Tag Archives: economy

An Economical Rescue Plan for Honduras

Public hydroelectric projects can get the economy going in Honduras, create jobs, improve the national economy, and diffuse some of the social conflicts.

While many are still debating what to do with the split in Honduras, between the redshirts who want to write a new constitution from scratch, and the whiteshirts who insist on respecting the rule of law based on the existing constitution, Honduras is bleeding. Unemployment is around 30%; the economy hasn’t recovered since the double-crisis of world depression and severed diplomatic relations; crime is astronomical; and big infrastructure projects such as a hydropower project in the Patuca have seen their foreign investors pull out. The country is in crisis. What to do?

President Porfirio Lobo has spent much political capital on trying to re-establish diplomatic relations, so that foreign aid and credit can start flowing again. However, he has not managed to get the wheels turning, apparently not taking that matter so seriously. But it is imperative to deal with it.

I suggest that Honduras can lift itself by the bootstraps. This is how:

The state of Honduras should invest in infrastructure projects that lead to a long-term return on investment. There is an obvious candidate: Hydropower. Years ago I saw in a hydropower atlas that Honduras has the second highest unexploited hydropower potential per capita in the world, after Iceland. Yet, some 80% of the electricity is generated in thermic plants, using expensive imported fossil fuel in the form of diesel. Only 20% is hydropower, in a few plants owned by the state electrical utility company ENEE.

Since over 20 years the state has built no more hydropower plants, due to lack of foreign credit (which dried up when the neoconservatives took over the policy making). All new capacity has been privately funded, and thermal, since that gives a better short-term ROI. However, it is very detrimental to the national economy. Lately there has been interest from the private sector in developing hydropower, under concessions from the government. This has been met with resistance from people living in the affected areas, since they view their public land and water being given to private companies without them even being consulted.

There is a win-win way out of this, and that is to develop this renewable energy resource in a public utility instead of in a private company. By keeping it in ENEE, it will remain the property of the people, thus increasing the chances of social acceptance, and the possibility for the government to ensure an environmental-friendly implementation in harmony with local indigenous cultures.

The main reason to do this is to benefit the national economy. By carrying out the project by itself, the government can make sure that most of the money invested stays in the country, which means that it eventually comes back to the coffers of the state (in the form of taxes, decreased unemployment, and–importantly–in the form of increased GDP).

To fund the project or projects, the government should borrow money domestically, not internationally. I’ve heard that there is money in the banks, which is not lent out since there are no viable projects. Just like in the US or the EU, it is the state that has to kick-start the economy, using the principles of Keynes. By borrowing domestically they avoid creating a devaluation pressure, and once the investment starts paying off, the domestic currency (the Lempira) will gain in value, so the lenders will be paid back in a currency that was stronger than before. It’s a win-win.

Some might think that the private sector should have this chance to make money. My answer is, they do! Rather than pour the concrete they lend the money, and are payed back with interest, in a currency that is expected to be stronger than before. It seems to me that the capitalists have nothing to complain about on this plan. And as for the private engineering companies, many of them will surely get contract jobs, so they, too, should be content. The unemployed, finally, will discover that there will be more demand for them.

Once the plant is ready and operating, the hydropower will replace some of the need for thermal plants. The importation of diesel might, in theory, decrease, but in practice the overall consumption of electrical power might increase by a similar amount, due to the overall increase in GDP that these and related projects lead to.

In summary, I propose that Honduras should be able to lift itself by the bootstraps by developing hydropower within the public electric utility company ENEE, financed with domestic capital, built by domestic companies (with just some foreign assistance for key skills); and that this would lead to an increase in employment, in GDP, and a long term improvement in the state finances.


Note: These are my views and nothing else. In the interest of full disclosure I will say that I have worked as a consultant for ENEE in the past, and developed projects for environmental impact assessment of proposed hydropower projects.

Fake stock market crash on Dashboard

Apples Macintosh application dashboard has a little thing for following the stockmarket. I seldom look at it, but this weekend I opened the dashboard for another reason and almost fell off the chair when I saw the stockmarket graph.

From the dashboard stockmarket graph. Note the crash in the graph, but the INDU value does not match.
From the dashboard stockmarket graph. Note the crash in the graph, but the INDU (same as ^DJI) value does not match.

It appeared to be a downturn to the lowest value in a year, enough to justify fears that fears of a depression could come back. However, a closer look reveals that the value of the index does not match the graph. Also, when looking at the data in 1 day or 1 week view, the downturn does not appear. Only in 1 month or longer plots.

Puh.

USA is falling behind – I told you so…

Yesterday I heard on the Situation Room on CNN that the past decade has seen a tremendous economic decline of the US. The U.S. GDP’s stake in the global economy shrunk from 32% to 24% in the past decade. That is the worst decline of any nation except for the collapse of the Soviet Union, they said. Which brings to mind that the same professor who accurately predicted that the Soviet Union would collapse also has predicted that the US global empire will collapse. He moved up the year when G.W. Bush became president, to in the middle of the decade that is now starting.

When I moved to the US in 2002 I was surprised to find a country that was almost obsolete in terms of technology compared to Europe (GSM and SMS had almost no penetration, for instance), and which was very inefficient in many aspects in terms of how basic everyday things are done. Several sectors are totally dysfunctional in comparison to Europe, banking and health insurance being by far the worst. There seems to be no functioning competition (I later learned that health insurance as a business sector is actually allowed to fix prices by law, but they have no law that requires them to provide insurance). Also the government bureaucracy is inefficient. In comparison, Sweden – with a government bureaucracy that is known to be meticulous – appears as a miracle of speed and simplicity. While in Sweden you typically can file your taxes on a GSM mobile phone, in the U.S. it typically requires the assistance of a paid professional.

What shocked me was the discordance. At the same time as the U.S. had a GDP per capita that was one third higher than any other country, they seemed to be at least one third less efficient at what they were doing. Most things in the stores were imported from China, and the U.S. didn’t produce much that the rest of the world wanted to buy. Their insistence on using their own measurement system instead of the metric system pretty much disqualified their products from any application in which they have to be interfaced to anything else, or to be repaired abroad – a disadvantage that pretty much affects all manufactured goods. The Chinese have solved this by making a unique U.S. version for export using the U.S. measurement system instead of the metric one, but here in the U.S. it is so hard and costly to find metric raw materials for producing metric products for export, that it becomes totally impossible to produce items for export at competitive prices (keep in mind that the costs here already are the highest, even without this handicap).

Already in 2002 I thus predicted that the U.S. economy would collapse, for lack of competitiveness. Unfortunately, rather than realizing the situation and changing with the times, the Americans have been told by their leaders and media that the U.S. is the best country in the world. The impression they have got is that they are the best, and that they have something to teach the rest of the world rather than learn from it. And so the downfall has become inevitable.

The solution is of course to fix the systemic problems that caused this in the first time, as I have said to anybody who has cared to listen since 2002: Regulate banks so they have to provide good and timely services at a reasonable price, and ban immoral practices that are hurting the economy; regulate the health insurance so that every legal resident has access to health care, no exceptions, and so that everyone who is able to pitches in to pay for it; streamline the government, make different branches cooperate directly with each other, remove private consultants and build the competence within the government instead, and drastically reduce the number of politically appointed persons in favor of staff hired based on competence; switch to the metric system not just on paper but in reality as well; and finally, stop destroying money and other countries alike by wasting trillions on the military, and invest money instead in educating the young Americans, with free education all the way up to college level.

Those are 5 areas of action that I believe are essential for turning the country around. It includes giving up the Empire. The Bush notion that the U.S. can be a global empire has to be abandoned. It is possible for a time, but the price is that after this limited time, the homeland will be destroyed financially, and it will take a hundred years to come back. This is not guesswork, it is just a matter of using empirical data from history. The U.S. is far from the first country to try to turn into an almighty empire. It always ends the same way, even if the details differ.

The only thing that can keep the U.S. ahead is brains. The first step is to become aware of the reality. Given the horribly inadequate news reporting in the U.S. one might be tempted to conclude that the underlying reason for the collapse is the collapse of the TV News in America, which happened about two decades ago as a result of president Reagan’s deregulation. So to the list can be added to create a tax-funded TV and radio News service that is totally free from any advertising and sponsoring money, and that has to be un-biased and objective, with some sort of oversight and complaints system. NPR and PBS today are total jokes.

Can this be done? Yes, definitely. Will it be done? No, I don’t think so, because there is no political will, and no political possibility, due to the way the U.S. constitution is written. Ultimately, I believe the U.S. needs a constitutional reform that changes the form of government to a parliamentarian republic, with a prime minister alongside the president, and with proportional representation. Only by strengthening democracy in such a way do I think it is possible to defeat the powerful special interests that have now shot themselves in the foot so badly.