China Dragging Feet on Piracy Issues

Sources: US Says China Slows Anti-Piracy Cooperation Since WTO Complaint, US-China Talks on Piracy Back on Track

The U.S. Undersecretary of Commerce Jon W. Dudas reported recently that although China has increased cooperation in certain areas with regard to fighting piracy since the U.S. filed complaints to the World Trade Organization earlier this year, there has been a marked slow-down in some areas of cooperation. Last April, the U.S. filed complaints accusing China of failing to take reasonable steps to cease copying of movies, music, and various goods. The complaints have strained relations between the countries. China is the leading source of pirated goods - just last year over 80% of pirated products seized at U.S. borders came from China.

One step that the U.S. is urging China to take is to eliminate requirements that pirates be caught with a certain minimum amount of counterfeited products before sanctions can apply. Even then, many offense are punishable by fines rather than jail time. The U.S. claims that these penalties are so minimal as to lack any real deterrant effect.

Questions:
1) How can China change its laws to more effectively decrease its piracy rates?
2) What effect on China's economy and growth might an abolishment of piracy practices have?

Is China's Hot Stock Market "Too Hot"?

Sources: Buffett Calls for Caution Over China Stocks, Warren Buffett Warns Investors that the Chinese Stock Market is "Too Hot"

Warren Buffett warned investors last week to take caution when dealing in the Chinese stock market. His warnings come on the heel of a 2 year hot streak during which the Chinese market rose over fivefold. He claims that the market has been too hot and, thus, most likely does not present investors with many good buys. Such steep surges in markets oftentimes leads to overvaluation.

Buffet has himself recently sold all of his investment group's (Berkshire Hathaway) holdings in PetroChina. Buffet managed to watch his holdings in this company, which he purchased in 2003, rise 76% just in the past year. Berkshire Hathaway sold its 11% stake in PetroChina, which it purchased for $488 million and grew to a worth of $3.31 billion in 2006.

Questions:
1) Is China's breakneck speed of growth going to break soon?
2) Will overseas investors heed Buffet's warnings and turn away form the Chinese market?

In Egypt, everything seems to be booming but workers’ wages.

SOURCE: Los Angeles Times—“Discontent Among Egypt’s Workers”

The Egyptian government under President Hosni Mubarak implemented a program of economic liberalization that has resulted in 7% economic growth in each of the last three years. However, the benefits of growth have not been felt by the lower and middle classes. Wage rates have not increased. This, coupled with high inflation has resulted in significant unrest in Egypt, as strikes and work stoppages spread around the country and political dissidents take advantage of the situation to further anti-Mubarak rhetoric.

The Mubarak administration has accused its opponents--groups such as the Muslim Brotherhood (a strict Islamist group) and Kefaya (a secular political organization)--of fomenting unrest among Egyptian workers, but the workers deny this. Instead they assert that economic liberalization has left them behind, only benefiting the wealthy and those with connections to the government.

FOR DISCUSSION:

Egypt’s economic strategy has been very successful on one level, posting high levels of growth. At another level, it is foundering due to unrest among workers who are struggling to survive in an economy where everything is booming but their wages. This latter problem has the potential to create political instability in Egypt. Do you think the situation is salvageable for the Mubarak administration? How might they turn it around?

Saudi Transformation

Sources: Financial Times – Saudis Build on Boom

Saudi Arabia has begun following in the footsteps of its Gulf neighbors. The Saudis are extremely ambitious in their new construction projects, which involve building roads, railways, plants, and housing units. The investment is estimated at $320bn. The recent oil boom in Saudi Arabia is paying for the high cost in construction.

Saudis expect the oil boom to cover the costs of many projects to come. The new construction has been catching the attention of foreign and local investors. Saudis hope that the oil boom will cause a ripple effect in other industries, especially since the little growth of 1980s and 1990s. As a result, the Saudis may have more economic diversity and security in the future.

Saudi Arabia produces 25% of the world’s oil reserve. However, they are facing difficulties in improving services, reducing “its dependence on oil,” and improve skills of local workers. Unemployment in Saudi Arabia is currently at 12%. The government must address the high rate of unemployment to reach its new economic goals.

In previous years, Saudi Arabia invested approximately 17% of its GDP. However, currently, it is investing about 35%. Saudis will have difficulty keeping up with the high paced growth. Inflation is at a 7 year high, which will directly affect the pace of construction. All in all, growth is expected to continue at this rate until 2015.

Discussion questions:Will the recent oil boom create further investment by outside financiers? Will Saudi Arabia be able to compete with other countries in the Gulf (i.e. Dubai)?

Coming Soon to Latin America: A New Development Bank?

Sources: Delays at Bank of the South; Bank of the South, championed by Venezuela, begins to take form; Venezuela to skip IMF, World Bank meetings

The Venezuelan government announced today that the Bank of South will begin its operations on December 5, a month later than initially planned. The Bank of the South is a new institution proposed by Hugo Chávez as an alternative to the World Bank, the Inter-American Development Bank, and the International Monetary Fund (“IMF”) based in the United States. To symbolize its clear break with the extant international financial institutions, the Bank will be located in Caracas, Venezuela. Its founding members include Argentina, Brazil, Bolivia, Colombia, Ecuador, Paraguay, and Uruguay, in addition to Venezuela.

The Bank of the South will open later than originally anticipated because many important details of its governance structure have not been fixed. The founding members are still trying to determine the appropriate size and purpose for the Bank, as well as the dues for its member states. The Bank’s founding members have tempered the exclusivity sought by Chávez. Brazil has stated that the Bank will not duplicate the IMF by creating a bail-out fund. Additionally, Colombia has announced that its membership in the Bank is not to be construed as a repudiation of other international financial institutions.

These efforts are in contrast to those of Venezuela. While the country remains a member of both the World Bank and the IMF, the Venezuelan finance minister did not attend the 2007 Annual Meetings last weekend. Instead, he led a delegation to promote the Bank of the South during that time.

Discussion:

Is the Bank of the South simply a political ploy of the Venezuelan government, or will it provide an alternative source of funding for the Latin American countries? Do you think this Bank will be able to address those concerns unanswered by the Bretton Woods Institutions, when the main difference appears to be the absence of the United States, rather than a change in banking practices?

Housing Crash Continues

CNN Money

The mortgage crisis saw another numbing statistic: number of empty homes increased during the third quarter to a whopping 2.07 million. That is a seven percent increase from last year. This is, however, down from first quarter levels this year.

What has caused these empty homes? There are always some empties, but a combination of high supply and low demand fueled by the loan crisis (i.e., individuals face additional difficulty in gaining loan financing) has led to this huge surplus of homes.

Some think this problem will get worse. Home sales were at 11 year lows this summer, and September sales dropped 24% from last year. Sales aren't expected to hit the floor until next spring, and fourth quarter orders dropped 40%. Debts of leading homebuilders were rated as “junk.” Countrywide, one of America’s leading mortgage lenders, saw a 1.2 billion dollar third quarter loss. Furthermore, an additional problem is looming. 2.8 million homeowners will see interest rate resets, and if these homeowners cannot afford the new payments, that could cause additional empties because of foreclosures. It’s likely that 3 or maybe 4 million homes will enter the market.

Question: Can the US government step in and do anything to reverse this trend of negative home-sales that appear to have no end?

Question: What international ramifications, if any, may this have?

The Economic Effects of Global Warming in Greenland

Source: International Herald Tribune "As temperatures rise, a greening of Greenland"

Thanks to warmer temperatures in Greenland, old trees throughout Greenland are coming back to life and growing again. The temperature is also increasing the supply of locally grown cauliflower, broccoli, cabbage, and other vegetables. In addition, numerous farmers are experimenting with growing potatoes.

Currently, Greenland has only 51 farms – all sheep farms – and most of the vegetables Greenlanders eat are imported from Denmark. However, Greenland’s chief agriculture adviser believes that southern Greenland can eventually be full of vegetable farms and viable forests.

Greenland’s great ice sheet in the north covers 80% of the island’s land mass and is rapidly melting. As the ice melts, sea levels will rise. However, in the subartic south, the changes of global warming are more subtle and beneficial. As Greenland’s chief agriculture adviser points out, a few degrees can make a large impact in Greenland’s southern climate because the limiting factor for human survival is temperature.

Examples of the warmer climate’s positive effects include a shorter winter, the reappearance of cod off the coast, fatter lambs, successful strawberry crops, numerous strains of potatoes, and annual flowers. As temperatures continue to rise these effects should become even more obvious.

The change will not be easy for sum, as one Greenlander thinks that it will take time for Greenlanders to change their way of living and being – Greenlanders are known as hunters. However, the same individual believes that things can grow in south Greenland.

Questions for discussion: What other “benefits” does global warming have in store for Greenland and other countries? Are there ways to enjoy the benefits of global warming without experiencing the negatives of global warming?

Bush Calls for Continued Economic Pressure on Cuban Government

Financial Times - Bush Renews Call for Change in Cuba
Global Security Org – Cuba’s economy
Granma Internacional (Cuba) - Cuba Responde a Bush

US President George Bush reaffirmed the US commitment to the economic embargo on Cuba in a speech Wednesday. Bush’s timing appeared to be timed to coincide with the possible transition in power within the last year from Fidel to his brother Raul. Raul is believed to be running the day-to-day operations of the Cuban government because of Fidel’s health problems. In the speech, Bush also urged political dissidents in Cuba and the people themselves to revolt against the Cuban regime.

Bush’s message was directed in part at the international community and existing and potential trade partners of Cuba. Although a US statute attempts to discourage all countries from engaging in trade with Cuba by threatening actions and denial of entry into US markets, European countries such as Spain have been increasingly investing (often in a partner ownership structure with the Cuban government) in Cuban projects.

In Bush’s speech, he claimed that US trade restrictions against Cuba will continue because of the potential enriching effect on current political leaders if the embargo was loosened. Although the US tough stance against Cuba is supported by many Cubans living in the US, most countries take issue with the embargo. A United Nations symbolic vote on the US embargo with Cuba condemned it by 184 votes to 4 votes.

The Cuban economy, although growing in the single digits yearly, has experienced adverse effects from the global downturn in tourism (an increasingly significant portion of GDP), declining yields of the sugar industry, an increasing informal economy that is largely denominated in dollars instead of pesos, and decreases in the amount of remittances that Cubans living in the US can send to the island (also an increasingly significant portion of GDP).

The Cuban chancellor responded to Bush’s speech by rejecting the assertion that the Cuban people are dissatisfied with the regime, and noted that Bush’s statements were made under the flawed presumption that the Cuban people do not continue to support the Socialist revolution.

Discussion:

1. Do continued US economic sanctions against Cuba effect a greater probability of regime change?

China criticizes the IMF

Source: China slams the IMF over forex, calls for bigger role


China is upset at the IMF over what it feels is unwarranted concern over the valuation of the yuan while more pressing matters are needing the Fund’s attention. China is particularly concerned with the lack of growth in major developed countries (like the U.S.) and the risks that status might pose. China also slammed the IMF over what it regards as an unbalanced global development picture, particularly countries in the Northern hemisphere experiencing significant development while those in the Southern do not.

The attack by China came after the Group of Seven wealthy nations pressed the former to allow the yuan to appreciate faster, citing concerns over trade. However, China’s concerns with the IMF are deeper than just the current fracas over the yuan: China believes that the IMF, in attempting to enforce its own exchange rate regime on countries, disrespects those countries autonomy, and that developing countries like it have a disproportionate hand in the management of the IMF and World Bank. Both institutions have promised greater control for developing countries, but China is unhappy with the “lack of progress” in ensuring those promises come to fruition.

Question: Despite its legitimate concerns over the IMF, should China nonetheless concede the point on the valuation of the yuan? Is this current controversy a bargaining chip with which China hopes to spur along the "progress" of greater control over the IMF by countries like itself?

IMF reports robust growth for Africa

Sources:
- Robust growth rates for Africa
- Sub-Saharan Africa: Regional Economic Outlook


According to the IMF, sub-Saharan Africa can expect to see its economy experience a change in growth from 6% in 2007 to nearly 7% in 2008, an increase largely resulting from the coalescing of a surge in commodity prices and investments, and sound policy reforms instituted by regional governments. Further, the growth is mostly attributed to oil exporting countries, but this fact provides assurance to the IMF that the growth is sustainable. Historically, economic growth in the region has been unstable because of institutional weakness and fluctuating commodity prices, and often a period of growth was followed by a disastrous collapse in output. Yet the IMF is hopeful that the situation is different this time around, again owing mostly to sound policies being implemented in the region.

However, the IMF’s hopefulness is not without caution—it noted several adverse potentialities. For instance, the IMF warned that though donor-funding is allowing for growth, the supply of that funding are not poised to keep up with the demand. An increase in donor commitments is needed for the region to maintain growth and avoid a future collapse.

Finally, the IMF noted that while countries in the region have come along way with policy reform, a good deal of reform is still needed in certain countries, particularly reforms related to expenditures in the medium-term. The IMF is nevertheless satisfied with the perceived effectiveness of its policy advice and capacity building in the region.

Question: What other factors might contribute to a downturn in economic growth in Sub-Saharan Africa?

Increasing friction between China and the US

Source: Asia Times: Multinationals fear US-China trade wars

International trade between China and the US has been upset recently by Chinese product recalls in the US. China and the US have been retaliating against each other by rejecting the other country’s goods and filing complaints against each other with the World Trade Organization. For example, since 2006, the US has filed four complaints against China with the WTO. In September, China initiated its first complaint in five years against the US with the WTO. Furthermore, in response to the Chinese product recalls in the US, China has rejected US-made product shipments for quality deficiencies, citing bacterial infections in food products and high levels of toxicity in children’s products.

The US Congress is now getting involved. Senators Clinton and Obama are co-sponsoring legislation that would levy punitive duties on Chinese goods. However, large multinational companies, such as Boeing, Citigroup, Microsoft, and General Motors, are worried about such legislation, believing that “imposing unfair barriers to trade in the name of currency valuation or product safety is not a solution to the underlying concerns.” These companies want Congress to reject protectionist legislation against China. US Treasury Secretary Henry Paulson also agrees, fearing unilateral action aimed at another nation may have large repercussions on the US’s economic well-being.

Trade barriers can greatly affect the economy. One report states that about 30% of a sample of 2,500 Chinese exporters suffered economic losses. The companies lost $35.9 billion, in contrast to $28.8 billion in 2005.

Discussion Questions:
1. Is product safety an expected by-product of economic globalization and therefore a manageable concern through between-country trade agreements, or is it a means for some countries, like China, to take advantage of weak trade oversight?
2. Is legislation the best way to control trade issues between countries?

Annual Meeting of the World Bank Concludes African Development Has Improved, and Report Calls for Investment in Agriculture to Sustain Growth

Sources:
This Day: W’Bank: 25 African Countries Record Impressive Growth
The World Bank: World Bank Calls For Agricultural Renewal, Focus On Productivity Growth In Sub-Saharan Africa
Newsweek: Troubled Waters

The 2007 Annual Meetings of the World Bank and IMF’s Board of Governors were held last weekend. At the meeting, World Bank President Robert Zoellick stated there was “good news” regarding Africa, with seventeen African countries achieving average annual growth of 5.5 percent between 1995 and 2005 and another eight countries attaining 7.5 percent growth. However, the Annual Meetings also indicated that African countries will continued financial assistance from developed countries to sustain this growth. In order to attain even higher growth, Zoellick stated that African countries need “assistance to build infrastructure . . . especially energy and physical facilities that can support regional integration. They also want us to help develop local financial markets, including microfinance, that can mobilize African savings for Africans.”

Meanwhile, the World Development Report (WDR) is advocating for greater investment in African agriculture. Because Africa is a primarily agrarian society, an emphasis on investment in African agriculture may help Africa to move out of poverty. WDR believes a greater emphasis on developing a sustainable agriculture base will increase overall economic growth for Africa. The report notes that the share of official development assistance for agriculture in developing countries is only 4 percent and needs to increase. Furthermore, the report states that action is especially needed in Sub-Saharan Africa, a region that has lagged behind other regions in its agricultural productivity growth. Some of the measures to improve African agriculture include sustainable water and soil management. In connection with these goals, a Newsweek article expressed concern for the global water crisis, which is harming African countries as they try to manage depleting water resources.

Discussion Question:
Is it realistic to think with a growing African population, depleting water resources, and insufficient financial support from rich countries that Africa will be able to maintain its economic growth?

Weak Consumer Confidence Threatens German Inflation Rate

source: Price fears hit German optimism
Fear of inflation, combined with global increases in food prices, threatens to chill German consumer confidence, according to surveys late last week. Germans ‘inclination to buy’ is slowing in response to uncertain expectations about their incomes in the near future. The Nuremberg-based GfK consumer research organization expects that the consumer climate index will fall next month to its lowest level since April, when the country was adjusting to a three-percentage point increase in value added tax. Additionally, data shows that inflation is on the rise. Four federal states reported larger-than-expected price increases in October. These reports led analysts to predict German-wide figures to remain at 2.4%, the highest in two years.
Bild, the German mass market newspaper, attacked comments by Bundesbank president Axel Weber, who, earlier this week, predicted that German inflation may reach as high as 3%. Since the European Central Bank aims to keep inflation at 2%, the newspaper said that Weber’s comments created an “inflation alarm” to already nervous consumers. His comments raised similar concerns in Frankfurt, creating the impression that the central bank has lost control of inflation and that Weber’s comments may prove to be self fulfilling.

Consumer experience purchasing day-to-day goods, such as food, largely shape their impressions about the inflation rate. Butter prices have risen as much as 40% over the last year, cucumbers as much as 42% in the month of October alone. With no immediate relief in sight to the sharp increase in the cost of food, inflation rates are particularly susceptible to the uneasy consumer. However, as economist Jorg Kramer points out, food accounts for only about 10% of the goods used to calculate the German inflation rate. The main cause of higher inflation, he says, continues to be the charges imposed by the government, including the 3% increase in value added tax earlier this year. This tension between consumer expectations and realities creates serious difficulties for policy makers.

Questions for Discussion
1. Are consumer impressions likely to have as dramatic of an effect on the inflation rate as Weber warned?

Chrysler Workers on Verge of Deal?

Sources:
Chicago Sun-Times
Financial Times
Reuters

Chrysler employees at six plants in Michigan and Indiana will decide the fate of the new four year labor contract negotiated this week. This deal is similar to the most recently negotiated United Auto Workers deal with General Motors and includes broad measures to cut Chrysler’s health care costs and boosting production competitiveness.

As of Tuesday, the results have been split--with 10,000 workers at eleven facilities have approved the deal, and 11,000 workers at six larger plants have rejected the deal. 1/3 of the Chrysler workforce, based primarily in Michigan and Indiana, will vote as the tie-breaking force. Plants in favor of the deal have approved the deal by over 80 percent, while anti-deal plants have rejected it by 63 percent.

This current deal has come under fire from both outside and within the union. Critics have blasted the deal for the inclusion of a concession that allows Chrysler to hire new workers at half the wages of current employees. Furthermore, critics claim that Chrysler is making fewer long-term manufacturing commitments than GM. The Canadian Auto Worker's Union leaders believe this deal will ultimately fail, which would force Chrysler and UAW to go back to the drawing board. This may also delay the upcoming labor discussions with Ford. Nevertheless, Chrysler has attempted to lure and sweeten the deal for workers by giving some temporary workers a substantial signing bonus. Furthermore, this deal supposedly gives Chrysler additional, long-term viability as one of the leading US automakers.

Discussion Question:

Assuming Chrysler workers agree to the deal, will the concession allowing Chrysler to hire workers at half the wages of current employees eventually strip unions the power to later negotiate for higher salaries?

Is Russia Headed For Slower Growth

Sources: “Role reversal at IMF as the rich come under fire” ;
“Next Year Could Bring Instability, Warns IMF”

The International Monetary fund (IMF) believes Russia’s growth in 2008 will be lower than originally thought. High oil prices, capital inflows and productivity gains helped Russia avoided the risks of the instable global financial markets this year. However, analysts believe that the market turbulence in foreign and domestic financing in the coming year will have a larger effect on Russia’s economy than the current year.

On a similar note, the IMF’s semi-annual meeting has a different tone because of the subprime mortgage crisis. While the meetings typically involve Europeans and Americans directing poor countries to modernize their capital markets, promote transparency and adhere to sound investment standards, the theme of the current meeting is the global impact of the subprime mortgage crisis. Further, many pundits argue that the failures in regulatory supervision caused the subprime mortgage crisis.

Questions for discussion: Do you think that international growth in 2008 will slow down, compared to the current year, as a result of the turbulent foreign and domestic financing markets? Further, are developing countries becoming more of a driving force and stabilizing factor in the world economy?

Zoellick Announces New Agenda for the World Bank at the 2007 Annual Meetings

Sources: World Bank chief calls for new direction for lender; Will the Bottom Billion Ever Catch Up?

On October 21, Robert Zoellick propounded a new agenda for the World Bank. The Bank’s new six-point agenda seeks to (1) increase cooperation between the institution and its member states; (2) facilitate greater involvement of the private sector in developed countries in the Bank’s development efforts; (3) develop a more responsive post-conflict adjustment strategy for affected states; (4) continue engagement with middle-income countries by offering services other than loans that are better tailored to their needs; (5) increase expenditures in health-related issues; and (6) consider the effects of the projects undertaken for economic development on the state of the environment.

At the Annual Meetings, Zoellick also asked the Bank's donor countries to raise their commitments for the replenishment of the International Development Association (IDA), which provides concessionary loans to the poorest countries. So far, South Africa—an emerging donor—has agreed to increase its donation to the IDA fund by thirty percent.

One commentator commended Zoellick on his on-going efforts to incorporate the bottom billion (i.e. people living in the poorest countries in the world) into the world economy. However, the commentator criticized Zoellick and others in the international community for concentrating their efforts on decreasing absolute poverty, as that does not necessarily assist in closing the gap for the bottom billion. Consequently, he suggests that development efforts (which include the Bank’s new agenda) need to expand beyond their current focus on aid to include more comprehensive policies in the area of trade, security, and good governance.

Discussion:

Neither Zoellick nor the commentator fixed deadlines for the achievement of their development objectives. Is it desirable to establish a firm time commitment for these proposals? Why or why not?

KASONGO: “Nobody doubts that we have minerals…we need to show that we have law and order…”

SOURCE: TIMESONLINE—“Mining firms face Congo crackdown”

The Democratic Republic of the Congo (DRC) is one of the most mineral-rich countries in the world. Until recently, the DRC was also troubled by recurrent political strife. Now the government under President Joseph Kabila is seeking to get its affairs in order by routing out corrupt deals of the past.

Victor Kasongo is the DRC’s deputy mines minister, and he’s launching an investigation into whether mineral licenses granted to foreign mining concerns during periods of "near-anarchy" are in fact valid. Says Kasongo: “[s]ome of the contracts will need serious thinking, serious negotiation to get all the parties’ agreement. And some, I am sure, will be found to be simply unlawful.”

Licenses granted to at least nine concerns are being investigated. The DRC has hired international fraud investigators to assist the government in this endeavor. Investigators have found situations where licenses were granted by warlords rather than the DRC government and where a mining interest would simply announce its acquisition of a mining claim—with no action or negotiations to support such a statement.

Aside from the interest in ensuring the underlying legality of deals, it also appears that the DRC has additional interests in ensuring that deals are properly drafted and negotiated: the royalties due the DRC are consistently low in relation to what they should be based on the market. The DRC currently receives $32M USD in royalties each year when it should be receiving closer to $162M USD.

Additionally, as political stability in the DRC attracts investor attention, big interests have shown a willingness to make deals that might actually provide some benefits to the country and its people.

For example, China recently closed an $8.5 billion USD deal with the DRC for cobalt and copper stores expected to be worth some $14 billion USD. While the deal has sparked some controversy, it is notable that the sum agreed to by the Chinese is intended to provide benefits to the DRC that were not present in the deals struck during the chaotic period when the country was in a state of “near-anarchy.”

Specifically, China agreed to pay for “a 2,000-mile road between the northeast region and the southern border, and a railway link of similar length to join the southern mining heartland and the DRC’s sliver coast on the Atlantic. Further money would go into schools and clinics and into rebuilding decrepit state-owned mining facilities.”

FOR DISCUSSION:

Do international investors who take advantage of political instability to strike lucrative—but legally suspect—deals have a legitimate reliance interest in the same?

India seeks to limit foreign investments

Source: Asia Times: India to curb foreign funds deluge

Foreign institutional investors have focused their attention on India since India has emerged as one of the fastest growing economies in the world. For example, over the past ten months, India has received $17 billion in foreign investment. This investment is twice the amount India received in 2006.

The Securities and Exchange Board of India (SEBI) responded to the recent surge of foreign funds flowing into India and driving up the country’s stock markets and currency. The SEBI proposed policy measures that will moderate the capital inflows into India. These measures include restricting offshore derivative instruments, or participatory notes (PN), which foreign investors use to invest in the Indian stock market. Such measures would not allow foreign institutional investors to issue or renew their offshore derivative instruments and the investors must wind up their current position (issued PNs) over 18 months. In addition, sub-accounts of foreign institutional investors would not be able to issue PNs. The stock market reacted to the SEBI’s proposals. The following day, India’s Sensex index fell over 9%.

Participatory notes are “derivative instruments issued against an underlying security.” They are indirect investment instruments. Foreign investors who are not registered to trade on Indian stock markets buy PNs from foreign institutional investors who are registered in India and then use the funds to trade in India on behalf of the PN holders. They are very popular in India because the PN helps foreign investors save on transaction costs and allows the investor to remain anonymous. PNs have contributed $89 billion into the Indian stock market in the past three years.

Most foreign institutional investors do not approve of SEBI’s proposals, believing that restricting PNs will negatively impact the Indian stock market. However, Indian policy makers are not worried about these concerns. An SEBI official clarified that "All SEBI wants is non-expansion for some PN with large positions. There is no proposal to ban PNs and SEBI is looking at simplifying [foreign institutional investor] registration norms so that if foreign investors wish to register in India as [foreign institutional investors], they are most welcome."

For Discussion:
In 1997, Asia suffered a severe financial crisis. At that time there was a strong influx of foreign capital into Asian countries which drove up the prices in the stock market, land, and other parts of the Asian economy. With foreign investment now at an all-time high in India and other Asian countries, will there be a new 2007 or 2008 severe financial crisis in Asia as the stock market and real estate reach new highs? Can India sustain its rapid economic growth?

Egypt’s Coptic Crisis

Sources: Qantara.de

Approximately 10% of Egypt’s population consists of Coptic Christians. Contrary to government reports, tensions are on the rise between Coptic Christians and Muslims in Egypt. A recent play in which a Coptic boy converts to Islam and then back to Christianity angered the Muslim community. The play did depict the Muslim religion in a negative light. Muslim protestors demanded the Coptic Church apologize. However, the church refused and protests became violent. In fact, several Copts and Muslims were injured. The incident caused the largest Muslim protest in Egypt.

Many Copts were insulted and outraged by the Muslim community’s behavior and reaction to the play. Some Copts have felt that they have received insults daily, but never receive apologies from the Muslims. Realistically, Copts have been insulted in Muslim churches as being described as “unbelievers.” Copts are regularly ridiculed in films. On university campuses, Copts are isolated and avoided by Muslim students.

Violent incidents among Egypt’s Copts have been on the rise since the play. The Egyptian Organization for Human Rights believes a reason for this is the government’s lack of involvement during crises. Youssef Sidhom, editor of the only Coptic newspaper in Egypt, accuses the government of excluding Copts from the political involvement. There were only 2 Copt names for candidates in parliamentary elections. Many government officials have made bare statements about guaranteeing peace to minority communities in Egypt. As a result of the Copts lack of political involvement, they are reduced simply to a minority religious group, ignored by the majority of the Egyptian community.

In reality, many across the world have been ignorant to the news that Coptic Christians in Egypt are a minority and fear violence. The Egyptians have tried to keep silent on the issue hoping that the incidents would dissolve on its own. As a result of the silent behavior, lack of involvement may have caused the silence to turn into violent noises.

The Egyptian Organization for Human Rights offers a solution by creating a committee for religious affairs in parliament. The committee would deal with issues and come up with practical solutions to stop the continuing conflict between different religions. If no solutions are found soon, the Copts may find themselves as outsiders in their home country. More and more Copts have found it difficult to get jobs in government and public sectors. The issue is in the heart of Egypt, where equal rights are not implemented.

Discussion questions:
Will government involvement solve the equal rights issue? Has any country been able to cure discrimination?

Latin America's Biggest Markets Fall on U.S. Bank News

Sources:
Bloomberg - Brazilian Stocks Fall on Credit Concern: World’s Biggest Mover
El Universal (Mexico City) – Cierra a la Baja Bolsa Mexicana 3.08%


Brazil and Mexico’s stock markets both fell heavily yesterday, due in part to lower-than-expected United States bank earnings. The falls were the highest globally. The Bovespa index in Brazil, representing the most-traded stocks on the Sao Paulo market, fell 3.7% to 60,894.29. Bovespa’s fall was the most in three months. In Mexico, the Bolsa fell over a thousand points to 31,823.

The Brazilian market fell in part due to low earnings reported by U.S. banks, prompting fears that the credit market will tighten and causing investors to sell Latin American stocks. The Mexican market responded to repeated warnings from the U.S. Federal Reserve Chairman Ben Bernanke that the weakness in the U.S. financial sector will continue and the release of low earnings reports from Bank of America, among other banks. Indications of a slow-down in the U.S. manufacturing sector also hurt the Mexican exchange, as Mexican exports 80 percent of its goods to the U.S.

Leading the fall on the Brazilian market was the oil company Petroleo Brasileiro (Petrobras) and the mining company Vale. Those companies, which had been leading the market spike the past few months, fell six and four percent respectively on the day.

Meanwhile, profits at the five largest banks in the United States hit their lowest level in four years and the Dow Jones fell 370 points, marking the 20th anniversary of ‘Black Monday.’

In addition to Brazil and Mexico, the main indexes in Argentina, Chile, Colombia, Peru, and Venezuela fell. Morgan Stanley’s Latin American index reflected the malaise and dropped 3.4%

Discussion:1. Should Latin American countries impose more stringent stock trading rules in light of the recent volatility and sensitivity to the American markets?

Price surge in the UK Housing Market

Source: Future of UK housing market
http://www.ft.com/cms/s/0/0fefa96a-7e7c-11dc-8fac-0000779fd2ac.html

According to the IMF World Economic Outlood, the UK is at a serious risk for a steep housing market downturn. The most vulnerable markets include those where there is a pronounced disproportionately between property values and factors such as income growth, interest rates and demographics. Charles Collyns, deputy research director for the IMF noted that a comparison of price-to-rent ratio or price-to-disposable income ratios, both have increased significantly more in the UK than the US.

It is hardly news that UK housing is overpriced. Yet most analysts would predict that prices will not fall soon. The peculiarities of the UK market, including its planning constraints and a shortage of available housing, suggest that tighter credit conditions are more likely to result in a chill in an activity, than a depression of prices. As compared to the US, where an increase in land development has resulted in a glut of available property, the new housing supply in the UK is relatively modest.

Consequently, new developers do not feel the need to slash prices, so overall market prices are not as susceptible to competition. This inflexibility makes owners less tempted to sell. The unavailability of housing also extends to the UK rental market with only 8% of the supply open for rent in the last year.

These conditions have consequences for both consumers and lenders. According to Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors commented that according to the organization’s findings the market is tightening, with available property “even more Spartan” than the decline in sales. He said that the decline in sales could affect public finances because it would reduce tax collection from housing transactions, but that the decline is not likely to affect consumer confidence in the same was as a fall in prices would. Furthermore, lenders relying on wholesale funding opportunities may suffer as well if the tension between the supply and demand of housing dampens their ability to lend. However, at this point, it isn’t completely certain how any of these factors will play out.

Questions for discussion
1. In the US, comparable inflation of property values triggered a correction to valuations. Is a similar strategy likely to be successful in the UK market, given the differences between supply and demand of property?

G8 Committed to Africa Development Aid

Sources:
Financial Times - G8 firm on Africa development aid


This week in Ethiopia, German Chancellor Angela Merkel met with the African Union at the start of a tour of African Countries that will also include South Africa and Liberia. In Ethiopia, Merkel affirmed the G8’s commitment to its aid pledges to Africa. Most significantly, this aid will include an increase in development assistance by $25 billion by 2010.

Critics, however, are skeptical of this pledge to increase aid, based on the G8’s history of breaking similar promises. They argue that promises made at the Heiligendamm summit in June did not go much further than the $25 billion aid goal made at the Gleneagles G8 summit in 2005, which stagnated.

Discussion questions:
Is this pledge different than previous G8 pledges of increased development aid? What kind of impact will this have on the African countries?

IDB: Remittances to developing countries exceed 300 billion USD

Source:
- Migrant workers worldwide sent home more than US$300 billion in 2006 – IDB

The Inter-American Development Bank recently released the results of a study commissioned by it and the International Fund for Agricultural Development to track the amount of remittances flowing into developing countries during FY 2006, and those results are astounding. More than US$300 billion flowed into the countries along a stream of remittances, showing once more that, though individual amounts may be small and seemingly insignificant, when taken together remittances dwarf official development assistance. Approximately 150 million migrant workers, primarily from North America and Europe, are responsible for the huge amount of remittances.

The amount provided by donor nations to the developing countries in question in so-called official development assistance totaled approximately $104 billion last year. Foreign direct investment, those investments by private firms in developing countries, also was significantly lower than remittances, coming in at around $167 billion.

The IDB hopes that this study is the beginning of a systematic monitoring of remittances which will enable the Bank and the relevant countries to channel these monies in ways which will have a greater and optimal impact on development. Currently, Asia is the top destination for remittances, receiving more than 114 billion of the 300 total, following by Latin America with around 68 billion. However, on an individual nation basis, India and Mexico lead the pack with 24.5 and 24.2, respectively.

The IDB said that remittances are mostly used for necessities such as food, clothing and shelter, but that individuals also are saving between 10-20 percent of the monies on average. Unfortunately, this money is being horded in the proverbial cookie jar, rather than being put to work in financial institutions, thereby not positively effecting change in local economic development.

Question: Why might the recipients of remittances believe their money is safer stored at home than in local banks?

IMF: World economic growth to slow in 2008

Sources:
- World growth slows, credit crunch clouds outlook-IMF - Reuters
- Dollar drops to record low - Reuters

Though the world economy is solid at the moment, the IMF is not hopeful that it will continual to burgeon and grow come next year at this time. This slowdown is likely to be a result of unfavorable conditions in the United States and Europe, particularly the troubles with the global credit market. The IMF’s July forecast for 2007 is staying at, for now, 5.2 percent economic growth, but its 2008 forecast dropped .4 percentage point to 4.8 percent.

The IMF credited China for the current growth in the economy, and that country’s economy is expected to grow at a celeritous rate through the year at 11.5 percent, but will begin to slow down in 2008, with a predicted rate of growth of about 10 percent; however, that minor decrease in speed will not be blamed for the overall decrease in growth next year. The United States and the now infamous subprime mortgage debacle will seemingly be the culprits once again, as growth in the U.S. will drop from 2.8 percent to 1.9, and will have an affect on the markets in other countries as well.

Additionally, the IMF retained its position that the U.S. dollar is overvalued, and despite an already waning strength, needed to depreciate further. Unfortunately, the strength of the Euro against the dollar has prompted some officials in that region to put pressure on politicians in the U.S., pleading that they strengthen the dollar in order to improve trade. Yet the IMF remains assured that the Euro itself was appropriately valued. However, the IMF did resonate the concerns of the U.S. and other countries regarding the value of the yuan, stating that more flexibility is needed if the global economy is going to untangle this web of problems of which the future decline in growth is a symptom.

Question: What could countries be doing at the political level to facilitate the changes the IMF recommends?

A New Gas Outlet To The EU

Source: "White Stream: Additional Outlet Proposed For Caspian Gas to Europe"

A new pipeline project, White Stream, could encourage investments in Caspian gas field development by diversifying export options and transport routes directly to European Union. The White Stream transit option should encourage the acceleration and expansion of production at Shah-Deniz as well as other offshore Azerbaijani fields. Further, the addition of White stream would allow investors to move faster and commit to higher production targets for EU markets.

Initially named GUEU (Georgia-Ukraine-European Union), this project involved a seabed pipeline from Georgia to Crimea. Currently, the GUEU-White Stream project developers are also envisaging a direct route from Georgia to Romania on the seabed. The proposed pipeline would branch off from the Baku-Tbilisi-Erzurum main pipeline. Once Turkmen gas crosses the Caspian and reaches the South Caucasus, White Stream would open one more outlet to Europe. Thus, the availability of White Stream would help enhance confidence of potential Western investors in Turkmenistan and create incentives for that government to partner with the West.

Two versions are possible, both involving ultra-deep levels across the seabed. The highly challenging seabed construction will benefit from the experience gained in laying the Blue Stream gas pipeline from Russia to Turkey on the seabed of the Black Sea. The project has an attractive range of market options, once EU territory is reached. Countries in central-eastern Europe are keen to diversify their supplies away from overdependence on Russian gas. Investment for White Stream’s first phase is estimated to be in the range of $2.5 to $3.5 billion - depending on the route version chosen. The second phase would add another 8 billion cubic meters of gas annually, and the third phase expects another 16 billion cubic meters of eastern Caspian gas.

Question for Discussion: Is this report to optimistic and bullish about the potential of the White Stream project?

World Bank and IMF Prepare for Their 2007 Annual Meetings

Sources: New Management to Set Tone As World Bank, IMF Meet; New IMF, World Bank heads face reform challenge; The World Bank is back, says Zoellick’s deputy

The 2007 Annual Meetings for the World Bank and the IMF will be held in Washington, D.C. from October 20-22. In their preparations for the Meetings, both the Bank and the IMF have emphasized their relevance to the well-being of the international economy, despite the growing independence of their member countries created in part by a backlash towards the work of these institutions. For instance, many shareholders of the IMF have sought to strengthen their own financial reserves to prevent future acceptance of financial-crisis bailouts from the IMF.

Commentators have noted that the IMF will have a more difficult job than the Bank in proving its relevance to its shareholders. For its part, the IMF has proposed a redistribution of votes amongst its member countries such that developing countries will gain more at the expense of its developed counterparts. While a discussion on the voting power of member states is one of the key items on the IMF’s agenda, no one expects the IMF to make groundbreaking decisions at the Meetings. Part of the reason lies in the fact that the Meetings will be chaired by Rodrigo de Rato, the outgoing Managing Director. The newly elected Managing Director, Dominique Strauss-Kahn, has not disclosed any concrete plans for the IMF, and will be in Paris until he takes office on November 1.

The World Bank has been more successful in promoting its relevancy in preparation for the Meetings. On the 100-day anniversary of his role as the Bank’s president, Robert Zoellick stressed the significance of cooperating with member countries and other development organizations in achieving the Bank’s goals in international development. Together with Ana Palacio, the Bank’s senior vice-president and general counsel, Zoellick stated that the Bank has the potential to play a unique role in jump-starting markets, in addition to pursuing rigorous anti-corruption policies both within the Bank and in its development efforts.

Discussion:

Would an increase in activity by the Bank and the IMF necessarily help developing countries?

Weak Dollar Benefits Uncle Sam

Sources: Financial Times, Los Angeles Times

The US economy saw benefits in August because of the record-cheap dollar. The cheap dollar, trading at record lows versus the Euro, has worked in conjunction with strong worldwide demand--increasing US exports. US exports hit a record high in August, fueled by demand in Asia and Europe, and these increases has shrunk the trade deficit to its smallest size since 2004.

A weak dollar helps US exports by making American goods cheaper in other countries. The trade gap was 57.6 billion in August 07, compared to 67.6 billion the same time a year ago. Exports of good and services rose to 138.3 billion. Despite this improvement, however, the trade deficit with China continues to grow.

Economists project a continually weakening dollar in the short-term, which will likely continue resulting in stronger exports. In turn, this projects to increased demand and production, and therefore possibly more job creation in the longer term. In the shorter run, however, the slowing domestic US economy could continue to shrink the trade deficit. US domestic woes may also temporarily slow demand for imports. American shoppers slowed their shopping pace in August, and September appears to be no different. Therefore, at least for September as well, it appears that the US trade deficit may continue to shrink—at least relative to European trade.

Discussion Question:
The weak US dollar has not yet been able to stabilize the trade deficit with China, as the deficit with China continues to grow. What measures, if any, can the US take to close the growing deficit?

South Korea to Invest in Port Up North

Sources: South Korea Looks to North for Growth, S Korean Port Eyes Investment in North

South Korea’s dominant shipping terminal, Busan Port Authority (“BPA”) seeks to invest in Rajin, a port in North Korea. BPA’s president, Lee Gap-Sook stated that the company is looking to the north largely because there is no direct channel between North and South Korea. They aim to develop Rajin into a major port for shipping containers by investing over $130 million to expand the port and keeping a budget for the port of over $32 million. This plan was spurred on by the historical summit between North and South Korea last week.

This is not the first attempt at making Rajin an economic base for South Korean companies. In the 1990s, North Korean authorities tried to authorize a special economic zone in Rajin, but the effort was not successful. Rajin is viewed by both nations as key because of its vicinity to the Chinese border. In fact, North Korea has a joint venture with China to build a road from China to Rajin, a project that is estimated to cost almost $80 million.

Questions:

1) What are some of the major obstacles both North and South Korea will have to overcome to establish an economic base in North Korea for South Korean companies?

2) What other social and political benefits might flow from an economic integration of the North and South?

African Development Bank Group President urges investment in hydropower to grow African economies.

SOURCE: afrol News—“Hydo-energy sustains Africa’s economic growth”

At a recent event in Uganda inaugurating a public-private partnership to build a 250-megawatt hydroelectric facility, African Development Bank Group (AfDB) President Kaberuka urged African nations to tap their hydro-energy potential.

This most recent hydropower project, set to be located near Uganda's capital city Kampala, will be one of Africa’s largest such projects to date. The cost is expected to run US $735.5 million, with AfDB contributing US $139 million. Uganda is one of the top three recipients of AfDB funds.

Kaberuka emphasized that while Africa is estimated to hold 10% of the world’s hydroelectric capability and is “blessed” with a number of major rivers such as the Nile and the Congo, this resource has been largely undeveloped to date. He asserted that if this energy potential were tapped, it could alleviate the electricity shortages that currently plague African nations. He also highlighted the importance of access to electricity for continued economic growth in Africa, noting that secure energy sources would spark investor interest in the continent.

FOR DISCUSSION:

The World Bank has been criticized in the past for supporting and funding poorly planned and environmentally harmful hydropower projects in developing nations.

Do you think regional development banks like the AfDB are more "in tune" with local issues than the World Bank?

Are regional development banks better situated than the World Bank to ensure that their financial support go to carefully considered projects that benefit communities as a whole?

Redefining Monopoly Rights to Product Design

source: Ruling clears air on EU design monopoly rights
http://www.ft.com/cms/s/0/83f5be54-7787-11dc-9de8-0000779fd2ac.html

On Wednesday, the senior appeal court judges in London handed down its decision in the intense legal battle between two of the world’s leading consumer products manufacturers, Reckitt Benckiser and Procter & Gamble. The lawsuit, which focused on rival air fresheners, has important implications for designers and brand owners. In holding that the Air Wick Odour Stop spray canister did not infringe on the design of its rival Febreeze air freshener, the appellate court overturned an earlier High Court judgment and set new legal parameters for the interpretation of the registered community design right protection.

The community design right originated four years ago in an effort to balance design rights within EU member states. Although the design protection proved popular with producers, the air-freshener dispute is the first authoritative guidance on the scope and privileges on the community design right. Lorna Brazell of Bird & Bird, counsel for Reckitt, stated that the ruling provides “clear guidance on what protection an original design can attract and, significantly, a systemic approach in order to get there.”

Under the design right rules, infringement of a registered design is judged on the basis of whether a competing product produces a “different overall impression on the informed user.” Lord Justice Jacob, one of Britain’s most senior intellectual property judges, spelled out how an informed user should be identified and what the test for ‘difference’ should be. Justice Jacob noted that “the impression which would be given to the informed user by the Air Wick product is different from that of the registered design [owned by P&G]” citing reasons ranging from the shape of the head of the sprayer to the tapering of the can. The judge concluded that in the case of the two rival air fresheners “the similarities between the products are at too general a level for one fairly to say that they would produce on the informed user the same overall impression. On the contrary, that user would get a different overall impression.”

According to Bird & Bird, the ruling will result in the lifting of several injunctions sought by Procter & Gamble in several European countries, including France, Belgium, Italy, Austria, and Spain. Additionally, these new principles are likely to be applied in a number of cases currently before EU courts.

Questions for Discussion
1. What implications might this ruling have for producers of consumer products marketing their products in the EU?

Spike in Trade and Investments between North Korea and China

Source: Asia Times: North Korean-China trade hotter than kimchi

Chinese businesses have forged new business ties with North Korea and are quick to cash in on North Korea’s investment potential and trade.

Chinese investment in North Korea reached $38 million at the close of 2006. North Korean websites based in China advertise a variety of investment opportunities, mainly in the areas of energy, restaurants and hotels, agriculture, mining, manufacturing and general infrastructure. To attract investment by Chinese businessmen, North Koreans publicize the country’s cheap land and labor.

Bilateral trade between North Korea and China has increased 7.58% over last year, and has grown to $1.7 billion in 2006. Trade has increased to $1.25 billion in the first eight months of 2007, growing another 16.7%. China's major exports to North Korea are agricultural products, consumer electronics such as televisions, washing machines, refrigerators and air conditioners, and textiles and fuel. North Koreans have avoided Chinese products in the past. To get around this resistance, Chinese suppliers now use brand names, have English descriptions on the packaging, and position small “Made in China” markings in inconspicuous places.

China’s central government and provincial governments are conscious of the increasing bilateral commercial relationship with North Korea and have attempted to encourage such bilateral cooperation. Between 2002 and 2005, China and North Korea have signed five bilateral economic cooperation agreements. In January 2006, Chinese Premier Wen Jiabao introduced new economic-cooperation guidelines during a visit with North Korean leader Kim Jong-il. Chinese provincial governments facilitate trade with North Korea by supporting trade shows and building new trade zones.

Discussion Questions:
Will China be able to parlay its economic relationship with North Korea into political control over North Korea specifically related to nuclear weapons?

Capitalism appears to be thriving in North Korea. Will this continue?

Dubai’s New Public Transportation: Canal?

SOURCE: Financial Times and AHN News

Developers are getting a piece of the pie in Dubai. Dubai is planning on spending $61bn on an infrastructure project starting in just a few months. The 75km inland canal project will take about 15 years to build. Dubai World, the major developer, is responsible for transportation, utilities, and construction. All the rest of development will go to private developers.

The first phrase of the project will be an $11bn venture, building an inland waterway that expands Dubai’s waterfront. The canal will loop around New Dubai, which is the new residential and business development area of central Dubai. The canal will then cross the desert to the border of Abu Dhabi. The project should begin this December and continue for approximately three years.

Dubai has become the Middle East’s most well-known tourist area. The second phase of the project will create more homes, commercial industries, and entertainment development. This phase will cost $50bn and will create a waterfront city covering a 33km stretch. In about 15 years, the project could end up housing one million people. Dubai’s confidence has been increasing in the business, tourism, and finance sectors. Over the past decade, the country’s economy has been propelling by attracting workers and investors, especially in real estate stock. In addition, according to AHN News, “the infrastructure project is expected to draw more foreign labor to Dubai, which already has an estimate 80% expatriate population.”

Dubai has continued to grow at an amazing pace. “Dubai’s offshore projects have expanded the natural 40km coastline into beachfront close to 2,000km,” said Simeon Kerr in the Financial Times. The canal may cause additional road hazards in an already congested city. However, after the canal is built, it may provide for more public transportation through water taxis.

FOR DISCUSSION:
If Dubai keeps peaking, will the country eventually crash?
Will other Middle East countries suffer as a result of Dubai’s economic boom?

North and South Korean Leaders Meet: One Step Closer to Reunification

Sources: South Korean Sends Trade Message North, S. Korea Sends Envoys to U.S.

President Roh Moo-hyun of South Korea met with North Korean leader, Kim Jong Il this past week in a historical effort towards reunification. Although most South Koreans support reunification, many hold reservations about pursuing such efforts in light of Kim Jong Il’s history of human rights violations and nuclear weapons program. Some South Koreans staged protests against reunification, in large part because they view Kim Jong Il as untrustworthy.

President Roh Moo-hyun was accompanied by the heads of South Korea’s biggest businesses to North Korea. The basis of Roh’s policy lies in strengthening economic relations with the North by increasing the South’s investment in the region. The representatives of South Korea’s business sector included the heads of Samsung Electronics, Daewoo, and Hyundai Motor. This was a move some describe as the president’s making a statement about South Korea’s investment potential and economic strength. The business leaders opined that the warming of relations between the South and North is a positive and necessary step for the development of both nations. However, they would not commit to any notions of engaging the North by setting up manufacturing branches there. Samsung stands alone in having any operations based in North Korea.

Questions:

What are the major social and political benefits of reunification of the Korean peninsula?

What are the major downsides of the reunification?

Can Third Parties be Sued for Doing Business with Companies Who Commit Fraud?

Sources: Wall Street Journal, Financial Times

The U.S. Supreme Court will take up the case Stoneridge v. Scientific-Atlanta this term. The main issue in the case is whether third parties can face private lawsuits simply by doing business with companies that commit fraud. This is considered a high-profile case because it could eventually permit investors to sue accountants, attorneys, consultants, and advisors to any public company that commits fraud. Currently, investors are generally not allowed to sue third parties, but the Securities and Exchange Commission has the authority to sue third parties who “aid and abet” fraud.

The Stoneridge case began during the Charter Communications scandal. Investors sued Scientific-Atlanta, a vendor for the cable company, for allegedly participating in the accounting fraud. The case was dismissed by the trial court, and was affirmed by the U.S. Court of Appeals for the Eighth Circuit. Most U.S. courts have ruled that third parties are subject to these private suits, as only primary violators are subjected to liability.

Big business has hired some of the Who’s Who of U.S. law firms, and has painted a grim picture of what may happen if third-parties become subject to liability. Plaintiff’s lawyers have fought back, claiming that justice mandates allowing investor lawsuits against those who “help others commit fraud.” This suit has also drawn a high amount of political interest. The SEC, to a limited extent, supports investor rights to sue third parties. The Bush Administration, however, has sided with corporations in its friend-of-the-court brief. Not to be outdone, former SEC commissioners have filed their own friend-of-the-court brief favoring liability.

The Supreme Court has heard a case similar to Stoneridge before. In 1994, the Supreme Court, in Central Bank of Denver, stated aiding and abetting lawsuits are not allowed. Currently six justices from that case are still on the Court. Those six were divided 3-3, thereby leaving Chief Justice Roberts and Justice Alito to make the final decision. Justice Breyer is recused from the case.

QUESTION

1. If the Supreme Court rules that third parties can be held liable, what impact do you think this will have on the consulting, legal, and accounting industries? What precautions can these companies take to prevent lawsuits?

West African trading bloc seeks to delay changes in trade agreements required by the WTO

SOURCE: Reuters—“West Africa to miss EU trade partnership deadline”

The Economic Community of West African States (Ecowas) met last week in Cote d’Ivoire in efforts to reach agreement on their approach to upcoming negotiations with the European Union (EU) over an Economic Partnership Agreement (EPA) between the two markets. Currently it is expected that Ecowas will miss the December 31, 2007 deadline set for signing the EPA.

The EPA will take the place of existing trade agreements between Ecowas and the EU. These trade agreements were disapproved by the World Trade Organization (WTO), which also set the December 31 deadline.

Ecowas is reportedly hoping to secure a delay for imposition of the EPA which will conform with WTO guidelines while permitting them to enjoy preferential treatment under the current regime for another two years. EU finance ministers are seeking an interim agreement that will allow the EPA terms to be implemented on schedule.

Ecowas is concerned that the EPA as currently drafted will expose vulnerable West African markets to floods of European imports and that the loss of the preference status accorded by the trade agreement will also undermine exports to Europe.

FOR DISCUSSION:

Is preferential treatment under trade agreements that do not comply with WTO principles necessary to allow developing economies a chance in markets that would otherwise be wholly dominated by developed countries?

The Orange Revolution in the Ukraine

Sources: "Orange Revolution Back On Track After Ukraine Election"

Ukraine’ s Orange forces experienced a resurgence in Ukraine’s September 30 parliamentary elections. The Orange forces include the Yulia Tymoshenko bloc (BYuT) and Our Ukraine-People’s Self Defense (NUNS). The two combined for 45% of the votes. President Viktor Yushchenko, member of NUNS, has called for a broad coalition of BYuT, NUNS, and the Party of Regions. Democratic and orange political forces have now won four elections since the 2000. BYut’s 31% share is up from a 8% result in 2002 with large gains in Russian-speaking eastern and southern Ukraine. Further, BYuT’s territorial-based form of nationalism attracted many Russian-speaking voters

Western governments have declared the 2006 and 2007 elections to have been “free and fair.” The Russian government has also recognized this year’s elections. This is in contrast to the election fraud in the 2002 and 2004 elections. The most recent election was not perfectly clean as the Party of Regions has resumed some of its 2004 tactics with inflated voter turnouts and stuffed ballots in its Donbas stronghold

The new Ukrainian parliament will consist of five political forces, but with two changes. First, the SPU has been replaced by former parliamentary speaker Volodymyr Lytvyn’s bloc. Second, the Party of Regions and Communist Party both will have about the same number of seats that it had in the outgoing parliament, while BYuT will have an additional 30 seats. The election has a number of implications for the prime minister given the new political landscape and the reformed constitution.

The holding of Ukraine’s second free elections and the fourth victory in five years of pro-Western democratic forces gives the Orange Revolution and Yushchenko a second chance. Whether the opportunity will be used this time still remains an open question.

Question for Discussion:
What are the potential implications of BYuT’s rise?

Nigeria’s Dr. Ngozi Okonjo-Iweala appointed World Bank Managing Director

Sources:
World Bank: President Zoellick Appoints Dr. Ngozi Okonjo-Iweala as Managing Director, World Bank
AllAfrica: Nigeria: Okonjo-Iweala Now World Bank MD

On October 4, the World Bank President Robert Zoellick appointed Dr. Ngozi Okonjo-Iweala, Nigeria’s former Minister of Finance and Foreign Affairs Minister, as a Managing Director of the World Bank. She will be in charge of the World Bank’s Africa, South Asia, Europe and Central Asia Regions. As a Managing Director, she will be at the top level of World Bank Group (WBG) management. Her appointment is effective on December 1, 2007.

Prior to becoming a Managing Director, Dr. Okonjo-Iweala served in a number of positions at the World Bank. These positions included Vice President and Corporate Secretary, Director of Operations in the Middle East and North Africa region, and Country Director for the South East Asia and Mongolia Country unit.

Dr. Okonjo-Iweala is very committed to the developing world. As noted by Mr. Zoellick, Ngozi helped lead Nigeria’s “reform program on issues of fiscal prudence, transparency of government accounts, good governance, and anti-corruption. She led Nigeria’s quest for debt relief and helped her country obtain an unprecedented US $18 billion write-off from the Paris Club.”

Discussion Question:
There is a perception that many nations in Africa are corrupt and have limited economic transparency. Will this appointment have a significant impact on Africa's relationship with the World Bank?

What are some of the impacts, or influences, this appointment could effect for Africa?

IMF Expresses Concern About Recent Chinese Loan to the Democratic Republic of Congo

Sources: AFP: IMF warns about Chinese loan to DR Congo; Reuters: IMF worried over China’s $ 5 bln loan to Congo

On October 3, the International Monetary Fund (“IMF”) cautioned the Democratic Republic of Congo against the $5 billion loan it agreed to receive from China last month. Congo plans to use the funds from China to build infrastructure, particularly in its mining industry. Loan repayments will include (1) mining privileges for China and (2) funds collected through transportation tolls.

IMF’s concerns are twofold. First, the Fund is afraid of the possible detrimental effects that Congo’s new, sizeable debt would have on the country’s current efforts at debt relief. Second, the IMF is worried that the Chinese loan does not necessarily meet the standards it demands of its funds to the Congo and other recipient countries.

China is not the only significant investor in the Congolese mining sector. The African Development Bank announced its $100 million loan to the Tenke Fungurume copper mining project.

Discussion:

1. Is the IMF the proper institution to be evaluating China’s loans to Congo? Why or why not?

2. Should the IMF discuss the propriety of the loans only with Congo, the recipient, or engage in dialogue simultaneously with China, the donor?

3. How should we view the increase in the number of donors wanting to invest in Africa? Is this a positive development that allows African countries to choose the best economic package offered, or is this merely a second-coming of the scramble for Africa?

Japan and China invest in Indonesia

Sources: Japan, China power Indonesian growth, Is Southeast Asia Becoming China’s Playpen?

Recent foreign investment in Indonesia has rapidly increased. These investments suggest that Indonesian President Susilo Bambang Yudhoyono’s pro-business policies are starting to benefit the economy despite the Indonesian Parliament’s nationalistic economic regulations which restrict foreign investment. Last month, Parliament outlined new restrictions on foreign investment across various business sectors. However, Yudhoyono appears to be encouraging economic growth led by Japanese and Chinese investment for political reasons, mainly to improve his candidacy, and to admonish his opponents who are predominantly economic nationalists.

Japan and China have recently decided to form business ties with Indonesia which will propel Indonesia’s economic growth in the future. President Yudhoyono signed a free-trade agreement, called the Economic Partnership Agreement, with Japanese Prime Minister Shinzo Abe last week. The agreement will reduce or eliminate tariffs on average by 90% on 9,275 different trade products. A few major joint-venture energy deals have recently formed between Japan and Indonesia. Japan’s largest supplier of liquefied natural gas is Jakarta. Japan sees the agreement as a platform to secure a more stable supply of energy resources from Indonesian producers. This agreement is significant because it is the first wide-ranging bilateral pact Indonesia has ever entered with another country. In addition, China is investing in Indonesia in some large business deals. China is heavily invested in building coal-fired plants in Indonesia and has committed $800 million for other infrastructure and energy projects, including the construction of a dam and power plant.

The Japanese and Chinese newfound interest in Indonesian energy projects signifies the global competition for new and reliable energy supplies. In addition, these investments are part of competition between the Asian nations to expand their economic influence in the region. The large investments establish the increasing optimism in Indonesia’s economic development. For example, gross domestic product grew 6.3% in the second quarter of 2007.

For Discussion:
Is the United States's policy of withholding trade relations with some parts of Southeast Asia allowing China to gain an economic foothold in the region?

World Bank says continued growth in India contingent on innovation

Sources:
India to grow faster if firms innovate - Reuters
India lags in patent race - Telegraph

India requires innovations in technology and education to incite rapid growth; Mark dutz, senior economist at the World Bank, commented that India needs to facilitate competition and increase skill development of its workforce while bolstering efforts at research and development if it is going to keep pace with its competition: other developing countries. China, Mexico and Russia all currently outpace India in terms of innovation and productivity levels.

Yet, if India effectively implemented new strategies, it could increase its economic output fives times over. Unfortunately, much work is to be done; for example, experts say the country would require 2.3 million new highly-trained professionals in just 3 short yeas in order for its institutions of higher education to maintain parity with its competition.

Currently, the most salient weakness in India’s economy is the lack of talent – there is growth of opportunity, but an inadequate supply of qualified persons who can take advantage. Unfortunately, if such shortages persist, the economy could stagnate, and India could lose its appeal to foreign firms that currently seek it out as a place for investment.

Meanwhile, while the country is currently regarded as a hub for technological development, foreign corporations are largely responsible for that development: a small percentage of endemic firms and individuals contribute to research and development in the region. For instance, of the top 50 applicants for patents in India, 44 were foreign firms, while only six were Indian firms, and only two of the six were private Indian firms. Thus, India could do much to fortify its position if only it would take the reigns of innovation.

Question: is education the best means of catalyzing innovation in India?

Costa Rica Weighs Free Trade Agreement

Sources:
Washington Post - Corrected: Costa Rica Trade Perks Not Conditional: Democrats
La Nacion (San Jose) - Jose Francisco Ulloa: ‘No hay por que temer’
Financial Times - ‘No way’ say the streets of San Jose”


Costa Rica voters will vote in a national referendum on Sunday regarding approval of the Central American Free Trade Agreement (CAFTA). Costa Rica is the only CAFTA country to hold a public referendum on the issue. The Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua are the other signatories.

However, CAFTA has become much more controversial in Costa Rica than the other countries and the impending referendum has broadened into a society-wide argument over the future of Costa Rica. Last week, around 100,000 people marched in San Jose, the capital, protesting CAFTA and urging the voters to reject it. Even the nation’s clergy have become involved. The president of Costa Rica’s Episcopal conference rushed to urge clergy not to become overly politically involved in the referendum after a group of 92 priests joined together to publicly oppose CAFTA’s adoption.

Although Costa Rica currently enjoys many trade benefits with the United States under the Carribean Basin trade initiative, it is unclear what concrete trade effect a rejection of CAFTA might have on the existing policies. Earlier in the week the US trade representative stated that if Costa Rica did not approve CAFTA, existing trade benefits would be at risk. However, democrats in Congress protested and sought to assure Costa Rica that existing trade relations would not be harmed by a rejection of CAFTA. They asserted that US trade preferences remain within the power of the Democratically-controlled Congress.

CAFTA’s approval would mean extending duty-free access for Costa Rica to US markets and also remove existing barriers for US corporations, farmers, and manufacturers to Costa Rica's market. Although many in the Costa Rican government, including President Oscar Arias have been urging a “yes” vote, voters remain evenly divided in the run-up to the referendum.

Discussion:
1. Should the US make continued free Costa Rican access to the US economy conditional on CAFTA's approval?
2. What sectors of society would CAFTA benefit in Costa Rica?

Oil Industry Understaffed

Sources: Financial Times, Reuters, AOL Money and Finance, and BBC News

Hydrocarbon projects throughout the Middle East are being delayed due to shortages of skilled labor. Many producers are attempting to take advantage of record oil prices, but will eventually struggle to meet their ambitious goals due to harsh limitations. The shortage is projected to worsen over the next few years. The industry workforce is “dominated by people close to retirement and inexperienced graduates.” This could affect producers worldwide, since the Middle East and Libya account for approximately 20% of production. The Financial Times explained, “The global oil and gas industry is expected to face a 15% shortage of qualified engineers by 2010.” In fact, there are not enough engineers to meet the 2007 expectations of production and demand according to Pritesh Patel of the Cambridge Energy Research Associates (CESA).

The rapidly growing global fuel demand will most likely not be accomplished because of the shortage in specialist personnel. The expansion plans cannot be met without the necessary manpower. As workers began receiving pensions, producers increased investment, which will lead to disaster. Producers need to replace leaving staff and add additional workers to accommodate the increase in demand. The shortage may be a long-term obstacle for the global market. Furthermore, costs of projects have currently skyrocketed due to the shortage of rigs and increased costs of raw materials.

Some production projects have been a complete failure because no producers bid for the work due to the complete lack of resources. The current average age in the oil industry is about 51 years. CERA expects that over 50% of the current workforce will retire by 2015. Even though the industry producers are fervently recruiting, “there will only be a 2% influx of new entrants in 2008, forecast to increase to 5% in 2010 as more graduates gain the experience necessary to work on complex projects.” The results will be increased costs and continued holdups.

In actuality, producers fear that recruitment troubles will “threaten the long-term future of the industry.” One part of the problem is that young staffers are currently finding work overseas rather than their home countries. As a result, producers will be unable to meet the same expectations in the same time frames. Many producers are hiring expert personnel to handle recruiting in order to encourage young employees.

Discussion Questions:
Will younger skilled staff members come through for the Middle East during crunch time?
To keep up with the industry, what new recruiting techniques are possible to get the necessary amount of new employees?

Added Pressure Nets £ 1bn Investment in London Rail Link

source: http://www.ft.com/, City gives extra £ 1bn to London rail link

After heated negations with senior government officials, several London business leaders, including the City of London Corporation, BAA, and Canary Wharf, pledged an estimated £1bn this week to the capital’s proposed east-west rail link project. The Crossrail project, described by one supporter as “vital”, will link Heathrow with the economic powerhouses of the West End, the City and Canary Wharf. Incidentally, Canary Wharf, is one of the project’s most obvious beneficiaries, as the increase in capacity for commuters, may potentially increase employment forecasts from 125,000 jobs to as many as 225,000 jobs after completion of the project.

Initially, supporters of the Crossrail project thought the Treasury would pay for a third of the projected £16bn cost, with another third coming from the fare box and the final third coming from the private sector. However, Gordon Brown was determined to solicit a larger contribution from the key beneficiaries of the project—the private sector.

Estimates by the business-backed campaign in favor of the Crossrail estimates that the railway will add £30bn to the UK gross domestic product over sixty years, while saving business time valued at nearly £5bn. Without the Crossrail, however, the limitations of London’s transport system would seriously thwart the most productive parts of the UK economy.

Baroness Jo Valentine, chief executive of the business group London First, noted that “London business leaders know that without a contribution, the government would struggle politically to deliver this vital project. They also know that if their people can’t get to work, their businesses will be damaged.” Furthermore, she cautions that without the Crossrail, “London’s attractiveness to overseas investors looking to [establish] Eurpoean headquarters will be put in the balance.”

Francis Salway, chief executive of Land Securities, echoed Baroness Valentine’s sentiments, adding that, “London has the ingredients to sustain its status as a world city and to make a massive contribution to the UK economy.” However, he points out, this potential is “at risk” from a “creaking” and “overloaded” infrastructure.

Questions for Discussion
1. Does it make sense to rely on larger financial contributions from the private sector?

Argentina Protests Oil Concession for Claimed Islands

Sources:
La Nacion (Buenos Aires) – Protesta ante Gran Bretaña por Licencias Otorgadas en Malvinas
Financial Times – Argentina Protests at Falklands Oil Stake


The Argentine government has protested at news that the company BHP Billiton has bought concessions to exploit oil around the Falkland Islands. BHP paid $10 million for a 40% stake in Falklands Oil and Gas Limited, and will be exploring oil in the sea to the south and east of the islands.

Argentina has promised to formally protest the commercial move at the United Nations, claiming that the islands – which it calls Las Malvinas – remain part of Argentina’s sovereign holdings. The Argentine government claims that any commercial activity on the islands’ continental shelf is subject to Argentine control, and calls the commercial concessions illegal.

Since the 1983 war over the Falklands/Malvinas, which many saw as a last gasp for populist support by the ruling Argentine military junta, Argentina has claimed that the islands belong to Argentina and that Britain’s control represents a holdover of its colonial aspirations. At the UN General Assembly meeting last week, Kirchner used part of his speech to criticize Britain’s plans to seek UN approval for extending its continental shelf claims from 200 to 350 miles for the islands.

Argentina’s ministry cited BHP’s actions as continuing British resistance to formal discussions regarding the sovereignty of the islands. The British embassy in Buenos Aires responded that the Falkland Islands government has the right to develop its own natural resources and industries. BHP, which plans to obtain a rig to begin drilling in 2008 or 2009, estimates that there could be as many as 1 billion barrels of oil around the islands.

Discussion:
1. What should be the UN's role in the continuing territorial dispute over the Falkland/Malvinas islands?
2. Do Britain's actions in retaining sovereignty over the islands violate international law, as Argentina claims?
3. Has the sovereignty dispute been a dead issue since Britain defeated Argentina in 1983?

Mattel Apologizes to China

Sources: Mattel Recalls Millions of Chinese-Made Toys, Mattel Apologizes to China for Recall, Mattel Apologizes to "the Chinese People"

Mattel recently issued a public apology to China for damaging China’s reputations after a series of massive recalls of toys made by Chinese manufacturers. Just in the past month and a half, Mattel has recalled over twenty million Chinese-made toys, mostly because of high levels of lead in the paint. The use of lead paint in toys has been banned in the U.S. for thirty years because if it toxic if ingested. The recalls have created negative associations with anything manufactured in China. Mattel admitted that the majority of recalled products were the unfortunate consequence of a flaw in Mattel’s design rather than a flaw in China’s manufacturing. Thus, Mattel has taken full responsibility for the recalls.

Mattel’s apology to China was essential to their business since the company has been utilizing Chinese manufacturers for over sixty percent of its products for the last twenty-five years.

Questions:

Do you think these recalls will have a dampening effect on China’s growth despite Mattel’s public apology?

Will this affect China’s outsourcing relationships with other countries?