Aurelia Butler

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The question of how to squash government debt is about as fresh as a pickled turnip. And given rising interest rates and feeble growth, the answers are about as sour. But a new working paper crunches through the extraordinary case of Jamaica, which halved its government debt-to-gross domestic product ratio from 144 per cent between 2012 and 2023. What could others learn from it?The obvious answer is: not much. As American policymakers refuse to grapple with their fiscal position, they are not about to take advice from a hurricane-prone country with GDP per person of about $6,000, a population smaller than that of Wales, and exports dominated by tourism and aluminium oxide. Even other smaller countries with high debt loads will face their own special circumstances. But squint and there are lessons to glean. One is simply that old fashioned belt-tightening is possible. Poorer countries tend to rely on a mixture of growth and inflation to squash their government debt-to-GDP ratios. But Jamaica did it through sustained primary surpluses (an excess of revenues over spending, excluding debt interest payments).It is worth stressing just how extreme this was. In the 2010s, the Greeks howled about crushing conditions imposed by the Troika — the IMF, European Central Bank and European Commission — and eventually managed a primary surplus of about 4 per cent of GDP. After an IMF programme agreed in 2013, Jamaica’s exceeded 7 per cent of GDP for seven straight years. How did they do it? Circumstances, perhaps. At its outset, Jamaica’s path looked highly unlikely. A reputation for fiscal mismanagement meant that in 2012 the government was desperate, cut off from international markets and facing the cold shoulder from the IMF. Peter Blair Henry of Stanford University and one of the study’s authors, gives some credit to strong leadership.In an earlier study, Henry’s co-authors, Serkan Arslanalp of the IMF and Barry Eichengreen of the University of California, Berkeley, found hints of a more general lesson. Divided government seems to make primary surpluses less likely, presumably as it makes politicians more likely to bicker over who should bear the burden of spending cuts or tax rises.In Jamaica’s case, the economists claim that a “hard-won tradition of consensus building” was key to “a sense of fair burden sharing”. Government creditors agreed to take a hit, while public sector workers accepted continued pay restraint. A group including financial sector and union representatives monitored reform efforts, scrambling the story that the IMF was policing harsh reforms from afar. Even a change of government did not throw things off course. The other supposed secret to Jamaica’s debt-crushing prowess was its fiscal rules. These were transparent enough to hold policymakers to account, but it was the inclusion of an escape clause in case of a disaster that made the rules credible. Actually sticking to them required consensus. The study’s authors suggest that neither would have worked without the other. British politicians take note: in Jamaica, policymakers couldn’t get away with balancing the books by promising unspecified savings far into the future. And I do like to daydream about how different UK fiscal policy in the early 2010s might have been if its architects had not been quite so concerned about using it as a tool to screw over the opposition.But here in the real world, transplanting these lessons elsewhere is challenging. The IMF is keen that others follow Jamaica’s example, but is finding that it can be hard to manufacture. Perhaps Jamaica is one of a tiny handful of exceptions that prove the rule, which is that this type of debt reduction is fiendishly hard.I would hope that a final lesson becomes a little clearer. Jamaica’s path may have been possible, but was it desirable? To be sure, it had no easy options. And more recently, there are signs that its efforts have been rewarded. Joydeep Mukherji of the credit rating agency S&P points out that the government has regained market access, which it is using to reprofile its debt. Last October it even issued an international bond in its own currency.In the 2010s, unemployment fell. But although Jamaica’s growth became less volatile, it was also sluggish. Tight fiscal limits have suppressed infrastructure spending. “We don’t have a clear sense of whether a little less fiscal consolidation — if the additional funds had gone into things like education spending or health spending — might have been equally good or better,” says Eichengreen. Scope for more learning, then. [email protected] Soumaya Keynes with myFT and on X More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is the Minister of International Relations and Cooperation in South AfricaSince the advent of democracy in South Africa three decades ago, our mutually beneficial economic relations with the United States have surpassed expectations. Given the strong relationship between our countries, the recent introduction of a bilateral bill calling for the US to review its relations with South Africa is particularly disconcerting.  The proposed bill, now in the House of Representatives, makes the claim that “the South African government has a history of siding with malign actors” and will consider whether South Africa “has engaged in activities that undermine US national security or foreign policy interests”. These sentiments do not reflect the strong relationship that exists between us, or the intention of the South African government to strengthen that relationship. The bill also fails to acknowledge the right of all sovereign nations to develop and promote their own foreign policies. It criticises us for taking Israel to the International Court of Justice, where we argued that the actions of the Israeli military in Gaza violate international law and the Geneva Convention. In its ruling on provisional measures, the ICJ found “plausible” evidence that Israel was conducting a genocide against the Palestinians in Gaza.It would be devastating to our mutual economic interests if the bill were to collapse bilateral relations. South Africa is the largest sub-Saharan African importer of US goods, and the largest source of foreign direct investment to the US from the African continent. In 2022, we exported three times more than the next country — Nigeria — to the US, making us the largest exporter on the continent. Our bilateral investments have also been a welcome source of employment in both countries. There are approximately 22 South African companies currently investing in the US and employing 6,900 people. These include the Sasol investment in a petrochemical complex in Louisiana, which supported thousands of construction jobs. South Africa is home to more than 600 US companies across a range of sectors, employing approximately 134,600 people.Seeking to bring South Africa to its knees almost amounts to self-sabotage for the US. We were a key driver in the formulation of the African Continental Free Trade Agreement and now of its implementation. Given that AfCFTA creates the largest single free trade area in the world, with 1.3bn people and a combined gross domestic product of $3.4tn, it would be advantageous for the US to capitalise on such opportunities, and work with us as a gateway to the continent. Associated with the US bill is the threat of removing South Africa from the African Growth and Opportunity Act (Agoa) under which almost 40 African countries benefit from tariff free access to the US market for certain goods. Agoa has been one of the most progressive development support policies initiated by the US in trade and industry. Our participation supports economic development in the southern African region and any attempt to exclude us will undermine regional integration and value chains. To take one example, our auto industry sources components from our neighbours, and exports the finished product to global markets, including to the US through Agoa. We get leather car seats from Lesotho, wiring harnesses from Botswana, copper wire from Zambia, and rubber from Malawi and Cameroon. These inputs from other African countries alone account for more than $200mn worth of products in the automotive value chain. The repercussions of losing Agoa membership will not only affect South Africa, but negatively impact the Southern African Development Community region as a whole.In addition, South Africa is a significant supplier of critical minerals to the US. If we lose Agoa membership, it could have negative ramifications for the US. In the global fight against climate change, demand for critical minerals has become a significant factor. In 2021, the US imported nearly 100 per cent of its chromium from South Africa, as well as over 25 per cent of its manganese, titanium, and platinum. We also supply 12 of the 50 mineral products identified by the US Geological Survey as critical for US interests. We cannot afford for the proposed bill to undermine our mutually beneficial relationship. Since the demise of apartheid, the US and South Africa have forged positive bonds of friendship, growth, and development. We wish to see these grow and thrive in the future.Video: Eskom: how corruption and crime turned the lights off in South Africa | FT Film More

TOKYO (Reuters) -Japanese Finance Minister Shunichi Suzuki said on Friday excessive exchange-rate moves were undesirable, reiterating the government’s resolve to take appropriate actions against sharp yen falls.”It’s important for currency rates to move stably reflecting fundamentals. Excessive volatility is undesirable. We’re looking at market moves with a high sense of urgency,” Suzuki told reporters when asked about the yen’s recent declines.”There’s no change to our stance that we’re ready to respond to excessive currency moves, without ruling out any options.”The dollar fell to a two-week low of 150.95 yen after the remarks, as repeated verbal warnings by authorities keep investors on guard against the chance of yen-buying intervention.The yen fell to a 34-year low of 151.975 versus the dollar last week despite the Bank of Japan’s historic policy shift that ended eight years of negative interest rates, as markets interpreted its dovish guidance as a sign further rate hikes will be some time away.Shortly after the yen hit the 34-year low on Wednesday last week, Suzuki said authorities were ready to take “decisive steps” against speculative yen moves in the strongest warning to date that currency intervention could be imminent.He has held off on using such language since then, but continued to warn that authorities won’t rule out any options to deal with excessive yen declines.Markets are also on the look-out for any clues from BOJ Governor Kazuo Ueda on how soon the central bank could next raise interest rates.In an interview with Asahi newspaper, Ueda said inflation would likely accelerate “from summer towards autumn” as this year’s bumper pay hikes push up prices, signalling the chance of another interest rate hike later this year.Ueda also said the BOJ could “respond with monetary policy” if yen declines significantly affect inflation and wages, suggesting that yen moves were among factors that could trigger an interest rate hike.”Exchange-rate moves are among important factors that affect the economy and prices,” Ueda said in parliament on Friday.”We will continue to scrutinise currency market developments and their impact on the economy and prices, while working closely with the government,” he said.Expectations that the interest rate gap between the United States and Japan will remain wide have continued to drive yen selling. More

TOKYO (Reuters) – The U.S. dollar held steady against peer currencies on Friday after rebounding from a two-week low, as traders braced for a key jobs report due later in the day and grew cautious over tensions in the Middle East.The yen, while still close to the 152 range, hit a two-week high against the greenback as safe-haven bids and fresh warnings from Japanese authorities buoyed the currency.Overall, however, major currencies were looking rather subdued on Friday before the March nonfarm payrolls report.The dollar has had a turbulent week, falling from a five-month high to a two-week low after an unexpected slowdown in U.S. services growth supported expectations of bringing interest rates down.Comments overnight from Minneapolis Federal Reserve President Neel Kashkari that rate cuts might not be required this year if inflation continues to stall helped the dollar rebound from the dip.Still, officials including Fed Chair Jerome Powell have largely continued to focus on the need for more debate and data before interest rates are cut.The jobs data, as well as incoming inflation readings next week, will be important in shaping the outlook for the Fed’s April 30-May 1 and June 11-12 policy meetings. Economists expect 200,000 jobs were added in March.”Markets will likely be sensitive to any surprise in the jobs data today to assess the path of monetary policy from here,” said Charu Chanana, head of currency strategy at Saxo.”Given the lack of coherent Fed messaging means data-dependency remains the order of the day.” The dollar index, which measures the greenback against a basket of major currencies, was last largely unchanged at 104.18. Geopolitical tensions in the Middle East also have traders on guard. U.S. President Joe Biden threatened on Thursday to condition support for Israel’s offensive in Gaza on it taking concrete steps to protect aid workers and civilians.That has seen some safety bids coming into the yen, analysts said.”We saw a clear bid for the yen late on Thursday as Israel’s tough talk in Iran prompted a call from Biden. And that means concerns over the Middle East conflict spreading will likely spill over to next week,” said Matt Simpson, senior market analyst at City Index.At the same time, Japanese authorities continue to jawbone against excessive currency weakness.Japanese Finance Minister Shunichi Suzuki on Friday reiterated the government’s resolve to take appropriate action against sharp yen falls.Meanwhile, Bank of Japan Governor Kazuo Ueda said the central bank could “respond with monetary policy” if yen declines affect the country’s inflation and wages in ways that are hard to ignore, the Asahi newspaper reported on Friday.The yen strengthened 0.29% versus the greenback to a two-week high of 150.92. The euro was flat at $1.0835, while sterling was last trading at $1.26405.In cryptocurrencies, bitcoin last rose 0.56% to $68,332.52. More

GUANGZHOU, China (Reuters) – U.S. Treasury Secretary Janet Yellen on Friday kicks off four days of talks with senior Chinese officials expected to focus heavily on spillovers from China’s excess manufacturing capacity and an increasingly challenging business climate for U.S. firms.Yellen will meet with Guangdong Province Governor Wang Weizhong and Vice Premier He Lifeng in a continuation of U.S.-China economic relations. But these talks are likely to be more contentious than past engagements due to the more difficult subject matter.Yellen and other Biden administration officials are growing increasingly concerned about China’s overproduction of electric vehicles, solar panels, semiconductors and other goods that are flooding into global markets in the face of a demand slump at home. She plans to argue that this is not healthy for China and is hurting producers in other countries.Some trade experts see the increased U.S. criticism of China’s production-focused, subsidy and debt-driven economic model as an initial step towards raising U.S. tariffs on Chinese EVs and clean energy goods to protect U.S. industry.Yellen has shied away from raising any threats of new trade barriers, but said during her journey to Guangzhou she will not rule out more actions to protect a fledgling American supply chain for EVs, batteries, solar power and other goods from cut-price Chinese imports.The Treasury is not expecting a major shift in Chinese policy as a result of the meetings, but it was important to explain the problems that overinvestment in these sectors are causing around the world.Chinese state media are pushing back on U.S. concerns about manufacturing capacity as a “China-bashing” double standard.”While it is just basic economics that surplus products naturally seek out markets elsewhere once domestic demand is met, and Western nations have been doing that for centuries, when it comes to China, it becomes an “overcapacity problem” threatening the world,” the China Daily said.PARALLEL MEETINGSYellen’s meetings, which continue in Beijing on Saturday through Monday, come just after U.S. Commerce Department and Chinese Commerce Ministry officials met in Washington on Thursday to discuss commercial and investment issues.The top U.S. official in those, talks Commerce Undersecretary Marisa Lago, also raised “strong concerns regarding growing overcapacity in a range of Chinese industrial sectors,” the department said in a statement. Lago also reaffirmed the goal of a healthy trade and investment relationship “that benefits U.S. workers and businesses, while underscoring that the United States will not negotiate on issues related to U.S. national security,” Commerce said. Yellen on Friday will also meet with international business leaders in Guangzhou and participate in an American Chamber of Commerce event. More

When adjusted for the leap year effect of having one more calendar day on Feb. 29 compared to regular years, household spending fell 2.7% in February year-on-year, according to the government’s estimate of the data.On a seasonally adjusted, month-on-month basis, spending increased 1.4%, also better than an estimated 0.5% gain. More