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Cutting US foreign assistance bad for economy, Arab democracy

August 2, 2011 1 comment

Everyone knows US foreign assistance is slated for spending cuts, but recent aid authorization bills show the major differences already forming between the House and Senate. Never has there been a better opportunity and greater need for democracy promotion and US aid than the Arab Spring. But if the House gets its way, that will mean a sharply decreased US role abroad — and, as I will argue, to the detriment of the US economy.

First, let’s start with the facts. The foreign assistance fund — which includes food aid, supporting stable democratic institutions and the like — is not in any way related to the defense budget. Politicians usually lump the two together, whether intentionally or not, because our military missions in Iraq and Afghanistan have undertaken the ostensible role of democracy promotion. But when you look at the numbers, foreign assistance accounts for a mere 1 percent of the US budget. That still hasn’t stopped people like Rep. Paul Ryan, R-Wisc., from suggesting cuts of 44 percent by 2016. By comparison defense budget — cuts to which the House has tried to avoid — is the largest spending item in the US budget, comprising 24 percent of total spending this fiscal year.

Many people believe the US should turn inward — some argue the nation cannot project itself abroad when it cannot take care of its economic issues at home. I don’t buy that argument. US-based nongovernmental organizations will continue to do a lot of the heavy lifting overseas when it comes to international aid, but they will need government grants to keep major operations going. Denying those funds could lead to job loss, so keeping foreign assistance at current funding levels will keep Americans at work.

Also, it is in US economic interests to promote healthy governments and citizens because it will lead to economic rewards in the future. Corrupt, undemocratic governments will generally operate at the expense of their own people largely by keeping growing wealth for the government elite. That means people have less money to spend on more expensive American goods, which in turn dampens US overseas profits.

Curbing corruption will also ensure future US investment is not wasted. Billions of dollars of US investment — both from the federal government and private citizens or corporations — get lost among red tape or swindling politicians in corrupt foreign nations. Some of those nations — such as Afghanistan, Mongolia and India — sit on treasures of natural resources the US lacks, so US business interests are more than happy to invest. Cleaning up those states would produce a greater return on that investment.

In terms of the hopeful new Arab democracies, US foreign assistance can help build trust between those governing in Arab nations and the US officials with whom they will be communicating. It’s no secret that Egyptians oppose US meddling, a fear the military there is exploiting. But it’s not the Arab street the US must win over — it’s the new, democratically-elected leaders with whom the US must curry favor. The US already is training potential political leaders in Libya, Syria and Egypt — certainly a good start. The US wants to be the nation those new leaders look toward for guidance, but cutting foreign assistance will imperil the US ability to help guide new Arab democracies through the troubles they will encounter during nascent stages. In turn, that will dampen the ability to do everything from strike bilateral trade agreements to establishing and supporting sound human rights protections.

On top of the general budget malaise, a Foreign Relations Authorization bill currently going through the motions on Capitol Hill makes it more difficult for the US to use international aid in corrupt nations:

The corruption indicator has a range of uncertainly (especially around the median) and can have time lags of up to two years.  Using the control of corruption indicator as a hard hurdle for all U.S. economic and development assistance without addressing the inherent problems in the indicator could prove highly challenging.

That bill, pushed by the House (there also is a less restrictive Senate version) is not likely to pass in the Senate. But the writing is on the wall for US foreign assistance. If this debt ceiling fiasco proved anything, it’s that the House and Senate are beholden to very different interests and views. The House will champion spending cuts abroad because, rhetorically, it sounds good. The House will stomach defense cuts, but it will not digest those cuts easily. Still, it’s the assault on foreign assistance that should induce gagging.

 

Jordan workforce training initiative disappoints World Bank

Jordan must improve its joint public and private sector workforce development initiative, according to a sub-par World Bank report.

Since adopting a national plan to improve workforce training and preparedness in an increasingly globalized Jordanian economy, “the past two years have not seen effective coordinated implementation” of outlined initiatives, the World Bank said.

The review evaluates a 2002 plan to better integrate the private sector into the public sector’s efforts in preparing Jordanian workers for the competitive globalized market. That plan said, chiefly:

The absence of employers in the participation and decision making of most aspects of workforce development is the current dominating characteristic of the system. For example, none of the 5 private sector representatives of the 11 Board members of the VTC’s Board of Directors hold leadership positions or represent priority sectors. Over the last 30 years of VTC’s history, the attitude of the private sector toward VTC has been symbolic at best.

The quality of private sector training providers varies in both cost and quality and will have to be improved over time by developing certification and accreditation activities.

Jordan’s government has failed to set policies encouraging this partnership, the World Bank report released this week said. Ultimately, workforce training has to start with heavy government lifting. It must set the agenda and have a direction before it instructs the private sector on how to train and develop its workforce. Until the government knows what it wants, the private sector will remain distant.

The truly innovative and society-benefiting businesses follow talented minds and skilled labor, which Jordan certainly could have if it coordinated its efforts. The average Jordanian goes to school for 13 years, which means there are plenty who go to college. Workforce training starts with the government because it must set the agenda.

Private sector was not engaged in workforce training because, historically, Jordan generated most of its revenues from high tariffs, effectively closing off the economy and reducing its need for productive efficiency and a trained workforce. But the financial crisis that hit the nation in 1988 provoked serious trade liberalization discussion. In essence, government can take the blame for the private sector’s unwillingness or inability to train workers — the government had never given the private sector a reason to prioritize this.

Jordan had been maligned by unemployment and poverty, relying on at least five International Monetary Fund programs between 1992 and 2002. As a result, the Hashemite Kingdom had to follow the standard IMF prescription of lowering trade barriers, cutting public benefits and privatizing business, among other things. During the time of those IMF programs, Jordan joined the World Trade Organization, the EU partnership agreement, the Arab Free Trade Area and a free trade pact with the US. That all meant Jordan needed a better trained workforce to compete with its new, freer economic borders, which has lead to rapidly increasing exports and GDP.

But increasing exports is easy when you change from a drastically protectionist trade policy and have low wages — Jordan’s GDP per capita is $5,400, ranking 144th in the world according to the CIA World Factbook. The key now for Jordan is value creation. More than 77 percent of its workforce is in services, which are low-paying and do little to generate societal benefit.

The median age in Jordan is 22, which means there’s an overwhelming amount of young people in the country. It will not survive based on an almost entirely service-based economy. The government needs the private sector to help train workers in order to attract capital and investment. Until the government gets its act together, that won’t happen.

Yemeni banks cease some operation

July 14, 2011 1 comment

Growing tribal violence has pushed Yemenis to withdraw large amounts from banks that have crippled their ability to perform basic activities.

The withdrawals represent a bigger problem — tribal conflict is getting so dire that Yemenis are either fleeing the country with cash in hand or there is a real fear that whatever government comes to power could exert force over banks. With President Ali Abdullah Saleh in Saudi Arabia receiving medical treatment, there’s a sizable power vacuum that needs filling.  Saleh’s tribal allies already had turned against him. Yemen’s tribes are more than willing to vie for his former position atop the government.

This banking problem is more acute for the long term future than short term. Without any reserves, it cannot offer loans to businesses — and if it does, it risks default in an incredibly unstable economy. That means it cannot promote business in its own borders.

Additionally, it likely will not attract foreign investment (not that it was particularly successful in that regard before the Arab Spring) with financially tapped banks. The volatile political landscape will probably continue in Yemen much longer than any other Arab Spring nation, even after a new government comes to power. It appears some militant tribal faction will assume the presidency if Saleh steps down or is forcibly removed. Saleh has vowed to return to Yemen, which has made the country even more uneasy as Saleh will undoubtedly try to regain power from the tribes that now run the country. All of this sends bad signals to foreign investors.

Taiz is the city to watch. It’s considered the intellectu­al capital of Yemen, but it is growing increasing­ly militarize­d. People there never would have dreamed of seeing citizens carrying guns through the street, but it is now a daily occurrence­.

The longer Saleh stays in Saudi Arabia, the greater chance tribal violence breaks out in effort to establish control and supremacy over Yemen. I’m beginning to doubt that any change in government would lead to a peaceful, democratic one. Saleh certainly has not been a good leader — hardly anyone entrenched in power for 30+ years is — but there doesn’t appear to be a civil group ready to wrest power from the well establishe­d tribes.

From Al Bawaba:

Aeriqi confirms that banks suffering from large withdrawals may collapse and notes that liquidity is scarce. Dozens of banks are carrying out measures to ease monetary withdrawals such as reducing official working hours and initiating electricity interruptions.

Economic experts note the current crisis in Yemen has greatly impacted the Yemeni economy, especially the banking organizations which provide loans and credit to organizations and individual borrowers in order to meet their financial needs.

Yemen gov’t manipulating economy for political gain?

June 28, 2011 1 comment

Reports out of Yemen point to an impending humanitarian crisis that could turn the tide of revolution in the current regime’s favor.

President Ali Abdullah Saleh’s former tribal allies have turned against him. But he still has military control. Additionally, he has been a willing partner to the U.S. in the fight against a significant al Qaeda terrorist cell in Yemen, meaning there is only passive pressure on the leader from the U.S.

Saleh and his government have virtual power of the purse in Yemen by instigating violence, which many Yemenis believe he is doing to manipulate the political atmosphere. It’s very probable that he is doing just that, causing the economy to sputter recent weeks to legitimate his rule. It’s a way to force acquiescence from the general population, as Saleh is demonstrating that only he can provide well-being and that protesters stand in the way of basic sustenance.

It’s more than just a theory, in my opinion. Saleh will speak to the media “after Thursday” about the nation’s political future, which is sure to include something along the lines of him staying in power indefinitely to restore stability.  Given the wide range of tribal opposition to Saleh’s rule and the ever-present terrorist network in Yemen, there are very few people in the dictator’s camp. Sabotaging the economy may be a last-ditch effort to turn sentiment against the revolution.

From the Yemen Times:

An economic crisis has been gripping Yemen for more than a month now. Shortages of fuel, cooking gas and hour-long blackouts have convinced some Yemenis that that revolutionary youth and the anti-government uprising are to blame.

Moreover, international NGOs and youth groups are trying to mobilize people to improve the situation. The emergency “Food Assistance to Conflict-Affected Persons in Northern Yemen” operation is experiencing a total 2011 financial shortfall of US $27.1 million. The “Emergency Food Security and Nutrition Support to Vulnerable Populations in Yemen” operation is experiencing a total 2011 financial shortfall of US $26.5 million. The “Food Assistance for Somali Refugees” operation is experiencing a total 2011 financial shortfall of US $1.2 million. The Yemen country program, “Food for Girls’ Education”, is experiencing a total 2011 financial shortfall of US $10.8 million.

The story says that people believed the economy was “stable” before the revolutions, but when your country is fighting for water I have serious doubts that the economy pre-revolution was much better. According to The New York Times, nearly half of the nation’s 23 million people live in poverty and 7 million cannot afford three daily meals.

The protest movement has failed to move forward and President Saleh has taken refuge in Saudi Arabia. No doubt Yemenis are wondering aloud where this revolution is headed. If it seems stuck, then Yemenis will drop from the movement. It has reached contagion stage, but in a state with little regard for human rights and a 30-year legacy leadership, contagion can only do so much. This is not like the American Civil Rights movement, where there was some semblance of respect for law and a system of checks and balances, such as elected political representatives and a transparent (if often misguided before then) court system. This is Yemen, where force has proven to be the greatest arbiter.

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