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International Monetary Fund

Tag Archives | International Monetary Fund

IMF Close to Agreement on Aid Package for Ukraine

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IMF headquarters

The International Monetary Fund (IMF) is close to agreement with Ukraine on financial assistance worth $14-18bn (£8.5-£11bn) over the next two years. An agreement still needs approval by the full board of the IMF. The stand-by arrangement comes at the end of a three-week visit by IMF officials to the country. The deal is expected to unlock a further $27bn in loans for Ukraine from the European Union and the US.

“Following the intense economic and political turbulence of recent months, Ukraine has achieved some stability but faces difficult challenges,” the IMF’s Mission Chief for Ukraine said in a statement. The deal goes hand in hand with a reform programme for Ukraine’s ailing economy. On Wednesday, Ukraine’s interim government agreed to raise gas prices by 50% in its effort to secure the IMF aid package.

On the Ukraine: Three Awkward Questions for Western Liberals

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Will anyone be happy with the outcome in the Crimea?

Let us accept (as I do) the principle that national minorities have the right to self-determination within lopsided multi-ethnic states; e.g. Croats and Kosovars seceding from Yugoslavia, Scots from the UK, Georgians from the Soviet Union etc.

Will anyone be happy with the outcome in the Crimea?

Awkward question no. 1: On what principle can we deny, once Croatia, Kosovo, Scotland and Georgia have come into being, the right of Krajina Serbs, of Mitrovica Serbs, of Shetland Islanders and of Abkhazians to carve out, if they so wish, their own nation-states within the newly independent nation-states in the areas where they constitute a clear majority?

Awkward question no. 2: On what principle does a western liberal deny the right of Chechens to independence from Russia, but is prepared to defend to the hilt the Georgians’ or the Ukrainians’ right to self-determination?

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Ukraine Revolt’s Dark Side

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Protester in Kiev, Ukraine. Photo: Christiaan Triebert

“The April 6 rally in Cherskasy turned violent after six men took off their jackets to reveal T-shirts emblazoned with the words ‘Beat the Kikes’ and ‘Svoboda,’ the name of the Ukrainian ultranationalist movement and the Ukrainian word for ‘freedom.’” – Jewish Telegraphic Agency

Protester in Kiev, Ukraine. Photo: Christiaan Triebert

While most of the Western media describes the current crisis in the Ukraine as a confrontation between authoritarianism and democracy, many of the shock troops who have manned barricades in Kiev and the western city of Lviv these past months represent a dark page in the country’s history and have little interest in either democracy or the liberalism of Western Europe and the United States.

“You’d never know from most of the reporting that far-right nationalists and fascists have been at the heart of the protests and attacks on government buildings,” reports Seumas Milne of the British Guardian. The most prominent of the groups has been the ultra-rightwing Svoboda or “Freedom” Party. And that even the demand for integration with Western Europe appears to be more a tactic than a strategy: “The participation of Ukrainian nationalism and Svoboda in the process of EU [European Union] integration,” admits Svoboda political council member Yury Noyevy, “is a means to break our ties with Russia.”

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Exploring Europe’s Significance in a Globalized World

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Europe has witnessed it's importance fade but can it rise again?

“Europeans work less, take longer vacations, and retire early. Americans choose to work long hours…Europeans view job security and stability as a fundamental right and a ticket for happiness.” – The Future of Europe: Reform or Decline by Alberto Alesina and Francesco Giavazzi

Europe has witnessed its importance fade but can it rise again?

The world order is changing and global power is shifting to the East. As China and India continue to rise, many scholars believe that the end of Western hegemony is inevitable. The birth of a new world order, which is manifested through the rise of the East and the decline of the West, will have profound implications. The question is: “Can Europe maintain its global relevance in the 21st century?” This is a hard question because it is very difficult to predict the future of even one country, much less an entire continent. However, considering that Europe’s problems include unemployment, a debt crisis, population decline, and financial paralysis, I believe that barring a quick and effective reaction, its future is dim. Europe will not only lose its global relevance but will also lose its ability to maintain its key role in the Security Council and other important world institutions (the World Bank and the International Monetary Fund).

The world we live in today was shaped by the European powers. Capitalism is a European invention, as is democracy. Many countries around the world are imitating European institutions and want to live in a world defined by liberal democracy and the free market. However, what happens to those countries on the periphery or semi-periphery when the core (Europe) is in decline and might stagnate to the extent of total irrelevance on the world stage? Understanding where Europe is headed in the future is of great importance to the health of global peace since the continent was at the center of world politics for centuries. Liberal democracy characterized by the rule of law, open society, and the equal protection of human rights and political freedoms for all citizens was developed in Europe. Now that we are entering an “Asian century,” what kind of world will that be like, considering that China (the Asian giant in terms of its economic capacity) has nothing in common with the Western world in terms of its history and culture.

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Can Pakistan Afford to Break with the United States?

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Pakistani villagers carry bags of food provided by USAID to be delivered to flood victims in Swat Valley, Pakistan in 2010

Roughly three months ago, Chaudhry Nisar Ali Khan, Pakistan’s Interior Minister, unveiled the decision of his government to review Pakistan’s relations with the United States.

Pakistani villagers carry bags of food provided by USAID to be delivered to flood victims in Swat Valley, Pakistan in 2010

He was upset with Washington for scuttling the peace process with the Taliban following a drone strike in the Federally Administered Tribal Areas (FATA). Close aides to the minister took his statement with a grain of salt because a review of relations with the U.S. requires homework and determination, both of which are lacking at the moment. Since its creation in the late 1940’s Pakistan has relied on Washington for military and economic aid, which has led to Pakistan’s dependency on external help. According to the Congressional Research Service, Pakistan received $25.9 billion USD from 2002 to 2012. Out of this, $7.226 billion went to defense and $18.686 billion went to economic development programs.

By the end of this year, Pakistan expects to receive $686 billion from Washington. And according to Center for Global Development, Washington has provided $67 billion to Pakistan from 1951 to 2011, a portion of which was misused or misappropriated by corrupt Pakistanis. Furthermore, Pakistan’s military, especially the air force, is heavily dependent upon the U.S. for aid, training and hardware. Its advanced weaponry is largely American made. If Pakistan severs or significantly alters its relations with the United States, the fact that aid could end or be curtailed will play into Pakistan’s decision whether to move forward.

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Good GDP Growth Rates in Uganda, Ethiopia and Tanzania

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Africa shipping

The International Monetary Fund (IMF) published in October 2013 its Regional Economic Outlook for Sub-Saharan Africa. It looked especially at drivers of growth in nonresource-rich countries and the issue of managing volatile capital flows.

One of the surprising results of the IMF study is that eight of the twelve fastest-growing economies in Africa in recent years did not rely on natural resources. Six countries-Burkina Faso, Ethiopia, Mozambique, Rwanda, Tanzania and Uganda-had on average from 1995 to 2010 a GDP growth rate of at least 5 percent and a per capita growth rate of at least 3 percent. The IMF credited their success to controlling public finance, curbing inflation and improving the climate for the private sector.

In the case of Ethiopia, the IMF said the real GDP growth rate from 1995 to 2010 averaged 7.3 percent and the real GDP per capita growth rate averaged 4.6 percent. While these averages are lower than those claimed by the government of Ethiopia, they are still very impressive by any measure.

The Economist did a brief analysis of the the IMF study on 2 November 2013 titled “No Need to Dig.” It focused on those countries in Sub-Saharan Africa with the highest growth rates.

Neoliberalism and the Welfare State: The Case of Contemporary India

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Indian girl rolls bidi tobacco with her family at their house in Dhuliyan, in the eastern Indian state of West Bengal.  Rafiq Maqbool/AP

With the onset of neoliberalism, the principles that underpinned the careful creation of welfare states in the post-war period gradually started to disintegrate.

Indian girl rolls bidi tobacco with her family at their house in Dhuliyan, in the eastern Indian state of West Bengal. Rafiq Maqbool/AP

Globalization is thought to have dealt a final blow to statism with market forces having to decide even matters that were earlier well within the realm of the state – i.e. social welfare. With a strict eye on fiscal deficit, neoliberals propagated the idea of free markets with very limited state intervention. Consequently generous state expenditure and neoliberalism are perceived mutually exclusive. But the existence (and expansion) of the welfare state in India in this very era of neoliberal globalisation defies the established views on neoliberalism. India stands out as a noteworthy case of state intervention and redistribution at a time when governments around the world are hell bent on curtailing state expenditure.

N.G. Jayal, writing at a time when India had already spent a few years since its supposed neoliberal turn under the aegis of Bretton Woods institutions, stops short of calling India a welfare state in its classical sense as “…rights have never been central to the philosophy of welfare that underpins the welfarist initiatives of the Indian state.” Almost two decades later, when it is a constitutionally and legally enforceable right of Indian citizens to demand (a) education, (b) employment and (c) food, India in its present day, while it has certainly departed from its socialist affiliations, is interventionist, developmentalist, and welfarist.

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European Migration and the Rise of the Far Right

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Immigration patterns within Europe put a strain on neighboring states.  Photo: ALAMY

Five years after the collapse of Lehman Brothers, its reverberations are still being felt throughout the world. GDP in many wealthy countries remains well below its pre-crisis peak, and in Europe the global financial crisis has morphed into the Euro crisis.

Immigration patterns within Europe put a strain on neighboring states. Photo: ALAMY

The downturn has been most pronounced along Europe’s southern coast, as countries wrestle with record unemployment rates, drastically reduced social services, and severe fiscal dislocation. Anti-government protests in southern Europe responding to the austerity measures imposed by the troika – the European Commission, the International Fund and the European Central Bank – have highlighted the deteriorating economic situation in the Mediterranean and underscored disparities in labor markets between core euro zone countries (e.g. Germany and Austria), and the periphery (e.g. Spain and Greece). However, the fiscal contagion has not been confined to the edges of the Europe.

Indeed, the financial fallout in northern Europe has given rise to political turmoil there, too, and far-right parties have gained popular support by espousing anti-immigrant sentiments and promising to staunch the flow of migrant workers across their borders. As anti-immigrant and anti-EU parties have increased in popularity, heated rhetoric previously reserved for non-European immigrants is now directed at legal migrants from within the EU. As a result, one of the EU’s most cherished founding ideas – the right to migrate to live and work throughout the EU- is coming under greater scrutiny.

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Argentina Takes on the Vultures

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Protesters outside the offices of Elliott Advisors, owners of vulture fund NML Capital, on eve of Argentine's appeal hearing in New York. Photo: James Robertson

When the US Supreme Court returns from summer recess in October it will announce which petitions, out of the many it receives, will earn their case the right to be heard.

Protesters outside the offices of Elliott Advisors, owners of vulture fund NML Capital, on eve of Argentine’s appeal hearing in New York. Photo: James Robertson

One of these, NML v. Argentina, pits a unit of New York hedge fund Elliott Management and other investors against Argentina. The plaintiffs, bondholders of debt that Argentina notoriously defaulted on in 2001, have been referred to as “vulture funds” for their distinctive strategy. A decision in favor of the plaintiffs would provide an incentive to other investors to emulate them in the future and only serve to increase the mistrust between the Argentine government and international creditors.

Elliott and other likeminded investors have been called “vulture funds” by critics because of their strategy of buying cheap bonds of nations that have defaulted or are expected to do so. The bonds are bought on the secondary market from investors who want to get rid of them. The funds use their financial resources and a lot of persistence, to sue for the full value of the bonds in countries where the nation has assets or where its assets pass through (banks, clearing houses, trading companies). The strategy has been used successfully by a small group of funds since the introduction of Brady Bonds in the 1980’s made it easier for original creditors to sell bonds on the secondary market. Elliott has been a key player from the beginning; arguably its greatest victory came with Peruvian bonds of which it made a 400% profit in 2000.

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Pakistan, the IMF and a New Loan

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Muhammad Ishaq Dar, Pakistan's Finance Minister, addresses a news conference with the IMF's Jeffrey Franks at the finance ministry in Islamabad, Pakistan. Source: Salon

A recent loan package of $5.3 billion to Pakistan by the International Monitory Fund will enable transitory relief to Pakistan’s new government and its limping economy.

Muhammad Ishaq Dar, Pakistan’s Finance Minister, addresses a news conference with the IMF’s Jeffrey Franks at the finance ministry in Islamabad, Pakistan. Source: Salon

But Pakistan’s long-term economic solutions cannot be solved by frequent loans from international organizations and foreign aid from friendly nations such as the United States, Saudi Arabia and China. Economic principles are no different whether it involves a national or personal economic situation and securing loans and foreign aid is not a permanent solution in either situation. Of course, loans and foreign aid, in particular, are valuable tools to fix short term pecuniary predicaments, provided the money is managed correctly, but sustainable economic growth is the only answer to avert future financial tribulation and that should be the priority of Pakistan’s new government.

Pakistan’s chronic dependency on foreign aid and international organizations like the IMF and the World Bank is well documented. The United States has been providing foreign aid to Pakistan since the early 1950s and the IMF and various Pakistani governments have worked out and then abandoned a number of financial arrangements in the last 30 years. There is absolutely nothing wrong in seeking IMF assistance and accepting foreign aid from friendly countries in order to strengthen a nation’s economy and relax short-term fiscal vexation. There are several examples confirming that a number of countries took advantage of IMF assistance to revitalize their economy and managed to attain robust economic growth.

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Canada’s Gateway Economics

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President Barack Obama, center,  with Canada's Prime Minister Stephen Harper, left, and Mexico's President Felipe Calderon in Guadalajara in 2009.  Pete Souza/White House

On May 24, 2013 Canada concluded the latest round of negotiations for entry into the Trans-Pacific Partnership (TPP), a grouping of states that includes Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. However, the TPP is only one aspect of Canada’s broader strategy to promote trade and economic growth.

President Barack Obama, center, with Canada’s Prime Minister Stephen Harper, left, and Mexico’s President Felipe Calderon in Guadalajara in 2009. Pete Souza/White House

In a recent interview, Ed Fast, Canada’s Minister of International Trade revealed the savvy behind Canada’s macro-economic strategy. While Canada has sought trade relations with a variety of states, the underlying purpose of these linkages is to establish platforms for regional connections. In a recent interview with the Canadian Broadcasting Corporation Ed Fast referred to the strategy of securing free-trade agreements with the purpose of attaining regional connections in the future as ‘gateways.’ The thinking is brilliantly simple: establish trade links with important regional actors and use that relationship as a springboard to extend economic connection regionally.

States looking to secure free-trade agreements should take a page out of the book Canada’s current government is writing. Particularly in Latin America, Canada has sought a great deal of economic linkages since 2006. Under the leadership of Stephen Harper, Canada has secured comprehensive agreements with a variety of Latin American states that include: Colombia, Honduras, Panama and Peru, in addition to the previously established agreements with Costa Rica, Chile and Mexico. Of the handful of states Canada holds free-trade agreements with in Latin America many of them are members of a regional trade bloc called the Pacific Alliance. Employing Ed Fast’s gateway economics Canada has secured trade deals with states that are interconnected with other regional economies. It is a trade policy that expands through derivation.

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Obama’s Myopic Myanmar Policy

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President Barack Obama holds a bilateral meeting with President Thein Sein of Myanmar in the Oval Office, May 20, 2013. Lawrence Jackson/White House

President Barack Obama holds a bilateral meeting with President Thein Sein of Myanmar in the Oval Office, May 20, 2013. Lawrence Jackson/White House

In a recent meeting with Burma’s premier, Thein Sein, at the White House, President Barack Obama recognized his counterpart’s “genuine efforts” to assuage inter-communal tensions. Undoubtedly, Thein Sein was overjoyed to hear Obama refer to Myanmar instead of Burma. This symbolical approval of the former military state’s reforms underpins further nods for reforms that the country has undertaken.

Political and economic reforms in Burma, spearheaded by the ruling government, are aspiring vis-à-vis the country’s previous status of a pariah state. Democracy has taken root and the government has abandoned its long-standing policy of opposition suppression, in particular, silencing Aung San Suu Kyi. Suu Kyi along with 42 of her supporters from the National League for Democracy (NLD) won seats in the 2012 parliamentary elections.

Political and economic reforms have already started to pay off. One of the most significant moves by the Bank of Myanmar (the defunct Union Bank of Burma) is to float their already inflated currency, the Kyat. Under the previous exchange system where foreign currencies were devalued against the Kyat, the regime could cloak and appropriate the national revenues earned by exporting national resources like gas and wood. The government also enacted a Foreign Investment Law, which is considered investment friendly. Burma’s government is also allowing foreign institutions to lend money more freely.

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History of Economic Growth in India

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Manmohan Singh, the prime minister of India during the World Economic Forum's India Economic Summit 2009 held in New Delhi. Photo: Eric Miller

Last month, Morgan Stanly and HSBC lowered India’s economic growth forecast for fiscal years 2013 and 2014 from 5.2 to 5 percent and from 6.2 to 6 percent respectively.

Manmohan Singh, the prime minister of India during the World Economic Forum’s India Economic Summit 2009 held in New Delhi. Photo: Eric Miller

These numbers do not sound encouraging, but compared to a GDP growth of 4.5 percent for October-December quarter of FY2013, this news provides some encouragement for India’s economy. According to Finance Minister Chidambaram Palaniappan, India’s economy would grow 6.2-6.7 percent during FY 2014. If accurate, it would be a good economic recovery. Although it is nowhere near the double digit GDP growth India was enjoying a few years ago, the recent news of an economic turnaround is a cause for celebration, especially when U.S. and European economies are still struggling to get back to pre-recession levels.

India’s economic journey from an impoverished country to an emerging global economy is an inspiring example for many developing nations. In order to understand India’s economic voyage, it is essential to shed some light on India’s political and economic history. After 200 years of British rule, India became an independent sovereign nation in 1947. This newly born nation faced a number of issues including a shattered economy, a minimal rate of literacy and horrific poverty. It was a mission impossible for Indian leaders, but Sardar Patel, Nehru and others transformed India into a secular and democratic nation.

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Egypt Faces a Potentially Chaotic Summer

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Secretary of State John Kerry meeting with Egyptian Defense Minister Abdel Fattah al-Sisi

When an important leader of the political opposition hints that a military coup might be preferable to the current chaos, and when a major financial organization proposes an economic program certain to spark a social explosion, something is afoot. Is Egypt being primed for a coup?

Secretary of State John Kerry meeting with Egyptian Defense Minister Abdel Fattah al-Sisi

It is hard to draw any other conclusion given the demands the International Monetary Fund is making on the government of President Mohamed Morsi including regressive taxes, massive cuts in fuel subsidies, and hard-edged austerity measures whose weight will overwhelmingly fall on Egypt’s poor. “Austerity measures at a time of political instability are simply unfeasible in Egypt,” says Tarek Radwan of the Washington-based Atlantic Council. “He [Morsi] is already facing civil disobedience in the streets, protests on a weekly, if not daily basis, clashes between protestors and security—he does not want to worsen the situation.”

The “situation” consists of wide spread police strikes, particularly in the industrial city of Port Said, but also including parts of Cairo and the heavily populated Nile Delta. The police in Sharqiya have even refused to protect Morsi’s house. At its height the strike spread to half of Egypt’s 27 administrative governorates.

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Venezuela’s More Moderate Future after Hugo Chávez

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Venezuelan President Hugo Chavez saluting during the Venezuelan independence bicentenary celebrations at the National Pantheon of Caracas, Venezuela.  David Fernandez/EPA

“That’s what Chávez means to us and to our history; our Chávez is the 21st Century liberator.” – Vice President Nicolás Maduro

Venezuelan President Hugo Chavez saluting during the Venezuelan independence bicentenary celebrations at the National Pantheon of Caracas, Venezuela. David Fernandez/EPA

Much will be written and said in the coming days and weeks about what the future of Venezuela, and Latin America for that matter, will look like following the death of Hugo Chávez. Can Chavismo survive without Chávez? Will the Venezuelan Court demand elections be called or will Vice President Nicolás Maduro retain power? If elections are called, can the opposition reorganize itself quickly enough to pose a serious challenge? While these and many other questions exist and remain to be answered, one can confidently assume that the Venezuela of the future will be a more moderate state than the current Bolivarian Republic of Venezuela that Chávez leaves behind.

This assumption stems primarily from the economic conditions that the new government, whatever form it may take, inherits. An unsustainable deficit problem, an unresolved currency dilemma, and deteriorating infrastructure along with a number of other economic challenges will force the Venezuelan government to rein in the expenditures on a number of the social improvement programs Chávez loved so much. Cuts like this are likely to erode support for the new government from Chavez’s strongest constituency. The only foreseeable financial savior for Venezuela is the oil economy that has supported the state so well in the past.

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