BI: China is Experimenting with a Truly International Currency
China Offshore: Central Bank Allows Chinese Businesses to Settle Trade Using the Rmb
FT: China to Create Special Currency Test Zone
Reuters: China to Experiment with Freer Yuan
On June 28, 2012, China announced plans to create a special financial test zone. The financial test zone is to be located in the city of Shenzhen on mainland China and will allow China to determine how easily Chinese currency can convert into gold and other foreign currencies. This new measure will allow Hong Kong banks to lend renminbi, the official currency of China, directly to companies on mainland China, particularly in the new economic zone of Shenzhen.
The currency experiment aims to increase the flow of the Yuan (the primary unit of the renminbi), between Hong Kong and mainland China. Prior to the announcement, Hong Kong banks could only lend to Chinese clients in Hong Kong, and if the Chinese clients wanted to bring that money into China, they needed approval from the foreign exchange regulator. The Chinese foreign exchange regulator limits the amount of renminbi that can leave and enter mainland China. The Chinese government also has regulations in place to ensure the renminbi cannot travel without restriction across the border for pure financial transactions, like loans. The currency experiment in Shenzhen allows renminbi held by bank lenders overseas to flow back to China because banks in Hong Kong can lend to Chinese clients in Hong Kong, but with the currency experiment, they can also lend to those on mainland China.
China’s currency experiment could prove important to the eventual undoing of capital controls in the country as well as increase the Yuan’s presence overseas. Capital controls are mechanisms the Chinese government uses to regulate the flow of Yuan in and out of the country. For instance, the Chinese government limits the amount of Yuan companies can take out of mainland China for trading and lending as well as the amount they can bring back in. The experiment follows a series of other steps taken by the Chinese government to make the renminbi a more globalized currency that could eventually compete with the U.S. dollar in global markets. A global currency refers to a currency in which the vast majority of international transactions like sales and trades take place, (e.g., the U.S. dollar and the Euro). China’s drive for financial reform includes the goal of making the Yuan convertible to foreign currencies as early as 2015.
Over the past two years, large amounts of Chinese currency have moved abroad for the first time because Chinese companies could settle their international trade in renminbi, rather than first exchanging renminbi to dollars prior to doing business with foreign companies. The allowance of settling international trade in renminbi meant the Chinese Central Bank allowed all businesses that trade with China to use the renminbi in their trade exchanges and in business transactions, such as sales, with each other. Thus, a Chinese company can now pay a European company in renminbi, allowing the outflow of Chinese currency to foreign hands. The Chinese government has also allowed foreign investing institutions a limited but growing selection of investment options for their renminbi holdings, which includes Hong Kong’s dim sum bond market. Hong Kong’s dim sum bond market is a market that sells bonds denominated, or valued, in Chinese Yuan.
Shenzhen, designated as the country’s first special economic zone in 1980, helped to bring foreign investment and free trade to China. This economic zone was the first city that experimented with China’s broader economic reforms that were later rolled out across the country and helped China on its way to becoming the world’s second-largest economy. If the Chinese government follows through with its announced plans in globalizing the Yuan, Chinese currency could be more easily convertible to foreign currencies very soon.
Showing posts with label globalization. Show all posts
Showing posts with label globalization. Show all posts
Monday, July 16, 2012
Thursday, December 01, 2011
Standard and Poor’s Changes Rating Criteria – Downgrades 15 Banking Companies
Sources:
NPR: S&P Downgrades Top U.S. Banks' Credit Ratings
Reuters: S&P Cuts Ratings on Big Banks After Criteria Change
WSJ: S&P's New Criteria Prompt Downgrades of BofA, Barclays, Citi
Standard & Poor’s (S&P), one of the ‘big three’ New York City-based credit rating agencies (Fitch and Moody’s round out the trio), announced new rating criteria for banks on November 9, 2011. This week, S&P applied the new criteria to 37 of the world’s largest financial institutions, which resulted in the downgrading of 15 major institutions including Goldman Sachs, Bank of America, UBS, JP Morgan Chase, Citigroup, Morgan Stanley, and The Royal Bank of Scotland.
S&P’s new criteria consist of two key steps. First, S&P evaluates a bank’s financial health and ability to withstand severe or extreme economic stress without reliance on external support and assigns each bank a “stand-alone credit profile.” Second, S&P assesses the degree of extraordinary government or institutional support available to a given bank. These two conclusions are then factored into the broader credit rating methodology, which includes complex risk analysis and assumptions and an overall financial evaluation.
By taking into consideration the degree of external support a bank may have available from central banks or due to its association with a parent group, S&P attempts to create a more accurate credit profile by evaluating the bank not only as an independent financial entity, but also as to the position of the bank within the financial industry as a whole. The new criteria appear promising; however, it may also extend the reach of credit rating agencies and prove controversial. The new criteria allow S&P to consider a bank’s position within the broader context of global finance, governmental support, political climate and economic conditions and to reflect that information in the credit rating. The recent bank downgrades are largely a result of the industry’s susceptibility to such factors and increasing reliance on governments and central banks worldwide.
The new criteria were designed to allow the rating agency more flexibility to respond to rapidly changing market conditions and adjust credit ratings accordingly. Prior to implementing the new criteria, S&P detailed its underlying assumptions and methodologies for rating banks in a series of reports on January 6, February 16, November 1, and November 9, 2011. According to the November 9, 2011 report, “the criteria are designed to improve transparency of bank ratings globally.”
Friday, October 01, 2010
WiderNet 10-Year Anniversary
The WiderNet Project at the University of Iowa will be celebrating its 10 Year Anniversary this fall. Launched in 2000, the WiderNet Project distributes millions of digital materials via the innovative eGranary Digital Library. This library offers resources off-line to schools and institutions in developing countries that have little or no access to the Internet. WiderNet also refurbishes donated computers and printers, shipping them to schools throughout the developing world. Over 350 eGranary Digital Libraries have been installed in the field, $1,177,344 hardware and software donations have been received, 13,613 volunteer hours have been given to this project, and over 4,000 people have gone through the WiderNet training programs.
Learn more about the WiderNet project at www.widernet.org
Learn more about the WiderNet project at www.widernet.org
Wednesday, July 30, 2008
IMF Warns World Credit Risks Remain High
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?
"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?
Tuesday, March 11, 2008
IDB notes drop in remittances during 2007
SOURCE: Earthtimes—“Growth of remittances to Latin America slowed in 2007”
The Inter-American Development Bank (IDB) today released a report noting that while remittances sent to Latin America continue to increase, 2007 saw the smallest growth—only a 7% increase—over the prior year. In the past, increases in remittances has posted in double digits.
“Remittance” is the term used to indicate monies sent to friends and family in the usually impoverished home countries of ex-patriots working abroad, usually in wealthier countries. Many developing countries have come to rely on remittances as a vital part of the national economy. There is continuing debate over whether such a trend is desirable or not.
Some nations, such as Brazil and Mexico, actually saw a decrease in the receipt of remittances overall. The IDB report asserts that in Brazil’s case, the decrease is a positive result of the strengthening of the Brazilian economy. There are more jobs and more opportunities and Brazilians are returning home to take advantage of it.
On the other hand, the report states that the decrease is a negative indication for Mexico, where the economy has not improved significantly. The IDB links the decrease to the economic downturn in the United States as well as the increasingly hostile political climate with respect to immigration.
FOR DISCUSSION:
Take a look at UICIFD’s E-Book section on Remittances and Development. What do you think about this issue?
The Inter-American Development Bank (IDB) today released a report noting that while remittances sent to Latin America continue to increase, 2007 saw the smallest growth—only a 7% increase—over the prior year. In the past, increases in remittances has posted in double digits.
“Remittance” is the term used to indicate monies sent to friends and family in the usually impoverished home countries of ex-patriots working abroad, usually in wealthier countries. Many developing countries have come to rely on remittances as a vital part of the national economy. There is continuing debate over whether such a trend is desirable or not.
Some nations, such as Brazil and Mexico, actually saw a decrease in the receipt of remittances overall. The IDB report asserts that in Brazil’s case, the decrease is a positive result of the strengthening of the Brazilian economy. There are more jobs and more opportunities and Brazilians are returning home to take advantage of it.
On the other hand, the report states that the decrease is a negative indication for Mexico, where the economy has not improved significantly. The IDB links the decrease to the economic downturn in the United States as well as the increasingly hostile political climate with respect to immigration.
FOR DISCUSSION:
Take a look at UICIFD’s E-Book section on Remittances and Development. What do you think about this issue?
Sunday, March 09, 2008
The developed world's cotton subsidies are crushing west African cotton.
Source: Globe and Mail—“U.S. cotton subsidies rip apart the fabric of Malian life”
Richer nations that do not rely on aid from multilateral institutions like the World Bank subsidize agricultural commodities such as cotton. The United States, for example, dominates the global cotton market as the world’s largest producer. This is made possible by the massive subsidy doled out each year by the US government, which provides domestic cotton producers with between $2- and $3-billion in subsidies each year. China and the European Union also provide sizable subsidies for their cotton producers.
On the other hand, nations like Mali, where the entire GNP (gross national product) amounts to only a fraction of the US cotton subsidy alone, large incentives for agricultural producers are simply not possible. Additionally, Mali and other developing nations that rely on financial assistance from the World Bank are prohibited from providing any subsidy for their agricultural producers.
The seriousness with which the Bank enforces this condition against borrower countries was evidenced in 2004 when the Malian government attempted to protect its farmers from plummeting cotton prices. The Bank cut off all budgetary support to the impoverished nation until the paltry subsidies extended to cotton farmers were withdrawn.
However, the negative effects of over-subsidized cotton from the developed world—in particular the US—is felt by the entire cotton-producing region of western African, not just Mali. With the support of a coalition of west African countries, Brazil challenged the legality of US cotton subsidies before the World Trade Organization (WTO) in 2003. In 2004, the WTO found that the US cotton subsidies were illegal, but the US has done almost nothing to change its policies, instead opting to engage in protracted appeals so as to continue its anti-competitive practices for as long as possible.
FOR DISCUSSION:
Do you agree with the World Bank’s condition on assistance prohibiting borrower countries from providing any subsidies to local producers?
Do you think such a policy is fair given that the Bank’s leading donors provide such heavy subsidies to their own producers?
As long as subsidies are permitted—and used—by the developed world, is it fair to prohibit the developing world from use of this tactic (given that almost all the developing world relies on assistance from the World Bank and IMF)?
Does this policy approach serve to advance the goal of poverty elimination or does it only exacerbate the problem?
Richer nations that do not rely on aid from multilateral institutions like the World Bank subsidize agricultural commodities such as cotton. The United States, for example, dominates the global cotton market as the world’s largest producer. This is made possible by the massive subsidy doled out each year by the US government, which provides domestic cotton producers with between $2- and $3-billion in subsidies each year. China and the European Union also provide sizable subsidies for their cotton producers.
On the other hand, nations like Mali, where the entire GNP (gross national product) amounts to only a fraction of the US cotton subsidy alone, large incentives for agricultural producers are simply not possible. Additionally, Mali and other developing nations that rely on financial assistance from the World Bank are prohibited from providing any subsidy for their agricultural producers.
The seriousness with which the Bank enforces this condition against borrower countries was evidenced in 2004 when the Malian government attempted to protect its farmers from plummeting cotton prices. The Bank cut off all budgetary support to the impoverished nation until the paltry subsidies extended to cotton farmers were withdrawn.
However, the negative effects of over-subsidized cotton from the developed world—in particular the US—is felt by the entire cotton-producing region of western African, not just Mali. With the support of a coalition of west African countries, Brazil challenged the legality of US cotton subsidies before the World Trade Organization (WTO) in 2003. In 2004, the WTO found that the US cotton subsidies were illegal, but the US has done almost nothing to change its policies, instead opting to engage in protracted appeals so as to continue its anti-competitive practices for as long as possible.
FOR DISCUSSION:
Do you agree with the World Bank’s condition on assistance prohibiting borrower countries from providing any subsidies to local producers?
Do you think such a policy is fair given that the Bank’s leading donors provide such heavy subsidies to their own producers?
As long as subsidies are permitted—and used—by the developed world, is it fair to prohibit the developing world from use of this tactic (given that almost all the developing world relies on assistance from the World Bank and IMF)?
Does this policy approach serve to advance the goal of poverty elimination or does it only exacerbate the problem?
Monday, December 03, 2007
World Bank gets lackluster marks in new report released by its own Independent Evaluation Group
SOURCE: Independent Evaluation Group—“Development Results in Middle-Income Countries, An Evaluation of the World Bank’s Support
A report on the World Bank's continuing work with Middle Income Countries (MICs) was released in September of this year. There are 86 MICs across the globe, on every continent save North America, Australia and Antarctica (the first two due to the relative wealth of the nations situated there, the last because no one lives there). For example, on the African continent fourteen countries are identified as MICs. These include all the countries along the continent’s northern coast and southern region, as well as three isolated outliers: Gabon and Equatorial Guinea in the east and Djibouti in the west. Central Africa is not represented.
In general, the report, conducted by the Bank’s Independent Evaluation Group (IEG), found that while the Bank had focused efforts on bettering tailoring its programs to meet nation-specific needs, there is still room for significant improvement. While the Bank’s efforts have promoted growth in MIC countries, the cost has been rising inequality and inadequate social programming. This is particularly problematic given that MICs are home to one third of the world’s poor. Additionally the report notes that more attention needs to paid to environmental issues associated with Bank projects in these countries and that internal cooperation between the various Bank programs to realize the best outcomes in MICs has been “underwhelming.” Another area of concern is the failure to incorporate MICs in shaping global planning—this is troubling given the number of countries in this group and that at least one rising economic powerhouse, China, is an MIC.
At the same time, the IEG implies that part of the problem for the Bank is the rapidly changing needs of the MIC client population. While the report is not a glowing one—it frankly sounds as though the Bank is struggling with this sector, which is the recipient of two thirds of its assistance—it recognizes the challenging nature of the task the Bank has set itself. On a different note, the candor with which the IEG sets forth its statement of areas where the Bank has fallen short convinces one that it is in fact independent, for it is unlikely it could have published such a report otherwise.
Click here to download the full report and view interactive maps of the MICs.
FOR DISCUSSION:
How might MICs be better incorporated into global planning?
A report on the World Bank's continuing work with Middle Income Countries (MICs) was released in September of this year. There are 86 MICs across the globe, on every continent save North America, Australia and Antarctica (the first two due to the relative wealth of the nations situated there, the last because no one lives there). For example, on the African continent fourteen countries are identified as MICs. These include all the countries along the continent’s northern coast and southern region, as well as three isolated outliers: Gabon and Equatorial Guinea in the east and Djibouti in the west. Central Africa is not represented.
In general, the report, conducted by the Bank’s Independent Evaluation Group (IEG), found that while the Bank had focused efforts on bettering tailoring its programs to meet nation-specific needs, there is still room for significant improvement. While the Bank’s efforts have promoted growth in MIC countries, the cost has been rising inequality and inadequate social programming. This is particularly problematic given that MICs are home to one third of the world’s poor. Additionally the report notes that more attention needs to paid to environmental issues associated with Bank projects in these countries and that internal cooperation between the various Bank programs to realize the best outcomes in MICs has been “underwhelming.” Another area of concern is the failure to incorporate MICs in shaping global planning—this is troubling given the number of countries in this group and that at least one rising economic powerhouse, China, is an MIC.
At the same time, the IEG implies that part of the problem for the Bank is the rapidly changing needs of the MIC client population. While the report is not a glowing one—it frankly sounds as though the Bank is struggling with this sector, which is the recipient of two thirds of its assistance—it recognizes the challenging nature of the task the Bank has set itself. On a different note, the candor with which the IEG sets forth its statement of areas where the Bank has fallen short convinces one that it is in fact independent, for it is unlikely it could have published such a report otherwise.
Click here to download the full report and view interactive maps of the MICs.
FOR DISCUSSION:
How might MICs be better incorporated into global planning?
Sunday, October 21, 2007
KASONGO: “Nobody doubts that we have minerals…we need to show that we have law and order…”
SOURCE: TIMESONLINE—“Mining firms face Congo crackdown”
The Democratic Republic of the Congo (DRC) is one of the most mineral-rich countries in the world. Until recently, the DRC was also troubled by recurrent political strife. Now the government under President Joseph Kabila is seeking to get its affairs in order by routing out corrupt deals of the past.
Victor Kasongo is the DRC’s deputy mines minister, and he’s launching an investigation into whether mineral licenses granted to foreign mining concerns during periods of "near-anarchy" are in fact valid. Says Kasongo: “[s]ome of the contracts will need serious thinking, serious negotiation to get all the parties’ agreement. And some, I am sure, will be found to be simply unlawful.”
Licenses granted to at least nine concerns are being investigated. The DRC has hired international fraud investigators to assist the government in this endeavor. Investigators have found situations where licenses were granted by warlords rather than the DRC government and where a mining interest would simply announce its acquisition of a mining claim—with no action or negotiations to support such a statement.
Aside from the interest in ensuring the underlying legality of deals, it also appears that the DRC has additional interests in ensuring that deals are properly drafted and negotiated: the royalties due the DRC are consistently low in relation to what they should be based on the market. The DRC currently receives $32M USD in royalties each year when it should be receiving closer to $162M USD.
Additionally, as political stability in the DRC attracts investor attention, big interests have shown a willingness to make deals that might actually provide some benefits to the country and its people.
For example, China recently closed an $8.5 billion USD deal with the DRC for cobalt and copper stores expected to be worth some $14 billion USD. While the deal has sparked some controversy, it is notable that the sum agreed to by the Chinese is intended to provide benefits to the DRC that were not present in the deals struck during the chaotic period when the country was in a state of “near-anarchy.”
Specifically, China agreed to pay for “a 2,000-mile road between the northeast region and the southern border, and a railway link of similar length to join the southern mining heartland and the DRC’s sliver coast on the Atlantic. Further money would go into schools and clinics and into rebuilding decrepit state-owned mining facilities.”
FOR DISCUSSION:
Do international investors who take advantage of political instability to strike lucrative—but legally suspect—deals have a legitimate reliance interest in the same?
The Democratic Republic of the Congo (DRC) is one of the most mineral-rich countries in the world. Until recently, the DRC was also troubled by recurrent political strife. Now the government under President Joseph Kabila is seeking to get its affairs in order by routing out corrupt deals of the past.
Victor Kasongo is the DRC’s deputy mines minister, and he’s launching an investigation into whether mineral licenses granted to foreign mining concerns during periods of "near-anarchy" are in fact valid. Says Kasongo: “[s]ome of the contracts will need serious thinking, serious negotiation to get all the parties’ agreement. And some, I am sure, will be found to be simply unlawful.”
Licenses granted to at least nine concerns are being investigated. The DRC has hired international fraud investigators to assist the government in this endeavor. Investigators have found situations where licenses were granted by warlords rather than the DRC government and where a mining interest would simply announce its acquisition of a mining claim—with no action or negotiations to support such a statement.
Aside from the interest in ensuring the underlying legality of deals, it also appears that the DRC has additional interests in ensuring that deals are properly drafted and negotiated: the royalties due the DRC are consistently low in relation to what they should be based on the market. The DRC currently receives $32M USD in royalties each year when it should be receiving closer to $162M USD.
Additionally, as political stability in the DRC attracts investor attention, big interests have shown a willingness to make deals that might actually provide some benefits to the country and its people.
For example, China recently closed an $8.5 billion USD deal with the DRC for cobalt and copper stores expected to be worth some $14 billion USD. While the deal has sparked some controversy, it is notable that the sum agreed to by the Chinese is intended to provide benefits to the DRC that were not present in the deals struck during the chaotic period when the country was in a state of “near-anarchy.”
Specifically, China agreed to pay for “a 2,000-mile road between the northeast region and the southern border, and a railway link of similar length to join the southern mining heartland and the DRC’s sliver coast on the Atlantic. Further money would go into schools and clinics and into rebuilding decrepit state-owned mining facilities.”
FOR DISCUSSION:
Do international investors who take advantage of political instability to strike lucrative—but legally suspect—deals have a legitimate reliance interest in the same?
Sunday, October 07, 2007
West African trading bloc seeks to delay changes in trade agreements required by the WTO
SOURCE: Reuters—“West Africa to miss EU trade partnership deadline”
The Economic Community of West African States (Ecowas) met last week in Cote d’Ivoire in efforts to reach agreement on their approach to upcoming negotiations with the European Union (EU) over an Economic Partnership Agreement (EPA) between the two markets. Currently it is expected that Ecowas will miss the December 31, 2007 deadline set for signing the EPA.
The EPA will take the place of existing trade agreements between Ecowas and the EU. These trade agreements were disapproved by the World Trade Organization (WTO), which also set the December 31 deadline.
Ecowas is reportedly hoping to secure a delay for imposition of the EPA which will conform with WTO guidelines while permitting them to enjoy preferential treatment under the current regime for another two years. EU finance ministers are seeking an interim agreement that will allow the EPA terms to be implemented on schedule.
Ecowas is concerned that the EPA as currently drafted will expose vulnerable West African markets to floods of European imports and that the loss of the preference status accorded by the trade agreement will also undermine exports to Europe.
FOR DISCUSSION:
Is preferential treatment under trade agreements that do not comply with WTO principles necessary to allow developing economies a chance in markets that would otherwise be wholly dominated by developed countries?
The Economic Community of West African States (Ecowas) met last week in Cote d’Ivoire in efforts to reach agreement on their approach to upcoming negotiations with the European Union (EU) over an Economic Partnership Agreement (EPA) between the two markets. Currently it is expected that Ecowas will miss the December 31, 2007 deadline set for signing the EPA.
The EPA will take the place of existing trade agreements between Ecowas and the EU. These trade agreements were disapproved by the World Trade Organization (WTO), which also set the December 31 deadline.
Ecowas is reportedly hoping to secure a delay for imposition of the EPA which will conform with WTO guidelines while permitting them to enjoy preferential treatment under the current regime for another two years. EU finance ministers are seeking an interim agreement that will allow the EPA terms to be implemented on schedule.
Ecowas is concerned that the EPA as currently drafted will expose vulnerable West African markets to floods of European imports and that the loss of the preference status accorded by the trade agreement will also undermine exports to Europe.
FOR DISCUSSION:
Is preferential treatment under trade agreements that do not comply with WTO principles necessary to allow developing economies a chance in markets that would otherwise be wholly dominated by developed countries?
Monday, July 23, 2007
Investment posts strong in Brazil
Sources:
INFOBAE.com: "Brasil 'aspira' mas capitales que el resto del mundo"
El Observador: "Brasil registro en junio superavit en su cuenta corriente 696 millones de dolares"
Banco Central of Brazil today reported that in June it received the equivalent of 10.318 million US dollars in foreign direct investment. This figure exceeds the total foreign investment in the nation over the course of the first half of 2006. Reports emphasize that this disparity reflects the volatility of markets in a globalized economy.
By way of further comparison, foreign direct investment in Brazil during the first half of 2007 increased by more than 180% above investment over the same time period last year. Additionally, it appears that Brazil will sustain this momentum, as investment dollars continue to pour in during the month of July.
Brazil is the largest economy in Latin America. Investment dollars are being channeled toward building more plants in the nation to produce more goods. Wages remain comparatively low in Brazil compared to other Latin American economies.
FOR DISCUSSION:
Is the level of competitiveness that can be maintained by keeping wages low worth the loss in potential economic growth resulting from the related lack of consumer spending?
INFOBAE.com: "Brasil 'aspira' mas capitales que el resto del mundo"
El Observador: "Brasil registro en junio superavit en su cuenta corriente 696 millones de dolares"
Banco Central of Brazil today reported that in June it received the equivalent of 10.318 million US dollars in foreign direct investment. This figure exceeds the total foreign investment in the nation over the course of the first half of 2006. Reports emphasize that this disparity reflects the volatility of markets in a globalized economy.
By way of further comparison, foreign direct investment in Brazil during the first half of 2007 increased by more than 180% above investment over the same time period last year. Additionally, it appears that Brazil will sustain this momentum, as investment dollars continue to pour in during the month of July.
Brazil is the largest economy in Latin America. Investment dollars are being channeled toward building more plants in the nation to produce more goods. Wages remain comparatively low in Brazil compared to other Latin American economies.
FOR DISCUSSION:
Is the level of competitiveness that can be maintained by keeping wages low worth the loss in potential economic growth resulting from the related lack of consumer spending?
Monday, July 16, 2007
Latest attempts to finalize Doha Round faltering
SOURCES:
Business Day (Johannesburg)— “Action Call on Doha Trade Round Logjam”
Reuters (Canada.com)—“U.S. says Doha risks being delayed several years”
AP (Lisbon)—“EU, Brazil try to relaunch Doha trade talks”
Since 2001, members of the World Trade Organization (WTO) have tried—and failed—to finalize a multilateral agreement on trade that has come to be called the Doha Round.
Currently nations are again negotiating over the Doha Round, with WTO officials asserting that if an agreement cannot be reached by mid-August, it will likely be another three years—or more—before a fruitful conclusion can be reached.
Reports indicate that the main difficulty in reaching accord is disagreement between the wealth countries of the north (e.g., United States, the countries of the European Union), and the poorer, developing countries of the south, led by India and Brazil. Observers have focused on ongoing talks between the Group of Four (Brazil, EU, India, and the US). Reports have been mixed on how these talks are progressing. On the one hand, the EU and Brazil appear to have come to an understanding, while the US continues to criticize Brazil for being inflexible on some issues.
Among the biggest concerns is agriculture. In particular, wealthy nations like the United States heavily subsidize the agricultural sector, which puts farmers in the developing world at a distinct disadvantage as subsidies keep the price of certain domestic commodities, such as corn, artificially low. Interestingly, the US has already been called to task before the WTO by other countries for this anti-competitive practice.
On the other hand, developing nations—perhaps understandably—are resistant to opening up their markets to heavily subsidized agricultural products from the north, fearing a complete shutdown of their own agricultural sector.
FOR DISCUSSION:
Do you think wealthy countries will be willing to reduce or eliminate agricultural subsidies in the name of free trade?
Is the provision of massive and anti-competitive subsidies antithetical to free trade?
Business Day (Johannesburg)— “Action Call on Doha Trade Round Logjam”
Reuters (Canada.com)—“U.S. says Doha risks being delayed several years”
AP (Lisbon)—“EU, Brazil try to relaunch Doha trade talks”
Since 2001, members of the World Trade Organization (WTO) have tried—and failed—to finalize a multilateral agreement on trade that has come to be called the Doha Round.
Currently nations are again negotiating over the Doha Round, with WTO officials asserting that if an agreement cannot be reached by mid-August, it will likely be another three years—or more—before a fruitful conclusion can be reached.
Reports indicate that the main difficulty in reaching accord is disagreement between the wealth countries of the north (e.g., United States, the countries of the European Union), and the poorer, developing countries of the south, led by India and Brazil. Observers have focused on ongoing talks between the Group of Four (Brazil, EU, India, and the US). Reports have been mixed on how these talks are progressing. On the one hand, the EU and Brazil appear to have come to an understanding, while the US continues to criticize Brazil for being inflexible on some issues.
Among the biggest concerns is agriculture. In particular, wealthy nations like the United States heavily subsidize the agricultural sector, which puts farmers in the developing world at a distinct disadvantage as subsidies keep the price of certain domestic commodities, such as corn, artificially low. Interestingly, the US has already been called to task before the WTO by other countries for this anti-competitive practice.
On the other hand, developing nations—perhaps understandably—are resistant to opening up their markets to heavily subsidized agricultural products from the north, fearing a complete shutdown of their own agricultural sector.
FOR DISCUSSION:
Do you think wealthy countries will be willing to reduce or eliminate agricultural subsidies in the name of free trade?
Is the provision of massive and anti-competitive subsidies antithetical to free trade?
Wednesday, July 11, 2007
China vows to improve food and drug safety, executes corrupt former official
SOURCE:
The London Free Press: "China executes corrupt drug agency official"
Recently China has been beset by embarrassments and recalls associated with tainted food additives on both the domestic and international market. From melamine-tainted dog and cat food in the United States and Canada to toothpaste that has been recalled from Spanish shelves and banned in North and South America for containing thickening agent found in antifreeze, the world has begun to question the reliability of Chinese food and drug products. Perhaps most infamous was an antibiotic approved by the Chinese food and drug agency that was later found to be fake; this faked drug was linked with dozens of deaths in Panama.
But with the Olympics in Beijing just around the corner, the Chinese government has decided that these embarrassments must come to an end. The nation has pledged to closely monitor the food that will be fed to Olympic athletes to ensure not only that it is safe, but that it does not contain any additives that could result in a false-positive drug test.
As an indication of how serious the nation is about its food and drug safety situation, the government executed a former director of the agency who was found to have approved “fake drugs” for cash. Among the fake drugs he approved was the antibiotic linked to the deaths in Panama mentioned above.
It is not clear what else the government is doing to improve food and drug safety. A spokesperson for the food and drug agency stated "China is a developing country and our supervision of food and drugs started quite late and our foundation for this work is weak, so we are not optimistic about the current food and drug safety situation."
FOR DISCUSSION:
Many proponents of free trade and regional trade agreements express concerns that technical safety standards—for example, food and drug safety standards—could become a barrier to trade. What do you think should be the bar for drug and food safety in international trade? Should it be the standard of the importing nation? Should it be a standard set by an independent entity? How would it work and what would be the inevitable trade-offs?
The London Free Press: "China executes corrupt drug agency official"
Recently China has been beset by embarrassments and recalls associated with tainted food additives on both the domestic and international market. From melamine-tainted dog and cat food in the United States and Canada to toothpaste that has been recalled from Spanish shelves and banned in North and South America for containing thickening agent found in antifreeze, the world has begun to question the reliability of Chinese food and drug products. Perhaps most infamous was an antibiotic approved by the Chinese food and drug agency that was later found to be fake; this faked drug was linked with dozens of deaths in Panama.
But with the Olympics in Beijing just around the corner, the Chinese government has decided that these embarrassments must come to an end. The nation has pledged to closely monitor the food that will be fed to Olympic athletes to ensure not only that it is safe, but that it does not contain any additives that could result in a false-positive drug test.
As an indication of how serious the nation is about its food and drug safety situation, the government executed a former director of the agency who was found to have approved “fake drugs” for cash. Among the fake drugs he approved was the antibiotic linked to the deaths in Panama mentioned above.
It is not clear what else the government is doing to improve food and drug safety. A spokesperson for the food and drug agency stated "China is a developing country and our supervision of food and drugs started quite late and our foundation for this work is weak, so we are not optimistic about the current food and drug safety situation."
FOR DISCUSSION:
Many proponents of free trade and regional trade agreements express concerns that technical safety standards—for example, food and drug safety standards—could become a barrier to trade. What do you think should be the bar for drug and food safety in international trade? Should it be the standard of the importing nation? Should it be a standard set by an independent entity? How would it work and what would be the inevitable trade-offs?
Thursday, July 05, 2007
Canadian Finance Minister to Seek More Investment-Friendly Environment in Canada
Source: CanWest News Service--"Flaherty wants to tear down trade barriers inside Canada"
This fall, Canadian Finance Minister Flaherty will seek to streamline the rules that govern intra-Canadian trade. He voiced concerns that the current system, which is not based on any national standard but rather allows each province to set its own rules, serves to discourage new investment in Canada.
He implied that potential investors may not be not keen having to “deal with 13 regulators, 13 sets of fees, and 13 sets of rules—in a country that, after all, has less population than California.”
This position has met with some public resistance from the provinces who want to maintain their control over trade and therefore challenge the notion that Canada as a whole might benefit economically from, for example, a common securities regulator.
For discussion:
Is the commitment demonstrated by Canada and her provinces to this more pronounced version of what in the United States is called “federalism” out of step with, for example, the trend towards integration and harmonization demonstrated by the European Union?
Do you think Finance Minister Flaherty is correct in his assessment that Canada’s adherence to this system is hurting investment and therefore the Canadian economy as a whole?
This fall, Canadian Finance Minister Flaherty will seek to streamline the rules that govern intra-Canadian trade. He voiced concerns that the current system, which is not based on any national standard but rather allows each province to set its own rules, serves to discourage new investment in Canada.
He implied that potential investors may not be not keen having to “deal with 13 regulators, 13 sets of fees, and 13 sets of rules—in a country that, after all, has less population than California.”
This position has met with some public resistance from the provinces who want to maintain their control over trade and therefore challenge the notion that Canada as a whole might benefit economically from, for example, a common securities regulator.
For discussion:
Is the commitment demonstrated by Canada and her provinces to this more pronounced version of what in the United States is called “federalism” out of step with, for example, the trend towards integration and harmonization demonstrated by the European Union?
Do you think Finance Minister Flaherty is correct in his assessment that Canada’s adherence to this system is hurting investment and therefore the Canadian economy as a whole?
Tuesday, June 26, 2007
Venezuela ruffles feathers in the U.S. as it moves forward to nationalize its petroleum sector.
Source: ABC--"Venezuela Forces US Oil Giants Out."
Since January, Venezuela has been on track to nationalize its petroleum sector. Today, it moved a significant step forward in that regard by signing agreements with four multinational corporations that give it the lion’s share of the profits that result from reserves found in the nation's Orinoco Basin. Two U.S. companies, ExxonMobil and ConocoPhillips, pulled out entirely, being dissatisfied with the terms developed by the Venezuelan government.
In the past, foreign ventures like ExxonMobil and ConocoPhillips paid only a 1% royalty on the Venezuelan oil they extracted. Changes in regulatory requirements in that nation raised royalties to 33.2%. Additionally, taxes on the sector were raised from 34% to 50%. Essentially, the Venezuelan government has found a way to muscle in to the sector by virtue of a regulatory regime that they feel will ensure that the people of Venezuela profit from that nation’s national resources.
The news was met with criticism in the U.S., with the Trade Representative noting that he expects Venezuela to award big oil companies “fair and just compensation” according to international agreements. Additionally, U.S. analysts predict that this move by the Chavez administration will result in the Venezuelan oil industry being in a “shambles.”
However, Venezuela’s Energy Minister counters that nationalization of the petroleum industry is not simply an economic matter, but also an issue of national sovereignty.
For discussion:
An interesting parallel may be made to the current situation with Venezuela’s nationalization of its petroleum resources with the nationalization of Mexican petroleum in 1938.
Should developing countries cede their natural resources to foreign multinationals?
Is it unreasonable that a nation would want they ability to exercise more control over resources that directly affect its national security? For example, would the United States welcome almost exclusive foreign control of its domestic energy sector? Recall the recent upset in Congress over a domestic oil firm Halliburton's plans to move its headquarters to Dubai.
Since January, Venezuela has been on track to nationalize its petroleum sector. Today, it moved a significant step forward in that regard by signing agreements with four multinational corporations that give it the lion’s share of the profits that result from reserves found in the nation's Orinoco Basin. Two U.S. companies, ExxonMobil and ConocoPhillips, pulled out entirely, being dissatisfied with the terms developed by the Venezuelan government.
In the past, foreign ventures like ExxonMobil and ConocoPhillips paid only a 1% royalty on the Venezuelan oil they extracted. Changes in regulatory requirements in that nation raised royalties to 33.2%. Additionally, taxes on the sector were raised from 34% to 50%. Essentially, the Venezuelan government has found a way to muscle in to the sector by virtue of a regulatory regime that they feel will ensure that the people of Venezuela profit from that nation’s national resources.
The news was met with criticism in the U.S., with the Trade Representative noting that he expects Venezuela to award big oil companies “fair and just compensation” according to international agreements. Additionally, U.S. analysts predict that this move by the Chavez administration will result in the Venezuelan oil industry being in a “shambles.”
However, Venezuela’s Energy Minister counters that nationalization of the petroleum industry is not simply an economic matter, but also an issue of national sovereignty.
For discussion:
An interesting parallel may be made to the current situation with Venezuela’s nationalization of its petroleum resources with the nationalization of Mexican petroleum in 1938.
Should developing countries cede their natural resources to foreign multinationals?
Is it unreasonable that a nation would want they ability to exercise more control over resources that directly affect its national security? For example, would the United States welcome almost exclusive foreign control of its domestic energy sector? Recall the recent upset in Congress over a domestic oil firm Halliburton's plans to move its headquarters to Dubai.
Tuesday, May 22, 2007
China dabbles in high finance, prompting US concerns
Sources: Los Angeles Times: China taking a stake in US investment titan; Reuters: China not expecting control of foreign companies: paper.
The United States is perhaps the world’s biggest proponent of “free trade”, open markets, and liberalized economies. However, the US government’s enthusiasm for globalization appears to wane when foreign countries begin to invest in domestic (US) companies or markets. This kind of trepidation resurfaced this week as the Chinese government invested a substantial sum--$3 billion--in the Blackstone Group, an aggressive US investment firm that has stakes in a number of leading US corporations.
China’s government operated entity, the State Investment Co., will hold a stake in Blackstone that amounts to just under 10% of the management company’s stocks. If the deal had met or exceeded 10%, it would have required approval by the US government. Notably, Chinese holdings in Blackstone will be tied to the management company as opposed to the funds it controls. Further, the stocks purchased by State Investment Co. are non-voting shares, so concerns about undue influence being exerted on US firms and financial markets is likely unfounded.
Reports note that this is a major move for China, a growing power in the global market. They also suggest that it is part of that country’s shift from operating almost solely as a center for affordable manufacturing (something that US and other interests have taken advantage of for years) to a player in the world of high finance. It appears that it is this transition may be the source of US concern; reports note the fact that China backed out of a bid for the oil giant Unocal in 2005 amid harsh public criticism of the proposed deal in the US.
For discussion: Do you think that US concerns over China’s growing involvement as a leader in global markets are misplaced?
Is China’s prosperity and growing economic prowess a success story, a threat, or both?
What is the goal of economic development if not to empower nations to engage globally in financial markets?
Is US discomfort linked to valid concerns regarding economic security or is it a protectionist, NIMBY (not in my backyard) approach to free markets?
The United States is perhaps the world’s biggest proponent of “free trade”, open markets, and liberalized economies. However, the US government’s enthusiasm for globalization appears to wane when foreign countries begin to invest in domestic (US) companies or markets. This kind of trepidation resurfaced this week as the Chinese government invested a substantial sum--$3 billion--in the Blackstone Group, an aggressive US investment firm that has stakes in a number of leading US corporations.
China’s government operated entity, the State Investment Co., will hold a stake in Blackstone that amounts to just under 10% of the management company’s stocks. If the deal had met or exceeded 10%, it would have required approval by the US government. Notably, Chinese holdings in Blackstone will be tied to the management company as opposed to the funds it controls. Further, the stocks purchased by State Investment Co. are non-voting shares, so concerns about undue influence being exerted on US firms and financial markets is likely unfounded.
Reports note that this is a major move for China, a growing power in the global market. They also suggest that it is part of that country’s shift from operating almost solely as a center for affordable manufacturing (something that US and other interests have taken advantage of for years) to a player in the world of high finance. It appears that it is this transition may be the source of US concern; reports note the fact that China backed out of a bid for the oil giant Unocal in 2005 amid harsh public criticism of the proposed deal in the US.
For discussion: Do you think that US concerns over China’s growing involvement as a leader in global markets are misplaced?
Is China’s prosperity and growing economic prowess a success story, a threat, or both?
What is the goal of economic development if not to empower nations to engage globally in financial markets?
Is US discomfort linked to valid concerns regarding economic security or is it a protectionist, NIMBY (not in my backyard) approach to free markets?
Wednesday, May 09, 2007
Lula Ignores Drug Patent That Would Reduce Poor Brazilians' Access to HIV/AIDS Medications
On
Although the country has threatened to break drug patents in the past, Friday’s decree was the first time the Brazilian government had ever followed through on such a threat; in previous negotiations with large pharmaceutical companies, threatening to break patents actually won price reductions for the Brazilian government. Such was the case in 2005, when Abbott Laboratories negotiated an agreement for Kaletra, another anti-AIDS drug.
Brazil has justified its action in boosting affordable AIDS medicine on the 2001 World Trade Organization (WTO) Trade Related Intellectual Property Rights (TRIPS) agreement, which authorizes developing countries to privilege public health over intellectual property by issuing compulsory licenses in health emergencies or when pharmaceutical companies engage in abusive pricing. The compulsory license mechanism allows the developing country to legally manufacture or buy generic versions of patented drugs while paying a small royalty to the patent holder. Merck & Co.'s Vice-President Jeffrey Sturchio, in contrast, has characterized
Under
Some news agencies report that President Lula da Silva’s Chief of Staff has yet to decide whether to allow
For Discussion:
What kind of bargaining power exists between giant pharmaceutical companies and governments of developing countries? What is the proper balance to be struck between rewarding innovative pharmaceutical companies and promoting public health by offering free access to AIDS medications? Should intellectual property laws be enforced in a more flexible manner in order to protect the health of those living in developing countries?
Monday, April 09, 2007
Global economy on the rise despite sluggish growth in the United States
Sources: London Free Press, Chicago Tribune, New York Times
Today the International Monetary Fund (IMF) reported that the global economy was on the rise in spite of slower growth posted for the world’s largest economy and importing country—the United States.
The IMF further asserted that the United States’ economic slowdown has thus far had little effect on other economies because of the fact that U.S. economic troubles have been centered on the domestic housing market crash.
The IMF also noted that as of yet there has been little spillover from the troubled housing market into other areas of the U.S. economy, but that it is foreseeable that consumer spending and investment could be adversely impacted if the residential housing market does not improve, thus potentially implicated economies in exporting countries around the globe.
In the United States, concerns are growing as market watchers begin to change their economic forecast from a “soft landing” for the troubled domestic residential housing market to a housing-led recession for the United States that will—and some assert already is—spilling into other economic sectors.
In addition to the mixed signals on Wall Street—numbers for companies like U.S. Steel indicate a healthy economy while homebuilders’ stocks paint a very different picture—is the effect on state revenues, important because these political entities are more involved in major investments for infrastructure.
Reports that the nationwide housing slump has reduced state revenues are tempered, asserting that while states have seen decreases in taxes from real estate sales and transfers, as well as decreases in the purchase of associated items. At this point, state governments assert that the problem is not serious as the rest of the economy is fairly strong. That could change if there is spillover from housing to other market sectors.
FOR DISCUSSION:
1. Is or was the housing crash avoidable?
2. Do large economies like the United States have a responsibility to the global economy?
3. How are other major economies (e.g., China, a growing economic power on the global scene that is facing a housing bubble akin to that experienced by the U.S.) dealing with burgeoning domestic economic issues that could spillover into the global economy?
Today the International Monetary Fund (IMF) reported that the global economy was on the rise in spite of slower growth posted for the world’s largest economy and importing country—the United States.
The IMF further asserted that the United States’ economic slowdown has thus far had little effect on other economies because of the fact that U.S. economic troubles have been centered on the domestic housing market crash.
The IMF also noted that as of yet there has been little spillover from the troubled housing market into other areas of the U.S. economy, but that it is foreseeable that consumer spending and investment could be adversely impacted if the residential housing market does not improve, thus potentially implicated economies in exporting countries around the globe.
In the United States, concerns are growing as market watchers begin to change their economic forecast from a “soft landing” for the troubled domestic residential housing market to a housing-led recession for the United States that will—and some assert already is—spilling into other economic sectors.
In addition to the mixed signals on Wall Street—numbers for companies like U.S. Steel indicate a healthy economy while homebuilders’ stocks paint a very different picture—is the effect on state revenues, important because these political entities are more involved in major investments for infrastructure.
Reports that the nationwide housing slump has reduced state revenues are tempered, asserting that while states have seen decreases in taxes from real estate sales and transfers, as well as decreases in the purchase of associated items. At this point, state governments assert that the problem is not serious as the rest of the economy is fairly strong. That could change if there is spillover from housing to other market sectors.
FOR DISCUSSION:
1. Is or was the housing crash avoidable?
2. Do large economies like the United States have a responsibility to the global economy?
3. How are other major economies (e.g., China, a growing economic power on the global scene that is facing a housing bubble akin to that experienced by the U.S.) dealing with burgeoning domestic economic issues that could spillover into the global economy?
Friday, January 26, 2007
Aging Workforce Changing European Landscape
An aging population is projected to leave Europe with huge labor shortages. Deaths in Western Europe exceeded births for the first time in 2006. Demographics in Germany Europe , the workforce is expected to decline by 60 million in the next 10 years as older workers retire.
The impact of the aging workforce is already felt throughout Europe . In Germany
Efforts to fill these vacancies are hampered by tight European immigration regimes. A professional demographer explains one of the ironies of globalization: it has facilitated capital and trade flows and made it easier for people to travel, but governments are imposing restrictions making employee mobility more difficult. That paradigm, however, might be untenable in light of Europe ’s changing dynamics.
QUESTIONS
Is immigration the answer to Europe ’s declining population? Can Europe maintain its economic strength with a shrinking workforce? Are there other ways, such as outsourcing to labor-rich nations, in which Europe can compensate for a declining workforce?
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