The economic crisis: And the biggest loosers are...

According to the IMF (International Monetary Fund), the global financial crisis will significantly worsen the budgetary position of many Low Income Countries (LIC) governments up to the level where they will need international aid to be able to survive the crisis.

Why are LIC countries particularly vulnerable? Because they don't have a buffer more developed countries have...

On one hand, government revenues are expected to suffer as economic activity slows and commodity prices fall. Potential declines in donor support and tighter financing conditions will likely impose further pressures on their budgets.

On the other hand, many countries will need to increase spending to protect the poor, and additional spending pressures may arise from currency depreciation and rising interest rates, which could raise debt service costs.

The most vulnerable countries are: Albania, Angola, Armenia, Burundi, Central African Rep., Congo DRC, Côte d'Ivoire, Djibouti, Ghana, Haiti, Honduras, Kyrgyzstan, Laos, Lesotho, Liberia, Mauritania, Moldova, Mongolia, Nigeria, Papua New Guinea, St. Lucia, St. Vincent & Grenadines, Sudan, Tajikistan, Vietnam and Zambia.

Baseline projections for 2009 foresee a total balance of payments shock of US$165 billion for these countries. They will need at least US$25 billion of financial assistance to offset the impact of the shock on their international reserves. The needs could be much larger — approaching US$140 billion in a “bad case” scenario. (The full IMF report)

Read the full post...

Rumble: Trade liberalization, making the poor even poorer?

Take the case of Haiti:

Rice is the staple food of Haiti and up until the 1980s Haiti was self-sufficient in its production. In the mid-1980s Haiti's domestic rice production decreased rapidly. By the 1990s rice imports outpaced domestic rice production. This displaced many Haitian farmers, traders, and millers whose employment opportunities are extremely limited.

Import tariff reduction is a critical piece of the trade liberalization policies that are strongly advocated and many times mandated by international financial institutions like the International Monetary Fund (IMF) and the World Bank in the loan packages they negotiate with developing countries. In 1995 Haiti agreed to the pressure of the IMF to cut on rice import tax from 35% to the current level of 3%.

Though it earned Haiti a score of 1 on the IMF's 1999 Index of Trade Restrictiveness, making Haiti the least trade restrictive country in the Caribbean, Haiti has also remained the least developed country in the Caribbean. It is the poorest country in the Western hemisphere. Three-fourths of Haitians live on less than $2 a day and 70 percent of the workforce is jobless or underemployed. More than half the country's children don't get enough to eat. The connection?

Following the adoption of the import policies local production of rice in Haiti dropped dramatically. Rice import tariff reductions in Haiti has made it more difficult for local rice producers to compete with imports.



Some argue that the resulting flood of relatively cheap rice imports originating mostly from the United States has had a negative impact on Haiti. The decline in the demand for Haitian rice has been devastating to an already desperate rural population. Rice farmers are some of the most vulnerable members of the population; the alternative employment options for farmers in Haiti are extremely limited.

Furthermore, competition between Haitian and American rice growers is not exactly fair. While US rice production is "subsidized through a variety of mechanisms", the small, struggling domestic rice industry in Haiti receives no support from the government. Several Haitian and international NGOs have claimed that the US is guilty of dumping rice in Haiti. The US now dominates the rice market in Haiti. Most American rice exports are handled "by a single US corporation -- American Rice Inc. -- which has enjoyed an almost monopolistic position in Haiti." (Full)

Picture courtesy Newsday/Moises Saman. Graph courtesy american.edu

Read the full post...