Author Archives: P O Neill

About P O Neill

is Irish and lives in America.

Is something stirring in Belarus?

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It’s probably getting lost with so much other news but it’s been an interesting few weeks for Belarus.  For a country that always seemed just a WMD allegation from being another axis of evil country under George Bush, perhaps the experience of more constructive interrnational relations is a bit disorienting.  Yet here we have the IMF actually praising the country’s economic management and specifically its move to a more flexible exchange rate regime (hint hint Baltics?), a friendly reception for an EU delegation, and growing signs that Belarus is moving to a more contentious Ukraine style relationship with Russia, at least as far as Gazprom is concerned.  Although the Belarus row with Russia over gas can be settled for a lot less cash than Ukraine will need to do the same.   Now of course it could just be President Alexander Lukashenko’s realisation that the strategy of being a Moscow-allied strongman has run out of steam.  But for a country that even a year ago looked stuck in a geopolitical rut, it’s evidence that things can change.

Struggling for the positives

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Usually when an IMF mission issues a departing statement, it’s along the lines of thanking everyone for their hospitality and generally sounding positive about the scope for progress even when circumstances aren’t that great  Not so the just issued statement after the latest visit to Moscow.  It quickly gets to blunt criticism of the government for: lack of clear policy on domestic banking crisis, mismanagement of capital inflows and the exchange rate, botched fiscal stimulus, backtracking on WTO Accession, and in a nod to a favourite topic of our own Edward –

The urgency of advancing reforms is heightened by adverse demographic factors, which are leading to a contraction in the labor supply.

It’s probably hard to get the government to focus on declining labor supply as a problem when they are more focused on unemployment.  But in fact, part of the Fund’s exasperation with Russia may reflect the collateral damage the crisis is already inflicting on its CIS neighbours, which provide a critical part of the Russian labour force.  The decline in remittances to these countries is causing major problems (see pages 24-28) – in fact, the problems look much worse than the more talked about impact of the Arab Gulf slowdown on South Asia.   Overall, the tone of IMF-Russia dialogue sounds like a case of an important country that isn’t planning on needing a Fund program but the Fund views as too important to be left entirely to its own devices.

Timid in Tokyo

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Here are some more of those dizzying negative numbers that Edward mentioned: Japan GDP growth preliminary estimate for 1Q 2009.  -15.2% annualized with a 26% drop in exports quarter-on-quarter.  But it’s worth looking at the underlying numbers in some detail.   Concentrate on the 2nd column for 2009 1Q which shows each expenditure component’s contribution to the change in GDP.  Sure, the export decline is scary but it’s moderated by the decline in imports in terms of the effect on GDP.  The main action is coming from a collapse in private non-residential investment — this is not an Irish-style housing construction led crash.  Businesses have pulled back.

Now these accounting decompositions only get you so far.  Weakness in export markets could explain the decline in investment.  But there’s something else.  Contribution of government to GDP change: 0.1 percentage point, against the backdrop of large changes in the other components.  For all the talk of G20 stimulus, this government is sitting on its hands.   With the US, China, and now Australia bellying up to the stimulus bar, perhaps it’s easy for the government to assume that a foreign-led recovery is imminent.  No wonder those Japanese housewives are looking abroad again.

Not opening the door just yet

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The latest awkward note in the Czech EU presidency is a statement immediately before Mayday making clear the displeasure of the Czech Republic and the other eastern European entrants from the 2004 accession cohort that Germany and Austria will maintain their transition restrictions on free movement of labor from these countries until 2011.  As the statement explains, Germany and Austria are the last two “western” countries to maintain the restrictions, and one suspects that the global recession played a significant role in their thinking.  One thing this highlights is the weakness of the G20 process.  G20 leaders worked themselves into righteous indignation a few weeks ago about the evils of “protectionism” — with protectionism carefully defined as additional restrictions on trade in goods and services and made to sound like something like all decent people must be against.  And definitely something easy to be against for people steeped in economic orthodoxy, as the people drafting these summit statements are.   But allow policymakers to conjure up an image of huge westward flows of unemployed labor as the crisis deepens, and a different protectionism instinct kicks in.   It’s not even clear how big the prospective flows would be.  Many of those most likely to leave Poland or the Baltics in search of work had gone elsewhere already.

That man again

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In a long line of EU summits with global counterparts, there is an EU-Japan summit on 4 May.  As is customary, the European Council is represented by the presidency country which of course is the Czech Republic.  And as is customary, the PM would lead the Presidency delegation.  Except of course that the Czech Republic only has a caretaker interim prime minister (before an interim PM who will be economist and statistics office chief Jan Fischer takes office).  So Czech President Vaclav Klaus has exercised his prerogative and will represent the Council himself.   For a man who we’re constantly assured has no real power, he gets around.  Klaus has been revelling in the circumstances, pushing the “global cooling” meme and extracting every last drop of suspense from the still unratified Lisbon treaty.   One irony is that the meeting with Japan will occur in the context of a Kyoto Treaty — the bete noire of the global coolists — windfall for the Czech Rep., as it sells hundreds of millions of euro of carbon credits to Japan.  Nice to have during a global financial crisis.

Down the Republic

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Paul Krugman turns his attention to Ireland in Monday’s NYT column.  Of course we’re flattered by the attention.  But there’s an important point.  The casual reader of the column could come away with the following narrative about the Irish crisis: lightly regulated banks made bad property loans.  The government was mostly an innocent bystander, except for the tax revenue that came in from the property boom.  Now the boom is a bust and those meanies in the ratings agencies are making the government pursue contractionary economic policies to maintain Ireland’s creditworthiness.  And the USA could be like this in a few years.   It’s a tempting story but one which omits a critical ingredient: crony capitalism, Irish style.

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VIPs have data too

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For years there have been concerns about the voracious appetite for personal data on citizens created by governments and the private sector, and facilitated by technology.  If one thing might be changing, it’s a series of incidents where politicians get to experience for themselves what happens when personal data works its way into the public domain.  Does UK Home Secretary Jacqui Smith have an increased awareness of privacy issues with her husband’s PPV purchases being tabloid fodder?  And now the jinxed Czech Presidency of the European Union council uses a Saturday press release to confirm a story from Finland that passport and schedule details for the EU delegations at the EU-US summit were left on a computer at a Prague hotel.   The press release implies that a person deemed to be responsible has been disciplined in some way, but this just shows that for all the talk about safeguards and firewalls, this type of data is ultimately handled by fallible people, even if well-intentioned.   Hopefully, incidents like this move data privacy issues higher on the political agenda.

The ECB schism

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You might think that enough has already been written about dealing with deflation and unconventional monetary policy tools.  But apparently not enough to settle the question of whether the European Central Bank should in fact further cut interest rates and shift to quantitative easing i.e. outright purchases of debt.  This Bloomberg story puts names on who is arguing for what, with an extended Hellenic phalanx (George Provopoulos, Athanasios Orphanides and Lucas Papademos) pushing for quantitative easing but the Bundesbank’s Axel Weber arguing that the ECB is already near its limits on any type of loosening.

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One mess at a time

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A salient fact about the US Navy anti-piracy operations in the Gulf of Aden, one of which ended the Richard Phillips hostage situation today, is that they are run from US Fifth Fleet HQ in Bahrain.  The base there is essentially a successor to a British base and it’s clearly a, shall we say, interesting part of the world in which it’s reasonable to expect that you’d need to have some naval firepower around.  But it does add to the distances in terms of projecting power into the eastern Arabian sea — the French base in Djibouti makes a lot more sense in that regard.  But perhaps a bigger concern for the Americans would be any domestic political instability in Bahrain in which their presence or ease of operation in the country might become an issue.

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