Archive for category: Economy

Information and stories about economy.

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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

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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

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Japan and Australia Sign Free Trade Agreement

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Negotiations for a trade such as this has been in the works for seven years, though only now are the extensive efforts coming to fruition. Concluding with a deal on April 7, Japan and Australia finally reached an accord on a free trade agreement between the two countries.

Prime Minister Shinzo Abe of Japan and Australian Prime Minister Tony Abbott express mutual respect for one another, citing security and neoliberal economic agendas as important ties that have connected the two men and their respective nations for some time. A Joint Declaration on Security Cooperation, renewed in 2010, was initially signed between Japan and Australia in 2007 as a formal recognition of their devotion to the defense and support of one another. The Declaration came after years of informal cooperation, in such contexts as United Nations peacekeeping operations in the 1990s. More recently, Abbott has praised Japan’s democratic values and presence in international security activity.

Japan’s agriculture lobby, however, expressed concerns of an internationally aggressive competition and was opposed to easing access to food imports. Though Abe clearly favored opening Japan’s economy to increased competition, Australia was understandably concerned that the rigorous final round of negotiations would fall through as a result of the Japanese lobbying group’s hold on the ruling party that it elected. Yet the signed agreement builds on a trade treaty of 1957 that contributed heavily to the positive sentiment between the two nations. The new free trade agreement, then, is expected to build on the great business and cultural relations, and is consequently considered by many trade officials to be the best deal the Japanese economy has ever granted to another country.

The final version of the free trade agreement calls for joint compromise in both economies. While Japan is now required to phase out its current 38.5 percent tariff on Australian beef exports, Japan will end tariffs on Japanese vehicles, electronics and household appliances. Within 15 years, the Japanese beef tariff is expected to reach only 23.5 percent, with a subsequent decrease to 19.5 percent in 18 years. The Australian Trade Ministry also reported that Japan would increase cheese imports and simultaneously phase out tariffs on fruits, honey, vegetables, nuts and wine. Prime Minister Abbot has thus declared that Japan is “Australia’s best friend in Asia.”

Some argue that the free trade agreement between Australia and Japan, in bringing both nations closer to the United States as a result, could risk a free trade agreement with China, Australia’s number one trade partner. However, Japan is Australia’s number two partner, and the political and security ties could make a difference in the long run. After seven years of intense negotiations, one can only hope that Australia and Japan have made the correct decision.

– Jaclyn Stutz

Sources: The Conversation, Sydney Morning Herald
Photo: The Sydney Morning Herald

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The Pros and Cons of Brazil’s Port Development


A port owned by a mining company in northeast Brazil is helping the local economy but polluting the region.

The Ponta da Madeira terminal was established in 1986 by Vale for the shipment of iron ore while simultaneously guaranteeing job stability for young people in Itaqui-Bacanga, an impoverished location in Brazil.

“Company trains arrive at the port, transporting minerals from Carajas, a huge mining province in the eastern Amazon region that has made vale the world leader in iron ore production,” said Global Issues. “The port also exports a large proportion of the soya grown in the centre-north of Brazil.”

However, George Pereira, the secretary of the Itaqui-Bacanga Community Association (ACIB), said Vale and other companies located around the area brought the wrong type of development into the region.

“We have more money in our pockets but no water to drink, because the rivers are polluted,” said Pereira. He believes that sanitation and education developments are more important for the community.

According to the article, ACIB was ironically created by Vale a decade ago to clean up the Itaqui-Bacanga area. However, Vale’s own creation is being awfully easy on the corporation.

On the other hand, Friends of the Earth International (FoEI) calls Vale the worst corporation in the world today.

The organization claims that the mining company is also among the largest producers of raw materials and has reported a profit of $17 billion in 2010.

But a FoEI study also found that Vale failed to help keep the environment clean.

“Despite setting out in 2008 its intention to cut its carbon dioxide emissions, Vale emitted – according to tis own figures – 20 million tons of CO2 in 2010, an increase of a third on 2007 levels (15 million tons),” said FoEI.

Moreover, FoEI also said that Vale has representatives both in the Brazilian government and the UN delegation who work hard to promote policies that “undermine global action on the climate crisis”.

Although Vale was able to create jobs for the impoverished in Itaqui-Bacanga, the company is actually causing more damage to the earth in the long run.

– Juan Campos

Sources: Global Issues, Friends of the Earth International
Photo: Panoramio

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Britain’s Five Richest Families Worth More Than Poorest 20%

Income inequality is one of the biggest issues facing the world today. There is not a nation on Earth that is not affected by it in some way or another. The United Kingdom is currently facing a food crisis of national proportions with hundreds of thousands having to access emergency shelter food. Income inequality is also driving a wedge deeper and deeper in the British economy, making daily life even more difficult for working class families.

According to a study that was published by the charity organization Oxfam, the United Kingdom’s richest .1% have had their own personal incomes grow by over four times what the lowest 90% of Britain’s population have. Oxfam’s study used Forbe’s latest list of billionaires, and goes on to say that the United Kingdom’s five richest families have a total worth of over 28.2 billion pounds while the lowest 20% of the United Kingdom’s population only accumulated 28.1 billion pounds.

The Duke of Westminster topped the list of the top richest families in the United Kingdom. Gerald Cavendish Grosvenor is worth over 7.9 billion pounds and owns over 100 acres in London and Belgravia. The second highest were the Reuben brothers who are deal in extremely profitable metal business deals. Their company Trans World Metals, at its peak, controlled over 5% of the world aluminum supply. The third family on the list are the Hinduja Brothers who are worth over 6 billion pounds. The Hinduja brothers gained their fortunate by creating the Hinduja Group, which is conglomerate that oversees more than 21 companies that range from banks, to transportation systems, to chemical plants.

The fourth richest family in Britain is the Cadogan Family; the Viscount and Viscountess of Chelsea and their net worth of over 4 billion pounds. The fifth name on the list is Mike Ashley, owner of the prestigious football club Newcastle United who brought up the rear at 3.3 billion pounds.

The wealth that these families have accumulated is both astounding and impressive. However, in 2014 one of the biggest issues to both world leaders and citizens alike is the ever present issue of income inequality. The World Economic Forum declared that income inequality is one of the biggest threats that the world is facing today. Jennifer Blanke, the World Economic Forum’s Chief Economist cited the Arab Spring, as well as recent issues in both Brazil and South Africa as examples of how “…people are not going to stand for it anymore.”

The news that the top five richest families in Britain have accrued as much wealth as the bottom 20% is another piece of the income inequality puzzle that needs to be addressed and examined in a timely manner. The continuing rift between the rich and poor in every country around the world must be a main focus for the world’s leaders in order to take steps to address this issue.

– Arthur Fuller

Sources: The Guardian, The Independent, The Independent, The Guardian
Photo: Salon

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Happy New Year, Iran

Iran
President Hassan Rouhani of Iran inherited an interesting situation upon entering office last June 2013. Elected under the pretense of repairing and improving a broken economy, Rouhani’s shoulders have had to carry increasingly heavy burdens.

Despite denial by various Iranian leaders, a plethora of scholars and academics attest to the claim that the downtrodden economy resultant of sanctions by the Western world significantly contributed to Rouhani’s willingness to participate seriously in nuclear talks. Such willingness has led to an easing of sanctions, ultimately permitting Iran to do business more freely on an international scale. Since Rouhani’s election, inflation in Iran has dropped from 43 percent to 33 percent and the nation’s currency has begun to revive from losing almost 80 percent of its value over the past two years.

Rouhani has helped to stabilize Iranian currency, started a path toward a nuclear deal and greatly reduced inflation. Yet the slow and steady pace of economic revitalization is not fast enough for the people of Iran. Former president Mahmoud Ahmadinejad left finances in a despicable state, far worse than suspected. In order to undo what was once done and produce long-term results, Rouhani has had to take short-term steps that have unfortunately made current life worse for many Iranians.

Sanctions as experienced under Ahmadinejad’s rule created a society accustomed to drastically higher prices of everyday goods. People learned to leave out the unnecessary goods and buy only those that were utterly indispensable. Now, however, individuals may experience an increase in gasoline prices, perhaps by as much as 30 percent.

And while the government attempts to keep prices at local markets fair for consumers, many shopkeepers and vendors complain that it is not worth it for them to sell their goods in such regulated arenas. No matter how much they sell, one vendor explained, they will end up losing money.

The Iranian New Year is here, welcomed with the sting of disappointment in the air. Rouhani is doing what he can, but patience is a virtue that financial misfortune makes difficult to uphold.

– Jaclyn Stutz

Sources: New York Times, NPR, Times, Washington Post
Photo: Joojoo