Source: EU looks for common ground with Sudan on Darfur - Reuters
European Commission President Jose Manuel Barroso and other heads of the EU met with Sudanese officials on Saturday to discuss the efforts being taken to end the conflict in Darfur – a conflict that has been raging for more than three years; recently, international peacekeepers have focused more and more attention on the crisis.
On Saturday, the African Union’s peacekeeping mandate for Darfur expired, but was promptly extended to December 31st, and the United Nations Security Council voted to send some 20,000 UN troops to continue the efforts currently being made by the AU’s 7,000 troops in Darfur. Unfortunately, Sudanese President Omar al-Bashir rejected the notion of replacing the AU’s troops with those of the UN, saying it would be a violation of Sudan’s sovereignty and simply allow the West to colonize the African oil producing country.
In order to quell such complaints from officials like Bashir, various diplomats have suggested an alternative to deploying UN forces directly: an enhanced AU force with more policing power and support from the UN.
Since rebels in Darfur took up arms against the Khartoum government in 2003, accusing the latter of neglecting its citizens, more than 200,000 people have died and 2.5 million displaced from the homes. Many countries continue to fear that the conflict in Darfur will spread throughout the region.
Question:
- Are there other alternatives available for dealing with the crisis in Darfur?
Saturday, September 30, 2006
Lack of Clean Water for West and Central Africa
Source: Clean Water Goals Slipping in Parts of Africa - Voice of America News
According to the United Nations, many African countries are falling behind in the ability to provide clean water to their people. In fact, less than half of the population in Chad, Equatorial Guinea, the Democratic Republic of Congo, Niger and Nigeria have access to clean water.
One of the goals of the United Nations’ 2015 Millennium Development plan was to cut in half the number of people who do not have clean drinking water by 2015. However, it does not appear that this goal will be realized. In fact, the number of people without access to proper sanitation and clean drinking water has increased from 124 million in 1990 to 157 million presently, in the West and Central African regions.
Esther Guluma of UNICEF says that there are many causes for the decline in the availability of drinkable water. Many countries are poverty stricken, are emerging from civil wars, and are dealing with massive numbers of refugees. In addition, the subject of clean water has basically just been forgotten.
Question:
What can be done to ensure that the clean water shortage is no longer ignored?
According to the United Nations, many African countries are falling behind in the ability to provide clean water to their people. In fact, less than half of the population in Chad, Equatorial Guinea, the Democratic Republic of Congo, Niger and Nigeria have access to clean water.
One of the goals of the United Nations’ 2015 Millennium Development plan was to cut in half the number of people who do not have clean drinking water by 2015. However, it does not appear that this goal will be realized. In fact, the number of people without access to proper sanitation and clean drinking water has increased from 124 million in 1990 to 157 million presently, in the West and Central African regions.
Esther Guluma of UNICEF says that there are many causes for the decline in the availability of drinkable water. Many countries are poverty stricken, are emerging from civil wars, and are dealing with massive numbers of refugees. In addition, the subject of clean water has basically just been forgotten.
Question:
What can be done to ensure that the clean water shortage is no longer ignored?
Water for All (Or At Least Some)
Sources: InterPress Service News Agency; World Health Organization, Peru: Access to Clean and Affordable Water.
Recognizing Peruvian citizens’ right to access drinking water, this month President Alan García allocated $21 million for his new “Water for All” campaign. Out of Peru’s 27 million inhabitants, more than 7 million do not have running, potable water. Two million of those people live within metropolitan Lima, while the other 5 million are spread throughout the country.
The President’s campaign is aimed at bringing water to 2.5 million Peruvians within the next six years, and to ensure that the water meets international purity standards. The first stage of the program will focus on Lima in the hopes of providing water access to over 600,000 people at a cost of $123 million. Currently, many of the Peruvians who are not hooked up to the public-water grid are forced to purchase their water from private companies that drive trucks through their neighborhoods. Not only do these customers pay ten times what public-water customers pay, but they also run the risk of becoming sick. The water trucks are not regulated, and the water is often filled with particles of rust from the dispensing tanks.
García’s effort is also motivated by the desire to meet the United Nation’s Millennium Development Goals (MDG). These goals are aimed at decreasing global poverty by 2015 and specifically include a commitment to halving the number of people without access to drinking water. To meet this goal, however, Peru must increase access to drinking water by over 75 percent and spend approximately $4.47 billion dollars. While the government concedes that this is unlikely, water-rights advocates believe that the new “Water for All” campaign is a good first-step. Those advocates, however, continue to push for a greater allocation of funds to areas outside of Lima, and want the government to address related issues such as the lack of sewer systems.
Peru is anticipating the need to look outside of its borders for help in funding the “Water for All” campaign. In the early 1990s, the World Bank and the Inter-American Development Bank were key players in the push to increase access to drinking water in the country. Those loans, however, were conditioned on (1) increased water rates and (2) a decrease in the number of public water employees. Both of these steps were considered necessary to prepare Peru for the eventual privatization of the water supply.
Questions:
(1) Given the public health and safety implications of not having access to running water, should development loans ever be conditioned upon privatization?
(2) What can the "water wars" in Bolivia teach lending institutions about such a tactic? See The Democracy Center, Bolivia's War Over Water for links to articles about the public protests in Bolivia.
Recognizing Peruvian citizens’ right to access drinking water, this month President Alan García allocated $21 million for his new “Water for All” campaign. Out of Peru’s 27 million inhabitants, more than 7 million do not have running, potable water. Two million of those people live within metropolitan Lima, while the other 5 million are spread throughout the country.
The President’s campaign is aimed at bringing water to 2.5 million Peruvians within the next six years, and to ensure that the water meets international purity standards. The first stage of the program will focus on Lima in the hopes of providing water access to over 600,000 people at a cost of $123 million. Currently, many of the Peruvians who are not hooked up to the public-water grid are forced to purchase their water from private companies that drive trucks through their neighborhoods. Not only do these customers pay ten times what public-water customers pay, but they also run the risk of becoming sick. The water trucks are not regulated, and the water is often filled with particles of rust from the dispensing tanks.
García’s effort is also motivated by the desire to meet the United Nation’s Millennium Development Goals (MDG). These goals are aimed at decreasing global poverty by 2015 and specifically include a commitment to halving the number of people without access to drinking water. To meet this goal, however, Peru must increase access to drinking water by over 75 percent and spend approximately $4.47 billion dollars. While the government concedes that this is unlikely, water-rights advocates believe that the new “Water for All” campaign is a good first-step. Those advocates, however, continue to push for a greater allocation of funds to areas outside of Lima, and want the government to address related issues such as the lack of sewer systems.
Peru is anticipating the need to look outside of its borders for help in funding the “Water for All” campaign. In the early 1990s, the World Bank and the Inter-American Development Bank were key players in the push to increase access to drinking water in the country. Those loans, however, were conditioned on (1) increased water rates and (2) a decrease in the number of public water employees. Both of these steps were considered necessary to prepare Peru for the eventual privatization of the water supply.
Questions:
(1) Given the public health and safety implications of not having access to running water, should development loans ever be conditioned upon privatization?
(2) What can the "water wars" in Bolivia teach lending institutions about such a tactic? See The Democracy Center, Bolivia's War Over Water for links to articles about the public protests in Bolivia.
Friday, September 29, 2006
Political Crises Threaten Eurozone Expansion
Source: Why Reform Fatigue Has Hit the East - FT.com
Following a forty percent rise in living standards, Central Europe’s standard of living is barely one-half of
After accession in May 2004, that incentive disappeared, and dissatisfaction with the reform process has created internal strife that threatens fiscal and economic policies and the expansion of the eurozone.
These difficulties, in turn, threaten the EU’s original timetable to expand the single-currency eurozone quickly, including to
Ultimately, delaying compliance with eurozone policies postpones critical economic and fiscal reforms. Economists suggest that these reforms should be done now, in the backdrop of a strong economy, rather than later, when the conditions for change might be more difficult.
Questions
2. Is it in the Central European nations’ interest to continue to reforms despite their short-term social costs? Is it better to postpone difficult restructuring until the nations are politically stable?
Asian Common Currency a Real Possibility
Sources: Single Common Currency for Asia Not Discounted, Is Asian Common Currency Feasible?, An Asian Currency - A Bridge Too Far, Baby Steps to a Common Asian Currency
Financial analysists discussed the subject of an Asian Common Currency at the sidelines of the IMF-World Bank meetings, which ended last week. There has been talk about implementing a common currency into the region since before the 1997 Asian Financial Crisis. The topic has reemerged as Asian countries seek ways to cooperate in the financial sector as a response to the increased economic interdependencies between Asian nations in the 10 years since the crisis. A common currency would also offer more stability by means of a coordinated exchange rate policy. In other words, since an exchange rate adjustment of one country could have a deep impact on another, a unified front is desirable. One of the most important effects of a common currency would be that it would lend itself as a "self-help" mechanisms wherein Asian countries can better prevent, manage, and resolve regional financial problems before they reach crisis levels.
Despite the positives underlying the idea of a common currency, the proposition has its critics. One of the main concern among doubters of the viability of this currency is the fact that there is much more diversity with regards to standards of living and potential growth among the Asian nations. Indeed, the standard deviation of living standards for Asian nations is three times that of European countries. Another barrier is the fact that monetary unity will require from each country a higher degree of liberalization when it comes to control over exchange rates and the mobility of capital than most are willing to adopt. While such concerns have some convinced that an Asian common currency is altogether infeasible, others suggest that this just indicates that the notion will take time to implement. The ideal preconditions that existed when Europe introduced the euro but that either do not yet exist in most of Asia or are just emerging are: 1) high trade interdependencies, 2) common acceptance of basic social and political values (e.g. democracy, market economy), 3) fairly even economic development and comparable standards of living, 4) strong commitment to solidarity.
Although the U.S. no longer opposes the establishment of a single Asian currency outright, its hesitation is indicative of the general lack of a unified stance analysts worldwide are taking with regards to the issue. In any case, time will only tell whether and which concerns were warranted, as Asian officials take a step closer to putting the concept into action.
Questions:
1. Is an Asian Common Currency desirable?
2. In what ways will it help developing Asian countries make progress on the world financial front?
3. What other factors must be taken into consideration in order to implement a common currency in Asia that may be different than those regarding the euro?
Financial analysists discussed the subject of an Asian Common Currency at the sidelines of the IMF-World Bank meetings, which ended last week. There has been talk about implementing a common currency into the region since before the 1997 Asian Financial Crisis. The topic has reemerged as Asian countries seek ways to cooperate in the financial sector as a response to the increased economic interdependencies between Asian nations in the 10 years since the crisis. A common currency would also offer more stability by means of a coordinated exchange rate policy. In other words, since an exchange rate adjustment of one country could have a deep impact on another, a unified front is desirable. One of the most important effects of a common currency would be that it would lend itself as a "self-help" mechanisms wherein Asian countries can better prevent, manage, and resolve regional financial problems before they reach crisis levels.
Despite the positives underlying the idea of a common currency, the proposition has its critics. One of the main concern among doubters of the viability of this currency is the fact that there is much more diversity with regards to standards of living and potential growth among the Asian nations. Indeed, the standard deviation of living standards for Asian nations is three times that of European countries. Another barrier is the fact that monetary unity will require from each country a higher degree of liberalization when it comes to control over exchange rates and the mobility of capital than most are willing to adopt. While such concerns have some convinced that an Asian common currency is altogether infeasible, others suggest that this just indicates that the notion will take time to implement. The ideal preconditions that existed when Europe introduced the euro but that either do not yet exist in most of Asia or are just emerging are: 1) high trade interdependencies, 2) common acceptance of basic social and political values (e.g. democracy, market economy), 3) fairly even economic development and comparable standards of living, 4) strong commitment to solidarity.
Although the U.S. no longer opposes the establishment of a single Asian currency outright, its hesitation is indicative of the general lack of a unified stance analysts worldwide are taking with regards to the issue. In any case, time will only tell whether and which concerns were warranted, as Asian officials take a step closer to putting the concept into action.
Questions:
1. Is an Asian Common Currency desirable?
2. In what ways will it help developing Asian countries make progress on the world financial front?
3. What other factors must be taken into consideration in order to implement a common currency in Asia that may be different than those regarding the euro?
Thursday, September 28, 2006
Asian 'Water Conference' Underway
ADB Conference Aiming to Boost Investment to Meet Asia's Water Challenges
27th September
ADB
On 26th September, a Water Financing Program Conference opened at the Asian Development Bank’s (ADB) headquarters in
1. How can we encourage increased private investment in water facilities or is water a public good that must be provided only by the government?
2. Shouldn’t the IMF and WB be playing a bigger role in ensuring universal access to safe water facilities? Should this issue not be at the forefront of the agenda of all multilateral organizations?
Tuesday, September 26, 2006
Mexico feeling the pressure of rapid economic growth in India, China
Sources: El Universal (available in Spanish only); World Bank (available in English, Spanish, Portuguese)
A recent report issued by the World Bank documents that rapid growth in the economies of China and India has been positive for much of Latin America, including Caribbean countries such as Cuba, Haiti, and the Dominican Republic. However, Mexico and some Central American countries have been negatively affected.
This disparity between Mexico, the most negatively affected country, and the rest of Latin America and the Caribbean has been attributed to the fact that the greatest growth has been seen in economic sectors in the Asian countries that have been traditionally strong for Mexico, such as electronics and textiles.
The World Bank cautioned against a protectionist response by negatively affected countries, instead urging aggressive strategies across Latin America to take advantage of rapid economic growth in Asia. In particular, the World Bank recommended that Latin American and Caribbean nations focus on rural development and industries based on natural resources in order to promote their economies and respond to global demands.
1. How might Mexico and other negatively affected countries respond to Asian growth without disrupting established economic sectors?
2. To what extent (if any) is a refocus on natural resource development and rural development a red herring in terms of a response that takes advantage of developments in the economies of China and India?
A recent report issued by the World Bank documents that rapid growth in the economies of China and India has been positive for much of Latin America, including Caribbean countries such as Cuba, Haiti, and the Dominican Republic. However, Mexico and some Central American countries have been negatively affected.
This disparity between Mexico, the most negatively affected country, and the rest of Latin America and the Caribbean has been attributed to the fact that the greatest growth has been seen in economic sectors in the Asian countries that have been traditionally strong for Mexico, such as electronics and textiles.
The World Bank cautioned against a protectionist response by negatively affected countries, instead urging aggressive strategies across Latin America to take advantage of rapid economic growth in Asia. In particular, the World Bank recommended that Latin American and Caribbean nations focus on rural development and industries based on natural resources in order to promote their economies and respond to global demands.
1. How might Mexico and other negatively affected countries respond to Asian growth without disrupting established economic sectors?
2. To what extent (if any) is a refocus on natural resource development and rural development a red herring in terms of a response that takes advantage of developments in the economies of China and India?
Sunday, September 24, 2006
Argentina's Agricultural Forecast Dampened by Diesel Shortage
Sources: Bloomberg
Gas stations in
The limited amount of diesel fuel that is available to each individual, whether due to rationing or lack of supply, has forced some farmers to reduce the numbers of acres they will be planting. Coinciding with the start of the planting season, the shortage is causing potentially critical delays in sowing the fields—delays that can result in weaker yields per acre planted. With decreases in areas planted and a slow down in planting the remaining fields, agricultural production and exporting could drop.
Will the additional imports suffice to lessen the impact of the fuel shortage on agricultural production?
Will the fuel shortage lead officials to scrutinize the nation’s energy policies?
Shinzo Abe to Lead Japan
Sources: The Economist; The Daily Yomiuri; China Daily; International Herald Tribune
Shinzo Abe won the leadership of his party this week by a wide margin, and could signal a major shift in Japanese policy from his predecessor, Junichiro Koizumi, when he takes office as prime minister on September 26th. At 52, he is the second youngest leader in the history of post-war Japan, he may be ushering in a period of efficient government, growth, tax cuts, along with hard-line stances against North Korea and a possible dethawing of icy relations with China.
Abe has already been rumored to be proposing sweeping changes for the Japanese business world. The Yomiuri Shimbun, the most widely circulated paper in Japan, is reporting that Abe will propose 600 billion yen (approximately 5 billion) in corporate taxes for fiscal year 2007. Other proposals include a preferential taxation system for those who invest in venture-capital enterprises, compressing the taxable profit ranges, and overall reduction of the corporate tax burden. These programs are all aimed at improving productivity and attaining economic growth of 3%.
One of Abe’s biggest successes could likely be a dethawing of relations with China, as China has already “opened the doors of peace” for him. China blames the current state of relations with Japan on outgoing prime minister Koizumi, highlighted by Koizumi’s visit to the Yasukuni Shrine—which honors war criminals among its war dead. The dethawing of relations are key for the Asian-Pacific rim economy, especially since there are strong and prosperous business ties between the two major Asian powers.
However, this may prove to ultimately difficult, as Abe came to power on the platform of “raising Japan’s international stature” along with making the Japanese military a more prominent part of Japanese society. This can prove dangerous, states Hiro Katsumata, a research fellow at the Institute of Defense and Strategic Studies in Singapore, “given China’s growing clout in the region.” Abe has stated that Sino-Japanese relations need to be mended and strengthened due to Japanese dependence on Chinese trade—but his may prove difficult due to tenuous relations between Japan and North Korea as well as growing economic and resource war between the two nations.
As Abe takes power, what will happen to the balance of power both economically and militarily in Asia? Furthermore, Abe has taken hard-line stances with North Korea—will this result finally in breaking the tensions between North Korea and Japan? Or, will it lead the two nations towards an era of extreme brinksmanship?
Shinzo Abe won the leadership of his party this week by a wide margin, and could signal a major shift in Japanese policy from his predecessor, Junichiro Koizumi, when he takes office as prime minister on September 26th. At 52, he is the second youngest leader in the history of post-war Japan, he may be ushering in a period of efficient government, growth, tax cuts, along with hard-line stances against North Korea and a possible dethawing of icy relations with China.
Abe has already been rumored to be proposing sweeping changes for the Japanese business world. The Yomiuri Shimbun, the most widely circulated paper in Japan, is reporting that Abe will propose 600 billion yen (approximately 5 billion) in corporate taxes for fiscal year 2007. Other proposals include a preferential taxation system for those who invest in venture-capital enterprises, compressing the taxable profit ranges, and overall reduction of the corporate tax burden. These programs are all aimed at improving productivity and attaining economic growth of 3%.
One of Abe’s biggest successes could likely be a dethawing of relations with China, as China has already “opened the doors of peace” for him. China blames the current state of relations with Japan on outgoing prime minister Koizumi, highlighted by Koizumi’s visit to the Yasukuni Shrine—which honors war criminals among its war dead. The dethawing of relations are key for the Asian-Pacific rim economy, especially since there are strong and prosperous business ties between the two major Asian powers.
However, this may prove to ultimately difficult, as Abe came to power on the platform of “raising Japan’s international stature” along with making the Japanese military a more prominent part of Japanese society. This can prove dangerous, states Hiro Katsumata, a research fellow at the Institute of Defense and Strategic Studies in Singapore, “given China’s growing clout in the region.” Abe has stated that Sino-Japanese relations need to be mended and strengthened due to Japanese dependence on Chinese trade—but his may prove difficult due to tenuous relations between Japan and North Korea as well as growing economic and resource war between the two nations.
As Abe takes power, what will happen to the balance of power both economically and militarily in Asia? Furthermore, Abe has taken hard-line stances with North Korea—will this result finally in breaking the tensions between North Korea and Japan? Or, will it lead the two nations towards an era of extreme brinksmanship?
Economic Growth in sub-Saharan Africa
Source: IMF Optimistic About Africa's Economic Growth, AllAfrica.Com
The International Monetary Fund (IMF) has recently announced that it expects the economic growth in sub-Saharan Africa to remain strong. According to the IMF, real gross domestic product (GDP) in sub-Saharan Africa is projected to grow by 4.8 percent in 2006.
The expected continuation of growth of the economy in sub-Saharan Africa is due to the prudent economic policies of the countries in the region and the fact that inflation has not gotten out of control.
Under the Multilateral Debt Relief Initiative (MDRI) the IMF has so far granted debt relief to 14 countries in the region. These countries are using the resources afforded them due to the debt relief to increase investment in poverty-reducing programs. However, aid promised by the international community at the Gleneagles Summit last year has not yet been given to these countries.
Because the region is doing well more private capital is making its way there. However, if the countries wish to continue to attract the private sector it will have to do something to lower the costs of doing business in the region.
Questions:
1. What can be done in this region to attract more private sector investment?
2. How can the countries in this region obtain the international aid that was promised them?
The International Monetary Fund (IMF) has recently announced that it expects the economic growth in sub-Saharan Africa to remain strong. According to the IMF, real gross domestic product (GDP) in sub-Saharan Africa is projected to grow by 4.8 percent in 2006.
The expected continuation of growth of the economy in sub-Saharan Africa is due to the prudent economic policies of the countries in the region and the fact that inflation has not gotten out of control.
Under the Multilateral Debt Relief Initiative (MDRI) the IMF has so far granted debt relief to 14 countries in the region. These countries are using the resources afforded them due to the debt relief to increase investment in poverty-reducing programs. However, aid promised by the international community at the Gleneagles Summit last year has not yet been given to these countries.
Because the region is doing well more private capital is making its way there. However, if the countries wish to continue to attract the private sector it will have to do something to lower the costs of doing business in the region.
Questions:
1. What can be done in this region to attract more private sector investment?
2. How can the countries in this region obtain the international aid that was promised them?
Zimbabwe's Severe and Deepening Economic Crisis
Zimbabwe Internet Slows to Crawl as Debts UnPaid
Zimbabwe's Inflation Tops 1,200%
Zimbabwe Lost Half of Heath Professionals
Once the economic success story of southern Africa, Zimbabwe was the only regional country to export food to Ethiopia during the drought in the 1980's. Its economy was doing well, its people were well educated and richer than many of their regional peers. Now, the country is facing an economic crisis.
Zimbabwe's inflation rate has been rising since December 2004 when it soared to 622.8%. An inflation rate is the increase in the price of goods and services over a given period of time. Zimbabwe's inflation rate reached 1,204.6% in August, adding greater strain to its economy.
Zimbabwe has been plagued by shortages of foreign currency to pay for fuel and food, a crumbling urban infrastructure, and water and electricity cuts. Unemployment has reached 70%. According to United Nation's agencies, more than four million of the country's 13 million people face food shortages. The health sector is struggling to function amid the crisis, as skilled health staff have migrated to Western Europe and neighboring African countries in search of better salaries and better working conditions.
The soaring inflation rate means that goods cost more than 13 times what they did a year ago, compounding the hardship many Zimbabweans experience. Just to buy everyday goods such as bread and rice, Zimbabweans have to carry huge amounts of cash. Rents have also risen following the government's controversial demolition of many homes, creating more homeless people.
Recently, internet traffic in Zimbabwe has come close to a standstill after international firm Intelsat cut the country's bandwidth because the government failed to pay its $700,000 fee.
Analysts have predicted that inflation could hit 1,800% by the end of the year. Most analysts blame the economic crisis on a combination of mismanagement and corruption on the part of the government. Specifically, they argue the government aggravated the situation when it took control of land owned by white farmers, which triggered a sharp drop in production and exports of agricultural goods, and caused a fall-out with international investors. Some analysts say that to some degree, Zimbabwe's problems stem from a neglect of capital expenditure under the guidance of the IMF, running down once-superior infrastructure and health and education systems.
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. Mr. Mugabe, 82, once renowned as a liberation hero, led the country to independence from Britain in 1980.
Questions:
What is in the future for Zimbabwe?
What should happen in Zimbabwe?
Zimbabwe's Inflation Tops 1,200%
Zimbabwe Lost Half of Heath Professionals
Once the economic success story of southern Africa, Zimbabwe was the only regional country to export food to Ethiopia during the drought in the 1980's. Its economy was doing well, its people were well educated and richer than many of their regional peers. Now, the country is facing an economic crisis.
Zimbabwe's inflation rate has been rising since December 2004 when it soared to 622.8%. An inflation rate is the increase in the price of goods and services over a given period of time. Zimbabwe's inflation rate reached 1,204.6% in August, adding greater strain to its economy.
Zimbabwe has been plagued by shortages of foreign currency to pay for fuel and food, a crumbling urban infrastructure, and water and electricity cuts. Unemployment has reached 70%. According to United Nation's agencies, more than four million of the country's 13 million people face food shortages. The health sector is struggling to function amid the crisis, as skilled health staff have migrated to Western Europe and neighboring African countries in search of better salaries and better working conditions.
The soaring inflation rate means that goods cost more than 13 times what they did a year ago, compounding the hardship many Zimbabweans experience. Just to buy everyday goods such as bread and rice, Zimbabweans have to carry huge amounts of cash. Rents have also risen following the government's controversial demolition of many homes, creating more homeless people.
Recently, internet traffic in Zimbabwe has come close to a standstill after international firm Intelsat cut the country's bandwidth because the government failed to pay its $700,000 fee.
Analysts have predicted that inflation could hit 1,800% by the end of the year. Most analysts blame the economic crisis on a combination of mismanagement and corruption on the part of the government. Specifically, they argue the government aggravated the situation when it took control of land owned by white farmers, which triggered a sharp drop in production and exports of agricultural goods, and caused a fall-out with international investors. Some analysts say that to some degree, Zimbabwe's problems stem from a neglect of capital expenditure under the guidance of the IMF, running down once-superior infrastructure and health and education systems.
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. Mr. Mugabe, 82, once renowned as a liberation hero, led the country to independence from Britain in 1980.
Questions:
What is in the future for Zimbabwe?
What should happen in Zimbabwe?
Venezuela Struggles to Curb High Inflation, Contemplates Devaluation
Sources: Bloomberg.com, Venezuela `Frustrated' on Failure to Stem Inflation; Associated Press, Venezuelan Inflation Up 2.2 Percent in August; Dow Jones Newswires, Venezuelan President Faces Dilemma Between Spending, Inflation; Reuters, Venezuela Inflation Update.
During the annual meeting of the International Monetary Fund (IMF) in Singapore, the entity encouraged Venezuela to bring down its inflation rate, or the rate of increase of the average price level. Currently, the inflation rate is around ten percent, and while it is an improvement from August’s fifteen percent rate, it still remains the highest in Latin America. The director of the Venezuelan central bank anticipates at least another two percentage point rise by year’s end.
The country’s inflation rate has increased in large part due to its relatively lax monetary policies and its high level of social spending. Funding social programs has been a priority for President Hugo Chavez, and in the past year he has increased government food subsidies, provided loans to favored industries and state-owned businesses, as well as raised the minimum wages for public school teachers and state workers twice.
Presidential elections will be held in December, but there is little doubt that Chavez will be reelected. Given his focus on expanding social programs, economic analysts do not anticipate any marked decrease in the inflation rate in the coming year. Furthermore, there is some speculation that in order to keep government spending at its current rate, Chavez will have to devalue the Venezuelan currency, the bolivar. On September 22, Venezuela’s Finance Minister said that Chavez had yet to make a decision whether or not to devalue in 2007.
Venezuela has a history of reducing the value of the bolivar with respect to other currencies, however, and Chavez has devalued three times since taking office in 1999. If the bolivar is valued at a relatively low level, the government is able to convert the dollars from its oil sales into a greater number of bolivars, thereby increasing the country’s financial reserves. Oil generates one third of the country’s gross domestic product (GDP) and generates over one half over its government revenues.
During the annual meeting of the International Monetary Fund (IMF) in Singapore, the entity encouraged Venezuela to bring down its inflation rate, or the rate of increase of the average price level. Currently, the inflation rate is around ten percent, and while it is an improvement from August’s fifteen percent rate, it still remains the highest in Latin America. The director of the Venezuelan central bank anticipates at least another two percentage point rise by year’s end.
The country’s inflation rate has increased in large part due to its relatively lax monetary policies and its high level of social spending. Funding social programs has been a priority for President Hugo Chavez, and in the past year he has increased government food subsidies, provided loans to favored industries and state-owned businesses, as well as raised the minimum wages for public school teachers and state workers twice.
Presidential elections will be held in December, but there is little doubt that Chavez will be reelected. Given his focus on expanding social programs, economic analysts do not anticipate any marked decrease in the inflation rate in the coming year. Furthermore, there is some speculation that in order to keep government spending at its current rate, Chavez will have to devalue the Venezuelan currency, the bolivar. On September 22, Venezuela’s Finance Minister said that Chavez had yet to make a decision whether or not to devalue in 2007.
Venezuela has a history of reducing the value of the bolivar with respect to other currencies, however, and Chavez has devalued three times since taking office in 1999. If the bolivar is valued at a relatively low level, the government is able to convert the dollars from its oil sales into a greater number of bolivars, thereby increasing the country’s financial reserves. Oil generates one third of the country’s gross domestic product (GDP) and generates over one half over its government revenues.
Questions:
- Venezuela’s high growth and spending is greatly influenced by the high price of oil worldwide. What duties does the country have to its citizens to ensure that once oil prices stabilize the economy will remain economically stable?
- Should the IMF place pressure on Venezuela to choose between its funding needs and inflationary pressures?
Saturday, September 23, 2006
Revitalizing the International Monetary Bank and the World Bank
The Economist
September 19th, 2006
September 19th, 2006
In recent times, the role of these institutions is being questioned. Nations and markets are now working more efficiently. Overall, the world is becoming “richer and more stable.” As far as their developmental mandate, the WB and the IMF are heavily criticized all around. While conservatives argue that the institutions interfere too much in the governance of poor countries, liberals assert that poor countries are not being provided with enough money, and when provided, the money inevitably comes ‘with strings attached.’
However, causes for concern in the international arena remain. Fluctuations in the price of oil have created considerable inflationary pressure and uncertainty in the marketplace. Global imbalances caused especially by
While the IMF has guaranteed a complete overhaul of its voting structure in 2008, in the meantime
As the article concludes “both institutions are in dire need of a cure for creaky old age.”
Questions
1. Do we need the IMF and the WB in this day and age or can they be consolidated into one agency?
2. Is the world really becoming “richer and more stable,” or is it a case of the rich becoming richer and the poor becoming poorer?
UK, Italy deal with tariffs on cheap Chinese imports
Source Article: UK in secret deal with Italy on China trade - FT.com
In response to Rome’s demand for increased tariffs on imported Chinese goods (including furniture, shoes, and ceramics), Britain has offered its support of such tariffs in return for Rome’s support of the UK’s “long-hours work culture”. This deal has worried many retailers in the European Union, who believe it could later force Britain into further support of Italy in its dispute with China and the latter’s trade policy.
However, Britain is most likely concerned with the possibility that EU member states could “axe its ‘opt-out’” from the EU’s policy on a maximum 48-hour working week when the issue is debated later this year. Britain’s current line-up of supporters for its flexible labor market is enough to sustain it, but the group, including the recently troubled Polish coalition party, is unstable.
Opponents to Britain’s labor policy believe it exploits workers and allows Britain an unfair advantage over those EU countries where the 48-hour limit applies. Meanwhile, Italian officials seek support from southern European countries for its tariff plan that would allow it to pursue its objectives without Britain’s support. The EU trade commisioner has proposed a plan to implement five-year duties of 16.5% for leather shoes from China and 10% from Vietnam; currently, 12 countries are in favor of this plan, with 13 opposed.
Critics have said such “desperate horse-trading” on the part of Britain undermine the EU’s international image, and that a decision regarding trade policy should instead be decided on its merits.
Question:
- is the UK’s “free labor” market more practical than the EU’s 48-hour limit in an ever-changing global economy?
In response to Rome’s demand for increased tariffs on imported Chinese goods (including furniture, shoes, and ceramics), Britain has offered its support of such tariffs in return for Rome’s support of the UK’s “long-hours work culture”. This deal has worried many retailers in the European Union, who believe it could later force Britain into further support of Italy in its dispute with China and the latter’s trade policy.
However, Britain is most likely concerned with the possibility that EU member states could “axe its ‘opt-out’” from the EU’s policy on a maximum 48-hour working week when the issue is debated later this year. Britain’s current line-up of supporters for its flexible labor market is enough to sustain it, but the group, including the recently troubled Polish coalition party, is unstable.
Opponents to Britain’s labor policy believe it exploits workers and allows Britain an unfair advantage over those EU countries where the 48-hour limit applies. Meanwhile, Italian officials seek support from southern European countries for its tariff plan that would allow it to pursue its objectives without Britain’s support. The EU trade commisioner has proposed a plan to implement five-year duties of 16.5% for leather shoes from China and 10% from Vietnam; currently, 12 countries are in favor of this plan, with 13 opposed.
Critics have said such “desperate horse-trading” on the part of Britain undermine the EU’s international image, and that a decision regarding trade policy should instead be decided on its merits.
Question:
- is the UK’s “free labor” market more practical than the EU’s 48-hour limit in an ever-changing global economy?
Russia Causes Stir with Sakhalin-2 Developments
Sources: News Analysis: Russian oil reversal stirs outcry - IHT; Sakhalin-2 gets time to breathe - IHT
Critics see this as another power play by a Russian government that is increasingly willing to flex its energy muscles in spite of international criticism. Although,
Thursday, September 21, 2006
Thailand Coup: For Better or For Worse?
Sources: Old-Fashioned Coup, Coup Leader to Restore Democracy, Thailand's Tarnished Tycoon
On the night of September 19, 2006, Sonthi Boonyaratkalin, general of the Thai army, instituted a coup d'etat and successfully ousted Prime Minister Thaksin Shinawatra from office. Today, Thailand's monarch, Bhumibol Adulyadej, announced his support for the new leadership. While currently running the country under martial law, General Sonthi and his Council for Administrative Reform have promised to bring democracy to Thailand and have stated that it is not their intent to remain in power, but to return the power to the people as soon as possible.
The coup was a reaction to what Gen. Sonthi and his followers view as widespread corruption, nepotism, and crippling of democratic institutions by Thaksin. Thaksin, a billionaire telecommunications tycoon had been elected in 2001 by a landslide vote on a platform consisting of promises put his business savvy towards lifting Thailand out of the rubble following the 1997 Asian financial crisis. He sought to set up a "CEO-style" government that was fast, efficient, and flexible in its responses to economic issues. Despite steady economic growth in Thailand, Thaksin faced a backlash in support, particularly amongst minority shareholders who accused him of running the country like an archaic corporation rather than a modern one, where micro-management, secrecy, and iron-fist ruling by Thaksin are more reminiscent of despotism than democracy. Accordingly, corruption is pervasive within government institutions and beyond, much of which has put the economy of Thailand at risk as foreign investors expressed anxiety about the legally questionable decisions Thaksin has made regarding the sale of Thai companies to foreigners in violation of Thai foreign ownership laws. unhappy taxpayers started to call for his resignation earlier in the year.
The United States expressed disapproval about the military coup and urges General Sonthi to hold elections soon rather than put them off for the next year. Sonthi promised to step down in two weeks.
The coup resulted in a drop in the value of the Thai bhat, but it has since then steadied. In addition, stock prices have recovered nearly completely. Consequently, there has been emerging optimism that the coup may have broken the political stalemate that has left the country paralysed for the better part of a year.
Questions:
1.) Will General Sonthi be able to install the rule of law in Thailand?
2.) What kinds of reforms will the government have to undergo in order to successfully establish a modern democracy?
3.) Will the new governance in Thailand allow it to compete better with Vietnam and other Asian countries on the global economic rise?
On the night of September 19, 2006, Sonthi Boonyaratkalin, general of the Thai army, instituted a coup d'etat and successfully ousted Prime Minister Thaksin Shinawatra from office. Today, Thailand's monarch, Bhumibol Adulyadej, announced his support for the new leadership. While currently running the country under martial law, General Sonthi and his Council for Administrative Reform have promised to bring democracy to Thailand and have stated that it is not their intent to remain in power, but to return the power to the people as soon as possible.
The coup was a reaction to what Gen. Sonthi and his followers view as widespread corruption, nepotism, and crippling of democratic institutions by Thaksin. Thaksin, a billionaire telecommunications tycoon had been elected in 2001 by a landslide vote on a platform consisting of promises put his business savvy towards lifting Thailand out of the rubble following the 1997 Asian financial crisis. He sought to set up a "CEO-style" government that was fast, efficient, and flexible in its responses to economic issues. Despite steady economic growth in Thailand, Thaksin faced a backlash in support, particularly amongst minority shareholders who accused him of running the country like an archaic corporation rather than a modern one, where micro-management, secrecy, and iron-fist ruling by Thaksin are more reminiscent of despotism than democracy. Accordingly, corruption is pervasive within government institutions and beyond, much of which has put the economy of Thailand at risk as foreign investors expressed anxiety about the legally questionable decisions Thaksin has made regarding the sale of Thai companies to foreigners in violation of Thai foreign ownership laws. unhappy taxpayers started to call for his resignation earlier in the year.
The United States expressed disapproval about the military coup and urges General Sonthi to hold elections soon rather than put them off for the next year. Sonthi promised to step down in two weeks.
The coup resulted in a drop in the value of the Thai bhat, but it has since then steadied. In addition, stock prices have recovered nearly completely. Consequently, there has been emerging optimism that the coup may have broken the political stalemate that has left the country paralysed for the better part of a year.
Questions:
1.) Will General Sonthi be able to install the rule of law in Thailand?
2.) What kinds of reforms will the government have to undergo in order to successfully establish a modern democracy?
3.) Will the new governance in Thailand allow it to compete better with Vietnam and other Asian countries on the global economic rise?
IMF Reforms
Sources: IMF bolsters clout of emerging nations; IMF reform gets big support, 23 nations opposed; IMF/WB meetings wrap up with member nations supporting reform programme
This week, the 184 member countries of the International Monetary Fund (the “IMF” or the “Fund”) voted to increase the voting power of China, Mexico, South Korea, and Turkey. These countries are considered “emerging countries” in the eyes of the IMF, and it wanted to increase the countries’ voting power in order to match the “growing clout” the nations have in the world economy.
Although most of the IMF member states voted in favor of this reform, 23 countries voted against it. Most of the dissenting countries reside in the Middle East and Latin America. These countries voted against the reform because they did not believe the reform sufficiently reflected the shift in the world economy away from the richer nations that founded the Fund in 1945. Currently, the Group of Seven (“G-7”) industrialized nations— the United States, Japan, Germany, Britain, France, Italy and Canada—hold 45% of the Fund’s membership, which in large part determines voting power.
A second stage of this reform is expected to take place in 2008. During this stage, the IMF will make broader adjustments for these emerging countries and the poorer IMF members. IMF Managing Director Rodrigo Rato recognizes that the next stage will pose challenges—richer nations will worry they will lose power, while poorer nations will be fighting for more power. Rato says that further changes are needed, however, so he will reach out to all members to ensure a consensus.
Additionally, the World Bank is looking to shift its structure to adhere to shifts in the world economy. World Bank’s President Paul Wolfowitz promised to give members a larger voice in the World Bank in order “to boost credibility and effectiveness.” Like the IMF, the World Bank’s governance is focused in the United States and in Europe.
Questions:
1. Will the countries voting against the IMF reform be appeased in 2008, when the IMF implements its second stage of the reform by making broader adjustments in favor of the emerging countries and the poorer IMF members?
2. How “broad” will the second phase of the reform need to be in order to sufficiently disperse the power of the IMF to show the shift in the world economy?
3. How will members of the World Bank react to such a change in its governance?
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This week, the 184 member countries of the International Monetary Fund (the “IMF” or the “Fund”) voted to increase the voting power of China, Mexico, South Korea, and Turkey. These countries are considered “emerging countries” in the eyes of the IMF, and it wanted to increase the countries’ voting power in order to match the “growing clout” the nations have in the world economy.
Although most of the IMF member states voted in favor of this reform, 23 countries voted against it. Most of the dissenting countries reside in the Middle East and Latin America. These countries voted against the reform because they did not believe the reform sufficiently reflected the shift in the world economy away from the richer nations that founded the Fund in 1945. Currently, the Group of Seven (“G-7”) industrialized nations— the United States, Japan, Germany, Britain, France, Italy and Canada—hold 45% of the Fund’s membership, which in large part determines voting power.
A second stage of this reform is expected to take place in 2008. During this stage, the IMF will make broader adjustments for these emerging countries and the poorer IMF members. IMF Managing Director Rodrigo Rato recognizes that the next stage will pose challenges—richer nations will worry they will lose power, while poorer nations will be fighting for more power. Rato says that further changes are needed, however, so he will reach out to all members to ensure a consensus.
Additionally, the World Bank is looking to shift its structure to adhere to shifts in the world economy. World Bank’s President Paul Wolfowitz promised to give members a larger voice in the World Bank in order “to boost credibility and effectiveness.” Like the IMF, the World Bank’s governance is focused in the United States and in Europe.
Questions:
1. Will the countries voting against the IMF reform be appeased in 2008, when the IMF implements its second stage of the reform by making broader adjustments in favor of the emerging countries and the poorer IMF members?
2. How “broad” will the second phase of the reform need to be in order to sufficiently disperse the power of the IMF to show the shift in the world economy?
3. How will members of the World Bank react to such a change in its governance?
Monday, September 18, 2006
Japan's Prime Minister Koizumi's Legacy
Sources
CNN--Japan Election
CNN--Legacy of Koizumi
Yahoo! News
Miami Herald
Japan will be electing a new prime minister on September 20th, replacing Junichiro Koizumi. Koizumi became prime minister in 2001, the 11th in 13 years—facing challenges of a heavy bureaucracy and stagnant economy. He is widely credited with bringing Japan back into economic prosperity.
Koizumi’s successor will take over the strongest economy in a decade, with growing business confidence, GDP growth, and consumer confidence. Koizumi, a member of the Liberal Democratic Party (LDP), made commitments for structural reform during the darker days of the Japanese economic malaise, and such structural reform has strengthened Japanese pressures and helped ease deflation concerns.
Koizumi’s most unprecedented effort was his attempt to normalize North Korean-Japanese relations. However, he leaves office with no successful normalization—and his likely successor is a hard-line critic of the reclusive communist state. Shinzo Abe, likely the next prime minister, has already sworn against any compromise. Koizumi’s greatest success on the Korean issue occurred in 2004 when he made an additional trip to Pyongyang and secured the release of five kidnap victims of the North Korean regime. He does leave office, however, under heightened tensions as Japan is considering a new set of financial sanctions against North Korea.
Koizumi may be forever remembered as one of the most influential and maverick politicians in the history of post-war Japan. Jesper Koll, a Merrill Lynch economist in Tokyo describes Koizumi’s legacy as one in which confidence was instilled in the nation. He continues “Japan is back, and people here again think, ‘We deserve to be the second most important economy in the world.” Furthermore, when Koizumi took over, “Japan was desperate, the banks were bankrupt, and you had an economy that was on the brink of depression.”
Koizumi’s departure leaves serious questions for the Pacific Rim and beyond. What will be result of his reforms, as Koizumi alienated members of his party who will likely flock back to the LDP with his departure? Moreover, as he leaves office, will the olive branch extended by Koizumi to North Korea continue? Or will extended economic sanctions begin?
CNN--Japan Election
CNN--Legacy of Koizumi
Yahoo! News
Miami Herald
Japan will be electing a new prime minister on September 20th, replacing Junichiro Koizumi. Koizumi became prime minister in 2001, the 11th in 13 years—facing challenges of a heavy bureaucracy and stagnant economy. He is widely credited with bringing Japan back into economic prosperity.
Koizumi’s successor will take over the strongest economy in a decade, with growing business confidence, GDP growth, and consumer confidence. Koizumi, a member of the Liberal Democratic Party (LDP), made commitments for structural reform during the darker days of the Japanese economic malaise, and such structural reform has strengthened Japanese pressures and helped ease deflation concerns.
Koizumi’s most unprecedented effort was his attempt to normalize North Korean-Japanese relations. However, he leaves office with no successful normalization—and his likely successor is a hard-line critic of the reclusive communist state. Shinzo Abe, likely the next prime minister, has already sworn against any compromise. Koizumi’s greatest success on the Korean issue occurred in 2004 when he made an additional trip to Pyongyang and secured the release of five kidnap victims of the North Korean regime. He does leave office, however, under heightened tensions as Japan is considering a new set of financial sanctions against North Korea.
Koizumi may be forever remembered as one of the most influential and maverick politicians in the history of post-war Japan. Jesper Koll, a Merrill Lynch economist in Tokyo describes Koizumi’s legacy as one in which confidence was instilled in the nation. He continues “Japan is back, and people here again think, ‘We deserve to be the second most important economy in the world.” Furthermore, when Koizumi took over, “Japan was desperate, the banks were bankrupt, and you had an economy that was on the brink of depression.”
Koizumi’s departure leaves serious questions for the Pacific Rim and beyond. What will be result of his reforms, as Koizumi alienated members of his party who will likely flock back to the LDP with his departure? Moreover, as he leaves office, will the olive branch extended by Koizumi to North Korea continue? Or will extended economic sanctions begin?
Slow Growth Not Apparent for Brazil's Petrobras
Sources: Associated Press, Bloomberg News, Business News Americas, Financial Times, Latin American Newsletters.
In 2001, Goldman Sachs began referring to
In the second quarter of this year,
Yet, amid the clamor for economic reform, the accusations of government corruption, and the forecasts of a bleak economic future,
Petrobras has recently entered into other partnerships as well. In late August, officials announced plans to collaborate with
Will Petrobras help to energize Brazil's lagging growth? Will increases in ethanol production give rise to a more robust rural and agricultural economy?
Should Canada stay cautious before a thirsty U.S.?
Bulk water should be on trade table, Cellucci says
As global supplies of fresh water become increasingly scarce, countries with substantial stores – Brazil, Russia, and Canada top the list – face increasing pressure from “thirsty nations” like the U.S. to include the resource in trade agreements.
The topic is broached with Canada every few years by the Office of the U.S. Trade Representative (USTR), but no headway has been made in the area. While Canadian provinces permit exports of bottled water, the ban persists on bulk exports from boundary waters shared by Canada and the U.S.
As global supplies of fresh water become increasingly scarce, countries with substantial stores – Brazil, Russia, and Canada top the list – face increasing pressure from “thirsty nations” like the U.S. to include the resource in trade agreements.
The topic is broached with Canada every few years by the Office of the U.S. Trade Representative (USTR), but no headway has been made in the area. While Canadian provinces permit exports of bottled water, the ban persists on bulk exports from boundary waters shared by Canada and the U.S.
There are no negotiations currently underway to lift the ban, but the fact that Prime Minister Harper’s government is in the process of developing a new national water strategy for Canada has caused hopes and concerns from both sides of the border to be raised.
A Canadian citizens’ group, Council of Canadians, has stressed the dangers of allowing bulk water exports to be traded on the open market, voicing fears that allowing this valuable and limited resource to go to the highest bidder could result in water exports being directed to the richest, rather than the neediest recipients.
Conversely, former U.S. Ambassador to Canada Paul Celluci asserts that water should be considered a renewable resource and insists that the issue is one the two nations will have to face in the foreseeable future.
1. Should fresh water, an increasingly valuable and scarce global resource, be available to the highest bidder?
2. If fresh water becomes available on the open market, should there be special standards or restrictions created to ensure that it goes to a “legitimate” use? How would such a determination be made?
A Canadian citizens’ group, Council of Canadians, has stressed the dangers of allowing bulk water exports to be traded on the open market, voicing fears that allowing this valuable and limited resource to go to the highest bidder could result in water exports being directed to the richest, rather than the neediest recipients.
Conversely, former U.S. Ambassador to Canada Paul Celluci asserts that water should be considered a renewable resource and insists that the issue is one the two nations will have to face in the foreseeable future.
1. Should fresh water, an increasingly valuable and scarce global resource, be available to the highest bidder?
2. If fresh water becomes available on the open market, should there be special standards or restrictions created to ensure that it goes to a “legitimate” use? How would such a determination be made?
Sunday, September 17, 2006
U.K. Takes a Stance Against the World Bank
UK Withholds World Bank Donation
BBC News
Sept. 14, 2006
The United Kingdom ("U.K.") is withholding £50m it pledged to the World Bank ("Bank") in protest at the conditions the Bank attaches before giving aid to developing countries. Mr. Hilary Benn, U.K. International Development Secretary voiced concerns that the conditions are too strict and basically tell poor nations how to run the affairs of their own countries. Mr. Benn said that the Bank has a duty to help those in poverty despite the actions of their governments. His comments were made on the eve of the World Bank and International Monetary Fund's annual meetings.
The Bank has for a long time insisted that the poorer countries meet economic targets and engage in trade liberalization before distributing aid. Trade liberalization is the reduction of tariffs and trade barriers to permit more foreign competition and foreign investment in the economy. Since last year, the Bank has also tried tackle corruption in poor countries, and as a result, hundreds of thousands of dollars of loans and contracts to countries like Chad, Congo, Ethiopia and Bangladesh have been suspended.
Last year, the UK provided £1.3bn to the World Bank to help poorer countries and promised to donate a further £50m in 2007, provided it eased the strings attached to aid. The U.K. is unhappy with the World Bank's lack of progress at removing the strict conditions from the financial assistance. The U.K. has decided to delay donating the money until it is satisfied that the World Bank has eased it position on economic liberalization.
BBC News
Sept. 14, 2006
The United Kingdom ("U.K.") is withholding £50m it pledged to the World Bank ("Bank") in protest at the conditions the Bank attaches before giving aid to developing countries. Mr. Hilary Benn, U.K. International Development Secretary voiced concerns that the conditions are too strict and basically tell poor nations how to run the affairs of their own countries. Mr. Benn said that the Bank has a duty to help those in poverty despite the actions of their governments. His comments were made on the eve of the World Bank and International Monetary Fund's annual meetings.
The Bank has for a long time insisted that the poorer countries meet economic targets and engage in trade liberalization before distributing aid. Trade liberalization is the reduction of tariffs and trade barriers to permit more foreign competition and foreign investment in the economy. Since last year, the Bank has also tried tackle corruption in poor countries, and as a result, hundreds of thousands of dollars of loans and contracts to countries like Chad, Congo, Ethiopia and Bangladesh have been suspended.
Last year, the UK provided £1.3bn to the World Bank to help poorer countries and promised to donate a further £50m in 2007, provided it eased the strings attached to aid. The U.K. is unhappy with the World Bank's lack of progress at removing the strict conditions from the financial assistance. The U.K. has decided to delay donating the money until it is satisfied that the World Bank has eased it position on economic liberalization.
"[D]eveloping countries ought to make their own decisions and I do believe that this is one of the ways that we can increase the voice of the poorest countries of the world," Mr. Benn added.
Organizations like Oxfam and Christian Aid say the World Bank's current policies often leave people in developing countries worse off than before. Christian Aid points to the example of Ghana where the World Bank's demand for a ban on tariffs and subsidies for the poultry market has led to an influx of cheap European imports and seen many thousands of Ghanaians lose their jobs and livelihoods.
Questions:"Imagine what life would be like if you had to run every decision you made by your bank manager and if he or she didn't like it, you would have to change it," Christian Aid policy manager Anna Thomas said.
- Is the U.K's stance against the World Bank correct? Are the World Bank's policies and strategies too strict?
- Is the Bank tackling corruption in poorer countries?
Related link: Debt Relief for Developing Countries and the Heavily Indebted Poor Countries Initiative
Inflation Rise In Zimbabwe
Zimbabwe inflation at 1,200 pc
Source - CNN.Com
In Zimbabwe, the annual inflation rose to a record of 1,204 percent at the end of August. This is up from 993 percent for July. Zimbabwe has the highest inflation rate in the world. It is suffering a great economic crisis; there is a shortage of food, gasoline, and hard currency and unemployment is at a record high. Some of the highest increases last month were in taxes, school fees, and medical products.
The majority of Zimbabwe’s population lives below the poverty line. The average family of five makes around $80 a month and the official poverty line rose to $401 last month.
The Zimbabwe Reserve Bank chief Gideon Gono had to resort to desperate measures in order to restore order to the country. He decided to basically remove the last three digits from the currency. This means that 100,000 Zimbabwe dollars are now 100 Zimbabwe dollars.
Critics say that Zimbabwe’s current situation is the result of overspending during the 1990’s and a breakdown of property rights; there has been a seizure of almost 5,000 white-owned farms for redistribution to black Zimbabweans. Much of the seized farmland was among the most productive and has been left damaged and dilapidated.
Question:
Should Zimbabwe have considered other methods of land redistribution that would have lessened the economic impact of the redistribution program?
Source - CNN.Com
In Zimbabwe, the annual inflation rose to a record of 1,204 percent at the end of August. This is up from 993 percent for July. Zimbabwe has the highest inflation rate in the world. It is suffering a great economic crisis; there is a shortage of food, gasoline, and hard currency and unemployment is at a record high. Some of the highest increases last month were in taxes, school fees, and medical products.
The majority of Zimbabwe’s population lives below the poverty line. The average family of five makes around $80 a month and the official poverty line rose to $401 last month.
The Zimbabwe Reserve Bank chief Gideon Gono had to resort to desperate measures in order to restore order to the country. He decided to basically remove the last three digits from the currency. This means that 100,000 Zimbabwe dollars are now 100 Zimbabwe dollars.
Critics say that Zimbabwe’s current situation is the result of overspending during the 1990’s and a breakdown of property rights; there has been a seizure of almost 5,000 white-owned farms for redistribution to black Zimbabweans. Much of the seized farmland was among the most productive and has been left damaged and dilapidated.
Question:
Should Zimbabwe have considered other methods of land redistribution that would have lessened the economic impact of the redistribution program?
Saturday, September 16, 2006
Even Before Start, IMF & WB Talks Controversial
Singapore braces to play host to IMF and the World Bank
International Herald Tribune
September 15, 2006
The 2006 Annual Meeting of the Board of Governors of the International Monetary Fund and the World Bank has already run into major controversy. The host country,
As far as the meeting itself, the Board of Governors have several controversial issues to resolve. One of the principal issues that will be discussed is altering the governance structure of the IMF to give emerging countries such as
Questions:
1. How can the governance structure of the World Bank be altered to give developing countries a greater say without marginalizing the developed world?
2. Are the large dollar reserves held by Asian countries a good thing or a bad thing for the
Uruguay Faces Economic Crossroad
Sources: Latin News, Merco Press, New York Times
In an attempt to gain influence in South America, the
Mercosur (short for Mercado Comun del Sur, or Southern Common Market) is a regional trade organization that is headquartered in
Venezuelan President Hugo Chavez has asserted that if
Although the United States’ proposal to build medical and dental facilities in a working-class section of Montevideo (Uruguay’s capital) may appear paltry in comparison, the boost to Uruguay’s economy that could result from a fair-trade agreement with Washington has the potential of amounting to billions of dollars—a far greater amount than Venezuela is capable of offering or producing. While anti-Bush sentiment is acute in the nations comprising Mercosur, President Chavez’s desire to form a Mercosur Army, reminiscent of NATO, has been met with opposition in those countries due to the oppressive and militaristic dictatorships of the 1970s and 1980s.
Will the fear of political abuses of power in the region, combined with the attraction of increased exports and foreign investments lead
Friday, September 15, 2006
U.S. Economic Downturn May Affect IMF's Increased Global Growth Forecasts
(Source Article: IMF Ups Glogal Growth Forecast, But Report Warns that Inflation Pressures and slower economic growth in U.S. could Reduce Pace of Increase)
During yesterday’s portion of IMF’s meetings in Singapore, IMF announced that the global economy is set for another year of strong growth. However, rising inflation and a U.S. economic downturn posed dangers for the global economy.
In April, the IMF predicted global growth to be 4.9 percent for 2006. Today, the IMF forecasts 2006 global growth to be as much as 5.1 percent. Forecasts for global growth in 2007 also increased from 4.7 percent to 4.9 percent. However, the IMF recognizes that there is a one in six chance that the global growth of 2007 could fall to 3.25 percent.
Although the IMF recognizes that the U.S. economy is slowing, it says that stronger growth in Europe and emerging economies should offset the downturn. Germany’s economy is extremely strong. Japan’s economy should continue to expand, and Asia’s outlook is for strong growth of 8.3 percent in 2006-07.
However, the U.S. economic downturn is a real concern. IMF originally estimated U.S. growth to be 3.4 percent in 2006, but that estimate is now at 2.9 percent. According to IMF chief economist Raghuram Rajan, “[w]e know the United States is slowing but we don’t know how much, partly because a lot of it is dependent on the housing market and those links with the rest of the economy.” Rajan further notes that “[t]he United States has been so central to world growth, it is hard to know how much of world growth outside is autonomous of the United States.”
Questions:
1. How much of an effect do you think the U.S. housing market will have on the projected global economic growth?
2. Will European and Asian growth be able to compensate for the downturn in the U.S.?
During yesterday’s portion of IMF’s meetings in Singapore, IMF announced that the global economy is set for another year of strong growth. However, rising inflation and a U.S. economic downturn posed dangers for the global economy.
In April, the IMF predicted global growth to be 4.9 percent for 2006. Today, the IMF forecasts 2006 global growth to be as much as 5.1 percent. Forecasts for global growth in 2007 also increased from 4.7 percent to 4.9 percent. However, the IMF recognizes that there is a one in six chance that the global growth of 2007 could fall to 3.25 percent.
Although the IMF recognizes that the U.S. economy is slowing, it says that stronger growth in Europe and emerging economies should offset the downturn. Germany’s economy is extremely strong. Japan’s economy should continue to expand, and Asia’s outlook is for strong growth of 8.3 percent in 2006-07.
However, the U.S. economic downturn is a real concern. IMF originally estimated U.S. growth to be 3.4 percent in 2006, but that estimate is now at 2.9 percent. According to IMF chief economist Raghuram Rajan, “[w]e know the United States is slowing but we don’t know how much, partly because a lot of it is dependent on the housing market and those links with the rest of the economy.” Rajan further notes that “[t]he United States has been so central to world growth, it is hard to know how much of world growth outside is autonomous of the United States.”
Questions:
1. How much of an effect do you think the U.S. housing market will have on the projected global economic growth?
2. Will European and Asian growth be able to compensate for the downturn in the U.S.?
Thursday, September 14, 2006
Russian banker fought for transparency in country’s financial sector
(Source Article: Russian central banker killed in contract hit - Reuters)
Andrei Kozlov, a first deputy chairman of Russia’s Central Bank, died Thursday from gunshot wounds he suffered from unknown gunmen who fired at him Wednesday night. Andrei led a fierce campaign aimed at targeting and closing down banks involved in money laundering and other corruption. This is the highest-profile assassination so-far during President Putin’s six-years in power.
In addition to closing down corrupt financial institutions, Kozlov strived for tougher laws, and enforcement of those laws, to help prevent such corruption in the first place. Just last week he called for life-banishment of bankers found guilty of money laundering. His efforts to clean-up the seedy underbelly of Russian banking inadvertently triggered a financial crisis in 2004: after closing a small bank in Russia that he charged with money laundering, a “crisis of confidence” in the banking sector emerged, prompting many banks to sellout to the state. (see Banker led clean-up drive - Reuters)
Officials in Russia—many of whom regarded Kozlov as a man with “unimpeachable character”—believe that Kozlov’s was a contract murder paid for by the type of criminals he put out of business. Many also fear that this tragedy marks a return to the early 1990’s business atmosphere in Russia, where problems were resolved with murder. A member of Russia’s National Banking Council said that Kozlov’s “killers must be found.” (See Banker was anti-graft fighter - CNN)
Despite Kozlov’s massive efforts to clean up Russia’s banking sector, a lot of work still needs to be done, and his gangland style death illustrates the difficulty—and danger—the Central Bank faces in its efforts to root out criminal activities. Hundreds of tiny banks still exist, with no economic rationale, and the system is undercapitalized and unable to channel savings into useful investment. Further, inflation has made the cost of goods soar, and Sberbank’s dominant position forecloses healthy competition in an industry that should be composed of few, not thousands of, banks. (see Banker died with job unfinished - Reuters)
Questions:
-Are there other—perhaps more fundamental—problems Russia must solve before its officials can effectively deal with corruption in banking?
-Should such a major issue be dealt with by only Central Banking officials, or should Putin himself become involved?
Andrei Kozlov, a first deputy chairman of Russia’s Central Bank, died Thursday from gunshot wounds he suffered from unknown gunmen who fired at him Wednesday night. Andrei led a fierce campaign aimed at targeting and closing down banks involved in money laundering and other corruption. This is the highest-profile assassination so-far during President Putin’s six-years in power.
In addition to closing down corrupt financial institutions, Kozlov strived for tougher laws, and enforcement of those laws, to help prevent such corruption in the first place. Just last week he called for life-banishment of bankers found guilty of money laundering. His efforts to clean-up the seedy underbelly of Russian banking inadvertently triggered a financial crisis in 2004: after closing a small bank in Russia that he charged with money laundering, a “crisis of confidence” in the banking sector emerged, prompting many banks to sellout to the state. (see Banker led clean-up drive - Reuters)
Officials in Russia—many of whom regarded Kozlov as a man with “unimpeachable character”—believe that Kozlov’s was a contract murder paid for by the type of criminals he put out of business. Many also fear that this tragedy marks a return to the early 1990’s business atmosphere in Russia, where problems were resolved with murder. A member of Russia’s National Banking Council said that Kozlov’s “killers must be found.” (See Banker was anti-graft fighter - CNN)
Despite Kozlov’s massive efforts to clean up Russia’s banking sector, a lot of work still needs to be done, and his gangland style death illustrates the difficulty—and danger—the Central Bank faces in its efforts to root out criminal activities. Hundreds of tiny banks still exist, with no economic rationale, and the system is undercapitalized and unable to channel savings into useful investment. Further, inflation has made the cost of goods soar, and Sberbank’s dominant position forecloses healthy competition in an industry that should be composed of few, not thousands of, banks. (see Banker died with job unfinished - Reuters)
Questions:
-Are there other—perhaps more fundamental—problems Russia must solve before its officials can effectively deal with corruption in banking?
-Should such a major issue be dealt with by only Central Banking officials, or should Putin himself become involved?
Wednesday, September 13, 2006
Singapore to Host 2006 Annual Meetings of IMF and World Bank
Source: Singapore 2006
Singapore will, for the first time, host the 2006 Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank on September 19-20. (see EconomyWatch: IMF-World Bank Annual Meeting). Almost 16,000 delegates and observers (including private sector representatives, journalists, and special guests) will participate in the event. The IMF and World Bank Group hold a gathering of financial representatives from around the world every three years. The meeting’s venue is Suntec Singapore International Convention and Exhibition Centre, which is ranked as one of the top ten of such centers in the world. During the meetings, representatives of the 184 member countries (typically including each country’s Minister of Finance) will discuss issues relating to global economic development and create policy strategies. To adhere to the transparency policy of the IMF and World Bank Group, the findings of the meetings will be communicated to the public through the media. The central theme of year’s Program of Seminars is “Asia in the World, the World in Asia.” Seminar discussion topics include: “Asia Rising: Myths & Realities,” “Corruption, Governance, and Growth,” “Energy & Security,” and “Innovation & Technology.”
Some cite the meeting in Singapore as an opportunity for the IMF and World Bank to move “from general ideas to specific proposals” for reform. [Quoted from a speech made by IMF Managing Director Rodrigo Rato where he presented a long list of reform proposals.] Director Rato has been trying to build a consensus around incremental reforms, in particular, he would like to see greater focus in the IMF’s surveillance reports. He has also marked the upcoming meeting as a chance to reform voting rights. [See, Singapore Hosts IMF and World Bank Annual Meeting] The United States supports reform that increases the voting quotas at the IMF of Asian countries by creating a single seat for the eurozone member countries on the board to make room for the Asians. Although the Europeans recognize the value of increasing Asian representation on the board, they seem less willing to reduce their influence at the IMF to make this happen.
Will the meetings at Singapore produce an effective and all-around satisfactory resolution to the voting dispute regarding the IMF board? What will constitute a “fair” compromise on the parts of all the member countries with regards to their current quotas on the board? Is the stakeholders’ unwillingness to concede influence or advantages to those countries who are actually in need of reform counter to the policies and purposes of the IMF and World Bank?
Singapore will, for the first time, host the 2006 Annual Meetings of the Boards of Governors of the International Monetary Fund and the World Bank on September 19-20. (see EconomyWatch: IMF-World Bank Annual Meeting). Almost 16,000 delegates and observers (including private sector representatives, journalists, and special guests) will participate in the event. The IMF and World Bank Group hold a gathering of financial representatives from around the world every three years. The meeting’s venue is Suntec Singapore International Convention and Exhibition Centre, which is ranked as one of the top ten of such centers in the world. During the meetings, representatives of the 184 member countries (typically including each country’s Minister of Finance) will discuss issues relating to global economic development and create policy strategies. To adhere to the transparency policy of the IMF and World Bank Group, the findings of the meetings will be communicated to the public through the media. The central theme of year’s Program of Seminars is “Asia in the World, the World in Asia.” Seminar discussion topics include: “Asia Rising: Myths & Realities,” “Corruption, Governance, and Growth,” “Energy & Security,” and “Innovation & Technology.”
Some cite the meeting in Singapore as an opportunity for the IMF and World Bank to move “from general ideas to specific proposals” for reform. [Quoted from a speech made by IMF Managing Director Rodrigo Rato where he presented a long list of reform proposals.] Director Rato has been trying to build a consensus around incremental reforms, in particular, he would like to see greater focus in the IMF’s surveillance reports. He has also marked the upcoming meeting as a chance to reform voting rights. [See, Singapore Hosts IMF and World Bank Annual Meeting] The United States supports reform that increases the voting quotas at the IMF of Asian countries by creating a single seat for the eurozone member countries on the board to make room for the Asians. Although the Europeans recognize the value of increasing Asian representation on the board, they seem less willing to reduce their influence at the IMF to make this happen.
Will the meetings at Singapore produce an effective and all-around satisfactory resolution to the voting dispute regarding the IMF board? What will constitute a “fair” compromise on the parts of all the member countries with regards to their current quotas on the board? Is the stakeholders’ unwillingness to concede influence or advantages to those countries who are actually in need of reform counter to the policies and purposes of the IMF and World Bank?
Tuesday, September 12, 2006
Proposed changes in EU banking sector
(Source articles: EU shakes up bank takeover rules - theparliament.com; EU bank bail-outs proposal defeated - FT.com)
Two developments affecting the banking industry are coming out of the European Union (EU). First,Britain and Germany Europe —a legitimate concern in light of the continent’s integrated markets. This measure was defeated out of fear it would send the wrong signal about the availability of emergency public money and because a formulaic response to unique financial crises is inappropriate. Nevertheless, EU finance ministers agree that European nations must work closely to share information, analyze risk, and communicate with the market in order to contain future financial crises.
Two developments affecting the banking industry are coming out of the European Union (EU). First,
1. What prophylactic steps should EU countries take to keep financial crises from spreading? How can the EU take such steps without creating an incentive for financial institutions to take unwarranted risks, knowing that the EU will use public funds to rescue failed institutions?
Ecuadorean Presidential Candidate Creates Unease Over Debt
Source: Bloomberg, Ecuadorean Candidate Correa Says He Might Renegotiate Debt & Bonds Fall This Week Among Emerging Market Debt; Reuters, Ecuador's Correa Eyes Argentine-Style Debt Reform
Leftist presidential candidate and economist Rafeal Correa indicated on September 12 that as Ecuador’s President he would make the renegotiation of the country’s sovereign debt, or the debt guaranteed by the government, a top priority. Presently, Ecuador holds $11 billion in bonds, or a foreign debt worth approximately seven percent of its gross domestic product. Approximately $1 billion of those are set to mature within the year, meaning that the country will be responsible for repaying the principle of the bond and any outstanding interest.
Mr. Correa believes that the money spent servicing the debt would be better spent on social programs within Ecuador. In order to do this, however, Correa claims that existing debt must be restructured. According to Standard & Poor’s, an independent company that analyzes stocks and bonds, “[a]ny unilateral . . . or detrimental change in terms” of a bond constitutes a default. To the chagrin of many foreign investors, Correa refuses to reject a large-scale debt default, stating that “we cannot dismiss an Argentina solution.” In 2001, Argentina defaulted on $95 billion in loans, the biggest default in history.
Mr. Correa, who is currently third in the polls, is not the only presidential candidate to address the country’s debt while campaigning, however. On August 22, the center-left candidate León Roldós threatened to halt interest-rate payments on the government’s foreign debt if elected. Ecuador has a history of debt default. In 1996, the country defaulted on $6.5 billion. It is this past inability to meet financial obligations, coupled with the bold assertions of the candidates regarding the country’s present debt, which makes foreign investors extremely nervous.
What are the risks that Ecuador faces if it defaults on its debt, if any? Is a debt default worth the short-term benefits that could accrue to the country’s social programs because of the increased domestic spending?
Leftist presidential candidate and economist Rafeal Correa indicated on September 12 that as Ecuador’s President he would make the renegotiation of the country’s sovereign debt, or the debt guaranteed by the government, a top priority. Presently, Ecuador holds $11 billion in bonds, or a foreign debt worth approximately seven percent of its gross domestic product. Approximately $1 billion of those are set to mature within the year, meaning that the country will be responsible for repaying the principle of the bond and any outstanding interest.
Mr. Correa believes that the money spent servicing the debt would be better spent on social programs within Ecuador. In order to do this, however, Correa claims that existing debt must be restructured. According to Standard & Poor’s, an independent company that analyzes stocks and bonds, “[a]ny unilateral . . . or detrimental change in terms” of a bond constitutes a default. To the chagrin of many foreign investors, Correa refuses to reject a large-scale debt default, stating that “we cannot dismiss an Argentina solution.” In 2001, Argentina defaulted on $95 billion in loans, the biggest default in history.
Mr. Correa, who is currently third in the polls, is not the only presidential candidate to address the country’s debt while campaigning, however. On August 22, the center-left candidate León Roldós threatened to halt interest-rate payments on the government’s foreign debt if elected. Ecuador has a history of debt default. In 1996, the country defaulted on $6.5 billion. It is this past inability to meet financial obligations, coupled with the bold assertions of the candidates regarding the country’s present debt, which makes foreign investors extremely nervous.
What are the risks that Ecuador faces if it defaults on its debt, if any? Is a debt default worth the short-term benefits that could accrue to the country’s social programs because of the increased domestic spending?
Monday, September 11, 2006
US-South Korea free trade negotiations stalled, future of agreement uncertain
Since January of 2006, the U.S. and South Korea have been engaged in negotiations to finalize a free trade agreement. If the countries are able to agree the resulting FTA will be the largest such agreement for the U.S. since the North American Free Trade Agreement (NAFTA); South Korea is the United States’ seventh largest trading partner. The countries have expressed a desire to complete negotiations by the end of 2006 in order to ensure that the U.S. Congress is receives the agreement for consideration before “fast-track” authority — which permits Congress to approve trade agreements by a simple majority vote – expires in June of 2007. Whether this goal is attainable has been called into question by the fact that the latest round of negotiation between the two nations ended without resolving the most problematic issues, most notably agriculture and products produced in the Kaesong Industrial Complex, a South Korean venture just across the border in North Korea.
On the agricultural front, South Korea the world’s top rice producer, is insisting that this crop be excluded from the agreement. This is a highly charged issue in South Korea, where rice farmers have mounted significant protests to such a provision. Nonetheless, the United States is unlikely to accept such a demand. While some observers believe South Korea might agree to a long-term tariff phase-out, such a concession may be less likely should the agreement include provisions which permit appeals by investors for accelerating tariff phase-out schedules.
The beef trade has been another thorny issue, but appears to be close to resolution, barring unforeseen additional developments. South Korea was the third largest global consumer of U.S. beef until it halted imports in 2003 in response to the appearance of mad cow disease in U.S. beef. South Korea agreed to lift the ban earlier this year — in exchange for initiating free trade talks with the U.S. Until very recently, U.S. beef producers had consistently failed to meet South Korean standards, and the ban had stayed in place. Recent reports indicate that U.S. producers have begun to meet standards and that as a result, the lifting of the ban for some beef products is imminent.
Perhaps the most interesting issue under debate is the Kaesong Industrial Complex. The United States claims it does not have negotiating power to include products from that site because of its location in North Korea. While the real issue here may well be the United States’ rocky political relations with North Korea, observers suggest that an injection of capitalism into that economy, in addition to encouraging requested South Korean concessions, could make more of a difference with respect to undermining the totalitarian regime than the soldiers massed at the border. Additionally, South Korea’s other trading partners, including the Association of Southeast Asian Nations (ASEAN) and four European countries have not allowed Kaesong to present an obstacle to their negotiated trade agreements with South Korea.
SOURCES:
“US official says rice, beef compromises key in trade talks with South Korea,” Yonhap News (September 7, 2006)
“Seattle talks a defining moment in U.S.-Korea trade,” Seattle Times (September 8, 2006)
“Tough US-Korea trade talks end in disappointment,” Washington Post (September 9, 2006)
“US beef given green light,” Vancouver Sun (September 10, 2006)
On the agricultural front, South Korea the world’s top rice producer, is insisting that this crop be excluded from the agreement. This is a highly charged issue in South Korea, where rice farmers have mounted significant protests to such a provision. Nonetheless, the United States is unlikely to accept such a demand. While some observers believe South Korea might agree to a long-term tariff phase-out, such a concession may be less likely should the agreement include provisions which permit appeals by investors for accelerating tariff phase-out schedules.
The beef trade has been another thorny issue, but appears to be close to resolution, barring unforeseen additional developments. South Korea was the third largest global consumer of U.S. beef until it halted imports in 2003 in response to the appearance of mad cow disease in U.S. beef. South Korea agreed to lift the ban earlier this year — in exchange for initiating free trade talks with the U.S. Until very recently, U.S. beef producers had consistently failed to meet South Korean standards, and the ban had stayed in place. Recent reports indicate that U.S. producers have begun to meet standards and that as a result, the lifting of the ban for some beef products is imminent.
Perhaps the most interesting issue under debate is the Kaesong Industrial Complex. The United States claims it does not have negotiating power to include products from that site because of its location in North Korea. While the real issue here may well be the United States’ rocky political relations with North Korea, observers suggest that an injection of capitalism into that economy, in addition to encouraging requested South Korean concessions, could make more of a difference with respect to undermining the totalitarian regime than the soldiers massed at the border. Additionally, South Korea’s other trading partners, including the Association of Southeast Asian Nations (ASEAN) and four European countries have not allowed Kaesong to present an obstacle to their negotiated trade agreements with South Korea.
SOURCES:
“US official says rice, beef compromises key in trade talks with South Korea,” Yonhap News (September 7, 2006)
“Seattle talks a defining moment in U.S.-Korea trade,” Seattle Times (September 8, 2006)
“Tough US-Korea trade talks end in disappointment,” Washington Post (September 9, 2006)
“US beef given green light,” Vancouver Sun (September 10, 2006)
Sunday, September 10, 2006
South Africa’s Economic Alliance with Russia
Putin Forges New Economic Alliance With South Africa
South Africa and Russia entered into an economic alliance on September 6. In accordance with this new alliance several deals between the two countries were forged. Russian tycoon Victor Vekselberg has agreed to invest a billion dollars in a South African magnesium plant and a Russian firm may build an aluminum smelter in South Africa.
In addition, De Beers, the world’s largest diamond producer has agreed to join forces with Russia’s Alrosa in exploring for diamonds in Russia and other regions. Collectively, De Beers and Alrosa account for 75% of the global diamond market. This joint venture will give De Beers access to potentially massive diamond reserves in Russia and will allow Alrosa to benefit from De Beers’ long-established connections in Africa.
President Vladimir Putin believes that these deals have a potential worth of billions of dollars. However, both he and South African President Thabo Mbeki agreed that political relations between the two countries are further along than their economic links, as trade between the two totaled less than $200 million in 2005. Mbeki noted the importance of each country providing support to the other so that further economic progress can be achieved.
South Africa and Russia entered into an economic alliance on September 6. In accordance with this new alliance several deals between the two countries were forged. Russian tycoon Victor Vekselberg has agreed to invest a billion dollars in a South African magnesium plant and a Russian firm may build an aluminum smelter in South Africa.
In addition, De Beers, the world’s largest diamond producer has agreed to join forces with Russia’s Alrosa in exploring for diamonds in Russia and other regions. Collectively, De Beers and Alrosa account for 75% of the global diamond market. This joint venture will give De Beers access to potentially massive diamond reserves in Russia and will allow Alrosa to benefit from De Beers’ long-established connections in Africa.
President Vladimir Putin believes that these deals have a potential worth of billions of dollars. However, both he and South African President Thabo Mbeki agreed that political relations between the two countries are further along than their economic links, as trade between the two totaled less than $200 million in 2005. Mbeki noted the importance of each country providing support to the other so that further economic progress can be achieved.
APEC Wraps Up Meetings
Sources: Taipei Times, CNN, Business Week,
The Asia-Pacific Economic Cooperation Forum, whose 21 members make up half of the world’s trade and 60% of the world economic output, and includes nations such as the US and Canada, wrapped up its second and final days of meetings on Friday, September 8th. These meetings are designed to set the agenda for the November leader meetings in Hanoi.
The United States had wanted to encourage APEC nations, who were integral in reviving the Uruguay round of WTO, to kick-start the Doha talks. However, the Doha talks collapsed in July, and the APEC nations have pledged to restart the Doha round. APEC has long been a proponent for free trade, and made a fresh call for the Doha round. The Doha talks collapsed in July primarily due to disagreements on how to cut farm trade barriers. The US is a strong proponent of APEC trade liberalization because 7 of the top 10 US trading partners are APEC nations.
A second major issue addressed during the APEC talks revolved around the growing trade imbalances involving China. Various nations have blamed global trade imbalances on the Chinese exchange rate policies. For example, the US have accused China of keeping the yuan artificially low to keep Chinese exports attractive, but the Chinese refuted the claim by stating that “China only occupies less than 5 percent of global GDP…by no means can China’s exchange rate (regime) affect the global imbalances.” APEC nations, however, “recognized the importance of joint action toward an orderly readjustment of global imbalances in a way that sustains strong regional and global economic growth, and the shared responsibility that APEC economies have in bringing this about.”
Finally, the APEC nations pledged greater efforts against “terrorist financing.” However, no phrase was included on how to stop money flows for WMD—which was a reference to North Korea’s overseas bank accounts—much to the chagrin of US officials. Various individual APEC officials, however, did commit to stopping WMD financing, and warned against the assumption that APEC was weak or soft on WMD. Furthermore, the APEC grouping did release a statement pledging to “combat terrorist financing, money laundering, and other abuses of our financial system.”
The Asia-Pacific Economic Cooperation Forum, whose 21 members make up half of the world’s trade and 60% of the world economic output, and includes nations such as the US and Canada, wrapped up its second and final days of meetings on Friday, September 8th. These meetings are designed to set the agenda for the November leader meetings in Hanoi.
The United States had wanted to encourage APEC nations, who were integral in reviving the Uruguay round of WTO, to kick-start the Doha talks. However, the Doha talks collapsed in July, and the APEC nations have pledged to restart the Doha round. APEC has long been a proponent for free trade, and made a fresh call for the Doha round. The Doha talks collapsed in July primarily due to disagreements on how to cut farm trade barriers. The US is a strong proponent of APEC trade liberalization because 7 of the top 10 US trading partners are APEC nations.
A second major issue addressed during the APEC talks revolved around the growing trade imbalances involving China. Various nations have blamed global trade imbalances on the Chinese exchange rate policies. For example, the US have accused China of keeping the yuan artificially low to keep Chinese exports attractive, but the Chinese refuted the claim by stating that “China only occupies less than 5 percent of global GDP…by no means can China’s exchange rate (regime) affect the global imbalances.” APEC nations, however, “recognized the importance of joint action toward an orderly readjustment of global imbalances in a way that sustains strong regional and global economic growth, and the shared responsibility that APEC economies have in bringing this about.”
Finally, the APEC nations pledged greater efforts against “terrorist financing.” However, no phrase was included on how to stop money flows for WMD—which was a reference to North Korea’s overseas bank accounts—much to the chagrin of US officials. Various individual APEC officials, however, did commit to stopping WMD financing, and warned against the assumption that APEC was weak or soft on WMD. Furthermore, the APEC grouping did release a statement pledging to “combat terrorist financing, money laundering, and other abuses of our financial system.”
Growing Economic Partnership between Egypt and China
Egypt says China will be Biggest Trading Partner in Eight Years
Egypt Seeks Stronger Trade Ties with China
Mr. Rachid Mohamed Rachid, Egypt's Minister of Trade and Industry, addressed the World Economic China Business Summit held in Beijing and predicted that China would surpass the U.S. as Egypt's biggest individual trading partner within eight years. China has already begun to replace American and European suppliers not just in consumer products, but also capital goods. Mr. Rachid noted that the increase in trade with China will have a "large impact" on Egypt's economic policies.
There appears to be three main reasons for the progress in economic and trade cooperation between Egypt and China. First, Chinese enterprises have begun to show interest in the petroleum, cotton and some other products of Egypt. Second, the Egyptian government is adopting various measures to strive to expand the export of commodities. Finally, it is anticipated that there will be a general growth in the demand for imported commodities in various parts of China.
China and Egypt agreed to set up a Chinese industrial zone in Egypt for joint investment in textiles, footwear and pharmaceuticals, as well as an international exhibitions complex outside Cairo with planned investment of $500 million.
According to Mr. Rachid some of the benefits of their economic relationship are: Egypt has labor costs that are equal, or less than those of China; Egypt has lower energy costs than China; and goods produced in Egypt can go to the European market at lower costs because Egypt has a free trade agreement with Europe.
China has become an increasingly important economic partner to countries in the Middle East, Africa, and Latin America. Is there any reason to be concerned about China's economic policies?
Egypt Seeks Stronger Trade Ties with China
Mr. Rachid Mohamed Rachid, Egypt's Minister of Trade and Industry, addressed the World Economic China Business Summit held in Beijing and predicted that China would surpass the U.S. as Egypt's biggest individual trading partner within eight years. China has already begun to replace American and European suppliers not just in consumer products, but also capital goods. Mr. Rachid noted that the increase in trade with China will have a "large impact" on Egypt's economic policies.
There appears to be three main reasons for the progress in economic and trade cooperation between Egypt and China. First, Chinese enterprises have begun to show interest in the petroleum, cotton and some other products of Egypt. Second, the Egyptian government is adopting various measures to strive to expand the export of commodities. Finally, it is anticipated that there will be a general growth in the demand for imported commodities in various parts of China.
China and Egypt agreed to set up a Chinese industrial zone in Egypt for joint investment in textiles, footwear and pharmaceuticals, as well as an international exhibitions complex outside Cairo with planned investment of $500 million.
According to Mr. Rachid some of the benefits of their economic relationship are: Egypt has labor costs that are equal, or less than those of China; Egypt has lower energy costs than China; and goods produced in Egypt can go to the European market at lower costs because Egypt has a free trade agreement with Europe.
"We want to be China's gateway to Europe, Africa and the Middle East, through
our basket of preferential trade agreements with these markets", Mr. Rachid
Mohamed Rachid, Egypt's Minister of Trade and Industry.
China has become an increasingly important economic partner to countries in the Middle East, Africa, and Latin America. Is there any reason to be concerned about China's economic policies?
Saturday, September 09, 2006
Chile's Competitiveness Plan Aims to Boost Infrastructure Development, Economy, and Trade
(Sources: Bloomberg.com, Business News Americas, Business Chile, The Economist)
As
President Bachelet’s reform priorities also include pension reform and jobs for young people. Recent studies have suggested that the private pension system has failed to provide a sustainable income for retired workers who may have experienced brief periods of unemployment, informal employment, or self employment. A commission will be appointed to study how to revamp the system while remaining faithful to the principle of individual savings accounts. In addressing the 20% unemployment rate among the young, the government hopes to persuade companies to hire hourly workers and to subsidize firms that hire apprentices.
The price of copper,
To read an English translation of the “Chile Competes” Plan, visit
Friday, September 08, 2006
South Korean Companies to Fend Against Hostile Foreign Takeovers
Source: www.ft.com
Under the current system in South Korea, companies must defend themselves against hostile takeovers by foreign investors. The new finance minister, Kwon O-Kyu made statements to this effect and declared that such takeovers are permissible under the financial system of South Korea and that it is up to the companies' at risk management and major shareholders to take up the defense on their own. These statements were made in the midst of calls from the business community in Korea for a helping hand from the government in the form of protective policy.
The reach of foreign investors into its once family-run Chaebol and state-operated companies has pushed the ruling Uri party into considering alternative measures such as the "golden share" rule, which, among other things, introduces a nominal share that has the power of veto over decisions such as takeovers. However, Minister Kwon has called such a provision "out of step with global standards" and expressed doubt that it would be adopted due to Korea's current adherence to free-market principles.
The defense strategies suggested thus far have been met with mixed responses in both the government and business sectors. Some, like Minister Kwon, believe that there are ample measures in place to protect management and that excessive protection can have a negative effect on corporate performance. Others, including many busines groups, recall the popular outcry that followed the takeovers after the 1997 financial crisis, where foreign investors who picked up the distressed companies for cheap made out hugely on profits, leaving many Koreans feeling shortchanged. And still others believe that such defensive measures would diminish the effectiveness of corporate governance rather than improve it - asserting that good performance is the best defense to takeovers.
South Korea is Asia's fourth largest economy, but there are signs that its growth has been slowing. Will a turn away from the current free-market policy towards a more protectionist approach help the country's economic development or hinder it?
Under the current system in South Korea, companies must defend themselves against hostile takeovers by foreign investors. The new finance minister, Kwon O-Kyu made statements to this effect and declared that such takeovers are permissible under the financial system of South Korea and that it is up to the companies' at risk management and major shareholders to take up the defense on their own. These statements were made in the midst of calls from the business community in Korea for a helping hand from the government in the form of protective policy.
The reach of foreign investors into its once family-run Chaebol and state-operated companies has pushed the ruling Uri party into considering alternative measures such as the "golden share" rule, which, among other things, introduces a nominal share that has the power of veto over decisions such as takeovers. However, Minister Kwon has called such a provision "out of step with global standards" and expressed doubt that it would be adopted due to Korea's current adherence to free-market principles.
The defense strategies suggested thus far have been met with mixed responses in both the government and business sectors. Some, like Minister Kwon, believe that there are ample measures in place to protect management and that excessive protection can have a negative effect on corporate performance. Others, including many busines groups, recall the popular outcry that followed the takeovers after the 1997 financial crisis, where foreign investors who picked up the distressed companies for cheap made out hugely on profits, leaving many Koreans feeling shortchanged. And still others believe that such defensive measures would diminish the effectiveness of corporate governance rather than improve it - asserting that good performance is the best defense to takeovers.
South Korea is Asia's fourth largest economy, but there are signs that its growth has been slowing. Will a turn away from the current free-market policy towards a more protectionist approach help the country's economic development or hinder it?
Bolivia's Oil Nationalization Moves Forward
Source: ASSOCIATED PRESS; Bolivia Negotiates Oil Nationalization
September 5, 2006
The Bolivian government began to implement its plan to nationalize the country’s hydrocarbon industry this week by opening negotiations with foreign petroleum companies. Acting in accordance with the May 1 decree demanding the return of Bolivia’s gas and oil resources to the Bolivian people, the French company Total SA met with Bolivian officials to draft a new contract for its continued presence in the country.
As part of the nationalization program, Total agreed to relinquish a majority of the shares of its Bolivian operations to the State. While Total is the first company to negotiate with Hydrocarbons Ministry representatives, Bolivian officials expect that all of the foreign companies operating within the country prior to the nationalization will do so before the November 1 deadline. Those companies that fail to meet the deadline will be required to leave Bolivia.
In addition to the successful start of negotiations, Bolivian officials were able to collect $32.3 million in new gas royalties. This increase represents the 32% difference between Bolivia’s entitlement to 50% of the proceeds of all the revenue gained from oil fields before the nationalization and the 82% required as of May 1. Foreign companies are expected to make additional payments in the coming weeks to make up for the monthly revenues earned between June and September.
These revenues are expected to total over $160 million and will be given to the national energy company, Yacimientos Petroleos Fiscales Bolivianos (YPFB), to aid in its effort to control Bolivian oil and gas production. The financially precarious position of YPFB, a principle reason for the delay in the implementation of the nationalization project, has led to speculation about its fitness to oversee domestic operations. Bolivia has the second-largest gas reserves in South America. See Boliva Nationalizes Gas Industry, May 1 2006, UICIFD Blog for additional information about the move to nationalize.
September 5, 2006
The Bolivian government began to implement its plan to nationalize the country’s hydrocarbon industry this week by opening negotiations with foreign petroleum companies. Acting in accordance with the May 1 decree demanding the return of Bolivia’s gas and oil resources to the Bolivian people, the French company Total SA met with Bolivian officials to draft a new contract for its continued presence in the country.
As part of the nationalization program, Total agreed to relinquish a majority of the shares of its Bolivian operations to the State. While Total is the first company to negotiate with Hydrocarbons Ministry representatives, Bolivian officials expect that all of the foreign companies operating within the country prior to the nationalization will do so before the November 1 deadline. Those companies that fail to meet the deadline will be required to leave Bolivia.
In addition to the successful start of negotiations, Bolivian officials were able to collect $32.3 million in new gas royalties. This increase represents the 32% difference between Bolivia’s entitlement to 50% of the proceeds of all the revenue gained from oil fields before the nationalization and the 82% required as of May 1. Foreign companies are expected to make additional payments in the coming weeks to make up for the monthly revenues earned between June and September.
These revenues are expected to total over $160 million and will be given to the national energy company, Yacimientos Petroleos Fiscales Bolivianos (YPFB), to aid in its effort to control Bolivian oil and gas production. The financially precarious position of YPFB, a principle reason for the delay in the implementation of the nationalization project, has led to speculation about its fitness to oversee domestic operations. Bolivia has the second-largest gas reserves in South America. See Boliva Nationalizes Gas Industry, May 1 2006, UICIFD Blog for additional information about the move to nationalize.
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