World's Top Central Bankers (Bernanke Isn't One)

In my never-ending quest to bring you, dear readers, the finest in political-economic commentary on what's out there--and believe me there is much--I've trawled through a multitude of sources. Riffing on others' blog posts is common in the blogosphere, but I like to think mine is...wider-ranging. Some sources that have occasionally yielded interesting finds are financial industry magazines. Prior to Super Lehman Brothers, there seemed to be a veritable proliferation of Euromoney wannabes. But just as that epochal collapse signalled the demise of many purebred investment banks, so did it augur the end of many industry rags. There is a season to all things and it seems these magazines have seen better days.

By some luck, then, I was perusing the latest issue of Global Finance. Alike Euromoney, it's very fond of coming out with "Best of" lists. World's Safest Banks in Asia, World's Best Trade Finance Banks...you get the idea. As it so happens, one of their latest features concerns the "World's Top Central Bankers 2011 ." What are the criteria they use to determine performance? Mostly national macroeconomic criteria, to no real surprise, according to the press blurb:

Global Finance magazine has named the heads of the Central Banks of six countries as the World’s Best Central Bankers over the past year.

The “Central Banker Report Card” feature, published annually by Global Finance since 1994, grades Central Bank Governors of 36 key countries (and the ECB) on an “A” to “F” scale for success in areas such as inflation control, economic growth goals, currency stability and interest rate management. (“A” represents an excellent performance down through “F” for outright failure.)

Subjective criteria also apply. Global Finance Publisher Joseph Giarraputo says: “During one of the toughest years on record, the World’s Central Bankers were tested as never before. Every year, we assess the determination of Central Bankers to stand up to political interference, and their efforts at influencing their governments on such issues as spending and economic openness to foreign investment and financial services.“

Anyway, six of the world's central bankers got the highest marks: Australia's Glenn Stevens, Israel's Stanley Fischer (formerly the IMF's No 2 man), Lebanon's Riad Salameh, Malaysia's Zeti Akhtar Aziz, the Philippines' Amando Tetangco, and Taiwan's Fai-Nang Perng. Given the collectively abysmal performance of industrialized economies, I expected more than three emerging economies to get As, but hey, it's their list. Plus, I am also chuffed that two central bankers in our region of Southeast Asia got the gold.

Let's now turn our attention to America's helicopter dropping man. Unsurprisingly, Ben Bernanke gets the third lowest grade. With more and more joining the lynch mob calling for his immediate execution, let's see how he does in 2012. As a writer of economics textbooks in use in several American universities, I suppose Bernanke is more used to grading than being graded, but he definitely isn't promoting either full employment (with unemployment rates Stateside sticking near the 10% mark) or price stability (which isn't usually spoken of in the same breath as tossing cash from a chopper). Hence his third lowest mark.

This league table certainly suits me, and I think there are fine applications possible here. Alike in European association football where the worst-performing teams are relegated to a lower division, the world economy would benefit if the same practice held in central banking. Really, they should put Bernanke where he can do less harm to the US economy in particular and the world economy in general. Unclogging toilets at the Federal Reserve headquarters in DC should do, or have him instead play Choplifter all day long where he may actually "rescue" little computer people after being such an abject failure at doing the same with real Americans. Homo economicus that he is, I'm sure Bernanke will take one of these alternatives over, well, hanging in Texas.

Make no mistake: many of the world's finest practitioners of the arts of central banking now reside in the Global South.

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When Cash & Hate Collide: Frayed US-Pakistan Ties

OK, so I had to think of a hackneyed title to describe an even stranger relationship. In general public consciousness--especially that of America--Pakistan emerged on the world stage in the wake of the 9/11 attacks. If not wholly supportive of the Taliban regime in Afghanistan back then, it was at least tolerant of its existence. By throwing wads of cash ("foreign aid") to curry Pakistan's favour, then-leader Pervez Musharraf famously switched allegiances to become a global warrior on terror--though his country's ultimate loyalty has remained in question. Since then, Pakistan has encountered several upheavals--the return of former leader Nawaz Sharif from exile, the killing of Benazir Bhutto and the subsequent election of her controversial husband "Mr Ten Percent" Asif Zardari.

All the while, Pakistan's economy has not exactly been a paradigmatic example of South Asian growth. In the wake of the global financial crisis, it did once more what it's done before in taking out an IMF standby agreement. With the consequences of a full political meltdown in a nuclear power potentially rather severe, the West ponied up quite quickly.

Fast forward to today and we have had interesting developments in this exercise in political economy. On the political side, we've had Pakistan complaining mightily about US excursions into its territory--especially that which eliminated Usama bin Laden. (Nevermind owing the US an explanation as to why he was sheltered in Pakistan's capital for the longest time, but territorial sovereignty does matter.) On the economic side, let's just say that Pakistan has, alike during previous bouts of IMF borrowing, failed to meet IMF conditionalities. This time around, failures to improve revenue collection are the culprit. The Pakistan News Service has the lowdown on this repeat borrower's history of, er, repeatedly borrowing without successfully escaping the need to do so. IMF lending to Pakistan is almost a mini-history of lending fashions at the institution:

Pakistan and the International Monetary Fund (IMF) will end [their] 12th loan programme, tag[ged] unsuccessful after 11 out of total signed loans of 18 in [the] last 53 years history of relations between two sides as Islamabad got [its] first loan programme from the Fund in 1958. The existing Standby Arrangement (SBA) programme will again repeat the old history as it is going to expire on September 30, 2011, on [an] unsuccessful note under which Islamabad failed to draw [the] last two tranches of $3.4 billion.

Pakistan’s history of using IMF resources can be divided into three distinct phases. In the first period—1970 to 1988—Pakistan had four one-year SBAs followed by one three year Extended Fund Facility (EFF). The special characteristics of this phase were (a) with the exception of two, [the] rest of the SBAs were fully disbursed, (b) there was little emphasis on structural reforms (except in EFF), and (c) repeated approach to Fund resources, in between periods of break.

In the second period, 1988 to 1999, Pakistan had both the short term and multiyear arrangements with the IMF. Unlike the first phase, these arrangements emphasized on variety of structural reforms along with demand[s on economic] management policies. Almost all the arrangements went off-track sooner or later on account of policy slippages. As a result, throughout this period Pakistan was continuously under one or [an]other IMF programme.

In the third period, 2000-2004, Pakistan availed one facility of SBA and PRGF [Poverty Reduction and Growth Fund] each. These arrangements were completed successfully as Pakistan met most of the structural performance criteria. With the recovery from macroeconomic crises, Pakistan exited from IMF programme in 2004.

The article then goes on to describe various IMF loan programmes since independence; more recent activity can of course be found on the [extensive] Pakistan pages on the IMF site.

In any event, disagreements over security have worsened with the US in the process of cutting off aid to Pakistan over sundry disagreements about how these monies have been used. Matters have come to a head over American incursions into its territory at the same time Pakistan has been unable to meet aforementioned conditionalities to avail of further disbursements of IMF cash. And don't forget that the less-than-transparent Pakistani intelligence service ISI has been accused by Admiral Mullen, outgoing chairman of the US Joint Chiefs of Staff, of coddling the allegedly terroristic Haqqani network. (Various political parties are now in the process of addressing this serious accusation.)

So the US and Pakistan don't quite get along. But what are the economic costs if Pakistan indeed goes it alone? The Express Tribune has some ideas:

The signals are indeed dire. The powers that be, above and beyond Prime Minister Gilani, had already spoken to break the heart of the business community: Pakistan was ready to take the consequences of its embrace of the Haqqani network and that it was the US that would suffer after losing Pakistan as an ally. As for the break with the IMF — after Finance Minister Abdul Hafeez Sheikh could convince neither the MQM [coalition partners] within the government nor the PML-N in the opposition to implement the RGST (Reformed General Sales Tax) — it threatens the economy with ‘dollarisation’ and rampant inflation already standing at a level higher than any other South Asian economy. What the businessmen wanted was probably not within the grasp of Mr Gilani. They were of the opinion that if the US was to be defied and if the umbrella of the IMF was to be removed, then they could hold up their end of the bargain provided that law and order was restored...

The pacification of Karachi is a long way off and may be overtaken by other crises triggered by the tiff Pakistan has picked with the US, to provide temporary emotional relief to the country’s intensely anti-American population. What the Gilani government is doing will not serve to bolster the confidence of the business community in Karachi. The army chief has not denied that the Haqqani Network is alive and well in Pakistan but has claimed that a lot of other countries in addition to Pakistan were maintaining contact with a militia of Taliban that controls 13 of Afghanistan’s 34 provinces. And Mr Gilani has delivered the most telling blow by saying: “America can’t do without us; it should stop sending out wrong messages.”

The end result may just be capital flight as the already-thinned business community in Pakistan flees:

No prizes, therefore, for predicting that the businessmen of Karachi will soon start saving their money and assets from being devalued by fleeing to other markets in the neighbourhood. It would be fair to say that the next few months or more will be uncertain to say the least, and that the consequences of a permanent break with the Americans could be severe on Pakistan’s economy.

To be honest, Pakistan's security services are at least as duplicitous as Westerners who've deservedly earned Pakistan's ire through the years. The ISI is as much of an obstacle to Pakistani development as foreign intervention. Unspeakable as it may be to many Pakistanis, could the alternative to coddling Americans actually be worse? There is much talk that a chastened Pakistan will soon be currying US favour once more given few alternatives and a moribund economy. Most of its "record" $18B reserve holdings f'rinstance are attributed to foreign donors the country is currently keen on ridding itself of.

Pakistan has been the mother country of many great minds; it does sadden me how it has been unable to sort things out at home so it can move forward alike its neighbours in India. Despite also having highly contentious and often violent politics, the latter has somehow managed to improve its situation in a way Pakistan has yet to find.

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As an aside, those all-purpose saviours the Chinese are being mooted for picking up the slack in lending to Pakistan.

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Explaining Fainting Factory Workers in Cambodia

It is a regrettable fact that, since the onset of the Industrial Revolution, we have yet to fully understand the consequences of young women entering the labour force in large numbers all at once. Certainly, the social consequences of this movement have for a long time provided fodder for contemporary writings about the onset of modernity. For instance, recall William Blake's search for the New Jerusalem when confronted with the "dark Satanic mills" of England during his time. All the same, economists like Paul Krugman tend to explain away the existence of sweatshops in a predictable way: What is the alternative to dull, hazardous and low-paying work in sweatshops but unemployment (or even duller, more hazardous and lower-paying work)?*

Today we are encountering this timeworn phenomena in Cambodia. Those working in Cambodia garments factories have recently begun swooning in droves with few apparent medical symptoms causing them to do so:

Last week a team of experts from the U.N.'s International Labour Organization (ILO) gathered in Phnom Penh to seek an answer to the first question. In the past three months, at least 1,200 workers at seven garment and shoe factories have reported feeling dizzy, nauseated, exhausted or short of breath, and hundreds have been briefly hospitalized. No definitive explanation has yet been given for these so-called mass faintings. One baffled reporter described them as "unique to Cambodia."

There are many explanation out there. While the abovementioned ILO searches for inadequate workplace conditions, industrial psychologists have latched on to mass hysteria as an explanation for why apparently healthy workers suddenly succumb en masse to fainting fits alike teenyboppers at a Justin Bieber concert:

All these are examples of mass hysteria, a bizarre yet surprisingly common phenomenon that is increasingly recognized as a significant health and social problem. For centuries it has crossed cultures and religions, taking on different forms to keep pace with popular obsessions and fears...

[Y]oung women are particularly vulnerable — and in Cambodia they make up most of the garment industry's 350,000-strong workforce. Conditions for workers have improved over the years, says the ILO, but few would envy their lot. Women leave their villages to toil in suburban factories for long hours and low pay, often making products for famous Western brands such as Puma and H&M. They live in grim communal shacks, eating sparingly so that they can send as much money as possible back to their homes.(Read about the burden of good intentions in manufacturing.)

"Stress, boredom, concern about their children and other factors among young females could trigger psychogenic fainting or other illnesses," says Ruth Engs, a professor of applied health sciences at Indiana University who investigated an outbreak of mass hysteria at a Midwestern university in 1995 after false reports of a toxic leak caused dozens of people to fall ill. "Poor ventilation, few breaks, stress from piecework production and other workplace conditions would all be contributing factors."

While these things have been going on for some time since Cambodia's turn to export-led development, media attention has only now latched on to this phenomena:

There have been dozens of similar episodes in Cambodian factories since the garment industry began rapidly expanding in the late 1990s. The recent incidents involved groups of up to 80 workers at a time, but the women didn't actually faint. "They don't lose consciousness," says Tuomo Poutiainen, chief technical adviser for Better Factories Cambodia, an ILO program seeking to improve factory working conditions. "They become powerless and lie down, and that's repeated by some co-workers."

After medical checks and rest, the women returned to work, with no apparent ill effects. "The good thing is none of the workers has a serious medical condition," Poutiainen says. "But it's also troubling because employers and managers can't get to the root cause." He admits that "some kind of mass-hysteria element" might be involved, but adds that the ILO wants first to eliminate other factors. Its investigative team includes experts in health and safety, industrial hygiene and nutrition — but not in behavioral psychology.

As it was with the beginning of light manufacturing in 18th century, so it remains a problem in 21st century Southeast Asia. Why is it that we know so little about how to definitively address these issues after all this time? While being in praise of sweatshops as a step on the road to development may have its virtues, there is certainly no reason for it to be such a fraught stage of progression given that so many other countries have already gone through similar processes of women entering the workforce. And such challenges, dear friends, are part of the reason why the social sciences remain far more inexact than the hard sciences.

* BTW: Is it just me or does Krugman's "conscience of a liberal" extend less to those unlike him?

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The IMF, (Hypocritical) Dispensers of Bad Advice

Just so you know, I've regularly been receiving (print!) newsletters from the Bretton Woods Project whose most famous campaign was "Fifty Years is Enough" concerning the aforementioned IMF and World Bank outlasting their usefulness. Though I sometimes think BWP can be a little overcritical and tends to overestimate the influence these institutions exert, perhaps it's rather timely to consider whether dismantling the IMF in particular is overdue.

I needn't go over my longstanding objections concerning the misappropriation of emergency funds meant for balance of payments crises going towards bailouts of troubled European peripheral states not primarily suffering from such problems. Moreover, think of how various regions of the world are coming up with their own bailout funds expressly designed to make IMF borrowing superfluous to a certain extent: Europe has its European Financial Stability Facility (EFSF). Asia has its Chiang Mai Initiative Multilateralization (CMIM). Meanwhile, Latin American countries have mooted a Banco del Sur. It is not inconceivable that every key global region will soon have its own rainy day fund. You also have to consider the mounds of reserves individual developing countries have accumulated since the Asian financial crisis.

For this post, though, let's focus on one of the most annoying things the IMF does which is peddle rather poor, hypocritical advice. Alike with questions of succession tilted towards Europeans and what it means for emergency lending, the IMF being headquartered in DC also has deleterious consequences. For, it has continually been the case that the IMF has prescribed austerity...except for "special cases" (like its host country). From a recent Lagarde speech I am pained to hear this refrain once more:

For the advanced economies, there is no question that fiscal sustainability must be restored through credible consolidation plans. But we also know that consolidating too quickly will hurt the recovery and worsen job prospects. So the challenge is to find the pace of adjustment that is neither too fast, nor too slow.

The precise path of fiscal consolidation will differ by country. Those that are facing considerable market pressure, or could face it in the absence of upfront adjustment, must press ahead with fiscal consolidation now. But in others, there is scope for a slower pace of consolidation, combined with policies to support growth [my emphasis]. The key is to clarify a credible medium-term strategy to first stabilize, and then lower debt ratios. Within this strategy, fiscal measures that reliably deliver savings tomorrow will help create space for supporting growth today—by permitting a slower pace of consolidation.

Lagarde repeats this common story that near-term stimulus--for those who markets haven't punished--can accompany medium-term consolidation for the best of both worlds. Bah humbug. Take the case of the IMF's darling America. To be perfectly accurate, once federal expenditures increase, they tend not to decrease. Nominally, the last time US federal outlays went down year-on-year was 1965--nearly 46 years ago. This fiction that federal spending is like a tap whose floodgates can unleash a torrent and then be made to drip soon thereafter is highly unlikely. There's no saying that it can't be done, but the weight of history is certainly against doing so.

Another qualifier here is the judiciousness of embarking on expansionary policies while not currently "facing considerable market pressure." Sure, such a situation may hold for now, but for how long? This point is not a churlish one from my point of view. Consider the market for Euro-denominated sovereign debt in the aftermath of the implosion of Lehman Brothers. Well into 2009, spreads of troubled PIIGS economies' bonds over their German equivalents were nugatory. If they had followed the Lagarde prescription, they'd have borrowed freely alike in years past at this point. Which they of course did and suffered from in the months to come. The idea is that markets are flighty, and we cannot really know if and when they will take flight. I for one certainly didn't expect such a harsh reaction to the likes of Greece et al. or I would be a very wealthy man by now instead of a mere blogger.

Who's to say when a similar fate will not befall America? I say stick on the safe side and just stop drinking that Kool-Aid. With IMF "advice" like this, who the heck needs to watch CNBC to delude oneself to no end? To paraphrase John Bolton, if the IMF was done away with overnight, I don't think there will be many lamenting its disappearance since, well, sixty-five odd years are probably enough.

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