Tag Archives: debt

Greece’s Economic Future

Less than a week after International Monetary Fund chief Christine Lagarde accused the Greek government of failing to negotiate in good faith, it appears Greece, the IMF and the European Union are no closer to reaching a deal to restructure or postpone Greece’s looming debt crisis. Greece faces a massive €1.6bn payment due on June 30. The Greek government has already indicated it will not be able to make the payment, an option the IMF says is not acceptable.

The Greek government has several options. It may compromise with the European Union and the IMF and cut spending on social services as part of a wider austerity package. But according to the Greek government, the effects of such a move would be devastating. Equally important from their perspective, it would violate a central campaign promise made by the center-left government less than a year ago.

If no agreement can be reached by June 30, Greece could default on its loan payment. If Greece defaulted, it could be forced to exit the Eurozone. No country has ever left the Eurozone so it is unclear what that process would look like or who would be responsible for making that decision.

What do you think? Can Greece reach an agreement with the EU and the IMF to avoid default? What might that deal look like? Or is Greece better off defaulting on its loan payments? Why?

Updates to Recent Stories

Two quick updates on recent stories:

Two interesting developments on the situation in Haiti occurred late last week. First, the Obama administration announced it would grant Temporary Protected Status in the United States. This has the effect of temporary suspending deportation proceedings against the estimated 30,0000 Haitians currently pending in the United States. A number of groups have been campaigning for TPS for Haiti.

The International Monetary Fund announced it would make available $100 million in credit for the government of Haiti to fund relief efforts. While the government could certainly use assistance, the debt forgiveness group Jubilee has condemned the use of long-term loans to finance relief efforts, arguing that this will only exacerbate Haiti’s debt problems.

Finally, with respect to the French identity debates, Time magazine on Monday published a story on the problem many French citizens now face in proving their citizenship. According to the story, many people born to French parents abroad are having difficulty proving their citizenship under strict new rules designed restrict the ability of foreigners to obtain French citizenship. Some French citizens have been asked to prove the nationality of their parents and grandparents, providing original birth certificates to support their claims. The policy has been condemned, however, as running the risk of creating new populations of stateless persons.

Haiti: A Tragedy Long in the Making

The blogosphere has begun to reflect on the tragic events in Haiti over the past week.  Devistation was widespread. The National Palace (pictured here) and most other structures in the capial Port-au-Prince suffered severe damage, and an estimated 140,000 people perished. The scope of devastation was illustrated most dramatically by the before-and-after satellite photos published by Google. Countless calls for giving have been made (If you would like to donate, you may do so through a number of organizations, including Medecins Sans Frontieres, UNICEF, the Red Cross, and Haiti Partners). A number of controversies have also emerged. Pat Robinson made statements implying the people of Haiti deserved it because they “made a pact with Satan.” Rush Limbaugh attempted to politicize the crisis by implying that President Barack Obama’s response was motivated by racism—a point picked up on by Fox commentator Glenn Beck and criticized by MSNBC commentator Keith Olbermann.

Setting aside petty domestic political squabbles, though, it seems clear that the tragic events in Haiti this week were long in the making. Blogging at Foreign Policy, David Rothkopf notes that

It was the crushing poverty in the hemisphere’s poorest nation that resulted in Port-au-Prince being a city of ramshackle homes of unreinforced concrete or worse, shanties assembled of odd-shaped bits of rusty, corrugated metal, scrap wood, cardboard and old packing crates. It was decades of neglect that made rebar an unaffordable luxury for virtually all on the island or that left communications, power and water systems so underdeveloped that even prior to the earthquake they were operating at what even other poor nations would consider crisis levels.

The tragedy in Haiti, in other words, was triggered by the earthquake. But its underlying causes rested elsewhere—with the rampant poverty that plagued the country since it achieved independence from France in 1804. (As Chris Blattman notes, it took Haiti almost 150 years to repay the French for reparations demanded as a cost of independence. Payments on this debt amounted to 80 percent of its national budget). This conclusion raises a couple of critical questions:

First, could this tragedy have been prevented? If Port-au-Prince had been properly prepared, if the homes and buildings of the city had been properly constructed, would the death toll had been as staggeringly high? Even before the quake, Haiti was the poorest country in the Western hemisphere, with more than 80 percent of the population subsisting on less than $2 per day. Despite the widespread poverty in Haiti, the government owed more than $1.3 billion to international creditors, paying approximately $1 million per week in debt servicing.

Second, if Haiti had enjoyed a stronger democratic tradition free of foreign intervention, would the impact of the quake been reduced? Amartya Sen’s work on famine suggests that democratic states may suffer from malnutrition but they generally avoid famines. According to Sen, this is because in a democracy, the political elite must be responsive to the people, and the people will not stand by and allow famines to occur. Haiti has a long history of oppressive dictators and foreign political intervention. Would a democratic political tradition in Haiti forced the government to take steps to prepare for such a crisis?

In raising these points, I am not suggesting that the earthquake could have been prevented. Rather, I’m suggesting that poor, undemocratic countries are likely to suffer disproportionately from crisis events. Moving forward, this means that addressing crises like the earthquake in Haiti (or flooding, famine, or drought elsewhere) may best be addressed through debt forgiveness and economic and political development before the crisis occurs. Think of it as Sen’s entitlement theory of famine writ large.

Five Stories You Might Have Missed

Most of the headlines this week has centered on the auto rescue package.  The most recent news is that the Treasury Department is working to put together a rescue package for Detroit automakers after Senate Republicans blocked the Congressional effort last week.  The Canadian government is offering $3.4 billion in aid to struggling car makers on the condition that the U.S. government extend assistance as well.  Foreign car manufacturers are that the U.S. government should extend aid to American manufacturers in order to prevent knock-on effects on their own businesses.

Here’s five other important stories you might have missed this week:

1.  The government of Ecuador announced it would not meet the $30.6 million payment on the country’s foreign debt, despite holding $5.65 billion in cash reserves.  Rafael Correa, Ecuador’s leftist president, said, “I gave the order not to pay the interest and to go into default.  We know very well who we are up against—real monsters.”    The international debt-forgiveness campaign Jubilee celebrated the decision, arguing that requiring countries to repay illegitimate debt forces them to cut social spending.  As a result of the default, the cost of barrowing money by the Ecuadorian government and businesses will likely increase.

2.  The situation in Zimbabwe continues to deteriorate.  Once celebrated as a potential model for the rest of Africa to emulate, Zimbabwe’s social, political, and economic collapse continues.  The country currently faces an annual inflation rate of 231 million percent, and a cholera outbreak which has resulted in the deaths of more than 800 people this month now threatens to spread into other states in the region, forcing South Africa to declare a state of emergency and close the border.

3.  European leaders committed themselves to a 20 percent reduction in greenhouse gas emission by 2020.  The announcement, intended to reduce the danger of global climate change, falls short of the 25-40 percent reductions required of developed countries according to scientific assessments.  However, the EU has already announced its intention to pursue bigger reductions if the United States and other developed countries come on board.

4.  Ireland confirmed it would move forward with a second referendum on the Lisbon Treaty after securing concessions from the European Union.  The Lisbon Treaty, which was defeated by Irish voters in June, moves European integration forward.  Ireland is the only country which required a popular referendum on the Treaty.  The text of the Treaty has been amended to assure that Ireland’s military neutrality would be guaranteed, and its abortion laws and national tax system would not be affected.

5.  The South Korean government announced its intention to expand cooperation with China and Japan in coordinating economic policy to address the spreading global financial crisis.   The three countries account for 75 percent of the region’s economy and two-thirds of its trade.  The deal would expand a currency swap agreement intended to stabilize the three countries’ currencies, and could lead to further coordination of economic policy.