Tuesday, May 24, 2005

Fed governors are people too

I found this part of the FOMC's latest minutes amusing. Apparently, some governors are basing their monetary policy decisions because you just can't bet against the US economy.
Although downside risks to sustainable growth had become more evident, most members regarded the recent slower growth of economic activity as likely to be transitory. In this regard, the ability of the U.S. economy to withstand significant shocks over recent years buttressed the view that policymakers should not overreact to a comparatively small number of disappointing indicators, especially when economic fundamentals appeared to remain quite supportive of continued solid expansion.
Well, at least we have reason to be optimistic that the current soft spot will be short-lived.

Monday, May 09, 2005

India flies into budget air travel era

Budget airlines are starting to appear in many different countries in the developing world. The results are incredibly positive for millions of people who are suddenly finding it affordable to fly. In most places, travel that once took several days on a bus is being reduced to just a few hours. It's a brand new transportation revolution.

BBC NEWS | World | South Asia | India flies into budget air travel era

Sunday, May 08, 2005

West Africa's Petroboom

The IMF just finished its article IV consultations with Equatorial Guinea and the press release has some interesting facts. Growth is booming thanks to the dramatic increase in oil production, but unfortunately the boom isn't easy to handle. The real exchange rate is appreciating substantially, and the inflows of foreign exchange are generating an explosion in the money supply. Unbelievably, international reserves are set to reach US$1.6 billion this year, and they were less than 100 million dollars just four years ago. Talk about an oil windfall! Unfortunately, the government spending that is resulting isn't exactly transparent, the document alludes.

Here is a snippet about the good things that are happening.
Hydrocarbons dominate economic developments in Equatorial Guinea and will continue to be the engine of growth in the foreseeable future. Since oil production began in 1995, hydrocarbon production has increased from 6,000 barrels of oil equivalent per day (boe/day) to 282,000 boe/day in 2003, supporting an average annual growth of 31 percent. In 2004, real GDP grew by 34 percent, reflecting a sharp increase in oil production. Non-oil GDP increased by 13 percent fueled by growth in the infrastructure and construction sectors, driven by increasing government capital expenditure. However, the primary sector remained sluggish as labor migration from rural to urban areas continued in search of higher earnings and the enforcement of sustainable logging program was maintained. Although inflation has decelerated to 5 percent in 2004, the inflation differential between Equatorial Guinea and its trading partners and the appreciation of the euro have led to the appreciation of the real effective exchange rate by 5 percent in 2004, for an accumulated real appreciation of 32 percent since 2000, further undermining external competitiveness.
Another rather predictable problem is that there hasn't exactly been a trickle-down effect from the massive oil windfall.
Unfortunately, the country's oil and gas wealth has not yet let to a measurable improvement in living conditions for the majority of the population. Against that background, the authorities have assessed their National Development Plan for 1997-2001 and have recognized that the objectives poverty reduction has not been achieved. They therefore intends to prepare an Interim poverty reduction strategy paper (PRSP) that could serve as a roadmap for the provision of donor's technical support.

Thursday, May 05, 2005

Colombia hands over US soldiers

This news is really depressing. That's all I have to say.

Colombia has handed over to the US two American soldiers suspected of trafficking weapons to paramilitaries.

The United States said the allegations were "extremely troubling" and would be investigated fully.

Colombian authorities said they found 31,000 rounds of ammunition when they arrested the two men at an apartment near Bogota on Tuesday.

Hundreds of American soldiers are in Colombia to help in the fight against paramilitary groups and the drug trade.

BBC NEWS | World | Americas | Colombia hands over US soldiers

Update: The LA times mentions that this is not the only trouble that US soldiers have caused.
The arrests come on the heels of the March 29 detention of five GIs suspected of smuggling 35 pounds of cocaine to El Paso on U.S. military aircraft from the Apiay military base in Colombia's Meta province.

That episode touched off a political firestorm in Colombia because the five soldiers have diplomatic immunity and will be prosecuted in the United States rather than here. One soldier has been released for lack of evidence; the other four remain in U.S. custody.
The NY times chimes in with a third incident:

Colombians are still seething that James C. Hiett, the former Army colonel who ran the American military mission here, was sentenced to just five months by a Brooklyn court in 2000 for failing to report that his wife had been smuggling heroin from Bogotá to New York in diplomatic pouches.


Wednesday, May 04, 2005

Another example of overflowing global liquidity

Real interest rates in the developed world are low or negative, and this probably reflects a very low return on capital. This, and the abundance of savings just about everywhere except for the US, is driving capital to places where it used to be very scarce. Case in point: a dam gets built in Laos, a country with GDP per capita of less than $400, and where 70% of the population earns less than $2 a day.

This dam, mind you, will be a 1.6 billion dollar investment in a country where GDP is $9 billion. That's 17% of GDP, one project. That's a whole lot of risk, it seems to me.

I see two possibilities: either this dam will help to increase the productivity of Laos, or otherwise it will just generate a huge debt which may or may not be serviceable with revenues from selling electricity to Thailand. I can imagine a scenario in which the capital inflows resulting from the project, along with the job creation, stimulate consumption beyond Laos' means, which could lead to a string of unsustainable current account deficits culminating in financial crisis.

Talk about the glass half empty... But that's actually what happened in the 1970s, the last time real interest rates were systematically negative in the developed world, and when surging oil prices resulted in an overflow of petrodollars that were in turn recycled into loans for developing countries. The consensus around 1981 was that the debt that developing countries (in particular Latin America) had built up was perfectly sustainable, as the proceeds had (supposedly) been used to finance investment projects, like dams and such things. You can see how a person could get cynical about these things... but, as they say, maybe this time it's different.

What do you think?

BBC NEWS | Business | Banks put $1.6bn behind Laos dam

Open Source Wedding

Open source software is taking hold in Brazil, and I suppose it could help reduce the extraction of monopoly rents (at least it will be an interesting experiment in what happens when open source is given an artificial boost.

...now, far from Brazil, I find an open source wedding. Interesting concept...


Brian & Ruby's Wedding

Tuesday, May 03, 2005

Economic Planning Gone Wrong

The BBC news is reporting on environmental havoc being caused by a plague of beavers.
Yet beavers are not native to South America. Around 50 of them were introduced here from Canada in the 1940s. Argentina's then military rulers hoped that they would multiply and create a fur industry - in earlier centuries beaver pelts were among the most valuable in the world.

Monday, May 02, 2005

China fact of the day


QQ, one of the most popular instant messaging client in China, has added the word “march” (游行) to their list of banned words, preventing users from sending any messages that contains the prohibited word.
This from a post on Chinese bloggers' reactions to the recent anti-Japanese protests from Global Voices Online.

Where are the developing world's external savings going?

The Asia Times has an interesting article about multinationals from developing countries.
Companies from India, China, Brazil and Malaysia are among those busily investing around the world. According to the annual World Bank report titled Global Development Finance released recently, their reach is fast spreading. Developing countries (as defined by the World Bank, which includes middle-income countries such as Malaysia, but not richer ones like Taiwan, Singapore, Hong Kong or South Korea) made US$16 billion of foreign direct investment (FDI) in 2002. Last year, according to the bank's estimates, companies from these countries invested around $40 billion. Not all of these investments, though, went to the rich world. The bank's economists estimate that by the end of the past decade, more than a third of the FDI going to developing countries came from their peers.
As the developing world's external balance improves (it's not just Asia that runs a current account surplus, but also countries like Brazil), these countries are becoming important sources of capital for each other and also for the developed world. Thus, you have Indian companies investing in Brazil, Mexican companies investing in Indonesia, and Chinese companies investing in the US.

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