Sources:
"Year After Subprime Crash, Risks Remain Elevated, Says IMF"
"IMF Gloom Over 'Fragile' Markets and Global Risk"
In the International Monetary Fund’s (IMF) Global Financial Stability Report Market Update, released July 28, the IMF warned that the U.S. subprime market crisis continues to trigger turmoil in the global financial markets. As a result, the resilience of emerging markets is being tested and policy trade-offs between inflation, growth, and financial stability are becoming increasingly difficult for policymakers around the world. The IMF addressed three areas in the report; 1) slowing global growth, 2) growing U.S. problems, and 3) governmental responses.
The IMF expects global growth to slow considerably in the near future because of high energy prices and concerns about rising inflation. The inflation risks have caused policymakers to become less supportive of actions to stabilize the financial markets which could lead to higher inflation. The IMF also noted that the U.S. housing market has not stabilized and “a bottom for the housing market is not visible.” This combined with a softening of the housing market in Europe will likely lead to future loan losses. According to the IMF, global financial institutions have written off around $400 billion in bad loans since last August and predict that this cycle could total $945 billion in losses. While these institutions have successfully raised large amounts of capital to cover the losses, the IMF cautioned that additional write offs and slowing worldwide growth could make it more difficult to raise capital.
The IMF did praise the extraordinary steps that central banks in mature markets have taken to prevent systematic risk from spreading. This included the support the U.S. has given to Freddie Mac and Fannie Mae, which the IMF noted would have dire consequences if allowed to fail. According to the IMF, further interventions by governmental authorities, especially in the U.S., will be necessary to prevent systematic risk and preserve the financial stability. Jaime Caruana, Director of the IMF’s Monetary and Capital Markets Department said that, “prompt and transparent government responses, however, will go a long way to relieving the uncertainties.”
Questions:
1) With the IMF’s predictions that less then half of the losses associated with the current crisis have been realized, have we seen the worst of the credit crisis or is the major shock yet to come?
2) Should the multilateral financial institutions such as the IMF and World Bank get involved in the policy making decisions to protect the financial stability of the global markets or should these decisions be left only to individual countries?
3) Between the competing interests of controlling inflation and providing governmental assistance to control financial instability, which should be more important? Since this decision will have worldwide effects, should it be left to each individual country or should a international regulator step in and set up the parameters?
Wednesday, July 30, 2008
Tuesday, July 29, 2008
Increased Investment in “Frontier Markets”
Source: Financial Times
Investment experts are beginning to see a shift from a focus on emerging markets such as China and India to frontier markets found in the Middle East and Africa. For instance, emerging markets have seen a net outflow (withdrawal of funds) of $22bn while frontier markets have seen a net inflow (investment) of over $1.3bn. It will helpful to explain what the terms emerging and frontier markets mean.
The term emerging market is used to describe countries that are experiencing rapid industrialization. Countries that experts consider to be emerging markets are thought to be in a transitional phase between developing and developed countries. Typically investors put money in these emerging markets because they promise high growth potential and short term gains for the investors.
Frontier markets, on the other hand, are usually smaller, less accessible countries in the developing world. These countries have not yet experienced the rapid growth of emerging markets yet are stable enough for investors to put money into their markets. Though the term frontier market is not constrained by any geographical area, the majority of these markets are located in Africa and the Middle East. It might be helpful to think of frontier markets as “pre-emerging markets” – markets that will eventually reach the level of growth and development of established emerging markets.
As early as the beginning of this year, emerging markets were seen as safe havens for international investors and a source of high returns. However, as emerging markets like China and India experience increased inflation and falling equity markets, investors are shifting money into frontier markets. While emerging markets offer short-term returns, investors in frontier markets are looking for more long-term growth prospects. Frontier markets cannot accept the quantity of investment that emerging markets can sustain, but these markets are less susceptible to global fluctuations such as the current credit crisis. As frontier markets in Africa and the Middle East become more stable and develop more industries experts expect investment to continue to increase.
Questions:
Frontier investments are often long-term investments. Does this mean that there is less risk associated with these types of investments or does this reflect the different types of industries that exist in frontier markets?
As more money flows into frontier markets will this spur social and political change in countries that have not gained a level of stability to be considered safe frontier markets? For instance, if Zimbabwe sees its northern African peers benefiting from foreign investment will this encourage Mugabe to clean up his act? Will stable neighbors help other countries reach a higher level of stability themselves?
Investment experts are beginning to see a shift from a focus on emerging markets such as China and India to frontier markets found in the Middle East and Africa. For instance, emerging markets have seen a net outflow (withdrawal of funds) of $22bn while frontier markets have seen a net inflow (investment) of over $1.3bn. It will helpful to explain what the terms emerging and frontier markets mean.
The term emerging market is used to describe countries that are experiencing rapid industrialization. Countries that experts consider to be emerging markets are thought to be in a transitional phase between developing and developed countries. Typically investors put money in these emerging markets because they promise high growth potential and short term gains for the investors.
Frontier markets, on the other hand, are usually smaller, less accessible countries in the developing world. These countries have not yet experienced the rapid growth of emerging markets yet are stable enough for investors to put money into their markets. Though the term frontier market is not constrained by any geographical area, the majority of these markets are located in Africa and the Middle East. It might be helpful to think of frontier markets as “pre-emerging markets” – markets that will eventually reach the level of growth and development of established emerging markets.
As early as the beginning of this year, emerging markets were seen as safe havens for international investors and a source of high returns. However, as emerging markets like China and India experience increased inflation and falling equity markets, investors are shifting money into frontier markets. While emerging markets offer short-term returns, investors in frontier markets are looking for more long-term growth prospects. Frontier markets cannot accept the quantity of investment that emerging markets can sustain, but these markets are less susceptible to global fluctuations such as the current credit crisis. As frontier markets in Africa and the Middle East become more stable and develop more industries experts expect investment to continue to increase.
Questions:
Frontier investments are often long-term investments. Does this mean that there is less risk associated with these types of investments or does this reflect the different types of industries that exist in frontier markets?
As more money flows into frontier markets will this spur social and political change in countries that have not gained a level of stability to be considered safe frontier markets? For instance, if Zimbabwe sees its northern African peers benefiting from foreign investment will this encourage Mugabe to clean up his act? Will stable neighbors help other countries reach a higher level of stability themselves?
Saturday, July 26, 2008
Regulation: An End to Laissez-Faire Capitalism?
Sources: Wall Street Journal, New York Times
After nearly thirty years of deregulation throughout the U.S. economy, law makers and key financial leaders are looking to reverse the trend, if only temporarily. On Thursday, the House Financial Services Committee held a hearing where SEC Chairman Cox solicited more power to control investment banks and their parent companies. Mr. Cox stated that the system can be modernized by expanding what has worked in the past and learning lessons from failed regulation. The New York Fed President Timothy Geithner went a step further proclaiming his belief that the entire financial regulatory structure be reviewed.
The Federal Reserve Vice Chairman Alan Blinder frames the move toward more regulation as a “backlash against the laissez-fair” viewpoint. He believes the creativity fostered in such an environment is what led to the mortgage and credit crisis. According to a Wall Street Journal/NBC News poll, his thoughts are paralleled by the public. Roughly a decade ago, Americans disfavored government involvement in the economy by a ratio of two-to-one. Now they desire more government action by a 53% to 42% margin.
The Fed has already given billions of emergency funds to Bear Stearns, Fannie Mae, and Freddie Mac. Some economists, however, believe the increase in regulation will be short-lived. Kevin Hassett of the American Enterprise Institute compares the Fed’s recent actions with the $125 billion expenditure following the collapse of savings and loan banks in the 1980’s. He noted that the government involvement in the financial sector stopped as soon as the situation stabilized.
Questions:
1. Who has a more accurate viewpoint: Mr. Cox or Mr. Geithner? Can lawmakers work with the current regulation to satisfy the public's desire and stabilize the financial sector of should lawmakers start from scratch?
2. How will increased regulation affect new businesses within the U.S.? Will it foster growth by providing a more stable environment or hinder growth by creating barriers?
3. Will this swell in regulation and government involvement continue or will it subside as it did in the 1980’s?
After nearly thirty years of deregulation throughout the U.S. economy, law makers and key financial leaders are looking to reverse the trend, if only temporarily. On Thursday, the House Financial Services Committee held a hearing where SEC Chairman Cox solicited more power to control investment banks and their parent companies. Mr. Cox stated that the system can be modernized by expanding what has worked in the past and learning lessons from failed regulation. The New York Fed President Timothy Geithner went a step further proclaiming his belief that the entire financial regulatory structure be reviewed.
The Federal Reserve Vice Chairman Alan Blinder frames the move toward more regulation as a “backlash against the laissez-fair” viewpoint. He believes the creativity fostered in such an environment is what led to the mortgage and credit crisis. According to a Wall Street Journal/NBC News poll, his thoughts are paralleled by the public. Roughly a decade ago, Americans disfavored government involvement in the economy by a ratio of two-to-one. Now they desire more government action by a 53% to 42% margin.
The Fed has already given billions of emergency funds to Bear Stearns, Fannie Mae, and Freddie Mac. Some economists, however, believe the increase in regulation will be short-lived. Kevin Hassett of the American Enterprise Institute compares the Fed’s recent actions with the $125 billion expenditure following the collapse of savings and loan banks in the 1980’s. He noted that the government involvement in the financial sector stopped as soon as the situation stabilized.
Questions:
1. Who has a more accurate viewpoint: Mr. Cox or Mr. Geithner? Can lawmakers work with the current regulation to satisfy the public's desire and stabilize the financial sector of should lawmakers start from scratch?
2. How will increased regulation affect new businesses within the U.S.? Will it foster growth by providing a more stable environment or hinder growth by creating barriers?
3. Will this swell in regulation and government involvement continue or will it subside as it did in the 1980’s?
Thursday, July 24, 2008
IMF Warns of Tough Policy Choices for World Economy
Sources:
"Tough Choices for World Economy, Says IMF's Lipsky"
"Perspectives on the Global Economic Landscape and the Role of the Dollar"
In a speech at the Brookings Institution in Washington D.C. on July 22, the first deputy managing director of the International Monetary Fund (IMF), John Lipsky, said that policymakers around the world faced tough decisions on how to react and correct the current economic climate. He stated that high oil prices had created imbalances throughout the global economy creating new risks and misalignment. Lipsky expressed his comments and recommendations on seven specific areas of the global economy; 1) advanced economies, 2) emerging markets, 3) financial markets, 4) reducing global imbalances, 5) oil markets, 6) exchange rates, and 7) prospects a reserve currency.
In addressing advanced economies, Lipsky stated that the key objectives of policymakers need to be managing inflation while stabilizing the financial system. If this is not accomplished, the efforts to control inflation over the past decades could be lost. For emerging markets, the focus should be on controlling inflation. Lipsky stressed that although many of these countries have tightened their monetary policy, real interest rates remain negative causing inflation to get out of control because of surging commodity prices and growth in domestic demand. Advanced economies such as the North America and Europe need to play a large role in the stabilization of the global financial markets. As the world economy worsens, credit deterioration is widening and banks are getting squeezed. Inflation concerns have reduced much of the flexibility of policymakers to ease stress on the financial markets but they still need to improve policies that allow the banks to deleverage and rebuild capital. To reduce global imbalances, Lipsky stated that countries need to achieve better balance in demand growth. This balance will reduce global payment imbalances and help boost confidence. To adapt to the high oil prices, emerging markets need to pass through the higher international prices without subsidies while advanced economies need to control demand through conservation and efficiency. Lipsky also noted that the depreciation of the dollar and inflation has led to increased stress on the countries with inflexible exchange rates. As far as the world reserve currency, Lipsky said the dollar will likely continue to play a large role as the most popular but forecasted more diversification, with the euro becoming a major player.
Questions:
1) The goal of controlling inflation is often in direct conflict with increasing economic growth. With the global growth downturn, is it more important for policymakers to try to control inflation or attempt to increase growth?
2) The dollar has fallen 25% since 2002, making this one of the largest sustained depreciation episodes in its history. Will the dollar rebound, keep depreciating, or has it been overvalued in the past and the current climate is the correct valuation? If the dollar keeps depreciating, how long before the currencies that are pegged have to adjust?
"Tough Choices for World Economy, Says IMF's Lipsky"
"Perspectives on the Global Economic Landscape and the Role of the Dollar"
In a speech at the Brookings Institution in Washington D.C. on July 22, the first deputy managing director of the International Monetary Fund (IMF), John Lipsky, said that policymakers around the world faced tough decisions on how to react and correct the current economic climate. He stated that high oil prices had created imbalances throughout the global economy creating new risks and misalignment. Lipsky expressed his comments and recommendations on seven specific areas of the global economy; 1) advanced economies, 2) emerging markets, 3) financial markets, 4) reducing global imbalances, 5) oil markets, 6) exchange rates, and 7) prospects a reserve currency.
In addressing advanced economies, Lipsky stated that the key objectives of policymakers need to be managing inflation while stabilizing the financial system. If this is not accomplished, the efforts to control inflation over the past decades could be lost. For emerging markets, the focus should be on controlling inflation. Lipsky stressed that although many of these countries have tightened their monetary policy, real interest rates remain negative causing inflation to get out of control because of surging commodity prices and growth in domestic demand. Advanced economies such as the North America and Europe need to play a large role in the stabilization of the global financial markets. As the world economy worsens, credit deterioration is widening and banks are getting squeezed. Inflation concerns have reduced much of the flexibility of policymakers to ease stress on the financial markets but they still need to improve policies that allow the banks to deleverage and rebuild capital. To reduce global imbalances, Lipsky stated that countries need to achieve better balance in demand growth. This balance will reduce global payment imbalances and help boost confidence. To adapt to the high oil prices, emerging markets need to pass through the higher international prices without subsidies while advanced economies need to control demand through conservation and efficiency. Lipsky also noted that the depreciation of the dollar and inflation has led to increased stress on the countries with inflexible exchange rates. As far as the world reserve currency, Lipsky said the dollar will likely continue to play a large role as the most popular but forecasted more diversification, with the euro becoming a major player.
Questions:
1) The goal of controlling inflation is often in direct conflict with increasing economic growth. With the global growth downturn, is it more important for policymakers to try to control inflation or attempt to increase growth?
2) The dollar has fallen 25% since 2002, making this one of the largest sustained depreciation episodes in its history. Will the dollar rebound, keep depreciating, or has it been overvalued in the past and the current climate is the correct valuation? If the dollar keeps depreciating, how long before the currencies that are pegged have to adjust?
Tuesday, July 22, 2008
Burma Cyclone Update:
Source:
Financial Times
(This is an update on a previous post concerning Cyclone Nargis that hit Burma in early May.)
According to an assessment completed by the United Nations and the Association of South East Asian Nations, Cyclone Nargis caused a total of $4bn worth of damage to Burma. Cyclone Nargis, the worst Asian cyclone since 1991, destroyed almost a half million homes, damaged 350,000 more and left many communities without schools and medical centers. The Burmese government now estimates that over $1bn will be necessary to provide emergency services to its people over the next three years.
That Burma allowed unfettered access to the UN and other international aid organizations to complete the assessment is seen as a minor political victory. As the previous post explained, Burma’s military junta was initially slow to allow the international community to enter Burma to offer aid, assistance, and badly needed food and water. However, some two months later the UN reported that aid money is being well spent and applauded Burma cooperation in the compressive assessment.
Burma’s recent cooperation is a step in the right direction towards regaining its standing with international aid organizations such as the World Bank. However, experts are quick to note that many of the political realties from before the cyclone still exist. It is unlikely that the recent cooperation alone -- without additional human rights reform -- will put Burma back in the World Bank’s good grace. Putting those issues aside, with the assessment providing a blueprint for future aid, many are optimistic that Burma will receive the aid it desperately needs.
Questions:
How long do you think the military junta will continue to cooperate with international aid organizations? Is this a good sign that Burma is ready to reform or do you think cooperation will decrease as Burma’s situation improves?
Financial Times
(This is an update on a previous post concerning Cyclone Nargis that hit Burma in early May.)
According to an assessment completed by the United Nations and the Association of South East Asian Nations, Cyclone Nargis caused a total of $4bn worth of damage to Burma. Cyclone Nargis, the worst Asian cyclone since 1991, destroyed almost a half million homes, damaged 350,000 more and left many communities without schools and medical centers. The Burmese government now estimates that over $1bn will be necessary to provide emergency services to its people over the next three years.
That Burma allowed unfettered access to the UN and other international aid organizations to complete the assessment is seen as a minor political victory. As the previous post explained, Burma’s military junta was initially slow to allow the international community to enter Burma to offer aid, assistance, and badly needed food and water. However, some two months later the UN reported that aid money is being well spent and applauded Burma cooperation in the compressive assessment.
Burma’s recent cooperation is a step in the right direction towards regaining its standing with international aid organizations such as the World Bank. However, experts are quick to note that many of the political realties from before the cyclone still exist. It is unlikely that the recent cooperation alone -- without additional human rights reform -- will put Burma back in the World Bank’s good grace. Putting those issues aside, with the assessment providing a blueprint for future aid, many are optimistic that Burma will receive the aid it desperately needs.
Questions:
How long do you think the military junta will continue to cooperate with international aid organizations? Is this a good sign that Burma is ready to reform or do you think cooperation will decrease as Burma’s situation improves?
Thursday, July 17, 2008
U.S. Executive Ban on Offshore Oil Exploration Lifted
Sources: Financial Times, BBC
President George W. Bush put the future of offshore oil drilling in Congress’s hands this week when he lifted the Executive Order issued in 1990 prohibiting offshore oil exploration. Now Congress alone has the key to releasing an expected eighteen billion barrels of oil. This oil, which rests under eighty percent of the U.S. coastal waters, is said to be enough to match current U.S. oil production for ten years. Congress’s legislative ban on coastal drilling has been in place for twenty-eight years and is seen as a protective shield to the potential environmental harm associated with oil drilling.
With oil prices hitting a new high of $147 per barrel last Friday, this move by the Republican president throws another coal onto the political fire. Republicans predict that offshore drilling will signal a reduction of American dependence on expensive foreign oil, a welcome idea to those paying more than $4 per gallon of gas. Democrats, including the likely presidential nominee Barack Obama, say that the effects of drilling will be far from immediate. Mr. Obama further stated that, "It would merely prolong the failed energy policies we have seen from Washington for thirty years." Environmentalists agree and fear widespread destruction of U.S. coastlines.
As the presidential election approaches and oil prices remain high, Congress will be pressed to take a stance. Sources disagree as to the position Democratic legislators will take. Some foresee Capitol Hill following the wishes of two thirds of its constituents who favor coastal drilling. Others expect Congress to remain within party lines to show support for their respective candidate.
Questions:
1. Will Congress vote on the issue of lifting the ban? If it does, do you think the ban will be upheld?
2. If the ban is lifted, will it significantly change oil prices in the U.S.? Will the exposure to oil below eighty percent of U.S. coastlines change the U.S. economy beyond oil prices?
President George W. Bush put the future of offshore oil drilling in Congress’s hands this week when he lifted the Executive Order issued in 1990 prohibiting offshore oil exploration. Now Congress alone has the key to releasing an expected eighteen billion barrels of oil. This oil, which rests under eighty percent of the U.S. coastal waters, is said to be enough to match current U.S. oil production for ten years. Congress’s legislative ban on coastal drilling has been in place for twenty-eight years and is seen as a protective shield to the potential environmental harm associated with oil drilling.
With oil prices hitting a new high of $147 per barrel last Friday, this move by the Republican president throws another coal onto the political fire. Republicans predict that offshore drilling will signal a reduction of American dependence on expensive foreign oil, a welcome idea to those paying more than $4 per gallon of gas. Democrats, including the likely presidential nominee Barack Obama, say that the effects of drilling will be far from immediate. Mr. Obama further stated that, "It would merely prolong the failed energy policies we have seen from Washington for thirty years." Environmentalists agree and fear widespread destruction of U.S. coastlines.
As the presidential election approaches and oil prices remain high, Congress will be pressed to take a stance. Sources disagree as to the position Democratic legislators will take. Some foresee Capitol Hill following the wishes of two thirds of its constituents who favor coastal drilling. Others expect Congress to remain within party lines to show support for their respective candidate.
Questions:
1. Will Congress vote on the issue of lifting the ban? If it does, do you think the ban will be upheld?
2. If the ban is lifted, will it significantly change oil prices in the U.S.? Will the exposure to oil below eighty percent of U.S. coastlines change the U.S. economy beyond oil prices?
Wednesday, July 16, 2008
IMF to Abolish Offshore Financial Center Assessment Program
Sources:
"IMF to End Offshore 'Stigma'"
"IMF Executive Board OFCAP with FSAP"
"IMF Background Paper"
On July 9, the International Monetary Fund (IMF) announced it will no longer classify offshore financial centers (OFCs) as separate from onshore financial centers. On May 30, 2008, the Executive Board of the IMF approved integration of the OFC Assessment Program into the Financial Sector Assessment Program (FSAP). This move effectively eliminates the divide between offshore and onshore financial centers. The IMF directors stressed that the combination will not lead to diminished focus by the IMF on the OFC’s compliance with international standards.
The directors noted that because of the integration of the world’s financial systems, the distinction was no longer relevant. In 2000, the IMF originally defined an OFC as 1) jurisdictions that have relatively large numbers of financial institutions engaged primarily in business with non-residents, 2) financial systems with external assets and liabilities out of proportion to domestic financial intermediation designed to finance domestic economies, and 3) centers which provide some or all of the following services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity. The IMF stated that the globalization of finance has blurred this definition and made it difficult to draw the line in a credible manner.
Forty small countries view the elimination of the OFC Assessment Program as a victory. They have complained that the distinction has unfairly discriminated against their financial systems. The Society of Trust and Estate Practitioners, which represent business in many OFCs, have referred to the definition as a “discriminatory stigmatization.” The IMF even noted that a motivating factor was a desire to “eliminate the need to maintain a potentially discriminatory list of OFC jurisdictions.” The IMF also noted that the nine or ten OFCs that account for the overwhelming volume of financial transactions will be assessed more often to insure compliance.
Questions:
1) With the current credit crisis in the world, most countries have called for more regulation and transparency in the financial markets. Will this move by the IMF lead to less transparency and regulation of OFCs?
2) How much of an impact can the IMF have in removing the stigmata associated with OFCs? Will this integration make any difference or will investors still associate these financial centers with the OFC stereotype?
"IMF to End Offshore 'Stigma'"
"IMF Executive Board OFCAP with FSAP"
"IMF Background Paper"
On July 9, the International Monetary Fund (IMF) announced it will no longer classify offshore financial centers (OFCs) as separate from onshore financial centers. On May 30, 2008, the Executive Board of the IMF approved integration of the OFC Assessment Program into the Financial Sector Assessment Program (FSAP). This move effectively eliminates the divide between offshore and onshore financial centers. The IMF directors stressed that the combination will not lead to diminished focus by the IMF on the OFC’s compliance with international standards.
The directors noted that because of the integration of the world’s financial systems, the distinction was no longer relevant. In 2000, the IMF originally defined an OFC as 1) jurisdictions that have relatively large numbers of financial institutions engaged primarily in business with non-residents, 2) financial systems with external assets and liabilities out of proportion to domestic financial intermediation designed to finance domestic economies, and 3) centers which provide some or all of the following services: low or zero taxation; moderate or light financial regulation; banking secrecy and anonymity. The IMF stated that the globalization of finance has blurred this definition and made it difficult to draw the line in a credible manner.
Forty small countries view the elimination of the OFC Assessment Program as a victory. They have complained that the distinction has unfairly discriminated against their financial systems. The Society of Trust and Estate Practitioners, which represent business in many OFCs, have referred to the definition as a “discriminatory stigmatization.” The IMF even noted that a motivating factor was a desire to “eliminate the need to maintain a potentially discriminatory list of OFC jurisdictions.” The IMF also noted that the nine or ten OFCs that account for the overwhelming volume of financial transactions will be assessed more often to insure compliance.
Questions:
1) With the current credit crisis in the world, most countries have called for more regulation and transparency in the financial markets. Will this move by the IMF lead to less transparency and regulation of OFCs?
2) How much of an impact can the IMF have in removing the stigmata associated with OFCs? Will this integration make any difference or will investors still associate these financial centers with the OFC stereotype?
Thursday, July 10, 2008
The Food Crisis at the G8 Conference
Sources: World Bank, Financial Times
Last week, the G8 held a conference in Hokkaido, Japan. One of the most important discussion topics at the conference was agriculture, including the rapidly rising food prices. The last time agriculture made the G8 discussion docket was in 1981. While the World Bank previously proposed a ten-point plan to change the direction of food prices, some believe that the plan will be insufficient to truly address a growing problem.
In a statement at the G8 conference, World Bank Group President Robert B. Zoellick emphasized again the importance of the three pillars behind his ten-point plan to end the food crisis. Zoellick contends that, “for globalization to succeed and to achieve its promise, it must be both inclusive and sustainable. We must protect the most vulnerable even as we offer a pathway to opportunity.”
He plans to first meet pressing needs by creating a food delivery network encompassing as many means as possible. He also plans to double funding for the World Food Program. Second, Zoellick believes that providing farming supplies can increase immediate food production in Southern and Western Africa where the farming season takes place between September and December. Last, the World Bank President recommends reducing or eliminating barriers and tariffs to make food cheaper and more accessible. Thus far, twenty-six countries have taken at least some action.
Commentators believe that the green revolution, the infusion of agriculture in developing countries, is over. In fact, they blame the revolution, in part, for the current crisis. Since the initial boost in agriculture in the second half of last century, population growth has superseded agricultural growth. Critics say that past agricultural development led to a decrease in investment and eventually a slowdown in productivity, as food quantities appeared sustainable. These commentators believe that the G8 conference will push for measures to recreate the short-term effects of the green revolution. They find it unlikely, though, that countries will go beyond reducing barriers to actually enforcing long-term policy changes.
Questions:
1. Given some nations’ reluctance to decrease biofuel development in the name of food production, are long-term policy changes a feasible resolution to the food crisis? Will nations come together to end the problem through policy?
2. Will Zoellick’s three pillars supporting his ten point plan go beyond addressing the immediate problem or will support be discontinued after immediate obligations have been fulfilled?
Last week, the G8 held a conference in Hokkaido, Japan. One of the most important discussion topics at the conference was agriculture, including the rapidly rising food prices. The last time agriculture made the G8 discussion docket was in 1981. While the World Bank previously proposed a ten-point plan to change the direction of food prices, some believe that the plan will be insufficient to truly address a growing problem.
In a statement at the G8 conference, World Bank Group President Robert B. Zoellick emphasized again the importance of the three pillars behind his ten-point plan to end the food crisis. Zoellick contends that, “for globalization to succeed and to achieve its promise, it must be both inclusive and sustainable. We must protect the most vulnerable even as we offer a pathway to opportunity.”
He plans to first meet pressing needs by creating a food delivery network encompassing as many means as possible. He also plans to double funding for the World Food Program. Second, Zoellick believes that providing farming supplies can increase immediate food production in Southern and Western Africa where the farming season takes place between September and December. Last, the World Bank President recommends reducing or eliminating barriers and tariffs to make food cheaper and more accessible. Thus far, twenty-six countries have taken at least some action.
Commentators believe that the green revolution, the infusion of agriculture in developing countries, is over. In fact, they blame the revolution, in part, for the current crisis. Since the initial boost in agriculture in the second half of last century, population growth has superseded agricultural growth. Critics say that past agricultural development led to a decrease in investment and eventually a slowdown in productivity, as food quantities appeared sustainable. These commentators believe that the G8 conference will push for measures to recreate the short-term effects of the green revolution. They find it unlikely, though, that countries will go beyond reducing barriers to actually enforcing long-term policy changes.
Questions:
1. Given some nations’ reluctance to decrease biofuel development in the name of food production, are long-term policy changes a feasible resolution to the food crisis? Will nations come together to end the problem through policy?
2. Will Zoellick’s three pillars supporting his ten point plan go beyond addressing the immediate problem or will support be discontinued after immediate obligations have been fulfilled?
Tuesday, July 08, 2008
Asian Development Bank to Invest in Carbon Credits
Sources:
Financial Times
ADB Website
The Asian Development Bank (“ADB”) recently announced that it would start a fund to invest in carbon credits that will be generated after 2012. 2012 marks the end of the Kyoto Protocol. The ADB hopes to invest close to $200mil. Many investors have not financed projects set to take affect after the dissolution of the Kyoto Protocol given the uncertainty surrounding the potential new agreement. However, the ADB hopes that its investments will spur other developmental and commercial banks to follow suit.
The Kyoto Protocol created a carbon emissions program trading where developed nations trade carbon credits between themselves or with developing countries in order to meet their emission goals. For instance, if a nation is producing more carbon byproducts than their emission goals allow for, they can buy carbon credits from other countries to compensate for their overproduction. In other words, if an over-producing country purchases carbon credits from under-producing countries then the net emissions will be within the overall emissions goal. The ADB plans to utilize this carbon trading system to invest in carbon credit producing enterprises in developing nations that can sell their carbon credits to more developed countries.
The ADB plans to offer funding for such carbon credit producing enterprises by offering upfront investments for developing nations. The majority of ADB projects are “pay-on-delivery,” which means the countries must be able to put up initial capital in order to secure ADB financing. This typical method does not work well in the carbon credit industries because the industries often require large initial capital investments and a reliable, structured financing system in order to be successful. In addition to the up-front financing, the ADB plans to offer technical assistance to the carbon credit start-ups. This, the ADB hopes, will make private investment in the start-ups less risky given the ADB’s technical expertise.
Questions:
Some critics feel that when developing countries pursue lower emissions in order to create credits it leads to the developing countries taking actions that are not in the best interest of its citizens and the environment. For instance, in some countries “old-growth” forests (which absorb lower levels of carbon) are cut down in order to encourage new plant growth that will absorb larger quantities of carbon. Should the ADB carefully monitor such trade-offs before investing in a project? Is it worth it to reduce greenhouse gas emissions at the expense of developing countries?
The United States did not officially sign the Kyoto Protocol and was not bound to its emission goals. The US has stated that it will not sign a new version of the protocol unless China and India agree to it as well. Do you think major players such as the US, China, and India will have a negative effect on the carbon credit market if they do not agree to a plan in 2012? Is the ADB banking on the US to join the new emissions agreement?
Financial Times
ADB Website
The Asian Development Bank (“ADB”) recently announced that it would start a fund to invest in carbon credits that will be generated after 2012. 2012 marks the end of the Kyoto Protocol. The ADB hopes to invest close to $200mil. Many investors have not financed projects set to take affect after the dissolution of the Kyoto Protocol given the uncertainty surrounding the potential new agreement. However, the ADB hopes that its investments will spur other developmental and commercial banks to follow suit.
The Kyoto Protocol created a carbon emissions program trading where developed nations trade carbon credits between themselves or with developing countries in order to meet their emission goals. For instance, if a nation is producing more carbon byproducts than their emission goals allow for, they can buy carbon credits from other countries to compensate for their overproduction. In other words, if an over-producing country purchases carbon credits from under-producing countries then the net emissions will be within the overall emissions goal. The ADB plans to utilize this carbon trading system to invest in carbon credit producing enterprises in developing nations that can sell their carbon credits to more developed countries.
The ADB plans to offer funding for such carbon credit producing enterprises by offering upfront investments for developing nations. The majority of ADB projects are “pay-on-delivery,” which means the countries must be able to put up initial capital in order to secure ADB financing. This typical method does not work well in the carbon credit industries because the industries often require large initial capital investments and a reliable, structured financing system in order to be successful. In addition to the up-front financing, the ADB plans to offer technical assistance to the carbon credit start-ups. This, the ADB hopes, will make private investment in the start-ups less risky given the ADB’s technical expertise.
Questions:
Some critics feel that when developing countries pursue lower emissions in order to create credits it leads to the developing countries taking actions that are not in the best interest of its citizens and the environment. For instance, in some countries “old-growth” forests (which absorb lower levels of carbon) are cut down in order to encourage new plant growth that will absorb larger quantities of carbon. Should the ADB carefully monitor such trade-offs before investing in a project? Is it worth it to reduce greenhouse gas emissions at the expense of developing countries?
The United States did not officially sign the Kyoto Protocol and was not bound to its emission goals. The US has stated that it will not sign a new version of the protocol unless China and India agree to it as well. Do you think major players such as the US, China, and India will have a negative effect on the carbon credit market if they do not agree to a plan in 2012? Is the ADB banking on the US to join the new emissions agreement?
Tuesday, July 01, 2008
Investment and Aid Developments in Africa
Sources:
Private Equity Increases
G8 not Clear on Aid Goals
The G8 is set to meet in Hokkaido, Japan in July. An initial draft of the summit’s agenda fails to mention it target goal of increasing African aid to $25bn a year by 2010. This annual African aid goal was set back at the G8’s summit in 2005, and was again repeated in Germany last year.
The failure to explicitly list its target aid goal is seen by critics as a failure to honor the commitments it made in 2005. A majority of the G8 countries’ aid budgets have decreased and this may mean that they are unable to live up to their promises of increasing aid abroad. This comes at a time when many health organizations are relying on the aid to implement their plans designed to reduce Aids, malaria, and tuberculosis in Africa.
While aid from the G8 is likely to fall behind past benchmarks, foreign investment in African private equity is increasing rapidly. Private capital flow to sub-Saharan Africa has increased four-fold from previous years to a level of $53bn. The investors cite the spread of stable democracy and rapid economic growth as reasons for the rise of private equity across Africa. There is also an emerging middle class in Africa with higher levels of disposable income that create attractive investment opportunities across the continent.
Questions:
It is likely a good thing for Africa that private foreign investors are becoming more willing to invest in the region. However, foreign investors are likely to invest in service oriented industries such as telecommunications. Will this type of investment make up for reduced foreign aid that is often designed to help the continent’s poorest people?
Did the recent events in Zimbabwe influence the G8’s willingness to offer aid to Africa? Would it be right to offer less aid to poor citizens in warring countries as a way to punish the totalitarian leaders? Would foreign private investors be more successful in applying pressure to these rogue nations? Would they have any incentives to do so?
Private Equity Increases
G8 not Clear on Aid Goals
The G8 is set to meet in Hokkaido, Japan in July. An initial draft of the summit’s agenda fails to mention it target goal of increasing African aid to $25bn a year by 2010. This annual African aid goal was set back at the G8’s summit in 2005, and was again repeated in Germany last year.
The failure to explicitly list its target aid goal is seen by critics as a failure to honor the commitments it made in 2005. A majority of the G8 countries’ aid budgets have decreased and this may mean that they are unable to live up to their promises of increasing aid abroad. This comes at a time when many health organizations are relying on the aid to implement their plans designed to reduce Aids, malaria, and tuberculosis in Africa.
While aid from the G8 is likely to fall behind past benchmarks, foreign investment in African private equity is increasing rapidly. Private capital flow to sub-Saharan Africa has increased four-fold from previous years to a level of $53bn. The investors cite the spread of stable democracy and rapid economic growth as reasons for the rise of private equity across Africa. There is also an emerging middle class in Africa with higher levels of disposable income that create attractive investment opportunities across the continent.
Questions:
It is likely a good thing for Africa that private foreign investors are becoming more willing to invest in the region. However, foreign investors are likely to invest in service oriented industries such as telecommunications. Will this type of investment make up for reduced foreign aid that is often designed to help the continent’s poorest people?
Did the recent events in Zimbabwe influence the G8’s willingness to offer aid to Africa? Would it be right to offer less aid to poor citizens in warring countries as a way to punish the totalitarian leaders? Would foreign private investors be more successful in applying pressure to these rogue nations? Would they have any incentives to do so?
Monday, June 30, 2008
Multilateral Institutions Stress Warnings Over Global Inflation
Sources:
"BIS Seeks Higher World Interest Rates"
"IMF Warns of Rising Inflation Risk in Latin America"
"Eurozone Inflation Soars to New High"
"Brazil Raises Interest Rates Again"
Multilateral financial institutions have begun to express their concerns and possible solutions to the threat of global inflation. The Bank for International Settlements (BIS) announced on Monday that inflation is a clear and present threat to the global economy. The BIS oversees central banks and banking regulators around the world. The organization pointed to excessive credit growth and low interest rates over the last decade as a possible cause of the current inflation worries along with the present rising food and oil costs. To combat the inflation risks, the BIS has been pushing central banks to tighten their money supply by raising interest rates.
Last week, the International Monetary Fund (IMF) stated that the macroeconomic credibility built up in Latin America countries could be jeopardized by the rising inflation. The strong increase in domestic demand in Latin America combined with the sudden increase of global food and oil prices have contributed to the inflation concern. The IMF Managing Director, Dominique Strauss-Kahn, stated that current economic policies in Latin America tend to amplify price shocks and these countries need to act quickly and decisively to stem inflation and the high social costs of adjustment. The IMF has pledged to provide financial support to the countries most affected along with adapting lessons learned from the current credit crisis to developing countries.
The concerns over inflation have started to materialize with countries starting to report inflation numbers that greatly exceed targets. The Eurostat announced on Monday that inflation in the Eurozone has risen 4% in the last year, twice the amount of the European Central Bank’s (ECB) targeted amount. In response, the ECB is expected to raise interest rates by twenty-five basis points on July 3rd. Brazil has already taken action to prevent higher inflation by raising interest rates, starting in April, to cool down an overheated economy. Market economists expect Brazil’s inflation rate to reach 5.48% by year end, almost a full percentage point above the government’s target rate of 4%.
Questions:
1) Has the systematic risk created by the globalization of the world’s financial markets been the driving force behind the current inflation crisis or rather can the crisis be blamed on the sudden increased price of staples like oil and food that every country consumes?
2) How much should the central banks of the world factor in global inflation worries when deciding whether to tighten local monetary policy by raising interest rates? Should international regulators require global inflation to be taken into account? If yes, then how should the appropriate regulations be designed?
"BIS Seeks Higher World Interest Rates"
"IMF Warns of Rising Inflation Risk in Latin America"
"Eurozone Inflation Soars to New High"
"Brazil Raises Interest Rates Again"
Multilateral financial institutions have begun to express their concerns and possible solutions to the threat of global inflation. The Bank for International Settlements (BIS) announced on Monday that inflation is a clear and present threat to the global economy. The BIS oversees central banks and banking regulators around the world. The organization pointed to excessive credit growth and low interest rates over the last decade as a possible cause of the current inflation worries along with the present rising food and oil costs. To combat the inflation risks, the BIS has been pushing central banks to tighten their money supply by raising interest rates.
Last week, the International Monetary Fund (IMF) stated that the macroeconomic credibility built up in Latin America countries could be jeopardized by the rising inflation. The strong increase in domestic demand in Latin America combined with the sudden increase of global food and oil prices have contributed to the inflation concern. The IMF Managing Director, Dominique Strauss-Kahn, stated that current economic policies in Latin America tend to amplify price shocks and these countries need to act quickly and decisively to stem inflation and the high social costs of adjustment. The IMF has pledged to provide financial support to the countries most affected along with adapting lessons learned from the current credit crisis to developing countries.
The concerns over inflation have started to materialize with countries starting to report inflation numbers that greatly exceed targets. The Eurostat announced on Monday that inflation in the Eurozone has risen 4% in the last year, twice the amount of the European Central Bank’s (ECB) targeted amount. In response, the ECB is expected to raise interest rates by twenty-five basis points on July 3rd. Brazil has already taken action to prevent higher inflation by raising interest rates, starting in April, to cool down an overheated economy. Market economists expect Brazil’s inflation rate to reach 5.48% by year end, almost a full percentage point above the government’s target rate of 4%.
Questions:
1) Has the systematic risk created by the globalization of the world’s financial markets been the driving force behind the current inflation crisis or rather can the crisis be blamed on the sudden increased price of staples like oil and food that every country consumes?
2) How much should the central banks of the world factor in global inflation worries when deciding whether to tighten local monetary policy by raising interest rates? Should international regulators require global inflation to be taken into account? If yes, then how should the appropriate regulations be designed?
Russia and EU to Strengthen Trade and Oil Ties
Sources: BBC, Financial Times, Bloomberg
Several changes are on the brink of bringing Russia and the European Union closer together. On July 4, the two governments will officially begin negotiations on a strategic partnership to replace the ten-year trade deal that expired in 2007. Currently, half of Russia’s exports go to the EU, making the country the EU’s third biggest trading partner. Since the EU is Russia’s largest consumer of oil and natural gas, energy naturally played a key role in talks between the countries. The European Commission said it “wants the new partnership agreement to establish a level playing field for energy relations.”
Talk of energy relations between the EU and Russia are quite punctual as Russia’s newest oil province, Timan Pechora, in Russia’s far north, recently began shipping the crude commodity from its new export terminal. Several other Russian fields are expected to begin producing oil within the next couple years to offset slowing productions in western Siberia. However, Russia’s economic growth is expected to increase domestic demand for oil thus decreasing the amount of oil available for export.
Still, the EU may not be too far from a “level playing field for energy relations.” The Russian state-owned oil company OAO Rosneft proposed the idea of a joint oil venture with European companies Royal Dutch Shell Pic and Total SA. The Russian company would provide the oil while the European companies would provide the refineries and marketing. A year ago, Rosneft and Shell signed a strategic alliance and agreed to study the possibility of an assets swap but the companies have not made further plans. European Union Energy Commissioner Andris Piebalgs said that the governments should support this kind of energy cooperation between companies. The Commissioner added, however, that the companies themselves should make the ultimate venture decision.
Questions:
1. Is it possible for the strategic trade alliance between the two governments to foster a commercial relationship for oil and refining companies?
2. Will the new trade alliance have a significant impact on trade as anticipated by the governments or will the trade patterns established during the previous ten-year accord simply continue?
3. What effect would a joint oil venture have on oil prices and economic growth?
Several changes are on the brink of bringing Russia and the European Union closer together. On July 4, the two governments will officially begin negotiations on a strategic partnership to replace the ten-year trade deal that expired in 2007. Currently, half of Russia’s exports go to the EU, making the country the EU’s third biggest trading partner. Since the EU is Russia’s largest consumer of oil and natural gas, energy naturally played a key role in talks between the countries. The European Commission said it “wants the new partnership agreement to establish a level playing field for energy relations.”
Talk of energy relations between the EU and Russia are quite punctual as Russia’s newest oil province, Timan Pechora, in Russia’s far north, recently began shipping the crude commodity from its new export terminal. Several other Russian fields are expected to begin producing oil within the next couple years to offset slowing productions in western Siberia. However, Russia’s economic growth is expected to increase domestic demand for oil thus decreasing the amount of oil available for export.
Still, the EU may not be too far from a “level playing field for energy relations.” The Russian state-owned oil company OAO Rosneft proposed the idea of a joint oil venture with European companies Royal Dutch Shell Pic and Total SA. The Russian company would provide the oil while the European companies would provide the refineries and marketing. A year ago, Rosneft and Shell signed a strategic alliance and agreed to study the possibility of an assets swap but the companies have not made further plans. European Union Energy Commissioner Andris Piebalgs said that the governments should support this kind of energy cooperation between companies. The Commissioner added, however, that the companies themselves should make the ultimate venture decision.
Questions:
1. Is it possible for the strategic trade alliance between the two governments to foster a commercial relationship for oil and refining companies?
2. Will the new trade alliance have a significant impact on trade as anticipated by the governments or will the trade patterns established during the previous ten-year accord simply continue?
3. What effect would a joint oil venture have on oil prices and economic growth?
Sunday, June 22, 2008
EU Lifts Symbolic Diplomatic Sanctions on Cuba
Sources: Financial Times, BBC, CNN
In 2003, the EU imposed diplomatic sanctions against Cuba in response to the imprisonment of 70 dissidents. While Thursday’s decision to lift the sanctions will not formally take effect until Monday, it is extremely symbolic of European support for Raul Castro’s new form of government leadership. In 2005, the EU suspended the sanctions that limited government visits and EU diplomat participation in cultural events held in Cuba. Accordingly, Monday’s lift will be largely symbolic and will produce few changes in economic relations between the EU and Cuba.
Spain and other European Union member states supporting the lift hope to promote change and encourage continued social reform. Louis Michel, EU Commissioner for Development, reported positive changes in property ownership rights, access to cell phones, salaries and agriculture after a visit to the country in March. Other EU member countries, including Sweden, fall on the side of the dissidents claiming that the lift is cosmetic and not yet warranted. In response to such concerns, the EU stated that it plans to continue to monitor human rights in Cuba.
Both Castro and the EU believe the lift is necessary to facilitate open communication about critical issues including human rights and the environment. Mr. Michel expects this communication to lead to EU aid in Cuban development. The communication could also benefit the EU by distinguishing its foreign policy from that of the United States.
Questions:
1. Will this symbolic change have any effect on the United States’ forty-five year embargo on Cuba?
2. Was the EU’s decision to lift sanctions appropriate despite the humanitarian concerns voiced by Sweden and the Czech Republic? Should the EU have waited for a more concrete demonstration of social reform in Cuba?
In 2003, the EU imposed diplomatic sanctions against Cuba in response to the imprisonment of 70 dissidents. While Thursday’s decision to lift the sanctions will not formally take effect until Monday, it is extremely symbolic of European support for Raul Castro’s new form of government leadership. In 2005, the EU suspended the sanctions that limited government visits and EU diplomat participation in cultural events held in Cuba. Accordingly, Monday’s lift will be largely symbolic and will produce few changes in economic relations between the EU and Cuba.
Spain and other European Union member states supporting the lift hope to promote change and encourage continued social reform. Louis Michel, EU Commissioner for Development, reported positive changes in property ownership rights, access to cell phones, salaries and agriculture after a visit to the country in March. Other EU member countries, including Sweden, fall on the side of the dissidents claiming that the lift is cosmetic and not yet warranted. In response to such concerns, the EU stated that it plans to continue to monitor human rights in Cuba.
Both Castro and the EU believe the lift is necessary to facilitate open communication about critical issues including human rights and the environment. Mr. Michel expects this communication to lead to EU aid in Cuban development. The communication could also benefit the EU by distinguishing its foreign policy from that of the United States.
Questions:
1. Will this symbolic change have any effect on the United States’ forty-five year embargo on Cuba?
2. Was the EU’s decision to lift sanctions appropriate despite the humanitarian concerns voiced by Sweden and the Czech Republic? Should the EU have waited for a more concrete demonstration of social reform in Cuba?
Opposition Leader Pulls out of Zimbabwe Presidential Election
Sources:
New York Times Financial Times 1 Financial Times 2
After months of violence perpetrated by current Zimbabwean President, Robert Mugabe and his ruling party, Zanu-PF, Morgan Tsvangirai has announced that he will pull out of the run-off election. Morgan Tsvangirai represented the Movement for Democratic Change (“MDC”) in the March presidential elections and forced a run-off election with President Mugabe set for June 27. However, any hope of changing leadership has been extinguished now that Tsvangirai has exited the run-off election.
Robert Mugabe came into power in Zimbabwe some 28 years ago. Once viewed as a liberator who could do no wrong, Mr. Mugabe has become much more violent and tyrannical during his rule. Under Mugabe, Zimbabwe’s economy is facing dire times with record inflation and millions of people fleeing the country to go to neighboring countries like South Africa. In the March elections the MDC won big gains in Zimbabwe’s parliament, and had hoped to win the presidential run-off election. Mugabe, however, did anything he could do to stop this from happening.
Robert Mugabe and his Zanu-PF operatives jailed Morgan Tsvangirai multiple times throughout the campaign season. Zanu-PF also killed over 70 MDC supporters. As the months passed a free election soon became an impossibility. Recently, Mugabe was quoted as saying that “only God who appointed me will remove me from office.”
Many critics are calling for Zimbabwe’s African neighbors to exert pressure on Zimbabwe’s leading party to stop its flagrant human rights violations. However, Zimbabwe’s largest trading partner, South Africa, has done little to persuade Mugabe to change his ways. The United Nations Security Council is set to meet and discuss the situation in Zimbabwe on Monday, June 23. The African Union and the South African Development Community have yet to comment on the elections.
It is unclear as of yet what affect the recent actions by Mugabe will have on Zimbabwe’s standing in the international community, but many believe Zimbabwe’s already shaky reputation will take a hit. Zimbabwe economists and businessmen believe the economy will not be able to withstand the turmoil for much longer. Morgan Tsvangirai’s Presidential bid offered hope to those in Zimbabwe, but in the end the threat of further lives being taken was too great to continue in the race.
Questions:
How should the African Development Bank react to these human rights violations? Should they continue to offer aid to Zimbabwe? Consider the fact that the World Bank has not given aid to Burma for over 20 years due to its military junta’s brutal regime.
Do you think that South Africa should step up its diplomacy in Zimbabwe? Surely the influx of Zimbabwean refugees in South Africa is putting a strain on the country. Is it time to move from its “quit diplomacy” and start hard talks with Zimbabwe?
New York Times Financial Times 1 Financial Times 2
After months of violence perpetrated by current Zimbabwean President, Robert Mugabe and his ruling party, Zanu-PF, Morgan Tsvangirai has announced that he will pull out of the run-off election. Morgan Tsvangirai represented the Movement for Democratic Change (“MDC”) in the March presidential elections and forced a run-off election with President Mugabe set for June 27. However, any hope of changing leadership has been extinguished now that Tsvangirai has exited the run-off election.
Robert Mugabe came into power in Zimbabwe some 28 years ago. Once viewed as a liberator who could do no wrong, Mr. Mugabe has become much more violent and tyrannical during his rule. Under Mugabe, Zimbabwe’s economy is facing dire times with record inflation and millions of people fleeing the country to go to neighboring countries like South Africa. In the March elections the MDC won big gains in Zimbabwe’s parliament, and had hoped to win the presidential run-off election. Mugabe, however, did anything he could do to stop this from happening.
Robert Mugabe and his Zanu-PF operatives jailed Morgan Tsvangirai multiple times throughout the campaign season. Zanu-PF also killed over 70 MDC supporters. As the months passed a free election soon became an impossibility. Recently, Mugabe was quoted as saying that “only God who appointed me will remove me from office.”
Many critics are calling for Zimbabwe’s African neighbors to exert pressure on Zimbabwe’s leading party to stop its flagrant human rights violations. However, Zimbabwe’s largest trading partner, South Africa, has done little to persuade Mugabe to change his ways. The United Nations Security Council is set to meet and discuss the situation in Zimbabwe on Monday, June 23. The African Union and the South African Development Community have yet to comment on the elections.
It is unclear as of yet what affect the recent actions by Mugabe will have on Zimbabwe’s standing in the international community, but many believe Zimbabwe’s already shaky reputation will take a hit. Zimbabwe economists and businessmen believe the economy will not be able to withstand the turmoil for much longer. Morgan Tsvangirai’s Presidential bid offered hope to those in Zimbabwe, but in the end the threat of further lives being taken was too great to continue in the race.
Questions:
How should the African Development Bank react to these human rights violations? Should they continue to offer aid to Zimbabwe? Consider the fact that the World Bank has not given aid to Burma for over 20 years due to its military junta’s brutal regime.
Do you think that South Africa should step up its diplomacy in Zimbabwe? Surely the influx of Zimbabwean refugees in South Africa is putting a strain on the country. Is it time to move from its “quit diplomacy” and start hard talks with Zimbabwe?
Friday, June 20, 2008
Mexican Stock Market Goes Public and Proposes Trade Fee Increase
Sources:
Bolsa Mexicana De Valores
"Mexico's BMV to Launch Its Own IPO"
"Mexico's Stock Exchange to Raise Trade Fees"
On June 12th, Bolsa Mexicana de Valores (BMV), the Mexican Stock Exchange launched its first public offering. The initial offering price per share was 16.5 pesos and the transaction raised around $443.8 million. The BMV followed their Latin America counterpart in Brazil when the Bovespa Stock Exchange went public in October 2007. A recent world wide trend has seen at least nine stock exchanges, over the last three years, come under public ownership including the New York Stock Exchange and Spain's Bolsas y Mercados Espanoles. This raises the total of publicly owned stock exchanges around the world to twenty-three.
The current structure of the BMV was formed in 1950 and has grown to become Latin America's second largest stock exchange behind Brazil's Bovespa. Before the public offering, Mexican banks and brokerage houses privately held the exchange. After the public float, their ownership fell to around 60%. Approximately 135 companies are currently traded on the BMV.
Following the public offering, Guillermo Prieto, BMV's exchange president, said the BMV will look to increase trade fees to follow a larger strategy of putting shareholder interests first. The board of directors of the BMV will still need to approve the proposed increase of one basis point in their next meeting. After the increase, the BMV will have an average trade fee of 1.7bp which Mr. Prieto stated will bring fees in line with European levels but still far below the Bovespa.
Questions:
1) What are the benefits of public ownership that are specific to stock exchanges that could have given rise to this recent trend? Are there any drawbacks?
2) Is raising trade fees the correct strategy for the BMV to get a higher return for shareholders? Or will higher fees decrease world wide competitiveness and cause traders to look elsewhere resulting in lower volume and less profit?
Bolsa Mexicana De Valores
"Mexico's BMV to Launch Its Own IPO"
"Mexico's Stock Exchange to Raise Trade Fees"
On June 12th, Bolsa Mexicana de Valores (BMV), the Mexican Stock Exchange launched its first public offering. The initial offering price per share was 16.5 pesos and the transaction raised around $443.8 million. The BMV followed their Latin America counterpart in Brazil when the Bovespa Stock Exchange went public in October 2007. A recent world wide trend has seen at least nine stock exchanges, over the last three years, come under public ownership including the New York Stock Exchange and Spain's Bolsas y Mercados Espanoles. This raises the total of publicly owned stock exchanges around the world to twenty-three.
The current structure of the BMV was formed in 1950 and has grown to become Latin America's second largest stock exchange behind Brazil's Bovespa. Before the public offering, Mexican banks and brokerage houses privately held the exchange. After the public float, their ownership fell to around 60%. Approximately 135 companies are currently traded on the BMV.
Following the public offering, Guillermo Prieto, BMV's exchange president, said the BMV will look to increase trade fees to follow a larger strategy of putting shareholder interests first. The board of directors of the BMV will still need to approve the proposed increase of one basis point in their next meeting. After the increase, the BMV will have an average trade fee of 1.7bp which Mr. Prieto stated will bring fees in line with European levels but still far below the Bovespa.
Questions:
1) What are the benefits of public ownership that are specific to stock exchanges that could have given rise to this recent trend? Are there any drawbacks?
2) Is raising trade fees the correct strategy for the BMV to get a higher return for shareholders? Or will higher fees decrease world wide competitiveness and cause traders to look elsewhere resulting in lower volume and less profit?
Saturday, June 14, 2008
Western Countries Committed to Succeed in Afghan Development
Sources:
"Donors Pledge $20bn for Afghanistan" "A War that Needs a Definition of Victory" "Helping Afghans Help Themselves" "Afghanistan's Forgotten Fields"
This past week in Paris 68 governments and 12 international organizations met to discuss financing further development in Afghanistan. Led by the US, the group of donors pledged $20 billion over the next five years. Afghan President Hamid Karzai had asked for $50 billion to implement his national development plan, but the donor countries were concerned that this level of aid was beyond the capacity of the Afghan government to spend given corruption and investment schemes that did not prioritize rural development. The recent pledge of $20 billion raises the total amount of aid to $45 billion since 2001.
It is clear that the continued development of Afghanistan is a top priority of Western countries since the internationally supported invasion of 2001. However, some critics say that there is no agreement as to what the underlying goal of Afghan development is. Are Western countries only trying to rid the area of the Taliban? Are they trying to establish a strong democracy in a Muslim country? Are they trying to stop farmers from growing poppy plants that account for 90 percent of the world’s heroin supply? Though there is no consensus of what the underlying goal is, development is a Western priority.
Many obstacles still stand in the way of successful development. First, the security of the country is perhaps the biggest concern. President Hamid Karzai said that bad governance and corruption are symptoms of security problems the country is dealing with. Next, there is no clear development strategy in place as many projects overlap and some parts of the country are neglected. For instance, the Daikundi province in central Afghanistan still has no paved roads and sorely needs funds for its fledgling agricultural base.
Some critics suggest directing funds locally for small community projects while others, such as President Hamid Karzai, call for broad funding on a national level. Whatever method is settled upon, it is clear that development is and will be a goal for the years to come. Many hope that one day Afghanistan will be a secure land bridge that connects central and east Asia. Only time will tell whether the latest investment spur will help achieve this goal.
Questions:
Is a policy of broad national investment or a local investment scheme better? Is it possible to combine both approaches?
Do concerns about poppy plant production inhibit investments in the agricultural sector?
"Donors Pledge $20bn for Afghanistan" "A War that Needs a Definition of Victory" "Helping Afghans Help Themselves" "Afghanistan's Forgotten Fields"
This past week in Paris 68 governments and 12 international organizations met to discuss financing further development in Afghanistan. Led by the US, the group of donors pledged $20 billion over the next five years. Afghan President Hamid Karzai had asked for $50 billion to implement his national development plan, but the donor countries were concerned that this level of aid was beyond the capacity of the Afghan government to spend given corruption and investment schemes that did not prioritize rural development. The recent pledge of $20 billion raises the total amount of aid to $45 billion since 2001.
It is clear that the continued development of Afghanistan is a top priority of Western countries since the internationally supported invasion of 2001. However, some critics say that there is no agreement as to what the underlying goal of Afghan development is. Are Western countries only trying to rid the area of the Taliban? Are they trying to establish a strong democracy in a Muslim country? Are they trying to stop farmers from growing poppy plants that account for 90 percent of the world’s heroin supply? Though there is no consensus of what the underlying goal is, development is a Western priority.
Many obstacles still stand in the way of successful development. First, the security of the country is perhaps the biggest concern. President Hamid Karzai said that bad governance and corruption are symptoms of security problems the country is dealing with. Next, there is no clear development strategy in place as many projects overlap and some parts of the country are neglected. For instance, the Daikundi province in central Afghanistan still has no paved roads and sorely needs funds for its fledgling agricultural base.
Some critics suggest directing funds locally for small community projects while others, such as President Hamid Karzai, call for broad funding on a national level. Whatever method is settled upon, it is clear that development is and will be a goal for the years to come. Many hope that one day Afghanistan will be a secure land bridge that connects central and east Asia. Only time will tell whether the latest investment spur will help achieve this goal.
Questions:
Is a policy of broad national investment or a local investment scheme better? Is it possible to combine both approaches?
Do concerns about poppy plant production inhibit investments in the agricultural sector?
Friday, June 13, 2008
Brazil Announces Plans for Sovereign Wealth Fund
Sources: Financial Times, Financial Times
On June 9th, the Brazilian government announced plans to create a sovereign wealth fund to manage revenues from newly discovered oil fields. Finance Minister, Guido Mantega, said the fund could grow to contain as much as $200 to $300 billion over the next three to five years. The fund will increase the government's target budget surplus from 3.8% to 4.3% of gross domestic product. The oil reserves discovered in the South Atlantic are expected to produce forty to fifty billion barrels potentially making Brazil the eighth largest oil nation in the world. Mantega stated that the fund will have various functions ranging from reducing government spending to stabilizing the exchange rate.
One of the goals of the fund will be to fight inflation. The consumer price inflation in Brazil, currently at 5.25%, has outpaced the government's goal of 4.5%. Mounting concern about inflation has caused the central bank of Brazil to tighten fiscal policy in the last three months. On June 4th, the bank increased interest rates by .5% to 12.25%. After three years of loosening fiscal policy, the bank started increasing the interest rate in April to stave off inflation.
The formation of the sovereign wealth fund is one more step in the transformation of the Brazilian economy. While most of the world is gripped in the midst of a credit crisis, Brazil is starting to look much better to foreign investors. Added to the highest real interest rate in the world, major credit rating agencies have started to upgrade Brazil. Fitch's upgrade of Brazil to an investment grade rating should increase Brazil's attractiveness to foreign direct investment. Fitch's announcement, on May 29th, followed the lead of Standard and Poor's who upgraded Brazil on April 30th.
Questions:
1) What are the benefits and drawbacks of having a sovereign wealth fund monitor fiscal policy instead of the traditional central bank? Can the two, like in the case of Brazil, survive together in the same economy?
2) Will Brazil's bright economic future systematically raise the rest of Latin America? Or for that matter, how much can Brazil help to relieve the world of the current credit and food crisis?
On June 9th, the Brazilian government announced plans to create a sovereign wealth fund to manage revenues from newly discovered oil fields. Finance Minister, Guido Mantega, said the fund could grow to contain as much as $200 to $300 billion over the next three to five years. The fund will increase the government's target budget surplus from 3.8% to 4.3% of gross domestic product. The oil reserves discovered in the South Atlantic are expected to produce forty to fifty billion barrels potentially making Brazil the eighth largest oil nation in the world. Mantega stated that the fund will have various functions ranging from reducing government spending to stabilizing the exchange rate.
One of the goals of the fund will be to fight inflation. The consumer price inflation in Brazil, currently at 5.25%, has outpaced the government's goal of 4.5%. Mounting concern about inflation has caused the central bank of Brazil to tighten fiscal policy in the last three months. On June 4th, the bank increased interest rates by .5% to 12.25%. After three years of loosening fiscal policy, the bank started increasing the interest rate in April to stave off inflation.
The formation of the sovereign wealth fund is one more step in the transformation of the Brazilian economy. While most of the world is gripped in the midst of a credit crisis, Brazil is starting to look much better to foreign investors. Added to the highest real interest rate in the world, major credit rating agencies have started to upgrade Brazil. Fitch's upgrade of Brazil to an investment grade rating should increase Brazil's attractiveness to foreign direct investment. Fitch's announcement, on May 29th, followed the lead of Standard and Poor's who upgraded Brazil on April 30th.
Questions:
1) What are the benefits and drawbacks of having a sovereign wealth fund monitor fiscal policy instead of the traditional central bank? Can the two, like in the case of Brazil, survive together in the same economy?
2) Will Brazil's bright economic future systematically raise the rest of Latin America? Or for that matter, how much can Brazil help to relieve the world of the current credit and food crisis?
A 10 Point Plan to Extinguish the Hunger Pains Caused by the Food Crisis
Sources: Financial Times, World Bank
Recognizing the need for a coordinated policy to end the food crisis, Robert Zoellick, president of the World Bank, devised a ten-point action plan to fix what he calls a “man-made” crisis. He first proposes that leaders at the UN food summit agree to fund and support the World Food Program’s emergency needs in their entirety, support its drive to purchase local food, and ensure its free movement. The second point details the need for coordinated support of “safety nets” to help the suffering. The proposed safety nets include food for work programs and school-based food distribution centers.
The next group of steps addresses the agricultural aspect of the crisis. To fulfill the third point of the plan, world leaders and organizations need to facilitate aid during the planting season by providing seeds and fertilizer. Additionally, the World Bank and other organizations need to double research and development funding for the next five years. The fifth step of Mr. Zoellick’s plan requires additional investment in agribusiness in order to take advantage of the private sector’s ability to achieve value throughout the industry.
Finally, the World Bank president advocates the development of crop insurance and risk management programs for small farmers. The seventh point involves “action in the U.S. and Europe to “ease subsidies, mandates and tariffs on biofuels derived from corn and oilseeds” and the consideration of specific plans for even less restriction when prices increase. Mr. Zoellick believes this will promote biofuel derived from sugarcane, thereby reducing the amount of food used in biofuel development and increasing the amount of food available for consumption. The eighth and ninth steps remove export bans and “distortions” of agricultural subsidies to lower prices and promote fair trade.
The last step anticipates collective action among global leaders and organizations to counter the many factors fueling the food crisis. Mr. Zoellick and the World Bank are supporting this ten-point plan with a global food crisis response facility and $1.2bn in immediate funding, which they plan to increase to over $4bn throughout the year.
Questions:
1. Will this plan be effective in organizing global organizations’ efforts to combat the food crisis?
2. Is this plan truly comprehensive in remedying the current crisis and preventing future price increases? Is there anything to add to the list?
Recognizing the need for a coordinated policy to end the food crisis, Robert Zoellick, president of the World Bank, devised a ten-point action plan to fix what he calls a “man-made” crisis. He first proposes that leaders at the UN food summit agree to fund and support the World Food Program’s emergency needs in their entirety, support its drive to purchase local food, and ensure its free movement. The second point details the need for coordinated support of “safety nets” to help the suffering. The proposed safety nets include food for work programs and school-based food distribution centers.
The next group of steps addresses the agricultural aspect of the crisis. To fulfill the third point of the plan, world leaders and organizations need to facilitate aid during the planting season by providing seeds and fertilizer. Additionally, the World Bank and other organizations need to double research and development funding for the next five years. The fifth step of Mr. Zoellick’s plan requires additional investment in agribusiness in order to take advantage of the private sector’s ability to achieve value throughout the industry.
Finally, the World Bank president advocates the development of crop insurance and risk management programs for small farmers. The seventh point involves “action in the U.S. and Europe to “ease subsidies, mandates and tariffs on biofuels derived from corn and oilseeds” and the consideration of specific plans for even less restriction when prices increase. Mr. Zoellick believes this will promote biofuel derived from sugarcane, thereby reducing the amount of food used in biofuel development and increasing the amount of food available for consumption. The eighth and ninth steps remove export bans and “distortions” of agricultural subsidies to lower prices and promote fair trade.
The last step anticipates collective action among global leaders and organizations to counter the many factors fueling the food crisis. Mr. Zoellick and the World Bank are supporting this ten-point plan with a global food crisis response facility and $1.2bn in immediate funding, which they plan to increase to over $4bn throughout the year.
Questions:
1. Will this plan be effective in organizing global organizations’ efforts to combat the food crisis?
2. Is this plan truly comprehensive in remedying the current crisis and preventing future price increases? Is there anything to add to the list?
Tuesday, June 10, 2008
Private Sector Investment After Sichuan Earthquake
Financial Times
Taiwan has been quick to offer aid to China in the wake of the massive earthquake that killed 70,000 people and left 5 million homeless. As much as the aid has helped China rebuild its Sichuan province, some experts think that Taiwan has more to offer than just monetary aid.
Taiwan suffered a large earthquake on September 21, 1999 that mirrors the recent earthquake in China, but on a smaller scale. The Taiwanese earthquake killed 2,500 people and left 50,000 people homeless. Like the recent earthquake in China, the 1999 earthquake in Taiwan hit rural, mountainous regions of the country that rely on agriculture and tourism for livelihood.
In the aftermath of its 1999 earthquake, Taiwan was quick to set up plans for reconstruction. Taiwan collected private donations and created the 921 Earthquake Relief Foundation, which was run by private sector investors. Allowing private investors to work directly with local citizens in the damaged parts of Taiwan increased efficiency, removed bureaucratic hurdles, and encouraged citizens to actively participate in the rebuilding process.
Officials in Taiwan are unsure how much of their country’s success can be applied to the rebuilding problems China faces. They are, however, optimistic and are asking Chinese officials to review and apply the successful strategies of the 921 Earthquake Relief Foundation.
Questions:
Given the Chinese government’s history of strict control over its citizens, how likely is it that China would allow private investors to call the shots?
Will the difference in scale between the Taiwanese and Chinese earthquakes affect the effectiveness of private sector investment?
Taiwan has been quick to offer aid to China in the wake of the massive earthquake that killed 70,000 people and left 5 million homeless. As much as the aid has helped China rebuild its Sichuan province, some experts think that Taiwan has more to offer than just monetary aid.
Taiwan suffered a large earthquake on September 21, 1999 that mirrors the recent earthquake in China, but on a smaller scale. The Taiwanese earthquake killed 2,500 people and left 50,000 people homeless. Like the recent earthquake in China, the 1999 earthquake in Taiwan hit rural, mountainous regions of the country that rely on agriculture and tourism for livelihood.
In the aftermath of its 1999 earthquake, Taiwan was quick to set up plans for reconstruction. Taiwan collected private donations and created the 921 Earthquake Relief Foundation, which was run by private sector investors. Allowing private investors to work directly with local citizens in the damaged parts of Taiwan increased efficiency, removed bureaucratic hurdles, and encouraged citizens to actively participate in the rebuilding process.
Officials in Taiwan are unsure how much of their country’s success can be applied to the rebuilding problems China faces. They are, however, optimistic and are asking Chinese officials to review and apply the successful strategies of the 921 Earthquake Relief Foundation.
Questions:
Given the Chinese government’s history of strict control over its citizens, how likely is it that China would allow private investors to call the shots?
Will the difference in scale between the Taiwanese and Chinese earthquakes affect the effectiveness of private sector investment?
Sunday, June 08, 2008
The World Bank Pledges Funds to Help Alleviate the Global Food Crisis
Sources: Financial Times, The World Bank
On May 29th, the World Bank Group announced plans for a $1.2 billion rapid financing facility to address the immediate needs of the global food crisis. The facility will accelerate the financing of many safety net programs such as food for work, conditional cash transfers, and school feeding programs. It will also support higher food production by supplying small-scale farmers with the seeds and fertilizer necessary for the upcoming planting season. A multi-donor trust fund set up to facilitate coordination among the financial supporters is another element of the facility.
The World Bank has pledged to increase total spending for global agriculture and food from $4 billion to $6 billion next year. In addition to the immediate food needs to be provided to poor countries, some of the funds will be used to support long term growth with a goal of doubling global food production over the next thirty years. To accomplish this goal, World Bank President Robert Zoellick said that it is imperative to make modern technology available to the world's poor farmers. By using high-yielding seeds, fertilizers, and irrigation systems, experts have concluded that yields per hectare could be increased by more than two tons easing dependence on food imports.
Zoellick also stated that another priority will be to persuade countries to remove food export bans. Twenty-eight countries have enacted food export bans since the crisis began to prevent food from leaving their country. This has led to hoarding and has only increased food prices therefore hurting the countries that do not have the resources to produce enough to feed themselves. Argentina's export tariffs have led to a massive farmers strike, creating a large loss in production and contributing to the global food crisis.
Questions
1) Should the World Bank focus efforts on importing food to the world's poor countries which could possibly lower the prices that local farmers can get for their crops or pour more money into sustainable agriculture development that will lead to increased production in the long run? Can the World Bank accomplish both?
2) Should the World Bank be involved in the campaign to get countries to reduce or eliminate export tariffs or is this better left to the world's political and trade powers like the WTO?
On May 29th, the World Bank Group announced plans for a $1.2 billion rapid financing facility to address the immediate needs of the global food crisis. The facility will accelerate the financing of many safety net programs such as food for work, conditional cash transfers, and school feeding programs. It will also support higher food production by supplying small-scale farmers with the seeds and fertilizer necessary for the upcoming planting season. A multi-donor trust fund set up to facilitate coordination among the financial supporters is another element of the facility.
The World Bank has pledged to increase total spending for global agriculture and food from $4 billion to $6 billion next year. In addition to the immediate food needs to be provided to poor countries, some of the funds will be used to support long term growth with a goal of doubling global food production over the next thirty years. To accomplish this goal, World Bank President Robert Zoellick said that it is imperative to make modern technology available to the world's poor farmers. By using high-yielding seeds, fertilizers, and irrigation systems, experts have concluded that yields per hectare could be increased by more than two tons easing dependence on food imports.
Zoellick also stated that another priority will be to persuade countries to remove food export bans. Twenty-eight countries have enacted food export bans since the crisis began to prevent food from leaving their country. This has led to hoarding and has only increased food prices therefore hurting the countries that do not have the resources to produce enough to feed themselves. Argentina's export tariffs have led to a massive farmers strike, creating a large loss in production and contributing to the global food crisis.
Questions
1) Should the World Bank focus efforts on importing food to the world's poor countries which could possibly lower the prices that local farmers can get for their crops or pour more money into sustainable agriculture development that will lead to increased production in the long run? Can the World Bank accomplish both?
2) Should the World Bank be involved in the campaign to get countries to reduce or eliminate export tariffs or is this better left to the world's political and trade powers like the WTO?
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