From Haiti, With Love

January 24, 2010

The pictures of the collapsed Presidential Palace in Port-au-Prince, some of the first and most striking images of the damage this month’s earthquake created, are a nice visual summary of what’s happened to the already exceptionally fragile Haitian government. Namely, it has partially collapsed. One indicator of just how much of Haiti’s governing is being done from Washington and UN headquarters is that the US government announced on Monday that they would expedite adoptions of Haitian orphans to US families who had been pre-approved for adoptions.

From an international relations standpoint this is of course peculiar. A high school friend and her husband have been waiting to adopt a Haitian toddler almost since his birth, and their file was, until the recent earthquake, stuck in a seemingly endless and excruciatingly slow loop of Haitian bureaucracy, where they were seeking approval for the completion of the adoption by the Haitian government. Now, thankfully for them and for their adoptive son Stanley, the US government’s decision to “parole” orphans whose adoption files were already significantly in process means that my friend is (very anxiously) waiting for good news in Ft Lauderdale while her husband is set-up in one of Port-au-Prince’s “tent cities” helping the orphanage staff and advocating for the children at the US Embassy. They are hoping to have an interview at the Embassy tomorrow, and to bring their little one home to Maryland soon.

The striking thing about this is that the only party who seems to be opposed to Washington’s decision is not the Haitian government (whose voice on the matter has not been reported, but whose position on the issue is impossible to make easy predictions about), but instead UNICEF, who is concerned about the possibility for trafficking of children in the wake of the earthquake. They issued a statement cautiously supporting the government’s decision, but only for children whose files had been previously approved. Their overarching policy is to provide safety for Haitian children in Haiti, in part because there is still reunification work to be done between children, their parents and extended families.

I’m hoping that little Stanley is soon with his American parents, at a safe distance from the chaos of Port-au-Prince (I type this while nervously checking my friend’s Facebook status, to see whether there is any news to report).  I also hope that in the longer run the government of Haiti is capable of recovering, functioning, and taking on the tasks of providing public goods so that future generations of children like Stanley never find themselves in a similar situation.


I’m collecting oddities and ironies from the financial crisis, and yesterday I came across another great one.  Citibank is in trouble in Mexico.  Not because Mexico has been taken down by the financial crisis – Citibank’s operations in Mexico are in fact generating 15% of the bank’s global profits – but because the Mexican Supreme Court is likely to rule that Citibank’s ownership of Banamex  is illegal. Why, you might ask? Because Citibank is partially owned by the US government, and the Mexican constitution does not allow foreign governments to own Mexican banks.

The history of Mexican financial institutions in the 20th century swung back and forth between government and private ownership, landing firmly on the side of private ownership by the 1990s as Mexico prepared for further integration with the US and Canadian economies via NAFTA. Banamex, Mexico’s largest bank, has been at the centre of debates about money and politics in Mexico since the Revolution, when Pancho Villa took it over to prevent it acting as the Central Bank to dictator Porfirio Diaz. It was privatised, nationalised, privatised again and then recapitalised by the government in the wake of the 1995 Tequilla Crisis. In 2001, Citibank purchased it. Now, less than a decade later, Banamex has been renationalised by the back door by the big neighbours to the north. The same neighbours which advocated for privatisation so vociferously in the 1990s? The ones whose economic model the Mexicans were imitating when they re-established private financial companies? Yes, those same ones.

Taxi Talk

May 21, 2009

In July 2006, I landed in Caracas, Venezuela around 10:00pm on a flight from Managua via Panama City. I was in Caracas to meet with some government officials, and the Ministry had arranged my hotel reservations and flights, and I had figured everything else would work itself out (my general travel philosophy).  I didn’t have any bolivars, so I went to the ATM, and then remembered that I was going to be paying a high premium on the money I was taking out: the Venezuelan exchange rate had been fixed against the dollar for a number of years at the same rate, and overtime had become artificially high.  As a result, there was the official exchange rate, and the unofficial one, which was of course much more favourable to holders of dollars.  But as I had forgotten to look up the latest black market rate, I didn’t want to risk my luck with the informal money changers on the street.

Armed with my expensive cash, I hoped in a cab, and immediately struck up a conversation to ask what the going rate for dollars was.  As anyone who’s been to a new city knows, a taxi driver is exactly the right person to ask this question, seeing as they always seem to be on top of all social, economic and political trends based on their unscientific sampling of the opinions that pass through their backseats.  On the long trip into the centre of town, we talked about the state of the Venezuelan economy, Bush and Chavez.  He had been an avid supporter, until a bridge connecting the city to the airport collapsed, increasing his journey time to and from by more than two hours, with no corresponding increase in fare.  The conversation was the perfect brief introduction into the realities of Venezuelan life that I needed to keep a critical eye on what I was to hear and discuss with the government the next day.

I mentioned in my last post that I was shocked to find out on my recent trip to the US that a not insignificant percentage of Americans are so unhappy with Obama’s economic policies they would prefer to succede from the United States.  Sadly, I didn’t get the chance to take the pulse of any cab drivers about this.  Not because I didn’t take any cabs while in the US – I took a number of them while I was in New York for a long weekend – but because every cab I got into was driven by someone who talked throughout the entire trip on their mobile phone… or more precisely, into their mobile phone earpieces.

There’s no more taxi talk in New York City.  I don’t know who all the cabbies are talking to (each other?), but the art of taxi banter is fading fast.  Not only are the Big Apple’s cabbies on the phone, there are small television screens built into the panel of the seat in front of you, like on an airplane.  The cabbie no longer wants to talk to the passenger, and the passenger is distracted by a replay of that morning’s “Regis and Kelly” (that is if they are not talking on their own phones).  No informal political or economic banter is exchanged, and thus everyone’s a bit poorer.

I’m only slightly exageratting when I say that I think that this is the largest loss social science has ever suffered.   If taxi talk vanished altogether in other cities across the globe, I’m pretty sure that political analysts would do less well in predicting electoral outcomes.  That economists would have fewer hunches about the differences between the official inflation statistics and the reality on the ground.  And at a stretch: maybe if New York City cabbies had been talking to the bankers, trader and investors who hoped into the back of their cabs over the past year, more people would have been aware that the financial system and the global economy was on the brink of collapse.

Lipstick on the pig flu

April 29, 2009

Fat pig.  Eat like a pig.  Sweating like a pig.   Let’s face it, pigs had a PR problem even before the swine flu outbreak began in Mexico.  The flu itself is quite scary, but sounds even more ominous because it is called swine flu.   Bird flu brought up images of people sprouting wings, flying away.  Swine flu on the other hand sounds devilish, for obvious biblical reasons (“A large herd of pigs was feeding on the nearby hillside. The demons begged Jesus, ‘Send us among the pigs; allow us to go into them.’ He gave them permission, and the evil spirits came out and went into the pigs.” Mark 5: 11-13).

The FT is reporting this morning that a number of different communities of scientists and politicians are upset about the name, for a number of reasons.  People who work in the pork industry are upset that the flu is giving pork a bad name – several countries have already banned the import of US and Mexican pork, even though there is no scientific basis for doing so as the virus, like bird flu, does not spread through eating cooked meat.  Indeed, the virus was only 50% porcine: the other half is avian and human, which seems to make swine flu a misnomer.  Additionally, the Israeli Minister of Health was quoted as saying that the name was offensive to Jews and Muslims, who are forbidden by their religions to eat pigs.

Thus some are proposing renaming the flu “Mexican flu”  or “North American flu.”  But that seems to me to be putting lipstick on the pig, rather than addressing the real risk of a flu pandemic spreading quickly thanks to globalisation.

Risky Business

February 23, 2009

There’s an audacious and unfounded claim circulating in the world of development finance, perpetuated by the World Bank.  And while you might not be kept up at night by it (and frankly neither am I), I’m here to debunk the myth.

The myth is that when developing countries invest in other developing countries, they are immune to political risks because they understand political risk in other developing countries better.  The entire argument relies on cultural affinity and shared business practices, despite the fact that the evidence does not support this argument at all.  If you’ll allow me to draw on some of my research and consultancy work on political risk and rant for a moment…

The amount of so-called “south-south investment”, foreign direct investment from one developing country to another, has increased over the past decade.  While in 1995 south-south FDI was 15% of total FDI flows, in 2003 it was almost 37%.   This was more than northern countries invested in southern countries (nonetheless, the bulk of FDI is still between developed countries).   The World Bank claims that the majority of these south-south flows are within region.  But there are some important exceptions.

According to their own data, China’s investment in South-East Asia (its “southern region”) only accounts for 20% of total south-south FDI.  India’s investment in South-Asia is only 25% of its total.  Even Russia, whose investment is often argued to be extremely regional, still invests more than 60% of its south-south FDI out of its region. Data for Brazil wasn’t as easily available, but as we’ve now shown that 3 out of 4 so-called “BRIC” countries do not have FDI flows predominantly within their region, the idea that political risk for south-south investment is mitigated by the fact that southern multi-national corporations invest in  “countries that share the same cultural and ethnic  links and heritage, frequently neighboring ones where they are already familiar with the local business environment through trade” seems a bit far fetched.

The World Bank stretches this invalid argument to its very limits, arguing that developing countries are more likely to disregard weak institutions when investing:  “Banks from developing countries are more likely to enter developing countries with weak institutions. This result seems to indicate that banks from developing countries, being more familiar with working in domestic environments where institutional development is low, are more suited to investing in such markets.”  I find it incredible that this was even published, seeing as it is complete conjecture, and makes limited sense.

Nonetheless, the branch of the World Bank that provides political risk insurance reports that, when asked, CEOs of southern MNCs investing in other developing countries report less concern about political risk than CEOs of Northern firms investing in developing countries.  I think that there are only two plausible, non-cultural (and therefore non-bogus) explanations of why developing country MNCs might perceive political risk to be lower when they invest in other developing countries.

The first is that particularly in the case of China, many of the firms doing the investing are state-owned.  Having the explicit backing of the central government makes firms more risk-acceptant, and increases the chances that the Chinese government will go to bat for the firm in question if its operations in another developing country suffered expropriation or interference via other types political action.  A US firm operating in Angola may not enjoy the automatic support of the American government in the same way.

The second reason seems to be that southern MNCs have not yet been burned, and therefore have little to fear.   Why perceive political risk as being important if everything has been smooth sailing to date?  This is, after all, a new investment trend.   As south-south investment becomes more established, the number of cases of political interference in these investments will increase, and so will perception of risk.

Two examples seem to be a case in point: when a leftist government was elected in Bolivia and began to renegotiate foreign contracts for natural resource extraction, the neighbouring left-leaning Brazilian government believed that its petroleum investments would remain untouched out of “cultural and ethnic  links and heritage.”  But oops!  The first company the Bolivian government expropriated was Petrobras.  Additionally, an article I read recently about Chinese energy security argued that “Chinese energy companies… have only a short history of managing the political risks of venturing into an overseas market,” citing mismanagement of deals in the Caspian as evidence.

So all of this to say that political risks are not magically erased through some sort of third-world solidarity or secret poor country handshake.  South-south FDI is as prone to politically-induced losses as north-south FDI.  It’s just not as big of a problem… yet.