Wednesday, December 07, 2005

Hiatus

The University of Iowa College of Law has commenced its winter break. Consequently, there likely will be no postings on UICIFD's News & Developments feature until sometime in January.

Friday, December 02, 2005

The WTO's Sixth Ministerial Conference to be held in Hong Kong in December

On Tuesday, December 13, the World Trade Organization will hold its sixth Ministerial Conference in Hong Kong, to further negotiations of issues left for the Doha Round.

Some hot-button issues that await agreement between member states include the reduction of industrial tariffs, intellectual property patents and agriculture tariffs.

The recurring theme that developed countries should assist the least developed countries through trade is still relevant at the talks. Concessions on one issue can be used as leverage for negotiations in another. For example, EU trade commissioner Mendelson has said that there will be no further EU reduction of farm tariffs, while some developing countries such as Brazil and India would not cut industrial tariffs or open the service industry unless the EU makes further cut on farm tariffs. The developing countries claim that tariffs imposed by the EU has depressed prices for agricultural products worldwide. The current negotiation is often characterized as a deadlock.

More specifically, agreements on agriculture should be made on three pillars, namely domestic support, export subsidies (and other aspects of the export regime) and market access. A preliminary plan envisages five tiers in the tariff reduction formula, fixed percentage reductions for tariffs within each tier with higher cuts in higher tiers, maximum final tariffs (“caps”), flexibility through a limited number of designated “sensitive products”, milder treatment for developing countries. This scheme aims at providing flexibility so to encourage agreements.

On a more optimistic note, the WTO has extended the deadline for the world's poorest countries to comply with intellectual property rules on patents, trademarks and copyrights. However, one crucial issue remained to be discussed is whether the least developed countries can have better access to cheap generic medicine, as part of the development package. The deadline is said to be extended from Janurary of next year to year 2013.

Sources:
Financial Times, WTO Chief Urges Actions Ahead of Talks
Financial Times, WTO Extends Intellectual Property Exemption Deadline for Poorest Countries
The Taiwan Times, Prospects Cloudy for WTO Meeting in Hong Kong
The World Trade Organization, Farm Talks Chairperson Reports to Trade Negotiations Committee

Thursday, December 01, 2005

New EU Sugar Regime

European Union's Agreement to Revamp the Sugar Subsidy Programme BBC, 11/28/05
Region Loses in EU Sugar Cuts BBC, 11/24/05

The European Union (EU) reached an agreement on November 24 in Brussels that cut the price of sugar by 36 percent over a four year period. Under the old EU system, sugar production was supported by generous EU subsidies and import tariffs, all of which will be phased out over a four-year period starting in 2006 .

The EU said this move would strengthen its position in upcoming World Trade talks in Hong Kong. Last month, the World Trade Organization ruled that EU sugar subsidies were illegal as they make it impossible for producers in other countries to compete. EU sugar prices are more than three times higher than the global market rate. Brussels also pays out export subsidies to get millions of tons of sugar a year off its market.

Critics say that the EU's reformed sugar regime looks out for sugar beet farmers in Europe more than sugar producers in developing nations. Guyanese President Bharrat Jagdeo said the agreement amounts to a "betrayal" and demonstrates that Europe cannot be trusted.
The EU has offered the 19 sugar producers in the African, Caribbean and Pacific (ACP) trade group $47million to help cushion the impact of reform, but the ACP dismissed this amount as "paltry".

Caribbean sugar producers say they could lose over $150 million annually under the new regime. Since then an EU agriculture spokesman said the bloc was proposing a further $223 million dollars in aid annually for Caribbean producers, but that deal depends on whether the EU governments can agree on a new budget deal.

Caricom (Caribbean community) leaders, who are now meeting in Malta at the Commonwealth Summit, said they will take their case to the WTO ministerial trade meeting in Hong Kong in December.

Oil Shapes Up as Issue for Mexico's Elections

By: John Lyons
November 30, 2005; Page A16
The Wall Street Journal

Current debate over Mexico’s oil economy will likely take center stage at the presidential elections next year. Felipe Calderon, the candidate for the ruling National Action party, suggested that the constitution be amended to allow private companies to explore for oil, while a leftist candidate wants to keep energy production in the hands of the state. Mr. Calderon predicts that Mexico, one of the world’s largest producers of oil, will run out of natural reserves in a little over a decade. He further suggests that lifting of this constitutional ban on private exploration will serve as a means to replenish oil reserves and lower the cost of refined fuels.

"If someone else can come here, build a refinery bigger than the ones we have and at a lower cost, then let them do it," Mr. Calderon told the American Chamber of Commerce in Mexico City. Several members of the populist party are taking the opportunity to highly criticize Calderon, who is the first serious presidential candidate to consider lifting the constitutional ban on private exploration in the oil industry.

Petroleos Mexicanos, the state-owned agency which provides about a third of government revenue, “lacks the management expertise, technology and finances to replenish its oil reserves, much of which are believed to be in the hard-to-reach deep waters of the Gulf of Mexico.”

Questions:
1) What are the potential benefits and downfalls of lifting this constitutional ban on oil exploration?
2) With elections approaching, will this issue potentially “make or break” Calderon’s presidential campaign?





Venezuela Clinches Spain Defense Deal

By: Andy Webb-Vidal in Caracas
November 29 2005
The Financial Times

Venezuela and Spain signed a deal on November 28, 2005 to buy twelve transport aircrafts and eight coastal patrol ships to support maritime defense. The United States was opposed to this deal because this increase in the defense equipment of Venezuela will increase Venezuela’s military power and political influence in the region.

Both the governments of Venezuela and Spain maintain that the contract is for defense reasons only. Chavez says that the vessels and the aircraft will be used to combat the drug trade, which is largely influenced by Colombia, which borders Venezuela and is the largest producer of cocaine in the world.

The united States is also concerned that Venezuela is purchasing 100,000 assault riffles from Russia. While the U.S. and Spain are still on fairly good terms, Spanish defense minister, Jose Bono, stated, “What country with a business opportunity would give it away to another country?”

Questions:
1) Will this contract for military supplies between Spain and Venezuela further hurt the relationship between the U.S. and Spain (which was severely affect by Spain’s removal of peace-keeping troops from Iraq in April 2004)?
2) How would this increase in military supplies affect Venezuela’s political influence in the region?

Argentine Inflation Raises Pressure on Kirchner

By: Michael Casey
November 28, 2005
Dow Jones Newswires

As a result of a recent rise in inflation rates in Argentina, several businesses are charging President Kirchner with engaging in anti-business policy. The Argentinean government won praise for a three-year upswing following their major economic crisis in 2002; however, in recent months, inflation hit record highs, reaching 12% (the second highest in Latin America, following Venezuela).

Outside investment companies suggest that Argentina tighten their monetary policies in order to lower inflation and raise exchange rates. Instead, Argentina launched several economic strategies which harmed several sectors of the business community and labor market. In an effort to curb inflation, there was an increase in export taxes, change in wage-price policy, and threats made to business cartels that result in economic inefficiency and harm the market.

Last week, economy minister, Roberto Lavagna, accused delegates of a construction-industry conference of collusive business practices. This accusation furthered the tension between Mr. Lavagna (who is generally more respected in the business community than Mr. Kirchner) and planning minister, Julio de Vido.

There are rumors that Mr. Lavagna is likely to distance himself from these monetary policies, and perhaps resign from his post as economy minister. This caused fear among economists and currency traders, who began frantically selling their pesos last week.

Questions:
1) Will Mr. Lavagna, remain in his post as economy minister? If not, what effect will that have on the value of the peso? What effect will that have on the Argentine economy in general?
2) If Mr. Lavagna were removed from office, what effect would that have on the upcoming financial negotiations between Argentina and the IMF (International Monetary Fund)?

Brazil Braces for Gloomy Growth Figures

By: Jonathan Wheatley in São Paulo
November 29 2005
The Financial Times

Results of Brazil’s third quarter GDP show that there is not only a decline in growth, but also that the economic figures are worse than the second quarter. This result comes following eight quarters of consecutive growth, and is particularly devastating because of current scandals surrounding vote buying and illegal campaign financing.

This set-back might result in the relaxation of current financial policies in Brazil. Although these strict policies are what helped secure Brazil’s economic stability over the past three years, other ministers, besides the minister of finance, are eager to relax these public spending policies. Specifically, there is an ongoing dispute between the minister of finance and the minister responsible for coordinating and executing governmental policy.

The largest impacts on the Brazilian economy come from the Central Bank’s high lending rates to control inflation and the increasing strength of the Real, which went from R$3.50 to the dollar, to about R$2.20 in recent times. Additionally, there has been an increase in exports, especially to China. Exports are expected to produce a R$43 billion record trade surplus this year.

Ironically, the increase in the strength of the Real has led to a delay in manufacturing in Brazil. Due to the strength of the Real, it is now more expensive to build manufacturing plants and such in Brazil, than in other countries, such as China. Similarly, foreign companies aren’t as interested in investing in Brazil anymore because of the increase in costs to them.

Questions:
1) The relatively strong performance of the economy over the past two years has helped maintain popular support for President Lula, despite the public unease over the corruption scandal. How will this decrease in economic stability fare for the president?
2) Is it likely that we have another President Collor on our hands?
3) The Real Question is: As presidential elections approach, what effect will this have on Lula’s chance at re-election?

Wednesday, November 30, 2005

India needs to develop retail marketing policy
Jo Johnson
Financial Times
http://news.ft.com/cms/s/c554b77e-6131-11da-9b07-0000779e2340.html

According to this article, India's retail marketing policy is in shambles. Some suggest that the confusion surrounding the ‘retail policy’ is actually a method to delay the advent of the foreign retailers. "Mom and Pop" stores are ubiquitous in India and employ as many as 40 million people. This is increasingly becoming a political battle - while India's Prime Minister and Commerce Minister have expressed a desire to liberalize India's retail sector, political parties such as the Communist Party of India have expressed serious reservations about such a policy. With the large number of people likely to lose their jobs if foreign retailers enter the Indian market, liberalization of India's retail sector is unlikely to occur anytime soon.

Tuesday, November 29, 2005

Barcelona Process Stumbles?

"Muslim Nations Skip Meeting With Europe"
New York Times
November 27, 2005
http://www.nytimes.com/2005/11/28/international/europe/28spain.html

This week, representatives of the European Union and several Mediterranean countries gathered for a two-day summit to discuss immigration, trade, and terrorism. The meetings were part of a ten-year initiative between the two regions, sometimes called the Barcelona Process, to build political and economic ties. The E.U. hoped further meetings would demonstrate their commitment to Muslim nations in the southern Mediterranean and neighboring regions.

However, several leaders from North African and Middle Eastern countries, who had previously indicated that they would attend this week's conference, failed to show. The Presidents of Egypt and Algeria and the King of Morocco were among the missing. "Their absence weakens European claims that their approach to the Muslim world - based on economic development, dialogue, strengthening the rule of law, and other forms of soft power - has greater credibility with the region's leaders than what they see as the Bush administration's more aggressive approach."

Exactly what these meetings accomplished remains unclear. Additionally, the absent leaders offered numerous reasons for their inability to attend, including poor health and domestic crisis. Their lack of participation may be no more than bad timing or, as the article speculates, an indication that the Barcelona Process has little to offer.

For more information on the Barcelona Process, visit http://europa.eu.int/comm/external_relations/euromed/.

Saturday, November 19, 2005

Bill and Melinda Gates Foundation Provide Funds for Medical Care in African Nations

The World Health Organization (W.H.O.), a 192 member organization and the public health arm of the United Nations, aims for “the attainment by all peoples of the highest possible level of health.” The annual budget of the W.H.O. is $1.65 billion. However, since 2000, the Bill and Melinda Gates foundation has spent over $6 billion to address Third World health issues.

Much of this money has been allocated to alleviate the damage done by rampant HIV infection and malaria. Malaria alone kills as many a three million people each year. Almost all of the victims are under five, desperately poor, and African. Twelve billion dollars, nearly 40% of public health spending, is spent in Africa each year.

In October, the foundation committed more than $258 million to the advancement of a malaria vaccine that helped protect children in Mozambique. A large portion of the funds, $107 million, of the funds will go to develop an experimental malaria vaccine and will cover the completion of testing in Africa and the licensing process, should the vaccine prove viable. A study in Mozambique has found the vaccine cut the risk of severe malaria among young children by 58 percent.

In July, President Bush announced a $1.7 billion aid package for Africa devoted primarily to combating malaria. As skeptics noted, the President has announced such initiatives before, and then failed to fulfill them. In addition, others claim that the aid package was created in part by repackaging previous pledges. As the headline of one article proclaimed, “The health of the world depends more on Bill Gates than on the World Health Organization.” Few could disagree with this statement.

Sources:
Baker, Peter. “Bush Pledges $1.2 Billion For Africa to Fight Malaria,” Washington Post, Friday, July 1, 2005.
Specter, Michael. “What Money Can Buy,” The New Yorker, October, 24, 2005.

Friday, November 18, 2005

Disappearing Middle Class

Pain in the Middle , By David Rothkopf, Newsweek International, November 21, 2005 issue

In his article, Rothkopf criticizes the international financial institutions for not using formulas that would build the middle class in poor nations. He notes that only four nations in the past four decades- South Korea, Singapore, Hong Kong, and Taiwan - have been able to move to the level the World Bank classifies as "high income nations", with per capita gross national incomes (GNI) of more than $10,066. He cites World Bank economist Branko Milanovic's book, "World's Apart" to illustrate how generally the poorest nations have gotten poorer, while the richest nations have remained rich. Political instability and civil conflict have resulted in declining incomes in the Caribbean, Latin American, Eastern Europe, Central Asia, and Africa, by placing severe constraints in planning and development. Rothkopf suggests that development institutions shift their lending from governments to the people of poor nations to "allow the ranks of the most economically vulnerable to grow."


[W]e among the privileged of the world need to recognize that even if, as Deng
Xiaoping once said, "to be rich is glorious," giving others the chance to simply
be comfortable and offer a better future for their children is the bedrock upon
which our collective futures must be built.

Wednesday, November 16, 2005

The Changing Face of Japan

Meet the new salaryman
The Economist
http://www.economist.com/world/asia/displaystory.cfm?story_id=5139195

According to this article, Japan will require the young, women and the elderly to enter the labor force given current Japanese demographics. This could dramatically change the way companies, and even cities look.

Copper prices might hit China hard

China's copper crisis
Nov 16th 2005From The Economist Global Agenda

http://www.economist.com/agenda/displaystory.cfm?story_id=5164898

The article suggests that China might be hard pressed to meet its contracts because of the rising price of copper, which, ironically is a result of its own economic success.


Basel II

The Institute for International Finance (IIF), which represents the world's largest banks, has warned that any delays in the implementation of the Basel II capital accord in the US, and inconsistent adoption in other areas, could undermine the benefits of the framework and prevent a level playing field.

The warning comes in a report released by the IIF, which represents over 320 banks worldwide.

The Basel II framework was supposed to be implemented globally by the beginning of 2008, but US regulators said in October that they would delay implementation of the rules by a year.

Daniel Bouton, chairman and chief executive of Société Générale, and chairman of the IIF steering committee on regulatory capital who wrote the report, says there is substantial concern about the different implementation schedules set for various jurisdictions.

Says Bouton: "We believe that adoption of inconsistent versions of the Accord could ultimately disrupt the successful implementation of Basel II, undermine its basic fabric and create serious level playing field issues."

Bouton also says there has not been clear guidance as to how the practical implications of staggered implementation will be addressed: "Given the current state of the Basel II implementation plans of internationally active banks, it is important that international regulators coordinate their efforts in order to provide clarity in these areas swiftly."

Last month the American Bankers Association (ABA) also expressed concern over the decision to delay implementation of the Accord, saying that US institutions will be at a disadvantage to banks that have met the agreed timeframes.

Sources:
"Banks warn over Basel delay" http://news.ft.com/cms/s/e90942ce-557f-11da-96fc-00000e25118c,ft_acl=,s01=2.html
"SG chief warns of dangers in delaying Basel II" today.reuters.com/investing/FinanceArticle.aspx?type=governmentFilingsNews&storyID=URI%3aurn%3anewsml%3areuters.com%3a20051114%3aMTFH39242_2005-11-14_18-31-43_L14256729%3a1

Monday, November 14, 2005

UN Votes Against Cuban Economic Embargo

Sources:
“Cuban Trade Embargo Going Out of Fashion” By Fang Zhou China Daily 11/14/2005
“U.N. Urges U.S. to Lift Cuba Embargo” By Evelyn Leopold Reuters 11/08/2005
“Bush Tightens Cuba Embargo” By Jim Lobe Inter Press Service English News Wire 05/07/2004

On November 8, 2005 the United States once again refused the United Nation’s General Assembly’s resolution to call for an end of its embargo against Cuba. This is the 14th consecutive year that the U.S. has refused a U.N. resolution to lift its four-decade old economic embargo.

Cuba has been under a U.S. embargo since 1961. The embargo, aimed at overthrowing President Fidel Castro’s socialist regime, has been steadily tightened in recent years.
For the past few years, the U.S. has taken measures designed to reduce the flow of money and visitors, including Cuban-Americans, from the United States to Cuba.

In May 2004, the Bush Administration also committed up to $59 million for public diplomacy, overcoming the jamming of U.S. government radio and television broadcasts to Cuba, and providing support for "democracy-building activities," including helping pro-democracy activists with training and support.

Cubans in the U.S. can only go to visit immediate family members once every three years (as opposed to previous policy that allowed the visitation to extended family once a year). Cuban-Americans or other US visitors can pay only $50 per day for food and lodging while in Cuba – down from 164 dollars a day. Cash remittances remained limited to $300 per family every three months, and the administration also further restricted the travel by students to Cuba through educational programs.

The U.N. emphasized that the U.S. trade, financial, and travel embargo, particularly its provisions that penalize foreign companies that deal with Cuba, has adversely affected the Cuban people. Cuban authorities allege that the Cuban economy has suffered $82 billion from the embargo. The U.S. is not legally obligated to follow the U.N. resolution. The U.N. margin of approval – with 182 in favor, four against, and one abstention – was the highest it has ever been. The four nations voting “no” were the United States, Israel, Palau, and the Marshall Islands. Micronesia abstained.

Critics of the embargo say that it has failed to bring change to Cuba and allows Castro to blame the country’s economic failures on the United States. Others criticize the United States for ignoring international opinion and once again isolating itself from the rest of the world.

The U.S. envoy at the U.N. General Session stated that “[i]f the people of Cuba are jobless, hungry or lack medical care, as Castro admits, it is because of his economic mismanagement, not the embargo.”




Are we living in a financial fantasyland?


The dollar is appreciating, despite the fact that the U.S. notched up a record trade deficit of $66.1bn last week (equivalent to roughly 6% of its gross domestic product). The US is financing that trade deficit by flooding the global markets with dollar-denominated assets that are snapped up by its creditors.

When you get down to it, there are only two reasons for an appreciating dollar. One is that it is going up because it is going up; the herd mentality of markets means that you do what everybody else is doing even if you think they are wrong. The second is that the markets have deluded themselves into thinking that a country that is spending one dollar and six cents for every dollar that it is earning doesn't have a problem.

The fact that the Chinese, the Japanese and the other big exporting nations of Asia are colluding in this financial fantasy should come as no surprise. A strong dollar is wonderful for these countries since it helps them to build up their industrial - and, in China's case, political -power even as American manufacturing is hollowed out.

It would be misguided of the US to believe that all sides gain equally from this arrangement; the Asians are getting by far the better of the deal, owning enough US dollar assets to buy a controlling interest in every company listed on the Dow Jones Index. As a new book by Bill Bonner and Addison Wiggin (Empire of Debt: The Rise of an Epic Financial Crisis; published by John Wiley) notes: "They [the Asians] have enough Treasury bonds to destroy the US economy on a whim."

Bonner and Wiggins argue that Americans believe they can go on spending more than they make indefinitely. "They go deeper and deeper in debt, believing they will never have to settle up. They buy houses and then mortgage them out, room by room, until they have almost nothing left. They invade foreign countries in the belief that they are spreading freedom and democracy, and depend on lending from communist China to pay for it. The imperial people choose to spend rather than to save, and to hallucinate, rather than think hard. They demand bread and circuses at home; let the Asians sweat abroad."

At some point, as Bonner and Wiggin note, the shopkeeper who keeps extending credit to a customer having problems paying the bills in the hope that he will eventually straighten himself out can end up sharing the pain. Until the crunch comes, however, it's easy to keep believing the fantasy.

Sources:
Larry Elliott, The Guardian, Monday November 14, 2005
Bill Bonner and Addison Wiggin, Empire of Debt: The Rise of an Epic Financial Crisis; published by John Wiley

China Opens Up Its Insurance Market to Lloyd's of London

During his visit to England this past couple of days, President Hu Jintao of China signed multiple commercial contracts with English businesses, one of which was the first reinsurance contract with Lloyd's of London.

It is believed to be the first time a Western reinsurer has gained entry to China's rapidly expanding market.

Other commercial contracts worth £1.3bn (£783m) were also signed during Mr Hu's state visit.
They included orders for Rolls-Royce and Airbus, and a contract for Arup to develop plans for new cities in China.

Under the deal with China, Lloyd's will be able to reinsure local currency business, which currently comprises nearly 90% of the total Chinese market. It will also provide Chinese insurers with full access to the Lloyd's market.

Reinsurance is the insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don't pay policyholder claims. Instead, they reimburse insurers for claims paid.

It has not been easy for Lloyd's to establish its presence in China, especially because Lloyd's is viewed as a market rather than a company. This has resulted in negotiations that went on for years. Solution? Have Lloyd's set up a subsidiary company in China.

"An on-shore presence will allow Lloyd's to play a broader role in China, helping to transfer major risks from the balance sheets of local insurers and providing full access, in local currency, to the capacity, knowledge and technical expertise of the Lloyd's market," said Lord Levene.

It is said that China has the potential to become as valuable as the US where Lloyd's conducts $9bn-worth of business a year, although, for now, it is doubtful that Lloyd's will make significant money in China in the next four or five years.

The reinsurance business is facing the challenges of globalization, although many of the brokerage deals are done locally. Insurance companies are under pressure from all sides, such as investors wanting a fair return for their risk, policyholders concerned about exclusions and willingness to pay, regulators demanding compliance disclosure and contract certainty. These issues are local in nature, but increasingly, new risks exposures, whether catastrophic or legal, like tsunami and terrorism, are constantly being identified. In the case of local catastrophes, global reinsurance companies have had to make enormous payment on their policies. Brits Insurance Holding estimated that claims from the hurricanes to be 37.5m pounds.

One of the major issues with reinsurance companies is to manage global capital markets with accute understanding of the local issues involved with the insurance companies that they insure. It seems like China, with its current state of legal infrastructure and market economy, will present quite a challenge to Lloyd's.

From China's perspective, Lloyd's entrance to the Chinese market will be a valuable balance to the once-monopoly of the Chinese reinsurance market by China Re. Also, Lloyd's subsidiary will provide Chinese insurance to Chinese insurance companies in Chinese currency, which will be a significant advantage for future business.

Sources:
BBC
APMC Insurance Services
FT Chinese
AON
Global Reinsurance

Open Source Software in the Developing World

Open Source Software (OSS) is a free alternative to expensive Microsoft products. The Linux (pronounced "lie-neks") operating system is the most popular OSS alternative to Microsoft Windows. OpenOffice is a free alternative to Microsoft Office.

In the developing world, cost is paramount. In this 2004 article, License fees and GDP per capita: The case for open Source in developing countries, the author computes that the cost of Microsoft Windows XP with Office is

over 2.5 months of GDP/capita in South Africa and over 16 months of GDP/capita in Vietnam. This is the equivalent of charging a single–user licence fee in the U.S. of US$7,541 and US$48,011 respectively, which is clearly unaffordable. Moreover, no likely discount would significantly reduce this cost, and in any case the simple fact that a single vendor controls any single proprietary software application means that there can never be a guarantee that any discount offered is intended to be sustained for the long term, rather than as a temporary measure used to tempt consumers into a lock–in situation at which point in time the discount can be reduced.


As a result, countries such as South Africa, India, Brazil, and China are adopting Open Source Software in their schools and government offices. (In addition to piracy). This 2005 article, Open source: Developing markets and anti-Americanism, discusses how Linux is being adapted to many different languages for these uses.

Microsoft has gone so far as to threaten legal action against nations using OSS. This article makes it clear that such threats are not appreciated abroad. Microsoft has reportedly funded a company called SCO in its ongoing lawsuits against Linux.

Friday, November 11, 2005

World Bank and Climate Change

World Bank Participates in New Climate Change Meetings
Announced November 1, 2005
http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/
0,,contentMDK:20706023~pagePK:64257043~
piPK:437376~theSitePK:4607,00.html


This week, the World Bank's Vice President for Sustainable Development, Ian Johnson, announced that he would be attending meetings in the U.K. to discuss the interplay between climate change, energy sources, and sustainable development. Mr. Johnson suggested that a new comprehensive plan, including innovative technology, insurance schemes, and strategic partnerships, could "climate proof" high population areas.

This approach seems to recognize the link between environmental quality, large-scale natural disasters, and slow-approaching climate changes. The agenda items address preventive measures, like investigating new energy sources and making building requirements more stringent to withstand changing environmental conditions, and emergency planning to make areas more resilient following climate-related disasters.

Do you think this a step in the right direction? Or just another talk? In light of this year's hurricanes, tropical storms, and the tsunami, do these agenda items have a greater chance of becoming active programs?

Wednesday, November 09, 2005

South Africa foreign exchange controls should be lifted

By Gordon Bell
Reuters South Africa
November 9, 2005

South Africa’s central bank governor, Tito Mboweni, urged the country’s Treasury to abolish what he calls “purposeless” foreign exchange controls during a recent address to a conference in Cape Town. He added, “[t]he cost of exchange control administration and the inconvenience that goes with managing (them) might not be worth the exercise."

In response to Mboweni’s comments, the rand weakened by nearly 3 cents to 6.76 against the dollar. In the country's mid-term budget unveiled two weeks ago, Finance Minister Trevor Manuel announced a further easing of investment limits for the country's banks and fund managers, but many controls remain, including for individuals.

Analysts and traders speculated that the governor's comments implied further relaxation of foreign exchange controls in South Africa's 2006 budget and that the long-term result for the currency should be positive, despite the immediate weakening of the rand.

As far as interest rates go, Mboweni also said he was against the idea of "artificially low" rates and an inflation target which was too flexible, although these steps have been urged by some to boost growth and reduce high unemployment in the continent's biggest economy. The country's targeted inflation rate has remained inside its three to six percent target for 25 consecutive months, although higher oil prices have pushed it up to 4.7 percent from a record low of 3.1 percent early this year.

South Africa's rand regained its poise on Wednesday after wobbling in response to calls from central bank governor Tito Mboweni to abolish exchange controls, taking heart from a modest recovery in the euro.

For the full speech, see http://www.reservebank.co.za

Mboweni has cautioned that the long period of lower interest rates may come to an end, and an interest rate hike may be coming for December. South Africa’s Reserve Bank must continue to closely monitor events and take necessary action to achieve the inflation target mandate, and adjusting interest rates mitigates inflationary pressures. Is it better to raise interest rates preemptively than to hike rates more steeply later on?

Tuesday, November 08, 2005

Effect of Immigration on US Wages

“Yes, Immigration May Lift Wages,” Virginia Postrel, NYT, November 3, 2005
"Rethinking the Gains From Immigration: Theory and Evidence From the U.S.," Gianmarco I. P. Ottaviano of the University of Bologna and Giovanni Peri of the University of California, Davis (The paper is available at www.econ.ucdavis.edu/faculty/gperi.)

From 1990 to 2000, the number of people working in the United States grew by more than 9 million, or around 8%, from immigration alone. What effect did all those new foreign-born workers have on the wages of native-born Americans?

In a new working paper for the National Bureau of Economic Research, two economists estimate that immigration in the 1990's increased the average wage of American-born workers by 2.7%.

Although it still relies on a highly stylized model of the economy, their paper adds two complexities that bring it closer to reality.

First, the two economists assume that businesses can make additional capital investments to take advantage of the expanded supply of workers. Companies may open new restaurants or stores, add new factory lines or build more houses.

In their model, as in the real world, "investment adjusts not to keep fixed the amount of capital but to keep fixed the return to capital," Professor Peri said. As long as businesses can profitably add new production, they hire more workers, and wages do not necessarily go down. Instead, he said, "more workers means more business."

As businesses expand, hiring foreign-born workers to do one job may also require hiring more native-born workers with complementary skills. Immigrant engineers, for instance, may create demand for native-born patent lawyers and marketing executives.

That is the paper's second refinement. It assumes that immigrants do not always compete for the same jobs as American-born workers. The two groups are not "perfect substitutes," even when they have similar education and the same occupation.

Immigrants often bring different skills to the American labor force, and concentrate on different occupations from natives. Among high school dropouts, the paper notes, the "foreign-born are highly overrepresented in professions like tailors (54 % were foreign-born in 2000) and plaster-stucco masons (44% were foreign-born in 2000)." By contrast, American-born workers make up more than 99% of all crane operators and sewer-pipe cleaners.

Sunday, November 06, 2005

FTAA & Bush in South America

“Hemisphere Meeting Ends Without Trade Consensus”
By Larry Rohter and Elisabeth Bumiller, New York Times, Published November 6, 2005
http://www.nytimes.com/2005/11/06/
international/americas/06prexy.html

“Brazil, US Look Ahead to World Trade Talks”
By Reuters, New York Times, Published November 6, 2005
http://www.nytimes.com/reuters/news/news-brazil-usa.html
“Violence flares at Anti-Bush Protests in Argentina”
By Mary Milliken and Kevin Gray, November 5, 2005
http://in.news.yahoo.com/051105/137/60vxx.html

On November 4-5, 2005, President Bush attended the Summit of the Americas in Argentina, which failed to make any progress toward setting up the Free Trade Area of the Americas, or FTAA. The Free Trade of the Americas would be larger than the European Union. As the dominant economic power in the hemisphere, the United States would benefit greatly from the absence of tariffs and other barriers on American good and services.

One reason the group reached a deadlock was because the United States and some Latin American countries are awaiting the outcome of the Doha Round of the World Trade Organization. The outcome of the Doha Round would place restrictions on regional trade agreements such as the FTAA.

Opposition to the FTAA is led by Venezuelan president, Hugo Chávez. President Chávez opposes the FTAA because he believes that it will “stifle or destroy local industry, roll back social safety nets and labor protections and permanently extend American political domination of the region to the economic realm.” Chávez is in favor of free trade among the Caribbean and Latin America.

The Mercosur (Brazil, Argentina, Paraguay, and Uruguay), the world’s third largest trading bloc, is not opposed to free trade, only the current FTAA proposal. Mercosur wants the United States to discontinue the billions it currently subsidizes to American agriculture, in exchange for Latin American concession on intellectual property rights, financial regulation, and market access.

After the summit reached a deadlock and during a 15 minute break, President Bush left early for his flight to Brazil. White House officials said the President had to leave for his Sunday meeting with Brazilian president, Luiz Inácio Lula da Silva. After the President left, other leaders, including President da Silva, departed as well.

On Sunday, President da Silva and President Bush agreed to put their differences aside in favor of global trade. Brazil and the United States are the two largest countries in the Western Hemisphere. President da Silva was elected in 2003.

Bush’s visits to Argentina and Brazil were marked with protests and rioting. Several thousand protestors in Argentina who oppose the FTAA and the U.S.-Iraq War gathered in a stadium to hear Venezuelan president Chávez speak. Chávez was joined by Argentine soccer legend Diego Maradona, who waved the Cuban flag and wore a T-shirt of President Bush under the words, "War Criminal." Also present was Bolivian leader and presidential hopeful Evo Morales. Rioters burned buildings, looted stores, and battled riot police.

In Brazil, Bush was greeted with the burning of the American flag and chants of “Invader! Tyrant! Exploiter of the poor!'' Protestors also burned a small effigy of Bush while chanting ''Bush fascist, you are a terrorist” and ''Fora Bush'' -- which means ''Get out Bush.''

Who's telling the truth? - Chávez or Bush?

The Shanghai Cooperation Organization

The Shanghai Cooperation Organization (SCO) is a nascent political alliance of Russia, China, Uzbekistan, Tajikistan, Kazakhstan, and Kyrgyzstan created in June 2001. When first established, the SCO had the original goal of fostering security ties across China and Eurasia. Now, the organization also visits trade and development issues in the region.

Given the goal of forming a pan-security-economic-political bloc, SCO holds meetings periodically to discuss issues of regional concern. On October 26, the Moscow summit was held, where all member states participated, and attendants from Mongolia, Pakistan, India and Iran observed. The Inter-bank SCO Council was created to fund future joint projects, and it is believed that the SCO would prioritize joint energy projects, including the expanding oil and gas sector, exploration of new hydrocarbon reserves, and joint use of water resources. More specifically, talks of economic development center around the construction of oil and gas pipelines, oil prospecting, development of production technologies to the use of water resources.

China has invested heavily in Central Asia to enhance its energy security. It is constructing a 1,000-kilometer pipeline from Kazakhstan's central Karaganda region to its own northwestern Xinjiang region. Expected to be ready by the end of 2005, the Karaganda pipeline will be a vital link in a 3,000-kilometer project that will link China to the Kenqiyaq oil field farther west and to the Caspian Sea.

China is also working with Uzbekistan to develop its oil fields in the Ferghana Valley and has invested in hydroelectric projects in Tajikistan and Kyrgyzstan. China also is interested in Central Asian markets. An unstable Central Asia could result in a spillover of conflicts into its already restive Xinjiang province. It has sought to secure its borders through firming up its relations with Central Asian governments. It has poured more resources into maintaining the SCO than any other member state. The American presence in Central Asia is seen in Beijing as posing a challenge to its energy security and stability.

With regard to trade, China's program of export loans to SCO states is estimated at $900 million currently.

Some observers have noted that the SCO is the new counterbalance to U.S. hegemony in Eurasia, with China and Russia being the future leaders in Central Asia. One can easily imagine that, as the SCO strengthens on the economic front, United States influence in Central Asia will have to move beyond the few military bases already established in Kyrgyzstan, and its continual presence in Afghanistan.



Sources:
The Harvard Asia Quarterly
Shanghai Cooperation Organization Eyes Economic, Security Cooperation
The People's Daily
Asia Times Online
Novosti

Friday, November 04, 2005

New Global Fund to Target Poverty

USAID and Private Investors Team Up to Create a New Fund, Targeting Poverty With Market-Based Solutions
November 3, 2005
http://sev.prnewswire.com/banking-financial-services/20051103/
DCTH07703112005-1.html


The newly announced Global Commercial Microfinance Consortium seeks to provide financing, banking services, and business expertise to small businesses and entrepreneurs in struggling economies. The fund totals $75 million, with $30 million already committed to projects in over half a dozen countries.

Amartya Sen argues, in Development as Freedom, that "[t]he far-reaching powers of the market mechanism have to be supplemented by the creation of basic social opportunities for social equity and justice" (p. 143). While this new partnership of private and public players to combat poverty demonstrates laudable international cooperation, is it enough? Does the mere combination of money and expertise provide the holistic development approach advocated by Sen?

Wednesday, November 02, 2005

Starbucks Fights Russian Trademark Squatter

A Chicago Tribune article reports on the lack of enforcement of intellectual property laws in Russia.   A Russian trademark squatter named Zuykov is demanding $600,000 from Starbucks to release the Starbucks logo.   Starbucks refuses to pay, and is fighting back.   Starbucks has won recent victories in Rospatent, the Russian trademark office.   But Zuykov threatens to open his own "Starbucks" cafe in Moscow, and he isn't too concerned with maintaining Starbucks' reputation.

"Coffee is coffee," Zuykov said. "If they don't like it, they'll leave and won't come again."

DR-CAFTA Falls Short on Workers’ Rights

By Carol Pier
Human Rights Watch.

At a port that supplies U.S. consumers with clothes and other imports from El Salvador, a group of forty-one dockworkers signed up in December to form a union. When the employer found out, it fired thirty-four of them. Unlike in the United States, these workers have no right to their jobs back under Salvadoran law for anti-union firings.
Under a regional trade pact known as DR-CAFTA, which passed the U.S. Senate and is likely facing a vote in the House of Representatives by the end of July, the weak labor laws that allow such human rights abuses to flourish could remain intact in U.S. trading partners like El Salvador. Yet the Bush administration is attempting to sell this agreement with Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua as pro-worker. Congress should not be fooled. The accord falls short on workers’ rights, and Congress should reject it in its current form.
Under existing laws that DR-CAFTA would replace, the United States can withdraw trade benefits from Central American and Caribbean countries if they do not enforce their labor laws and if those laws do not protect workers’ rights. But DR-CAFTA only has one enforceable labor rights requirement: that countries apply their own labor laws—even if they are grossly inadequate. If governments change their laws to eliminate rights, that’s okay, too, just so long as the new laws are enforced.
Equally troubling, DR-CAFTA affords women and other groups that have historically faced abuse in the workplace no protection from discrimination. Women workers predominate in Central American and Dominican free trade zones. This year, the State Department identified sexual harassment and pregnancy-based discrimination as serious problems in the region.
The Bush administration’s spin is that DR-CAFTA’s enforce-your-own-laws standard is sufficient because the labor laws in the region are fine. It claims that International Labor Organization (ILO) studies confirmed its analysis. In fact, these studies found no such thing. Instead, they identified at least twenty-seven areas in which labor laws in the region fall short of international standards, for example, by severely restricting workers’ right to strike.
El Salvador’s labor laws exemplify the weakness of workers’ rights protections in the region. Several months ago, Congressman Kevin Brady (R.-Texas), a DR-CAFTA supporter, cited a Salvadoran law allowing workers to register a union with thirty-five supporters as an example of the region’s allegedly strong labor protections. But an ILO decision says this minimum number, along with El Salvador’s other union registration requirements, are so onerous that they “seriously infringe the principles of freedom of association.”
The Bush administration claims that the real obstacle to greater respect for workers’ rights in the region is weak labor law enforcement. It cites DR-CAFTA’s Labor Cooperation and Capacity Building Mechanism, designed to help governments better protect workers’ rights, as a panacea for this problem. But DR-CAFTA does not require funding for this mechanism.
Recently, the U.S. Trade Representative, Rob Portman, promised to support $40 million a year for labor and environmental capacity building in Central America and the Dominican Republic. But this is a nonbinding pledge and only tells half the story. The other half of the story is the Bush administration’s proposal to cut by 87 percent—from $93.2 million to $12 million—the 2006 budget for the U.S. Department of Labor’s Bureau of International Labor Affairs (ILAB). ILAB is the principal U.S. agency charged with providing international workers’ rights assistance and houses the Office of Trade Agreement Implementation, the national contact point for administering the labor chapters of all free trade agreements to which the United States is party.
Other governments in the region are also withholding resources for labor rights enforcement. According to the Central American and Dominican governments’ white paper, in 2005, only half the countries in the region apparently increased Labor Ministry budgets more than the inflation rate.
Opponents of DR-CAFTA have been called many names, “protectionists” among the most common. But it is not protectionist to join a chorus of opposition from labor and women’s movements, human rights activists and ombudsmen, and Catholic bishops throughout Central America and the Dominican Republic who understand that the region’s workers will be the big losers under DR-CAFTA.
Such losers include the thirty union members fired from a baked goods factory in El Salvador in 2002. With no right to their jobs back under Salvadoran law, they accepted the severance pay due for illegal, anti-union dismissals, knowing that a successful court fight would still leave them out of work.
Rather than playing a game of smoke and mirrors, the Bush administration should renegotiate DR-CAFTA to strengthen workers’ rights protections and provide the funds to make them a reality. For Congress to oppose DR-CAFTA until it does so isn’t protectionist or anti-trade, it’s pro-human rights.

South Africa Lawmakers Pass Diamond Law Changes

By Gordon Bell
Reuters South Africa
November 1. 2005

On November 1, South Africa's national assembly approved highly controversial changes to diamond laws. The new laws allow for a state diamond trader to help lock-in wealth in the world's fourth largest diamond producing nation. The goal of the new laws is to stimulate more jewelry manufacturing by black South Africans.

De Beers, the leading world diamond producer, claims that the law will harm the industry, leading to mine closures and job losses, although it remains hopeful it can work with the government. In fact, De Beers’ largest shareholder states that the proposed law may lead to the demise of the company’s powerful marketing arm.

Under the new law, miners must first offer their diamonds to a state trader, who in turn will make the stones available to local cutters and polishers. Producers will be compelled to route their exports through a state-controlled export centre, although the minister can issue an exemption from this.

Minerals and Energy Minister Lindiwe Hendricks dismissed warnings of massive job losses because of the law, and noted that several major companies had expressed interest in investing in South Africa's processing sector once the law was passed. He further rejected the criticisms by stating, "Some of the concerns raised were valid whilst others were nothing but myths that were created by people who do not want to see the status quo changed."

The bill will now be referred to parliament's lower house and will be implemented once the finance law is approved, likely early next year. Lawmakers also approved the Precious Metals Bill, which also aims to encourage local processing and requires companies to apply for refining and processing licenses.

South Africa is the world's fourth largest diamond producing country. Currently, most of South Africa’s diamond production is exported in raw form to be cut and polished. Is this a smart move by the government to create more jobs, or is it “interventionist,” placing the entire industry under the control of the current government?

China facing a scarcity of labor?

"China's high-tech success is not patently obvious"
http://news.ft.com/cms/s/0f6a38e4-4b6f-11da-997b-0000779e2340,dwp_uuid=2aaa1c16-afc8-11d9-ab98-00000e2511c8.html
Financial Times
November 2, 2005

The author argues that China might actually be facing a scarcity of manpower, rather than a glut of it. According to the author, "China has yet to show it can turn R&D into internationally successful products. [Further, the links] between state research centres and industry are often weak. "

Democracy and economic growth

"Democracy's drawbacks"
http://www.economist.com/world/asia/displaystory.cfm?story_id=5081267
The Economist
October 27, 2005

The authors argue that India's growth is in spite of its political climate instead of because of it. As an example, the authors point to the "mountain of subsidies" and the presence of a behemoth bureaucracy.
This raises the seemingly troubling question - is democracy, despite all of its positives, really the best facilitator of sustainable economic growth and development?

Sunday, October 30, 2005

Why Is The World Bank Still Lending?

By Adam Lerrick
October 28, 2005; Page A13

The Wall Street Journal

When the World Bank was founded, its mission was, and still remains, to assist developing countries by way of capital loans with moderate interest rates. At that time, capital markets were fairly small and conservative. The World Bank would borrow from private capital markets, and in turn, would lend that money to developing countries, which did not have access to private capital markets. The Bank covered its costs by charging moderate interest rates and by the guaranteed membership of industrialized countries, which were more likely to pay off their loans and interest rates on a timely basis. The idea was that the developing country would build up its capital through projects funded by these loans and eventually be able to borrow directly from private lenders.

The problem arises once these countries are able to borrow from other market sources and no longer need the bank. The capital markets today are much broader than when the bank was created, and middle income borrowers (the bulk of the Bank’s income) are able to borrow at lower rates than the Bank is able to offer. However, the Bank continues to lend money out. As the author of this piece said, “World Bank lending is clouding the landscape and wasting resources. All that the Bank provides in a world of sophisticated financial markets is the subsidy that fills the gap between the real cost and what recipients are willing to pay.”

The Bank was designed to help poor countries, and if it insists on lending money to poor countries that cannot and will not pay, while the middle-income borrowers are getting money elsewhere, a new financial structure is needed to keep up with other existing and emerging capital markets. The World Bank needs to remember that it is in the development business, not the banking business, and thus it is much harder to compete with private capital market.

Questions and Comments:
What are the pros and cons of restructuring the financial structure of the World Bank? Would a new structure change the mission of the Bank to help poor countries? How can we, as a society, guarantee that poor countries are receiving assistance, while at the same time protecting the interests of industrialized and sophisticated countries, which necessarily foot the bill for the Bank? Will the World Bank become obsolete if it does not in fact change the way it conducts business?

Making Moves Toward the Caribbean Single Market and Economy

“St. Kitts to Begin Offering Caribbean Community Passports to Citizens”
http://aolsvc.news.aol.com/special4/article.adp?id=20051027160009990008
AP Worldview - AOL News
October 27, 2005

On October 25, 2005, St. Kitts joined Suriname and St. Vincent as the third country in the Caribbean Community (CARICOM) to offer Caribbean Community passports. This move is a major thrust towards the January 2006 launch of the Caribbean Single Market and Economy (CSME), a non-political trade group modeled after the European Union. The CSME will encourage the free movement of goods and skilled persons throughout the region. Skilled persons include university graduates, media workers, athletes, artists, and musicians.

The 15 CARICOM member states include (1) Antigua and Barbuda; (2) The Bahamas; (3) Barbados; (4) Belize; (5) Dominica; (6) Grenada; (7) Guyana; (8) Haiti; (9) Jamaica; (10) Montserrat; (11) St. Kitts and Nevis; (12) St. Lucia; (13) St. Vincent and the Grenadines; (14) Suriname; and (15) Trinidad and Tobago. Associate members include Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, and the Turks and Caicos Islands.

Citizens of St. Kitts will be able to obtain the new passport beginning November 15, 2005. The CARICOM passport is a National passport bearing the logo of CARICOM, the words “Caribbean Community”, and the Coat of Arms and the name of the issuing member state. The passports will be used for intra-regional and extra-regional travel. The Caribbean passport is one move toward unifying the region.

While other members are expected to adopt the new passport by 2007, the Bahamas and Haiti have expressed that they do not intend to participate in the CSME. The Bahamas feels that their structure and financial markets are currently attractive to foreign investment and that CSME membership and their association with some of the more inefficient member states would only weaken their economy. Supporters of the CSME feel that the trade group will enhance the region’s ability to compete with the U.S.-backed Free Trade Area of the Americas (FTAA).

As the January 2006 launch date approaches, it will be interesting to see if any other member states besides Trinidad and Barbados will be prepared to enter the CSME.

Saturday, October 29, 2005

Africa's Biggest Debt Agreement

By David White
Financial Times
October 21, 2005

On October 20, 2005, Nigeria, Africa’s most populous nation, tied up Africa's biggest-ever debt deal and set terms for its main lenders to write off $18 billion of the money it owes them. But, to receive this deal, Nigeria had to commit to paying the Paris Club nations $12.4 billion, mainly to France, the UK, and Germany. Ngozi Okonjo-Iweala, finance minister, justified the outlay, saying Nigeria might not have had the opportunity again. "We think it's a good use of the money," she said.

The debt agreement would reduce Nigeria’s risk premium, improve the country’s financial reputation, and encourage skittish investors. The deal is separate from the debt cancellation plan agreed by leaders of the Group of Eight richest countries at their July summit in Scotland, under which some African countries are due to see their debts to the World Bank, International Monetary Fund and African Development Bank wiped clean.

Earlier this week, the IMF endorsed Nigeria’s economic policy framework. Debt service savings will appropriately be channeled into water resources, power, roads, health and micro-finance for farmers, and will be monitored by the UK's Department for International Development and the World Bank to avoid diversion of funds.

Some economic experts and proponents of debt cancellation maintain that it is irresponsible for Nigeria to pay $12 billion when it is looking for money to fight AIDS, and health and education problems, among other issues. However, if the offer is not taken advantage of, the debt profile would only rise and further compromise the economic good of the country. What is in the best interest of a country that is trying to reform and re-position itself for growth?

Thursday, October 27, 2005

An Update on Agricultural Subsidies

"For France, Cutting Farm Support May Be Last Straw"
International Herald Tribune
October 21, 2005
http://www.iht.com/articles/2005/10/21/business/wto.php

Also refer to the WTO's summary of Doha negotiations relating to agriculture: http://www.wto.org/english/tratop_e/dda_e/
dohaexplained_e.htm#agriculture



The E.U. Trade Commissioner has asked French leadership to lower the country's current agricultural subsidies and import tariffs. With WTO negotiations on this topic moving again and new meetings scheduled for the end of 2005, France's efforts could help progress the WTO's goals of "correct[ing] and prevent[ing] restrictions and distortions in world agricultural markets." But what about France's concerns that eliminating domestic agricultural supports will "undermine the French way of life"?

Wednesday, October 26, 2005

Governance Matters

Every other two years, the World Bank comes out with statistics analyzing the socio-economic performance of each country. The resulting report is known as the GRICS: Governance Research Indicator Country Snapshot. The word "governance" is broken down into six indicators: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption. For a more technical discussion of the theory behind governance indicators, please go here.

I am especially interested in rule of law development in Asia, so I clicked here to see how East Asian countries were doing regarding rule of law development:


Besides comparing countries in Asia, you may also compare countries of the world, and come up with a similar chart. When I chose the countries, I selected the "10 largest GDP" (meaning the richest) and the selection yielded this nice user-friendly chart. It is indeed not surprising that Singapore and Hong Kong rank the highest, and China ranking 7th out of ten countries.

While the comparison is bi-yearly, the last one being 2004, the latest statistics came out May of this year (2005).

The percentile rank for China's rule of law indicator is 40.6%. The lowest percentile rank is Somalia, 0%. Guess which country has the highest rule of law percentile ranking?

Iceland--100%.

Can you imagine living in a country where there is 100% rule of law? (just joking, the 100% should be in relative terms, meaning that it's the most "rule-of-law-ly" country in the world--it sets the example for all of us!)

Source: World Bank.

Tuesday, October 25, 2005

The Dominican Republic-Haiti Situation

Stories from the BATEYS
(the old sugar cane labor camps)
Where Rosa considers buying a mother


By Tim Griffiths
Berkeley Student Journal

SANTO DOMINGO, THE DOMINICAN REPUBLIC — So far, I have been able to visit three "batey" communities since my arrival in the Dominican Republic. The bateys date from the heyday of the Dominican sugar industry, when the government recruited laborers from Haiti to work the cane fields and the refineries. The industry constructed these small company towns called bateys to house the workers and their families.

Because of their history, the bateys today are home to the Dominican Republic's largest concentrations of Haitians and Dominicans of Haitian descent. Not coincidentally, the bateys are also among the most marginalized, isolated and impoverished communities in the Dominican Republic. Over the next few days, I hope to send a few stories that report on my visits to the bateys and the people living there. Here is the first one:

Batey Altagracia: Rosa's Dilemma

"I need to buy a mom," said the woman.

I'm supposed to know what's going on here, but I confess that this request threw me off completely. We were standing in a small clearing in Batey Altagracia amid homes cobbled together out of wood planks, scraps of tin roofing and tree limbs - a village that is a collage. I had come to Batey Altagracia to listen to the stories of the residents and their efforts to obtain nationality documents for themselves, or for their children. Lico Augustín, a MUDHA staff member who grew up in Batey Altagracia, recommended that I speak to Rosa (not her real name), the middle-aged woman who now stood before me. Her hair was wound in tight braids around her head and she wore a long colorful sun dress. Years of constant exposure to the sun gave her skin an almost leathery look and she seemed elderly before her time. She also had no teeth, which made me wonder if perhaps I simply had not understood her correctly.

"Pardon me, señora, what did you say?"

"I need to buy a mom," she repeated, "but they're very expensive."

"I'm sorry. I'm not sure I understand. What do you mean you need to buy a mom?"

"That's what they told me in the office of the civil registry. I went to get my papers so that I could register my daughter. She's in the seventh grade. They told me that I had to have papers from my mother, but my mother died 15 years ago in Barahona. They told me maybe I could buy a mother."

"You mean that you would hire someone to pretend she was your mother, is that it?"

"Of course. But I can't afford it right now. Mothers are very expensive." Rosa pointed down the path towards some other dwellings. "Gina has the same problem. Her daughter is also in seventh grade. I'm not sure what we're going to do…"

Sadly, I don't know what Rosa and Gina are going to do either. I'm at a loss as to what to tell them. There does exist an incredibly long, tedious and expensive bureaucratic process by which they could try to get themselves registered, but it would require multiple bus rides halfway across the country, tracking down witnesses and officials (not to mention probably having to coax them into action with a few extra pesos on the side) and potentially multiyear waits for the government to process the documents. Who am I to say that buying a mother, if Rosa and Gina can somehow scrape together the cash - and if they can get away with it - is such a bad idea?

Meanwhile Rosa and Gina's daughters are a year away from having to take the National Exams that would allow them to go on to high school studies. But without birth certificates, the two daughters probably will not be allowed to take the exam. Perhaps they will drop out … and have children … who may very well also go unregistered … and so on … just another set of links in the chain of grinding poverty and hopeless government bureaucracy.

Saturday, October 22, 2005

Global Outlook on Capital Markets

The McKinsey Quarterly has stated that the total value of the world's capital assets has grown from $53 trillion in 1993 to $118 trillion in 2003. The liquidity of world assets has increased, as seen from the trend of increasing investment in equities and debt securities and decrease in bank deposits.

The United States has $44 trillion's worth of financial assets, one of the four major regions that owns 80% of all of the world's financial stock. The other three regions are the European Union, Japan and the United Kingdom.

Where is China in this picture?

Although China's financial market is relatively small and new as compared to Japan's, the McKinsey Quarterly still describes it as the world's "fastest growing," and "the country has amassed a sizable portion of the world's bank deposits."


Sources consulted:
The McKinsey Quarterly

Thursday, October 20, 2005

Child Labor and Human Rights

If, as Sen argues, the substantive basis of development is freedom, then eradicating the exploitation of children in the labor market is essential. Professor Burns Weston has just published a book calling for the eradication of abusive child labor.

In Child Labor and Human Rights, Professor Weston writes that "[l]arge though uncertain numbers [of children] toil in appalling conditions, are ruthlessly exploited to perform dangerous jobs with little or no pay, and thus are made often to suffer severe physical and emotional abuse."

The book's seventeen chapters, written by various experts, comprehensively cover the many aspects of child labor. Three chapters present case studies of child labor in Tanzania, the Philippines, and Brazil. The final chapter sets forth the "Contributor's Consensus," which provides "guiding principles and a call to action that take the human rights of working children seriously."

The book is published by Lynne Rienner Publishers. http://www.rienner.com/viewbook.cfm?BOOKID=1473&search==

Wednesday, October 19, 2005

Zimbabwe Running On Empty

By Brendan Boyle
Sunday Times (South Africa)
October 9, 2005

Zimbabwe renewed its appeal for financial assistance from South Africa after the International Monetary Fund (IMF) rejected its bid for a partial return to the global lending community.

In its comprehensive review of Zimbabwe's economic performance over the past five years, the IMF report reflects a government clinging to shreds of optimism while the country spirals towards collapse.

"After some improvement in 2004, Zimbabwe's economic and social conditions have deteriorated sharply this year," the IMF staff said in their report on a visit to Zimbabwe in July. "Without a bold change in policy direction, the economic outlook is bleak."

IMF analysts have warned that Zimbabwe’s external debt, which is already worth 67% of the current GDP, is unsustainable and would have to be rescheduled by 2010.

Some of the problems leading to the decline of the economy in Zimbabwe include:

*Gold output halved from 1998 to 2003;
*Coal production, soy and wheat acreage, cattle and pig slaughtering and milk production all halved between 1998 and 2004; and
*The manufacturing volume of foodstuffs, drinks, textiles and metals are below half their 1990 levels and the overall manufacturing index is at 58% of 1990 output.

In less dismal news, the IMP also reported that the formal banking sector is resilient, and there is a promising improvement in platinum production.

In their assessment of the staff report, the IMF's executive board warned Zimbabwe's government that failure to implement tough reforms would hurt poor people the most.

After discussing the staff report, the directors proposed a series of interventions to stabilize the macroeconomy as quickly as possible and then lay a foundation for increased domestic productivity and improved export earnings.

After repeatedly reneging on debt payments to the IMF, Zimbabwe was suspended from technical assistance and lending and came close last month to becoming only the second country ever to be expelled completely from the fund.

As the political and economic climate in Zimbabwe continues to worsen, what effect will this have on the stability of the whole region? Zimbabwe recently made multi-million payments to the IMF to reduce its arrears, and bought itself a six-month reprieve from talks of expulsion. Was this money well spent? Or, as some critics say, should the money have gone to directly benefit the 70% of the Zimbabwean population that is living below the poverty line?

Tuesday, October 18, 2005

US system for financing aid "dysfunctional"

Financial Times
Monday, October 17

Andrew Natsios, the head of the US Agency for International Development (USAID) (clever ancronym, no?), recently told the Financial Times that the way Congress allocates funding to discrete initiatives makes it very difficult to integrate aid in a coherent development effort.

Initiatives with specific goals, particularly to fight diseases, are popular in Congress and in the country. By contrast, it is “much harder” to sell the idea of funding development in general. “Development is not understood, even inside the Beltway in Washington,” said Mr. Natsios.

Natsios briefly referred to the political consequences of aid, citing the turnround in support for the US at the expense of al-Qaeda in Indonesia after its prominent role in the post-tsunami recovery effort.

Natsios said USAID was trying to get around federal funding limitations by integrating aid efforts on the ground, and was deliberately using funds mandated for specific purposes in a way that advanced development in general. “The HIV/Aids capacity building we are doing is helping to improve entire health systems,” he said.

Why does Congress prefer to to channel money into single-issue projects? Why is it also important for the US to support general development as well?

Uncertainty as Brazil Starts Oil License Auction

By Jonathan Wheatley in Sao Paulo
October 17, 2005
Financial Times

http://news.ft.com/cms/s/b6881bfe-3f2c-11da-932f-00000e2511c8.html

The Brazilian government has opened bidding for licenses to drill for oil and natural gas in some 1,134 cites, 697 of which have never been explored. This auction is being held in an attempt to increase international interest in the natural resources of Brazil. The main fear of many internal investors is that regulatory uncertainty in market for oil, and the domination of Petrobras, will have a negative impact on outside and domestic firms. Although the licenses are handed to bidders through the ministry of energy, the ministry’s power has decreased over the years as Petrobras rose as the industry leader.

What effect will these licenses, especially the licenses for the 697 unexplored areas, have on the international market for oil? Will these licenses have the effect of decreasing the price of oil, due to an increase in supply, or will the market remain stagnant?

Monday, October 17, 2005

What's the Future of China's Flexible Currency?

The discussion in the United States on China's exchange rate policy has been controversial. Earlier in the spring of this year, some U.S. legislators have threatened to impose a 27.5% tariff on Chinese imports if China remains slow in changing its exchange rate policy.

China has finally unpegged its currency in September of this year. The current discussion between the United States and China is how much the trading band is allowed to float, and the timeline for a complete floating rate in the future.

In late July, the renmenbi (RMB) was revaluated by 2.1%, in a managed float, with an allowed fluctuation of 0.3% a day. Against the euro and the yen it is about 3%. A complete floating exchange rate is not expected to come anytime soon.

The international law and policy implication of this floating Chinese exchange rate is that, while exchange rate fluctuations will ease the current trade imbalance, they also provide daily indication on the strength of China's economy. One may stop and wonder about this scenario very far into the future--what if the RMB becomes so strong and widely traded that it can be used as an international currency to pay for oil?


sources:
Richard McGregor and Darryl Thomson, China Widens Trading Band of Renmenbi, Financial Times, Sept. 24, 2005, at ft.com.

Edmund L. Andrews, Snow Shifts Its Demand on China, N.Y. Times, Oct. 18, 2005.

Foundation for the Economics of Sustainability.


Caricom rebuffed over the FTAA

Caricom Rebuffed Over the FTAA
BBC Online October 5, 2005.

http://www.bbc.co.uk/caribbean/news/
story/2005/10/051006_ftaa.shtml


In December 1994, at the Miami Summit of the Americas, the heads of state of 34 countries in the Western Hemisphere agreed to form a Free Trade Area of the Americas (FTAA) by January 1, 2005 to progressively eliminate trade and investment barriers.

The FTAA was to be the largest free trade area in the world. The FTAA would increase economic integration and remove the tariff and non-tariff barriers to the free trade of goods, services, capital and investment, benefiting people throughout the Western Hemisphere.

In November 2003, the FTAA Trade Negotiation Committee (TNC) meeting in Puebla, Mexico, reached a deadlock in negotiations. One of the main issues of conflict was agricultural subsidies. The Mercosur countries (Mercado Común del Sur, or Southern Common Markets), led by Brazil and Argentina, demanded that farm subsidies be reduced and that the issue be included in the discussions. The United States felt that agricultural subsidies should be addressed only by the World Trade Organization (WTO) and not within FTAA deliberations. The Mercosur merged in 2004 with the Andean Community to form the South American Community of Nations (SACN).

Caricom (Caribbean Community) countries agreed with the Mercosur position and requested a Regional Integration Fund (RIF) that would give special treatment to countries with smaller economies. Without the special treatment, Caricom believes it will not be able to survive the trade competition in the free trade arrangement.

The Caricom region has already been negatively affected by the large entry of subsidized agricultural products into their region from the developed world. These foreign products place pressure on locally developed goods by forcing Caricom countries to cut out subsidies for their local producers as a condition for financial assistance.

The Bush Administration in 2003 announced that it would negotiate free trade agreements with Andean nations (with the exception of Venezuela) and Panama, which many feared would undercut the FTAA process. This fear may have been realized as negotiations have not continued. Caricom countries are concerned that the draft declaration for the fourth Summit of the Americas is silent on the FTAA. Three requests to the Brazilian and U.S. co-chairs of the committee have gone unanswered.

Will the FTAA ever happen?

Exports still driving demand in south-east Asia

The Economist, October 13th, 2005
"In search of elusive domestic demand"
http://www.economist.com/displaystory.cfm?story_id=5025883

The author suggests that exports remain the primary driver of economic growth in south-east Asia, and domestic demand continues to remain stagnant. For example, exports stood at 168% of Singapore's GDP last year. The author seems to believe that for economic growth to be truly sustainable, it must, at least in part, be driven by domestic demand.

Is this a valid assumption? Is the author's belief that international trade is “fickle,” inaccurate? Finally, if international trade is fickle, why might domestic demand not be so?

New Accounting Rules in the E.U.

"Is a Clear Picture of Corporate Health Being Obscured by New Accounting Rules?"
Financial Times
October 17, 2005
http://news.ft.com/cms/s/c9fc54f2-3eaa-11da-a2cb-00000e2511c8.html


The European Commission recently developed new accounting standards (International Financial Reporting Standards or IFRS) to promote corporate transparency and allow investors to more easily compare accounting information across countries in the E.U. The new standards demand detailed public releases about the value of companies. The new system, however, has many critics, who argue that the volume and type of information requested is misleading and obscures the true status of disclosing companies.

Is there such a thing as too much disclosure? Is IFRS too complex for its own good?

Wednesday, October 05, 2005

Journal of Gender, Race and Justice 10th Annual Symposium

The Journal of Gender, Race & Justice, a publication of The University of Iowa College of Law, will host its 10th Annual Symposium on Friday, October 7 and Saturday, October 8 at the Levitt Auditorium in the Boyd Law Building. This year's topic is "Crossing the Line? Examining Current U.S. Immigration & Border Policy."

Renowned activists, documentary filmmakers, and professors from across the country will be in Iowa City discussing this timely issue. Topics for discussion include an examination of the effectiveness of border and immigration policies, the ways in which these policies work to marginalize certain ethnic groups, and an in-depth look at immigration and border policy alternatives.

Members of The University of Iowa Community are invited to attend this lively dialogue of ideas. For more information, please mailto:e-mailjgrj@uiowa.edu or visit http://www.law.uiowa.edu/journals/grj/symp.php.

Thursday, September 22, 2005

China's Model for a Censored Internet

http://www.csmonitor.com/2005/0922/p01s02-woap.html

Chinese control on the Internet has been a much-discussed issue. China definitely has a different approach to the Internet boom, than western countries, especially the United States. We can see from this article that the preference to development comes first--the Internet can provide business and power, but the perceived danger to possible democratic development against the government is just as important as a political objective in Internet development.

Jack Ma's comment on following the law and his businss approach to the use of the Internet is especially important in understanding the role of law compliance in China. When the law is favorable to business development, the incentive to follow the law is strong. What if the law clamps down on business development? Is Jack Ma going to say "I follow the rules?"