Tag Archives: Zimbabwe

Currency Devaluation and Development

Venezuela's currency, the bolivar.

Venezuela’s currency, the bolivar.

The government of Venezuela last week cut the value of its currency, the bolivar, by 32 percent against the U.S. dollar. The move, intended to boost the economy’s sluggish performance, was the fifth devaluation by Hugo Chavez’s government since 2003.

Governments usually devalue their currency in an effort to address balance of trade disparities. Because most commodities (including Venezuela’s primary export, oil) are priced in U.S. dollars, devaluing the local currency boosts exports and cuts imports. A country that exports more and imports less will experience an improvement in their balance of trade and a reduction of their trade deficit.

But will it work? Devaluation generally works best when the country is exporting commodities for which there is steady demand and importing luxury goods. Countries which depend heavily on imports for basic commodities like food or gasoline will often not benefit from devaluation, because in the relative increase in the cost of imports offsets any increase in exports. This was the case, for example, when Rwanda devaluated the Rwandan franc in 1993. Because Rwanda exported primarily coffee (for which there was already excessive supply) and imported foodstuffs, devaluation of the Rwandan franc failed to result in any real improvement in the economic situation in the country. Venezuela, on the other hand, exports primarily oil and imports primarily machinery and construction materials, suggesting devaluation may have a positive effect.

But Venezuela also faces some real challenges. The Venezuelan bolivar was already trading at four times the official exchange rate on the parallel market, suggesting that even with the recent devaluation it remains overvalued. And price controls have left many basic consumer commodities in short supply. Still, Venezuela is in far better straits than Zimbabwe, which last week reported that the country had just $217 (yes, that’s $217.00, not $217 million, or even $217 billion) in its coffers.

What do you think? Will Venezuela’s devaluation of the bolivar help turn the country around? Or is it too little, too late? Take the poll or leave a comment below and let us know what you think.

Five Stories You Might Have Missed

A suicide bomb attack in Iran killed several senior commanders of the country’s elite Revolutionary Guard and at least twenty tribal leaders in the southeastern province of Sistan-Baluchestan, which borders Pakistan and Afghanistan. The bombing was the first major terrorist attack in Iran in more than twenty years, and represents a major public relations blow for the Iranian government. A group known as Jundallah claimed responsibility for the attack, though the Iranian government has also attempted to place blame on the British government for the attack, claiming that Britain has an “overt and hidden hand in terrorist attack against Iran.” Juddallah is a Pakistan-based radical Sunni group campaigning for independence for ethnic Baluchis in Iran.

In an unrelated development, the Russian government indicated it would be willing to impose sanctions on Iran if the Iranian government fails to implement promises it made to the international community regarding its nuclear program. This represents a significant hardening of the Russian position on Iran, which it had previously dismissed as “unproductive.”

In news from outside Iran in the last week:

1. The United Nations-backed panel investigating elections in Afghanistan appears poised to overturn August election results. The panel is recommending that a number of suspicious ballots be thrown out, thus necessitating a runoff election between incumbent president Hamid Karzai and his rival, Abdullah Abdullah. The United States is attempting to resolve the growing political crisis, which threatens to complicate President Barack Obama’s decision on whether or not to expand the U.S. troop presence in the country.

2. Fights between rival drug gangs rocked Rio de Janeiro over the weekend, only one week after the city was named host of the 2016 summer Olympics. At least fourteen people were killed in the violence, and a police helicopter was shot down as members of the Comando Vermelho, Rio’s largest gang, and its rival, Amigos dos Amigos, fought in the favelas that surround the city. The state governor, Sergio Cabral, informed the International Olympic Committee of the events, noting, “We told the OIC this is not a simple matter, and they know this, and we want to arrive in 201 with Rio in peace before, during, and after the games.”

3. The Pakistani government launched a new offensive against Taliban strongholds in the South Waziristan region. The new offensive comes after two weeks in which the Taliban had engaged in a series of attacks against the Pakistani government and military. The Pakistani government believes that the Taliban may have as many as 10,000 militant fighters assembled in the region, which is also believed to be the hiding location for Osama bin Laden.

4. In a dramatic regional contrast, citizens in Botswana are expected to hand the government if Ian Khama a victory in Friday’s elections, while the government of neighboring Zimbabwe is struggling to address the continuing political instability there. Botswana is widely viewed as a success story in Southern Africa, due in part to its political stability and part to its vast diamond wealth.  But as global diamond prices fall, the economy of Botswana may begin to struggle. The government faces a severe budget shortfall, due primarily to a dramatic decline in diamond prices, necessitating a $1.5 billion loan from the African Development Bank.

Meanwhile, in Zimbabwe, Prime Minister Morgan Tsvangirai threatened to “disengage” from working with President Robert Mugabe. The two have been part of a power sharing arrangement since Febraury, but Tsvangarai’s party, the Movement for Democratic Change, has been marginalized from real political power.

5. The United States budget deficit has reached a record level of $1.4 trillion for the last fiscal year, as the government expanded spending significantly in order to address the global economic downturn. The deficit was approximately 10 percent of gross domestic product, but was $162 billion less than the administration forecast in August. Tax revenue fell by more than 16 percent as a result of the economic downturn, but spending increased by more than 18 percent.

IgNobel Prize Winners

With the Nobel Prize season underway, the folks over at the Annals of Improbable Research have once again announced the winners of the IgNobel Prize. According to organizers, the award is given to researchers whose work “first makes people laugh; then makes people think.” While speculation about who may win the prizes in economics and the Peace Prize continues, the IgNobel Prizes have already been awarded. Among the highlights are…

Prize in Veternary Medicine to Catherine Douglas and Peter Rowlinson of Newcastle University, Newcastle-Upon-Tyne, UK, for showing that cows who have names give more milk than cows that are nameless.

The IgNobel Peace Prize to Stephan Bolliger, Steffen Ross, Lars Oesterhelweg, Michael Thali and Beat Kneubuehl of the University of Bern, Switzerland, for determining — by experiment — whether it is better to be smashed over the head with a full bottle of beer or with an empty bottle.

The Prize in Literature to Ireland’s police service, for writing and presenting more than fifty traffic tickets to the most frequent driving offender in the country — Prawo Jazdy — whose name in Polish means “Driving License.”

And the Mathematics Prize to Gideon Gono, governor of Zimbabwe’s Reserve Bank, for giving people a simple, everyday way to cope with a wide range of numbers — from very small to very big — by having his bank print bank notes with denominations ranging from one cent ($.01) to one hundred trillion dollars ($100,000,000,000,000).

Five Stories You Might Have Missed

It’s been an interesting week for the U.S. economy. According to figures released on Thursday, the U.S. trade deficit jumped by 16.3 percent to $32 billion in June, a figure sharply higher than the $27 billion that had been forecast. The dramatic increase in imports was fueled by the “Cash for Clunkers” program, which led to a dramatic increase in auto imports. Meanwhile, the Commerce Department reported that the poverty rate had increased from 12.5 percent in 2007 to 13.2 percent in 2008. The poverty rate, which is defined as the number of people with an annual income of less than $11,200 (or less than $22,000 for a family of four), increased as a result of the global economic downturn. Home foreclosures also remain near their record high level. The troubled status of the U.S. economy led the Federal Reserve to indicate that it would be unlikely to raise interest rates in the first half of next year.

In news from outside the U.S. economy last week:

1. A trade dispute between the United States and China may be headed to the World Trade Organization for resolution. The United States last week imposed a new duty on tires manufactured in China, less than one week after it also imposed higher tariffs on Chinese steel piping. A spokesperson for the Chinese government condemned the move as protectionism, warning that “a chain reaction of trade protectionist measures that could slow the current pace of revival in the world economy.” Observers fear that the Chinese could respond with higher tariffs on U.S. agricultural and automotive exports, potentially sparking a trade war. But in an interesting editorial in the Financial Times, Clyde Prestowiz argued that the imposition of higher tariffs on Chinese exports to the Untied States could potentially help the push for free trade.

2. With the German election just a couple of weeks away, campaigning is in full force, and observers are already working through the numerous possible coalition arrangements. But in perhaps the most interesting development to date, German Finance Minister Peer Steinbrück last week called for the imposition of a new global tax on international financial transaction, the proceeds of which would be used to repay governments for the cost of fiscal stimulus packages and bank rescue operations. While not dismissing the idea out of hand, German Chancellor Angela Merkel called the proposal “electioneering.” Steinbrück’s call follows a similar proposal made by the Chair of the British Financial Services Authority, Lord Turner, and could make for interesting discussions at the upcoming G20 summit.

3. The counting process in the Afghan elections continues to drag on. Although incumbent President Hamid Karzai now has enough votes to win the disputed presidential election outright, according to the most recent results of the Independent Election Commission, widespread irregularities have led to calls for partial recounts. On Sunday, the IEC agreed to move forward with discussions on a recount, but it stopped short of spelling out precisely what votes would or would not be included. The Electoral Complains Commission, a body established by the United Nations to observe elections and investigate allegations of fraud, noted “clear and convincing” evidence of fraud and vote rigging in southern provinces which went heavily towards Karzai.

4. The first high-level contact between the government of Zimbabwe and the west took place on Sunday, as the European Union’s Commissioner for Humanitarian Aid and Development and the Swedish Prime Minister (who also holds the European Union’s rotating presidency) met with representatives of the Zimbabwean government in Harare. The meeting is the first high-level contact since the European Union imposed sanctions against Zimbabwe in 2002. While the European Union delegation remained noncommittal regarding the future direction of contact with the Zimbabwean government, stating only that “We’re entering a new phase. The [power-sharing agreement in Zimbabwe] was an important step forward, but much more needs to be done. The key to re-engagement is the full implementation of the political agreement.” The status of the power sharing arrangement in Zimbabwe remains uncertain, as President Robert Mugabe and his rival, Prime Minister Morgan Tsvangirai, continue to struggle over the distribution of political authority within the country.

5. The government of Guatemala last week declared a “state of calamity” in response to the widespread hunger gripping the country. The World Food Programme estimated that the country would require an immediate shipment of 20 tons of food the worst affected areas in order to stave off starvation. Alvar Colom, Guatemala’s president, said that global climate change was affecting the El Niño, causing a massive drought in the northeastern portion of the country. But Colom was also critical of the high level of inequality in the country, observing that “There is food, but those who go hungry have no money to buy it.” Critics also note that poorly defined land rights, narcoviolence, and alleged corruption have also undermined food production. According to the World Food Programme, half of all children under five in Guatemala suffer from malnutrition.

And in a bonus story for this week:

6. After more than three months since the general election, the political situation in Lebanon remains cloudy. On Thursday, Saad Hariri, the leader of Lebanon’s pro-Western majority, resigned as prime minister designee, despite performing well-above expectations in June’s elections. According to Hariri, the country’s parliamentary minority blocked efforts to develop a coalition government, leaving the country in a period of political uncertainty.

Five Stories You Might Have Missed

Japanese elections took place on Sunday, marking a dramatic shift in political power in the country. The Liberal Democratic Party, which has ruled Japan for nearly all of its post-World War II history, looks set to lose handily to its main rival, the Democratic Party of Japan. Some analysists are projecting the DPJ may win as many as 320 seats in the lower house, giving it a two-thirds majority and eliminating any need to form coalition partners. Prime Minister nad LDP leader Taro Aso has already conceded defeat and announced his intention to resign as party leader. With the DPJ’s victory, Yukio Hatoyama looks poised to become the country’s next prime minister.

In other news from the previous week:

1. The dispute over the status of last week’s Afghan election continues. Although incumbent President Hamid Karzai has extended his lead in the most recent results, the current tally (in which Karzai leads his main challenger, Abdullah Abdullah 46% to 31%) would still force a runoff election in October. Although final results are not expected until the end of September, Abdullah has accused the government of engaging in a “massive state-engineer[ing]” of the election results, alleging voter intimidation, ballot-box stuffing, and other election irregularities. The United States has also expressed concerns over the accusations, with U.S. Special Envoy to Afghanistan and Pakistan “mak[ing] it very clear” in a meeting with Karzai last week that the election should be free and fair.

2.  Fighting between the government of Burma and a rebel militia known as the Myanmar National Democratic Alliance Army broke out last week, ending a ceasefire signed between the two more than twenty years ago. The fighting, which has led to a massive exodus of refugees into China, drew criticism from the Chinese government over the weekend. China has been one of the few countries to maintain close ties to the Burmese government, but those ties have been challenged after a reported 10,000-30,000 people crossed into China to flee fighting. The Burmese government is attempting to reassert control ahead of next year’s elections over a region which has large ethnic minorities who reject the central government’s authority.

3. The United Arab Emirates announced it had seized a ship carrying North Korean arms to Iran. According to a report issued by the government of the UAE to the United Nations, the ship, which was seized several weeks ago, was carrying ammunition and small arms, including rocket-propelled grenades, in contravention of a UN embargo established under UN Security Council Resolution 1874 (2009). That resolution was passed after North Korea’s second nuclear test in May. The United Arab Emirates is a close U.S. ally in the region, and has been under pressure to step-up its screening of  shipments bound for Iran.

4. The longstanding trade dispute between Brazil and the United States will take a new turn on Monday, when the World Trade Organization is expected to rule that Brazil may infringe patents on U.S. pharmaceuticals in retaliation for U.S. subsidies on cotton. Brazil successfully challenged U.S. cotton subsides in 2002, when the WTO ruled that the $3 billion annual cotton subsidies paid by the U.S. government unfairly distorted global cotton prices. Despite the victory, the United States has continued to pay the subsidies, and the Brazilian government has struggled to find a way to enforce the ruling. If the WTO does indeed rule that Brazil may bypass U.S. intellectual property protection in the case, it may represent a new avenue for developing countries to enforce WTO rulings. More on this in a future blog entry.

5. South African President Jacob Zuma stated last week that he will be quick to condemn any “deviant” behavior during his upcoming visit to Zimbabwe. The South African government has historically been very slow to criticize the Zimbabwean government or to bring pressure on the country, which has been in the throes of an economic and political crisis for the more than five years. Meanwhile, a United Nations report last week contended that international humanitarian assistance for Zimbabwe has fallen well short of the amount needed to address the food shortages and disease outbreaks facing the country. The UN estimates Zimbabwe will require $718 million in humanitarian aid this year. So far, only $316 million has been pledged.

Five Stories You Might Have Missed

With the Congress in recess, the U.S. political scene has been dominated by coverage of town hall debates over health care reform. In the debate, the British National Health System (NHS) has been trotted out as representative of the dangers of government-run health care, charges to which the British government has responded. The Financial Times on Friday offered a balanced comparison of the U.S. and British health care systems, which debunks the selective use of statistics in the current debate.

In news from outside the U.S. health care debate last week:

1. The Taliban has stepped up attacks in Afghanistan ahead of nation-wide elections scheduled for Thursday. On Saturday, the Taliban launched a suicide bomb attack against NATO’s heavily fortified Afghanistan headquarters in Kabul, killing eight and wounding nearly 100 people. With observers already worried about the ability of the Afghan government and international elections monitors to conduct a nation-wide poll in the country, observers fear that the Taliban may attempt to disrupt the elections. The relative period of peace which had preceded Saturday’s attack had led some to believe that the Taliban would allow the elections to take place.

Thursday’s poll will pit incumbent President Hamid Karzai against former foreign minister Abdullah Abdullah. Although many observers believed Karzai’s campaign enjoyed an insurmountable advantage, Abdullah’s campaign has managed to close the gap, and some are now forecasting the need for a run-off election in October. A runoff would be necessary if neither candidate manages to secure an absolute majority of the vote.
 
2. Palestinian authorities in Gaza engaged in a series of small battles against Jund Ansar Allah, on Friday. The shootouts resulted in at least 13 deaths and dozens wounded. The battles represented the latest—and perhaps most serious—challenge to the Hamas-led government in Gaza. Jund Ansar Allah is one of several small extremist groups pushing for the introduction of strict Sharia law in Gaza. Jund Ansar Allah, which claims ties to al-Qaeda, had labeled Gaza an Islamic emirate subject to theocratic law, a claim which Hamas rejects. For its part, the Hamas government has dismissed challenges to its leadership as “Zionist propaganda” sponsored by the Israeli government.

3. The French Minister for Urban Regeneration, Fadela Amara, sparked a national debate last week when she called for a nation-wide ban on wearing the burka in France. Amara, a French national of Algerian decent, said that the burka represents “the oppression of women, their enslavement, their humiliation.” Banning the burka, she said, must be part of a broader effort to welcome moderate Islam while fighting the “gangrene, the cancer of radical Islam which completely distorts the message of Islam.” Amara’s comments are part of a broader debate in France. The national parliament in July established a committee to determine whether the wearing of the burka is “compatible with France’s republican tradition of equality between men and women,” and French President Nicolas Sarkozy in June said the burka “will not be welcome on the territory of the republic.” An estimated 5-10 percent of the French population is Muslim, though only a few thousand wear the burka.

4. South Korean President Lee Myung-bak last week attempted to re-open talks with North Korea, offering to negotiate troop reductions along the border between the two countries. The border between North and South Korea is among the most militarized in the world, with more than one million troops, including 30,000 U.S. troops, based in the area. However, in his offer, Lee reiterated the South Korean position that a comprehensive peace deal between the two countries would be predicated on North Korea abandoning its nuclear efforts, a proposition with the North has consistently rejected in the past.

5. Continuing her Africa tour with visits to Nigeria and the Democratic Republic of the Congo last week, U.S. Secretary of State Hillary Clinton spoke out on several of the continent’s hot spots. Last week, she urged political reconciliation in Kenya and offered support for Somali efforts to fight piracy and Islamic extremism, During her tour, she has not shied away from provoking controversy. In Nigeria, she criticized “the lack of transparency and accountability [which] has eroded the legitimacy of the government.” She also called for African governments to toughen their stance on Robert Mugabe’s government in Zimbabwe.

Five Stories You Might Have Missed

The U.S. political scene this week was dominated by coverage of Sonia Sotomayor’s confirmation hearings in the Senate. After the hearings, Sotomayor appears to be headed for an easy confirmation to the U.S. Supreme Court, a fact conceded by Republican Senator Lindsay Graham on the first day of the hearings.

Also on the domestic political scene, the battle over President Barack Obama’s proposed health care reform heated up this week, with both sides spending increasingly large sums of money on television advertising. So far, Obama has been content to allow Congressional Democrats to lead the reform effort, but that strategy appears to be in danger after several moderate Democrats expressed hesitation over the bill introduced in the House last week.

In news from outside the United States last week:

1. A suicide bomb attack in Jakarta, Indonesia, killed 9 people and injured more than 50 on Friday. Although no group has yet claimed responsibility for the bombing, the police investigation is focusing on Jemaah Islamiyah, a terrorist group with ties to al Qaeda. The group was responsible for a series of attacks between 2002 and 2005, including the 2002 Bali bombings, which killed more than 200 people.

2. The standoff between President Manuel Zelaya and the leaders of the military coup in Honduras remains unresolved. On Friday, Zelaya attempted to return to Honduras, only to be denied entry. He is currently in Nicaragua. Meanwhile, Venezuelan President Hugo Chávez, a close ally of Zelaya, has become increasingly vocal in his condemnation of the coup, accusing it of being backed by the United States. On Thursday, Chávez said, ““The Honduran army wouldn’t have gone forward without the approval of the state department. I don’t think they told [US president Barack] Obama, but there’s an empire behind Obama.” The de facto government of Honduras has filed a complaint against Venezuela with the United Nations Security Council, claiming that the Chávez government is interfering in its domestic affairs. But the Security Council has so far refused to deal with the complaint.

3. It’s been a month of relatively good economic news out of Zimbabwe. Although efforts at developing a new constitution to deal with the ongoing political standoff between the country’s two leading political parties appear to have stalled, the economy is slowly recovering. Finance Minister Tendai Biti announced on Thursday that the government would have a balanced budget this year, with total spending increasing 39 percent to U.S. $1.39 billion. After peaking at more than 231 million percent last year, inflation has been brought under control and the economy has effectively been dollarized, with foreign currencies used for most transactions. Nevertheless, the government is forecasting a sharp increase in agricultural production and a smaller increase in tourist revenues, which should offset a decline in mining revenue caused by the global economic crisis. Meanwhile, the International Monetary Fund issued a statement describing Zimbabwe as experiencing a “nascent economic recovery” facilitated by “a more liberal economic environment, price stability, increased financial intermediation and grater access to foreign credit lines.”

4. The Russian economy is currently experiencing its worst economic decline since the transition from communism in the early 1990s. According to a Financial Times report issued on Wednesday, the Russian economy contracted by 10.1 percent in the first half of 2009, a much sharper decline than the 7.9 percent forecast by the World Bank just one month ago. Russia’s current economic woes have been caused largely by the sharp decline in global oil prices, which have recovered to $60 per barrel after falling as low as $35 per barrel earlier this year. Russia is also experiencing its own financial crisis, as commercial banks there are bogged down with bad loans. The Russian government may be forced to turn to international markets, barrowing to offset the sharp decline in tax revenues caused by the economic downturn. Based on the new figures, its projected deficit for 2010 could reach as much as 7.5 percent of GDP, a figure far above the 5 percent originally projected. Unemployment has increased from 6 to 10 percent and continues to grow. Meanwhile, many Russians are responding to the economic crisis by returning to the soil, growing their own food on small plots just outside the city.

5. Natalia Estemirova, a human rights activist in Chechnya, was murdered on Wednesday. Estemirova was kidnapped as she left her house in Chechneya on Wednesday morning, and was found shot to death in Ingushetia, a neighboring Russian republic. Protestors fathered in Moscow on news of her murder, and the international community has condemned her death. Russian President Dmitry Medvedev has promised those responsible for Estemirova’s death would be punished, but the Russian human rights community remain skeptical of his reassurances. Estemirova was the third human rights activist killed this year. She was also a close friend of Anna Politkovskaya, the Russian journalist murdered in Moscow in 2006. No one has yet been punished for any of the deaths. Estemirova’s murder, however, raises concerns that the Caucasus region may be headed toward greater instability.