The new land grab in Africa
By Agazit Abate | PAMBAZUKA NEWS | 03 November 2011
The recent phenomenon of land grab, as outlined in the extensive research of the Oakland Institute, has resulted in the sale of enormous portions of land throughout Africa. In 2009 alone, nearly 60 million hectares of land were purchased or leased throughout the continent for the production and export of food, cut flowers and agrofuel crops.
Land grab was in part spurred by the food and financial crisis of 2008 when international bodies, corporations, investment funds, wealthy individuals, and governments began to re-focus their attention on agriculture and food as a profitable commodity. As outlined in the reports, the consequences of land grab include increased food insecurity, environmental degradation, community repression and displacement, and increased reliance on aid.
MEET THE INVESTORS
While media coverage has focused on the role of countries like India and China in land deals, the Oakland Institute’s investigation reveals the role of Western firms, wealthy US and European individuals, and investment funds with ties to major banks such as Goldman Sachs and JP Morgan. Investors include alternative investment firms like the London-based Emergent that works to attract speculators, and various universities like Harvard, Spelman and Vanderbilt.
Several Texas-based interests are associated with a major 600,000 hectares South Sudan deal which involves Kinyeti Development LLC, an Austin, Texas-based ‘global business development partnership and holding company’ managed by Howard Eugene Douglas, a former United States Ambassador at Large and Coordinator for Refugee Affairs. A key player in the largest land deal in Tanzania is Iowa agribusiness entrepreneur and Republican Party stalwart, Bruce Rastetter.
US companies are often below the radar, using subsidiaries registered in other countries, like Petrotech-ffn Agro Mali which is a subsidiary of Petrotech-ffn USA. Many European countries are also involved, often with support provided by their governments and embassies in African countries. For instance, Swedish and German firms have interests in the production of biofuels in Tanzanian. Addax Bioenergy from Switzerland and Quifel International Holdings (QIH) from Portugal are major investors in Sierra Leone. Sierra Leone Agriculture (SLA) is actually a subsidiary of the UK based Crad-1 (CAPARO Renewable Agriculture Developments Ltd.), associated with the Tony Blair African Governance Initiative.
As the media has reported, Indian firms are involved in land grab with relation to Ethiopia in particular. Food insecure nations like those of the gulf region are also participating in these land deals for the purpose of food production for their home countries.
ECONOMIC DEVELOPMENT?
A major argument by governments and investors is that these investments will lead to economic development for the home countries. The Oakland Institute reports reveal, however, that the land transactions are either for free (in the case of Mali) or very cheap (in the cases of Ethiopia and Sierra Leone). These transactions are largely unregulated with no stipulation or guarantees that they will help the local populations or create infrastructure. While land grab actors focus their rhetoric on foreign direct investment, there is no evidence to show that foreign direct investment will come into the countries in any substantial amount.
Most of these deals come with huge tax breaks and other investment incentives which is a great deal for the investors, but means less money coming into the country that could possibly go to infrastructure or social services. For instance, Sierra Leone allows 100 percent foreign ownership; there are no restrictions on foreign exchange, full repatriation of profits, dividends and royalties and no limits on expatriate employees.
Another justification for the land deals includes the idea that they will increase employment in the areas involved. Again, the lack of stipulation and on-the-ground research reveals that this is overstated at best and completely untrue at worst. The Emvest Matuba investment project summary and staff at Emergent and Emvest promise job creation with majority employment from the local community. A recent head count provided by Emergent reveals that currently only 17 permanent positions are in security (36 staff). In Mali, the area targeted by recent large land deals which could easily sustain 112,537 farm families (over half a million people, 686,478) is instead in the hands of 22 investors and will create at best a few thousand jobs.
To make matters worse, the limited employment created by these land deals is low wage, seasonal and primarily benefits the investors with cheap labour to compliment cheap land.
COMMUNITY DISPLACEMENT
While those involved firmly contend that communities are not being forcibly removed from their lands and those that are asked to move are being compensated, the opposite proves true. Ethiopian government officials, for instance, have stated that the lands being leased are unused or abandoned. Meanwhile, there is a villagisation process that has relocated 700,000 indigenous people who lived in a land that was targeted for investment.
In 2010 in Samana Dugu, Mali, bulldozers came in to clear the land and when the community protested, they were met by police forces who beat and arrested them. In Tanzania, the land investments of AgriSol Energy are focused on Katumba and Mishamo refugee settlements. The MOU between AgriSol Energy and the local government stipulates that these settlements, which house 162,000 refugees that fled Burundi in 1972 and have been farming the land for 40 years, have to be closed. In June 2009, Amnesty International reported refugees being pressured to leave camps. Some of them lost their homes to a fire set by individuals acting under the instructions of the Tanzanian authorities to get them to vacate the camp. Refugee leaders who have attempted to organize affected refugees have been arrested and detained.
Investment sites in various African countries visited by the Oakland Institute revealed a loss of local farmland where the lands held a variety of different uses and social/ecological value. Some of the lands that are claimed to be unused are those where the communities practice shifting cultivation (where plots of land are left idle after periods of cultivation in order to re-vegetate), pastoralism, and those considered communally used areas.
Forests and national reserves that are home to vital animal, fish and plant species and are a place where communities have found alternative sustenance in times of food scarcity have been burned and cleared out. These lands are being destroyed without an understanding of their significance and without assessments to determine how this will affect local communities.
Many of the communities interviewed stated that there was no prior notification of the land investments. They only realized what was happening when the bulldozers arrived in their communities.
FOOD INSECURITY
While most of the countries and regions targeted suffer from food insecurity, these land deals focus on producing export commodities, including food, biofuels and cut flowers for foreign consumption. In Mali, half of the investors with large land holdings in the Office du Niger intend to grow plants used to produce agrofuels such as sugarcane, jatropha or other oleaginous crops. In Mozambique, most of the investments concern timber industry and agrofuels rather than food crops. Food crops represented only 32,000 hectares of the 433,000 hectares that were approved for agricultural investments between 2007 and 2009.
In Ethiopia, much of large scale land deals have focused on food production for a foreign market. Because land grab throughout Ethiopia has led to the clearing of communal lands and plots used for shifting cultivation as well as forests, the communities’ primary source of sustenance along with their buffer systems are threatened. Additionally, commercial farming on these lands will affect fish habitats and other wildlife hunted in times of food scarcity and the loss and degradation of grazing lands will further increase food insecurity.
Water is of a particular concern as runoff from commercial farms will lead to the contamination and reduction of water supplies. Dam construction in investment site areas like the proposed Alwero River dam spark additional concern of the consequential uncertainty of access to water for local and downstream communities. No clause has been found in the lease agreements that discusses water use and there is no evidence that water use from commercial agriculture is managed, monitored or regulated.
In Ethiopia, not only is there no clause in any of the lease agreements that require investors to improve local food security conditions or make food available for the local populations, the federal government has actually provided incentives for those investors that grow cash crops for a foreign market. Abera Deressa, federal minister for agriculture stated that, ‘If we get money we can buy food anywhere. Then we can solve the food problem.’ A major concern of the communities interviewed is that they believe the government is intentionally creating a situation where communities must rely solely on the government for their food, in an attempt to marginalize and disempower them.
THE ENVIRONMENTAL FACTOR
Environmental degradation is a major concern in these land deals that have limited transparency and regulations in terms of their environmental impact. Forests have many uses for the local communities including as food, medicine, fuel wood and building materials. Forests also retain cultural and historical significance. Expected outcomes of clearing the lands and forests include loss and degradation of wetlands, decrease in wildlife populations and habitat, proliferation of invasive species and loss of biodiversity.
These environmental concerns are exemplified in Ethiopia’s Gambela National Park where the Ethiopian Wildlife Conservation Authority (EWCA) estimates that 438,000 hectares of land have been leased in the vicinity of the park. While the park boundaries are not set, lands that the local population considers a part of the park have been cleared by large-scale investors, including Karuturi and Saudi Star. Wetlands have been altered and forests have been cleared. According to recent surveys, the Gambela National Park is home to 69 mammal species, valuable wetland habitat, hundreds of bird species and 92 fish species.
To compound matters, the practice of industrial agriculture will lead to increased toxicity, disruption of nature’s system of pest control, creation of new weeds or virus strains, loss of biodiversity, and the spread of genetically-engineered genes to indigenous plants. […]
Instead of supporting small farmers, these land deals support industrial agriculture while displacing and disempowering the very people that have the ability to shift their communities from insecure to sustainable populations and environments. Land grab puts these countries on a path that will surely lead to increased food insecurity, environmental degradation, increased reliance on aid and the marginalisation of farming and pastoralist communities. With regards to food, the issue at stake is not only one of increased food insecurity, but an attack on food sovereignty or peoples’ right to produce their own food.
Land grab is irrational at best and violent at worst. It’s a violent act to take away peoples’ right to food, access to their ancestral land, their social and historical ties, and their overall right for human dignity. It’s a violent act to strip them of their future and the land of its fertility.
While land deals are going on behind closed doors, communities are resisting. The 2008 food uprisings, the revolt in Madagascar against land grab, and the recent protests in Guinea, all show communities who are standing up for their right for food sovereignty. In fact, in all of the countries visited, the land deals were met by community organising. Knowing what we know, resisting these land deals on all fronts and working towards investments in sustainable agriculture and empowering local populations points to the only rational and humane way forward.
Egypt and the IMF
Topple Their Debts
By ERIC WALBERG | CounterPunch | November 4, 2011
The Popular Campaign to Drop Egypt’s Debts was launched at the Journalists’ Union 31 October, with a colourful panel of speakers, including Al-Ahram Centre for Political & Strategic Studies Editor-in-Chief Ahmed Al-Naggar, Independent Trade Union head Kamal Abbas, legendary anti-corruption crusader Khaled Ali, and the head of the Tunisia twin campaign Dr Fathi Chamkhi.
Moderator Wael Gamal, a financial journalist, described how he and a core of revolutionaries after 25 January started the campaign with a facebook page DropEgyptsDebt. The IMF offer of a multi-billion dollar loan in June was like a red flag in front of a bull for Gamal, and their campaign really got underway after that, culminating in the formal launch this week, just as election fever is rising.
“Just servicing Egypt’s debt costs close to $3 billion a year, more than all the food subsidies that the IMF harps about, more than our health expenditures,” Gamal said angrily. “We are burdened with a $35 billion debt to foreign banks, mostly borrowed under the Hosni Mubarak regime, none of it to help the people.”
Ali explained the basis of the campaign, which does not call for wholesale cancellation of the debt, but for a line-by-line review of the loan terms and useage to determine: whether the loan was made with the consent of the people of Egypt, whether it serves the interests of the people, and to what extent it was wasted through corruption. He explained that the foreign lending institutions knew full well that Mubarak was a dictator conducting phoney elections and thus not reflecting the will of the people when they showered him with money, and they should face the consequences — not the Egyptian people.
These are the internationally accepted conditions behind the legitimate practice of repudiating “odious debt”, which were used by the US (though mutedly) in 2003 to tear up Iraq’s debt, and by Ecuador in 2009. “Ecuador had an uprising much like our revolution and after the next election the president formed an audit committee and managed to cancel two-thirds of the $13 billion debt,” noted Gamal, leaving the conferencees to ponder what a truly revolutionary government in Egypt could do for the health sector and for employment.
Al-Naggar told how the loans propped up the economy as it was being gutted under an IMF-supervised privatisation programme from 1990 on, allowing foreign companies and Mubarak cronies to pocket hundreds of millions of dollars and spirit them abroad. Meanwhile, what investment that trickled down from the loans went to financing prestige infrastructure projects like the Cairo airport expansion, which was riddled with corruption and serves only the Egyptian elite. Virtually all the loans from this period should be considered liable for writing off.
No government officials deigned — or dared — to come to the conference. On the contrary, Egypt’s Finance Minister Hazem Al-Biblawi told Al-Sharouk that it defames Egypt in the world’s eyes, saying, “like the proverb ‘It looks like a blessing on the outside, but is hell on the inside’.”
Both Gamal and Al-Naggar criticised Biblawi for distorting their intent, which is not to portray Egypt as bankrupt, like Greece, but to shift the burden of the bad loans to the guilty parties — the lenders, and thereby to help the revolution. “It is the counter-revolution that is discrediting Egypt. And they are the old regime that got the loans and misused them, and are now trying to discredit the revolution. The international community should willingly write off the odious loans if it wants the revolution to succeed,” exhorted Al-Naggar.
The enthusiasm and sense of purpose at the conference was infectious. Indeed, this campaign is arguably the key to whether or not the revolution succeeds. But it requires a political backbone that only an elected government can hope to muster. The fawning of Al-Bablawi — this week he hosted another IMF mission — looks like the performance of someone from the Mubarak era, not someone delegated to protect the revolution. He welcomed the delegation and “the possibility of their offering aid to Egypt”.
Al-Naggar pointed out that the purpose of the IMF is not to aid the Egyptian people, but to tie the government to international dictate. Rating agencies are part of this, downgrading Egypt’s credit rating after the revolution. Why? Because Egypt is less democratic? Or because it will be harder to ply Egypt with more loans to benefit Western corporations, and to keep the Egyptian government in line with the Western political agenda. “Silence is golden,” Al-Naggar advised Biblawi, meaning, “If you don’t have something good to say, don’t say anything.”
Chamkhi brought Tunisian warmth to the meeting, though he further incensed listeners as he explained how the Western debt scheming is directly the result of 19th century colonialism. He told how France colonised Tunisia, stole the best agricultural land, and then how the quasi-independent government in 1956 had to take out French loans to buy back the land that the French had stolen, thereby indenturing Tunisia yet again, in a new neocolonial guise. The foreign debt really exploded with Zine Al-Abidine Ben Ali’s kleptocracy, just as did Egypt’s under Mubarak. Shamati eloquently expressed how “debts are not for our development, but to make us poor. To create a dictatorship of debts.”
Tunisia’s first democratic elections brought the Congress for the Republic, which supports the debt revision campaign, 30 seats. So far in Egypt, according to organiser Salmaa Hussein, Tagammu, the Nasserists and Karama support their efforts, along with presidential hopefuls Hamdeen Sabhi and Abdul Monem Abul Fotouh.
There is an international campaign dating from the 1990s, the 2000 Jubilee debt relief movement, and the Cairo conference heard a report from London about efforts on behalf of many third world countries — now including Egypt and Tunisia — by public-spirited Brits. The Arab Spring success stories now have a determined and politically savvy core of activists who know what the score is and will be pushing their respectively revolutionary governments to repudiate the debts from the corrupt regimes they overthrew at the cost of hundreds of lives. As the fiery Independent Trade Union head Abbas cried, adding an apt phrase to Egypt’s revolutionary slogan: “Topple the regime, topple their debts!”
Eric Walberg writes for Al-Ahram Weekly. You can reach him at http://ericwalberg.com/
Keynesian Myths and Illusions
By ISMAEL HOSSEIN-ZADEH | CounterPunch | November 4, 2011
The Keynesian view that the government can fine tune the economy through “appropriate” fiscal and monetary policies to maintain continuous growth at or near full employment is based on the idea that capitalism can be controlled by the state and managed by professional economists from government departments, that is, capitalism run by “experts” in the interest of all. Economic policy making according to this view is largely a matter of technical expertise or economic know-how, that is, a matter of choice.
The effectiveness of the Keynesian model is, therefore, based largely on a hope, or illusion; since in reality the power or control relation between the state and the market/capitalism is usually the other way around. Economic policy making is more than simply an administrative or technical matter of choice; more importantly, it is a deeply socio-political matter that is organically intertwined with the class nature of the state and the policy making apparatus.
The Keynesian illusion has been nurtured or masked by two major myths. The first myth stems from the perception that attributes the implementation of the New Deal and Social Democratic economic reforms that followed the Great Depression and WW II to the genius of Keynes. This is a myth because those reforms were more a product of the fierce class struggle and overwhelming pressure from the grassroots than that of the brains of experts like Keynes. The harrowing socio-economic turbulence of the 1930s generated momentous social upheavals and extensive working class struggles. The ensuing “threat of revolution,” as FDR put it, and the “menacing” pressure from below prompted reform from above—independent of Keynes.
As a relatively well-known academic/economist, however, Keynes provided the theoretical or intellectual rationale for the badly-needed reforms in order to save capitalism by fending off revolution. The auspicious coincidence of the publication of his famous book, The General Theory of Employment, Interest and Money (1936), with the implementation of the New Deal-type economic reforms in the US and Western Europe provided Keynes with much more credit for those reforms and the subsequent economic recovery than he deserved.
The second myth is based on the view that attributes the long economic expansion of the 1948-1968 period in the US and Europe to the efficacy or success of Keynesian policies of economic management. While it is certainly true that expansionary government policies of the time played a big role in the fantastic economic developments of that period, other factors contributed even more to the success of that expansion. These included the need to invest and rebuild the devastated post-war economies around the world, the need to supply the vast post-war global demand for consumer as well as capital goods, lack of competition for US products and capital in global markets—in short, the fact that there was enormous room for growth and expansion in the immediate post-war period.
Harboring these myths and illusions, many Keynesian economists envisioned a silver-lining in the 2008 financial meltdown and the ensuing economic crisis. For, in the “crisis of Neoliberal economics,” they saw an opportunity for a new dawn of Keynesian economics, or the coming of a second New Deal. Well-known Keynesians such as Paul Krugman, Joseph Stiglitz and Dean Baker wrote (and continue to write) passionately on the need to revive Keynesian policies, to implement extensive stimulus packages, to reinstate the Glass Steagall Act and other regulatory measures that were put in place in response to the Great Depression. The excitement on the part of many Keynesians about the prospects of what they perceived as an almost automatic switching of policy gears from Neoliberal to Keynesian economics led George Melloan of the Wall Street Journal to write (sarcastically) “We’re all Keynesian’s Again.”
More than three years later, it is abundantly clear that Keynesian policy prescriptions are falling on deaf ears, as Neoliberalism continues to keep Keynesianism at bay. Indeed, even the nominally socialist and Social-Democratic economies of Europe have adopted the unbridled austerity policies of Neoliberalism.
Shunned, Keynesian hopes and illusions have turned into disappointment and anger. For example, using his New York Times’ column, Professor Paul Krugman frequently lashes out at the Obama administration for ignoring the Keynesian policies of economic expansion and job creation and, instead, following policies that are not very different from those of Neoliberal Republicans. “The truth is that creating jobs in a depressed economy is something government could and should be doing. . . . Think about it: Where are the big public works projects? Where are the armies of government workers? There are actually half a million fewer government employees now than there were when Mr. Obama took office.”
Let me repeat the essential part of Professor Krugman’s statement: “The truth is that creating jobs in a depressed economy is something government could and should be doing.” This is exactly what I call Keynesian illusion: the belief in the ability of government to control and/or manage capitalism; the perception that government “could and should” invest in job creation but, somehow, does not do it now. Yes, a government could and should invest in job creation; but that would be a different government, a disinterested government independent of special interests, not the Obama administration (or the US government more broadly) that is beholden to the big money for its election/reelection. It is true that a capitalist government may occasionally invest in economic growth and job creation; but those would be occasions when such policies are perceived to be also serving the interests of the ruling class (as in the aftermath of the Great Depression and WWII).
It is obvious that the Keynesians’ disgust with the Neoliberal policies of the government of big business is misplaced. At the heart of their frustration is the unrealistic perception that economic strategies and policies are largely intellectual products, and that policy making is primarily a matter of technical expertise and personal preferences: economists and/or policy makers who are far-sighted, good-hearted, or better equipped with “smart” ideas would opt for “good” or Keynesian-type capitalism; while those lacking such admirable qualities would foolishly or misguidedly or heartlessly choose “bad” or “Neoliberal capitalism” [1].
As I have pointed out in an earlier critique of Keynesian economics, it is not a matter of “bad” vs. “good” policy; it is a matter of class policy. Keynesians are angry because they tend to be oblivious or shy away from the politics of class, that is, the politics of policy making. Instead, they seem to think that economic policy making results mainly from a battle of ideas and theories, and they are disappointed because they are losing that battle.
Professor Krugman passionately writes, “Where are the big public works projects? Where are the armies of government workers?” What he fails to mention is that those “armies of government workers” were put to work not courtesy of FDR, or because of Keynes’ brilliant ideas (in fact, when the FDR administration initially embarked on the implementation of the extensive public works projects it did not even know Keynes was alive), but because much larger armies of workers and other grassroots threatened the capitalist system by persistently marching in the streets and demanding jobs. It is interesting that many Keynesian economists admirably fight (of course, in the realm of ideas) for the rights of workers but shy away from calling on them to rise up to demand their rights.
It is not enough to have a good heart or a compassionate soul; it is equally important not to lose sight of how public policy is made under capitalism. It is not enough to repeatedly bash Ronald Reagan as a wicked king and praise FDR as a wise king. The more important task is to explain why the ruling class ousted the wise king and ushered in the wicked one. Government policy makers are certainly not stupid. Why, then, did they switch from the policies of Keynes and New Deal economics to those of Reagan and Neoliberal economics?
The US capitalist class pursued the Keynesian-type policies in the immediate post-war period as long as political forces and economic conditions, both nationally and internationally, rendered those policies effective. Top among those conditions, as mentioned earlier, were nearly unlimited demand for US manufactures, both at home and abroad, and the lack of competition for both US capital and labor, which allowed US workers to demand decent wages and benefits while at the same time enjoying higher rates of employment.
By the late 1960s and early 1970s, however, both US capital and labor were no longer unrivaled in global markets. Furthermore, during the long cycle of the immediate post-war expansion US manufacturers had invested so much in fixed capital, or capacity building, that by the late 1960s their profit rates had begun to decline as the capital-labor ratio of their operations had become too high. In other words, the enormous amounts of the so-called “sunk costs,” mainly in the form of fixed capital, or plant and equipment, had significantly eroded their profit rates [2].
More than anything else, it was these important changes in the actual conditions of production and the realignment of global markets that precipitated the gradual abandoning of Keynesian economics. Contrary to the repeated claims of the liberal/Keynesian partisans, it was not Ronald Reagan’s ideas or schemes that lay behind the plans of dismantling the New Deal reforms (in fact, steps to hammer away at those reforms had been taken long before Reagan arrived in the White House). Rather, it was the globalization, first, of capital and, then, of labor that rendered Keynesian or New Deal-type economic policies no longer attractive to capitalist profitability, and brought forth Ronald Reagan and Neoliberal austerity economics [3].
Karl Marx argued long ago that dreams of an egalitarian socialist society to supplant capitalism could not be realized unless (a) conscious political actions are taken toward that end (i.e., there is not such a thing as automatic collapse of capitalism), and (b) such actions are carried out on a global level. In light of the relentless Neoliberal austerity race to the bottom that globalization has unleashed in recent years and decades, it is obvious that Marx’s provisos for meaningful social change applies not only to radical socialist ideals but also to reformist capitalist programs a la Keynes.
References
[1] Many progressive/Keynesian economists call the protracted crisis that started in 2008 the crisis of “Neoliberal capitalism,” not of capitalism per se—see, for example, David M. Kotz, “The Financial and Economic Crisis of 2008: A Systemic Crisis of Neoliberal Capitalism,” Review of Radical Political Economics, Vol. 41, No. 3 (2009), pp. 305-317.
[2] For a relatively thorough discussion of this issue see Anwar Shaikh’s “The Falling Rate of Profit and the Economic Crisis in the U.S.”; in The Imperiled Economy, Book I, Union for Radical Political Economy, Robert Cherry, et al. (1987).
[3] For an informative analysis of this transition see Harry Shutt’s The Trouble with Capitalism: An Enquiry into the Causes of Global Economic Failure, Zed Books (1998).
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Ismael Hossein-zadeh is Professor Emeritus of Economics, Drake University, Des Moines, Iowa. He is the author of The Political Economy of U.S. Militarism
Drop ‘dictator debt,’ activists and economists say
By Max Strasser – Al-Masry Al-Youm – 28/10/2011
Egypt has a budget deficit of nearly 10 percent of GDP and the finance minister recently said that the country is on the brink of a liquidity crisis. Meanwhile, economic growth has slowed since the uprising, decreasing government revenues, while public sector workers around the country are striking to raise wages that have been stagnant for decades. Egypt is in a tight fiscal spot.
But a group of Egyptian and international activists have a solution that would take pressure off the budget and at the same time undo the economic legacy of Hosni Mubarak’s corrupt regime. The Popular Campaign to Drop Egypt’s Debt, a coalition of civil society groups and concerned individuals, are calling for a comprehensive public debt audit with the eventual aim of debt forgiveness from foreign lenders.
“This is a popular movement that aims to facilitate Egypt’s economic independence from the many forms of exploitation, subordination and resource misappropriation that were imposed upon the people of Egypt during the past decades by the regime of the ousted dictator Hosni Mubarak and his collaborators abroad,” the campaign wrote in its founding statement.
The campaign, which has been growing since it began on Facebook in March, will kick off publicly with a “Global Day for Egyptian Debt Audit/Cancellation” on 31 October, marked by events in Cairo, as well as Paris, Berlin and London – the capitals of some of Egypt’s biggest creditors. The campaign here has earned the support of some prominent civil society organizations in addition to individual activists, economists and economics journalists.
Organizers hope that this will help push the issue of debt forgiveness into the public conversation in Egypt and among governments that hold Egyptian debt.
“What we’re trying to do is draw public attention, because no one is talking about it,” says Noha al-Shoky, one of the founders of the campaign. “The masses don’t understand that we have a situation at hand here.”
The conference in Cairo will also feature Fathi Chamkhi, a Tunisian university professor who is also leading a similar campaign at home. Those involved in the campaign are hoping that in the wake of the uprisings in the North African countries there is a chance for a clean break with the economic legacies of the fallen regimes.
Budget problems, debt solutions?
International credit rating agencies downgraded Egypt’s sovereign debt rating earlier this month due in part to fears about the high budget deficit.
By the end of the fourth fiscal quarter of the 2010/11 fiscal year, Egypt will hold almost US$35 million in external debt, most of it medium- or long-term, according to the Central Bank of Egypt, which also states that the government pays US$3.4 billion in interest on foreign debt. In addition to this, Egypt has about four times as much debt held by local banks.
Economists and analysts point to a number of other problems that contribute to the high budget deficit, such as massive spending on untargeted subsidies. But debt relief could be a major step toward solving the problem.
At the same time, though, the military-backed interim government is looking elsewhere for budget support.
Planning and International Cooperation Minister Fayza Abouelnaga, who is responsible for international agreements, is currently negotiating with the G8 industrialized states, Gulf countries and International Monetary Fund (IMF) and World Bank in an attempt to secure US$35 billion in loans and economic assistance, according to a government statement earlier this week.
Abouelnaga also announced on Tuesday that she would begin negotiations with the IMF for a US$3 billion loan, the same amount that the cabinet rejected from the IMF in June.
“Given the status of the huge budget deficit and borrowing from abroad, then definitely we need some kind of relief from the debt we have from the past, which is actually more than a third of the budget,” says Ahmed Ghoneim, a professor of economics at Cairo University who is not affiliated with the campaign in any way. “Any kind of initiative [for debt forgiveness] could help the economy.”
Also, some activists hope, wiping some US$30 billion from the ledger book could free up more funds for the social justice spending that many demand, from doctors who are asking for more money for public health to public sector workers demanding better wages.
Moreover, an infusion of foreign capital in the form of debt relief could help spur Egypt’s economic recovery, says Amr Adly, an economist with the NGO Egyptian Initiative for Personal Rights, which has backed the campaign. Improved economic conditions will help produce political stability in the long-term, Adly says.
A time for transparency
Before debt is forgiven, the organizers of the campaign plan to hold a public debt audit, in which Egyptians fully examine the money owed in their names.
A debt audit is a comprehensive examination of what debts are owed to whom and how money has been used. Some of this information is publicly available, but is rarely looked at by people outside the economic elite responsible for making decisions.
The campaigners hope to involve as many people in the debt audit as possible, from students to civil society members to representatives from the popular committees. Some people have already begun working on this, Shoky says, including economics students who are combing through many CDs of data.
The audit will help introduce a level of transparency that never existed under the Mubarak regime.
“I am not a specialist in economics, but I believe that individuals should be involved in how the country is run,” Wael Khalil, an activist and blogger and member of the campaign said in a statement. “Part of this involvement is through knowledge sharing. The priority is to access information, to access the details and to be able to publish it.”
Public involvement in the debt audit will push for transparency and accountability, Adly says, forcing lenders to take into consideration the legitimacy of the governments that they are lending to.
Mubarak’s odious legacy
Debt cancellation campaigners believe that they can make a strong case for the cancellation of Egypt’s debts based on the principle of “odious debt,” a legal theory that holds that debts made by a government that are not in the people’s national interests are illegitimate and should be forgiven once the autocratic regime is removed from power.
Precedents for this date back to the 19th century.
Recently, after the United States invaded Iraq and deposed Saddam Hussein, Washington succeeded in convincing many Western lenders to forgive Iraq’s foreign debts incurred under the former leader’s regime. Post-Mubarak Egypt should fall under the same logic, the debt cancellation campaigners believe.
“The whole idea of odious debt challenges the conclusion of the debt in the first place, saying that the government that signed the debt was not legitimate and borrowers didn’t keep up safeguards of having parliamentary supervision, monitoring,” says Adly.
“There’s been a lot of talk by Western governments about supporting people instead of dictators, so we’re challenging them to put their money where their mouths are,” says Philip Rizk, a co-founder of the campaign.
Italian pensioners protest in Rome
Press TV – October 28, 2011
Italian pensioners have taken to the streets of Rome to protest against their government’s harsh austerity measures, Press TV reports.
Thousands of pensioners gathered in a central square in Rome to voice their opposition to the government’s recent changes to the country’s pension plan.
The protests are a response to the recent decision by Prime Minister Silvio Berlusconi and his coalition partners, the Northern League, to increase Italy’s retirement age to 67 by 2025.
Italian workers are accusing the government of implementing reform measures too late and following instructions dictated by other European nations.
Italian opposition parties believe Rome should tax properties and residents with assets, rather than increasing the country’s retirement age and cutting public expenditure.
Rome has been pressured to implement economic reforms and budget cuts to reassure investors worried about the country’s huge debt ratio that is second only to Greece.
There is growing fear among EU leaders that Italy could be sucked into a crisis that has already claimed Greece, Ireland and Portugal.
Rome is facing a nearly two-trillion-euro debt that is 120 percent of its Gross Domestic Product.
Mahmoud Jibril and Qaddafi’s Wealth Redistribution Project
By Mahdi Darius Nazemroaya | The Passionate Attachment | October 25, 2011
Colonel Muammar Qaddafi symbolizes many things to many different people around the world. Love or hate the Libyan leader, under his rule Libya transformed from one of the poorest countries on the face of the planet into the country with the highest living standards in Africa. In the words of Professor Henri Habibi:
When Libya was granted its independence by the United Nations on December 24, 1951, it was described as one of the poorest and most backward nations of the world. The population at the time was not more than 1.5 million, was over 90% illiterate, and had no political experience or know how. There were no universities, and only a limited number of high schools which had been established seven years before independence. [1]
Qaddafi had many grand plans. Many of them were of a pan-African nature. This included the formation of a United States of Africa.
Qaddafi’s Pan-African Projects
Colonel Qaddafi started the Great Man-Made River. The Great Man-Made River is a massive project to transform the Sahara Desert and reverse the desertification of Africa. The Great Man-Made River with its irrigation plans was also intended to help the agricultural sector in other parts of Africa. This project was one of the victims of NATO’s attacks on Libya.
Qaddafi also envisioned independent pan-African financial institutions. The Libyan Investment Authority and the Libyan Foreign Bank were important players in setting up these institutions. Qaddafi, through the Libyan Foreign Bank and the Libyan Investment Authority, was instrumental in setting up Africa’s first satellite network, the Regional African Satellite Communication Organization (RASCOM), to reduce African dependence on external powers. [2]
It is believed that his crowning achievement would have been the creation of the United States of Africa. The supranational entity would have been created through the African Investment Bank, the African Monetary Fund, and finally the African Central Bank. These institutions were all viewed with animosity by the European Union, United States, International Monetary Fund (IMF), and World Bank.
Qaddafi’s Wealth Redistribution Project
Qaddafi had a wealth redistribution project inside Libya. U.S. Congressional sources in a report to the U.S. Congress even acknowledge this. On February 18, 2011 the report stated:
In March 2008, [Colonel Qaddafi] announced his intention to dissolve most government administrative bodies and institute a Wealth Distribution Program whereby state oil revenues would be distributed to citizens on a monthly basis for them to administer personally, in cooperation, and via local committees. Citing popular criticism of government performance in a long, wide ranging speech, [he] repeatedly stated that the traditional state would soon be “dead” in Libya and that direct rule by citizens would be accomplished through the distribution of oil revenues. [The military], foreign affairs, security, and oil production arrangements reportedly would remain national government responsibilities, while other bodies would be phased out. In early 2009, Libya’s Basic People’s Congresses considered variations of the proposals, and the General People’s Congress voted to delay implementation. [3]
The Wealth Redistribution Project, along with the establishment of an anarchist political system, was viewed as a very serious threat by the U.S., the E.U., and a group of corrupt Libyan officials. If successful it could have created political unrest amongst many domestic populations around the world. Internally, many Libyan officials were working to delay the project.
Why Mahmoud Jibril Joined the Transitional Council
Amongst the Libyan officials who was opposed to this project and viewed it with horror was Mahmoud Jibril. Jibril was put into place by Saif Al-Islam Qaddafi. Because of strong influence and advice from the U.S. and the E.U., Saif Al-Islam selected Jibril to transform the Libyan economy and impose neo-liberal economic reforms.
Jibril would become the head of two bodies in the Libyan Arab Jamahiriya, the National Planning Council of Libya and National Economic Development Board of Libya. While the National Economic Development Board was a regular ministry, the National Planning Council would actually put Jibril in a government position above that of the equivalent of the prime minister–the Office of the General-Secretary of the People’s Committee of Libya. Jibril actually was one of the forces that opened the doors for privatization and poverty in Libya.
About six months before the conflict erupted in Libya, Mahmoud Jibiril actually met with Bernard-Henri Lévy in Australia to discuss forming the Transitional Council and deposing Qaddafi. [4] He described Qaddafi’s Wealth Redistribution Project as “crazy” in minutes and documents from the National Economic Development Board of the Libyan Arab Jamahiriya. [5] Jibril believed that the masses were not fit to govern themselves and that an elite should control the fate and wealth of any nation. What Jibril wanted to do is downsize the government and layoff a large segment of the public sector, but in exchange increase government regulations in Libya. He would also always cite Singapore as the perfect example of a neo-liberal state. While in Singapore, which he regularly visited, it is likely that he meet with Bernard-Henri Lévy.
When the problems erupted in Benghazi, Mahmoud Jibril immediately went to Cairo, Egypt. He told his colleagues that he would be back in Tripoli soon, but he had no intention of returning. In reality, he went to Cairo to meet the leaders of the Syrian National Council and Lévy. They were all waiting for him to coordinate the events in Libya and Syria. This is one of the reasons that the Transitional Council has recognized the Syrian National Council as the legitimate government of Syria.
Mahmoud Jibril is now the prime minister of the Transitional Council of Libya. The opposition of Jibril to Qaddafi’s Wealth Redistribution Project and his elitist attitude are amongst the reasons he conspired against Qaddafi and helped form the Transitional Council. Is this ex-regime official, who has always been an open supporter of the Arab dictators in the Persian Gulf, really a representative of the people?
NOTES
[1] Henri Pierre Habib, Politics and Government of Revolutionary Libya (Montmagny, Québec: Le Cercle de Livre de France Ltée, 1975), p.1.
[2] Regional African Satellite Communication Organization, “Launch of the Pan African Satellite,” July 26, 2010:
[3] Christopher M. Blanchard and James Zanotti, “Libya Christopher M. Blanchard and James Zanotti, “Libya: Background and U.S. Relations,” Congressional Research Service, February 18, 2011,” Congressional Research Service, February 18, 2011, p.22.
[4] Private discussions with Mahmoud Jiribil’s co-workers inside and outside of Libya.
[5] Internal private documents from the National Economic Development Board.
~
Mahdi Darius Nazemroaya is a Sociologist and Research Associate of the Centre for Research on Globalization (CRG), Montréal. He specializes on the Middle East and Central Asia. He was on the ground in Libya for over two months and was also a Special Correspondent for Flashpoints, which is a program based in Berkeley, California. Nazemroaya has been releasing these articles about Libya in conjunction with aired discussions (now archived) with Cynthia McKinney on Freedom Now, a show aired on Saturdays on KPFK, Los Angeles, California KPFK.org.
What Would Happen if Goldman Sachs Disappeared?
By John Rubino | Safe Haven | October 24, 2011
As Europe grinds out yet another doomed banking system rescue plan, it might be helpful to examine the underlying assumption, which is that we need these big banks.
Do we really? If Goldman Sachs, JP Morgan Chase, Deutsche Bank, Crédit Lyonnais and five or six of their peers ceased to exist tonight, what would happen? Would their absence change the number of factories, hospitals, farms, biotech research labs, oil wells, or gold mines? Would there be fewer houses or cars? Would computers get slower or TVs lower-def? No. The world of tomorrow morning would have exactly the same amount of real wealth and productive capacity as it does today. The main thing it wouldn’t have is a lot of arcane financial instruments that don’t produce anything edible, and a hundred thousand or so bankers making inordinate amounts of money moving this paper around. To the extent that those bankers would have to take jobs making real things, the post-Goldman world would arguably be richer and more productive.
The big banks’ disappearance might, admittedly, leave some ripples in the pond. Interest rates might rise and stock prices fall as countries like the US and Japan have to suddenly live within their means. Military budgets, public services and pensions would shrink dramatically. But there would be compensations. Where today’s low interest rate regime is devastating to retirees living on the proceeds of bank CDs and Treasury bonds, higher interest rates would give them back their personal incomes, probably more than offsetting lower Social Security and Medicare benefits. For young families, falling real estate prices (also due to higher interest rates) would bring starter homes within closer reach. And all those soldiers now occupying foreign countries, or training to, would be freed up to take real jobs alongside the ex-bankers.
People who have leveraged themselves to the hilt to buy various assets would have to sell, of course, but savers — especially those with a lot of precious metals — would snap up those assets and put them to productive use. Apple and Warren Buffett’s Berkshire Hathaway between them have over $100 billion of ready cash, which they’ll use to acquire and deploy cheap assets. Community banks that focus on mortgages, business loans, and customer service(!) will thrive as depositors abandon Bank of America for local institutions. Farmers markets and local farms will grow to replace a disrupted global agribusiness supply chain. Freed from all those financial sector campaign contributions, politics might even get a little cleaner.
Viewed this way, the process looks a lot less threatening, and might even be a path to the kind of world most rational people would prefer. So relax, let the big banks go, and let’s see what happens.
Penny Wise and Euro Foolish
By John P. Hussman, Ph.D., Hussman Funds | October 23, 2011
Among the effects of the recent and now renewed credit strains in the global economy is that investors have lost touch with relative magnitudes. For example, a billion dollars effectively represents about $3.20 for every adult and child in the U.S., while a trillion dollars represents about $3,200 dollars per person. From our standpoint, among the most important research coordination that government provides comes from the National Institutes of Health (NIH), which funds basic medical research in cancer, diabetes, multiple sclerosis, Alzheimer’s, autism, and other conditions, and where the total annual budget is about $31 billion annually (roughly $100 per American). Add in just over $7 billion in research through the National Science Foundation, and about $120 per citizen a year is spent by the government on essential medical and non-military scientific research through these agencies. These figures pale in comparison to the amounts that are increasingly demanded in order to make bondholders whole on their voluntary, bad investments. The Federal Reserve provided an amount equal to the entire NIH budget simply to backstop the rescue of Bear Stearns, which allowed Bear Stearns bondholders to receive 100 cents on the dollar, plus interest. In return, the Fed got questionable assets that it pouched into a shell company called “Maiden Lane,” which were later reported to have “underperformed.”
Incomprehensibly large bailout figures now get tossed around unexamined in the wake of the 2008-2009 crisis (blessed, of course, by Wall Street), while funding toward NIH, NSF and other essential purposes has been increasingly squeezed. At the urging of Treasury Secretary Timothy Geithner, Europe has been encouraged to follow the “big bazooka” approach to the banking system. That global fiscal policy is forced into austere spending cuts for research, education, and social services as a result of financial recklessness, but we’ve become conditioned not to blink, much less wince, at gargantuan bailout figures to defend the bloated financial institutions that made bad investments at 20- 30- and 40-to-1 leverage, is Timothy Geithner’s triumph and humanity’s collective loss.
The most depressing display of math-illiteracy by investors last week was the excitement over a report suggesting that France and Germany had agreed to a 2 trillion euro bailout package for Europe, which triggered a “risk-on” tone for the rest of the week, even after the report was retracted as inaccurate. It was almost beyond belief that investors took that report seriously, but people have become so tolerant of unbelievably large figures that virtually any bailout number can now be tossed out without triggering the least bit of scrutiny. Notably, 2 trillion euros is more than the GDP of France, and is half the GDP of Germany and France combined. Moreover, Europe has just gone through a tooth-pulling process just to approve 440 billion euros for the European Financial Stability Fund (EFSF) from all EU members combined.
So barring new dedicated funds from Germany and France, which had zero chance of being forthcoming, the only way you could morph 440 billion euros into 2 trillion euros was for each of those 2 trillion euros to really be only 22 euro cents of protection. In other words, you could only say that the EFSF would “protect” 2 trillion euros in European debt by limiting the protection to about 20% of face value, without using any of the funds to recapitalize banks or deal with much deeper probable losses on Greek debt (50-60%). Those losses alone will gulp down a large chunk of the EFSF (not to mention post-default needs to stabilize Greece over the longer-term, which the Troika estimates at another 450 billion euros).
Last week, the yield on one-year Greek debt closed at 183%, a new record, and up from 169% the prior week. Yet on Friday, the market rallied on hopes of a comprehensive “solution” to the European debt crisis, and took heart that part of an 8 billion euro hold-over loan to Greece was approved. The 1-year Greek yield pushed 3 percentage points higher. As I’ve noted before, this limited amount of immediate relief is needed to buy time preparatory to a default. A clean solution to the European debt problem does not exist. The road ahead will likely be tortuous.
The way that Europe can be expected to deal with this is as follows. First, European banks will not have their losses limited to the optimistic but unrealistic 21% haircut that they were hoping to sustain. In order to avoid the European Financial Stability Fund from being swallowed whole by a Greek default, leaving next-to-nothing to prevent broader contagion, the probable Greek default will be around 50%-60%. Note that Greek obligations of all maturities, including 1-year notes, are trading at prices about 40 or below, so a 50% haircut would actually be an upgrade. Given the likely time needed to sustainably narrow Greek deficits, a default of that size is also the only way that another later crisis would be prevented (at least for a decade, and hopefully much longer).
Gradually, but eventually, European leaders are beginning to recognize that you can’t solve a sovereign debt crisis by expanding the quantity of sovereign debt, when even the strongest countries are already bloated with it. You can’t get “Out” by walking through yet another door marked “In.” The markets aren’t quite to that realization, hoping for some easy “final” resolution that will simply make the problem go away, but that dawn will come.
The Troika report released over the weekend notes that “the situation in Greece has taken a turn for the worse … Deeper PSI [private sector involvement – i.e. loss-taking], which is now being contemplated, also has a vital role in establishing the sustainability of Greece’s debt*. To assess the potential magnitude of improvements in the debt trajectory, and potential implications for official financing, illustrative scenarios can be considered using discount bonds with an assumed yield of 6 percent and no collateral. The results show that debt can be brought to just above 120 percent of GDP by end-2020 if 50 percent discounts are applied… *Footnote: The ECB does not agree with the inclusion of the illustrative scenarios concerning a deeper PSI in this report.”
That footnote is interesting – it’s not that the ECB disputed the deeper loss-taking scenarios – it just didn’t want to include them in the report.
My guess is that European leaders will force a bank recapitalization within days – probably 100 billion euros, preferably 200 billion, but the larger number is doubtful because at present market values, European banks would have to sell new shares in nearly the same quantity as their current outstanding float in order to acquire the new capital. Yet Stratfor correctly notes that even in the event of a 200 billion recapitalization, a 50% haircut on Greek debt “would absorb more than half of that 200 billion euros. A mere 8 percent haircut on Italian debt would absorb the remainder.” So a good chunk of the present EFSF could end up recapitalizing banks, especially if too little is raised from private investors. This would leave little ammunition against any further strains, should they develop.
Of course, Europe wouldn’t need to blow all of these public resources or impose depression on Greek citizens if bank stockholders and bondholders were required to absorb the losses that result from the mind-boggling leverage taken by European banks. It’s that leverage (born of inadequate capital requirements and regulation), not simply bad investments or even Greek default per se, that is at the core of the crisis.
The bottom line is a) European leaders will likely initiate a forced bank recapitalization within days; b) Greece will default, but the new hold-over funding may give the country a few more months; c) the EFSF will not be “leveraged” by the European Central Bank; d) banks are likely to take haircuts of not 21%, but closer to 50% or more on Greek debt; e) much of the EFSF will go toward covering post-default capital shortfalls in the European banking system following writedowns of Greek debt; f) the rest will most probably be used to provide “first loss” coverage of perhaps 10% on other European debt, which may be sufficient to limit contagion provided that implied default probabilities on Italian and Spanish debt don’t breach that level and the global economy stabilizes; g) uncertainty following a Greek default is likely to create significant financial strains, even in the absence of a recession; h) all bets for stability are off if the global economy deteriorates markedly from here, which is unfortunately what we continue to expect.
Shenanigans
On the subject of bank capital, I can’t stress enough that the proper approach is for government to restrict even temporary, fully-collateralized assistance only to those institutions that are clearly solvent, and to promptly restructure the other institutions. What the global economy needs most is not bank bailouts, but to establish and enforce a legal and regulatory structure that allows the streamlined bankruptcy of insolvent institutions (Title II of Dodd-Frank addresses this with a more comprehensive policy than existed in 2008, but it doesn’t read as a “clean” solution in my view – putting too many cooks in the kitchen – particularly the Fed and the Treasury).
Again, again, again, the “failure” of a financial institution only means that the institution fails to pay off its own bondholders. Depositors typically lose nothing. For example, “saving” Bear Stearns meant primarily that Bear Stearns’ bondholders would be made whole. Saving Dexia a few weeks ago meant the same thing for Dexia’s bondholders. The key is not to prevent “failure,” but to prevent disorderly failure and piecemeal liquidation. Washington Mutual was a seamless, and therefore nearly unmemorable “failure.” Lehman was disorderly and jarring. The difference was that there was a legal and regulatory structure to quickly cut away stockholder and bondholder liabilities in the Washington Mutual instance (which was handled by the FDIC), while there was no similar way to restructure non-bank financials like Lehman in 2008.
From my perspective, weak regulation of bank leverage, inadequate capital requirements, and the need for prompt, streamlined restructuring for insolvent banks are among the most urgent problems that the global economy faces. Consider this. The Financial Times reported on Friday that in 2008, Dexia lent 1.5 billion euros of its capital to two institutional investors, who used the cash to buy newly issued shares in … wait for it … Dexia. Remember that as a bank, Dexia operated at leverage of about 50 times its tangible shareholder equity (see last week’s comment ). So Dexia’s maneuver made it possible to meet regulatory capital standards and take on a huge amount of additional leverage, without actually raising any bona-fide capital. As FT noted, “The unorthodox funding move, which roused Belgian regulators’ concern at the time, amounted to Dexia borrowing money from itself to finance a capital increase. This is illegal in most jurisdictions and is now banned in the European Union, but did not break Belgium’s existing laws.”
On a similarly outrageous note, Bloomberg reported last week that ” Bank of America , hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits… The Federal Reserve and the Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by the counterparties. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC is objecting. The bank doesn’t believe regulatory approval is needed.” Well, other than that it goes against Section 23A of the Federal Reserve Act , but then, the Fed can make an exemption whether the FDIC likes it or not . And that’s what we’ve come to – government of the banks, by the banks, and for the banks (because banks are people too) .
The Bloomberg report continued, “Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA [the FDIC insured entity], according to the data, which represent the notional values of the trades. That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives.”
Note that the figures are in trillions, not billions (U.S. GDP is $15 trillion). That said, the vast majority of the “notional value” of derivatives in the financial system represents multiple fully-hedged links in a long chain between final users who actually take the risk, so Bank of America’s true risk is most probably a tiny fraction of that notional amount. Unless those derivatives include unhedged short positions in credit default swaps on Greek debt (which we can’t really rule out), it’s not clear that the derivatives themselves are underwater. The real problem, in my view, is that the transfer is clearly driven by the intent to get around capital adequacy regulations, and runs precisely opposite to the right way to create a good bank and a bad bank . It saddles the good bank – the taxpayer insured one – with the questionable liabilities, while “giving relief” to the holding company. This is really preposterous. … Full article
450 economists call on G20 finance ministers to stop speculation fueling hunger
World Development Movement | 11 October 2011
More than 450 economists from over 40 countries have called on the G20 finance ministers, who are meeting in Paris this week, to take urgent action to stop financial speculation in commodity markets driving up food prices and fueling hunger.
‘Excessive financial speculation is contributing to increasing volatility and record food prices, exacerbating global hunger and poverty,’ say the economists in a letter to the finance ministers. ‘With around 1 billion people enduring chronic hunger worldwide, action is urgently needed to curb excessive speculation and its effects on global food prices.
Economists from top universities including Cambridge, Oxford, Berkeley, Cornell and the London School of Economics have signed the letter, adding their voices to an escalating international campaign.
The G20 agriculture ministers have also called on their finance counterparts to introduce tighter regulation. Speculation is one of a range of issues to be discussed at the finance ministers’ meeting.
The US has moved to control speculation, and European proposals for similar rules are expected to be announced next week. But the UK government is set to block European legislation.
Neil Kellard, Professor in Finance at the University of Essex, who signed the letter, said today:
Over-speculation can steer commodity prices away from fair levels indicated by the supply and demand for food and push the poorest further into chronic hunger. Conversely, very little evidence exists that the recent high levels of commodity investing are necessary to meet hedging demand or promote pricing efficiency in financial markets. Position limits can be set to dampen commodity price movements whilst maintaining and probably enhancing market function.”
Deborah Doane, director of the World Development Movement, said today:
Excessive lobbying from the finance sector seems to be delaying political action, both here in the UK, and elsewhere. This is despite the obvious suffering caused by speculation on this most basic human need, and despite the growing number of voices calling for action. Instead of propping up cynical financial gambling by speculators, the G20 finance ministers must act to ensure that strict rules are put in place to limit the hold of bankers over the world’s food markets.”
The Myth of Greek Profligacy
By MARSHALL AUERBACK | CounterPunch | October 24, 2011
Historically, Greeks are very good at constructing myths. The rest of the world? Not so much. Reading the press, one gets the impression of a bunch of lazy Mediterranean scroungers, enjoying one of the highest standards of living in Europe while making the frugal Germans pick up the tab. This is nonsensical propaganda, designing to justify the continued collective execution being inflicted on Athens for the sins of its fathers and grandfathers. As if Greece is the only country ever to cook its books in the European Union! The heart of the problem is in the antiquated revenue system that supports that state, which results in a budget shortfall consistently about 10 per cent of GDP. The top 20 per cent of the income distribution in Greece pay virtually no taxes at all, the product of a corrupt bargain reached during the days of the junta between the military and Greece’s wealthiest plutocrats. No wonder there is a fiscal crisis.
So it’s not a problem of Greek profligates, or an overly generous welfare state, both of which suggest that the standard IMF style remedies being proposed here are bound to fail, as they are doing right now. In fact, given the non-stop austerity being imposed on Athens (which simply has the effect of deflating the economy further and thereby exacerbating the very problem the Greeks are trying to eliminate), the Greeks really are getting close to the point where they should just default and shift the problem back to those imposing the austerity. It can’t be worse than the slow execution they are facing today.
In reality, the Greeks have one of the lowest per capita incomes in Europe (€21,100), much lower than the Eurozone 12 (€27,600) or the German level (€29,400). Further, the Greek social safety nets might seem very generous by US standards but are truly modest compared to the rest of the Europe. On average, for 1998-2007 Greece spent only €3530.47 per capita on social protection benefits–slightly less than Spain’s spending and about €700 more than Portugal’s, which has one of the lowest levels in all of the Eurozone. By contrast, Germany and France spent more than double the Greek level, while the original Eurozone 12 level averaged €6251.78. Even Ireland, which has one of the most neoliberal economies in the euro area, spent more on social protection than the supposedly profligate Greeks.
One would think that if the Greek welfare system was as generous and inefficient as it is usually described, then administrative costs would be higher than that of more disciplined governments such as the German and French. But this is obviously not the case, according to Eurostat. Even spending on pensions, which is the main target of the neoliberals, is lower than in other European countries.
Furthermore, if one looks at total social spending of select Eurozone countries as a per cent of GDP through 2005 (based on OECD statistics), Greece’s spending lagged behind that of all euro countries except for Ireland, and was below the OECD average. Note also that in spite of all the commentary on early retirement in Greece, its spending on old age programs was in line with the spending in Germany and France.
In fact, Greece has one of the most unequal distributions of income in Europe, and a very high level of poverty, as the following table shows. Again, the evidence is not consistent with the picture presented in the media of an overly generous welfare state—unless the comparison is made against the situation in the US.
Of course, these facts don’t matter. The prevailing myth is that Greece is in the words of the FT’s John Authers, “a country that was truly profligate”, with little in the way of data to support that assertion. The country, however, is truly stuck: they can’t devalue, they can’t pay their way, at current prices, and nobody will voluntarily finance them. So they must exit and devalue or drop their domestic prices. The massive default, though inevitable, is just a step along the way.
To make the problem worse, export earnings also seem to face their own structural cap that is consistently exceeded by import spending, which means that the debt that finances the government shortfall is increasingly held abroad. The debt is issued under Greek law, but now it is payable in Euros which Greece is powerless to print. In this sense, ironically, the fiscal crisis is a consequence of Greece’s success, after a long preparation, in joining the European Union, and hence giving up its own currency.
The point is that, if this analysis of the source of the problem is correct, then standard IMF austerity policy is unlikely to do much to help. If the problem is not the level of wages, or the size of the welfare state, then pushing wages down and shrinking the welfare state is not going to do much. Greece, after all, is still a democracy and if one is to judge from the intensifying riots in the country, it is far from clear whether Greece (or any other euro zone member for that matter) is really willing to cut spending and raise tax rates enough to make a difference. This much is implicitly being conceded by the “Troika” – European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB), which was submitted to the EU Summit yesterday, and will no doubt be a part of the deliberations in the Greek debt restructuring proposals to be hammered out by Oct. 26th.
On the first page of the document is not only a pretty open and blatant admission that expansionary fiscal consolidation (EFC) has proven to be a contradiction in terms, at least in Greece, but there is also a serious policy incompatibility problem, at least over the intermediate term horizon, with efforts at internal devaluation (ID) – that is, attempting nominal domestic private income deflation in order to improve trade prospects when one has a fixed exchange rate constraint.
While they stop short of recognizing that their demands and the actions they have imposed on Greek policymakers are setting off a debt deflation implosion of the Greek economy (never mind rupturing any semblance of a social contract, and ripping the social fabric to shreds as well – this is, after all, the jackboot version of neoliberal “reform” designed to stamp out any last vestige of social democracy and organized labor in the eurozone) this is a very large concession for the Troika to have taken.
To admit that EFC is not working, and that pursuing ID will aggravate matters further, including the ability of Greece to hit fiscal targets, is a fairly large step in the recognition of the reality of the situation. This is not something the faith based neoliberal economists in the Troika organizations are often prone to do. It is not what their incentive structures, formal and informal, tend to encourage them to do.
So why pursue it? Well, let’s face it: this has far less at this stage to do with Greece (even as the prevailing mainstream myth continues to perpetuate the picture of a lazy, unproductive country full of profligates and scroungers), than punishing other potential fiscal recalcitrants. They are scapegoating the Greeks – in order to make sure that should Greece take the rumored “hair cut” on its debt and restructure, the other peripheral countries – especially Italy – won’t get any ideas and be tempted down the same path. This is the strategy to prevent what is euphemistically called the “contagion impact”. In reality, it is also called the principle of collective guilt, destroying the livelihoods of thirteen million people for political reasons. Given their own history, the Germans above all other nations, should understand this phenomenon.
If the prevailing mix of fiscal austerity policies continue, there will be spill-over effects to nations that export to Greece. To be sure, Greece is a tiny market in Euroland, but its fiscal problems are by no means unique. As the bigger economies like Spain and Italy also adopt austerity measures, the entire continent can find government revenue collapsing – even Germany, where economic deceleration has become markedly more noticeable in the past few months. Worse, exports to neighbors will be hurt by reduction of demand. Finally, if austerity succeeds in lowering wages and prices in one nation it can lead to competitive deflation, only compounding the problem as each country tries to gain advantage in order to promote growth through exports. What is most remarkable to us is that the largest net exporter, Germany, does not appear to recognize that its insistence on fiscal austerity for all of its neighbors will cook its own golden egg-laying goose.
Angela Merkel likes to say that no real economic union is possible if one party to the union (Greece) works shorter hours and takes longer holidays than another (Germany). What she should say is that no real economic union is possible if the governing plutocrats of ALL nations (not just the billionaire Greek shipowners who probably have already moved their money offshore, but also wealthy bankers who have suffered no consequence of their own fraudulent and willfully destructive lending practices) consistently evade their fair share of the cost of that party’s own state expenditure, expecting the union either to pay the bill itself, or to force the bottom 80 per cent to pay it.
Greece is not a special case, but rather a case in point of what happens when you impose fiscal consolidation on countries with high private debt to GDP ratios, high desired private net saving rates, and large, stubborn current account deficits. What is needed is a way to redistribute demand toward the trade deficit nations—for example, by having the trade surplus nations spending euros on direct investment in the trade deficit nations. Germany did this with East Germany. Such a mechanism could be set up under the aegis of the European Investment Bank very quickly. Effective incentives to “recycle” current account surpluses in this manner via foreign direct investment, equity flows, foreign aid, or purchases of imports could be easily crafted. If it could be accomplished, it will be a way Greece and the others could become competitive enough to secure their future through higher exports.
Failure to embrace this kind of growth option will ultimately give the Greeks little alternative but to default, leaving the euro zone’s policy makers with an even bigger and costlier mess on their hands. Admittedly, this will not fully solve Greece’s problems as they would likely have to leave the euro zone as well and reintroduce the drachma. This would entail capital controls, which will cause people to head for the exits (this is, after all, a country with lots of boats). If they default, it would be more akin to a “Samson moment” for the entire euro zone. Like Samson in his last days, blinded and beaten by the Philistines, Greece is weakened, blind and bound. Default would represent one last defiant burst of strength with which it “pulls down the temple” (in this case the euro zone) via default and takes down everybody. Myth-making at the expense of the Greeks does not serve anybody’s interests, as there will be a cascade of defaults everywhere, and a Soviet style collapse in incomes, hardly an enticing prospect for the global economy. Not an attractive ending, but this is the kind of outcome which the troika’s self-surviving, immoral and cruel policies could lead to. The Greeks, and the vast majority of Europe’s citizens, deserve better.
MARSHALL AUERBACK is a market analyst and commentator. He can be reached at MAuer1959@aol.com
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As Hillary Clinton kisses up to Henry Kissinger, RT looks at 4 of his most heinous acts
RT | September 3, 2016
… While Clinton retains the ultimate warmongering seal, RT examines some of Kissinger’s most memorable acts… Read full article
Blog Roll
Aletho News- Terms of US capitulation to Iran presage new era for the region
- Strategic Oil Reserve Nears Collapse… US Must Choose: Guns or Butter
- The Story the Media — and the Government — Don’t Want You to Hear
- Deep Dive Intel Briefing 6/20/2026 Lt Col Daniel Davis
- The Targeted Assassination of Studies Showing Vaccines Cause Injury
- BMJ Probe Into Excess Mortality Study Drags On for Two Years With No Resolution
- Securing Peace with Iran Compels Trump to Divorce Israel
- Old Iraq war architects rise up to wag finger at Trump’s Iran deal
- Strait of Hormuz closed over Israeli aggression on Lebanon
- Keir Starmer arson mysteries multiply
- If Americans Knew
- Israelis Invaded Lebanon And Then Cried Victim When Their Soldiers Got Killed
- FARA Docs: Israel is Spying On Millions Of Christian Americans In Their Churches
- Why US presidents from both parties end up cursing Benjamin Netanyahu
- Israel Asked Facebook to Censor Iran War Content, Internal Documents Show
- Deaths in Gaza undercounted, possibly by 100s of thousands; “Psychopath” Ben-Gvir talks trash – Daily Update
- UNICEF: “Trauma is woven into the very fabric of childhood in Gaza”
- 15 articles a day: The extent of the Israeli army’s media interference
- Greek Orthodox Patriarchate denounces Israeli seizure of church land in Jerusalem
- How Hillel International uses antisemitism training and ‘campus climate’ concerns to attack Palestine solidarity
- Old Iraq war architects rise up against Trump’s Iran deal
- No Tricks Zone
- German Wind Turbines Face Regulatory Shutdown Due To Excessive Noise
- New Study: Chile’s Relative Sea Level Was 3.2 Meters Higher Than Today During The Mid-Holocene
- Beyond The Pitch: Why FIFA’s World Cup Is One Of Humanity’s Best Investments
- Climate Alarmists Now Using Natural Phenomena To Support Their Claims
- New Study: Significant CO2 Fluxes From Non-Volcanic Sources Are Largely Neglected In Carbon Budgets
- Women Climate Scientists Being Harassed, Insulted By Skeptics, Claims Berkeley Earth Researcher
- Germany’s Longterm Spring Climate Data Show “No Climate Trend”
- New Study: Solar Photovoltaic, Wind Power Fail To Meet Annual Energy Demands 62% Of The Time
- Germany’s Die Welt: “Too Much Is Too Much” … Green Energies Are Cannabalizing Each Other!
- Germany’s Ecological Holocaust… Once Fairy Tale Forests Getting Cleared For Wind Turbines
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