Author Archives: P O Neill

About P O Neill

is Irish and lives in America.

The crisis* in Lithuania

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*So you thought we meant economic crisis?  Of course not.  Football!  The kind of crisis that comes with losing to the Faroe Islands in a World Cup qualifier.  Then again there are other matches this evening that people might want to discuss.  We’ll try to bring word of the Saudi Arabia vs Bahrain match in Riyadh, winner plays New Zealand.   One never knows what kind of geopolitics could come to the surface in that one.

UPDATE: No easy way to summarise the evening.  A bad night to be a small nation from the UK, a better night for small nations elsewhere.  France still looking for a path to the finals after an ill-tempered night at Marakana as they say in Belgrade.  But in that Riyadh match … incredible stuff as two late goals, one from each team, see Bahrain through to a playoff versus New Zealand for a spot in South Africa.  King Abdullah will be making some phone calls.

A flat tax bites the dust

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So after a summer of suspense and rumour, Latvia got its 2nd disbursement of $279 million on the IMF loan.  As is customary in these situations, one must read between the lines but it appears that the IMF and the European Commission have agreed to let things play out as they are on the exchange rate, and thus despite IMF doubts about the peg-transition-to-euro strategy, it stays in place.

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The Lucky Country?

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Paul Krugman has a soft spot for Gordon Brown. Basically he thinks that Gordon Brown should get more credit for managing the economic crisis. But the moment that becomes being mystified at Gordon’s lack of electoral bounce, it gets rather puzzling.  A couple of months ago —

It’s not far-fetched to imagine that Britain will soon be experiencing at least a modest recovery, even as its neighbors languish.  Yet that possibility doesn’t seem to factor into any of the political discussion.

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China struggles to apply its own unique version of internal revaluation

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Dropped into today’s IMF press releases is a brief account of the IMF board discussion of China’s annual economic surveillance report by the IMF staff.  The trick word here is “annual”.  Unlike most countries where there is indeed an annual report that gets discussed by the board, China’s last discussion was all the way back in 2006.  Apparently the holdup was the renminbi and in particular the US view that it was massively undervalued versus the reluctance of the Chinese government to have any such statement in print. 

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Is the Latvia intervention team assembling?

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So we’re in the new era of the Swedish presidency of the European council.  Insh’allah this will be the last country presidency under the rotating system once all that Lisbon messiness is sorted out.  The Swedes have the advantage of taking over from the politically hobbled Czech presidency and they begin with a slick website and very much with the times there’s a Twitter feed.  So what do we learn is getting the Swedish presidency twitterers excited? —

02/07 14:39 MÃ¥rten Wierup: 1st meeting went well-the most exciting thing that happened was that Latvia’s excessive budget deficit was added to the Ecofin agenda (7/7)

One’s first reaction might be to be glad that there’s someone in the world who finds Ecofin agenda items exciting.  One’s second reaction might be to wonder: what’s the need for yet another rap on the knuckles for Latvia?  Our twitterer is indeed correct that Latvia did not appear on the original draft agenda, so what’s the urgency?  Well, Edward had the relevant background a few days ago.  The IMF and the European Commission appear to be not on the same wavelength regarding the Latvian rescue program, not least on the role of the exchange rate peg therein.  If there is a split (especially within the European institutions), it might well be the kind of thing that would get sent to the ministers to sort out.   One thing this suggests: since Ecofin doesn’t meet till next Tuesday, don’t hold your breath waiting for the next installment of the IMF loan to Latvia.

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.