Photo: Tatiana Cardeal (flickr)

Peru has one of the fastest growing economies in Latin America. Over the past six years, the country’s GDP has grown more than 6 percent annually. This is largely due to high market prices for mineral exports, increases in private investment and liberal economic policies that have been put into place by President Alan Garcia and his predecessor Alejandro Toledo.

Yet Peru’s economic growth is having a limited impact on poverty rates. While the capital, Lima, and the northern and coastal regions are flourishing, over 70 percent of the Andean region still lives in poverty. A major factor in this persistent poverty is the fact that many Peruvians continue to work in the informal sector of the economy, writes the Economist:

These unwaged people are often more or less cut off from the market economy. And it is market connections that make economic growth “trickle down” to the poor, points out Richard Webb, a social researcher and former central-bank governor. Enabling that to happen is thus a job for public policy. Better roads, education and social policy are all needed.

President Garcia has worked to increase social spending on anti-poverty programs, and staunchly advocates market-based solutions to Peru’s poverty problem. However, Garcia’s ability to combat poverty continues to be hampered by his unpopularity (his latest approval rating is only 26 percent), his lack of a legislative majority, and fears of corruption in lower levels of government. Unless Garcia can find a way to make Peru's growth work for more Peruvians, his liberal economic policies may lose support from those who aren't seeing the benefits of market capitalism.

Mexico City. Photo: Yetto (flickr)

Are the southern states of Mexico – Chiapas, Guerrero and Oaxaca – getting left out of Mexico's economic growth?

An April 24 article in the Economist suggests that there is a growing socio-economic gap between these three southern states and the rest of Mexico. In 2000, Mexico’s GDP per capita was $7,495, compared to a combined average of $3,634 for Chiapas, Guerrero and Oaxaca, according to a World Bank report. Furthermore, the percentage of people living in extreme poverty – less than $1 a day – was 54-56 percent in the south, compared to 23-25 percent nationwide.

Recently, the government has proposed using large-scale infrastructure projects to address this economic disparity.

In 2001, then-President Vicente Fox released his Plan Puebla Panamá, a project to link southern Mexico and Central America with northern Mexico. It primarily provides funding for building highways and new air and sea ports.

More recently, current President Felipe Calderón announced plans for a six-year, $28.7-billion road investment project. A significant part of the plan focuses on southern coastal regions.

Critics argue that investing in infrastructure isn’t enough to promote economic growth in the south. José Antonio Aguilar, a government official from the state of Puebla (another southern state), tells The Economist that they have experienced “a total transformation” in state infrastructure "but we haven’t been able to turn this into growth in income." Likewise, Miguel Pickard for CorpWatch.org worries that these top-down approaches tend to overlook Mexico’s poor.

To what extent will these ambitious infrastructure projects close Mexico's north-south poverty gap?

Can the mining industry brighten Congo’s economy? Possibly, says NPR’s Gwen Thompkins. The corrupt dictatorship of Mobutu Sese Seko and years of civil war have all but destroyed the economy of the Democratic Republic of the Congo. While political stability has increased since the DRC held its first free elections in 2006, weak infrastructure and continued regional violence still hinder any kind of substantial economic growth.

In the past, the profits gained from the country’s vast mineral resources have largely gone into the pockets of middlemen and corrupt government officials, with little benefit to the average Congolese. Yet the DRC sits atop what remain the world’s largest reserves of copper, tantalum, and coltan – minerals that are used in everything from cell phones to jet engines. Investors are showing increased interest in gaining access to these minerals: state-owned China Railway Group is set to fund $2.9 billion joint investment project in partnership with Gecamines, the DRC's state mining company. If carried out correctly, the excavation and sale of mineral resources could jumpstart the DRC’s economy and help get it back on its feet.

Could mining boost DRC's economy? Photo: FredR (flickr)

Photo: Jeremy Barnicle/Mercy Corps

There's at least one commodity in the world whose rising price is benefiting rural families rather than bankrupting them.

Tea farmers in China's Yunnan Province are prospering thanks to rising popularity of Pu'er tea in Shanghai, Beijing and Hong Kong. A few decades ago, the ancient tea was widely unknown, but recently has become fashionable for its celebrated health benefits. Some Chinese believe the tea can help you lose weight and even cure cancer.

The price of Pu'er tea has risen dramatically in recent years. In 2004, a kilo of Pu'er sold for about $1. By last year the price of that same one kilo had risen to $800, although it still varies widely depending on where it's grown and how it's aged. (Last year, for example, 17.5 ounces of Pu'er tea from the 1940s sold for $125,000, according to the International Herald Tribune.) Chinese investors are saying aged Pu'er tea is a better investment than stocks or gold.

Thankfully, the wealth from Pu'er is trickling down to the tea farmers and pickers. The New York Times reports that in the hilltop village of Manmai, the unexpected fortune has permitted villagers to build their homes using concrete rather than sticks and reeds. In peak tea-picking season, young workers can earn up to $1000 a month, which is more than their peers are making in Beijing's factories — a rare rural wage advantage in today's industrialized China.

Previous posts have examined how private enterprise can fight poverty through "creative capitalism" and corporate social responsibility. But one old idea made the rounds this week, albeit with a new spin: helping the poor by taxing global financial transactions.

The plan, proposed by Stephan Schulmeister of Austria's Institute of Economic Research, would tax global financial transactions — such as stock trades — at a rate of around one-hundredth of a percentage point. Even at this miniscule rate, Schulmeister estimates that such a global micro-tax could bring in revenue of up to $230 billion a year. Theoretically, this money would be used to finance development aid and projects aimed at helping the poorest cope with problems like climate change and rising food prices.

But the idea is not without its critics. Research from the World Bank notes that while the basic philosophy behind such taxes is economically sound, determining how to redistribute the revenue is likely to be politically problematic. An essay on the Organisation for Economic Cooperation and Development's website also wonders whether micro-taxes are administratively feasible or whether political leaders would actually use the tax revenue for development.

Our economy is shrinking, inflation is increasing, and it looks like it's time to tighten our belts and settle down for the worst. But were the times we are leaving really so great to begin with?

For the first time since we've been paying attention to such numbers, the median family income (from 2000 to 2007) has actually decreased during a period of economic growth. Real median family income more than doubled from the late 1940s to the late ’70s. It has risen less than 25 percent in the three decades since.

According to New York Times writer David Leonhardt, "the larger point is still crucial: the modern American economy distributes the fruits of its growth to a relatively narrow slice of the population."

A responsible economy wouldn't allow this to happen. What's going wrong?

A recent article in The Economist explored the role financial illiteracy played in the subprime crisis and a growing global movement to improve financial education. Among projects mentioned in the article are Aflatoun, an Amsterdam-based program that attempts to "equip children with the knowledge and skills to become economically self-reliant citizens and empowers them to break the cycle of poverty through financial education." Another project discussed in the article was The President's Council on Financial Literacy, created by President Bush this past January.

John Hope Bryant, one of the vice chairman of the President's Council, is the founder of Project HOPE. Project HOPE has worked since the early '90s to use financial education as a way of alleviating poverty in urban communities.

At the Davos conference in January, Bryant summarized how financial education — what he calls the "Silver Rights Movement" — can reduce poverty.

Photo: (C)n Burgos (flickr)

Opium is widely recognized as a major obstacle to economic development and postwar reconstruction in Afghanistan. It's estimated that Afghanistan currently produces between 90 and 95 percent of the world's opium. It's an approximately US$4 billion industry that accounts for just over half of the country's total GDP. And, according to Newsweek, most of that money goes to traffickers and corrupt officials. The average opium grower makes only US$300 a year.

What is to be done? The numbers indicate that the U.S.-led counter-narcotics program, which focuses primarily on poppy eradication, has been unsuccessful. Opium production has skyrocketed since the Taliban's overthrow; the UN reported a 34 percent rise from 2006 to 2007. Other programs that look to curb opium production by providing farmers with other crops or alternative livelihoods have also had limited success.

An international security-and-development policy group thinks there's an unexplored option. The Senlis Council is advocating a "Poppy for Medicine" program in which individual Afghan villages would be licensed to turn poppy into morphine, rather than heroin. In theory, this program would allow existing opium crops to be diverted into legal markets for medical painkillers.

In theory, this sounds workable. Similar projects have been successful in India, Thailand, and Turkey. But standing in the way of implementing the same program in Afghanistan are two probably insurmountable obstacles — one political and one economic.

The Afghan government opposes opium's legalization; the crop is banned by the country's constitution. Then there's a report from Britain's Royal Society of Chemistry, which says there simply isn't sufficient demand for opium for medical purposes. Afghanistan poppy growers would have to corner the market on medical opium — and then double it — to sell out their crop.

Photo: Cassandra Nelson/Mercy Corps

Liberia lacks doctors, teachers, lawyers, electricians ... but they may have too many cooks.

Why? To help provide jobs following the end of Liberia's long and costly civil war, many international humanitarian agencies began delivering skills trainings to women. The most commonly taught skill? Baking, of course.

But there just aren't enough jobs for all the newly trained pastry makers. So women who learned to make wedding cakes and fancy foreign pastries are now selling two-cent donuts on the street. And foreign-owned companies (mostly Lebanese) continue to dominate the pastry making business.

In the rush to help Liberia, it appears that well-intended job trainings did not reflect market demand. The problem goes beyond baking. Other aid organizations continue to train women in the art of tie-dying. But unless Liberia's demand for tie-dyed shirts and sarongs reflects 1960s America, they may be wasting their time.

Photo: Thatcher Cook for Mercy Corps

Will America's economic troubles spill over to South Asian markets?

India, because of its close economic ties to the U.S., could get caught up in the downdraft. Rising inflation rates are causing the country's conservative commercial bankers to squirm in a country usually considered the poster child for modernization. India ships more of its goods to the U.S. than to any other country — so if Americans curtail their spending in an economic slowdown, Indian businesses could lose big.

How can India maintain its high rate of economic growth despite the U.S. slowdown?

The Brookings Institute calls for India’s government to economically reform by addressing its major inefficiencies in connecting the rural poor with the mainstream economies. BusinessWeek points out the need for reforms in agriculture, infrastructure, health care and education. But it adds that reform "is the last thing" on the mind of India's ruling Congress Party.

Struggling fishing communities Brazil may have found a way to turn their economic troubles around. A university there has set up a fishermen's cooperative to introduce oyster farming in the area and boost economic development. The advantages of oyster farming go beyond economics — the industry can increase biodiversity and water-filtration services.

Even as the global market looks increasingly unsteady, China's economy continues to boom. It has already become apparent that this rapid growth is contributing to increasing income inequality.

The Financial Times argues that China should learn from Brazil by combatting economic inequality with more social spending on things like health care and education.

Photo Credit: Ells Culver/Mercy Corps

China today is making up for its technological deficits by undergoing an industrial revolution the size of which has never been seen. While it is one of the world’s fastest growing economies, there is still an important human perspective to what is taking place. The New York Times recently created a slideshow of images its reporters and photographers have collected from around China, documenting the lives of individuals participating in its rapid industrial expansion.

Photo: Antonis Shen (flickr)

If salaries are increasing, do people really care about democracy? Today's Economist takes an in depth look at what Putin has really done for the Russian economy.

When asked by a foreign journalist about the lack of political competition and dialog, Putin responded: “The salaries here are going up by 16 percent. There's the answer to your question.” According to this article, Putin cannot fairly claim to be the main cause of this economic success.

The rapid growth is not meeting Russia's full potential and simultaneously trapping them into a dangerous dependency on energy. The economic growth has also been accompanied by rampant corruption. Are you wondering which country equals Russia in corruption levels? Togo. Despite this fact, foreign capital and investment continues to rise at a pace that would be unheard of for that small African nation.

The share of oil and gas in Russia's GDP has increased, according to the Institute of Economic Analysis, from 12.7 percent in 1999 to 31.6 percent in 2007. Natural resources account for 80 percent of exports. Like a powerful drug, oil money has masked the pain caused to the Russian economy by the Kremlin. But the disease remains.

To appreciate the impact oil prices have on the economy, compare real GDP growth of about 7 percent with growth measured in international prices. In dollar terms, says Rory MacFarquhar of Goldman Sachs, Russia's economy has grown on average by 27 percent a year, the fastest of any big economy since 2000. The flow of petrodollars is fanning a massive consumption boom, making Russia the sixth-biggest market in Europe. Disposable incomes (and retail trade) have been growing twice as fast as GDP.

The problem, says Peter Aven, the head of Alfa Bank, is that Russia has failed to convert the oil stimulus into domestic production. Imports are growing much faster than manufacturing. The rapid real appreciation of the rouble is hurting Russia's producers, and many goods are of poor quality. This is why Algeria says it wants to return 15 military jets it purchased from Russia.