Tag Archives: inflation

And the Inflation Winner is…..Venezuela

The Institute for International Finance is predicting that Venezuela will experience a 42 percent inflation rate this year, one of the highest in the world and the highest in the Latin America and Caribbean region. They report that this will have a heavy impact on the prospects for growth in the country for many years to come.

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Cooking the Numbers

The Argentine government is not the only one doing it, but it is one of the few seemingly caught in the act.  Apparently, the government is cooking the numbers to paint a better economic picture of Argentina and use it for political gains, and everyone (at least there) knows about it.

How serious are the allegations? Inflation, for example, is allegedly understated by a factor of 3.  And its not the first time this happened in Argentina.  See this Economist story from 2 years ago.

Understating inflation is often puzzling to me, especially when it is used as a means of retaining political power/touting one’s own success in managing the economy.  People don’t need to look at official economics statistics to sense changes in the price index – they know when the price of milk, bread, and other essential goods goes up.  They know it better and they trust their pocket more than any statistical analysis.

Lying about inflation seems to me a losing strategy, since it multiplies the anger over rising prices by the frustration of not getting the truth from the government.  So why do it in the first place?

And, since we are talking about Argentina, see what Felix Salmon of Reuters has to say about a recent survey by the ministry of tourism in Argentina on doing business in the country.

“The Pursuit of Higher Education in Zimbabwe: A Futile Effort?”

Zimbabwe’s economy suffers from ever-escalating inflation levels, price distortions for key commodities and utilities, high unemployment rates, rising poverty levels, foreign exchange and commodity product shortages, deteriorating public services, rising inequalities, and large income disparities. This harsh economic reality is crowding out young people’s ambitions of career and entrepreneurial development.

In this Feature Service article, Roselyn Sekai Kapungu, 3rd place winner in CIPE’s 2007 Youth Essay Contest, talks about the destructive effects that this acute economic crisis has had on Zimbabwe’s education system and opportunities for the country’s youth. Education is conventionally thought to bring private benefits through increased earnings. But education brings greater social benefits as well through creating a skilled workforce capable of propelling economic growth and development. Without that engine of growth, Zimbabwe’s economy will continue to suffer.

Kapungu asks, “The question is, do we lose hope in education and flee? If the answer is no, we need to come up with strategies that reward educational attainment and reduce poverty by promoting economic growth and job creation. Together with those policies, the key issues of equal access to education for boys and girls, improved graduation rates, better access to higher education, and enhanced life skills development need more attention.”

Article at a Glance

  • Poverty and economic hardship can either mobilize people to fight for quality education and a better future, or drive them away from education. The latter is disastrous to society in the long run, but it is the path many people in Zimbabwe have taken in recent years.
  • The education system in Zimbabwe has long suffered from an insufficient focus on teaching practical skills, limited access to higher education opportunities, and unequal access for girls to specialized fields such as science.
  • Successful educational reform is a necessary step to create the basis for sustained economic growth and requires the involvement of all stakeholders, ranging from families and civil society to national and local governments as well as the private sector.

The Difficulty of Ensuring Stability

Under President Putin, Special Aide and Deputy Chief of Staff of the Administration Vladislav Surkov was viewed as the Kremlin’s top “ideologist.” Now First Deputy Chief of Staff under President Medvedev, Surkov recently visited the annual summer retreat of the youth group Nashi (Ours). This Kremlin-backed project was designed to counter revolutions engineered from abroad during the 2007-2008 elections.

It’s unclear whether the Kremlin believed its own propaganda; most analysts found the idea of a tent city on Red Square laughably impossible. Perhaps Surkov, too, knew this all along, or perhaps, feedback between Russia’s government and its citizens is so distorted that revolution was considered a genuine threat. The truth is immaterial; whether the paranoia was real or staged, the Kremlin mobilized all of its resources to ensure an uneventful presidential transition. Nashi played its part, so with the new president safely elected, Surkov went to congratulate the young activists on saving Russia’s sovereignty.

Yet it seems that this obsession with staving off an imagined revolution has diverted the Kremlin’s attention from an actual threat, both to economic stability, and to the public’s unflagging trust in new Prime Minister Putin and his program: accelerating inflation. In 2007, inflation was nearly 12%, passing the government’s 8% target; in 2008, inflation is running at about 15% annualized, despite a December 2007 prediction by Finance Minister Alexei Kudrin that inflation this year would remain within 8.5%. While the ongoing influx of petrodollars seems to be the main cause, Russia has also been hit hard by rising global food prices, with some products up 30-40 percent.

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When money gets too sweet

With the price of oil at its record highs, it can be hard to imagine that key exporters thereof, six countries of the Gulf Cooperation Council (Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and United Arab Emirates) may currently be facing economic problems of any kind. The signs of prosperity seems to be all around as gleaming towers rise in the middle of the desert and guests arrive by helicopter at the world’s only seven-star hotel, Dubai’s sail-shaped Burj al-Arab. And yet not all is well.

A somewhat unexpected addition to the region’s stunning architecture is a… diabetes center in Abu Dhabi. Nearly one-fifth of the UAE’s native population now suffers from diabetes and the statistics are not much better in the rest of the GCC. A result of more sedentary lifestyle and unhealthy diet? Certainly. But, as the Economist points out, the diabetes problem can also be a useful metaphor for how…

    The region’s economies are struggling to absorb petrodollars, accumulating like glucose in the bloodstream. The risk they face is the economic equivalent of renal failure: inflation, a hollowing-out of the non-oil sector, and a young, growing workforce in chronic need of outside labor to supplement it.

Last year the GCC countries earned a total of $381 billion from oil exports, plus another $26 billion from gas. This accounts for over a half of their economies with the combined GDP of $800 billion. But at the same time inflation sped up, which – coupled with the global boom in commodity prices – is making construction materials, real estate, and food more and more expensive.

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Bail on the Black Market

Sadly, the roundup of foreign journalists continues in Zimbabwe as Mugabe does everything in his power to control the media and force his will on the Zimbabwean people in the wake of losing the presidential election.  Hidden in a story about the arrest of a New York Times journalist I found a startling detail that highlights the sad state of things:

Mr. Bearak’s passport was confiscated, and he was required to put up 300 million Zimbabwe dollars as bail, about $10,000 at official exchange rates but only about $7 at black market rates.

It is hard for some of us to imagine living in such an upside-down world where inflation is so high that paying $7 in bail is even possible. It borders on the absurd that there could be so large a difference between the nominal and real value of a currency. Surely to those following events in Zimbabwe for the past couple of years, this comes as no surprise as inflation has been spiraling out of control for some time.  It is just one more sad anecdote from a country that is teetering on economic and political collapse.

Misplaced Priorities in the New Tymoshenko Government

In a country where inflation is running higher than 16%, the World Bank’s Doing Business report ranks the tax system last, and corruption is endemic – there are a plethora of potential government actions to be taken.  After months of government inaction due to the political crisis, the Ukrainian Rada (parliament) finally met just before the New Year.  Although they did manage to pass a budget for 2008 they failed to agree to much more.  Unfortunately, a full 10% of the new budget is dedicated to a repayment plan for personal Soviet era bank accounts, fulfilling a campaign promise, but returning to the populism that brought about the downfall of Yulia Tymoshenko’s previous government just two years ago. 

I have a great deal of sympathy for those that lost all of their savings with the break up of the Soviet Union, but by trying to repay those that lost their savings in the past the Ukrainian government is bankrupting its future.  Many economists and policy analysts believe that these payments will raise inflation rates even further and cause the Ukrainian government to take on a burdensome amount of debt.  These debts will be forced upon the next generation of Ukrainian citizens and inhibit future economic growth.