Sunday, September 30, 2007

Business reforms making stride in Kenya and Ghana

Africa: Kenya, Ghana Are Top Business Reformers
Africa: Doing Business 2008: Ghana and Kenya Set Pace of Reform on Continent, Mauritius Is Region's Easiest Place to Do Business

According to a recent World Bank and International Finance Corporation report, “Doing Business 2008,” a number of African countries have reformed their legal business requirements, making it easier to “start a business, gain access to credit, and ease tax burdens.” Kenya and Ghana top the list of African countries that have made the largest reforms in their business practices this year. Additionally, Mauritius was ranked the most business-friendly country in Africa.

These reforms are designed to increase the ease of doing business in Africa. They have made it “simpler to start a business, strengthened property rights, enhanced investor protections, increased access to credit, eased tax burdens, and expedited trade while reducing costs.” Small, informal business will benefit most from these reforms. It is hoped that these reforms will create incentives for small and medium-sized entrepreneurs to formalize their businesses, which will help the country to gain overall economic growth

In order, the top 10 reformers globally are: Egypt, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria.

Discussion question:
Will these reforms encourage local and foreign investors to invest in African businesses?

Economists claim “policy space” is critical to achieving development goals in Africa.

Sources: (Ghana): "Africa needs economic think-tank"
Third World Network: “TWN Info Service on WTO and Trade Issues”

“Policy space” is a term that refers to the ability of nations to choose the policy options they believe are best-suited to their development strategies. Policy space has become a hot issue for developing countries. This is because of growing concerns that the expansion of international trade as well as the rules and conditions linked to loans and aid are hampering developing countries' efforts at economic growth and poverty reduction.

The importance of reclaiming policy space in the developing world is the theme of a 2007 report of the United Nations Conference on Trade and Development (UNCTAD) titled “Economic Development in Africa: Reclaiming Policy Space: Domestic Resource Mobilization and Development States.”

Economics consultant Dr. Nii Moi spoke at the release of the UNCTAD report, calling for the creation of an economic think-tank in Africa that could assist in providing policy development from an African perspective. Dr. Moi suggested that policy determinations of the past and present have been driven by the interests and misconceptions of the developed world in and about Africa.

The claim was reiterated that a policy approach that works in one African nation is not guaranteed to function in another. Further, it was noted that such a one-size-fits-all approach—as well as a regrettable degree of self-dealing that was permitted if not endorsed by the BWIs—has hurt African interests across the board.

One UNCTAD official, a Dr. Gyan-Baffour, asserted that there has been such a shrinkage of policy space for developing countries that their very ability to achieve economic development is threatened.

Is “policy space” just another way to say “national sovereignty”?

Are poor nations that rely on foreign aid or development loans less entitled to claims of national sovereignty than the wealthy nations that provide the aid and funding?

Americans Worry About Chinese Goods--or Do They?

Sources: Reuters, Reuters

Americans today are increasingly worried about Chinese imports. From baby cribs, food, toothpaste, to toys—and all products in between, the moniker “Made in China” has taken a new meaning to American consumers. Dangers of lead based paint to food contamination have led to increased worry about Chinese products. 78% of Americans worry about Chinese imports, and nearly a quarter have stopped purchasing food imported from China. 35 percent of Americans are “very worried” and 43 percent are “somewhat worried.” Yet, Americans continue to purchase a high number of Chinese-made goods.

Lower costs likely ensures a continued supply of Chinese imports, but the Made in China image has been damaged. Yet, China is fighting back. China has agreed to cooperate globally to combat problems. It has publicly defended its health record—even going as far as criminally punishing local officials. Over the past several months, China has pledged to spend over $1 billion in increasing food safety, as well as giving regulators more power to enforce regulations.

Discussion Question: If US consumers continue to purchase Chinese goods—even in light of the contaminated food and lead-based paint—what governmental safety mechanisms can be put in place to ensure safety?

Saturday, September 29, 2007

To Resign Or Not To Resign, That Is The Question

Eurasia Daily Monitor: Serdyukov's Fake Resignation

Russian Defense Minister Anatoly Serdyukov planned to resign last week, before President Vladimir Putin announced Serdyukov would continue on as defense minister on Monday, September 24th. Serdyukov is the son-in-law of Russia’s new prime minister Viktor Zubkov.

At the time, pundits lauded the resignation announcement as it meant the government followed the law on civil service that prevents such family ties in the government. Looking to Soviet times, the government did not allow close relatives to be in direct subordination to each other as a political rebuke of imperial Russia. Throughout history, direct subordination was never present – though subordination was allowed if there was one other official between the father and the son.

Serdyukov was appointed defense minister in February to fight massive graft in the Defense Ministry. The 2000 defense budget was 146 billion rubles ($5.8 billion); but this year, it is 870 billion rubles ($34 billion). No one knows where the new money is going, especially since no more weapons are procured than when defense spending was much smaller. Serdyukov's reforms in the Defense Ministry are in full swing, but a replacement would find it difficult to accomplish the reform due to the March 2008 presidential election.

The 1993 constitution provides for the defense minister to directly report to the president, not the prime minister. Thus, it is possible that Putin could use this provision as justification to keep Serdyukov. It is also relevant that Putin has created an administrative system with immense corruption; though the public and government have allowed Putin to bend many rules in the past.

Question for discussion: Should Defense Minister Anatoly Serdyukov resign?

Economics Connected To Myanmar Unrest

Asia Times: Economics at the root of Myanmar protests
New York Times: More Deaths in Myanmar, and Defiance

Widespread violent protests in Myanmar have flared due to increasing anger over the country's economic conditions. In response to the protests, the ruling military junta chose Myanmar police Brigadier-General Than Han to control civil unrest. The Myanmar government significantly reduced national fuel subsidies. As a result, the price of diesel fuel skyrocketed by a reported 100%, which produced a fivefold increase in the price of compressed natural gas, and placed even more inflationary pressure on an economy which already had an inflation level of 21.4% in 2006. The junta's plan for reform includes the end of fuel subsidies in an effort to reduce the pressure of global fuel prices.

The International Monetary Fund and World Bank recommended a subsidy cut due to Myanmar’s extremely high budget deficits. Recent pay raises for civil servants and the military, combined with cash outlays for a new administrative capital and a proposed new technology capital have weakened Myanmar’s capital reserves. Typically, Myanmar has printed more money to pay for its expenditures but this has only added to inflationary pressures on its citizens. Furthermore, the junta's restriction on withdrawals from banks will probably cause even more economic hardship for Myanmar.

Myanmar’s inability to plan for successful economic progress has significantly affected the economy. It has created the economy's dependence on imports while exporting its own resources without strengthening its own economic development. The result appears to be a deterioration of Myanmar’s ability to maintain an infrastructure that supports a growing economy.

After almost 45 years of military control, Myanmar’s economy remains unable to adequately provide for its population. In 1988, Myanmar faced a similar economic crisis and the military stepped in to suppress the revolt by its citizens. This recent economic crisis is following that same pattern. It appears the military will not be able to manage Myanmar’s economy in a productive fashion for its citizens.

Discussion Questions:
Will pressure from other Asian countries help reduce Myanmar’s current military/economic conflict?

At the White House, Yang Jiechi (China’s foreign minister) was asked to exert pressure on Myanmar’s rulers to change Myanmar’s repressive policies. Do you think China’s intervention would be a help or a hindrance?

Friday, September 28, 2007

Iran and Venezuela Attempt to Halt U.S. Domination

Source: Financial Times, YNetNews, and Newsday

Last Thursday, Iranian President, Mohmoud Ahmadi-Nejad, made a visit to Venezuela to address the issue of the United States’ excessive strength and influence. Together, Iran and Venezuela account for approximately 20% of the oil cartel’s production. The Presidents came together to “reaffirm their ‘anti-imperialist’ cause when signing several energy accords that add more than 180 bilateral trade agreements worth more than $20bn.” Venezuela is one of the top five suppliers of crude oil in the U.S. market. Although many outsiders expressed disagreement, many Venezuelans are proud to have close ties to Iran. The Venezuelan President, Hugo Chávez, believes that this alliance between Iran and Venezuela could lead to a revolutionary path towards anti-sovereignty. President Chávez threatened to delay oil exports to the United States if the United States chose to invade Iran. In addition, President Chávez defends Iran’s development of nuclear energy (only for peaceful purposes). As a result of Venezuela’s pro-nuclear technology for Iran, the United States has been frantically lobbying against Venezuela’s membership in the Security Council.

Some are not surprised by this alliance. Analysts believe that this is not an economic alliance, but more so geopolitics. Gregory Wilpert, the author of a socialist movement book, believes that the Venezuelan President may be overstepping his boundaries by embracing the Iranian President. Wilpert acknowledges the importance of a strategic relationship, but disagrees with the personal friendship. Many analysts fear that their friendship may cause President Chávez’s focus to shift away from Latin American integration. In fact, the anti-U.S. domination and the Latin American integration initiatives seem to contradict one another. Chávez’s friendship with Ahmadi-Nejad may harm possible allies that Venezuela could be forming. One of the agreements between Iran and Venezuela include building two petrochemical complexes for approximately $1.4bn. In addition, the two governments together plan to create items like bricks, bicycles, and oil fields. Both Presidents signed an additional 11 accords for further prospects to work together in areas such as tourism, education, and mining.

Both Presidents have agreed on financing projects in other countries in order to stop United States domination. President Ahmadi-Nejad already has plans to visit Bolivia, Nicaragua, and Ecuador. Nicaragua and Ecuador, oil-rich nations, have plans for a $2bn fund “to finance investments in Venezuela and Iran,” but apparently this money will also extend to other “friendly third countries” that are trying to separate from United States dependency. Although the Presidents have clearly expressed anti-United States views, they both expressed hope for “better relations” to Thomas Shannon, the head of the United States State Department’s Western Hemisphere affairs bureau. Chávez has not only created ties between Venezuela and Iran, but also Venezuela and Cuba. Chávez has pledged billions in helping Cuba in foreign aid.

Even though Venezuela may claim anti-United States domination, the country still sells most of their oil to the United States. The small Jewish community within Venezuela is outraged by this new brotherhood between Iran and Venezuela. The Jewish community disagrees with Iran’s advocacy of Israel’s destruction. The Jewish community is not the only group in fear. Washington fears the possible consequences of Venezuela and Iran’s agreements. Venezuela and Iran have been campaigning to start attaching “oil prices to the euro instead of the U.S. dollar.” Washington also fears that this new alliance could spread Islamist terrorists in Latin America. According to Newsday, “This spring, the White House stopped arms sales to Venezuela, accusing it of failing to cooperate on counterterrorism investigations.”

For Discussion:Is Venezuela’s President, Mr. Chávez, forgetting the differences between Iran and Venezuela because of his personal relationship with Iran’s President? How long will this bond last between the Presidents of Venezuela and Iran and will the end of that bond be volatile? How will the threat of Islamist terrorists in Latin America affect the United States?

Thursday, September 27, 2007

Ecuador Holds off Drilling in Hopes of Donations

BBC News - Ecuador Seeks Oil 'Compensation'
Environmental News Service - Ecuador Seeks Compensation to Leave Amazon Oil Undisturbed

Ecuador President Rafael Correa is waiting to see if foreign donors will be willing to pay $350 million a year to prevent oil companies from drilling in Ecuador’s Yasuni National Park. He has imposed a one-year moratorium on oil drilling in order to spur donations. Correa announced the initiative earlier this year in a novel attempt to recoup some of the oil revenues that would be lost by the lack of oil exploration in the national park, which has been designated a UN Biosphere Reserve site. Yasuni contains some of the greatest plant and animal diversity found in the Amazon rainforest.

It is estimated that there are just under a billion barrels of untapped oil in Yasuni, which would make it the country’s largest undeveloped oil reserve. The $350 million that Correa seeks to prevent exploration would make up about half of the estimated annual revenues of the oil field. Currently, about 40% of the Ecuadorian government’s budget comes from oil revenues, underscoring the fiscal importance of the eventual outcome of Correa’s plan.

Some have suggested writing off part of Ecuador’s $15 billion in external debt in order to cover the cost of Correa’s demand. To hedge its bets, Ecuador has signed exploration agreements with Petrobras of Brazil and other oil companies of Venezuela, Chile, and China. Complicating matters for Correa, several indigenous peoples also live within Yasuni and claim it as their ancestral land.

Several countries, such as Germany, Norway, and Italy, have taken steps to consider the Ecuadorian proposal. The World Bank has also consulted with other international organizations about the idea. Still, others are critical, noting that Ecuador is demanding cash to refrain from drilling in what should already be a protected envrionmental area.

1. Is Peru's offer not to exploit the Yasuni Rainforest a good opportunity for developed countries to exercise debt forgiveness?

Strong finances allow the World Bank to cut loan fees


-World Bank cuts loan fees
-International Finance Corp.

The World Bank gave emerging countries like China and Brazil a break on Thursday when it cut the price of loan charges by 25 basis points. This is the first such reduction in a decade. This is part of a broader Bank strategy to increase the amount of business it has with what it considers “middle income” countries, like China, Russia and Mexico

Additionally, the Bank announced it would double its current commitment to the International Development Association, a facility whereby the Bank provides loans to its poorest of borrowers; this doubling will amount to approximately 3.5 billion USD in resources the Bank will provide to the Association. The Bank hopes that its increased contributions evinces a stepping-up-to-the-bat and thus a challenge to donor countries to also increase their contributions. Particularly, the Bank and others hope to convince China to begin increasing its role with the Bank as a donor

The Bank’s ability to increase its involvement with emerging and poor countries is believed to be a result of its profitable venture in the private-sector vis-à-vis its International Finance Corp. The latter aims to develop the private sector in various needy countries.

- Question: Will the Bank need to offer incentives to encourage donor countries to step up their contributions, or is the gesture of the Bank in increasing its own contributions persuasive enough?

Monday, September 24, 2007

American Auto Workers On Strike

Financial Times

80,000 American auto workers at General Motors went on strike for the first time since the 1970s after contract talks stalled. The United Auto Workers, the labor union representing the employees, ordered a work stoppage in the seventy GM facilities in the United States. The stoppage came after the management and union were unable to come to agreement on a new four year contract. The previous contract expired September 14th, and the union authorized hour-by-hour extensions. The strike was ordered after ten weeks of talks produced no results. Management is keen to restructure its US operations and extricate itself from a $50 billion commitment in health-care obligations to retirees. While talks have currently stalled, union leaders stated that they would return to the bargaining table on Tuesday.

The strike is not expected to be a long one, and analysts predict that GM could survive a short strike. Furthermore, Teamsters union said it would not cross picket lines to work on GM vehicles. Nevertheless, by Monday afternoon, GM has already lost 4,000 vehicles in the strike, and an extended strike could cost GM $8 billion per month. The UAW strike also has regional ramifications, as a long strike may result in the loss of over 100,000 Canadian auto-related jobs.

Each side noted disappointment in the other in the inability to reach an agreement. UAW head stated that GM "had pushed the union into striking by not showing a willingness to meet it halfway on crucial issues such as job security." GM noted that "the bargaining involves complex, difficult issues that affect the job security of our US workforce and the long-term viability of the company." GM (like other US-based automakers Ford and Chrysler) are seeking concessions from UAW to shrink the labor cost gap with foreign automakers. This cost gap is claimed to be over $30/hour for the average worker. GM further claims that, unless concessions are granted by UAW, it may be forced to shut down more US operations. The three major US auto manufacturers have posted losses of $15 billion, and their market share in the United States has fallen below 50%.


How long can US auto manufacturers maintain US manufacturing plants in light of the increased union-labor costs?

Sunday, September 23, 2007

IMF to invest in reforming aspects of its Africa strategy

SOURCE: The East African--"IMF to spend $1.3m ob aid reforms for Africa"

The International Monetary Fund (IMF) will expend some $1.3 million on reforms in its approach to aid and development in Africa. It is expected that the reforms will take six years to implement; reform will take place in five reported areas of IMF management of aid to Africa:

1. “[H]igher aid flows through increased government spending” on areas like education and management and treatment of diseases besides HIV—such as malaria—that are also taking a considerable toll on the population (e.g., over 1 million people on the continent are killed by malaria every year);

2. “[I]ncreases in net imports” that do not upset macroeconomic stability;

3. Transfer of some analytical duties to the World Bank and other donor bodies;

4. Transfer of duties regarding advice on composition of expenditure to the World Bank, and

5. A revamp of communications policies on aid and poverty reduction.

These reforms were recommended by the IMF’s Independent Evaluation Office (IEO), an independent body set up in 2001 to provide “independent and objective evaluations of Fund policies and activities.” While officials in African countries have expressed support for increased aid and net imports, there is less enthusiasm with regard to the transfer of certain duties to the World Bank.

One anonymous official from the Bank of Uganda asserted that the World Bank is not equipped to offer advice on composition of expenditure (essentially advice on how a government should budget its public spending) and questioned whether the Bank has the authority to engage in this particular activity, expressing concerns that such an arrangement would trigger another wave of neo-colonialism.


With reference to concerns raised by the anonymous official from the Bank of Uganda, do you think that the World Bank presents a greater threat of “neo-colonialism” in Africa than the IMF?

Do regional development banks, such as the African Development Bank (AfDB) pose less of a neo-colonial threat than the IMF or World Bank?

Does it make a difference either way? Is there a way to avoid neo-colonialism and while still providing much-needed aid?

The Rise of Emerging Donors in Asia

Source: AFP: World Bank ex-chief says power heading east; BBC: Rich nations ‘ignore’ power shift

On September 21, former World Bank president James Wolfensohn alerted Western countries of the rise of developing countries in Asia. During his speech at the Asian Financial Forum in Hong Kong, Wolfensohn advised the West to change its currently condescending approach to the up-and-coming Asian powers, which include both China and India. He advocated constructive engagement with these emerging donors as they continue to strengthen their ties with developing countries in Africa.


How should the World Bank, IMF, and other international financial institutions allow for emerging donors like China and India to play a greater role in the governance systems of these institutions? Would this present any conflicts of interest for China and India because they are still receiving aid from these institutions?

China’s $5 bn investment in Congo

Financial Times - Alarm over China’s Congo deal
BBC News - China opens coffers for minerals

China and the Democratic Republic of Congo have signed a preliminary agreement to help rehabilitate Congo’s weak infrastructure. Following years of “war, dictatorship and turmoil,” Congo’s infrastructure is in desperate need of repair. This bilateral agreement will invest $5 bn in Congo for infrastructure projects and loans in exchange for Chinese mining rights to many of Congo’s mineral resources (the country is rich in copper, cobalt, diamonds, gold, iron, and uranium). It will make Congo one of the top recipients of Chinese investment in Africa as well as stimulate China’s domestic economy.

The loans have been allocated for several large infrastructure projects in Congo. There is an emphasis on transport infrastructure projects and $3bn of the loans will be spent on transportation. Plans include a 2,125 mile highway between Kisangani and Kasumbalesa, as well as a 2,000 mile railway “to link the country’s southern mining heartland to the main Atlantic port of Matadi in the west.” Additionally, the loans will be used to construct “30 hospitals, more than 100 health centres and two universities.” Finally, some of the loans will be used to rehabilitate the country’s mining industry.

For Discussion:
The timing of the agreement has shaken mining companies, the IMF, and other donors, who worry about Congo’s previous debt commitments. Will this loan agreement negatively impact the IMF and World Bank’s loans to Congo?

Saturday, September 22, 2007

Pork: Not Just the Other White Meat

Pork leads inflation in China
China's politics of pork

Rising prices of pork, a staple in the Chinese diet, has contributed to inflation in China. Pork, which has jumped 77.6% in price in August from the same month a year ago, is now unaffordable to the average person in China. The increase in price is caused by cost increases for food and transportation, higher wages for workers, and narrow profit margins caused by a supply shortage that has been exacerbated by a disease which has killed over 45,000 pigs this year. The sharp rise in food prices, mainly fueled by rising pork prices, pushed up the annual growth rate in the Consumer Price Index (China’s key inflation indicator) to 6.5% in August, which is the highest it has been in eleven years. The National Bureau of Statistics stated the total increase of inflation reached 3.9% in the first eight months, which exceeded the government’s target of 3%.

A securities company believes China will probably raise the key interest rate again this month. An analyst with the company said the central bank will raise the benchmark rate to a level in line with inflation.

Increasing inflationary concerns led to the belief that there would be more interest-rate hikes. The People’s Bank of China has raised the one-year benchmark deposit interest rate four times during this year to offset increasing inflation. In a bid to "control excessive bank lending," the Bank announced its plan to raise the reserve requirement ratio by half a percentage point for commercial banks to 12.5%, effective September 25.

While the inflation numbers for pork and other food commodities are quite high by most standards, there are some who say this is only a blip in China’s economy. Some economists suggest that inflation will not be a problem by the end of the year.

Discussion Questions:
1. Will food prices, especially pork, continue to cause rising inflation in China?
2. China remains predominantly a farming country with most of its population dependent on stable price increases. Will the growth in food costs for the vast majority of Chinese lead to social unrest?

Investment in Israel: Reliable or Risky?

Source: Financial Times, Israel Trade Commission, BeliefNet, Campus Watch, and The Jerusalem Post

Recently, investments in Israel have reached new highs. After a U.S. investor, Warren Buffet, invested approximately $4bn in Iscar, an Israeli toolmaking company, the country’s economy has received international attention. Since the state was created in 1948, economic investment has been for more religious and ideological reasons, rather than profit. However, new investors are now more motivated for capitalist reasons. In addition to the investment made by Mr. Buffet, Intel has currently invested over $5bn in Israel. Several other well-known international, high tech companies have followed in Mr. Buffet and Intel’s footsteps. Reasons for recent investment in Israel may be because of its innovative and entrepreneurial spirit, which can be of great value to international investors.

Some may consider the current investments surprising due to the violent outbreaks that have been occurring. In 2000, the lack of high tech investment and the violent outbreak between Palestinians caused a recession. However, over the past year, circumstances have shifted. The violence in Israel has begun to level off. In addition, Israel recently withdrew from the Gaza strip. This change of events may have caused the additional investment within the country. In fact, “these developments helped the economy to record 5.2 percent gross domestic growth in 2005.” This year, the Bank of Israel expects a 5% growth because of the improved exports, tourism, and consumer spending. Investors today are feeling more and more comfortable with the current situation in Israel. Companies are considering the benefits and the risk of possibly of making investment in high tech companies. Obviously, the benefits have begun to outweigh the risks.

Other reasons for the increase in confidence in investment in Israel may be last year’s appointment of Stanley Fischer, a former senior official of the IMF and internationally renowned economist, for the governor of the Bank of Israel. Recent reports in the Morgan Stanley report described the Israeli economy as “almost perfect.” More recently, Merill Lynch explained that the economic situation in Israel as “as good as it gets.” In the mean time, in the Swiss IMD business school rankings, Israel jumped from 42 to 20 in the 2006 world competitive rankings. The Israel Trade Commission has recognized certain areas that require improvement in order to continue competing for investors, such as export growth, job creation, and enforcement of proper trade enforcements.

Many groups have disagreed with the recent increase in investment in Israel. The Presbyterian Church cut off all investment in specific companies that did business with Israel. The Church does not agree with supporting Israel while they continue to use force and violence in the West Bank. Many Jewish groups were outraged and shocked. Other churches, including Episcopalian, have looked into to possibly making the same move towards cutting off companies invested in Israel. These protests may discourage investors from continuing to invest. The church protests have sparked additional tension between the Jewish and Protestant communities. Jewish communities may be more outraged because of the Presbyterian Church’s lack of communication. However, the Church felt that words were not enough.

Other groups have also expressed their disagreement with the continuing investments in Israel. Students protested on campus at the University of Michigan to pressure Israel in ending its occupation of Palestinian territories. “Students at the University of Michigan and about 50 other campuses across the country are petitioning their schools to divest themselves of stock holdings in companies with ties to Israel to protest the country’s treatment of Palestinians.”

Despite the protests, Israel has continued to prosper. The FTSE Group upgraded Israel’s status to developed. The change of status means that Israel may be facing the potential upside of inflow of investment funds. Since the Watch List in 2006, Israel “met all quality of markets criteria for a developed market.” There are four categories of criteria: “market and regulatory environment, custody and settlement, dealing landscape and derivatives market.” As a result, Israel has the potential to attract more of the approximately $2 trillion funds that “track the FTSE’s global benchmarks.”

For Discussion:
Will protests in the United States help in stopping investment in Israel? Is it fair for investors to ignore the continued violence in Israel for reasons of profit? Are huge sectors of the Israeli people left behind due to the investment in the high tech areas only?

The Growing Ties Between Russia and Turkey

Eurasia Daily Monitor - "Growing Russo-Turkish Economic Ties Overshadow Political Differences"

The economic ties between Russia and Turkey have grown significantly in the past couple of years. Looking at the numbers, during the first six months of 2007 Russian exports to Turkey stood at $10.5 billion, up 30.6% from $8.1 billion in the first half of 2006. Further, during the first six months of 2007 Turkey’s exports to Russia rose by 60.3% over the same period of 2006 to reach $2.1 billion.

Many Turkish companies have been active in Russia; and Russian companies have been active in Turkey. For example, one Russian group just took a stake in Turkey’s leading cell phone services provider and is interested in more Turkish investments. Turkey also has a large tourism industry, pulling many visitors from Russia.

Russia and Turkey would seem to make a good political alliance because both counties are in eastern Europe, dislike the EU, and do not like the policies of the United States. However, that alliance has not come to fruition due to an old rivalry. This rivalry has become more prominent with the unrest in the Balkans, Caucasus, and Chechnya.

Questions for discussion:
Do you think that Russia and Turkey will become political allies in the near future?

Sarkozy Announces Proposed Changes to Welfare System

Source: Sarkozy sets out Welfare Reform Plan available at

On Tuesday, French President Nicolas Sarkozy outlined his ambitious plans to reform a welfare system he describes as “financially unsustainable, unfair, and discouraging to work.” He insists that the current system “produces more unfairness than fairness” and calls for a new “social contract” based on work, merit and equality of opportunity.

Sarkozy introduced a number of novel ideas, the first of which is the elimination of special pension privileges for 1.1 million current and former gas, electricity, rail and transport workers. This change carries significant symbolic importance, as it is the precursor to wider pension reforms next year.

He also suggested a relaxation of the 35-hour maximum working week, where workers would have the option to trade in accumulated time for extra pay or elect not to subscribe to the restrictions at all. Unemployed workers would experience cuts in their benefit after refusing two subsequent training or employment opportunities. Additionally, his plan would merge the benefit and unemployment offices, and allow an independent commission to set the minimum wage, thereby removing political influence from adjusting its level.

Lastly, Sarkozy’s plan hinted at extensive health system reforms as well, calling for a “wide debate” on the funding of the system. The current health system receives partial funding from compulsory social insurance, but the government routinely finds itself funding deficits of several billion euros each year, while retaining little control over cost regulation. Analysts view such reforms as a necessary step if France is going to gain control of its onerous healthcare costs and sort out its public finances.

Negotiations between the government, unions and employers started this week. Sarkozy expects to finalize the details of the reform by the end of the year, and begin implementation by mid 2008. Although he reassured trade unions he would consult with them before finalizing changes, it is unclear whether changes will go forward if there is no agreement from the unions.

Questions for Discussion
1. Do you think that Sarkozy’s plan is too ambitious, especially given the short time frame for planning and implementation?

2. To what degree, if any, are Sarkozy’s state welfare reform policies likely to contribute to the rising tensions in the Franco-German relationship?

Friday, September 21, 2007

Temporary Truce in Inflation Battle for Mexico and Colombia

Bloomberg - Mexico Holds Rates on Signs of Slowing US Growth
Bloomberg - Colombia Bank Keeps Rate at 9.25% as Inflation Slows

Mexico and Colombia both kept their benchmark interest rates unchanged this week, at 7.25% and 9.25%, respectively. Both countries maintained their current rates despite a continuing battle and preoccupation with excessive inflation.

Mexico’s inflationary rate in August was a little over 4 percent, slightly greater than the target rate of 2-4 percent. However, high food and fuel prices have threatened the central bank with higher inflationary rates and the probable need to raise interest rates before the end of 2007. Mexico’s decision comes in conjunction with a slowing United States economy and the cutting of the federal funds rate last week by the U.S. Federal Reserve.

Meanwhile, Colombia’s central bank also held its interest rate unchanged at 9.25%. The central bank has been trying to stem inflation that was at 6.26% annually in April. The inaction by the central bank is a reprieve from the nine quarter-point rate increases that have occurred in Colombia in 2007. As in Mexico, the poor U.S. credit market contributed to the Colombian central bank’s decision not to raise rates. The chief of Colombia’s central bank, Jose Dario Uribe, said that the U.S. mortgage crisis could affect Colombian export prices, demand, and access to international capital markets.


1. In addition to interest rate increases, what are other economic means available to countries to slow down their inflation?

Thursday, September 20, 2007

World Bank and UN Partnership for recovery of stolen assets to help curb African corruption

International Herald Tribune - World Bank and UN to help poor nations recover stolen assets
Ghanaian Chronicle - Ghana: TI Welcomes the Stolen Asset Recovery Initiative, Says It Could Help Trace Stolen Monies
The World Bank - Launch of Stolen Asset Recovery

The World Bank and the UN’s new partnership, the Stolen Asset Recovery Initiative (STAR), was inaugurated earlier this week. A concern has developed regarding stolen money leaving developing countries to go overseas to developing countries. Africa has suffered the highest level of this corruption, “where an estimated 25 percent of the gross national product of states is lost to corruption.” In Nigeria alone, during former President Sani Abacha’s presidency, the President and his accomplices stole between $3 and $5 billion of Nigeria’s public assets. This corruption is especially troubling, because the money is desperately needed to fight poverty and treat HIV and AIDS in these countries.

STAR was established to assist in curbing this corruption. It provides expert assistance to developing countries to track stolen money that leaves the country and repatriate these assets. Additionally, it denies corrupt officials a foreign place to hide the money. The recovered assets will hopefully be used to implement social programs to assist with development in these countries.

Discussion Questions:
Will this partnership ensure cooperation between developing and developed countries to help end this corruption?

Whose responsibility is it to fight this corruption in developing countries? Developed countries? Developing countries? Both?

Should the sending countries or the receiving countries bear most of the blame for this corruption?

Tuesday, September 18, 2007

Bank of Japan Does Not Adjust Interest Rates

Sources: Bank of Japan No-Change Decision Likely, Bank of Japan Keeps Interest Rates Unchanged

In a controversial decision, the Bank of Japan concluded that the economy is too fragile to bear an increase in interest rates. Japan's interest rate is currently among the lowest of developed nations. The Bank's board of directors completed a two day meeting during which they entertained the idea of raising rates in response to concerns about the slowdown in the economy's growth after five years of strong and steady growth. The Japanese economy is one of the largest in the world, and its recent growth has been marked its greatest expansion since WWII. The Bank's choice to keep the rates unchanged parallel the U.S.'s strategy in keeping its rate steady despite a slowdown in the American economy.

Some analysts express concern that the board's decision has been influenced by politics. The Bank has only recently won its independence from the government, which had run financial policies until 1998. Some fear that the decision signals a failure by the Bank to flex its independence.


Do you think that the Bank of Japan's decision is that controversial in light of the U.S.'s similar strategy in response to its own economic slowdown?

Is the Bank's response economically sound?

Monday, September 17, 2007

IDB to strengthen trade in Latin America & Caribbean


- IDB and WTO organize regional "Aid for Trade" meeting - IDB
Aid for Trade initiative critical for Latin America and the Caribbean - WTO

Inter-American Development Bank President Luis Alberto Moreno recently announced the crucial importance of regional integration and foreign trade in order to bolster the regional economies and to eliminate poverty in Latin America and the Caribbean. The IDB President made this comment at the Aid for Trade conference held by that Bank and the WTO in Peru, with the help of the Peruvian government and the World Bank.

The conference highlights the activities in the region under the aid for trade initiative that begun in December 2005, which initiative focuses on trade-related capacity building to help countries develop effective trade policies and related infrastructure. The aim of the conference is to strategize for and coordinate efforts to maximize the effectiveness of the initiative.

One of the key areas of focus of the conference, as highlighted by Moreno, is job creation. In order to spark job growth, the IDB president believes that competition in the private sector is necessary, and hopes that regional governments will help to create an environment fostering business competition and entrepreneurship.

Meanwhile, director-general of the WTO, Pascal Lamy, said that an effective development of trade in the region is not only critical for the region itself, but the global economy as a whole, as the latter could be strengthened and experience sustained growth with greater development in Latin America and the Caribbean. The WTO head stressed the importance of infrastructure in achieving this goal: including transport, telecommunications networks and other facilities that can increase the efficient shipment and reception of products.

Foreign trade is vital to continued development in the region, accounting for 50% or more of the GDP for all but a select few countries. In recent years, trade-related development aid has reached over 25 billion USD, or 30% of total development aid.

Question: Should education and job-training also be a primary focus of the initiative?

Sunday, September 16, 2007

Volcker Report on the World Bank's Anti-Corruption Unit Released

Source: Financial Times: Volcker says World Bank lax on graft; Washington Post: World Bank Probers Need PR Help

On September 13, the Independent Panel led by Paul Volcker released its report on the Department of Institutional Integrity at the World Bank. The Panel had investigated the Department since February under the auspices of the former Bank president Paul Wolfowitz. Volcker is no stranger to such work; previously, he had investigated the United Nations Oil-for-Food Program in Iraq.

The Volcker report proposed three changes for the Department of Institutional Integrity. First, the report suggested that the Department relinquish its oversight of minor indiscretions committed by the Bank staff. Second, the report stressed the importance of the Department’s independence from the Bank president by advising that the Department head receive the rank of a Bank vice president, rather than a counselor to the president. Third, the report recommended an independent, external review of the Department, possibly by three to five individuals voicing the interests of Europe, Africa, Asia, and Latin America.

On the day before the report’s release, Volcker noted that the Department of Institutional Integrity appeared isolated from other Departments at the Bank. He suggested that this might be the result of the Bank and its top donors not vigorously pursuing an anti-corruption agenda.

While the current Bank president Robert Zoellick welcomed the Volcker report, he has made it clear that he will not act on any of its recommendations until the Bank’s internal investigation of the Department wraps up in 45 days.

More information on the Independent Panel and the full text of the Volcker report are available here.


How will the changes proposed by the Volcker Report affect the Bank’s borrowers in their interactions with the Bank?

Uganda seeks political union of the East African Community over Tanzania's objections.

SOURCE: The Monitor (Kampala, Uganda)--"East Africa: Uganda, Kenya Plot Against Tanzania"

Last month, at an extraordinary summit (i.e., a meeting other than a regularly scheduled meeting, such as an annual meeting) of the East African Community (EAC), the possibility of a “fast-tracked” political union of member countries in advance of economic integration was tabled due in large part to the objections of Tanzania.

The EAC is comprised of the African nations of Burundi, Kenya, Rwanda, Tanzania, and Uganda. Of these nations, Kenya has the largest economy and Uganda may not be far behind as a result of the recent discovery of rich oil reserves in its Albertine region.

While the majority of Ugandans and Kenyans favor fast-tracked political integration, more Tanzanians support political and economic integration of the region to occur on the same timetable. Reports indicate that Tanzania’s reluctance stems from uncertainty regarding the intentions of Uganda’s President Museveni and discomfort with the fact that he has cajoled his nation’s government into changing its Constitution in order to allow him to remain in power longer. This move brought criticism from many nations, including Tanzania, which strictly observes term limits.

Nonetheless, reports claim that President Musaveni has sent emissaries to Kenya to urge President Kibaki to join a fast-tracked political federation over Tanzania’s objections.


The plan supported by President Musaveni of Uganda would involve the initial “leapfrogging” of such elements of economic integration as a common market and common monetary unit.

Do you think it is wise to engage in political integration prior to economic integration? Is it possible?

Will failing to raise and specifically address economic issues in the beginning result in the creation of a difficult to change status quo that benefits the richer members (Kenya and Uganda)?

Is Tanzania justified in its concern over President Musaveni’s success in changing the Ugandan Constitution in order to allow him to continue as the nation’s leader?

China passes anti-monopoly law

Financial Times - Viewpoint: Competition law should help create a level playing field
Financial Times - Investors fear over China monopolies law

Signifying China's transformation into a market economy, China's National People's Congress passed the country's first anti-monopoly law on August 30, 2007. The new law is intended to open China’s growing economic markets to more free and fair competition. Under the new law, foreign acquirers of Chinese companies are required to go through a national security check which leaves the possibility that China will remain a protectionist economy. The law does prohibit “cartel behavior, including collusive agreements to fix prices or restrict output, rig bids, divide markets or launch boycotts” and also prohibits “enterprises from abusing dominant market positions through refusing to deal with competitors, forcing exclusive deals, or tie-in sales.” This is potentially a huge move away from China’s many business monopolies. Also, an attorney for a large Beijing law firm stated the anti-monopoly law "creates the legal basis for eventually doing away with government monopolies" which include energy, telecommunications, the media, etc.

However, foreign investors and Chinese companies are apprehensive about this new law for several reasons. In general, Chinese legislation is vague and is expected to provide a framework that government departments later clarify and develop by administrative regulations. Accordingly, there is concern over how the law will be implemented. As a result, some believe China does not have the expertise in terms of trained personnel to implement this statute. Furthermore, some foreign investors worry the government may use the new law as a basis for protectionism. One attorney commented the “anti-monopoly law will lend support to the policy agenda of protecting China’s economic and national security and could be used to block unpopular foreign investments.”

Discussion Questions:
How do anti-monopoly laws affect economic and foreign relations between countries?

Are anti-monopoly laws beneficial to (international) consumers?

More than 80 nations have implemented competition regimes. Should more countries pass such laws?

Important EU Ruling On Microsoft Antitrust Case Scheduled For September 17th

EU to Rule on Microsoft Appeal
EU anxiety over Microsoft Ruling

The European Court of First Instance is scheduled to rule on Microsoft’s Appeal of a landmark 2004 decision on September 17th. It will be the largest antitrust case ever before the European Union’s second highest court.

In 2004, the European Commission found that Microsoft abused the position of Windows Operating System in order to move into other sectors of the software market – and ordered Microsoft to pay 497 million Euro in damages. In particular, providing Windows Media Player with Windows and not sharing information on how to work with Windows PCs provided the basis for ruling Microsoft competed unfairly with competitors like Real Networks Inc. and Apple Inc.

Microsoft appealed the 2004 ruling and the EU had a three-day hearing last April. While analysts see four possible results (see the PC World article), a mixed ruling is most likely. For example, the Commission may uphold Microsoft’s appeal of the bundling but rule for the Commission on interoperability. This would require Microsoft to release interoperability information to their competitors – essentially “flattening” the software market.

The stakes are high for both the commission and Microsoft. One official of the commission said: "If we lose this one, we're in deep (trouble). It would put in question our ability to regulate competition in high-tech industries.” A ruling against Microsoft would reduce their competitive advantages and uphold the damage ruling. Regardless, the outcome will set an important precedent in determining the commission’s ability to take up similar cases against dominant companies.

Questions for discussion:
1. After reading the PC World’s summary of the four most likely outcomes, what outcome do you expect to see?

2. Are the pundits overstating the importance of this ruling?

US Dollar Continues to Fall

Sources: Associated Press/International Herald Tribune; Financial Times

The U.S. dollar hit record lows this week amid fears of a Federal Reserve interest rate cut and a potential economic slowdown. This drop in the US dollar value is a reversal in recent trends. The dollar had been benefitting from international currency instability. This, however, stopped in light of the recent US economic downturns. The weakest job data in the past four years catalyzed this downturn in dollar value. Furthermore, "as it increasingly appears the US economy will suffer more than elsewhere," the dollar is likely to continue falling in value.

Lower interest rates make the US dollar less attractive, and therefore, the dollar has continued to fall. In the past week, the dollar has fallen 2% against the Euro. The US Dollar has also fallen against other currencies, such as the Canadian dollar. The dollar index (which tracks dollar value against six leading currencies), fell to its lowest level since September 1992.

The Federal Reserve Bank is expected to cut interest rates by as much as half a percentage point to fend off an economic slowdown. An interest rate cut generally provides a short-term boost for the economy, but also generally weakens the dollar because investors get lower returns on dollar-based investments. This expected move is a means of fending off an economic slowdown. Weak August job data and the subprime mortgage crisis have “fueled jitters about an impending recession.” The current economy, furthermore, does little to alleviate those jitters. August retail sales dropped sharply and industrial production was the lowest in three months.


1. In light of interest rate cuts, do you think that US interest rates will fall to the record lows of the early 2000s?

2. Will there be a US recession--and if so, how much of an international effect will the recession have?

Saturday, September 15, 2007

Arab Businesswomen Inch Forward

Sources: Financial Times—Women Challenge Age-Old Prejudices

In the Arab world, women are finally being recognized as a valuable entity to the economy. In 2002, the UN Arab development report described “the marginalization of women as one of the three deficits crippling the region’s” economic development. As a result, women’s rights have been the forefront of concerns in the Middle East. Arab women face high discrimination levels due partly to old traditions and certain understandings of Islam. There have been some exceptions of prejudice in the Arab countries, such as Tunisia and more recently Morocco. According to the Financial Times, 30% of Arab women contribute in the economy, as opposed to the 55% world average. There is an obvious lag in women’s contribution to the economy in the Middle East compared to the rest of the world. The economic development contributed by women differs from country to country. In some more extremist countries, you will find a much larger gap between women’s contribution to the economy and the world average.

Although the Arab women have faced great hardship, many have recently experienced great triumph. Against all odds, Arab women have forced their way into the business world and put their handprints in the Arab economy. As more women continue to make their marks, others have been encouraged to follow in their footsteps. However, most of the Arab businesswomen come from fortunate conditions. Many have been able to work their way up in mostly family businesses. Most recently, on the other hand, women in the more current generations are becoming educated and starting their own businesses.

A UN development report found that between 1990 and 2003, the women’s share of economic activity in the Arab region increased more than any other region of the world. This may sound promising. However, the women’s share of involvement in economic activity started very low compared to the other regions. Even though improvement may be slow, it has been quite noticeable. Still, Arab women have yet to compare to the women business owners in other parts of Africa and Asia. A World Bank study found that “women were the principal owners of 13% of 4,000 companies surveyed in the seven Middle East countries.” The businesses owned by women in the Middle East, on the other hand, are much larger than the businesses owned by women in other parts of Africa and Asia, and “more than half of them were managed” by females.

Arab women are giving Arab men a run for their money. It was found that women business owners employ more highly skilled employees and increase employee numbers faster than male business owners, even though the women face many more obstacles. The World Bank senior adviser explained, “they’re [Arab businesswomen] creating more productive jobs and being more creative.”
Significant improvements in education have aided women in becoming more successful with time. Similar to the United States, female students are now outnumbering male students. In addition to education, another aid in the prosperity of Arab women is the recently increasing development of oil. Oil development has sparked the economy and provided more opportunities in several trades and industries.

Furthermore, in order for Arab women to continue to prosper, it is essential that they expand beyond family business ownership. Several organizations have been stressing the importance of training Arab women to have greater confidence in order to help create more small and medium sized companies. Nonetheless, it is still a great concern that many Arab women are left behind, particularly those from poor backgrounds.

Discussion Questions:Will the amount of Arab women participating in the economy ever meet the worldwide average? In the long run, will businesses run by Arab women be as successful or more successful as businesses run by Arab men? Will the prosperity of Arab women plateau? Will Arab businesswomen expand into other areas of business ownership, rather than mostly family businesses?

Arab Businesswomen Inch Forward

Sources: Financial Times—Women Challenge Age-Old Prejudices

In the Arab world, women are finally being recognized as a valuable entity to the economy. In 2002, the UN Arab development report described “the marginalization of women as one of the three deficits crippling the region’s” economic development. As a result, women’s rights have been the forefront of concerns in the Middle East. Arab women face high discrimination levels due partly to old traditions and certain understandings of Islam. There have been some exceptions of prejudice in the Arab countries, such as Tunisia and more recently Morocco. According to the Financial Times, 30% of Arab women contribute in the economy, as opposed to the 55% world average. There is an obvious lag in women’s contribution to the economy in the Middle East compared to the rest of the world. The economic development contributed by women differs from country to country. In some more extremist countries, you will find a much larger gap between women’s contribution to the economy and the world average.

Although the Arab women have faced great hardship, many have recently experienced great triumph. Against all odds, Arab women have forced their way into the business world and put their handprints in the Arab economy. As more women continue to make their marks, others have been encouraged to follow in their footsteps. However, most of the Arab businesswomen come from fortunate conditions. Many have been able to work their way up in mostly family businesses. Most recently, on the other hand, women in the more current generations are becoming educated and starting their own businesses.

A UN development report found that between 1990 and 2003, the women’s share of economic activity in the Arab region increased more than any other region of the world. This may sound promising. However, the women’s share of involvement in economic activity started very low compared to the other regions. Even though improvement may be slow, it has been quite noticeable. Still, Arab women have yet to compare to the women business owners in other parts of Africa and Asia. A World Bank study found that “women were the principal owners of 13% of 4,000 companies surveyed in the seven Middle East countries.” The businesses owned by women in the Middle East, on the other hand, are much larger than the businesses owned by women in other parts of Africa and Asia, and “more than half of them were managed” by females.

Arab women are giving Arab men a run for their money. It was found that women business owners employ more highly skilled employees and increase employee numbers faster than male business owners, even though the women face many more obstacles. The World Bank senior adviser explained, “they’re [Arab businesswomen] creating more productive jobs and being more creative.”

Significant improvements in education have aided women in becoming more successful with time. Similar to the United States, female students are now outnumbering male students. In addition to education, another aid in the prosperity of Arab women is the recently increasing development of oil. Oil development has sparked the economy and provided more opportunities in several trades and industries.

Furthermore, in order for Arab women to continue to prosper, it is essential that they expand beyond family business ownership. Several organizations have been stressing the importance of training Arab women to have greater confidence in order to help create more small and medium sized companies. Nonetheless, it is still a great concern that many Arab women are left behind, particularly those from poor backgrounds.Discussion Questions:Will the amount of Arab women participating in the economy ever meet the worldwide average? In the long run, will businesses run by Arab women be as successful or more successful as businesses run by Arab men? Will the prosperity of Arab women plateau? Will Arab businesswomen expand into other areas of business ownership, rather than mostly family businesses?

Friday, September 14, 2007

Bolivians Fight Over Capital Location


NY Times - What's Bolivia's Capital? The Answer is Disputed Here

LA Times - "Capital War" is Bolivia's Latest Battle

Residents of Sucre, Bolivia in the eastern region believe that their city should be the rightful capital and are waging a campaign to prove it. Until 1899, Sucre was the capital of Bolivia, but after a civil war it was switched to La Paz. Leaders of Sucre claim that the capital is rightfully theirs and that it was wrongfully taken. Meanwhile, an estimated one million supporters of Bolivian President Evo Morales gathered at the center of La Paz in order to rally support for the current capital location.

The dispute between Bolivia’s cities goes beyond just civic pride, however. Sucre is home to a wealthier and lighter-skinned mestizo population, whereas La Paz has a greater indigenous population. Distribution of revenues from natural gas has caused conflicts between Sucre and La Paz in the past.

Complicating matters is the constitutional convention that has been occurring in Sucre for the past year. The presidency of Evo Morales, the country’s first indigenous leader, has led to a re-thinking of the country’s social structures and economy. Inspired by Morales, 10,000 La Paz residents drove or marched to Sucre in order to protest against a possible capital move. For now, the constitutional assembly has been postponed.


1. Is there any principled reason to move the Bolivian capital, or is it merely a struggle between different self-interested demographic groups in Bolivia?

2. Does the passage this week of the United Nations Declaration on the Rights of Indigenous Peoples give support to Morales and Bolivia’s indigenous majority receiving a greater share of Bolivia’s natural resource profits than they have in the past?

Bank of England makes a last minute decision to save failing lender

Sources: (Scramble to quit UK mortgage lender; UK homebuyers face tighter loan rules); (Bank of England helps lender)

Thousands of customers of Northern Rock, the UK’s fifth largest mortgage lender, withdrew their savings this week after the Bank of England approved emergency funding to rescue the troubled lender. The emergency funding will provide an open-ended facility to Northern Rock, allowing them to access much needed liquidity by posting mortgages and mortgage-based securities as collateral.

Regulators and politicians attempted to calm nervous mortgage holders and investors. Chief executive of the British Banker’s Association, Angela Knight told reporters for the British Broadcast Company that customers of Northern Rock should rest assured that Northern Rock is a sound financial institution. “This isn’t about solvency, this is about a short-term problem that the Northern Rock has in getting liquidity—that is, getting some cash from the normal interbank lending market.” Britain’s treasury noted that the decision to approve the emergency funding was at the recommendation of the Bank of England’s governor and the chairman of the Financial Services Authority. In an official statement, the treasury noted that “the FSA judges that Northern Rock is solvent, exceeds its regulatory capital requirement and has a good quality loan book.”

However, despite their efforts, shares in Northern Rock plunged more than thirty percent. The news resulted in the drop of other UK bank share prices as well, including Alliance & Leicester, HBOS and Barclays. Analysts suggest a multitude of reasons for the lender’s failure, including financial innovations in the capital market that allowed small regional lenders such as Northern Rock to harness substantial financial power and excessive lending to Americans with questionable credit histories.

Most experts believe that the prevailing mood of uncertainty will result in stricter lending criteria for potential homebuyers, putting an end to the housing boom of the last decade. Defaults and repossessions have nearly doubled since 2004, and according to a September survey from Rightmove, asking prices are 2.6% lower than they were in August. Richard Donnell, head of research at Hometrack, a property information group, forecasts that the lack of confidence in the market could result in a sizeable gap between asking price and achievable price in the coming months, particularly in large markets such as London. “Confidence is very important to the housing market, especially in central London,” says Donnell. “It has become so hot, pricing was so far ahead of itself, it was at unsustainable levels.”

Questions for Discussion
1. The approval for emergency funding came only two days after Mervyn King, governor of the Bank of England, insisted that the Bank of England would not intervene to rescue the failing lender. What do you think motivated the Bank’s quick ‘change of heart’?

2. Is this a really a short term liquidity problem for a small regional lender, or is it indicative of a significantly larger issue in the UK lending market?

Thursday, September 13, 2007

Council charged with creating a roadmap to place Nigeria’s economy within Top 20 by 2020

Daily Trust - Nigeria: 7-Point Plan - National Economic Council to Draw up Roadmap
World News - President Yar'Adua Inaugurates National Economic Council

The newly formed National Economic Council (NEC) was inaugurated earlier this week in Abuja. The NEC has been charged with creating a roadmap to enact the Yar’Adua administration’s seven point agenda for economic regeneration in the hopes that Nigeria will become one of the world’s twenty largest economies by 2020. The NEC will be responsible for advising the President about the economy and national economic policies and programs in line with the 1999 Constitution of the Federal Republic of Nigeria.

The administration’s seven point agenda to promote significant development and prosperity for Nigeria consists of the following: (1) power and energy – development of effective and adequate power and energy sources; (2) food security and agriculture – attempt to eradicate extreme poverty and hunger; (3) wealth creation and employment; (4) mass transportation – exploration of railways and inland waterways to facilitate movement of people and goods; (5) land reform – protect environmental and cultural resources, use land as a sustainable source of revenue, and improve land access by the poor and traditionally disenfranchised; (6) security – increased security of life and property; and (7) qualitative and functional education – increased enrollment and completion of educational programs.

In line with this economic regeneration, President Umaru Yar’Adua stated, “We have to create more jobs; inflation must be reduced; interest rates need to be forced lower; the private sector has to be more actively engaged by government in more productive partnership that will propel the growth of our economy; and naira must continue to maintain a stable exchange rate against the major currencies.”

Discussion question:
Will this economic plan spur sustained growth in Nigeria?

Tuesday, September 11, 2007

Inflation in China May Cause Interest Rates to Rise

Sources: Inflation Spike Pressures China on Rates, China's Inflation at 7-Year Higher, China Inflation Accelerates

Rising food prices in China have caused inflation in the developing country to accelerate. A high trade surplus in China earlier this year increased the amount of cash and, consequently, the prices of everything from eggs and meat to rent. Consumer prices rose by 3.8% in the past year. China's inflation is now at a seven year high. This inflation is putting heightened pressure on China's banks to absorb the extra liquidity (i.e. cash) by increasing interest rates - the first increase in interest rates in nine years.

Some economists worry that the exceptionally high growth rate of China's economy, which expanded over 9% last year, is putting the developing country at risk for negative backlash. These economists warn that China needs to slow down its growth. Other economists fear that doing so will have adverse effects on countries around the world. China's growth has increased its demand of exports, such a raw materials, and its exporting capabilities. As the sixth largest economy in the world, a slow-down in China's consumption has the potential to affect the economies of several countries.

How can China effectively balance fostering its own economic growth with other domestic policies?

Monday, September 10, 2007

Kazakhstan v. A Western Led Oil Consortium: The High Stakes of Oil


A fight is brewing over the largest oil discovery in the last thirty years: the Kashagan oil field offshore of Kazakhstan. The oil field could make Kazakhstan one of the largest ten oil producers in the world. Initially scheduled to start production in 2005, oil may not be produced until 2010 and costs have dramatically increased. The Kazakh government has become upset with the western-led consortium's management of the oil field. Upset with delays and costs, Kazakhstan governmental entities ordered a three month suspension of operations at Kashagan to avoid irreparable damage. The Kazakh government also filed suit for fire-safety regulations, a criminal case against senior staff at the Consortium, and is seeking more than $10 billion in compensation for the delays.

Participants in the Kashagan consortium include Eni, Total, KazMunaiGaz, Shell, ExxonMobil, ConocoPhillips and Japan's Inpex. Notably, KazMunaiGaz is Kazakhstan’s state energy company. While Kazakh Prime Minister Karim is pushing for KazMunaiGaz to play a large role in running Kashagan, some industry analysts do not believe the state owned company has the ability to run Kashagan. This issue showcases the amazing impact resources like oil can have on a smaller country.

Questions for discussion:
1. What are your thoughts on whether Kazakhstan should push for their state energy company to play a lead role?
2. What about the number of suits filed by Kazakhstan governmental entities?

Sunday, September 09, 2007

IMF's De Rato see no enduring problem in current market troubles


- IMF chief sees hope in market turmoil - FT
- About the Ambrosetti Forum - Official Website

Current IMF director, Rodrigo De Rato, is not entirely worried about the current market problems involving dramatic repricing of risk: recently at the Ambrosetti forum, the IMF chief said that such turmoil will be healthy for the global economy in terms of medium-term stability, even if some pain is experienced initially.

Additionally, De Rato did not downplay the seriousness of the credit squeeze, particularly in connection with subprime mortgage problems in the U.S., but is confident that the overall strength of the global economy and high credibility of financial authorities will lighten its overall impact.

Meanwhile, other experts attending the forum did not necessarily share De Rato’s positive outlook; a chief economist of the prominent investment banking firm, Goldman Sachs, believes the credit squeeze is proof that the U.S. economy will grow at a rate of less than 2% for the next several quarters. And Ken Rogoff, former economist at the IMF, believes that the economy is facing a new era of problems, wrought with uncertainty and unpredictability into the future.

Experts further believe that the possibility of the U.S. economy lapsing into a recession increased in the next year increased to 25-30 percent, while the standard year-to-year risk of recession is 10-15 percent.

For nearly 30 years, leading minds in the world of finance have been congregating at the Ambrosetti forum, poising themselves to address the major issues affecting the global economy and society in general.

Which areas of the global economy are most susceptible to the “pain” that De Rato mentioned would inevitably have to be endured as this market turmoil plays out?

US Markets Fall

Source: Financial Times

Global and U.S. stock and money markets fell dramatically on Friday upon the release of the U.S. job report. The first monthly fall in employment in four years led to fears of a U.S. economic slowdown. The fears increased when Countrywide, a major U.S. home lender, announced plans to cut up to 12,000 jobs. Other job data showed that employers cut 4,000 jobs, contrary to Wall Street Journal predictions that 110,000 jobs would be created. Along with the job losses, the government acknowledged that 81,000 fewer jobs were created in June and July than previously expected.

On Friday, the Down Jones fell 1.9%, S&P 500 fell 1.7%, FTSE 100 (London) fell 1.9%, and the FTSE Eurofirst 300 (Europe) fell 2.2%. The US Dollar also fell, relative to the Euro, nearing its record low.

After the job report, it is widely believed that the Federal Reserve will respond with cuts in interest rates. On September 18th, the Federal Reserve make its official announcement, but it appears that a cut in interest rates is inevitable. Policymakers are trying to guard against the effects from the housing downturn. Ben Bernanke, the Fed chairman, will ultimately make the final decision on federal interest rates.

United States to increase oversight of the World Bank

Source: Senate authorizes probe of World Bank programs

On September 6, the United States Senate approved an amendment introduced by Evan Bayh (D-IN) that would enable the United States Government Accountability Office (GAO) to review World Bank operations.

In particular, the GAO plans to focus on three aspects of the Bank’s practices. First, the GAO will examine whether the International Development Association (IDA) properly made its interest-free loans to achieve its stated goal of poverty alleviation. The United States is especially concerned because it is currently negotiating its triennial contribution to the IDA funds. The Senate is apprehensive that 1) the Bank has provided large loans without sufficient means to measure their impact on poverty reduction; and 2) some of the funds are misallocated to overcompensate the Bank staff.

Second, the GAO will inspect Bank projects and loans to verify that they have been designed to minimize corruption. Recently, American businesses have raised concerns about the changes in the Bank’s procurement system that would require the businesses to bid for Bank projects designed by the Bank’s member countries. Through its investigation of the Bank’s anti-corruption efforts, the GAO will determine whether the United States will cut its contribution to the Bank by twenty percent. The United States adopted legislation in 2005 which authorized this decrease should the Bank not allow for greater transparency in its procurement system.

Lastly, the GAO will evaluate the necessity of Bank assistance to emerging economies such as China, India, Russia, and Brazil. Some Congressmen have suggested that the emerging economies should graduate from the Bank because they are able to obtain funds for their development efforts on the open market.


Do you think that the United States has the proper authority to enable one of its domestic agencies to investigate the World Bank? If so, what is the basis for that authority? If not, what other entity would be better suited to evaluating the Bank?

Is American oversight of the Bank enough to address the concerns of the Bank’s borrowers?

Globalization causes job dislocation in Asian countries

SOURCE: Asia Times: White-collar Asia feels outsourcing pinch

There is a perception that outsourcing threatens American jobs. Statistics show that “the average American worker now has a one-in-six chance of seeing his or her income drop by 50% or more from one year to the next.” American corporations attempts to reduce cost often result in sending jobs overseas to countries where hourly wages are significantly less. Furthermore, economists estimate that the US economy has lost about 1 million service-industry jobs to overseas outsourcing. Ultimately, this will have a lasting impact on the economic growth rate in the United States.

There are signs that outsourcing is now becoming a growing concern in Asian countries. Outsourcing, a major component of economic globalization, has expanded to include white-collar service jobs in Asia as well as America. For example, Singapore has lost many high-end jobs in the electronic and semiconductor-producing areas. These jobs have moved to countries such as China, Thailand, Vietnam and the Phillipines. As a result, there is a concern that Singapore’s strong economic growth is covering up the increasing loss of white-collar jobs. In another example, Japan has tried to resist the outsourcing trend. However, other countries, such as China, appear to be pirating Japan’s research and development technologies. To keep costs competitive, Japan faces increasing pressure to outsource these R&D efforts.

Discussion Questions:
Do you agree that outsourcing is a main factor in loss of white-collar jobs in the United States and some of the highly developed Asian countries? Does outsourcing research and development processes hinder economic innovation? Will outsourcing strain relations between Asian countries to the detriment of those countries?

Move to change control of foreign-owned companies to local control

Sources: Zimbabwe Independent - Zibabwe: Companies Will Fund Indigenisation Bill
Financial Times - Companies in Zimbabwe Start to go Local

The controversial Indigenisation and Economic Empowerment Bill came before the Zimbabwe parliament this week. The bill is part of the government’s plan to restructure the economy and place control in the hands of the indigenous population. Initially, when Zimbabwe gained its independence, the economy was comprised mostly of white multi-national conglomerates with minimal participation by the black indigenous population. However, the proposed bill will grant the indigenous population a majority stake in all businesses operating in Zimbabwe.

This bill aims to transfer control over all sectors of the economy to the black indigenous population. Under this bill, the government can impose levies upon any private or public company to fund the purchase of the 51% indigenous-owned shares. The money will be placed into a fund that will go to purchase the 51% shares of these foreign companies. If the companies do not sell 51% of the company to the locals, their ability to operate in Zimbabwe will be withdrawn. Furthermore, new foreign investors trying to come into Zimbabwe must agree to this 51% share requirement before they are approved.

Discussion Questions:
Do you believe that this bill is linked to the land redistribution plan that intends to transfer land from white landowners back to the original indigenous black landowners? Do you believe that this bill will lead to sustainable economic growth? Do you think indigenization will help alleviate the acute poverty that is prevalent among black Zimbabweans? Will this frustrate foreign companies from investing in Zimbabwe?

Saturday, September 08, 2007

Rogue UK Car Dealers Threaten EU Environmental Regulations

Source: EU eco vehicle law under threat from rogue car dealers

The European Commission enacted the EU End-of-Life Vehicle Directive (the ELV Directive) in 2003 to address excess pollution resulting from the disposal of vehicles that have reached the end of their useful life. Proper disposal requires owners to take unwanted vehicles to one of 1200 authorized treatment facilities (ATFs) for the removal of possible contaminants such as oil, brake fluid, tires and airbags. Car owners are issued with a “certificate of destruction” to prove that the vehicle was properly disposed, and the ATF disposes of the vehicle.

However, according to ALDE group deputy Chris Davies, unscrupulous operators, particularly in the UK, are circumventing the ATFs by purchasing old cars directly from owners. These operators dismantle the vehicles for salvageable parts, and illegally dispose of the remaining unwanted parts. Recent estimates suggest that this practice accounts for the unlawful collection of as many as 1.1 million vehicles each year.

Car owners who sell their vehicles to these operators are at risk of prosecution for failing to obtain a Certificate of Destruction. Additionally if the car is driven, rather than scrapped, the seller is responsible for costs arising from the operation, including road taxes, parking and speeding tickets.

More importantly, Davies warns, [these owners] “can be certain that the pollutants in their car will end up polluting the environment. This EU law is good news for the environment but the entire scheme is undermined if these people can simply carry on letting oil and brake fluids wash down the nearest drain.”

Questions for Discussion
1. Do you agree with Davies? Does the ease of circumventing the ATFs seriously undermine the ELV directive, or does it represent a correctable weakness in an otherwise solid policy?

2. Are stricter penalties for car owners who sell their vehicles to illegal operators as opposed to disposing of them at the ATFs likely to deter potential offenders?

Continued Battle between Bedouins of the Sinai Peninsula and Egyptian Authorities

As a result of the failed response from Egyptian authorities, last Friday, Bedouins staged a major protest across the Sinai Peninsula roads against the mistreatment of the Egyptian government. The Bedouin are indigenous peoples from the Sinai area. Bedouins demanded the release of members of their tribes. These members were taken during security sweeps after the Egyptian government suspected the Bedouins’ involvement in terrorist bombings on tourist locations within Egypt. During the protests, police were under firm instructions from the government not to interfere. Despite the protests, authorities continue to claim that negotiations are in progress. The Bedouins have continued to remain impoverished due to the government’s lack of response to their basic needs. Even though the Sinai has recently encountered a tourist boom, Bedouins have not reaped the benefits since tourists usually vacation near the coasts. One of the demands the Bedouins have made include assistance in economic development of the Sinai Peninsula. The employment opportunities in this region are scarce.

The recent protest has been one of many demonstrations that have occurred over the past several years. Although the most recent strike did not involve bloodshed, the Bedouins have not always been so lucky. In April, two Bedouin tribesmen were killed during a sit-in demonstration. The Bedouin have faced a continuous plight in struggling for their rights in Egypt. There are an estimated 380,000 Bedouins in Egypt. Egypt’s total population is 80 million. Progress looked promising after the governor of North Sinai promised to look into the Bedouin complaints. However, the governor later reversed his promise and ridiculed the Bedouin by calling them “outlaws and smugglers.” The Bedouins have been persistent in fighting for their rights as Egyptian people. They will most assuredly continue to stage protests until their needs are heard and met.

The tension initially arose between the Bedouin and government authorities after a triple bomb attack on a resort town, Taba. During this attack, several foreign tourists were killed. After the bombings, there was a mass imprisonment of local Bedouin tribesmen, several police investigations and raids on Bedouin homes, and random killings. The tension escalated after the bombing of another tourist site, Sharm el-Sheikh. However, there was no clear evidence that the Bedouin tribes were linked to these bombings. The government did not solely suspect the Bedouin, they also suspected al-Qaeda members.

Fear quickly rose in the tourist industry after the attacks. These bombings took place while roughly 15,000 Israelis were visiting the tourist sites during a religious holiday. Soon after the attacks, many hotel owners complained of their cancellations and vacant rooms. Even though Egypt may have suffered an immediate dent in their tourism industry, economists suspected that these effects would not be long term. In fact, Israeli tourists count for less than 1% of all Egyptian tourism. Although the bombings may have worried Egyptian workers, the tourist industry will most likely continue to boom.

Although the long term prospect is still promising, Egypt lost approximately over a billion dollars during the 2005 bombings. The feeling of unease in traveling to the Middle East has still not hit Egypt as hard as other Middle Eastern countries. Egypt’s leading tourist industry makes well over $3.5 billion every year. But the Bedouin have yet to gain from the benefits of the tourist industry. Many Bedouins have expressed the feeling of refugee status in their own country. Tension between the Bedouins and government authorities will most likely continue to increase. In fact, Bedouin demonstrations may continue to get more and more violent as their cries for help from the government go unheard.

For Discussion:
Will government aid actually help the Bedouin tribes become more prosperous even though tourism is focused on the coast rather than the internal parts of Egypt? If conflicts continue to rise in the surrounding Middle Eastern countries, will Egypt’s economy suffer? Has Egypt become the safer haven in the Middle East?

High oil prices counter negative indicators of the Venezuelan economy


Annual inflation in Venezuela is at 16 percent, making it the highest in Latin America, and the Bolivar currency has fallen to about half its official value compared to 2005 on the black market. In the first half of 2007, Venezuela’s current account surplus was cut in half, to $8 billion. Foreign direct investment flow was negative $881 million in the first half of 2007.

However, the continued high price of oil has appeared to sustain the Venezuelan economy, which still posted a 9 percent economic growth rate in the first half of 2007. Oil represents 90 percent of Venezuelan exports, and Venezuela is the fifth-largest member of the Organization for Petroleum-Exporting Countries (OPEC). Oil prices have risen by 155 percent over the past five years, and oil is currently being sold at nearly $75 a barrel. President Hugo Chavez predicts that prices will eventually go as high as $100 a barrel.

In addition to expropriating oil interests from foreign oil companies, Chavez has also tripled government spending in the past four years. Such budgetary increases and sustained economic growth will likely only be possible if Chavez’s prediction about higher oil prices is realized.


With President Chavez's high approval ratings in Venezuela, will he be politically vulnerable to the economic effects of lower oil prices?

Thursday, September 06, 2007

Somalia relies on remittances, needs foreign investment

SOURCE: Reuters—“Goats and Remittances keep Somali Economy Afloat”

Reports this week observe that the remittances are the primary force maintaining the economy in Somalia, a country wracked by unrest and civil war since 1991. Remittances—funds sent into the country by expatriot Somalis to family and friends still residing in the nation—account for 70% of the country’s economy. The remaining 30% is accounted for in livestock and other exports such as charcoal and scrap metal.

Despite continuing political and civil unrest, reports indicate that exports and imports have remained stable and in some cases have even increased. While such increases are heartening for the situation in Somalia, the nation’s continued lack of centralized government may set up obstacles for foreign investment, which the World Bank claims Somalia sorely needs.

For discussion:

How can or should international or regional development banks—such as the World Bank and IMF—provide funding to countries that desperately need it but lack a stable government? Can it be done?

Can a country rely on remittances in the longterm? Do you think such an approach is a sound economic development strategy?