BiZnomics Global Outfront Comments Off on BiZnomics Global Outfront 802

US – China Trade Talks

After months of trade war, the US and China agreed to a 90-day truce to work out their differences. It was scheduled to end on Friday, but President Trump lifted the ultimatum to increase tariffs after he was satisfied by progress made in several rounds of talks in Beijing and Washington.US China Talks

A White House economic official, Larry Kudlow, said on Thursday the two countries were on the brink of a ‘historic’ trade agreement. A meeting between Trump and his Chinese counterpart Xi Jinping, was also expected soon. After the latest round of talks in February, US Agriculture Secretary Sonny Perdue tweeted that China had committed to buying ‘an additional’ 10m tonnes of soybeans as a ‘show of good faith’.

US farmers rely greatly on such trade with China: in 2017 around a third of US soybean production – worth $14bn -– was exported there, where it is used for animal feed.

Chinese tariffs had already hit America’s farming regions hard.  Exports plummeted last summer when China imposed tariffs on US soybeans and other agricultural products.

Donald Trump has requested China to abolish tariffs on US farm produce arguing that it is very important for US farmers.

In the meantime, South China Morning Post on 19th April reported that China regrets WTO ruling that China’s Tariff Freight Quota System for rice, wheat and corn violates international trade rules. The verdict was given in a case filed by the administration of former President Barak Obama in December 2016.

The US government is also seeking a total reforms of the WTO including re-visiting China’s role in the international trading system as the US believes China should no longer designated as a developing country, enjoying favourable trade treatment as China has emerged the world’s second largest economy.  

 

Brexit Deadlock Continues

The British Prime Minister said she would step down if and when her Brexit deal was delivered. There was a desire for ‘a new approach, and new leadership’, she told a meeting of Conservative lawmakers. However, members of the House of Commons voted on a range of measures designed to break the impasse over Brexit — but failed to agree on any of them.

Brexit Deadlock ContinuesThe European Union has requested the UK to accept a six months delay with an option to leave earlier if the UK Parliament can agree to a deal, The European Union leaders agreed to another delay to the UK schedule withdrawal from the EU until October 31. In the meantime, the European parliament election is due in late May and if the UK does not take part in the election process it would be required of the UK to leave on June 01st without a deal as some observed. The Prime Minister of UK has suggested that she could still manage to get her withdrawal agreement passed through parliament, in time to avoid UK taking part in the European elections.

 

New Head at World Bank

Following President Trump’s announcement that Mr. Malpass would be the US candidate for election as the next President of the World Bank, Mr. Malpass won unanimous approval from the executive board of the bank, which has 25 members. The US holds a 16% share of board voting power and has traditionally chosen the World Bank’s leader. Traditionally, the US picks the World Bank President, Europeans choose the IMF Managing Director, and the Japanese do the same for the Asian Development Bank.

David Malpass has been selected as President of the World Bank Group for a five-year term from April 9, 2019. Mr. Malpass previously served as Under Secretary of the Treasury for International Affairs for the United States.  As Under Secretary, Mr. Malpass represented the United States in international settings, including the G-7 and G-20 Deputy Finance Ministerial, World Bank-IMF Spring and Annual Meetings, and meetings of the Financial Stability Board, the Organization for Economic Cooperation and Development, and the Overseas Private Investment Corporation.  

New Head at World BankIn 2018, Mr. Malpass advocated for a capital increase for the IBRD and IFC as part of a larger reform agenda featuring sustainable lending practices, more efficient use of capital, and a focus on improving living standards in poor countries. He was also instrumental in advancing the Debt Transparency Initiative, adopted by the World Bank and IMF, to increase public disclosure of debt and thereby reduce frequency and severity of debt crises. 

Prior to becoming Under Secretary, Mr. Malpass was an international economist and founder of a macro-economic research firm based in New York City. Mr. Malpass served as chief economist of Bear Stearns and conducted financial analyses of countries around the world. 

Earlier in his career, Mr. Malpass served as the U.S. Deputy Assistant Secretary of the Treasury for Developing Nations and Deputy Assistant Secretary of State for Latin American Economic Affairs. In these roles, he focused on an array of foreign policy and development issues, including the United States’ involvement in multilateral institutions; the World Bank’s 1988 capital increase, which supported the creation of the Bank’s environment division; the Enterprise for America’s Initiative; and Brady bonds to address the Latin American debt crisis. He also served as Senior Analyst for Taxes and Trade at the U.S. Senate Budget Committee, and as Staff Director of the Joint Economic Committee of the U.S. Congress.

Mr. Malpass has served on the boards of the Council of the Americas, Economic Club of New York, and the National Committee on US–China Relations. Mr. Malpass earned his bachelor’s degree from Colorado College and his MBA from the University of Denver.  He undertook advanced graduate work in international economics at the School of Foreign Service at Georgetown University.

The World Bank President is Chair of the Boards of Directors of the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The President is also ex officio Chair of the Boards of Directors of the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the Administrative Council of the International Centre for Settlement of Investment Disputes (ICSID).

Some worry that Mr. Malpass, a critic of the bank, will seek to reduce its role. In the past, he has described the World Bank as too big. He has said he would like to lend less to middle income countries like China, which he argues are financially strong enough.

Speaking at an event at the Council on Foreign Relations back in 2017 he said: “Multilateralism has gone substantially too far – to the point where it is hurting US and global growth”. However, when his predecessor Jim Kim asked shareholders for more money, it was David Malpass who – in exchange for reforms at the bank – helped make it happen. Last year, he was part of negotiations over a package of World Bank lending reforms.

Ivanka TrumpThe US agreed to back a plan for shareholders to inject $13bn (£10bn) into the World Bank and its private lending arm, with conditions that aimed to limit the bank’s lending, and focus resources more on poorer countries. The reforms are aimed at pushing more middle-income countries towards private sector lending, and limiting World Bank staff salary growth.

White House Senior Adviser Ivanka Trump speaking during an interview with Associated Press, Wednesday April 17, 2019 in Abidjan, Ivory Coast, where Trump is promoting a White House global economic program for women said her father asked her if she was interested in the job of World Bank Chief but she was happy with her current role in the administration.

President Trump recently told The Atlantic: “I even thought of Ivanka for the World Bank. She would’ve been great at that because she’s very good with numbers.”

Ivanka Trump worked on the selection process for the new head of the 189-nation World Bank, David Malpass. She said he’ll do an ‘incredible job.’

 

US Monetary Policy Normalization

US Monetary Policy Normalization President Trump called on Federal Reserve to lower interest rates and wants return of quantitative easing arguing that the Central Bank’s policies have held back the US economy and there is no inflation.The Federal Reserve, which has increased interest rates numerous times in the last few years, recently signalled that it does not plan to increase interest rates any more for the remainder of this year.

Beyond simply cutting interest rates, President Trump also wants the Fed to bring back its policy of quantitative easing, to increase liquidity in the market and keep interest rates low. In the wake of the financial crisis in 2007/2008, the Fed enacted QE, but that program ended in late 2017.

According to Trump, if the Fed were to undertake those policies, the economy would improve dramatically, despite the fact that in Trump’s eyes, things are already going well.

Global Growth Outlook ‘Precarious’

International Monetary Fund (IMF) Managing Director Christine Lagarde in a preview of the April 12-14 IMF and World Bank Spring Meetings, said that global growth has lost momentum amid rising trade tensions and tighter financial conditions. The IMF Chief explained that the global economy is “unsettled” after two years of steady growth, with the outlook “precarious” and vulnerable to trade, Brexit and financial market shocks. However, she said that the IMF does not anticipate a recession in the near term, and the Federal Reserve’s “more patient pace of monetary policy normalisation” will provide some thrust to growth in the second half of 2019 and into 2020.

Global Growth Outlook 'Precarious'Lagarde cautioned, however, that years of high public debt and low interest rates since the financial crisis a decade ago have left limited room in many countries to act when the next downturn arrives, so countries need to make smarter use of fiscal policy. This means striking a better balance between growth, debt sustainability and social objectives and acting to address growing inequality by building stronger social safety nets.

Lagarde also said that the IMF has revised its analysis of the US-China trade war’s effects, showing that if all trade between the world’s two largest economies were subjected to a 25 percent tariff, US gross domestic product (GDP) would fall by up to 0.6 percent while China’s would fall by up to 1.5 percent.

Nobody wins a trade war,” Lagarde added. “That is why we need to work together to reduce trade barriers and modernise the global trade system.”

Source: News Agencies

To be nationally poor is a public choice 7 1150

By Bradley Emerson MBA Sri Jayawardenepura

The inception of my career as a banker in the late 70s was about the same time that Sri Lanka acted on a revolutionizing move to become the first South Asian nation to liberalize its trading economy. Ever since I have been hearing Sri Lanka as a “developing” nation. Fast forward to four decades and several regimes later we are still a “developing nation”. What is it to be a developing nation; What is to be a rich nation and what is it to be a poor nation. The Department of Census and Statistics records Sri Lankans per capita GDP for the year 2019 at $ 3,852 per annum whilst Singapore, who’s open trade regime were developed much later recorded a thumping $65,977. Singapore’s benchmark strategies are spoken of at many forums to highlight its economic ascension from what was once a poor country with a GDP per capita of only $320 in par with Sri Lanka. The success story of Singapore’s economic and demographic development surpasses a single systematic exposition, however, it is crucial in this context to act as an expediential comparison and maybe give an insight or two for Sri Lankans.

Following an economic growth of just 5.3% after the civil war ended and low fiscal revenues combined with mountains of debt,Sri Lanka is classified as among the developing economies by the United Nations Secretariat (UN/ DESA). Comparatively, Singapore ranks sixth highest in the world for a country that possesses half the natural resources as Sri Lanka.

How do we allow this term to dominate us?

I have been hearing of Sri Lanka being trapped by this economic definition for as long as fifty years. Our present standard of living is at least ten times behind that of Singapore, and our drastically slow pace is only weighed down by our debt portfolio. Whilst searching for answers, numerous evidence pointed to the lack of persistence and political instability coupled with low demographic development with a relatively large population earning an income that is just enough to survive.

A radical change is required to overcome this crisis, but what will continue to be a barrier to growth is only ourselves, which arrives at the core lesson to be learned before we begin our mandate. To be nationally poor is a public choice; to navigate this crisis is dependent on our determination. Only we are stopping ourselves from capitalizing on our potential.

Mynt (1973) suggests the key indicators of economic development are the level of per capita income, rate of growth of per capita income, and the widening inequality in the distribution of income, but there is much debate on the contribution of economic production to the country’s prosperity. Sri Lanka’s current account deficit in 2018 amounted to $7.57 billion which was exacerbated by a challenging external environment with the Easter attacks and now the latest COVID-19 outbreak. The country’s export performance declined from a growth rate of 4.1% to 1.44% by the end of 2019, losing out on much-needed foreign exchange that can be utilized to pay off debts. With little to no reserves and a declining rate in the exports, a call for transformation in the policies is imperative to focus on export growth.

Performance into perspective:

In 1969 following the independence of Singapore from the Malaysian Federation, a Singaporean Dollar was exchanged at $0.35 against the Sterling Pound whilst the same could be purchased at SLRS 13.40 in Ceylon. Since 1981, the monetary policy in Singapore was centered on the control of the exchange rate, and today, their currency is equal to £0.57 whilst the SLRS is 237. How did we get here? Is it not by choice? Sri Lanka like any other developing nation is a political economy. What does it mean? It means that every economic policy has the flavour or influence of the political agenda of the incumbent regime. The result is that our direct debt to GDP is around 70% and nearly 90% of our national revenue is expended to service these debts. How do we survive? Just imagine if 90% of your family income is used to service debts, how could you sustain your family without sinking deeper into debt?

There is no doubt that our country is in dire need of an effective policy to reduce an approximate one billion trade deficit a month. The deficit stems from importing more than we export which impacts our reserves. The exchange rate against the dollar reached an alltime high of Rs. 191 in April 2020. The early 2000s experienced a 2.8% yearly depreciation and it was as high as 9.1% for the four year period of 2015-2018 alone. The public has failed to grasp the reason behind the depreciation over the rupee – but the Central Bank’s quick-fixes through injection of money contributed towards a further hindrance to the growth.

In attempts to achieve the government’s export target or rather reduce the trade deficit, stringent measures and banning mechanisms have come into play. However, the effectiveness of these proposals are far from favourable along with strong opposition from the public. From an accountant’s point of view, where we are today as a nation with political interventions on the implementation of policies, fiscal account deterioration and racks of debt; we will easily be written off as ‘bankrupt’. Sri Lanka is in a fight for survival and it is our responsibility to help the nation get back on its feet.

An appeal for long-term change:

The late Prime Minister Hon. Sirimavo Bandaranaike took oath in 1960 as the world’s first female Prime Minister, yet another disruption against the conventional norms in the political economy. Her regime prioritized incentivizing the local industries and capitalizing on domestic knowledge for production. It is agreeable that the lack of an open economy failed to drive economic opportunities, however, the brutal “produce or perish” notion encourages self-sufficiency that which we lack today due to our dependency on international trade.

‘Tea, rubber, cocoa and coconut is a common man’s answer to what our main drivers of export revenue were, yet it is shameful that during 2018, our imports consisted of 5.13% of rubber and 1.89% of tea. We even import coconuts.

Lee Kuan Yew, the founding father of Modern Singapore implemented systems based upon the development of the country’s resources to improve trade and the quality of life. A notable example being the revival of the Singapore River around which businesses and factories developed. The project which took up to 10 years created a foundation for innovation, improvements in transportation, tourism, and water supply.

We possess abundant resources for our island to thrive; the agriculture industry, tea destinations and massive potential to become a global tourism hub. Known as the pearl of the Indian Ocean, our island is at a prominent location which is of the essence to create a competitive advantage. Yet, it is ironic that we import salt and fish when the sea surrounds us. In 1978 when I embarked on my first trip to India, we carried bags full of spices to be locally sold to a country where the demand for our spices was unaccountable but now we are importing spices from India. The largest contributor to export revenue of spices in 2018 was Cinnamon, which totaled at only 11.1% traded to India. The great voyager Vasco da Gama referred to then Ceylon as the land of spices and we chose to lose out on that status.

Paddy cultivation in Sri Lanka traces its roots back to 161 B.C. when Sri Lankans were skilled at making a living out of this industry. Rice crops occupy 34% of total cultivation with over 1.8 million of our population engaged in producing around 2.7 million metric tons of rice annually. The trading of cheaper and quality rice from other nations exerts pressure on Sri Lanka to improve on production. Sri Lanka has the capacity to gain international recognition as the primary rice exporter as well as create a source of employment to improve the livelihoods of many.

However, the policymakers must prioritize their earnings to invest in equipment for pre-harvest operations and marketing of the produce. According to research done by TB Adhikarinayake, the majority of the problems farmers face are related to high losses in the production chain and lack of skilled workers.

The Choice –
a change in direction:

Where are we heading? We are importing what we can produce, increasing the trade deficit, increasing the pressure on the exchange rates, and depriving our children of foreign education. In such a competitive world, the need to solve the Balance of Payment crisis is pivotal to managing the country’s finances in order to avoid a disastrous downfall. The government’s attempt to reduce the deficit by imposing import controls will only create inflationary pressures in the country if we don’t optimize the encouragement given by the government to grow.

Science and technology have given us “formula one” seeds for rice, chilies, and potatoes which can treble the output per acre. Are we making a choice to optimize these opportunities to be self-sufficient?

We have a choice, to change our destiny. Can we, yes, we can! We are poor because we chose to be so. Likewise, we can make the choice to be rich as a nation. Let’s look at a change in direction by seizing opportunities to make exports competitive, using innovative methods of technology, and by utilizing our human resources. It is about time we make use of our knowledge in agriculture, natural resources, land, diverse cultures, and our climate to attract foreign investors.

Every generation has a responsibility towards creating a sustainable nation. It is our choice to change directions to reach the destination we intend. It is our obligation to ensure that majority of our children do not experience a poor quality of life, rather a high standard of living and not to be referred to as people of a poor nation.

 

 

Different Models of Developmental State 0 849

Development-Stage

To put it bluntly, there isn’t one economic theory that can single-handedly explain Singapore’s success; its economy combines extreme features of capitalism and socialism. All theories are partial; reality is complex

Development-Stage

Prof. Ha-Joon Chang

  • Former Consultant – (UNCTAD, WIDER, UNDP, UNIDO, UNRISD, INTECH, FAO, and ILO),
  • Former Consultant – The World Bank, the European Investment Bank, the Asian Development Bank.
  • Former Consultant for the Governments of Argentina, Brazil, Canada, Ecuador, Indonesia, Japan, Malaysia, Mexico, Namibia, Saudi Arabia, Singapore, South Africa, UK, Uruguay, Venezuela, and Vietnam.
  • Winner of the 2003 Myrdal Prize.
  • Winner (jointly with Richard Nelson of ColumbiaUniversity) of the 2005 Leontief Prize for Advancing theFrontiers of EconomicThought awarded by Tufts University.
  • Winners of the Prize include the Nobel Laureates Amartya Sen and Daniel Kahnemann as well as John Kenneth Galbraith and Albert Hirschman.
  • He was ranked no. 9 in the Prospect magazine’s World Thinkers 2014 poll.

The ‘classic’ developmental state is an ideal type derived from the East Asian – more specifically Japanese – experience between the 1950s and the 1980s. 

There were of course variations even within East Asia. Korea actually went further down the road than Japan did, although now it has moved to the opposite extreme, embracing neo-liberalism as if there is no tomorrow. Between the 1960s and the 1980s, the Korean state pursued some of the most market-defying selective industrial policies, using an extremely powerful pilot agency (the Economic Planning Board, or the EPB) and total state ownership of the banking sector, both of which were missing in Japan. The Taiwanese state may have intervened in the affairs of the private sector less forcefully and dramatically than Japan or Korea did, but that was in part because there were few no large private sector firms in whose affairs the state felt the need to intervene. The other side of the coin of the weakness of the private sector in Taiwan was that SOEs (especially in upstream intermediate inputs industries, where scale economy is crucial) and state-financed R&D played a more important role in Taiwan than in Korea or Japan. Singapore used yet another model, combining free trade, a welcoming (albeit carefully targeted) approach to foreign direct investment, and a massive SOE sector (one of the biggest in the non-oil-producing world, producing 22% of GDP, when the world average is 9-10%). 

Even the ‘classic’ developmental state was, however, not confined to East Asia. During the same period, under a similar political condition of nationalistic, interventionist rightwing hegemony, France used a very similar strategy of economic development, involving (indicative) planning by Commissariat Général du Plan (the planning commission), sectoral industrial policy (of course, somewhat constrained by the imperatives of European integration) led by elite bureaucrats, and aggressive use of SOEs (Cohen, 1977, Hall, 1986, Hayward, 1986, and Chang, 1994). There is even anecdotal evidence that Japanese bureaucrats stationed in France were reporting on French policy practice.

If we broaden our definition of the developmental state to include any state that deliberately intervenes to promote development, we could argue that the Scandinavian countries also practiced a variety of developmentalism, especially since the 1950s. 

Subscribe to BiZnomics magazine for full article