Category Archives: Economics

Argentina’s Choice

By Colin Vaida

Argentina often heralded for its once in a generation soccer stars, is also South America’s second largest economy. Argentina ranks in the top fifty for human development, is considered a high-income economy by the World Bank, and maintains one of the lowest GINI coefficients in South America. However, since its 1983 return to democracy Argentina has been an economic headache, wracked with instability, high debt, and a fledgling currency. The country’s economic foibles have made Argentina a pariah in international relations, economics, and finance. Argentina’s ongoing elections for president have reignited a continual debate regarding the country’s future and a path to stability.

For the last twelve years, Argentina has been governed by the political duo of Cristina Fernández de Krichner and her late husband Néstor. The duo’s political tenure has been defined by the concentration of political power, far-reaching welfare programs, curbing of the press, and Argentine nationalism. Together, the husband-wife powerhouse has seen their political strategy and tactics labeled “Kirchnerismo,” a la the 1950s era politics of Peronismo. With an end in sight to the Kirchner regime, at least in name, many are looking for what’s next in Argentine politics. Argentina’s rising inflation, debt defaults, currency controls, massive export taxes, and stagnant growth, all point toward electing business-minded Mauricio Macri. He has been an outspoken critic of the Kirchners and has demanded a refocusing of Argentina’s priorities and polices. As the outgoing mayor of Buenos Aires, Mauricio Macri has run on a platform for change, but his perceived representation of the wealthy elite and business interests have his campaign worried. Macri’s platform evokes in many the memory of Argentina’s president in the 1990s, Carlos Menem.

Initially, under Menem, Argentina was able to stabilize its out of control inflation of the 1980s. Menem’s neoliberal economic reforms, his push for privatization, and a boom in commodity prices enticed international investment. However, the country failed to address the bloated fiscal policy that continued to balloon the country’s debt. The financial crises of the late 1990s sent the Argentine economy spinning and left the country saddled with massive debt. Argentina, despite adhering to the wave of structural adjustment and the Washington Consensus, was left crippled unable to pay back its debts. The legacy of this debt continues to live on in 2015, as U.S.-based vulture funds continue to sue Argentina. The result has been an imposition on the country’s sovereignty and has left Argentines with a bitter taste in their mouth. Macri’s call to shift away from Kirchnerismo and the political duo that carried Argentina out of this economic mess is wrapped up in a painful history. In light of this history, Macri has pushed more toward the center as the general election approaches in order to appeal to a broad base of anti-Kirchner sentiment.

Opposite Macri is Daniel Scioli, the candidate from Cristina’s party. Scioli despite being an independent and strong candidate has come to represent a vote for the continuation of Kirchnerismo with some modest changes. However, the policies of the Kirchner regime have not been all that successful. For example, export tariffs and currency controls have left Argentina’s commodity driven economy in a tough position. Beef and wheat exporters continue to struggle due to Kirchner’s policies. For consumers, prices on imported goods continue to be outrageously expensive. Inflation is on the rise and economic growth numbers are not promising (0.5% in 2014). Economic statistic reporting, including inflation reporting, continues to be wildly inaccurate, and purposefully so. Though the Kirchner regime has been wildly popular due to its strident responses to debt default, its economic policies are not working. Scioli’s promise of a slight tweak may not be enough for Argentina to regain its ground.

Solutions to Argentina’s economic instability seem difficult to find in the current climate. The combination of political memory with tough economic choices leaves the next President in a political and economic quagmire. There is no easy way out of Argentina’s debt situation, rising inflation, and slow growth. Clearly, the policies of Kirchner in the current economic climate are not working, but the liberalization of the economy is rightfully a nonstarter with the Argentine people. The time to find a tenable solution seems implausible in the current climate. The temptation to keep policies static will be high for the next president, and making change will certainly come with a loss of political capital.

Featured Image Source Reuters

Al-Shabaab’s Effect on Kenya’s Tourist Economy

By Sarah Gerber

In the small tourist town of Watamu, only a fraction of the roadside businesses are open. * Unemployed young men and mothers drift around on the beach looking for tourists, hoping to sell something so that they can pay for their cost of living. During the low season there are no tourists to be found in Watamu. Children cannot continue their schooling because their families can no longer afford their school fees or painkillers, and many residents go to bed hungry. The annual low season is a perennial reversal of development. However, Al Shabaab’s persistent attacks threaten to turn Watamu’s low season an all-year-long affair.

Ever since Kenya sent troops to Somalia in 2011, the growing security threat has deterred more and more tourists from coming to Kenya. Ironically, Kenyan initially became involved in Somalia in order to create a buffer zone to stop Al Shabaab from abducting tourists in Kenya. However, only a year after Kenya’s involvement in Somalia, security concerns brought down earnings from tourism by 2%. In retaliation for the actions of Kenya’s troops, Al Shabaab performed its most advanced terrorist attack in 2013 at Nairobi’s Westgate mall, where they killed 67 people. Consequently, income from tourism decreased by 21% in 2014, a decrease that has continued into 2015, with the first five months of the year seeing a decline of 25% of visitors. Considering Al Shabaab’s bloody attack in April on Garissa University that left 148 people dead, Kenyan tourism is unlikely to drastically pick up during the second part of 2015.

A day before the attack on Garissa University, President Kenyatta claimed that Kenya was safe and complained about the travel restrictions established by the UK and Australia. President Kenyatta, who hoped to boost Kenya’s tourism industry and thereby economic growth to fight poverty, has a lot to gain from saying that his country is safe. Believing President Kenyatta’s recent assurances that Kenya is safe for tourists, the UK lifted its travel warnings in June. Moreover, the UN World Tourism Organization declared Kenya a safe tourist destination in early September and elected Kenya into its executive council. With the attack in Garissa in mind it might seem as if the opinion on Kenya’s security is shifting a little too soon. However, even if Garissa was Al Shabaab’s most bloody attack in Kenya, it never threatened any tourist. Garissa University is located in one of the most troubled regions of Kenya and tourists have been advised against travel there for several years. With the exception of Westgate all major attacks by Al Shabaab during recent years have targeted Kenyans, not tourists. Also the majority of the small-scale attacks occur in places with low security, where tourists normally do not travel (Places such as Garissa, Eastleigh, and Wadera).

Regardless of the extent of Al Shabaab’s security threat to tourists, the decline of visitors particularly affects the coast of Kenya. What I found in my research during the summer is that  between 2004-2014, the small coastal town of Watamu has seen an explosion of private schools and health clinics that cater to locals, often with generous support from tourist sponsors. In one school that I visited, a single tourist sponsors an entire school of 78 students who otherwise would be left without education. I also found that the hotels, that are now half empty, work as middlemen who channel tourists’ donations to construct schools, clinics or orphanages. At a clinic that I visited I was told that in 2012 the clinic had 400 families who got their expenses covered by tourist sponsors, today at least a hundred of these families are left without care as tourists have discontinued their travels to Watamu and new sponsors are hard to find. Watamu does not suffer alone. Across the country 15 000 people have lost their jobs as a result of the declining number of visitors.

Considering that tourism comprises 21% of Kenya’s national income, it is essential that the perceived security thereat is lessened. Or else Kenya seems to run the risk of ending up in a negative feed back loop.  When the perceived threat from Al Shabaab scares of tourists, national income decreases, and more people are left unemployed and without education. Consequently the state has less money to deal with security issues, and Al Shabaab can find recruits in this large group of the many young, unemployed men. This could increase the security threat, which could decrease tourism, which could, once again, decrease resources for maintaining security, which would scare of more tourists…. As a result, the way regular westerners and their governments perceive the terrorist threat has the potential to destroy the livelihood for many more Kenyans than those who are directly affected by terrorist attacks. Hopefully, western holidaymakers will feel safe to visit Kenya again, before the problem grows even worse.

 

*Note, the author conducted her own research in this town on the coast of Kenya.