Tuesday, October 31, 2006
After years of crisis that have chased foreign investors away, Indonesia is attempting to attract the investors back by holding a three day forum where the country's Ministers will introduce various infrastructure projects that they hope the eight hundred investors attending the forum will invest in. Similar attempts in the past have not shown to be successful, however, for example of the 91 projects offered in 2005, only about 10% of them were actually implemented. Some of the factors lending to investor resistance include tax and labor laws that are unfavorable to them, legal uncertainty, and a chaotic decentralization process.
The strategy Indonesia is putting forth consists of three prongs. The first aims at addressing the legal uncertainty problem by introducing and implementing 120 new regulations to help ensure investor confidence. The second centers on ten model projects valued at $4.5 billion. These include the building of ferry terminals, toll roads, a telecommunications scheme, and water supply systems. The final prong involves the Ministers making themselves available to work out details and answer any questions and quell concerns of the investors during the length of the forum. The country's efforts have been supported by the Asian Development Bank, however, the international community is also still critical of Indonesia's exceptionally low spending on development. Prior to the 1997 Asian Financial Crisis, Indonesia spent about 6% of its GDP towards development, but is at 2% this year. This low spending has manifested itself in an infrastructure that needs a major overhaul, in the opinion of the international development community. The water supply and sanitation systems have been called "abysmal."
1) Will foreign investors buy what Indonesia is trying to sell? or will it take more than optimism and enthusiasm to get investor cash back into the economy?
2) Indonesia has suffered a 44% drop in foreign investment since this time last year and is desperate to revitalize its lagging economy. What other steps can it take to try to bounce back from this investment collapse?
3) Can Indonesia surpass its pre-Asian Financial Crisis development spending rate by 2009 as it plans?
Just days before the deadline President Evo Morales established last May, on October 29 ten foreign petroleum companies operating in Bolivia agreed to comply with the country’s plan to nationalize its oil industry. In exchange for the right to continue operating in the country, foreign companies will now be required to pay increased taxes, hand over the majority of their Bolivian operations to the state, and invest billions of dollars in the country’s energy industry. The money will be used to further oil exploration and production. Initially, foreign investors had threatened to force Bolivia to undergo international arbitration, but failed to follow through with their threat, agreeing instead to negotiate with Morales.
The new contractual arrangements transfer all commercialization of the hydrocarbon industry to Yacimientos Petroleos Fiscales Bolivianos (YPFB), the national energy company. Because YPFB will be responsible for all sales, the foreign companies currently operating within the country will be relegated to mere service providers. Brazil’s state-run energy company, Petrobras, is the biggest foreign investor in Bolivia and was the most resistant to the nationalization program. Throughout the negotiation process, Brazil complained about Bolivia's bullying tactics. Despite previous tensions, however, Brazil’s energy minister has confirmed that Petrobras will become a service provider and accept a tax increase from 50% to 82% in order to continue its Bolivian operations.
Other companies that renegotiated their contracts with Bolivia include Spain’s Repsol, the UK’s BG Group, France’s Total SA, and the United States’ Vintage Petroleum. The president of YPFB anticipates that the new contracts will bring in $1.2 million annually, a step in the direction of realizing Morales' dream that Bolivia will overcome its status as a "beggar" nation.
(1) While President Morales believes that the nationalization program will help the nation develop more quickly, a few petroleum companies have expressed concern that under the new contracts they will not have the money (or incentive) to explore previously unexplored oil fields in Bolivia. Does requiring such a big payout have the potential to backfire if the aggregate money collected from the companies does not equal the investment they would have made on their own? If so, what are some possible consequences?
For additional postings on Bolivia’s move to nationalize see Bolivia Nationalizes the Gas Industry and Bolivia’s Oil Nationalization Moves Forward.
Sunday, October 29, 2006
French President Jacques Chirac arrived in China midweek to forge and strengthen trade between China and France. This is Chirac’s fourth trip to China, and will be advocating for various agreements involving nuclear energy, aviation, rail transport, and finance industries. His goal was to “establish genuine strategic industrial partnerships with China.” He traveled with an entourage of 30 people which included top-level executives from various French companies. The visit by Chirac may also alleviate some tensions from the French sale of Mirage warplanes to Taiwan in the early 1990s.
His visit to China coincides with continuing and increased European Union pressure to improve market access for European goods. The EU is furthering the pressure on Beijing to liberalize various aspects of the Chinese economy—namely pressuring China to remove currency controls. These ties between France (and the EU) and China are critical, as over 800 French companies operate in China, and this is growing, as French exports to China have grown by over one-third in the first half of the year. Furthermore, Chirac is facing domestic pressure as Germany is racing ahead of France in Chinese investment. He has responded in the past year by preparing to deliver four nuclear reactors as well as signing multi-million dollar business contracts.
His visit has concluded in a positive fashion for France. Airbus, along with various other French companies signed over $10 billion in deals. The Airbus deal dominate the agreements, as the China agreed to purchase 150 Airbus commercial jets for $9.9 billion. Furthermore, he has continued to lobby for French state-controlled Areva, which is competing with Westinghouse to build additional nuclear reactors. Moreover, this is also viewed as the final opportunity for Societe Generale to win a $3 billion contract over CitiGroup.
1) How will other EU nations respond to the French overtures in China—especially in light of EU pressure for Chinese structural changes to their economy? In other words—will EU pressure for the structural changes be effective since EU nations are racing to invest in China anyway?
October 26, 2006
A recent World Bank report declared that the Bank’s major irrigation project in
The report which was made public recently, concerned the 1997 drainage program funded by the World Bank. The report’s findings remain relevant today since the Bank has been leaning toward increasing funding to
The Bank’s “lack of environmental and social due diligence” was slammed by a major non-governmental organization, the International Rivers Network. The World Bank defended the project by saying that the floods were caused because of “freak storms” and not because of faults in the project’s design. Also, the Bank claimed that the main drainage system was in place before the Bank began funding the irrigation project. It reserved further comment until the investigation was reviewed by the Bank’s board.
1. Should a “environmental and social due diligence” be conducted before any project is funded by the World Bank? What should the key components of such an investigation be?
A recent report, prepared by a coalition of UK aid agencies and environment groups, warns that climate change in Africa could pose a threat to the efforts to reduce poverty on the continent.
The report states that the continent has been experiencing new and dangerous extremes in climate. In the arid or semi-arid areas of northern, western, eastern and parts of southern Africa it is becoming drier. And, at the same time, other parts of Africa are getting wetter. The average rise in temperature across the continent is .5° Celsius, but the change in some areas is as great as 3.5° Celsius.
According to the report, climate change is an extraordinary threat to food supply. Tony Juniper, executive director of Friends of the Earth, said that if something isn’t soon done about global warming in Africa, people in the developing world will be condemning millions to hunger.
The report suggests a “climate-proof” model of development in addition to substantial cuts of emissions to avoid further and more dramatic change in the African climate.
Many believe that the climate change in Africa is mostly due to the emissions of other countries. What are some ways that African countires can further persuade these countries to reduce their emissions?
Starbucks in Ethiopia Coffee Row
OxFam Press Release - October 26,2006
Starbucks “Blocks” Ethiopian Coffee Bid
Ethiopia, Starbucks Embroiled in Dispute
Earlier this week, Oxfam International, a campaigning, development, and relief organization that seeks to overcome the world’s poverty, accused Starbucks of opposing a plan by Ethiopia to gain more control of its coffee trade and a larger share of the earnings for millions of coffee farmers living in poverty. Last year, the Ethiopian government filed applications to trademark its most famous coffee names, Sidamo, Harar and Yirgacheffe. Securing the rights to these names would enable Ethiopia to capture more value from the trade, by controlling their use in the market, and thereby enabling farmers to receive a greater share of the retail price. Ethiopia’s coffee industry and farmers could earn an estimated $88 million extra per year.
The U.S. Patent and Trademark Office (USPTO) denied Ethiopia’s applications for Sidamo and Harar, creating serious obstacles for its project. Oxfam accuses Starbucks of intervening in the USPTO decision by prompting the National Coffee Association of USA, Inc. (NCA), of which it is a leading member, to oppose the approval of the trademarks.
NCA President Robert Nelson said he thinks the move to trademark the coffee names could actually hurt farmers economically. Nelson said coffee shops may be less likely to buy those types of beans because of fears that advertising the names would provoke legal action.
Sean O'Connor, an associate professor of law at the University of Washington, said he thinks it would be costly and difficult for Ethiopia to maintain the trademarks on the coffee types, if it received them. If it failed to constantly work to enforce the trademarks, the country would risk losing them, he said. Also, O'Connor said, trademarks may not produce higher prices, arguing that it might make more sense to seek the geographic certification for Ethiopian beans, much like wine growers in France have done with the word "champagne." This is the type of process Starbucks also is suggesting.
Starbucks denied instigating opposition to the Ethiopian trademark applications, and denies that it ever claimed ownership to any names used to describe the origin of its coffees. The company also points to its investment in social development projects and micro-finance initiatives that have been widely recognized in the coffee industry.
Oxfam acknowledges that Starbucks has a history of doing more than most of its contemporaries to pay fairer prices to producers for their coffees, but nevertheless stands by its statements.
"Starbucks works to protect and promote its own name and brand vigorously throughout the world, so how can it justify denying Ethiopia the right to do the same?" asked Seth Petchers, Oxfam International’s Make Trade Fair campaign coffee lead.
"Coffee shops can sell Sidamo and Harar coffees for up to $26 a pound because of the beans’ specialty status," explained Tadesse Meskela, head of the Oromia Coffee Farmers Cooperative Union in Ethiopia. “But Ethiopian coffee farmers only earn between 60 cents to $1.10 for their crop, barely enough to cover the cost of production. I think most people would see that as an injustice.”Ethiopia is continuing to pursue its trademark applications in the US. At the same time, it is asking Starbucks and other companies to sign voluntary licensing agreements that immediately acknowledge the country’s ownership of the coffee names, regardless of whether they have been issued a trademark.
Girma Balcha, head of biodiversity at Ethiopia’s ministry of agriculture and rural development, said Starbucks’ use of Ethiopian coffee names without his government’s prior consent violated the International Convention on Biodiversity and in the absence of such an agreement, Starbucks has no legal background to use Ethiopian coffee names.
Question: Does Starbucks' decision to oppose Ethiopia's plans to trademark its coffee show the limitations of the company's commitment to fair trade?
Saturday, October 28, 2006
A year after one of the worst moments of citizen unrest in the European country, a few isolated incidents occurred but nothing that spiraled out of control like last year. However, violence did occur: two buses were torched by youths and police arrested 25 people in French suburbs in the areas of urban decay that were inextricably linked to the riots last year.
Still, the French authorities are calling the first anniversary of the riots a “relatively quiet night.” About 4,000 police were dispatched to areas where they could react rapidly to put down any inciting activities before they spiraled out of control; after several attacks on police officers in poor suburbs in the past few weeks, authorities were concerned that the anniversary would bring severe rioting once more.
While around a thousand protesters marched in commemoration of two youths who were killed last year by police—whose deaths sparked the riots—and thus illustrating their continuing discontent with the government, France cites the 420 million euros (532.4 million USD) that it has reserved to improve life in the suburbs. However, critics say that the root cause of the riots—unemployment, discrimination and bad housing—continue to plague the suburbs. Unemployment in some areas is as high as 40%--four times the country’s national average.
- Is a financial commitment of 420 million euros a sufficient solution to the social problems faced by France? Is there a more appropriate alternative—legislation, perhaps--?
Many EU countries, fearing an exodus of workers from newly admitted EU states to more developed member states, have adopted or are considering laws restricting employee mobility from Central European states. However, a new European Central Bank (ECB) criticizes this approach.
The ECB report argues that employee mobility would help the EU cope with local fluctuations and shocks in the economy. Allowing worker mobility would also help EU nations cope with an aging workforce, and would help the EU become more competitive in international markets.
The report concedes that the exodus can negatively impact the émigrés’ native countries, particularly in light of current labor shortages in many Central European countries. The report also found some evidence that the arrival of workers from
1. Assuming the ECB report is correct when it states that open borders provide an adjustment mechanism in times of fluctuation and shock, why do European counties continue to consider and adopt restrictions on the flow of workers? Do individual nations benefit by such restrictions? In what way?
American Society of International Law; Center for Human Rights and Environment; International Court of Justice; IFC; Inter Press Service News Agency; Latin Business Chronicle; Reuters; World Bank Group
The Argentine protests began in early 2005 after Botnia, a Finnish paper company, received authorization from the government of
Both cellulose mills will utilize the kraft process of extracting pulp with sulphate. Approximately 95% of all wood pulp is manufactured through this process, which entails boiling wood chips in a caustic soda to create a strong, brown-colored pulp. The pulp is then bleached, in order to remove the brown-tinted lignin, using chlorine or chlorine dioxin, sodium hypochloride, and oxygen peroxide. The byproducts of this bleaching process are the main cause for alarm among opponents of the mills. Traditionally, the bleaching process used chlorine as the primary agent—today this method is used in approximately 20% of pulp production—which produces high levels of organochlorines (dioxins and furans). These compounds are two of twelve POP (Persistent Organic Pollutants) designated by the Stockholm Convention as being highly toxic to living organisms. Consequently, the majority of pulp mills in operation today use an alternative bleaching process, known as ECF. The proposed mills in Uruguay will use this method. The Elemental Chlorine Free (ECF) process—used in nearly 75% of all wood pulp—significantly reduces the amount of organochlorides produced. (A third process, Totally Chlorine Free (TCF), was recently developed and accounts for only 5% of all wood pulp manufactured; it is currently disfavored because it is cost prohibitive and creates an inferior product.)
The estimated cost of Celulosa de M’Bopicua (CMB), ENCE’s proposed mill, is US$ 600 million; it will produce 500 thousand tons of wood pulp annually. ENCE halted construction last month after deciding to move its mill to another region of Uruguay. Botnia’s mill, Orion, is projected to cost nearly US$ 1.2 billion and produce one million tons of pulp per year. Together, the two pulp mills represent the largest foreign investment in
Despite Argentina's continuing resistance to the project, Uruguayans welcome the pulp mills (local polls indicate only 16% public disapproval). Earlier this year,
Meanwhile, a World Bank study conducted by independent researchers supports Uruguay's position. The final cumulative impact study, released on
Argentina has ten older-generation pulp mills; once completed, the two new mills in Uruguay, designed to use cleaner technology, will produce more than twice the total output of Argentina's ten mills. To what extent is Argentine opposition motivated by economic rivalry in addition to (or rather than) environmental concerns? (Argentina's environmental record is worse than Uruguay's: Euromonitor reports Argentine daily organic water pollutant emissions are more than seven times Uruguay's emissions rate.) Will Argentina generate its own environmental fact-findings to counter the EcoMetrix reports? If the roles in this conflict were reversed, would Uruguay have the economic or political ability to intervene in Argentina's economic development plans? How should a country balance its interests in increased employment and economic growth against environmental interests? What if the environmental interests are those of a foreign coutntry?
Friday, October 27, 2006
The Reserve Bank of India (RBI) had originally set March 31, 2007, as the deadline for Indian banks to implement the revised capital adequacy guidelines, known as Basel II. However, implementation has proven to be a more daunting task than once expected. Although RBI, India’s central bank, is close to issuing the final guidelines of Basel II, the implementation deadline looks like it will be delayed six months to a year.
RBI has adopted a plan to slowly phase in Basal II implementation. Foreign banks and internationally active Indian banks will be first to implement the new guidelines. Next, implementation will infiltrate to other banks in the country.
Under Basel II, banks will be required to have their loan accounts rated by rating agencies in order to properly allocate capital according to the bank’s perceived level of risk. One of the biggest hurdles of Basel II implementation has been empanelling new rating agencies, since current credit rating capacity is not enough to satisfy the new rating requirements under Basel II.
To help with the higher demands for rating agencies, RBI has proposed that “banks need not get ratings for loans below certain amounts and allocate capital for such loans as prescribed for unrated exposure.” RBI has also adopted the more standardized approach of measuring capital adequacy and has decided not to adopt the more sophisticated internal ratings-based approach when the banks and regulators make the necessary preparations.
1. By not adopting the more sophisticated procedure to measure capital requirements, which would decrease the banks’ necessary capital holdings, will the Indian banks be at a disadvantage to the international banks who do adopt the more sophisticated approach?
2. Is RBI’s cut-off strategy that will enable banks to not obtain ratings for loans below a certain threshold amount a good strategy for Indian banks? Should other countries’ central banks adopt a similar approach?
North American poet Robert Frost is perhaps most well known for his poem “Mending Wall”, which begins “[s]omething there is that doesn’t love a wall…” This monumental work is called to mind given the reaction elicited by U.S. plans to build a wall on its southern border.
U.S. President George W. Bush yesterday signed the Secure Fence Act of 2006 into law, setting into motion a plan to “take control” of the U.S. border with Mexico by erecting a 700 mile (1,125 kilometer) fence. The move was condemned by current Mexican President Vicente Fox, as well as President-Elect Felipe Calderon. Both have compared the border fence to the Berlin Wall and called it “deplorable,” “an embarrassment to the United States,” and a grave mistake.
However, opposition to the wall is not limited to Mexico. A coalition of 27 countries joined Mexico in making a declaration to the Organization of American States (OAS) expressing “profound concern” over the plan. Additionally, Mexico plans to take its concerns to the United Nations (UN) and has urged Canada to join it on opposing the U.S. border fence.
The question raised by such political developments is to what extent—if any—they will affect economic relations between the U.S. and its neighbors to the south (as well as Canada, should that nation join Mexico in condemning the plan). While the United States has long been invulnerable to outside pressures due to its dominant economic and political stature, this may be less the case given the growing economic interdependence between nations that has resulted from international trade and expanding markets together with the slowing-down of the U.S. economy.
Mexican leaders noted that the plan revealed the United States' inability to see immigration as an issue of shared responsibility and that "building walls is an unfriendly gesture" that will not solve the immigration problem.
Conversely, U.S. officials contend that the plan will lead to "orderly migration."
1. What role does politics play in trade relations?
2. Might the U.S. border wall plan have negative repercussions on the North American Free Trade Agreement (NAFTA) and/or plans for the Free Trade Area of the Americas (FTAA)?
Tuesday, October 24, 2006
Panama’s citizens voted overwhelmingly on October 22 to approve the expansion of the aging Panama Canal. Seventy-eight percent of the votes cast were in favor of the expansion, and the canal is now set to undergo the most comprehensive renovation since it was first constructed in 1914. Presently, the canal is unable to accommodate most ships built after 1990, and Panama anticipated losing some of the 5% of world trade that passes through its locks if the referendum failed. Now with the voters’ approval, engineers will start to work on doubling the canal’s capacity by adding a third set of locks and generally deepening and widening the canal.
Overall, the project is expected to cost $5.25 billion, or 1/3 of the country’s gross domestic product (GDP). The work will begin in 2007 and last approximately seven years. The state-run company responsible for operating the canal since the United States relinquished control in 2000, the Panama Canal Authority (PCA), will be responsible for financing much of the expansion. The PCA is expected to contribute 60% of the funding for the project and thereby limit the debt that the country must shoulder in order to pay for the project to no more than $2.3 billion. The PCA anticipates that the project will largely be paid for by increasing tolls; it expects to generate over $6 billion by 2025.
Despite its passage, not everyone voted in favor of the plan. In opposition, critics cited the likelihood that the project will run over budget and overburden the already debt-ridden country. Additionally, environmental activists are troubled by the likelihood that construction will further damage marine ecosystems and that another set of locks could cause salt-water-contamination of the fresh-water reserves inland.
These concerns were generally drowned out, however, as the government frequently touted the link between the canal’s expansion and its efforts to alleviate the country’s poverty. At one point, Vice President Lewis called the expansion of the canal an “essential” element in the reduction of poverty. This proved to be a persuasive argument at the polls in a country where poverty levels reach 40% and the unemployment rate is consistently above 9%.
Panama’s government often highlights the fact that a portion of the proceeds from the canal go to education and social programs. Critics, however, point to a history of corruption and believe that Panamanians will never see most of the money the expansion generates. As one citizen stated, “With that kind of money, there’s a lot to steal.” What types of safeguards should be put in place to ensure that the economic benefit of the expansion is not undone by corruption?
Monday, October 23, 2006
Paul Wolfowitz, president of the World Bank criticized China heavily for its lending policies towards developing nations in Africa. He claims that China's big banks have been ignoring the "Equator Principles" which is a code of conduct whereby private lending banks promise to meet specific social and environmental standards. Most of the commercial banks of the world have adopted these guidelines which have existed since 2003, when the International Finance Corporation, the private arm of the World Bank, launched them. President Wolfowitz asserts that despite the fact that the Chinese banks are relatively new to these guidelines, they must avoid making the same mistakes that the U.S. and France did with regards to Zaire's president Joseph Mobutu Sese-Seiko. (Mobutu became president of Zaire in a coup in the 1960s with the support of the U.S. and subsequently bankrupted the country by borrowing too much from western banks and the World Bank.)
President Wolfowitz's concerns involve the possibility that China's lending to developing countries that have benefited from debt relief may throw the countries back into the cycle again by causing them to be heavily indebted once more. While good borrowing can help to uplift a nation's income, bad borrowing can undo a lot of good that these countries have worked hard to line themselves up to receive. Countries like India and Venezuela stand in the same position as China with regards to the poor countries they lend to.
Unfortunately, the talks between Wolfowitz and Chinese officials have not resulted in an alignment of viewpoints. This may change as other IMF members pressure China to live up to the increased voting power it received on the IMF board by accepting more responsibility to the international financial system and responding to the increased scrutiny it will be receiving accordingly.
1. What will it take to convince China to be a leader in the international financial community under the terms that the developed nations that went before it have set?
2. Will China respond to the added responsibility and pressure that an increasingly central role in today's global economy?
3. What measures should the World Bank and IMF take to ensure that China's lending policies do not undermine the programs these international institutions have set up to benefit developing nations?
Sunday, October 22, 2006
Chinese economic growth has slowed over the past three months, with its economic growth rate slowing to 10.4%--from the record high of 11.3% in the three month period from April to June. Industrial growth has also dropped 1.9% to 16.2%, but total trade has increased. Inflation has remained low, at 1.9%. This likely indicates that the governmental policies meant to curb “rampant growth” has taken its desired effect. Uncontrolled growth can often lead to an inflation crisis or other financial crises. The Chinese government has called this undesired effect “overheating” and implemented a series of policies to prevent out of control lending, inflation, and leaving government and banks exposed to bad debts.
“The central government undertook a series of macro-economic control policies and these policies have achieved initial effects since the third quarter,” NBS spokesman Li Xiaochao told a briefing in Beijing. Over the past year, these measures have included two interest rate hikes, increases in bank reserve requirements, and the intentional slowing of the land sale market. Furthermore, the government has given fewer approvals for new business investments.
Economists, moreover, comment that most of this “slow growth” was expected. The growth is higher than what the Chinese government had been targeting, however, and the Chinese believe that the higher than predicted growth rates may continue. Economists are thus further encouraging “tightening measures” to “contain investment.”
1. How effective can Chinese growth-curtailing implements be in our globalized economy?
UN Calls on Liberia to do More to Curb Conflict Diamonds but Praises Timber Reform
In a press statement released on Friday, October 20, the United Nations (UN) Security Council applauded Liberia’s new timber law and retained its ban on Liberian diamonds. The Council stated that Liberia’s new timber law should ensure a transparent, accountable, and government-controlled forestry sector. A previous ban on round logs and timber from Liberia was lifted by the UN Security Council on June 20. However, before the UN will lift its ban on Liberia’s export of rough diamonds, regarded as “blood diamonds” because they help finance conflict, Liberia must accelerate its implementation of necessary reform measures.
Trade in illegal diamonds has been blamed for fuelling wars in Liberia and Sierra Leone in recent years. The UN imposed the ban in May 2001. Liberian leader Ellen Johnson-Sirleaf has urged an end to the ban so the money can be used to rebuild the war-torn nation.
The UN Security Council urged "stronger management and effective verification and accountability mechanisms, so that Liberia can soon join the Kimberley Process,” an international certification process, according to the statement, read by current council president Kenzo Oshima, of Japan. The council will re-examine the issue in December.
The Kimberley Process, a UN resolution passed in 2000, is a joint government, international diamond industry and civil society initiative to stem the flow of conflict diamonds that have financed rebel movement wars against legitimate governments in many African countries such as Angola, Cote d'Ivoire, the Democratic Republic of Congo, Sierra Leone and Liberia.
The Kimberley certification scheme imposes extensive requirements on participants to certify that shipments of rough diamonds are free from so-called "blood diamonds." The Kimberley Process, which currently has 45 participants in its voluntary scheme, including the European Community, account for approximately 99.8% of the global production of rough diamonds.
Question: Is the UN ban harming Liberia by hindering the nation's reconstruction?
Saturday, October 21, 2006
The British government reacted in what critics are calling a knee-jerk fashion when it decided to pull the plug on its “open door” policy on immigrants in order to cease the flow of Eastern Europeans from countries like Romania; the drastic measure was taken in response to the recent inclusion of such countries in the EU.
Home Secretary John Reid defended the decision as necessary, saying that such immigrants are flowing into his country in numbers that the economy and workforce cannot sustain; the fear of working-class Britons about the impact on their jobs is reflected in the decision. However, the UK faces criticism for the disparate treatment shown to Poland: it gave the latter’s migrants unlimited access to its country in 2004.
The decision has yet to be cleared by cabinet colleagues and is still being finalized; it is expected to allow a limited number of unskilled workers for routine jobs like fruit picking, but offer no general right to work. Britain is not allowed to stop citizens of any new EU countries from moving to the UK, but by taking away the promise of jobs it gives would-be migrants a huge disincentive for choosing to do so.
Meanwhile, critics say the number of current and potential migrants used as a justification for the decision is greatly exaggerated, and that the UK is unfairly denigrating the image of Romanians and Bulgarians. Critics also argue that allowing unlimited access would decrease the incentive for illegal labor, and help fuel economic growth.
- Is Britain correct in its cost-benefit analysis of the Eastern European migration issue? Will this hostile treatment of Romania and Bulgaria stymie faith in the EU as a unified region of governments?
Jens Erik Gould
New York Times
World bank officials recently stated that high incidence of crime in Latin American countries could be curtailing growth rates of individual countries by as much as 8 percent. Widespread insecurity about crime has forced companies to expend resources on preventing violence, protecting employees and property, as opposed to producing their products.
Widespread crime has also dampened growth by lowering productivity and high school and college graduation rates. According to World Bank economist Andrew Morrison, who authored a report on crime for the
1. What is the best way for Latin American countries to try and eradicate crime? What can the developed world or multilateral institutions such as the World Bank and the International Monetary Fund do to help in this regard?
Digital Granma Internacional: Suscriben Cuba y China convenio de cooperación biotecnológica (English version)
Voice of America News: Cuba y China anuncian nuevo acuerdo en neurotecnología (Spanish only)
This past Thursday, Cuba and China concluded a week-long conference on biotechnology and genetic engineering by signing a joint agreement on neuroscientific research and the development of associated products. This marks the third such agreement between the two countries. China is one of Cuba’s largest trading partners, second only to Venezuela.
The conference, which took place in Havana, reviewed the developments of each nation to date. Cuban researchers discussed advances in cancer treatments and neurology while their Chinese counterparts reviewed developments in new vaccines and cochlear implants adapted to the Chinese language. Another major topic was increased cooperation and collaboration between the public health programs of both nations and the provision of pharmaceuticals.
1) Political tensions prevent Cuba’s engagement in trade with most western countries.
a. To what degree should political choices determine economic relations (e.g., the 40-year North American blockade on Cuba)?
b. China and Cuba are both communist countries, yet China is considerably more integrated into world markets. To what extent is this difference one that Cuba has chosen as opposed to one that has been thrust upon the nation by U.S. disapproval of their political system?
Friday, October 20, 2006
On September 26, the European Commission approved
But the expansion comes with risks. Both countries, despite fast-growing economies, are extremely poor, more than any of the other eight post-communist nations that have already joined the EU. And both countries are notorious for their corruption. There is also a fear that admission would create a mass influx of workers into existing, and more stable, EU countries.
To counter these problems,
1. Should the EU continue its expansion into
2. Will the EU’s new strategy of placing safeguards and restrictions on EU membership strengthen newly admitted nations?
Thursday, October 19, 2006
The World Bank confirmed on October 16 that one of the biggest development challenges that Latin American and the Caribbean still currently face is violent crime. Due to a homicide rate more than twice the world average, the United States Agency for International Development (USAID) claims that business associations have identified crime as the largest deterrent to private investment in Latin America. Instead of focusing on conducting normal business operations, companies are forced to spend additional money and resources on security for both their employees and their property. These expenditures can dramatically increase the overall costs of doing business. The Vice-President of Colombia, Francisco Santos, recently called crime “the biggest problem of the next decade . . . [i]t will hinder tourism, investment and threaten democracy.” Since 2002, Colombia has seen a decrease in the homicide rate by forty-three percent. Many economists believe that the nation's increase in private sector investment is a direct result of that recent decline.
Crime does not only inhibit private investment in the region, however. Economists and World Bank officials agree that it has also retarded national economic growth by more than eight percent. For example, according to a report that the World Bank issued to the Brazilian government last month, if Brazil’s homicide rate in the late 1990s had been as low as Costa Rica’s, per capita income in Brazil would have been approximately $200 higher. In other words, each person could have been approximately $200 richer. Additionally, with a lower homicide rate, the gross domestic product (GDP), or the size of the economy, would have been 3.2 to 8.4 percent higher in the second half of the decade.
Issues of youth violence have also worked their way into the development debate. In early October, the Inter-American Development Bank (IDB) specifically addressed the ways in which youth crime is financially draining countries throughout the region. During an IDB forum, experts from Colombia, Argentina, Panama, and El Salvador discussed the ways in which violence has affected those nations economically and culturally. Their testimony confirmed the findings of a 2005 IDB report that stated that preventing youth violence can cost between 5 and 25 percent of a country’s GDP.
Sensing the economic and social strain, Guatemala has taken a novel approach in its attempt to deter youth crime. Last March, private businesses and USAID funded the reality television show Challenge 10: Peace for the Ex where ten ex-gang members were provided with job training in order to open up small businesses. By turning former criminals’ rehabilitation into a television show, the private sector and the government hoped to demonstrate alternatives to crime. As José Garzon, an officer with USAID in Guatemala stated, “When you have 150,000 gang members in a country with only about 8,000 jail spaces, you have to figure out how to deal with the rest.”
(1) Policies to deter crime in Latin America have historically focused on law enforcement. Are alternative approaches such as Guatemala's television show realistic alternatives? What are the benefits of a more holistic approach to decreasing crime? In what ways would they have a greater (or lesser) impact on encouraging development?
(2) Should more attention be paid to non-violent crime? What are the development implications of corruption, government-sponsored or otherwise? Is it fair to say that this type of crime poses an equally strong barrier to development in the region?
Tuesday, October 17, 2006
Asian markets are rounding the end of a strong year in 2006 and still going steady. This surprises some market analysts given the domestic upheavals that spotted the region this past year. However, the analysts are sounding warnings to the tune that, whether the market shows it or not, the risks of investing in the Asian stock markets have increased sharply. One particular concern is whether Thailand's new post-coup military regime will be able to keep a stable social and political front. Although the former ruler, Thaksin, was ousted because of his weak legitimacy, the unelected regime currently in power has even weaker legitimacy. In addition, the longer the new ruling power postpones elections for, the higher the chances that social unrest will again plague the country. In the Philippines, India, and Indonesia, the growing threat of international terrorism are predicted to take a blow to the economic, social and political stability of each of these countries.
In addition to these domestic factors are the external factors, such as the United State's reaction to North Korea's nuclear testing. The Bush administration is pushing for extreme sanctions against North Korea, which the United Nations may not support. Taking the matter in its own hands by sidelining the U.N. and pursuing the sanctions anyway will inevitably cause an escalation in the conflict between the U.S. and North Korea. If this escalation culminates in a military confrontation between the two nations, the economy of South Korea would probably be one of its first major casualties.
Despite the solid showing of most of these countries' markets in 2006, the state of domestic and foreign affairs affecting the Asian countries is predicted to eventually manifest itself in the market, as investors' risk perceptions become more closely aligned with actual investment risk in the region. This in addition to forecasts of a recession to hit the U.S. in the early part of 2007 has some analysts projecting a rough year ahead for the affected Asian countries as unrest continues.
1. How should the U.S. approach the situation in North Korea to best preserve South Korea's market?
2. Might the simultaneous occurrence of so many political and social upheavals in the region have a "perfect storm" effect that may end up chasing foreign investors away in higher numbers and over a wider region?
3. What could "bystander" countries, such as South Korea, which stands to lose out due to the political unrest of neighboring North Korea, do to cushion a possible tumble in its markets?
Last week, the World Bank called for governments to have comprehensive hazard approaches in avoiding natural disasters. In 2005, natural disasters “killed more than 90,000 people and affected more than 150 million lives.” According to the World Bank/Columbia University report entitled “Natural Disaster Hotspots: Case Studies,” 2005 was a record year for natural disaster-related incidents. The 360 natural disasters in 2005 caused $159 billion in damage, a 71 percent increase over the total losses of $93 billion in 2004.
Factors contributing to the trend of natural disasters include the following: population and economic growth, rapid urbanization, environmental degradation, and climate change. According to the report, if countries do nothing to protect themselves from natural disaster risks, then this expensive trend will continue.
“Natural hazards and their impacts,” said Katherine Sierra, World Bank Vice President for Sustainable Development, “will continue to evolve throughout the 21st Century due to changing socioeconomic conditions, coastal land use, and climatic risks. These reports, which provide the most comprehensive, accurate data of multi-hazard hotspots to date, can help improve disaster risk assessment globally and locally.”
National policy makers, planners, and humanitarian aids should understand the scale of a hazard, estimated costs, and how to identifying vulnerable groups in order to help improve emergency preparedness and save lives and assets.
1. How successful do you think developing and implementing a comprehensive disaster-relief plan will be to save international funds spent on natural disasters?
2. Can we really control population and economic growth, urbanization, climate changes, and coastal land use in order to curb the growth of natural disasters?
3. Are underdeveloped nations capable of developing such a plan for which the World Bank is calling?
Sunday, October 15, 2006
Opec Moves to Reduce Production
Algeria is one of Africa’s largest oil and gas exporters. In recent years, frequent oil and gas discoveries have helped boost Algeria’s economy after years of political upheaval and violence. By 2010, Algeria’s daily oil production is set to increase from 1.5 million to 2 million barrels. Algeria is estimated to have oil reserves of nearly 12 billion barrels, attracting foreign oil companies like Shell, BP, Anadarko Petroleum, and Hess Corporation.
Algeria is taking measures to exercise more control over its natural resources and capture more of the financial benefits of high global oil prices. Beginning in early 2007, Algeria will tax the “excess” profits of oil companies between 5-50% when oil prices average more than $30 a barrel. The Algerian parliament also agreed to give Sonatrach, the state-owned oil firm, an increased 51 percent stake in the country’s exploration and refining contracts. It will also be mandatory for Sontrach to be involved in all future development projects. The tax will apply to existing production agreements between Sonatrach and private operators, as well as those signed in the future.
“This will have a positive effect on future generations.” – Algerian Energy Minister Chakib Khelil said of the measuresAlgeria announces these measures in the wake of its endorsement of an OPEC (Organization for Petroleum Exporting Countries) proposal for a one million barrel per day reduction in oil production. Oil prices have been sliding in recent months prompted by a weaker than expected hurricane season and solid U.S. inventories of oil stocks.
Question: Are these amendments likely to scare off international investors from Algeria?
As well known, North Korea likely detonated a small nuclear device earlier this week. This nuclear test was immediately met with universal condemnation from the international community, with nations such as Japan and the United States immediately threatening both economic and military sanctions upon the reclusive hermit state.
On Saturday, the United Nations unanimously approved a resolution imposing penalties and sanctions upon North Korea. Even traditional allies such as China and Russia agreed to the sanctions. President Bush praised the resolution—calling it “swift and tough.” North Korea immediately rejected the resolution, calling it “gangster-like” and walked out of the council chambers.
The United Nations, by a 15-0 vote of the Security Council, called on Pyongyang to end all nuclear weapons programs. Furthermore, the resolution prohibited any UN member nation from involving themselves with nuclear or weapons of mass destruction trade with North Korea. The resolution allowed for various nations to inspect goods “as necessary” going in and out of North Korea. In a compromise with China and Russia, however, these stop and search inspections were not required—but left to individual discretion.
North Korea’s reaction was expected. Pyongyang’s delegate to the UN, derided the resolution, and stated that his country “totally rejects the unjustifiable resolution.” Furthermore, Pak Gil Yon, Pyongyang’s delegate, said that if the United States continued to increase pressure upon North Korea—the “DPRK will continue to take physical countermeasures, considering it as a declaration of war.” The DPRK ambassador, however, mentioned that bilateral negotiations may eventually conclude with a de-nuclearization of the Korean peninsula.
Will these sanctions make a real difference, as many of the nations engaging in the WMD and nuclear trade with North Korea may disregard the sanctions?
What are the ramifications of such a test—will this lead nations like South Korea, Japan, and Taiwan to also pursue their own nuclear weapons arsenals?
The Libyan government has consented to providing its 1.2 million school children with laptop computers. It hopes to accomplish this by June of 2008. The laptops are cheap and durable (as they are rubber coated) and will provide internet access. They are powered by a wind up crank and cost about $100 a piece. These laptops made their first appearance at the World Summit on the Information Society.
The project is meant to reflect Libyan leader Colonel Muammar Gaddafi's desire to generate a more open Libya. There is also talk of the laptops being purchased for other, poorer countries as One Laptop Per Child (the group selling the laptops) was set up for the purpose of selling the portable computers to developing nation governments.
1. How will providing laptop computers to the children of Libya make it a more open country?
2. What else can Libya do to help make the country more open?
Saturday, October 14, 2006
The EU’s European commission has recently urged Euro leaders to improve its relationship with “strategically important neighbors” such as energy-supplying Russia. Russia currently supplies roughly 25% of the EU’s gas and oil, making it’s role key in continuing economic growth in the region.
However, concerns over human rights violations in the former super-power have complicated negotiations and led to uneasiness on both sides; a spokeswoman for the commission assured the public that it has not put aside those concerns because of its dependence on Russian energy. She further noted that the energy dependence goes both ways – the EU is Russia’s largest energy client. The spokeswoman also insisted that the EU use its economic link to Moscow as a means of influencing it on human rights issues.
Meanwhile, the EU’s “European Institute of Technology”, part of an effort to spur innovation in the field of energy and other technologies, and its development have been delayed due to a less than enthusiastic response from the business and academic sectors in the EU. The commission says that plans for the EIT will now be agreed upon by October 18th.
- Would development of alternative fuel technologies serve to improve or destroy relations in the region between Russia and the EU?
The Chilean government’s Orígenes Program—a program inaugurated in 2001 to support rural communities in the regions of Tarapacá, Antofagasta, Bío Bío, Araucanía, and Los Lagos—is slated to receive $US 45.2 million from the Inter-American Development Bank (IDB). The program strives to improve the living conditions and integration of indigenous peoples in
However, in 1993, Congress approved Law No. 19.253 “for the Protection, Promotion, and Development of Indigenous People” which, for the first time in
CONADI will manage the second phase of the Orígenes Program, financed through the loan approved by the IDB last week. The declared objectives of the Orígenes Program, as explained on the government’s website, include the promotion of inter-cultural understanding, the availability of bilingual education, and the improvement of indigenous-community schools. In addition, the program strives to preserve indigenous identity through the annual sponsorship of cultural projects relating to folk arts and crafts, historical preservation, linguistics, storytelling, and traditional medicine or healing practices. The program also aims to strengthen rural communities by improving traditional methods of agrarian production, ensuring indigenous participation in project management, raising levels of private investment, and improving access to public services.
The first phase of the program, which received US$ 34.8 million from the IDB, incorporated cultural relevance training for public officials and increased the average income of participating families. The new loan is for a fifteen-year term with a five-year grace period.
During the 1990s, CONADI came under sharp criticism by members of the Mapuche and Pehuenche communities who resisted the construction of the Pangue dam (and the Ralco dam currently under construction) along the Bío Bío River. The government had excluded the Mapuches from the planning of the hydroelectric system, whose construction resulted in the flooding and destruction of ceremonial and burial sites, the expulsion and resettlement of families from their lands, and the sale of indigenous lands in violation of the 1993 Indigenous Peoples Law. This law grants to indigenous peoples the exclusive right to decide whether to exchange their land rights, which may only be exchanged for rights over other land of equivalent value and similar characteristics; in other words, land rights cannot be transfered absent consent. CONADI oversees the transfer of land rights and has power to approve or reject the agreements. At the time of the controversy, the President removed from office CONADI members who had expressed opposition to the hydroelectric project. This failure to act on behalf of indigenous rights undermined CONADI's legitimacy in the eyes of many of the Mapuche and Pehuenche communities.
In Chile, the rights of the Mapuches and other indigenous groups are often incompatible with models of economic growth endorsed by the state. For instance, in the name of economic growth and the public interest, the government has infringed upon the rights of the indigenous in order to meet rising energy demands. (Plans to construct four new dams, in 2008, along the Baker and Pascua Rivers in order to generate more electricity are currently underway. ) Why are the interests of the indigenous groups not considered part of the public interest? What prevents their interests from being factored into earlier stages of policymaking by the government? How should the government balance the developmental needs of the indigenous minority and the dominant majority?
Approximately 80% of the Mapuche population now lives in urban shanty towns. Do rural-dwellers in possession of desirable land for hydroelectric development or the forestry industry have a stronger political voice or presence? Does their alignment with environmental groups increase their political influence?
Is there an inherent conflict of interest in delegating the representation of indigenous interests to CONADI? What alternatives are there to this arrangement?
October 12, 2006
According to top revenue officials at a recent international meeting in
Some analysts have also highlighted that since private equity firms place an emphasis on minimize tax bills, total tax revenues are likely to fall as private equity firms assume control of an increasing number of firms. A recent Citigroup study found that private equity funds in addition to altering capital structures were very focused on “how tax can be used to generate value.” The study also found that the industry was compelling many companies to transfer their tax residency to lower tax countries. This is especially widespread in the European Union where tax migration is relatively simple.
Of course many critics including the global head of tax at big-four firm KPMG, Loughlin Hickey, have labeled the concerns advanced at this
1. In recent times many private equity funds have shifted their focus to developing countries. If tax revenues of governments do fall, how might this affect the growth prospects of such developing countries?
2. Is the solution increasing regulation of the private equity industry or decreasing it as advanced by Loughlin Hickey?
Friday, October 13, 2006
Under its new $350 million, 5-year plan for Colombia, the U.S. Agency for International Development (USAID) announced on October 11 that it will completely eliminate development funding for Caquetá and three other impoverished southern regions. The cuts come despite the fact that these areas have seen a recent explosion in coca production, the plant from which cocaine is made. Since shortly after the initiation of Plan Colombia, a multi-faceted anti-narcotic initiative started by the Colombian government in 1999, USAID has provided money for development programs in high coca-production areas in hopes of discouraging farmers from growing the crop.
Around $70 million out of Plan Colombia’s $4 billion effort is spent on these development programs annually. Strikingly, the regions where coca production is most concentrated typically receive the least amount of aid. For example, Caquetá, an area that produced approximately 24 percent of the coca that the United States detected in Colombia during its most recent survey, has been allotted only $5.6 million for development programs since 2000. USAID’s new plan, however, means that from now on Caquetá will receive nothing.
Critics claim that by failing to provide money for the regions where alternatives to coca cultivation are most needed USAID completely undermines the United States’ war on drugs. The number one cash crop in Caquetá is coca, and most coca farmers grow the crop because there are few other sources of income. Consequently, with USAID’s recent refusal to provide financial support, the alternatives for Caquetá’s 450,000 residents have been further diminished.
USAID claims that the development money it previously spent in Caquetá is better used in areas where there is a higher likelihood of long-term success in eradicating coca; the security risks and lack of private investment have made work in the region unfeasible. Plan Colombia will still affect Caquetá, however, as the program’s "non-development" wing has no plans to diminish searches for coca, arrests for growing the crop, and wide-spread aerial fumigation. Notably, not all development programs in the region have been abandoned. Nestle SA will continue to operate a dairy plant in Caquetá with aid from the United Nations.
(1) One critic of the USAID’s funding cut has declared that it is “all stick and no carrot.” What are some of the potential consequences of using aggressive coca eradication tactics, including potentially harmful aerial fumigation, without providing citizens with realistic alternatives to participating in coca production?
Switzerland Adopts Basel II Framework: Reuters.com
RBI to announce Basel II guidelines: HindustanTimes.com
Basel II – US no closer to consensus: ChaseCooper.com
Banking sector divided over Basel II deadline: FinancialExpress.com
The Basel Committee on Banking Supervision adopted the Basel II Accord as the new capital adequacy regulations for internationally active banks. Basel II aims to align global bank capital standards and introduces new formulas to more closely tie capital requirements to asset risk, replacing a less-differentiated standard in force since 1988. Initially, internationally active banks were to implement the regulations by year-end 2006, but many concerns and disagreements over the guidelines has delayed implementation.
On September 29, Switzerland adopted the Basel II framework and announced that the country’s banks must adhere to the regulations beginning on January 1, 2007. Additionally, Switzerland’s Federal Council formally incorporated the Basel II guidelines into Swiss law. However, other countries are struggling to begin implementation, as deadlines are continually being extended.
On September 26, India’s central bank, the Reserve Bank of India (RBI), announced, “[w]e will post the final guidelines for implementation of Basel II norms in the next couple of weeks.” However, the guidelines have not been posted and the Indian banking industry announced yesterday that it is divided over the March 31, 2007, deadline for Basel II implementation. Many are calling for an extension of the March deadline. According to MBN Rao of the Canara Bank, “[p]ublic sector banks in India may need some more time to put in place the required management information system (MIS) for implementation of Basel II norms…. Marginal extension of the deadline is desirable.” On the other hand, PP Mallya of the Vijaya Bank, noted that they are on schedule to meet the current deadline.
Furthest from implementation of Basel II is the U.S.: “With agreement in most countries as to the implementation of Basel II, the USA appears to be no closer to consensus on the approaches, conditions and timing of its own implementation.” The consultation process of Basel II is in progress and is likely to end in January, 2007. However, the U.S. will not fully adopt Basel II until 2009, a full year later than global adoption of Basel II is expected.
1. Do you think Switzerland’s adoption of Basel II will urge other countries to adopt Basel II before year-end?
2. What are the main factors contributing to U.S.’s delay in Basel II implementation? Is a 2009 deadline attainable?
Thursday, October 12, 2006
Record US trade deficit casts doubt on growth (Financial Times)
Beige Book Reads Like Goldilocks (The Street.com)
New worry: A hard 'soft landing' (CNNMoney.com)
Trade gap record near $70 billion (CNNMoney.com)
The U.S. reported a record high trade deficit in August despite increases in exports. Reported at a total of $70 billion, the largest deficit is with China, at $22 billion.
One commentator, a University of Maryland economist, suggested that an element of the import/export disparity between the U.S. and China is the latter’s insistence on “pegging” its currency to the U.S. dollar instead of allowing it to rise in a manner accurately reflecting the strength of the Chinese economy. Regardless, the continuing trade deficit raises concerns that the U.S. economy will see less growth in the third quarter than originally forecasted (i.e., well below 2%).
Additionally, the Federal Reserve Board today released its “beige book,” a survey of economic indicators provided by its 12 districts. While White House economists and others urged that the economy is holding steady, the report showed further slippage in two mainstays of the U.S. economy — housing and domestic automobiles — and industry representatives report that it is unlikely that either market has yet hit its lowest ebb.
A lagging housing market could have a substantial impact on the nation’s economy because of diminished access to cash by virtue of smaller increases in equity and other affected businesses (e.g., home improvement, builders). Likewise, the "Big 3" automakers have reduced output due to decreased demand while imports of autos into the U.S. is on the rise, a situation which may reflect a movement away from SUVs and light trucks toward more fuel-efficient models. Slowing in housing and domestic auto markets, together with the growing trade gap, has contributed to fears that the U.S. economy is in for an all-out recession.
Perhaps the brightest spot in U.S. financial reports is the recent fall in oil prices, one of the commodities that saw increased imports in August. However, economists caution that the fact that prices will still be at historical highs.
Is China undervaluing its currency? If so, is there something that could or should be done about it?
What can the U.S. do to strengthen exports? To what degree might globalization and the trend of relocation to other countries by many U.S. manufacturing interests contribute to the nation’s continuing trade deficit?
Has the U.S. depended too much on its domestic housing market to keep its economy afloat?
For more information on the beige book, click here.
Jose Manuel Barroso, current European Commission president, promised to cut red tape on business in the European Union by one-quarter. But progress has been slow. As of last month, however, only five of fifty-four simplification measures have been completed.
Undaunted, the EC told seventeen member states it must remove the privileges and protections granted to notaries. In many EU countries, important legal transactions must be scrutinized by a notary. The EC wants to eliminate, in particular, restrictions that prohibit foreign attorneys from performing notarial services or that limit the number of notaries that can operate in one region. The EC insists such restrictions are incompatible with the EU’s open market underpinning.
Targeted countries, which include nine of the ten states that joined the EU in 2004, as well as Germany, France, the Netherlands, Belgium, Austria, Greece, Portugal, and Luxembourg, contend that notaries are public officials, who perform public duties similar to judges and that they deserve special status. As an integral part of their legal system, they argue, notaries should be exempt from market forces. Despite strong resistance from these countries, the EC intends to file suit in the European Court of Justice if the targeted countries maintain the current protective notary system.
1. To what extent might an individual nation’s legal system interfere with transnational markets?
2. Should the EC have the right to dictate changes to a country’s legal infrastructure with the intent to reduce transaction costs and increase market efficiency?
Wednesday, October 11, 2006
On October 4, the Inter-American Development Bank (IADB) announced it had approved a US$ 50 million loan to fund efforts to modernize
The IADB and
Situated between South America’s two largest economies (
The business environment the country is fostering is conducive to foreign investments for myriad reasons. For instance, Uruguayan law does not favor local investors over foreign ones. There are no additional restrictions, such as taxes or tariffs, on foreign businesses wishing to operate in
The tax systems of emerging-market economies differ from those of industrial countries in many respects. For example, in emerging-market economies, total tax revenues expressed as a fraction of the GDP are lower than those in an industrial country. Generally speaking, the income tax base in an emerging-market economy is lower since only a small fraction of the population pays income tax. In
Another significant feature of emerging-market countries is that social programs must typically rely more on expenditures than on the tax system. Will a modernized tax system, together with foreign investment in
Following North Korea's announcement that it had conducted an underground nuclear weapons test on Monday, South Korean stocks dropped sharply. The incident has raised concerns that a heightened risk premium may drive investment money away from South Korea's economy. South Korean stocks plunged more then 3% immediately after the announcement before making a slight recovery to 2.4% before the Kospi stock index closed. This was Seoul's lowest level in more than six weeks. Analysts stated that the drop reflected investor worries that political tensions will trigger a sell down in Asian markets and that money will flow out of South Korea. Whatever moves North Korea makes after this point will continue to have an impact on trade.
Some analysts wonder whether the impact of the testing will have an effect on other countries with present political difficulties or instability such as Thailand, which is still reeling from their recent coup. The markets of Europe only showed minor closing changes, but Hong Kong's Seng fell approximately 1.3%. Singapore's Straits Times Index closed down 1%, and Malaysia, Australia, and India's indices indicated minimal drops.
1. Will South Korea experience an exodus of foreign investors that some fear?
2. What steps could South Korea and other Asian countries take to safeguard their economies from potential acts of provocation by Kim Jong-Il in the future?
Sunday, October 08, 2006
Millenia old rivals, Japan and China, have agreed on at least one issue: the North Korean missile tests “cannot be tolerated.” The hermit state’s long time—and possibly only rival—agreed with Japan that a nuclear armed North Korea would be a “great threat to East Asia and the international community.” The two leaders urged North Korea to rejoin the six-nation talks, after North Korea walked out over a year ago. Japan will continue to press North Korea without any conditions, and China will continue to press its ally to abandon the nuclear tests. Beijing has called on North Korea to avoid actions that “intensify relations.”
This most recent meeting was the first in over a year, and the first full visit in over five years. Beyond the North Korean agreement, the two sides agreed to cooperate on a wide array of concerns from economic matters to environmental matters. This would clearly be a dethawing of some of the hardening of relations between the previous Japanese leader and China. There were still disagreements on other issues, however, including the infamous “shrine” incident. Shinzo Abe, Japan’s prime minister, refused to make any promises on whether he would or would not visit the Yasakuni Shrine (the Japanese shrine which honors the war dead—including those convicted of war crimes). He only promised to handle the issue “appropriately.” On a more positive note, however, the two nations agreed to embark upon a joint historical study to determine history of the Sino-Japanese relations.
The two leaders also promised that this would not be the only meeting between them. Both sides have expressed hope that friendly relations would continue, and in that spirit, the Chinese president will visit Japan. Furthermore, the leaders agreed to arrange another meeting at the annual APEC meetings in mid-November, and again at the East Asia Summit of ASEAN.
How will North Korea react to the pressure exerted by China—and conversely—if North Korea continues to pursue nuclear arms testing—how will China respond?
Oil Wealth Fails Chadian Villagers
Oil Politics Fuel Chad Violence
The African country of Chad has settled a dispute with two foreign oil companies after they agreed to pay more than $280 million in overdue taxes. In August, Chadian President Idriss Deby threatened to expel Petronas, a Malaysian company, and Chevron, an American firm, from the country saying they owed more than $500 million in overdue taxes.
However, on Friday, the two firms signed an agreement that will allow them to continue operations in the country. Chad also agreed to waive a $64 million charge as a gesture of goodwill. Both Chad’s finance minister, Abbas Mahamat Tolli, and the African director of Chevron, who represented both companies, signed the agreement.
Under the agreement, the money must be paid within the next seven days. It will also render the original tax agreement, signed in 2000, as invalid. One unresolved issue is Chad’s desire to join the oil consortium in producing oil. President Deby believes Chad should have a 60% stake in the consortium - the same share that the two firms hold between them. (Exxon Mobil hold the remaining 40%.)
Chad has been exporting oil on a significant scale since 2003, after the construction of a 1,000 mile pipeline from Chad through Cameroon to the coast. That project was given crucial backing by the World Bank, which lent money and support on the basis that much of the income would go to alleviate poverty in the region.
The World Bank insisted on setting up a group called the 5% Committee - which allocates extra oil revenues to the oil-producing region. But despite being set up almost two ago, the committee has yet to finish a single project. Giant electricity pylons and gas flares dominate the landscape in southern Chad, but the people living amidst the oil fields do not receive any power in their villages.
In early 2006, the Chadian government changed its laws, giving itself greater discretion to spend oil revenue as it saw fit. Some of the money has been spent on arms. The World Bank subsequently froze large sums of development aid to Chad as a mark of its displeasure.
1. Is Chad’s mineral wealth contributing to the country’s instability and making life worse for most people, rather than bringing them higher living standards?
2. How can the World Bank ensure that income generated by projects it funds will go to poverty alleviation?