China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

Argentina – better this time?

May 18, 2016

This time, I change the content of my blog and turn to South America. Argentina is currently trying to reorganize and restructure its economy – not one single day too early. Now again, long-term observers of the Argentine economy may add.

The Kirchners certainly failed as presidents (2003-2015). Argentina’s relatively new president and former mayor of Buenos Aires – Mauricio Macri – is now trying to restore international confidence in his country by a much more market-oriented policy than the Kirchners were conducting. Some success can already be seen, for example by bringing back Argentina to international capital markets – though at a high interest rate and after an international compromise about the old government debt and the return to a floating currency system against the U.S.dollar (which led to a significant but unavoidable weakening of the peso).

Despite these and some other positive signals, the outlook for Argentina remains very uncertain. The country is still in a recession. Risks for social unrest are still in place.The budget deficit is high, and so is inflation after the abolition of important price regulations and the weaker exchange rate. Trying to give a better balance to the economy remains difficult.

In other words: l am not sufficiently convinced that Argentina will achieve sustainable progresss in its fight against the burdening economic hangover after the Kirchner era. My own analytical experience from Argentina and its economy makes me doubtful.

At least we can now see the start of a better economic policy for the fascinating country of Argentina. Let’s hope for the best ! But Macri and his team are still very far from the goal.

In the meanwhile, we can always watch all these wonderful fotboll players from the country of the pampas. They use to give us fun also during difficult times in Argentina’ economy. By the way, President Macri once was the head of Boca Juniors, the creator of many superstars of Argentine fotboll (soccer). Now he is the president of Argentina.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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TTIP should be discussed more (in Sweden)

May 10, 2016

The ongoing free trade negotiations between the United States and the EU (TTIP) are currently entering a decisive period. Totally, 24 chapters have to be settled. However, communication from this important event is held at a low level in Sweden, despite the fact that the responsible EU Commissioner for TTIP – Cecilia Malmström – comes from Sweden. At the same time, the Swedish government obviously avoids to discuss the issue more extensively with a broader public – for whatever reason. This should be changed for democratic reasons!

Time is tight for coming to an agreement between the U.S. and the E.U. It should happen before president Obama will be leaving his office on January 20. Quite a number of difficult issues have to be agreed upon until this date.

Here can be noted institutional matters such as investors’ protection, public purchasing (“buy American”) and sensitive parts of agriculture. Particularly certain details of the agricultural negotiations may become complicated because of the difficult balancing act between necessary environmental protection and too generalizing populism.

The question whether TTIP will become a hot topic or not in Sweden and a number of other involved countries cannot be answered today. But we do know that TTIP is important and already today discussed with passion in, for example, Germany, France, Austria and the Netherlands.

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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Poland – why it succeeded so far

January 13, 2016

Newspapers and politicians all over the world currently show a high degree of disappointment about Poland’s political development after last year’s general elections. Fears of markedly reduced democracy are expressed quite loudly. Economists, however, are more silent. This fact may confirm once more that foreign analysts at financial institutions and elsewhere usually are not well informed about economies outside the traditional OECD area (though Poland nowadays is an OECD country). This is – by the way – also true of China for which herd analysis usually dominates even outside the country, particularly among most financial players.

In my view, recent developments in Poland should not be underestimated. Poland’s strong emerging role during the transition to a working market economy was indeed impressive. Poland was even the first country among the former planned economies in (South) Eastern Europe that reached pre-1989 GDP levels. I have seen Poland’s impressive development many times with my own eyes since its opening-up in 1990.

The secret behind Poland’s success story until recently was without doubt that Poland – more or less – never moved backward in its reform policy. Sometimes Poland moved somewhat more to left of the road, sometimes a little more to the right – and the pace of reforms was during certain periods quite slow and during other periods more accelerated.

But the direction was always forward – and never really backward! This is probably the most important explanation of Poland’s political and economic recovery in the past 25 years. My own research has also confirmed in a number of studies that reliable and steady – sometimes quite slow – moves forward usually mean more to sustained economic growth than a mixture of fast structural improvements and following setbacks.

So, why should Poland want to jeopardize its achieved, good international credibility position? Foreign companies have invested a lot in Poland and, thus, contributed strongly to Poland’s fairly good international competitiveness. In other words: it should not be ruled out that reality and memory can take this quite large European country back to frameworks that are in line with nowadays valid European standards. However, good psychological feeling should be applied – particularly by Poland’s partners in the EU and in NATO. Such a position seems to be more promising than threats – if I understand Polish mentality correctly.

Anyway, the analysis of Poland’s political and economic development should be intensified in many international institutes and commercial organizations. We should keep in mind that Poland is an important European country – though often underestimated.

 

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
Editorial board

 

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