26 February 2010

Trade and politics: the case of Madagascar

Aidwatch blog post by William Easterly and Laura Freschi on the US imposing trade sanctions to force President  Andry Rajoelina to hold elections brings out the issues relating to sanctions, politics, impact on the vulnerable and on the macro-economy.

The US pulled the plug on AGOA at the end of December and import duties of up to 34 percent were reintroduced. Now we are starting to see the effects in the formal and informal economy:
Factories closing and factory jobs lost: “As lead times [expire] on orders placed before the agreement [came to an end], factories are laying off workers and we are seeing an explosion in the numbers of unemployed,” said the director pf the Association of Free Trade Business in Antanarivo.
Increased competition among street traders now that former factory workers are pushed out to sell goods in overly crowded street markets (and lower wages now for both): “‘I used to be able to earn 20,000 ariary ($9.30) a day,’ said Soloniaina Rasoarimanana, who has been selling clothes from a pavement stall for 10 years. ‘Now, with the political crisis and more competition, I earn around 5,000 ariary ($2.30) a day.’”
Knock-on effects in neighboring countries (Mauritius, Swaziland, Lesotho, South Africa) which made inputs like zippers to Madagascar’s factories.
Among the effects we are NOT seeing: signs of increased interest in arriving at a power-sharing agreement or instating democratic governance on the part of Rajoelina’s government.

Ineffective sanctions, effective job destruction.  An unaccountable branch of the US government hurts poor people far away who have no voice in US politics. Deeply saddened…we don’t know what more to say.

Some comments at the end of the post:

akatsuki wrote:
Perhaps it is just realizing that the US’s own “sunshine policy” towards oppressive regimes regarding trade has its limits far sooner than we expected – that the empowered middle classes won’t scream for democracy. We are too intertwined with China to back out now, but we can do so in other countries.
Jeff says:
This case just shows how aid is hostage to the world of diplomacy and how diplomacy does not employ evidence based decision making. The evidence clearly shows that instituting trade restrictions will not convince an undemocratic regime. And yet in the logic of diplomacy the US is compelled to do this because it said it would and to remain credible, it has to follow through. It is indeed sad that US credibility becomes more important than the livelihood of so many poor people, including women who Hillary purports to care so much about.

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