World Bank Presidency: Development or Politics first?

UPDATE: Shortly after President Obama nominated Dr. Jim Yong Kim for the post, Dr Sachs withdrew his candidacy in support of Dr Kim, his decision was communicated through Dr. Sachs' spokeswoman Erin Trowbridge.

Robert Zoellick has already stated that he will not seek a reelection as WB president, with this setting Dr, Jeffrey Sachs proposed himself as a candidate with various convincing arguments through some articles in

Time Magazine and also in the Washington Post

I am also attaching below a very quick interview that Dr Sachs made with CNN explaining why he considers to be an ideal candidate:

Personally I would love to see Dr Sachs as President, however despite the fact that 27 US representatives sent a letter to President Obama asking him to nominate Dr Sachs as the US candidate for the presidency of WB, a few minutes ago the Obama administration decided to nominate Dr. Jim Yong Kim

The third candidate as of March 23rd is Ms Ngozi Okonjo-Iweala who is the current Finance Minister of Nigeria, and has the support of Angola, Nigeria and South Africa.

It seems that everything is decided already, given the fact that the US has an important advantage regarding voting powers at the WB, despite that Dr Sachs has support from developing nations such as Bhutan, East Timor, Haiti, Kenya, Guatemala and one OECD country (Chile), it was rumored that Brazil could support Dr Sachs' presidency, however this is not confirmed.

I just hope that whoever is the next candidate, the next president should further develop the relation of WB with all the nations in the world, specially developing countries.

Finally I wanted to  share an portion of a very interesting article written by three former chief economists of the World Bank - Francois Bourguignon, Nicholas Stern and Joseph Stiglitzwho strongly argue about the need to put an end to the US "monopoly" on running the institution:

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The article comes from FT (Financial Times), you can find the complete article here

........ Developed countries have a majority of voting shares in the World Bank and the IMF, and so control the leadership of these institutions. We are now close to the turning point where developing countries will represent half of real global output. They already drive global growth. More important, the developing countries represent 6bn of the 7bn world population.

Our recommendation is not to swap an arbitrary rule, by which the president of the World Bank must be American, for another, only slightly less arbitrary, by which he or she should come from a developing country. It is to allow the best people to be considered for that position, whatever their origin.
The developed countries have declared the importance of an “open, transparent and merit-based process” many times. They have recognised the importance of trust, credibility and collaboration in overcoming global challenges, particularly that of poverty. Yet when the moment comes for decision, they cannot resist the temptation to perpetuate the monopoly. This is not only hypocritical, it also destroys the trust and spirit of collaboration needed to manage the profound problems facing the world.
Developed countries’ control of the selection process also discourages developing countries from putting forward a candidate who might have broad support among them. As a result, there is a risk that the choices offered the Executive Board will, in practice, be very limited.............

The writers are former chief economists and senior vice-presidents of the World Bank

OLPC: a new proposal to save the program

Krugman: We are already in a new great depression

The latest view of Nobel prize winner in Economics Dr. Paul Krugman regarding the current state of global economics (From Reuters: http://www.reuters.com)

(A quick Update) Bolivia's Lament: Highest gas prices in history, where are the benefit for Bolivia?

Regarding my last post, I have received a couple of comments claiming that the data I posted was outdated.

To solve that here I present the same figures regarding Regional GDP per capita for some LAC countries (the data is for 2010, from IMF's worlds statistics, they can be accessed either trough IMF's library site or the WB open data project) These are the most updated yearly figures I could find.

Sadly. the conclusions are the same, when comparing the GDP per capita for LAC countries (I have expanded the base) between the years 2003 and 2010, it is evident that Bolivia has had the lowest expansion.



As I said I plan to explore this economic comparison further in the future...

Regarding the claims about the Gas Projects in Bolivia, I did not find any updated projects for Bolivia, the only buyers for Bolivian Gas to January 2012 are Argentina and Brasil. Any other potential projects are only that: potential projects that are not taking place right now. Currently the income for Bolivian gas comes from domestic use and the sale to Argentina and Brazil only.

I did find lots of positive and negative estimates of a potential sale to the US and Mexico, however they are only estimates, the reality today is that those business are not taking place right now (there may be the best intentions to engage in them, but they are simply not functioning)

Regarding the claims about corruption cases in YPFB (Bolivia's oil and gas state company), they are the most updated that I could find, Santos Ramirez was sentenced in January 2012.

I will always welcome any further comments, I believe that only an intelligent discussion can move things forward, thanks for your comments.

Bolivia's Lament: Highest gas prices in history, where are the benefits for Bolivia?

Almost 10 years ago, Bolivia suffered one of the worst social confrontations in its recent history, the conflict which was named as "Guerra del Gas" (the Gas War) revolved around several problems and demands from a diverse group of political and social actors

Today I was surprised to find out that gas prices are in its peak historically (see video below). Bolivia has the second largest gas reservoirs in the world, the logical consequence of such setting would be to question how Bolivia is benefiting of this. After all, the development of countires such as Saudi Arabia, Norway, UAE or even Venezuela can be attributed to the explosion in oil prices. Sadly the benefit is minimum, I would dare to say non existent. This is the tale of el Lamento Boliviano (Bolivia's Lament)

Highest gas prices in history (video from CNN)

On the lines below I will introduce you with a general perspective of what was the Gas Wars and how.. almost 10 years after that Bolivia is still with the same disappointment and lack of development, despite sitting on top of one of the largest reservoirs of gas in the world

The Gas War (La Guerra del Gas)

The trigger for the most intense confrontations was the protest from some parts of the population regarding the way Bolivia would manage the sale from yet another natural resource blessing: its gas reserves.

The issue centered in  Bolivia's large natural gas reserves and the prospect for their future sale and use. The Bolivian gas reserves are the second-largest in South America, after Venezuela, and exploration after the privatization of the national oil company YPFB showed that proven natural gas reserves were 600 percent higher than previously known.

A consortium called Pacific LNG was formed to exploit the newly discovered reserves. The consortium comprised the British companies BG Group and BP, and Spain's Repsol YPF.

The ministers and policymakers under the governments of Hugo Banzer Suarez, Jorge Quiroga and Gonzalo Sanchez de Lozada designed a plan costing US$6 billion to build a pipeline to the Pacific coast, where the gas would be processed and liquefied before being shipped to Mexico and the United States (Baja California and California), through a port either in Chile or Peru.

Policymakers at that time hoped to use the gas profits to bolster the sagging Bolivian economy and claimed the money would be invested exclusively in health and education. Opponents argued that under the current law, the exportation of the gas as a raw material would give Bolivia only 18% of the future profits, or US$40 million to US$70 million per year. They further argued that exporting the gas so cheaply would be the latest case of foreign exploitation of Bolivia's natural resources, starting with its silver and gold from the 17th century.

On top of that, the government of Gonzalo Sanchez de Lozada (president at that time) lacked of a popular acceptance. Sanchez de Lozada had gained less than 30% of the vote in the last elections and he came to power trough a series of pacts and coalitions with other political parties (at that time Bolivia's electoral vote was widely dispersed among four political parties: Evo Morale's MAS, de Lozada's MNR, former president Paz Zamora's MIR and Cochabamba's past-major Manfred Reyes Villa's NFR).

At that time Bolivia's fiscal deficit was considerable, and an attempt of a tax raise on Feb 2003 damaged even more the acceptance of de Lozada's government.

Additionally, the new discovery of the gas reservoirs exacerbated the regional demands of Bolivia's departments (political administrative divisions equivalent to states). In the past the regions of Potosi and Oruro (which once were the main beneficiaries of Bolivia's golden age of mining) had not seen a real development product of the exploitation of minerals such as silver and tin; and were demanding an equal share of income and development for the newly discovered reservoirs. On the other hand the regions of Tarija and Santa Cruz demanded a bigger share of the income from the sale of the gas arguing -logically- that the reservoirs were in their respective administrative regions. These demands were only proof of the highly centralized system that Bolivia had until that time with only three cities (La Paz, Santa Cruz and Cochabamba) being the main beneficiaries of government policies.

The issue of the pipeline and the export port
The proposed plan for the industrialization of the gas required the Bolivian government to select a port to export the industrialized gas, since Bolivia is a landlocked country.


The dispute arose in early 2002, when the administration of President Jorge Quiroga proposed building the pipeline through neighboring Chile to the port of Mejillones, the most direct route to the Pacific Ocean.

However, antagonism towards Chile runs deep in Bolivia because of the loss of Bolivia's Pacific coastline to Chile in the War of the Pacific (1879–1884). There were some proponents of an alternative of the Ilo port in Peru given this antagonism
President Jorge Quiroga postponed the decision shortly before leaving office in July 2002 and left this highly contentious issue to his successor.
After winning the 2002 presidential election Gonzalo Sanchez de Lozada expressed his preference for the Mejillones option but made no "official" decision. The Gas War led to his resignation in October 2003.

The long road
After Sanchez de Lozada's resignation in october 2003, all the plans for the gas industrialization were completely stopped and a "soap opera" between the then opposition party of Evo Morales (MAS) (backed up by Venezuela and Cuba) and the leftovers of Sanchez de Lozada's government (among them his former Vice President Carlos Mesa G., who assumed the presidency) begun.

President Mesa called for a Referendum on 2005 to solve the gas crisis by a popular vote, which ameliorated momentarily the  pressure from opposing parties, however Mesa was forced to resign, and after an interim government of the Supreme Court Chief Justice (Gonzalo Rodriguez Veltze) who implemented a new Hidrocarbon's law (closely related to the demands of 2003) and a new tax system to equalize the benefits of the potential gas sale among the different Bolivian regions, a general election was called.


Evo's government, the nationalization and tons of corruption
Evo Morales won the 2006 elections and as of May 1, 2006  signed a decree stating that all gas reserves were to be nationalized. This ended definitely any chances of foreign investors on the plan of the gas industrialization. Moreover it put all the responsibility on the Bolivian government for the industrialization of the gas and other natural resources (lithium, minerals and others)

To date, Bolivia exports gas to Brazil and Argentina (projects that were developed before Evo's government) and these two projects constitute the main income source for Bolivia's national aparatus.


Additionally, several cases of corruption were unveiled related to the newly nationalized Bolivian Gas and Petroleum Company. The most prominent case was the one of Santos Ramirez (former President of the Senate and personal friend of Evo Morales) who was found guilty of corruption and stealing more than US$ 45 million from the nationalized Gas and Petroleum Company (he was sentenced to 12 years in prison in January 2012) 


What are the benefits for Bolivia today?
As stated above, the project to export gas to Mexico and the US never took place, instead Bolviia's policymakers focused on political agendas more than economic development.
The only income-generation projects (non-exploratory) projects that Bolivia has today regarding Gas are the pipelines to Argentina and Brazil. Both countries enjoy of a controlled capped price for the Bolivian Gas (thanks to the poorly managed negotiations and a "amigos" deal between former President Lula da Silva and Evo Morales, and former President Kishner and Evo).

Besides the politics, and to illustrate ever further Bolivia's lament below you will find a comparative chart between Bolivia, Argentina, Ecuador and Venezuela's GDP per capita (the data is from the IMF's International Financial Statistics, October 2010)



It would be silly to say that the only reason of the low economic development of Bolivia is only attributable to the failure of the Gas industrialization, but I suspect that the charts would look different if Bolivia had developed this project. (Even forgetting about the Saudi countries, Mongolia and its great recent development come to my mind) I expect to elaborate further on the economic analysis on this specific issue.
 



Well I hope this brings some ideas on why I call all this stage a Lamento Boliviano (Bolivia¡s Lament), I just hope that things change in the future...

The End of an Era in Japan

From CNN's GPS
http://globalpublicsquare.blogs.cnn.com/

Asia and Latin America the heirs of the future? (2 of 4)

This is a continuation of my previous post regarding an analysis of the coincidences and differences regarding economic development in Asia and Latin America. This second part focuses on the second narrative: the endowments and geography theory.

The literature and ongoing policy debates suggest that there are four main narratives that attempt to explain why Latin America is losing global competitiveness, specially against Asia: (I will elaborate on the four points on different posts due to time constraints)

1. The unfinished transition story
2. Endowments and geography
3. Institutions and FDI
4. Social cohesion and inequalities

The Endowments and geography narrative (a.k.a. the Guns, germs and steel theory by Prof. Neil Diamond)

There are two opposed versions within this story.
The pessimistic or “Dutch disease” version – according to this story Latin America has the wrong endowment to develop complex manufacturing activities.
Critique of this story: one can hardly dispute the fact the region is natural-intensive and that this may affect manufacturing competitiveness (for instance, by leading to relatively higher wages), but if this restriction were really binding countries such as Mexico, Brazil, Vietnam and Indonesia would not be significant exporters of manufacturing goods. Moreover, countries such as Canada, Finland and Sweden seem to have shrugged off the “natural resource curse” to become important exporters of complex manufacturing goods.

The optimistic version – according to this story, resource endowments can be a blessing. Agriculture and mining are increasingly technology-intensive activities that promise much for resource-based (RB) industries; they could also lead the way to growth of the “knowledge economy”, a function previously believed to be served only by manufacturing. From this perspective, the root of LA competitive and growth problems don’t lie in its endowments but in its long-standing policy bias against RB activities; the way forward is then to promote such activities.
Critique of this story: a “resource based” path to competitiveness and growth can have two important limitations. First, the diversification from primary to RB manufacturing activities is not automatic. Middle East countries and Venezuela are a powerful reminders that the “Dutch disease” can be a real threat and that Canada and Finland might be exceptions to the rule. Second, RB activities might be an obstacle rather than a path to building a knowledge society as investment concentrates in land, permanent crops and extractive equipment and very little in human capital.



I will continue with the second narrative "Insitutions and FDI" in a future post, hopefully next week