Monday, November 21, 2011

Afghan Leaders Meet to Discuss Afghanistan’s Future

International Business Times: Is Afghanistan Moving in the Wrong Direction?

At the invitation of President Hamid Karzai, over two thousand Afghan leaders gathered in Kabul on November 16th for a four-day meeting—or loya jirga—to discuss the future of Afghanistan, particularly regarding its relationship with the United States and the Taliban.

Among the attendees at the loya jirga were elected politicians of the national assembly and district councils, along with tribal and religious leaders. In all, there are only 250 elected officials and over 1800 non-elected tribal and religious leaders. Although the loya jirga has no official legal capacity and all its proposals must be approved by the parliament, some politicians have protested or boycotted the meeting. These politicians believe the meeting subverts the democratic political process in Afghanistan because many Afghans remain loyal to the judgment and guidance of their religious and political leaders, and many of these leaders remain loyal to Karzai. Therefore, any decision made by the loya jirga could influence Afghanis into pressuring their representatives in parliament, giving Karzai the necessary leverage to push through his plan.

In his opening remarks, Karzai stressed the need for a prolonged strategic partnership with the United States after the planned exit of foreign troops in 2014. Such a partnership could lead to the U.S. establishing temporary military bases throughout Afghanistan during the next decade, which would assist the government in fighting Taliban insurgents. Although Karzai acknowledged the need for international assistance after 2014, he stated that any long-term partnership between Afghanistan and the U.S. should not threaten Afghanistan’s national sovereignty. Specifically, he stated that such a partnership must be conditioned on foreign troops ending night time raids of Afghan homes. The U.S. contends these raids are the most effective way to kill or capture Taliban insurgents, but Karzai believes too many of these raids end up treating civilians as if they were insurgents and violating Afghans’ cherished privacy rights. The loya jirga will also discuss possible reconciliation with the Taliban. Since the U.S.-led raid in 2001, violence in Afghanistan has never been higher, and Afghans are growing weary of the persistent threat of violence. A recent poll conducted by The Asia Foundation, a non-profit, non-governmental organization, revealed that 35% of Afghanis believe their country is moving in the wrong direction—the highest level of dissatisfaction since 2004—and many Afghanis cited security and conflict as their main concerns.

Despite continued violence, political tension between elected officials and traditional Afghan leaders, and the uncertainty looming from a potential U.S. exit, there are some positive signs in Afghanistan. Afghanis are generally more satisfied with their access to education, drinking water, health services, and the role of public institutions than they were a year ago. Afghanis also are more united in their stance against the Taliban. In 2010, 40% of Afghanis sympathized with the Taliban, but only 29% of Afghans sympathize with the Taliban today. In recent years, Afghanistan has also seen a dramatic increase in the production of its agricultural sector and is close to reaching its goal of becoming a net exporter of agricultural products. This is important because the country now has enough food to feed its people, and also because this sustained growth in a key industry may convince foreigners to invest money into Afghanistan which would spur additional economic development. To sustain these perceived and real gains in economic development, it might be necessary for the loya jirga to pave a way for continued United States presence in Afghanistan. However, such a recommendation is not without risk. A continued United States presence may galvanize Taliban insurgents and lead to prolonged violence, threatening the stability of the country. Perhaps most importantly for Afghanistan’s elected leaders, a continued U.S. presence will beholden them to a foreign government and delay the true independence of the country.

Thursday, November 17, 2011

Libya’s Post-Conflict Future


NYT: Western Companies See Prospects for Business in Libya
Reuters: Update 2- Libya’s Oil Exports to Jump 350,000 bpd in Nov- Sources

Libya recently rid itself of Muammar Qaddafi’s four-decade-long dictatorship, but still faces a difficult task. Months of fighting have left the country’s infrastructure in need of repair. Fortunately, Libya has Africa’s largest oil reserves, which it can use to pay for the repairs. The potential for new investment opportunities in the oil industry also have western countries seeing Libya in a new light.

Countries like France and Britain are vying for a chance to invest in Libya’s oil development and reconstruction. Surprisingly, the United States has not yet shown the same enthusiasm. The hesitation stems from the fear that corruption from the Qaddafi era still lingers in oil contracts. Currently the issue is irrelevant since Libya’s interim government, the Transitional National Council, has said that it will not sign long-term contracts—a task it thinks is better left to a future, elected government. However, the reconstruction process has been slow because of the lack of a permanent government.

The absence of a permanent government is not the only source of instability in Libya. A large number of youths are unemployed, the oil industry is not producing at maximum capacity, and the country’s infrastructure was heavily damaged during the armed conflict. The infrastructure is of particular concern to foreign investors—a potentially large source of money and jobs. Building a good infrastructure will reduce production costs and raise profits, which will attract foreign investors. The future permanent government will have to address these issues quickly to restore stability. It will also have to work on strengthening international ties that eroded under the Qaddafi regime, but which could serve as an important source of reconstruction financing. If Libya cannot stabilize its economy, it may soon face more backlash from its citizens.

Zimbabwe’s Diamond Industry Can Boost its Economy

News 24: Zimbabwe to Get Diamond Boost
NewsDay: Is Zim any Better with Diamonds?
RadioVoP: Marange Diamonds to Generate $2 Billion Annually: Mpofu
The Zimbabwe Guardian: Zimbabwe, a New Economic Giant: Mpofu

The Kimberley Process Certification Scheme (KPCS), an organization that certifies that rough diamonds were not acquired through human rights violations, recently gave Zimbabwe permission to sell diamonds mined in the Marange district in the eastern part of the country. The KPCS’s decision lifts an international, years-long ban on exports from a portion of the country’s largest profit making industry to western countries.

The ban on Marange district diamonds started after a group of small-scale miners discovered diamonds in the region at the end of 2008. Police and military security forces forcibly removed, beat, and killed the miners to take over mining in the region. The takeover resulted in the evacuation of thousands of families who were promised, but never received, compensation.

Even with the KPCS’s ban limitation on western buyers, the mining industry in Zimbabwe has earned around $300 million by selling diamonds to Asian countries. Mines and Mining Development Minister Obert Mpofu stated that Zimbabwe stands to earn more than $2 billion without the ban. These profits would make up more than fifty percent of the nation’s total yearly earnings. The increase would drive Zimbabwe to produce more than twenty-five percent of the world’s diamonds. Many government officials believe that the increased income will allow the country to pay for its own development needs without needing foreign aid. However, analysts are concerned that the president, Robert Mugabe, will use the funds for political gain instead of to address development needs.

Experts also question whether the end of the ban will really be as lucrative as government officials claim it will be. The $2 billion in earnings depends on the industry’s growth rate and on how high-quality the diamonds are after processing in the country. Currently, Zimbabwe sells raw diamonds for less than what those diamonds would be worth if they were processed and cut. Zimbabwe currently does not refine the diamonds because there is a lack of skilled workers who could properly refine diamonds. Zimbabwe must further implement a system to track the profits it stands to make to ensure the government uses them in a productive manner. If it can manage these profits successfully, Zimbabwe could become one of the most developed African nations.

Tuesday, November 15, 2011

The Italian Debt Crisis and the International Monetary Fund

Reuters: Analysis: Losing Credibility, EU Seeks IMF's Embrace
Traders Magazine: G20 Summit Roundup
WSJ: UPDATE: UK: G-20 Withheld IMF Commitments, Want Euro-Zone Action

As the European sovereign debt crisis continues to worsen and many countries and investors are questioning the EU leadership’s ability to remedy the crisis, many investors are looking to the International Monetary Fund (“IMF”) to help stabilize and restore market confidence in the region. Market confidence is of upmost importance because the market’s perception of the troubled economies (Italy, for example) will significantly affect the interest rates the countries have to pay on bonds. In the case of Italy, market confidence is of extreme importance because Italy may be able to pay its debts if it is able to receive bonds at low interest rates, but if market confidence falls and Italy appears more risky investors will demand a higher risk premium on their investment in Italian bonds, which will increase Italy’s cost to borrow money and may cause the country to default.

Italy, the third-largest economy in the EU and eighth-largest in the world, is the most recent EU member to find itself in financial trouble. Because of the importance of market confidence in Italy, EU leadership recently forced the country to accept tighter oversight of the country’s economy from the IMF and European Central Bank (ECB). While the EU hoped the move would increase market confidence, some investors believe the move shows that the EU cannot maintain market confidence without outside assistance.

A large factor in market confidence is the ability and willingness of the IMF to offer a bailout to Italy, and potentially the entire EU, if the need arises. At a recent G-20 Summit in France on November 3rd and 4th, the group discussed potentially increasing the IMF’s funding to make a European bailout more plausible. However, before the G-20 will commit to additional funding it first wants to see the EU take more internal actions to control their debt. The G-20 also has specific concerns about the EU’s political structure, which makes quick or firm action almost impossible. Some developing countries that are also members of the G-20 (Brazil, China, and India) stated that they are willing to increase IMF funding if the EU can first show that it has adequate leadership, a clear vision, and the ability to respond to problems rapidly.

While at the current time it seems unlikely that the IMF will make a large loan to the EU, and will instead be involved in more intense economic monitoring, the EU is hoping the IMF’s presence will increase market confidence. However, if EU leadership cannot take concrete steps to confront the growing debt problem and market confidence continues to deteriorate, it may be necessary for the IMF and ECB to play a much more direct role to avert an economic collapse.

Italy’s Political Unrest Puts Markets on Edge


NYT: Interest Rates on Italian Bonds Pushed to New Levels
WSJ: Ailing Italy Accepts IMF Monitoring
Spiegel: Italy Becomes Next Euro Battleground
Spiegel: Why Berlusconi's Departure Is Making Markets Nervous

On Tuesday, Italian Prime Minister, Silvio Berlusconi, announced that he would resign from office once the Italian parliament passed a package of austerity measures European Union (EU) leaders demanded to reduce Italy’s vast debt and restore investor confidence in the country. The move came after a humiliating budget vote where parliament approved a plan to increase taxes and raise the retirement age, during which it became clear that the Prime Minister no longer had support from the majority of parliament.

Following the announcement, the interest rate on Italy’s 10-year bonds (which is viewed as a measure of investor anxiety) increased to 7.45%, from 6.63% just the previous day. There are also fears that the higher rates may force clearing houses (the intermediaries between buyers and sellers of bonds) to demand higher collateral payments from traders of Italian bonds to protect the clearinghouses from default, which would push interest rates even higher. Although by some measures the Italian economy is in better shape than the economies of Greece and Portugal, the economy cannot sustain paying such high rates on debt. If the interest rate rises so high that investors stop buying Italian bonds, the country will be unable to raise sufficient money on the bond market to continue paying its current debts and will have to seek a bailout like Greece and Portugal.

The developing crisis in Italy is of particular concern to European Union leaders. The Italian economy is the third-largest in the 27-member bloc and the current Eurozone bailout fund, the European Financial Stability Facility (EFSF), does not have enough money to bail out Italy. Italy’s debt is currently €1.9 trillion and accounts for 25% of all the sovereign debt in the Eurozone.

In an effort to restore market confidence in the country’s economy, the Italian parliament passed another package of austerity measures on Saturday. The austerity package includes an increase in the value-added-tax (a form of sales tax) from 20% to 21%, a freeze on public sector salaries until 2014, and an increase in the retirement age from 60 to 65 by 2026. Also, a new special tax will be imposed on the energy sector along with tougher measures to fight tax evasion. The austerity measures are expected to produce €59.8 billion in savings by the year 2014. Following the passage of such measures, Prime Minister Berlusconi stepped down, as he had promised earlier in the week, and a new Prime Minister, Mario Monti, has been appointed. The new appointment has been welcomed by EU leaders as a signal of the Italian authorities’ determination to overcome the current crisis. However, Italy is still not out of the danger zone as the country will continue to be monitored while it implements the austerity measures.

Sunday, November 13, 2011

Asset Valuation: A Numbers Game?


Reuters: Goldman, Morgan Stanley Mull Reducing Mark-to-Market Accounting

TIME: Will Mark-to-Market Fix Help Save the Banks?

WSJ: Bank Quandry-Valuing the Assets

Continuing uncertainty in the global markets has led some major financial institutions to reconsider how they account for and report certain assets. This week both Morgan Stanley and Goldman Sachs announced that they are considering whether to reduce their use of “mark-to-market” accounting in favor of “historical-cost” accounting. This process, called “asset valuation,” impacts a bank’s ability to meet capital requirements, fund operational spending, and implement lending programs.

Investment banks and commercial banks are subject to different accounting requirements for different assets. As investment banks, Goldman and Morgan were required to price most assets using “fair-value accounting,” currently defined as mark-to-market accounting which requires institutions to price assets on their balance sheets according to the price they could be sold at on the open market—not the price they paid for them. However, to receive emergency federal funds during the subprime crisis, Morgan and Goldman converted to bank-holding companies which are subject to different accounting regulations. Banks are able to record certain assets based on historical-costs which means these assets are reported at their original value or purchase price. In short, Morgan and Goldman now have more flexibility in reporting certain asset values and the use of historical costs could substantially increase asset values.

Mark-to-market accounting became problematic after the 2008 U.S. financial crisis as the market for some securities collapsed and buyers disappeared. Mark-to-market accounting requirements magnified the impact of the crisis by forcing banks to show massive losses on their balance sheets, which reduced their ability to lend since banks are only allowed to lend an amount equal to a certain percentage of the total value of their assets. As a result, many banks were left holding (and still are) billions of dollars worth of toxic assets, which they have to report at very low values ranging from zero to sixty percent of their original price. Thus, some banks argue that the accounting requirements are making an already bad situation worse.

Since 2008, the financial industry has lobbied regulators to ease the mark-to-market requirement, which it argues would bolster their bottom-line, prevent additional bank failures, and help stabilize the economy. In April of 2009, the Financial Accounting Standards Board (FASB) adopted changes to accounting rules to allow banks more discretion in the use of mark-to-market accounting for “distressed” assets. Generally, distressed assets refer to securities that can only be sold by greatly reducing the price or for which there is no market at all. Critics argue that easing mark-to-market requirements allows banks to hide losses and reduces transparency.

Morgan Stanley’s and Goldman Sachs’s decisions to move away from mark-to-market valuations could dramatically affect financial results for both firms. Under historical-cost accounting rules, assets are generally reported at their original value or purchase price, a shift that would increase asset values on the firms’ balance sheets. Given the continued market volatility and sluggish economy, such balance sheet reorganizations will likely be met with a certain degree of skepticism. The accounting shifts could be viewed as an effort to disguise significant losses that belie greater financial concerns, or they may reflect prudent management decisions enabling the banks to recapitalize internally by retaining earnings or increasing capital ratios by reducing losses, which will allow them to loan more money and potentially earn more profits.

Countries in Asia Prepare for European Debt Crisis Fallout


Countries throughout Asia and the South Pacific have responded to the European debt crisis and waning global demand by lowering their benchmark interest rates. Australia, China, Indonesia, Pakistan, and Thailand have all decreased benchmark interest rates in recent months, and Malaysia, New Zealand, Singapore, and South Korea are considering other policies to inject more money into their economies.

The use of monetary policy to spur spending and economic growth represents a shift in policy for many of these countries. In recent years, these countries have experienced robust economic growth and have been primarily concerned with curbing high inflation. This concern has led them to maintain high interest rates to decrease the money supply—and thereby inflation—by making saving more attractive and borrowing more expensive. However, the once-rising inflation rate is now falling in many of these countries and economic growth has also decreased. It is this reversal in growth that has convinced many of the countries to change course.

The benchmark interest rate is the rate of return on new government-issued bonds. In theory, lowering the benchmark interest rate can decrease the value of a country’s currency and spur its export industries, which is an effective way to generate economic growth. For example, if Indonesia lowers its benchmark interest rate, demand for Indonesian bonds will fall because they are not as profitable as before. Since investors use the Indonesian currency (rupiah) to buy government bonds, when demand for the bonds falls so does demand for the currency, which lowers its value in accordance with supply and demand principles. If the rupiah costs less on the foreign exchange market, it will be cheaper for businesses in the United States, for example, to buy the rupiah required to pay Indonesian manufacturers for their goods. The lower currency value will, therefore, jumpstart Indonesian export industries and generate economic growth.

A lower benchmark interest rate also has an effect domestically. When interest rates are lower, saving is less attractive and borrowing is cheaper, which encourages people to spend their money rather than save it. The additional spending increases overall demand and economic growth.

Some analysts question whether policies aimed at increasing economic growth at the risk of increased inflation are necessary. Although economic growth rates have fallen of late, a recent Asian Development Bank report indicated that Asian countries are still on pace for 7.5% growth in 2011. These analysts believe that this level of growth is appropriate given the global economic downturn, and think that preventing the potentially destabilizing effects of inflation on food and commodity prices should be the countries’ priority.

Whether this policy shift represents a temporary response to worsening conditions in Europe or a more prolonged transformation of Asian monetary policy remains to be seen. There is no doubt, however, that Asia’s path forward will be closely observed and scrutinized by the global community.

Financing Guatemala's War on Crime

AP: Ex-general Wins Guatemalan Presidential Election
Cornell: Legal Information Institute, U.S. Code
Diario de Centro América: Pérez impulsará reforma fiscal y luchará contra evasión
Estrategia & Negocios: Otto tendrá el desafío de ordenar las finanzas
The Guardian: Retired General Otto Perez Wins Guatemala Presidential Election
WSJ: New Guatemala Leader Faces Tests

Guatemala’s new president, Otto Pérez Molina, ran his presidential campaign promising voters that he would crack down on the increasing violence in the country. Guatemala’s murder rate is among the highest in the world (about eight times higher than the United States). Mexican and local drug cartels are carrying out kidnappings and extortions and taking over Guatemalan territory, using it as a smuggling route to the rest of the Americas. Analysts attribute President Pérez Molina’s win to Guatemalans’ desire to make the violence stop, but wonder if he will be able to deliver on his promise.

Although Guatemala’s economy is the largest in Central America, President Pérez Molina’s plans to combat crime will require funds in excess of what Guatemala currently has available. For example, the President wants to hire 10,000 new police officers and 2,500 more soldiers, but it is unclear where the President will find money to pay them. The President would like to raise the income tax to 14%, but previous efforts to increase the income tax have met resistance from Guatemala’s upper classes. Last year, Guatemala’s income tax rate was 10.3% (compared to between 15% to 39.6% in the United States), and economists believe that it will be very difficult for the government to equip the police force, military, and other sectors to fight crime when taxes are so low.

The tax increase is only part of the new President’s call for fiscal reform aimed at scaling back the country’s debt and providing funds for fighting crime. In addition to limited resources (its available budget is barely 10% of GDP due to the low taxes), Guatemala has a fiscal deficit of 3% of GDP and a debt of almost 25% of GDP. The President hopes to gain control over Guatemala’s debt to decrease dependence on international lenders. Experts cite mismanagement by the previous administration as a reason for the large amount of debt—for example, some programs were created without available funding, so the government had to take on more debt to pay for them. Even if Guatemala is able to reduce its debt, the government needs to address other issues that may affect its ability to pay for the fight against crime, such as roads in need of repairs, an impoverished population in need of services, and decreasing agricultural production in need of stimulus.

Thursday, November 10, 2011

The World Bank and Others Suspend Funding to Malawi

CIA World Fact Book: Malawi Country Profile
Maravi Post: World Bank to Malawi: Put Your House in Order
Nyasa Times: World Bank Tells Malawi: Address Concerns to Get Aid
Reuters: Malawi Donors to Continue Withholding Aid: Paper
The Star: Malawi Abandons Tobacco for Crop Diversification, Food Security

Malawi, a small, landlocked country in southeastern Africa, currently has one of the fastest growing economies in Africa. Despite the strong growth, Malawi is still struggling with economic and political issues associated with being an underdeveloped country. Adding to these problems is the recent decision of the World Bank and a large number of other donors to withhold $500 million in aid until certain political and economic concerns are addressed. The funding issues are particularly sensitive due to recent economic problems.

Among the political policy concerns that lenders want Malawi to address are threats to media freedom, overall poor governance, deteriorating human rights, and the government’s handling of anti-government demonstrations where twenty protestors were killed. In addition to political concerns, the World Bank is concerned about an economic policy calling for the adherence to a zero-deficit budget, meaning that the country’s spending is higher than its revenues. Many economists believe running a deficit can help reverse an economic downturn. In times of financial hardship demand for goods decreases, which reduces sales and, therefore, profits, which leads to job and wage cuts, which further reduces demand. Governments, in some instances, can reverse this cycle by spending money to increase demand. To do so, however, the government may have to borrow money, and, thus, run a deficit.

If the Malawi Government addresses the above political and economic concerns, budgetary funding from the international community will resume. The funding is especially important given the country’s current economic problems. Tobacco accounts for 70% of the country’s export revenue, but a combination of the global economic recession, overproduction, and anti-tobacco campaigns have reduced its global demand and price, putting deflationary pressure on the Malawian currency. A currency’s value is affected by many factors, one of which is the number of individuals who need to purchase a currency to pay for goods purchased from that country. With the demand and price of tobacco declining, fewer people are buying tobacco from Malawi, which means fewer people need to purchase Malawian currency. This reduced demand leads to a decline in the exchange rate.

The International Monetary Fund (IMF) recognized that the decreased demand for Malawian goods has lead to its currency being overvalued because its value has remained the same even though demand has fallen due to the government’s use of a fixed exchange rate system. During the summer of 2011, the IMF suggested that the exchange rate should be lowered to encourage foreign investment (a cheaper currency means lower costs for foreigners) and align the Malawian exchange rate with what it would be if determined by the free market. The Malawi government followed the IMF’s suggestion and devalued their currency by approximately 10%. Because the Malawian currency is now worth less on the international market, the cost of importing food and oil has increased, which has lead to hardship for many of the country’s citizens, and made the need for international aid especially pressing.

Monday, November 07, 2011

Twitter and Social Networking Sites: Saving or Taking Lives in Mexico?


Mentedigital: Twitter in Mexico 2011

NYT: Mexico Turns to Social Media for Information and Survival

NYT: After a Kidnapping, Hackers Take On a Ruthless Mexican Crime Syndicate

Reuters: Mexican Social Media Boom Draws Drug Cartel Attacks

Worldwide, social media outlets have proven to be powerful tools for inspiring social and political change. Sites like Twitter and Facebook became the global command center for the Arab Spring uprisings and the current Occupy Wall Street demonstrations. Social networking has become a valuable tool for communication and the exchange of ideas across all sectors including, economic, educational and governmental entities. World leaders like Barack Obama ‘tweet’ and the White House has a Facebook page. Although social networking can be valuable to social and economic development, as evidenced by the Arab Spring movements, it can also be problematic. While citizens across the globe are using social media networks as a communication hub, in Mexico such networks are a matter of life and death.

The violence surrounding Mexico’s ongoing drug war has taken an estimated 40,000 lives in Mexico over the past five years. In an effort to further their criminal enterprises, the cartels have embarked on a brutal intimidation campaign targeted not only at rival organizations, but innocent citizens as well. The killings are often gruesome and accompanied by highly disturbing public messages threatening death to those who attempt to interfere with cartel activity. Victims have been beheaded, disemboweled, hung from bridges, or dumped in roadways. Criminal prosecutions are thwarted by governmental corruption and witnesses are often silenced by fear. The cartels have also targeted and killed reporters covering the drug wars and local media outlets have largely stopped reporting on their crimes. Because the cartels have silenced radio and news outlets, Mexicans increasingly rely on posts on Twitter, Facebook, and other sites to avoid cartel checkpoints, gang-violence, and shoot-outs as these situations are posted in real time. Unfortunately, the cartels have access to these social media sites as well.

In an effort to further silence and intimidate, the cartels have set their sights on the social media users who oppose them. Several people who allegedly posted information about cartel activities on Twitter have been brutally murdered. The most recent wave of cartel killings include three social media users described by their murderers as “snitches” on public banners found near their bodies. Although most social media users remain anonymous, some observers believe the cartels have infiltrated government and law enforcement offices that utilize advanced tracking software that can identify users.

Despite the danger, citizens continue to use social media. This week, in response to a cartel kidnapping of one of its members, the group “Anonymous” (a collaboration of international computer hackers) released a video on YouTube threatening to reveal the names of alleged cartel associates if the Anonymous member was not released. Critics claimed that Anonymous was endangering innocent lives as any names that Anonymous may have are likely tainted by corrupt officials, police, or the cartels themselves. Thus, Anonymous could actually contribute to the violence they seek to stop as rival gangs target the people named on the lists. Ultimately, the cartel released the Anonymous member, diffusing the situation. This scenario raises important issues with respect to the use and impact of social media networks. While social networks certainly can be used to empower the masses, the situation in Mexico demonstrates their capacity to spread chaos and death.

Sunday, November 06, 2011

Relaxing American Travel Restrictions to Cuba

Miami Herald: The Door Opens for People-to-People Exchanges with Cuba Florida’s Key West to Offer Cuba Flights
New American: Obama Opens Trade and Travel Relations with Communist Cuba Obama’s New Policy Opens Way for Flights to Cuba Out of Tampa
USA Today: Obama Shows Courage by Easing Cuba Travel Ban
Voice of America: Cuban-Americans Divided Over Expanded US-Cuba Flights
WSJ: Airlines Rev Up for Flights to Cuba

On January 14, 2011, President Obama called for the relaxation of travel restrictions to Cuba. This new policy makes it easier for students, religious groups, and journalists from the United States to travel to Cuba. The ability of Cuban-Americans to travel to Cuba to visit family remains unchanged under the new policy, although the effect of the policy has made travel to Cuba more convenient for them. The President hoped to increase the flow of information between Cubans and the outside world, improve human rights in Cuba, increase humanitarian aid to Cuba, and help reunite Cuban families living in the United States and Cuba. Nearly one year later, the impact of this policy for Cubans remains unclear.

Since the president’s announcement, a number of organizations interested in running person-to-person exchanges in Cuba have applied for licenses with the U.S. Treasury department. The first of these trips began in August. The organizations plan to conduct cultural tours and activities in Cuba for Americans that qualify to travel there under the new policy, promising to provide a “purposeful travel” experience for tourists through which they can interact with Cubans and “support . . . their desire to freely determine their country’s future.” Although it is not uncommon for these organizations to charge several thousand dollars, tourists are limited in their ability to contribute to the local economy through limits on spending and buying souvenirs that are not “informational” in nature. Furthermore, although organizers claim that Americans will have “plenty of opportunities to interact with Cubans,” it is unclear how many due to the tours’ highly structured itineraries that include sharing hotel and dining accommodations with other group members. Nevertheless, American demand for the few slots available on these trips has proven high.

To accommodate the growing number of people travelling to Cuba, fifteen U.S. airports are now offering flights to Cuba. Previously, flights were only available out of Miami, Los Angeles, and New York. Airport industry officials say that the international airline industry stands to gain from the new policy. By the end of the year, American Airlines, Jet Blue, United Continental, and Delta will operate roughly twenty-five weekly flights to Cuba on behalf of charter companies. Although the charter companies that currently run the trips to Cuba are not profiting from these ventures, they and the airlines view their participation in air travel to Cuba as an “investment” in a future they hope will include unrestricted travel to Cuba.

Supporters of the new travel policy cite the possible benefits of increased interaction with Cuba, such as helping the local Cuban economy, educational exchange, and fewer obstacles for religious institutions travelling to Cuba to provide religious instruction and humanitarian aid. But some Cuban-Americans worry that the tourists’ money will only strengthen the Cuban regime. These critics also note that some Cuban academic and religious groups with which American tourists will interact support the communist regime. Critics, therefore, contend that instead of supporting the people of Cuba, American tourists will financially enrich and intellectually support the repressive regime. For these reasons, critics argue that the human rights abuses on the island will not end as a result of increased tourism.

Historic Flood Threatens Thailand’s Growth

CNN: Threat of Disease from Historic Flooding Looms in Thailand
FT: Thailand Slashes Growth Forecast After Floods
Herald Sun: Thai Authorities Warn of Electrocution
WSJ: Submerged Thailand Losing Out to Peers

On October 28th, the Bank of Thailand lowered its prediction for the country’s economic growth rate in 2011 from 4.1% to 2.6% due to ongoing flooding throughout the country. Uncharacteristically heavy rain since mid-July has caused Thailand’s worst flooding in fifty years resulting in $6 billion of damage, 427 deaths, and 2.2 million people displaced.

Although the capital city of Bangkok—accounting for 41% of the country’s $319 billion economy—has not flooded, the northern and western portions of the country are submerged in waist-high water contaminated with sewage, garbage, and dead animals. Health officials in Thailand warn that these areas will be susceptible to malaria, diarrhea, and other serious, but usually non-life threatening, diseases. Drowning and electrocution have caused most of the deaths so far, but these health risks threaten to kill many more.

The international community and the Thai government are attempting to ease the effects of the flooding by providing health safety information, mosquito nets, and money among other things. For its part, the Thai government has committed 50,000 military officers to help evacuate between 100,000 and 200,000 people to shelters across the country. The government has also pledged $25.97 billion to provide aid for those affected by the floods and to prevent future flooding.

Some submerged communities, however, believe the Thai government has not done enough to prevent damage. Villagers in one district dug ditches around a gate designed to keep floodwater in their community and out of central Bangkok. The government quickly refilled the ditches to prevent floodwater from pouring into Bangkok and assigned 100 police officers to watch over the gate 24 hours a day. The Thai government wants to keep central Bangkok dry because it is the engine of the Thai economy, but residents outside of Bangkok are understandably frustrated with the government’s priorities.

Not only have communities been devastated from the current flooding, but now some foreign investors are convinced that Thailand may no longer be a stable place to setup business. The flooding, coupled with recent political events, has distracted the Thai government from advancing necessary infrastructure projects that often attract foreign investment by lowering production costs. Foreign investors are important to the Thai economy because they create higher paying jobs and spend money in the local economy, both which increase employment and generate economic growth.

Although the economy is expected to recover to some degree due to government reconstruction and the rebuilding of major automobile plants which have been damaged by flooding, one economist believes that Thailand is at a tipping point in terms of its ability to attract foreign investors. Whether foreign investors will continue to locate in Thailand depends on whether Thailand can rebuild its infrastructure and ensure investors that it has taken important steps to prevent future flooding. The government will also face pressure from its citizens to provide immediate aid to flooded communities. Since Thailand has limited resources, the government must determine how much funding to allocate to short-term relief and long-term rebuilding. However, striking the correct balance will be difficult.

Friday, November 04, 2011

Greece’s Referendum Plan Shocks the World

CNN: Greece’s Prime Minister Optimistic Referendum Will Pass
FT: EU Suspends €8bn in Greek aid
FT: EU Leaders Battle to Save Greece Deal
Spiegel: EU Shocked and Furious at Greek Referendum Plan
WSJ: Europe's Greece Ultimatum

On Monday, Greek Prime Minister George Papandreou announced that the bailout agreement European leaders reached last week during the Eurozone Summit must go through a referendum (a popular vote) before Greece will accept its terms and conditions. The agreement calls for Greece to receive €130 billion of aid in return for drastic spending cuts that will negatively affect many Greek citizens. The bailout agreement allows for an “orderly” default, while rejecting the package would lead to an immediate (“messy”) default that may jeopardize the economic stability of the entire Eurozone. It is this fear that caused many observers to strongly question the wisdom of a referendum.

Many European leaders, including French President Sarkozy, have said that if Greece opts not to adhere to the deal reached last week, it must leave the Eurozone. After facing such criticism from European leaders and his own party, Prime Minister Papandreou backed down on the referendum plan on Thursday. Instead, the Prime Minister sought a bipartisan alliance with Greece’s conservative opposition to form a governmental consensus on the bailout, which he says would negate the need for a popular vote. Prime Minister Papandreou appeared confident that such a consensus existed after the conservative opposition promised to support the terms of the bailout.

In response to these mixed signals on Greece’s commitment to remaining part of the Eurozone, European leaders have suspended the disbursement of €8 billion from the European Union and International Monetary Fund aid package. The European leaders made it clear that Greece will not receive the funds until it agrees to the new deal. Without the next disbursement Greece will likely be unable to make to make €8 billion in bond repayments due on December 19, at which time a “messy” default would begin.