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By Catherine Bugayong, Global Development Issue Analyst

The United States’ complaints about China have only progressively increased in volume since the economy crashed in 2008. At issue here is the exchange rate, which China holds “fixed” at 6.65 yuan to US$1.

Unlike the Chinese yuan, the US dollar and (other major trading currencies such as the euro and the Japanese yen) are on a “floating exchange rate regime:” the value of the US dollar automatically changes in reaction to demand and supply in markets. For China to place the yuan on a “fixed exchange rate regime,” it must continuously buy and hold in reserve trillions of US dollars.

These actions have the United States grumbling that China is a “currency manipulator” and that the yuan is “undervalued.” The United States argues that keeping the yuan artificially low gives Chinese exports an unfair advantage. Pressured further by the US economy’s slow recovery, the House of Representatives passed a bill that permits the US government to set up tariffs against countries that undervalue their currencies. The bill awaits approval from the Senate and a signature from the President, but what the world is really waiting for is China’s reaction. Read the rest of this entry »

As most people I think know, Afghanistan does not have many exports, except for one, and as financially lucrative a crop it is, it is also illegal in many countries, including this one. I’m talking of course about opium. It has been and continues to be one of the only major industries in Afghanistan. It has also been used to wield significant power and authority within the Afghan government in Kabul and among the various provinces. The crop seemingly carries with it the stench of corruption, that infests the souls of those who operate within its trade.

However, according to the Pentagon, there may be hope for a new kind of industry in Afghanistan, and one that may even help to turn the tides of the war, which has been trending downwards as of late. The industry is minerals, and according to geological  studies of the landscape, it is a veritable “gold mine!”

As the article describes, the United States has desperately been looking for a way to develop the economy of Afghanistan away from opium, and into something more legal and therefore, more marketable to an international audience. The hope of course is for the Taliban and the people of Afghanistan to get distracted by the immense opportunities that the minerals industry will bring to the countryside, and so they will forget about the war and how their lives have been impacted by it.

I am all for economic development, when it is responsible and responsive to the desires of the native population and their physical environment. However, don’t count on me jumping for joy at the prospect of multi-national mineral extraction companies invading Afghanistan and investing millions or billions of dollars creating an industry from scratch in a country that already has a history of opposing foreign entities.

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As you enjoy your beer, barbecue, and fireworks this Independence Day, take a moment to toast to the UN International Day of Cooperatives.

The first Saturday of July has been reserved by the United Nations as a day to acknowledge and celebrate the contributions of cooperatives to cultural, social, and economic development around the world. This year’s theme, “Driving Global Recovery through Cooperatives,” highlights the strength and sustainability of cooperatives in driving endogenous economic growth, even in times of crises.

Despite worldwide instability of financial markets, food crises, and unequal trade agreements, co-ops provide a stable and local 144204source of financial services, living wages, and fair market access for producers. As the US and international community question the value of foreign assistance (“Moyo Ignites Debate with ‘Dead Aid”), cooperatives empower workers to help themselves rather than rely on charity. Additionally, co-ops are required to maintain a dedication to social and environmental responsibility, equality, independence, democracy, community, and self-help, making them a guiding moral light in the current corporate accountability crisis.

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From Leah Williams, the New Internationalist Blog:

I went on the Put People First protest with my Dad, the oldest rocker in town, last month. He turned to me at one point, with genuine surprise in his voice, and said: ‘There are loads of young people here!’ I wasn’t surprised: I’m young and I was there, but I was quite inspired, as I jumped in behind the anti-war coalition banner and saw four teenagers leading the procession and organizing their protesters with the rallying cry of ‘what do we want? Jobs not bombs! When do we want it? Now!’

It is hardly surprising that the perception of young people is that they are not interested in politics. Sadly, some young people have been stupefied by Reality TV and a barrage of magazines about Britney Spears’ cellulite and Cheryl Cole’s fake eyelashes. Politicians occasionally take it down a notch or two and talk to us ‘yoof’ about The X Factor and Jade Goody (may she rest in peace). I wonder if the political classes had a peek at the protesters during the G20 protests and realized that among the ageing communists, concerned about the drop in the value of their houses, and the usual eccentrics, there were swathes of young people, for whom the G20 and the current economic mess is not just about money. For young people this is about a political system that doesn’t represent their views, where the issues they really care about are not even part of the political agenda. Are the political classes finally getting the message? It is not that we don’t care about politics, it’s you who don’t care about our politics.

Youth politics, through music, cartoons and other young people’s media, concentrates on the irony and hypocrisy of a world system that has created inequality, subjugated the developing world and reinforced racism, classism and poverty on a national and international level.
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CB Trinidad Americas SummitWhile many the world over continue to celebrate the election of an African American to the highest post in U.S. government, participants in the IV People’s Summit  are waiting for more than rhetoric and token reformist changes.

While President Obama may be saying the right things, in the eyes of many, he has yet to confront the systemic oppression that U.S. foreign policy has afflicted on Latin America and the Caribbean for decades, if not centuries.

Easing the travel ban on Cuban Americans is not enough, they want an end to the blockade against Cuba and the state’s readmission to the OAS.  They want a foreign policy for the 21st century, not tired ideological battles of the Cold War.

Half a million in increased foreign aid and increased lines of credit will do little if economic and governmental structures are not changed to incorporate more active participation of the grassroots.  They demand a shift in objective from capital gains to human well-being and self-actualization.

New Energy and Climate Partnerships must be grounded in the lives and needs of everyday working people.  They demand sovereignty and systems that end poverty (not hand outs) over any form of corporate or state-led initiative at security.

Read for yourself. Is President Obama’s foreign policy grounded in structural changes that will prevent further crises, or is he working merely to advance an image of the United States and a failed form of capitalism for fear of exploration of true alternatives?  Or is he merely getting started, working within bureaucratic confines and the real change is yet to come?

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Guest post from Natalie McGarry:

vendorIn developing economies, the “informal sector” is full of babysitters, maids, gypsy cab drivers and gardeners. These workers do everything from selling food to stitching pants to making bracelets to selling wine from roadside stands. They’re paid in cash so their income is not reported to the government, and no taxes are paid.

The Wall Street Journal explains that contrary to conventional wisdom, the informal economy could be what’s saving developing countries from financial ruin.

Traditionally, the informal sector “is not something to be cheerful about,” as Nancy Birdsall of the Center for Global Development puts it. The Journal explains:

Economists have stressed the negative aspects of informal trade for decades. Informal businesses often don’t pay taxes, and they routinely lack the capital and expertise to be as productive as big enterprises, leading to less innovation and lower standards of living. Since informal workers lack health benefits and other safeguards, they have to save more for emergencies, resulting in less casual spending that further drags down growth.

In the current financial crisis, the Journal notes, the informal sector may actually be the saving grace of developing economies. With demand for export goods falling, many workers are being laid off from their formal sector jobs in factories and are turning to creative alternatives for income. Without these informal opportunities to make and sell products — at the market, on the roadside, or as street vendors — many would be destitute.

The WSJ article, “The Rise of the Underground,” highlights several of these informal workers, including a laid-off factory worker who built her own roadside stand to sell homemade medicinal wine to truckers. She now makes $3 more per day than she did at the factory.

So, this morning on my way to work, I was listening to a segment on the Diane Rehm show about international trade and the global recession.  I’ve been listening to a lot of radio talk shows on the global economy lately (including many of President Obama’s press conferences), and while the content of these programs isn’t typically designed to be amusing (war, strife, poverty, the faltering market), this one actually made me laugh!

The comment was in reference to the fact that the wages of American blue collar workers had really stagnated over the past thirty years, that the U.S. is the largest manufacturer in the world, and that we MUST find a way to make this economy grow again–the economy has got to grow.
What made me laugh is the fact that this premise of “economic growth,” upon which many of the current stimulus suggestions are being made, is rarely challenged, or at least accepted within mainstream dialogues.  I was reminded of Annie Leonard’s Story of Stuff (pictured above), in which Annie cleverly explains that the pursuit of infinite growth on a finite planet with a finite amount of resources is mathematically, logically, environmentally impossible.

I highly recommend you watch the full presentation–so worth it.  Even if you think you’ve mastered the basic concepts, Annie lays it out in such a straightforward and articulate way, that it makes you wonder how the growth wonks haven’t caught on yet.

If you’re interested in development policy and poverty-eradication programs, I highly recommend some background reading on development theory (not just economics).  This is the perfect moment to jump start this conversation.  What is development?  What does it look like and to whom?  What is the measure of success?  And who decides when you’ve arrived?

I meet more and more student these days taking classes in development policy or the politics of inequality, and would love to hear your thoughts.

In the past month, President Obama has implemented bold policy initiatives to reform America’s faltering economy, health care system, and education. Though he promised during his campaign to double foreign assistance by 2015, the President has tread cautiously in his effort to address global economic disparities. However, ignoring the impact of hunger and poverty abroad can pose significant risks of their own.

Setting aside the obvious moral imperative for Obama to fulfill his inaugural promise to provide smart assistance to the world’s impoverished, it is crucial for President Obama to quickly begin implementing efficient aid policies in the developing world for reasons of national security. As trade becomes more and globalized, so too do sophisticated modes of technology which allow for quicker means of communication and underground mechanisms for weapons distribution. Poverty easily breeds resentment. And, as we all know, resentment is prime fodder for terrorism, civil strife, and regional wars.

In a recent report by the Chicago Council of Global Affairs, scholars tackled the importance of economic growth in developing countries:

“Over the long term, a failure to enable agricultural growth will not only greatly limit the potential of Sub-Saharan African and South Asian economies to contribute to global prosperity, but likely mire us in unending regional conflicts and multiply our political and security threats. States that cannot feed their own people will tend to fail, opening the way for civil wars among armed militia groups or the development of new sanctuaries for terror groups that have sworn to do harm to America and its friends. Costly international peacekeeping interventions are a likely result.”

In the wake of WWII, United States policy makers united to restore economic vitality to war-torn Europe. They understood that a monumental piece of legislation, like the Marshall Plan, which pledged to rebuild the destroyed foundations of the continent, would be needed to repel future wars. As a result of their efforts, the period between 1948-1952 allegedly saw the fastest economic growth in European history.

Now, in 2009, with the dangers of climate change and destabilizing refugee crises just on the horizon for the world, similarly swift, bold, innovative international policy is undeniably necessary. In the past decade, under a new neo-conservative vision, we launched wars to forcefully instill democracies and Western-style governments in countries where we were not welcome.  We put the economic fates of these two nations in the hands of greedy private contractors. We sent our militaries into the deserts of Iraq and the mountains of Afghanistan to fight an elusive enemy. And today, we reap the consequences: an even angrier, more unstable Middle East and a nuclear Asian subcontinent on the verge of collapse.

These haunting statistics from a new report at the Chicago Council of Global Affairs are just a glimpse of what is to come if action is not taken in Africa:

“If climate change continues and if adequate investments in agricultural science are not made, the result will be an unprecedented tragedy. At the present time, roughly 45 percent of all agricultural production in Africa comes from lands that are hot, dry, and non-irrigated. Because of continued population growth, African farmers will not have the option of abandoning these lands. In fact, more farmers are moving onto drought-prone South Asia and Sub-Saharan Africa.”

Difficult domestic challenges may lure the President to focus inward, but what we need right is far more than fiscal stability. We need a globe ready to take on the challenges of the 21st century–increasingly scarce resources, ethnic wars, failed states, and numerous other challenges globalization has brought, or wrought.

The President recently reasserted his commitment to global partnerships for development and security in his budgetary address to Congress. But, he should be wary of increasing funds through the same inefficient, profit-motivated policies of the past decades and take steps to ensure that our aid dollars (they come from taxes after all) are monitored more closely to adequately address the needs of legions of disaffected, furious, fundementally wronged populations abroad.

Last night I was told that my stances on U.S. foreign policy are un-“American.”  While I personally believe that citizenship is an arbitrarily created concept and, therefore, does not automatically warrant greater attention than human solidarity, there is an economic logic to my critique that surpasses boundaries of nationality.

Take the issue of U.S. food aid.  In the most recent edition of Foreitimor_cpgn Policy Magazine, Helene Gayle, President and CEO of CARE USA, argues that U.S. food aid policy does “more harm than good.”  What she means is this:  under current U.S. food aid policy, the majority of food given to developing countries in crisis must be purchased from U.S. farmers and then shipped overseas on U.S. carriers in order to be distributed or sold at its final destination.  The problem: in an effort to ensure benefit for American workers and corporations into U.S. food aid policy, the U.S. Agency for International Development spends more on shipping and administration (65 cents on every dollar) than it does on providing actual food to the starving populations we aim to help.

Gayle points out that “the generosity of the U.S. government and its citizens would be far better served if more food aid came in the form of cash.”  Such a system would not only give humanitarian aid agencies more flexibility to respond more efficiently and appropriately, but would free up funds to be spend locally, stimulating production with developing countries towards stronger, more self-sufficient economies.

Is building stronger, more self-sufficient economies and communities abroad not the end goal of U.S. foreign assistance?  Some might say, “Well sure, but now you’ve cut out the American worker altogether.”  While this is true, the sacrifice is short-term.  We will spend less money in the long-term on foreign aid if we invest now in supporting developing countries as they build their own infrastructure and industries.  Countries with these qualities make better trade partners, a relationship which is and should be designed to create American jobs.

Besides, isn’t standing by inefficient programs simply because they create jobs something that the U.S. criticizes socialist governments for?

On the one hand, the global financial crisis has reverberated around the world. Millionaires are canceling or curtailing their spending which in turn affects the spa owners, household staff, boutique owners and others who service their needs. A poll in the Washington Post stated that many individuals are anxious about their future. Foundations have suffered losses and are cutting back on the amount and number of groups they are funding. The reasons behind the collapse seem complicated and obtuse.

Yet, in reality, there are as simple as the old adage “don’t put all your eggs in one basket.” The aggregation of banks from many to few is a lesson we should have learned before–there is security in diversity. By concentrating banking with a few large firms, the risks are also concentrated. As the Youtube video of Taleb and Mandelbrot (two brilliant thinkers) describes, the very process of globalization has led to a network effect (but not in a good way ).

In this case, interdependence makes the global financial system more vulnerable because risks are shared in complicated ways and mathematically, the overall effect is much larger. While networks and the effects they can have are usually considered desirable, as the butterfly effect (articulated by Mandelbrot) shows, one seemingly unrelated act can have a rippling effect throughout a system.

Many economists are looking to Keynsian economics and massive stimulus to resuscitate the economy and avert a depression. Others are pressing for increased trade talks and a revival of the Doha Round. A recent Foreign Affairs article proposes that the IMF and WTO coordinate more, particularly around currency issues. Yet, the diagnosis of the problem may be wrong.

While Keynsian economics makes sense and may contain the current crisis; the larger issue remains: we are now living in a networked global financial system. We need to have a better understanding of the system itself and seek new, innovative thinking about ways to remake the system to encourage pro-poor growth and mitigate risks rather than pool them. Encouraging a new Doha Round and relying on past economic formulas is not the answer.


August 2020

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