Proposed “Green” Tax Unlikely

Source: Mandelson to reject 'green' tax proposal - FT.com

Concerns are rising in Europe that Kyoto compliance costs are putting European industry at a competitive disadvantage with the United States and other nations that have no signed the environmental protocol. As a countermeasure, French officials, supported by the EU’s industry commissioner, are proposing a “green” tax on goods from countries that have not ratified the Kyoto treaty.

Petr Mandelson, the EU trade commissioner, is quick to underscore the impracticality of the “green” tax approach for two reasons. First, such a tax would be impermissible under WTO rules; non-participation in Kyoto is not illegal and cannot be punished by trade sanctions. Second, there is a practical problem in determining which goods to tax. Mandelson provided two examples: the U.S. has not ratified Kyoto, yet some individual states have equally stringent environmental standards; on the other hand, China has ratified Kyoto, but, as a developing country, does not face the same environmental requirements. Rather than a tax, Mandelson favors positive incentives for environmental compliance, including removal of all tariffs on renewable energy and clean power generation equipment.

Questions

Are signatories to the Kyoto protocol placing their industry at a competitive disadvantage? Should nations be allowed to use tariffs to compensate for voluntarily-assumed environmental compliance costs, or is that the cost of doing the “right” thing?

Holiday Hiatus

Thank you very much to all of you who have supported our Blog and who enjoy reading our weekly News and Developments postings. As you might be aware, this is a student run Blog and all the postings are made by University of Iowa law students. We are currently on winter break, and as such, the Blog will be on a short hiatus until the week of January 8th, 2007.

Thank you again for reading and see you in 2007!

Happy Holidays!

Recent Report Highlights World Bank Downfalls

Source: World Bank Study Faults Its Work in Rural Africa

According to a recent report produced by the Independent Evaluation Group of the World Bank, the bank has “too often failed to tackle effectively the deprivation in the African countryside, home to most of the continent’s poor people.” The report stated that the bank’s aid to rural areas produced poor results in about half the 48 countries it studied.

The report concluded that the bank “tended to spread itself too thin, underestimate[s] resistance to its efforts to combat corruption and patronage, and pay[s] too little attention to ensuring that economic growth improved the lot of the poor.”

Specifically, the bank has had several shortcomings in its educational reforms, although education has been Wolfowitz’s priority since taking charge of the bank in 2005. According to the report, the bank has sought to increase education in poor countries but has paid very little attention to learning outcomes. For example, in Uganda, school attendance has rapidly increased, but currently 94 students share a classroom and three students share each textbook.

The evaluation team also found that although the bank pushed for countries’ adoption of anticorruption laws, the agencies the bank helped finance to carry out the laws had little enforcement capability.

The bank’s management seems receptive to the report and states that the bank is “now more focused on improving the management of particular public services.”

Questions:
1. How should the World Bank effectively follow up on the African reforms the bank helped to implement and how much involvement should the bank have in these countries’ programs after such implementation?

2. Should the bank practice a “hands-off” approach once their funding is used to implement the programs? Or, should the bank remain heavily involved throughout the process to ensure that the programs produce the desired results?

Oil Company Leaves Peru; Is it Part of a Larger Trend?

Sources: Houston Chronicle, Occidental Washes its Hands of Peru; International Herald Tribune, Amazon Indians Say US Oil Company Should Clean Up Waste.

Los Angeles-based Occidental Petroleum Corporation announced on December 6 that it will abandon its search efforts for oil and natural gas in the remote jungles of Peru. The company sold its pumping operation to the Argentine company Pluspetrol in 1999, but even though it is not presently producing petroleum in the country, it still holds drilling rights for more than six million acres.

The company claims that its move to leave the area is purely business motivated, enabling it to focus more on its Middle Eastern and North American operations. Global energy analysts, however, believe that the decision to leave Peru is reflective of the changing political climate over the control of natural gas resources in South America, citing the governments’ control over such resources in Bolivia and Ecuador and the increasing percentage of earnings that companies are shelling out to Latin American states. In fact, in May 2006, Ecuador’s government seized Occidental’s oil operations in that country, and Occidental is still contesting that move. Given these recent events, analysts posit that oil companies such as Occidental simply are not willing to “continue to fight against a trend of nationalization that’s just going to cause them a lot of headaches.”

For many indigenous advocates Occidental’s move is a great victory, and they hope that “[b]y announcing their decision to withdrawal entirely from Peru, Occidental is setting precedent for the oil industry.” The battle with the company is not over, however, as indigenous leaders are now calling for the company to engage in extensive environmental clean-up. Leaders of the Achuar indigenous community say that Occidental has degraded the environment for the past thirty years and now must recognize its role in its restoration. The company must be held liable for its “toxic legacy,” the non-profit group Amazon Watch stated. Occidental claims that responsibility for the clean-up is with Pluspetrol as part of the 1999 purchase agreement.

Questions:

(1) What are some of the reasons against allowing oil companies to contract away their liability for environmental clean-up? Are their legitimate business reasons for allowing companies to do so, even at the expense of the people their company affected?

(2) Is Occidental's move indicative of a larger hesitancy on the part of oil companies to work in the region? What are some of the benefits of having Latin American or national companies control the oil reserves in Peru?

Update: The dollar's wild ride on the global currency seesaw

International Herald-Tribune: “Currencies: Dollar seen digging itself into deeper hole on rates”
Reuters: “Dollar little changed after selloff”
International Herald-Tribune: “Little risk for the U.S. as the dollar weakens”

Reports are mixed. The dollar continues its ride on the global currency seesaw. The dollar is bouncing back…the dollar is digging itself into a hole…speculators may buy dollars despite last week’s fears of a selloff to take advantage of typically low December values…a declining dollar is not necessarily a bad thing…

Despite conflicting views about what recent currency fluctuations mean, most reports agree that future market behavior with respect to the dollar depends on whether the Federal Reserve moves to cut interest rates to stave off inflation as expected…and whether the European Central Bank (ECB) raises rates in response to the surging euro. Another key factor is the U.S. Department of Labor’s monthly jobs report, which is expected to show a rise in November hiring, a good sign for the U.S. economy among the host of indicators showing continued slippage (e.g., the continuing trade deficit, dips in the housing market, and decreased output by manufacturing interests).

For an idea of what the actual numbers look like, here are some key currency valuations from this morning (December 4, 2006) in New York:

“The euro traded down 0.01 percent [against the dollar] to $1.3329, off an earlier 20-month low of $1.3367…[and] hit a record high above 154.10 yen before falling back to 153.78. The dollar was steady at 115.35 yen after hitting a four-month low below 115 on Friday.”

From a lay perspective it is interesting, if not utterly confounding, that the variations in value at the heart of all this speculation amounts to fractions of a cent on the dollar. However, it is important to keep in mind that what seems miniscule on a micro- level adds up on the macro- level. Fractions of cents on the dollar (or euro, or yen) must be considered in light of all the dollars (or euros, or yen) in circulation. It adds up.

Consider: The dollar has dropped 11% thus far in 2006. Nearly 4% of that fall occurred in the last two weeks. Is this good or bad? It depends. A dollar that falls too quickly and too far is dangerous for the U.S. economy, but a dollar that is weaker against the euro and Asian currencies could help with the U.S. trade deficit and by extension the nation’s currently faltering economy.

For perspective, note that the ECB doesn’t want the euro to climb too high. Strong exports--driven by a lower-valued currency—are considered by many to have been the key to the burgeoning EU economy. The moral: seek moderation in all things, especially currency values.

FOR DISCUSSION:

1. Even with a reasonably weaker dollar in relation to European and Asian currencies, the U.S. plan to improve exports and decrease the trade gap is undercut by the fact that the Chinese yuan is still pegged to the dollar. Given that China is a major U.S. trading partner and competitor, how will the U.S. be able to benefit from a weaker dollar if China does not revalue its currency?

RELATED:

See December 1, 2006 "Notes & Developments" posting, "U.S. dollar ahead in global currency limbo..."

EU partially halts talks with Turkey

Source: EU to 'part freeze' Turkey talks - CNN

Citing Turkey’s failure to open its ports, the European Commission recommended this past week to partially suspend talks (8 of the 35 policy areas composing the talks are to be suspended) with Turkey regarding its possible membership in the EU. It additionally said that no policy area talks will reach resolution until Turkey followed through on its commitments to open its ports to traffic with Cyprus.

A senior EU official said a strong message needed to be sent to Turkey that it needs to meet its obligations; EU foreign ministers will make the ultimate decision on December 11th when they convene. Unfortunately, experts believe the Commission’s move will fail to sway Turkish officials on their stance against Cyprus.

Analysts in Turkey fear that suspension of talks will negatively affect the reform process in Turkey. Turkey offered to open its ports to Cyprus contingent on the EU pledging to put an end to the economic isolation faced by Turkish Cypriot in northern Cyprus – that isolation being chiefly caused by the Greek Cypriot government in Nicosia.

Question:

- Will a failure of Turkey and the EU to reach a compromise on the issue over Cyprus cause more instability in the region?

Economic Growth Outlook 2007 is Grey for South Korea

Sources: South Korea Braces for Slowdown, 2007 Growth Outlook Dimmer on Weak Demand, South Korea May Cut Down Growth Target for 2007 on North Korea Risk

The Organization of Economic Cooperation and Development is predicting a slow down in South Korea's economic growth in 2007, blaming it mainly on a slump in private spending and exports. The report states that weak corporate earnings has led to lower bonuses and sluggish private spending since the middle of 2006. The predicted growth rate is 4.4% for next year, down from 5% this past year. The Vice Finance and Economy Minister Bahk Byong-won reported that the job growth rate has not been as fast as expected coupled with a disappointing gross national income growth rate, which altogether contributes to a grey outlook for consumption rates in the near future.

Of course, the biggest grey cloud over South Korea's economic health for the New Year has been the nuclear stand-off with North Korea. Economists had said that uncertainty and concerns that North Korea could be preparing for a second nuclear test could dampen the business outlook to the extent of having a negative impact on the overall economy. Due to these and other unexpected factors, the Finance Minister has had to revise and downgrade his economic growth target and forecast to reflect the new pessimism that has taken hold of the nation since the nuclear issues first made news.

However, some analysts are looking to several factors that may help South Korea make this slump short-lived. For example, decreasing oil prices and a stabilized exchange rate will help corporations to cut back on losses. In addition, Korea's increasing focus on information technology technology and communications products along with its trading ties with China may help speed up the exporting rates.

Questions:

1) What measures can South Korea take to better brace itself in the case of increasing intensity in the nuclear conflict with North Korea?

2) How can the government help businesses to pick up and also encourage domestic spending? Should it implement strategic budget spending or tax incentives to these ends?

3) Have the sluggish U.S. economy and the increase in global interest rates also played a part in the economic slow-down of South Korea? In what way?

Islamic Development Bank Poverty Alleviation Fund to Help African Countries

Source: Islamic Bank proposes $10bn poverty fund - Thetidenews.com

Recently, the Islamic Development Bank (IDB) announced that it was setting up a Poverty Alleviation Fund totaling ten-billion-dollars.

This fund will be used to alleviate poverty in the Organisation of Islamic Conference (OIC) member countries, especially Africa. Kuwait and Saudi Arabia have already pledge 300 million and one billion dollars respectively to the fund. The balance will come from other member countries.

The fund should be up and running by the middle of 2007. And the fund will be operated within the framework of the Millennium Development Goals (MDGs) targets. Special focus will be on primary education, health (including malaria and HIV/AIDS), infrastructure, and agriculture. In addition, the fund will be targeted to micro-finance, small businesses and emergency assistance, recovery and reconstruction.

The IDB has annually committed over four billion dollars for development projects and since its inception in 1975, the bank has approved more than 50 billion dollars for development needs.

Question:

How can the IDB ensure that the fund is used to achieve the MDGs?

Africa May not Meet Millenium Development Goals

Source: Annan calls for concerted efforts at Africa's development - Thestatesmanonline.com

Busumuru Kofi Annan stated on Thursday that even though Africa has come a long way the continent as a whole is falling behind in the race to reach the Millennium Development Goals (MDGs). Annan stated that developing countries, international donors and the United Nations must pitch in together to enable these goals to be met.

The MDGs aim to eradicate a number of social ills. The goals include a fifty percent reduction in poverty and hunger, universal primary education, increased gender equality, a two-thirds reduction in child mortality, a reduction in the incidence of malaria and HIV/AIDS, and a fifty percent reduction in the number of people who do not have access to drinkable water. All of these goals are to be accomplished by 2015.

Annan stressed the importance of the developing countries themselves living up to their commitments. He stated that the way to accomplish this is for these countries to adopt specific comprehensive national strategies and implement them.
However, Annan also noted that developed and middle-income countries need to be involved as well. According to Annan, where developing countries have adopted such strategies, developed and middle-income countries need to live up to their commitments to help with the implementation and success of such strategies.

Angola Seeks Membership in OPEC

Sources:
Angola Set to Join OPEC Oil Group
Oil Helps Angola but Poverty Rife
Angola Angles for OPEC Membership

Angola has approved a plan to join the Organization of the Petroleum Exporting Countries (OPEC). OPEC is an international organization made of eleven oil producing nations. Its mission is to "coordinate and unify the petroleum policies of member countries; and to ensure the stabilization of oil prices in order to secure an efficient, economic, and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital to those investing in the petroleum industry." OPEC’s eleven current members are Algeria, Indonesia, Iran, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, Venezuela, and Iraq. Angola would be the first country to join OPEC since 1971. The country hopes to join by March 2007, a move that may counter Middle East control of the organization.

Angola is sub-Saharan Africa’s second biggest oil exporter, behind Nigeria. In 2005, Angola’s oil revenues boosted the country’s economy by 18%. The country now produces 1.4 million barrels of crude oil per day and is expected to produce even more next year.

Angola believes that membership in OPEC will give the country more influence on the world stage. Joining OPEC, which should be a formality, will also boost the prestige of Angola’s President, Jose Eduardo dos Santos.

Angola is trying to rebuild its economy four years after the end of civil war that last 27 years. Most people survive on $2 per day. Angola’s economy is highly concentrated in a few sectors. Apart from oil, construction, distribution and diamonds, other commercial activity is limited. The IMF has previously requested that Angola improve transparency regarding its oil sector.

Question: Should Angola join OPEC or remain independent, as Washington urges?

Chinese Migrant Workers Causing Paranoia Among Russians

Sources: Fears Grow of Chinese Entering Russian East, Diplomats Talk After Migrant Brawl in Russia

In 2000, President Vladimir Putin warned that if the migrants from east asian countries kept flowing into Russia for work at high rates, then it would just be a matter of time before large parts of the population of Russia would be speaking Japanese, Chinese, and Korean. These fears are being voiced during a time when Russia and China have been working diligently on forming closer ties. In the past few years, their relationship has improved by an economic inter-dependence: China is a main supplier of weapons to Russia and Russia has promised to build gas and oil pipelines to supply China. Yet it has become a common fear among Russians these days that the Chinese are flooding into Russia's sparsely populated areas by the millions.

Recent studies have shown, however, that in fact almost twice as many Russians are granted visa by China than the other way around. This indicates that what some have perceived as a great influx of Chinese into Russia is actually a problem of declining population due to Russians leaving. Russian leaders have identified the far east areas of Russia has having problems retaining their populations because of a lack of business development, among other things. At the same time, Russia has recognized that the Chinese who are living and working in these areas are vital to their economies. Chinese traders set up giant markets where they sell to the Russians every kind of good imaginable. The Russians who employ them for wages much lower than they can get their fellow Russians to work for value these Chinese workers highly. In any case, the seemingly high ratio of Chinese to Russians in these areas have been a cause for much tension between the migrant workers and Russian police. Russian police often harass the Chinese workers, who must bribe them with money and favors. There have also been break-outs of fights and riots between Chinese workers and Russian police. The situation has given birth to a paranoia on the side of the Russians, whose leaders vow that "Chinatowns" in Russia will not be tolerated.

Questions:

1) One of the major worries that Russians have of this situation is that it seems the Chinese are able to reap benefits from it to a much greater extent than the Russians. What kind of deals can Russia make with China so that it can increase its benefits as well? What is it about the infrastructures if each country that lends to a one-sided gain?

2) Who would suffer more between the two countries, and in what way, if Russia were to limit the influx of Chinese migrant workers?

3) How can the Russian government calm the reactionary nationalism the country is experiencing as a result of this tension with China before it stokes violence, or else channel it in a way that can be productive?

Meltdown in Mexican Congress ends with inauguration

AP: "Mexican legislators brawl before inauguration"
Univision: "Calderon asume presidencia de Mexico"

Politicians in general—and legislators in particular—are often cast as corrupt, out-of-touch, self-interested, and boring. However, it is not entirely unusual for the legislative arena to become rather heated...and anything but boring.

Fistfights have erupted in a number of national legislative bodies around the world throughout history. Included among these are two instances in the United States (in 1856 and 1902, both involving members of the South Carolina delegation) and more recent occurrences in the Ukraine (in 2005 over WTO reforms), Zimbabwe (in 2004 during debate), and Taiwan (in 2003 over national defense funding).

The most recent parliamentary brawl to take place occurred in Mexico City. The catalyst: the much-contested impending inauguration of President-elect Felipe Calderon. The 3-day parliamentary breakdown was only the latest culmination of controversy surrounding Calderon since his narrow victory over leftist candidate Lopez Obrador.

Legislators opposed to Calderon began the standoff n Congress—an attempt to prevent the inauguration—which deteriorated into a series of scuffles between opposing party members. Calderon was eventually inaugurated in a short and stealthy proceeding before the Congress, as required by the Mexican Constitution.

Those opposed to Calderon fear that he will seek to privatize Mexico’s nationalized oil industry. The subject is a sensitive one because the nationalization of the nation’s oil resources in 1938 is a point of national pride in Mexico. The formation of PEMEX (Petroleos Mexicanos) is celebrated by Mexicans as a victory in ensuring that Mexico would control – and enjoy the benefits of – her natural resources. An amendment to that effect was also added to the Mexican Constitution in 1960.

FOR DISCUSSION:
If a major goal of the opposition to Calderon is to ensure that Mexico’s oil industry is not privatized, do you believe the parliamentary standoff was effective in demonstrating that Calderon lacks the imprimatur of the political machine—as well as the Mexican people—in any privatization scheme involving PEMEX?

U.S. dollar ahead in global currency limbo...

Globe and Mail: “Struggling U.S. dollar triggers currency concerns”

FOX News: “Dollar Continues Swoon After Weak Economic Data”

It’s not a game any currency wants to be winning, but the United States dollar appears to be showing the world “how low it can go.” The dollar is currently at a 14-year low against the British pound and a 20-month low against the euro.

The Institute for Supply Management (ISM) released its survey of national manufacturing interests in the U.S., confirming a continued slowdown in the U.S. economy. Analysts reported that European currency is an increasingly attractive investment these days and that the prevailing mentality is not only to avoid buying dollars, but to sell.

Reports also indicate that China, an increasingly powerful player in global financial markets, may have played a role in the recent and sudden weakness of the dollar by indicating last week that it may begin liquidating its $1 trillion investment in U.S. dollars based on fears that holding so many dollars—China is the single biggest investor in U.S. currency—is not a “winning” investment strategy. In anticipation of such a move by China, Russia, Middle Eastern nations and other investors in the dollar have already announced plans to cut their holdings of the currency.

While China has yet to act or announce plans to liquidate dollar holdings, the possibility and its potential repercussions have made investors nervous. One outcome looming should China follow through on a dollar-dumping strategy: The dollar will plummet, as will the Chinese yuan, which is still “pegged” to the dollar. Other currencies (e.g., the euro, pound, yen) will rise accordingly. Some analysts fear that in the long-term this situation could lead to “trade chaos.”

FOR DISCUSSION:
The lead player in this problem is the United States, a wealthy, developed country that appears to be having fiscal problems resulting in drops on currency value that are further exacerbated by concerns about the wisdom of continued investment in the currency.

While institutions like the International Monetary Fund (IMF) traditionally provide aid and advice to developing countries, it is arguable that the U.S. is—or will be at some point in the not-so-distant-future--in need of fiscal policy advice to resurrect and/or stabilize the dollar.

Are the IMF and World Bank capable of addressing and/or responding to global trade and monetary issues that find their source in a developed country?

How amenable would the United States be to accepting advice regarding fiscal policy from the IMF and/or World Bank?

Does the United States already exercise too much control over these institutions—politically and financially—to be able to benefit from the expertise they provide to less entangled nations?

Given the effect that financial destabilization of the U.S. would have on global trade, what role should other nations--or international organizations--play in ensuring that the current situation does not grow worse, escalating into long-term "trade chaos"?

Zimbabwe Budget and the Economic Crisis

Source: Zimbabwe budget unlikely to ease economic crisis - Reuters.com

Zimbabwe is planning to release its budget this week. However, analysts say that the new budget will unlikely help the economic crisis that is currently plaguing the country.

The Zimbabwean economy has shrunk 40 percent over the last six years and inflation has shot up to 1,070 percent. And it is predicted by the International Monetary Fund that it will rise to over 4,000 percent in 2007. In addition, the budget deficit, which was predicted to drop to 4.6 percent of GDP from 5 percent in 2005, is likely to be off target after the government adopted a supplementary budget in July 2006 which was three times the original 2006 budget.

Experts say that the country is doomed if it doesn’t fix certain problems. These problems include private property rights, government firms that run at a loss, and black markets in which the US dollar is selling at over six times its official value. In addition, the country is suffering from a food shortage, a high unemployment rate, and a lack of fuel and foreign currency.

Questions:

What steps should be taken to address these problems?
Are there certain problems that should be dealt with before others?

“Call of Nature” Business Opportunity in Nigeria

Source: Answering the call of nature in Lagos - BBC.com

The continent of Africa is becoming a less risky place to do business. Because of this, many inhabitants of the continent have discovered business opportunities and have successfully taken advantage of them.

Isaac Durojaiye of Nigeria has found a way to benefit by providing public toilets. Nigeria has a population of over 130 million, but only had about 500 public toilets in the entire country when Durojaiye decided to start the business.

Durojaiye named this business Dignified Mobile Toilets. The business charges approximately 20 Nigerian naira per usage and each toilet gets about 100 uses per day. On average the business generates $15 a day in profit.

Dignified Mobile Toilets also charges for advertising on the toilets themselves. The business generates 25% of its revenue from this advertising. In addition, the company plans to implement a program of recycling the waste collected to generate bio-gas, electricity and fertilizer for farmers.

Question:

What other business opportunities may be available in Africa that may not have been available past due to the risky business environment of the continent?

Ecuador's Post-Election Bond Risk

Sources: Bloomberg, Ecuador Bonds Riskiest, Credit-Default Swaps Indicate; BBC News, Ecuador Leftist Correa Leads Vote.

Leftist-candidate Rafeal Correa declared himself the winner of the Ecuadorian presidential election on November 27, garnering sixty-seven percent of the vote with just slightly over fifty percent of the ballots counted. Upon that declaration, Ecuador became the riskiest country in the world for bondholders, surpassing Lebanon (#2) and Argentina (#3). There are many factors that contribute to the risk of a bond, including the bond quality, or the likelihood that the issuer will be able to pay back the bondholder. The greater the likelihood that the bond will be paid on time, the higher the quality of the bond and the less risk involved.

Ecuador’s increased risk stems, in part, from Correa’s recent announcements that he would consider defaulting on much of the country’s $11 billion sovereign debt if elected. See Ecuadorian Presidential Candidate Plans to Cut Ties with World Bank and IMF and Ecuadorian Candidate Creates Unease Over Debt. Additionally, despite the increased risk for bondholders, Correa seems to care very little; “[i]f country risk goes up because of speculators worrying over ability to pay the debt, I don't care . . . The country risk I care about is children suffering.”

Ecuador’s risk is evaluated based on the cost of credit-default swaps. Credit-default swaps are “financial instruments based on bonds and loans that are used to speculate on [an issuer’s] ability to repay debt.” Essentially, they protect bondholders by allowing the holder to buy insurance against the default of the third party, in this case Ecuador. If Ecuador defaults, the bondholder will be able to recover the face-value of the bond because the party providing the insurance will have to buy the bond from the holder. The cost of credit-default swaps increased fifty-five percent from $313,000 to $483,000, the increase in price indicating the perception of the quality of the bond is declining.

Question:

(1) What are the disadvantages for Mr. Correa of not paying attention to the country’s risk rating, if any? Are there problems with measuring risk by the credit-default swaps? Are they accurate measures?

China and Pakistan Forge Ties

Sources: CNN Financial Times

China and Pakistan have agreed to cooperate on various fronts: military, economics, trade, energy, and anti-terrorism. Chinese president Hu Jintao and the Pakistani leader General Pervez Musharraf outlined a “30-point joint statement,” which included an increased effort to boost trade, military cooperation, regional instability, etc. Most importantly, this visit and cooperation agreement assures that China is abandoning a traditional rival as China and India have begun to build a relationship. Hu stated in a national address that China’s relationship with Pakistan are “higher than the Himalayas.” On the Pakistani side, a notable leader stated: “If there is one country in the world that Pakistan trusts completely, it’s got to China. Pakistan is anxious to build up ties with China, which it sees as the world’s most important ascending political, military, and economic power.”

China agreed to assist Pakistan in its efforts to continue its nuclear program—somewhat in an affront to the United States who has recently made similar agreements with long-time Pakistani rival, India. However, Hu pledged to help the nuclear power Pakistan resolve its longstanding conflict with India, especially over the Kashmir region.

Moreover, the trade agreements are projected to boost bilateral economic activity to at least $15 billion—a threefold increase from current levels of trade.

Finally, China and Pakistan have embarked upon some ambitious defense agreements. The two nations have been working on a joint fighter aircraft—known as the FC-1 (in China) or the JF-17 (in Pakistan). Furthermore, the two countries have embarked on a “joint development airborne early warning and control system” aircraft, as well as develop a “state of the art Defense Electronics Complex,” to be run jointly run by Pakistani and Chinese defense groups.

Question: With growing US cooperation with Pakistan on military/anti-terrorism affairs, how may these new agreements between Pakistan and China, the greatest “threat” to US economic superiority, affect cooperation between the US and Pakistan?

Ecuadorian Presidential Candidate Plans to Cut Ties with World Bank and IMF

Source: Ecuador's Correa vows to slash World Bank, IMF ties

Ecuadorean presidential candidate Rafael Correa announced that if elected, he plans to buy back and restructure the country's debt with multilateral organizations, including the World Bank and International Monetary Fund (IMF). Correa told foreign reports that “with the extra oil revenues, we have the capacity to buy back our debt with the IMF. But I insist, I would even be willing to issue more expensive debt to pay off the IMF because it has done us so much harm.”

His plan is fueled by his goal “to minimize ‘harmful’ ties” with the organization. In order to do this, Correa says he will seek “an extension of maturities so we [Ecuador] can pay them until the last cent.” Correa also promised that if elected he plans to renegotiate oil contracts to significantly increase the amount of crude Ecuador receives from private oil companies.

Correa’s competition for presidency is Alvaro Noboa, the country's richest man, who is currently leading, according to recent polls. Noboa has hinted that he plans to swap more expensive debt for cheaper bonds at better terms, but he has not given many more details on his debt policy.

Questions:
1. Correa’s promises to restructure Ecuador’s foreign debt and boost social spending to aid the country’s poor majority have rattled Wall Street. What global effects can you foresee if Correa wins the presidency and follows through with his plans?

2. What concerns the United States and other global financial leaders regarding Correa’s plans to sever ties with the World Bank and the IMF? How much of an impact would this have on these institutions?

EU to Expand Regional Influence

Source: EU to work harder at being a good neighbour - FT.com

Benita Ferrero-Waldner, EU External Relations Commissioner, is expected to unveil an upgraded “neighborhood policy” this week. The proposal includes several new initiatives designed to improve relations between Europe and its neighbors to the east and south. In particular, the neighborhood includes countries in the Caucasus, Middle East, and Western Sahara that have little chance of joining the EU anytime soon.

Ms. Ferror-Waldner’s plan has several goals. She seeks comprehensive free trade agreements with neighboring countries that cover non-tariff barriers. She proposes a simpler visa regime to facilitate travel to and from Europe, but, in exchange, expects more help from neighboring countries to battle illegal immigration. She asks that Europe set aside 1 billion Euro to fund investment in the neighboring countries to promote governance and democracy. Finally, she believes that Europe must do more to help in regional conflicts in the neighborhood area, including peacekeeping operations, to protect Europe’s interests, such as potential refugee crises, energy disruptions, and terrorism.

Questions:

Is the EU’s plan to expand its influence into neighboring countries a good idea? Will the EU’s efforts to stabilize these countries create goodwill or engender greater conflict?

EU and African Nations Adopt Joint Declaration on African Migration

Sources:
Funds Cloud Africa Migrant Talks
Gaddafi: Migration ‘inevitable’
EU Back Away from Migration Fund

Ministers from more than 50 countries in Europe and Africa attended a two-day conference in Libya aimed at finding a common stance on both legal and illegal immigration. The delegates sought ways to address issues like the protection of refugees and joint border patrols. The two day meeting is the first of its kind to be held on the issue.

After two days of talks, a joint declaration was adopted aimed at curtailing the flow of illegal migrants to Europe. The ministers have pledged to cooperate to tackle illegal immigration through development and border control.

“Illegal or irregular immigration cannot be addressed solely from a security perspective,” European and African leaders said in the joint statement.

Side-stepped from the declaration were African calls for a special multi-billion dollar fund provided by the EU. African ministers said that such a fund would finance development projects to prevent young Africans seeking a better life in Europe. Libya called on the EU to give Africa $10 billion per year in development projects to prevent people from leaving their countries. Libyan Foreign Minister Abdelrahmane Chalgham said the development money was needed to combat poverty, which was fueling migration, and the problem could not be solved by repressive measures alone.
Morocco proposed a “joint fund with voluntary contributions” to develop projects in African countries, but its Foreign Minister Mohamed Benaissa said European representatives were not keen.

Finnish Foreign Minister Erkki Tuomioja, whose country currently holds the EU presidency, stressed that “the EU’s commitment to African development is total.”

Both Libya and Morocco, main staging posts for migrants leaving Africa, have called on the EU to ensure that tighter border controls are complemented by development projects in African states. Europe has repeatedly asked these two countries to tighten their borders.

This year, Spanish authorities detained 28,000 people in the Canary Islands, while 16,000 were held on the Italian island of Lampedusa.

Questions:
Libyan leader, Muammar Gaddafi, told African and European government ministers that resisting migration "is like rowing against the stream". Is he right in that cross-border migration is inevitable? Should Europe accept the migration? If not, how should Europe and Africa deal with increasing migration?

Nasdaq attempts to takeover London Stock Exchange

Source: Mayor joins fight to halt Nasdaq bid for London - Guardian

The UK’s Office of Fair Traiding, at the behest of London’s Mayor, Ken Livingstone, is set to investigate a takeover bid by the U.S. based Nasdaq of the London Stock Exchange. The London Mayor believes there is reason to refer Nasdaq’s £2.7bn offer over to the Competition Commission – a commission with the power to completely block the proposed take-over.

The Mayor further believes that, given the fact that the NYSE, Nasdaq and the LSE represent a major part of the world’s stock exchanges requires a serious inquiry into such a bid – a bid that would significantly reduce competition amongst stock exchanges. Experts believe that the bid was prompted by America’s loss to the LSE of several foreign listings as a result of the crippling US rules under Sarbanes-Oxley (a Federal law passed in response to several corporate and accounting scandals, such as that with Enron). Livingstone further fears that the LSE would not be able to avoid heavy-handed American regulation.

Meanwhile, the LSE is seeking allies to thwart the potential takeover by the Americans, including OMX of Sweden. According to Livingstone, this year the LSE “raised £22.3bn in [listings of new companies]” compared to just £6.4bn raised by Nasdaq.



Question:

- Would an American takeover of the UK’s LSE prove to be more beneficial than harmful? If so, would it benefit mainly Americans, or those involved from all sides?

China: Growing Gap Between Rich and Poor

Sources: China's Poorest Worse Off After Boom, In China, Growth at Whose Cost?

A recent study presented to China by World Bank economists shows that China's fantastic economic growth has come at the expense of China's poorest. For instance, the analysis revealed that between 2001 and 2003, the income of the poorest 10% in China fell by 2.4% while that of China's richest rose by an impressive 16%, and the economy as a whole grew by a rate of 10% per year at the time. Those 130 million Chinese at the bottom 10% earn $1 or less per day, which is the World Bank's global benchmark for poverty. Analysts are not sure yet about the reasons for the widening gap.

Bert Hofman, the World Bank's chief economist in China, reports that the majority of China's poorest seem to be only temporarily poor, losing footing after a set-back such as sudden illness or unemployment. This supports the speculation of some that the study is showing the natural consequences of the reforms China employed to transition the economy out of state control, many of which entailed sacrificing much of its social-welfare system. Some believe that the situation in China will shed much light on the "trickle-down" theory of economics, which formed the basis of China's former President Deng Xiaoping's plan to rise China out of the state of poverty it suffered under Communist principles. Nearly thirty years later, this study seems to suggest that the theory that in the process of lifting an entire nation out of poverty, "some must get rich before others," requires a much more subtle analysis.

China's current president, Hu Jintao, has made narrowing the gap between the richest and poorest central to his economic policies.

Questions:

1. What kind of policy reforms can China employ to narrow the income gap between the richest and poorest?

2. Should China redefine its standards for "poverty"? Should it take the World Bank's advice and spend more on health care, pensions, and welfare programs? Will this solve the problem?

3. Only 20%-30% of China's poorest are "long-term" poor. Do you think that the fact that most of the poorest in China are only temporarily poor is significant with regards to the value and the implications of this World Bank study?

Egyptian Bloggers Detained by Police

Source: Egypt Arrests Another Blog Critic - BBC.com

Cairo police have recently detained a blogger who has been commenting on governmental affairs in Egypt. The blogger, Rami Siyam, was detained along with three friends after leaving the house of a fellow blogger late at night.

According to BBC Arab Affairs analyst Magdi Abdelhadi blogging in Egypt, where democratic freedoms are severely constrained, is strongly connected with political activism. Specifically, in recent times, bloggers have been commenting on the sexual harassment of women at night, in full view of police who do nothing to stop the assaults.

A recently detained blogger, Abdel Kareem Nabil, was charged with disrupting the public order, inciting religious hatred and defaming the president.

Debt Relief for Five Latin American Countries

Sources: Miami Herald, Bank Pardons Billions in Debt; Bloomberg News, Bank to Forgive Latin America of $3.5 Billion; Inter-American Development Bank, Press Release.

The Board of Governors of the Inter-American Development Bank (IDB) reached an agreement on debt relief for Bolivia, Guyana, Haiti, Honduras, and Nicaragua on November 17. The debt pardon is aimed at helping the countries meet the United Nation’s Millennium Development Goals (MDG), aspirational standards aimed at decreasing global poverty by 2015. While the details of the agreement have not been fully outlined, the Board will meet again in January to decide on the specific terms of the forgiveness.

Currently, one of the issues that the group must resolve is when the loan forgiveness period will begin. A later cut-off date will result in a larger debt forgiveness package, and bank officials have estimated that establishing a December 2004 date will provide a net pardon worth $3.5 billion. This proposal would provide Bolivia with $768 million in debt relief, Guyana with $365 million, Haiti with $468 million, Honduras with $1.1 billion and Nicaragua with $808 million. An earlier loan forgiveness start date will result in approximately $2.1 billion in relief between the five countries. Under the terms of the program, in order to take advantage of the agreement, the countries will have to get the International Monetary Fund’s (IMF) approval for their particular economic program. Presently, Haiti is the only country that has not done so.

IDB officials said that there was initial resistance to the loan forgiveness in Latin America because of “concerns that the write-off would weaken the IDB’s ability to provide subsidized loans in the future.” This was particularly troublesome given the fact that the IDB is the biggest loan provider in the region. Initially, Latin American countries were looking to wealthier nations help pay for the debt relief, but in the end, the IDB decided that it was strong enough to take the financial hit. At the meeting in January, the IDB will discuss ways in which it can replenish its funds to continue to provide loans. Throughout the process, the United States was a strong advocate of the loan forgiveness and is pushing for the later cut-off date so that the net worth of the pardon is maximized.

Questions:

(1) What are some of the reasons that the United States was such a vocal advocate for the loan forgiveness? What role, if any, does the fact that Bolivia has been extremely critical of the U.S. government play in the U.S. administration’s choice to push for the financial pardons? In the same vein, did the recent election of left-wing Daniel Ortega in Nicaragua influence the decision of the U.S. government?

(2) What are the benefits of loan forgiveness? What are the downfalls? Is there a fear that the effect of the loan forgiveness will not “trickle-down” and help those who most need it? Would a better way to help these countries meet the MDGs be to spend the money on specific aid projects?

For more information on debt forgiveness see University of Iowa Center for International Finance and Development Briefing No. 1: Debt Forgiveness.

G20 Meeting Results in Push for IMF and World Bank Reforms

Sources: Finance Ministers Hone In On IMF Reform
Turkey's Voting Quota in IMF to be Increased
IMF Managing Director Rato On Turkey
G20 to continue pushing for IMF, World Bank reform

Today concluded the annual meetings of the G-20 (Group of 20 nations, including Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United States, and the European Union). Finance ministers and central bankers of these countries, as well as representatives from the World Bank and the IMF, met in Melbourne, Australia over the weekend. Today, the agenda focused on IMF reforms announced at the conclusion of the IMF/World Bank meetings in September, including IMF members voting to increase quotas (voting power in the IMF) to China, Korea, Mexico, and Turkey.

Today, the G-20 leaders promised to maintain pressure on the IMF and World Bank to continue reforms in order to “better reflect the global community.” According to Australian Treasurer Peter Costello, the current compositions of both groups reflect the post-World War II environment during which they were established. He states that they “will only be valuable as institutions if they represent the world as it’s become, not the world as it was,” which includes giving “key emerging markets a greater voice and developing countries, particularly in Africa.” Collectively, the G-20 released the following statement: “A strong, credible IMF and reflects today’s global economic realities is in our shared interest.”

IMF Managing Director Rodrigo de Rato spoke during today’s meetings. After agreeing on quota increases for the four emerging countries, Rato said that the next step will be for the IMF “to agree on a new quota which is transparent and simple.” Rato also mentioned that other countries’ voting power will likely be increased later in order to stabilize the changing global economy.


Questions:
1. Will G-20 support for the increased quota reforms and pressure resulting from this weekend’s annual meetings encourage the IMF and World Bank to make further, more liberal reforms?
2. After China, Korea, Mexico, and Turkey receive their increased voting power in the IMF, which “emerging” nations are likely to be next to receive higher quotas?

APEC Meetings Update

Sources: CNN Bloomberg BBC

In the most recent meeting of Asian leaders in Vietnam, the leaders “vowed to revive moribund world trade talks” in a statement issued Sunday. World Trade Organization (WTO) talks ended in July after strong disagreement over subsidies. The talks ended in July over farm subsidies, but expressed willingness to compromise. The U.S. has not expressed a similar sentiment as the Americans and Europeans disagree on how to reduce agricultural farm subsidies. This is key for the Asian nations because APEC members account for half of the world’s global trade, and have claimed that “the consequences of the failure of the Doha round would be too grave for our economies and for the global multilateral trading system.” The leaders called restarting the Doha trade talks as “their top priority,” and leaders have agreed to “remain personally involved” in the effort to revive talks. European ministers are not nearly as optimistic as the APEC ministers.

Alternatively, if the talks are not restarted or otherwise fail, the APEC nations have established a potential “plan B.” This would be a “long-term APEC-wide trade deal. This idea is supported by the U.S., as the U.S. government called the APEC leaders as having “characteristic courage” in “agreeing to consider a region-wide free-trade agreement.

Another hot topic addressed at the APEC meetings regarded North Korea. President Bush had used this round of APEC talks to strengthen support for North Korea sanctions. Japanese Prime Minister Shinzo Abe and Mr. Bush agreed to pursue a joint missile defense program. President Bush also met with the South Korean President Roh Moo-hyun and “urged [him] to implement the sanctions.” Moreover, Bush met with president Hu Jintao in an effort to solidfy support. Despite President Bush’s encouragement, the text of the Sunday statement made no mention of North Korea’s nuclear program. However, South Korea released an additional statement, which “was very firm in the need for full-implementation” of the United Nations resolutions, and expressed “strong concern” of the North Korean nuclear ambitions.

QUESTION:

1) What potential ramifications may happen if APEC is unsuccessful at restarting the Doha talks? Moreover, with APEC controlling ½ of the world’s trade—who is hurt the most by a more “insular” Asian bloc?
2) What may happen to U.S. desires for a strong sanction against North Korea if China’s support for the sanctions lessens or completely wanes?

Further IMF Voting Reform on the Cards?

India’s finance minister says he'll push IMF reform at G20 meeting in Australia

Nick Tattersall

Associated Press

Nov 15, 2006

At the G-20 countries 2 day meeting which began this Saturday in Sydney, voting reform at the Washington based IMF is once again on the agenda. Recently in September 2006, the IMF approved a series of reforms that gave emerging countries such as China, South Korea, Turkey and Mexico greater voting rights to reflect their growing economic clout. The IMF also agreed to overhaul the general voting structure sometime within the next two years.

However, many nations are still displeased with the voting structure. A group of 22 countries led by India plan to request the IMF to increase their voting rights during this week’s meeting of finance ministers of 20 countries. Voting shares are of critical importance since it affects each countries say in the general decisions of the IMF and how much can they borrow from it. Currently, IMF voting rights are apportioned between nations based on the size of their economy, openness to trade and other criteria. India would like to see a new formula for voting rights that would use national income calculated in terms of purchasing power, and not dollars.

Questions
1. How should voting rights in multilateral institutions such as the World Bank and the International Monetary Fund be divided? What bases are fair and accurate?

Air Pollution Threatening Health of Hong Kong's Economy

Sources: Hong Kong Smog Damaging Economy, Hong Kong's Market Chief Idenfities Air Pollution as a Threat to the Economy

Ronald Arculli, Chairman of Hong Kong's stock exchange, has recently acknowledged that the high levels of air pollution across China's Pearl River delta is not only threatening human health, but also the region's economic growth, and ultimately Hong Kong's market competitiveness. Hong Kong's pollution problem has received criticisms from investment bankers, international chambers of commerce, and professors in economy. The terrible air quality has caused residents to relocate to cleaner surroundings in Singapore and the Philippines and is making business professions reluctant to travel to Hong Kong. Hong Kong's chief executive, Donald Tsang, made air pollution the central theme of his annual policy address last month.

Despite identifying this problem as a threat to Hong Kong's economic standing, Arculli argues that Hong Kong maintains an open economy, an established rule of law, and is keeping head-to-head with its economic rival, Shanghai. Two years ago, Hong Kong officials set a goal to reduce air pollution by 55% by 2010; however, inconsistent monitoring and regulating has resulted in little improvement. Any improvement brought on by stricter controls on vehicle emissions in an effort to reduce traffic pollution has been negated by a general rise in air pollution as the region's economy experienced growth. Some experts are warning that unless this approach is aggressively modified and made effective, mortality and illness rates will increase and long-term economic growth will be stunted. Greenpeace conducted studies showing that the area's pollution levels exceeded international standards by over 200%.

Questions:
1. To what extent should Hong Kong shift its focus to address the air pollution crisis at the expense of efforts to develop the economy? To what extent is one goal necessary to the achivement of the other?

2. What do you think are the biggest contributing factors as to how and why Hong Kong's pollution problem got to such levels?

3. What steps will be required to get the pollution crisis under control?

Zimbabwe Invites White Former Farm Owners to Discuss Compensation

Sources:
Zimbabwe: Farm Invaders Lose Protection
Zimbabwe Offers Farm Compensation
Zimbabwe Says White Farmers May Seek Compensation
Zimbabwe Union Cautious About Government's Latest Compensation Offer

Zimbabwe has offered compensation to over 1,000 white farmers for property seized during the country’s controversial land reform program. Seven years ago, Zimbabwe’s President Robert Mugabe launched a controversial land reform program and took control of land owned by white farmers with the aim of redressing economic imbalances left over from the country’s British colonial rule.

Although it is estimated that 500 white farmers still remain in Zimbabwe, many have fled to neighboring countries including Zambia and Mozambique. The invitation for compensation was announced in the government-run Herald newspaper this past Thursday. The move, the first large-scale offer by the government to settle outstanding land debts, came days after Mugabe handed the first batch of 99-year land leases to beneficiaries of the reforms and warned white former farm owners not to expect compensation from the government.

The spokeswoman of the Commercial Farmers Union (CFU) in Harare, Emily Crookes, says the Union is suspicious of the latest compensation offer. She says the Zimbabwean government previously has offered less than 10 percent of the market value of buildings and equipment and no compensation at all for the land itself.

"It's not the first time that such lists have appeared and I think, really, the
proof will be in the pudding as to what level of compensation they will offer to
all these farmers," she said.

Critics have blamed Zimbabwe’s current economic crisis on a combination of mismanagement and government corruption. Specifically, they argue that the government seizure of land owned by white farmers triggered a sharp drop in production and exports of agricultural goods, and caused a fall-out with international investors.

President Robert Mugabe denies claims that his government policies, including land reforms, have contributed to the country's problems. Instead he blames domestic and foreign enemies for the country's difficulties and accuses its former colonial power Britain of leading a Western campaign of economic sabotage.

Question: President Mugabe has announced his retirement for early 2008. Is the CFU correct in speculating that greater opportunities to obtain higher compensations, or even a return of land rights, will exist in the post-Mugabe era, when Zimbabwe will be forced to improve international relations?

EU Opens Door for Cross-Border Service Providers

Source: EU agrees [sic] law liberalising cross-border service provision - FT.com

After three years of debate, the European parliament passed a new law this week that liberalizes cross-border rules for businesses involved in service industries. The new law allows workers in certain professional service occupations to work in any member country without following local laws in their profession, so long as they abide by the laws in their home country. The law would also simplify the process for professional companies to open subsidiaries in other Member states.

As a concession to socialist objections to this legislation, several categories of professional service industries were excluded, including health and financial services: By contrast, accountants, consultants, caterers, and plumbers all fall within the protections of the new law. The Eurpoean parliament gives member states until the end of 2010 to implement the new directive.

Questions

Does this type of liberalization make sense? On the one hand, it reduces cross-border barriers that impede the provision of services. On the other hand, consider the potential enforcement nightmares and competitive advantages that will exist is service providers in the same city are bound by different rules. Will this lead, as critics fear, to “a race to the lowest standards?”

Russia-US bilateral WTO deal

Source: US and Russia sign bilateral WTO deal - CNN

Russia’s 13-year-old bid to join the World Trade Organization ended for them successfully on Sunday as the former superpower and the US signed a deal removing the last major obstacle needed in order for Russia to join; the agreement took place at the Asia-Pacific Economic Cooperation summit in Hanoi.

Russia’s economy minister, German Gref, cited the deal as a “very substantial milestone in the full integration of Russia into the global economy.” Russia was the last major economy outside the WTO and stands to significantly benefit after joining; in particular, obstacles are removed for Russia’s access to U.S. beef, pork and poultry markets. Additionally, Russia has agreed to help combat piracy and counterfeiting of foreign goods.

The deal’s making, the 57th of a string of similar agreements signed by Russia in the past six years, is attributed to the positive contact between Presidents Bush and Putin. The process is not finished, however, until multilateral talks are concluded, and that’s expected to happen mid-way through 2007.

Analysts expect normal trade relations with Russia to encourage US companies to invest and do business with the country.


Question:

- With new channels of import and export business, will corruption in Russia decrease as a result, or will corruption have to decrease before such business is to effectively begin?

Canadian Pension Fund Urged to Use Investments to Influence Corporate Ethics

Source: Ottawa Citizen

A recent decision by directors of the Canadian Pension Plan (CPP) to reject “scores” of shareholder proposals for ethical investment highlights the tension between maximizing investor dollars and urging multinational corporations (MNCs) to take steps to ensure that their operations meet external environmental, social justice, and economic sustainability standards (such as the United Nations’ Millennium Development Goals and Principles for Responsible Investment). This decision has ignited the ire of non-governmental organizations (NGOs) like the Sierra Club, Amnesty International, and Friends of the Earth.

CPP is a pension fund managed by the Canadian government. More than 16 million Canadians have made contributions to the fund and it is now a “global player” in the world investment market, and is worth over $100 billon. It had conceded that it should use its prowess to promote corporate responsibility and had committed to engaging in ethical investment last year.

The CPP board of directors justified its decision to reject the proposals because they “duplicated existing information, were too costly, too broad in scope or…not useful to shareholders.” CPP responded to criticisms by noting that improvements could be made in the board’s proxy voting process.
While the fund did support some shareholder-backed proposals for ethical investment, they rejected 80% of the environmental and social justice proposals offered.

1. How effective do you think investment funds like CPP can be in influencing corporate behavior?

World Bank Looks to Africa and Predicts Future Economic Growth

Sources: World Bank Highlights African Challenges
World Bank to Support Uganda in Investment Reforms

The World Bank identified four factors on which sub-Saharan Africa should focus in order to achieve economic growth: (1) infrastructure investment; (2) improving the investment climate; (3) harnessing skills for innovation; and (4) building institutional capacity. Focusing on these four areas will “help the region and Africa as a whole make up for missing two decades of global growth and to replicate the growth models that have lifted millions of people out of poverty.”

Gobind, Nankani, World Bank’s vice-president for the African region, projects that Africa is “on the cusp of breaking out of the long economic stagnation of the 1970s and 1980s.” World Bank’s recent report on Africa projects “the continent is capable of regaining the pace of robust growth it experienced between 1960 and 1973.” In order to reach this goal of economic growth, Africa must create the right conditions to benefit from help offered throughout the global economic community. The continent can do this by lowering indirect costs that impede upon exports and investing in skills and support innovation to spur productivity and competitiveness. Benno Ndulu, adviser to Nankani, emphasized that Africa must focus on good governance and bureaucratic efficiency, innovation and technological progress in raising productivity and competitiveness, as well as infrastructure, especially in transportation and energy.

In related news, the World Bank has pledged to support Uganda in its efforts to improve its investment climate and reduce the cost of doing business in the African country. World Bank managing director Juan Jos Daboub and Ugandan President Yoweri Museveni met and discussed the country’s strategy for addressing the its power crisis and energy supply. World Bank shares the government’s view that increasing power generation is the priority and is helping finance the dam in Bujagali designed to produce 200 MW of power.

Questions:

1. Of the four factors the World Bank reports will foster economic growth in Africa, which is the most urgent factor on which the continent should focus.

2. Uganda is focusing on the first factor—infrastructure investment—in order to generate power throughout its country. What other factor must be the priority of the nation if it is to enjoy economic growth?

Democrats and China

Sources: CNN Newsweek WashingtonPost Australian News

The recent Democratic sweep into Congress sent shockwaves—throughout not only the United States as traditionally Republican districts switched sides—but also throughout the world. Naturally, China also has taken notice to the potential policy shifts in its powerful economic rival. Beijing is now faced with a Congress likely to be more protectionist and anti-China, and possibly even a Congressional leadership that is willing to issue scathing critiques of China and its human rights record.

These pieces of trade legislation are an important part of the Democratic agenda because of the soaring trade deficit with China (now at $263 billion). Protectionist policies are needed, contends organized labor and the Democrats, because the soaring trade deficit and loss of jobs are a result of Chinese unfair practices. China is indeed becoming nervous, despite a general consensus that the new Congress will not “rock the boat” on China policy. However, certain statements and actions made by new House Majority Leaders Representative Nancy Pelosi (D-California), give reason for China to be indeed nervous. First, Pelosi has opposed Beijing’s bid for the Olympics. Second, she has consistently voted against granting China “Most Favored Nation” status. Finally, she has regularly aired her scathing critiques of the Chinese human rights records. While, again, the likelihood of a significant foreign policy shift on the China-front seem distant, China still remains suspicious. China has approached various high-ranking diplomats to inquire about Ms. Pelosi.

Human rights advocates as long as Taiwanese independence advocates welcomed the Democratic landslide electoral victory. Rep. Pelosi has long been a critic of China. She has attempted to directly hand a letter to Chinese president Hu Jintao demanding the release of jailed dissidents, she has directly protested at Tiananmen Square, and has written that “despots such as [Hu Jintao]” should not be allowed to enter the United States. Democratic senator Charles Schumer has claimed to be the anti-China senator. Democrat Tom Lantos, the likely new chair of the International Relations committee has presented Taiwan president Chen Shui-Bian with awards before.

QUESTION: How would China react to protectionist US policies? What sorts of policy shifts may occur with a Congress that is anti-China, but an administration that is preoccupied with the Middle East?

Global Water Crisis

Sources:
United Nations 2006 Human Development Report, Beyond Scarcity: Power, Poverty and the Global Water Crisis
U.N. Urged End to ‘Water Apartheid’

The United Nations Development Programme (UNDP) released its 2006 Human Development Report, a product of research and analysis by international experts and staff across the U.N. system. This year’s report focuses on water as a key part of human development, specifically, on access to clean water and on the ability of societies to harness the potential of water as a productive resource. The UNCP report says that when it comes to water, there is a growing recognition that the world faces a crisis that, left unchecked, will derail progress towards achieving the Millennium Development Goals (MDGs) and hold back human development.

The report argues that poverty, power and inequality are at the heart of the problem. The report (1) investigates the underlying causes and consequences of a crisis that leaves 1.2 billion people without access to safe water and 2.6 billion without access to sanitation; (2) argues for a concerted drive to achieve water and sanitation for all through national strategies and a global plan of action; (3) examines the social and economic forces that are driving water shortages and marginalizing the poor in agriculture; and (4) looks at the scope for international cooperation to resolve cross-border tensions in water management.

According to the report, water-borne diseases such as diarrhea kill far more people, particularly children, than HIV/AIDS and malaria combined. In addition, the report finds that sub-Saharan Africa is lagging behind the rest of the world in the provision of basic services. The report finds that in addition to the costs of disease and life, the time spent collecting water has other economic effects. The report calculates that the cost to Africa is equivalent to about 5% of the continent’s economic growth, about the same amount of growth as is generated by money received in aid.

While the UNDP does not see the prospect of “water wars” as serious, it does warn of severe consequences if there is not a major strategic plan for water use across country borders, especially as climate changes reduce the capacity of the poorest countries to grow food for themselves.

The report highlights several problems. First, few countries treat water and sanitation as a political priority, as witnessed by limited budget allocations. Second, some of the world’s poorest people are paying some of the world’s highest prices for water, reflecting the limited coverage of water utilities in the slums and informal settlements where poor people live. Third, the international community has failed to prioritize water and sanitation in the partnerships for development that have formed around the MDGs. Underlying each of these problems is the fact that the people suffering most from the water and sanitation crisis – poor people in general and poor women in particular – often lack the political voice needed to assert their claims to water.

Question: Will debate and dialogue around this issue have a profound bearing on the progress towards achieving the MDGs and human development?

Africa: A Place to do Business?

Source: Challenges facing Africa's entrepreneurs - BBC.Com

In Africa, growth rates are rising and successful ventures are popping up all around the continent. Statistics show that in at least fifteen African countries economic growth has be running at about four percent for the last ten years.

Part of this growth can be attributed to the rise in the price of minerals. West Africa is also benefiting from oil. However, there are numerous other markets that Africa has become involved in. These markets include telecommunications, banking, and the export of agricultural goods.

However, doing business in Africa can still be difficult work. Part of the problem has been political. For example in the Democratic Republic of Congo it takes over 150 days to register a business and enforcing a contract in Angola takes forty-seven different procedures and can take more than 1,000 days. This means that many entrepreneurs have had to grease the palms of bureaucrats to get things done.

Yet if one is willing to take risks the profits can be great. For example a South African mobile phone company took risks by investing in Nigeria and ended up making a hefty profit.

More improvements in the business environment is expected in Africa as funding that was promised to the continent at last year’s G8 summit has begun to come through. It is expected that there will be an improvement in energy supplies, airports and shipping terminals; all things that can help sustain and grow a productive business environment.

Africa's Growth Prospects Good, Says IMF

Africa has rare chance to bolster growth, IMF says
Nick Tattersall
11/11/2006

In his first visit to sub-Saharan Africa since being appointed the Deputy Managing Director of the IMF, John Lipsky said that Africa’s growth prospects were good because of the combination of a favorable external environment and recent debt forgiveness measures adopted by the West. According to Lipsky, inflation in the region was at its lowest in the past 25 years, while economic growth in the past two years has been the fastest in a decade. Sub-Saharan Africa is expected to grow at 5.4% this year and 5.9% in 2007.

The success of Africa can be attributed in part to it embracing economic reforms in recent times. However, Lipsky cautioned against over-exuberance and stated that further economic reforms were necessary to maintain robust growth. He also noted that the economic growth has not reduced poverty levels appreciably, in part due to stagnant export growth. Critics claim that Africa's export growth has remained stagnant because of developed countries providing domestic farmers with sizable subsidies. They contend that unless Western governments dismantle subsidies, African farmers will not be able to compete with subsidized products and their standard of living will not increase. The current suspended status of the Doha round of talks is not an encouraging sign in this regard.

Questions
1. What is preventing the developed world from eliminating tariffs on agricultural goods? What financial incentives might the developed world require to do so?
2. What can multilateral organizations such as the World Bank and the IMF do to boost Africa's export growth and ensure that Africa continues on its path of economic progress?

Blair’s final package of laws

Source: Blair to unveil new law package - Reuters

Tony Blair, in an effort to save his legacy from the stains put on it by the war in Iraq, will soon announce a raft of bills that are presumed to focus on security and climate change; the new agenda will be announced in a speech to parliament by Queen Elizabeth on Wednesday.

More specifically, his plans will most likely focus on strengthening anti-terrorism powers, combating crime and illegal immigration and cutting down on greenhouse emissions in an ever-growing concern about global warming. Additionally, the laws will probably give some attention to state pensions and other retirement concerns.

Despite his efforts to appeal to conservationists and attract the green vote with his laws aimed at fighting the battle of global warming, some criticize Blair’s party for failing to support annual binding targets on carbon emissions.

Question:

- Politics aside, should global warming and its effects be an issue of central concern to continued development in both first and third world countries?

Russia on Track to WTO Membership

Sources: Russia and US reach deal on WTO - FT.com; Moscow closes in on major trade goal - IHT.com

After thirteen years of negotiations since the fall of the Soviet Union, the U.S. and Russia announced an agreement “in principle” that would pave the way for Russia’s ascension to the WTO. Russia is presently the largest economy in the world outside of the WTO.

Prior to the agreement, a number of sticking points had stalled negotiations, including meat exports to Russia, duties on U.S. manufactured goods, protection of the Russian financial services industry, and enforcement of intellectual property rights (IPR). IPRs were the primary concern for the U.S. because of Russia’s extraordinarily lax prosecution of counterfeiting and piracy operations. Importantly, Russia has taken steps recently to improve in this area, closing a large counterfeit pharmaceutical operation and preparing a new law on intellectual property rights.

Unlike China, which benefited from reduced trade barriers for its consumer exports as a result of its WTO membership, Russia’s primary export, energy, is in such demand that few trade barriers exist. Instead, Russia stands to benefit because WTO membership will encourage more foreign investment and competition in Russian business, and it will give Russia an opportunity to participate in world trade talks.

WTO membership must be approved by each member country, and the U.S. was the last major hold-out nation. Russia must still reach or confirm agreements with Costa Rica, Moldova, and Georgia before it can join the WTO. Georgia previously approved Russia’s membership, but rescinded approval after a political fallout with Russia this past summer.

Questions

1. After thirteen years of delay, is now the right time for the U.S. to accept Russian admission to the WTO?

2. Should Russia’s WTO membership be conditioned on IPR enforcement? If so, has Russia done enough to enforce IPRs?

Debt Not All Bad for Latin America

Sources: Financial Times, Virtuous Path for the Debtor; Inter-American Development Bank, Report on Economic and Social Progress in Latin America.

In a recent report, Living with Debt: How to Limit the Risks of Sovereign Finance, the Inter-American Development Bank (IDB) argues that Latin American debt is not all negative. The report cites three reasons why moderate debt levels may be helpful: (1) redistribution of wealth, (2) development, and (3) to help support private capital markets.

The IDB’s first argument for maintaining moderate debt levels rests on the assumption that future generations in the region will be wealthier than the current one. By maintaining debt now, governments can essentially redistribute income from future generations to the present because it is the future, richer generations that will be responsible for the loan repayments. The second argument for maintaining limited debt is that it helps fund important development projects. Finally, debt can also help finance policies necessary to mitigate the negative effects of business fluctuations and financial shocks.

While debt can be helpful, the report also warns against the dangers of too much debt. To keep the debt load at moderate levels, the report recommends that governments develop sustainable fiscal policies. Part of this approach includes ensuring that governments borrow for the right reasons. For example, a justifiable reason to borrow would be for infrastructure development or redistribution of wealth, as mentioned above. An inappropriate reason to borrow would be to pay the salaries of civil servants.

Furthermore, the report recommends using a combination of debt instruments. Generally, a diversity of debt instruments provides governments with the ability “to minimize vulnerability to a debt crisis and lessen the constraints imposed by debt.” In other words, by not putting all of its eggs in one basket, a country is able to better adjust to problems that may arise.

Finally, the report recommends a reformation of the international financial environment so as to make sovereign borrowing safer, including the development of new debt instruments. For example, the IDB recommends using debt instruments that are contingent on a particular aspect of the country’s economic situation. Instead of maintaining a flat payment schedule for the interest, governments could tie interest payments to their gross domestic product (GDP). When the GDP drops, so would the interest rates. Because the sustainability of a debt is often measured by the debt-to-GDP ratio, by reducing the volatility of this ratio the probability of a debt crisis may lessen.

Questions:

(1) What are some of the benefits of creating new types of debt instruments such as those that are contingent upon economic conditions? What are some examples of other possible instruments?

(2) The IDB believes that the costs of development of new debt instruments can be fairly prohibitive, but that such development it must be done. Whose responsibility is it to develop new debt instruments?

China Surpasses World Bank as Africa’s Largest Lender

Sources: China Poised to Overtake World Bank as Biggest Lender in Africa
Chinese Promise African Bonanza
China to Surpass World Bank as Top Lender to Africa

According to World Bank figures, China has committed $8.1 billion this year to Nigeria, Angola, and Mozambique, while the World Bank has only $2.3 billion to sub-Saharan Africa. During an “ambitious” summit with 48 African leaders in Beijing over the weekend, China announced that it plans to double annual aid to Africa by 2009. China also signed trade agreements with 10 African nations. Premier Wen Jiabao stated that Chinese trade with Africa would double to $133 billion by 2010.

China’s financial commitment is “threatening to undermine efforts by World Bank President Paul Wolfowitz.” When the World Bank gives aid to developing countries, it places conditions on the governments to encourage improvement and clean up the corruption that is rampant on the African continent. However, China is refusing to place conditions on its loans to the African nations. “China has a more commercial agenda than the World Bank, the U.S. and France, the top Western donors, and terms of some of its loans are less favorable.”

Some view a risk in China being the largest lender in Africa, saying that “Africa may use Chinese money in the wrong way to avoid pressure from the West for good government.” Dan Large, a China specialist at the Rift Valley Institute (Nairobi-based think-tank financed in part by Unicef) worries that “Angola, a nation of 14 million that’s recovering from a 27-year civil war, is avoiding pressure to clean up corruption thanks to aid from China.” According to Wofowitz, the Chinese loans may have the potential to create another debt crisis in Africa, just one year after nations agreed to forgive $57 billion of debt in Africa.

Questions:

1. Should the Western nations intervene in China’s new lending program to African nations?

2. How should the World Bank respond to the possibility that nations are seeking alternative sources of aid in order to bypass conditions World Bank places on their loans?

China-Africa: A Summary of the Summit

Sources: CNN   Reuters   Washington Post   Times of India

As stated in the previous blog, Chinese and African leaders closed their recent summit with nearly $2 billion dollars in trade deals. There were 16 agreements on trade between African and Chinese leaders, concluding an unprecedented summit between the two groups. China and 48 African nations pledged “a partnership based on political equality and mutual trust, economic win-win cooperation and cultural exchanges.” The event included heads of 35 African nations, top officials from 13 others, as well as Chinese president Hu Jintao, and concluded at the Great Hall of the People in Beijing. This was the largest gathering of national heads in the history of China.

The deals included Chinese commitments to build expressways in Nigeria, a communications network in Ghana, and an aluminum plant in Egypt. These agreements will likely continue to boost the world’s fourth largest economy, as well as continue to fuel the nearly $40 billion dollars of Sino-African trade per year. China is seeking to increase trade to $100 billion by the year 2020. Furthermore, China is attempting to gain more from the Nigerian oil market, as the state-run Chinese oil producer CNOOC recently acquired a 45% interest in a Nigerian oilfield. In conjunction with the summit, a Chinese company also announced an $8.3 billion contract to build a railway in Nigeria.

However, the summit not only included trade agreements but also pledges of aid from China to the African continent. China has extended nearly $5 billion in aid (3 billion in preferential loans, 2 billion in preferential buyer’s credits) to nearly 41 different countries in Africa over the next three years. Furthermore, China promised $5 billion for a fund to encourage Chinese investment on the African continent. This is likely to garner additional support for Chinese reforms to the United Nations, and also place China ahead of the United States as the largest aid-giver to Africa. This practice of “making friends with the help of aid money” is something that the United States and other developed nations have practiced for years, and will likely assist China in gaining an advantage in resource rich nations. China is keen to secure oil, gas, and mineral resources from Africa.

As China continues to grow in economic influence in the world, what sort of political ramifications may this have for other Pacific Rim nations? How does the Chinese influence in Africa (Africa was, according to the Chinese, very important in the official UN recognition of the Beijing government instead of the Taipei government) affect India’s bid for a permanent United Nations seat?

China and Africa Adopt Three-year Action Plan at Summit

Sources:
China, Africa adopt 3-year action plan as summit closes
China to Double its Aid to Africa
Chinese Offer African Bonanza
Africa and China

At a summit held in Beijing, China and over 48 African nations announced a three year action plan to strengthen the expanding economic ties between China and African nations. China will double its aid from its 2006 level by 2009, although no specific figures were given. In addition, China will offer $3 billion in preferential loans and $2 billion in export credits over the next three years. The export credit is designed to increase the number of goods that do not attract tax when imported to China from Africa. China will also train 15,000 African professional and set up a development fund to help build schools and hospitals.

“China will forever be a good friend, good partner, and good brother of Africa,” said Chinese President Hu Jintao.

China is cancelling its debts due from the least developed countries in Africa, setting up a $6.7 billion fund to subsidize Chinese companies' investments in Africa, and raising from 190 to 440 the items that Africa's least developed countries can export to China tariff-free. China is already by some way the biggest lender to Africa, providing $10.8 billion this year to Angola, Mozambique and Nigeria alone, while the World Bank is lending $3.2 billion to all sub-Saharan Africa.

Critics say Beijing is stifling African manufacturing and accuse Beijing of conducting business with repressive regimes. Part of this reflects Chinese foreign policy which abstain from interfering the the affairs of other countries. The Chinese government has being accused of ignoring genocide in Darfur and human rights violations in Zimbabwe. However, in the race to gain access to raw materials, China is often left with no choice but to invest in countries, like the Sudan, which have been abandoned by Western countries. Some analysts have said that Africa is the only place in the world where large, undeveloped mineral reserves still exist and as a result, many of the new Chinese-African business deals are expected to revolve around China’s development of African mineral resources, particularly oil.

However, China maintains that it has no political agenda and many economists contend that China’s growing economic ties to Africa are benefiting the region.

Human rights organizations voice concern over how Chinese-owned firms treat African workers. Protests broke out in Zambia in July about the alleged treatment of workers at a Chinese-owned mine, and there have been reports of pay disputes in Namibia.

The next China-Africa summit will be held in Egypt in 2009.

Questions:
1. Is China's increasingly important role on the continent of Africa mutually advantageous?
2. Will China need to change its foreign policy in Africa by shunning political corrupt regimes to be seen as a responsible global power?