Wednesday, December 20, 2006

The Iraq Study Group Report’s as close at it gets silver bullet

The Iraq Study Group Report’s perhaps most important yet least discussed recommendation is “redistributing a portion of oil revenues directly to the population on a per capita basis” as it has “the potential to give all Iraqi citizens a stake in the nation’s chief natural resource” which could only foster a national identity and help stimulate the search for normality. Besides, given that the price of gas in Iraq is so low that you can fill your tank with less than two dollars, which of course is the source of much corruption, the sharing in the additional revenues that a price increase of gas would generate provides the political support for such difficult but necessary action.

We were told not to expect any silver bullet from the Report but in my opinion this revenue sharing program is a close to one as it gets. Implementing such a program in a transparent way, with the help of the World Bank, could also have far-reaching consequences for fighting all the other oil curses around the world.

Monday, December 18, 2006

What is the financial world to do with Venezuela?

Sir, In Venezuela, as in most other countries, Congress is supposed to exercise control over the executive branch. For instance, its Constitution establishes that ‘No contract in the municipal, state or national public interest shall be entered into with foreign states or official entities, or with companies not domiciled in Venezuela, or transferred to any of the same, without the approval of the National Assembly.’

Now, even though Venezuela is currently known as a very polarized nation, the fact is that after the elections of December 4, 2005, its Congress includes 167 members who are in favor of and obedient to him who wishes to be called ‘Commander’, and 0 representation for those many who are not in the least in agreement with chávez´s confused ramblings of his vision of a twenty-first-century socialism. This indeed poses some serious questions about its legitimacy and therefore some serious challenges for those who issue opinions.

For instance, what are legal counselors or credit-rating agencies to do after they might receive a letter from a Venezuelan citizen (or perhaps even read this letter in FT) informing them that sooner or later the debts now contracted by Venezuela might be questioned as ‘odious debt’, as they are not duly approved by a legitimate congress (167-0), nor are they needed, as can be evidenced by the many donations Venezuela, with its own so many very poor, has recently made, among them, to the relatively few somewhat poor of Massachusetts.

Sir, if a company like Nike has to worry about the labor conditions in the factories to which they outsource their production, why should the financial world be allowed to ignore civil representation issues in those countries it helps to finance?

This is an extract from Voice and Noise, 2006, a book that I wrote after my experience as an Executive Director of the World Bank (2002-2004) and that now, after having duly marked the extract above, I give freely to any lawyer who might have to prepare a due diligence on Venezuela and to anyone from the credit rating agencies who has to rate Venezuela with the words... “and do not forget that a citizen from Venezuela, who has all the intentions of tomorrow, when given a chance, to protest all the odious debts and gifts told you so… I have not the faintest idea if I have a legal case… but are you really sure I don´t?”

Friday, December 15, 2006

What does recommendation number 28 really mean?

The Iraq Study Group Report suggests in recommendation number 2 to “Support the unity and territorial integrity of Iraq” which makes it somewhat difficult to understand the real meaning of number 28 when it says “Oil revenues should accrue to the central government and be shared on the basis of population”, since how do you share if there is only one central government? Now, if what they actually propose is that the oil income should be shared by the population directly on a per capita basis, this would indeed be a much welcomed proposition, given that we all know how impossible it is to construe a real democracy when oil revenues go directly to central government coffers and with it makes a mockery of any balance of power in the society. In the chaotic Iraq trusting the Iraqi people with their oil revenues is wiser than trusting any central government with it.

Sunday, December 10, 2006

The only thing left to do in Iraq

The recently published Iraq Study Group Report says “There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation’s chief natural resource”.

Since we all know that when oil revenues go directly to government coffers this makes it more difficult for society to reach a fair balance of powers among all its participants, these proposals also carried within them the best chances for construing an effective and lasting democracy.

Unfortunately some will seems to be lacking since the report also includes some really poor objections as “Oil revenues have been incorporated into state budget projections for the next several years. There is no institution in Iraq at present that could properly implement such a distribution system. It would take substantial time to establish, and would have to be based on a well-developed state census and income tax system, which Iraq currently lacks.”

In fact, compared with most of all the other challenges that faces Iraq today, to develop a fair and transparent per capita oil revenue sharing system, should be relatively easy and I believe that the World Bank has the required capabilities to successfully complete such mission.

And besides, after helping to free the Iraqi people from those who oppressed it, is not helping them to gain access to their own resources the only thing left to do?

Tuesday, December 05, 2006

A victory for Hugo Chavez?

Last Sunday’s presidential elections in Venezuela have been hailed as a victory for Hugo Chavez. Far from it!

In the previous election in 2000 all the votes of the opposition against Chavez added up to 2.5 million while in this election, certified by the Chavez influenced, the home based opposition against this self proclaimed world leader almost doubled as it came in with more than 4.3 million votes, and that does not include of course all those who did not manage to pass all the electoral obstacles.

Another fact that perhaps also should be reminded to the international Chavez adoring community, is that not one single of these 4.3 million voters is represented in Venezuela’s 167-loyal-to-Chavez-and-zero-against congress.

Monday, November 13, 2006

Iraq needs mercenaries for peace

As Venezuelans know so well, it is impossible to build a real democracy upon abundant oil. Democracy is about creating a level playing field, and, therefore, if you want a real chance at democracy in an oil-rich land like Iraq, you need first to distribute their oil revenues equally among all their citizens. For Iraq, distributing their oil revenues upfront, in cash, would carry a special significance since not only would it help to solve the problem of their oil being located only in some parts of the country, but it would also foster an additional bond of national identity among all the Iraqis, be they Sunnis, Shiites, or Kurds. The possibility for each citizen to receive perhaps a couple of thousand dollars a year would promote interest in reaching normality. The World Bank could be the perfect candidate to help implement a very transparent sharing of the oil revenues for Iraq.

In a world where so frequently mercenaries are used for wars, why don’t we help Iraq contract their own citizens, using their own money, to be mercenaries for peace?

Friday, October 13, 2006

An ättestupa for the baby boomers?

If countries were open-ended investment trusts, then if the average lifespan was eighty years, a newborn baby should have eighty shares, a fifty-six-year-old consultant (like me) should have only twenty-four shares, and anyone over eighty should count his blessings and be happy with the one he’s got left. From this perspective, our current democracy is a complete farce. I say this after having read the truly hair-raising World Development Report 2007 from the World Bank titled Development and the Next Generation. It so clearly evidences our failings as a society and the fact that most of those coming after us are giving up on participation and hope, with damned good reasons.

The report covers ages 12 to 24, but in From Schooling Access to Learning Outcomes – An Unfinished Agenda presented by the Independent Evaluation Group of the World Bank (IEG) we also read that many even younger students in poor countries (maybe in some rich countries too) can go through a complete primary education without actually learning how to read, which evidences systemic corruption on a massive scale and that completely shames initiatives such as Education for All. Having schools deliver on the absolutely bare minimum expectations could be a truly worthy and concrete goal in the current anticorruption drive of Mr. Paul Wolfowitz, the President of the World Bank. Normally it takes decades to be able to evaluate the programs of the World Bank, but, in this case, it could actually be done by the end of next semester.

It is said that in Scandinavia, a long time ago, when the older people felt that they stood in the way of the young, they threw themselves off steep cliffs known as an ättestupa. These days it could seem like quite the opposite, if we consider how our democracies might have been captured by us baby boomers. We need to revise urgently how our society deals with the next generations, before they throw us down an ättestupa—for damned good reasons!

Tuesday, August 08, 2006

Where is the “Worst and Best List” in the development debate?

Alan Beatti of the Financial Times in The Great Unknown, July 7, debates lucidly the Development Debate and to that effect enlists the opinions of some of the most prominent Development Talkers. What again is left out from the debate, perhaps as it is another inconvenient truth, is the fact that just a little bit more of real accountability for the actions of the developers could go a long way to stimulate better thinking and better implementing.

The following is an extract of my Voice and Noise where I recount part of my experience as an Executive Director at the World Bank.

"The standard feature of any evaluation and monitoring system we know of, is the use of some sort of distribution function, be it the normal bell-shaped curve or any other type. It somehow indicates the extremes; for instance, the worst 5% of the organization’s performance and the best 5%.

Any board, if it wants to be effective, cannot spend a lot of its time in the grayish middle area of the function, but has to concentrate its attention on the extremes of the curve, weeding out poor performance and learning from bad experiences, so as to avoid being dragged down into mediocrity, while guaranteeing the promotion of the best and learning from its successes, so as to advance the organization’s goals.

These distribution curves are totally absent in the evaluation brought forward for the Board to consider . . . it behooves us to make certain that they are adequately introduced. On a daily basis, the needy people of our constituencies are harshly evaluated by life in very cruel terms, so we might as well ask ourselves whether we should not be a little stricter in our assessments, living up to the accountability we so much preach to others."

Lacking the worst and best lists, budgets are allocated more on a per capita or on a per program basis than on the basis of what is working and what not. What private organization could function or survive this way?

Lacking the worst and best lists, scarce resources are further diluted. The possibility of concentrating the use of resources on a few countries and on a few programs to get some issues completely right in a sustainable way is almost non-existent. What private organization could function or survive this way?

I am absolutely sure that Robert Calderisi, William Easterly, Joseph Stiglitz, Andrew Charlton, Jeffrey Sachs and even the raconteur Alan Beattie are all great professionals and are all doing a splendid role verbalizing development issues but, except for passing some exams and delivering some papers in time, has anyone of them really been in a position of “either you deliver or you get out?” I wonder, not because I have anything against them, on the contrary, I wonder because it is our duty to wonder whether that might be part of the Problem, most especially since because of the Problem people are dying and the world is getting to be a nastier place. Friends, can we really afford not to step up our requirements that World Bank, IMF, and UNDP really deliver?

Tuesday, August 01, 2006

The world needs more than a theme park of anticorruption efforts

My comments on Strengthening the World Bank Group's Work in Governance and Anticorruption

Dear Friends,

Recently Moisés Naím in an article, Bad Medicine, in Foreign Policy (March–April 2005), suggested that the world might have become too fixated on battling corruption. Of course, blaming corruption for all evil is stupid, and Naím’s article is a good aide-mémoire on that, but the alternative of turning a blind eye on corruption sounds so much worse! Therefore, we very much welcome the World Bank’s efforts to do more and better. The Naím article also cited Daniel Kaufmann as saying, “The last 10 years have been deeply disappointing . . . Much was done, but not much was accomplished. What we are doing is not working,” but this has to be interpreted as a clamor for better strategies and not as a capitulation.

Given our current global problems, a corrupt world—a world where everyone is looking for his or her short-term gratification—is just an unsustainable world, and so it is imperative that the many difficulties that come up while fighting corruption should only strengthen our will to fight it. That it has to be done intelligently is obvious. Also, while doing so, we need to heed Naím’s warning that “before we engage the enemy, we should take the equivalent of the Hippocratic oath, and promise first to do no harm,” That goes without saying.

I can in many ways demonstrate the importance I have given to the issue of fighting corruption, in any of its manifestations, not the least during the two years when I was an Executive Director of the Bank, and when, as an example, I requested that some major documents relevant to the issue should be discussed at a full Board meeting, with the presence in person of the Bank’s president. The fast-track procedure that had been envisaged in my mind belittled its importance.

In this respect, I am very grateful for this opportunity that allows me once again to voice my opinion publicly on the issue of fighting corruption and the World Bank’s role in this struggle. I will do my utmost to try to keep it as brief and concise as possible. Likewise, I shall use as a reference the discussion document presented as part of this consultation process.

1. First and foremost, corruption, in all its manifestations, has its origin in those frailties that affect all human beings. In this respect, any attempt to classify the world in terms of the corrupted and the not corrupted is in itself corruption. Accepting this fact, with humility, is an absolute prerequisite if we are going to reach the necessary enlightenment to move forward and upward as a civilization. In fact, what we now observe in many of the supposedly corruption-free developed countries may in fact just be some better-camouflaged and more resistant strains of the same virus. In this respect, we urge the World Bank to eliminate from all its documentation any holier-than-thou manifestations, explicit or implicit, since these serve no useful purpose. That the Bank should listen to its shareholders and look for guidance goes without saying. However, to qualify some shareholders as having “significant experience in assuring sound governance policy and practices,” (1) in this context, is not helpful since in its anticorruption efforts the Bank will do its best when it works to help all shareholders, and not some specially singled out. This, of course, has nothing to do with limiting the possibilities of the World Bank to speak out in very clear terms against any particular outrageous manifestations of corruption. Indeed, we believe it should, much more forthrightly than it has in the past.

2. The fight against corruption, like so many other aspects of life, lies on a continuum where it is impossible to ascertain validly and precisely just how much has been achieved. The Bank should refrain from trying to categorize achievements in these matters, and most especially its own, since the resulting flag-waving contains many elements that bear uncomfortably close resemblance to corruption. For instance, a phrase like “The World Bank has come a long way on governance and anticorruption in a brief period” (8) is a no-no, not only because the distance traveled in that short time might be almost insignificant relative to the distance we need to travel, but also because it is disrespectful of all the efforts that must have been made earlier. In many of our developed and developing countries, one of the most disgraceful manifestations of corruption occurs when governments and politicians use taxpayer money to advance their own image. Thus, the Bank needs to set an example and refrain itself as much as possible from doing just that.

3. Corruption has many faces. Unfortunately, we tend to single out just some of them by placing them in a display case that contains the typical products of “administrative corruption—such as petty bribes to utility officials.” (11) Likewise, we highlight those that have “deep political roots—such as state capture and procurement corruption” (11). Selecting these and remaining silent about so many other forms of corruption is, again, to corrupt the debate. It is somehow like buying some cheap souvenirs as evidence of “having-been-there.” In my own country, Venezuela, the single worst corruption taking place is so large and so encompassing that most people do not even see it. I refer to the fact that the domestic price of gasoline is kept, in terms of United States currency, below 4 cents per liter, below 15 cents per gallon. That artificially low price transfers about 10 billion dollars per year as regressive subsidies from those that do not buy gasoline to those that do. In the same vein, the way much public indebtedness is contracted all over the world in order to support consumption and then it is justified on the dubious grounds that the debt level is considered to be sustainable, when the grim reality is that it will have to be repaid by future generations. This is a massive corruption to which we have just conveniently decided to turn a blind eye. The challenges in front of us, in issues such as global warming, do indeed require the World Bank to step up its efforts to find adequate mechanisms for cutting down carbon usage. It must do so in noncorrupt ways and that minimize the number of free riders, as far as possible. Therefore, in this respect, we cannot afford to let the Bank limit its concept of corruption, or its anticorruption efforts, until they become merely the equivalent of a theme park with a couple of fun-and-games distractions.

4. Many expressions of corruption are hideous and then again many seem almost harmless. However, where to draw the line that differentiates them, we must decide by personal conscience and by public law. And we must do so without releasing external forces of an inquisitorial nature, witch hunting that could be even more corrupt than the corruption it is fighting. In this respect, we should be a bit concerned when reading about an explicit call for fighting corruption “as assessed by staff professional judgment.” Staff members, of course, like all the rest of us human beings, do make implicit judgments all the time, but this should not confer on us any formal attributes of judges. A conscious effort should be made at all times to be very descriptive and open and clear about what the Bank’s terms-of-engagement are. We must leave as little as possible open to nontransparent judgments.

5. Notwithstanding all that has been said and that reflects how hard it is to get a solid handle on the issue of corruption, these difficulties are further compounded by the fact that fighting it still requires being able to draw some very clear lines. In this respect, we need to warn that when it is said that the Bank, through “Country Governance and Corruption Assessment,” (23) “calibrates the level of attention to governance and corruption to the assessed levels of risk which these issues present to effective poverty reduction” (24), we could be instructing the Bank to enter into a formal and quantitative approach that, by trying to measure corruption in relative terms, entails a moral hazard that could in fact make the fight against corruption more difficult.

6. Paradoxically we must also remember that corruption is about breaking societal norms and, though most people might not be able to specify exactly where that line should be drawn, most frequently they still have quite an accurate idea of when they or others are crossing that line. Therefore when the document mentions that “A more explicit anticorruption focus in fiduciary approaches is to be adopted,” (33) we need also to warn about the possibility of then drawing lines in such a way that it would permit actions that until that moment had been quite correctly prohibited though not in an explicit way. This is, by the way, exactly what many of us coming from developing countries believe might have happened when we observe very strange and almost inexplicable consequences of laws that regulate lobbying activity. We urge the Bank to dare help the world draw up and enforce lines. However, let us be very clear about it, that doing so carries with it huge difficulties and responsibilities.

7. In fighting corruption we always need to be aware that ineffectively wasting scarce resources is just another form of corruption. For instance in the extremely important issue of environmental protection, currently a lot of resources are wastefully spent on inefficient, stopgap measures, like hybrid cars, instead of developing the efficient and sustainable long-term solutions we all need. Similarly, in fighting corruption, the Bank also needs to be careful not to waste resources on microlevel enforcements, just for show, instead of helping to develop the sustainable and effective anticorruption tools the whole world needs.

8. With regards to the Bank’s own direct role and responsibility in the anticorruption fight, we would like to ask questions about or comment upon the following:

a. What should the consequences be for Bank staff if they are conclusively found out to have participated directly in an act of corruption? In the same way as it should be of the highest priority to protect Bank staff adequately from all risks related to their work, including of course all those that could be derived from fighting corruption, it is also important, for the credibility of the Bank, that these protections do not unduly isolate the Bank’s staff from the necessary accountability. The operational guidelines in this area need to be very transparently disclosed since the current situation of having a public list of professionals barred from engaging with the Bank on the basis of some fraudulent and corrupt actions, named and shamed, while not one single Bank staff name appears on any list, is obviously incompatible with the role the World Bank wants to play.

b. “Reputational risk” (23) as currently presented is irrelevant to this public debate and should be deleted. Of course there are risks for the Bank’s reputation, basically in anything it does. That is just how it is, but discussing its avoidance sounds quite similar to an investor banker expressing to his clients his concerns about how to minimize his own reputational risk, were they to lose all the money he manages for them.

c. The “reputational risk” that we find really relevant though, is greatest when the Bank’s own good reputation could risk being seen as camouflaging acts of corruption of others. In this respect, I recommend that in the public documentation of all projects financed, there should appear a simple one-page Public Notice that lays out the most important risks for corruption in the operation, what is being done to diminish them, and, much more importantly, what the World Bank cannot and should not be expected to do. That note should then be placed on the Web in order to enlist the civic-minded civilians in the fight.

9. Many of the specific suggested actions in the document point in a correct direction, but in order to help make the most out of them, we would like to make the following comments:

a. Of course, the World must strive to give noncriminals shelter from criminal pursuit when they cross a border. However, it likewise needs to avoid allowing criminals impunity while protecting the noncriminals. We are not exactly sure about the role of the Bank in this issue but, in its role of promoting global applicable knowledge, we absolutely agree that in the “restitution of assets to countries plundered by corrupt leaders,” “it has an important advocacy role to play.” (40)

b. The Bank should help to make the most of the new information technologies in terms of advancing the general transparency of governments. But, to do so effectively, the best way to move forward is to develop a series of good-practices and how-to-do-it standards and then to make them available to everyone, not only to the usual suspects. In this respect we very much would commend all efforts aimed at a “common framework specifically for diagnosing corruption at the sector level.” There could be no more effective start against corruption than knowing specifically how it works, something that is also quite correctly being brought up when mentioning the value of IFC gaining “experience and familiarity with industry practices” (38).

c. In the case of innovative Global Partnerships such as the Extractive Industry Transparency Initiative, we can just speculate on how much more results and credibility they could deliver if they could be developed and tested in rich countries, instead of having to make their very brave debuts in the most difficult places and circumstances.

d. Corruption—it takes two to tango—and so with respect to the role that the World Bank should play in generating global conscience about the need of joining together when fighting it, and fighting it on all fronts, the sky is the limit. For instance the Bank should be willing to accept playing an Independent Evaluation Unit role with regard to initiatives like the OECD’s Anti-Bribery convention.

e. The document calls for more actions enlisting the Private Sector in the fight and building up on some very valuable initiatives that bear resemblance to the Equator Principles methodology used by IFC with respect to the environment. We much applaud them, but we need to remind them that the true sustainable worth of these programs lies in their absolute fiduciary honesty. Therefore, it is vital to maintain the strictest of safeguards and always make sure that independent civil society ombudsmen are sufficiently empowered to make very sure that these programs are not captured by other agendas.

e. The document asks, “Can civil society be used as an instrument for ensuring accountability and minimizing risk in Bank projects? Are there individual or institutional ‘champions’ of good governance—whether within government or among local civil society—whose efforts can be supported by Bank analysis advice or operations? especially through lending?” (21). To these questions, we have to answer, “Of course! Is there any other way?”

10. As most anticorruption efforts are closely related to the societies’ general law-enforcement capabilities, starting with the investigative (38), we also need to remind ourselves of the importance of not imposing demands that exceed a government’s capability. Doing so could lead to a further erosion of its credibility, or, even worse, to opening up new growth opportunities for all those forces who generally participate in illegal and illicit markets. In this respect, an enforceability assessment needs to be a part of any anticorruption initiative.

11. Also the World Bank should look into how corruption is sanctioned, and whether resources for fighting it exist in a way that truly helps the society to advance. In many of our countries, one of the main hurdles in the fight against corruption is the lack of resources needed to be able to sanction the faults, like prisons that could be deemed human. This is a very real problem, unfortunately much ignored until now by the World Bank and others, not least the governments involved. Given some recent experiences, most notably how criminal bands like the Central Americans’ mara salvatrucha were born in prison facilities in the USA, and that is making it so much more difficult to fight poverty, we cannot afford to ignore the problem of how inadequate sanctioning facilities might even make the problems worse.

Friends, let me end by assuring you that these opinions are, as far as possible, not intended to preach a puritan unachievable perfection. They are given only in the sincere hope that they could help stimulate those small efforts needed to be just a little bit better, and which, at the end of the day, is what can move us all forward toward a better future. If some of the observations have fallen into the category of being obnoxiously self-evident, excuse me, but in this issue of corruption it is not that easy to separate the extremely important from the absolutely vital.

Yours sincerely
Per Kurowski
A former ED 2002-2004
Now just a private citizen

Wednesday, July 26, 2006

So you might all understand Chavez better!

I would just like to introduce here a small piece of information quite frequently ignored and that could help to shed some light on who this Hugo Chavez is and whether he is a good president and a good leader for Venezuela.

At this moment, almost eight years into Chavez’s XXI Century Socialism, gasoline is being sold in Venezuela at 3.7 cents of dollar per liter or less than 15 dollar cents per gallon.

With this marvel of a public policy Chavez, besides stimulating a runaway consumption of gasoline with all its environmental consequences, based on the international cash-opportunity cost manages to transfer a regressive subsidy of about 10 billion dollars, or about 10% of Venezuela GDP, or about 100% of the GDP of a country like Bolivia, from the poor who do not buy gasoline, to those that love to guzzle it up.

For comparison the gasoline price in an oil country that seems to been doing things right is 52 times higher and in the USA of Mr. Bush, Chavez´ sworn enemy, and the Cuba of Castro, Chavez´ best buddy, the price is only about 25 times higher. Even in the land that has inspired the term of oil-Saudism the price is seven times as high.

Now you try to draw your own conclusions of what Chavez is all about! Are you clear now?

Now so to also help you understand the current opposition groups that are against Chavez, let me inform you that they do not mention this issue either. Are you clearer yet?

Friday, July 21, 2006

A dissonant harmonization

The IMF has a compact agenda and is governed by an as homogeneous group of power agents you can get – Central Bank bankers – while the World Bank is much more split up, on all fronts. In this respect there can be no doubt whatsoever about who will have to shut up the most, if collaboration between IMF and the World Bank starts morphing into a silencing harmonization.

Imposing too strict harmonization safeguards on all those bright and dedicated professionals who work in the Bank and in the Fund, and dare to be creative, risks silencing the voice of those the world needs the most.

The following are the three observations I sent in reply to the IMF and World Bank's public request of comments on the proposed improvements to Bank-Fund collaboration. Though the issue has a quite innocuous ring to it, “of course they should collaborate,” to me it goes very much to the heart of how to handle the world of tomorrow in a world where relations and interdependency of countries are intensifying, day by day.

The first comment relates to the overriding issue of world governance, the second to what I refer to as the biodiversity of ideas, and the last to give an example of a specific area where previous collaboration might have had some negative consequences. (As this is no new issue to me and as I have been an Executive Director at the World Bank and recently finalized a book, Voice and Noise, I also appended some very specific and relevant extracts from it.)

1. How should we try to achieve Good Governance for our World, from the center or through participation?
“The Bank and the Fund share the same goal of raising living standards in their member countries, but their approaches to this goal are complementary, with the IMF focusing on ensuring the stability of the international financial system and the World Bank concentrating on long-term economic development and reduction of poverty.”

Clearly the differences in the two approaches, which are indeed complementary in the long term, provide room for many conflicting positions on how best to balance the different objectives in the short term. In this sense, what is really at stake when discussing “collaboration,” or “harmonization,” as it has also been called, is whether international financial organizations should try to settle all their many differences in-house and present a common front, or whether they should spell out their differences and let the countries decide for themselves.

As so many of the local and global issues have by nature no clear and absolute answers, their debate could naturally provoke local or global confusion, and inaction, at a moment when both individual countries and the world at large is in deep need of responsible decision making, and this could speak for more collaboration. But, if one were to consider the possibility that the Bank and the Fund, by harmonizing their differences, could in effect be killing the debate, in a sort of collusion of intellects, then this could also make a mockery of all those many recent discussions about the need to ascertain stronger “ownership” by the individual countries of their own decisions.

There is no clear solution to the above, but I for one have a feeling that if the World and individual countries cannot simply get their act together in a participatory way, then we are simply heading toward a one-centered world in a sort of End of History Empire, or into a Cold War II scenario, something that is perhaps even more worrying when the probable need for a new standoff between sides could seriously interfere with the need of solving urgent mutual global problems, such as the destruction of the environment.

As neither of the previous alternatives carries much appeal to me, I sincerely wish to keep alive, for as long as possible, the dream of our world being able to handle the challenges among all of us, and in that sense I would not favor killing the debate but instead being even more forthright about the difficulties, about the pro and cons, and allowing and stimulating the participation of all.

Yes there comes a moment where we as a world cannot afford destructive pariahs, who will have to be controlled, therefore diminishing the bio-diversity of governments, and perhaps also that way, little by little, leading us into the same end results listed above but, given a choice between being dominated or being co-opted, I must much prefer the second.

In a nutshell, collaboration between the Bank and the Fund, beyond fairly basic needs, does not go in the direction of world democracy and, if we are not willing to defend democracy on a world scale, our strength to promote it for individual nations is much reduced.

2. The need for a biodiversity of ideas
One of the most dangerous parts of the collaboration between the Bank and the Fund is that as it will occur between two already “serious consensus-grinding machines,” it could only further the reduction of the much needed biodiversity of ideas.

Frankly, and to be a bit blunt about it, to think that limiting the discussions on how to balance stability with the development movement to an internal Bank and Fund pre analysis, as if they are the anointed sole bearers of truths, is too arrogant.

In the same way as the next world-saving medicine might find its origins in a little organism in a tropical forest with a large biodiversity, so could the next world-saving idea be found in the poorest of the poorest underdeveloped nations. Do not shut them out or tell them what to do, but invite them instead to the debate. It behooves us all.

At a moment when the world is in need of a renaissance of ideas, do not slap it with some consensual dogmas.

3. An example of a doubtful harmonization

I hereby permit myself to quote in length the following self-explicatory note from my Voice and Noise.

The Financial Sector Assessment Handbook—a postscript

In September 2005, the World Bank and The International Monetary Fund published the Financial Sector Assessment Handbook and as I read it, it is a perfect example of what I mean by excessive harmonization, so I need to make a special comment here.

You might have already read extensively in the chapter “BASEL—Regulating for what?” about my strong belief that the world is giving too much emphasis to how to avoid crises potentially occurring in the financial sector, as opposed to how that sector is performing its role intermediating credits, generating growth, and distributing opportunities for access to capital. Yes, bank crises are setbacks, but, if in their wake they leave continuous step-by-step advances in development, we might still prefer that to a financial sector that receives a perfect bill of health but does little for the rest of the economy. In fact, such avoidance of a crisis is most probably just a temporary mirage. Developing is balancing various risks, not looking to eliminate one.

Well, in this handbook, which is more than 450 pages long, only a very few pages, perhaps fewer than ten, salute the flag of assessing and helping the banks perform their true function in development, the WB’s basic agenda. Instead, most of this handbook centers on how to supervise banks and minimize the risk of bank failures, the IMF’s basic agenda. Chapter Four contains most of the little there is about development, and “4.6.4 Development Obstacles Imposed by Unwarranted Prudential Regulation,” gives us sixteen complete lines about how entry or start-up regulation and uneven supervisory practices can hamper competitiveness and create “undue reliance on tools that are likely to disadvantage small new firms (such as excessive mandatory collateralization requirements for bank loans).” If I have ever seen what amounts to mere flag-waving, this is it, but, on the other hand, I must admit that these flag-wavers are at least quite transparent. Under the interesting subtitle “The Demand-Side Reviews and the Effect of Finance on the Real Sector,” we can read, “development assessments are interested in the users and the extent to which the financial services they receive (including from abroad) are adequate to their needs. Development assessments must express a general view on this issue, though in many countries, especially low-income countries, detailed quantification may be beyond the scope of the assessment. Friends, I rest my case. It is quite obvious that on this vital issue, WB has been harmoniously silenced.

Pssst… just between us, I feel that what’s valid for us is equally valid for the IMF. The Fund could also benefit from the clarity of not having to harmonize with someone who has other institutional objectives. End of quote.

PS. The Malan Report It states: "Good examples of collaboration involve the Financial Sector Assessment Program (FSAP)". So as you can see they did not listen one iota to what I said.

PS. As an ED I had stated much of this at the Board or the World Bank

Tuesday, July 11, 2006

My Voice and Noise on the Millennium Development Goals

We must aim higher!

The first of the MDGs has us trying to reduce in half by 2015 the proportion of people living on less than one dollar a day and of their suffering hunger and its intentions are good, and the world needs to support it by reaching a high economic growth, much more equitably distributed around the world, though where can we find the World’s Gini coefficient?

Nonetheless, I feel that we should always remind ourselves to consider that goal an absolute minimum—not only because of humane and civilized motivations, but also because a person earning a dollar a day and not having hunger, does really have very little to do in making a world that is increasingly more interconnected become more sustainable or politically viable.

No! As, instructed by a Chinese proverb, we need to aim to the stars since even if we don’t reach them we will at least reach much higher than if we aim at something on our level. In this sense, I believe we need to review all our current efforts, as if the income goal was at least 10 dollars a day or, if it makes you feel better … 9.99.

There should be life beyond 2015

Yes I agree that the MDGs are undoubtedly useful to focus and to call to arms all those willing to fight for a better future. Nonetheless I have currently the uneasy feeling that the year 2015, more than the general timeline it should represent, is turning more into a finishing line, after which all the runners might lie down to catch their breath. Hey, we have even heard about proposals of borrowing against aid commitments after 2015, to spend it all before 2015! Colleagues, when I look around the table I imagine that most of us will have grandchildren come January 2016, and it might behoove us to think of life after 2015.

The Private Sector’s MDGs

How I would like to see a group of leading hands-on entrepreneurs from the private sector develop what they believe should be the MDGs, and compare their ideas with what we currently have. We might be up for some surprises!

Wednesday, July 05, 2006

A humble suggestion to the Gates/Buffett Altruism Dream Team

William Easterly offered his advice to what he calls “the new Bill and Melinda Gates/Warren Buffett Axis of Altruism” with his “4 Ways To Spend $60 Billion Wisely” Washington Post, July 4.

Three of Easterly’s suggestions, number 2. It's not about the money, 3. Beware of technological quick fixes and 4. Don't believe your own press, sounded extremely sensible to me, but, on number 1. The business world and the developing world are worlds apart, I choked, since given the track record of Bill Gates and Warren Buffett I had imagined the potential good they could do if, with that kind of financial resources, they tried to help some poor developing countries to break out from their aid dependency, by teaching them a little bit about what it takes doing business. Gates/Buffett should know! And learning to do business by doing business is an as-good-as-it-gets- approach to sustainability.

I am not too experienced in this aid-business, but having recently been one of those rare Executive Directors of the World Bank who got there with only a private sector background, I know exactly that the following is what I would tell team Gates/Buffet to do:

Take at least half of the money and set up an organization that copycats the International Finance Corporation (IFC), which is the entity the World Bank Group uses to promote sustainable private sector investment in developing countries, helping to reduce poverty and improving people’s lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses.

Such an organization, with such Directors as Gates/Buffett could have a tremendous and sustainable impact on the poor developing countries helping them for instance to put up schools for certified bilingual nurses; construe retirement home for foreign senior citizens; do environment projects designed to compensate, against cash payments, for the developed world’s many environmental sins; and exploit all those great new opportunities that are out there to be taken, the moment poor countries learn not to focus exclusively on agriculture and textiles.

But besides helping the poor countries directly, hopefully in a self sustainable way too, they would also do so indirectly by putting some competitive pressure on the rest of all the development actors and that are currently living sort of cozily in quite uncontested markets.

So Team Gates/Buffett, why don’t you follow that old advice of doing what you’re good at, pro-bono (not that Bono) instead of making a too a drastic career change that will just risk wasting your talents. By the way, if the would need a manager to start it up? Well Peter Woicke, the former managing director of IFC who had to retire because of age, at an unseemly young age, might be available to help out, the first steps.

Distinctively Alike

We so frequently hear about the importance of finding ones identity that sometimes we forget that our human reality is also to share so many identities and so that even though we should feel identified we also need to fight against being miniaturized and put into little boxes as is preached for better than none by Amartya Sen the Nobel Price in Economics who being also a professor in philosophy might also line up for a Nobel Peace Price.

Sen, in his most recent book Identity and Violence attacks vehemently those who seed divisions fomenting bad identities, quite frequently with bad intentions. From his own memories as a child in the India of the 40’s Sen remembers “the speed with which the broad human beings of January were suddenly transformed into the ruthless Hindus and fierce Muslims of July . . . hundreds of thousands perished at the hands of people who, led by the commanders of carnage, killed others on behalf of their ‘own people’”. Sen concludes that “Violence is fomented by the imposition of singular and belligerent identities on gullible people, championed by proficient artisans of terror”.

Unfortunately, Sen does not face difficulties finding more recent examples and Rwanda, Yugoslavia and even the prisons of Abu Graib are all places where terror find its origin in a “you know, they are so different from us”. Of course from Sen’s book to our Venezuelan reality of "pro chavistas and not chavistas”, those divisive and senseless identities that we did not even dream of less than a decade ago, there is too little distance for us not to feel deeply anguished.

Friends, let us at all times discredit those who try to instigate us buying into an identity that only looks to divide and let us instead search for with run-amok-humanity all those identities that unites us, like Venezuelan, fathers, mothers, children and our taste for arepas.

Friends, let us not allow anyone to divide us, in us and them, because as humans, in each one of us there is so much of them, and in each one of them there is so very much of us, and so that, at the moment of truth, we are all in fact distinctively alike. If this sound like a sure recipe for a collective multiple personality disorder, so be it, the mental health of our Venezuela depends on it.

Translated from El Universal, Caracas, June 1, 2006

On faith-based organizations as reality checks

In the company of many fellow students from many developing countries, we—all participants of a seminar on international labor standards and global jobs organized by the World Bank Institute—went to visit an impressive state-of-the-art One Stop Career Center, created in order to find jobs for the unemployed.

During the presentation, we heard the official in charge tell us that the results achieved there came from a joint effort, a full partnership, among civil servants, like himself, the private sector, and faith-based organizations. I understood the role of the agency as coordinators and suppliers of information; the role of private enterprise as suppliers of jobs; but I could not make head or tails about the role of faith-based organizations. So I asked. The answer left many of us speechless.

In more or less these words, the director told us. “Yes, we the civil servants do organize all the activities intended to match an unemployed person with any of the opportunities that, yes, private enterprise does indeed provide, but all our efforts would come to naught, were it not for the members of faith-based organizations, who go out there on the streets and into homes and find the unemployed, wake them up, feed them, comb them, stimulate them to come, and, if there are jobs reasonably suited for them, try to make sure they take them, and that they keep them.”

I believe most of us thought that although in our countries this responsibility was usually the role of the social workers, this might very well be one essential ingredient we were all missing. After all, we so frequently could see our public employment agency’s offices empty; even though there were good working agreements between the public and the private sector; even when there were thousands of social workers; even when there were millions of unemployed.

Agreed, but what about the private employment agencies? Yes, they are great . . . as long as the unemployed wakes up, has breakfast, takes a bath, combs his or her hair, and pursues with dedication a job, of course with the intention of keeping it. And so welcome to the real reality, friends. Sometimes reality itself could really do with some faith too.

I wrote this many months after the visit when I recently read about an organization that was expelled from what seemed to be quite useful work at a prison—just because it was faith-based. The reason for it has to do with the Constitution of the USA, the first Amendment, something that I as a foreigner know very little about. Nonetheless I felt it was a shame that what only seemed to be an excessive faith in a no-faith principle could lead people to refuse good help, so unnecessarily.

Tuesday, July 04, 2006

The patriotism of foreign owned ports

As an outside observer I followed the recent debate in the USA and here are my facts and my conclusion.

Fact 1: A port is a national security asset that cannot really be shipped away.

Fact 2:
Probably, as usual, the owner of the port is the last to know about what is happening. At least check the management.

Fact 3:
The real security controls are in the hands of government, coastguards and workers.

Fact 4:
If something happened in a port and the management company was American there would most probably be no major consequences but, if the management company belonged to UAE, then all hell would break loose and they could easily lose all their investment. Therefore, because of how real life economic incentives are lined up, perhaps foreign owners have a larger interest in the security of the ports than the locals.

Fact 5:
Any money not invested in the ownership of a port is money available for investment in other things that from a national security angle could be much, much worse, like paying off with much less money those real traitors that always have a price.

Fact 6:
Also a real security issue with a port is that it operates efficiently, in economic terms.

It is always sad to see whenever and wherever patriotism stands in the way of good and effective patriotism.

The true nature of remittances

Mr. Chairman, I see references over and over again to the remittances of foreign workers in developed countries back to their not-so-developed homelands and so I feel once again compelled to remind my colleagues about the true nature of these flows. The remittances come from very private earnings.
Picture yourself working in a foreign country for less than minimum wages, alone, perhaps sleeping in lousy quarters, not understanding all that they say to you, and still you take a substantial part of your earnings and send them home. That’s what these remittances are all about. They are quite close to being like sacred religious donations.

Please do not confuse these flows with other financial flows. Do not even think of taxing them or assisting third parties to lay their hands on them. Be extremely careful. Do I exaggerate? I hope so but I have already read in World Bank publications about the securitizing these flows! Come on!

Monday, July 03, 2006

My 3 bullets for justice in prisons

  • In too many countries around the world when judges sentence people to prisons, they are in fact sentencing them to another Auschwitz in terms of the absolute disrespect those places show for the most basic human rights, and worse the judges cannot even start to claim they didn’t know. When will the International Criminal Court in The Hague start to investigate these crimes against humanity?

  • Justice is something very difficult to understand with precision, since it is situated along a continuum that becomes finite only when it reaches Divine Justice. On the other hand, injustices are much easier to identify and, in our countries, prisons themselves represent one of the greatest injustices. In terms of the use of scarce resources, as an economist I am convinced that programs of Judicial Reforms would be better served by improving prisons than by investing in Supreme Court buildings.

  • The world needs to adhere to a minimum set of global good-prison practices and allow for ISO 9000-type quality certifications of its prisons and jails.

Some bullets on immigration

  • In today’s globalized world I find it sad to hear so many very local Americans believing that when they ship one of the criminal mara gang members over the border, to someone much less resourceful, they have gotten rid of their problem.

  • Would it not be more transparent and effective, instead of going on as if nothing has happened, to bite the bullet and accept that an American Union between North and Central America already exists, de-facto, and issue a common passport for all the citizens of the enlarged AU.

  • Having a real AU would make it possible for many of those over 11 million currently illegal immigrants to be freed from their also de-facto mother of all jails, and go home even on a temporary basis, since they now permanently do not dare to leave, just because they do not know whether they can later return.

  • Doing so would also help the USA to realize that if it had spent an Iraq-war sized budget assisting Central America, as EU did with Spain and others, the whole immigration debate could have been a very moot issue, with exception perhaps for all the aging baby boomers moving south to find care and services.

  • Sometimes, when I see how all the Central Americans toil away in the USA and help their families back home, I just ask myself whether this is not just part of the process whereby the USA manages to remain strong, renewing its working, social and family ethics.

  • How can you think of building a Maginot line, if it is not in the Bering Strait and the Panama Canal?

The ethics of solving the shortage of caretakers

An older population, many of whom will experience longer periods of chronic illness and dependency before dying will require a growing number of caretakers. If there are enough caretakers, the issue will be to find the resources to compensate them. However, if there are not enough trained caretakers, no financial resources would suffice, and you have to find practical solutions.

The practical solutions available for solving the shortage of caretakers in developed countries are the following four:

1. Increase their productivity, but unless you wish to run the risk of being dehumanized on a Charlie Chaplin Modern Times assembly line cared for by robots… there might be a limit to how much this can help.

2. Move the careneeders to another place (if there are caretakers available anywhere else), and this you should do as early as possible if at an older age you do not appreciate finding yourself in strange surroundings as much as you did when younger.

3. Import caretakers, and this you should do as early as possible if when older you do not appreciate finding yourself in the company of strangers as much as you did when younger.

4. Give incentives for having more children and grandchildren—which is not such a crazy idea when you start considering how much society is, one way or another, currently rewarding people for not having children. (Talk about externalities!)

The Presidents Council of Bioethics (USA) published in September 2005 its report titled Taking Care. It makes all types of thoughtful recommendations about the issue of Ethical Caregiving in Our Aging Society. As much I appreciate its effort, I do not think that the report spells out sufficiently the need for much more forceful and immediate work on achieving practical solutions. If those solutions are not found, the frontiers of what is currently considered ethical caretaking will just have to move to take up for the slack. No matter how horrendous it sounds, euthanasia and other flexibilities needed to bridge intergenerational conflicts might then turn out to be thought of as the only ethical solutions to the problems. In this respect, the most clear and real unethical behavior today is that of not anticipating and providing timely solutions.

Extract from my Voice and Noise

Sunday, July 02, 2006

Red and blue, or, red or blue?

On the radio, C-Span recounted details about “Intelligent design,” which according to its defenders is a valid scientific alternative to the evolution theories of Darwin. I could not resist postscripting the following to my American friends.

Unity is a very precious thing for a country (I should know as a Venezuelan), and there are some issues better left alone. This is clearly one. Pitting “intelligent design” against “evolution theories” can never lead to anything good, and you surely must all be aware that you will never ever reach something close to a mutually satisfactory conclusion.

As a Christian, I know we are challenged by a lot of apparent contradictions in our faith but, as a Christian, I also believe that we are supposed to find ways to make peace with those demons of contradiction, so as not to let the devil triumph. Friends, how can I put this warning any clearer to you? Well, if we were still in the “good old days” of the Cold War, I could have advanced the thesis that the very bad Communists had seeded this destructive and divisive debate in the heart of your heartland.

That said, I cannot refrain from mentioning that, if you absolutely have to, I would prefer the term “Divine Design,” since “Intelligent Design” sounds to me like opening the door to an equally unnecessary debate about more mundane issues such as quality controls.

I switched channels and I heard Faith Hill singing “Is everything A-OK in the good old USA?”

Saturday, July 01, 2006

On The First Blahw of Petropolitics

I normally enjoy reading Thomas L. Friedman’s articles and I envy the quality of his pen but frankly, his recent “The First Law of Petropolitics”, Foreign Policy, May/June 2006 reads like what we in Venezuela refer to as “discovering the tepid water”, discovering common knowledge, although, in fact, if he really feels that he must advice his own government “that the price of crude should now be a daily preoccupation of the U.S. secretary of state, not just the treasury secretary” then I can only conclude that the USA has a much more serious problem than oil. Of course to place huge oil income directly into the pockets of the politicians in countries with weak institutions, will distort their minds and make them act like bullies, what’s new?

Friedman also thinks he makes an important point concluding in reference to consumer countries such as the USA that “we can affect the global price of oil by altering the amounts and types of energy we consume” which is of course also very correct. But, where he goes absolutely wrong, and in his bio we see no reference to studies in economy, is when he says “we cannot affect the supply of oil in any country”. Of course you can! That day consumer countries would be willing to guarantee a decent price for oil over a long period, well that day producers would immediately produce more but, while what the consuming nations really seem to be looking for is oil at the $5 per barrel predicted by the prestigious The Economist as late as in March 1999, then you can obviously only expect to be creating the conditions for oil at over $100. Want to help? Then ask your treasury secretary to offer good long term prices for oil, subject that most of the revenues are distributed directly to the citizens of the producing country.

By the way, and back to the demand, what is currently on the board for fighting USA’s oil addiction seem just like nicotine patches and chewing gums for a non meant new-year promise, and will only serve to guarantee that the modern day successors of Mark Twain will also be able to argue that “it is easy to quit, as they have done it a thousand times”. Instead, $7 per gallon, that should indeed do it!

Levying a new federal consumption tax on gas that would increase its price to about the level at which it has been in Europe, would reduce demand for imported oil, provide the government with about $300 billions in taxes to balance the accounts and benefit the environment. Yes, it would destroy many jobs, but it also would create new ones. Better to bite the bullet now before the current economic imbalances erode confidence in the dollar, and anyhow take the price to $7 but then, with no gain to pay for the pain. That, of course, would require leadership, which is even scarcer than oil.

Fair prices!

And while waiting in the line I see a “Fair Trade Certified” coffee that on its label promises that its purchase will improve the lives of coffee farmers by insuring they receive a guaranteed “fair price for their harvest”. I could not resist such an enticement and I bought a cup of it. It was great, and like any truly good coffee it made my mind wander. What does a fair price mean? That the coffee grower can afford to send his kids to school, afford good decent healthcare, and buy a car? Or that his kids will not go to bed starving. I hope he gets at least the last. Or does fair in this context mean that he is getting prices that are fairly similar to those quoted for coffee on the commodities exchanges without risking being taken to the cleaners by some savvy distributors? Who knows? I finish up my coffee with a lingering suspicion that perhaps a fair price might still not be enough. Would it not be better to certify “unfair prices” or, in perhaps more marketing digestible terms “fair price plus 100%”? Whatever, at the end of the day, if I were a farmer, I know that I would much rather get European farm prices than fair prices.

Justice begins with having just prisons

They are sending them to another Auschwitz.

In too many countries around the world when judges sentence people to prisons, they are in fact sentencing them to another Auschwitz in terms of the absolute disrespect those places show for the most basic human rights, and worse the judges cannot even start to claim they didn’t know. When will the International Criminal Court in The Hague start to investigate these crimes against humanity? Also, many ongoing judicial-reform processes would do well to reflect upon the fact that civilized prison systems do more for justice than majestic Supreme Court buildings.

Forget justice and fight the injustices

Justice is something very difficult to understand with precision, since it is situated along a continuum that becomes finite only when it reaches Divine Justice. On the other hand, injustices are much easier to identify and, in our countries, prisons themselves represent one of the greatest injustices. In terms of the use of scarce resources, as an economist I am convinced that programs of Judicial Reforms would be much better served by improving prisons than by investing in Supreme Courts.

We need minimum standards

The world needs to adhere to some absolutely minimum set of global good prison practices and allow all prisons to be subjected to an ISO 9000-type quality certification.

Tuesday, May 16, 2006

My insecurities about the social security debate

About disseminating our knowledge 

It really is not possible for the value of investment funds to grow, forever, at a higher rate than the underlying economy, unless they are just inflating it with air, or unless they are taking a chunk of the growth from someone else. Therefore when we observe how many Social Security System Reforms are based on the underlying assumption that they will be growing 5 to 7 percent, in real terms, for ever. I wonder when we are going to use our knowledge, and inform the world that this is just plain crazy. 

When we speak of expected returns, let say a real 3%, this is just an average of a distribution curve where there are a lot of winners, with higher returns, and a lot of losers, taken to the cleaners. Knowing this, how come we allow the debate on Social Security reforms to use the averages? In systems where you are supposing to pay someone to manage the funds, you should expect the managers to produce different results. Yes of course the returns could be average, but for that you just buy a stock index, and pay no fees. 

A question 

Are there any real differences between a pay-as-you-go, governmentally backed pension system, and a pension fund that invests completely in government paper? 

About the timing and the losers 

Any individual Social Security accumulation system that has the luck to start when the markets are close to rock bottom will always perform better than those systems that start when the markets are at the top. This has been the real beginner luck of the Chilean system and future generations of Chilean accumulators might not be as happy with the results as the pioneers were. 

When we now read how investment funds publicly state that they do not wish to receive more funds since they do not know where to invest them and we also observe how many private pension schemes in the United States are running for public cover, we need perhaps to ask ourselves whether the timing for those Social Security reforms that might be en route is really that good. 

Those who beat the market average will always love to be on their own, and therefore the problem does always reside with the losers. The difficult question is whether in an individual security accumulation system all of the future losers have truly surrendered their expectations of receiving official assistance and, even if they have, proudly preferring to starve than to ask for help, whether the governments could really get away from their social responsibilities by answering the losers with a “Hard luck, pal, you had a private plan.” 

And so, at the end of the day, to me it seems that you might just be substituting a pay-as-they-fall for a mean-based pay-as-you-go system. So, when we add it all up, it all boils down to the same—except of course for the fees. 

On Social Security in Real Terms 

In order for your savings and social security investments to be worth something when you need them, the real economy must be in a reasonable condition at the time of your selling your investments. When I hear the many discussions about the financial preparation needed to accommodate for the upcoming demographic changes, I find it truly amazing how little is being said about the economy in real terms. 

Considering that there will be many fewer young ones to drive people around and shovel snow, much of today’s beautiful real estate might drop in value when the elderly start selling their houses to live close to a metro, hospital, and more reasonable weather conditions. So, before putting the money away in a private accumulation trust I think we need to rethink the whole retirement strategy. 

Also we should never forget that historically, through all economic cycles, there is nothing so valuable in terms of personal social security as having many well-educated loving children to take care of you, and that you can’t, in real terms, beat that with any social security reform.

Two current updates on the social-security issue 

Sir, Delphi’s (a company that supplies General Motors) problems do indeed pose a threat to public-pension institutions, but it also evidences the structural weakness of the alternative of accumulations in private-investment accounts. The fact is that when the old retire and might need to sell their stocks, the young might not be willing to buy them. 

Sir, With respect to GM’s pension woes, you claim that the company recorded a return of 5 per cent in the first half of the year, putting it on track for its assumed annual return of 9% but also that if GM’s pension funds produced the same poor returns as the equity and bond markets, this would of course have a dramatic negative impact. What is thereby implied makes a case for developing a formula that calculates how much arrogance it must take to promise to pay 9% on funds over a life span, and/or to beat the markets continuously. 

About the SEC, the human factor, and laughing 

A couple of days ago, our SEC reported that their pension fund had also been the victim of a fraudulent stock-managing firm, and that they had lost a lot of money. 

I also read recently about the Mars Climate Orbiter spaceship that, after having required an investment of 125 million dollars, had to be declared as a total loss due to a technical confusion derived from simultaneously applying metric and English measures. 

If what happened to NASA or what happened to our SEC is of any mutual comfort to them, I don’t care, but what I do hope is that they have learned a bit more about humility. 

I bring this opinion to the table since I recently heard that our SEC was now establishing higher capital requirements for stockbroker firms, arguing that “. . . the weak have to merge to remain. We have to get rid of the rotten apples so that we can renew the trust in the system.” As I read it, it establishes a very dangerous relationship between weak and rotten. In fact, the financially weakest stockbroker in the system could be providing the most honest services while the big ones, just because of their size, can also bring down the whole world. It has always surprised me how the financial regulatory authorities, while preaching the value of diversification, act in favor of concentration. 

The SEC should not substitute the need for capital in place of the need for ethics, nor should it allow that fraudulent behavior hides amid the anonymity of huge firms. In this respect, let us not forget that the risk of social sanctions should be one of the most fundamental tools in controlling financial activities. 

If there is a relation between weakness and a rotten apple, it could really be in the SEC itself, since, though they frequently complain about the lack of resources, that doesn’t stop them from transmitting institutional messages about how well they are fulfilling their responsibilities. Perhaps the best thing that the SEC could do is to stop all their actions that are creating a false sense of security in the investor, acknowledging the absence of any supervisory capacity, and instead stamp each share prospectus with a big “BUYERS BEWARE.” 

We read an article in Newsweek (“Giving Big Blue a Shiner, November 1999), about the surprising 20% drop in value that IBM shares had suffered in just one day. It also states that this drop was not in any way the result of any especially surprising event. The purported lesson of the article was “To teach not to take too seriously the investigative capacity of Wall Street and to remember to laugh next time you hear that the stock-market is a rational place where the big investors know what they are doing.” I would also like to suggest remembering to laugh next time a regulator presumptuously assures you he is doing his job. 

Extract from Economía Hoy, Caracas, November 16, 1999

All this extracted from my Voice and Noise 2006

And more from 1997 "Pension funds - not yet"

Thursday, May 04, 2006

What the World could learn in Sri Lanka

Last week, I heard the presentation of a research paper that studies the impact of migration on growth and spatial inequality in Sri Lanka, titled Can migration be an engine of pro-poor growth?, authored in 2006 by Nobuo Yoshida, K.G.Tilakaratna and Suranjana Vidyarathne. It was a very interesting presentation but; nonetheless, after just a couple of minutes, I could not stop my mind from wandering off into the following reflections. I beg your pardon, Nobuo Yoshida.

Would this study be different if instead of looking at a map of all the very different districts in Sri Lanka we were looking at a map of the world? Can we really research migration from one country to another with the same ease we observe when the analysis is of the internal migration? Do not all the institutional restrictions and emotional biases that arise while analyzing migration from one country to another hinder us one way or another from reaching the real conclusions?

Can we analyze migration from one country to another in a globalized world if we still have to carry the flags from the non globalized world? When we study the migration from El Salvador into the USA, should we instead of looking almost exclusively into their remittances, be looking much more at their gross earnings, salaries; and thereby perhaps conclude that El Salvador, as that nation that is no matter where their people are, might indeed be growing much faster than China. If in China migration might be from west to east, from 50 to 150 dollars of income per month, El Salvador is doing theirs from south to north, from 100 to 1200 dollars per month.

The state of Connecticut showed a per capita income in 2004 of 45,318 dollars while Mississippi had only 24,518, just about half. Does this imply that when deciding upon temporary visa programs the USA should consider more where the temporaries should go? Should they go to the poorer or to the richer states? Can or should the states compensate each other for differences in migration, one way or another? Certainly if we knew more about these issues then we all stand a better chance for rationality to prevail.

Back to the Sri Lanka study, one of its conclusions is that as their internal migration goes mainly to the already congested Colombo Metropolitan Area, this could reduce Sri Lanka’s annual growth rate by 1.5 percentage point, compared with if Colombo were not over-concentrated. Would this be indicating we should start to look at controlling migration flows in the world as London does with its traffic, by officially charging a fee for passing from one area into the other and have market forces decide how much these fees should be.

And we could go on and on this route of analysis, and fight world poverty so much better, if only we could ban the flags. It is clear now that we need many of these internal migration studies, like the one on Sri Lanka, if we are ever to get a chance to understand cross-border migration.

Saturday, March 25, 2006

Did the Minister do right?

I recently ended my two years as an ED in The World Bank Group in representation of Venezuela and seven other countries. Even though it sounds strange, I was nominated for that job through a process that initiated in a chat box on the Web (Foro Nacional) where the then Minister of Planning, Mr. Felipe Pérez, asked for candidates.

I, as a born optimist, sent the Minister my curriculum vitae reminding him in clear terms that I had no experience in the public sector; that I was fiercely independent, “a radical of the middle or an extremist of the center,” and that I had no interest at all in going to Washington if that meant silencing my own voice. But, if the government could live with all that, I felt myself both capable and honored to represent my country.

As I had met the Minister only briefly, once when he invited me to give a conference in IESA about the taxes charged on gasoline in the consuming countries, I did not harbor any major expectations, and, in fact, I forgot all about it. One month later, out of the blue, the minister calls me on my cell phone, and informs me I had been nominated.

The nomination of an Executive Director, politically independent, from the private sector, with no public-service trajectory, and picked on the Web, did also surprise the World Bank, and therefore the question posed by the article’s title. Its answer is not easy.

First. Was my election simply an accident, a craze of the moment never to occur again, or was it just the tip of the iceberg of a new way. If an accident, I was just lucky, but, in fact, the new technological advances are pointing toward new forms of government. In the future, instead of governing by polling opinions, we could have daily referenda, with all citizens, at zero costs, for good or bad. In this sense, as Mr. Perez seems to be a person who believes a lot in the revolutionary power of transparency, my selection could have been a precursor, and the Minister a prophet. Even though I harbor many doubts about where so much transparency could take us, intuitively I support it as such advances seem to be an important evolution of our society.

Second. Of an ED in the World Bank it is expected that he represents, simultaneously, both the interests of his constituency and the interests of the Bank, as an institution. And that balancing act is not easy. In this respect, the question is whether someone with my characteristics could walk the rope. Though clearly someone from the public sector and appointed for political reasons should be much better positioned to represent the short-term interests of the current governments, a free agent like me, inasmuch as he can provide new perspectives on issues, could also turn out to be useful, both for the institutions as well as for the country.

Subjectively, I have no doubt that the Minister did splendidly. I have had an incredible experience and I believe that I have served well the interests of my beloved Venezuela, of the other brother countries I represented, of The World Bank Group and of that whole little planet earth where we are all stuck on. And so … Thank you, Felipe!

El Universal