) confirms America’s leading role: its external deficit is nearly USD 500 billion. No other country has more than a USD 100 billion current-account deficit. Even if we look at current-account deficits relative to countries’ GDP, America’s 3.3 percent ratio exceeds that of almost every other economy. The three countries with larger deficit-to-GDP ratios have a combined deficit of less than USD 70 billion – not enough to warrant the G-20’s attention. The country with the largest current-account surplus is, no surprise, China, with a positive balance of more than USD 300 billion. Japan and Germany are the only other countries whose current-account surpluses exceed USD 100 billion. China’s current-account surplus is four percent of its GDP. Several oil producers have larger relative current-account surpluses that, combined, exceed China’s in absolute terms. And there are several other European and Asian countries with higher relative current-account surpluses that together exceed that of China. But the G-20’s decision to focus only on member countries that account for more than five percent of its combined GDP will exclude these smaller countries from the spotlight. Only China and the US, and perhaps Germany and Japan, will be at center stage. So much for the not-so-difficult task of identifying the countries with big imbalances. But what about the causes of those imbalances? Every student of economics knows that a country’s current-account deficit is the difference between its national investment (in business equipment, structures, and inventories) and its national saving (by households, businesses, and government). That is not a theory or an empirical regularity. It is an implication of the national incomeaccounting definitions. The US has an enormous current-account deficit because the federal government’s dissaving (i.e., the fiscal deficit) drags down America’s above the deposit interest rates and with maturity date of five years and above. On the other hand, the public enterprises, like Ethiopian Electric Power Corporation (EEPCo) also issued guaranteed corporate bonds to the public. Hence all these came to the forefront, secondary market structure is required is apparent according to the statement from the NBE. Alemayehu Kebede, corporate communication directorate director, at the NBE told The Reporter that the study would launch the secondary markets, where government bonds already issued are going to be traded. However, economists like Eyob Tesfaye, former director of government financial institution supervision agency, it is a study completed a long time ago. In fact, according to him the market should have went live then as the study was adequately done. Apart from the duplication of efforts in repeating the same study, what seems to be a bit worrying for Eyob is that of the question of regulatory body for the new security market structure. He told The Reporter that the central bank itself is an active participant of the bond market; hence, it is not appropriate for the bank to take up the supervisory role as well. Besides others also question that if it is even possible to do all these tasks at time. overall national saving. And the reverse is true for the Chinese, German, and Japanese current-account surpluses. In each of those countries, the level of national saving exceeds domestic investment, leaving output to be exported and funds to be loaned abroad. So the policy actions needed to reduce the trade and current-account imbalances are clear enough. The US must raise its national saving rate by shrinking its budget deficit, which currently stands at nearly 10 percent of GDP. Fortunately, the desirability of doing so is now clear to every policymaker in Washington and to most of the American public. It will begin to happen as the massive “fiscal stimulus” enacted in 2009 comes to an end, the political process begins to deliver spending cuts, and economic growth yields more tax revenue. When President Barack Obama attends the G-20’s summit of heads of state in Cannes in November, he will no doubt agree to further reductions in the US budget deficit. But that will be an empty promise: the US president has far less control over legislation than government heads in parliamentary democracies like Britain or in countries like China. And Obama’s power is even more limited now that his Democratic Party controls only one house of the US Congress. The history of previous summits suggests that the president will promise in Cannes only what he has already proposed at home. The G-20 ministers and central bankers are, of course, in no position to change the behavior of either the US or China, whose recently adopted five-year plan makes clear that it will reduce national saving by increasing consumer spending and raising government outlays for services like health care. In other words, China will, for its own domestic reasons, reduce its current-account surplus. The same kind of national self-interest that is driving the Chinese to stimulate domestic spending was at work when the G-20 leaders met in London in April 2009 and agreed to take steps to stimulate their economies. That agreement was easy to achieve, since it was in each country’s interest to expand demand. The G-20 only ratified what was going to happen anyway. But the G-20 leaders and finance ministers nonetheless now point with pride to what they “accomplished” in London. The same is likely to happen over the next few years as the US reduces its fiscal deficit and thereby shrinks its current-account deficit while China reduces its national saving and thereby shrinks its current-account surplus. The leaders of the G-20 will no doubt claim credit for this achievement. Perhaps that is why they like to meet. Ed’s Note: Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan’s Council of Economic Advisers and is former President of the National Bureau for Economic Research. The article was provided to The Reporter by Project Syndicate the world’s pre-eminent source of original op-ed commentaries. With a unique collaboration of distinguished opinion makers from every corner of the globe Project Syndicate provides incisive perspectives by those who are shaping politics, economics, science, and culture. from page 7 With somewhat similar central bank dual natured responsibility with Ethiopia, the Chinese experience is drawn in bond market. People’s Bank of China (PBoC) is one playing the central bank role in economy. PBoC in fact like its counter-part in Ethiopia does hold both regulatory and monetary policy responsibilities together. The bank gets to decide both the policy aspect and supervise the financial sector players as a whole. Though, it also implies that the supervisory role of the bank entails control over the security market as well, the direct supervision of the bond and security markets falls under an independent commission; China Securities Regulatory Commission (CSRC). Nevertheless, there are also other economists that champion the idea of tight regulatory system; at least at the early stages of developments. Michael Melaku is one such person. He told The Reporter that as bond and security markets is one of the monetary policy instruments it should not be left unregulated. He feels that until the security markets gets stronger, there should be a regulation and who is better positioned to do it but NBE, he argues. Nevertheless, NBE’s regulatory and monetary management duties seem to remains to be a center of contention for quite sometime.
The Reporter | Saturday |April 30, 2011 Reporter POLITICS THE United for a cause Power chief to push ahead albeit diplomacy on Nile By yemaneh nagish Chief Executive Officer (CEO) of the Ethiopian Electric Power Corporation (EEPCo), Miheret Debebe, is determined to push the hydropower projects on the water resources that the country has in spite of diplomatic bickering and bilateral negotiations on the issue of Nile River. On a National conference held at the Ghion Hotel on Thrusday, where experts, politicians, religious leaders and the prominent personalities attended and about eight research papers presented on the issue of the Nile and power potential of the country, CEO of the EEPCo asserted that Ethiopia should go ahead with its power projects no matter what happens at formal negotiation tables. According to Mihiret, a unilateral strategy is the way to go when it comes to power projects. “Our primary focus should be on completing our projects, while conducting the negotiation is secondary (luxury),” he said. In his view, the basic priority lies in catching up with the fast track energy demand growth of the economy. In striking contrast to the position of mutual cooperation and bilateral negotiations that the Ethiopian politicians and scholars have been pursuing, the power chief seemed to differ. aU must support ethiopia on eritrea to keep nato out of africa By sam aKaKi [Ethiopia’s support for freedom in Africa is not new. In 1962, Ethiopia gave Nelson Mandela the priceless passport and military training, which helped to slowly bleed the diabolical apartheid system to death in 1994!] Miheret Debebe However, at the end of the conference, the attendees were drawn to this position and some views reflected in tea break group discussions participants seem to align with Mihiret’s view ‘diplomatic negotiations should be reduced to a secondary position’. The data shows that currently Ethiopia’s per capita energy consumption is only 100 k/W/H as opposed to the minimum target set in the millennium development goal is five times larger; 500 K/W/H, he explained. In my opinion article, ‘AU must keep NATO out of Libya, Africa’, printed in The Reporter March 19, last month, I deliberately failed to suggest any alternative to NATO intervention as a solution to some African rulers who have enslaved their people, and turned their countries into family estates. I wanted others to have their say. Thankfully, the Ethiopian Foreign Minister Hailemariam Desalegn has stepped forward and made an important announcement regarding Eritrea, a move that could become a template to be used elsewhere to keep NATO out of Africa. Addressing the press in Addis Ababa on 21st April, he said “We have embarked ourselves on regime change in Eritrea. This regime change is not by invading Eritrea, but by supporting the Eritrean people and groups which want to dismantle the regime. We are fully engaged in doing so.” (Reuters). A template for keeping NATO out of Africa The African Union, which has been ignored and humiliated by NATO over Libya, must welcome and support Ethiopia’s move, not least because it is a pre-emptive action that will prevent NATO from intervening in Eritrea before moving to other sub- Sahara African countries. Eritrea’s strategic position in the Red Sea, which connects the Suez Canal to the Gulf of Eden and the Indian Ocean, makes it a high priority candidate for NATO intervention purely for geo-political reasons. But the humanitarian case for Ethiopia intervention in Eritrea cannot be over-emphasised. www.ethiopianreporter.com “For one percent GDP growth some 2.5 percent energy growth is required, while we embarked on a Growth and Transformation Plan (GTP) targeting a minimum of 11 to 15 percent annually,” he said. In the next five years in order to keep pass with the energy demand growth of the economy, a minimum of 25 percent and a maximum of 32 percent growth is expected, according to Mihiret. In past 50 years, he went on explaining, Ethiopia’s rate of developing its power potential, which according to some forecast at the moment is as high as 45,000 MW, was 10,000 MW a year. “If things kept on going at this rate then we need 50 to 100 years to achieve our goals.” And he attributed this pass to the relentless campaigning of the Egyptians and lack of financial capacity to do it locally. On the other hand, the power chief also explained about other projects that are in the five year hydropower generation. He said that apart from the mammoth renaissance dam, other power plant projects like Genale III, Chemoga, plant which is expected to generate some 150 percent of the existing Tekeze dam generating capacity. The Chemoga power plant which will be built near Debremarkos, in the Amhara regional state is one of the hopeful projects to bridge the gap between the fast paced energy demand and the overall economy. However, On April 4, last month, the UN, no less, reported that over 400 African immigrants, mainly Eritreans, had drowned in the Mediterranean Sea, trying to go to Europe in search of a better life! Earlier, on July 8, last year, the BBC and other international media outlets had reported that more than 300 Eritrean young men and women had drowned in the Mediterranean Sea escape route to Europe! It is fair to say that many more Eritrean must have perished, and continue to perish in the Sahara desert. According ‘Desperate Dreams’, a BBC World Service documentary first aired in January 2008, “Every year, thousands of young people from sub-Saharan Africa set off across the desert dreaming of a better life in Europe. Sadly, dangers and exploitation greet and follow them to their unmarked graves. Many fall prey to ruthless smugglers or find themselves stranded in the Sahara desert or a foreign country without the means to continue or return home.” The AU’s moral and political responsibility How many more Eritreans and other African youths must be forced out by their oppressive leaders to go out in search of a better life in Europe only to end at the bottom of the Mediterranean Sea, leaving behind grieving families and friends before the AU says enough is enough? How many young African lives are worth one dictator? How many? History of African intervention in Africa Ethiopian intervention in Eritrea will not be without precedent in Africa. In 1979, Tanzania trained, |9 until these projects and the two giant projects of Renaissance and Gibe III Dams come in to being, Mihiret said, EEPCO is undertaking fast track wind energy projects in Adama and Ashegoda. “Our energy projects are also optimal mix of wind- Geothermal energy projects,” the power chief said. Furthermore, he also indicated that hydropower projects in the pipeline are low cost energy sources. He said that on average three to four US cents/K/W/H is the generating cost, while six US cent/K/W/H in Ethiopia as opposed to the price of providing the same amount in Europe which is as high as 50 US cent/K/W/H. Out of eight research papers presented at the conference, Ambassador Ibrahim Idris’s, former Ethiopian ambassador to Egypt, is another participant who sparked a hot discussion. The ambassador among other things recommended the formation of two important national organs to reinforce negotiation power of Ethiopia and pursuing strong national policy on the river basin. National Water Council, headed by the Prime Minister himself and National Water Experts’ Committee, chaired by the Ministry of Water and Energy, seemed to gained wider acceptance by the conference attendees. (Asrat Seyoum has contributed to this story) armed and “escorted” Ugandan refugee back home to remove Idi Amin who had turned their country into a massive graveyard for some 500,000 Ugandans and sent many more to exile. In 1962, Ethiopia gave Nelson Mandela the priceless passport and military training, which helped to slowly bleed the diabolical apartheid system to death in 1994!] In his book, the “Long Walk to Freedom’, Nelson Mandela has stated that Ethiopia did not only give him a passport bearing the name of David Motsamayi, but also military training! Mandela also disclosed that it was that Ethiopian passport, which enabled him to travel to the then Tanganyika (now Tanzania), Egypt, Tunisia, Morocco, Ghana, Senegal, Russia, the USA and London, to mobilise diplomatic and material support for the newly founded ANC military wing, Umkhonto we Sizwe, which eventually bled the diabolical apartheid regime to death. Eritrea must not be the last port of call. Eritrea must not be the first and the last port of call for the AU. It must also take similar actions in other African countries where leaders are using violence as a state policy to brutalise their people in order clinging to power until death. Last week, in Uganda, the main opposition leader and three times presidential candidate Dr Kizza Besigye was shot and thrown into jail, along with the leader of the Democratic party, Mr Norbert Mao ConT`d on page 25
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