Sources:
Guardian: Pakistan Takes $5bn IMF Bail-Out After Allies Refuse Funds
WSJ: IMF Chides Pakistan on Budget Gap
Daily News & Analysis: IMF Warns About Pakistan's Deteriorating Economy
The Telegraph: Pakistan Wins Reprieve from Financial Crisis
In an official letter to the President of Pakistan, Asif Ali Zardari, the IMF warned that Pakistan’s economy is in danger of crisis and urged immediate fiscal tightening. Implementing IMF reforms will be difficult as the government is unstable after ministers from Zardare’s coalition partners left this week. Also, many politicians are resisting austerity measures while Pakistan is still suffering from the devastating flood that occurred earlier this year.
The IMF, and the World Bank, in conjunction with influential members – the U.S., Japan, and European countries− worry that Pakistan’s economy will unravel through escalating inflation caused by poor tax revenue. Pakistan is financing the budget deficit by borrowing from the central bank, so Pakistan is printing money. If done on a large scale and continuously, borrowing from the central bank will lead to inflation as the money supply disproportionately expands.
The IMF became involved in Pakistan in 2008 with a balance of payments crisis. The IMF gave Pakistan $5 billion so it could make payments on foreign debts. Pakistan’s foreign exchange reserves were nearly depleted, making Pakistan unable to repay debts and functionally bankrupt. The IMF then gave Pakistan access to £7.5 billion from 2008-9, more than it had ever received since 1947.
In 2010 the IMF withheld $3.5 billion from its total $11.3 billion loan package to Pakistan to induce fiscal responsibility. The IMF has not disbursed any loans to Pakistan since May; the exception was the $450 million in IMF relief aid for the flood. The IMF wants to decrease the budget deficit of 6% of GDP, above the 4% target, as the government failed to decrease expenses and enact a general sales tax , both of which Pakistan promised in exchange from IMF financing.
In addition to budgetary concerns, Pakistan’s external debt is also a growing problem. The external debt is currently £35.5 billion, and will increase to over £47 billion in 2015. This has led the interior minister, Rehman Malick, to ask for Pakistan’s external debt to be written off. Financial analysts, and even some financing ministry officials in Pakistan, greeted his request with derision and warned it would frighten investors and thus slow economic growth.
The IMF projects that Pakistan’s economy will grow by 2.5% in the fiscal year through June 2011, lower than the 9.1% projected for India, and half the growth rate of Bangladesh. The IMF is also concerned the Pakistan’s central bank will be forced to raise interest rates to combat inflation at the same time the economy is suffering, which would make the economic situation more dire. There are also political implications of slow growth. Pakistan’s economy must grow between 8% and 10% a year to absorb the two million new entrants to the labor force and reduce poverty. However, the many unemployed are recruits for the Taliban, which use Pakistan as a base for the fight in Afghanistan.
Discussion:
1. Pakistan’s military is still producing nuclear weapons at the highest rate in the world. How could that money be appropriated to help the economy?
2. How do concerns about corruption in Pakistan and neighboring nations affect the fight against terror in those nations?
3. Agricultural elites generate a fifth of Pakistan’s GDP and pay less than 1% of taxes. Is there a legitimate economic reason for this, or, if not, how should Pakistan redistribute the tax burden?
Friday, December 31, 2010
Friday, December 24, 2010
Elections and Financial Pressure in Ivory Coast
Sources:
Bloomberg: West African Bank Gives Vote Winner Ouattara Access to Reserves, AFP Says
Reuters: Dutch Warship Heads to Ivory Coast to Help French
Times Live: West African Bank Freezes Out Gbagbo
WSJ: World Bank Freezes Ivory Coast Financing
The November 28th elections in Ivory Coast sparked a wide array of human rights abuses, the most notable of which is the death of at least 173 people between December 16th and 21st. Former President Laurent Gbagbo lost to Alassane Ouattara and has refused to relinquish power, sparking riots across the country and international condemnation. Gbagbo’s allies in the Constitutional Court destroyed hundreds of thousands of votes for Ouattara, and Gbagbo has control of the military, making it nearly impossible to forcibly depose him absent international help. This election was supposed to unite the country, which is still recovering from the 2002-3 civil war, but has led to disorder.
International financial organizations have taken action to dismantle his finances. The World Bank, the African Development Bank, Economic Community of West African States, and the African Union have all stated Gbagbo needs to step down. The World Bank has frozen $841.9 in financing to Ivory Coast, meaning Gbagbo will struggle to pay his troops and previous debt. The World Bank’s action caused Ivory Coast’s $2.3 billion bond due in 2032 to fall to a record low on Thursday because investors worried Ivory Coast would be unable to meet a $30 million bond payment due Dec. 31.
African financial institutions have also taken action. The Central Bank of West African States recognized Ouattarra as President and gave him control of state reserves. The seven finance ministers of the West African Monetary Union all endorsed Ouattara.
Despite international pressure, financial and moral, Gbagbo has shown no signs of stepping down. The French even asked for, and received, assistance from a Dutch warship, the Amsterdam, to provide logistical support to possibly evacuate European citizens if violence worsens. Gun battles have occurred between government soldiers and those backing Outtarra, and masked gunmen have kidnapped residents of pro-Outtarra neighborhoods from their homes at night. The U.S. State Department was considering strengthening the 10,000 strong U.N. peacekeeping mission in conjunction with France and African states to make Gbagbo’s military options less appealing. However, the French Minister in Charge of Cooperation said the African states must lead any direct effort to oust Gbagbo.
Discussion:
1. Should the World Bank be so involved in Ivory Coast’s domestic politics?
2. If the situation devolves such that military action is necessary, will the African Union be able to depose Gbagbo?
3. What effects does Ivory Coast’s instability have on neighboring countries?
Bloomberg: West African Bank Gives Vote Winner Ouattara Access to Reserves, AFP Says
Reuters: Dutch Warship Heads to Ivory Coast to Help French
Times Live: West African Bank Freezes Out Gbagbo
WSJ: World Bank Freezes Ivory Coast Financing
The November 28th elections in Ivory Coast sparked a wide array of human rights abuses, the most notable of which is the death of at least 173 people between December 16th and 21st. Former President Laurent Gbagbo lost to Alassane Ouattara and has refused to relinquish power, sparking riots across the country and international condemnation. Gbagbo’s allies in the Constitutional Court destroyed hundreds of thousands of votes for Ouattara, and Gbagbo has control of the military, making it nearly impossible to forcibly depose him absent international help. This election was supposed to unite the country, which is still recovering from the 2002-3 civil war, but has led to disorder.
International financial organizations have taken action to dismantle his finances. The World Bank, the African Development Bank, Economic Community of West African States, and the African Union have all stated Gbagbo needs to step down. The World Bank has frozen $841.9 in financing to Ivory Coast, meaning Gbagbo will struggle to pay his troops and previous debt. The World Bank’s action caused Ivory Coast’s $2.3 billion bond due in 2032 to fall to a record low on Thursday because investors worried Ivory Coast would be unable to meet a $30 million bond payment due Dec. 31.
African financial institutions have also taken action. The Central Bank of West African States recognized Ouattarra as President and gave him control of state reserves. The seven finance ministers of the West African Monetary Union all endorsed Ouattara.
Despite international pressure, financial and moral, Gbagbo has shown no signs of stepping down. The French even asked for, and received, assistance from a Dutch warship, the Amsterdam, to provide logistical support to possibly evacuate European citizens if violence worsens. Gun battles have occurred between government soldiers and those backing Outtarra, and masked gunmen have kidnapped residents of pro-Outtarra neighborhoods from their homes at night. The U.S. State Department was considering strengthening the 10,000 strong U.N. peacekeeping mission in conjunction with France and African states to make Gbagbo’s military options less appealing. However, the French Minister in Charge of Cooperation said the African states must lead any direct effort to oust Gbagbo.
Discussion:
1. Should the World Bank be so involved in Ivory Coast’s domestic politics?
2. If the situation devolves such that military action is necessary, will the African Union be able to depose Gbagbo?
3. What effects does Ivory Coast’s instability have on neighboring countries?
Thursday, December 23, 2010
India and China Agree to $100 Billion Trade Target
Sources:
The Economic Times: India, China Target $100 Billion Trade, Set Up CEO's Forum
During the last fiscal year trade between India and China reached $51 billion. This year that number is expected to reach $60 billion. That is an impressive increase, given that in 2005 trade stood at $15 billion. However, China's economy has been more prosperous over this period than India's, which is currently facing a $19 billion trade deficit. One of the primary goals of this trade agreement is to reduce that deficit and provide India with better market access for its exports to China.
Trade relations between India and China have been rocky over the years as India has imposed strict antidumping duties on Chinese imports. "Dumping" occurs when a country exports a product at a lower price than it would charge in its home market. India's antidumping duties were the highest of any country in the World Trade Organization last year to protect itself from China’s alleged artificially low prices. China has reciprocated by objecting to India's regulation of sourcing power and telecommunications equipment, alleging that they discriminate against Chinese producers.
In spite of an increasingly strong economic relationship, other contentious issues still exist between India and China. Included among these issues are a long-standing border dispute, China's military build-up along the border, and India's support for the Dalai Lama. Prime Minister Singh seems hopeful that this trade partnership may help them resolve some of these issues, stating that the agreement "will contribute to long term peace, stability, prosperity and development in Asia and the world."
Discussion Question: Do you think that a stronger economic partnership between India and China will help the two countries resolve long-standing political issues?
Friday, December 10, 2010
Food Security and Development
Sources:
The Ghanaian Journal: Ghana-Qatar Talks on Food Security Programme
Bloomberg Businessweek: Ghana, Qatar Plan to Start Joint Agriculture Project Next Year
Trade Arabia: Ghana, Qatar in Food JV Talks
Ghana and Qatar plan to create a joint venture company early next year to produce food for both countries. A pilot project will be created that will cover 50,000 hectares in Ghana. Both parties have agreed to expand the program if the pilot project is successful, which it is projected to be. The type of food that will be grown will be diverse, encompassing fruit, vegetables, cereal and rice.
Qatar is operating a food security program led by the Hassad Food Company to protect it from the same disaster that occurred during the 2008 food price crisis. Although the causes of the food crisis are still not totally clear, it is certain that the crisis was expensive to Qatar. Qatar imports almost all of its food, so Qatar was totally dependent on getting its food from the world market, where prices had greatly increased. Qatar wants to control its own secure source of food.
Ghana is also gaining in this deal. In May, 2010, the Ghana Investment Promotion Centre (GIPC), an agency under the Ghanaian President, said it was seeking investments from Qatar totaling around $700 million to develop the agriculture and natural resources of Ghana. Family farming is the current basis of the Ghanaian farming system, leaving room for modernization under Hassad Food. In addition to providing more demand and developing Ghanaian agriculture, the GIPC is also seeking Qatar’s aid in utilizing Ghana’s oil and metals.
Ghana has rich supplies of oil, gas, and bauxite, a type of aluminum ore. Qatar has expertise in the oil and gas industry and has a strong aluminum industry. Ghana is seen as a country ready to rapidly expand as its natural resources are still underdeveloped. In fact, Ghana seems to be in such a favorable position that the GIPC CEO quipped, “We need to build more five star hotels because we expect a boom.”
Despite the increase in production that will occur because of the project, many local farmers are against Hassad Food’s actions to modernize Ghanaian agriculture. Family farmers will either be co-opted by the incoming food conglomerate or have to face much tougher competition to sell their food on the market as modern, more efficient methods bring lower prices.
Discussion:
1. Ghana is a country rich in natural resources. What is the likelihood Ghana will become less democratic and more elitist (like Middle Eastern nations after discovering abundant natural resources)?
2. Qatar and China are both heavily investing in Africa. Is there a serious prospect of conflict, political or otherwise, between the two nations as a result of their competing interests?
3. Qatar is an Islamic nation. Will Qatar’s greater involvement in Ghana help spread Islam in Ghana and the region?
The Ghanaian Journal: Ghana-Qatar Talks on Food Security Programme
Bloomberg Businessweek: Ghana, Qatar Plan to Start Joint Agriculture Project Next Year
Trade Arabia: Ghana, Qatar in Food JV Talks
Ghana and Qatar plan to create a joint venture company early next year to produce food for both countries. A pilot project will be created that will cover 50,000 hectares in Ghana. Both parties have agreed to expand the program if the pilot project is successful, which it is projected to be. The type of food that will be grown will be diverse, encompassing fruit, vegetables, cereal and rice.
Qatar is operating a food security program led by the Hassad Food Company to protect it from the same disaster that occurred during the 2008 food price crisis. Although the causes of the food crisis are still not totally clear, it is certain that the crisis was expensive to Qatar. Qatar imports almost all of its food, so Qatar was totally dependent on getting its food from the world market, where prices had greatly increased. Qatar wants to control its own secure source of food.
Ghana is also gaining in this deal. In May, 2010, the Ghana Investment Promotion Centre (GIPC), an agency under the Ghanaian President, said it was seeking investments from Qatar totaling around $700 million to develop the agriculture and natural resources of Ghana. Family farming is the current basis of the Ghanaian farming system, leaving room for modernization under Hassad Food. In addition to providing more demand and developing Ghanaian agriculture, the GIPC is also seeking Qatar’s aid in utilizing Ghana’s oil and metals.
Ghana has rich supplies of oil, gas, and bauxite, a type of aluminum ore. Qatar has expertise in the oil and gas industry and has a strong aluminum industry. Ghana is seen as a country ready to rapidly expand as its natural resources are still underdeveloped. In fact, Ghana seems to be in such a favorable position that the GIPC CEO quipped, “We need to build more five star hotels because we expect a boom.”
Despite the increase in production that will occur because of the project, many local farmers are against Hassad Food’s actions to modernize Ghanaian agriculture. Family farmers will either be co-opted by the incoming food conglomerate or have to face much tougher competition to sell their food on the market as modern, more efficient methods bring lower prices.
Discussion:
1. Ghana is a country rich in natural resources. What is the likelihood Ghana will become less democratic and more elitist (like Middle Eastern nations after discovering abundant natural resources)?
2. Qatar and China are both heavily investing in Africa. Is there a serious prospect of conflict, political or otherwise, between the two nations as a result of their competing interests?
3. Qatar is an Islamic nation. Will Qatar’s greater involvement in Ghana help spread Islam in Ghana and the region?
Wednesday, December 08, 2010
WikiLeaks Founder Says To Expect Major Leak Concerning Big U.S. Bank
Sources:
Forbes: An Interview with Julian Assuage
CNN: Which Bank is WikiLeaks’ Target?
FDIC’s Bair: ‘Ignore’ WikiLeaks Bank Release
CNN Money: Wacky Wiki Won’t Wreck Bank Stocks
The news the last few weeks has been filled with mentions of WikiLeaks, the website that releases confidential and nonpublic documents. Most of that news has been filled with discussion concerning the website’s recent release of thousands of the United States’ State Department’s diplomatic cables. However, there is also some curiosity over information the website may have that could affect the United State’s private sector.
Julian Assuage, the founder of WikiLeaks, sparked this curiosity in a recent interview with Forbes. While discussing the massive nature of the cables leak, Assuage mentioned that the website had enough information for another major leak, and this one would be the website’s first leak concerning the private sector. Assuage stated that about half of the website’s documents concerned the private sector and hinted that the website’s next major release, scheduled for early next year, would target one of the biggest banks in the United States. Assuage said that the information was of such a nature that it would “take down” the bank.
Although evasive on the actual contents of the documents that the website will release, Assuage mentioned that the leaks would detail the inner workings of the bank and likely spark even more investigation and reform within the financial sector. Assuage likened the bank’s atmosphere to “an ecosystem of corruption.” Assuage alluded that there were definite ethical violations occurring within the bank, as well as possible criminal actions, and he predicted that it will cause a scandal of Enron-like proportions.
Assuage’s comments have ignited wide speculation regarding on which bank the WikiLeaks’ has such condemning information. Most commentators think the likely candidates are Wells Fargo, Wachovia, Citibank, JPMorgan Chase, and Bank of America. However, the media has speculated that one bank in particular is the likely subject of the controversy, because of Assuage’s previous comments. Last year, Assuage mentioned to an interviewer from Computerworld that WikiLeaks had five gigabytes of information from a Bank of America executive’s computer. Bank of America’s stock is already suffering from Assuage’s comments. On Tuesday, shares fell more than 3% and ended pennies above their lowest price of the past year.
The head of the FDIC, Sheila Bair, downplayed Assuage’s comments. She suggested consumers simply ignore his remarks and rumors of an upcoming leak. Bair stated that since the financial crisis the transparency of the banking industry has increased. Bair was also skeptical that Wikileaks could have any major information about the financial sector and banking industry that has not already been previously released. Time will tell what kind of impact these WikiLeaks could have on the private sector. If Assuage is to be believed, there will be at least some impact, and we probably won’t have to wait long.
Discussion:
1. Do you think Assuage has the kind of information that could cause another Enron-like scandal or is Bair’s statement that there isn’t any further and unknown information more accurate?
2. If WikiLeaks does have such information, what kinds of reform would you expect?
Forbes: An Interview with Julian Assuage
CNN: Which Bank is WikiLeaks’ Target?
FDIC’s Bair: ‘Ignore’ WikiLeaks Bank Release
CNN Money: Wacky Wiki Won’t Wreck Bank Stocks
The news the last few weeks has been filled with mentions of WikiLeaks, the website that releases confidential and nonpublic documents. Most of that news has been filled with discussion concerning the website’s recent release of thousands of the United States’ State Department’s diplomatic cables. However, there is also some curiosity over information the website may have that could affect the United State’s private sector.
Julian Assuage, the founder of WikiLeaks, sparked this curiosity in a recent interview with Forbes. While discussing the massive nature of the cables leak, Assuage mentioned that the website had enough information for another major leak, and this one would be the website’s first leak concerning the private sector. Assuage stated that about half of the website’s documents concerned the private sector and hinted that the website’s next major release, scheduled for early next year, would target one of the biggest banks in the United States. Assuage said that the information was of such a nature that it would “take down” the bank.
Although evasive on the actual contents of the documents that the website will release, Assuage mentioned that the leaks would detail the inner workings of the bank and likely spark even more investigation and reform within the financial sector. Assuage likened the bank’s atmosphere to “an ecosystem of corruption.” Assuage alluded that there were definite ethical violations occurring within the bank, as well as possible criminal actions, and he predicted that it will cause a scandal of Enron-like proportions.
Assuage’s comments have ignited wide speculation regarding on which bank the WikiLeaks’ has such condemning information. Most commentators think the likely candidates are Wells Fargo, Wachovia, Citibank, JPMorgan Chase, and Bank of America. However, the media has speculated that one bank in particular is the likely subject of the controversy, because of Assuage’s previous comments. Last year, Assuage mentioned to an interviewer from Computerworld that WikiLeaks had five gigabytes of information from a Bank of America executive’s computer. Bank of America’s stock is already suffering from Assuage’s comments. On Tuesday, shares fell more than 3% and ended pennies above their lowest price of the past year.
The head of the FDIC, Sheila Bair, downplayed Assuage’s comments. She suggested consumers simply ignore his remarks and rumors of an upcoming leak. Bair stated that since the financial crisis the transparency of the banking industry has increased. Bair was also skeptical that Wikileaks could have any major information about the financial sector and banking industry that has not already been previously released. Time will tell what kind of impact these WikiLeaks could have on the private sector. If Assuage is to be believed, there will be at least some impact, and we probably won’t have to wait long.
Discussion:
1. Do you think Assuage has the kind of information that could cause another Enron-like scandal or is Bair’s statement that there isn’t any further and unknown information more accurate?
2. If WikiLeaks does have such information, what kinds of reform would you expect?
Saturday, December 04, 2010
Ecuador Renegotiates Contracts with Foreign Oil Companies
Sources:
Economist.com: If it Ain’t Broke…
Elciudadano.gob.ec: Presidente Correa: Renegociación de contratos petroleros fue todo un éxito
FT.com: Quito Takes Over Petrobras Fields
Reuters.com: Ecuador in Final Stage of Oil Contract Talks
Telegrafo.com: Termina renegociación de contratos petroleros
The government of Ecuador recently finished negotiations with foreign oil producers to help maximize its profits in the country’s most lucrative business. The new contracts completely change the rules of business for the oil sector. Now, instead of being forced to pay over a percentage of their profits to the national government through taxes, foreign oil companies will become service providers—meaning they will be paid a set price for each barrel of oil they extract, with most agreements requiring that the government pay about $35 per barrel. The national government will then keep the profit above that amount, ensuring that the government will profit when oil prices increase. This has lead President Rafael Correa to claim that the negotiations were a resounding success, though it has been hard for the companies to swallow, and has even pushed Brazil’s national oil company Petrobras to end production in Ecuador.
The process of changing the way foreign oil companies do business in Ecuador began earlier in the decade when oil prices first exceeded $70 per barrel. The previous set of oil contracts, signed in the mid-1990’s, gave the government the rights to 17-27% of the first $15-$17 in revenue for each barrel of oil sold; a paltry figure considering today’s oil prices. In 2006, the government added an additional 50% tax on oil company’s profits above the contract cut-offs as oil prices began to soar. In 2008, that tax was increased by the current government to 99% when oil prices reached record levels of nearly $150 per barrel. That year the government also seized the oil fields from the French company Perenco over a tax dispute, further straining relations with foreign oil companies.
Since the first change in 2006 the foreign oil companies have been wary of the government. Some companies threatened international arbitration over the changes, though little more than posturing ever happened. Unfortunately for the government, its actions have all but halted exploration and investment in the national oil sector because companies fear being kicked out of the country like Perenco. The number of barrels of oil produced per day in Ecuador has dropped from 255,000 to 162,000 just since President Correa took power in 2007. That drop has cost the country $2.3 billion per year at current prices.
Ecuador hopes the trend of declining oil production will reverse in light of the new contracts. In theory, the companies will no longer be concerned about losing their investments entirely through expropriation and will therefore expand production and exploration activities. If that is coupled with an increase in global oil prices, a prospect Ecuador is surely banking on, Ecuador’s profits from the new contracts could be enormous. However, when coupled with the country’s 2008 international debt default of $3.2 billion, the new contracts could further drive down foreign investment in a country that is already lagging behind its Latin American peers in that category, which would continue to be a drag on growth.
Discussion:
1) President Correa claimed that the new contracts will ensure that oil profits go to the people that own the oil—the Ecuadorean people. How might foreign investors react to this statement?
2) Though Ecuador’s economy is expected to grow by about 3% this year, ever other country in Latin America (excluding Ecuador’s oil dependent neighbor, Venezuela) is booming with much higher growth rates and levels of foreign investment. Considering that foreign investors were already wary of investing in Ecuador because of the 2008 default, is this the right time for Ecuador to have a major shakeup in its largest industry?
Economist.com: If it Ain’t Broke…
Elciudadano.gob.ec: Presidente Correa: Renegociación de contratos petroleros fue todo un éxito
FT.com: Quito Takes Over Petrobras Fields
Reuters.com: Ecuador in Final Stage of Oil Contract Talks
Telegrafo.com: Termina renegociación de contratos petroleros
The government of Ecuador recently finished negotiations with foreign oil producers to help maximize its profits in the country’s most lucrative business. The new contracts completely change the rules of business for the oil sector. Now, instead of being forced to pay over a percentage of their profits to the national government through taxes, foreign oil companies will become service providers—meaning they will be paid a set price for each barrel of oil they extract, with most agreements requiring that the government pay about $35 per barrel. The national government will then keep the profit above that amount, ensuring that the government will profit when oil prices increase. This has lead President Rafael Correa to claim that the negotiations were a resounding success, though it has been hard for the companies to swallow, and has even pushed Brazil’s national oil company Petrobras to end production in Ecuador.
The process of changing the way foreign oil companies do business in Ecuador began earlier in the decade when oil prices first exceeded $70 per barrel. The previous set of oil contracts, signed in the mid-1990’s, gave the government the rights to 17-27% of the first $15-$17 in revenue for each barrel of oil sold; a paltry figure considering today’s oil prices. In 2006, the government added an additional 50% tax on oil company’s profits above the contract cut-offs as oil prices began to soar. In 2008, that tax was increased by the current government to 99% when oil prices reached record levels of nearly $150 per barrel. That year the government also seized the oil fields from the French company Perenco over a tax dispute, further straining relations with foreign oil companies.
Since the first change in 2006 the foreign oil companies have been wary of the government. Some companies threatened international arbitration over the changes, though little more than posturing ever happened. Unfortunately for the government, its actions have all but halted exploration and investment in the national oil sector because companies fear being kicked out of the country like Perenco. The number of barrels of oil produced per day in Ecuador has dropped from 255,000 to 162,000 just since President Correa took power in 2007. That drop has cost the country $2.3 billion per year at current prices.
Ecuador hopes the trend of declining oil production will reverse in light of the new contracts. In theory, the companies will no longer be concerned about losing their investments entirely through expropriation and will therefore expand production and exploration activities. If that is coupled with an increase in global oil prices, a prospect Ecuador is surely banking on, Ecuador’s profits from the new contracts could be enormous. However, when coupled with the country’s 2008 international debt default of $3.2 billion, the new contracts could further drive down foreign investment in a country that is already lagging behind its Latin American peers in that category, which would continue to be a drag on growth.
Discussion:
1) President Correa claimed that the new contracts will ensure that oil profits go to the people that own the oil—the Ecuadorean people. How might foreign investors react to this statement?
2) Though Ecuador’s economy is expected to grow by about 3% this year, ever other country in Latin America (excluding Ecuador’s oil dependent neighbor, Venezuela) is booming with much higher growth rates and levels of foreign investment. Considering that foreign investors were already wary of investing in Ecuador because of the 2008 default, is this the right time for Ecuador to have a major shakeup in its largest industry?
Wednesday, December 01, 2010
Police Take Back Favela in Rio
Sources:
Economist.com: Time's Up
Estadao.com.br: Bandidos fugiram do Alemão pelo esgoto e com uniformes do PAC, diz delegado
FT.com: Security Forces Win Control of Rio’s Favelas
Mercopress.com: Brazilian Forces Expel Criminal Gangs from Favels; Promise to Stay
NYTimes.com: Brazilian Forces Claim Victory in Gang Haven
After a week-long struggle, Brazilian police and military forces claimed victory in a fierce gun battle in the notorious Alemão favela (shantytown) in Rio de Janeiro (population 100,000). The battle was sparked by an uprising in the neighborhood by drug gangs on November 20. Brazilian officials have labeled the uprising as a response to the government’s “pacification” campaign. The campaign was started in 2008 as a strategy for making Rio’s streets safer before the 2014 World Cup and 2016 Olympics to be held in the city.
Brazil has had a long history of problems with both gangs and the favelas generally. It is estimated that up to one-third of Rio’s population of six million resides in a favela. These favelas usually lack basic services such as running water, electricity, and banking. They have been controlled by powerful drug cartels for decades. Brazilians have long complained of the problem while their politicians have ignored the problems, thanks to hefty bribes paid by the cartels.
Only because of the international concern raised in the wake of the announcements that Brazil would be hosting the World Cup and Olympics has political support swelled to a level sufficient to attack the problem. In 2008 the state and national government announced a new plan to place “police pacification units” (known by the Portuguese acronym UPP) in Rio’s favelas to establish a permanent police presence in those areas. Many were concerned that the program would fail because residents of the favelas have historically trusted the police even less than they trusted the drug lords. Their only contact with police officers was often in situations where police entered a slum to forcefully extract someone—situations that often caused collateral casualties.
The police and military victory on November 28 is proof that the pacification plan is indeed working. The government was able to seize 40 tons of marijuana, 150 kilos of cocaine, 50 assault rifles, 50 stolen motorbikes, and 9 antiaircraft guns while making around 200 arrests. Though there have been around 40 casualties, the reaction from favela residents to the operation has been positive. The overriding fear, however, is that the newfound peace will not last, even though the government promises that the police presence will remain permanently.
Discussion Questions:
1) To the casual observer this police tactic appears to be a top-down approach to solving a problem. How might a bottom-up approach better aid development and sustainable growth in the favelas while at the same time rooting out gangs?
Economist.com: Time's Up
Estadao.com.br: Bandidos fugiram do Alemão pelo esgoto e com uniformes do PAC, diz delegado
FT.com: Security Forces Win Control of Rio’s Favelas
Mercopress.com: Brazilian Forces Expel Criminal Gangs from Favels; Promise to Stay
NYTimes.com: Brazilian Forces Claim Victory in Gang Haven
After a week-long struggle, Brazilian police and military forces claimed victory in a fierce gun battle in the notorious Alemão favela (shantytown) in Rio de Janeiro (population 100,000). The battle was sparked by an uprising in the neighborhood by drug gangs on November 20. Brazilian officials have labeled the uprising as a response to the government’s “pacification” campaign. The campaign was started in 2008 as a strategy for making Rio’s streets safer before the 2014 World Cup and 2016 Olympics to be held in the city.
Brazil has had a long history of problems with both gangs and the favelas generally. It is estimated that up to one-third of Rio’s population of six million resides in a favela. These favelas usually lack basic services such as running water, electricity, and banking. They have been controlled by powerful drug cartels for decades. Brazilians have long complained of the problem while their politicians have ignored the problems, thanks to hefty bribes paid by the cartels.
Only because of the international concern raised in the wake of the announcements that Brazil would be hosting the World Cup and Olympics has political support swelled to a level sufficient to attack the problem. In 2008 the state and national government announced a new plan to place “police pacification units” (known by the Portuguese acronym UPP) in Rio’s favelas to establish a permanent police presence in those areas. Many were concerned that the program would fail because residents of the favelas have historically trusted the police even less than they trusted the drug lords. Their only contact with police officers was often in situations where police entered a slum to forcefully extract someone—situations that often caused collateral casualties.
The police and military victory on November 28 is proof that the pacification plan is indeed working. The government was able to seize 40 tons of marijuana, 150 kilos of cocaine, 50 assault rifles, 50 stolen motorbikes, and 9 antiaircraft guns while making around 200 arrests. Though there have been around 40 casualties, the reaction from favela residents to the operation has been positive. The overriding fear, however, is that the newfound peace will not last, even though the government promises that the police presence will remain permanently.
Discussion Questions:
1) To the casual observer this police tactic appears to be a top-down approach to solving a problem. How might a bottom-up approach better aid development and sustainable growth in the favelas while at the same time rooting out gangs?
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