Tag Archive for technology

HIPC – Heavily Indebted Poor Countries Initiative

Way back in 1996 the IMF launched an initiative together with the World Bank. It’s aim was to ensure that no country faced a debt burden that it would be unable to manage.  Since that date it has worked with  the financial community on a global level to reduce debts in poor countries to sustainable levels.  Some may think it is unfortunate  that the rich countries were not included in this initiative of debt reduction.

The whole initiative was reviewed in 1999 and improvements were made based on experience.  This was then supplemented in 2005 when the HIPC was supplemented by more acronyms – the MDRI (Multilateral Debt Relief Initiative).  This actually allowed a country to get relief of 100% of it’s debts from funds controlled by the IMF, the World Bank and the African Development Fund.

The conditions for eligibility were as follows –

  1.  be eligible to borrow from the World Bank’s International Development Agency, which provides interest-free loans and grants to the world’s poorest countries, and from the IMF’s Poverty Reduction and Growth Trust, which provides loans to low-income countries at subsidized rates.
  2. face an unsustainable debt burden that cannot be addressed through traditional debt relief mechanisms.
  3. have established a track record of reform and sound policies through IMF- and World Bank supported programs
  4. have developed a poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process in the country.

It’s good news really as out of the 39 countries eligible or close for HIPC aid currently 34 are receiving full debt relief. Several are coming close to achieving their debt relief criteria and decisions are pending. There are still many issues in some of these countries regarding human rights but poverty is likely to act as a barrier to solving these.  It is advised in many of these countries to use a fake IP address ( check here for some advice – http://www.theninjaproxy.org/tv/a-fake-uk-ip-address/ ) when visiting as their ISPs are often heavily logged or filtered.

This is particularly one area that developing countries should focus on as the internet offers employment and entrepreneurial opportunities for lots of the population when the infrastructure is improved.

China Moves to the Slow Lane

No economy can grow at the rate of the China forever, it’s simply unfeasible and a slowdown is an inevitable result at some point.  The growth story has been huge and some measure of rebalancing is not only inevitable it is desirable too.   China has followed the tried and tested growth template pioneered by other Asian economies, Japan, South Korea and Taiwan are just a few examples.  These countries were always described as ’tigers’ in global economic terms however China is much, much bigger than these.

The worry of course for the rest of the world is simply the scale of the Chinese economy now.  The tigers had far less of an effect on the global markets than China did and many of these economies have suffered in the downturn particularly the Japanese.  The issue in a world beset by recession is of course that all these growth stories were focused on exports.  The extensive investment in manufacturing, education and infrastructure created the funnel to supply an export driven market.

This strategy raises huge amounts of foreign currency, which is essential to purchase the raw materials to supply the manufacturing plants.  However this growth model is simply unsustainable in the current climate particularly due to heavy subsidisation required to manipulate exchange and interest rates, plus keeping wages low to minimize costs.

The problem is that the market for the goods China produces is falling, growth cannot come from outside any more whilst the recession hits it’s main markets – saturation point has been reached.  The difficulty China has is moving to a new model, it needs to be genuinely competitive not just at the expense of it’s own people.  Investment in infrastructure can help but the unused developments and white elephants strewn across China demonstrate that this is not the long term answer.

China faces many problems with being genuinely competitive in a global market. It’s difficult for entrepreneurs to prosper in such a tightly controlled and monitored society.  Just taking the internet as an example – the infrastructure available should mean the country is a world leader.  However this isn’t the case as the country is handicapped by surveillance, internet filtering and censorship.

The IT tools and infrastructure used by many  global companies simply don’t work in China.  Whilst individuals worry about the lack of online anonymity – see this for instance – secure proxy, especially in a heavily monitored network, companies have extensive difficulties in simply operating.  The numerous stories of paid hackers and state sponsored industrial espionage also make many of the biggest brands wary of setting up at least on the Chinese mainland.

The restrictions that are put in place obviously are primarily targeted at the Chinese citizens themselves.  But they too are becoming well used to bypassing these, by using technology freely available on the web.  Take for instance accessing specific media sites, this video for example illustrates a method used by people to access Netflix a popular media streaming site.

These problems will severely hamper the Chinese economy, as it seeks to modify it’s model.  The problem is that the World needs China to succeed to some extent, and in many ways Chinese domestic demand could be a great boost to Western economies too.


Turkey’s Economic Recovery

When you think of where Turkey actually is, it’s actually very surprising it has made such a success of it’s economy in the last decade or so.  With it’s borders with Syria and the turmoil there, to the West liles the shattered economies of Greece and Cyprus – the former once the rich rival across the water.  Whilst Turkey has been left banging on the door to the European Union due to it’s many free speech and human righths issues, it’s economy has surged passed it’s Euro neighbours.

There was last month a symbolic moment of payment of it’s IMF debt. Almost to reinforce that paying your bills does pay in todays world, Turkey had it’s credit rating raised by several agencies including Moodys.  Ten years ago it was a different story with the country running out of room to fit more zeros ion it’s currency and a horrible inflation rate crippling it’s people.

This is the first time in fifty years that Turkey is going to be a net creditor to the IMF. There are signs all around that the economy and inequality beginning to fall.  However there is still a marked gap between rich and poor within this country and it’s very visible as you travel around. But the Government has  the people on it’s side with now three consecutive wins for the ruling party.  It has invested heavily in the Country’s infrastructure, high speed rail links and improving roads especially to some of the rural areas.

Importantly much of this investment in the infrastructure has benefited Turkish firms.  There are many successful Turkish building, construction and engineering firms which have carried out much of this work.  Certainly Turkey has few of the huge resource benefits that many of it’s neighbours have so the growth has been organically grown through economic policy.

It does show that success is possible in todays turbulent world, it was only in 2003 when Turkey was calling for emergency rescue from the IMF.  However today Turkey’s Government debt is only 40% compared to the 70-85% that you’ll find in the ’successful’ European economies.

There are worries in Turkey though, although Government debt is relatively low, the level of private debt is rising very quickly.  It is too soon to say that Turkey is following the route of Europe with a boom funded by consumer credit but there are certainly signs there. There are still issue with human rights though which can be seen throughout the country but especially using the internet.  You can see how many restrictions are in place simply by surfing through a Turkish Proxy – like this http://thenewproxies.com/turkish-proxy/.  There are many issues with equal rights as well particularly effecting the gay community in the country.

Jim Williams