Wednesday, September 28, 2005

Global warming

Global Warming: Who pay the cost?
The recent climatic events in such a different countries as USA, China, Germany and Chile, with massive flooding and devastation, means a clear signal that something definitely goes wrong with the global climate. But is it?. There is no conclusive opinion about the real basis of global warming. Recently, some researcher have said that most of the actual models to evaluate global climate, and measuring global temperatures changes, are based on an isolated phenomenon of freezing temperatures which took place thousand years ago. As a result, the scientific community is split in two views concerning global warming, one which consider it like a normal cyclical long term pattern, the other one which consider it like a “recent” trend. So, it is hard to build up consensus on the role of mankind on global warming, to what does not look like a single cause to focus on. Anyway, nature can be either gentle or tough. .-
To make matters worst ,the Kyoto Protocol is expecting to have effects no sooner than 2012. Moreover, some countries who signed it up, increased its emissions between 2002 and 2003. In the mean time the effects of global warming is stressing fiscal budget, economy expectations, fuel costs, and the whole fundamentals of economic growth .
So far, macroeconomics has been orientated to equilibrium analysis on the basis of constant natural resources (climate, and technology progress included) endowment ,such that there is no need of environment policy to match the economic growth with the preservation of ecological equilibrium. Most of economic progress is measure considering only the value added on goods and services, but ignoring the value substracted on environment. The impact of Katrine and Rita hurricanes, and other natural disaster are measure only at present time value, but what about future value?.
Markets adapts to the reaction of nature with a pessimistic mood. Guy Sorman said in a recent article, Government is no longer the only way to get through. It is the time for non profit organizations, private initiative, and local community organization to take an active role. An example? CGI (Clinton Global Initiative).-
From the economic point of view, two issues arises on this topics :
a.-Who pay the cost of global warming?. At first glance, it seems that the cost is evenly distributed between the rich(higher prices of oil ,and losses of real states value) and the poor (losses of hopes).The implications is to support those in a more vulnerable position .However ,in the long run less sustainable growth will increase poverty, natural disaster , and shortage of key resources like water.-
b.- How the markets internalize the new restriction on growth?. Green bond markets. Keep an eye on it !.This type of bond is expecting to be more profitable as long as firms is getting more conscious on environment. The prices of these bonds, will increase in the near future as long as it will value the “right” to contaminate. The implications, although not a perfect solution, anyone who buy such bonds today is next to get the benefit of its higher prices. -

Friday, September 02, 2005

economics and politics

Chile is moving toward its next presidential election on december  11th  like  a mature democracy. The  economics scenario is quite promising even though  oil prices increases are a  threat which to count on. Sure ,the copper prices are  at the highest level in  years(since 1988),and the expectation is that high prices  will continue  at least for the next year. Private investment this year  is  growing strong at a 27% annual rate , domestic demand also is surging at an annual rate of 9.8%,and inflation is  on line with Autonomous Central  Bank projections according with its recent monetary report( September 2005). So, the Chilean economy looks pretty well for investors looking for opportunities  abroad . Corruptions level are low ,the country ranked 18th on the organization’s corruption index in 2001 (with the U.S. ranking 16th). On the same index, Chile ranked first among Latin American countries.and  there is a climate of political and social stability which is in a sharp contrast with the reality in other Latin American countries. Recently in a forum  organized by The newspaper “La NaciĆ³n”  in Buenos Aires , Argentina, ( the Chilean economy  was called the “Boutique economy”,  suggesting a selective list of investment opportunities. The aggregate cost tough, both in the seventies and eighties, has been high enough to create strong incentives to keep the pace of growth  with stability .
The next Presidential election, to be held on December 11th,is on schedule like  a political  event which goes on  without interfering  the economy. The IMF(  in its recent report (September 2005),says : “Political consensus in Chile on the macroeconomic framework remains very strong. All the main candidates have reaffirmed their commitment to fiscal prudence, inflation targeting, and trade openness”.
In  a recent  business polls, only 9% of those who were interviewed ,responded that they were postponing  investment decisions because of political  uncertainties, the other 91 % are looking for  new business opportunities creates by Chilean  economic growth, expected to be between 6 - 6.5 % this year ,and 5 ¼   -6 ¼ for 2006.
This situation is rather unusual for the standard  in Latin America, where there is still a debate between  different approaches to the economy concerning for instance to the role of State ,the law, the markets and regulations to private  firms. Chile has evolved to a moderate political path based on consensus, and the rule of law  . This does not mean a static society, but one which moves forward based on a sort of an implicit contract between  voters and elected government officials .So far, it looks like this contract has  worked  out properly. Most opinions polls ,show that the probability of a second  center left government, following actual President Lagos´s government  is  high, and quite on the contrary to what  someone can expect,.  center left in Chile actually   mean a market orientation economy.-