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Covid-19 and Poverty in Israel
In 2020, poverty in Israel increased as the COVID-19 pandemic spread throughout the world. At the beginning of 2021, at least 2 million Israelis were living below the poverty line. Israel’s poverty rate increased from 22.4% in 2019 to 23% in 2020. In addition, Israel’s economy took a 2.4% contraction in 2020, resulting in high unemployment. The wealth divide became more evident during the pandemic as poverty in Israel continued to grow. However, as poverty devastated the economy, there have been significant efforts for recovery. This article explores the relationship between poverty and COVID-19 in Israel along with some organizations’ efforts to provide aid.

The Poverty Rate in Israel

Before the pandemic began, many Israeli citizens were already living in poverty. At least 1.8 million people lived under the poverty line in 2018, with 841,000 of those being children. Their standard of living dipped significantly throughout 2020 as well. Fortunately, government handouts and unemployment benefits have helped reduce poverty rates for many low-income and middle-class people. Thus, government aid played an instrumental role in reducing poverty rates and helping Israelis during the COVID-19 pandemic.

The beginning of 2021 saw some growth in the economy. In December 2020, Israel began its vaccination drive, hoping to vaccinate at least 60,000 people a day to combat the coronavirus.

Economy in Israel

With the Israeli economy reopening and most citizens having received the COVID-19 vaccine, there were only around 400 active infections at the end of March 2021, the lowest since June 2020. Serious infections also hit a three-month low. As of early July 2021, around 5.2 million people received both doses of the COVID-19 vaccine. With most of its vulnerable population vaccinated, Israel emerged from its third national lockdown in February 2021.

While Israel’s economy is starting to recover and lockdowns and restrictions are slowly starting to ease, the pandemic plunged 15% of its middle class plunged into poverty. The need for financial aid rose to 70% in the wake of the COVID-19 outbreak.

Despite the surge in poverty, however, there is still hope for Israelis suffering from the pandemic. Various organizations are currently implementing solutions to aid impoverished communities in Israel. An Economic Survey of Israel has identified solutions that can help Israel recover from the pandemic. The presented measures and reforms in the survey included upgrading infrastructure, improving educational outcomes, supporting the poor, simplifying taxes, reducing economic distortions and reducing health risks by improving the environment.

IMPROVATE Innovative Conference

Israel is currently using Israeli technology to help it get out of its COVID-19 crisis. An IMPROVATE Innovative conference occurred in early 2021 where Israeli Innovative and Technology companies met to discuss how their companies can assist Israelis in the aftermath of the COVID-19 crisis. IMPROVATE launched in September 2020 to connect world leaders in the advancement of global progress. With these meetings taking place, it seems as if technological advances will play a role in helping to reshape Israel after its economic crisis.

Latet

Nonprofit organizations have also stepped in to help with the economic disaster. Latet has been the leading NGO fighting poverty in Israel for the past 24 years. It is continuing to help the people of Israel by assisting its most vulnerable populations that the pandemic devastated. Latet believes the Israeli government should be doing more to combat inequality and improve access to resources in Israel.

The nonprofit launched an emergency response during the pandemic to help Israel’s elderly population. With help from volunteers, Latet has provided packages including food, hygiene products and entertainment items to the homes of older people to reduce the spread of COVID-19. The nonprofit has also launched a hotline for populations that need assistance with food or other necessities. Latet has distributed 45,000 emergency packages in addition to its regular program, which helps 60,000 families in need.

Hope for the Future

While COVID-19 has increased poverty in Israel, hope still exists for economic recovery. Millions of Israelis are receiving vaccinations, the economy is slowly reopening and technology companies and NGOs are willing to help the nation deal with the aftermath of COVID-19. While some economic progress for Israel has occurred, the push for further progress must continue.

– Jose Ahumada
Photo: Flickr

investing in BrazilThere are numerous reasons to invest in foreign aid in general. That can include partaking in growing the global economy, promoting international human rights and opening donor countries to potential investment returns. What makes Brazil a particularly good market to invest in is its promising role in the global economy. There are several reasons why investing in Brazil is beneficial.

COVID-19 Response

As of January 2021, Brazil has the third-most COVID-19 cases worldwide. The Brazilian economy was not in its best shape at the start of the pandemic because it has not fully recovered from the 2014-2015 recession. This made the economy vulnerable to precarious economic shocks that resulted in increased poverty, unemployment and small business fragility.

The COVID-19 pandemic has left countries like Brazil with possible lasting economic damages. Many emerging and developing countries rely heavily on foreign aid for financial and humanitarian support. Offering foreign aid to Brazil will not only help pave the way for a domestic post-COVID recovery but also alleviate some of the negative impacts of the pandemic through humanitarian benefits.

Diversified Opportunities in Emerging Markets

The Brazilian economy is classified as an emerging market. Emerging markets are economies that are transitioning into a developed economy. Since the launch of the MSCI Emerging Market (EM) Index in 1988, which measures portfolio performances of emerging markets, investing in emerging countries proved to create new and diversified opportunities outside of common markets.

Market Expansion and Economic Growth

Since 2016, Brazil has shown an increase in GDP growth with approximately a 1.3% increase. In 2020, Brazil fell back into recession because of COVID-19. However, Brazil’s economy displayed growth and has played an important role in the growth of the Latin American economy as it makes up 35% of the Latin American GDP. It is approximated that the Brazilian market reaches 900 million consumers in just the Americas.

On how quickly the Brazilian economy rebounded, Bloomberg reports boosted domestic demand and exports with a 9.47% rise in economic activity index from July to September of 2020 in comparison to the previous months.

As Brazil recovers from COVID-19’s economic impact, it leaves opportunity for foreign investors to take advantage of Brazil’s growing market, especially with its low interests. Some of Brazil’s profitable sectors include real estate and agricultural goods like coffee, sugar cane, corn and soybean. Participating in these sectors expands Brazil’s domestic market and hence the world market size.

Geographical Location

Especially for the United States, Brazil’s proximity allows easier trade. For other advantages, Brazil’s geographical properties for the agriculture sector also make its commodities attractive. Approximately 28.7% of land is used for agricultural production which makes up more than 4% of the annual Brazilian GDP. Following China, the United States and Australia, Brazil has the fourth-most amount of agricultural land.

Foreign Investment Returns

Encouraging enterprises to invest in foreign aid can ultimately result in great returns. A common type of foreign aid for these corporations is Foreign Direct Investment (FDI). Through FDIs, corporations can potentially gain lasting interests, multinational consumers and flexible production costs. This type of foreign aid also brings developing countries like Brazil innovative technology, investment strategies, jobs and infrastructure from investing corporations of developed nations.

Foreign investment is critical to developing and emerging markets. Investing in Brazil promotes development and sustainability and also benefits foreign investors greatly. Furthermore, foreign investment assists economic recovery following unforeseen economic shocks like that of the COVID-19 pandemic.

Malala Raharisoa Lin
Photo: Flickr

Electricity in VenezuelaOn March 7, 2019, Venezuela entered the worst power outage in the country’s history. Plunging all 23 states into darkness, the blackout lasted over five days in majority of the country. The economic losses triggered by this event exceeded $800 million and led to the deaths of an estimated 46 people. Electricity in Venezuela has since become a huge cause of concern for people.

Blackouts in Venezuela

Regrettably, this blackout was not an isolated incident, although it was the longest. Blackouts have become a routine aspect of Venezuelan life, dating back to as early as 2010. In a country where 96% of the Venezuelan population lives in poverty, these blackouts serve only to exacerbate the struggles of a vulnerable population. They strip people of access to basic necessities like water, food and fuel. Their root causes are often unclear although the key contributing factors are widely agreed-upon.

Understanding the Power System

In 2007, Venezuela’s private power companies were nationalized and transformed into one state-run monopoly known as Corpoelec. The company is underfunded, rife with corruption and unable to recover its own operating costs. The factors creating this untenable situation for Corpoelec date back even further to 2002 when national electricity rates were frozen. In Venezuela, “consumers pay only 20% of the real costs of producing power, delivering Venezuelans the lowest electricity prices in Latin America.” The drawback to these low rates is that energy is extremely overused and that Corpoelec is unable to generate sufficient revenue to fund infrastructure investments or even basic maintenance of its facilities.

Overdependence on Hydropower

The aforementioned problems are exacerbated by Venezuela’s near-complete reliance on hydropower from just one dam. The Guri Dam located in the eastern state of Bolívar accounts for 80% of the country’s electricity production and its systems are woefully neglected. The dam currently operates at a capacity considered unsustainable, “jeopardizing the machine room in the case of a flood,” according to experts. In a region where flooding is common, this is cause for concern.

Whereas other countries that rely heavily on hydroelectric power like Brazil and China have made large investments into other forms of energy, Venezuela’s ability to shift away from hydropower is crippled by underfunding, a lack of engineering power from within the country and corruption.

Corpoelec has stagnated progress as well. The company, “paid millions of dollars in no-bid contracts to political connections,” to maintain its dominance. Projects to build new dams and other forms of electricity production like thermal or wind have routinely been stalled due to a lack of funding and inadequate staffing.

The Cause of the Blackout

The March 7 blackout that heavily circulated the news was caused by a system failure at the Guri Dam. It was initially painted as a terrorist attack by president Nicolás Maduro, who tweeted, “The electrical war announced and directed by the imperialist United States against our people will be defeated.”

The Venezuelan president’s claim was that the U.S. had caused the power outage through a cyberattack on the hydroelectric plant. However, engineers who worked on the dam later clarified that the plant’s electronic monitoring system is not actually connected to the internet, proving a foreign attack to be an unlikely root cause. The plant has been poorly maintained and neglected for a very long time. In actuality, failure to properly manage the electricity grid may have caused a fire has been deemed the likely cause, and unfortunately, there is no quick-response system in place at the facility to protect its systems from damage.

The Future of Electricity in Venezuela

To ensure the return of consistent electricity to the people of Venezuela and protect against future blackouts, massive overhauls would be beneficial. However, such agendas seem unrealistic given the current economic and political climate in the country. Rather, a focus on increased upkeep and basic maintenance of power plants offers a more realistic path forward. This requires access for NGOs to bring in engineers and consistent revenue toward infrastructure repair. Without this basic funding and commitment from the government, the Venezuelan people will continue to suffer through blackouts.

– Scott Mistler-Ferguson
Photo: Flickr

Saving the Venezuelan EconomyA combination of poor leadership and crippling sanctions have created a nation-wide economic crisis in Venezuela. The Center for Strategic and International Studies found that even before U.S. sanctions were placed on Venezuela, the country was already enduring hyperinflation, had seen food imports fall by 71% and more than two million Venezuelans had fled the country. Nevertheless, sanctions only exacerbated the crisis as Torino Economics found U.S. sanctions on Venezuela were associated with an annual loss of $16.9 billion in oil revenue. As a result, the Atlantic Council reports that more than 80% of Venezuelan households are food insecure and 3.7 million individuals are malnourished. Consequently, refugees filed more asylum claims globally in 2018 than any other country has. The number of Venezuelan migrants and refugees is expected to reach eight million in 2020, surpassing Syrian migration by more than three million. Reforms in the county are being implemented with the aim of saving the Venezuelan economy.

Saving the Venezuelan Economy

While this economic collapse still ravishes the country, there is certainly hope for the future. Due to both internal and external pressures, the president of Venezuela, Nicolás Maduro, has begun to encourage policies of economic liberalization and privatization that are indicating an economic rebound.

Toward the end of 2019, Argus Media reported the Venezuelan government was beginning to ease economic controls. Specifically, the Maduro government erased most price controls, loosened capital controls, tightened controls on commercial bank loan operations, and most importantly, began to accept informal dollarization. Immediately these policies curbed the levels of hyperinflation that had caused the food crisis across the country. Advisers estimate inflation to be at only 5,500%, a significant improvement compared to the International Monetary Fund forecasts that predicted inflation levels of more than 10 million percent. This is largely in part to the importation of dollars into the Venezuelan economy, pushing out the uselessly-inflated Bolivars. Indeed, a Bloomberg study found Venezuela’s economy is increasingly dollarized, as 54% of all sales in Venezuela by the end of last year were in dollars. Most importantly, food and medicine imports have rebounded, now reaching 15% of the population.

Privatization of the Oil Industry

In addition to the Maduro government relaxing economic controls, the economic rebound in Venezuela has occurred due to increased privatization of the oil industry. Despite being under the control of the military for years, Venezuela’s state-owned oil company has trended toward letting private firms handle operations, aiding in fixing the mismanagement perpetrated by the military’s control of the industry. For the first time in decades, the private sector accounted for more than 25% of GDP in 2019 and likely more by the end of 2020. Consequently, the Panam Post reported that oil production increased by more than 200,000 barrels, a 20% increase following privatization.

Initiatives to Help Venezuelans in Poverty

The South American Initiative, through its medical clinic, provides medical care and medicine to Venezuelans in need, with a special focus on mothers and children. To provide these essential services, it relies on donations that people provide on the GlobalGiving platform.

Fundacion Oportunidad y Futuro addresses hunger and malnutrition with regards to children in Venezuela. It is running in an initiative to provide meals to 800 school-aged children in Venezuela. It also operates through donations via the GlobalGiving platform.

The Future of Venezuela

While there is hope to be found in these reforms, Venezuela has far from recovered. The National Survey of Living Conditions indicates that more Venezuelans are in poverty in 2020 than in 2018, with food security decreasing another 7% over the past two years. The average income of Venezuela remains low at just over 70 U.S. cents a day. These reforms are the foundational steps needed to begin to reverse the economic trend that has relegated millions of Venezuelans to extreme poverty. If the economy is ever to correct itself, liberalization and privatization will be the jumping-off point for an economically thriving Venezuela in the future.

– Kendall Carll
Photo: Flickr

How the Breakdown of the Nuclear Deal has Affected Poverty in IranAs the relationship between Iran and the U.S. deteriorates, Iran’s quality of living is plummeting, the cost of living is soaring and Iranian citizens are feeling the pressure.

Since the dissolution of the Joint Comprehensive Plan of Action, more commonly known as the Iran Nuclear Deal, in May 2018, extreme hardship has hit the West Asian country. Economic sanctions that were thwarted by the nuclear agreement have been reimposed and are damaging Iran’s oil and precious metal sectors, handicapping the country’s export potential.

The primary component of the economic decline is the dent that sanctions are making in the oil sector–which, according to the World Bank, accounts for two-thirds of Iran’s economic growth.

Post-Breakdown Economic Turmoil

Iran’s oil production has already fallen steadily every month since the breakdown of the nuclear deal, according to the U.S. Energy Information Administration, and the resulting impact on the economy is devastating. On April 2019, the World Bank reported that Iran’s economic growth slowed to 1.8 percent in the first quarter of 2018/2019–down by 4.6 percent from the previous year. Compounded with years of corruption and mishandling of public funds, the breakdown of the nuclear deal has positioned the Iranian economy in a state of stagflation (negative GDP growth) estimated to continue until April 2020.

Compounding the decline in GDP, the national currency has depreciated by around 60 percent on the U.S. dollar. An IMF senior official revealed that the inflation rate could reach 40 percent by the end of 2019. This economic turmoil has reduced accessibility to living essentials, increased societal instability and swelled poverty rates.

Increased Poverty

The World Bank reports that the upper-middle-class poverty rate, which is classified as at or under $5.50 PPP (Purchasing Power Parity), is at an estimated 11.6 percent for 2018/2019 and forecasted to grow to 12.6 percent in 2019/2020.

It is essential to note that $5.50 PPP is not a daily income. That figure is usually much lower. According to the Global Basic Income Foundation, PPP is defined as the amount a person can afford to spend on any given day, taking into account both earnings and savings. To put this into perspective, 11.6 percent of people in Iran could not afford to buy something today that costs $5.51.

Higher Prices

With the reimposed sanctions resulting from the breakdown of the nuclear deal, accessibility to living essentials is rapidly shrinking. Even humanitarian organizations struggle to acquire adequate supplies to carry out their work due to soaring prices.

A recent report from the Statistical Centre of Iran reveals eye-opening inflation statistics. Between 2018 and 2019, the price of food and drink increased by 43.5 percent,  clothing and footwear by 33.9 percent, housing and utilities by 18.2 percent and health and medical services by 18.8 percent. The overall Consumer Price Index is up by 30.6 percent.

The amalgam of decreasing wages and currency devaluation is restricting Iranian citizens’ ability to acquire necessities. The World Bank expects Iran’s poverty rate to rise to 12.8 percent by 2021.

Humanitarian Response

With poverty levels rising in Iran, humanitarian agencies are stepping up to meet the need. Moms Against Poverty is a nonprofit organization that is working to alleviate poverty in Iran through hunger relief, education and orphan care. Since the breakdown of the nuclear deal, Iran has had a 6.3 magnitude earthquake and major flooding. Moms Against Poverty provided natural disaster victims with food, water and blankets, distributed safe heaters and helped rebuild and furnish health clinics and pre-schools in the flooded areas. The organization also funded 2,000 food baskets for the Persian New Year across three Iranian provinces.

The breakdown of the nuclear deal has been economically painful for Iran. Tensions have only risen since the reimposition of sanctions and, as of now, show no signs of alleviating. There have already been multiple conflicts between the U.S. and Iran in the Strait of Hormuz, Iran’s main shipping route, since the breakdown.

Organizations like Moms Against Poverty provide some poverty relief and help the quality of life for many citizens. However, relief on a nationwide scale could be achieved if U.S.-Iran relations are restored or if Iran can boost its economic growth and halts the devaluation of the national currency. For now, the citizens of Iran are feeling the pressure.

– Zach Brown
Photo: Flickr

Hospital Infrastructure in VenezuelaVenezuela— Since their declaration of an economic crisis, hospital infrastructure in Venezuela has been depleting. In the midst of the economic chaos, hospitals are being flooded with patients who are exposed to its decaying environment.

During a walk-through of Jose Manuel de Los Rios children’s hospital in Venezuela’s capital city Caracas, BBC spoke to Dr. Urbina-Medina in regards to the quality of the hospital. Medina compared the hospital to a building site, saying that it was not how a hospital should be.

Many hospitals in Venezuela have peeling walls with exposed pipes and electricity cables. Patient rooms are often full of trash and dirt. Electricity is faulty, leaving several lights not working. There are not enough operating rooms for surgeries. There is also a major problem with sanitation. Venezuela has little to no money to repair their decomposing hospitals. There is little access to clean water, which has caused several patients with kidney failure who attended Jose Manuel de Los Rios to contract an infection. After further inspection of the water tanks in the hospital’s basement, garbage, shoes and a dead cat were found inside.

In instances of electricity blackouts that shut down machines used for live-saving procedures, doctors have resulted in manually pumping oxygen into premature babies’ bodies. Since there are not enough operating rooms in good shape, patients stay on waitlists longer than expected. The new way of operating is improvising. Since there is little access to proper supplies and the hospital environments are in disrepair, doctors have to find any way to provide the help their patients need.

The failing economy has not only caused problematic hospital infrastructure in Venezuela, but medicine shortages have increased mortality rates. In 2016, 11,500 infants died and 756 women died during or after childbirth. Many people need more than one type of medicine to assist them. Unfortunately, it can be difficult to find just one of the list of medicines needed. If the medication is found, often the price is too steep to purchase. For instance, a patient who needed an antibiotic that cost 40,000 bolivars, or 56 U.S. dollars, per packet of six could not afford the quantity needed, which was 224 blisters total. The amount of bolivars needed to buy just one packet is equal to the monthly wage for many. Jose Manuel de Los Rios Hospital has run out of antibiotics and medical supplies such as inhalers, bandages and syringes. Their lack of machines, especially x-ray machines, has delayed the diagnoses of possible brain-related issues in patients. The lack of antibiotics specifically has caused many to lose limbs because of severe infections.

Foreign Minister Delcy Rodriguez has been working with United Nations organizations such as the Pan-American Health Organization in order to assist in the shortage of medications. Their assistance has helped them to negotiate with suppliers to provide more affordable medicine to countries like Venezuela. With assistance from various organizations, improving hospital infrastructure in Venezuela is a possibility and it needs to be seriously prioritized.

– Brianna Summ

Photo: Flickr

 

  • Education in Spain

Education in Spain is a broad and extended topic. Although the federal form of government in the country resides in Madrid, and is lead by the prime minister Mariano Rajoy, the country is divided within 17 autonomous regions that have smaller forms of government within each one. This leads to some schools in Spain teaching Spanish in the particular dialect from each region, such as in Catalonia, the Basque country, Galicia and more.

The Spanish schooling system is divided within three categories: public schools, private schools and state-funded private schools. Regardless of public schools being completely funded by the state, thus free of charge for the students who attend such schools, class materials, books and sometimes uniforms still need to be paid with citizens’ own money.

Sunken within the 2008 economic crisis, the European country of Spain has just now started to recover its economy and generate interest, breaking the loop that has positioned the country at the second highest unemployment rate within the European Union, Greece taking the first place. The sector that has been most affected by the economic crisis of the past several years has been public education in Spain. This issue has been a notoriously increasing one since the economic crisis started, due to extreme budget cuts on the public schooling system within the European country.

Prime minister Mariano Rajoy declared José Ignacio Wert as the minister for education in the year of 2011, and from then to 2015, when Wert was substituted by Iñigo Méndez de Vigo, education was greatly affected. From the year 2012 to 2013, public schools’ teaching systems declined when sharp cuts forced the government to leave up to 25,000 teachers unemployed. Public universities’ tuition fees increased by 66 percent, taking Spanish citizens out on the street to protest the dreadful management that increased the numbers of people who could not afford education for their families.

The main consequence regarding these issues has been the increase of school dropouts, which stood at an alarming rate of 25 percent in 2014, the highest school dropout rate in the European Union. However, there is good news. Even with high levels of poverty, education in Spain was ranked as having the 12th lowest inequality gap for students of all the countries in Europe.

Spanish residents fight for a better schooling system and education in Spain everyday. The lack of teachers, economic resources and the increase of students per class have lead to a series of educational strikes in order to make the Spanish government understand and respond to the gravity of the issue.

Paula Gibson

Photo: Flickr

Economic Crisis in VenezuelaOn Saturday, May 14, Venezuela’s president, Nicolas Maduro, issued a state of emergency in response to widespread discontent that had risen throughout the country. Protests and calls for a reform in the government came about because of the historic economic crisis in Venezuela.

Since the beginning of 2015, inflation within the country has been on a steady increase. During the months of June and July, it began to accelerate upward. By the close of the year, Venezuela was left with an inflation rate of 180 percent, the highest in the world. This has led to deficiencies in food, medicine and hygiene products.

However, the recent explosion of economic inflation is only a symptom of deeper troubles within the economy that have been building for the past years. Many are criticizing Venezuela for failing to diversify in products and services. Gretchen Bakke of the New Yorker summarized the economic crisis in Venezuela using the adage, “putting all its eggs in one basket.”

Various occurrences have led Venezuela to the brink of economic collapse, but three in particular bear mentioning:

1. Venezuela’s Dependence on Oil as a Profitable Export

Petroleum products made up roughly 93 percent of the $63 billion in exports that Venezuela made in 2014. This is not surprising, since Venezuela is sitting on the largest proven oil reserves in the world. Historically, various Venezuelan presidents have used petroleum production and exports to increase development, yet they failed to diversify their economic productions. In the 1920s Venezuela registered a third of its GDP as agricultural products, but almost a century later, these products make up six percent of GDP and less than one percent of the country’s exports.

Its identity as an oil-producing state has served Venezuela well in the past, but the tide is turning. With lifted sanctions on Iranian petroleum and increased oil production in the United States, Canada and Iraq, petroleum prices have been driven down by a saturated global market. The New York Times reported a barrel of oil to be 70 percent cheaper now than it was two years ago.

2. Venezuela’s Dependence on Water as its Primary Electricity Source

Almost 80 percent of Venezuela’s electricity comes from hydroelectric power. The international community has recently been pushing for cleaner energy (that which does not rely on fossil fuels) and hydroelectricity is one way to achieve these goals. However, hydro-power can be problematic when water turns into a limited resource.

Venezuela has currently been suffering through a three-year drought which many are attributing to El Niño, an intermittent weather pattern that has been accentuated by the recent rise in global temperature. In addition to the normal problems that are generated by water shortages, Venezuela is now facing a shortened work week due to the rationing of electricity for the many shortages.

These newly-prescribed measures are criticized for accelerating the process of economic collapse, since workers now have a shortened period in which they can earn money to pay for the necessities of life.

3. Venezuela’s Unipolar Political System

For years, the socialist party has dominated the branches of the central government, and in the recent escalations of the economic crisis in Venezuela have caused the government to “become more authoritarian,” as the Council on Foreign Relations wrote.

In December of last year, the opposing party finally took control of one part of the government, The National Assembly. Though a referendum is being constructed to oust Maduro from his seat, very few immediate solutions are being proposed to relieve the collapsing economy.

The economic crisis in Venezuela is provoking protests throughout the country. Various citizens of the country told the Wall Street Journal that they have to stand for hours in line to receive a small portion of food for the day. These individuals have hopes to change the trajectory of their nation, and with the majority of the people on their side, they may still have time to do so.

Preston Rust

Photo: Flickr

stock_markets
The recent collapse of the Chinese stock markets has been tumultuous. Millions of Chinese middle-class citizens were caught up in the fervor; many of the stock-buyers have been Chinese without high school diplomas. Many observers in the west had feared that the meteoric growth of the stock markets in China was unsustainable. In 2014, the Shanghai Composite Index rose 21 percent in one month alone — a warning sign to many that this type of growth could not continue forever.

Since the beginning of the falling stock prices, at least 3.2 trillion dollars in value has vanished. The bubble was seemingly inflated — in part with government encouragement — with lax policies put in place to encourage further investment in stocks. Many people began to pour savings and accrue debt in order to pump more money in the over-valued stock prices. The government’s role in encouraging the bubble has now led to a loss of face for Chinese leadership and policy makers.

The ramifications of the Chinese stock market collapse could be widespread. A large fraction of the investments made were done not by large businesses or businessmen, but by middle class urbanites and even rural villagers. Much like the housing bubble in 2008, a tremendous loss in assets for middle and lower class Chinese could be hugely detrimental to the country. In light of the fact that the Chinese economy has been attempting to transition into a more consumer-based economy and the slowdown in growth in recent quarters, this financial crisis could be a major setback in China’s economic ambitions for the future.

The loss of value for stocks owned by every-day Chinese citizens means that demand would suffer and begin the cycle into lower economic health and greater uncertainty about the future of the markets. In general, an economic downturn is bad for everyone, from the most impoverished, to the well off. The poor in China will almost certainly suffer more, should the economy take a turn for the worst.

The Chinese Government has taken strong steps towards avoiding a complete collapse in stock prices. Pouring money into the teetering markets, the government is attempting to push back against the tide of sellers and avoid what many consider to be inevitable. Forty percent of stocks have stopped trading in an effort to stop the bleeding prices, but many argue that this is will do little. Market corrections will occur regardless — the bubble has already popped.

The secret is out — the majority of these unsustainably growing stocks belong to companies who are simply not worth even close to the price tag. Many of these Chinese companies have suffered huge blows to their reputation and legitimacy. Stopping trading is more likely than not, a desperate measure to allow for some leeway and time to think. The market is no longer in a psychological craze, and all the freezes will do is delay the inevitable market corrections.

The real question now is, how much value will be lost and how much will this hurt the middle and lower classes in China?

Martin Yim

Sources: New Yorker, Bloomberg 1, Bloomberg 2
Photo: Gbtimes

Economy Failing Japan
Japan is currently facing a dour economic situation comparable to  2011 when a tsunami struck Japan’s eastern coast. Following the tsunami, Japan’s economy started to shrink to 6.9 percent and is now down to its lowest rate since the environmental disaster.

Economists attribute Japan’s most recent third-quarter recession to lack of investment in housing in addition to a rise in taxes enacted as a part of a series of reforms. The value-added tax (VAT) has caused the world’s third-largest economy to shrink into recession.

The unpopular rise in taxes comes at an unfortunate time for current Prime Minister Shinzo Abe who is seeking reelection.

Another burdening issue for Japan is the vast economic debt it has garnered. The debt is due to the inequality between revenue and expenditures and Tokyo’s inability to address this serious problem.

As a major player in the world economic system, Japan’s recession is affecting U.S. markets as well. It could negatively impact the U.S. economy because Japan consumes a large number of U.S. goods as its fourth-largest trading partner. A surprising number of American-brand luxury retailers rely on Japanese consumers to buy their products.

On the bright side, however, the country is currently projected to increase the quantity of exports as demand is likely to rise. Japan is currently pursuing low interest rates offered by the central bank on long-term borrowing. This will allow Japan to rise slowly out of public debt while not incurring the backlash of high interest rates.

Prime Minister Abe outlined a three-step solution to resolve the economic crisis in 2012. First, the Bank of Japan increases inflation followed by increased government monetary spending including a hefty stimulus package. The last step of “Abenomics,” as the Prime Minister’s plan has been dubbed, is to completely restructure the system by implementing tax cuts and other long-term reforms.

Abenomics is essentially the coupling of short-term policies with long-term, structural reforms aimed at strengthening the overall economy. However, the projected benefits of “Abenomics” have yet to be seen and increased taxes have plunged the economy into recession.

Eventually, the system is meant to result in higher wages that will allow an increase in consumer spending over time.

Maxine Gordon

Sources: Yahoo Finance, The Economist, Trading Economics, CFR, Reuters
Photo: Foreign Affairs