Archive for category: Economy

Information and stories about economy.

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Venezuela Raises Its Minimum Wage


Venezuelan President Nicolas Maduro raised the country’s minimum wage by 30 percent in May 2014. This marks the second time the standard has been raised this year, which, in total, accumulates to a 43 percent increase since the end of 2013.

These measures were implemented to help citizens overcome the country’s crippling inflation. Over the past twelve months inflation has risen by 59 percent, a staggering rate that exceeds any other country in 2014.

The new minimum wage is expected to provide the equivalent of 657 U.S. dollars a month for the citizens of Venezuela.

Aside from porous economic fundamentals, mass popular unrest may have influenced the President’s willingness to take action. Violent protests have pervaded the the country for the past two months, leaving 41 Venezuelans dead. Demonstrators are demanding greater government intervention to improve the prospects of middle class families.

The escalating situation has pressured Maduro to remain proactive. The President recently issued a statement promising that he will take the necessary steps to ensure inflation is conquered within the next year.

“If another increase is needed, the working class can rest assured that I will do it,” Maduro told laborers in the nation’s capital.

Although inflation has plagued the nation’s current financial woes, economists blame past government policies for the recent recession. Hugo Chavez’s rule oversaw decades of price controls and currency manipulation, inefficiencies that have stymied growth and facilitated an unhealthy dependence on imports.

Economists are also pessimistic about Venezuela’s future. Many see the recent minimum wage adjustments as purely reactionary responses that will further accelerate inflation and exacerbate the government deficit.

On the other side of the spectrum, the Venezuelan opposition party has criticized Maduro for not doing enough. Henrique Capriles, Maduro’s opponent in the last election, maintains that the minimum wage raise should have kept pace with inflation.

Although protesters continue to call for Maduro’s resignation, the President remains steadfast in his commitment to help Venezuelans through this difficult time as he claims, “I am a worker president committed to the class that works and struggles.”

Unfortunate for his re-election prospects, many citizens remain unconvinced.

— Sam Preston

Sources: BBC News, Bloomberg
Photo: TT News Flash

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The Unwanted Women in China

Over the past few years, Chinese media has been portraying the image of an unwanted leftover woman. The term leftover woman, has been used in the media to persuade women to be less career-minded, ambitious and be more centered on matrimony. The prospect of an educated, successful women in her late 20s is made to appear more like a death sentence than a good thing.

There has been a recent backlash over the past few decades against women’s rights in China. Recent gender inequality is beginning to rear its ugly head again and perpetuating the idea that women are not focused on the traditional way, which is marriage and motherhood. Less than half of China’s women are employed and that rate continues to drop each year. The Gender Gap report stated that an average income for women is 67% of men’s income while the nation is ranked 50 out of 137 countries for equal wage. Female employment has gone down over 10% through the past 10 years, due to the gender based view of the unwanted, over-achieving women in China.

A woman facing the business marketplace in China endures discrimination based on her gender and measuring up to the beauty standards placed on women in the professional world. Some Chinese women are told from a young age not to pursue certain careers like those in the medical field, because that would make them seem undesirable to a man. The pressure increases as women finish school and grow into their mid-twenties to settle down and have a family. There is also the pressure to maintain a perfect figure instead of embracing the normalcy of aging. Women that do not fit these molds and instead gain higher education are blamed for the high numbers of unmarried men.

Leta Hong Fincher, author of “Leftover Women,” states that “the image of the left over women is everywhere and in the end it is insulting.” In her book, she explains that the Chinese government is blaming these women for the high number of single adult males. The fear is that those unmarried men will cause problems relating to the social stability in China. Moreover, problems like bride kidnapping and prostitution are increasing each year the marriage crisis continues.

The traditional view of men and women, that men are superior to women, has molded the Chinese culture today. The Chinese government passed the one child law in the 1980s and gender-based abortions have skyrocketed since 1995, when gender-confirming technology was introduced. The fact is that Chinese families prefer a son over a baby girl. This supports the overwhelming number of men under the age of thirty in China today.

China’s rapidly-changing economy is changing how women view their positions in society. Women want access to the same positions as men, and are doing so by obtaining higher degrees such as masters and PhDs. These degree programs require more time spent in school and women are not looking to marry until later in their twenties. The traditional mind-set of these women is fading and marriage is no longer the focal point. The market in China continues to be flooded with men, but the future of  highly-qualified women reaching the same opportunities is changing China’s structure and providing women with more rights.

– Rachel Cannon

Sources: The Telegraph, The Economist
Photo: Ministry of Harmony

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Africa’s Biggest Economy

The largest economy in the world is the U.S. with a GDP of $17.5 trillion, followed by China with $10 trillion. However, Nigeria has now earned bragging rights for being the largest economy in Africa with about $500 billion. It is the 26th largest economy in the world.

With success in telecommunications, information technology, music, agriculture, tourism and “Nollywood” film production, Nigeria’s GDP has increased in the last few years. Although it is the highest economy in Africa, 70 percent of Nigerians still live in poverty.

In comparison, South Africa has a GDP of about $370 billion. With a population three times larger than South Africa, Nigeria may have a larger GDP but its economic output is underperforming for its population size.

Most countries measure GDP every three years, but Nigeria’s last update before April 2014 was in 1990. Even with the previously uncounted industries, Nigeria’s higher GDP is not feeding more people or putting more money in their wallets.

However, there have been many improvements since the 1990 GDP measurements. The country went from having 300,000 phone lines in 1990 to 100 million cell phone users today. Also, in 1990 Nigeria only had one airline. Now the country has many airlines and the tourism industry is growing.

While the recalculation doesn’t provide much benefit for the ordinary Nigerian citizen, it positions the country as one of the world’s best emerging-market investment opportunities. But, the nation remains 121st in the world in income per capita, with an average income of $2,622 per citizen.

Nigeria may attract foreign investors with its new GDP calculation, but after the initial attention, investors will have to base their decision on other factors including the governance system, corruption and infrastructure.

Ordinary citizens are not going to change their behavior because of the rebasing of the Nigerian GDP, but the attention the country will get from investors has the potential to help lift the country out of poverty.

— Haley Sklut

Sources: BBC, USA Today, CNN Money, Investing

Photo: The Gaurdian

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NGO Disappointed with 2015 House Budget Proposal

2015 House Budget Cuts
In its recently released April 2014 newsletter, Bread for the World voiced its “deep disappointment” for the 2015 fiscal year House budget proposal. This proposal, introduced by Representative Paul Ryan, makes deep cuts to programs that help poor and hungry people in the United States and abroad.

The budget proposal cuts over $5 trillion over 10 years and calls for many changes to low-income programs. These policy changes will kick an estimated four million people out of the Supplemental Nutrition Assistance Program (SNAP), or food stamps, program. The changes to SNAP are significant, as assistance will now come in the form of a federal block loan and will not be able to increase should need arise. Negative impacts also reach Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) and low-income tax credits.

The House’s proposal also cuts the International Affairs budget by 11 percent. Decreases to the International Affairs budget are detrimental to the success of food aid and other humanitarian efforts and undermine U.S. ability to fight poverty in the world’s poorest countries. The proposal also moves the Millennium Challenge Corporation to the position of lead agency for foreign development assistance, diminishing USAID’s role in ending global hunger.

Although many agree that federal spending is out of control, David Beckmann, President of Bread for the World, believes that pulling funding for programs that support the most vulnerable is clearly a poor reallocation of resources. “Fiscal responsibility means not sacrificing our commitment to reducing hunger and poverty for the sake of reducing a deficit that vulnerable people did not create,” Beckmann states. “Lawmakers must stop violating the basic principle to protect ‘the least of these’ in budget decisions, which Congress has adhered to in all major budget agreements over the past 30 years.”

– Madisson Barnett

Sources: Bread for the World, Bipartisan Policy Center
Photo: PennLive

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Financial Reform Law in Bolivia

Financial Reform Law in Bolivia
Last August, Bolivian President Evo Morales signed a bill that would reform the country’s financial sector. The reform bill has more than 550 articles and is expected to force the private sector banks in the country to become more competitive as interest rate ceilings and mandatory-lending quotas are implemented. The law will boost the competitiveness of state-owned bank Banco Unión and the many microfinance institutions operating in the region.

The reform is also intended to focus on financial inclusion and reducing economic inequality, an issue that is extremely important for Morales and his large indigenous following. The private banks in the region will need to become more efficient as well, but fortunately for the banks the Bolivian government has been implementing the changes gradually. It is unknown how much the reform will cut into the bank’s profitability.

During the last few years, however, Bolivia has enacted harsh taxes designed to reduce its “excess” profitability. The private banks’ average return on equity fell from 21% in 2007 to 17.5% in 2012, then to 14% in 2013. This latest dip came from the imposition of additional taxes on extraordinary earnings and a tax on exchanges related to foreign exchange.

The law also states that at least 60% of a bank’s loan portfolio should go to financing the productive and social sectors. This will be difficult for Bolivia’s banks, however, as they are currently focused on specific markets. Despite this new requirement, the government is giving the banks a period of two years to four years to implement it.

Another requirement states that the interest rate ceiling on loans for houses to be set at 5.5 to 6.5%, a figure that depends on the value of the house. Banks currently set the loan ceiling to a figure of 7 to 8%. This loan ceiling is designed to allow more people to be able to better afford a house and is a part of the movement towards more financial inclusion in Bolivia.

Bolivia’s private banks should be able to weather this new reform with continued profitability as the Bolivian economy is buoyed by its 6.5% growth rate in 2013 and its credit growth of 20%.

– Jeff Meyer

Sources: BNamericas, BNamericas, laRazon
Photo: The Telegraph

Marijuana Tours Help Jamaican Economy

As of January 2014, Jamaica had an unemployment rate of 14.9%, which was a decrease from the 15.4% in December 2013.

Jamaican reggae singer Bob Marley’s celebrity in the U.S. and openness about his use of marijuana has formed a reputation for Jamaica as being an island where marijuana use and sales are legal. Jamaica is in actuality a very conservative country that prohibits the use and distribution of marijuana.

The growth of marijuana crops, in fact, have steadily declined because of the war on drugs by the U.S. and other competitors, but this has not hindered American travelers from visiting Jamaica in hopes of experiencing the effects of marijuana that Bob Marley openly supported.

Regardless of the decline, Jamaica still has a vast supply of marijuana tourists from the U.S. and all over the world. Jamaica is still the lead smuggler of marijuana into the U.S., which brings a great deal of people into the country to buy weed and explore the cannabis culture in Jamaica.

Many growers are quickly learning that making money off of tourists is quite easy when it includes marijuana. Nine Mile, famous for being the hometown of Bob Marley, offers many different marijuana tours, each of which take relatively large groups of Americans, Germans and Russians through small marijuana farms.

These tours are also common in Negril, Jamaica, and are slowly adapting to become common in places such as Colorado and Washington state, where marijuana has become legalized.

With these tours, average-to-minimum waged locals are able to make a decent chunk of money by letting tourists explore their farms and sample their inventory, often leading many of the tourists to purchase their product.

One Jamaican marijuana farmer dubbed “Breezy” sells his bags of marijuana through the wall-hole of a museum, where marijuana tourists line up and smoke weed, usually just for the sheer novelty that Bob Marley smoked weed on the same island.

One tourist traveling from Minnesota stated, “I can get stronger stuff at home, but there’s something really special about smoking marijuana in Jamaica. I mean, this is the marijuana that inspired Bob Marley.”

The large amount of marijuana tourism that is illegally occurring in Jamaica begs the question of why it hasn’t been legalized.

Marijuana could prove to be a great benefit and a pillar for health tourists. One Jamaican scientist named Henry Lowe, who was a partner in developing a marijuana-based glaucoma treatment, believes that legalizing marijuana could bring in even more tourism than there already is.

By legalizing marijuana, attention and money is estimated to be pulled from gangs and arresting large criminal parties and be refocused on other important matters, such as creating official jobs for those living below the poverty line and helping lower class growers gain a larger following. Overall, the island would benefit and reap massive economic gain by legalizing marijuana and freeing up money.

– Becka Felcon

Sources: Trading Economics, The Guardian, Telegraph
Photo: High Times Caribbean

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What’s the Matter with Mexico’s Margaritas?

They are small, green and Mexico’s staple fruit, but they are also rising steadily in price.

Mexico’s lime prices are soaring upwards of 50% each month this year, and it is taking a devastating toll on the Mexican working class. The prices are currently at an all-time high.

What is the cause of the hyperinflation? Limes have always been the most dependable fruit to sell in Mexico, so what are the reasons behind this sudden disruption?

Tax reform has caused a spike in inflation this year, and products such as sodas, junk foods and now limes are all incredibly expensive.

Limes were added to the list of pricey groceries after a disease struck the citrus fruits in Colima, Mexico. The disease is called “huanglongbing” (or “citrus greening disease”) and it infects fruit by way of tiny insects that infect both the tree and the fruit. The trees are left producing bitter, hardened limes until it ultimately dies.

Climate change is also to blame. “With the arrival of winter there has been a cold snap in nearby states,” stated Juan Leana Malpica, a Morelos state lime grower. The fruit do not taste as fresh; the quality of the Mexican limes is suffering.

A bartender from Mexico City, Manuel Ambrosio, states that because of the lack of limes he is unable to give his customers the same sized portion margaritas as before. Customers are upset that the quality of the fruit has gotten worse and Ambrosio’s business is declining because of it.

Margarita sales are down 30% because of the poor lime conditions and Ambrosio stated that “this is the worst [he’s] seen prices in four years.”

A safe fix is hard to find though. The violent outbreaks in Michoacan make the importation of limes difficult for growers because they do not want to risk putting their products on the roads. Vigilante groups are destroying dangerous drug cartels, and the threat of having lime growers’ livelihood intercepted is too high and too much of a hazard.

The United States is concerned about the risk of imported limes bringing in disease. Some importation services have been limited, including airlines, and this is also bringing up costs in Mexico.

Mexico is attempting to squelch this problem by cutting off infected lime tree branches and using nitrogen in October 2014 to make the trees flower “in February, March and April” of 2015. Rafael Abriz Cervantes of the Agriculture Ministry also mentioned that technology is being tested in hopes that it will help remedy the situation and bring back their staple fruit.

– Becka Felcon

Sources: Bloomberg, CNN, LA Times
Photo: Westword

The Ills of Governmental Control in Venezuela

With an inflation rate at 56% and a scarcity index (percentage of goods available) of 28% over the last year the Venezuelan economy has been suffering the effects of policies implemented in the last decade. Starting in 2003, president Hugo Chavez put in place stringent currency controls. Originally, this was intended to address the severe crisis brought by a major strike of the oil industry. However, after a decade, this control remains in place, pegging the country’s exchange rate to the U.S. dollar and limiting the amount of local currency, the Bolivar, that Venezuelans are allowed to exchange.

Coupled with currency controls, governmental control in Venezuela has included imposing strict price controls for the products within the basic foods basket. Instead of making basic products more accessible, this has actually distorted prices. Hence, this has translated into widespread scarcity and an underground parallel market where basic foods are sold at prices much higher than the government established price.

Both of these policies have not produced the intended results. In the last decade, economic controls have profoundly curtailed the incentives necessary for businesses to produce and import goods. This has crippled the economy in severe ways. While the economy has become highly dependent on imports to supply almost 80% of consumer products, lack of hard currency makes this very complicated to achieve.

These policies are the culprits of the Venezuelan economy being rated as “repressed” by the Index of Economic Freedom. This rating has remained unchanged since 2004. What does this mean? Well, falling within this rating means that corruption is high, and that business, labor and fiscal freedoms are severely curtailed by an interventionist and centralized government. While Venezuela holds the biggest oil reserves in the world, out of all South and Central American countries, it ranks second to last in economic freedom.

These dire economic circumstances have forced many producers to close shop or move their operations to neighboring countries. The difficulty of operating is primarily caused by their inability to access hard currency. Since the only entity allowed to sell USD is the government, businesses are at the mercy of lengthy bureaucratic processes, unless they are willing to pay up to ten times the price of the local currency. But they would not be able to sell their product at a competitive market price due to price controls. Catch 22.

In addition to currency issues, the countless expropriations of private property and interventionist practices by the national government substantially elevate the risk of investing or running a business.

For instance, in November 2013, the government undertook several electronic stores (one of them a national chain equivalent to Best Buy) and forced them to charge what is deemed by the government as fair prices. This eventually was extended to other rubrics, forcing many to close down shop, or simply remain open until their current inventory ran out. Moreover, in January, the government passed the Fair Price Law, which sets a maximum percentage of profit that businesses are allowed to add to their prices.

The picture remains grim as protests that started in February to denounce shortages, among other things, continue unabated. The government has promised to ease some of these controls to allow shelves to be restocked and businesses to reopen their doors. However, as of today no substantial changes in economic policy have been put in place.

– Sahar Abi Hassan

Sources:  The Heritage Foundation, The New Yorker
Photo: What’s Next Venezuela?

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Reducing Poverty: Venezuela’s New President

reducing_poverty_Venezuela
Countless Venezuelans live in poverty, many of them living in small, run-down towns that are sprawled over the hillside around Caracas, the nation’s capital. Even though Venezuela is known for having some of the world’s largest oil deposits and massive amounts of coal, gold, iron ore, and bauxite, poverty is still a very real issue. The economy is mainly tied to global oil prices, with the oil boom in the 70’s largely benefitting the Venezuelan middle class, but the price collapse to follow caused many of the middle class to enter into poverty and worsened the lives of the already impoverished. Former President Hugo Chavez pursued political programs based on a society with equal rights and opportunities for all, as well as the sustainable integration of the rural poor population into the national economy.

Approximately 60 percent of households are living in poor conditions because of the unemployment rates being so high. Around 50 percent of the rural population is poor, compared to the 40 percent in urban areas. The National Institute of Statistics indicates that over 38 percent of the total population lives below the poverty line and 10 percent of the population lives in abject poverty. The poorest segments of the rural population include mostly Afro-Venezuelan and indigenous communities and landless households headed by women that inhabit semi-arid territories. Even though there have been strong efforts to endorse national food security, the country still imports many basic foods, like grain, milk, and meat. This makes the country extremely vulnerable to global food price inflation, so scarcities of key basic foods is very likely to become more severe in the future.

Some say Hugo Chavez’s economic reforms and expansion of social programs have helped the poor population benefit from oil money, but others say he has harmed economic performance since his rise to power in 1999. According to The Guardian, however, poverty and illiteracy levels have fallen, but violent crime and inflation have increased at the same time. Lately, oil exports have boomed, with the country’s current net oil export revenues at $60 billion, when they were only at $14.4 billion in 1999. The nation’s GDP per capita has increased from $4,105 to $10,801, but the inflation rate has also increased from 23.6 to 31.6 percent. Violence has increased as well and become a key concern for Venezuela, with murder rates doubling since 1999. Unemployment has decreased from 14.5 to 7.6 percent and as a result, poverty has dropped significantly, as well as infant mortality which was 20 per 1,000 live births in 1999 and is now only 13 per 1,000 live births.

Former Vice President Nicolas Maduro assumed presidency of Venezuela in April, 2013 after the death of Hugo Chavez, and has invited corrupt officials into the government. The country continues to face formidable challenges with its economy’s vulnerability to the fluctuations in international oil prices. They have also recently experienced sharp increases in public debt as well as major fiscal deficits. The high inflation rate, largely blamed on businesses, mixed with the falling international reserves that represent less than five months of imports are a great concern to many government officials. The international community is curious to see how Venezuela’s new president will affect what were once improving statistics in the nation.

– Kenneth W. Kliesner

Sources: BBC News, The Guardian, Rural Poverty Portal, World Bank
Photo: Efareport

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The Limitations of U.S. Government on the Economy

Bloomberg recently posted an article on how the unemployment rate has held steady at 6.7 percent while U.S. payrolls have increased, despite more Americans entering the labor force. This means that Americans who had stopped trying to find work are now renewing their job hunt. The limitations of U.S. government have had little to do with this hopeful sign. Here’s why:

1. People Assume The President Has Too Much Power

When it comes to economic policy, aside from tariffs or taxes, the Federal Reserve has the more relevant hand in the interest rates banks charge for loans, savings accounts, capital accounts and stocks.

The Federal Reserve controls the money supply by tinkering with bank reserve ratios or how much currency a bank can hold. The President can affect inflation through drastic action, such as removing the gold standard (see Richard Nixon).

2. People Assume The President Has Too Little Power

The economy is not some ethereal being who lords over all controlling prices and jobs. The economy is the public. It is a market, in which people trade and consume, and income and prices fluctuate accordingly. The Federal Reserve simply reacts to the behavior of people, not the other way around.

It all hinges on something called aggregate demand, or how much the general population wants to consume and buy. The government does best when it does not interfere in markets at all. The Great Recession occurred because too many people put all their eggs in the housing bubble basket. The Great Depression occurred because people stopped consuming, lowering the money supply, and demanded money from banks with insufficient supply. Even now, as the unemployed population rejoins the workforce, they do so because of choice.

3. It all Runs in Cycles

Businesses and the markets they operate in run on cycles. There are booms, recessions and recoveries, and eventually this cycle repeats. It’s the ebb and flow of economics. If anticipated correctly, the cycles could pass through without any serious repercussions. However, the length between these cycles vary so widely, the public, the Federal Reserve, and the government often seem to forget about them. As a result, policies and behaviors are enacted that can prove detrimental once the cycle restarts.

This view of economics not only applies to the United States, but to the world as a whole. The power of the markets should lie with the people, and in a way, always has. Unless the government is linked directly to markets or totalitarianism, its economic power is somewhat limited. The government can guide and suggest movements for businesses, but at the end of the day, its not the government, the Federal Reserve, or the President that determines the one’s livelihood: it’s the individual.

– Matthew Price

Sources: Bloomberg, Daily Infographic
Photo: Housing Works