Double-dip

The Europeans rallied to install feisty French finance minister Christine Lagarde as head of the International Monetary Fund (IMF). She will replace the disgraced Dominique Strauss Kahn, a strong contender for the French presidency before he was arrested on sexual assault charges in New York.

Lagarde was not challenged by any other European rival. Her only challenger was the Mexican finance minister, who sought to represent the emerging economies in the international financial institution. It was a lopsided contest.

The Europeans traditionally controlled the leadership of the IMF as the Americans controlled the World Bank. It is an informal arrangement reflecting the size of contributions to the two institutions from the North American and European economies. This explains why the US threw its support behind Lagarde against the challenge posed by the emerging economies.

There is, of course, an outstanding reason apart from tradition behind the European enthusiasm to see Lagarde at the head of the IMF. Europe has become the main arena for potential defaults on sovereign debt. The IMF is the most crucial institutional mechanism to head off financial chaos.

In the massive effort to bail out the Greek economy and avert a default, the IMF worked closely with the European Union. The international finance institution supplemented the funds laid down by France and Germany to support Greece and reinforced the conditions for fiscal discipline as a precondition for those funds.

As this is being written, the Greek parliament is still debating legislation implementing the tough austerity measures demanded by the donor countries and the IMF. The unions called for a two-day general strike and for several days now there has been rioting in the streets of Athens, just outside the parliament.

Greece is not alone. Over the past year, austerity packages had to be imposed on Ireland, Portugal and Spain in the face of intense domestic opposition. Portugal, Ireland, Greece and Spain are denoted in financial slang by the acronym PIGS.

They all require bailouts of varying magnitudes and had to implement austerity programs of varying severity. The IMF will play a key role in nursing these economies (and others that might fall into the same predicament) back to financial health.

 A major default in Europe will likely cause a global financial meltdown akin to the 2008 event precipitated by the bankruptcy of large investment banks. Such a meltdown will, in turn, cause a second round (or double-dip) bout with global recession that might be more severe than the recent one.

For the Europeans, therefore, it is important to have someone familiar with both the accounts and the politics of the economies in the Eurozone. Lagarde is eminently qualified to lead the IMF at this time — at least as far as meeting the challenges in Europe is concerned.

While sympathetic to the need to restore financial stability in the European zone, the emerging economies are concerned over the possibility that the IMF might become too engrossed with Europe to the detriment of the developing world. A number of European economies might indeed be financially vulnerable, but they do not represent the engines of the future global economy.

The main engines of global growth today are the so-called “BRIC economies” (Brazil, Russia, India and China). These are economies (that might soon include Indonesia) with large populations and high economic growth rates. Their requirements for IMF support differ vastly from the bailout needs of the PIGS.

With Lagarde now leading the IMF and with Greek unionists rioting in the streets of Athens, the emerging economies can only hope that crises in the Eurozone will be managed quickly and that, in the meantime, the requirements of the emerging economies will not be ignored.

Dredge

This did not happen before: a flash flood happened along the Matina river in Davao City. As of this writing, the number of casualties and seriousness of the damage are still being assessed.

Over the past few weeks, we have seen many parts of the archipelago flooded. The Rio Grande flooded Cotabato and Maguindanao. ‘Falcon’ flooded many streets in the metropolitan area. Today, large parts of Pangasinan and Nueva Ecija are still under water.

It is easy to blame ‘global warming’ for these events. That enables indolence to get away and nature to take the blame.

On closer look, however, it seems many of these incidents of flooding that so far destroyed nearly a billion pesos’ worth of agriculture might have been averted or at least seriously minimized if our officials worked a little harder. Most of the flooding was caused by drainage issues.

In the Metro area, it used to be that drainage and esteros were cleared way ahead of the rainy season. The same effort is not apparent this year.

In Davao, the Matina river appears to be in dire need of dredging. That was not done.

In Cotabato, the flooding was blamed on the unattended accumulation of water hyacinths and the delay in the implementation of a comprehensive flood control plan for the area.

The Laguna de Bay is in dire need of dredging, but the comprehensive foreign-assisted program to undertake that was cancelled without reason.

The siltation and clogging are the result of human activities. The failure to clear them promptly is the result of failure in planning and foresight.

Let us not blame everything on force majeure.