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Political Cartoon by Sacrava from Cambodia
Bailouts
Many companies which asked for a bailout from governments were financial institutions. The response of some governments was to nationalize these money-losing firms. Bank nationalization schemes have been enforced in some countries like Iceland and Kazakhstan. Trinidad and Tobago banks were rescued not just by their government but also by governments from neighboring countries.
Is nationalization a wise economic decision? Should bankrupt companies receive government assistance? The opinion of bloggers is divided:
Barbados Free Press criticizes the lack of transparency concerning the decision to bailout the banks in the region:
How much will Barbadian taxpayers eventually be on the hook for? Good luck finding out the truth because the amount of taxpayer money and concessions being given by Trinidad, Barbados and other countries is being kept secret from the taxpayers.
Barbados Underground, reacting to the renewed government involvement in the financial sector, notes that this unorthodox thinking should generate a healthy debate:
If in fact, “national financial institutions,” enhance the capacity of a national government to respond to crises in the financial services sector, the question may well be, not whether a country can afford a “national financial institution,” but whether it can afford not to have one. Such a perspective goes against my many years of training, but economic orthodoxy has been found so sorely lacking in this crisis that I am open to new ideas. New answers often require new questions and a willingness to engage in fresh open minded debate.
Streetwise Professor from Russia disagrees that failing banks should be revived by the government:
These are companies that should have been euthanized. No, let me correct that. They should have been terminated with extreme prejudice. Instead they are being revived, and pushed into doing the kinds of things that created the financial crisis in the first place.
This politicization of these large financial institutions makes their continued reliance on the government inevitable. Soft budget constraints are addictive. More bad loans will pile up, making these firms even less able to survive in the marketplace without government assistance.
Even poet dergachew from Kazakhstan is afraid that the nationalization of business enterprises will be counterproductive:
I am not a politician, but nothing positive will eventually happen in result of nationalization of big business that takes place in our country now. Sure, the government remains the only capable market player because it accumulates income from extraction of minerals, but a priori it is well-known fact that business people run a business better, than the government.
In Jamaica, blogger Jamaica Salt suggests a bailout for the country’s rum industry because of declining tourism activities:
It is indeed a sorry state of affairs. Usually in times of downturn, alcohol sales increase as people look to drown their sorrows! But I imagine that the dent in tourism to Jamaica is largely to blame for the decreasing sales figures of rum.
Political Cartoon by Sacrava. A Big Fat Cat, AIG
Stimulus plans
To assure the public that something is being planned or done to revive the economy, governments around the world are drafting various economic stimulus packages.
Hungary will implement a tax reform. Taiwan has signed a controversial trade agreement with China and several Southeast Asian nations. Hiring street sweepers is part of the Philippine stimulus plan. Mongolia has unveiled a 1.5 trillion tugrik stimulus plan (USD 980 million) – but critics claim the program is only intended to cover the budget deficit. Malaysia has recently launched its second stimulus program. Named as mini budget, this stimulus plan has generated a lot of discussion and also criticism in the country.
Sean's Russia Blog notes that Russia is relying on “gunpowder economics” for its version of a stimulus plan:
Feeling the pains of economic crisis? Can’t find a suitable place for expanding market share? Don’t fret. There is one sure fire way to keep those exports up. Sell more weapons.
China’s central government has announced a four trillion yuan stimulus package (USD 570 billion dollars). Below is the coverage of the stimulus plan:
The four trillion yuan is going to be spent on 10 categories, among them welfare investment such as housing for low-income, health-care system and education, also infrastructure-building such as new railways, roads and airports. Specially, aid to post-earthquake reconstruction in Si-chuan is mentioned in the agenda. Equally notable is the subsidy for farmers and an explicit announcement to increase the price of state food purchase from farmers.
But some bloggers are worried that corruption and poor infrastructure projects will cause the failure of the stimulus plan.
In Cambodia, it is the opposition which is suggesting a stimulus package. Predictably, the government rejected it. The stimulus hopes to realize the following:
- Setting up mechanisms to support and stabilize agricultural prices in order to protect farmers’ revenue and living conditions
– Investing in human resources by increasing spending on education, training and health
– Building infrastructure that Cambodia lacks most (roads, railways, water-control and irrigation systems, housing for the poor)
– Works to protect the environment and to restore the ecological system that has been disrupted nationwide, including replanting trees and dredging lakes and rivers
– tax cuts and reduction in fees for the use of public services including road tolls and the electricity price
– Special social allowances for the poorest segment of the population
– Loans with reduced interest rates for small domestic entrepreneurs and the needy.
Adolfo from Brazil, enumerates his stimulus proposal:
O Brasil tambem tem anunciado seu pacote, eu vou fazer a minha parte e sugerir um pacote tambem: que tal o governo brasileiro diminuir o imposto de renda? Operacionalmente o procedimento eh bem simples, basta devolver R$ 1.000 para cada contribuinte. Que tal esse pacote? Ele pelo menos tem o merito de devolver o dinheiro para quem ja pagou muito mais, e em nada distorce os incentives futuros em relacao ao risco.
Brazil has also announced its package, I will do my bit and suggest a package too: what about if the Brazilian government reduced income tax? Operationally, the procedure is very simple, they just need to return R$ 1,000 for each taxpayer. What about this package? It at least has the merit of returning the money to those who have already paid much more, and in no way it distorts the future incentives in relation to the risk.
There are bloggers who reject the wisdom of “stimulucrats”. John Quiggin from Australia shares this negative view on implementing a stimulus:
If you believe that the economy is like a swimming pool, and that no matter how big a splash some shock (such as the collapse of the financial system) might make, the water in it will rapidly find its own level, then you will agree that there is no need for, or possible benefit from, the stimulus package.
Adolfo from Brazil believes the government intervention in the economy is more dangerous:
Para a economia brasileira mais perigoso que a crise internacional são as recentes medidas anunciadas pelo governo. Os recentes anúncios de aumento do gasto público podem perfeitamente fazer estragos na economia. Ou seja, se o governo brasileiro ficasse calado e nada fizesse estaríamos a salvo. O problema é que o governo insiste em querer intervir na economia.
The recent measures announced by the government are more dangerous for the Brazilian economy than the international crisis itself. The recent announcements of public spending increasing may well damage the economy. That is to say, if the Brazilian government stayed silent and did nothing, we would be saved. The problem is that the government insists on intervening in the economy.
He explains why a bigger public spending will hurt the taxpayers:
Da próxima vez que você ouvir alguém pedindo por um aumento do gasto público lembre-se que isso implica em menos dinheiro no seu bolso, isso implica em menos dinheiro para as empresas investirem, implica que cada vez mais você dependerá dos favores do governo, e cada vez menos de seu próprio esforço e habilidade.
The next time you hear someone asking for an increase in the public spending, remember that this means less money in your pocket, it means less money for businesses to invest, it means that you will need to rely increasingly on favors from the government, and less on your own effort and skills.
The quote from Bangladesh was an English translation provided by GV Editor Rezwan. The Portuguese translation was provided by GV Editor Paula.
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![The Kitchenware-Revolution in Iceland was organize by Hördur Torfason and "Raddir Fólksins". It started in the wake of the collapse of the banking system followed by the decimation of Icelandic economy in the beginning of October 2008. It resulted in the resignation of Geir H. Haarde and his cabinet on January 26. 2009. The protest meetings were held every Saturday at the Austurvöllur square in front of Alþingishús - the Icelandic parliament house. The first meeting (week 1) was dated Saturday 11. October 2008. The 16th meeting dated January 24. 2009 By OddurBen (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0) or GFDL (http://www.gnu.org/copyleft/fdl.html)], via Wikimedia Commons](https://commons.wikimedia.org/wiki/File:W16_Protesters_2826.JPG)
