Category: Finance

How Racist Rhodesia Did It And 鈥業ndependent鈥� Zimbabwe Is Getting It Wrong: Comparing Currency and Finance Under Sanctions

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Although Zimbabwe was the victorious outcome of a nationalist struggle against Rhodesia, there were significant continuities in the country鈥檚 economic structures in the first two decades of independence. The government exhibited limited commitment to land reform and economic indigenisation. Even though the ZANU PF government needed to be tactful not to upset historical structures of Zimbabwe鈥檚 economic inheritance, it needed to strike a delicate balance and undertake some form of transformation to maximise the country鈥檚 future prospects. However, limited progress was achieved in terms of economic transformation in the first twenty years of independence, resulting in political disaffection in the 1990s.

To retain political support at the turn of the twenty first century, the state undertook sudden and radical measures aimed at transforming the racial structure of the economy, resulting in the Fast Track Land Reform Programme. However, the racial undertone and process of this overdue exercise was problematic. Moreover, land reform did more than destabilise race relations. Although a steady decline had started in the early 1990s under the weight of the Economic Structural Adjustment Programme (ESAP), land reform prompted rapid economic collapse. The most visible symptom of this was inflation. With its Special Drawing Rights (SDR) suspended at the World Bank and with its government officials facing European Union and American sanctions, these challenges ushered in a deepening political and economic crisis. By comparison, Rhodesian history had also been characterised by political conflict and international sanctions between 1966 and 1979.Read More »

Using Minsky to Better Understand Economic Development 鈥� Part 2

Vitor MelloLeave a comment

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The work of Hyman Minsky highlighted the essential role of finance in the capital development of an economy. The greater a nation鈥檚 reliance on debt relative to internal funds, the more 鈥渇ragile鈥� the economy becomes. The of this post used these insights to uncover the weaknesses of today鈥檚 global economy. This part will discuss an alternative international structure that could address these issues.Read More »

Using Minsky to Better Understand Economic Development 鈥� Part 1

Vitor Mello3 Comments

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This year the global system has seen two major shocks: Brexit, and Trump. What these events have in common is their populist rhetoric that promised to bring back jobs, while also making xenophobic statements. These elections have tapped into growing anxiety over job security, which has not been addressed by most governments and has given room for demagogues to tap into the anger of the people. They reflect a problem that transcends the boundaries of any single nation: the global economy has been in a slump for almost a decade. Governments need to create jobs, and public fiscal stimulus is the way to do so. To allow it, we must that system.

To understand why we have to consider the international system in which nation states currently operate in. Its current characteristics present challenges for developed and developing economies alike. There are two important features to consider: first, the system creates a deflationary bias by requiring recessionary adjustments and hoarding of the international mean of payment (i.e. dollars). Second, it lacks mechanisms to offset the chronic surpluses and deficits between nations, thus breeding financial instability. In a nutshell, it leads to poor creation and distribution of demand that is managed through capital flows. Instead of propping up demand, the global economic system props up debt.

This post will be split into two parts. This first part will employ the theories of Hyman Minsky to explain the features of our current global economy. Next week, we will follow up to discuss 聽an alternative system that would allow for a better distribution of demand among countries and would support emerging economies鈥� development by freeing them from the swings of international markets.

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The Trouble with Sub-Saharan African Debt

Ingrid Harvold Kvangraven2 Comments

By Aleksandr V. Gevorkyan and Ingrid Harvold Kvangraven

Over the past decade, the Sub-Saharan African countries鈥� ability to draw on new debt in international capital markets has become a central characteristic of their development experience. Yet, the determinants of their borrowing costs are driven by external factors where investor perception plays a key role. This raises concerns over the sustainability of the current development model.

In the mid-2000s, 30 African countries received substantial debt reduction through the International Monetary Fund (IMF) and World Bank’s Heavily-Indebted Poor Country (HIPC) Initiative. Only a decade later, many of the same countries are again facing debt distress. The its members of the dangers of rising debt obligations, while the IMF has called for an the region鈥檚 growth policies.

In our new paper entitled 鈥淎ssessing Recent Determinants of Borrowing Costs in Sub-Saharan Africa鈥� in the of the we trace the latest round of borrowing back to 2006 with Seychelles as the first sub-Saharan African (SSA) country to issue a sovereign bond, with the exception of South Africa, in 30 years. Since then, DR Congo, Gabon, Ghana, C么te d鈥橧voire, Senegal, Angola, Nigeria, Tanzania, Namibia, Rwanda, Kenya, Ethiopia and Zambia have all followed suit, accumulating over $25 billion worth of bonds, with a principal amount of more than $35 billion (see Figure 1 for totals by country).Read More »