Tuesday, February 27, 2007

Nicaragua Receives Venezuelan Assistance

Sources: Bloomberg News, Chavez Expands Energy Aid to Nicaragua, Strengthens Ties; Financial Times, Venezuelan Aid Cements Ties with Nicaragua; Guardian Unlimited, Half-Price Travel for London’s Poorest.

Nicaraguan President Daniel Ortega and Venezuelan President Hugo Chavez met in Caracas on February 23 to revise an aid agreement that the two nations entered in January. During the meeting, Venezuela reaffirmed its agreement to provide Nicaragua with an economic-assistance package that includes discount oil, energy infrastructure to help the nation deal with frequent power outages, and small-business loans provided through the Venezuelan national development bank. Additionally, Venezuela vowed to build a refinery in Nicaragua that is capable of processing 150,000 barrels of crude oil per day. Country officials have refused to put an exact price on the aid package, but believe it could be worth billions of dollars.

Venezuela’s generous offer is part of the country’s increasing trend to use its oil reserves (and the financial proceeds from those reserves) to increase its global influence and involvement. It has offered discount oil packages to other South American nations such as Bolivia, Argentina, and Ecuador. Chavez, however, is not just focusing on the developing world. For example, on February 21, the mayor of London and Venezuela’s Minister of the Popular Power for Foreign Affairs signed a so-called “oil for brooms” deal whereby Venezuela will provide a twenty-percent reduction in the price of fuel to the City of London in exchange for advice on developing a transportation system, waste-disposal mechanisms, and improving general municipal governance in Caracas.

(1) What are some of the benefits to Nicaragua of seeking development aid through neighboring countries as opposed to multinational development banks? What are some potential drawbacks? In what way should Venezuela be concerned about such offers?
(2) What particular political considerations should countries take into account when deciding whether to enter in these agreements?

Recap from World Bank's Online Discussion on Corruption

Interview with Suzanne Folsom on Fraud and Corruption

Last Thursday, Suzanne Folsom, director of World Bank’s Department of Institutional Integrity, led an online discussion focusing on fraud and corruption in light of the department’s recent report. (For more information on the report, see our previous post entitled “World Bank Responds to Fraud and Corruption” on February 9, 2007, at http://uicifd.blogspot.com/2007/02/world-bank-responds-to-fraud-and.html).

Ms. Folsom briefly addressed concerns regarding World Bank conditionalities. Although this is not her area of expertise, she did disclose that the Bank is continuingly trying to improve upon these terms to World Bank lending. According to Ms. Folsom, “conditions designed to make sure the money goes where it belongs are a good thing.”

Additionally, Ms. Folsom recognized the World Bank’s lack of knowledge regarding the scope and frequency of corruption. Reiterating findings from the Integrity Report, Ms. Folsom said that although the World Bank has a fairly good understanding of how their projects can be vulnerable to corruption, they know little about amount of corruption. Thus, she was unable to estimate the percentage of World Bank projects affected by fraud and corruption.

Ms. Folsom then addressed how the World Bank is working to overcome the widespread corruption on three different levels: (1) At the country level, the World Bank is working on projects and programs with borrowers; (2) At the individual project level, the Bank is addressing risks in their loans and doing individual investigations; (3) On the global level, the Bank is working with the private sector, civil societies, and others.

When the Bank finds that corruption or fraud has affected a project, the bank takes the necessary steps to disbar the supplier, which means that the Bank makes sure that the individual or firm does not receive any more contracts for a certain period of time. According to Ms. Folsom, “naming and shaming” suppliers has proven to be a big deterrent of fraud and corruption, since the firms and individuals know that having their name on the “corrupt” list will result in losing future business.

Ms. Folsom also addressed the concern that the department’s reports must be given to the Bank’s senior management, who have the power to sit on the reports without taking action. According to Ms. Folsom, President Wolfowitz has made fighting fraud and corruption a priority, and the Bank is working on the rumors that the department’s reports were not taken seriously. Although much work needs to be done on this front, Ms. Folsom believes that the Bank is making vast improvements.

1. How important do you think the Department of Institutional Integrity is to combat corruption and fraud within the World Bank and its funded projects?

2. Did you find the online discussion helpful? What more could the World Bank do to assure the public that fighting fraud and corruption is one of its main goals? Have you seen improvement in this endeavor since Wolfowitz became president in 2005?

Monday, February 26, 2007

Black Market Ivory Trade on the Rise

Illegal Ivory Trade Explodes – Globeandmail.com
DNA Tracks Origin of Seized Ivory – BBC.com
Assigning African Elephant DNA to Geographic Region of Origin – PNAS

On Monday, a team of international scientists in the Proceedings of the National Academy of Sciences (PNAS) reported that African elephants are in more danger now than they were in the mid 1980’s. In 1989, the Convention on International Trade in Endangered Species of Wild Fauna and Flora banned the international trade of ivory.

According to the report, despite the 1989 ban, more than 20,000 elephants each year are being slaughtered for their tusks in Africa.

Ivory on the black market is currently valued at $750 per kilogram, which is significantly higher than the 1989 value of $100 per kilogram. Between August 2005 and August 2006, authorities seized 12 major shipments of African ivory headed for Japan, China, and other Asian countries. The 23, 461 kilograms seized is only an estimated 10 percent of the illegal ivory that was successfully smuggled out of Africa.

A 2002 seizure in Singapore consisted of 532 tusks and 42,000 hankos, small blocks of solid ivory used to make signature stamps. This was the second largest seizure of illegal ivory on record, the biggest since the 1989 ban, and represented 3,000 to 6,500 elephants. Research revealed the ivory came from a southern region of Africa, with Zambia as a focal point.

After the 1989 ban, millions of aid dollars poured into African countries to help them battle the illegal poaching of elephants. By 1993, the problem seemed to be under control. However, the demand for ivory has continued to grow, especially in Japan and China, where having a personal seal carved in ivory is a status symbol. China’s rapidly expanding economy is thought to be a major driving force driving the black market ivory trade.

The report identified some of the most pressing needs in elephant conservation as: the timely identification of current poaching "hot spots" where greater law enforcement is needed; monitoring impacts of international trade decisions on elephant poaching throughout the African continent; determining whether declared government stockpiles are being illegally traded and replenished; determining whether sanctioned one-time sales include non-sanctioned tusks originating from other locations; and determining whether stockpiles of illegal ivory across Africa are being consolidated and exported.

Question: Can (or should) anything be done to curtail the illegal sale of ivory?

Japanese Automakers Ally with European Automakers to Tap India Market

Sources: India Daily, Wall Street Journal, Financial Express

Japanese motor company Nissan has agreed with Renault SA (France) and Mahindra & Mahindra (India) to jointly construct a new automaking plant in Chennai, a city in southern India. This an agreement between three automaking giants, as Nissan is the world’s third largest automaker, while Mahindra is India’s largest maker of jeeps and tractors. The three companies have agreed that the first vehicles will be produced by 2009. Nissan and Renault (Renault owns 44% of Nissan, as well) will each hold 25% of the project, with Mahindra holding the rest. The investment is likely to be worth at least $908 million over seven years. The factory is to have a capacity of 400,000 units per year. Chennai was likely a desireable location to build the factory because there are already existing factories belonging to Hyundai, Ford, and BMW. This new facility will directly employ 5,000 individuals. The provincial government of Tamil Nadu is now set to provide the land and incentives to ensure the project goes forward.

Nissan will independently market and sell its units, while Renault and Mahindra will jointly sell theirs. At this point, Nissan will focus on compact cars as a pathway to tap the Indian market. Nissan is arriving late to the Indian compact car market, as Suzui currently controls half of the market share. However, Nissan is attempting to tap the rapidly growing auto market in India, as India has a growing middle class and car sales are projected to top two million by 2010. Last year, Nissan only sold 190 unit total in India. On the news of the agreement, Nissan shares closed up 1 percent, Renault 0.4 percent, and Mahindra closed 0.2 percent higher.


1. What took Nissan, the third largest automaker worldwide, so long to tap into the second most populous nation in the world?
2. How will other automakers, such as GM, Toyota, and Honda (which already are in, or have plans to enter the India market) be affected by the Nissan-Renault-Mahindra alliance?

Sunday, February 25, 2007

EU Environmental Requirements Weigh on Bulgaria

Source: An EU directive pits environmentalists against developers in Bulgaria - IHT.com

The EU requires all new members to submit a list of locations that the country will designate for environmental protection. Bulgaria’s list was due January 1, but was delayed as the government tried to seek consensus among environmentalists and residents. Environmental groups commissioned by the Bulgarian government recommended protection for almost forty percent of the country’s territory, which includes a lot of undeveloped land and Black Sea coastline

When the Bulgarian government approved its list recently, everyone was upset. Environmentalists objected to the exclusion of half of their recommended sites—especially coastal and mountain sites destined to become tourist resorts. Residents, mindful of an era of forced collectivization, are outraged at the intrusions into their private property rights. While the Bulgarian legislation would provide up to €200 per year per hectare (2.5 acres) to landowners as compensation, mostly funded by the EU, these amounts pale in comparison to the €1.5 million per hectare market value of plaaned resort areas.


Where should Bulgaria, one of the EU’s poorest and least developed countries, draw the line between environmental protection and development? Should Bulgaria be expected to withhold forty percent of its land from future development? Does the EU requirement unfairly infringe on landowner rights? Should the EU be required to help countries provide fair market value compensation to affected homeowners?

Saturday, February 24, 2007

Russia at center of tensions in Europe

Human trafficking in Russia - Businessweek.com
Russia and US play down missile dispute - FT.com
Russia warns neighbors - FT.com

Russia’s major cities have enjoyed continued economic growth and increasing annual wages (at a rate of approximately 17-19%) for five straight years despite widespread poverty in the country at large. However, this economic growth has been coupled with an increased involvement with Russia’s criminal networks—particularly in human trafficking.

Lured from third-world countries to cities such as Moscow, ambitious young people hoping to make a decent wage are tricked by criminals into these cities and forced to become slaves and prostitutes. According to a recent report, some 2.45 million people have been trafficked in the region. This huge flow of trafficked peoples, together with a tide of illegal immigrants into Russia, all of which is expected to increase, is making the EU uneasy—the EU fears spillover into its countries. Thus, the EU is pressuring Russia to bolster its border security to help put a stop to this illegal trade.

In addition to being at the center of the human trafficking controversy, Russia is also at odds with the U.S. over the latter’s missile defense program; the U.S. has proposed the installation of missile sites in eastern Europe—a move that has offended the former superpower, prompting president Putin to liken it to cold war-style tactics. However, the U.S. has maintained that such missiles are not to be aimed at Russia, rather to act as a defense from potential attacks from Iran or other enemy states.

Despite such assurances, Russia is still uneasy about the missile placement: its commander of strategic missile forces warned Poland and the Czech Republic that Russian missiles would target their countries if they allowed placement of U.S. missiles. Nevertheless, officials from the U.S. and Russia continue to hold talks in order to stifle the controversy.


- What ramifications, if any, on EU markets will such tensions help create?

Friday, February 23, 2007

Honduran Transparency Law Questioned

Sources: Inter Press Service News Agency, A Murky Transparency Law.

Faced with Congress’s repeated failure to pass laws to increase transparency in Honduras over the past several years, during a rally on February 10, President Manuel Zelaya made good on a campaign promise by vowing to enforce a new law on transparency and access to public information that he believed will “make the corrupt tremble.” The march “For Integrity and Against Corruption” was organized by the National Anti-Corruption Counsel (CAN), an organization comprised of members of civil society, the business community, unions, and state agencies, and it attracted approximately 15,000 participants. The new law that Zelaya touted during his appearance provides for the creation of the Institute for Access to Public Information, an entity that will be responsible for regulating access to documents. It also outlines a time line during which documents must be declassified.

Despite their push to increase access to public information, however, critics are now claiming that the new law is a violation of international conventions on freedom of expression and against corruption. The head of the Probidad Network, Jaime López, cites numerous problems with the law, including the fact that the new Institute for Access to Public Information will not be independent from other state institutions. Furthermore, López believes that the law fails to stipulate exactly what types of documents may be destroyed to prevent them from being declassified after the ten-year legally mandated waiting period. Because there is seemingly no limit, López is skeptical that any documents will survive to be declassified.

Other critics point out that information relating to humanitarian aid, including the amounts of aid Honduras receives and the use to which it is put, may be classified. The law also only applies to third-ranking officials, excluding many high-ranking officials, including the heads of the three branches of government, from the law’s provisions.


(1) What role does increased transparency play in development?
(2) What are some of the barriers that lack of transparency poses to effective development? Are there impacts beyond the financial?

Thursday, February 22, 2007

The Need for Rich Nations to Increase Aid

Rich nations 'must increase aid' - Source: BBC.com

The Organisation for Economic Co-operation and Development (OECD) has stated that its goal of increasing aid to $130 billion by 2010 might not be realized. The organization also noted that its goal of doubling the amount of aid for Africa is also likely to fail.

While the amount of aid has been rising by approximately 5% each year, this percentage would have to increase to 11% for the years 2008 through 2010 in order for the the $130 billion goal to be realized.

In a report released by the OECD, the organization noted how important this aid is to some countries, pointing out that there are certain countries which receive almost half of the gross national income from such aid. However, the report stated that, while more aid is needed, the distribution of the aid also needs to improve. In addition, the report also made clear that more accountability is needed, as there is a gap of billions of dollars between what the donor countries report giving and what the recipients report receiving in their budgets.


(1) What can the OECD do to improve the distribution of aid?

(2) What can the OECD do to improve accountability among the donors and recipients of aid?

Wednesday, February 21, 2007

South Africa's First Budget Surplus

South Africa Has First Budget Surplus - Source: BBC.com

Trevor Manuel, South Africa's finance minister, has announced the country's first budget surplus and has also announced that funding will be increased in certain key areas.

The budget surplus is the result of high tax revenues. The high tax revenue is the consequence of a clamp down on tax avoidance, high commodity prices, a wider tax base and a general increase in prosperity. Even with $2.4 billion of the budget going to the 2010 World Cup soccer tournament, this increase in tax revenue has lad to a surplus of $1.5 billion.

The surplus will help with the planned increases in funding for education, health care, housing and sanitation. In addition, there are plans for a social security system, which will provide unemployment insurance, disability and death benefits, as well as benefits for the elderly.


With the great amount of poverty that exists in South Africa is the government justified in spending $2.4 billion on the World Cup?

World Bank Online Discussion on Fraud and Corruption

Tomorrow, February 22, the World Bank is hosting an online discussion with Suzanne Folsom, director of the World Bank’s Department of Institutional Integrity. The discussion will focus on fraud and corruption in light of the recent report on the department’s investigations. For more information on the report, see our previous post entitled “World Bank Responds to Fraud and Corruption” on February 9, 2007 (http://uicifd.blogspot.com/2007/02/world-bank-responds-to-fraud-and.html).

The discussion will take place at http://discuss.worldbank.org/content/interview/detail/4811/. If you have questions for Ms. Folsom, or the World Bank in general, but cannot participate in the discussion, you may submit questions prior to the discussion at the above link.

Keep an eye on this space for a recap of the major highlights from tomorrow’s discussion.

Tuesday, February 20, 2007

Inflationary Fears in India

Indian Economy faces the risk of overheating: IMF
Gaurav Choudhury
February 16, 2007

India’s robust economic growth in recent years has not gone unnoticed by the IMF. The IMF recently cautioned India’s central bankers of the possibility of India’s economy overheating. The IMF identified two problem areas – inflation and financial stability. The IMF’s warnings are especially pertinent given that inflation in India recently jumped to its highest level, 6.73, in more than 2 years.

The IMF said that in such an inflationary climate, there is a need to promote “job-intensive, inclusive growth, through further structural reforms, to create an environment in which growth more fully benefits the least advantaged.” The IMF also stated that India’s macroeconomic outlook was positive with GDP growth expected in excess of 8% for 2006-2007. Other domestic indicators were also performing soundly. According to the IMF, achieving financial sustainability while continuing to fund the development related sectors was the primary challenge facing the Indian economy. One way would be through reduction of public debt and cutting of unnecessary subsidies and fund priority needs.

1. What can some of developing countries with high growth rates do to dampen inflationary fears?
2. What role can multilateral institutions play in assisting developing countries manage their inflation levels?

Monday, February 19, 2007

Japan Defends New Merger Guidelines

Source: Japanese Regulator Defends Merger Rules, Fair Trade Commission to Revise Merger Guidelines, Japan Fair Trade Commission

The Fair Trade Commission (FTC) of Japan has been defending its new merger guidelines, which aim to facilitate the organization's anti-monopoly objectives, against criticisms that the rules were designed to enhance the strength of domestic companies by stifling foreign competition. These criticisms are grounded in the fact that these guidelines will make it easier for domestic companies to enter into mergers. They will be implemented in April.

Under the new guidelines, the FTC will review fewer proposed mergers. Part of the aim of the revised rules was to make regulations more transparent and predictable while speeding up the overall review process. While some understand this to mean that the new regulations will make mergers easier, Takeshima, chairman of the FTC, disagrees. He cites the increased competition that Japanese firms face on the global market and the subsequent need to streamline the merger review process for the sake of efficiency as major reasons behind the revisions.

Critics claim that these rules will be used as a means to block foreign takeovers of Japanese firms by making it easier for a Japanese company to rescue another Japanese company that has become the target of foreign bids. In other words, they open the door to friendly mergers with domestic firms with less anti-monopoly scrutiny.

1) Do the new rules favor Japanese domestic companies?
2) Will Japan face serious ramifications in the form of decreased foreign investors because of the way the new guidelines work?
3) What other motivations might Japan have to pass such guidelines?

Thailand Announces Production of Generic Drugs

Sources: Thais Warn of Switch to Generic Medicines, Thailand Allows Generic Production of HIV Drug, Thailand Allows Generic Production of AIDS, Heart Drugs

In late January, Thailand's health ministry announced its approval of generic versions of the anti-AIDS drug, Kaletra, and the popular heart attack drug, Plavis, much to the outrage of large pharmaceutical companies. Thailand has a successful universal HIV/AIDS treatment program, which has received much prise from health activists because of the country's dedication to providing effective treatments to its people at cheaper costs. In 2002, the goverment implemented a generic version of HIV/AIDS triple therapy which effectively decreased costs of treatment 18-fold. This treatment program has reportedly cut the number of AIDS-related deaths by 75%. Plavix is a blood-thinning drug that is used to prevent and treat heart attacks, and with global sales in 2005 reaching $5.9 billion, it is believed to be the second most widely sold medication worldwide.
The pharmaceutical companies that tout these drugs are threatening to withdraw their investments in Thailand because of the government's action. Their complaints are based on the fact that Thailand's act essentially breaks the patents these companies have on these drugs. In fact, when a Canadian company tried to do something similar by introducing a generic version of Plavix, it was ordered by a court to pull the drug from shelves because it violated these patents. Thailand's Public Health Minister Mongkol Na Songkhla justifies the government's position on international trade rules which allow governments to issue a compulsory license in the case of a national public health emergency. Such action has been taken by like Brazil and India in the case of HIV treatments.
Songkhla claims that the drugs' high price constitutes a crisis for the country's public health. Generic production of these drugs would significantly decrease prices and increase the drug's availability to the population. For instance, the generic version of Plavix is estimated to reduce the cost from about $2.06 to less than $0.18 per pill. Songkhla and the Thai government had been trying to years, unsuccessfully, to negotiate lower prices with the pharmaceutical companies, and they point to the high drug costs and their main obstacle to providing effective health care to the public.

1) Given the HIV/AIDS crisis that plagues many countries in the world, is Thailand's decision to break the patents on these drugs justified?
2) What are the possible ramifications on the drug companies if all the countries suffering from an HIV/AIDS epidemic decided to follow Thailand's lead?
3) How can governments of countries like Thailand widen the access to life-saving medicines while preserving incentives for drug companies to continue to innovate?

Report Favorable for Mexican Economy

SOURECE: El Siglo de Durango: Crecere economia 3.8%, dice CEESP

A recent study by CEESP (El Centro de Estudios Economicos del Sector Privado, trans. The Center for Economic Studies of the Private Sector) titled “Expectativas macroeconomicas para el 2007” (trans. “Macroeconomic Expectations for 2007”) forecasts that 2007 will see reduced growth in the Mexican economy. Specifically, it contends that the economy will grow only 3.9% in 2007, a decrease from the 4.8% growth the nation enjoyed in 2006. While this means fewer new private sector jobs will be created this year than last, CEESP asserts that Mexico will nonetheless benefit from steady growth this year, as 2006 marked the highest rate of economic growth in Mexico since 2000.

The report also highlights risks that could further slow Mexican growth in 2007. Foremost among these is the United States’ greater than expected economic slowdown, as complicated by growing national and export deficits in that nation. On the domestic side, the possibility of further decreases in petroleum prices could also be negative for the Mexican economy this year. All the same, CEESP notes that despite slowed Mexican economic growth in 2007, all signs point to important economic advances being made this year, not the least of which is an expected overall reduction in inflation, which had increased more than 4% in 2006.

For discussion: While the relationship between the economic fortunes of the United States and Mexico are underscored in the CEESG report, to what degree do you think the U.S. economy affects other, farther-flung nations?

Is such economic influence good, bad, or indifferent?

Will nations like Mexico have the opportunity to take "center stage" as global economic powers?

World Bank Develops $340 Million Program for Malawi

World Bank Unveils US$340 Million Support Program for Malawi

Last week, the World Bank announced a new pledge of $340 million for a four-year support program for Malawi. This plan comes just seven months after the Bank and the IMF cancelled over 90 percent of Malawi’s previous debt, which amounted to nearly $2.6 billion.

This new support program, which will last until 2010, will help fund the implementation of the Malawi Growth and Development Strategy (MGDS). The MGDS is the country’s new economic development plan, which replaced the country’s previous Poverty Reduction Strategy. The MGDS will act as the government’s main tool for budgeting and resource allocation.

According to Timothy Gilbo, the Bank’s country manager, “The bank program aims to support [Malawi] government's efforts to achieve broad-based growth and poverty reduction…and also seeks to improve coordination and cooperation with Malawi's other development partners.”

Specifically, the plan’s goal is to improve the country’s economic growth by supporting and improving upon the economy’s main contributor—agriculture. The Bank also intends to use the funds to improve infrastructure, as well as reduce corruption in the country’s government and the impact of AIDS/HIV has had on households.

Questions: How can the World Bank ensure that its funds are being used in Malawi for the intended purposes? What steps should the World Bank take to ensure cooperation with its plan?

Sunday, February 18, 2007

EU Attacks Technical Trade Barriers

Source: Brussels targets lingering barriers to trade - FT.com

A new proposal from the European Commission is aimed at reducing hidden barriers to intra-European trade of goods. In theory, there are no trade barriers for goods within the EU, but many technical barriers continue to exist.

The latest proposals target varying national standards, technical rules, and safety regulations for manufactured goods. These variances require manufacturers to modify their products for each country’s market. The problem is exacerbated by the 1,800 enforcement agencies across Europe that issue conflicting interpretations of the national standards. While the barriers may be small, compliance costs effectively preclude small- and medium-sized companies from exporting their products. In addition, compliance with these technical trade barriers cost larger manufacturers approximately €150 billion each year.

To reduce these barriers, the EC is proposing two areas of reform. First, each country would be required to justify its standards. Second, each country would establish a single agency for enforcing the standards.


Should individual countries and local agencies forfeit their right to control product quality and safety within their jurisdictions? Should Europe move for more drastic changes, such as establishing uniform pan-European technical standards?

"Vulture Fund" Wins Partial Victory over Zambia

Zambia Loses ‘Vulture Fund’ Case

A British high court judge ruled that Zambia must pay a substantial sum to an investment fund that some are calling a “vulture fund.” Vulture funds – as defined by the International Monetary Fund – are companies which buy the debt of poor countries cheaply when it is about to be written off, then sue for the full value of the debt plus interest. There are concerns that such funds are wiping out the benefits which international debt relief is supposed to bring to poor countries.

In 1979, Romania lent Zambia money to buy Romanian tractors. After Zambia was unable to keep up the payments, in 1999, Romania and Zambia negotiated to liquidate the debt for $3 million. However, before the deal was finalized, British Virgin Islands-based Donegal International stepped in and bought the debt from Romania for $4 million.

Donegal, which is partially owned by U.S.-based Debt Advisory International (DAI), paid less than $4 million for the debt, but sued Zambia for a $42 million repayment. While Donegal alleged that the high bill was the result of interests and costs, the judge indicated that Zambia should pay far less than $42 million.

Critics of the decision say that the repayment will undermine Zambia’s plans for poverty reduction. Many are relieved that Zambia does not have to pay the full amount.

Martin Kalunga-Banda, a Zambian presidential advisor, said $42 million was equal to all the debt relief Zambia received last year. He also stated that the repayment, though legal, would have a negative impact on the country’s education and medical system. Mr. Kanlunga-Banda added that the debt accrued when the country was under an “un-democratic system” and that “Zambians at that time did not even have the capacity to know this was happening.”

Anti-debt campaigner Caroline Pearce said that vulture funds “made a mockery” of the work done by governments to write off the debt of the poorest. “This is what debt cancellation is intended for, not to line the pockets of businessmen based in rich countries,” she said.

Question: Some would say that the debt relief system has many flaws and loopholes, including the availability of vulture funds. Should “vulture funds” be legal?

Friday, February 16, 2007

Floods Lead to Food Shortage in Burundi

Source: Food shortage crippling Burundi - BBC.com

In Burundi, floods have devastated 80% of last November's crop. The fields of the country, which should be rich with rice, sweet potatoes, and corn, have been turned into swamps. In turn, the country is likley to suffer a major food shortage.

Burundi has a visually deceptive landscape. It's the home of lush green hills, which give the illusion of a bountiful supply of vegetation. However, these hills have only contributed to the destruction of the crops because they are subject to erosion; a problem which was worsened due to the recent rains.

The government has declared a state of emergency in nearly half of the country's provinces and the United Nations' World Food Program is appealing for an extra $12 million to help alleviate the food shortage.

Governments of African countries have been criticized for not taking responsibility to ensure the food supply for their nations. These governments have been accused of mishandling food supplies and relying too heavily on the World Food Program. However, Burundi is so poor that it doesn't even have any food supply that could be mishandled. Therefore, its only hope at this point is the World Food Program.


How can extremely poor countries, such as Burundi, end their reliance on the World Food Program?

Sunday, February 11, 2007

Venezuelan Price Caps Called into Question

Sources: International Herald Tribune, Venezuelan Decree Would Allow Government to Take Over Food Suppliers; Financial Times, Venezuela’s Price Caps on Food Staples Fail; Inter Press Service News Agency, Shortages, Speculation Amid Rising Consumption; Bloomberg News, Venezuela to Eliminate Value-Added Tax on Meat.

President Hugo Chavez announced on February 11 that soon a decree will take affect that would allow the government to take control of food-distribution chains (including supermarkets) if services continue to be interrupted. The announcement stems from the recent shortages of food staples, including meat, milk, sugar, certain cereals, and flour, which have caused people to flock to the black market where they purchase products at three times the normal rate. The government touts the decree as a mechanism to put “food commercialization in the hands of the people and the revolutionary government.”

The reason for the shortages is disputed. Critics of the government believe that the shortages can be traced to Venezuela’s high inflation rate and the low price caps that are in place to combat such inflation. Venezuela has the fastest inflation rate in Latin America. Consequently, in order to protect low-income groups from rapid price increases, four years ago Chavez set price ceilings on approximately four hundred food staples. After those prices were set, it became illegal to sell a product below the official government rate, and the consumer protection bureau recently shut down a market for selling meat above the official price.

However, many complain that the official prices are too low, believing there to be a “30 percent lag between the costs of production and marketing and the approved sales price.” In fact, even the government-subsidized supermarkets have sold above the official price. Due to the inability to make money because of the low official price caps, sellers have begun to refuse to sell at the regulated price and, therefore, at all.

The government, however, claims that the shortages are the result of speculation. They believe that business owners are hoarding the food supply and boosting prices. Venezuela’s Information Ministry published an advertisement this past week that showed a fake mug shot with a caption that stated “The Hoarder is the Criminal,” pleading with consumers to refuse to buy products for a higher-than-official rate. In an emergency meeting with the government, slaughterhouses have agreed to resume selling meat to supermarkets at the official government rate while the government prepares a package of anti-inflationary measures.

(1) What are the dangers of price controls? What might happen if the gap between the real market prices and the price caps continues to widen?
(2) What are some types of anti-inflationary measures on which the government should focus? What role do price controls play when there is no emergency-based need?

G7 and Asia

Sources: Boston Globe, Forex Television, fxstreet.com

The Asian financial markets have been affected greatly by the most recent round of G7 meetings. Finance ministers and central bank governors met on Friday at their 2-day meetings in Essen, Germany. Market watchers were “turning their attention” as Asian financial markets appeared to be particularly sensitive to the G7 meetings.

Analysts had predicted that China might experience the brunt of G7 criticism since there was a “need for emerging countries to show greater currency flexibility to reduce global economic imbalances.” G7 finance ministers did indeed reiterate their call for increased flexibility in the Chinese regime, but much of the expected criticism was tempered due to the current Chinese fiscal policy. China has agreed to cooperate in making the Chinese yuan more flexible, and the G7 has laid out a list of financial measures (removal of equity caps on foreign financial institutions, for example) to assist in helping China fulfill its commitment.

The buildup to the G7 meetings, however, led to a drop in the Tokyo stock market. In Tokyo, the Nikkei index fell 114.54 points. After the G7 meetings, Japan escaped public criticism, despite some concern about its financial markets. However, this was likely not much of a surprise, as the Yen markets had remained fairly flexible since September. The G7 commended the Japanese economic recovery, and “urged financial markets” to incorporate the continued projected recovery in assessing exchange rates.

Question: How do G7 criticisms and “mandates” affect domestic economic and financial sovereignty? In other words—how does the requirements set forth by the G7 prevent the individual nation states from embarking upon an independent fiscal policy?

South African Businesses Generally Optimistic about 2010 World Cup

Firms Positive on 2010 World Cup

A recent survey suggests that about three-quarters of large and medium-sized businesses in South Africa expect to benefit financially from business generated in anticipation of the 2010 World Cup. However, only 14% expect to benefit during the World Cup itself, which provided a boost to the German economy in 2006. Prior to the last World Cup in summer 2006, German business owners reported a more optimistic business environment.

According to the survey, crime is a major concern for South African business owners, as 84% of those surveyed reported being the victim of a crime in the past year.

In preparation for the first World Cup held on African soil - 60% of the owners said they had looked at diversifying their product or service, while 53% were planning to hire more staff. The report found that in 46% of cases, firms were making additional investments into their businesses.

National chairman of Grant Thornton South Africa, Leonard Brehm, said that businesses needed to work in a safe, secure environment. "This can only be achieved through strong and sustained action by government security agencies at all levels, supported by a culture of community participation in assisting with the detection and control of crime," he said.

Related Post: South Africa's World Cup Concerns

Question: What can the South African government do to ensure that the 2010 World Cup provides South Africa with a financial boost?

Liberian Debt Forgiveness

IMF urges Agreement to cancel Liberia’s massive debt
Lesley Wroughton
Feb 8, 2007

An International Donor Conference on Liberia is scheduled in Washington D.C. this week. Speaking before the event, John Lipsky, IMF’s First Deputy Managing Director said that it is essential that the international community be willing to forgive part of Liberia’s $3.7 billion debt.

Liberia’s President Ellen Johnson-Sirleaf, has been trying to build the country shattered by a devastating conflict which ended only recently after almost 14 years of fighting. In recent decades, the international community has not adopted a friendly approach to the country - the IMF initiated sanctions against Liberia more than 16 years ago for failing to repay its debts. Only last year the IMF eased its sanctions against the country, with the adoption of an IMF monitored economic program that supported a recovery in GDP growth, fostered price stability and helped improve the financial position of the Central Bank of Liberia. Any measures adopted during the Conference to forgive the country’s debt would go a long way in helping integrate Liberia into the international community.

1. The issue of debt forgiveness is critical – what parameters should donor countries adopt for debt-forgiveness? Should the World Bank and IMF adopt a more pro-active role with respect to debt forgiveness? For example should these global institutions be willing to pay off loans taken from donor countries on behalf of developing countries?

Saturday, February 10, 2007

Socialist reform in France?

“Royal unveils 100 ideas to make France strong" - CNN.com
"Royal signals shift to the left" - Reuters

France’s socialist presidential candidate, Segolene Royal, issued 100 proposals this weekend that she believes will improve France’s economic and geopolitical situation. Included among the proposals was a promise to increase pensions and the minimum wage, as well as a host of reforms that would help keep firms from relocating to lower-cost countries.

Royal would be France’s first woman president, but critics have labeled her “participative debates” as nothing more than “political karaoke,” but Royal shrugs off such criticism and claims to be able to see the real problems afflicting France. The next president will be challenged to try to reform the country, which has lost substantial economic and diplomatic power in the last decade.

Royal plans to tackle these problems head-on with reforms that will “defend France” against the effects of globalization and “economic liberals.” Such reforms would include anti-globalization changes at the IMF and World Bank.


- What type of reforms would a candidate like Royal suggest the World Bank and IMF implement?
- Would her suggestions have much influence?

EIB Criticizes China's Uncondiitonal Lending in Africa

Sources: EIB 'Losing Out to Chinese Banks’- FT.com; EIB to Talk on China's Africa Lending Spree - DailyTimes.com; EIB President Says China's Investment in Africa Good Thing - People's Daily Online

Philippe Maystadt, president of the European Investment Bank (EIB), admitted that the EIB is losing projects in Africa to Chinese banks, but sharply criticized the Chinese banks’ lending policies. Chinese investment in Africa has been increasing, and Chinese President Hu Jintao recently pledged to double aid to Africa and provide $5 million in loan and credits to African nations in an effort to secure access to oil and other commodities.

The World Bank reported that Chinese investment has positively impacted African economies, but Maystadt is critical of the Chinese loans, which provide unconditional financing. This contravenes the approach of the EIB and other Western lenders, who condition financing on political, fiscal, ethical, and environmental reforms.

Maystadt blames the lower Chinese lending standards for taking business from the EIB and warns that abandoning conditionality would reduce the incentive to reform and encourage African nations to take on unsustainable levels of debt. Maystadt admitted that Chinese lending is necessary to meet Africa’s financial needs, but called for talks with the Chinese to better coordinate efforts to promote good governance and environmental protection through conditionality.


Given the need for lending in Africa, should African nations be given as many lending options as possible, without respect to conditionality? If China agrees to talks with the EIB, what types of conditionality might the the parties agree to support in light of their different understandings of human and environmental rights?

Friday, February 09, 2007

World Bank Responds to Fraud and Corruption

World Bank Blacklists More than 100 Firms and Individuals for Fraud and Corruption
World Bank Steps Up Anti-Graft Drive; Blacklists 112 in 2 Years

On Tuesday, the Institutional Integrity Department of the World Bank released a report after investigating 441 cases of fraud and corruption in the use of development funding during 2005 and 2006. Of those cases, 227 involved World Bank staff misconduct, 77 of such allegations were substantiated by investigators. The report noted that the largest number of new cases were reported in East Asia and the Pacific, as well as South Asia.

This is the first report addressing corruption since Paul Wolfowitz became World Bank president in 2005. In order to reduce global poverty, Wolfowitz made it his goal to first fight corruption. Wolfowitz reiterated that “when we [the Bank] find that scarce development dollars have been wrongly diverted from their intended purpose of benefiting the poor, we have a responsibility to take action.” Taking its responsibility seriously, the World Bank has responded to the investigations by “blacklisting” over 100 firms and individuals from future use of World Bank funds.

Additionally, the Institutional Integrity Department introduced new tools to better gauge corruption in bank projects. One such tool is the Voluntary Disclosure Program, which encourages companies that have worked on bank-funded projects to report corruption or fraud in return for the Bank keeping their identities secret.

According to department director Suzanne Rich Folsom, the fraud and corruption investigated in the report included kickbacks, bribes, and overcharging for work. However, Folsom noted that the department is still unsure about how widespread the corruption has become in World Bank projects. Specifically, Folsom identified two investigations that showed one cartel operating in two countries on two different continents in the same sector. She notes that the department is “seeing much more complex schemes that have no boundaries.”

Question: Will the World Bank ever be able to fully combat the threat corruption and fraud have on its overarching goal of reducing poverty?

Tuesday, February 06, 2007

Outsourcing Vietnam

Sources: Vietnam's Growing Role in Outsourcing, Vietname Examines Outsourcing Attraction

Vietnam is becoming one of the main contenders in the far east for outsourcing IT contracts. India has been a large source of skillful IT workers for international IT companies, but other emerging countries, such as Vietnam and Pakistan, are giving India a run for its money. Vietnam has been working on developing its human resources via education and training in the new technologies in order to attract outsourcing projects. For instance, the country looks to develop its services to take advantage of the growing demand for IT engineers to patch mistakes in software packages. These opportunities to attract outsourcing work as international IT businesses start looking beyond India to fulfill their outsourcing needs would contribute to Vietnam's economic growth and development.
For example, Microsoft has already formed a solid outsourcing relationship with a digital design company in Ho Chi Minh City called Glass Egg Digital. Glass Egg works on digital designs for Microsoft's video gaming department, and has already attracted other big customers such as Sony Computer Entertainment Europe and Atari. Its revenues have grown 50% in the past two years. Other big IT companies have also turned their sights towards Vietnam for big plans. For instance, Intel plans to construct a $1 billion chip testing and assembly plant there.
However, some have noted that there are some drawbacks to outsourcing to Vietnam. One is the obvious lack of fluent English speakers. Another is the lagging developments in the country's own technology, such as the lack of a fiber-optic broadband network which translates into slow internet connections. Yet another disadvantage is the difficulty in changing currently-held portrayals of Vietnam to one that is equated with technology, just as India has successfully done. Nonetheless, international IT companies balance these drawbacks against other big advantages such as low wages. In Vietnam, programmers earn only about one tenth of what a programmer in the United States would earn.

1) What can Vietnam do to better compete with the likes of China, India, and Korea in the area of technology outsourcing?
2) What are some of the policy concerns about outsourcing work abroad in order to take advantage of cheaper labor?
3) What role does globalization play in this scenario?

Monday, February 05, 2007

Bird flu affects UK trade

Source: “Russia, Japan ban British poultry” - Reuters

A recent outbreak of the deadly bird flu—Britain’s first—has prompted a few of its major trading partners—Russia and Japan—to implement a ban on poultry and poultry related imports from the UK. The pathogenic H5N1 strain—one of the deadliest variants of bird flu—spread throughout a farm run by Europe’s largest turkey producer.

Experts are striving to find the source of the infection, but speculate it came from wild birds. Officials have stated the risk to public health is low, and that, when properly cooked, poultry and eggs are safe to consume.

While export sales will definitely be affected by bans such as those in Russia and Japan, UK domestic sales of poultry products remain stable. Meanwhile, EU officials warn tha “[w]e should never feel that we are safe” from the bird flu, as the deadly virus continues to crop up.

- Is it more important to feel safe from the bird flu in order to not disrupt trade, or to be on vigilant guard against infection?

World Bank Approves $25 Million Loan for Nigeria Poverty Reduction

World Bank lends 25 million dollars for Nigeria's poverty reduction project
World Bank Approves US$25 Million to Support Community-Based Poverty Reduction Project

Last week, the World Bank Board of Executive Directors approved a $25 million loan for additional funding for the Community Based Poverty Reduction Project (CPRP) in Nigeria. The CPRP, which was approved in 2000 for $60 million and will be implemented in eight of Nigeria’s states, intends to improve access social and economic services and increase the availability and management of development resources at the community level.

World Bank’s supplemental credit will end on August 31, 2008. The credit will fund the completion of about 600 community-based poverty reduction projects currently underway. The funds will also help maintain the momentum of the Community-driven development approach throughout Nigeria until the federal government completes its nationwide community development project. Additionally, the funding will be used to respond to demands and requests from community groups for poverty reduction projects in all the states currently implementing the CPRP.

According to Foluso Okunmadewa, the World Bank Task Team Leader for the project, “the additional funding will continue to support government efforts to empower communities to become agents and beneficiaries of change to improve the lives of their citizens.”

1. To meet its goals of increasing the poor’s access to services and improving management and development resources at the community level, will a total of $85 million be enough?

2. How should World Bank representatives ensure that Nigeria uses its funds according its original plan to further the goals of the CPRP?

Sunday, February 04, 2007

Zimbabwe's Troubles Continue

Zimbabwe Devaluation Ruled Out
Zimbabwe’s Farm Deadline Lapses

Gideon Gono, the governor of Zimbabwe’s Reserve Bank has ruled out a further devaluation of the country’s currency, despite spiraling inflation. (Devaluation is a reduction in the value of a country’s currency with respect to foreign monetary units.) There is a chronic shortage of foreign currency in Zimbabwe, but Mr. Gono believes no amount of devaluation would bring foreign currency into Zimbabwe unless fundamental issues were first addressed. Mr. Gono said that exchange rates would remain as they were despite significant distortions in the market.

The country is now in its eighth year of economic recession. Rising energy costs have driven the official annual inflation rate to 1,281%. Currently, the difference between the official dollar exchange rate and the black market rate is vast. One U.S. dollar is worth approximately 250 Zimbabwean dollars, but on the black market, the U.S. dollar can be sold for 5,000 Zimbabwean dollars.

Zimbabwe's economic crisis has led to high levels of unemployment, and a huge exodus of Zimbabweans to neighboring countries, particularly South Africa. Zimbabwe’s food production has also plummeted since land reforms saw the farms of white owners seized as part of a government program to redress economic balances left over from British colonial rule.

The last remaining 400 white farmers in Zimbabwe had until this past weekend to hand their property over to new black owners or face prosecution. Some farmers expect the government arrests to begin on Monday. The remaining farmers believe that arrest and prosecution is the only way of getting a hearing in court.

Questions: What is next for Zimbabwe? Should Zimbabwe's current President Mugabe remain in power?

Hyundai's Motor Boss Sentenced

Source: Forbes, Yahoo News

Hyundai, Korea’s largest automaker, has been sentenced to three years in prison for embezzlement and breach of trust. Chung Mong-Koo has been convicted for embezzling 63 billion won, or 67 million dollars from fraudulent accounting used to bribe politicians and officials. He was arrested last April, but released on a one million dollar bond after two months. The three year sentence was imposed despite the prosecutor’s pleas for a six year sentence. Prosecutors had requested a six year sentence, but defense attorneys requested leniency because “his incarceration would be a further blow to the automaker and the overall economy.”

Immediately upon news of the sentence, the automaker which controls 70% of the Korean automobile market (along with being the world’s sixth largest automaker) saw its shares down 1.29%. This recent news comes along with a line of other bad news as Hyundai has been hurt by sluggish car sales and labor disputes. Analysts, however, predict that Hyundai would see no more drops due to Chung’s incarceration since the concern was largely “priced in,” because Hyundai stock had already fallen about 30%. However, there is a fear that this would hurt Hyundai’s overseas brand image as it was originally seeking to expand its market overseas. Thus, “many important decisions for its global operations could be suspended” since there is a “heavy dependency on Chung.” However, other analysts feel that the court’s decision may be beneficial for Hyundai in the long term as it may “improve Hyundai’s corporate governance” and consequently have a “positive impact on the firm’s stock price in the mid to long term.”


What does Hyundai need to do to continue to grow its international market for automobiles? How should Hyundai respond to their auto head being incarcerated?