Archive for the ‘Topics’ Category

19
Jul

By Fareed Zakaria

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Does authoritarian capitalism work? For the past few decades, the Chinese economy’s meteoric rise, faster than any large economy in human history, has dazzled the world. It has made many wonder if China’s model of a pro-growth dictatorship is the best path for developing countries. Some have questioned whether Western democracies — with their dysfunctions and paralysis — can compete with China’s long-range planning. Now, as its growth slows to almost half its pace in 2007, the Chinese system faces its most significant test. The outcome will have huge economic consequences for the world and huge political consequences for China and its ruling Communist Party.

Over three decades, China’s growth has averaged 10 percent a year. Beijing managed that because it systematically opened up its economy to trade and investment while investing massively in infrastructure to facilitate manufacturing and exports. Crucially, China had the ability not to pander to its people to gain votes or approval. Unlike most developing nations, China spends little subsidizing current consumption (fuel and food, for example). It spends its money on export-free zones, highways, rail systems and airports. It is investing in education and soon will turn to health care. No developing democracy has been able to ignore short-term political pressures and execute a disciplined growth strategy with such success.

But the model is no longer working that well. Partly, this is the product of success. China has become the world’s second-largest economy; its per capita income is that of a middle-income country. It cannot grow at the pace it did when it was much poorer.

But growth has dropped faster and deeper than many had predicted. This month, the International Monetary Fund forecast China’s annual growth around 7.75 percent for the next two years. But it could slow further because, the truth is, China’s authoritarian system has made significant mistakes in recent years. Read more…

As published in www.washingtonpost.com on July 18, 2013.

18
Jul

By Diego Sánchez de la Cruz, IE Master in International Relations Alumnus

Arg GDP_InflationFrom 1975 to 1988, average inflation in Argentina had a yearly average of more than 200 per cent. The situation worsened in the following years: by 1990, inflation even surpassed the 20.000% mark. This led to the set-up of a currency board which began a monetary experiment based on a one-to-one exchange rate between the peso and the dollar.

Known as the “convertibility plan”, the mechanism lasted one decade. Over the next ten years, such regime did succeed in defeating inflation. Prices were no longer rising like they did before, and achieved near-zero levels by 1996.

The following graph shows annual rates of GDP growth and inflation for the 1970-2000 period.Arg Ingreso per Capita

By abandoning the years of recurrent inflation problems, Argentina enjoyed a much greater level of economic stability, leaving behind the times when every “boom” period was followed by times of diminished growth and monetary instability.

The following graph shows the steady growth of income per capita between 1990 and 1998, an increase of almost 40%:

This progress was by no means guaranteed, though. According to economists Pedro Schwartz, Juan Castañeda and Francisco Cabrillo, if the “convertibility plan” was to survive, three conditions had to be met: the local currency should be fully convertible, government spending should not be monetized and central bank reserves should be able to cover the monetary base as measured by M0.

Although the first and third points were more or less followed throughout the 90s, the central bank did end up printing money to bail out national and provincial government debts. Argentinian politicians should have been tied by a budget stability law when the “convertibility plan” first began. Failure to do so obviously ended up in a catastrophic scenario:  the public sector’s unfunded liabilities went from 2% in 1995 to more than 6% in 1998.

The second part of this article will be published next week.

Diego Sánchez de la Cruz is an analyst at Libertad Digital. His work on international economics has been published in different media outlets.

17
Jul

Mr. Joaquin Almunia, Vice President of the Eurpean Comission and European Comissioner for Competition, is interviewed by Dr. Arantza de Areilza, Dean of IE School of International Relations, on EU’s financial policy, as well as on EU and US negotiations on trade and investment agreement.

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16
Jul

By Joseph S. Nye

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When US President Barack Obama and Chinese President Xi Jinping met for their “shirt-sleeves summit” in California last month, North Korea was a major topic of conversation. The subject was not new, but the tone was.

More than two decades ago, the International Atomic Energy Agency caught North Korea violating its safeguards agreement and reprocessing plutonium. After the North renounced the subsequent Agreed Framework, negotiated by President Bill Clinton’s administration, in 2003, it expelled IAEA inspectors, withdrew from the Nuclear Non-Proliferation Treaty, and has since detonated three nuclear devices and conducted a variety of missile tests.

During those two decades, American and Chinese officials frequently discussed North Korea’s behavior, both privately and in public meetings. The Chinese consistently said that they did not want North Korea to develop nuclear weapons, but claimed that they had limited influence over the regime, despite being its major supplier of food and fuel. The result was a somewhat scripted exchange in which China and the US would accomplish little more than professing denuclearization as a shared goal.

China was sincere in expressing its desire for a non-nuclear Korean Peninsula, but the nuclear issue was not its primary concern. It also sought to prevent the collapse of the North Korean regime and the resulting potential for chaos on its border – not only flows of refugees, but also the possibility that South Korean or US troops could move into the North.

Torn between its two objectives, China placed a higher priority on preserving the Kim family dynasty. That choice gave rise to a seeming paradox: North Korea gained surprisingly powerful influence over China.

North Korea has what I call “the power of weakness.” In certain bargaining situations, weakness and the threat of collapse can be a source of power. To take a well-known example, if you owe a bank $1,000, the bank has power over you; but if you owe the bank $1 billion, you may have considerable bargaining power over the bank. China is, in this sense, North Korea’s over-exposed banker.

As a result, China has tried to persuade North Korea to follow its market-oriented example. But, with the Kim regime terrified that economic liberalization would eventually provoke demands for greater political freedom, China’s influence over the regime is limited. As a Chinese official once told me in an unguarded moment, “North Korea has hijacked our foreign policy.” Read more…

Joseph S. Nye, a former US assistant secretary of defense and chairman of the US National Intelligence Council, is University Professor at Harvard University.

As published in www.project-syndicate.org on July 11, 2013.

15
Jul

Conflicting Interests

by George Packer

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American foreign aid has always been an awkward exercise in high-minded self-interest—humanitarian goals balanced uneasily with strategic calculations. Whenever these two come into conflict, Presidents inevitably find a way out of their loftier commitments. In 1947, when Secretary of State George C. Marshall proposed a huge reconstruction package for postwar Europe, initiating the modern era of foreign assistance, he told his audience at Harvard’s commencement, “Our policy is not directed against any country or doctrine, but against hunger, poverty, desperation, and chaos.” But, when the Marshall Plan was enacted, the Times headline was forthright about its anti-Soviet purpose: “AID BILL IS SIGNED BY TRUMAN AS REPLY TO FOES OF LIBERTY.” The Foreign Assistance Act of 1961, which President Kennedy signed at the height of the Cold War, created the Agency for International Development and placed restrictions on foreign military funding. In 1974, Congress amended the act, and required the United States to reduce or end military aid to regimes with poor human-rights records, “except in extraordinary circumstances.”

In the interests of national security, such provisions have been flouted by Presidents ever since their enactment. After a military coup overthrew an elected government in Chile in 1973, with the connivance of the C.I.A., President Nixon continued assistance to the Pinochet regime. Even Jimmy Carter, who tried to put human rights at the heart of his foreign policy, granted himself “extraordinary circumstances” waivers so that aid could continue flowing to sordid but strategically important regimes in Iran, Zaire, and other countries. In 1986, Congress imposed a painful contortion on future Presidents with an appropriations bill that stated unequivocally that none of the funds appropriated or otherwise made available pursuant to this Act shall be obligated or expended to finance directly any assistance to any country whose duly elected head of government is deposed by military coup or decree.” But after 9/11 President Bush found a way to resume assistance to Pakistan, even though its President, Pervez Musharraf, had taken power by overthrowing an elected government. And, when Egypt’s Hosni Mubarak cracked down on pro-democracy activists in 2006, the Bush “freedom agenda” was quietly revised to keep the pipeline of aid open to a key Middle Eastern ally. Read more…

As published in www.newyorker.com on July 22, 2013.

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