How’s the economy recovering? Sloooooooowly…
Pace of recovery slowing, says OECD. Hopes for a rapid rebound in the global economy receive another blow in the latest OECD economic update. It suggests that the pace of economic recovery is slowing, and by more than had previously been expected. But although the situation is extremely uncertain, fears of a double-dip recession look to be misplaced. “The uncertainty is caused by a combination of both positive and negative factors,” OECD Chief Economist Pier Carlo Padoan said at the launch of the Interim Assessment in Paris this morning. “But it is unlikely that we are heading into another downturn.”
Those negatives include the possibility that consumers will continue to keep a tight hold on their purse strings, so reducing demand in the economy. The reasons for that vary: some people may be paying off debts while others may put off spending because of unemployment, or the fear of losing their job, and concerns over continued weakness in house prices. On the plus side, the OECD says corporate profits are “robust” and that levels of private investment are so low they can probably now only go in one direction – up. (A decline would take even more steam from the economy.)
The OECD also believes that the worst of the turmoil on financial markets may now be over, although risks remain, and notes that emerging economies like China and India are doing well, which should benefit the wider global economy. As for the hard numbers, the OECD sees the pace of economic growth slowing over the course of this year in the G7 countries. It cites GDP growth of 3.2% in the first three months of 2010 and 2.5% in the second quarter, and forecasts falls to 1.4% in the third quarter and just 1% in the fourth.
Useful links OECD work on economics
Insights: From Crisis to Recovery
How smart are you about education?
It’s September again, and in much of the world that means one thing – back to school. So, with that in mind, take a look at these three questions and see how much you know about education (answers below).
1. Generally in OECD countries, which age group is more likely to have a university-level qualification?
a. 25-34 year-olds b. 55-64 year-olds
2. Around the world, 3.3 million tertiary students study abroad. In which of these OECD countries do foreign and international students make up the biggest slice of the student population?
a. Australia b. Switzerland c. The United States
3. Between primary and tertiary education, how much do OECD countries spend per student each year (in U.S. dollars)?
a. $1,688 b. $5, 644 c. $9,195
All these questions are based on data in OECD Education at a Glance, a compendium of data and statistics on education released every September by the OECD. It covers an enormous amount of ground, including how far young people and adults have studied, the economic benefits of education, who pays for it and conditions in schools and universities, such as teaching hours and student numbers. The point of collecting the data is to give OECD countries a basis on which to make comparisons about their education systems. This is important as there can be big variations in how well students perform in individual countries, even with similar levels of investment. As OECD Secretary-General Angel Gurría said at the launch of Education at a Glance in Paris this morning, “In a global economy, it is no longer improvement by national standards alone. The best performing education systems internationally provide the benchmark for success.”
And the answers to those questions …
1 a: 25-34 year-olds ; younger people are much more likely to have been through tertiary education in OECD countries, a reflection of the expansion of university-level education in recent decades.
2 a: Australia ; more foreign students go to the United States in absolute terms, but they account for a bigger share of the tertiary student population in Australia, more than one in five.
3 c: $9,195 ; most of the money goes on salaries for teachers and other staff.
Useful Links :
A fun, new way to waste time
The weather's interesting and the Statlinks are lovely
What’s a StatLink? It’s a file with all the numbers (and sometimes more) that lie behind each OECD chart and table. Useful for researchers, and popular too – more than half a million files downloaded so far this year, and counting …
Click on the logo to find out more:
Pot lashes out at kettle
Under medieval insolvency laws, inquiries into bank failure could use torture and hostage taking to get answers. With the loss of traditional values, today’s investigators can only ask questions and seize documents.
Still, they do produce some startling revelations. Speaking to the US Financial Crisis Inquiry Commission yesterday, Dick Fuld, head of Lehman Brothers when it collapsed, said: “Deregulation of the financial industry and lack of government control helped us to make substantial profits in the years leading up to the crisis, so naturally we only have ourselves to blame for the mistakes and mismanagement that led to our bankruptcy”.
Ha ha, only kidding. In fact, he blamed poor decision-making by, wait for it: the Fed. Here’s what he actually said according to the New York Times: “Lehman was forced into bankruptcy not because it neglected to act responsibly or seek solutions to the crisis, but because of a decision, based on flawed information, not to provide Lehman with the support given to each of its competitors and other nonfinancial firms in the ensuing days”.
So, nothing to do with overleveraging, bad bets or Repo 105, an accounting trick that classifies a loan as a sale, thereby reducing Lehman’s liabilities by $50 bn (but only on the balance sheet).
Governments, as we all know, had to step in to clean up the mess, and not just in the US. From October 2008 to May 2010, more than 1400 bonds backed by government guarantees were issued by around 200 banks from 17 countries, for an amount equivalent to more than a trillion dollars.
Aviram Levy of the Banca d’Italia and Sebastian Schich of the OECD’s Financial Affairs Division look at the consequences in an article for the OECD Journal. They show that the guarantees have been effective in resuming overall long-term funding for banks and reducing their default risk, but at least two major issues now have to be addressed.
First, relatively weak banks with strong governments backing them (“sovereign guarantors”) have been able to borrow more cheaply than strong banks with weak sovereign guarantors.
Second, extending the scheme into 2010 allows non-viable banks to take advantage of the continued availability of guarantees and postpone addressing their own weaknesses or, even worse, adopt excessive risks in a “gamble-for-redemption”.
You can’t legislate against the toxic combination of ignorance and arrogance that brought the financial system crashing down. But governments and taxpayers shouldn’t be seen as blood donors permanently on call to stop banks dying from self-inflicted wounds.
Useful links
Where is our water going?
Sunday sees the start of World Water Week and today’s post comes to us from Professor Andrew K. Dragun, an Economist with the Australian Rivers Institute at Griffith University in Brisbane Australia. He is currently editor of the International Journal of Water and the International Journal of Agricultural Resources Governance and Ecology.
Water is emerging as one of the most serious and controversial resource and environmental issues of the twenty first century. Fundamental water shortage, chronic environmental despoliation of water systems and irreversible debilitation of associated land and marine systems looms, while public expenditures on increasing and improving the water supply are increasingly unaffordable.
A great many of the world’s water “markets” are distorted as a consequence of inappropriate incentive–disincentive systems. The observations of Professor R.H Whitebeck, commenting in the Geographical Journal on early irrigation development in California in 1919, that irrigation development “… was occurring at too rapid a rate and at too high a price”, remain as poignant now as they were insightful nearly a hundred years ago. From the experience of the irrigation colonies of the Chaffey Brothers in Northern Victoria to the Central Arizona Project and, the failures of irrigation in the Central Asian republics, the lack of financial viability of irrigation in the absence of substantial public subsidy is a general rule – even in the paragon of efficient trickle irrigation and high cost irrigation water, Israel.
In many cases the drivers of water development have been political expediency and a desire to end food shortages in many poor countries, with little attention to the costs, the benefits and the prices of water. The inevitable result of the irrigation-led revolution in water development and regulation, seen throughout much of the twentieth century, is that a huge amount of water is being wasted… Read more…
A berry bad summer
Click on the photo to see why they like berries
Vietnamese farm-workers recently locked up their bosses to protest against low pay and hard working conditions. Their action might well have gone unnoticed except for one thing: It happened in Lapland.
But in recent years, this tradition has become commercialised, with thousands of foreign workers flying in to reap the wild harvest. In the past, many were rice farmers from Thailand. They planted their rice in June, travelled to Sweden for the summer berry season, and then returned home to harvest their own rice crop in the autumn. As Bertil Lintner writes, the work was hard but lucrative, with workers bringing home between $2,850 and $5,700 – “much more than a doctor or other well-paid professional back in Thailand”.
Lately, however, the annual trek has become less rewarding. Travelling to Sweden has become more expensive and the berries are harder to find. One picker told the Bangkok Post that he used to be able to find wild berries within 20 kilometres of a town centre. But these days he has to drive 100 to 400 kilometres. In part that’s just because some years are good for berries and some are not. But it also reflects growing competition.
Problems came to a head this summer with the arrival of workers from China and Vietnam. Not only did they hit a bad summer for berries but, according to locals, many were spooked by the mosquito-ridden northern forests and had little farming experience.
The workers also complained of impossible targets. One of them, Le Thi Hong, said the recruiting agency had promised workers they would be able to pick between 60 and 120 kilograms of berries a day, Västerbottens Folkblad reported. In reality, he said, they were lucky if they could manage 10 to 30 kg. Workers had mortgaged their homes to travel to Sweden, he added, and risked losing them if they didn’t meet their targets. Discontent led the Chinese and Vietnamese pickers to stage a series of protests over the summer, including locking up their bosses and going on a 15-kilometre night march.
The story is unusual but, unfortunately, not all that rare. Fruit-picking can provide useful, short-term labour, but it’s also often rife with scams. Many pickers are hired by contractors and may have to pay relatively high up-front fees, which they can only earn back by meeting quotas. Many also are seasonal workers, and so may have limited protection under labour laws. (And, while there’s no suggestion of forced labour in Sweden, in the worst cases farm-workers – both locals and migrants – may effectively be slave labour, as this ILO report discusses.)
Sweden has tried to protect the pickers by issuing warnings about scams through its embassies and imposing a minimum wage. Local unions, however, say more needs to be done. But in reality there’s probably only so much the government can do: So long as hiring agencies in the pickers’ home countries create unrealistic expectations, would-be fruit pickers are going to be open to exploitation. Back in Sweden, there have been calls for a boycott of commercially picked berries to show support for pickers who have been unfairly treated. But, as Isabel Conway comments, the idea of giving up their beloved berries “may be a sacrifice too hard for many Swedes to swallow”.
Useful links
OECD Insights: International Migration
OECD work on international migration
Social issues (including migration) at the OECD iLibrary
The International Labour Organisation
Migration and asylum policy in Sweden (government website)
Click on the image to go to the Acción Social site (in Spanish)
This contribution to the debate on aid ownership comes from Sandra Alzate, Director of International Cooperation, Presidential Agency for Social Action and International Cooperation – Acción Social, Colombia. You can see French and Spanish translations by clicking on the “more” tag.
I would like to express our rejection of the conclusion of Joel Brinkley in his article: “Don’t let Haitians help themselves“, according to which “if the World wants to help Haiti, aid officials should put aside the Paris Agreement on Aid Effectiveness. The donors should decide what to do with their money. The Haitian “government” can have no more than an advisory role, or nothing will ever change”.
There are several points to mention.
As expressed in the article, there have indeed been decades of unproductive work; unproductive work that gave rise to the reflections and actions for more effective aid strategies, both in countries dependent and not dependent on aid.
The Paris Declaration (PD) and the Accra Agenda for Action (AAA) have become a commitment of the international community with the most vulnerable populations of the world. Colombia shares the principles of the PD because it locates the responsibility for development with the so-called partner countries, and because it understands international cooperation as complementary to national efforts.
In particular, the principle of “ownership” is seen by Colombia as the origin of the aid effectiveness chain, and necessary in order to strengthen leadership, coordination, dialogue and interaction between all the development actors, thus enriching their cooperation policies and practices.
It is in this scenario that Colombia has played an active role in the international debate. This has generated new spaces of dialogue and has promoted the incorporation of the effectiveness agenda, and of subjects like broadening and the democratization of the term ownership, the promotion of using national systems and mutual evaluation mechanisms, the recognition of the role of NGOs, the reference to south-south and triangular cooperation policies, and aid information transparency.
As anticipated in the PD and AAA, donors have the responsibility to develop capacities and leadership in Southern countries so as to support the sustainable construction of their own development. Nevertheless, traditional cooperation models in Haiti have reflected a lack of work from donors related to this responsibility (lack of capacity-building, creation of dependence, fragmentation of initiatives, high transaction costs, weakness of accountability, and lack of transparency).
Considering these factors, ownership becomes the common denominator that must govern in a vulnerable and, for decades, criticized context like the one in which Haiti has been living. This principle allows the exercise of an effective authority of development policies and strategies where donors respect the leadership and they contribute to local capacities development and strength.
To imagine a scenario like the one raised in the conclusion by Brinkley, where the Haitian reality reflects the presence of multiple international actors working to develop the country, without guaranteeing a firm leadership and an active participation of the Haitian government, only generates a lack of organization of the numerous cooperation actions, and a negative impact for the future generations of Haitian society.
Colombia, as a Middle Income Country, positioned as a donor of financial and technical cooperation in Haiti, has felt deep solidarity with the Haitian Government since the earthquake of January 12, 2010. As a result, Colombia participates as an observer in the Interim Recovery Haiti Commission (IHRC) and is using the Haiti Reconstruction Fund – created by the Government of Haiti and managed by the World Bank – to realize, as a request of the Government, a donation of $4 million for budget support to the agricultural and land reconstruction sectors.
Colombia has also seen in South-South Cooperation an opportunity to promote in Haiti a new philosophy that encourages an integrated and new approach to development, based on a coordination scheme between all the actors involved, connecting the emergency and recovery stage, and guaranteeing the active participation of local communities in decision-making.
What the author proposes in his article is not new, but is a scenario that has caused a continued chaotic situation in Haiti. It is for that reason that we would like to invite the author to reframe his ideas and to better ask donors what they have done, or what they are doing, to develop Haiti’s capacity for leadership. Read more…
Haircuts can be dangerous
OK, wurfing (surfing the web at work) didn’t make it into the new edition of the Oxford Dictionary of English published today, but toxic debt and quantitative easing did.
Speaking of which, haircut was already there. Eh? Haircut, you know: “US informal: a reduction in the stated value of an asset”.
That’s one of the terms you need to understand to follow the argument in a new OECD Working Paper on the stress tests 84 European banks passed so brilliantly in July.
Adrian Blundell-Wignall, Special Adviser to the OECD Secretary-General on financial markets, and his colleague Patrick Slovik point out that the tests only considered “trading book” exposures to sovereign debt, while over 80% of exposure is on the “banking book”.
The trading book consists of the securities a bank buys and sells regularly, even daily, while the banking book contains the products the bank would normally hold on to until they matured, including the bonds used to finance sovereign debt.
For the trading book, the haircut is around €26 bn in the stress tests. No haircut was applied to the banking book, on the grounds a default would be virtually impossible over the two-year period considered. The tests also assumed there would be no bank failures.
Blundell-Wignall and Slovik argue that these two assumptions help to explain why despite the encouraging test results (only 7 banks failed) equity markets are still performing poorly, bond spreads remain high, and banks are still reluctant to lend.
If a bank fails, it cannot hold on to the longer-term assets on its banking book, which would have to be sold for whatever they are worth on the day, even at a loss, and in fact there would be no difference between the trading and banking books. In other words, shifts in the market value of sovereign debt do matter, unless you assume that the stress-tested banks never fail.
That’s a brave, or foolish, assumption in light of what we’ve seen since the crisis broke, but the assumption of no sovereign default over the next two years seems reasonable, given the €720 bn European Financial Stability Facility (EFSF) agreed earlier this year.
The EFSF could more than cover all the funding needs of the most exposed countries, even in the highly unlikely case that no securities could be sold on the open market.
So why are ratings agencies like Moody’s worried about the sovereign debt of even the US, Germany, France and the UK, countries they consider “well-positioned at AAA” in their latest figures?
They’re not worried about the next couple of years, but many analysts foresee problems in reforming labour and pension markets to ensure sustainable growth before the stimulus packages run out. In the medium-term, budget restraints will make these reforms more difficult.
In the longer term, Moody’s is afraid of a situation where states delay pension reform for political reasons, leading to a downward spiral as they try to borrow more to finance deficits, while at the same time, conflict between younger and older generations destroys the social cohesion needed to stabilise debt.
Countries in this situation would lose their triple-A rating.
Useful links
OECD Insights: From Crisis to Recovery
OECD work on financial markets
This OECD paper warns that retirement income may become a “lottery” unless default strategies are carefully designed
Helping Haiti: Moving beyond the blame game
Click on the image for links to government and state institutions
Following the previous post on aid to Haiti, Jerzy POMIANOWSKI, Director of the OECD’s Partnership for Democratic Governance Advisory Unit and Bathylle MISSIKA, Technical Advisor for the OECD-PDG sent us this contribution to the debate. You can find information on PDG work on Haiti’s reconstruction and development here.
Brinkley is absolutely right when he underlines some of the shortcomings of donor involvement in Haiti. The “by the book” application of some of the pivotal Paris Declaration principles of ownership or use of country systems (“alignment”) has not delivered according to plan. But should we expect the same pace of improvement from “good performers” like Tanzania or Ghana in countries like Haiti, which are emerging from decades of political and social instability and rampant poverty?
As outlined in the DAC Principles for Good International Engagement in Fragile States, donors need to adapt their strategies to fragile contexts. In other words, discarding the ownership principle altogether is not the answer and certainly sounds schizophrenic after the political and financial commitments made by aid donors in March at the international conference in New York when more than USD 5 billion was pledged to help Haiti “build back better”.
Clearly, this money cannot be given in the form of a blank check. Brinkley is also right to warn against the misuse of funds and the risks of seeing monies disappear in the wrong pockets. This does not mean that donors should “decide what to do with their money”. A countless number of evaluations have showed that “ring fencing” funds by creating isolated projects run by donors using their own procedures and staff, and accountable only to themselves only leads to greater alienation of the government, a lack of efficiency and unsustainable results. Haitian stewardship is not incompatible with safeguarding mechanisms.
The Reconstruction Commission mentioned by Brinkley, which approves all new development and reconstruction projects, has been established with a built-in, independent “Performance and Anti-corruption Office” with a compliance unit and investigative powers so as to limit the risks of embezzlement in reconstruction projects.
Moreover, Brinkley is wrong in asserting that Haitian leadership has led nowhere in the past. It is precisely the past practice of aid donors avoiding the state that needs to be let go. Since former dictator Jean-Claude Duvalier fled the island in 1986, donors have unfortunately often bypassed the government. But Haitian ownership has manifested itself in many ways. It now needs the right stepping stone to take off.
The most recent example cited by Brinkley of displaced people on the Champ de Mars is a good example. Whatever the Government (or in this case, President Préval) puts forth as its own agenda, some international critics raise eyebrows because things should be done by the (their?) book. Should tents have been left in front of the destroyed Presidential Palace, fingers would have been pointed at the Haitian government for its inertia.
The biggest risk now is not to avoid having “Haitians help themselves” but, rather, a return to the sub-optimal pre-earthquake model, in which donors, NGOs and other non-state providers bypassed the state, with 85% of essential services such as health, education or water primarily administered and delivered through NGOs, private companies and other non-state actors such as charities, associations and faith-based groups, with little accountability to the government or the beneficiaries of these services.
As discussed during a workshop organised from 8-9 July 2010 by the Haitian government in collaboration with the OECD’s Partnership for Democratic Governance, the Government of Haiti, donors and service providers have laid the ground for a new approach to the delivery of basic social services. “We need to redefine the model that prevailed before the earthquake, in particular to allow Haitians to have access to the essential services [they] can rightfully expect from the State,” Prime Minister Bellerive said as he opened discussions at the July workshop.
This new paradigm for service delivery, in which all stakeholders accept the Haitian state’s primary stewardship role and, at a minimum, its core policy-making, standard-setting and monitoring roles, can mark a turning point in what has so far been an uncoordinated tango between donors, NGOs and the government.
This uneven relationship of mistrust and low mutual accountability probably stems from Haiti’s complicated history as the first black republic, which freed itself from slavery and declared independence in 1804, while reinstating a culture of dependency through dictatorships, the oppression of the elite and a reliance on foreign aid.
Now is actually the time to allow Haitians to help themselves. Finger-pointing has not led anywhere and it is high time for donors and the Haitians to “walk the talk”. The new rules of engagement discussed in July are premised on the Government setting its policy orientations, being informed of the activities of all donors and non-state providers, and applying its norms and regulations, while being able to decide what services should be delivered and where. This is the least that citizens can expect from their sovereign state and the first step towards greater accountability.
This approach of enhanced transparency was behind the creation of the IHRC, which is not co-chaired by President Préval as incorrectly stated by Brinkley, but by Prime Minister Bellerive. The Commission has become an easy scapegoat, while it is simply the tip of the iceberg of a bigger problem: Donors tend to supply technical responses to political problems and apply old recipes, such as hiring big management consulting firms to set up multi-donor funds and expecting donors to fall in line behind their approach.
Brinkley rightly notes that the Commission has “met only once” and implies it is far from being operational, but this situation has more to do with all the weaknesses of international recruitment systems and the superimposition of donors’ own red tape and pre-defined organigrams than anything else.
The Commission is about to meet a second time on 17 August and is certainly behind schedule. But before resuming the never-ending ‘blame game’ it should be given the space and time to operate. If donors do not support Haitians to help themselves according to a set of mutually agreed new rules of engagement and through the mechanisms that they themselves have helped to create, it would be, as a popular Creole proverb goes, like “lave men siye a tè” (washing your hands then rubbing them in the dirt).
Useful links (the previous post on this topic also has many links)
Atelier sur le renforcement des capacités du Gouvernement haïtien : Provision et coordination des services sociaux de base (8-9 juillet 2010)
Plateforme pour la refondation d’Haïti
BetterAid unites over 700 development organisations from civil society working on development effectiveness and “is leading many of the civil society activities” in the lead up to the Fourth High Level Forum on Aid Effectiveness (HLF-4) in Busan, Korea in 2011
