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erasing tax havens
Currently, about 50 percent of countries have poverty rates that are lower than 3 percent. Despite the declining rate of global poverty, poverty rates in poor countries remain high. The existing global system allows for both wealthy companies and individuals to benefit within the global economy through tax avoidance with the use of tax havens, but erasing tax havens and having corporations pay more legitimate and realistic taxes could eliminate global poverty and inequality.

What are Tax Havens?

Tax havens are countries or territories where corporate houses register and operate. According to tax laws, these corporate houses do not have to pay taxes on the profits they make in the area where they operate. The corporate houses do not pay taxes based on the overall group economic performance of the companies but rather based on individual entity. The multinational companies also have an element of secrecy in that tax havens share limited to no information regarding finances with foreign tax authorities.

Effects of Tax Havens

The use of tax havens is not just unique to multinational companies; some wealthy individuals utilize the system as well. The mass amounts of unpaid taxes are denying the world’s poorest governments billions of dollars. In February 2015, a few rich individuals with ties to Kenya were storing more than $560 million in bank accounts in Switzerland. The hidden wealth in tax havens could salvage the lives of four million children and 200,000 mothers in African countries. The gap between the wealthy and the poor in the world grows wider every year, and tax havens primarily fuel it. This is considering that $7.6 trillion of personal wealth hides in offshore accounts that tax havens run. This negatively impacts the fight to eliminate global poverty.

In the 1990s, 5 to 10 percent of global profits from multinational companies shifted, meaning that the jurisdictions where the economic activity took place proclaimed the profits for tax purposes. By the early 2010s, 25 to 30 percent of multinational companies’ global profits shifted. According to the International Monetary Fund, the active practice of corporate tax avoidance around the world has put the global revenue losses between $200 billion and $600 billion and lower-income countries make up around $200 billion of the global revenue loss. There are approximately 650 million poor people globally who live beneath the international poverty line of $1.90 per day. If a new country emerged with a Gross Domestic Product of the $200 billion revenue from low-income countries due to tax havens, the country could eliminate global poverty just by giving $2 every day to those 650 million people.

The Unitary Tax Approach

One way multinational companies are trying to curb tax avoidance is through the apportionment reform programs or the unitary tax approach. Through the unitary tax approach, global governments would assess tax havens’ profits as a group rather than as individual entities. This method would apportion the profits that the tax havens make as a group to each of the countries where the companies operate based on how much economic activity took place in the respective countries.

In using the unitary tax approach, multinational companies would receive taxes where employees do the actual work rather than where the ledgers hide. Due to the fact that the economic activity that the tax havens are carrying out in countries would be more authentic, a greater deal of the global shares of the corporation’s profits would distribute to the countries, and then each country would have more reign to exercise their taxing rights and tax its shares of global profits at a more reasonable rate. A global shift to the unitary tax shift approach overall would benefit not just the U.S., but also low-income countries in the fight to eliminate global poverty.

Erasing tax havens is necessary as they are detrimental to the global system in that they rob governments of the opportunity to eliminate global poverty and socioeconomic inequality by depriving governments of needed public service resources such as health and education. Erasing tax havens is vital to eliminating global poverty, and global tax laws need to modify to benefit many, not just a few.

– Cydni Payton
Photo: Flickr

Agriculture in North Korea
A massive famine struck North Korea in the 1990s with a death toll of more than one million. While grain production has nearly doubled since the famine, many agricultural scientists and international humanitarian aid liaisons believe it is not enough to sustain the nation. According to the World Health Organization, two out of every five North Koreans were undernourished in 2017 and 28 percent of North Korean children are stunted in growth due to a “largely irreversible outcome of inadequate nutrition and repeated bouts of infection during the first 1,000 days of their life.”

After Kim Jong Un took power in 2011, the government is more willing to admit its administrative shortcomings in perpetuating food insecurity across the country. In 2018, Former Premier Pak Pong Ju, a member of the ruling Korean Worker’s Party and longtime member of the political elite hierarchy, admitted an agricultural crisis had formed a chokehold on the North Korean economy. In a report, he mentioned that “Some have failed to conduct seed production and management in a responsible way and also fell short of doing proper strain distribution in line with climatic conditions and characteristics of fields.” With lower food production, many locals are going hungry and the poorest are affected the most.

North Korea has many tactics underway in order to improve agricultural conditions in their nation. Here are three strategies for improving agriculture in North Korea.

  1. A 5-Year Strategy – North Korea’s 5-year strategy for improving agricultural development is already underway. The plan includes increasing fruit, vegetable and mushroom cultivation along with improving domestic animal breeds. Furthermore, North Korea plans to upgrade fishing boats and farm equipment in order to use modern scientific methods. As 2018 came to an end, North Korea has already improved plant species with high-yield, created agricultural machinery and scientific farming, increased greenhouse farming production and increased livestock and development of fish aquaculture. They are also in the second stage of constructing the South Hwanghae Province waterway.
  2. Juche Farming Method –  The Juche Farming Method uses the nation’s government style ideals to give farmers a plot of land and a house to live in on collective farms in exchange for the food they produce. Additionally, in just six months after the method was implemented, 650 greenhouses were built across the country allowing for four to five harvests a year. Without greenhouses, locals say the soil is too salty and not sufficient enough for growing crops. Salt increases the acidity in plants which results in poor harvests.
  3. International Aid – International Aid can improve agricultural development in North Korea significantly. The American Friends Service Committee’s Publication and Advocacy Coordinator, Daniel Jasper, says his organization is working on multiple techniques to improve North Korea’s agriculture. For example, one of the organization’s projects is rice cultivation and the introduction of plastic trays. The project has been very successful, raising yields 15 to 20 percent in some farms. North Korea is also interested in joining institutions such as the International Monetary Fund (IMF) and the World Trade Organization (WTO). These institutions would allow North Korea to gain additional international aid.

Agriculture in North Korea has greatly improved since the famine in the 1990s, but the nation’s mountainous geography still makes farming difficult. With 11 million North Koreans malnourished, it is vital that the nation continues to correct the problems within its agricultural industry.

– Maura Byrne

Photo: Unsplash

Diamonds in Botswana

Botswana, located in southern Africa, has a population of 2 million. The country has achieved an impressive record of economic development and poverty reduction over the last half-century. In 1950, Botswana’s GDP per capita was $1,344. Today, it is $15,015, making Botswana a middle-income country. As the second-largest exporter of diamonds, the prudent economic management of diamonds in Botswana is responsible for much of this growth.

The Resource Curse

Paradoxically, many countries that discover large domestic reserves of natural commodities like petroleum, gold or rare-earth metals experience economic stagnation or decline. A recent paper by the International Monetary Fund explains that this trend often occurs because of commodity-dependence. When a country is heavily dependent on just one commodity export and the price of that commodity declines, there is no other revenue stream to salvage the economy. However, Botswana is a standing reproach to this trend. Judicious fiscal policy has allowed Botswana to reap the rewards of their vast diamond reserves while avoiding many potential setbacks.

Botswana’s Fiscal Prudence

Due to its capital intensive nature, the employment potential of mining is Botswana has always been limited. While diamonds make up 40 percent of Botswana’s GDP and 90 percent of Botswana’s exports, diamonds in Botswana only account for four percent of employment. As a result, the government has had to find ways to distribute the wealth generated from diamond exports across the country’s population.

Botswana has been lauded for the effective management of its diamond supply. In particular, the country has employed two strategies to ensure that its diamond exports promote sustainable, egalitarian economic growth: decoupling expenditure and revenue and investing in economic diversification.

First, Botswana has chosen not to automatically increase government spending during economic booms. Instead, when diamond prices rise and government revenue increases, Botswana often saves cash to cushion the blow during price shocks. This long-term economic mindset has prevented recessions. For example, the World Bank writes that when diamond revenues fell in 1981, Botswana used a rainy day fund to avoid any drastic decrease in government expenditure.

Botswana uses six-year National Development Plans to outline their expenditure levels. These plans involve feasibility checks to make sure that investment projects are sustainable even if government revenue falls. Once the National Development Plan has been approved, no additional projects can be added without a majority vote from parliament. These mechanisms work toward assuring that Botswana has enough reserve cash if its diamond reserves falter.

Economic Diversification

The second strategy Botswana uses to grow its economy is diversification into sectors other than diamond mining. A variegated economy is less vulnerable to commodity price shocks. Botswana has invested much of its earnings from diamond exports into incentive structures that encourage manufacturing and agriculture. In 2005, Botswana created the Business and Economic Advisory Council (BEAC) tasked with identifying barriers to diversification and crafting responsive action plans. As a result of this focus, the Botswanan economy has continued to grow even when global diamond prices fall. What is more, manufacturing today comprises 14 percent of Botswanan GDP and is more diversified than it was at independence. Even though Botswana has relied on diamonds for the last few decades, manufacturing growth in Botswana outpaced the sub-Saharan African average from 1970 to 1996.

Botswana’s Progress

Good governance has propelled Botswana from a low-income to a middle-income country. In 1985, 59 percent of the population was living in poverty. Today, that percentage has dropped to 19 percent. In 1966, 60 percent of Botswana’s government expenditure came from foreign aid. Today, only three percent of expenditure comes from foreign aid. As Botswana continues to aim for economic diversification and prudent fiscal management, they stand as an impressive example of the impact that judicious economic policy can have on a vulnerable population.

– Abraham Rohrig
Photo: Flickr

Hyperinflation

When it comes to global poverty, an important factor of a country’s economy is its inflation rate. Inflation occurs when the value of a nation’s currency decreases, but the prices for goods increase. Inflation affects many facets of everyday life, such as nationwide poverty rates, food and medical supplies.

Hyperinflation occurs when inflation rates rise quickly and uncontrollably. Hyperinflation is reached when an economy’s inflation rate is at least fifty percent for a thirty day period. However, high inflation rates consistent over a prolonged period of time also qualify as hyperinflation.  Here are three countries in hyperinflation today.

Venezuela

In the 1970s world energy crisis, Venezuela was a highly profitable oil producer. After oil prices dropped once the energy crisis ended in the 1980s, Venezuela’s chief export greatly declined in revenue and its economy began to suffer. Despite the decline in exports, Venezuela still needed to spend large sums of funding on the importation of basic goods for its people. This led to inflation, as the country dug itself into deficit spending. To pay for imported goods, Venezuelan banks then printed out paper notes not backed by actual wealth.

Now, inflation in Venezuela has reached monumental levels of devastation. Venezuela has been in hyperinflation since November 2016, when the inflation rate exceeded 50 percent. The International Monetary Fund estimates that inflation in Venezuela will exceed ten million percent by the end of 2019.

Because of this economic crisis, poverty is widespread. In 2017, the poverty rate across Venezuelan households reached 87 percent. On top of widespread poverty, food and medical supply shortages are rampant across Venezuela. The health of its people has deteriorated as weight loss and the spread of disease inflict the nation.

Currently, the Venezuelan government rejects the International Monetary Fund’s option to default on its debt. Venezuelan U.N. representatives have commented that in order for the nation to progress, it needs internal structural changes, not foreign aid.

South Sudan

South Sudan’s economy is also almost entirely oil-based. Of the countries in hyperinflation, South Sudan is the newest, gaining independence from British rule in 2011. However, South Sudan was quickly caught in a civil war from 2013 to 2018, soon after its founding. Damage to oil fields and other resources due to warfare severely affected the revenue of South Sudan’s exports. Inflation began as the struggle for resources and funding inflicted this budding nation.

South Sudan’s current economic crisis has caused mass poverty and food insecurity for its civilians. According to recent reports from the U.N., 43 percent of South Sudanese households are food insecure. At its peak, inflated food prices reached about 513 percent in December 2016. By the end of December 2018, the inflation on food prices dropped to 51 percent but is still hyperinflammatory by definition.

Unfortunately, South Sudan is currently not focusing on any poverty-reduction programs. According to the World Bank Organization, South Sudan’s overall inflation rate was an estimated 130.9 percent by the end of 2018; by the end of 2019, it is expected to drop to 49.3 percent, just under the hyperinflation threshold. However, given the financial instability of the nation, South Sudan will remain under close observation of the International Monetary Fund and similar entities for the foreseeable future.

Zimbabwe

Zimbabwe’s economy thrived in the 1980s and early 1990s, after declaring its independence from British control and creating its own domestic dollar currency in celebration. In the 1990s, however, Zimbabwe’s agricultural-based economy took a major hit after a series of crop failures. Compounded by the high costs of imports and funding for the war, Zimbabwe’s economy began to falter. In a panic to pay for goods, Zimbabwean banks rushed to print excess bills, leading the nation into hyperinflation.

Zimbabwe’s economy reached hyperinflation in March 2007, just passing the 50 percent threshold. For the next year, the nation’s inflation was a tumultuous series of highs and lows, eventually reaching a staggering 79.6 billion percent in November 2008. Eventually, Zimbabwe was forced to abandon its domestic currency, as its own population boycotted using the drastically inflated Zimbabwean dollar.

Despite the nation’s inflation rate lowering back down to 59.4 percent as of February 2019, Zimbabwe is still struggling to limit its cost of imports and boost its revenue from exports.

Potential Solutions

While there are numerous potential ways to address hyperinflation, a common solution for this phenomenon is dollarization — the abandonment of a failing domestic currency in favor of a stable foreign currency. A notable success story of dollarization is Montenegro, where the considerably weak Yugoslavic dinar was replaced with the euro, a more stable currency used widespread across the European Union. Before total dollarization, the inflation in Montenegro peaked at 26.5 percent in 2001. After adopting the euro, the country’s inflation is under one percent, as of 2019.

Of the three countries in hyperinflation today, Zimbabwe did utilize this method of dollarization; however, as of 2019, it abandoned dollarization, triggering the start of nationwide economic problems yet again. Overall, for these three countries in hyperinflation today, maintaining dollarization may be their best chance in regaining economic stability.

– Suzette Shultz
Photo: Wikimedia

Top 10 Facts About Living Conditions in Kosovo
Kosovo is a small, partially recognized country located in Balkan that has existed since its separation from Serbia in 2008. Despite being a young and still developing nation, it is rich in culture from its diverse populace. In the text below, top 10 facts about living conditions in Kosovo are presented.

Top 10 Facts About Living Conditions in Kosovo

  1. Kosovo’s citizens are the second poorest in Europe. The country suffers an unemployment rate of 33 percent and youth unemployment near 60 percent.
  2. Around 45 percent of Kosovo’s population live below the poverty line, with 15 percent living in extreme poverty. Most of the population lives in rural areas, living on small plots with limited industrial tools. This leads to much of the country’s citizens being forced to live on near-subsistence farming.
  3. The country does not have enough doctors. Kosovo started new health care reform in 2010. These include universal, the state ran health insurance with a network of family health centers. The latest reports found 2,664 doctors in the program with an additional 1,457 doctors in the private sector. This totals 2.2 medical doctors per 1,000 citizens, far below the European average of 3.4.
  4. Personal hygiene is a huge problem in the country. Massive inequalities exist in the lower economic classes of the country in access to hygiene and sanitation. Lack of electricity exists for only 0.1 percent of university-educated people and 10 percent of people without an education. Meanwhile, lack of personal bathrooms are reported in large numbers and are usually divided by ethnic lines (0.3 percent of Albanian households compared to 20.2 percent of Roma, Ashkali and Egyptian ethnicity households).
  5. Ethnic minorities face many legal barriers that compound their hardships. Minorities such as Roma, Ashkali and Balkan Egyptians suffer problems in obtaining personal documents needed to access health care, social assistance and education. This hinders these citizens from obtaining many of the programs designed to help low-income citizens, further trapping them in the vicious cycle of poverty.
  6. Many women face domestic violence as around 68 percent of women in Kosovo report having experienced domestic violence. This is due to a few and inadequate police and prosecutors responses. The government, however, has created a new National Strategy and Action Plan against Domestic Violence to fight against these crimes.
  7. People with diseases and injuries are at greater risk for inadequate homes, water and income. Inadequate housing is reported by 11.6 percent of those with diseases or injuries and inadequate water by 7.4 percent. Even more citizens in this situation, however, face problems with affordable conditions: 26.6 percent of citizens with health-related outcomes report inadequate affordability conditions.
  8. Kosovo’s courts are packed and overloaded. The latest reports from the International Monetary Fund showed the courts had 264,193 pending cases and a backlog of inventories ranging from 25.7 to 71.7 percent in different cases. They have 29 percent of their judicial positions filled and only five specialized judges in the lower court and only one in the appellate court. These statistics show a slow and inefficient court, hindering the legal action of citizens in the country.
  9. Kosovo is a fairly safe country. Kosovo has a crime index of 33.37. The same index is 37.27 in Serbia, 39.29 in Macedonia, 40.3 in Albania and 40.48 in Montenegro, all neighboring countries of Kosovo. In 2017, 72 citizens have been convicted of murder related crimes and 218 were convicted of robbery-related crimes in a country of 1.8 million people.
  10. There is not enough housing in the country as 21.5 percent of households report having two or more people per room in the house, and 28.7 percent have between 1.5 and 2 people per room. The United Nations had long been at work to address this problem, specifically in Prishtina. The project started in 2015 and in on-going.

These top 10 facts about living conditions in Kosovo are meant to highlight the problems that urgently need to be addressed in the country. Despite the problems presented in the text above and other problems facing the country, many laws and initiatives are in the works to alleviate citizens’ poor situation. Both international and local programs are currently working to improve conditions in the country, so far successfully. This, combined with a seemingly stable economy, provides a hopeful future for the citizens of Kosovo.

– Zachary Sparks
Photo: Flickr

Universal Basic Income in India
Universal Basic Income (UBI) is a periodic cash payment unconditionally delivered to all on an individual basis, without means test or work requirement. This practically means that everyone gets the same amount of cash, regardless of their social or economic status. 

Universal Basic Income in India might soon become a reality. If India implements this program, it would be the first state-administered basic income program in the developing world. In a country with over a billion people, it would be a large-scale endeavor, but one that could improve the existing welfare system.

Pros and Cons for Universal Basic Income in India

In January 2018, Chief Economic Advisor of India Arvind Subramanian said in an interview with the India Times that he sees one or two states implementing Universal Basic Income in the next one to two years. UBI will allow the population to receive compensation to fulfill their basic needs and Subramanian argues that it will be an improvement over the current anti-poverty schemes in that are in place because the program would be easier to administer.

Supporters of this program also claim that a UBI would be an improvement over anti-poverty interventions and inefficient subsidies that have seemingly been largely consumed by the affluent and damage the country’s overall financial stability. Opponents of a UBI program claim that incentivize work, and that the government should focus more on funneling funds into education and health care.

Subramanian is not the only supporter of UBI, as the International Monetary Fund (IMF) also believes this program could be successful. The IMF estimates that the government could provide $35 a year to every citizen if the country eliminates food and energy subsidies.

Consequences of Universal Basic Income

Implementing a UBI and getting rid of energy subsidies would result in a sharp increase in energy prices. It is estimated that if the government implemented such a program, the cost of gasoline would increase by 67 percent, the price of diesel would increase by 69 percent, kerosene by 10 percent and coal by 455 percent.

India has been in a state of premature deindustrialization in recent years, meaning that the country is either partially industrializing or not industrializing at all. This is due to structural transformations due to changes in technology, making it hard for developing countries to become manufacturing powerhouses.

United Progressive Alliance Reform

India has already had progress in cash transfer programs, as in 2012, the United Progressive Alliance (a coalition of political parties) began reforming the government’s subsidy structure by making payments directly into beneficiaries’ bank accounts. This program was instilled to cut down the corruption, reduce leakages, eliminate middlemen, better target beneficiaries and speed up the transfer of benefits to eligible recipients. This program has been deemed overall as successful, but it remains a small part of India’s welfare infrastructure.

Since no country has implemented a long-term national UBI, India does not have a practical framework to make a comparison of whether the program will be beneficial for the country or not. So far, there are only theoretical ideas of this program. Developing a UBI program requires a high initial investment and may also require the country to scrap existing welfare programs. Countries implementing UBI pilots such as Finland will give India more data to draw comparisons with.

Universal Basic Income in India is a program that is gaining traction in the country. This can be attributed to complaints with the existing welfare programs, as well as the fact that the program is being supported by the Chief Economic Advisor of India and IMF.

Since there are no real-life examples of this program, one can only hope that its implementation would be beneficial for India and the country’s goal of eradicating poverty.

– Casey Geier
Photo: Flick

How the Media Misrepresents Argentina
Most of the media coverage surrounding Argentina has dealt with the country’s economic struggles, its crime rate, and, following the recent World Cup, its soccer team. The misrepresentation of Argentina by the media is evident due to the fact that negative coverage far outweighs the positive, giving the public a one-dimensional perception of this South American country.

More than a Soccer Nation

Beyond the financial crisis, much of the recent media coverage regarding Argentina has centered around the country’s World Cup run. Soccer is an immense source of national pride and a beacon of hope for many Argentinian fans, particularly during hard economic times. But soccer, while deeply engrained within the national fabric and heavily covered by the media, represents just one aspect of the diverse nation.

Portraying Economic Crisis in the Country

Argentina’s economy has far from met the expectations associated with market-friendly President Mauricio Macri. The value of the Argentine peso plummeted in April, resulting in a $50 billion loan from the International Monetary Fund. This, coupled with high inflation, has brought persistent economic hardship to the country and poses a serious threat to Macri’s “zero poverty” campaign promise.

Much of the media coverage surrounding Argentina has focused heavily on the economic crisis and the crime associated with it. While the crisis is prevalent and a resolution is much needed, the rampant and disproportionate coverage of the crisis goes to show just how the media misrepresents Argentina. In doing so, the media taint the perception of the country and fails to portray the true image of Argentina, one of an improving economic and social condition.

Economic and Social Progress

In 2017, poverty in Argentina decreased by 4.6 percent and is currently at 25.7 percent, according to official estimates. Prior to the Macri presidency, transparency about Argentina’s poverty was scarce. The publishing of official statistics only began in 2016, after being halted by the former populist government in 2013. Macri has not only strived for zero poverty, but he has established the proper balances to hold his administration accountable, something that was not the case for Argentina’s recent past.

Macri has faced the delicate task of reducing Argentina’s poverty rate while also working to alleviate a large budget deficit incurred by prior administrations. Macri’s administration has focused on reducing this deficit with the help of the International Monetary Fund and the implementation of public-private partnerships. With private companies financing long-term infrastructure contracts, Argentina expects to attract $26.5 billion in investment by 2022, reducing pressure on the budget but also contributing to the fall in poverty through the creation of thousands of steady jobs.

The citizens of Argentina have also exhibited a strong commitment to social progress, pushing landmark legislation to the floor of Congress, the Senate and the offices of President Macri. However, media coverage of these events is brief if existing at all, failing to show a highly positive dimension of Argentina.

Justina’s Law

News that the Chamber of Deputies (lower house of National Congress) passed a grassroots piece of legislation that makes 44 million citizens organ donors was seldom reported. The official increase in donors will depend on how many citizens choose to opt out, but this legislation will undoubtedly ensure the survival of thousands of patients that are in need of organ transplantation. With the approval of this law, also called the Justina’s Law, Argentina would join the ranks of France and Netherlands in this landmark legislation.

While it is typical to hear for the negative aspects of Argentina’s economy and crime, the work being done to solve these issues or the positive impacts that the Argentine people themselves are having on their country is rarely discussed.

Though it may seem that the misrepresentation of Argentina in the media has little effect on the country’s economic and social outlook, this is far from the truth. Macri’s plan for foreign investment depends heavily on the perception of Argentina as a viable place for growth. The current administration’s commitment to accountability and poverty reduction, as well as social progress, show the world that the country is trending in the right direction.

– Julius Long

Photo: Flickr

Combatting the Currency Crisis in Argentina
Argentina has experienced quite a few economic struggles in the past decade. The country now faces its fifth recession in the past ten years and its currency, the Argentine peso, has lost a third of its value. Now the lowest performing currency in the world, the currency crisis in Argentina imposes the new challenge to revamp its peso and bypass the friction of its economy.

Who Is Affected?

Virtually everyone in Argentina is affected by this crisis. Business owners who expected to succeed in their business endeavors, due to the nature of Argentine markets and demand, are evidently experiencing a consumer drought.

Moreover, current negotiation details between the International Monetary Fund (IMF) and Argentina’s government have consequences for the public. Infrastructure projects will be postponed, subsidies cut, transfers to the provinces reduced and the federal payroll shrunk. Social unrest has followed already as the General Confederation of Labour, the greatest trade-union group in Argentina, protested against the government’s economic policies on June of 2018.

How Did the Crisis Commence?

Wolf Richter, a writer who featured on Business Insider, described the origin of the currency crisis in a simple yet concise fashion. Lending money to Argentina’s government is a tricky venture since lending to the government in its own currency devastates their peso and lending in a foreign currency leads to defaulting of the loan.

The currency crisis in Argentina started from reasons outside of the country’s control as well as the institutional reactions to them. Argentina underwent the greatest drought in 50 years at the beginning of this year, specifically affecting the harvesting of two export crops: maize and soybeans. A stronger U.S. dollar and Treasury yields led to the risk aversion of international investors, leaving riskier assets. Thereafter, Argentina’s peso, alongside Mexico’s peso, Brazil’s real, Turkey’s lira and Russia’s ruble, struggled.

Following these uncontrollable forces, the Central Bank of Argentina raised interest rates to a staggering 40 percent in the hope of helping the Argentine peso. The endeavor did not work as planned. Argentina’s president Mauricio Macri and his administration took a $50 billion loan from the IMF. President Macri collaborated with senators, governors and other leaders in order to get the country on board with the plan. Nevertheless, the public is skeptical because of Argentina’s past experiences with the IMF, such as the 1990s Convertibility Plan that fell through and spiraled into one of the greatest economic crises for Argentina.

Possible Solutions

Solutions to this problem that directly involves Argentina and international organizations, proposed by different institutions, are as follows:

  1. Make the IMF more sensitive to political realities
  2. Selectively slash government spending
  3. Avoid overvaluation of the currency
  4. Address fiscal problems in a timely manner
  5. Devaluate the Argentine peso
  6. Revise fiscal and economic policies that tend to disrupt the peso

The currency crisis in Argentina is undergoing a tug and pull from differing sides. The public keeps a retrospective mindset as they remember the past events of the 1990s and early 2000s. On the other hand, President Macri holds onto a prospective plan, trying to help Argentina climb out on top and even willing to take a $50 billion loan from the IMF. There are a number of solutions that have been drawn out. Although Argentina struggles to find a national consensus, the gears are in motion to eradicate this crisis and past mistakes are increasingly considered as citizens politically mobilize.

Roberto Carlos Ventura
Photo: Flickr

Economic Growth in Nicaragua Has Helped Reduce PovertyThe amount of economic growth in Nicaragua is an unusual and unprecedented phenomenon in the Central American peninsula. The International Monetary Fund (IMF) even decided to close its offices in the country in 2016 as it considered the issue well resolved. IMF first opened an office in Nicaragua in 1995 with the goal of economically stabilizing the country, which had been afflicted by years and years of high debt accumulation and revolutionary wars.

“Notwithstanding challenging external conditions, economic activity remains buoyant,said Gerardo Peraza, head of the study that IMF led in 2016. The study also revealed how economic growth was projected at 4.7 percent that year. The main factors that contributed to such economic growth in Nicaragua were, according to the study, steady agricultural and commercial activity and an inflation rate that is projected to accommodate under four percent.

Where Did the Economic Growth Originate?

Experts argue that such improvements in economic growth in Nicaragua are largely attributable to the re-election of President Daniel Ortega. Many argue that his political identity and approach to crucial matters such as macroeconomy and anti-poverty measures have significantly shifted toward a more pro-business attitude.

Moreover, experts say that thanks to Ortega’s social programs, poverty fell by 30 percent between 2005 and 2014. Moreover, in 2011, Nicaragua was taken out of a debt relief program enacted by IMF in 2005, called Heavily Indebted Poor Countries Initiative.

The Benefits of Economic Growth in Nicaragua

A study issued by the World Bank has also found that in 2011, economic growth hit 5.1 percent, slowing to 4.7 and 4.5 in 2016 and 2017, respectively. For 2018, predictions see the Nicaraguan economy growing at 4.4 percent, making it the second largest among Central American countries in terms of growth. The country’s overall stability led decision makers to focus on long-term improvement and growth rather than just damage control, with the war on poverty the highest objective, particularly in rural areas.

Such economic improvement also restored the international community’s trust in Nicaragua. It is thanks to this renewed trust that, for instance, the USDA awarded a McGovern-Dole Food for Education grant to the organization Food For The Poor in Nicaragua. The grant was distributed as a three-year program, from the fall of 2011 to the fall of 2014.

During this period, more than 4,500 metric tons of food were delivered to the poorest communities of the Central American country. The majority of the recipients were children. Students of  774 schools, located primarily in Managua, Nueva Segovia and Madriz, greatly benefitted from the program.

Looking Toward the Future

The mission, however, is far from being fully accomplished. A statement issued by the U.S. Department of State reveals that Nicaragua still has the lowest level of GDP per capita in Central America and, most importantly, 40 percent of the population still lives in poverty. The situation gets even worse in rural areas, where the rate of poverty reaches nearly 60 percent.

The hope is that the path of economic growth and fiscal responsibility, paired with social programs and foreign aid initiatives, will keep Nicaragua on a path of prosperity and heavily reduced poverty.

– Luca Di Fabio

Photo: Flickr


Costa Rica sits just above Panama in Central America, and foreign aid has benefited the nation so well that could be considered the overall standard for the effectiveness of foreign aid. This claim comes with a disclaimer and compliment to Costa Rica: Costa Rica is unique in that the will and dedication of the people caused Costa Rica to hold onto a tradition of democracy and relatively stable governments. This type of behavior and system is not always the case when it comes to the regions that receive foreign aid.

A stable government can help increase the effectiveness of foreign aid. Even after a substantial economic downturn during the 1980s and defaulting on is loans from the International Monetary Fund (IMF), Costa Rica was able to economically recover with guidance from the IMF — a success  often considered controversial.

United States’ Withdrawal from Costa Rican Aid

By 1996, the United States’ International Development Fund closed its mission in Costa Rica. In the last ten years, the United States government has allocated less than $50 million in foreign aid to Costa Rica.

During the years that IMF imposed economic planning, Costa Rica was able to begin to diversify its economy. Before the 2008 economic crisis, large tech firms shifted the manufacturing of microprocessors and other hardware to Costa Rica.

The investment from international business before 2008 helped shift Costa Rica away from its agrarian-based economy. Currently, only 5.5 percent of Costa Rica’s 58.91 billion GDP is attributed to agriculture, 21 percent of the GDP comes from industry and 73.5 percent is from the service and tourism industry. It can be seen that foreign aid has benefited Costa Rica due to the nation’s survival of the 2008 economic crisis.

Diverse Economy and Loan Qualification

Due to its new, more stable and diverse economy, Costa Rica was able to qualify for loans from the IMF and other international banking organizations. Although it weathered the storm, Costa Rica is still paying the price — its credit rating was downgraded in 2017.

In March of 2018, the United Nations and Costa Rica agreed to United Nations Development Assistance Framework from 2018-2022 to help both the private and public sectors of the nation. The plan seems to target sectors and institutions hit hardest by increased public and government debt post-2008.

Due to Costa Rica’s reliance on foreign direct investment, a downgraded credit score has the potential for a loss in those investments, making aid more risky for investors. Poverty still remains between 20-25 percent in Costa Rica, so stabilizing its economy and increasing FDI is extremely important for the nation as a whole.

To Remain Steadfast While Promoting Growth

While the economic story of Costa Rica seems akin to a roller coaster, it will hopefully stabilize again with the help of the United Nations. Foreign aid has benefited Costa Rica in other ways as well. Due to the relatively stable economy, Costa Rica spends 7 percent of its GDP on the education system, a decision that has caused the youth literacy rate (ages 15-24) to increase to 99 percent.

The country also boasts a nearly 100 percent primary school graduation rate, and a low teacher-to-student ratio of 1 to 13 in primary school and 1 to 14 in secondary school. The United States Peace Corps has maintained a presence in the education system of Costa Rica since 1963.

How Foreign Aid Has Benefited Costa Rica

Foreign aid has benefited Costa Rica immensely in the 20th and 21st Centuries. Due to the wise use of aid, Costa Rica was able to remain firm and grow, albeit slowly, though the 2008 economic crisis which made every country in the world stumble.

As the country steadies itself with only slight economic assistance in the coming years, it will hopefully regain its secure footing. And this is the aim of most foreign aid — to help a nation prosper so that it can one day stand on its own.

– Nick DeMarco

Photo: U.S. Air Force