Economics focus - the ultimate blog

More documents

Recommendations

Info

28 Brieng Emerging markets and recession The Economist January 2nd 2010 2 bers of the G20 was larger than spending by the rich members. In that sense, emerging markets did more than their Western counterparts to combat global recession. Even countries that could not aord emergency programmes like China’s let their scal balances deteriorate as counter-cyclical spending got under way. In Africa, oil importers let their budget decits rise from 2.2% of gdp in 2008 to 6% in 2009. By ring-fencing social spending, developing countries managed to protect some of their poorest people. Brazil expanded the coverage of its assistance programme for the poor, called Bolsa Familia, by over 1m households to 12m. India expanded to the whole country a programme that guarantees 100 days’ employment on public works each year to any rural household that wants it. China’s massive stimulus programme may have forestalled disaster in the migrant-labour force. Half the 140m labourers working in Chinese cities returned home in early 2009; a fth stayed there, and another fth could not nd work when they returned to the cities. But as spending on infrastructure started to kick in, employment surged; by the middle of the year, joblessness among rural migrant workers was down to less than 3%. Beyond China, fear of social unrest associated with jobless migrants (as in 1997-98) has not materialised. A forthcoming study of 11 countries by Oxfam, a British NGO, found that migrants took new jobs, often at lower wages or with longer hours. In Vietnam some were even given money to stay in the cities by their families in the countrysidea kind of reverse remittance. But there was no mass return to the villages. Flexibility is strength The Oxfam study describes the myriad ways in which countries resisted the recession. Remittances held up better than expected. Parents refused to take their children out of class, or else switched them from private to public schools. Some even cut down on their own food to keep children in education. There were outright job losses in some parts of countries’ economies, such as export sectors and mining. But the commoner reaction to falling demand was to cut hours and wages, reduce benets and insist on more exible working conditions. In other words, the main result of the slowdown was not unemployment (though there was some) but a move towards more exible labour markets. How long this can go on is unclear. Cash-transfer and make-work schemes are expensive: most poor countries cannot afford them. Worse, the poorest were more vulnerable than middle-income countries anyway because of the food-price spike of 2007-08: hence the rise in the number of hungry people to 1 billion, the highest gure since 1970. In general, the informal sector (home workers, ragpickers, street ven- 2 Miserable rich People “satisfied with national conditions”, 2009, % Developing countries Rich countries 0 10 20 30 40 50 0 10 20 30 40 50 Source: Pew Global Attitudes Project % points change 2008-09 China 87 +1 India +2 Indonesia +10 Brazil -3 Russia -27 % points change 2008-09 Germany +9 United States +13 France -2 Japan +2 Britain -9 dors) has been hit harder than the formal sector and is beyond the reach of government anti-poverty programmes. Although developing countries have done what they can, it would be wrong to think their people have escaped the recession entirely. It is worth adding that not all the actions of developing-country governments have been equally enlightened. Emerging markets have been the worst sinners in a new round of protectionism. Whether you look at the number of new trade-damaging measures tracked by the World Trade Organisation, or the numbers of sectors or trading partners hurt, Russia, China and Indonesia are all among the top ve protectionists; Argentina is in the top ten. Rich countries have been slightly less destructive. Still, as Simon Evenett, a professor of trade at the University of Saint Gallen, Switzerland, points out, this is not as dreadful as it might have been, or as it was in the 1930s. Only four countries have implemented restrictions aecting more than a quarter of their product lines: across-theboard tari barriers are not the fashion. But as growth picks up and ghts for market share increase, these restrictions could lay a basis for further trade disputes. The tectonic consequence When the Earth’s tectonic plates grind against one another, they do not always move smoothly; sometimes they slip. A year after the West’s slump began to spread to emerging markets, it has become clear that the recession has been a moment of tectonic slippage, a brief but powerful acceleration in the deep-seated movement of economic power away from rich nations towards emerging markets. Since 2007, according to Goldman Sachs, the biggest emerging marketsBrazil, Russia, India and Chinahave accounted for 45% of global growth, almost twice as much as in 2000-06 and three times as much as in the 1990s. It used to be said that although emerging markets were contributing an expanding share of world growth, they could not claim to be the real engine for the global economy because nal demand for their exports lay in America. But that argument is weaker now that China has overtaken America as the main market for the goods of the smaller Asian exporters. The recession showed that economic power is leaching away from the West faster than was thought. Previous recessions have left most developing countries with their reputations for economic management in tatters, and with credibility to regain in capital markets. This time, it is the rich whose reputations have been damaged. The scal response of many emerging markets has enhanced their credibility, and they nd themselves with an unexpected reputation for scal prudence. The debt-to-gdp ratio of the 20 largest emerging markets is only half that of the top 20 rich nations. Over the next few years rich countries’ debt will rise further, so emerging markets’ indebtedness will be only one-third of theirs by 2014. Already there are signs that nancial markets are rewarding them for good behaviour. Sovereign-risk spreads have been lower in the biggest emerging markets than in some euro-zone countries; in 2009, Hong Kong did more initial-public oerings than New York or London. At the start of the crisis, a Mexican minister sighed: At least this time it’s not our fault. The comment was laden with sad irony: like everyone else, he expected that Mexico’s innocence would make no dierence and that emerging markets would be hammered anyway. But they have not been. So far the story of global recession in emerging markets has had that rarest of themes: virtue rewarded. 7
The Americas Álvaro Uribe’s Colombia Not yet the promised land Soacha A safer and richer country, but one that needs more jobs and better socioeconomic policiesas well as constant vigilance WILSON VEGA used to run a small farm near Barrancabermeja, in the broad, tropical valley of Colombia’s Magdalena river. He was negotiating to buy the farm from its owner. But FARC guerrillas began to visit. They sought to recruit his eldest daughter, who was then aged 14. In November 2006 the guerrillas called a town meeting and shot ve people whom they accused of collaborating with the army and right-wing paramilitaries. Mr Vega says he received glancing bullet wounds to his head and back. That was enough to persuade him and his wife to gather up their seven children and ee. Their new home is a one-room hut of corrugated iron and board on a steep hillside overlooking a dried-up lake bed in Soacha, a sprawling poor suburb of Bogotá, the capital. For this, Mr Vega pays 55,000 pesos ($27) a month in rent. He earns around 5,500 pesos a day recycling rubbish. As displaced people, his family get some money from the government, and he has bought a broken-down pickup. If he can scrape together the cash to get it running, he hopes to start a business selling fruit. But he also dreams of returning to farming in another, safer, rural area. Mr Vega’s two dreams are shared by many other Colombians. Creating the conditions in which they can be realised will be among the tasks facing the government to be chosen in a presidential election in May. In his two terms since 2002 Álvaro Uribe has made Colombia less violent. With American aid and a new wealth tax he has expanded the security forces by half. Better security in turn helped to boost economic growth (see chart). But there have been several recent security setbacksmost dramatically the kidnapping and murder by the FARC just before Christmas of the governor of Caquetá department, in the south-eastern lowlands. Mr Uribe himself says that the improvement in security is not yet irreversibleand that is why he is seeking to change the constitution to run for a third term. Yet Juan Manuel Santos, his former defence minister, who aspires to succeed him (if the president does not run again himself), is one of many politicians who diers. Although more needs to be done on security, he thinks this is now a less im- Diminishing returns Colombia Murders per 100,000 population 80 60 40 3 * ‡ + 20 † 0 – 0 3 2002 03 04 05 06 07 08 09 10 Sources: Colombian Ministry of Defence; IMF GDP, % change on a year earlier 9 6 *To November 30th † Estimate ‡ Forecast The Economist January 2nd 2010 29 Also in this section 30 Reforming Canada’s Senate portant issue than the lack of decent jobs and other socioeconomic problems. That is a sign of Mr Uribe’s achievement. His security build-up drove the FARC from heavily populated central Colombia to remoter areas. The FARC has shrunk to less than half its 2001 peak of 20,000 ghters and has lost several of its leaders (a dozen mid-level commanders were killed in 2009). The government persuaded some 30,000 right-wing paramilitaries to demobilise. It is trying to integrate many of them (and guerrilla deserters) into civilian life through education and training involving 34,000 people. In an ambitious, if awed, attempt to secure a modicum of justice, the attorney-general’s oce has so far obtained confessions by 158 former paramilitaries to 4,300 crimes, and identied some 40,000 victims who are supposed to be compensated. But problems persist. Urban violence rose again in 2009: a doubling of murders in Medellín, the second city and previously seen as successfully pacied, is particularly worrying. Several thousand former paramilitaries have returned to arms in what Mr Uribe says are criminal, drug-traf- cking gangs. (His left-wing critics claim they have political aims.) There are some signs that the FARC has reorganised, relying on landmines and snipers to demoralise the army. Although cocaine production has fallen by around half since 2001, according to estimates by the United Nations, drug money continues to fuel the guerrillas and other criminal gangs. It is their battles to control territory that have uprooted people like Mr Vega. According to CODHES, an NGO, some 4.6m Colombians have been displaced since 1985, and 380,000 in 2008 alone. But the government puts the overall gure at 3m since 1959 and says the trend is downward. A more powerful criticism is that Mr Uribe has shown little will to help 1
Page 2 and 3: IBM, the IBM logo, Lotus, Sametime,
Page 4 and 5: 4 Contents The Economist January 2n
Page 6 and 7: THANK YOU FOR MAKING US THE WORLD
Page 8 and 9: 8 Leaders The Economist January 2nd
Page 10 and 11: 10 Leaders The Economist January 2n
Page 12 and 13: Online The year ahead In anticipati
Page 14 and 15: 14 Executive Focus INTERNATIONAL TR
Page 16 and 17: 16 Executive Focus Board of Directo
Page 18 and 19: 18 Brieng Waziristan The Economist
Page 20 and 21: 20 Brieng Waziristan The Economist
Page 22 and 23: 22 United States The Economist Janu
Page 24 and 25: 24 United States The Economist Janu
Page 26 and 27: 26 Brieng Emerging markets and rece
Page 30 and 31: 30 The Americas The Economist Janua
Page 32 and 33: 32 Asia The Economist January 2nd 2
Page 34 and 35: Middle East and Africa 34 The Econo
Page 36 and 37: 36 Middle East and Africa The Econo
Page 38 and 39: 38 Europe The Economist January 2nd
Page 40 and 41: Britain 40 The Economist January 2n
Page 42 and 43: 42 Britain The Economist January 2n
Page 44 and 45: 44 International The Economist Janu
Page 46 and 47: 46 Business The Economist January 2
Page 48 and 49: 48 Business The Economist January 2
Page 50 and 51: 50 Brieng Women in the workforce Th
Page 52 and 53: Finance and economics 52 The Econom
Page 54 and 55: 54 Finance and economics The Econom
Page 56 and 57: Brieng Mobile-phone culture 56 The
Page 58 and 59: 58 Brieng Mobile-phone culture The
Page 60 and 61: 60 Science and technology The Econo
Page 62 and 63: Books and arts 62 The Economist Jan
Page 64 and 65: 64 Books and arts The Economist Jan
Page 66 and 67: 66 Courses Announcements The Econom
Page 68 and 69: 68 Tenders THE MINISTRY OF TOURISM
Page 70 and 71: 70 Economic and nancial indicators

Economics focus - the ultimate blog

Create successful ePaper yourself

Delete template?

Save as template?