World Bank to encourage 'Circular Migration'

World Bank Promotes Circular Migration
Ann De Ron

The World Bank is considering launching projects in the Eastern European region promoting “circular migration.” According to a recent World Bank study, almost three fourths of migrants from countries such as Bosnia/Herzegovina, Romania, Georgia and Tajikistan would prefer to return to their native countries after short stints abroad. However, according to the study, the current bilateral agreements for migration in Europe discourage migrants from returning home since applying for temporary migration programs is expensive and it takes time before a migrant can recoup costs associated with working abroad. The study suggests that circular migration will be best facilitated by the creation of laws that will allow countries to inexpensively seek foreign labor when there is a genuine shortage of labor, both skilled and unskilled, at home. Circular migration also will help native countries of migrant workers by reducing the incidence of brain drain.

However, other officials such as Jean-Pierre Bou, policy officer at the directorate-general for justice, liberty and security at the European Commission, warn that it is necessary to ensure that there are proper incentives “for people to enter this type of migration and to return back home.” To encourage migrant workers to return back to their native lands, the World Bank has proposed making pension benefits payable only in the country of origin.

Questions
1. How might circular migration promote economic growth and development in native countries?
2. In addition to making pension benefits payable in the country of origin, how might circular migration be encouraged?

African Union Summit in Ethiopia

Sudan Under Pressure at AU Summit

The African Union (AU) summit opens in Ethiopia on Monday. Officially, the AU agenda will be headed by climate change and scientific development. However, the continuing crisis in the Sudanese region of Darfur is predicted to dominate AU proceedings and headlines.

Nearly four years of fighting in Darfur, between rebels and government-backed militias, has killed some 200,000 people, and forced more than two million to flee their homes.

Visiting the AU summit on an African tour, the new head of the United Nations (UN), Ban Ki-moon, is meeting Sudanese President Omar al-Bashir and seeking a firm commitment that Sudan will open the door to UN peacekeeping forces in Darfur. The UN wants to insert 22,000 soldiers. Mr. Bashir has agreed to a joint UN-AU force to replace the current overstretched AU troops, but no formal deal has been reached.

Mr. Bashir is also due to assume the AU chairmanship - but human rights groups say that would be an outrage. Amnesty International said Sudan's scheduled assumption of the AU chairmanship, while the AU was trying to mediate in Darfur, would be "a glaring conflict of interest", and would damage the organization's credibility.

Sudan was lined up to take the chair at last year's summit, but was passed over because of international pressure over its role in Darfur. It was promised it would be given the chair in 2007. Chad, which borders Darfur, says it will leave the AU if Sudan takes over.

The instability in Somalia is also likely to be a prominent issue. Ethiopia has played a major role in ousting the Islamist forces that had taken control in Somalia and supporting the official interim government. Ethiopia says it will begin cutting its force levels in Somalia, making a proposed AU peacekeeping force for Somalia an even more pressing issue.

India Receives Grant for Coal-Fueled Power Plants

Sources: World Bank Arm to Fund Coal-Based Power Plants
India gets $45.4m Grant from World Bank for Thermal Power

Last week, the World Bank announced a $45.5 million grant to help finance new power plants in India. This grant is the beginning of the Coal Fired Generation Rehabilitation project, which will create coal-fired power generation plants and increase output and efficiency of the existing plants in order to produce cleaner energy in India. This project’s goal is to produce fewer carbon emissions and it is projected that it will lead to 10 to 15 percent improvement in power generation.

This project will be funded by World Bank's Global Environment Facility (GEF) and implemented by the power ministry. This marks the first time the GEF will fund coal power projects.

According to Monique Barbut, GEF Chairman and CEO, GEF will work with their “Indian counterparts and other large developing countries to develop clean energy framework that will enable them to obtain energy according to their requirement for development.”

Barbut also stated that “the grant will enable the India to move forward.” The first rehabilitation will be completed by the end of next year, while the other two are expected to be completed in the following two years. In addition to aid for the Coal Fired Rehabilitation project, India has also received $29.6 million for development of biodiversity and $74.9 million for climate change projects from the GEF.


Question: How will the rehabilitation of these coal-fueled power plants aid in India’s economic development?

Unions Express Concerns Over Malaysia-US Free Trade Agreement

Sources: US Unions Rally Against Malaysian Pact, Malaysia Free Trade Agreement, Why Should Malaysians Worry about a Free Trade Agreement With the U.S.?

United States and Malaysian trade unions opposed negotiations towards a bilateral free trade agreement until both countries address workers' concerns. The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) and the Malaysian Trades Unions Congress (MTUC) met in Kuala Lumpur and agreed on a joint declaration asserting that any economic cooperation between the two countries must also benefit the working people and communities. Both groups want to avoid increasing levels of violations to workers' rights and to remind the governments that the companies should not be the only ones to gain in this arrangement.
The AFL-CIO is a federation composed of 54 national and international labor unions across the U.S., which has traditionally focused on protecting jobs. The MTUC forcuses its concerns on protecting workers' rights. Malaysian unions hope to use the joint declaration as leverage to buttress workers' rights.
Critics compare this agreement with the North American Free Trade Agreement (NAFTA), which had arguably resulted in the loss of over a million jobs and business opportunities in the United States. Other criticisms include that agreements like NAFTA kept wages low, increased inequality, and undermined public health care protections. The proponents of the joint declaration to protect U.S. and Malaysian workers and jobs met opposition by the Chambers of Commerce if each respective country as well. They argue that Malaysia's employment laws disfavor companies too much as it is, making it very hard for employers to terminate poorly performing workers. The Unions view this as a thinly veiled argument to make it easier to lay off workers.

Questions:
1) Do you think that the implementation of the Free Trade Agreement between the U.S. and Malaysia will result in lower wages and fewer benefits, as Unionists fear?
2) How can the trade agreements be structured to benefit working families as well as increase the profits of multinational corporations?
3) Does achieving economic growth necessarily be at the expense of labor rights?

China and Japan Continue to Build Stronger Ties

Sources: People's Daily, Bloomberg

On Saturday, historical regional rivals China and Japan vowed to build “strategic, mutually beneficial” ties. The talks began on Thursday, and concluded Saturday in China. Chinese Vice Foreign Minister Dai Bingguo and Japanese Vice Minister for Foreign Affairs Yachi Shotaro headed each of the delegations in their three day closed door meetings. This was a second round of Sino-Japanese talks, the first of which occurred in May 2005. These meetings will attempt to rebuild ties between the two countries that were damaged by former president Junichiro Koizumi’s trip to Japanese war memorials in which Japanese war criminals were memorialized. While details of the talks have not been released in detail, the two sides had “frank and in-depth” exchanges of how the two states can continue to “maintain the sound momentum” of the strengthening ties.

These talks are only one of a series of “active exchanges” between the two countries. In October of 2006, Japanese Prime Minister Shinzo Abe visited China. Ithe ASEAN meetings earlier this month, Chinese Premier Wen Jiabao and met Abe on the sidelines and agreed “to increase exchanges of high-level visits and strategic dialog, and to expand cooperation in energy, environmental protection, finance, and the high-tech industry. This past week, a prominent legislator visited China. Furthermore, Wen Jiabao has agreed to visit Japan this spring—the first Chinese leader to do so in six years. These meetings are all part of the efforts to build the trust necessary to strengthen ties, and while no more official meetings are “scheduled”—both nations agreed to hold additional talks at a later date.

Questions
1. Can any type of strategic alliance form between China and Japan similar to the EU, i.e. can this cooperation possibly lead to a regional/continental alliance similar to that in Europe?
2. What impact may a China-Japan alliance have upon US-Japan relations and US-China relations?

Europeans applaud new Bush stance on environment

Source:“Business leaders welcome Bush climate change nod” - Cnn.com


Business leaders from Europe and elsewhere welcomed President Bush’s acknowledgement, this week at the World Economic Forum in Switzerland, that emissions and global climate change is a “serious challenge”; Bush also called for new standards to deal with emissions.

Instead of supporting mandatory caps on emissions, Bush lends support to new energy-producing technologies that will reduce the amount of fossil fuel consumption in the US. While world leaders also support alternative technologies, they are asking Bush to also enforce stricter emissions standards on US companies.

Meanwhile, European figures, such as a former German environment minister, believe that Bush’s new attitude will help foster a “transatlantic cooperation in the fight against climate change.” However, others believe that Bush’s change is not enough, criticizing that he offers only technical suggestions and no real policy changes.

Question:
- Will EU leaders manage to influence a real policy change in US emissions standards? Would such a change be crucial to the global fight against climate

Court Rules on Argentina-Uruguay Blockades

Sources: Financial Times, UN Rejects Uruguay Plea to Stop Roadblocks; Associated Press, Argentines Cheer Ruling on Blockades; International Herald Tribune, World Court Denies Uruguay’s Request to Order End of Argentina’s Blockade; Inter Press Service News Service, Roadblocks Ruling Heats up Pulp Mill Dispute & Christmas at the Roadblock.

On January 23, the International Court of Justice (ICJ), the highest judicial entity of the United Nations, rejected Uruguay’s request to force Argentina to remove blockades on bridges linking the two countries. Argentine protesters erected the roadblocks intermittently last year (permanent ones were established in November) because of Uruguay’s decision to allow a Finnish corporation to build a $1.2 billion pulp mill on the river separating the two countries. The protestors fear that the mill will hurt their tourism industry and damage the environment, particularly the citrus and soy fields in the surrounding area.

Additionally, the Argentine government has refused to stop the protestors despite Uruguay’s complaint that the blockades are causing serious economic harm. Uruguay claims that the roadblocks have caused over $200 million in damage to the economy. Moreover, the country claims that the blockades are a violation of the Mercosur free trade agreement, which guarantees the free movement of people and goods through member countries. In its ruling, however, the ICJ ruled that it did not believe that the blockades “risk prejudicing [Uruguay’s rights] irreparably.”

This is not the first legal battle between the two countries over the pulp mill. In May 2006, Argentina complained to the ICJ that the mill project is a violation of an international agreement between the two countries. That treaty requires prior consultation and mutual agreement between the two countries in order to go forward with development projects affecting the river. Despite Argentina’s complaint, the Court has thus far allowed the construction to move forward. That decision was extremely important to Uruguay, a country that expects to gain at least six hundred jobs from the project and see a fifteen percent increase in its exports. The pulp mill would be the biggest foreign investment in the country’s history and is to be funded partially by the World Bank.

Questions:

(1) To what extent are the protestors' actions exacerbating the conflict between the two countries? What are some positive aspects of the blockades? For example, could Uruguay be using them as an excuse to not negotiate with Argentina over the legality of the mill?

(2) What are some alternative methods that the two countries could use to resolve their conflict? Is the impact of the project on the development of either nation grave enough to warrant additional action? Since much of the funding comes from the World Bank, what role could that organization play in the resolution of the conflict?

Aging Workforce Changing European Landscape

Source: Europe faces labor shortages as population ages - IHT.com

An aging population is projected to leave Europe with huge labor shortages. Deaths in Western Europe exceeded births for the first time in 2006. Demographics in Germany, the EU’s most populous country, suggest the population could shrink almost 70% by the end of the century. Across Europe, the workforce is expected to decline by 60 million in the next 10 years as older workers retire.

The impact of the aging workforce is already felt throughout Europe. In Germany alone there are 687,000 unfilled openings. Employers and employment agencies throughout the EU report difficulty in filling vacancies.

Efforts to fill these vacancies are hampered by tight European immigration regimes. A professional demographer explains one of the ironies of globalization: it has facilitated capital and trade flows and made it easier for people to travel, but governments are imposing restrictions making employee mobility more difficult. That paradigm, however, might be untenable in light of Europe’s changing dynamics.

QUESTIONS

Is immigration the answer to Europe’s declining population? Can Europe maintain its economic strength with a shrinking workforce? Are there other ways, such as outsourcing to labor-rich nations, in which Europe can compensate for a declining workforce?

Libya to Lay off 400,000 Civil Servants

Sources:

Libya to Axe Public Sector Staff - BBC.com
Libya to Fire 400,000 Civil Servants - IOL.co.za

The Libyan Prime Minister, Baghdadi Mahmudi, has announced that 400,000 civil servants will be laid off. According to Mahmudi, the number of civil servants has become excessive and a massive cut is needed to free up some of the budget and to stimulate the private sector. Those who will be terminated will either receive three years compensation or a loan to begin their own business.

Mahmudi stated that he hoped that the cut would increase the standard of living for Libyans by 5% and that the cut would help promote productive activities. He also stated that he wanted to improve heath care and education and that he would like the private sector to start producing goods of a high enough quality to compete with imports.

Libya has been criticized for relying too heavily on oil, which is the main source for Libya’s hard currency. The country has also been criticized for being too dependant on foreigners and for relying too heavily on consumer goods imports. Mahmudi hopes that this cut will address some of these criticisms.

Questions:

Will Libya’s cut of 400,000 civil servants help stimulate the country’s economy?

Subsidy sadness: American nations call U.S. to task over corn subsidies

SOURCES:

Terra Espana: Cinco paises latinoamericanos unen a queja contra EEUU por subvencionar maiz

CBC News: More countries join Canada's U.S. corn complaint

At last count, five Latin American countries—Brazil, Argentina, Guatemala, Nicaragua, and Uruguay—had joined Canada in filing a complaint with the World Trade Organization (WTO) regarding the United States’ continued and allegedly exorbitant subsidies for corn and other agricultural products. Brazil, Argentina, and Canada are counted among the world’s top ten producers of corn. The U.S. is the globe’s top corn producer. All countries involved in the complaint are members of the WTO.

The complaint to the WTO makes the following allegations:

***That U.S. corn subsidies--which have averaged nearly $9 billion per annum over the last two years--have caused a “significant distortion” in domestic corn prices.

***That the U.S. accounted for only 41% of global corn production in 2005-2006 but exported 68% of all corn traded over that period.

***That U.S. subsidies for other agricultural products, including wheat, sugar, and soybeans, exceed subsidy levels permitted by the WTO.

According to WTO procedures, the filing of the complaint marks the beginning of a consultation period, wherein parties have three months to resolve the dispute among themselves.

If there is no resolution at the close of the designated period, the parties may request that the WTO convene a panel of experts to formally investigate the matter and reach closure in a manner "mutually acceptable" to all parties.

One of the WTO’s primary purposes is to facilitate global trade. For international trade to function properly, protectionist behavior, such as subsidies is limited. This does not mean that countries may not subsidize domestic production, only that a subsidy may not be used in a manner that harms other competitors in the global market. This is because exorbitant subsidies permit producers to sell their goods at artificially low prices without a loss. The inability of producers in other countries to compete results in a distorted market and disgruntled trading partners.

Without dispute resolution processes provided by the WTO and international trade agreements, exorbitant subsidies by one country would doubtless cause a domino effect of protectionist trade policies by affected countries that would seriously disrupt global trade.

FOR DISCUSSION:

Is the health of the international market really that important? Why should any country sacrifice its sovereignty just for the sake of trade?

Assuming that a healthy international market is important, what does this say about the notion of a nation-state? Does it affect domestic politics (remember that in the U.S., agricultural subsidies are part of the annual appropriations process conducted by the U.S. Congress)?

Click here for more information on the WTO dispute resolution process.

Click here for more information on WTO limits on subsidies, anti-dumping, and countervailing measures.

Progress in U.S. Talks With North Korea?

Sources: N. Korea Claims Progress in US Talks, North Korea Talks Could Unlock Potential for Regional Integration, North Korea Talks End Fruitlessly

Although Christopher Hill, the chief US nuclear negotiator, only acknowledge that talks with North Korea were making progress, reports from Pyongyang referred to certain agreements made during discussions with U.S. diplomats. Some view that either way, the gap between the U.S. and North Korea is so large that the mere fact that discussions were had at all is definite progress. Hill has offered Pyongyang a package of energy and economic aid and security guarantees in exchange for its agreement to abandon its nuclear weapons program. It was reported that the atmosphere of the discussions were generally positive and sincere. However, the talks have overall ended without official resolution.
Today, a meeting between U.S. Treasury officials and North Korean financial authorities will commence talks regarding the U.S.'s financial sanctions imposed on North Korea, following accusations by Washington in September 2005 that North Korean companies were counterfeiting U.S. currency. Analysts observed that the crackdown essentially put a halt on North Korea's ability to earn hard currency. The Bush administration holds to its policy that the U.S. refuses to negotiate with Kim Jong-il's regime, despite the talks that are due to be held this week.
Some hold the hope that the international talks regarding North Korea's nuclear program could constitute the beginning of economic and regional integration. The talks, which took place in Berlin, brought together Japan, China, South Korea, North Korea and the U.S. The main aim of the talks were to create incentives for North Korea to abandon its nuclear program.

Questions:
1) Should the U.S. lift its financial sanctions on North Korea to create more incentive for Pyonyang to agree to drop its nuclear program?
2) Should the U.S. abandon its policy against bilateral talks with North Korea in order to engage in these negotiations?
3) What do Japan, China, and South Korea stand to gain or lose depending on the outcome of these negotiations?

Vatican Seeks China Connection

Sources: Gulf News, CNN

Pope Benedict XVI has promised to pursue formal ties between the Vatican and the People’s Republic of China—where the Communist party has at times arrested and jailed Catholics for claiming “their loyalty to the pontiff.” This announcement occurred after two days of extended talks between the Holy See and the Chinese delegation. This would lead to the “normalization of relations on various levels, with the aim of allowing the peaceful and fruitful life of faith of the church and of working together for the good of the Chinese people and peace in the world.”

China has established two ground rules for the establishment of ties. The first is that the Vatican must cut its diplomatic relationship with Taiwan, and recognize China as the only legitimate government that represents both China and that Taiwan is “an inalienable part of China.” The second rule is that the See cannot “intervene in the internal affairs of China, including in the name of ‘religious affairs.’” China does not recognize papal authority, and has ordained bishops without Church approval—much to the consternation of the Vatican.

The first principle of de-recognizing Taiwan is a step that the Vatican has been willing to take in order to establish diplomatic relations. However, the second rule may be put to the test as the Vatican has refused to relinquish bishop-appointing power to the Chinese government. China views papal appointments as an “intervention” in internal affairs. Parishioners loyal to the pope have been subject to harassment and persecution—including jailing.

Thought Questions
1) If the irresistible force (i.e. Chinese rule two--no intervention, and the Chinese view papal appointments as intervention) meets the immovable object (i.e. Vatican refuses to allow China to appoint bishops)--how can the two states compromise and establish ties?

2) How best can Taiwan react to the prospect of losing a diplomatic ally in the Vatican?

World Social Forum in Kenya

Source: World Social Forum Opens in Kenya

Thousands of anti-globalization protestors marched in Nairobi, Kenya at the opening of the annual World Social Forum. The five-day forum brings together grassroots activists to address global social problems such as HIV/AIDS, the landless, and migration, with a special focus on Africa.

The World Social Forum – established in 2001 as a rival to the World Economic Forum, a meeting of political and business leaders – describes itself as a platform for ordinary people to exchange ideas opposed to a world dominated by capitalism and imperialism. The World Economic Forum will meet in Davos, Switzerland on Jan. 24-28, 2007.

Among pressing issues to be discussed at the World Social Forum are Economic Partnership Agreements (EPAs) currently being negotiated between the European Union and countries in Africa, the Caribbean and Pacific regions. Many forum attendees believe the EPAs penalize developing nations by requiring them to open up their markets to unfair competition.

The World Social Forum has been criticized, particularly by socialist and communist left parties, for producing few practical ideas, concentrating instead on general and vague criticisms of neoliberalism and imperialism.

Venezuelan Film Industry Expands

Sources: Inter Press Service News Agency, Petrodollars for Local Film Industry.

Venezuela is representative of many countries in Latin America when it comes to the film industry. Approximately ninety-eight percent of the movies that Venezuelans view are from the United States, and while eleven native films were screened in commercial cinemas in 2006—an unprecedented high—the president of the “governmental but independent film institute,” Centro Nacional Autónomo de Cinematografía (CNAC), explained that Venezuelans typically recognize themselves “on a street in Los Angeles, not . . . where [they] really live.”

The high percentage of foreign films in Venezuela is not surprising, however. Producing films there is not easy: There are a limited number of private sources, and it is almost impossible to get state-funding and support when there are more pressing development needs. Thus, in an effort to boost native film making, on January 12, CNAC revealed that it will grant over $3.7 million to over twenty filmmakers in 2007. The works that CNAC selected include feature-length films, opera primas, documentaries, short fiction, and short documentaries.

Additionally, the production studio, Villa de Cine, is expected to open this year, providing filmmakers with a government-funded facility that includes light, audio, and video equipment; casting and post-production conveniences; and grants “preferential conditions for local film, video and TV producers.” Thus far, the complex has cost $13 million, and the government is expected to allocate another $11 million to guarantee its completion.

CNAC hopes that the grants and production support will be able to increase the frequency of national-film screenings beyond the one week per year that is required by law. Additionally, the Center anticipates creating a film-marketing network throughout Latin America, increasing the country’s exposure to films from the whole continent, but particularly those countries that form part of the Mercosur trade bloc (Argentina, Brazil, Paraguay, and Uruguay).

Questions:

(1) Funding for the arts (broadly construed) is often limited in areas where there are other development pressures, such as ensuring that people have access to clean water, health care, etc. Is this counter-productive? What are the development benefits of funding art?

(2) What role does art play in the achievement of the United Nations' Millennium Development Goals? If there is no explicit role, how can the Goals be interpreted to incorporate art? Should they be interpreted in such a way?

A Review of the World Bank

What the World Bank knows ...And what it only thinks it knows
January 11, 2007

The article discusses the changing role of the World Bank. Since many of its biggest customers no longer require aid or loans from the World Bank, the Bank is changing its emphasis and trying to become a ‘Knowledge Bank’ to whom countries can turn to for advice and ideas. However, this change is not progressing smoothly; the authors suggest that a large number of the 10,000 people employed by the Bank waste their time in the creation of work that is “wonkishly heroic” and “inconsequential.” Recently, the Bank invited top academics to inspect its “intellectual books.” The ‘inspectors’ in addition to finding wastage of resources, also found that the Bank took new and untested results as hard evidence that its preferred policies work.” One World Bank study which presented the ‘benefits’ of globalization was singled out for criticism by the academics because of the short-term and narrow-minded view that it espoused.

The academics made a number of suggestions to improve the Bank’s functioning such as focusing on more practical projects and encouraging employees to cry foul when their work was manipulated by superiors.

Questions
1. What additional policies should the World Bank adopt to maximize its impact on nations that require its help? Should it for example, have academics review its intellectual books on a regular basis?

Controversial US-EU agriculture deal proposed

Source: “US and EU near agriculture trade deal” - ft.com

After a meeting of high-level officials this weeken, the US and the EU are close closing on a new agricultural trade deal. As reported last week on the blog, such progress could be a virtual rebirth of the Doha trade talks.

The outline of the proposed deal contains conessions that are already controversial on both sides of the Atlantic – such controversy leaves some uncertain whether the involved negotiators can get the necessary political backing to finalise the deal. The deal includes Brussels’ agreement to “cut barriers to foreign agricultural products” by an average of 54%, as well as the US’ agreement to “lower the ceiling on its domestic farm subsidies”.

Despite the progress, Paris looms in the distance as a threat to the deal; Paris will most likely be in opposition to the deal. However, experts believe that Germany, which has usually been effective in helping to persuade Paris, will be a valuable asset in helping the deal come to fruition once more.


Question:

- Are the stalled trade talks a result of too much hubris from one or more sides, or do they represent a much deeper problem in the global economy?

Thailand Passes New Laws Redefining "Foreign-Owned" Businesses

Sources: Thais Change Law on Business Ownership, Thailand Braced for Business Clampdown, Thailand Imposes Limits on "Vital Sectors"

On Tuesday, Thailand's military-installed government officially enacted the changes to the foreign investment laws it had been considering. Under the new law, Thais must have fifty-one percent or more of the shares of a company for it to be considered "Thai" rather than foreign. The purpose of the changes are to close loopholes that had permitted multinational companies to oeprate local subsidiaries in businesses that were technically supopsed to be reserved for Thais. It seems, however, that the primary purpose of the changes was to get Temasek Holdings of Singapore to reduce its ninety-six percent holdings in Shin Corp, the telecomm corporation founded by Thaksin Shinawatra, the ousted prime minister. Many incumbent companies which previously would have been deemed Thai but will now be considered foreign-owned under the new changes, will nonetheless be permitted to operate in sectors reserved for Thai businesses. In addition, the Thai Stock Exchange stated that at most, fifteen listed companies would have to adjust their shareholding structure under the new law.

Despite the Cabinet's confidence that the new law will improve investor confidence by setting out a clear policy in Thailand, some analysts maintain, however, that the new law will still have a dampening effect on new foreign investment. Some think that in an atmosphere where many other countries in this region are inviting foreign investment, Thailand's narrowing of the rules of the game in this manner has sent a mixed signal to investors.

Questions:
1) Do you think that Thailand has sent the wrong signal to foreign investors by passing this new law?
2) Could Thailand addressed the problem presented by Temasek Holdings in another way that would have less of an effect on foreign investors' confidence?
3) How will Thais benefit from this changed law?

Thailand's Consideration of New Law Upsets Foreign Investors

Sources: Foreign Investors Seek Thai Investment Rethink, 'Aliens' No Longer, Thailand Tightens Foreign Investment Laws

On Monday, Thailand's overseas business community urged the military-installed government to reconsider the proposed revisions to foreign investment laws, which they predict will have serious negative consequences on investors, both present and future. Bankok is about to make a move to clamp down on its definition of a "foreign-owned company." Previously, Thailand law looked loosely at shareholding structures to determine whether or not a company is Thai-owned or foreign-owned. This loose structure allowed international companies to use special voting rights to control Thai-owned subsidiaries. Now, the government may change to considering not only voting rights, but also actual control to make the same determination. This change will mean that many companies that had been deemed "Thai-owned" would now be considered foreign, and thus would be operating illegally.
The Thai government would give foreign companies operating in violation of the new law a one-year grace period to reduce their holdings to rectify the company's qualification under the new definition. This grace period has not quelled much of both foreign and domestic investors' fear and anger regarding the new definition, especially if the new definition were to apply retroactively. In addition, the Thai government has been facing pressure to amend the law quickly since it has been installed following the military coup in September, which was partially motivated by the controversial take-over by Singapore's Temasek Holdings of Shin Corp, a temecoms company founded by the ousted prime minister, Thaksin Shinawatra.

Questions:
1) Should the Thai government take its time in making this decision despite the political pressures to change the laws?
2) What do you think may be the worst-case scenario if/when the law is passed?
3) Who will benefit the most from such a law?

EU, China Begin Talks for New Commercial Treaty

Source: China and EU begin renegotiating commercial relations treaty – IHT.com

The EU, China’s biggest trading partner, is beginning new negotiations with China on a number of issues, including trade and climate change. Both sides hope that the existing Chinese-European commercial treaty, signed in 1985, will be replaced , but recognize that talks could take years. Human rights protections, standard in all EU agreements, would be a part of any new commercial treaty, but EU negotiators do not expect any objection to such terms. From the Chinese perspective, the biggest potential obstacle is a weapons embargo that China would like the EU to lift.

While these talks progress, both sides are pursuing cooperation in other arenas, as well. EU representatives are seeking Chinese support for a European climate change initiative designed to reduce greenhouse gas emissions and develop clean fuel technologies. China expects the EU to grant it market economy status, which, among other things, would offer China more protection against European trade retaliation. The two parties also announced agreements to develop a joint law school, to improve protection of intellectual property rights in China, and to train Chinese students in advanced business skills.

Unexpected rise in PPI could trigger inflation in the U.S.

SOURCES:
Associated Press: Stocks Mixed on Inflation Worries

Bloomberg.com: U.S. Economy: Producer Prices, Production Increase (Update2)


Today’s economic reports noted a higher-than-expected advance in the Producer Price Index (PPI) in the United States for December 2006.

The PPI is monitored by the U.S. Department of Labor’s (DOL) Bureau of Labor Standards (BLS). It tracks pricing in goods from the vantage point of the domestic seller or producer. As a result, the PPI affects the Consumer Price Index (CPI), which monitors the cost of goods and services to the consumer. An increase in the PPI could foreshadow an increase in the CPI for particular goods and services absent subsidies and other government interventions that could reduce costs. Most importantly from an economic standpoint, the PPI is considered an indicator of impending inflation.

The reaction to the rise in the PPI on Wall Street was a measure of temerity, as the increase dampened hopes that the Federal Reserve will cut interest rates in the first half of 2007. Should the PPI continue its slow but steady rise, the Fed is expected to raise rates in order to control inflation.

A bright spot in the report is that despite the increase in the core PPI (which does not include energy and food producer prices), a drop in energy prices—specifically crude oil, which has fallen twenty percent since mid-December 2006—is a hopeful sign for the CPI and consumer spending.

FOR DISCUSSION:
It seems counterintuitive that an increase in the PPI, which is linked to increases in production and arguably job stability, or even growth, is cause for caution on Wall Street.

1. How do we decide when something is “good” or “bad” for the economy? Is it more relative than one might initially assume?

2. Is there tension between what is “good” for Wall Street and what is “good” for domestic production?

World Bank Grant to Ethiopia to Fund Second Stage of the PSNP

Sources: Ethiopia, World Bank Sign Grant Accord
this document prepared by the World Bank.)

During a ceremony held on January 11, 2007, at the Ministry of Finance and Economic Development, Ethiopian government officials and World Bank representatives signed a grant agreement giving $175 million to the developing country. The funds from this grant will be used to finance the second phase of the Productive Safety-Net Programme (PSNP), a program to fight poverty and food insecurity in the African nation. (For more information about the PSNP, see this document prepared by the World Bank.)

The first phase of the PSNP, implemented in 2005, was financed by the World Bank and other development partners, including the European Union, the United Kingdom, and Ireland, for over $295 million. In order fulfill the total financial requirement of this second phase (reportedly, this phase will require about $915 million), the same development partners are expected to co-finance the endeavor, as well as Canada, the United States, Sweden, and the World Food Programme.

According to Ishac Diwan, World Bank Country Director for Ethiopia and the Sudan, the next phase of the PSNP will focus on “improving the quality of the work and the quality of good governance which [will] remain more fair and clear of any political risk.”

Question: What steps should Ethiopia take first in order to use the World Bank funds effectively, while remaining focused on its goal of improving the quality of work and governance throughout the country?

Questioning Ecuador's Threat to Default

Sources: Bloomberg News, Ecuador Bondholders Doubt Correa's Default Threat, Prices Show; Latin Business Chronicle, Debt Default: Don’t Try This at Home; Forbes.com, Leftist Assumes Presidency of Ecuador.

In an event that investors have been awaiting anxiously since his election, on January 15, Rafael Correa took office as Ecuador’s President. Given his campaign promises to default on the nation’s $11 billion in foreign debt, the previous months have been full of speculation regarding whether President Correa will actually follow through with his threat. Presently, however, the country’s bonds are trading at more than twice the level they were when the country defaulted in 1999, indicating that many bond holders doubt Correa’s sincerity.

The surge in bond-holder confidence stems, in part, from the recent increase in Ecuador’s oil export revenue. The increase in funds has hastened the nation’s economic growth and created a budget surplus, diminishing the perceived need to default because the country actually has the money to pay the debt. Additionally, investor confidence is supported by history—in the past two decades no country with a budget surplus and strong economic growth has defaulted. In 2006, Ecuador’s economy grew approximately four percent and exports increased over twenty percent.

Even if President Correa has backed away from his threat to default fully, he is still focused on leading the country in an "economic revolution." As he mentioned in his inauguration speech, such a movement would emphasize the renegotiation of the foreign debt, "paying only what we can after attending to the needs of the poor."

See Ecuadorian Presidential Candidate Creates Unease Over Debt; Ecuadorian President Plans to Cut Ties with World Bank and IMF; and, Ecuador’s Post-Election Bond Risk for more information.

Question:

(1) To what extent has foreign-debt default become an act of symbolism as well as an act of financial desperation? Are bond holders warranted in believing that Ecuador will follow the historical trend and refrain from defaulting because it does not need to?

Sudan Introduces New Currency

Source:South Sudan Pilots New Currency

Sudan will introduce a new currency this week as the country marks the second anniversary of the signing of the north-south peace deal. The Sudanese pound will replace the dinar that was introduced in 1992. It will be introduced to the south first where five currencies are currently in circulation.

South Sudan's Vice-President Riek Machar said the currency would be commonly known in the south as "the Sudani".

"The currency will help us - we will now have an index for our economy; we'll know how our economy is growing," said Machar.

Many Sudanese southerners regard the dinar as a symbol of "Arabization" by the former government.

The currency conversion, that is expected to cost about $150 million, was agreed as part of the peace agreement between the government and southern rebels.

The conflict, which was Africa's longest-running civil war pitted the Muslim north against Christians and animists in the south, leaving some 1.5 million people dead.

President Omar al-Bashir said there were aspects of the peace agreement that were yet to be implemented, such as establishing an administration for the oil-rich region of Abyei, and distributing oil revenues to the south.

Question: Is the introduction of the Sudani a step in the right direction for Sudan?

Zimbabwe in Economic Crisis

Source: Zimbabwean inflation hits 1,281% - BBC.com

Zimbabwe is facing its worst economic crisis since the 1980’s. Inflation in the country continues to move upward at an alarming rate. In December inflation rates reached 1,281.1%. The cause of the continuing rise is said to be the higher costs of domestic energy, gas and other fuels.

This rise in inflation has led to a significant increase in the cost of living, which rose by 43% in the past month. School fees alone rose by 262% and the price of bread rose by 180%.

Some fear that this increase in the cost of living will lead to widespread protests and strikes. The country has already experienced a standstill in its public health system as health care professions are striking due to a refusal to meet their demands for large increases in pay.


Question:

What steps should Zimbabwe's government take to stop the rising inflation rates?

Germany changes stance on energy

Source: Berlin open to liberalising energy market - Ft.com


There’s hope that, at a European summit in March, that EU countries can agree on making liberalizing changes to the region’s energy market. Such changes would include the creation of a powerful price regulator and the elimination of producer-controlled distribution networks.

Germany, once opposed to such changes, has recently said it will “not rule out any option” when it comes to the upcoming summit; Germany’s change of heart leaves France as the sole opposer to such changes.

Germany, currently holding the EU’s six-month presidency, is responsible for reaching a joint energy agreement between the EU’s member states. The changes would be implemented as a means to increasing competition in the energy market and relieving the market of the stranglehold that certain conglomerates—including France’s EdF and Germany’s RWE—currently have.

Question:

- Will such changes to energy policies serve to improve relations between EU member countries?

New life for Doha?

Sources: Some Progress in Global Trade Effort - NYTimes.com; US and EU revive hopes of trade deal - FT.com; Mandelson to push Bush on trade - FT.com

José Manuel Barroso, president of the European Commission, and President Bush met to discuss the Doha trade talks and pledged to revive the negotiations. Both sides recognize an urgency to get a trade deal done before Mr. Bush’s Congressional mandate to negotiate trade pacts expires at the end of June and is unlikely to be extended by the Democratic-controlled Senate.

EU farm subsidies and tariffs have been the primary hurdle in earlier trade talks, but the EU is now signaling a greater willingness to make concessions in this area. EU trade officials insist that the sides are no longer that far apart on agriculture. At the same time, Europe is counting on the US to help convince developing nations to reduce trade barriers on industrial goods.

Questions:

Is the reported “progress” on the Doha trade talks more than rhetoric? Can the EU and US reduce agricultural subsidies enough to appease developing nations? If clear progress is being made, should Congress extend President Bush’s negotiating authority?

Local Control Diminishing in El Salvador, Elsewhere

Sources: Inter Press Service News Agency, Multinational Capital on the Offensive; MarketWatch, S & P Sees Further Central American Bank Mergers, Buys in 2007; International Herald Tribune, Colombia's Bancolombia Announces Takeover of El Salvador's Biggest Bank.

When the Colombian financial institution Bancolombia purchased fifty-three percent of the largest El Salvadorian bank, Banco Agrícola, the last financial institution in the country owned by local shareholders disappeared. The deal between Bancolombia and Banco Agrícola is a two-stage takeover that is expected to be completed in April 2007 at a cost of $900 million. It was the latest in a number of sales of local bank shares in El Salvador to transnational corporations, including Scotiabank of Canada and Citigroup of the United States.

The December 2006 takeover of Banco Agrícola was not a surprise, but rather evidence of an increasing trend in Central America, and particularly El Salvador, where local shareholders are relinquishing their ownership in banks, insurance companies, credit card operations, and pension fund administration companies to foreign corporations. As a consequence, local shareholders gain international partners and are able to reinvest their capital in other more profitable enterprises such as car imports and the construction of shopping malls. Furthermore, political scientists see the sell-off of local shares as a way to limit the government’s control of a particular sector. This is because the free trade agreement that El Salvador signed with the United States (CAFTA-DR) puts significant limitations on state action against foreign firms, making the banking sector essentially untouchable once it becomes foreign-owned.

In late December, Standard and Poor’s, a financial services corporation, predicted that 2007 will be another year of heavy mergers and acquisitions in financial services, continuing the trend of the past couple of years. Since May 2005, bank mergers and acquisitions in the region have totaled over $5 billion, greatly increasing the presence of foreign capital in Central America and the Caribbean.

Questions:

(1) What are some of the benefits of foreign ownership of the El Salvadorian banking system?

(2) One economist has said that complete foreign ownership will place the country in a position of being dependent on multinational economic powers and essentially turn the country into a “banana republic.” Is this a legitimate criticism?

(3) What are some of the potential negative repercussions that could be associated with having financial institutions owned by entities with few or no ties to the region? Could such ownership compromise development by redirecting national profits elsewhere?

Venezuela Moves to Nationalize

Sources: Bloomberg News, Chavez Plans to Nationalize Cantv, Other Utilities; The Guardian, Chavez: Will Nationalize Telecoms, Power; New York Times, Venezuela Will Nationalize Telecoms and Power.

Following his re-election last month, on January 8 Venezuelan President Hugo Chavez announced that he will nationalize the country’s telecommunications and electrical companies. Presently, the nationalization plan includes industries of strategic importance, such as the telephone company C.A. Nacional Telefonos de Venezuela (CANTV) and the electrical company Electricidad de Caracas, owned by a Virginia-based company.

The nationalization announcement did not come as a surprise to some observers as Chavez had threatened to nationalize CANTV last August if it failed to adjust its pension payments to those of minimum wage. Additionally, the plan to nationalize corresponds with the movement towards a greater socialist state that Chavez promised voters prior to his re-election. “We are in an existential moment of Venezuelan life,” he stated, “We’re heading toward socialism, and nothing and no one can prevent it.''

In his speech, the President also mentioned that oil projects currently underway in the Orinoco River basin should also be under national control, lamenting the fact that “international companies have control and power over all those process of improving heavy crudes” and concluding that heavy-crud refineries in the region “should become the property of the nation.” However, unlike with the electrical and telecommunications industries, Chavez did not state whether a full nationalization of the oil projects would be required, nor did he outline under what terms private companies may be permitted to continue to operate in the area or if they would be compensated.

To expedite the nationalization process, Chavez hopes to convince the National Assembly to pass a law granting him power to effectuate changes without their further approval. Chavez operated under such an Executive Order in 2000 and 2001, and because the Assembly is controlled by Chavez allies, such a request is unlikely to be contested.

Questions:
(1) What are some of the benefits of privatization of these industries?

(2) Is the President’s decision to nationalize based on the welfare of the Venezuelan citizens? What roles do making a political statement and ensuring regional alliances are clear play in the decision, if any?

Free Secondary Education for Ugandan Students

Source: Free Schooling for Needy Ugandans - BBC.com

In East Africa many secondary school students do not finish their education because of high school fees which they are unable to pay. However, the Ugandan minister of education has announced that the country will provide free secondary education to its students. Uganda will be the first East African country to do so.

Demand for free secondary schooling is expected to be high. Since the government implemented free primary education in 1997 such demand has increased by a large extent. It is estimated that 100,000 students will be enrolled in the program next month. Because of limited resources only poor, deserving students who perform well will be provided with a free secondary education.

The African Development Bank will provide a grant to fund the building of new education facilities and the Japanese government has promised to provide experienced teachers to help cope will the demand for secondary education that will be realized once the program begins.

Question:
How could the Ugandan government alter its program in order to provide a free secondary education to all students (not just those who perform well)?