US, EU reach deal on Internet Gambling

Sources: InformationWeek, Financial Times

On Monday, December 17 the EU and the US entered into a new bilateral deal includes opening up opportunities for research and development, storage, warehousing, and postal sectors. This American offer was in compensation for the closing of the US market to online gambling companies. The United States has also reached similar agreements with Canada and Japan.

The agreement was met with mixed reviews—primarily negative from the gambling sector. Clive Harkswood, the chief executive of the gambling trade association, says that the companies will be losing approximately US$ 4 billion in revenue per year.

Several major online gambling have seen drops in their share value, and the new deal likely will not change their values. Accordingly, the Remote Gambling Association, the trade association representing gambling interests, has filed a former complaint under the EU Trade Barriers Regulation. The complaint asks the EU to "investigate discriminatory enforcement as an illegal barrier to trade." The RGA claims that the “US Unlawful Internet Gambling Enforcement Act,” or the “UIGEA,” outlaws foreign online gaming companies while allowing US companies to not suffer.

The WTO has already looked favorably on these types of claims against the United States. The WTO has already ordered the US to grant compensation after it refused to open up the sector. Furthermore, the WTO will soon rule on Antigua’s US$ 3.4 billion request for compensation.

DISCUSSION Question:

If the WTO forces the United States to pay compensation for the closing of the online gambling market, can the US renegotiate its deal with the EU? What else could happen, if the United States is slapped with a multi-billion dollar penalty?

China to Play a Greater Role as Donor at the World Bank

Source: World Bank works with Chinese on Africa; China to Play Greater Role in World Bank

On December 18, 2007, World Bank President Robert Zoellick visited Li Ruogu, the chairman of the Chinese Export-Import Bank to discuss the possibility of conducting joint development projects in the future. The visit also addressed international concerns about Chinese lending in Africa. China has distinguished itself from other donors by not attaching conditionalities to its loans; however, it has yet to provide guarantees of debt forgiveness, either.

Zoellick’s visit reflects the change in the World Bank’s approach to China. The Bank is now working to accommodate China as it transitions from recipient to donor country. As Zoellick noted at his meeting with Li, China has recently made donations to the International Development Association at the World Bank. The Bank is now seeking to recruit more Chinese staff.

Discussion:

Should the World Bank give China more voting power within the Bank as part of that country’s transition into a donor country? Why or why not?

Bank of the South Launched

Sources: Why South America wants a new bank; Bank of the South could be an ‘opportunity:’ IMF chief

Seven Latin American countries established the Bank of the South—an alternative regional development bank—on December 9, 2007. While the Bank is widely understood to be part of Venezuelan President Hugo Chavez’s anti-American political agenda, it is reflective of a general sentiment in Latin America that the World Bank and the International Monetary Fund (“the IMF”) have not been responsive to their needs. Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay, and Venezuela signed the founding documents. Chile, Peru, and Colombia have postponed their decisions to join the Bank.

Despite its launch on December 9, the Bank still needs to finalize the Bank’s operational procedures. The seven founding members disagree on how funds should be raised.

Some observers have dismissed the Bank as simply another outlet for Chavez’s political motivations. However, others—including former World Bank economist Joseph Stiglitz and the current IMF Managing Director Dominique Strauss-Kahn—have suggested that the Bank may assist in the international development efforts by providing competition to the more established international financial institutions.

Discussion:

How should the Bank of the South define itself in relation to the World Bank, the IMF, and the regional development banks? Given Chavez’s express dismissal of these institutions as America’s puppets, how do you think that the new bank will cooperate with the existing institutions?

A Troubled UK Economy

source: Record UK deficit heads wave of bad data
Despite government assertions that the UK economy will “weather” global financial storms, the credit squeeze continues to wreck havoc on financial health. Data from the first eight months of the financial year reveal the worst public finance deficit ever as well as an annual drop in new mortgage lending. The Office for National Statistics revealed that the current account deficit widened from £13.7 bn to a record £ 20 bn in the third quarter. This deficit is equivalent to 5.7 percent of the gross domestic product, leaving Britain with the largest current account deficit in the group of seven leading countries. Analysts suggest that the sudden and deep deterioration in public finances will result in a shortfall of tax revenues.
The rapid increase in the current account deficit is largely attributed to big revisions to foreign investment incomes. A gap the large between what Britain spends and what it produces has never proven sustainable, leading to either falling currency to boost exports or a sharp slowing in spending to curb imports.
Similar worries plague the housing market. The Council for Mortgage Lenders said that gross mortgage lending last month was 8% lower than in November 2006. This marks the first annual decline in more than two years. The Council attributed the trend to a lack of available funding.

Questions for discussion
1. Is Britain’s financial trouble likely to affect its position in the global economy? If so, in what way?

Kazakhstan’s Credit Crisis

Source: Kazakhstan's Bank Lending Frozen in Subprime Squeeze (Bloomberg)

Kazakhstan is experiencing a credit crisis as much of the $40 billion that Western Investors have brought into the country is not evaporating. As one analyst notes, international credit markets crumbled after the fallout in the United States subprime mortgage market.

Quantifying the problem, Kazakhstan banks' sales of Eurobonds and syndicated loans, dropped from $8.6 billion, in the first eight months of 2007, to $300 million in the following three months. Other metrics show a similar economic problem. Not all analysts and players are pessimistic about the present and future. The chairman and principal owner of Kazakhstan's second-biggest financial institution, Ablyazov believes “that some seven to eight months will pass, and we will cope with the situation.''

After the discovery of the Kashagan oil field in 2000, Foreign investment increased dramatically. The new wealth is transforming what had been an “economic backwater.” To fund consumer and business demand for credit, Kazakhstan's banks jumped into international markets. As a result of the influx of foreign money, the country's banks grew their assets 10-fold since 2002, to $94.7 billion as of Nov. 1.

However, the aforementioned credit crisis has caused a reversal. From August through October, $6.8 billion in foreign currency flowed out of the country—28 percent of the central bank's total. To combat the recent problems, the government pledged to support the lenders' needs with up to $4 billion on Nov. 14. Many analysis do not see a recession in Kazakhstan’s future, rather they see more moderate or flat growth in the new future.

Questions for discussion: (1) What effect will the Government’s pledge have on the economy; (2) How deep and long-lasting will the credit crisis be in Kazakhstan?

Hiatus

This blog will be on a hiatus for the holidays beginning December 24 and ending January 14. Please visit our blog in January for more news and events in the international finance and development community.

IMF’s expectations for Canada’s economic outlook take a change for the worse

Source: IMF lowers Canada's 2008 economic outlook

The IMF expects a lackluster year in 2008 for Canada, having on Wednesday decreased its projections for its economy from its original projections earlier. The IMF gives as a reason for this downward trajectory Canada’s neighbor and largest trading partner: The U.S. Unfortunately, because of the poor shape of the U.S. economy, Canada is being dragged down as well.

As recent as October, the IMF had projected that Canada could expect economic growth in the 2.3 percent range, but now says that is not going to happen—however, the Fund wouldn’t commit itself to saying exactly how much less than 2.3 percent growth would be, claiming instead that a firm figure will be published in early February.

The IMF further said that this downward trend will continue as pressure from external factors and an increasingly weakened US and Canadian dollar take their toll on the countries’ respective economies; accompanying this will be a slowing down of domestic demand in both regions.

Nevertheless, the IMF commended the Bank of Canada’s choice to cut interest rates down to 4.25 percent in early December, undoing damage done by a point hike that had occurred in July.


Question: Would a simple increase in domestic demand be enough to save Canada from this economic downturn?

China From “Prudent” to “Tightening” Stance on Monetary Policy

Sources: China Shifts to Tighter Policy

China announced this week that it will tighten its monetary policy, which analysts say indicate their concern about their economy’s growth rates. Beijing officials announced that they worry about the increasing rate of investment, which is the main factor in the acceleration of the economy. They are concerned that inflation in the food sector will soon spread into other sectors. China’s economy has grown by almost 12% already this year. A poll of investment bank economists revealed that they expect China’s economy to grow by more than ten percent again in 2008.

Question:

What are some of the social effects that are likely to result if China is unable to stabilize its growth?

Korean Leaders Meet to Implement Summit Agreements

Sources: Korea Premiers in Rare Meeting, Korean Prime Ministers Meet

North and South Korea’s prime ministers met in mid-November in a follow-up meeting to the summit held in early October. The goal of the meeting was to discuss implementing the agreements reached during the summit. One of the agreements reached was to establish a fishing area to be used by both countries. They discussed setting this area up in the Yellow Sea, near a region that has historically been a point of dispute between the two countries.

One hope held by the South Korean government is that such economic cooperation will solidify the denuclearization of North Korea. South Korea is also going to provide a large aid package to North Korea, which some estimate could cost billions of dollars.

Question:

What might be some of the social effects (positive and negative) of the efforts towards inter-Korean economic accords?

U.N. Seeks to Reduce Burden on China and India to Reduce Carbon Emissions

Sources: U.N. Focuses on Carbon Burden, U.N. Carbon Tax Advocacy Opens Old Wounds

A report by the U.N. Development Programme recommended that countries like China and India should not be required to carry the full or even equal burden in reducing carbon emissions in light of the fight against climate change. It suggested that these countries be required to reduce their emissions by 20% by 2050, while the industrialized countries, such as the U.S. aim for an 80% cut.

The White House announced that it would not sign onto any agreement that did not include China and other similar rapidly developing countries. Debates about the share of the burden of carbon emission reductions were a focal point of U.N. meetings on global warming in Bali, Indonesia. The report estimates that the world needs to spend 1.6% of gross domestic product every year until 2030 to keep carbon emissions below dangerous levels.

Questions:

1) Do you think it is fair for the U.N. to recommend that industrialized countries shoulder most of the burden in the fight against global warming?

2) What might be some alternative solutions or compromises?

Gazprom Considers Investment in Bolivian Natural Gas

Source:
Financial Times - Gazprom Eyes $2bn Gas Deal in Bolivia

After the nationalization of Bolivia's energy sector last year, the country is now the target of a potential $2 billion natural gas investment from the Russian energy giant Gazprom. Although some foreign companies still operate in Bolivia, the decision to nationalize and the rhetoric from Bolivian leader Evo Morales have made foreign investors hesitant. Bolivia has the second-largest gas reserves in Latin America, behind Venezuela.

Bolivia is not currently producing enough natural gas to meet its commitments to Brazil and Argentina. It is estimated that Bolivia will need $3.2 billion in investment in order to keep pace with their foreign export commitments, increasing production to 75 million cubic meters per day from 39 million cubic meters per day.

The Bolivian government, through its state-owned company YPFB, would prefer to partner with another state-owned entity such as Gazprom. State-owned energy companies have become more important in the past several years, as governments seek to take direct advantage of their natural resources.

The interest from Gazprom comes amidst a new $750 million investment in Bolivia from Brazil's state-run Petrobras company.

Chile Leads Region in Information-Technology Use

Source:
El Mercurio (Santiago) - Argentina desplaza a Chile en Celulares por Habitante


Chile is the most technologically-savvy country in Latin America, according to a new study released by that country's University of Navarra. In a survey of consumers in Argentina, Brazil, Chile, Colombia, and Mexico, it was Chile that had the largest number of internet users per capita as well as the most computer owners. Chileans also spent the most on information technology products each year.

However, Argentina displaced Chile as having the most cell-phone users per capita, with 977 per 1000 people compared to Chile's 828 per 1000 people. This is the result of Argentina's explosive 40% growth in cell phone usage within the past year alone.

Nevertheless, the study concluded that Chile was overall the most technologically-advanced of those countries surveyed. Chile has 360 internet users per 1000 people, and computer ownership increased to 263 per 1000 people. Chileans spend around $489 per capita annually on technology information products and services. This is in contrast to Mexicans, who spend a region-low $269 on comparable goods and services. However, even Chilean consumer spending pales in comparison to United States technological spending: $4,136 per person annually.


Discussion:
1. Does Chilean and Argentine consumer spending on technological items demonstrate a greater innate desire for these items, or is it merely a symptom of those countries' relatively high standard of living and economic success?

Investors speculate on the future of Egypt's economy as Mubarak prepares to step down

SOURCE: Voice of Bahrain: Gulf Daily News—“Succession Fears May Hit Egypt Growth”

Reports today suggest investors are nervous about what will happen to the Egyptian economy when its current leader, President Hosni Mubarak, steps down. Mubarak is seen as having been successful in keeping social pressures in the Arab country under control during his administration.

However, some analysts suggest that signs point to the transition being a smooth one, noting the nearly 45% rise in the Egyptian stock market and appreciating currency.

They also point to speculation that Mubarak is grooming his forty-three year old son Gamal to succeed him. From an economic standpoint, it is thought that he would do well as is credited with spearheading the reforms that have led to dramatic growth in the Egyptian economy.

FOR DISCUSSION:

How might a country preparing to undergo transition of political power protect its economy from nervous investors?

Africa-EU summit addresses some issues, but not Darfur.

SOURCE: Deutsche-Welle—“First Verbal Shots Fired as Leaders Gather for EU-Africa Summit

This week, representatives of nations of the European Union (EU) and the African countries met in Lisbon for a summit that is to focus on the relationship between the continents. The EU is Africa’s biggest trading partner, but China trade between China and African nations is growing rapidly.

The summit began controversially as Britain’s Prime Minister Brown boycotted the event in response to the presence of Zimbabwean President Mugabe. Additionally, Libya’s leader Moammar Ghadafi began by asserting that the European nations that carved up and colonized Africa should now pay reparations for the damages caused. Reports indicate that while the majority of African leaders may not share Ghadafi’s views, his words underscore the uneasy relationship between the continents, borne from Europe’s imperialist past.

Other issues that will be raised at the summit include African nations’ discomfort with the economic partnership agreements “EPAs” that it feels the EU is attemting to pressure them into accepting. South Africa, the continent’s largest economy has asserted that “detrimental issues” in the EPAs—which most African countries view as unfavorable to their interests—needed to be addressed.

For the Europeans, charges that Zimbabwean President Robert Mugabe has committed scores of human rights abuses and undermined that nation’s economy is high on the list of issues to address.

FOR DISCUSSION:

Do you believe that the issues to be addressed at this summit are relevant? Are there more pressing issues, such as the genocide in Darfur, that should be on the table?

UK Blocks EU efforts to broaden benefits for temporary workers

Source: UK Blocks EU Drive for temps' job rights

Gordon Brown only narrowly avoided being outvoted on a draft directive that would award temporary workers full pay after six weeks. Britain was among only a few states opposing the directive, perceiving it as an imminent threat to its flexible labor markets. Although it appeared at one point that the ministers would obtain the broad consensus necessary to pass the law with a qualified majority, Portugal, chair of the meeting, said that such an agreement was not possible and opted against a vote. This failed legislation is illustrative of the underlying divisions in Europe over social laws.
British employers praised Brown’s success. Business leaders in London argued that the law would impose extra costs on employers as well as making work less flexible. The CBI employers’ body argued that this legislation would result in the loss of a quarter of million UK jobs. A majority of British employers support an award of full pay for temporary workers after a period of six months, rather than six weeks.
The unions, however, expressed “real anger” that the UK government played such a pivotal role in blocking the progress of this proposed legislation. Currently, Britain and the unions are engaged in a long-running dispute regarding the union’s maximum 48-hour work week. It is possible that protecting Britain’s exemption to the work week maximum may require an acceptance on the proposed rights of temporary workers. However, at this point, union leaders say that such a coercive agreement would be “ a terrible way to do business.”

Questions for Discussion
1. Are the ongoing negotiations with the unions likely to force Britain to agree to increase benefits for temporary workers?

World Bank gets lackluster marks in new report released by its own Independent Evaluation Group

SOURCE: Independent Evaluation Group—“Development Results in Middle-Income Countries, An Evaluation of the World Bank’s Support

A report on the World Bank's continuing work with Middle Income Countries (MICs) was released in September of this year. There are 86 MICs across the globe, on every continent save North America, Australia and Antarctica (the first two due to the relative wealth of the nations situated there, the last because no one lives there). For example, on the African continent fourteen countries are identified as MICs. These include all the countries along the continent’s northern coast and southern region, as well as three isolated outliers: Gabon and Equatorial Guinea in the east and Djibouti in the west. Central Africa is not represented.

In general, the report, conducted by the Bank’s Independent Evaluation Group (IEG), found that while the Bank had focused efforts on bettering tailoring its programs to meet nation-specific needs, there is still room for significant improvement. While the Bank’s efforts have promoted growth in MIC countries, the cost has been rising inequality and inadequate social programming. This is particularly problematic given that MICs are home to one third of the world’s poor. Additionally the report notes that more attention needs to paid to environmental issues associated with Bank projects in these countries and that internal cooperation between the various Bank programs to realize the best outcomes in MICs has been “underwhelming.” Another area of concern is the failure to incorporate MICs in shaping global planning—this is troubling given the number of countries in this group and that at least one rising economic powerhouse, China, is an MIC.

At the same time, the IEG implies that part of the problem for the Bank is the rapidly changing needs of the MIC client population. While the report is not a glowing one—it frankly sounds as though the Bank is struggling with this sector, which is the recipient of two thirds of its assistance—it recognizes the challenging nature of the task the Bank has set itself. On a different note, the candor with which the IEG sets forth its statement of areas where the Bank has fallen short convinces one that it is in fact independent, for it is unlikely it could have published such a report otherwise.

Click here to download the full report and view interactive maps of the MICs.

FOR DISCUSSION:

How might MICs be better incorporated into global planning?

Fed Cuts, Again?

Sources: CNN Money, Financial Times, Chicago Tribune, San Francisco Chronicle

Will the United States cut interest rates again? The Federal Reserve suggested last month that it would likely not cut interest rates again, but it is expected that Federal Reserve will interest rates within the next two weeks. Ben Bernanke (Chair of the Federal Reserve) stated that the tight credit conditions, high energy prices, and housing crunch will lead the central bank to be “exceptionally alert and flexible.” Over the past week, stock markets in London, Hong Kong, Japan, and the US all gained on the Fed Chair’s comments. On Friday, London’s FTSE closed 2.7 percent higher. The Dow Jones rose 59.99 points, gaining three percent for the week.

Domestic US economic reports also led to speculation that an interest rate cut is coming. Spending and income slowed in October—and the actual growth in spending was not due to additional purchases but rather increased prices. These are signs of a slowing economy. Furthermore inflation is exactly on par with economists’ forecasts, giving the Fed Reserve a go-ahead for interest rate cuts. Some senior economists believe that, in light of the slowing economy an interest cut is recommended. According to one, it’ll “lower stresses on the banking system.” However, it could add pressure to the weakening dollar.

Question: Will interest rates drop to the lows from several years ago? And will this be the last time the Federal Reserve cuts interest rates in the near future?

World Bank reports on Thailand’s economy

Sources: Business Week: World Bank: East Asian growth robust; Bangkok Post: Thailand's economic growth lowest in region, World Bank says; China View: World Bank urges Thailand to enhance economy

The World Bank has requested the new Thai government to aggressively clarify its ambiguous state policies. The World Bank estimates Thailand’s economy is growing by 4.3% in 2007, the lowest in five years and also the lowest in the region. Thailand has suffered from waning investor confidence and a stagnant economy. The World Bank believes that private investment will greatly help Thailand’s economic recovery. The World Bank economist for Thailand stated that investors and the public are waiting to see indications of a clear direction regarding the new government’s policies which influence their confidence.

The World Bank believes that Thailand’s prospects in 2008 are better if the country can overcome its political uncertainties. Milan Bramhbhatt, author of the World Bank's East Asia Pacific Update, commented "Given that exports are going good, once the political questions are resolved, it is possible the economy could experience a sharp snapback and growth could improve quite significantly." In September 2006, Thailand experienced a military coup. Since then, it has been under an interim military-appointed government. The new government will be formed after the December general election and will likely be in place by February.

The World Bank estimated that East Asian economies are likely to remain healthy. East Asia’s economy was expected to grow 8.4% in 2007 and 8.2% in 2008. For example, the World Bank estimated that in 2007, Indonesia’s economic growth would reach 6.3%, Malaysia would reach 5.7%, the Philippines would reach 6.7%, Vietnam would reach 8.3% and China would reach 11.3%.

For discussion:
Are countries headed by military commands always subject to worldwide investment disfavor? If so, why?

A Step Toward An Economic Zone In The Caucasus

Source: Eurasia Daily Monitor “Former Soviet Republics and Turkey Back Economic Zone In Caucasus”

Turkey is making progress towards creating an economic zone in the Caucasus. The latest evidence is the November 21 launch of the Baku-Tbilisi-Kars (BTK) railroad project that will link Azerbaijan and Georgia with Turkey. However, obstacles remain. The biggest obstacle is the dispute with Armenia and Azerbaijan. Many international financial institutions have not supported the proposed economic zone because of the aforementioned dispute. As a result, Azerbaijan, Georgia, and Turkey have financed the $420 million project.

The recently completed railway, which will eventually connect Far Asia with Europe, is also open to other countries. Turkish President Abdullah Gul said, “This project is very important for the regional peace, stability, and prosperity.” The Turkish President added, “we are in fact taking a step toward the realization of a big project that will change history.” The idea for a railroad began in 1993. However, disputes and blame between the region’s countries prevented the idea from coming to fruition.

The railroad is important to the bigger picture as it demonstrates the necessary road, air, and railroad connections the joint economic zone will require. Turkish President Gul conveys Turkey’s optimism about the project and the larger economic zone. On a related note, bilateral trade between Georgia and Turkey is planned to reach to $1 billion by the end of this year, as the two countries negotiate a free-trade deal and an agreement to prevent double taxation.

Israel Supreme Court Approves Fuel Cutbacks

SOURCES:
BBC News—Court Approves Gaza Fuel Cutbacks

The Supreme Court in Israel has approved fuel cutbacks to the Gaza strip. Human rights groups describe the move by the Supreme Court as “illegal collective punishment.” The Israeli government responded to these human rights groups by arguing that the cutbacks are economic sanctions to defend against the attacks by Palestinian militants.

The Islamist movement Hamas has controlled the Gaza strip since June. The Supreme Court told the state they must delay electricity cuts that were supposed to be implemented on Sunday. The Court expects that this decision will prevent electricity cuts to Gaza by the military. However, human rights groups continue to believe that the Court will not intervene in the fuel cuts.

Some have suspected that the court ruling was aimed at “increasing the siege on Gaza.” Petroleum companies have begun protesting against the Israeli fuel cuts. As a result, the petroleum companies stopped accepting fuel shipments. The head of the Gaza petroleum companies said that 100 of the 150 petroleum stations closed because of the shortages.

FOR DISCUSSION:
What was the true motive behind the Israeli Supreme Court decision? What other markets will be affected as a result of these shortages?

Iran’s Nuclear Program Continues

SOURCES:
Financial Times—EU Disappointed by Iran’s Uranium Refusal

The United Nations demanded Iran to stop its uranium enrichment program. However, Iran refused to stop. The United Nations expects that continued efforts are necessary to develop sanctions against nuclear development. Nevertheless, European Union members do not expect to see much movement from the Iranian government.

The European Union’s foreign policy chief is usually optimistic about progress. However, the Iranian enrichment program has caused much disappointment. Yet, a new resolution may still be possible. The UN Security Council and Germany will be meeting in the next week to negotiate another possible resolution on Iran.Several countries will be at the forefront in demanding these new sanctions from Iran, including the US, Germany, the UK, and France. Some countries have refused to be a part of the movement forward, such as China and Russia.Russia has been concerned about Iran’s nuclear weapons. However, China is most likely not as demanding as other countries because of their economic interests in Iran.

Iran believes that it has acquired a strong position on the issue. Most countries have become less and less interested in Iran’s position on the nuclear program. Iran’s nuclear negotiator stated that “only two or three countries” are following the United Nations sanctions method. Iran believes that the nuclear program ensures stability for the Middle East.

FOR DISCUSSION:

Should other Middle Eastern countries feel threatened by Iran’s nuclear program?

Panama Emerges as Regional Economic Contender

Sources:
Latin Business Chronicle - Panama: Regional Champion
Office of Spanish Foreign Commerce - El Valor de las Inversiones en Construccion Crece 119%

Panama's economy is surging and the country is becoming a business hub of Latin America. In addition to the Panama Canal and its favorable location between North and South America, Panama is increasingly being viewed as a destination for tourists as well as multinational corporations. According to various sources, this country of 3.2 million people is Latin America's most globalized country, best country for importing and and exporting container goods, and has the region's fastest-growing tourist sector.

Panama has also been estimated by the IMF to have Latin America's fastest-growing economy and is ranked just behind Chile and Mexico in terms of competitiveness. Corporations also view Panama as a desirable location for operations. The DHL corporation uses Panama as a regional headquarters. Dell, Hewlett-Packard, and Caterpillar all have significant or announced operations in Panama. Panama has the highest number of international bank offices of any country in Latin America.

The economic growth in Panama has spurred a construction and infrastructure boom. Construction accounted for $155 million in the month of October, which is a 119% increase on the previous year. Since the beginning of 2007, nearly $1.25 billion has been invested in construction in Panama. Skyscrapers in Panama City continue to be built at a fast pace. Panama has also recently begun the widening of the Panama Canal, a controversial and costly $5 billion project.

Energy is another area where strong growth is predicted. Several multi-billion dollar refinery complexes have been announced. These are expected to serve the United States and Asian markets.


Discussion:
1. Is it in Panama's best interests to have as diverse an economy as possible, especially in light of Nicaragua's threats in recent years to build a new shipping canal to rival Panama's?
2. Has Panama escaped the natural resources 'curse' that historically has been present in some countries of South America?

Uganda and Kenya ready to finalize intellectual property protection statutes as East Africa struggles with counterfeiting crisis.

SOURCES:
AllAfrica.com—“East Africa: Counterfeits Upset Regional Markets”
AllAfrica.com—“East Africa: Region's Manufacturers Threatened By Counterfeit”

Counterfeit versions of both foreign and domestic products are appearing en masse in the marketplaces of East Africa. The counterfeits are given names similar to well-known or local brand names and often designed to resemble the same. Products affected cover a host of goods—from car tires to pharmaceuticals.

State officials claim that the counterfeit trade is costing national governments hundreds of millions of dollars in revenue year; they assert that these lost funds could be used for social programs to assist the poor.

Both Uganda and Kenya are in the final stages of drafting statutes to provide greater protections for intellectual property interests. Also, the East African Community (EAC) and Investment Climate for Africa (ICA) signed a memorandum of understanding (MOU) to step up efforts to control counterfeiting and piracy in the East Africa region earlier this month.

In addition to the loss of revenue, concern over the counterfeiting problem in East Africa has been voiced by the World Health Organization (WHO) because of counterfeit pharmaceuticals that threaten the safety of African consumers.

State officials in East Africa blame domestic businesses for the majority of the problem. They contend that the willingness of domestic business interests to import counterfeits has made the problem worse. They further fault domestic businesses for having failed thus far to cooperate with the government to stop counterfeiting.

FOR DISCUSSION:

Is the private sector responsible for cooperating with the government to stop counterfeiting?

A Potential Oil Crisis In Russia?

Sources: Russia's Gas Crunch (Washington Post); Russian Gas Shortfall Is `Urgent' Concern, U.K. Lawmakers Say (Bloomberg.com)

Last week Gazprom, a large Russian energy company, announced it was tripling gas prices in Belarus. Other countries have also been forced to accept an increase in gas prices. While many saw these as political increases, some analysts feel the increase are a result of inefficient management and a decline in Russian gas production. Further, analysts feel that Russian gas production may not be able to keep up with the demands of the export and domestic markets. One individual from the European Union stated “the prospective shortfall in Russian gas production represents an urgent energy security concern for the European Union.”

Western Europe imports around 25% of their gas from Russia who has a history of cutting of gas exports for political reasons. Further, Russia controls over a quarter of the world's gas reserves. Unfortunately for the rest of the world, discovery of new fields and output from current oil fields is, and has been, falling.

However, the expensive and needed investments are not likely given the harsh environments where new investments hold the most promise. Further, Gazprom does not have the money or technological ability to make needed investments. A stagnant Russian economy helped to delay the effects of falling oil output, but the expanding Russian economy is increasing the chances of an oil crisis in Russia

Russia will not likely be able to increase gas supplies from Turkmenistan or other central Asian suppliers. In addition, analysts give two barriers to non-Gazprom producers fixing the situation. First, such producers do not have access to Gazprom’s pipeline network. Second, gas production is only economically feasible if the producers sell the gas outside Russia given the low domestic prices.

A future gas shortage is likely and could make for interesting decisions within Russia. As one write points out, “Gazprom [may] face a politically unpleasant choice: whether to cut off internal customers (voters) or the Western customers who are the firm's main source of hard cash.” Hopefully, it will not come to that decision, but proactive measures need to be taken to ward off this potential crisis.

Discussion questions: (1) Do you believe the possibility of an oil crisis is overstated? (2) How do you think a potential crisis can be averted?

Survey says disparity of wages widens in Tanzania

Source:
AllAfrica: Tanzania: Disparity of Wages Widens

According to Harvard University and the University of California’s Global Gender Gap Index (GGI), Tanzania has fallen due to increases in perceived wage inequality. The GGI ranks a total of 128 countries, with Tanzania positioned at number 34 this year, falling 10 places from last year. Tanzania remains the leader in East Africa on the GGI index, ahead of Uganda and Kenya. However, it has slipped from second to fourth in Africa, and is now behind South Africa, Lesotho, and Namibia. Tanzania’s scored a 0.697 on the GGI index, where a one represents equality and a zero stands for inequality.

The GGI assesses how countries divide their resources and opportunities among males and females and is based on four critical areas of gender inequality. The first sub-index is economic participation and opportunity, which examines outcome on salaries, participation levels, and access to high-skilled employment. The second sub-index measures educational attainment, and focuses on access to basic and higher level education. The third sub-index is political empowerment, and examines representation in decision-making structures. The final sub-index is health and survival, with an emphasis on life expectancy and sex ratio.

The GGI is important, because it “provides a comprehensible framework for assessing and comparing global gender gaps” and reveals countries that are doing a better job at dividing resources equitably between men and women. It is hoped that the results will then serve as a “catalyst for greater awareness as well as greater exchange between policymakers.”

Discussion questions:
Is the GGI an appropriate measure of gender disparities? What factors contributed to Tanzania’s ranking this year?

Argentina's Creditors not in Favor of Debt Swap

Financial Times - Bondholders Snub Debt-for-Equity Proposals
Bloomberg - Lousteau Proposes Deal on Defaulted Argentine Debt, Nacion Says


A group of creditors holding more than $20 billion of bonds that Argentina defaulted on in 2001 reacted negatively to ideas of exchanging the bonds for equity to invest in Argentine industry or infrastructure. The group of creditors, The American Task Force Argentina, dissented from the Argentina debt restructuring in 2005 and therefore still hold the defaulted Argentine bonds.

The potential swap was floated by an Argentine economist through channels at the Inter-American Development Bank and the incoming Argentine economic minister was reported to be considering such a plan. In 2005, when Argentina restructured its debt, many holders of over $62 billion in defaulted bonds received less than 25 cents on the dollar. In addition to the group of creditors holding the $20 billion in bonds, Argentina is also seeking to come to an agreement with the Paris group of creditor nations, holding around $6 billion in defaulted debt.

The incoming economy minister under new President Cristina Fernandez, Martin Lousteau, is also reportedly considering proposals to tie the Argentina peso to a greater number of currencies. Such a move might cause the peso to depreciate against the dollar, going against the economic policies of outgoing President Nestor Kirchner. Kirchner favored a weak peso to make exports more attractive, and sought to maintain a 3-1 peso to dollar exchange rate.


Discussion:
1. What are realistic options for the group of hold-out creditors still holding defaulted Argentine bonds, and how much of a loss of face value should they be prepared to sustain?

IMF disburses aid to Mauritania under the PRGF

Source: IMF grants Mauritania 3.1 mln usd - Forbes.com

The IMF this week disbursed some 3.1 million USD to the Republic of Mauritania through its Poverty Reduction and Growth Facility arrangement, bringing the total amount of relief to the Islamic nation under the arrangement to some 13.3 million USD. The disbursement is reflective of the Republic’s economic performance under the PGRF program. The IMF said that, despite sharp declines in oil production, the Republic has been able to maintain performance by containing inflation and implementing sound macroeconomic policies.

Additionally, the IMF reported that the Republic has made significant strides towards improvement of governance and structural reforms, including the beginnings of a new oil revenue management law to ensure best practices. The Republic will continue its work under the program, with financial sector reforms to improve the situation of money markets and commercial banks, and an attempt to stimulate private-sector growth.

Question: Is the influx of money from the IMF sufficient to help countries like Mauritania for the long-term?

Too many graduates, not enough jobs

Source: Rise in graduates over-qualified for jobs

Recent reports suggest that one in three university graduates in Britain are currently in a job that does not require a degree. Critics suggest that this number suggests that mass education goals are producing a sector of young people who might not have the opportunity to realize their career ambitions because there is insufficient demand for these educated youth. The number of young people attending university is already above 40%, and Britain’s goal is 50%. The government contends that Britain needs as many skilled workers as possible to keep up with competition. The labor market, however, cannot keep pace with the rapid increase of graduates.
Some subject areas are more vulnerable than others. Researchers at the London School of Economics (LSE) found that the number of English and other humanities subjects and social sciences are three times as likely to take work that does not require a degree; art and design students are six times as likely.

These numbers also mean that fewer graduates are earning the salaries they might have expected. The difference in earnings between vocational students and students in English and the humanities continues to grow as well. Researchers suggest that whereas money is not everything, problems arise if young people are led to believe that choosing a particular career will result in a higher salary than is actually possible, given the relatively constant demand and quickly expanding supply of university graduates.

IMF’s debt cancellation a huge relief for Liberia

Sources:
Financial Times: IMF agrees to cancel Liberia debt
Afrol News: Liberia’s debt cancellation approved

This week, the IMF agreed to begin eliminating Liberia’s outstanding debts after a bureaucratic hold-up of more than a year. The announcement follows $842 million in pledges from donor member nations, which will help put the West African country back on track. Liberia accrued huge debts totaling $4.5 billion during the 14 years of brutal civil war. The debt includes approximately $2 billion in arrears to financial institutions such as the World Bank, IMF, and the African Development Bank, $1 billion in debts to commercial banks, and $1 billion to the Paris Club of creditor nations.

It is a huge vote of confidence for Liberian President Ellen Johnson-Sirleaf. In order to qualify for debt relief, Liberia had to meet certain political and economic requirements. Therefore, the IMF’s cancellation of Liberia’s debt marks a promising step forward for Liberia’s comprehensive debt relief.

Additionally, the IMF’s new managing director, Dominique Strauss-Kahn, noted that “IMF staff are currently finalizing discussions with the Liberian authorities on a three-year, IMF-supported program, so that Liberia can build upon the initial economic recovery, maintain the strong growth needed to reduce poverty, and restore debt sustainability.”

Discussion questions:
Does the debt relief confirm that Liberia has achieved the necessary political turnaround under President Johnson-Sirleaf? What other steps will Liberia and the international community need to take to help Liberia sustain its economic reconstruction?

G20 Pushes for Reform of the Bretton Woods Institutions

Sources: G20 MEETING: Mbeki urges substantial reforms of IMF, World Bank; G20 MEETING: At-a-glance guide to the main points; World Bank Group President Announces More Aid for Trade

During the G20 meeting held at Cape Town this past weekend, Thabo Mbeki called on the member-state representatives to push for reform of the International Monetary Fund (“IMF”) and the World Bank. The President of South Africa expressed his concern that these two institutions appear to be maintaining an international economic system which favors few powerful countries at the expense of the rest. More specifically, Mbeki noted the growing inequality (1) between developed and developing countries, as well as (2) that between the rich and poor within any given country. Mbeki suggested that the Bretton Woods Institutions could remedy these problems by taking into account (1) the continuation of economic integration amongst countries; (2) the need for greater transparency in trade and investment; and (3) the rapid growth of emerging economies, such as South Africa.

To work towards a more equitable international economic system, the G20 demonstrated support for the continuation and successful completion of the Doha trade round. Robert Zoellick, current President of the World Bank, demonstrated his agreement with the G20 on this matter today at the Aid for Trade Meeting of the World Trade Organization.

Discussion:

The new heads of both the World Bank and the IMF won their offices based in part on their strong commitments to reform their respective institutions. Given that Robert Zoellick and Dominique Strauss-Kahn have pledged to address precisely the issues highlighted by the G20 members this week, what is the significance or weight of the criticisms brought by the G20?

Federal Reserve approves China Merchants Bank New York Branch

Source: Financial Times: CMB’s New York branch licence approved; Telegraph: China threatens 'nuclear option' of dollar sales

The US Federal Reserve authorized China Merchants Bank, China’s sixth-largest lender, to establish a branch in New York. The New York branch is authorized to engage in wholesale deposit taking, lending, trade finance and other banking services. Chinese officials believe this approval could lead to US stock market listings by Chinese banks. Chinese regulators support New York Stock Exchange listings. They want to boost the international standing and corporate governance standards of China’s lenders. US listings would greatly improve the reputations of Chinese banks and would enable them to establish their brands worldwide.

China Merchants Bank is the first Chinese bank in 15 years to gain approval for a US branch. Bank of Communications and Bank of China are the other two Chinese banks which have licenses to operate in the US. In addition, the New York State Banking Department approved the Industrial and Commercial Bank of China, China’s largest lender, to open a New York branch but it is waiting for final approval from the Federal Reserve.

The approval of a license for China Merchants Bank may demonstrate goodwill that might influence the Chinese to permit US financial services firms better access to China.

For Discussion:
China is one of the top three trading partners with the US and the US is China's second largest trading partner. It is estimated China holds over 900 billion dollars in US bonds. Is the license approval for the China Merchants Bank merely an indication of the growing US-China economic partnership or is it a sign that the US depends upon China to continue financing US debt?

World Bank Engages China as a Donor

Sources: World Bank encouraging ‘responsible’ Chinese lending in Africa: Zoellick; China builds African empire: The giant’s rush to secure resources

On November 19, Robert Zoellick urged the European Union to engage China as a fellow donor in Africa. Zoellick’s comment was in response to doubts raised by European donors about China’s aid to Africa. More specifically, Europe worries that China is worsening African economies with its assistance by increasing their debt.

Indeed, China has continually expanded its economic influence on the African continent; not only has it engaged the continent as a donor, but it has also enhanced its role as a trading partner. China is the second-largest trading partner in Africa (the first being the United States), and its trade on the continent has increased about 20% since last year. Its economic policies towards Africa include (1) debt cancellation, and (2) lower tariffs on goods entering the Chinese market from designated least-developed countries.

Developed countries and other concerned parties have been quick to criticize China for its refusal to condition its aid and trade on the recipient country’s political system or policy positions on human rights and other socio-political freedoms. For example, China is the largest investor in Sudan.

While these concerns require serious review, Zoellick has nevertheless advocated the position that these are not pretext for ostracizing China from playing a greater role in Africa. He cautioned Europe about hastily drawing conclusions about China’s economic activities in Africa, especially given its members’ history as colonizers on the same continent.

Discussion:

How should standards for trade and aid be established? Do you think the identity of the actor (e.g. China, the World Bank, members of the European Union, African recipient countries) matters in defining these standards?

Labor Unrest in Abu Dhabi

Source: Arab Business—Jaber Eyes Labour Unrest from Weak Dirham

The dollar-pegged dirham has been continuing to decline compared to other major currencies. The declining dirham may cause labor unrest in Abu Dhabi. The dirham is becoming more and more weak.

Al Jaber employs more than 30,000 construction workers. Many of these workers come from neighboring countries. Workers are suffering because the declining dollar makes it much more costly for workers to purchase different currencies. Pressure is placed on the Abu Dhabi government to provide more land worker homes. The government owns most of the land in certain regions. The declining dirham has had a huge effect on other Middle Eastern countries as well.

Expatriate workers are being affected in other nations like the United Arab Emirates (UAE). Foreigners make up 80 percent of the population in the UAE. In Dubai, migrant workers rioted demanding an increase in pay for lost savings due to the declining dirham. Some employers agreed to a pay increase for only a small number of strikers.

For Discussion:
Will the dirham continue to decrease and cause continuous worker conflict in the Middle East? Will the decreasing dirham give other Middle Eastern countries an opportunity to succeed at a faster rate?

Auto Sales Slip

Sources: Reuters, Wall Street Journal, Bloomberg

American automotive sales are predicted to suffer its biggest drop in nearly fifteen years. The weakest forecast is for a possible 9.4% drop in sales. The prediction was made by the top three investors in the automotive industry: Jerry York, an adviser to billionaire investor Kirk Kerkorian; financier Wilbur Ross; and Thomas Stallkamp, a former Chrysler president. Light auto sales could slip to 15.5 million or less next year, marking the second consecutive year sales dropped. 15.5 million would be the lowest level of sales since 1998. Others predict that auto sales could slump to 14.5 million units—the lowest level since 1993.

This drop would be sector-wide. This grim picture can be attributed to the housing credit disaster. The credit crunch, drop in home values—all paint a picture of some panicked consumers who are unwilling to make big-ticket expenditures. Stallkamp states, “I think the mortgage issue is going to freak people out and that will hit pretty hard in '08." Ross calls it a “sort of poverty effect from house prices going down.”

All of the major automakers agree that a drop is imminent, and are better prepared for a sales drop. Most automakers have cut production in their factories, and thus are better equipped for the lower demand. Analysts predict that there will not be the massive discounting seen in the post 9-11 era of car sales. Furthermore, carmakers will be adjusting production to meet the existing demands. With fuel prices the way they are, Toyota is likely to produce more Camrys, Corollas, and Yaris, instead of the fuel-thirsty 4-Runner. Chrysler is, for example, is preparing a restructuring plan that would cut its work force, streamline its product offerings, and eliminate dealers.

Question: The Big Three automakers have fallen behind some of the top foreign automakers in sales and profitably. What can they do, in the wake of this drop in sales, to regain some of the dominance they once enjoyed when the “slippage” is over?

New Restrictions on Free Speech In Turkey

Source: Eurasia Daily Monitor “New Turkish Internet Regulations Signal further Restrictions On Freedom Of Speech”

Turkey recently enacted regulations for Internet Service Providers (ISPs) that require all commercial ISPs to block access to illegal content and use government-approved filters to prevent users from going to undesirable websites. Further, commercial ISPs will now have to record the details of which website each of their subscribers visited in the past year.

Amazingly, few Turks are aware of the new regulations because of the small mount of coverage in the Turkish media. Turkish citizens aware of the regulations are upset at the limits on their freedom of speech and privacy. One citizen went so far to say “Turkey is becoming a police state.”

Previous regulations required Tukish ISPs to prevent access to certain websites.
Currently, all the banned websites are associated with views that oppose official Turkish ideology, rather than explicitly inciting violence. In addition, internet café owners have been responsible for stopping users from accessing illegal sites since March 2007—but this used to require a judicial order. Now, all internet subscribes with have their internet use monitored.

The new regulations reflect a movement towards “re-imposition of the draconian restrictions on privacy and freedom of expression that were once common in Turkey.” As Turkey made its recent push towards EU membership many of the restrictions were erased, but as chances of membership have decreased the restrictions have crept back in. In particular, the EU wants Turkey to abolish a rule that makes it illegal to criticize “Turkishness” (a broad term allowing enforcement over a number of areas). The Turkey Justice Minister recently declared the rule would not be abolished but simply amended. The article also describes a number of other examples of government restriction on speech, including two incidents with YouTube.

Questions for discussion: Do you think Turkey’s most recent limits on sppech are a direct result of their chances for EU membership declining? If not, what other factors explain Turkey’s regression?

Government Asserts Right to Control Food Prices in Bolivia

Sources:
La Razon (La Paz) - El Gobierno Interviene Para Regular Precios de Alimentos


The Bolivian Minister of Development Planning announced that the government would be intervening and setting the prices of basic food items in Bolivia. The Minister, Gabriel Loza, said that the governments controls were going to be put into effect to prevent speculation in this key area of the economy. Loza said that the problems with inflation for food items were concentrated in about five to seven basic food items, and that those would be the ones regulated.

Loza complained that there was an abundance of certain types of food being exported, but that there remained shortages within the country. He said that within a country as small as Bolivia, there was a small oligopoly that controlled many of the food prices and distorted them, making it necessary for the state to intervene in the food prices of products such as sugar and flour. Loza also stated that "distortions" in the chain of production of certain foods, such as meat, were making it difficult for the average consumer.

Loza claimed that the government had the power to regulate food prices, noting that the Constitution and the National Development Plan both gave the government the right to intervene in strategic sectors of the economy.

Food suppliers disagreed with the Bolivian government and noted that government-controlled food prices was a disincentive to productivity and also put efficient production in danger. The Manager of the Eastern Chamber of Agriculture said that the price controls had already caused him to switch crops, from corn to sesame, explaining that importation rules will allow foreign producers an advantage over domestic ones in certain sectors. Another producer stated that state-controlled prices were a blow to the industry.


Discussion:
1. How should governments balance consumers' interest in affordable prices for basic items with the potential for shortages and inflation that government-set price controls and intervention may cause?

World Bank Urges More Industrial Zones in Bangladesh to Reduce Poverty

Source: The Economic Times: World Bank asks Bangladesh to add more SEZs

Roughly half of Bangladesh’s country, or about 70 million people, live below the poverty line. This is the equivalent of less than $1/day. A founder of Grameen Bank criticized the World Bank’s efforts in failing to alleviate poverty.

Robert Zoellick, World Bank President, recently visited the Dhaka export processing zone. He urged Bangladesh’s government to develop more special industrial zones. Building these zones will hopefully drastically reduce the poverty rate in Bangladesh by creating more jobs. Brigadier-General Ashraf Abdullah Yussuf, executive chairman of the Bangladesh Export Processing Zones Authority, commented that “Bangladesh expects to draw $4 billion in investment in the EPZs over the next three years.”

Bangladesh currently has eight export processing zones which contribute 18% to the national export earnings. These zones employ more than 200,000 people. There are about 270 enterprises which operate in the zones which make an investment of about $1.8 billion. Bangladesh’s biggest export is clothing. Clothing accounts for three-quarters of Bangladesh’s annual export income.

For Discussion:
If small business development is believed to be a basis for relieving poverty in poor nations, is it a legitimate criticism that the World Bank's lending policies do not allow for enough money to be spent on small entrepreneurs?

“Gone are the days when Africans used to see Information and Communication Technology as a Luxury”

Sources:
AllAfrica: Africa: ICT No Longer Luxury for Citizens

At the two-day high-level Connect Africa summit in Kigali, Rwandan President Paul Kagame stated that “In just ten years, what was once an object of luxury and privilege, the mobile phone has become a basic necessity in urban and rural Africa.” Additionally, he urged stakeholders, including the top government and telecoms industry leaders, to explore and invest in other ICT ventures in an effort to connect Africa to the “global information superhighway.” Furthermore, to increase ICT investment in Africa, he encouraged Africa’s private sector to compete with multinational ICT companies.

Although Africa remains the world’s least connected continent, the ICT revolution has made significant steps in Africa. The mobile phone technology is at the forefront, which allows consumers to access a variety of services and helps rural African farmers and traders to receive market information. Additionally, public health delivery has advanced, leading to significant improvements in the transmittal of health data from remote rural corners. Increased use and access to the Internet also connects rural schools and provides access to new information for both teachers and students. Yet, investments remain low in building the necessary ICT infrastructure for more ambitious ICT development. Therefore, President Kagame encouraged African governments to create environments that encourage increased investment, both foreign and domestic, in the ICT sector.

Notably, improved ICT development will improve access and affordability, thereby retaining Africa’s best and the brightest and allowing rural Africa to become fully integrated into the productive economy.

Discussion Question:
Do you believe the growth of mobile phones in Africa will be the catalyst for future African ICT development or is it just wishful thinking?

China Refuses to Agree to Binding Emissions Rates

Sources: China Opposes Binding Emissions Targets, China to Reject Binding Emissions Caps

China’s emission rate of greenhouse gases, such as carbon dioxide, is one of the highest in the world, and experts predict that it will surpass that of the U.S., which is currently the world’s leading emitter of greenhouse gas. Despite its growing role in the global warming crisis, China has recently stated its refusal to submit to binding emissions caps in any pact. Chinese officials cite their prioritizing the country’s development over environmental issues as a reason for their rejection. They assert that the wealthier countries who are also major emitters, such as the U.S. should bear the burden of cutting their emission rates.

China is not the only significant emitter that is sidestepping binding commitments to fight global warming. For instance, the U.S. refused to sign onto the Kyoto Agreement, under which 36 other industrial countries have promised to reduce their greenhouse gas missions significantly over the next several years.

Questions:

1) Is China’s argument that global warming should be a problem that only industrial countries should bear the financial burden of confronting convincing?

2) What do you think is more important—spending money on development or spending money on the environment? Is there a way to strike a balance?

Recent American Sanctions Influence World Bank Projects in Iran

Sources: U.S. Sanctions Force World Bank to Halt Some Iran Aid; World Bank delays some Iran aid due to US sanctions

Since the start of this month, the World Bank has had to curtail funding for four of its projects in Iran that focus on providing humanitarian assistance within that country.

The Bank’s actions are in pursuance of American sanctions against the four largest banks in Iran. The United States has targeted Bank Sepah, Bank Melli, Bank Mellat, and Bank Saderat for their involvement in 1) the Iranian government’s drive to obtain nuclear weapons, and 2) facilitating terrorist financing.

Announced on October 25, 2007, these sanctions are tougher than the two resolutions the United Nations Security Council (“UNSC”) has passed in the last two years. The UNSC resolutions have called for freezing assets associated with the Iranian government’s weapons program, and have targeted only one Iranian bank (Bank Sepah). In contrast, the American sanctions seek to prevent American nationals and the private sector at-large from doing any business with its target banks.

The United States and the World Bank are not alone in sanctioning these four Iranian banks; Prominent European banks have also halted interacting with these institutions. However, many banks and businesses in the Middle East and Asia continue to conduct business with the four banks targeted by the United States.

One World Bank official noted that while the Bank hopes to find alternative means to continue funding the humanitarian projects without undermining the American sanctions policy, it is uncertain whether such measures are available at this time.

Discussion:

1. What alternatives are there to ensure that the Iranian people will receive the aid that they need, while clamping down on the Iranian government’s efforts to develop weapons of mass destruction?

2. How should the Bank and the United States government engage other banks and businesses of other Middle-Eastern and Asian countries that continue to do business with the blacklisted Iranian banks so as to secure the objectives of the American sanctions policy?

South African utility looks to coal to meet growing energy demands

SOURCE: IC Publications: “South African power giant signs 5-billion-dollar contracts”

South Africa, as the continent’s largest economy, has experienced continued growth. At the same time, the nation has been plagued by power shortages. In the past, South Africa has had to resort to planned outages—also called load-shedding—to deal with the problem. The country has increasingly sought to diversify power sources and has made a long-term commitment to nuclear power. However, at least one major utility in the country—Eskom—has suggested that coal offers the best short- to medium-range energy option for South Africa’s growing economy.

As a result, Eskom recently signed contracts with two companies, Hitachi of Japan and Alstom of France, to build a new coal-fired power plant. It will be the first such operation in twenty years and marks the largest combined contract ever signed by Eskom.

FOR DISCUSSION:

Given the perennial problem of disposing of how and where to dispose of spent fuel rods, how wise do you think it is for the world to look to nuclear energy as a “cleaner” option?

US Stocks Continue To Fall

Sources: CNN Money, Associated Press

U.S. stocks, amid continuing credit concerns fell again—with the Dow Jones dropping to below 13,000 for the first time since August 2007. This was also the fourth straight losing session—and with the high-tech NASDAQ index the biggest loser. Nasdaq lost nearly 1.7% on Monday. The Nasdaq saw the heaviest losses because more investors believe that the hi-tech stocks just cannot provide the economy with a cushion against the collapsing housing market. The broader S&P 500 slipped 1%. The Dow lost 4% just a week ago, and has fallen 8.53 percent since its record high on October 9th.

Much of the losses have stemmed from market nervousness from the continuing credit crisis. Last week several of Wall Street’s largest lenders had a series of write-downs. UK-based HSBC is reported to also have write-downs forthcoming. Furthermore, other recent bad news led to Monday’s severe losses. Countrywide Financial Corp., said in a regulatory filing that it could be severely limited if its credit rating drops into the junk bond status. E-Trade Financial Corp stated Friday that the value of its mortgage-backed securities has fallen significantly this quarter, and it would need to take bigger-than-expected write-downs. E-Trade stocks dropped 58.7%, to $3.55/share. Countrywide fell 64%, to $13.19/share.

Question: With the bad news continuing to come—what can be done to stop the continual loss of value in light of the seemingly unending credit crisis?

Oil Revenues Reach Record Highs

Sources: Financial Times—Record Prices Deliver $658bn to Opec

Crude oil revenues are expected to reach $658bn this year. This is a 9 percent increase from 2006. The Energy Information Administration guesses that revenues will continue to increase even more in 2008 to approximately $763bn, a 16 percent increase from this year. This increase is most likely caused by the strong oil prices and output increases. The increase in oil income is aiding Opec’s members, like Venezuela and Iran, to take advantage of their political force. Many Opec members, as a result, have become involved in huge development projects in their home countries. The continued revenue increases have helped give Opec member countries much more power.

The oil surge facilitated Iran’s President Mahmoud Ahmadi-Nejad to endure the blow by United Nations and U.S. sanctions. These sanctions were endorsed to deter the government from pursuing nuclear ambitions.

The benefits Iran has incurred may actually hurt Saudi Arabia. The Saudi Arabian government is now under pressure to raise output. This may obscure diplomatic resolution to the Iranian nuclear problem. The extra oil revenues helped internal security in fighting against al-Qaeda. The Saudis wanted stable prices so oil prices would not collapse. Saudi Arabia’s 2007 oil income is expected to increase by 19 percent due to higher prices and production.

Discussion question:
Will Middle East countries join forces and, as a result, increase their political power? Will the United Nations increase the severity of sanctions as Middle East countries gain more independence?

Disatrous Oil Spill Between Russia & Ukraine

Source: Bloomberg, "Russian Tanker Splits, Spills 1,300 Tons of Fuel Oil (Update4)"

On November 11th, a Russian tanker spilled 1,300 tons of fuel oil in the Kerch strait, between Russia and Ukraine, while at anchor in the strait. The initial tanker accident occurred at 3:35 a.m. on Noveember 11th. Fortunately, the crew of 13 escaped injury. The storm also sank two transporters, the Volnogorsk and the Nakhichevan, which were each carrying about 2,000 tons of sulfur.

As to the effects of the spill, the head of a Russian environmental group believes the spill will have serous consequences for the marine ecosystem due to the toxicity of the spilled oil. It may take several months to remove the oil, but the oil that sank will be “very hard” to clear.

Some analysts find concern in Russia’s “aging infrastructure and the effect of minimal investment in upgrading and maintaining it since the end of the Soviet Union.'' Further, “years of under investment don't just mean a low level of production growth in oil and gas, but the increased risk of transportation infrastructure failure.''

In comparison other large oil spills, The worst spill in U.S. history was from the Exxon Valdez, which leaked 37,000 tons of crude oil into the Prince William Sound, Alaska, in 1989. In addition, the tanker Erika spilt 20,000 tons of heavy fuel oil off the coast of France in 1999, and the Prestige leaked 63,000 tons of heavy fuel oil off northern Spain in 2002.

Questions for discussion: (1) What impact do you think the oil spill will have? (2) Are you concerned about Russia’s “aging infrastructure”?

UK aims to become a center of Islamic Finance

Source: UK Treasury paves way for Islamic bonds

The UK government is in preparation to launch a series of sharia-compliant bonds, known as sukuk. Treasury minister Kitty Ussher plans a three-month consultation process, and might use next spring’s Budget to arrange for any legal changes that might be necessary in preparation for the first western government sukuk. Ms. Ussher believes that this plan will establish London as “a global gateway to Islamic finance,” assisting British Muslims in their search for sharia-compliant retail products, such as mortgages. Additionally, these bonds could be used as vehicles for British Muslims to invest in National Savings products through banks and post offices.
Despite speculation that the government might back away from the project after the departure of Ed Balls, former City minister and initiator of the scheme, Ms. Ussher will inform a high-level group of City executives this Wednesday (November 14, 2007) of her steadfast commitment to the project. In an interview with the Financial Times, Ms. Ussher responded to doubts whether the project will attract investors. “There is no question of delay at all. If anything there is greater demand. We have been doing an enormous amount of work.”
Unlike conventional bonds, sukuk function like Islamic “investment certificates” representing ownership in the underlying asset. This is because Sharia religious law forbids the collection of profits from interest. Rather, returns are paid in proportion to an investors ownership rights to the underlying asset. The sukuk market has experienced significant growth in the last five years, with nearly $40 billion (£ 19.1bn) issues this year alone, as compared to virtually nothing in 2001.
Many details of the project remain unsettled, including the structure of the sukuk. In addition, the competition for business is fierce, as the Middle East is gaining popularity as an attractive location to set up operations due to its oil wealth. Nonetheless, commitment to the project remains strong, and a successful execution of British sharia-compliant bonds could encourage large UK and western companies to launch similar securities in London, effectively boosting the capital as a center of Islamic finance.

Questions for Discussion
1. Are concerns about investor interest in the sharia-compliant bonds well placed?

World Bank cites Bhutan as a leader in “Gross National Happiness”

Source: World Bank calls for more national happiness

The World Bank is of the opinion that other countries have much to learn from Bhutan, and should follow its lead as a proponent of “Gross National Happiness.” Gross National Happiness is a guiding policy for the country, giving primary importance to the happiness of its citizenry rather than to Gross National Product. The policy has been in place since 1972, when the former King Jigme Singye Wangchuck put it into practice. Bhutan’s policy holds the position that GNH is a better measure of a country’s wellbeing than GNP, and is guided by the idea that people are bound by their natures to search for happiness.

The World Bank acknowledges that Bhutan has been putting this seemingly unorthodox policy into practice on the ground in an effective way; a recent study found that 68% of the country’s 700,000 people were reportedly happy with their life. Additionally, Bhutan has been a leader in addressing global warming issues. Particularly, the country’s practices regarding forestry and how the constitution protects land use for forestry has done much to address climate change issues in the region.

Question: How different is Bhutan’s policy from that of liberal capitalism?

New director addresses new issue facing IMF

Source: IMF to heed new global players - FT.com

The emergence of “sovereign wealth funds,” hedge funds and other types of investment groups as major players in the world economy is now forcing the IMF to stand up and pay attention, so says Strauss-Kohn, the newly inaugurated managing director of the IMF. Strauss-Kohn said that the prominence of these groups needs to be taken into consideration in the IMF’s work because such things as financial stability in the global economy will be affected by these groups now, rather than just by external imbalances.

This comment by the new Managing Director was perhaps influenced by certain of the IMF’s member countries, many of whom have expressed concern over these types of funds and the sentiment that the IMF needs to develop a greater understanding of them. Further, these members have suggested that the understanding should be guided primarily by the determination of the transparency and objectives of these funds.

Meanwhile, officials in the U.S. and Europe are wary about the role to be played by these types of funds, particularly whether they should be allowed carte blanche with regards to the acquisition of strategic assets. Additionally, there is the possibility of a protectionist backlash in the U.S. Congress.

Question: To what extent should the IMF involve itself in the monitoring/oversight of these funds?

Oil Increasingly an Important Part of Latin American Landscape

Bloomberg - Lula Says Brazil Oil Find May Lead to OPEC Membership
New York Times Magazine - The Perils of Petrocracy


Oil headlines have dominated the Latin American news cycle recently, with the Brazilian announcement of 8 billion barrels of reserves only the latest indication of the increasing importance of oil to the region. The announcement regarding the potential of the Tupi oil field led Brazilian President Lula de Silva to speculate that Brazil might eventually join OPEC. The announcement boosted Brazil's proven reserves by two-thirds.

Developing countries' oil reserves, including those in Latin America, have been gaining importance as traditional oil fields controlled by multinational corporations have reached their limit of capacity and production. Venezuela, the lead producer in Latin America, uses oil proceeds to fund a substantial portion of its increasing government spending. Ecuador, although a relatively small producer compared to other countries, recently re-joined OPEC and has seen its oil profile grow.

The state governments in Latin America have been the primary beneficiaries of the rise in oil prices and increasing oil production, as much of the exploration is done by state-owned companies: Petrobras in Brazil and Pdvsa in Venezuela. However, the boon of oil reserves brings with it the rising cost of exploration. It is estimated Petrobras will have to invest $112 billion in the next several years to develop the Tupi field. Some say that Pdvsa, although very profitable due to the high price of oil, has neglected to put money back into development and infrastructure, rather existing as a personal coffer for President Hugo Chavez's social projects.

As long as oil prices continue to rise, it appears that oil in Latin America will continue to increase in importance and generate a windfall for government revenues. It is unclear, however, the long-term effect increasing oil production will have on the region or what will occur when oil prices drop.


Discussion:
1. Theorists have spoke of the "curse" of abundant natural resources and the resulting poor economic performance and long-term growth prospects of those countries. How can countries with abundant natural resources parlay those into long-term economic growth and sustainability? More specifically, how can countries enjoying the benefits of high oil prices plan for the future when oil prices will be less impressive?

Egypt and China Forge Economic Ties

Source: Financial Times: Egypt and China in investment deal

Egypt and China have reached an agreement to set up a five square kilometer industrial zone in the Suez area. Egypt hopes to attract $2.5 billion in Chinese investment from this deal. To attract foreign investments, Egypt has marketed its strategic location, trade agreements with foreign countries in Europe, Africa, the Middle East, and the United States, and its cheap energy and labor costs. In addition, the new deal highlights China’s increasing economic ties to Africa and China’s increasing global economic control.

Companies in the zone are expected manufacture textiles, gas and oil pipes, electronics and car and car components. The zone will provide Chinese companies with an export hub for Europe, the Middle East, and Africa. The marketing seems to have worked. This is the first manufacturing zone the Chinese government has supported in the area.

The new zone, however, has its critics. Some argue that China is taking advantage of African resources and adding to the competition of African industries. In response, supporters extol the advantages of the industrial zone, such as job creation for Egyptians.

China and Egypt have increased the number of exports between countries. In 2007, Chinese exports to Egypt total $2.9 billion, a 50% increase from 2006, and Egyptian exports to China total $164 million, a 23% increase from 2006. China hopes to use Egypt to capitalize on markets, such as Europe, with which Egypt has connections. Within the next six years, China is expected to become Egypt’s biggest trading partner, surpassing the United States (trade totaled $6.7 billion in 2006).

For Discussion:
In June of 2000, China released a list of 225 projects within China which are open to foreign development and investment. The hope was to draw outside investment and technology into the central provinces of China. This effort shows a history of China desiring greater economic contact with other countries. See China Unveils 225 Western Development Projects. With China's most recent partnership with Egypt, is China bending toward a capitalist system and will a more democratic China become a possibility because of the global opportunities for China?

Japan's Unemployment Rates on the Rise

Sources: Japan Jobless Rise Bodes Ill for Economy, Japan Unemployment Rate Worsens

Economists warned that Japan’s steady expansion over the past five or so years is on the brink of a big slow-down in the wake of rising unemployment numbers over the past few months. Some speculate that the tightening labor market will lead to pressure to increase wages, which will boost consumption and consumer prices. However, if the unemployment rates continue to get worse, these predictions may need to be reevaluated.

Japan’s jobless rate is at a nine year high. Some analysts find it encouraging that there is some data that indicate an increase in consumer spending, but this may not be sustained if unemployment continues to rise. The Ministry of Economy in Japan reported conflicting data, showing that the total number of jobless people fell for the twenty-second month in a row this past September, and was over 100,000 smaller than the number for the previous September.

Question:

1) What might be some of the major causes of Japan’s increasing unemployment rates?

2) Is this likely a temporary blip or could it be indicative of larger problems for the Japanese economy?

Labor Conflicts in Dubai

Sources: Financial Times: Dubai Threatens to Deport Striking Labourers

Many South Asian laborers have refused to return to work due to disagreements over pay and working conditions. However, the government instead of considering these laborers needs, have threatened to deport the strikers. The government has considered the strikers a threat to the security and safety of the state. The strikes have taken place at a few engineering companies that rarely face such political issues. Even though the government has threatened to deport these laborers, other organizations have attempted to reform these labor issues. “The UAE has launched a government reform drive to tackle the issue of workers’ rights, raising the number of labor inspectors to uncover malpractice.”

Although there has been some effort for reform, human rights organizations claim that such efforts are insufficient for change. Dubai has taken some serious leaps towards reconstructing their land, which may be the reason for such severe government reaction against strikers. Engineers on strike may be considered a threat to Dubai’s economic development.

Organizations have recently come together to gather recommendations to create more efficiency in labor in the UAE. One proposition is as follows: “They would set up agreements with the workers’ home countries, and explore ways of formalizing a system for collective bargaining.” This is a good move forward because the organizations are at least recognizing a need for immediate change. The UAE must find a beneficial medium between “international standards” and “national interest.”

Discussion question:
Can Dubai continue to produce economic growth without the security of foreign labor?

Job Rates Grow

Sources: AFP, Washington Post

In the midst of all the bad news of a weakening US dollar, a housing glut, and credit woes, the new job report provided much needed good news for the American economy. Employers added nearly 166,000 new jobs in October, nearly double the projected 80,000. Unemployment, however, remained firm at 4.7% nationally. As expected though, jobs tied to the credit and housing markets saw some contraction. Residential construction and contracting jobs fell by 21,500, and the manufacturing sector lost 21,000 jobs. Nevertheless, the health care sector added 34,400 jobs, employment services firms added 33,500, public schools added 34,600, and the professional sector added 23,500 jobs. More than just jobs—salaries and wages are increasing. Non-supervisory wages has risen 3.8 percent over the past year, to $17.58/hour. Nevertheless, some bad news is still around. Unemployment has remained steady, but a lower proportion of the working-age population is employed today.

Analysts remain somewhat concerned, however, that job growth will eventually slow down. Nevertheless, the stronger the expected job growth and a 3.9 percent economic growth demonstrates that the slowdown has not yet occurred. Economic experts consider the labor market an “even more important economic forecaster than usual” in light of the credit and housing crunch. As Americans lose wealth through their homes, they will keep spending money “if businesses keep expanding and hiring. Consumer spending is the economy’s main driver.” In other words, there can be no recession if there are jobs.

Questions: Can the job rates continue to grow--even though housing prices and wealth is dropping through the floor?

Nigeria: High on Oil but Low on Power

Sources

AllAfrica: Nigeria: No More Excess Crude Fund for Power Plants - Yar'Adua
Wall Street Journal: Nigeria’s Power Problem

Nigeria produces the largest amount of crude oil in Africa, but its energy generation capacity is one of the lowest in the world. Last year, former President Olusegun Obasanjo used money from the excess crude account to fund construction of power plants. Nigeria’s current President, Musa Yar`Adua, has put adequate power as one of the priorities of his administration. However, Yar’Adua announced that the Federal Government will no longer use money from the excess crude account to fund Nigeria’s power plants. The excess crude account consists of money gained by Nigeria over its cost as set in its national budget.

This decision to stop using the excess crude account for power plants was hinged on “the legal implications” of such action. The money belongs to the three tiers of government, so Nigeria will have to find money elsewhere for the power plants.

In the past, Nigeria has faced many problems with producing sufficient amounts of electricity. Additionally, recently there have been concerns about Nigeria’s oil pipelines being sabotaged. As a result of these disruptions, foreign investors are hesitant to invest money in Nigeria. However, Yar’Adua hopes that the reform of the power sector will promote local and foreign investors to invest in the country.

Discussion question:
Will this type of investment by Nigerians in the Diaspora be enough to draw other investors into Nigeria’s energy plan, given some of the political and social difficulties the country is facing?

New partnerships with Chinese Banks Mark Transformation in Africa’s banking industry

Sources:
Financial Times - ICBC in $5.6bn S Africa bank deal
Financial Times - China’s CDB seals Nigerian deal

The China Development Bank has entered a partnership with the United Bank for Africa, but has not bought equity in the African Bank. This partnership is significant because it will expand the China Development Bank’s ability to finance infrastructure projects in Africa. CDB owns more assets than the World Bank and Asian Development Bank combined. Therefore, the United Bank for Africa’s chief executive, Tony Elumelu, noted that this partnership was particularly important because “[i]t provides us [with] an almost infinite amount of capital to execute projects.” One of the first projects Nigeria hopes CDB will finance is a power project to help with electricity shortages.

Additionally, last week the Industrial and Commercial Bank of China announced that it will pay $5.56 billion to buy a 20% stake in South Africa’s Standard Bank. The Standard Bank chief executive views this deal as a “vote of confidence in South Africa and Africa.” Furthermore, the deal illustrates that China is seeking to deepen its ties with Africa by moving beyond the traditional cheap loans that it has made in the past.

Part of the reason Chinese Banks are interested in funding African projects comes from their desire to secure oil and minerals from Africa to fuel China’s economy. Tony Elumelu pointed out that “Africa is a huge untapped market – but it takes those who understand African markets and African risks to take advantage.”

Discussion Question:
Africa has been primarily dependent on Western companies and donors for funding. What impact, if any, will this shift in funding from Asian banks have on Africa’s economy?