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World Humanitarian Day: Remembering Humanitarian Heroes

Brookings Institute Blog - Tue, 08/19/2014 - 06:00

Humanitarian work is a noble endeavor. As a political scientist, I know that humanitarian aid is often used for political purposes and that well-meaning humanitarians can do a lot of damage. But in my heart of hearts, I still believe that there is something good and noble about working in the humanitarian field –delivering food and water to desperate people, protecting refugees and displaced people fleeing persecution, building houses for those whose homes have been destroyed by wars or typhoons. It’s not always the most politically popular work, as evident to those working with Central American children arriving on U.S. borders, or negotiating access for food deliveries in Al-Shabaab-controlled areas of Somalia. The humanitarians who work in these – and dozens of other -- situations deserve recognition and support.

They also need practical support because the fact is that humanitarian work is becoming more dangerous – a theme which the United Nations picked up in deciding to commemorate August 19th as World Humanitarian Day. On this date eleven years ago, the U.N. headquarters in Iraq was bombed, killing 22 people, most notably Sergio de Vieira de Mello. According to some reports, the number of humanitarian workers killed in action has tripled in the past decade. Most recently, 30 aid workers were killed in Gaza between July 8 and August 12, including 11 United Nations Relief and Works Agency staff members, 11 medical personnel and 8 firefighters, while another 74 were left injured. In South Sudan, six aid workers were killed in the first week of August. As of last week, the World Health Organization reports that more than 170 health-care workers have been infected by the Ebola virus and at least 81 have died. Forty-three staff members of the Syrian and Palestine Red Crescent have been killed in Syria since the beginning of that conflict.

Aid workers have always died on the job, but now they are working in more dangerous places. There is an expectation that even in the midst of chaos and war, humanitarian agencies will figure out a way to provide assistance. And the paradox is that places where the humanitarian need is the greatest are often precisely the areas where it is most dangerous for aid agencies to work. Most worryingly, aid workers are increasingly targeted because they are aid workers. The International Committee of the Red Cross reported over 1800 violent incidents against health personnel in 2013.

World Humanitarian Day is a time to remember the humanitarian workers who risk their lives in dozens of places every day. These are the people who are working when bombs are falling, houses are collapsing and disease is spreading. We also need to remember that today’s humanitarian heroes are mostly local and national staff and volunteers who suffer higher casualty rates than Western aid workers and whose deaths receive far less media attention. Local community leaders are often assassinated when they seek to protect and assist their own people, as is the case with leaders of displaced communities. World Humanitarian Day reminds us that there are many humanitarian heroes. Given the growing number of humanitarian crises in the world today, many more will be needed in the future.

Authors Image Source: © Ilya Naymushin / Reuters         
Categories: Blog

Living with crime and violence in Papua New Guinea

Crime constrains investment and growth, and the costs ripple throughout society.


Last month I was interviewing participants in the World Bank’s Urban Youth Employment Project in Port Moresby, talking about the challenges that PNG’s young people face in finding work.

One issue that came up repeatedly was mobility – or the lack of it: the basic ability to travel to and from the workplace. It is no secret that parts of Port Moresby are dangerous and crime is high. There are regular stories of carjacking but public transport is also a huge risk – an issue which disproportionately affects workers coming from poorer parts of the city.

The HR Manager told me casually how she was stabbed at a bus-stop and her billum (bag) stolen; one of the reception staff was stabbed twice on a bus getting home from work. The young woman we were profiling was held up on a bus at gunpoint in the area of Two Mile.

Categories: Asia, Blog

Structural Reforms Can Help Japan’s Post-Consumption Tax Blues

IMF blog - Thu, 08/14/2014 - 12:00

By Stephan Danninger 

(Versions in 日本語)

Japan’s GDP declined by almost 7 percent in the second quarter, more than many had forecast including us here at the IMF.  Many cite the increase in the sales tax this April for this decline.  But that is not the full story.

Yes, it is true that consumer responses to major tax increases are difficult to predict, and large spending swings are not unusual. We see this pattern in many countries (see chart) including Germany’s 2007 VAT increase, which had a short-lived impact.

But Japan needs to tackle other constraints on growth, such as lifting household and business confidence. In this regard, what is more important for Japan’s outlook now are its long-term policies. Abenomics has already made progress in ending deflation and jumpstarting the economy. With the near-term outlook looking increasingly uncertain, the government needs to move quickly on the third arrow of structural reforms.

Abenomics’ third arrow holds key for lifting expectations 

Japan has announced a large number of structural measures since last year, ranging from raising female labor supply, agricultural and electricity sector reform, to deregulation and market opening. What is needed, however, is faster implementation and a more comprehensive approach to lift expectations—critical for maintaining confidence.  Recent IMF staff research (see Balance Sheet Repair and Corporate Investment in Japan)  shows that firms need first and foremost clarity about future growth opportunities before they start to invest.

Businesses need also more prodding to “unstash their cash”

One of the most promising untapped growth resources are firms’ large cash holdings. Over the last decade, Japan’s average ratio of cash holdings relative to market capitalization exceeded 40 percent—more than double the equivalent figure for many other G-7 countries.

New IMF staff research (see Unstash the Cash! Corporate Governance Reform in Japan) suggests governance and legal framework reforms could lead to more efficient use of these resources. For instance, raising the number of external independent directors and other measures could raise activity––empirical evidence shows that firms with many external directors rarely hold large cash reserves. The government has already made important strides with recent amendments to the Company Act and the introduction of a Stewardship Code for institutional investors to enhance their roles as shareholders. Adoption of a corporate governance code for firms would be another important measure.

Address labor market duality to help with shortages

Shortages in Japan’s labor market are quickly becoming a growth bottleneck. An aging population and limited access to foreign workers are constraining labor supply, while growing demand for skill-intensive services, especially in the health area, is boosting demand.

Japan’s segmented labor market is ill-equipped to cope. Most jobs in Japan still provide life-time employment (regular employment). But because of past cost concerns, the share of irregular employment with lower growth opportunities and weaker job protection has risen rapidly over the last decade.

Many highly educated women and younger workers hold these jobs, limiting their productivity growth and attachment to the labor market. Narrowing the differences between regular and irregular employment could reduce these inefficiencies and help supply talent to areas where it is needed most (see The Path to Higher Growth: Does Revamping Japan’s Dual Labor Market Matter?). There are no easy fixes: but tackle Japan’s labor market rigidities and you enhance its growth potential.

Abenomics needs to stay the course on fiscal and monetary policy

With the consumption tax increase, Japan has taken a first step towards addressing its biggest long-term challenge—reversing the rise of the public-debt-to GDP ratio at over 240 percent of GDP. This and next year’s consumption tax rate increase to 10 percent, would reduce the deficit by about 2 percent of GDP—an important down payment toward restoring fiscal sustainability. Fiscal risks will, however, remain large given the still sizeable future consolidation need of another 6 percent of GDP. To limit the risks of a sudden rise in interest rates, adopting a concrete fiscal strategy beyond 2015 is urgently needed and would afford the government to respond flexibly to downside risks.

On the monetary policy side, the Bank of Japan has made great strides in ending deflation for good. With inflation and inflation expectations increasing (chart)—a major achievement— real interest rates are declining and lifting returns on capital investments.

Exiting deflation would also remove other, difficult-to-measure growth effects, such as widespread risk aversion and investor passivism. We believe that the Bank of Japan’s easing policy is appropriately accommodative at the current time. But if progress in raising inflation were to stall, it should act swiftly and expand its asset purchases. 

Japan’s post-consumption tax growth outlook is still favorable. But reforms need to march on as quickly as possible to eliminate key constraints on potential growth, and strengthen confidence. All three of Abenomics’ arrows matter, but the structural one is now key.

 


Categories: Blog

A Tribute to Eduardo Campos

Brookings Institute Blog - Thu, 08/14/2014 - 08:00

Eduardo Campos, Brazilian presidential candidate and former governor of Pernambuco, came to Brookings on September 14, 2007 to participate in the first Brookings event on Brazil in recent memory. Aged 42, Campos had emerged as a leading player in Brazilian national politics and he came to Washington to advocate for the globalization of Brazil’s economy and the importance of science and technology. An economist, former congressman and minister of science and technology under President Luiz Inacio Lula da Silva, Campos was formerly a key ally of future president Dilma Rousseff. In 2011, he was elected president of the Brazilian Socialist Party and led his party as its presidential candidate for the October 2014 elections.

At Brookings, Campos participated in a panel discussion on the global reach of Brazilian policy. Although he spoke no English, his presentation was vigorous and enlightening. He was governor of Pernambuco from 2007 to 2014, a state with significant agricultural potential, including sugar cane for the expanding ethanol industry. He was also steeped in Brazil’s scientific projects which he was eager to advance.

This was the heyday of Brazil’s rise and Campos portrayed it enthusiastically. Petrobras had just made its huge offshore discovery in the Tupi field which held an estimated 8 billion barrels of oil, equivalent to 40 percent of Brazil’s total reserves. Brazil’s GDP was growing at an annual rate of 5.2 percent with record-high investment and the highest investment to GDP ratio in 10 years. Agriculture production grew by more than 9 percent year on year, and real wages had gained thanks to the strength of consumption and the credit sectors. Campos's delivery at Brookings that day reflected all this economic growth and the potential for global reach. He would go on to win a second term as governor with 83 percent of the vote in the 2010 elections.

Lincoln Gordon, a senior fellow and ambassador to Brazil from 1961 to 1966, was present at Brookings. His love for Brazil and all things Brazilian was well known. He is remembered fondly for his several books, including Brazil’s Second Chance: En Route Toward the First World. Both Gordon in his book and Campos in his remarks at Brookings focused on the extraordinary natural resources with which Brazil is endowed and the potential to raise the living standards of all its citizens. Both recognized the influence that Brazil could play beyond its borders on the global stage. Gordon died in December 2009, aged 96 years. Tragically, Governor Campos died at 49 years old, leaving a wife and five children.

All of those who participated with Campos in this Brookings meeting remember his magnetism and determination. We join with the citizens of Pernambuco in mourning his death in a tragic aircraft accident on August 13, 2014.

Authors Image Source: © Ueslei Marcelino / Reuters         
Categories: Blog

U.S. Capability to Respond to the Next Great Disaster

Brookings Institute Blog - Tue, 08/12/2014 - 08:00

With plenty of politically-sparked disasters and crises around the world, readers of the Brookings website might be forgiven for not wanting to hear about additional, imagined catastrophes.

But as the United States thinks ahead to the capacity of its government for handling various hypothetical problems, ranging from the size of its Army and National Guard to its AID and other relief capabilities to its coordination with the NGO and private sector worlds, it is important to have a sense of the possible.

More exactly, it is important to think about what is plausible.  Of course, many things are possible, including asteroid strikes, a reversal of the Earth’s magnetic field, and tornadoes that might take down the heart of the federal government in D.C. But the odds of such disasters are thankfully extremely low—perhaps low enough that we need not actively plan for them in advance.

That said, we need to broaden our imaginations beyond the disasters that have afflicted the world over the last couple of decades.  As terrible as they have been, it is possible to imagine much worse, either from a single event or a one-two punch from Mother Nature.


Comparing large international natural disasters in recent history. 

To be sure, there have been ample natural catastrophes in the world in recent times, and with a wide variety of characteristics as well.  A partial list would include, just in the last 10 years, the 2004 tsunami near Indonesia, the 2005 Pakistani earthquake in remote Kashmir, Hurricane Katrina near New Orleans that same year, the 2010 earthquake in Haiti, the 2011 earthquake and tsunami leading to the nuclear disaster in Japan, the 2013 typhoon in the Philippines.  There have been earthquakes in China and Iran as well, Superstorm Sandy along the U.S. eastern seaboard, and a host of contagious disease outbreaks with the current Ebola virus outbreak the latest scare. 

But as bad as these disasters all have been, as absolutely terrible for their victims and the victims’ families, one is also struck in surveying the data—as we have for an ongoing Brookings research project—that things could have been worse.  Most of the biggest disasters struck in places that, while not underpopulated or remote, were also not in the most densely populated parts of the planet.  Moreover, with the exception of the Japanese earthquake/tsunami/nuclear accident, most of these catastrophes were one-offs.  


Population density of Asia and the Asia-Pacific. Darker colors indicate more people. (NASA)

Each of the biggest events listed above affected, most acutely, areas with combined populations of 1 million to 5 million.  They did not hit the world’s largest megalopolises.  And while they did take aim at poor countries with limited capacity to respond in several cases, they did not hit nations with ongoing civil crises or wars whose basic political stability could have been further compromised by devastation from Mother Nature.

Let us hope it remains that way. But as global populations grow, especially along the Asian littoral, and as certain storms or large-scale weather patterns are perhaps intensified or at least shifted by climate change, we need to be ready for worse. 

Superimposing the bands of devastation from some of the above on more populated areas helps one see the realm of the plausible.  What if the Fukushima nuclear accident had affected reactors near Tokyo, with its population of some 30 million?  What if a future Typhoon Haiyan targets Shanghai?  What if a massive earthquake hit Karachi, Pakistan or sent a tsunami into the heavily populated areas of coastal East Asia?

Typically, international response contingents for recent tragedies have numbered in the low tens of thousands of personnel at peak levels of activity.  But it is easy to imagine tragedies that could drive these figures roughly a factor of ten higher. We need to think about how to be ready.

Authors Image Source: © US MARINES / Reuters         
Categories: Blog

The 2014 Brookings Blum Roundtable: Reflections on Day Two

Brookings Institute Blog - Mon, 08/11/2014 - 06:21

1. What was the most interesting thing you heard today? The need to get liquidity into the system immediately after a disaster.

The global community is organized to respond to disasters with life saving interventions. We have stand-by arrangements to rush in food, water, tents, blankets, medicine. But we have no stand-by arrangements to restore economic activity - to rebuild homes and businesses, restock stores, purchase fuel and other necessities of business and daily life. We need a mechanism for the immediate infusion of liquidity to business and individuals. Large financial institutions have that liquidity but lack an on-the-ground presence and willingness to take risk. Small banks and other institutions are located in situ but without the necessary cash. We need to establish a stand-by guarantee mechanism that will get cash from the large to the small providers of small amounts of credit and cash that will restart local financial engines.

2. Diego Comin's policy brief, The Evolution of Technology Diffusion and the Great Divergence, suggested the transformative potential of leap-frog technologies may be overblown. How do you feel about that after today's discussion? The difference between Diego's paper and today's discussion on leap-frog technology is that Diego focuses on the macro and historic trends and the discussion today focused on the micro and the here and now.

Diego argues that the ability of new technologies to enable developing countries to catch up with more advanced countries is overblown. He makes the case that while we are seeing a convergence in the dissemination of new technologies, which today are rapidly made available globally, use of technology depends on existing knowledge and prior technological experience so poorer countries do not use the technology as effectively as more advanced countries.

The discussion, on the other hand, focused on specific technologies that are helping countries and people leapfrog over inadequate infrastructure. Cell phones are connecting people, transferring money, and delivering market information to rural farmers in the absence of landlines, formal banks, and market reports. Solar powered lights and power outlets are bringing electricity to those off the grid.

Both perspectives are right. Advanced countries may use technology more effectively, but new technologies are overcoming the lack of traditional infrastructure in other parts of the world to create new economic opportunities and improve lives.

3. What did you take away from the "Managing Risks in Conflict Settings" session?

It was such a rich discussion, but here are the issues that stood out for me:

  • the private sector has to analyze and understand the root causes of conflict to avoid becoming part of it;
  • a key ingredient of risk mitigation is hiring local talent, which is often absent but can be filled by diaspora. So a key strategy is getting the diaspora to return home;
  • there was an apparent but not real dichotomy between the business representatives who were saying stay with small/medium projects and avoid government, and policy makers who said getting good governance was essential to moving beyond fragility and conflict;
  • resistance to transparency is due less to reluctance on the part of companies, and more a consequence of governments who do not want companies to publish information on their payments to government.

4. Day Two covered three diverse, topics on “Managing Risks in Conflict Settings,” “Leap-Frogging Technologies,” and “Delivering Government Partnerships.” Did today's sessions leave you with an impression of how development may change over the next few years?

An urgent challenge that people are beginning to deal with is the "software" of development. We are good at a lot of the technical fixes - medicines, bed nets, mobile money, small solar lights, etc. What is missing is the softer, knowledge side. But that is changing. One example is the growing realization that dealing with conflict and fragility is fundamentally a political issue. The New Deal for Fragile States recognizes that and puts fragile states in the lead to deal with the internal societal and political conflicts, with donors playing a supportive role. Another example is that the development community recognizes that successful interventions require multiple capabilities that are spread across government, business, and civil society. The missing ingredient is knowing how to join these diverse organizations into a common effort, and it is this systems integration that various organizations are now experimenting with solving.  A third example is efforts to innovate the delivery of the technical solutions, getting that delivery into rural, isolated communities, and the internet and cashless financial device may offer some solutions.

Authors         
Categories: Blog

Ứng phó biến đổi khí hậu: Những điều tôi học được từ Chủ tịch WB và 22 bạn trẻ Việt Nam

Jim Yong Kim với giới trẻ Việt: Bạn có kế hoạch gì để ứng phó biến đổi khí hậu?
Categories: Asia, Blog

Fighting climate change: What I Learned from WBG President and 22 Vietnamese Youngsters

Jim Yong Kim to Vietnamese Youth: What's Your Plan to Tackle Climate Change? World Bank Group President Jim Yong Kim listened to a group of more than 20 young Vietnamese environmental activists sharing their initiatives on fighting climate change. He challenged them to work together to build a bigger plan to both adapt to climate change and tackle the issue that Vietnam's carbon intensity will increase 20%.



“How you can live and adapt to climate change… How you can together tackle the issue of carbon intensity of Vietnam?”World Bank Group President Jim Yong Kim challenged 22 young Vietnamese environmentalists, including myself, at a roundtable discussion on the impacts of climate change to Vietnam during his visit to the country. Around that time, Vietnam and some neighboring countries were hit by typhoon Rammasun. It could have been a coincidence, but it gave us a sense of urgency and how serious the issue of climate change is.

Categories: Asia, Blog

The 2014 Brookings Blum Roundtable: Reflections on Day One

Brookings Institute Blog - Fri, 08/08/2014 - 08:45

As Day Two of the 2014 Brookings Blum Roundtable gets underway, Homi Kharas reflects on the key themes from Day One.

Q: What did you find to be the key takeaway from the first session, How Can Multinationals Engage With Governments to Support Economic Development?

The key takeaway for me was that public-private partnerships (PPPs) are a really powerful tool for development, but that there is still a long way to go to develop them to realize their full potential.

We talked about the fact that PPPs have a very long history—over a hundred years in some instances—and the thing that seems to characterize them over time is that they constantly evolve. There are no single identifiable criteria for how a PPP should function, and over the course of the discussions we heard about PPPs functioning in very different ways, how governments and the private sector have taken on non-traditional roles.

The idea that PPPs need to have creativity and the right timing, they need to be purposeful and focus on a common, shared problem-- these are all good starting points, but we still need to think more creatively about how PPPs will actually be used for development.

 

Q2: How do you think today's conversation will be built upon by the remaining sessions? One of the things that emerged from today's conversation is that it's really important to understand the details and understand specific transactions in order to be able to come up with some sensible criteria for how PPPs should be fashioned, and in the remaining sessions I think we will focus more on very specific types of transactions and interventions. That will be quite a useful way of seeing whether that level of disaggregation is sufficient or whether we still need to go down to a more fine grained level in order to come up with practical solutions. The tension I think that we are seeing is that many people around the table have good examples—individual examples—of PPPs but it's difficult to then put those together in an aggregate way that can be applied, and if you have to reinvent the PPP each time from scratch that makes it expensive, it makes it uncertain, and it makes it into a non-standardized tool for development. So I hope that what we will get in the sessions to come is some thinking that helps us understand how we can standardize PPPs a little more.

 

Q3: What are you looking forward to most in the coming conversations?

What I'm looking forward to most is a little more detail on some of the more successful examples of where the private sector and development objectives have been aligned with each other. We have a tremendous cross-section of people around the table who have been working in these areas and have had very powerful examples, and already we are starting to find that examples from one area may be transferred to other areas as discussants put on the table the details of those particular cases.

Authors         
Categories: Blog

U.S. Labor Force: Where Have All the Workers Gone?

IMF blog - Thu, 08/07/2014 - 08:20

By Ravi Balakrishnan

(Version in Español)

It’s not supposed to be this way. As the U.S. economy recovers, hirings increase and people are encouraged to look for jobs again. Instead, the ratio of the adult population with jobs, or looking for one—what’s called the labor force participation rate—has been falling, standing at 62.9 percent in July 2014 (Figure 1).

This represents a 3 percentage point decline since the Great Recession and the lowest rate since 1978. What is more remarkable is that fully one-half of the gains in participation rates between 1960 and 2000—those driven by sweeping social changes such as the post-war baby boom and the entry of women into the work force—have been reversed in the last six years. The equivalent of 7.5 million workers have been lost from the U.S. labor force.

A critical issue for the U.S. economy

The dynamics of the U.S. labor market is perhaps the most critical—and uncertain—issue in economics today. It matters for two crucial reasons. First, the future size of the labor force will be central in determining the pace of U.S. economic growth over the medium term. Second, the extent to which the recent declines in participation rates are reversible will be the principal factor in deciding future wage and price inflation and, as a result, the timing and pace at which the Fed raises interest rates.

Labor’s golden era and the subsequent decline

Even before the Great Recession, worker participation had been declining. The “golden” era was 1960–1990, when participation rates increased from 60 to 66 percent. This reflected the baby boom generation reaching adulthood and women becoming more fully represented in the workforce. But this boost to the size of the labor force started to fade in the 1990s as the baby boom generation started retiring and participation rates for women began declining. Indeed, since the bursting of the dotcom bubble and the 2001 recession, the labor force participation rate has continued to fall.

A mixture of factors is behind the decline. Structural changes, mostly linked to population aging, have been an important part of the downtrend. However, cyclical factors related to the availability of jobs and wage dynamics have also been important, particularly following the Great Recession.

Our recent study points to aging being responsible for around 50 percent of the decline in participation since the Great Recession, while cyclical forces account for a further 30–40 percent.

The remainder of the post-2007 decline reflects various other forces at work. For example, there has been a significant decline in youth participation. This has been mainly driven not, as some have conjectured, by an increase in college enrollment but, rather, a decline in the number of those students who are also working. In addition, rising applications for disability insurance have played a role. Demographics have meant more of the population is in the over-50s age group where the incidence of disability insurance is highest. Adding to this was the upward spike in applications following the Great Recession. Importantly, even those eventually denied benefits exited the labor force while their application was still pending.

A temporary reversal of the decline

Using detailed state level data, our analysis suggests that up to one-third of the post-2007 decline in participation rates is reversible. Over the next few years, this should mean a temporary respite in participation with workers (about 2 million) coming back into the labor market as job prospects improve. However, by 2017 participation rates should again start to decline as the underlying forces of population aging begin to dominate and more-than-offset the cyclical bounce back.

Boosting the participation rate in a sustained way

Despite the recovery so far, the U.S. labor market remains far from normal. The numbers of long-term unemployed are still higher than at any previous peak since World War II (Figure 2).

And a sizable “participation gap”—the difference between the trend participation rate and the actual participation rate—has created other forms of labor market slack, which is when there are more potential workers than jobs (Figure 3).

Hence, policies in the coming years should focus on maximizing the potential of the U.S. labor market. Demographics cannot be reversed but progress can still be made.

First, economic policies that get the country growing again will help strengthen the labor market, raise wages, and bring people back into the labor force.

Labor supply measures would also help and pay-off over the long haul by boosting potential growth. Key measures include enhancing training and job search assistance programs, so as to raise human capital and productivity. Better family benefits—including more affordable childcare—would allow both parents to continue working and help reverse the downward trend in female labor force participation rates. Finally, immigration reform ought to be part of the solution. To support its aging population, the U.S. could provide greater visa opportunities for high-skilled immigrants. This would not only help boost the size and productivity of the labor force, but also likely improve the government’s fiscal position.


Categories: Blog

Philippines: Why We Need to Invest in the Poor

A fish vendor waits for customers in his stall in Cebu City. According to the latest Philippine Economic Update, pushing key reforms to secure access to land, promote competition and simplify business regulations will also help create more and better jobs and lift people out of poverty. ​(Photo by World Bank)



In my 10 years of working in the World Bank, I have seen remarkable changes around me. In 2004, Emerald Avenue in Ortigas Center, where the old World Bank office was located, started to wind down after 9 PM.  Finding a place to buy a midnight snack whenever I did overtime was hard. It was also hard to find a taxi after work.

Today, even at 3 AM, the street is bustling with 24-hour restaurants, coffee shops, and convenience stores, hundreds of BPO (Business Process Outsourcing) employees taking their break, and a line of taxis waiting to bring these new middle class earners home. Living in Ortigas Center today means that I also benefit from these changes.

Categories: Asia, Blog

Refleksi Reformasi Guru di Indonesia


Pada tahun 2005, saya merasa beruntung berada di Indonesia saat upaya reformasi guru dimulai. Parlemen Indonesia menetapkan sebuah undang-undang komprehensif mengenai guru disertai agenda yang besar. Program utamanya adalah sertifikasi yang bertujuan meningkatkan kesejahteraan sekaligus kualitas guru secara signifikan. Guru yang telah menerima sertifikasi akan menerima gaji dua kali lipat. Syarat sertifikasi adalah memiliki gelar S1 serta kompetensi untuk memberikan pendidikan yang berkualitas.

Semua bahan untuk melakukan perubahan besar sepertinya tersedia. Regulasi yang bagus, dan upaya yang dipimpin seseorang yang mengepalai sebuah direktorat baru di Kementerian Pendidikan dengan mandat khusus untuk meningkatkan kualitas guru dan staf pendidik.

Categories: Asia, Blog

What Payment Reform Means for the Frontline Health Care Workforce

Brookings Institute Blog - Tue, 08/05/2014 - 12:20

It is well recognized across the health care industry that the major goals of the Affordable Care Act (ACA) include not only expanding health insurance coverage, but also improving the quality of care and the patient health care experience. A key strategy in achieving these goals is improving the efficiency and delivery of care through innovative financing mechanisms and new delivery models, such as Accountable Care Organizations (ACOs), patient-centered medical homes (PCMHs), bundled payments for acute and post-acute care, and population-based models that aim to improve the health of entire communities. These alternative models emphasize quality and outcomes, while moving care away from the traditional and predominant method of fee-for-service (FFS).1

The Frontline Work Force
Many conversations focused on the implementation of these models typically emphasize the role of physicians. However, the success of these models relies heavily on the support and manpower of a multidisciplinary team; particularly "frontline health care workers." Frontline workers may include medical assistants (MAs), medical office assistants, pharmacy aides, and health care support workers. Oftentimes, they provide routine, critical care that does not require post-baccalaureate training.2

For example, MAs can play an important role in a medical home model. Upon discharge from the hospital, frontline workers can provide direct outreach to patients that are at high risk for readmission, and discuss any lingering symptoms, worsening of conditions, or medication issues. If necessary, MAs can assign a high-risk patient to a social worker, care coordinator or nurse.3

In a team care environment, frontline health care workers are essential for taking over routine tasks and allowing physicians to employ their specialized skills on their most complex patient cases, which allows all team members to work at “the top of their license”.4 Frontline workers can also bridge the gap between patients and a multitude of providers and specialists; help deliver care that is culturally and linguistically appropriate; and provide critical patient education and outreach outside of regular office visits. 

A Workforce in Need of Reform
While team-based care is widely accepted as an industry norm, its current infrastructure is not well-supported. While the frontline workforce represents nearly half of all health care professionals, they are markedly underpaid, underappreciated, and lack formal training to transition into higher-skilled and/or higher paid positions.

A recent study by the Brookings Metropolitan Policy ProgramPart of the Solution: Pre-Baccalaureate Healthcare Workers in a Time of Health System Change” demonstrates this glaring disparity between current frontline workforce investment and its value to health reform efforts. The study analyzes the characteristics of the top ten ‘pre-baccalaureate health care workers’ (staff that holds less than an associate’s degree) within the US’s one-hundred largest metropolitan areas (see Table 1).

Table 1: Top ten pre-baccalaureate health care workers in the US’s top one-hundred metropolitan areas

Personal care aides represent a striking example of the underinvestment in frontline workers. The study shows that personal care aides have the lowest levels of educational attainment compared to their peers (32% have no more than a high school diploma), and have the lowest median earnings ($20,000 annually). Meanwhile, The Center for Health Workforce Studies’ (CHWS) estimates that this profession is among the top three national occupations with the highest projected job growth between 2010 and 2020. They are also in highest demand: between 2010 and 2020 there will be an estimated 600,000 personal aide vacancies.5 According to this study, MAs are also among the least educated and lowest paid frontline professions. Ninety percent lack a bachelor’s degree and a significant share (29%) are classified as ‘working poor.’

Policy Solutions

A number of policy solutions can be applied to enhance the frontline worker infrastructure. Our recommendations include:

Invest in front line health care workforce training and education. Case studies from a recent Engelberg Center toolkit, outlines how providers are training their frontline workforce to master fundamental skills including care management, patient engagement, teamwork, and technological savviness.

For example, a New Jersey ACO carried out clinical transformation by investing in new frontline staff, and by redefining the role of medical assistants to include health coaching. The return on investment for employers is potentially large. After injecting a substantial initial investment into this project, this ACO saw a 12.3% decrease in net health care costs within the first year of the program’s implementation; as well as significantly improved efficiency, quality of care and patient experience. As the educational curricula for frontline professions are largely variable, more attention should also be spent on the quality of educational content to train these occupations, as well as on developing an understanding of how delivery systems are augmenting traditional educational curricula.

2. Active inclusion of frontline health care workers in payment reform. Although the services of frontline health care workers are beginning to play a role in new payment models, typically frontline staff does not benefit directly from any bonus payments or shared savings incentives. However, their increasingly valuable role in the care team may warrant allowing frontline health care staff to be included in the receipt of shared savings and/or bonus payments based on the achievement of specifically tailored performance and outcomes targets.

The increasing demand for frontline health care workers, driven in part by the ACA’s payment and delivery reforms, will likely spell out a brighter future for these occupations, whose services had routinely been undervalued and underpaid. Future policy efforts should be focused on extending educational grants that have been aimed at primary care and nursing to frontline workers, as well as considering dedicating portions of shared savings to enhancing the earning potential for frontline workers. Some efforts, such as the U.S. Department of Labor’s recent rule to grant wage and overtime protections to home health and personal care aides, are early suggestions of a shift toward greater respect and empowerment for these occupations. It is yet to be seen what effects the continuation of such efforts will have on their high projected attrition trends.

1 United States Senate Committee on Finance. Testimony of Kavita K. Patel.

2 Hunter J. Recognizing America’s Frontline Healthcare Worker Champions. National Fund for Workforce Solutions Blog. November 2013.

3 Patel K., Nadel J., West M. Redesigning the Care Team: The Critical Role of Frontline Workers and Models for Success. The Engelberg Center for Health Care Reform, March 2014.

4 Patel K., Nadel J., West M. Redesigning the Care Team: The Critical Role of Frontline Workers and Models for Success. The Engelberg Center for Health Care Reform. March, 2014.

5 The Center for Health Workforce Studies (CHWS). Health Care Employment Projections: An Analysis of Bureau of Labor Statistics Occupational Projections 2010-2020. March, 2012.

Authors Image Source: © Jim Bourg / Reuters         
Categories: Blog

Argentina in Default: Why 2014 Is Different from 2001

Brookings Institute Blog - Tue, 08/05/2014 - 12:01

For the second time in 13 years, Argentina defaulted last week, after not being able to reach an agreement with holdout investors which would have allowed debt-restructured creditors to be paid using funds already deposited by the Argentinean government in New York. This latest default is very different from the one in 2001 which was marked by a collapsing economy, unsustainable debt (about 150 percent of GDP) and, more importantly, by the inability of the government to keep making debt payments. As described in a previous article, this new de facto default is the result of a U.S. court ruling in favor of the holdout investors’ claim to be paid in full (i.e., without any “haircut”) and the inability of the Argentinean government to successfully negotiate with them.

But let’s step back a few months. Taking this U.S. court ruling as given, Argentina had three options:

1) Pay holdout investors (about 2 percent of Argentinean sovereign debt bondholders) the $1.5 billion that resulted from the U.S. court ruling. This would have triggered the so-called RUFO clause that aims to protect current debt-restructured bondholders by allowing them to demand the same treatment if other bondholders are offered a better deal. Given the debt burden this option would have imposed on Argentina, it was quickly disregarded by the government and most analysts.

The RUFO clause had been intended to accelerate the debt-restructuring process by guaranteeing that early entry into the process would not result in worse conditions than entering later. Some analysts calculate that the landslide of claims from the debt-restructured bondholders could amount to between $120bn and $500bn, which would have moved the debt-restructuring back to square one with very severe implications for the country’s payment capacity, not to mention significant economic and social costs. It is important to note that the RUFO clause expires in December 2014, after which debt-restructured bondholders will not have the right to claim equal treatment with any bondholders who receive more favorable conditions (e.g., less of a haircut);

2) Do not pay holdout investors, but negotiate so they might request a stay until early next year. This would have avoided triggering the RUFO clause, allowing the government to make regular payment to debt-restructured bondholders. Since this option would have severely reduced the negotiating power of holdout investors it would have required offering an important guarantee to convince lead holdouts of the country’s good faith, and convince Judge Griesa to re-establish the stay. This was what many analysts thought would happen given that it contained, in principle, strong incentives for both parties: holdout investors would be paid (at least in the near future), and it would have also allowed the government to keep paying the debt-restructured bondholders and, thus, to avoid another default. While this was, in the eyes of most analysts, the “win-win” solution, it would have come at a high domestic political price in Argentina, where the holdout investors would have been seen to have “won” the battle with the government. This would have been too heavy a political cost for the Kirchner administration to bear; 

3) Do not pay holdout investors and do not negotiate, which would translate into a “de facto default.” I use the term de facto default because while the debt-restructured bondholders are not being paid, the government argues that they have deposit the necessary funds so they can be paid.  Whether one wants to refer to this situation as default, de facto default, or debt-restructured bond holders lack of payment due to the U.S. court ruling, ultimately it means that the end of the Argentinean debt saga is further away from being solved than if option two would have been pursued.

As we now know, Argentina chose this third, less desirable option, and it will clearly have harmful economic and social implications. First, it will cut off the much needed financing of many provincial deficits and many private investors in Argentina. It is important to note that provincial spending represents more than 40 percent of total public spending and that in many provinces public employment represents more than 60 percent of total employment. Fiscal adjustments at the provincial level will most likely have severe economic and social costs. Even if the federal government decided to help these provinces with federal funds, it would incur high monetization of federal fiscal deficits and higher inflation (which is already about 40 percent annually). Second, it will further distance the country from being able to regain access to the global markets in their sovereign bonds. This is crucial, particularly now the region’s so-called bonanza times of cheap capital and high commodity prices has ended, and it now needs to refocus its attention on productivity issues including education and infrastructure investment. And last, but certainly not least, it will also complicate the short-term financing and interaction with the global markets needed to continue exporting main commodities.

All these issues will aggravate the already existing fiscal and external deficits, reduce foreign reserves and trigger further pressure towards currency depreciation and inflation, and reduce production and increase unemployment in an already weakened and deteriorating economy. One has to wonder why it is that the government did not attempt in a more aggressive manner to follow option two as opposed to “settle” for option three (ruling out option one, given the much higher costs associated with triggering the RUFO clause). Whereas the 2001 default was driven by economic forces (i.e., one may argue that there was a logic behind such a default), it is hard not to conclude that this new de facto default is driven by nothing more than shortsightedness in politics which will, all the same, have severe economic and social implications in the years to come. 

Authors         
Categories: Blog

Can Japan Afford to Cut Its Corporate Tax?

IMF blog - Tue, 08/05/2014 - 08:55

By Ruud de Mooij and Ikuo Saito

(Versions in 日本語)

It is no surprise that, as part of its revised growth strategy presented in June, the Japanese government has announced it will reduce the corporate income tax rate. At more than 35 percent for most businesses, the Japanese rate is one of the highest among the industrialized countries of the Organization for Economic Cooperation and Development (see Chart 1). Moreover, at a time when Japan needs to boost economic growth, the corporate income tax rate is generally seen as the country’s most growth-distortive tax.

But can Japan afford a lower its rate? In its latest staff report for Japan, the International Monetary Fund argues that a consolidation effort of more than 6 percent of GDP is necessary over the next couple of years to put the exploding public debt ratio on a more sustainable footing (see Chart 2). This adjustment would reinforce other already planned measures, such as the next consumption tax rate hike to 10 percent in October 2015. How then, can Japan talk about lower tax rates as an engine of growth?

No small fry

Revenue losses could potentially be substantial. Reducing the rate by 5 percentage points—without offsetting measures—could lower revenue by some 0.4 percent of GDP. Some proponents of a rate cut claim to have an easy solution to cover this revenue loss by arguing that a lower rate will ultimately be (more than) self financing. Inspired by Arthur Laffer, they believe that reducing the rate would lead to such an expansion of the base that revenue will ultimately increase.

A recent IMF Working Paper rejects such claims, however. Indeed, our reading of the large empirical literature on corporate tax elasticities suggests more modest effects on the base. For instance, as a consensus estimate, we find that a 5 percentage–point reduction in the rate will raise the level of investment by 3½ percent in the long run (relative to baseline). A plausible estimate is that between 10 and 30 percent of the static revenue loss from a rate cut can be recovered through these investment effects and other behavioral responses (such as income shifting and corporate financial choices).

For Japan, tax elasticities have been historically smaller than elsewhere, so that the lower bound might in fact be more likely. While important, such effects are of course far from sufficient to make a cut self financing.

Need for comprehensive reform

So should Japan delay a tax cut until its fiscal house is in order? We don’t think so. Rather, Japanese economists and policymakers need to come up with innovative ways to address the current weaknesses of the corporate income tax rate that deter investment, while maintaining the tax as a key revenue source. Our paper emphasizes the following options:

  • Shift toward a higher consumption tax. Even when increased to 10 percent, the consumption tax rate will still be low internationally. As a relatively growth-friendly and stable revenue source in an ageing society (see Keen and others (2011)) further increases may be attractive to finance a lower rate. To address concerns an increase may be regressive, it could be combined with targeted transfers to low-income households, similar to the program the government introduced with the first consumption tax increase.
  • Replace local corporate income tax rates with better local revenue sources. Almost one third of the Japanese rate comprises taxes imposed by prefectures and municipalities. There are far better local taxes to draw on, such as taxes on immovable property, which are more stable, fairer, and less distortive for economic growth.
  • Eliminate distortions for small and medium-sized enterprises. The tax system currently encourages small firms to pay wages and discourages them from paying dividends. More neutrality requires reform of dividend taxes and a lower wage deduction in the personal income tax. With less arbitrage, overall revenue can increase and business structures become more efficient.
  • Broaden the base. Japan has a very large number of special tax incentives, including for small and medium-sized enterprises. Some are ineffective or create distortions. While streamlining incentives is desirable, the expected revenue yield is limited. Moreover, depreciation allowances and loss treatment are not quite as generous compared with other countries, and cutting them back runs the risk of discouraging investment and reducing growth.
  • Reduce the rate gradually. An immediate corporate income tax rate cut creates a windfall gain on past investments. A credible pre-announced rate reduction will reduce such windfalls and limit fiscal costs in the short run, while still encouraging investment.

Innovative approaches

Japan should also consider more innovative corporate income tax reforms to either substitute or complement a rate cut. It could, for instance, follow Italy’s example by introducing an incremental allowance for corporate equity (ACE)—a deduction at a fixed notional rate for equity increases through either retained earnings or equity issuances—relative to some base year.

The incremental allowance does not grant relief on past investment and, therefore, incurs little fiscal cost in the short run and grants no windfall gains. Still, incremental investment is significantly encouraged. This is exactly what Japan needs. The allowance has further appeal in that it eliminates the inherent tax discrimination in favor of debt over equity. It is for these neutrality properties that allowance has become the “love baby” of public finance economists. Recent experiences in Italy and Belgium are encouraging regarding their practical implementation.

Fiscal constraints are acute in Japan. But so is the need for boosting growth. Hence tax reforms should aim to maximize the growth effect per yen of tax relief granted. That may require unconventional policy. Indeed, scarcity should provoke innovation —in tax policy as much as in any other field.


Categories: Blog

Gaza: The Conflict - and the Displacement - Goes On

Brookings Institute Blog - Mon, 08/04/2014 - 10:53

On July 22, when 100,000 Palestinians had been displaced in Gaza from fighting between Israel and Hamas, I wrote that displacement could be the defining characteristic of this conflict. Little did I know how true this would be. As of yesterday, the United Nations Office for the Coordination of Humanitarian Affairs reported that 485,000 people had been displaced in the nearly four weeks since the Israel Defense Forces launched Operation Protective Edge, 254,000 of whom were living in UN Relief and Works Administration (UNRWA) shelters. This means that 25 percent of Gaza’s 1.8 million population is displaced within a very small territory. As UNRWA facilities are limited (and many of those are damaged), most of the displaced are likely living with families and friends, squeezing into already-overcrowded flats which had little extra space to begin with. This displacement, plus the gathering of extended families to celebrate breaking Ramadan fasts, has resulted in many instances of families losing large numbers in single strikes.

Almost all of the Palestinians displaced in this current conflict have been refugees all of their lives – so this displacement is a ‘double displacement.’ Or in the case of Syrian Palestinian refugees who had sought protection in Gaza, this is triple or even quadruple displacement

In many ways, Gaza’s Palestinians are unique. Palestinians have been refugees in Gaza for 62 years, since 1948 – the world’s oldest and largest protracted refugee crisis. The children of registered refugees are recognized as Palestinian refugees. Unlike every other refugee group in the world, the Palestinians have a UN agency dedicated exclusively to them, the UN Relief and Works Administration. With 33,000 staff – all but a handful of whom are Palestinian refugees themselves – UNRWA has provided a level of education and health services that would be the envy of most of the world’s refugees. What UNRWA hasn’t been able to do is protect refugees living in its areas of operation. Unlike the UN High Commissioner for Refugees, UNRWA does not have a formal mandate to protect refugees, although it has steadily sought ways to provide operational protection in the course of its work.

Even when they are warned by Israelis to evacuate before an attack, people in Gaza have no places to hide or feel safe.

Gaza also differs from other tragic displacement situations in the small size of its territory and its largely closed borders. For example, while Syrian internally displaced persons (IDPs) can move elsewhere in the country if their situation becomes desperate, or seek safety in a neighboring country, Gaza’s Palestinian refugees have almost no options to move to a safe place. Even when they are warned by Israelis to evacuate before an attack, people in Gaza have no places to hide or feel safe. Even schools are not safe for Palestinian refugee children.

There are some similarities between those currently displaced in Gaza and the world’s other 50 million or so refugees and IDPs. Protracted displacement is unfortunately common. People are typically forced to flee their homes at a day or a week’s notice, usually expecting their displacement to be temporary and that they will be able to return home soon. But conflicts have a way of dragging on, and even when active hostilities have come to an end people often remain displaced for years, as witnessed in Georgia, Nagorno-Karabakh, Côte d’Ivoire and dozens of other places. Newly displaced people often seek safety in areas populated by those displaced in previous conflicts. In Iraq, more than one million people remained displaced after the violence of 2006 and northern Iraq is now experiencing yet another new wave of mass displacement.

Experiences from other long-standing displacement crises suggest three relevant lessons for Gaza:

1) Support for families hosting Palestinian IDPs will be critical. While much attention is focused on those sheltering in UNRWA facilities, assisting people who are dispersed within communities is more difficult. 

2) The effects of displacement include psychological trauma (what does it mean for families when parents cannot keep their children safe and when schools are attacked?). Psychological trauma is debilitating and specialized support is needed – but in Gaza, many of the trauma specialists are themselves traumatized.

3) The displacement that has occurred over the past few weeks will likely take months – if not years – to resolve. Rebuilding homes, livelihoods and infrastructure takes much longer than the time needed for people to abandon their homes. 

Authors Image Source: © Finbarr O'Reilly / Reuters         
Categories: Blog

The Five-Year Itch: The Implications of the EU Appointments Process

Brookings Institute Blog - Mon, 08/04/2014 - 09:57

As the crises in Europe’s neighborhood mount, the European Union (EU) is once more consumed by an important but fundamentally internal issue. The current struggle involves the EU’s effort to select a trio of leaders for its main institutions: specifically the president of the European Commission, the president of the European Council and the high representative for foreign affairs and security policy (a sort of foreign minister). The selection of Luxembourg’s former Prime Minister Jean-Claude Juncker as president of the European Commission proved extremely divisive. Worse, EU member states failed to select people for the other two posts, punting the decision until after Europe’s long August break.

These perennial brawls over the selection of EU leaders reflect a broader divide over what the purpose of the European project actually is. At stake is the balance between member states and EU institutions, as well as the democratic legitimacy of the EU.

To a degree, this divide tells a story which has been told over and over again since the European integration project started over 60 years ago. But today’s disagreements are playing out in a context shaped by the effects of a devastating economic crisis which shattered the public’s trust in the EU’s ability to deliver prosperity, and amid crises in Europe’s neighborhood that threaten its security. With EU member states also mired in a poisonous debate over the merits of austerity and a referendum on the United Kingdom’s EU membership looming, the EU may soon face existential challenges. This would have very serious consequences not only for all European countries, but also for the United States.

The Deeper Divide

The story begins with very distinct understandings of the meaning of last May’s European Parliament (EP) election results. All agree that anti-establishment forces cumulatively got around 30 percent of the votes, but there the agreement ends. According to Euro-skeptics, particularly British Prime Minister David Cameron, the strong electoral showing of non-mainstream parties, all openly critical of the EU, has conveyed a clear message that the European public is sick of an "ever closer" Union built over their heads by unaccountable elites. In this reading, the appointment of a quintessentially EU insider such as Juncker flies in the face of the public’s demand for "reform."

Supporters of Juncker’s appointment took precisely the opposite lesson from the EP election. They point out that most EP parties had put forward their spitzenkandidat, or "lead candidate," for the commission top post prior to the election in an attempt to bolster the Commission’s democratic legitimacy. Juncker was nominated by the group that won the most seats, the European People’s Party (EPP), the Europe-wide coalition of mainstream center-right parties. Hence, his appointment should be viewed as expressing the European public will. By adopting this line of reasoning, supporters of Juncker implicitly accept the Europhile argument that votes in the EP election convey public views on European, as opposed to national, issues – a proposition which runs counter to most understandings of European voter behavior.

In fact, the picture is more nuanced than either view admits. A large section of the European public, extending well beyond the electorate of anti-EU parties, undoubtedly perceives the EU as a distant, opaque and scarcely accountable decision-making machine. Yet, to infer from this general sense of disenchantment a demand for transferring powers back to national capitals, as Euro-skeptics do, is a stretch. Seventy percent of Europeans, however disillusioned they might be, voted for pro-EU parties. It is not unreasonable to assume that they crave greater transparency and accountability rather than more national sovereignty. But is the spitzenkandidat method really a step in that direction, given that only 8 percent of Europeans polled could even name Juncker?

The New Risks

According to its critics, the spitzenkandidat process expropriates the right to select the commission president from EU leaders, thereby illegitimately making the EP the kingmaker. This is a legitimate concern. By inventing the spitzenkandidaten, the EP parties have seized upon the wording of the Lisbon treaty to somewhat improperly increase the EP’s role. While the text does state that the result of the EP elections should be taken into account, it says nothing about EP parties indicating their candidates in advance, keeping the ultimate say on the matter in the hands of the council (even though the commission president needs a vote of confidence by the EP).

EU leaders are aware of this and have announced plans to review the way the Commission president is chosen. Still, there is no doubt that the EP has succeeded in creating a precedent that the council may find hard to ignore in the future. Having tasted real power, the EP is unlikely to give up on it without a fight.

There are good arguments to support the EP’s as well as the council’s prerogatives. The EU is designed to share prerogatives among these bodies in a search for balance between its conflicting intergovernmental and supranational personalities. Finding that balance may ultimately be impossible, but (as so often with the EU) the end result is less important than the process itself. While imperfect, a governance system based on constant intergovernmental and inter-institutional bargaining keeps the EU boat afloat and enables cooperation between member states on a scale otherwise unachievable. A dynamic according to which the EP defines EU interests in a "communitarian" manner while the council does it in intergovernmental terms should therefore be bounded and a sense of co-ownership fostered. Manichean assertions as to where the "democratic legitimacy" of the EU lies – be it in the member states or in empowered communitarian institutions such as the EP – should also be put to rest.

The risk is that open warfare between the EP and the council, as well as between integrationist and anti-integrationist camps, would catch the commission in the middle, reducing its ability to devise solutions acceptable to all EU countries. With the European economy reeling from the eurozone crisis, EU member states cannot afford to waste time or energy on institutional infighting, nor can they afford a subdued commission. On the contrary, the new commission’s ability to take the initiative and broker compromises among the member states will be critical, as its inauguration next fall will almost certainly coincide with a renewed "pro vs. anti-austerity" debate within the EU.

Indeed, getting past the austerity debate is the EU’s most urgent political task. We underline the term "political" because, whatever the (highly disputed) economic merits of the austerity course, it might soon become politically unsustainable. German-led austerity champions still hold the higher ground, while debtor countries have little leverage. Yet, whatever the Germans and their partners think they are gaining in the present circumstances might get easily lost. If anti-establishment parties continue to gain, the EU could, in a few years, become unworkable.

Implications for the U.S.

The U.S. clearly has a great deal at stake in the EU’s leadership decisions. Public comment would be both impolite and unwise, but U.S. officials are assumedly quietly making U.S. views known to their EU partners. They would likely express three core U.S. interests that might be affected by the EU leadership decisions:

  • EU economic decision-making – For both economic and geopolitical reasons, the U.S. effort to conclude a Transatlantic Trade and Investment Partnership (TTIP) with the EU is a critical priority for the Obama administration. The U.S. will want negotiating partners in the commission who believe strongly in the TTIP process, but are sensitive enough to the member states’ positions that they can adequately represent them at the negotiations and thus persuade them to accept the outcome. The U.S. also supports a relaxation of austerity conditions within Europe, in part because it believes the resulting stronger growth will provide the necessary economic and political breathing space for national leaders to support TTIP.
  • EU Foreign Policy – As the U.S. attempts to shift its attention to emerging dynamics in East Asia and continual crises in the Middle East, it is (and has been for some time) looking for a Europe (EU or otherwise) that is willing to step up and take responsibility for its own region. The Ukraine crisis has not appreciably changed that desire but it has sharpened the necessity. At the same time, the clear leadership and public opinion struggles within the EU in recent years have largely led the U.S. to despair that the EU as an institution can take responsibility for its own region. The U.S. has by necessity fallen back on a more intergovernmental approach to European leadership whereby a coalition of interested states might serve as a vanguard for organizing European foreign policy on specific issues. The U.S. wants an EU and particularly a new high representative that can provide both institutional support and political cover for this process, particularly in regards to the Eastern neighborhood but also on issues like Iran and North Africa.
  • Britain future’s in the EU – The U.S. has made clear that it believes that it is important for the U.K., the EU and transatlantic relations that the U.K. remains within the EU. From an American perspective, the U.K. anchors in the EU in the transatlantic alliance, provides an important liberal economic perspective for a club that harbors some protectionist tendencies, and helps to maintain British standing in the world. There is a great deal of worry in the U.S. that, as a result of British tactics on EU questions (and arguably as a result of the German response), the British are being increasingly isolated in the EU, potentially setting the stage for a disastrous departure decision in 2017.
The Results (so Far)

The results of the EU appointments process (so far) are a long way from satisfying these desires. The outward manifestation of these divides have been the apparently endless effort to find balances in the job selections among the EU’s many competing interests – right and left; east and west; male and female; small country and large country. But beyond that almost impossible math problem, the process has reflected the increasingly polarized debate between the intergovernmental and supranational visions of the EU. The divide threatens not only to weaken EU decision-making, but also to contribute to further alienation of the European and especially the British public and thus to continue the steady trend of increasing vote shares for anti-systemic parties.

As a result of this particular appointment process, the new leadership begins with weak legitimacy and an inbox of very serious geopolitical and economic challenges. There are now much greater risks in this process, for both Europe and the U.S. The EU is under enormous strain from its continuing economic problems, from its inability to formulate strong, unified to problems in its neighborhood, and from the threatened defection of the U.K. The new EU leaders might wish therefore to begin simply by considering how next time this process can enhance rather than reduce the EU’s troubled image at home and abroad.

Authors Image Source: © Christian Hartmann / Reuters         
Categories: Blog

Timbuktu Renaissance: Culture at the Heart of Peace-building and Socio-economic Development

Brookings Institute Blog - Mon, 08/04/2014 - 09:00

Timbuktu. To many, the name evokes a place of mythic remoteness. To others, it connotes an ancient crossroads of trade, exotic goods and culture. And still others know it as the sacred intellectual capital of the Muslim world, synonymous with universities, debate and religious tolerance. Tragically, Timbuktu most recently conjures memories of the 2012 occupation when armed groups, including al Qaeda-linked jihadists, committed grave human rights abuses, damaged mausoleums and shrines, torched manuscripts and banned music, the very lifeblood of Mali. Thanks to the resilience and ingenuity of the local population, and an international military intervention supported by the U.N. and led by the French, the extremist occupation failed.

A UNESCO World Heritage site, Timbuktu symbolizes both the challenges and the potential of Africa, themes that have drawn 50 heads of state to Washington for the first U.S.-Africa Leaders Summit. The renaissance of Timbuktu as a beacon of tolerance, wisdom and innovation – all signature characteristics of its Golden Age – has immeasurable symbolic power in the Sahel and Middle East and North Africa (MENA) regions, where sectarianism and brutal intolerance are on the rise.

The Timbuktu Renaissance (TR) Initiative aims to leverage Mali’s and, particularly, Timbuktu’s heritage and living culture to promote peace and prosperity. The TR’s integrated strategy will boost Mali’s creative industries (e.g. tourism, literature, architecture, music, film and artisan crafts) and mobilize investment for sustainable economic development initiatives ranging from education and agriculture to renewable energy and transparent natural resource development.

The Government of Mali fully supports this initiative under the leadership of the Minister of Culture Mrs. N’Diaye Ramatoulaye Diallo, whose motto upon taking office was to place “culture at the heart of socioeconomic development.”

Leading representatives of the Malian government including President Ibrahim Boubacar Keita and his ministers of culture, foreign affairs, investments and religion joined members of the Timbuktu Renaissance Action Group which convened artists, scholars, diplomats, philanthropists, investors and technologists, for three days of meetings at Brookings’s 2014 U.S.–Islamic World Forum. The group explored how best to revive Timbuktu as an educational, cultural and spiritual center of Africa. The consensus was that Timbuktu not only can lead Mali’s reconciliation and recovery, but can also provide a model for post-conflict recovery, sustainable development, and countering violent extremism (CVE) that can be scaled and replicated trans-Sahel and MENA.

To lay the groundwork, the Timbuktu Renaissance co-directors recently returned to Timbuktu with Minister of Culture Diallo, social entrepreneurs and representative of the Google Cultural Institute. With Manny Ansar, producer of Timbuktu’s famed Festival Au Désert, and Salem Oud Elhaj, Timbuktu’s venerable sage and historian as our guides, we were able to maximize the daylight hours the MINUSMA flights allowed. (Commercial flights have yet to return to Timbuktu.)

For Manny Ansar, his first return to Timbuktu since he’d fled for his life to a Burkina Faso refugee camp in the spring of 2012 was bitter sweet. He noticed the relative trickle of people in the streets (a large percentage of the population remains in exile). The main square, which once hosted a bustling market, stood empty save for the scar of the blasted monument at its center. However, Manny also recognized the familiar smiles and waves, the warm Malian hospitality…the resilience.

Everywhere people asked Manny if he was bringing the Festival Au Désert back to Timbuktu. Why would locals care so much about a music festival? In the last decade, the festival has become the most celebrated musical pilgrimage on the continent, drawing musicians and fans the world over. Banned from holding the festival in Timbuktu, Ansar has taken worldwide as a Festival in Exile.

Back in Timbuktu, the return of music and the expulsion of the occupiers restored hope, joy and pride. For culture lies at the very heart of Timbuktu’s identity, and is vital not only to the population’s spirit, but also to its sustenance.

To quote the mayor of Timbuktu, during our visit, “Culture is not just for pleasure (‘un divertissement’), it is essential for the economy.“ He went on to detail the economic devastation after tourism disappeared. “Timbuktu has 70 guides; each supports 10 people. None has been employed since 2012.”

The same themes dominated our meetings with the mayor, the governor and the imam of the Djingareyber Mosque:

  1. Gratitude for the attention to Timbuktu’s challenges.
  2. A recognition of the importance of culture for social cohesion and economic recovery.
  3. The resilience of the people of Timbuktu and their determination to preserve their way of life, including a tolerant and pluralistic approach to Islam.

The meeting with Timbuktu’s grand imam produced a moment of levity when he perked up at the mention of Google representatives in our midst. “Google?! I was the first person in Timbuktu to go online,” he declared with a grin, before leading us on a personalized tour of the 600 year old Mosque.

From the Mosque we caravanned to “La Maison,” a boutique hotel where dignitaries and international music stars alike stayed while attending the Festival au Désert. Weeks after the festival in 2012, the occupiers overran the building and began dispensing their brutal “justice” in those very rooms, executing summary judgments, lashings and amputations.

In TR’s strategy, La Maison will be transformed into Timbuktu’s Center for Culture and Innovation – providing much needed recording artist and TV studios, computers with white space connectivity, university exchange and training programs and NGO support facilities. The center will help alleviate the lack of professional training, as well as gathering places for youth, all lamented by the Timbuktu officials we met.

The TR’s additional priorities are: the return and live stream of the Festival au Désert to Timbuktu; and until then, its continued touring incarnation as a Festival in Exile; an accompanying feature documentary film and film-festival tour; star-infused compilation albums; the restoration and traveling museum exhibition of the famed manuscripts (in the context of a larger Treasures of Timbuktu exhibition); and a virtual Timbuktu website and content aggregator.

The touring museum exhibition, allied with a robust online experience, will help tell the story of Timbuktu until refugee populations and, ultimately, tourists can safely return. Even then, the story of Timbuktu resonates far beyond its remote geography.

Consider its historic significance. Gold, salt and literature held equal value in Timbuktu, once the largest university town in the world. The birthplace of the Blues, or, to quote Bono, “the big bang of all the music we love,” Timbuktu has an unparalleled festival and music legacy. Its treasured manuscripts, peppered with the acceptance of diversity and plurality that is Timbuktu’s calling card contain prescient analyses of issues from human rights to corruption, to debates on the efficacy and ethics of slavery.

With its unique significance, Timbuktu has the capacity to disrupt sectarianism and radicalization, and within the context of a renaissance, to transform the image of Mali, Africa and Islam.

Cheick Abdel Kader Haidara, to sneak hundreds of thousands of manuscripts out of occupied Timbuktu, explained that he has devoted his life to preserving these unique historical documents, “not for myself; not only for Mali, but for all of humanity.”

The challenge for Mali, and, arguably, for “all of humanity” is this: will the attack on Timbuktu serve as a wake up call to revive this great center of learning and culture, with its timely model of tolerance and plurality? Or, will the fabled city of gold continue to spiral with its beacon as a spiritual center of science, justice, philosophy, commerce and the arts fading to black?

Yes, Timbuktu evokes remoteness. But, taking into account the universality of its wisdom, in fact, this city of 333 saints, to quote its music icon Ali Farka Touré, sits “right at the heart of the world.”

Read about the related event, The Timbuktu Renaissance Initiative Reception » 

Authors Image Source: Francois Rihouay         
Categories: Blog

Europe’s Russian Connections

IMF blog - Fri, 08/01/2014 - 07:45

By Aasim M. Husain, Anna Ilyina and Li Zeng

(Version in Русский)

The conflict in Ukraine and the related imposition of sanctions against Russia signal an escalation of geopolitical tensions that is already being felt in the Russian financial markets (Chart 1). A deterioration in the conflict, with or even without a further escalation of sanctions and counter-sanctions, could have a substantial adverse impact on the Russian economy through direct and indirect (confidence) channels.

Chart 1

What would be the repercussions for the rest of Europe if there were to be disruptions in trade or financial flows with Russia, or if economic growth in Russia were to take a sharp downturn? To understand which countries in Europe might be most affected, we looked at the broad channels by which they are connected to Russia—their trade, energy, investment, and financial ties. See also separate blog on Russia-Caucasus and Central Asia links.

We find that Eastern European countries have the closest links with Russia and some of them could be seriously affected by a sharp slowdown of the Russian economy or a ratcheting up of sanctions and countersanctions. Western European countries are relatively less linked but some could also see significant effects. These conclusions, of course, are based broadly on the potential channels rather than a quantification of the potential impact, which anyway could be dominated by confidence effects from geopolitical tensions.

Trade links  

For most European countries, Russia is not a major export market (Chart 2). Therefore, slower growth in Russia would probably not hurt them too much. However, for many of Russia’s immediate neighbors such as Belarus, Ukraine, Moldova, and the Baltics, whose exports to Russia exceed 5 percent of their respective GDP, the impact could be substantial.

Chart 2

But European countries depend more on Russia on the import side—particularly gas and oil (Chart 3). Moreover, in some countries certain industries—such as chemicals and minerals, metals, and manufacturing equipment—rely heavily on inputs from Russia. These industries stand to face a disproportionate impact if there are trade disruptions or price increases on energy imports from Russia.

Chart 3

Energy supply

Europe relies on Russian gas, importing over one third of its natural gas from Russia through several major pipelines (the dotted line on the map is the planned South Stream gas pipeline). Russian gas accounts for over 50 percent of total gas consumption in virtually all countries in Eastern Europe and several advanced economies in Europe as well (Chart 4). However, as a share of total energy—rather than gas—consumption, Russian gas is somewhat less critical but still very important for several countries and especially so for Belarus and Moldova (Chart 5).

In the event of a price increase or disruption in gas supplies from Russia, countries’ ability to access alternative suppliers or energy sources will vary. For some countries, particularly those whose energy infrastructure is less nimble and whose gas inventories are relatively low, the transition could take longer and be more consequential. For example, the pipeline via Ukraine has the largest capacity and transports almost half of Europe’s gas imports from Russia, and so any disruption in the flow through that particular pipeline would have potentially serious effects on countries whose energy infrastructure relies heavily on it. Many European countries also depend heavily on oil imports from Russia, but those are easier to substitute from other suppliers than gas imports.

Chart 4

Chart 5 

Investment flows

Foreign direct investment (FDI) from Russia, in industries such as banking, energy, and metal and mining, exceeds 5 percent of GDP for Belarus, Bulgaria, Moldova, and Montenegro (Chart 6). 

Chart 6 

 

A number of advanced economies, notably Netherlands and Ireland, have significant FDI in Russia as well (Chart 7). Financial centers, such as Cyprus, Luxembourg, also report high two-way FDI flows.

Chart 7

Financial links

Many Western banks have sizable exposures to Russia. Notably Austrian, Hungarian, French, and Italian banks have subsidiaries in Russia and also lend directly to customers in Russia from their branches outside Russia (Chart 8). For some of these banks, their Russian operations have accounted for a large share—in some cases over one third—of their profits in the last few years. 

Chart 8

The same Western banks also lend to other countries in Central, Eastern and Southeastern Europe (CESEE). In Chart 9, the outer ring shows the largest common creditor countries (and their major financial institutions) which account for 60 percent of the total cross-border lending to the CESEE region. In the middle are the recipients, with Russia accounting for about one third of the region’s total borrowing from these creditors. Hence, if a large shock to Russia triggers a reassessment of regional risks by common creditors, it could result in a broad pullback in lending to other countries too.

Chart 9

Foreign portfolio investments to Russia are also sizable, given that Russian assets account for 6–12 percent of emerging market benchmark indices. But there has been little sign of contagion to other Eastern European markets so far,even as Russia’s spreads widened sharply following developments in Ukraine, spreads of most other CESEE sovereigns drifted lower (see Chart 1).

The color-coded maps above can be summarized as follows:


Categories: Blog

Links and Levers: How the Caucasus and Central Asia Are Tied to Russia

IMF blog - Fri, 08/01/2014 - 07:45

By Alberto Behar

(Version in Русский)

The countries of the Caucasus and Central Asia (CCA) are closely linked with Russia through trade, financial, and labor market channels. These ties have served the region well in recent years, helping it make significant economic gains when times were good. But how is the region affected when Russia’s economy slows down?

Underlying structural weaknesses have reduced Russia’s growth prospects for this year and over the medium term. Tensions emanating from developments in eastern Ukraine—including an escalation of fighting, the downing of Malaysian Airlines Flight 17, and new sanctions—have led to renewed market turbulence in Russian markets.

Experience has shown that lower growth in a large country can inflict significant collateral damage on neighboring countries with strong linkages of the type that the CCA has with Russia. (See also separate blog on Russia-Europe links.) We took a closer look at these connections to see how they transmit shocks, with particular attention to the impact on the region’s two main categories of economies—hydrocarbon importers and hydrocarbon exporters (see map).

Greater impact on oil importers

The links between Russia and the CCA are strong and multi-dimensional, we discovered (see figure):

  • A special characteristic of the oil and gas importers is their reliance on remittances for household income and foreign currency. Russia accounts for at least 90 percent of remittances to Armenia, the Kyrgyz Republic, and Tajikistan—and in the case of Tajikistan, remittances are equivalent to half of GDP. Slower growth in Russia means lower remittances: our calculations suggest that a 1 percentage point fall in Russia’s GDP could reduce remittance flows to households in oil- and gas-importing countries by 1½ percent. The presence of very large numbers of workers from the CCA and the remittance channel also means that changes in Russia’s visa regimes or labor regulations could have a significant impact.
  • Russia also exports goods to the CCA’s hydrocarbon-importing countries, especially oil and gas. As in Western and Central Europe, Russia has a big influence on CCA countries through changes in gas prices or deliveries. After a recently-negotiated 30 percent price discount, Armenia will save about 1½ percent of GDP annually on its gas bills, a big benefit for the country.
  • Although CCA commodity exports are targeting the global market, Russia is still the main destination for goods from job-creating industries like agriculture, garments, and spirits. IMF calculations suggest a 1 percentage point fall in Russia’s GDP could reduce CCA non-oil exports by ¾ percent. Moreover, exports may be vulnerable to changes in Russia’s application of food safety standards or other non-tariff trade barriers.
  • FDI and banking links with Russia are relatively small, suggesting smaller spillovers via these channels. However, CCA countries do not have particularly strong or diverse FDI or financial sector links with other regions, and the slowdown in Russia and concerns with escalating fighting in eastern Ukraine and sanctions could contribute to region-wide confidence impacts that may also affect the CCA.

All of these linkages transmit macroeconomic shocks that would have a bigger impact on the region’s oil- and gas-importing countries than on its oil- and gas-exporting countries. Our analysis suggests that a 1 percentage-point fall in Russian GDP growth would reduce the oil and gas importers’ growth by about ½ percentage point and the oil and gas exporters’ growth by less than a ¼ percentage point.

Policy implications for the near term

As a short-term response to a temporary shock, such as lower Russian growth this year and next, some CCA countries can reduce interest rates and sustain government spending in order to support the economy. However, the oil- and gas-importing countries have limited resources with which to cushion shocks. Should the need arise, countries could seek policy advice and financial support to help mitigate these potential effects. (Two of the region’s oil-importing countries—Armenia and Georgia—currently have programs supported by IMF financial assistance.)

Lower medium-run growth in Russia, however, means that CCA growth—and hence tax revenues—will be lower than previously expected. As a result, policymakers in all countries in the region would do well to spend prudently—to avoid a spike in debt in some oil- and gas-importing countries and to limit the drawdown of oil savings in the oil- and gas-exporting countries.

Greater economic independence in the long term

Although the CCA countries have enjoyed strong growth in the past propelled in part by Russia, they’ll need to find a new growth impetus as they seek to transition to dynamic emerging markets (see a recent paper on the CCA). Greater openness to FDI, enhanced connectivity, and more diversified trade are part of the answer.

The CCA countries are among the least integrated in the world due to geographical and policy barriers. While the current tensions in the region underscore potential complications to deeper integration, a multilateral approach in which trade barriers are reduced with all countries remains the best option.

With thanks to Brian Hiland and Greg Hadjian for their contribution to this blog post.


Categories: Blog
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