In the 1970s and 80s "growth & development" economists published papers and dissertations and attended symposiums at every vacation spot of the era. They wrestled with various characterizations of the cottage industry that they were carefully nurturing. Was the term "undeveloped countries" acceptable? It might be offensive to the recipients of Western "aid." How about "The Third World?" No, far too distancing a concept. Western countries needed to embrace these areas with a more paternal designation. “Lesser developed countries" seemed to satisfy everyone around the water coolers at the United Nations. Of course calling Bolivia "lesser developed" than Great Britain is akin to describing my back hand as "lesser developed" than Roger Federer's.

The larger issue avoided at all costs was that Western foreign aid had only one qualifying criteria; a consistently pro-Western attitude on the part of the recipient nation. Any demonstration of "anti-Communist" fervor before the next aid grant authorization was sufficient. Billions of dollars went to Ferdinand Marcos (The Philippines), Papa Doc Duvalier (Haiti), Trujillo (The Dominican Republic,) Somoza (Nicaragua) and every other Cold War era despot. The growth models and carefully drawn "project-specific" aid requests were routinely discarded in “lesser developed” capitals upon arrival of the checks. Eventually, almost all of the loans were defaulted due to the minuscule productive capacity generated by them.

The first of the money center bank crises (the current Mortgage Meltdown just the latest one) began with the ensuing Third World Debt Crisis in the early 80s. I've written about some aspects of this now forgotten "crisis" before.

Both Fidel Castro and The National Review had it right at that time - big banks loaded with petrol dollars loaned them to any country with a military dictatorship and a good Washington publicist. The ability to repay was not a prime consideration, rather the banks' huge profits were the only consideration. (Sound familiar?)

I attended the Third World Debt Repudiation Conference in Havana in August 1985 at which Fidel Castro noted that the debtor nations were being forced to accept IMF and World Bank mandated fiscal cuts to their social programs in order to repay the loans. In effect, these agencies became the collectors of funds long since pocketed by Western-supported politicians and military juntas. Over the next five years, as the recipient nations continued to default, the National Review detailed each attempt by the banks to have the US Treasury guarantee the loans so that the "financial system did not implode." (Again, sound familiar?)

I was reminded of this last week while attending the Indonesian Investment Conference in Bali. The conference rooms were filled with talented economists, bank managers, and government leaders from S.E. Asia. These young entrepreneurs are no longer looking at the Western developed nations as models for their own growth, as did their predecessors. Their goal now is to reach parity with the BRIC economies (Brazil, Russia, India, and China) and thereby insure greater foreign investment.

However there was, as a generation ago, an unwelcome presence roaming the halls. One that was not directly addressed, just as the negative effects of the military dictatorships and Cold War expediencies were never acknowledged in the 70s and 80s. This time the oncoming train wreck is the rapid depletion and mismanagement of natural resources in many of these Emerging Markets (finally a term that seems to satisfy one and all!), and virulent inflationary pressures.

Inflation is no longer the byproduct of a military dictator going to the printing press to throw worthless money at his civil service but rather the result of the Western central banks' desperate monetary policies to save their own floundering economies. Add the growing populations into the price pressure on food and there is another rock and still another hill for these Emerging Markets to confront.

The same week as the Conference, Indonesia resigned from OPEC, as they are no longer a net exporter of oil. Decades of oil industry mismanagement by long gone politicians left the current leadership with a shell of what might have still been a profitable enterprise. The OPEC resignation is ironic, as the very same week the government removed the gasoline subsidy, which immediately led to a 30% increase in the pump price. The subsidies that so many countries enacted as cushions against political unrest are now being slashed as the growing deficits can no longer be sustained.

Similarly the Indonesian government recently estimated a $100 billion loss to the economy from illegal poaching of fishing and logging. They, as other nations, lack the infrastructure to provide oversight and prevention. It should be expected that poaching and mismanagement will increase in these economies at a substantial pace as population pressures grow along with commodity prices. This is not yet ingrained in the glowing forecasts for current stock market darlings such as Brazil.

At the conference, a speaker displayed a chart of the Jakarta Stock Exchange. An ever upward slope over the past several years, a tripling of the index was demonstrated as proof of the vibrancy of the economy. I felt strangely as I did two years ago when the US real estate lobbyists charted the growth, and hence presumed their industry's health. They stridently shouted down the few voices warning about the possible tumbling of the residential real estate market due to its shaky lending practices. The charts of the 2004 home sales were not at all predictive of the mortgage meltdown tsunami that was at their doorstep. Nowhere in the Emerging market stock indices is there an inkling of how the unprotected and dwindling resource base will become an unavoidable chasm on the charts.

Recently the Philippine government, in response to food riots caused by the rising price of rice, acknowledged that agriculture had been "ignored" over the past few decades. The deeper problem in all of these countries is not just that this sector has been "ignored", but rather that there have been concerted and extremely successful efforts to divert food producing land to other uses: bio fuel production and commercial and residential real estate.

Powerful forces at work within every government chamber continue this diverting of land to other uses. Just as the housing nightmare is, in large part, the result of government supported lobbying efforts on behalf of private interests, so will agricultural land misuse be seen, too late, to be the result of the same forces. Former NY governor Elliott Spitzer’s indictment of the Bush administration’s opposition to any local or state government regulation of predatory residential lending is applicable to other sectors such as agriculture. Unfortunately, the impact of this sordid tale was blunted by the governor’s concurrent charges of using $4,300 an hour call girls. (Is this not a better indication of the devaluation of the US dollar than $130 oil?)

Agricultural Commodities  Climate Change  Event Coverage  Government  Inflation  Opinions 

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