The rest of the world
IMF Outlook – growth down, inflation to persist, structural reform needed
The IMF’s latest World Economic Outlook has taken into account Russia’s invasion of Ukraine to revise its earlier forecasts for the world economy. Global growth will slow down, particularly in “developing” countries, and inflationary pressures will persist.
Governments therefore have to make difficult choices. Were there no war, at this stage in recovering from the pandemic governments would be carefully tightening monetary and fiscal policy, in order to contain inflation, but many now have to deal with lower than expected economic growth.
There is uncertainty about commodity prices (not that there ever has been certainty about commodity prices). Supply disruptions will make for higher prices for some commodities, particularly food, while lower demand will generally make for lower prices.
These considerations are about the short-term. The IMF reminds countries to consider the longer-term in which governments should address structural issues, particularly around climate change:
Beyond the immediate challenges of the war and the pandemic, policymakers should not lose sight of longer-term goals. Pandemic disruptions have highlighted the productivity of novel ways of working. Governments should look to harness positive structural change wherever possible, embracing the digital transformation and retooling and reskilling workers to meet its challenges. Carbon pricing and fossil fuel subsidy reform can also help with the transition to a cleaner mode of production, less exposed to fossil fuel prices—more important than ever in light of the fallout of the war on the global energy market. The green energy transition will also entail labor market reallocation across occupations and sectors.
That could be an economic agenda for a party aspiring to office. But the Coalition goes on ignoring the need for structural change, and, fearful of another Morrison scare campaign, Labor proposes only tentative steps towards structural change.
Development economics reconsidered
When we think of development economics we generally see it in terms of poor and “undeveloped” or “developing” countries needing to emulate the successful practices of “developed” countries. According to the prevailing model, most poor countries have only a small “modern” sector, while most people toil in traditional low-productivity sectors. By contrast, “developed” countries have a generally “modern” high-productivity economic structure in all sectors and regions.
Dani Rodrik, writing in Project Syndicate – Development economics goes north – points out that this model, which made sense half a century ago, no longer holds, because the problems once considered to be problems in poor countries are now manifest in rich countries:
… the problems of a region where good jobs have disappeared look distressingly familiar to a development economist: scarce productive employment, mushrooming social problems such as crime and substance abuse, and low trust in the government among various social groups and the business community. The obstacles that racial or ethnic minorities, recent immigrants, or low-educated workers must surmount in such settings are the bread-and-butter of development economics.
He goes on to argue for policies in “developed” countries to attend to their depressed regions or sectors in the same way as development economists would approach the problems of a “developing” country. This may mean building on existing workforce skills, for example, rather than promoting projects that are biased toward the interests of capital and highly-educated workers.
Sanctions take time to bite
Many in the western world are disappointed that life in Russia appears to be going on as if economic sanctions have never been applied. After a short plunge in the Ruble:US $ exchange rate, the Ruble has largely recovered. The Russian government has helped cushion the blow with wage subsidies in industries hit by sanctions, and some of the pain has been borne by migrant workers.
Writing in Open Forum Peter Rutland of Wesleyan University in the US explains that while Russia can easily deal with the immediate shock of sanctions, they are staring to bite. That’s partly because some temporary measures cannot be sustained. It is also to do with supply chains. As one example that defies intuition, in spite of having abundant forests, Russia is running out of copy paper, because the finished product requires small amounts of imported chemicals. Globalization of production and sub-contracting have made it increasingly difficult for countries to avoid the effects of sanctions. (We may recall that in the 1970s and early 1980s sanctions against South Africa promoted a degree of self-sufficiency in that country, but that was in another era. Such autarky is not so easily achieved today.)
Rutland suggests that as market linkages are broken, Russia may respond by reverting to Soviet-era central planning, and we know how that system sapped the Russian economy dry.
Foreign events overlooked during an election and a war
Myanmar
April 13 was the start of four days of New Year celebrations in Myanmar. The country’s military government released 1619 prisoners on the occasion, but as Al Jazeera points out, no political prisoners were released. Among those still detained in Yangon’s notorious Insein Prison is Aung San Suu Kyi’s Australian economic policy adviser, Sean Turnell.
The article also reminds us that since the military seized power from the democratically-elected government last year it has killed 1756 people, and arrested more than 13 000 others.
The Guardian reports on a meeting between Australia’s ambassador to Myanmar, Andrea Faulkner, and coup leader General Min Aung Hlaing. The junta is using the meeting for propaganda purposes, publicizing “the further maintenance of good relations between two countries, enhancement of cooperation in various sectors between governments and peoples of both countries”.
Such meetings are part of diplomats’ regular duties, but according to The Guardian article, the meeting involved a photograph and a gift, symbolizing a warmer relation than we would expect between our representative and a coup leader whom the UN has recommended for investigation and prosecution for war crimes and genocide. Min Aung Hlaing has been personally sanctioned by the US, the EU and Canada, but not by Australia.
United Kingdom
In the UK a court has formally approved the extradition of Julian Assange to the US on espionage charges. The decision whether to accede to the US demand now rests with the UK home secretary, Priti Patel.
On Thursday’s ABC Breakfast program, Patricia Karvelas interviewed Greg Barnes, adviser to Assange's Australian campaign, on Assange’s options. It is not the end of the road: there are still avenues of legal appeal, including European courts of human rights. He urged the Australian government to take up Assange’s case with the British government – a duty that should fall to Albanese as well as Morrison because our government is in “caretaker” mode. Patel, however, will be under political pressure to extradite Assange before our election, an election that could see an Australian government less inclined to subjugate the national interest to UK interests than the Morrison government has been.
Timor
In Timor’s runoff presidential election Jose Ramos-Horta has won decisively with 62 percent of the vote, defeating incumbent Francisco Guterres. These outcomes are in line with the relative votes of the two candidates in the first-round election – see the roundup of March 26.