Wednesday, December 31, 2014

We need more rigour in the evaluation of Petrobras

There is little dou that Petrobras is in trouble. The current government (and previous administrations?) most likely used it to secure political funding and other corruption activities. This is unfortunate for many reasons, including that it hurts the credibility of one of the best public companies in Latin America. Yet in considering Petrobras´s current situation, we should distinguish more clearly between what we know and what we don´t know and stop mixing things up. The problem of corruption is quite different to the potential existence of productive inefficiencies or to the use of Petrobras as an instrument of industrial policy. Petrobras may still be a useful instrument for industrial policy (I have not seen any evidence to the contrary yet) even if there is corruption at the same time. Unfortunately this is not the way the mainstream press (and many mainstream economists) analyze the situation. Take a recent FT article here. . In describing the current situation, an opposition observer argues that "“At the end of the day, all of this is happening because the PT (Workers’ party) has fostered monopolies and, to a certain extent, cartels which generate inefficiencies and an atmosphere that is conducive to corruption". Yet there is no evidence that this is the case, that is, using Petrobras as a monopolistic instrument of industrial policy has nothing to do with corruption. You can do one without the other. In fact, I am still hopeful that the policies of local content requirements that Petrobras have used end up being successful.

Wednesday, December 24, 2014

Universal Health Coverage

Two weeks ago we celebrated the universal health coverage day, an important initiative given the importance of securing health care for all. An article by Sir David Nicholson (former NHS boss) discusses the advances in this area in many countries, with interesting efforts to fund basic health care for all. Yet, as Juliana Martinez Franzoni and I have argued in much of our work (see, for example, this working paper) universalism should not just be about coverage but also about quality and equity: we should try to offer as much as we can for everyone in the same way. This will be a powerful way to improve health outcomes but also improve social cohesion and reduce inequality. Moreover, securing universalism over the long run will require more than quick, short term responses: you need to develop a stable policy architecture that secures funding and manages competition from the private sector as well.

Latin America under threat?

Many of us have worried about this moment when commodity prices would decrease and the Chinese economy slow down. Eduardo Portes has a great article at the NYTimes explaining the negative consequences that are already materialising. It is clear that at the macro-level the region will have to readjust, yet many questions still remain: a. What will happen with exchange rates? And will non-commodity exports react to any depreciation of the exchange rate? This may depend on what happens with capital inflows, which are decreasing in several countries. b. How should countries react to these changes? Do they have space now to do new production policies? Which countries need to adjust their fiscal policy to the new conditions and which countries have a more diversified tax structure? c. One thing that I don't buy is that countries cannot do any reforms in social policy. Quite the contrary, reforms are even more important now that reforms are more scarce and there are many regulations that can be introduced: restrictions on the private sector (what Juliana Martinez Franzoni and I call the "outside option"), improvements in how the services are delivered, etc.