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Financial Crises in Developing Nations
Financial crises in developing nations have been an uncomfortably common occurrence. This presence has necessitated a guide for avoiding such debilitating economic events. Corruption and the impact of exchange rates are often the culprits of fiscal destabilization, and poor monetary choices, and often result in hyperinflation and tremendous harm. There are some practical antidotes, though, for addressing concerns to assist low-income nations in averting financial ruin.

The Cost of Corruption

There is an important relationship between corruption, foreign direct investment and domestic lending. The impact is pretty simple: corruption makes a nation’s potential FDI benefactors run for the hills, and leaves the riskier practice of bank lending as the primary mechanism for new capital. This occurs because foreign investors have few assurances that they could successfully operate in an opaque environment with weak property rights (as an example).

Corruption does more to dissuade FDI than exorbitant tax rates and other poor conditions, according to some analyses. State-owned banks accentuate the issues caused by relying on lending for capital investment because many engage in dubious lending practices like “connected lending” – a convenient euphemism for nepotistic banking. As a result, banks often disregard the imperative to issue economically sound loans.

To remedy these concerns, one suggestion is the foreign ownership of banks, as they mimic the effects of FDI by pairing capital with better technology and managerial experience, along with a better regulatory apparatus.

Rates of Exchange

Another pertinent issue regarding financial crises in developing nations is exchange rates. Fixed but adjustable exchange rates have historically exacerbated financial turmoil because they were seen as more stable than they actually were. Additionally, in the case of large foreign currency debts during a recession, lowering interests rates to stimulate the economy would force out FDI and further hurt the currency.

Instead, managed-floating currencies help stability because they afford greater awareness of the volatility of exchange rates, thereby promoting more prudent investments.

Printing Problems

Many financial crises in developing nations are triggered by hyperinflation, which is typically defined as sustained inflation rates of over 50 percent. When governments get into trouble with debtors, they often are forced to print money to afford their loans. This increases prices dramatically, making ordinary products unaffordable.

Many countries dependent on oil revenues have fallen victim to the affliction of hyperinflation. When oil prices surge, they increase their budgets accordingly; but, when the price of oil craters, they are often left with bloated budgets and cannot pay back their debts without resorting to a printing spree.

To insulate them from this, experts suggest establishing an independent central bank which would not print excess money to bail out imprudent spending. Although poor nations have historically been susceptible to financial crisis, there are practical solutions they can adopt to guard against them and usher in greater financial stability.

– Brendan Wade

Photo: Flickr

How to Help People in PortugalLike many countries across the world, Portugal was one of the nations in Europe significantly impacted by the financial crisis in the late 2000s. By 2009, the country began facing high levels of debt and a rising unemployment rate that, to this day, still weighs on the nation’s economy. While the Portuguese government attempts to understand how to help people in Portugal, much more needs to be done to address the country’s economic conditions.

Poverty and Unemployment
Since the beginning of the European debt crisis in 2009, Portugal has been affected by high levels of poverty, large instances of labor market segmentation and high unemployment rates.

In 2010, 18 percent of the population lived under the national poverty line, with certain groups affected more than others, such as women, children, ethnic minorities and the elderly. The incidence of poverty varies quite drastically between regions in Portugal. For instance, many areas in the northern region of the country have larger pockets of poverty due to the restructuring of the textile industry, while Lisbon may not see such a large impact, as its GDP nears the European average.

After joining the European Economic Community in 1986, Portugal experienced strong growth, decreasing interest rates and declining unemployment. However, with the economic problems faced in 2009, unemployment grew to over 10 percent by 2010, reaching a 24-year high.

By 2017, Portugal’s unemployment rate of 9.8 percent still lands the nation above the OECD average of 5.9 percent, yet the fall since 2010 has been quicker than the average across OECD countries. The main catalyst of the unemployment issues stretch beyond the recent debt crisis and are rooted in the country’s structural weaknesses.

Increasing the number of available jobs is one of the answers to how to help people in Portugal, as the country ranks in the bottom third of performers across OECD countries. The number of jobs has been decreasing in the nation since 2006 and is a major cause of the high levels of unemployment and poverty across the nation.

Portugal also needs to focus on improving the quality and inclusiveness of jobs. To improve the living conditions for Portuguese families, there must be a focus on improving earnings quality by increasing wages and reducing earning segmentation.

Certain groups are more likely to be employed on a temporary basis or through atypical contracts, which creates a barrier to inclusiveness in Portugal. This creates labor market segmentation and insecurity that also contributes to unemployment in the country.

Demographics
In addition to the effects on unemployment, the segmentation has also had a large impact on the country’s demographics and immigration of refugees. Portugal’s population is expected to shrink by 30 percent between 2015 and 2100 due to low fertility rates, higher life expectancy and migration outflows. With the old-age dependency ratio expecting to more than double over the same period, the economy will suffer from low future earnings.

The government believes they have a solution for how to help people in Portugal instead of simply allowing the statistic to unfold. The economic strategy focuses on increasing the number of asylum seekers and resettled refugees welcomed into the country. By attracting more people to settle in Portugal, the idea is that openness will boost economic activity while also counteracting an aging population and falling birthrate.

While the people of Portugal support immigration, the labor market conditions, lack of immigration historically and segmentation within society discourage refugees from resettling in Portugal. Therefore, to help those looking for refuge, integration and employment prospects must be considered in policy formation.

Fortunately, there is also support beyond the political sector. Abou Ras was himself a refugee who resettled in Portugal and has formed the association “Families of Refugees” with other asylum seekers to help migrants adjust to life in the country.

With Portugal taking a proactive approach to the inflow of refugees, the country could benefit from its efforts in the long run. However, emphasizing the importance of improving labor market conditions is one of the best ways to help people in Portugal. This will not only improve the current living conditions of the population, but also improve the prospects for all those to come.

– Tess Hinteregger

Photo: Flickr

poverty crisis
The financial crisis of 2007-2008 was one of the worst financial crises since The Great Depression of the 1930’s. It has had huge ramifications on every piece of the world’s economy and way of doing business. The bailout of Europe’s economy and banking system did its intended job and stabilized Europe’s markets. However, an Oxfam report put out in 2013 has laid out the far reaching implications of the severe cutbacks that saved Europe’s economy at risk of jeopardizing the livelihoods of  millions upon millions of European families.

The Oxfam report “A Cautionary Tale” lays out the troubling details of the austerity programs that have been rolled out across Europe in response to the financial crisis and how they are taking Europe two steps backward instead of ensuring the stability and security of both Europe’s economy and its citizens. Oxfam’s report states that by 2025 there will be upwards of 15 to 25 million additional Europeans threatened by the specter of poverty if the measures that are currently in place are not seriously examined by the governments of Europe.

The reports also note that the amount of public spending that was cut from 2010 to 2014 will greatly decrease the amount of public sector jobs across Europe; 40 percent of Ireland’s GDP, 20 percent in the Baltic States, 12 percent in Spain and 11.5 percent in the U.K.. The report cites that due to these public spending cuts, in the United Kingdom alone 1.1 million jobs will be cut between 2010 and 2018. The International Federation of Red Cross and Red Crescent Societies (IFRC) cites France as an example of the growing poverty crisis in Europe. According to the IFRC, an additional 350,000 people in France have fallen below the poverty line since 2009. In just under 4 years in France, that is almost 90,000 people.

The conundrum at play here is how does Europe go about ensuring that its economy continues to recover from the poverty crisis, while at the same time keeping poverty from consuming its citizens. The dangers of income inequality are also something that not only European nations but indeed all the nations of the world must work diligently to lessen, or otherwise risk another global financial collapse. Oxfam’s report lays out the detailed analyses of how this would occur. Increased income inequality in countries who are still recovering from the global financial crisis and long term periods of income inequality in countries lead to the sort of  high rate high risk borrowing done by those who are more than likely not going to be able to pay these loan back to the banks. These sorts of inappropriate financial transactions greatly contributed to the financial crises that occurred in 2007 and 2008.

Governments will always cut costs in some fashion; it has come to be part of the current political climate. It is easy to slash spending for programs that are not perceived as essential for the immediate running of national affairs. However if Europe’s leaders do not monitor the situation, they could potentially set Europe’s recovery back by almost a decade according to Oxfam’s findings. Real wages in the United Kingdom and Portugal have dropped to 3.2 percent, which have set the value of wages in the United Kingdom to 2003 prices.

The leaders of the world’s nations that were hardest hit by the financial crisis have done a remarkable job in swooping in and preventing the total collapse of many of the world leading national economies. However if the current cost cutting measures that are in place which are supposed to be helping to push countries in the right direction are not seriously examined and examined soon, Europe faces serious implications for the future.

Arthur Fuller

Sources: Oxfam, IFRC, The New York Times, CNBC
Photo: Europe Direct Leeds

Albania Poverty Global Downturn Financial Crisis
Since 2008, Albania has seen an increase in the national poverty level and remains one of the poorest countries in Europe.

The Statistics Institute of Albania (INSTAT) recently reported that this increase has largely been due to the global economic crisis, especially now since that Albania is no longer the centralized, state-run economy it once was. Due to relatively low rates of growth from 2008, Albania has found itself struggling economically, with many people blaming the global economic crisis, especially economic crises in neighboring countries like Greece and Italy.

Despite the economic growth Albania, a country with a population of only 3 million, has undergone under its free market economy, nearly one-fourth of the population still lives in poverty.

Even though Albania saw a decrease in extreme poverty between 2002 and 2005, poverty has actually risen 1 percent from 2008 to 2012. While both urban and rural areas have seen similar percentage increases, a little over 2 percent, some highly populated regions have experienced vast increases.

For example, Tirana, the capital of Albania, has experienced a nearly 5 percent increase in poverty. After the end of communism in Albania, many state-owned industries closed, and many people found themselves struggling with unemployment.

As a relatively new free market, the Albanian economy is not apt to deal with macro-economic slowdowns. The worldwide economic crisis further exacerbates the troubles many smaller-scale farmers have in finding outlets to sell their products. In a globalized, hyper competitive world, there is little hope for products that struggle to pass international hygiene and safety standards.

Albanian productivity is also hindered by lapses in technical expertise and industrial innovation, having to compete with international corporate giants. The lack of markets, foreign investments, other vital financial services, make these poor economic conditions even more precarious.

In June, after a landslide election, Albania’s new prime minister, Edi Rama, promised to fight these economic troubles and pledged to create 300,000 jobs for Albanians. The socialist prime minister’s hope is to fight poverty, corruption, and unemployment to win Albanian membership into the European Union.

Rahul Shah

Sources: Global Times, Top ChannelRural Poverty Portal
Photo: PhotoPin

US-foreign-aid-percent-GDP.opt
Global aid, formally known as Official Development Assistance (ODA), continued to decline in 2012 as wealthy countries struggled with the global financial crisis. Global aid decreased by four percent in 2012, following a two percent decline in 2011.

Global aid totaled about $125 billion USD in 2012. Most of that came from members of the Organization for Economic Cooperation and Development’s (OECD) Development Assistance Committee (DAC), which includes most of the world’s wealthiest countries: the United States, Japan, and much of Europe. However, contributions of the BRICS countries (Brazil, Russia, India, China, and South Africa) are becoming increasingly important to poverty reduction and assistance efforts.

In 2012, Australia, Austria, Iceland, Korea, and Luxembourg increased their donations to global aid. Countries hit the hardest by the financial crisis, including Italy, Spain, Greece, and Portugal, decreased their contributions.

Donations can be measured both by total quantity of donation and percentage of gross national income (GNI). The US was among the largest donors in total monetary value, but did not reach the minimum threshold of 0.7% of GNI. Smaller countries such as the Netherlands and Denmark surpassed 0.7%. In some cases, donations from non-traditional donor countries such as Saudi Arabia and Turkey surpassed individual donations from DAC-member countries.

The percentage of OECD global aid dedicated to humanitarian causes has increased from 3.3 percent to 8.6 percent over the last two decades. Global aid is distributed to many different sectors, including economic development, social and administrative infrastructure, food aid, transportation, and agriculture.

Global aid distribution has also shifted in recent years. The share of aid going to sub-Saharan Africa, traditionally the largest beneficiary, decreased from 47.8% to 41.8%. Meanwhile, aid to South and Central Asia increased from 11.5% to 19.8%.

The OECD’s official report on global aid trends can be found here. Call your senator or representative and let them know that you’d like to see the US contribute more, not less, to global aid.

– Kat Henrichs

Source: IRIN
Photo: The Fact File

wealth
Amidst the joy over the DOW reaching an all-time high, as well as the numerous other positive signals that the American economy is in recovery mode, it can be easy to miss the nuanceshidden in the statistics. While Americans on the whole are getting rich again, these gains are not being seen by everyone. When the data is parsed carefully, it is evident that the poorest in our society have failed to see many benefits from the so-called economic recovery. As a result, the wealth gap in the United States continues to grow.

Impoverished people rarely, if ever, have any forms of investment. So when huge gains are seen in financial markets, these benefits do not actually bring any kind of respite from the day-to-day hardships of poverty. The recent gains in American wealth have been largely concentrated among the richest members of society, raising “the bar for success while leaving fewer haves and more have-nots.”

The economy as a whole has managed to get back to its pre-recession figures without bringing back the same levels of employment, home ownership, home value, or income inequality. Companies have been unwilling to hire for a variety of reasons, not the least of which is uncertainty about which way Washington’s budget struggles will play out. Without knowing what tax rates will be, it can be hard for a business to make any kind of large expenditure determinations. At a time when calls have been renewed to raise the minimum wage to be in line with inflation, these new figures from the Federal Reserve should work to galvanize support for policies which work to reduce poverty using the powerful engine of capitalism—an approach which is as American as baseball and apple pie.

–  Jake Simon

Source: US News