Sources: BBC, Wall Street Journal
Leading U.S. banking company, Bank of America, offered to purchase the US’s largest mortgage broker Countrywide earlier in January, for an estimated $4 billion. The recent mortgage crisis has hit Countrywide hard—Countrywide suffered a 44% drop in December, while suffering high levels of foreclosures. In August 2007, B of A invested $2 billion dollars. Countrywide shareholders will receive 0.1822 B of A shares per Countrywide share. This deal has been described as a “lifeline” for the besieged home mortgage lender, and is expected to close in the third quarter.
However, this deal has hit some snags. Details of the deal give Bank of America lots of freedom to walk away from the deal, and Countrywide’s shares dropped 10% on Friday on word that Bank of America may not complete the deal. Countrywide closed on Friday at $4.96, down from $5.48. Countrywide’s closing price on Friday was 24 percent less than the Bank of America offer prices, and now, some investment experts believe that the Countrywide deal will be renegotiated with lower share prices. Paul J. Miller Jr., an analyst at Friedman, Billings, Ramsey & Co., has stated that there may be renogiations if the mortgage market continues to fall and if Countrywide's losses exceed expectations. Neither entity has commented on the rumors.
Based on information from the public documents filed with the SEC, Bank of America has lots of room to walk away. Countrywide must have its 2007 financials audited, and there must be an "unqualified opinion" on the 2007 financials. There is also no contractual clause that would "force" Bank of America to purchase Countrywide. Furthermore, the contratual clause that allows Bank of America to walk away if there are "materially adverse changes" also gives Bank of America lots of room.
Other offers to purchase mortgage companies have already fallen through in 2007.
Question: If this deal falls through—and in light of other collapsed purchase offers for mortgage companies—what sort of impact will the general public see?
Monday, January 21, 2008
Korea Railway Talks Stall
Sources: BBC, Bloomberg
Talks between North and South Korea regarding a national railway connecting the divided countries stalled. Officials in Pyong’yang sought a delay, claiming that “time constraints” and “lack of preparation” prevented useful talks. The talks were supposed to take place between Jan 22-23 in Gaesong.
South Korea has sought stronger ties with their Northern neighbors, and has seen some limited success. For example, in December 2007 a daily freight train service was launched between South Korea and the Kaesong Industrial Area in the North. South Korea has also requested passenger services to North Korea, but this offer has been rebuffed by Pyong'yang.
It is believed that North Korea suspended these talks in light of the new incoming president. North Korea is wary of the new president because he intends to conduct inter-Korea relations through the foreign ministry instead of the Unification ministry. New President Lee Myung Bak has also made some comments suggesting he will take a more tough stance against North Korea.
Question: How much will an inter-Korea railway service affect reunification efforts? Do you think President Lee, in light of his comments, can work with the North Koreans to promote peace and increased ties?
Talks between North and South Korea regarding a national railway connecting the divided countries stalled. Officials in Pyong’yang sought a delay, claiming that “time constraints” and “lack of preparation” prevented useful talks. The talks were supposed to take place between Jan 22-23 in Gaesong.
South Korea has sought stronger ties with their Northern neighbors, and has seen some limited success. For example, in December 2007 a daily freight train service was launched between South Korea and the Kaesong Industrial Area in the North. South Korea has also requested passenger services to North Korea, but this offer has been rebuffed by Pyong'yang.
It is believed that North Korea suspended these talks in light of the new incoming president. North Korea is wary of the new president because he intends to conduct inter-Korea relations through the foreign ministry instead of the Unification ministry. New President Lee Myung Bak has also made some comments suggesting he will take a more tough stance against North Korea.
Question: How much will an inter-Korea railway service affect reunification efforts? Do you think President Lee, in light of his comments, can work with the North Koreans to promote peace and increased ties?
Sunday, January 20, 2008
Ukraine reaches agreement aiding its WTO membership efforts
source: Ukraine steps closer to WTO entry
EU trade commissioner, Peter Mandelson, reached an agreement with the Ukraine to cap export duties on a number of products including metals, animal hides, live cattle and other agricultural goods. This agreement brings the Ukraine, a highly productive agricultural and steel economy, one step closer to joining the World Trade Organization. Once the EU and Ukraine negotiate a free trade agreement, export duties will cease. Until then, the Ukraine will not increase existing duties.
Prior to this agreement, the EU felt that export duties on metals constituted a hidden subsidy to Ukraine’s own metal-processing industry because it made it considerably more expensive to export the raw materials to metallurgical factories outside the country. This sentiment was problematic because WTO regulations allow a member country to block new members from joining if they refuse to make certain trade reforms.
The Ukraine may gain admission to the WTO as early as the first week of February at which time it would gain the power to demand concessions from Russia, who first applied for admission to the organization in 1993. The western integration efforts of Kiev President Viktor Yushchenko were derailed last year by the Moscow-leaning government of Viktor Yanukovich. However, these efforts, including plans to join the WTO, NATO and at some point in the future, are expected to resume under pro-western premier Yulia Tymoshenko. To date, Russia’s desire to join the WTO has been held up by objections from the EU and the US, particularly with respect to the implementation of laws protecting intellectual property rights. The US music and movie industry contend that counterfeiting is rampant in Russia and that the judicial system is both unable and unwilling to control it. Despite these barriers, Moscow aims to join the WTO by the middle of 2008, a goal Mandelson describes as “ambitious but doable.”
Mandelson also noted that farmers in member countries should not fear competition from Ukranian farmers. Although the Ukraine is one of the world’s largest wheat growers, Mandelson notes that “as far as wheat is concerned there is plenty of demand to go round at the moment.”
EU trade commissioner, Peter Mandelson, reached an agreement with the Ukraine to cap export duties on a number of products including metals, animal hides, live cattle and other agricultural goods. This agreement brings the Ukraine, a highly productive agricultural and steel economy, one step closer to joining the World Trade Organization. Once the EU and Ukraine negotiate a free trade agreement, export duties will cease. Until then, the Ukraine will not increase existing duties.
Prior to this agreement, the EU felt that export duties on metals constituted a hidden subsidy to Ukraine’s own metal-processing industry because it made it considerably more expensive to export the raw materials to metallurgical factories outside the country. This sentiment was problematic because WTO regulations allow a member country to block new members from joining if they refuse to make certain trade reforms.
The Ukraine may gain admission to the WTO as early as the first week of February at which time it would gain the power to demand concessions from Russia, who first applied for admission to the organization in 1993. The western integration efforts of Kiev President Viktor Yushchenko were derailed last year by the Moscow-leaning government of Viktor Yanukovich. However, these efforts, including plans to join the WTO, NATO and at some point in the future, are expected to resume under pro-western premier Yulia Tymoshenko. To date, Russia’s desire to join the WTO has been held up by objections from the EU and the US, particularly with respect to the implementation of laws protecting intellectual property rights. The US music and movie industry contend that counterfeiting is rampant in Russia and that the judicial system is both unable and unwilling to control it. Despite these barriers, Moscow aims to join the WTO by the middle of 2008, a goal Mandelson describes as “ambitious but doable.”
Mandelson also noted that farmers in member countries should not fear competition from Ukranian farmers. Although the Ukraine is one of the world’s largest wheat growers, Mandelson notes that “as far as wheat is concerned there is plenty of demand to go round at the moment.”
Russia defeats EU for new gas pipeline
Source: Russia trumps EU with new oil deal
In a deal signed Friday, Bulgaria and Russia reached an agreement to build a natural gas pipeline (South Stream) that will cross from Russia under the Black Sea to Bulgaria and then branch off to allow for delivery deeper in Europe. This agreement undercut a rival project (Nabucco) supported by the U.S. and the European Union.
The agreement required a great deal of concentrated negotiations on the part of Putin, who had to overcome Bulgaria’s wariness that the agreement gave Russia a disadvantageous influence. Russia initially insisted on a 51 percent stake in the project, but agreed to an equal sharing at the last minute to preserve the project.
Late this week it was not completely clear who Bulgaria would select. In a speech on Thursday, Bulgarian President Georgi Parvanov stated that his nation supported the EU’s efforts to diversify energy supply routes via Nabucco. After Parvanov’s speech, Putin, visibly annoyed, announced that Bulgaria was free to choose its direction but warned that is should make the decision which “works to its benefit.”
Gazprom, Russia’s state-controlled gas monopoly, set up a joint venture with Italy’s ENI SpA to develop a feasibility study for the 900 kilometer (550 mile), $10 billion pipeline. This pipeline is a direct rival to the Nabucco pipeline endorsed by the U.S. and the EU. Although ENI CEO Paolo Scaroni attempted to minimize the rivalry between South Stream and Nabucco, asserting that demand could necessitate both projects, it appears that Bulgaria took advantage of the clashing pipeline offers, choosing to side with Russia as opposed to the U.S. and EU. It is not clear if both projects will proceed, or if Nabucco will be abandoned.
In a deal signed Friday, Bulgaria and Russia reached an agreement to build a natural gas pipeline (South Stream) that will cross from Russia under the Black Sea to Bulgaria and then branch off to allow for delivery deeper in Europe. This agreement undercut a rival project (Nabucco) supported by the U.S. and the European Union.
The agreement required a great deal of concentrated negotiations on the part of Putin, who had to overcome Bulgaria’s wariness that the agreement gave Russia a disadvantageous influence. Russia initially insisted on a 51 percent stake in the project, but agreed to an equal sharing at the last minute to preserve the project.
Late this week it was not completely clear who Bulgaria would select. In a speech on Thursday, Bulgarian President Georgi Parvanov stated that his nation supported the EU’s efforts to diversify energy supply routes via Nabucco. After Parvanov’s speech, Putin, visibly annoyed, announced that Bulgaria was free to choose its direction but warned that is should make the decision which “works to its benefit.”
Gazprom, Russia’s state-controlled gas monopoly, set up a joint venture with Italy’s ENI SpA to develop a feasibility study for the 900 kilometer (550 mile), $10 billion pipeline. This pipeline is a direct rival to the Nabucco pipeline endorsed by the U.S. and the EU. Although ENI CEO Paolo Scaroni attempted to minimize the rivalry between South Stream and Nabucco, asserting that demand could necessitate both projects, it appears that Bulgaria took advantage of the clashing pipeline offers, choosing to side with Russia as opposed to the U.S. and EU. It is not clear if both projects will proceed, or if Nabucco will be abandoned.
Saturday, January 19, 2008
Can you say Si se puede in Portuguese?
Source: Inter Press Service, “DEVELOPMENT BRAZIL: Solidarity Economy Combats Exclusion
In Brazil, a company called Catende-Harmonia provides a model for economic projects that are driven by people, not profits. Originally a typical private enterprise focused on sugar production, the company began to experience financial difficulties in 1995. The workers’ union approached management and negotiated a deal wherein the company declared bankruptcy and was taken over by the workers. Now known as Catende-Harmonia, it maintains its sugar operations and has diversified to include other commodities through “a family farming system based on agricultural cooperatives.”
Now the largest worker-run company in Brazil, Catende-Harmonia is part of a growing trend that has been dubbed the “solidarity economy.” It has been successful and popular enough to merit government attention and support through the creation of Brazil’s National Secretariat for the Solidarity Economy and the Brazilian Solidarity Economy Forum (FBES) in 2003.
Experts assert that the support for a solidarity economy in Brazil stems from the struggle against unemployment in that country and the drive for a model of economic inclusion. The FBES states that one of the goals of the solidarity economic model is to make “human beings the active agents and the final purpose of economic activity, instead of private accumulation of wealth.”
FOR DISCUSSION:
Do you think innovations like the solidarity economic model in Brazil and microcredit in Bangladesh are stepping stones on the way to more traditional (read U.S.-style) economic systems or do you believe that these trends could be harbingers of a new approach to economics that could spread to developed nations?
In Brazil, a company called Catende-Harmonia provides a model for economic projects that are driven by people, not profits. Originally a typical private enterprise focused on sugar production, the company began to experience financial difficulties in 1995. The workers’ union approached management and negotiated a deal wherein the company declared bankruptcy and was taken over by the workers. Now known as Catende-Harmonia, it maintains its sugar operations and has diversified to include other commodities through “a family farming system based on agricultural cooperatives.”
Now the largest worker-run company in Brazil, Catende-Harmonia is part of a growing trend that has been dubbed the “solidarity economy.” It has been successful and popular enough to merit government attention and support through the creation of Brazil’s National Secretariat for the Solidarity Economy and the Brazilian Solidarity Economy Forum (FBES) in 2003.
Experts assert that the support for a solidarity economy in Brazil stems from the struggle against unemployment in that country and the drive for a model of economic inclusion. The FBES states that one of the goals of the solidarity economic model is to make “human beings the active agents and the final purpose of economic activity, instead of private accumulation of wealth.”
FOR DISCUSSION:
Do you think innovations like the solidarity economic model in Brazil and microcredit in Bangladesh are stepping stones on the way to more traditional (read U.S.-style) economic systems or do you believe that these trends could be harbingers of a new approach to economics that could spread to developed nations?
Sunday, January 13, 2008
Eastern European Population to Dramatically Decrease In Future
Source: BBC News, “Eastern European population to plummet”
A fall in the birth rate in Eastern European counties will likely cause population levels in former Communist countries to drop by 33% by 2050. The United Nations Commission for Europe believes the main factor in the decline is that less money means fewer children. On a related note, Eastern European countries have very low fertility rates compared to the rest of the world. The commission believes only a dramatic recovery can reverse the trend, which has marked the transition economies since the fall of Communism.
The report from the UN commission states the fall in the birth rate in eastern Europe mirrored the collapse of communism. Illustrating the problem, women in Western Europe have 1.6 children on average; but, women in Eastern Europe have 1.3 children on average. Many countries in Eastern Europe have even lower birth rates, Latvia and Bulgaria are an example.
Despite financial recoveries in the Czech Republic, Hungary, and Poland, the birth rate in Eastern Europe has continued to fall. The UN commission believes that lifestyle changes may be countering any positive effect of financial recoveries. In short, the UN believes governments should create financial and tax benefits for those with children.
Questions: (1) Do you think the concern about the decreasing population is justified? (2) What steps can be taken to remedy the problems of the potential decrease in population throughout the region?
A fall in the birth rate in Eastern European counties will likely cause population levels in former Communist countries to drop by 33% by 2050. The United Nations Commission for Europe believes the main factor in the decline is that less money means fewer children. On a related note, Eastern European countries have very low fertility rates compared to the rest of the world. The commission believes only a dramatic recovery can reverse the trend, which has marked the transition economies since the fall of Communism.
The report from the UN commission states the fall in the birth rate in eastern Europe mirrored the collapse of communism. Illustrating the problem, women in Western Europe have 1.6 children on average; but, women in Eastern Europe have 1.3 children on average. Many countries in Eastern Europe have even lower birth rates, Latvia and Bulgaria are an example.
Despite financial recoveries in the Czech Republic, Hungary, and Poland, the birth rate in Eastern Europe has continued to fall. The UN commission believes that lifestyle changes may be countering any positive effect of financial recoveries. In short, the UN believes governments should create financial and tax benefits for those with children.
Questions: (1) Do you think the concern about the decreasing population is justified? (2) What steps can be taken to remedy the problems of the potential decrease in population throughout the region?
Tuesday, December 25, 2007
US, EU reach deal on Internet Gambling
Sources: InformationWeek, Financial Times
On Monday, December 17 the EU and the US entered into a new bilateral deal includes opening up opportunities for research and development, storage, warehousing, and postal sectors. This American offer was in compensation for the closing of the US market to online gambling companies. The United States has also reached similar agreements with Canada and Japan.
The agreement was met with mixed reviews—primarily negative from the gambling sector. Clive Harkswood, the chief executive of the gambling trade association, says that the companies will be losing approximately US$ 4 billion in revenue per year.
Several major online gambling have seen drops in their share value, and the new deal likely will not change their values. Accordingly, the Remote Gambling Association, the trade association representing gambling interests, has filed a former complaint under the EU Trade Barriers Regulation. The complaint asks the EU to "investigate discriminatory enforcement as an illegal barrier to trade." The RGA claims that the “US Unlawful Internet Gambling Enforcement Act,” or the “UIGEA,” outlaws foreign online gaming companies while allowing US companies to not suffer.
The WTO has already looked favorably on these types of claims against the United States. The WTO has already ordered the US to grant compensation after it refused to open up the sector. Furthermore, the WTO will soon rule on Antigua’s US$ 3.4 billion request for compensation.
DISCUSSION Question:
If the WTO forces the United States to pay compensation for the closing of the online gambling market, can the US renegotiate its deal with the EU? What else could happen, if the United States is slapped with a multi-billion dollar penalty?
On Monday, December 17 the EU and the US entered into a new bilateral deal includes opening up opportunities for research and development, storage, warehousing, and postal sectors. This American offer was in compensation for the closing of the US market to online gambling companies. The United States has also reached similar agreements with Canada and Japan.
The agreement was met with mixed reviews—primarily negative from the gambling sector. Clive Harkswood, the chief executive of the gambling trade association, says that the companies will be losing approximately US$ 4 billion in revenue per year.
Several major online gambling have seen drops in their share value, and the new deal likely will not change their values. Accordingly, the Remote Gambling Association, the trade association representing gambling interests, has filed a former complaint under the EU Trade Barriers Regulation. The complaint asks the EU to "investigate discriminatory enforcement as an illegal barrier to trade." The RGA claims that the “US Unlawful Internet Gambling Enforcement Act,” or the “UIGEA,” outlaws foreign online gaming companies while allowing US companies to not suffer.
The WTO has already looked favorably on these types of claims against the United States. The WTO has already ordered the US to grant compensation after it refused to open up the sector. Furthermore, the WTO will soon rule on Antigua’s US$ 3.4 billion request for compensation.
DISCUSSION Question:
If the WTO forces the United States to pay compensation for the closing of the online gambling market, can the US renegotiate its deal with the EU? What else could happen, if the United States is slapped with a multi-billion dollar penalty?
Sunday, December 23, 2007
China to Play a Greater Role as Donor at the World Bank
Source: World Bank works with Chinese on Africa; China to Play Greater Role in World Bank
On December 18, 2007, World Bank President Robert Zoellick visited Li Ruogu, the chairman of the Chinese Export-Import Bank to discuss the possibility of conducting joint development projects in the future. The visit also addressed international concerns about Chinese lending in Africa. China has distinguished itself from other donors by not attaching conditionalities to its loans; however, it has yet to provide guarantees of debt forgiveness, either.
Zoellick’s visit reflects the change in the World Bank’s approach to China. The Bank is now working to accommodate China as it transitions from recipient to donor country. As Zoellick noted at his meeting with Li, China has recently made donations to the International Development Association at the World Bank. The Bank is now seeking to recruit more Chinese staff.
Discussion:
Should the World Bank give China more voting power within the Bank as part of that country’s transition into a donor country? Why or why not?
On December 18, 2007, World Bank President Robert Zoellick visited Li Ruogu, the chairman of the Chinese Export-Import Bank to discuss the possibility of conducting joint development projects in the future. The visit also addressed international concerns about Chinese lending in Africa. China has distinguished itself from other donors by not attaching conditionalities to its loans; however, it has yet to provide guarantees of debt forgiveness, either.
Zoellick’s visit reflects the change in the World Bank’s approach to China. The Bank is now working to accommodate China as it transitions from recipient to donor country. As Zoellick noted at his meeting with Li, China has recently made donations to the International Development Association at the World Bank. The Bank is now seeking to recruit more Chinese staff.
Discussion:
Should the World Bank give China more voting power within the Bank as part of that country’s transition into a donor country? Why or why not?
Bank of the South Launched
Sources: Why South America wants a new bank; Bank of the South could be an ‘opportunity:’ IMF chief
Seven Latin American countries established the Bank of the South—an alternative regional development bank—on December 9, 2007. While the Bank is widely understood to be part of Venezuelan President Hugo Chavez’s anti-American political agenda, it is reflective of a general sentiment in Latin America that the World Bank and the International Monetary Fund (“the IMF”) have not been responsive to their needs. Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay, and Venezuela signed the founding documents. Chile, Peru, and Colombia have postponed their decisions to join the Bank.
Despite its launch on December 9, the Bank still needs to finalize the Bank’s operational procedures. The seven founding members disagree on how funds should be raised.
Some observers have dismissed the Bank as simply another outlet for Chavez’s political motivations. However, others—including former World Bank economist Joseph Stiglitz and the current IMF Managing Director Dominique Strauss-Kahn—have suggested that the Bank may assist in the international development efforts by providing competition to the more established international financial institutions.
Discussion:
How should the Bank of the South define itself in relation to the World Bank, the IMF, and the regional development banks? Given Chavez’s express dismissal of these institutions as America’s puppets, how do you think that the new bank will cooperate with the existing institutions?
Seven Latin American countries established the Bank of the South—an alternative regional development bank—on December 9, 2007. While the Bank is widely understood to be part of Venezuelan President Hugo Chavez’s anti-American political agenda, it is reflective of a general sentiment in Latin America that the World Bank and the International Monetary Fund (“the IMF”) have not been responsive to their needs. Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay, and Venezuela signed the founding documents. Chile, Peru, and Colombia have postponed their decisions to join the Bank.
Despite its launch on December 9, the Bank still needs to finalize the Bank’s operational procedures. The seven founding members disagree on how funds should be raised.
Some observers have dismissed the Bank as simply another outlet for Chavez’s political motivations. However, others—including former World Bank economist Joseph Stiglitz and the current IMF Managing Director Dominique Strauss-Kahn—have suggested that the Bank may assist in the international development efforts by providing competition to the more established international financial institutions.
Discussion:
How should the Bank of the South define itself in relation to the World Bank, the IMF, and the regional development banks? Given Chavez’s express dismissal of these institutions as America’s puppets, how do you think that the new bank will cooperate with the existing institutions?
Saturday, December 22, 2007
A Troubled UK Economy
source: Record UK deficit heads wave of bad data
Despite government assertions that the UK economy will “weather” global financial storms, the credit squeeze continues to wreck havoc on financial health. Data from the first eight months of the financial year reveal the worst public finance deficit ever as well as an annual drop in new mortgage lending. The Office for National Statistics revealed that the current account deficit widened from £13.7 bn to a record £ 20 bn in the third quarter. This deficit is equivalent to 5.7 percent of the gross domestic product, leaving Britain with the largest current account deficit in the group of seven leading countries. Analysts suggest that the sudden and deep deterioration in public finances will result in a shortfall of tax revenues.
The rapid increase in the current account deficit is largely attributed to big revisions to foreign investment incomes. A gap the large between what Britain spends and what it produces has never proven sustainable, leading to either falling currency to boost exports or a sharp slowing in spending to curb imports.
Similar worries plague the housing market. The Council for Mortgage Lenders said that gross mortgage lending last month was 8% lower than in November 2006. This marks the first annual decline in more than two years. The Council attributed the trend to a lack of available funding.
Questions for discussion
1. Is Britain’s financial trouble likely to affect its position in the global economy? If so, in what way?
Despite government assertions that the UK economy will “weather” global financial storms, the credit squeeze continues to wreck havoc on financial health. Data from the first eight months of the financial year reveal the worst public finance deficit ever as well as an annual drop in new mortgage lending. The Office for National Statistics revealed that the current account deficit widened from £13.7 bn to a record £ 20 bn in the third quarter. This deficit is equivalent to 5.7 percent of the gross domestic product, leaving Britain with the largest current account deficit in the group of seven leading countries. Analysts suggest that the sudden and deep deterioration in public finances will result in a shortfall of tax revenues.
The rapid increase in the current account deficit is largely attributed to big revisions to foreign investment incomes. A gap the large between what Britain spends and what it produces has never proven sustainable, leading to either falling currency to boost exports or a sharp slowing in spending to curb imports.
Similar worries plague the housing market. The Council for Mortgage Lenders said that gross mortgage lending last month was 8% lower than in November 2006. This marks the first annual decline in more than two years. The Council attributed the trend to a lack of available funding.
Questions for discussion
1. Is Britain’s financial trouble likely to affect its position in the global economy? If so, in what way?
Kazakhstan’s Credit Crisis
Source: Kazakhstan's Bank Lending Frozen in Subprime Squeeze (Bloomberg)
Kazakhstan is experiencing a credit crisis as much of the $40 billion that Western Investors have brought into the country is not evaporating. As one analyst notes, international credit markets crumbled after the fallout in the United States subprime mortgage market.
Quantifying the problem, Kazakhstan banks' sales of Eurobonds and syndicated loans, dropped from $8.6 billion, in the first eight months of 2007, to $300 million in the following three months. Other metrics show a similar economic problem. Not all analysts and players are pessimistic about the present and future. The chairman and principal owner of Kazakhstan's second-biggest financial institution, Ablyazov believes “that some seven to eight months will pass, and we will cope with the situation.''
After the discovery of the Kashagan oil field in 2000, Foreign investment increased dramatically. The new wealth is transforming what had been an “economic backwater.” To fund consumer and business demand for credit, Kazakhstan's banks jumped into international markets. As a result of the influx of foreign money, the country's banks grew their assets 10-fold since 2002, to $94.7 billion as of Nov. 1.
However, the aforementioned credit crisis has caused a reversal. From August through October, $6.8 billion in foreign currency flowed out of the country—28 percent of the central bank's total. To combat the recent problems, the government pledged to support the lenders' needs with up to $4 billion on Nov. 14. Many analysis do not see a recession in Kazakhstan’s future, rather they see more moderate or flat growth in the new future.
Questions for discussion: (1) What effect will the Government’s pledge have on the economy; (2) How deep and long-lasting will the credit crisis be in Kazakhstan?
Kazakhstan is experiencing a credit crisis as much of the $40 billion that Western Investors have brought into the country is not evaporating. As one analyst notes, international credit markets crumbled after the fallout in the United States subprime mortgage market.
Quantifying the problem, Kazakhstan banks' sales of Eurobonds and syndicated loans, dropped from $8.6 billion, in the first eight months of 2007, to $300 million in the following three months. Other metrics show a similar economic problem. Not all analysts and players are pessimistic about the present and future. The chairman and principal owner of Kazakhstan's second-biggest financial institution, Ablyazov believes “that some seven to eight months will pass, and we will cope with the situation.''
After the discovery of the Kashagan oil field in 2000, Foreign investment increased dramatically. The new wealth is transforming what had been an “economic backwater.” To fund consumer and business demand for credit, Kazakhstan's banks jumped into international markets. As a result of the influx of foreign money, the country's banks grew their assets 10-fold since 2002, to $94.7 billion as of Nov. 1.
However, the aforementioned credit crisis has caused a reversal. From August through October, $6.8 billion in foreign currency flowed out of the country—28 percent of the central bank's total. To combat the recent problems, the government pledged to support the lenders' needs with up to $4 billion on Nov. 14. Many analysis do not see a recession in Kazakhstan’s future, rather they see more moderate or flat growth in the new future.
Questions for discussion: (1) What effect will the Government’s pledge have on the economy; (2) How deep and long-lasting will the credit crisis be in Kazakhstan?
Friday, December 21, 2007
Hiatus
This blog will be on a hiatus for the holidays beginning December 24 and ending January 14. Please visit our blog in January for more news and events in the international finance and development community.
Thursday, December 20, 2007
IMF’s expectations for Canada’s economic outlook take a change for the worse
Source: IMF lowers Canada's 2008 economic outlook
The IMF expects a lackluster year in 2008 for Canada, having on Wednesday decreased its projections for its economy from its original projections earlier. The IMF gives as a reason for this downward trajectory Canada’s neighbor and largest trading partner: The U.S. Unfortunately, because of the poor shape of the U.S. economy, Canada is being dragged down as well.
As recent as October, the IMF had projected that Canada could expect economic growth in the 2.3 percent range, but now says that is not going to happen—however, the Fund wouldn’t commit itself to saying exactly how much less than 2.3 percent growth would be, claiming instead that a firm figure will be published in early February.
The IMF further said that this downward trend will continue as pressure from external factors and an increasingly weakened US and Canadian dollar take their toll on the countries’ respective economies; accompanying this will be a slowing down of domestic demand in both regions.
Nevertheless, the IMF commended the Bank of Canada’s choice to cut interest rates down to 4.25 percent in early December, undoing damage done by a point hike that had occurred in July.
Question: Would a simple increase in domestic demand be enough to save Canada from this economic downturn?
The IMF expects a lackluster year in 2008 for Canada, having on Wednesday decreased its projections for its economy from its original projections earlier. The IMF gives as a reason for this downward trajectory Canada’s neighbor and largest trading partner: The U.S. Unfortunately, because of the poor shape of the U.S. economy, Canada is being dragged down as well.
As recent as October, the IMF had projected that Canada could expect economic growth in the 2.3 percent range, but now says that is not going to happen—however, the Fund wouldn’t commit itself to saying exactly how much less than 2.3 percent growth would be, claiming instead that a firm figure will be published in early February.
The IMF further said that this downward trend will continue as pressure from external factors and an increasingly weakened US and Canadian dollar take their toll on the countries’ respective economies; accompanying this will be a slowing down of domestic demand in both regions.
Nevertheless, the IMF commended the Bank of Canada’s choice to cut interest rates down to 4.25 percent in early December, undoing damage done by a point hike that had occurred in July.
Question: Would a simple increase in domestic demand be enough to save Canada from this economic downturn?
Wednesday, December 19, 2007
China From “Prudent” to “Tightening” Stance on Monetary Policy
Question:
What are some of the social effects that are likely to result if
Korean Leaders Meet to Implement Summit Agreements
Sources: Korea Premiers in Rare Meeting, Korean Prime Ministers Meet
One hope held by the South Korean government is that such economic cooperation will solidify the denuclearization of
Question:
What might be some of the social effects (positive and negative) of the efforts towards inter-Korean economic accords?
U.N. Seeks to Reduce Burden on China and India to Reduce Carbon Emissions
Sources: U.N. Focuses on Carbon Burden, U.N. Carbon Tax Advocacy Opens Old Wounds
A report by the U.N. Development Programme recommended that countries like
Questions:
1) Do you think it is fair for the U.N. to recommend that industrialized countries shoulder most of the burden in the fight against global warming?
2) What might be some alternative solutions or compromises?
Friday, December 14, 2007
Gazprom Considers Investment in Bolivian Natural Gas
Source:
Financial Times - Gazprom Eyes $2bn Gas Deal in Bolivia
After the nationalization of Bolivia's energy sector last year, the country is now the target of a potential $2 billion natural gas investment from the Russian energy giant Gazprom. Although some foreign companies still operate in Bolivia, the decision to nationalize and the rhetoric from Bolivian leader Evo Morales have made foreign investors hesitant. Bolivia has the second-largest gas reserves in Latin America, behind Venezuela.
Bolivia is not currently producing enough natural gas to meet its commitments to Brazil and Argentina. It is estimated that Bolivia will need $3.2 billion in investment in order to keep pace with their foreign export commitments, increasing production to 75 million cubic meters per day from 39 million cubic meters per day.
The Bolivian government, through its state-owned company YPFB, would prefer to partner with another state-owned entity such as Gazprom. State-owned energy companies have become more important in the past several years, as governments seek to take direct advantage of their natural resources.
The interest from Gazprom comes amidst a new $750 million investment in Bolivia from Brazil's state-run Petrobras company.
Financial Times - Gazprom Eyes $2bn Gas Deal in Bolivia
After the nationalization of Bolivia's energy sector last year, the country is now the target of a potential $2 billion natural gas investment from the Russian energy giant Gazprom. Although some foreign companies still operate in Bolivia, the decision to nationalize and the rhetoric from Bolivian leader Evo Morales have made foreign investors hesitant. Bolivia has the second-largest gas reserves in Latin America, behind Venezuela.
Bolivia is not currently producing enough natural gas to meet its commitments to Brazil and Argentina. It is estimated that Bolivia will need $3.2 billion in investment in order to keep pace with their foreign export commitments, increasing production to 75 million cubic meters per day from 39 million cubic meters per day.
The Bolivian government, through its state-owned company YPFB, would prefer to partner with another state-owned entity such as Gazprom. State-owned energy companies have become more important in the past several years, as governments seek to take direct advantage of their natural resources.
The interest from Gazprom comes amidst a new $750 million investment in Bolivia from Brazil's state-run Petrobras company.
Friday, December 07, 2007
Chile Leads Region in Information-Technology Use
Source:
El Mercurio (Santiago) - Argentina desplaza a Chile en Celulares por Habitante
Chile is the most technologically-savvy country in Latin America, according to a new study released by that country's University of Navarra. In a survey of consumers in Argentina, Brazil, Chile, Colombia, and Mexico, it was Chile that had the largest number of internet users per capita as well as the most computer owners. Chileans also spent the most on information technology products each year.
However, Argentina displaced Chile as having the most cell-phone users per capita, with 977 per 1000 people compared to Chile's 828 per 1000 people. This is the result of Argentina's explosive 40% growth in cell phone usage within the past year alone.
Nevertheless, the study concluded that Chile was overall the most technologically-advanced of those countries surveyed. Chile has 360 internet users per 1000 people, and computer ownership increased to 263 per 1000 people. Chileans spend around $489 per capita annually on technology information products and services. This is in contrast to Mexicans, who spend a region-low $269 on comparable goods and services. However, even Chilean consumer spending pales in comparison to United States technological spending: $4,136 per person annually.
Discussion:
1. Does Chilean and Argentine consumer spending on technological items demonstrate a greater innate desire for these items, or is it merely a symptom of those countries' relatively high standard of living and economic success?
El Mercurio (Santiago) - Argentina desplaza a Chile en Celulares por Habitante
Chile is the most technologically-savvy country in Latin America, according to a new study released by that country's University of Navarra. In a survey of consumers in Argentina, Brazil, Chile, Colombia, and Mexico, it was Chile that had the largest number of internet users per capita as well as the most computer owners. Chileans also spent the most on information technology products each year.
However, Argentina displaced Chile as having the most cell-phone users per capita, with 977 per 1000 people compared to Chile's 828 per 1000 people. This is the result of Argentina's explosive 40% growth in cell phone usage within the past year alone.
Nevertheless, the study concluded that Chile was overall the most technologically-advanced of those countries surveyed. Chile has 360 internet users per 1000 people, and computer ownership increased to 263 per 1000 people. Chileans spend around $489 per capita annually on technology information products and services. This is in contrast to Mexicans, who spend a region-low $269 on comparable goods and services. However, even Chilean consumer spending pales in comparison to United States technological spending: $4,136 per person annually.
Discussion:
1. Does Chilean and Argentine consumer spending on technological items demonstrate a greater innate desire for these items, or is it merely a symptom of those countries' relatively high standard of living and economic success?
Investors speculate on the future of Egypt's economy as Mubarak prepares to step down
SOURCE: Voice of Bahrain: Gulf Daily News—“Succession Fears May Hit Egypt Growth”
Reports today suggest investors are nervous about what will happen to the Egyptian economy when its current leader, President Hosni Mubarak, steps down. Mubarak is seen as having been successful in keeping social pressures in the Arab country under control during his administration.
However, some analysts suggest that signs point to the transition being a smooth one, noting the nearly 45% rise in the Egyptian stock market and appreciating currency.
They also point to speculation that Mubarak is grooming his forty-three year old son Gamal to succeed him. From an economic standpoint, it is thought that he would do well as is credited with spearheading the reforms that have led to dramatic growth in the Egyptian economy.
FOR DISCUSSION:
How might a country preparing to undergo transition of political power protect its economy from nervous investors?
Reports today suggest investors are nervous about what will happen to the Egyptian economy when its current leader, President Hosni Mubarak, steps down. Mubarak is seen as having been successful in keeping social pressures in the Arab country under control during his administration.
However, some analysts suggest that signs point to the transition being a smooth one, noting the nearly 45% rise in the Egyptian stock market and appreciating currency.
They also point to speculation that Mubarak is grooming his forty-three year old son Gamal to succeed him. From an economic standpoint, it is thought that he would do well as is credited with spearheading the reforms that have led to dramatic growth in the Egyptian economy.
FOR DISCUSSION:
How might a country preparing to undergo transition of political power protect its economy from nervous investors?
Africa-EU summit addresses some issues, but not Darfur.
SOURCE: Deutsche-Welle—“First Verbal Shots Fired as Leaders Gather for EU-Africa Summit
This week, representatives of nations of the European Union (EU) and the African countries met in Lisbon for a summit that is to focus on the relationship between the continents. The EU is Africa’s biggest trading partner, but China trade between China and African nations is growing rapidly.
The summit began controversially as Britain’s Prime Minister Brown boycotted the event in response to the presence of Zimbabwean President Mugabe. Additionally, Libya’s leader Moammar Ghadafi began by asserting that the European nations that carved up and colonized Africa should now pay reparations for the damages caused. Reports indicate that while the majority of African leaders may not share Ghadafi’s views, his words underscore the uneasy relationship between the continents, borne from Europe’s imperialist past.
Other issues that will be raised at the summit include African nations’ discomfort with the economic partnership agreements “EPAs” that it feels the EU is attemting to pressure them into accepting. South Africa, the continent’s largest economy has asserted that “detrimental issues” in the EPAs—which most African countries view as unfavorable to their interests—needed to be addressed.
For the Europeans, charges that Zimbabwean President Robert Mugabe has committed scores of human rights abuses and undermined that nation’s economy is high on the list of issues to address.
FOR DISCUSSION:
Do you believe that the issues to be addressed at this summit are relevant? Are there more pressing issues, such as the genocide in Darfur, that should be on the table?
This week, representatives of nations of the European Union (EU) and the African countries met in Lisbon for a summit that is to focus on the relationship between the continents. The EU is Africa’s biggest trading partner, but China trade between China and African nations is growing rapidly.
The summit began controversially as Britain’s Prime Minister Brown boycotted the event in response to the presence of Zimbabwean President Mugabe. Additionally, Libya’s leader Moammar Ghadafi began by asserting that the European nations that carved up and colonized Africa should now pay reparations for the damages caused. Reports indicate that while the majority of African leaders may not share Ghadafi’s views, his words underscore the uneasy relationship between the continents, borne from Europe’s imperialist past.
Other issues that will be raised at the summit include African nations’ discomfort with the economic partnership agreements “EPAs” that it feels the EU is attemting to pressure them into accepting. South Africa, the continent’s largest economy has asserted that “detrimental issues” in the EPAs—which most African countries view as unfavorable to their interests—needed to be addressed.
For the Europeans, charges that Zimbabwean President Robert Mugabe has committed scores of human rights abuses and undermined that nation’s economy is high on the list of issues to address.
FOR DISCUSSION:
Do you believe that the issues to be addressed at this summit are relevant? Are there more pressing issues, such as the genocide in Darfur, that should be on the table?
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