Category Archives: Macroeconomics

MEASURING WELL-BEING IN A CONTINENT OF CONTRASTS

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A few days ago, Forbes magazine released the 2014 list of World’s billionaires. Seven Latin American billionaires made the top 100, with Mexican telecom tycoon Carlos Slim, in the second spot. In total, there are almost 100 billionaires in the continent and their combined fortunes add up to US$500 billion.  But on the other hand,  Latin America is still home of 160 million of poor, equivalent to 35% of the population in the region (World Bank data), despite intense governmental efforts to reduce poverty.

Furthermore, the OECD in the report How’s life in 2013 noted that countries, such as Mexico and Chile are way below the OECD average of GDP per capita and gini coefficient. However, the report also mentions that despite economic difficulties faced by the population, Brazil, Mexico and Chile have higher spreads of life satisfaction. In fact, out of range from 1 to 10, Mexico scored 7.3, Brazil got 6.7 and Chile scored 6.5 just below the 6.6 OECD average score.

The How’s life in 2013 report shows a new approach to quantify and understand poverty. At first well-being of population was measured only on the basis of material resources reflected on the GDP per capita. In the early 1990s, the UNDP Human Development Index (HDI) incorporated health and education. Today, several countries are shifting to more comprehensive forms of measurement. This new methodology seems to take on board the approach based on capabilities (functionings) that Amartya Sen fiercely defended.

In 2008, Mexico started using this method in its poverty measurements and included six basic social rights in the Law for Social Development. Also, Colombia, El Salvador and the Brazilian state of Minas Gerais have included multidimensional approaches to measure poverty. These governments sought to a better assessment of the capabilities and potential of citizens.

But what exactly is a multidimensional approach of poverty? Poverty itself has several aspects. Poverty measurements should include elements that could cause or further increase the situation of deprivation populations. El Salvador, for instance, identified eight dimensions to be observed and addressed as part of its poverty measurements: employment, housing, education, security, recreation, health, nutrition and income. Colombia chose to evaluate social and health conditions by measuring the following five conditions: education, childhood and youth, labour, health and access to household utilities. While Mexico selected educational, access to healthcare, social security, housing quality, access to basic services and nourishment. In turn, based on these elements the Mexican government classified deprivation in three categories: 1) food insecurity (extreme poverty), 2) obstacles to development of capabilities (access to education and health) and 3) material deprivation (access to adequate housing and transport).

This trend is not unique to Latin America; Bhutan, Malaysia and some areas in China have also adopted it. The most commonly known is the Gross National Happiness Index of Bhutan that includes nine dimensions.

The importance of a multidimensional poverty approach is based in the fact that it highlights aspects that are lagging behind and that require intervention. In other words, by having measurements of different dimensions of deprivation, decision-makers are able to identify elements that need immediate attention of public policies. Policy-makers can also observe progress of social policies and can reassess the continuation or reformulation of current strategies.

While developing countries have made significant efforts to better understand and find solutions to address poverty, results are meager and governments still face enormous challenges. The multidimensional index is a photographic representation of the reality of poverty. To change the socio-economic landscape of the continent of contrasts, coordinated public and private efforts, along with civil society engagement, are in most need to eradicate poverty and reduce inequality.

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Filed under Analysis, Countries / Regions, Development, Macroeconomics, Uncategorized

LESSONS FROM MEXICAN ECONOMIC REFORMS.

John Kehoe, from the Australian Financial Review, published today an op-ed on the economic reforms undertaken by Mexican President Peña Nieto.  Kehoe highlights the political agreement reached among the three major parties (PRI, PAN, PRD) that have enable the current administration to pass the much needed reforms (previous post). Despite outstanding challenges to overcome, such as violence and corruption, Mexico earned ‘A’ grade sovereign rate from Moody’s credit rating agency as a result of such reforms.

 

Kehoe further notes Australian Treasurer Joe Hockey comments, on Mexico’s efforts to undertake domestic reforms to cope with global volatility. Last weekend in Sydney, G20 Finance Ministers and Central Bank Governors committed to promote a resilient financial system and to foster a conducive investment environment. The author concludes that Mexico, along with other developing countries, is in a much better position to fulfill the G20 commitments.

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Filed under Foreign investment, Global Governance, Macroeconomics, Mexico, News brief, Uncategorized

Peña Nieto on the front cover of TIME magazine

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Last 16 February, Mexican President Enrique Peña Nieto made the front cover of TIME magazine. This issue spark off a heated debated in social media in Mexico, criticising Michael Crowley, the author, and TIME for allegedly “selling out” themselves to the Peña Nieto government.

As Crowley rightly points out, Peña Nieto only won the presidential election with 38% of the votes and therefore it is evident that his detractors react this way. I agree that perhaps the title of the story would have been better with an interrogation mark at the end: “SAVING MEXICO?”, but I must concede that the author presents both sides of the same coin. He highlights achievements and strengths of the country, but also points out the numerous challenges that the current government still has to overcome.

At the same time, I must recognise the sharp Mexican humor to transform the cover into this one.

In any case, I strongly invite you to read the article (or Spanish version) and make your own judgement.

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Filed under Corruption, Democracy, Development, Foreign investment, Macroeconomics, Mexico, News brief, Security, Uncategorized

Aztec tiger begins to sharpen its claws

The Financial Times published an interesting article on Mexico’s economic environment. It highlights the prudent fiscal and monetary policies that the country has implemented recently, creating a sound macroeconomic environment.

Furthermore, the journalist underlines the structural reforms that President Peña Nieto was able to promote, as a result of the pact established with the main political forces of the country. Mexico is in the track of industrialisation, but still has a long way to go. Peña Nieto’s government needs to capitalize the momentum and continue further with other important reforms, such as the energy sector and tax schemes.

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Filed under Foreign investment, Macroeconomics, Mexico, News brief, Trade, Uncategorized

A change in Brazil’s economic policy consensus?

Former Brazilian finance minister Maílson de Nobréga has shared with O Estado de São Paulo the obvious, but not necessarily widely reported conclusion that there has been a substantial change in Brazil’s economic policy. The consensus economic policies in Brazil can be traced back to the Real Plan of Fernando Henrique Cardoso and focused squarely on controlling inflation. For the last eighteen years monetary policy from the Banco Central and governmental fiscal policy has been devoted to keeping inflation down at levels familiar to Australians, not the eye-watering 8,000% plus rates that were seen episodically in 1980s and early 1990s Brazil. Understandably, Brazilian policy makers have subsequently had a bit of a phobia about inflation. Dilma appears to have cracked through this fear.

The point made by Maílson is that the government is now focusing on influencing the value of the real, Brazil’s currency, and bringing down interest rates. If this means inflation might creep up a little bit, so be it. As Maílson notes, this is the first real change in Brazil’s core macroeconomic policy since 1994.

Three things are interesting about the changes brought in by Dilma.

First and perhaps foremost, the ease with which Dilma has quietly pushed this policy through points to a real change in how Brazilians and the country’s macroeconomic literati feel about their ability to control inflation. On one level this represents a healthy shift in thinking that opens up some potentially useful macroeconomic policy options. On another level there is some room for concern if the government gets too comfortable with letting inflation drift. What often gets forgotten is the serious damage that inflation does to the poor, of which Brazil still has many, who lack access to the financial instruments necessary to manage the economic stresses of rapidly rising prices. Killing inflation in Brazil has probably been at least as important as Bolsa Familia in tackling the country’s poverty rates — it allowed the bottom quintiles to  save, plan for the future, and crucially for the consumer boom, access credit.

The second interesting thing about Dilma’s policy changes is that it demonstrates a very clear recognition of just how much the over-valued real is damaging the country’s industrial base. Sure, the value of overall exports are soaring, but that has a lot to do with commodity prices. The pages of Folha, Estadão, and Valôr have been filled with stories of firms closing down in the face of cheap Chinese imports and, more recently, US markets closing in the face of a rising dollar. Dilma’s concern on this front is very real and very deep. Highly aggressive language about currency wars from her finance minister Guido Mantega was echoed by the president herself this week at the UN General Assembly opening.

The final interesting point is one that will be very welcome to Brazilian businesses struggling to find affordable credit in Brazil to finance new operations. A consistent complaint from firms has been the high domestic interest rates, which in turn helps push up the value of the real. Pushing rates down is part of a strategy of trying to stimulate the economy within the bounds of what the government is fiscally able to do — Dilma does not have as much money to play with as might appear from a survey of the country’s foreign currency reserves.

Debate in Brazil on this is vibrant is likely to heat up, which is a good thing given the very different economic scenario both in Brazil and internationally.

–Sean Burges

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Filed under Analysis, Brazil, Macroeconomics