Rwandan Government Uses Ecological Diversity to Energize Electricity Production

AA: Geothermal Drilling Begins in December

AA: Contourglobal Wins Award for Kivuwatt Project

AA: Turkish Investor to Double Power Output

AfDB: KivuWatt ESIA Summary

BBC: Lake Kivu gas: Turning an Explosion Risk into a Power Source

Bloomberg: Rwanda Aims to Boost Electricity Capacity by as Much as 1,000 Megawatts

ContourGlobal: KivuWatt

RDB: Energy Brochure 2012

In 2011, Rwanda enacted a plan to generate more electricity at cheaper prices by diversifying its production methods to include domestic sources of power. Currently, Rwanda produces approximately 85 MW (megawatts) of electricity—40% of which originates from expensive imported diesel fuel and 59% from geothermal sources. As a result of Rwanda’s reliance on imported diesel, the price of electricity in Rwanda is expensive at 22 cents/kwh (kilowatt hour), compared to neighboring countries Burundi and Uganda at 8.19 and 11.22 cents/kwh, respectively.

Rwanda plans to expand its power generation to 1000MW by 2017 by utilizing inexpensive domestic biomass, methane, geothermal, and hydropower sources. Dry peat (biomass composed of an accumulation of partially decayed vegetation) is a valuable natural resource for Rwanda. A Turkish investor, Hakan Mining and Generation Industry and Trade Inc.is building a 100MW peat power plant. The plant will be built along Rwanda’s southern border in Akanyaru with the goal of producing power in 3-5 years. Rwanda has enough peat to fuel that plant for approximately a hundred years if it maintains a 100MW capacity. Rwanda is also investing in a unique power plant which burns methane gas harvested from the explosive waters of Lake Kivu. The Lake Kivu project is expected to produce 100MW of power by 2014. Also, Rwanda’s nascent geothermal resources on the southern slopes of the Karisimbi volcano could generate up to 700MW of power, once they are developed in December, 2012. Last but not least, Rwanda is partnering with Burundi and Tanzania to build four regional hydro-electric plants that will generate 174MW of electricity for the Rwandan people. These domestic sources of power will produce electricity that is considerably less expensive than the diesel fuel that Rwanda currently uses.

Rwanda’s natural resources present opportunities to reduce the price of electricity by reducing the cost of generating it, but the goal to increase power supply from 100MW to 1000MW will be difficult to achieve in five years.

Egypt Approaches America for Aid and Investment Package

Ahram Online: Egypt’s Unemployment Rate Hits Record High in Second Quarter

CIA Factbook: Egypt

Forex: Historical Data

The Guardian: Egypt Closes in on $1bn US Debt Deal

New York Times: To Back Democracy, U.S. Prepares to Cut $1 Billion From Egypt’s Debt

Almost sixteen months after pledging to help Egypt’s faltering economy, the United States (U.S.) is nearing an agreement to forgive $1 billion dollars Egypt owes to the U.S., and to pledge $435 million for investment in Egypt. The Egyptian economy has been in decline since the ouster of long time President Hosni Mubarak in February 2012, and the new President, Mohamed Mursi is working to improve Egypt’s economic outlook by reducing government debt and increasing investment.

If the U.S. forgives $1 billion of the $3 billion Egypt currently owes the U.S., it will support the Egyptian economy in two ways. First, it will reduce the amount of cash that Egypt has to use to pay down government debt, and will allow Egypt to spend more money to stimulate its economy. Second, the Egyptian government is less likely to have to raise taxes on its population to pay down government debt, which leaves more money for taxpayers to spend in the economy. As of 2011, Egypt’s gross domestic product (GDP) per capita  (indicator of standard of living) was 136^th in the world, leaving each person with $6,600 to spend per year. The more money that citizens have, the more they are able to spend and stimulate the economy.

The United States has also offered $375 million in financing to American companies that invest in Egypt, and a $60 million investment fund for Egyptians to invest in new businesses. In an effort to entice American companies to utilize the $375 million fund, the U.S. Chamber of Commerce is bringing executives from almost fifty large American companies to Egypt . The United States and Egypt intend the $375 million foreign and $60 million domestic investment funds to help reduce Egypt’s 12.6% unemployment rate, create sources of income for Egyptian citizens, and increase the amount of taxes the government can collect because of the increase in business. Egypt needs an increase in investment to stabilize its economy.

Although the Egyptian stock market showed gains during the week of September 4^th, the country still has a long way to go to reach financial stability. The Egyptian stock index (EGX 30) hit a 15-month high on September 4^th, showing that the market may be responding to Mursi’s effort, but the EGX 30 still sits 30 percent below its high in 2010.The Egyptian government is mired in debt and lacking investment. With support from foreign governments and internal economic growth, Egypt has a good opportunity to grow a stable economy. America looks to be invested in the recovery process; American Deputy Secretary of State Thomas Nides said that the aid is “not just about assistance,” it is about “growth and business.”

Efforts to Increase Tourism in The Bahamas Have Met Some Obstacles

Sources:
The Bahama Journal: PM: Time For Action
The Tribune: Hotels Suffer 6.1% Percent Revenue Decline
The Tribune: Kerzner Chief: Rising Cost of Travel to Nassau Must Be Addressed

On April 25, 2011 Prime Minister of the Commonwealth of the Bahamas, Hubert Ingraham, addressed the residents of the nation’s capitol, Nassau, on the island of New Providence. Prime Minister Ingraham made this public address in response to the overwhelming residential and business complaints of the capitol’s residents and business owners to the New Providence Road Improvement Project (“NPRIP”). The project which has sought to modernize the 300 year old city of Nassau, includes the installation of new water mains along the city’s main roads in order to provide residents and tourists with improved water quality and water pressure. Additional road work includes improvement in water sewage and electrical upgrades for the residents and tourists of the city. The project also includes the extension of roads to newly created “open green spaces” and the Government High School. Completion of a grand four-lane highway that services major attractions and sectors of the island, such as popular tourist beaches and the airport, is also part of the program. However, the scope and ambitious nature of the project has began to wear on the residents and business owners of the affected areas, making it difficult for them to traverse to and from work and for customers to access businesses. In his address, Prime Minister Ingraham, assured residents and business owners that future construction of the NPRIP project will only occur during the off-peak hours of 7:00 p.m. to 5:00 a.m. However, the Prime Minister also made clear that construction efforts were a ways off from completion and would require the continued patience and support of Nassau residents and business owners. Besides providing the residents of Nassau with basic infrastructural needs, such as water pressure and improved electrical upgrades, Prime Minister Ingraham states that the modernization and aesthetic upgrades of the city, are needed to improve the tourist industry of the island, which accounts for 50% of Bahamian employment.

At the beginning of this year, the Central Bank of the Bahamas said the islands hotel industry saw a 6.1% decline in revenues due to low occupancy rates and low average daily room rates. Early assessment of the decline, accredited much of the revenue decline to bad weather following the Christmas season and the absence of a “Companion Fly Free” program previously offered by the Ministry of Tourism and member hotels during the months of January and February. Hotels quickly coordinated to re-implement the offer to travelers and saw an improvement in the subsequent month of March and April. However, whether or not the totality, or even the majority, of the decline in hotel revenues can be attributed solely to bad weather and the absence of a travel deal, has come into question with a recent discovery on airline service to The Bahamas.

President of the company that owns the Atlantis hotel in Nassau, George Markantonis, has recently spoken out about the dramatic increase of flight cost to The Bahamas from major origin points like Miami and LaGuardia as well as the dramatic decrease in the number of flights servicing The Bahamas. Flight costs in comparison to 2010, have increased by 28% for January, 41% for February and 27% for March. Additionally, the combined number of flights from all airline carriers servicing The Bahamas, has decreased by 16.3%. Kerzner International, the company that owns the Atlantis hotel in Nassau, is now planning to meet with airlines servicing The Bahamas to discuss the issue. Thus far there has been no comment by The Bahamas Ministry of Tourism on the issue, but with tourism generating 50% of Bahamian employment, it can be expected that one will issue soon. Whether the efforts made by Kerzner International to increase flight accessibility to The Bahamas, or the modernization efforts of Prime Minister Ingraham’s NPRIP project, will improve the tourist economy of Nassau is yet to be seen.

Possible Conflict May Arise Over Jamaica’s Stand-by Agreement with IMF Over 5% Tax Cut in Fuel

Sources:
Jamaican Gleaner: IMF Open to New Standby Agreement with Jamaica
Business Content Jamaica: Jamaica Shaves 5% Off Controversial Gas Tax
Business Content Jamaica: 1.2% Decline in Jamaica’s Economic Growth

On April 12, 2011, the Jamaican government successfully avoided protest by opposition party, the Peoples National Party (“PNP”). The PNP, had originally scheduled the protest to oppose the Jamaican government’s implementation of a 15% tax increase on fuel. Consumers had already been hit hard by the international increase of fuel prices and the 15% tax increase would have only increased costs for cash-strapped consumers. Currently Jamaican motorist pay more than $4.40 per gallon for gasoline. The 15% tax increase would have sent the price of gasoline to over $5.00 per gallon, something the PNP was unwilling to accept. In response to the possible protest, the Jamaican government agreed to reduce the tax by 5% and successfully quelled the party’s protest.

Although the Jamaican government avoided the immediate fear of political protest, reducing the fuel tax has only created another imminent fear for the Jamaican government. The 15% increase in tax fuel was one of the conditions negotiated in a medium-term economic stand-by agreement with the International Monetary Fund. This agreement between the Jamaican government and the IMF provides the Jamaican government with a 3-year $1.27 billion dollar loan in order to help the government implement new economic reforms and cope with the global downturn. However, the agreement comes with conditions and clearly states that the Jamaican government must meet certain markers and goals for ensuring greater fiscal discipline. One of these markers included increasing cash supply through increased taxation, which the 15% fuel tax increase was supposed to be a part of. The 5% decrease assented to by the Jamaican government, will now force them to explain an unexpected budgetary cost of 3.5 billion Jamaican dollars (roughly $41 million U.S. dollars) to the IMF. It is clear from the terms of the stand-by agreement with the IMF, that Jamaica faces possible legal sanctions for failing to meet these markers. Already identified as a government with a “terminal point problem,” or a problem with failing to meet financial and structural markers, the Jamaican government is unsure if this decrease in tax fuel will have a legal affect for the country. However, in the February review of the agreement, IMF technocrat Trevor Alleyne said the IMF is working with the Jamaican government to ensure that resort to legal sanctions is avoided.

Although some support the stand-by agreement between the IMF and the Jamaican government, critics point to Jamaica’s 1.2% GDP contraction in the 2010 year as an indicator that the reforms imposed by the terms of the agreement are not stimulating growth. Alleyne contends that increasing GDP was never the major goal of issuing the loan, but providing insurance for banks in case of a sharp demand for loans during a debt exchange shock, or fallout, was. Maintaining the economic confidence of companies is crucial toward the growth of the country, Alleyne stated.
However, when a sharp GDP contraction in Jamaica’s September quarter, did not send companies running to the bank for cash bailouts, critics viewed the loan as an attempt to swindle the Jamaican government into paying interest on a overly excessive loan, since $950 million of the $1.27 billion loaned by the IMF had been allocated for such a shock. Alleyne contends that the loan was created to prepare Jamaican banks against the worst possible scenario, not as a reflection of the IMF’s belief that the worst case scenario would actually happen.

Despite criticisms of the loan, the Jamaican government will continue to work with the IMF to make improvements in their fiscal planning. If nothing else the existence of the loan will encourage much needed cheap budgetary support from the World Bank and the Inter-American Development Bank.

Issues Over the Expedition of the Panama Trade Agreement with U.S. Emerge

Agweek: Trade Agreement Moves Forward
U.S. Dept. of the Treasury: U.S., Panama Sign New Tax Information Exchange Agreement
Hispanically Speaking News: U.S. and Panama Finalize Tax Information Exchange Agreement
Iowa Pork Producers Association: Panama Trade Agreement Ready for Congress
Quad-City Times: Trade Agreements Would Boost Iowa

On April 18, 2011, Panama successfully alleviated United States’ concerns about completing a new free trade agreement between the two countries. Primarily, Panama’s full ratification of the Tax Information Exchange Agreement allowed the Office of the United States Trade Representative to generate a trade agreement that can be presented to Capitol Hill for ratification. Panama’s signing of the Tax Information Exchange Agreement basically assured the United States government that there would be transparency in the tax information they exchange and that the United States would be able to enforce their tax laws, especially with respect to bank accounts in Panama. Further Panama has also taken measures to assure the United States of its increased commitment to strengthening its labor laws and enforcement. All of these actions clear the way for Congress to seriously begin drafting and ultimately implementing a new trade agreement with Panama.

However, despite the readiness of both Panama and the United States to enter into a new trade agreement, the U.S. administration is waiting on two other pending agreements with South Korea and Columbia. Ron Kirk, a United States Trade Representative, explained that while the administration wants the agreements approved, it also wants to consider elements of the Panamanian trade agreement in connection with other possible trade agreements. Specifically the administration is concerned about the possible impact of less expensive imports from these countries and the affect it will have on employees of domestic manufacturers and service firms, who have traditionally lost jobs with the influx of cheap imports. The administration considers this a primary concern under the Trade Adjustment Assistance program, which has sought to reemploy workers who have lost their jobs or have suffered decreased wages and hours due to increased imports.

However United States farmers and agricultural and pork producers have pushed for the administration to quickly produce and initiate a trade agreement with Panama and others in order to expand their exporting base. Among the supporters of an expedited trade agreement with Panama are the American Soybean Association, the American Farm Bureau Federation and the National Pork Producers Council. The support of these organizations makes sense considering the United States exported more than $450 million in agricultural products to Panama in 2010, double the amount it exported in 2005. Additionally, according to some economists the Panama trade agreement will add 20 cents to the price of each hog on the market and expects that pork exports to Panama will increase by about $16 million per year. However the number of jobs created in the pork industry by this agreement, is estimated to be only 200.
Whether the increased exporting profits made from the Panama Trade agreement will be able to compensate for possible job losses due to increased cheap imports, is a heavy concern for the administration, and one they have determined requires careful and slow consideration. However, as the U.S. administration halts on implementing a trade agreement with Panama, Panama has already entered into several other trade agreements with Chile, Singapore and Taiwan. The fear among supporters of an expedited trade agreement between the U.S. and Panama is that by the time the U.S. decides to enter into an agreement with Panama, other exporters will have a competitive advantage over U.S. firms.

Are Improved Economic and Political Relations in the Near Future for Cuba and the United States?

FT: Cuba Libre
FT: US-Cuba Ties Grow but Politics Remain Prickly
Washington Post: Maryland Contractor Alan Gross Draws 15-Year Sentence in Cuba

In the aftermath of the global financial crises, Cuba has struggled between its Communist ideology and the need to craft a sustainable economy. Hard hit by the food shortages and increased oil prices and a sobering national debt of $20 billion, President Raul Castro, has made some radical economic and political reforms, all of which point toward a more market based economy and a more democratic government.
Some critics have balked at the depth and scope of the economic reforms implemented by President Castro, wondering whether they will lead to nationwide unrest and protest as citizens make the transition from government funded payrolls to a more market based economy. The reforms include cutting more than 1 million workers from unemployment benefits. The expectation is that those persons cut from unemployment will find jobs as private farmers or in small start-up businesses. Currently the state employs 85 %of the 5 million people in the Cuban workforce.

Additional economic reforms include measures to end state administration of companies in favor of regulation through taxation. The hope is that this will increase foreign investment in “special economic zones.” Additionally, the state has relinquished state land to more than 140,000 small farmers to grow and sell their produce in small roadside kiosks, a practice that would not have been allowed more than a year ago. The government has also issued roughly 200,000 self-employment licenses, resulting in the crop up of small business along Cuban city streets.

Although these seemingly democratic and market based reforms have been made, critics contend that the intent behind them is convoluted. President Castro himself said these reforms were made to ensure the very survival of the “revolution” and a Communist ideology. Whether these reforms will actually allow a Communist ideology to persist, or usher in a new political and economic era for Cuba is yet to be seen. Whatever the result, the outcome will undoubtedly play a role in U.S.-Cuban relations, which have remained strained since the Cold War.

However, independent of this outcome, or perhaps in response to the promise of a less strained relationship between itself and Cuba, President Barack Obama, has made reforms toward making the trade embargo on Cuba more lenient. Last year, the United States exported roughly $366 million in food to Cuba, making Cuba the fourth largest source of United States food exports and comprising a third of Cuba’s annual imports. Additionally 70,000 United States citizens are now allowed to enter Cuba for “educational or charity purposes.” However despite the more relaxed political and economic reforms made by both sides, the formation of a healthy and well-meaning relationship between the two countries is still a ways off.

This is perhaps best demonstrated by the recent arrest and conviction of US aid worker Alan Gross. Gross entered Cuba under the more lenient reforms allowing US citizens to travel to Cuba for “educational and charity purposes.” Barely able to speak Spanish himself Gross went to Cuba on behalf of his employer, Development Alternatives, which had won a $6 million government contract to “promote democracy in Cuba.” Most of his work consisted of distributing computers and satellite equipment to Cuba’s Jewish community. He was found guilty by the Cuban court of working on a subversive United States’ project to undermine the country’s communist system. The result has caused United States’ diplomats to issue a warning to Cuba, stating that bilateral relations will not improve while Gross is detained. Whether the more lenient reforms made by both countries towards each other will actually lead to improved relations, or to more episodes for contention, as demonstrated by the Alan Gross situation, is yet to be seen.

In Trinidad Unions for Public Service Employees Strike Over Government Wage Increase

Sources:
GuardianMedia: Need to Stabilize Economy, Encourage Growth
Trinidad Express Newspapers: Dookeran: Wage Bill Will Increase to $8 Billion
Guardian Media: Delays at Port of Point Lisas
Guardian Media: Oil Slips on Japan
Guardian Media: OWTU Members Turn on Labor Minister
CNews: Labor Leaders Debate State of the Unions
Guardian Media: Agriculture Faces Declining Production, high Food Prices

Protests continue in Trinidad as public service employees united with the Public Service Association to reject the 5% wage increase offered by Chief Personnel Officer, Stephanie Lewis. Originally, the Public Service Association (“PSA”) requested a 60% increase, while the Chief Personnel Officer Lewis only offered a 1% increase. The gaping disparity between the two figures can be attributed to three major factors. One is consideration of core inflation over headline inflation by the government, second is the rapidly increasing food prices in Trinidad, and third is a provision in Trinidad’s Industrial Relations Act that only adjusts wages to account for inflation every three years.

Headline inflation measures the rate at which the cost of living rises while core inflation measures total inflation excluding the price of food and energy. It is common for governments, not just Trinidad’s, to use core inflation as a better indicator of domestic inflation, since food and energy prices are highly volatile and subject to rapid decreases or increases due to weather or political crises. Usually in the long run, headline inflation and core inflation average about the same increase rate. However, in the past ten years, headline inflation has increased at a consistently higher rate than core inflation. This disparity is attributed to the rise in cost of oil per barrel from $20 in 2002 to roughly around $100 today. Consequently, this has raised the price of shipping and food imports into Trinidad, which has led to higher food prices in grocery stores.

Currently in Trinidad the headline inflation rate is at 12.5%, mainly spurred by food inflation which was at 29% just this past December. However, core inflation, which excludes food prices and which the government gives higher priority to, only increased by 4.7%. While food prices in Trinidad and Tobago have been consistently rising over the past 5 years, food prices peaked this year due an exceptionally large amount of flooding that lowered domestic agricultural supply and forced greater dependency on expensive food imports. Food prices further increased in the past few months due to the political unrest in major oil producing countries like Libya and Saudi Arabia. Additionally a recent discovery of $33 million worth of marijuana in two shipping containers in Trinidad’s major port, Port of Point Lisas, has led to more thorough checks of incoming containers, causing delays in offloading cargo. The delays lead to higher storage cost of goods at the port and will further raise the price of those goods in grocery stores.

In the face of these dramatic food increases, Chief Personnel Officer Lewis’ offer of a 1% wage increase was viewed by critics as disrespectful and deceitful. In an attempt to find a compromise and end the unrest of public service employees, the CPO made a reoffer to the PSA of a 5% increase. Again, given the extreme and increasing rate of food and goods, critics viewed this meager increase as further disrespect. In response to the CPO’s reoffer, labor unions in the public sector began striking. Finance Minister, Winston Dookeran, has appealed to unions to accept the offer by stating that a 5% increase for all public sector employees will mean that salaries and wages account for 19% percent of the government’s annual budget. Any further increase would hamper growth and create instability for the economy and government. However, labor leaders debate Dookeran’s theory on increasing wages. Senator David Abdullah, also President of the Federation of Independent Trade Unions, states the government should not be afraid to run a deficit to increase wages given the current economic conditions for consumers. He states that though there may be an initial deficit, income will return to the government through increased activity and spending made possible by the wage increase.

In an effort to avoid future disputes between labor unions and government, employment law specialist Lennox Marcelle advocates revision of the wage increase law in the Industrial Relations Act. He says that only reviewing for wage increases every three years inevitably leads the government to consider only current economic frailties, rather than the economic conditions as they existed during the previous three years. He states that review for wage increases should occur annually to ensure that wages are based on the “economic conditions of their respective periods.”

Protestors in Panama Clash with President Martinelli’s Vision for Improving Panamanian Quality of Life.

Sources:
Central American Data: Panama Amendments to Mining Code Approved
Panama-Guide: All Foreigners Promoting Mining Ordered To Leave Indian Country
Panama-Guide: Panama Clashes: Guaymi Angry Over Copper Mining Law
Boquete Times: Panama Starts Subway Construction
Newsroom, Panama: Panama Cannot Respond to International Criticism of Mining Law-Minister
Newsroom, Panama: Panama Moving Forward on Offshore oil Investigation
Newsroom, Panama: Martinelli, Now a Twitterer, Inks Mining Code Law
Newsroom Panama: World Rail Builder Boss Checks in on Panama Metro Line

In Panama, construction on Central America’s first subway began earlier this month in Panama City’s historic Cinco de Mayo Plaza. The government contracted construction of the new subway, along with a contract to build a third canal lock to access the Panama Canal, to the Spanish company Fomento de Construcciones y Contratas (“FCC”) and Brazilian company Odebrechdt. Last week the Infrastructure Minister of Spain, José Blanco, and the Chairman and CEO of FCC, Baldomero Falcones, came to Panama to see the start of the construction on the new subway line. Panama’s General Secretary, Roberto Roy says completion of the subway is expected in 2014. At the opening day of the subway’s construction, President of Panama, Ricardo Martinelli declared he wanted to be remembered “as the person who transformed Panama’s transportation system and improved the quality of life of Panamanians.”

However, in the same week, the National Assembly passed a controversial mining bill that threatens to destroy the quality of life for Panama’s indigenous Ngabe-Bugle people. Critics claim this new bill, section 277 to the Code of Mineral Resources, will allow foreign copper mining companies to dig in Panama’s Cerro Colorado district in an area that contains the Ngabe-Bugle reservation. Although President Martinelli signed a Presidential decree stating he has “no intention of promoting mining activities in the Indian lands” because it is against Constitutional law, indigenous people continued to protest. The protestors point to copper companies coming into the reservation area to conduct positive public relations, as an indication that their community is in danger of becoming a mining zone, regardless of Presidential assurances. They also argue that the President and National Assembly’s minimal consultation with environmental groups and indigenous people when drafting and passing the bill, indicate a lack of authentic concern for the well-being of the environment and the lives of indigenous people. In response, the Minister of Government, Roxanna Mendez, announced that all foreigners who are promoting mining in the area must leave within two weeks.

While President Martinelli and Roxanna Mendez took measures to assure the indigenous people of Cerro Colorado that their communities will not be usurped, Secretary of Energy Juan Manuel Urriola stated that protestors should not be “too hasty” to call the government irresponsible for seeking tenders for mining or offshore drilling because there are benefits for Panamanians as well. Some of the main provisions of Bill 277 allocate percentages of fees and royalties from mining to construction for infrastructure, social development programs in communities close to mining areas, social security and the national treasury. Like copper mining, offshore drilling will come with major stipulations, including granting the Panamanian government royalties and a percentage of oil production for Panamanian consumption. However protestors against mining and offshore drilling argue that excessive exploitation of natural resources will lead to a severely deteriorated environment. President Martinelli’s vision of improving the quality of life for Panamanians includes revamping infrastructure, increasing tax sources for social spending, and making Panama more attractive to foreign investors. However, it seems the Panamanian people have differing views on what projects will actually improve their quality of life.

Protests in Belize Against Concession Leads to Possible Referendum Against Further Petroleum Exploration

Sources:
7 News Belize: Cola Camps Out In Front PM’s Office
Amandala: Kimano, son of Denys - oil prospector!
Amandala: “A hell of a storm is coming”: Coalition to Save Our Natural Heritage
Amandala: It’s not all rocky mountain!
Amandala: No more secret petroleum deals, says Coalition to Save Our Natural Heritage
AmbergrisCaye: Oceana Victory: Oil Company Gives Up Concession on Sea
IMF: Belize: Selected Issues, IMF Country Report No. 08/92
Central Bank of Belize: Economic and Financial Statistics, September 2010

The conflict over the Belizean government’s ability to contract out parcels of Belizean territory, known as “concessions,” to foreign companies for oil exploration and development, came to a head this Wednesday when protestors from the NGO Oceana camped outside Prime Minister Barrow’s office demanding a say in oil exploration in protected areas. The overt public criticism of the Belizean government’s concession of environmentally protected areas for petroleum explorations is said to have been a major factor in Taiwanese petroleum company “OPIC” releasing their 1.139 million acre concession back to the Belizean government. However public outcry did not stop the Belizean government from quickly re-contracting out this same vast tract of shoreline to another petroleum developer, Paradise Energy, Ltd. In response to this contract, protestors gathered on Wednesday in front of Prime Minister Barrow’s office declaring government abuse of section 13 of Belize’s Petroleum Act. The third provision of section 13 allows the government to issue concessions with only the approval of the cabinet in situations where the “technical or economical circumstances make is advisable,” or where the Prime Minister “determines that the circumstances so require.” Protestors claim that the first and second provisions of section 13 call for transparency and accountability by requiring “public competitive bidding” between petroleum companies, publication of the areas that are up for bid in the country’s Gazette and the establishment of rules and procedures for submitting a bid. In addition to contending that the contracts are illegally entered into under the first two provisions of Section 13, protestors also argue that the territories conceded actually include nationally protected areas that undoubtedly will be destroyed if the government allows oil exploration and development.

Although Prime Minister Barrows claims the concessions were made in the economic interest of the Belizean people, critics believe his claim invalid for three reasons: 1) no shares in a national oil company have been offered to the people (as was promised by Prime Minister’s United Democratic Party manifesto); 2) oil resources will be exhausted by 2019 according to a report by the International Monetary Fund; and 3) the negative economic impact to major Belizean industries and exports would be irreparable. The Belizean tourist and fishing industries would be devastated by the destruction of barrier reefs due to offshore drilling and the ecological environment of one of Belize’s main economic exports, citrus, would be destroyed. Further ecological sacrifice for petroleum development appears imprudent when the depletion of Belize’s oil resource is only seven years away and where the ecology, as is, has been more lucrative for the economy. Currently, the rare ecology of Belize is the selling point of Belize’s “all-natural” commercial products, the source of their citrus exports, their fishing industry, and the draw of their tourism industry.

Another contentious point raised by the protestors is that the current method of leasing concessions to foreign oil developers reaps the least fiscal benefit for the people. Protestors point to worldwide examples of countries that retain only a small percentage of profits when they allow export of crude oil by foreign refining companies who retain the larger bulk of profits. Currently, although Belize makes approximately $100 million in exporting petroleum, the country spends $140 million in importing refined oils. Further, speculations have arisen about the private interests of Prime Minister Barrow in his quick and quiet selling of concessions to Paradise Energy, Ltd., a company with very limited experience in petroleum exploration and of which his nephew is a 50% shareholder.

Remarkably the outcry of 40 protestors on Wednesday led the Prime Minister to delay concession of OPIC’s recently released territory to Paradise Energy, Ltd. in order to allow Oceana time to conduct a referendum on the matter. However, Prime Minister Barrow has said that if Oceana is unable to orchestrate such a referendum, then the government’s right to sell the concession is clear, even in protected areas, per a recent Belizean Supreme Court ruling. Protestors contend it is illegal to keep citizens of a country from living in protected territories for the sake of preservation but then later allow foreign petroleum companies to ravage the same land for oil. Thus far the concession has been halted, but tensions linger regarding whether the government will provide adequate time to hold a referendum and then, if such a referendum is successful, whether the Prime Minister will actually adhere to the voice of the people in his final decision regarding the agreement to the concession.

Discussion:
1) Should the section in the Belize Petroleum Act, which allows the Prime Minister to issue petroleum contracts with only the approval of the Cabinet, be amended or should the Act only allow petroleum development contracts to be issued by referendum?
2) If you think Belize should allow oil development in the country, should contracts for oil development only be given to domestically owned companies? Do you think Belize should even consider oil development as an economic stimulant when their supply is predicted to be depleted by 2019?

Central Bankers in Asia Face New Challenges in the Fight against Inflation

Sources: WSJ.com: Asian Central Banks Signal a Tightening Trend; FT.com: India Increases Reserves Burden on Banks; VOAnews.com: India's Central Bank Moves to Reverse Some Stimulus Measures

Asian central banks used to wait for the U.S. Federal Reserve to act before loosening or tightening their monetary policy (in an effort to limit the fluctuation of their currencies against the dollar). This time, however, is different. As the economic recovery gains momentum and inflationary pressures are getting stronger in the region, several central banks have begun to take steps to address inflation worries even when the Fed is not expected to tighten its monetary policy until later this year.

For example, India's central bank made its first significant move last Friday to exit the loose monetary policy taken as stimulus measures during the global financial crisis. The Reserve Bank of India increased the cash reserve ratio (the proportion of deposits that banks must keep with the central bank) by 75 basis points. The Philippine central bank also signaled a tightening trend by raising its rediscounting rate. In 2010, Asian central banks need to increase rates by 2.5 percentage points according to Frederic Neumann of HSBC in Hong Kong.

However, Asian central banks by acting alone may increase the risk of exacerbating the inflation as well. Since the Fed keeps interest rates close to zero, rising rates in Asia would induce more capital from investors who seek higher yields. As these inflows of capital make local currencies appreciate, exporters become less competitive. Also, currency appreciation may create asset bubbles.

China, however, is in a different situation. Since it pegged its currency to the U.S. dollar, it is less risky for China to tighten its monetary policy unlike other neighboring countries. While China has started to tighten credit, its neighbors hesitate because of the risk of currency appreciation that will make their goods more expensive compared with goods produced in China. However, if China allows its currency to appreciate, other Asian countries will feel more comfortable raising rates.

Discussion:
1. After the global financial crisis, emerging markets seem to gain greater influence. What kinds of challenges and chances do emerging markets face?
2. According to the Institute of International Finance, net private sector capital flows to emerging economies will increase to $722bn in 2010 from $435bn in 2009, and warned that "such a rapid move" may create another global financial bubble in emerging economies, especially Brazil, China and India. How should these emerging economies manage these inflows of capital without creating another global financial bubble?

India’s Job Guarantee Scheme Lauded as a Timely Fiscal Stimulus

Sources:
Economist: Faring well; An imperfect storm
Center for Market and Public Organization: Job Guarantee: Evidence and Design

India’s job guarantee scheme under National Rural Employment Guarantee Act of (NREGA) promises 100 days of minimum-wage employment on public works per year to every rural household that asks for it. The NREGA was introduced in 2005 in an effort to improve the purchasing power of the rural people. Although this scheme was once regarded as a “reckless fiscal sop,” now economists argue that India was able to weather the recent global financial crisis due in part to strong rural demand supported by its job guarantee scheme.

The idea gained appeal even in development countries. For example, Paul Gregg of Bristol University and Richard Layard of the London School of Economics have called for a job guarantee program in Britain that provides jobs to anyone out of work for more than 18 months and to young people out of work for one year.

However, there exist some downsides to the scheme with respect to how it is administered in India. As bankers who distribute the payment are reluctant or very slow to do the required paperwork, getting the payments is “grueling labor” in itself. Some bankers are even worse. In Jharkhand, a banker conspired with government officials to fake the number of days worked under the scheme, and took the extra money from workers’ bank accounts. Also, the government often sets the minimum wage higher than the market rate. As people prefer to work for high-paying jobs provided by the government, some factories face labor shortage. In Rajasthan, for instance, a cigarette-making factory had to open only at night when they could find more available workers.

For the foregoing reasons, some argue that handing out cash would be a better solution. It would be easy to administer, and the poor can earn money by working for private employers. However, the poor do not seem to prefer receiving free cash. A farmer in a rural village says, “If money comes for free, it will never stay with us.”

Discussion Questions:
1. In developed countries, workfare is designed to stop people living off the state and to help them find gainful employment by providing training and work experience. Meanwhile, India’s scheme only provides unskilled manual work opportunities. Should the program also provide training programs to improve the recipient’s job prospect?
2. How can India improve its job guarantee program?

Chief IMF economist calls for careful approach to recovery

Sources
Financial Times: IMF warns on ending fiscal stimulus
IMF: Sustaining a global recovery
New York Times: IMF revises up 2010 world GDP forecast

IMF economists are confident that a global recovery has begun. Sustaining that recovery however, will require careful monetary policy and spending choices in countries across the world. In a recent IMF report, chief economist Olivier Blanchard described the unique problems facing economic strategists in the aftermath of severe crisis.

Blanchard argues that just as the United States was the source of the crisis, a healed U.S. economy will be the key to global recovery. He fears that without an increase in external demand to the United States, stimulus measures could carry on for too long and increase the United States’ already significant debt burden. If fiscal deficits are maintained for too long, the stability of the dollar could be called into question, resulting in capital flows out of the U.S. and a potential depreciation of the dollar. Dollar depreciation may not be independently problematic, but if it occurs suddenly, or in a disorderly fashion, it could undermine the recovery by creating uncertainty and market instability. Alternately, Blanchard warns that negative consequences could result from cutting off stimulus funds too soon. The stimulus funds provide the liquidity that makes recovery possible. Allowing the funds to dry up too soon could compromise resurgent growth.

Emerging economies, after feeling the sting of reduced capital flows during the crisis, could be crucial to the U.S. recovery. If private U.S. domestic demand remains weak, the U.S. must hope for an boost in net exports, in order to keep pace with production. Emerging economies that still possess account surpluses, like China, could greatly improve the balance by boosting import demand. Sustained recovery in both developed and emerging economies will also require a rebalancing from public to private spending. Blanchard calls for international cooperation in efforts to sustain the current, “nascent” recovery.

Discussion
1. There are significant downsides to both prolonging stimulus measures too long and to cutting off stimulus funds too early. Is one alternative worse than the other? Should developed economies err on the side of providing too much stimulus funding or too little?
2. Which other emerging economies have weathered the crisis and surfaced with account surpluses? Are they, like China, in position to aid the U.S. recovery through increased import demand?