Mistakes Are Meant to be Repeated

Before beginning this posting, I want to preface it by saying that nothing mentioned here is meant to be read as an attack on Professor Smitka. I respect him and was glad that he was able to relay his experience to us in class today, but many of the points being made by Professor Smitka show the problems that have plagued the IMF in the past and continue to do so into the future. Perhaps by highlighting these serious issues there can oneday be progress in the IMF to help developing nations grow and join the developed world while helping to alleviate absolute poverty around the globe.

During class I mentioned the fact that LDCs are often targeted by developed countries for dumping of surplus goods. This practice is supposed to be illegal under the WTO but has never really been curbed. EU nations are notorious for using Africa as a source for surplus butter, foodstuffs, and other goods that are being produced under strong tariffs in the developed nations. The US does the same with dairy products as well as agricultural products. Perhaps the problem is that the WTO does not choose to strongly address agricultural products as they have been the source of much controversy in the past. However there is a serious issue here that must be addressed, and it affects the IMF because the IMF claims that its purpose is to give advice to LDCs and be a lender of last resort should they need a bailout. Well, when creating an economic plan for a nation, the fact that the products a nation would naturally have a competitive advantage in are being unfairly targeted by developing nations means that the IMF should adjust its strategic advice. This has not proven the case, as the IMF holds very little if any sway over the developed nations that fund it. It cannot be denied that by dumping their products upon LDCs, dcveloped nations are trying to protect their domestic businesses and give them an unfair advantage. Market forces no longer apply to them.

Looking at the many poor nations of Africa can help show how this practice hurts LDCs. No area of the world has been kept in so much poverty with so little growth as the continent of Africa. After the fall of colonialism, these immature ecnomies were never allowed to grow and were instead harvested for their natural resources while tariffs and nontariff barriers prevented these nations from progressing to a higher level of production. Many African nations would find their comparative advantage in agriculture. Large areas of fertile land, low cost labor, and the easy ability for foreign investment to make vast profits as well as progress for local people means that the agricultural industries should be enhanced and encouraged to export to the developed world. This would create lower cost agricultural goods for people everywhere and would save taxpayers from having to subsidize inefficient industries at home. If the free market was allowed to properly function, this is how the markets would naturally function and capital would naturally flow to allow the poor nations of Africa to produce at the own comparative advantage. If this were true, the IMF would be able to encourage this kind of development and as capital would flow into the nation, progress would be allowed to naturally occur. However, the IMF is obsessed with following a model which has created many disasters in LDC economies throughout the years. Mexico, Argentina, Japan, the Asian Tigers, Iceland (the most recent target of IMF practices), and more have all been hurt by these short-sighted economists. Are they in the back pockets of the developed world? That I do not know, but I do know that those who bankroll the IMF should naturally have some sort of guidance over its policies. Even though it is supposed to be a neutral organization, money always talks. History and experience shows that the IMF has not done its proper duty and although it has had its share of successes, there have also been way too many failures which have been fatally detrimental to the economies of infant nations. As Professor Smitka himself said, he only had a single loan that he gave out to these LDC nations that actually paid back the loan. This does not help anyone. Trust is lost, the bank loses its potential profit, and the nation is being hurt because it is being guided in the wrong direction by blind economists. A massive overhaul of the system must be made or further mistakes could drive LDC nations further into poverty, perhaps into permanent solitude and starvation. I have great hope that the world will do the right thing, but the hidden protectionist policies that have been enacted by the world's greatest economic powers have prevented LDC nations from growing and matching the level of development found in the developing world who was just lucky to get there first.

The IMF, Perhaps a Glorified Lobby Group

I am not sure if I am the only person who gets this feeling from looking at the IMF's website, but upon reading the "about us" and "what we do" sections, the descriptions sound very similar to many large lobby groups I have seen. The only key difference appears to be that the IMF has a large supply of money that it lends out on a discretionary basis. While other lobby groups may use their supplies of money for other purposes, the IMF lends its out. Sometimes this comes with success, other times it devastates an emerging economy. As a quote from the IMF's website, their second key function is to perform "research, statistics, forecasts, and analysis based on tracking of global, regional, and individual economies and markets." Slightly reminiscent of a think tank right? There are many people who remain skeptical of the IMF as an ineffective institution even though its basic goals seem sound through macroeconomic theory. Maybe its past failures show that the base assumptions that are undertaken by economic models, such as perfect markets, perfect information, etc. are jumps that are too great to allow for these models to apply to lesser developed nations. It is possible that it is, in fact, the lack of effective financial institutions in these nations that makes it so that this global financial institution becomes less effective than predicted. The goals of the IMF are solid. Fostering growth in lesser developed countries becomes beneficial for all of society in the long run but sometimes artificial attempts to create a functional and thriving economy backfire and create even more dismay and distrust of the international community among the poor. If this is the case and the trust in both the IMF and the international community erode among lesser developed countries, maybe the IMF will have to become even more like a lobby group and truly sell itself to these nations whom it tries to help.

Southeast Asia, Home of the Natural Disaster

Recently, it seems as if Southeastern Asia has been home to many a natural disaster with many casualties associated. Disasters have hit the Samoan Islands, the Phillipines, and Indonesia, each with absolutely catastrophic effects.

Granted, the Samoan Islands may be both extremely south and east, but for some reason, this region of the world has been pummeled recently. Thus far, at least 165 people have been killed by powerful magnitude 8.0 earthquake that struck the area, as well as from the associated tsunami. For more information on the disaster, feel free to browse cnn's article focusing on aid being sent to the region by the world. According to CNN, some villages have completely disappeared. Any crops they were growing or any sense of an economy in the area has been absolutely decimated. With the United States being in charge of American Samoa, FEMA is looking to reclaim a sense of dignity after the hurricane Katrina fiasco on the mainland. We will wait and see how FEMA fares this time around, but for the people of the area, I sincerely hope FEMA has learned from its mistakes and will be able to bring these people back to their former state of living asap.

The next disaster is currently still being updated, but the Phillipines (a former United States possession) is currently being struck by a strong typhoon. The typhoon caused numerous landslides that devastated the people living on the islands. As of 8:45 eastern time, there are 15 confirmed dead and there are not yet any estimates on how high the casualty count will rise. There are various enomorous areas of power outages, effectively halting and form of industrial economy and crippling the regions until power can be restored. Luckily winds are not a huge factor with this typhoon as they reached a high of 120 km per hour but the rain is the true killer here. As mentioned, it has created landslides and flooding is expected as well to make the situation even worse. See more about the typhoon here.

Last but not at all least is the fallout from two earthquakes having hit Indonesia. A 7.6 quake hit Sumatra on Wednesday while a 6.6 quake struck on Thursday morning in the same region. Current casualty estimates lie between 1,100 and 1,500 but the Indonesian government has claimed that about 4,000 people could be buried alive beneath the rubble and casualites could easily reach a much higher level. Thus far, only 25 bodies have actually been removed from the rubble so there is much work to be done. This is an absolute disaster for the island. Bridges are gone, power is out, water lines are broken, there is no sense of civilization left in the region. As for a relation to the international economy, this disaster means that for the moment, this region of Indonesia has no economy whatsoever. Any efforts from people in the region at the moment are entirely focussed upon saving those who are trapped and being buried alive beneath thousands of tons of rubble. For more information about this awful disaster, check out cnn's updating correspondence.

Three terrible disaster in the time of half a week. Southeast Asia is truly being pummeled. In total, casualities could reach 5,000 people in this region. Entire economies have been obliterated, people will have to begin with nothing. Any investments are sure to have been wiped out and in a part of the world that is still developing, it is highly questionable whether there are any types of insurance against such disasters that would allow these people to rebuild. For many in the developing world, a disaster such as these means ruin. A life of poverty would follow with almost no chance of recovery since they would be stuck in so great a hole that they had no hope of ever climbing out. I cannot help but wonder whether the death rate would be the same had equally terrible disaster hit a developed area of the world. Hurricane Katrina did not cause nearly as many deaths, but population density must also be taken into consideration. How much of an effect do better quality buildings, proper channels of warning communication, highly developed emergency plans, and other potentially life saving items have on the casualty rates of natural disasters such as these? This is a question worth some consideration. If it is as I would hypothesize and it has a great effect, then it truly does matter when your crib lies...it could make the difference between life and death when nature comes knocking at the door.

Outside Reading Title Chosen

This blogger is proud to be able to announce his choice for his book on financial and economic crisis.

And with an emphatic drum roll, I hereby announce Paul Krugman's The Return of Depression Economics and the Crisis of 2008 as my official choice. It will arrive soon and I will be soon be able to relate to the world the exact reasons for the economic crisis that has so crippled the world.