Category: Analysis

Analysis of political and economic movements and events!

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Analysis

Economic Strength of a Developing Country through the IT and Service Sector

Introduction

In developing countries, a large part of the population is forced to live below the poverty line. There is a dire need to undertake efforts to enhance developing countries’ financial and economic strength. To draw useful conclusions, studying strategies and pathways followed by developed countries is very interesting. However, in my opinion, parallels can’t be drawn. Developed countries are mostly located in the US and Europe. This road to success for the European countries can be traced back to the renaissance age. This in turn provided a technological edge, which was diligently converted into cascaded industrial revolutions. While time and space favored the US who joined the elite group by capitalizing on the World Wars, China is the new industrial giant of the world. Exploiting its own enormous human resource and comparative advantage compared to the high labor costs in US and Europe, China has transformed itself into a mammoth industrial force, who is not willing to spare any room for new entrants. As such, opportunities for developing countries to also become industrial giants are difficult to acquire. This obligates developing nations to tailor their strategies to concurrent technological and industrial dynamics. It is very challenging for any nation to establish itself on industrial grounds. Increasing the production volume requires industrial infrastructure, efficient and reliable supply chains, as well as dozens of other factors that make it impractical for any new contestant to join the club of industrial nations. New avenues need to be explored, which should be cost effective, less technologically intense with a quick return of investment, and most importantly, with less capital expenditure (capex).

The IT & Service Sector

Fortunately, the world is transiting through the era of Information Technology (IT) which greatly supports the service sector. In my opinion, IT is a business sector that deals with computing, including hardware, software, telecommunications and generally anything involved in the transmission of information or the systems that facilitate communication. IT also includes the management of data, whether it is in the form of text, voice, image, audio, or some other form.

The service sector, in a similar manner, is the part of economy that provides support instead of goods. The service industry is very wide in nature as it covers a large range of activities that add value to businesses and individuals. In contrast to other sectors, the output produced by the service sector is not a physical product but instead are services that enhance, maintain, repair, shape, or perform different alterations to physical items. It also covers activities such as transportation, medical services, education, banking, insurance, waste disposal, telecommunications services and other complex activities that are crucial to a society functioning properly.

Conclusion

I have reviewed many startups and entrepreneurs in my own country (Pakistan) and other developing countries. Almost all of them are IT or service related, but hardly any produce physical hardware. This is primarily due to capex and other issues. I can think of many ideas that could be converted into huge economic benefit using very few finances. The gaming industry, call centers, online maintenance and management, software development, online financial and marketing services, online trading are just a few.

In my opinion, developing countries can change their fate by exploiting and exploring the IT and service industries, which would allow them to earn significant forex.

Sources

https://www.techopedia.com/definition/626/information-technology-it

https://www.investopedia.com/terms/s/service-sector.asp#:~:text=Examples%20of%20service%20sector%20jobs,cars%2C%20clothes%2C%20or%20equipment

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Analysis

Economic Crisis in Bangladesh and Talks with the IMF

Introduction

Bangladesh’s economy was already under much stress due to the COVID-19 pandemic, however, the global political and economic situation has not made it any easier for this South Asian country’s economy to bounce back up. Bangladesh is already the third country after Pakistan and Sri Lanka to apply for a bailout from the International Monetary Fund (IMF) to avoid “running out of cash” (The Guardian).

Why was the decision made?

It comes as no surprise that the pandemic has slowed down the global economy and that in 2022, countries are still desperately trying to resolve the issues that came with this pause such as inflation, the supply chain crisis, etc. On top of that, the ongoing conflict between Russia and Ukraine has had consequences that are felt everywhere with prices of energy and food growing at a fast pace.

The global economy by itself has been predicted to go into recession, and thus Bangladesh is struggling due to the substantial fall in exports and rising prices of imports that grow by the day. Despite many countries seeking help from the IMF during the pandemic, only several (including Bangladesh) have sought bailouts to avoid going into debt or “being unable to pay the bills” (The Guardian). Talks about Bangladesh’s bailout are expected to begin after the IMF and World Bank annual meetings in October, which is also when the size of the loan will be decided. 

On the 22nd of August, Bangladesh Cabinet Secretary announced that schools will now be closed on Saturdays in addition to Fridays and office hours will be lessened, in order to reduce the electricity shortage experienced in the country. In the past month, petrol prices increased by 50% while the prices of diesel and kerosene rose by at least 40% as well. Thus, it comes as no surprise that frustrated citizens have taken to the streets to protest the insupportable fuel prices.

International Impacts

Up until COVID-19 slowed its quick development, Bangladesh’s economy was “one of the fastest-growing in the world for years.” The economic growth was largely due to Bangladesh’s garment industry, which exports to retailers in Europe, the US, and South America. This industry is likely to suffer from the slowdown in the global economy as well, especially if demand falls in Europe and the United States. However as the global economy recovers, it will only be beneficial for Bangladesh’s financial state to be on the mend, ready to supply other countries with their main exports. 

As for the IMF, Bangladesh has expressed its interest in its resilience and sustainability facility, which is designed to help countries resolve climate change challenges. Aside from that, however, the IMF is open to supporting Bangladesh in its economic crisis and has said that “staff will engage with the authorities on program design”.

Conclusion

The IMF is eager to support Bangladesh and will start negotiating the amount of the loan sometime after the October meeting between the IMF and the World Bank. Despite this, prices are continuing to rise not only in Bangladesh but internationally, as the conflict between Russia and Ukraine doesn’t seem to be near its end. This has already caused various protests in many countries due to inflated costs of energy and food, which in low-income countries, affect citizens even more. However, with countries trying to become less reliant on Russia for their energy supply, it is interesting how they will come back from this crisis in the years to come.

Sources

Inman, Phillip. “Bangladesh to Hold Talks with IMF after Applying for Bailout.” The Guardian, 28 July 2022, http://www.theguardian.com/world/2022/jul/28/bangladesh-to-hold-talks-with-imf-after-applying-for-bailout.

Lawder, David. “IMF Says It Is Working with Bangladesh on RST Loan with “Safeguards.”” Reuters, 3 Aug. 2022, http://www.reuters.com/markets/us/imf-says-it-is-working-with-bangladesh-rst-loan-with-safeguards-2022-08-03/. Accessed 29 Aug. 2022.

“Now It’s Bangladesh’s Turn to Ask the IMF for a Loan.” http://www.aljazeera.com, 27 July 2022, http://www.aljazeera.com/economy/2022/7/27/now-its-bangladeshs-turn-to-ask-the-imf-for-a-loan. Accessed 29 Aug. 2022.

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Analysis

Political Polarization Continues to Grow in the United State

The Two-Party System

For nearly all of American history, while ideologies and names have shifted, there have only been two political parties. In 2022, these two parties are the Democrats and the Republicans, with Democrats being on the liberal side and Republicans being on the more conservative side respectively. This two-party system leaves little room for third parties to gain any prominence. As of today, there are only two US Senators who are not affiliated with the Democratic or Republican parties (both are independents). What is even more alarming is that in recent years, these two parties’ ideologies have seemed to grow farther and farther apart, leaving little ability to find a true neutral in American politics. There has been growing frustration in recent years with the two-party system, especially among young people. 47% of Americans between the ages of 18-49  wish that there were more political parties to choose from, according to the Pew Research Center.

Public Anitpathy

Public antipathy has been growing at a steady rate in America for decades. Instead of simply disliking the other party’s views, people have begun to dislike the party itself and the people in it. According to the Pew Research Center, 72% of Republicans think of Democrats as more immoral, and 63% of Democrats think the same about their counterparts. On top of this, the vast majority of people in both parties stated that the reason they identify with their party is that they believe the other party’s views would be harmful to the country. This comes in contrast to people instead being in their party because they believe their party’s views would benefit the country. What is even more concerning is that this is not a regularly seen phenomenon in other democracies. According to Brown University researchers, people in the United States’ negative feelings in relation to members of the other party in comparison to their own party increased by an average of 4.8 points for every ten years.

Political Partisanship

This growing public hatred is also reflected in political institutions, such as Congress, in the form of more partisanship and a decrease in topics or opinions that can be considered bipartisan. This lack of willingness to cross the aisle, compromise, and work together may also be linked to the decrease of moderates on Capitol Hill. According to the Pew Research Center, as of 2022, there are only around a couple of dozen politicians on Capitol Hill that could be considered true moderates as opposed to the over 150 moderates in the early 1970s. This lack of being able to work together in Congress sets a poor example for the American people. If politicians are unable to get over their differences to get along with members of the other party to solve problems, how is the general populace supposed to get along with other people that have opposing political views?

Conclusion

Overall, this has all left America a more divided society. Many theorize that this polarization has in part occurred due to the fact that in recent decades the two political parties have become more and more aligned with certain religions, races, ideologies, and geographic regions. For instance, democrats tend to be more people of color and people who live in urban areas, whereas Republicans tend to be more white and live in more rural areas. Either way, this kind of division – the most extreme since the Civil War in 1861 (Cato Institute) – in no way spells out something positive for the America of the future.

Sources

https://www.senate.gov/senators/SenatorsRepresentingThirdorMinorParties.htm

https://www.cato.org/blog/two-party-polarization-threat-liberty

https://www.brown.edu/news/2020-01-21/polarization

As Partisan Hostility Grows, Signs of Frustration With the Two-Party System
The polarization in today’s Congress has roots that go back decades
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Analysis

A Look at Abenomics

Introduction

Japan’s longest-serving Prime Minister, Shinzo Abe, was shot twice on Friday while holding a speech at a political campaign event in the city of Nara. He has since died in hospital, and a suspect has admitted to causing the shooting with a homemade gun. During Abe’s time as the Japanese Prime Minister from 2012 to 2020, he followed an economic programme called Abenomics.

What is Abenomics?

When Abe became Prime Minister in 2012, Japan had been experiencing stagnation — a prolonged period of little or no economic growth — for two decades following an asset bubble collapse in the early 1990s. To revive Japan’s economy, Mr. Abe planned to use three “arrows”: loose monetary policy, fiscal stimulus, and structural economic reforms. 

Abe introduced negative short term interest rates, making it cheaper for consumers and companies to borrow money, which in turn is likely to lead to increased spending. Quantitative easing was also introduced. To increase the money flow in the economy, the government spent money on improving infrastructure and gave companies financial incentives, for example tax breaks. Lastly, many structural reforms followed. Abe introduced a corporate reform, policies to increase the number of women in the workforce, labor liberalization, and made it significantly easier for migrants to enter the workforce (this has long  been a point of conflict in Japanese politics).

Was Abenomics successful?

The BBC states although Abenomics was “certainly a success” in regard to political branding, it “fell short of Mr. Abe’s own key economic target.” After the policies that are now collectively referred to as Abenomics were put in place, the Japanese economy did grow. However, growth was not as fast as Mr. Abe hoped it would be. For example, the goal for 2020 was that the economy would be larger than 600 trillion yen, but this is still not the case.

The news agency Al Jazeera suggests that Abenomics was a “mixed success” as economic growth increased, exports rose, and unemployment rates reached the lowest level in decades. However, despite the eight consecutive quarters of positive growth between 2015 and 2017, John Power agrees with the BBC in that the economic growth achieved by Japan due to Abenomics was nothing compared to the rapid increase following World War II.

Abenomics: a lasting economic legacy?

In early 2020, Japan went back into recession, and Abe stepped down from his role as Prime Minister in the spring of 2020. Yoshihide Suga, who succeeded Abe as Prime Minister, continued Abenomics, while the current Prime Minister Fumio Kishida has “distanced himself from the strategy” (Al Jazeera).

Today, many economists give credit to Abe for putting Japan in a “more robust position” that enabled the Japanese economy to “withstand economic shocks” such as the COVID-19 pandemic (BBC Business), and the current Bank of Japan governor Haruhiko Kuroda also expressed his support of Abenomics. Therefore, one can conclude that Abenomics was an important step in lifting the Japanese economy out of decades of economic problems, but other economic policies are necessary to achieve all the hoped-for results.

Sources

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Analysis News

California’s Gas Prices: The Highest In The United States

Introduction

California gas prices are the highest gas prices in the United States, with a state average of $6.16 per gallon compared to the national average of $4.96. A Chevron gas station in Los Angeles even reached $8.05 per gallon: the highest charging gas station in the country. This has caused Californians to erupt in an uproar, causing both the Democratic and Republican parties to propose solutions to help struggling Californians with these heightened gas prices.

Why are California’s Gas Prices So High?

  • California Specific Reasons

Overall, gas prices in California tend to be higher than most states partially because of higher infrastructure- and environmental-related taxes. California’s lawmakers increased the gas tax by 12 cents after a battle in 2017 to pay for roads, bridges, transit projects, and more public projects. Recent causes in the increase in gas prices are Russia’s invasion of Ukraine and the sanctions that followed the invasion and demand for oil skyrocketing from pandemic lows faster than supply could increase. Furthermore, California’s gas tax has a ‘mystery surcharge’ as UC Berkeley professor Severin Borenstein calls it. This extra 30 cents a gallon that has been tacked on California’s gas tax costs Californians an unexplainable $4 billion per year.

  • National & International Reasons

The decision of many countries, including the US, to cease oil imports from Russia has prompted the American Petroleum Institute, which is representative of all U.S. oil companies, to “urge policymakers to advance American energy leadership and expand domestic production to counter Russia’s influence in global energy markets” (press release). This has increased pressure on President Biden to turn on the oil spigot, especially in places such as California that have taken the hardest hit with regard to gas prices. However, oil executives have also cited that the increase in gas prices is in part due to pressure from shareholders to withhold spending on exploration and drilling and instead boost investor returns through share buybacks and dividends.

What Are California’s Lawmakers Doing About The Gas Price Outrage?

Governor Gavin Newsom proposed a plan that would give at least one $400 refund to each registered California vehicle owner, regardless of income. Refunds would be capped at $800 for Californians with more than one vehicle registered under their name. Newsom’s office also released a proposed legislative package of fuel price relief bills that incorporates $750 million in grants to public transit agencies in exchange for them providing free fares for three months. There would also be an elimination of the sales tax on diesel fuel for a year’s time and a pause in the increase in the excise tax on fuel that is supposed to occur in July. However, this proposal raises equity and ethical concerns for Democratic legislators, as it has been stated that it’s unjustifiable to refund money to Californians making a higher income while omitting some of the poorest Californians that don’t own a motor vehicle. Newsom said that a solution to curb refunds for drivers is to suspend payments for Californians with high-value vehicles who pay above a not yet determined quota in license fees. In total, Newsom’s plan would cost over $11 billion if refunds for all vehicle owners are included.

Conclusion

While there are efforts that California’s lawmakers can take to effectively mitigate California’s gas prices and internal economic problems, there are larger national and international events, economic issues, and political strife that are causing high gas prices in California. These causes are beyond the control of California’s lawmakers. An increase in gas prices has caused many people to leave California as the struggle to live comfortably and survive has become unbearable for some. Given that California’s primary elections were on June 7, a fresh set of government officials in California could mean a fresh change in California’s gas prices due to new legislation being implemented.

Sources

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Analysis News

Russian Aggression in Georgia and Ukraine: Powerful and Worrying Parallels

Introduction

Ever since Ukraine was attacked on 24 February, the Georgian people have expressed their full support for the besieged country through protests, volunteering, donations, etc. Ukrainian flags can be seen hung on every balcony, window and door in the downtown area, the suburbs, and so on. Every evening, thousands gather in the city center to display solidarity with Ukraine.

Parallels between the invasion of Ukraine and Georgia (2008)

For many Georgians, including myself, this invasion of Ukraine is eerily similar to that of the Russian invasion of Georgia in 2008. The parallels are indismisible. During the 2008 war, Russia recognised two Georgian breakaway regions – Abkhazia and South Ossetia – and stationed its troops there. Since then, Tbilisi has pushed even more strongly for closer integration with the West, via closer ties to the European Union (EU) and the North Atlantic Treaty Organization (NATO), even if membership in neither body seemed immediately likely. Similarly, in Ukraine in 2022, Russia recognized the independence of two breakaway regions, Luhansk and Donetsk. In order to “defend” the two proclaimed independent states, Russia then conducted a “special military operation,” which lead to the current situation.

Georgia’s reaction

Despite these parallels and the broad public backing for Ukraine, the Georgian government has tiptoed around the crisis, fearing the consequences of provoking its powerful northern neighbor, Russia. The day after Russia invaded, Georgian Prime Minister Irakli Gharibashvili said his government would refuse to join any Western sanctions on Moscow, dismissing them as unproductive. Despite citizens’ anger, Gharibashvili has remained cautious. This is partly due to the real economic crisis that could occur if Georgia imposes sanctions, as well as the Georgian Dream Party’s proclivity to support Russian actions. But despite the government’s hesitance, its divisions with the Kremlin are increasingly on display. On 28 February, the National Bank of Georgia said it would act “in accordance with the international resolutions and standards and cannot and will not help evading implementing these sanctions”. On 3 March, Georgia, along with Moldova, followed Ukraine’s lead in filing a formal application for EU membership.

While building more contacts with Russia, Georgia has been feeling increasingly frustrated with the lack of real prospects of joining the EU or NATO. Since 2014, when Georgia signed an Association Agreement with the EU, it started adjusting its laws and economic policies to meet Europe’s criteria for accession. In an attempt to build support among NATO powers for its bid to join the alliance, Georgia kept its troops in Afghanistan until the very last weeks before the U.S. withdrawal. But these investments were not enough to overcome resistance among European and U.S. officials and politicians who see the downsides of Georgian membership in either organization as outweighing any benefits. Many existing members argue that Georgian membership would anger the Kremlin and deepen its conflict with the West, reducing rather than increasing security for all.

Conclusion

Georgians can feel the agony that a Russian invasion brings, having fought our own war with Russia almost fourteen years ago. But many in the country’s leadership believe saber-rattling and diplomatic protests could put Georgia high on President Vladimir Putin’s radar, leading to problems in the long-term. Hours before Russian tanks rolled into Ukraine, a senior Georgian official told civil society representatives that the leadership often has to choose between a “bad option and a worse option. Unfortunately, this is our reality”.Russia can easily, cheaply and effectively harm Georgian stability by leveraging its influence in the breakaway regions whose pursuit of self-rule Moscow champions and where its troops are already stationed. Its border guards patrol the South Ossetian line of separation with Georgia, including within a few hundred meters of a major highway linking Tbilisi to Georgia’s Black Sea coast and in close proximity to the Baku-Tbilisi-Supsa pipeline that delivers oil from Azerbaijan to Europe and elsewhere. The line of separation in this area seems to be creeping steadily forward into the Georgian government-held areas – and there may be little Georgians can do about it.

These aggressive tactics make the Tbilisi leadership wary. A small shift of the line that brings more territory under the control of the breakaway regions could displace thousands of people. Even more worrying to Georgian officials is the possibility that Moscow could exploit any small incident along the line to resume a military invasion and take even more Georgian territory. Georgia, like several other former Soviet states, can ill afford, militarily or economically, to pick a fight with Russia. Despite the show of Western resolve over Ukraine, as far as sanctions and military equipment are concerned, Georgia, smaller, less significant and farther away, fears being left alone to face Russia.

Sources

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Analysis News

Sanctions imposed on Russia: a big change to daily life

Introduction

This year, on the 24th of February, the world witnessed the Russian invasion of Ukraine. After rising tensions, the Russian Government decided to start the ‘special military operation’ which has since claimed thousands of lives. As a result of this conflict, many countries were quick to impose strict economic sanctions on Russia, which have already had their effect on the Russian economy. But what are the consequences of such sanctions on daily life in Russia?

What sanctions have been imposed?

Many countries, among them the US, UK, New Zealand, and the EU member countries, immediately imposed different sanctions to try and stop Russia from further military actions. The more or less immediate reaction of the US government was to ban the export of certain technologies to Russia, which would “make it harder… to modernize [Russia’s] oil refineries.” (Al Jazeera) However, one of the most significant actions the US took was banning Russian oil, which is one of Russia’s biggest exports. Among many others, the EU froze the European assets of Russian President Vladimir Putin and his foreign minister Sergey Lavrov. Russia’s ally country, Belarus, also suffered some consequences as the EU banned imports of products from tobacco, mineral fuels, cement, steel, iron, etc. Many different companies such as IKEA, Spotify, and Apple have also decided to leave Russia. Among them are also Visa and Mastercard who have suspended operations in Russia. This has already had its effects on the Russian economy because people are unable to complete transactions.

Impacts on daily life in Russia

When the war started and the sanctions were imposed, the Russian rouble “plummeted…, leading many retailers to raise their prices.” People living in Moscow believe that while food may not disappear, prices will probably rise exponentially. “On 20 February I ordered groceries for 5,500 roubles [about $57; £44] and now the same basket costs 8,000,” says an EU citizen living in Moscow. While certain retailers are simply limiting the amount of products people can buy, others have “agreed to limit price rises on some staples to 5%”. Moreover, there has been a more than 10% increase in the prices of smartphones and televisions, but many of them quickly sold out before the companies left the Russian market.

International impacts

Perhaps one of the most significant sanctions was one imposed by the US when it banned imports of oil and gas from Russia. The UK has also followed in the US’s steps and has started to “phase out oil imports”. The European Union said it would “move to end its reliance on Russian gas”. 

Why is this important? Along with Iran and Qatar, Russia is home to the largest reserves of natural gas. Half of the world’s natural gas reserves in 2020 were accounted for by the three aforementioned countries. In 2021, 45% of the EU’s gas imports and 40% of its entire gas consumption came from Russia. Despite the EU and other countries announcing plans for ending their reliance on Russian oil and gas, it seems as though these sanctions will have certain long-lasting consequences. As soon as the US stopped such imports from Russia, oil and gas prices started to rise and the same is expected in other countries that have imposed similar bans.

Conclusion

Sanctions imposed on Russia have so far affected its citizens much more than the people with the power to stop the war in Ukraine. However, their long-lasting effects on the conflict remain to be seen. It is true though, that bans on Russian oil and gas from some of the major countries in the world will have great consequences for the world’s economy as people are realizing their economic dependence on Russia and governments who support Ukraine will try to distance themselves from such policies and trade in the future. Daily life in Russia, although already hard, is expected to get harder, as products disappear and soon enough, jobs might also vanish. In this case, Russia will have a very hard time getting its economy back on track and the lives of its citizens back to normal.

Sources

Al Jazeera Staff. “Infographic: How Much of Your Country’s Gas Comes from Russia?” Www.aljazeera.com, 17 Mar. 2022, http://www.aljazeera.com/news/2022/3/17/infographic-how-much-of-your-countrys-gas-comes-from-russia-interactive. Accessed 19 Mar. 2022.

—. “List of Sanctions against Russia after Ukraine’s Invasion.” Www.aljazeera.com, 3 Mar. 2022, http://www.aljazeera.com/news/2022/2/25/list-of-sanctions-on-russia-after-invasion.

—. “US Bans Russian Oil: What Is next for Oil and Gas Prices?” Aljazeera.com, Al Jazeera, 9 Mar. 2022, http://www.aljazeera.com/news/2022/3/9/us-bans-russian-oil-what-does-this-mean-for-oil-prices.

Badshah, Nadeem. “Visa and Mastercard Will Both Suspend Operations in Russia.” The Guardian, 5 Mar. 2022, http://www.theguardian.com/world/2022/mar/05/visa-and-mastercard-will-both-suspend-operations-in-russia. Accessed 19 Mar. 2022.

Hanbury, Mary, et al. “Here Are the Major US and European Companies Pulling out of Russia Following the Invasion of Ukraine.” Business Insider, 10 Mar. 2022, http://www.businessinsider.com/list-all-the-companies-pulling-out-of-russia-ukraine-war-2022-3#28-tiktok-28. Accessed 19 Mar. 2022.

Shamina, Olga, and Jessy Kaner. “Russia Sanctions: How the Measures Have Changed Daily Life.” BBC News, 13 Mar. 2022, http://www.bbc.com/news/world-europe-60647543.

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Analysis News

Political Stability Continues to Rock Haiti

Background Information

Haiti’s political climate has been nothing short of troubled essentially since its independence. A result of a weak economy brought on by 17th-century colonial tactics and compounded by numerous natural disasters, Haiti is home to one of the most corrupt and turbulent governments in the world. It is this climate that gave rise to President Jovenel Moise, a man whose presidency was consistently marred with accusations of corruption and dictatorial tendencies. It is also this climate that led to Moise’s eventual assassination at the hands of still at-large gunmen on July 7, 2021. Tensions began to rise immediately afterward, with the line of political succession being called into question. Soon after, on August 12th, a large earthquake rocked Haiti, adding a humanitarian crisis to the already existing political crisis in Haiti.

The Interim Government

Ever since July 2021, an interim government headed by Prime Minister Ariel Henry has been running Haiti. This interim government has also faced massive scrutiny as it works to heal the nation. There have been accusations that Prime Minister Henry was supposedly involved in President Moise’s death, along with accusations of corruption. This interim government‒ and therefore the government officials’ terms‒ ended on February 7, 2022 as this was the day when President Jovenel’s term was supposed to end (he had vowed to step down on this day). While it has been relatively calm since then, it is evident tensions are rising again as various civil organizations call for different plans of action.

The Rise of Civil Society

Following the events of Summer 2021, gang violence began to completely take over many Haitian communities. With the nation’s government in such a weak place, citizens began to turn more and more towards civil society groups to do something about the chaos around them. One of the more prolific of these groups is known as “The Commission for the Search for a Haitian Solution to the Crisis.” The main goal of this group is to restore Haiti’s democracy. They are planning to do this by firstly calling for a two-year transition government, holding fair and safe elections in 2023, and by restoring public order by, in part, dealing with the gang crisis. The detailed plan they published for this is known as the Montana Accord.

What Comes Next for Haiti?

Prime Minister Henry along with the rest of this government have stated that they are planning and organizing elections and adopting a new constitution. However, people are naturally questioning the legitimacy and fairness of these elections. Additionally, many are saying that anything Prime Minister Henry and the rest of his government do is not valid anymore as all of their terms officially ended on the 7th. On the other hand, the Prime Minister’s supporters are saying that he and everyone else that he works with can only be legally be removed by Parliament, which is currently not running as the previous members’ terms expired without new elections being held. 

Either way, the current Prime Minister’s plans are evidently at odds with the Montana group’s plans, which has already decided on who they want their interim President and Prime Minister to be. They have announced their choice of Jean Fritz to be the interim President and Steven Benoît to be the interim Prime Minister, along with several other people in a paired-back version of the current government. 

On top of all of this, the United Nations has chimed in, stating that it would like to see an election in the island nation before the end of the year. As for what comes next? All bets are off with Haiti seeming to venture farther and farther into an era defined by instability.

Sources

https://www.cfr.org/in-brief/assassination-haitian-president-jovenel-moise-what-know 2/19/22

https://www.france24.com/en/americas/20210916-haiti-government-begins-unraveling-as-newly-accused-pm-fires-justice-minister 2/19/22

https://www.nytimes.com/2021/07/19/world/americas/claude-joseph-haiti-stepping-down.html 2/19/22

https://news.un.org/en/story/2022/02/1112262 2/19/22

https://www.wlrn.org/news/2021-09-28/civil-society-solution-can-non-governmental-groups-fix-haitis-governmental-crisis 2/19/22

https://theglobalamericans.org/2022/02/haiti-betting-on-the-montana-accord/ 2/19/22

https://www.miamiherald.com/news/nation-world/world/americas/haiti/article258543193.html 2/19/22

https://www.reuters.com/world/americas/haitis-henry-urges-elections-amid-calls-transition-government-2022-02-07/ 2/19/22

https://www.nytimes.com/2022/02/06/world/americas/haiti-opposition-group-montana-accord.html 2/19/22

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Analysis

Evaluating the effectiveness of a tax on a good with an inelastic demand

Introduction

Price elasticity of demand (PED) refers to the responsiveness of quantity demanded to a change in price. A type of price elasticity of demand is inelastic PED. Inelastic PED displays a low responsiveness of quantity demanded to a change in price (Inelastic PED = % change in price / % change in quantity demanded).

Cigarette Taxes

Governments are making an effort to reduce smoking by substantially increasing taxes on cigarettes. Taxes is a type of price control which has the responsibility to decrease the production and consumption of goods. A tax would be shown on a market diagram through a leftward shift of the supply curve. This indicates that the quantity supplied would decrease and would create a new equilibrium with the same demand curve at a new point where the price would be higher and both quantity supplied and demanded would be lower. The increase in price is explained as taxes are placed on the factors of production, which increases the cost of production. This in turn decreases the quantity that can be supplied at a limited cost. Therefore, an increase in price would be due to an increase in the cost of production to supply the goods, in this example, tobacco. 

However, it is important to note that Tobacco is assumed to have an inelastic demand. As mentioned before, this is because tobacco is addictive and consumers, especially those with a high income, would choose to purchase similar amounts of tobacco even if the price increased. However, there still would be a responsiveness, as low income consumers’ ability to purchase tobacco decreases as tobacco now makes up a higher percentage of their income. Therefore, the responsiveness of quantity demanded would change, but it stays significantly low compared to the change in price. 

Tobacco as a Demerit Good

Additionally, tobacco is a demerit good. A demerit good is a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves. Most demerit goods are addictive goods, and therefore, tend  to have an inelastic demand. This means that if the price increases, the quantity demanded would decrease by a lower rate — only a very small percentage of consumers would choose to no longer buy the good. These people would likely be those who are no longer able to afford the good after the price increased (low income consumers).

Tobacco having an inelastic demand displays why the government’s efforts of reducing smoking would not be effective. This is because a good with an inelastic demand would only increase the profit that suppliers receive, and the consumers would pay more because the quantity demanded would go down by a small percentage only. And therefore, placing a tax on a good with an inelastic demand would not be effective and would not reduce smoking, causing the government’s goal to not be achieved.  Alternative measures that would rather be more effective would possibly include education campaigns. A lot of people who buy cigarettes do not understand the harmful impacts of the demerit good. If people understand the effect it holds on a human body, there may be a greater change in the quantity demanded of tobacco than a change in price would. Additionally, governments should possibly promote the use of alternatives by subsidizing them, such as nicotine patches or electronic vapes. These alternatives could help consumers reduce their dependence/addiction on/of the demerit goods. This overall would be a more effective way governments could possibly best reduce smoking.

Sources

  1. Wikipedia
  2. Elasticity vs. Inelasticity of Demand: What’s the Difference?https://www.investopedia.com › … › Microeconomics
  3. Tax Definition & Meaning – Merriam-Websterhttps://www.merriam-webster.com › dictionary › tax

Categories
Analysis

Turkey’s Financial Setback

What happened?

Istanbul: State data revealed that the annual inflation rate in Turkey has surged to a 20-year high of 48.7% despite months of assurances by President Recep Tayyip Erdogan that the soaring figures were just temporary and that his government could ease the pain on Turks weighed down by rising living costs. Turkish citizens are the most affected since prices of consumer goods rose by 11.1% from December to January, according to the Turkish Statistical Institute. Analysts predicted that the prices of consumer goods increased between 9% and 10%.

Moreover, the Turkish lira (Turkey’s currency), lost 44% of its value in 2021 in a rout driven by the president’s refusal to raise interest rates as the inflation consistently climbed. Evidently, the currency’s turbulence has hit Turks hard, as the value of their salaries dropped and costs of goods and energy dramatically increased. The president has prioritized credit and exports, while constantly arguing against economic orthodoxy that raising interest rates worsens inflation rather than taming it. 

How did this happen?

Nations around the world have been grappling with price spikes caused by supply chain snarls and shortages of raw materials due to COVID-19. However, inflation in Turkey has been exacerbated by a dramatic fall in the value of the Turkish lira, which lost more than 40 percent of its value against the United States dollar last year. The lira’s crash in the final quarter of 2021 was triggered by a series of central bank interest rate cuts championed by Turkish President Recep Tayyip Erdogan, who still insists that lower interest rates combat rising inflation – a view that runs opposite to mainstream economic theory, which holds that lower borrowing costs typically increases price pressures thus leading to lower purchasing power in all.

“We are in sorrow to see our yearly inflation hitting 36 percent,” said Erdogan. “Nevertheless, as a government that managed to decrease inflation to 6 percent, we will repeat our success to protect Turkish citizens from financial troubles.”

Attempt to combat inflation by increasing minimum wage

To help cushion the blow of rising prices, the Turkish government raised the minimum wage by 50 percent and boosted the government match on private contributions to public pensions. 

However, the minimum wage hike was also accompanied by price increases in regulated sectors of the economy. Electricity tariffs have shot up by 125 percent for higher-demand customers and 50 percent for lower-demand residential customers. Natural gas prices have gone up 50 percent for industrial use and 25 percent for residential use. The cost of public transportation in Istanbul has also seen a drastic increase by 36 percent.

Therefore, the government has attempted to assist the poor in this financial crisis while the burden has partially fallen on middle-class consumers.

Politics and Inflation

Turkey’s opposition parties have seized upon the variation between official TurkStat inflation numbers and what many members of the public and experts think. Ali Babacan, a former Erdogan ally who served under him as finance minister and now heads the Democracy and Progress Party, called TurkStat the “Institute for Adjusting Numbers” in a tweet shortly after the December inflation figures were announced.

Last month, during a live television broadcast, the head of the largest opposition party, Kemal Kılıçdaroğlu, attempted to visit TurkStat’s head offices in the capital Ankara to inquire about how inflation is being calculated, only to be turned away. Thus, it is evident that the Turkish government  is trying to hide their numbers while reassuring the citizens through futile attempts.

A new economic model?

Treasury and Finance Minister Nureddin Nebati outlined Turkey’s new economic path to investors in London, pledging to keep the exchange rate stable, bring inflation down to single digits and keep dollarization at bay.

Speaking to investors and bankers in meetings, Nebati also said that the government would soon announce a new scheme to get households to convert holdings of gold into Turkish lira.

President Recep Tayyip Erdoğan has been endorsing a model based on lower borrowing costs, which he says will boost production, employment and exports, and also eventually help Turkey solve its chronic current account deficit problem and contribute to stabilizing the Turkish lira.

Gold Savings Scheme

Two investors who attended meetings said the minister had told them about the plans to ensure part of the $250 billion-$350 billion worth of gold held by Turkish households would find its way into the domestic savings system.

“The important thing for us is the stabilization in the exchange rates. With this package, we will have put the gold under-the-mattress into the system, which is estimated to be around 5,000 tons of gold equivalent to 250-350 billion US dollars (the “under-the-mattress” term refers to a long-held tradition in Turkey of turning to gold to safeguard wealth and storing it at home).

A certain amount of this will support the Central Bank of the Republic of Turkey (CBRT) and meet the need for foreign exchange, he noted. “But most importantly, it will shore up the Turkish lira, which forms the basis of our model.” The government will make announcements soon on how to convince people to let go of their gold holdings. An investor stated that if the gold finds its way back into the banking system, it will certainly help to broaden the monetary base in terms of the Turkish lira.

Borrowing

Investors are also eyeing Ankara’s foreign borrowing plans. The Treasury did not immediately comment on the possible sale. According to Refinitiv data, Turkey is due to pay off a $2 billion eurobond on February 21th and a $1.1 billion domestic bond on February 25th.

Nebati also said at investor meetings that the government had held very productive talks with Abu Dhabi, Saudi Arabia and Israel in recent days, and swap lines were being agreed upon. He declined to give further details.

In conclusion, more details on the new economic model are yet to arrive. Most of the government’s efforts have gone in vain – the Turkish citizens have been hit hard due to this crisis with a hike in the prices of basic necessities such as gas, food and transportation.

Sources

https://www.dailysabah.com/business/economy/turkey-pitches-new-economic-model-signals-new-steps-to-shore-up-lira

https://www.aljazeera.com/economy/2022/1/7/just-how-bad-is-inflation-in-turkey-it-depends-on-who-you-ask#:~:text=The%20lira’s%20crash%20in%20the,ho

https://www.dailysabah.com/business/economy/turkeys-inflation-highest-since-2002-hitting-487