Sunday, May 24, 2015

China Investment in Latin America:Some thoughts about Its implications

In january this year, the Chinese Government announced an investment plan for USD 250.000 millions, to be implemented in the next ten years in Latin America. Most of these investments, deal with infrastructure projects which would allow a better trade flow between China and its counterparts in Latin America. Last year, China start off a Global Bank,specially designed for infrastrucute projects to be implemented in many economies in the world. Actually ,this trade flow is slower than desirable, imposing higher transaction cost affecting the eficiency gains of such trade for everyone. Just to give an idea, while a trip for a cargo ships by the pacific, takes 12 to 15 days, the same trip by the atlantic ocean ,requires 23 or so, days. So ,it is obvious that there is a necessity for Chinese Government and its partners to improve the logistics of its trade chanels. Quite different to other countries with the same requirement, China does have the capacity to look for these changes within its partners borders, instead of waiting for free trade agrement alone, to be fully in place .These treaties need complementary investment, so they finance them. This week , China made official its partnership with Brazil, for implementing investments in railroads projects and others projects, from 2015 up to 2021 for USD 53.000 millons. So, it is doing a similar project with Argentina and Colombia, to improve railroad networks to get a faster speed toward the pacific ports.Raw material better disposal, is also a justification for these invesment flows. What are the gains for Latin America?. a.-It does not have the resources to implement such investement on its own,and a lot of research done by the international organisms ,call the atention on the weak instructure in Latin American economies as a restriction for growth. b.- It will improve Latin America capabilities, to engage in deeper integration with global markets.- c.- It will support economic growth potential, which it will have a lasting effect on the quality of living of its citizen, whether this growth is complemented with better public policies. A sensitive issue is about the influence China is getting in the region,and its consequences for the strategic equilibrium between global partners. Concerning this influence ,it is hard to argue that it is decisive for its policy decisions, and commercial ties within each country, or with other economic blocs such as the European Union. The issue rather is, that Latin American economies have a new commercial ally , for its integration into the global economy , to get fully the advantages from it. A stronger Latin America, is also a good condition for better trade flows , with this traditional partners . However, from the political and geostrategic point of view, it is for sure that it will arise a scenario with a different setting for diplomacy.-

Sunday, May 03, 2015

The new mediocrity: an alternative meaning

At first glance it may looks that the notion of mediocrity as a rule for global economy and local economies in particular, is unfair. The fact is that policy makers, are doing their best to overcome the lasting effect of the worst financial recesion of this century.They did not create that recesion because of their policies, but because they lacked of them,otherwise it is hard to understand the reason why smart people did nothing to prevent it.This fact, some how shift the burden of responsibility to markets economic agent, however, not any of them ,but those innovators who lead the new way to do business with high risk financial products.- Financial Innovation went through markets transaction at a faster pace, than policy makers were able to design the proper approach first , then the proper policy, to deal with its higher than usual risk profile in financial transactions. Therefore ,the new mediocrity hypothesis arise from the fact that no matter its consequences, a lot of the most promiment financial institution in the world ,followed that innovation bet,and aside from almost the usual innovation flow coming from information and communication technologies , there is no current innovation on the global economy capable of matching that one which led to the financial crisis.The obvious implication is that those innovation failed, but that is the path for better and stronger innovation in the future. Perhaps, unconventional Monetary policy match such an innovation label, but it is unusual to count on that indefinitely,sooner or later it will back to normal, which is the opposite of lasting innovation(creative destruction).Fiscal policy, still is depending on taxes, and worst of all on higher taxes. This macro economy policy , should follow the innovation path of the monetary policy, but this one, to last for longer period of time. Let take the case of a partnership with the private sector to provide better services, protecting the state from corruption with better laws ,or to get rid of centralized solutions away where the problems come from Thus, given that none of these macroeconomic policies are even close to be innovative, so the sources of economic growth will not be either.The endogeneous source of growth, arise from talented people who have the chance of following their way up to the top, within a supportive environment, with clear and stable rules,and the right incentives, which asumes an innovative State. At the end of daily analisys, economic growth still depend upon the same approach applied in the past, more State and less private initiative.If this is the case, there are two implications: a.-The new mediocrity means, lacking of new ideas to lift both investors and consumers expectations up.To get rid of traditional text books solutions to solve old problems, but inefficient to deal with new problems arising from konwledge and information, as the driving force of the global economy, and economy growth. b.-The new mediocrity will stay for a long period of time,unless innovation also apply to fiscal policy.