Seoul Summit 2010
The authoritative magazine for VIP’s, delegates and diplomats
SEOUL KOREA NOVEMBER 2010
“The Republic of Korea, as this year’s chair and host of the November 2010 G20 Summit, will do its utmost to ensure that the global economy is placed on a path of recovery so that we achieve strong, sustainable and balanced growth. The G20, the premier international economic forum for the developed and developing countries, will lead this effort. The Korean government and its people will do its best to ensure a successful G20 Summit in Seoul. This unprecedented global crisis still presents challenges but the world has also been presented with a unique and historic opportunity. What we do today and how we overcome this crisis will determine our future success. The 2010 G20 will help us fulfill our promise of a brighter tomorrow.” Thank you. President of the Republic of Korea, Lee Myung-bak
Publisher The CAT Company Inc G8/G20 Summit Magazine Company Ltd The CAT Company Inc President and Publisher Chris Atkins
Chris Atkins Dear G20 Readers, I would like to take this opportunity to thank all those involved for their dedication in helping make this a successful publication, especially Rick Schneider and Andrew Jacuzzi at Verso Paper. Without their support this magazine would not be possible. The CAT Company is the only publishing company that has been involved with the past fourteen G8 Summits and is now happy to publish the second issue of the G20 Summit magazine, continuing the tradition and continuing to get great recognition as the Summit’s foremost publisher. The CAT Company continues to increase the exposure of the magazine with help from the massive growth of digital technology, using Scribd.com And to add to many other “firsts” this year, we are again the first company to launch the first G20 magazine app for the iPhone and the Android I hope you enjoy our magazine and we look forward to seeing you in France for the 2011 Summit. Yours Sincerely
Editor in Chief Ana Carcani Rold Advisory Board Peter Atkins Chris Atkins Jennifer Latchman Graphic Design and Art Direction Founder intro60.com Henri de Baritault President of Sales Mike Nyborg Sales Executives Chris Atkins John Armeni Guy Furl Mike Nyborg Ray Baker Chad Hatch Doug Lambert Hinckley Institute of Politics - University of Utah Kirk Jowers, Director Courtney McBeth, Assistant Director Rochelle M. Parker, Communication and Outreach Coordinator Thanks to: The Diplomatic Courier Hinckley Institute of Politics intro60.com Utopia Wellness Clinic Special Thanks to: Prime Minister Stephen Harper’s Office President Lee Myung-Bak’s Office Rick Schneider and Andrew Jacuzzi, Verso Paper
Chris Atkins Publisher and Founder The CAT Company Inc.
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Michele Acuto, Diplomatic Courier Contributing Editor Arash Aramesh, Researcher, The Century Foundation Rudiger von Arnim, Assistant Professor of Economics, University of Utah Ambassador Nancy G. Brinker, Founder and CEO of Susan G. Komen for the Cure Ambassador James P. Cain, Former U.S. Ambassador to Denmark, Partner, Kilpatrick Stockton Daniela Carcani, George Washington University Brian Corry, Scholar, Hinckley Institute of Politics Dr. Suraya Dalil, Acting Minister of Public Health, Afghanistan Monique Danziger, Communications Director, Global Financial Integrity Ashraf Haidari, Chargé d’Affaires, Embassy of Afghanistan in Washington, DC Marie Hollein, President and CEO, Financial Executives International Orin Levine, Executive Director, Johns Hopkins Bloomberg School of Public Health Ruth Gerritsen-McKane, Assistant Professor of Social Work, University of Utah Courtney H. McBeth, Assistant Director and Scholar, Hinckley Institute of Politics Dr. Alexander Mirtchev, President, Krull Corp. Uddipan Mukherjee, Diplomatic Courier Contributor Paul Nash, Diplomatic Courier Contributor Ciro A. de Quadros, Executive Vice President, Sabin Vaccine Institute His Excellency Klaus Scharioth, Ambassador of the Federal Republic of Germany to the United States David Schneider, Professor of Chinese Studies, University of Massachusetts, Amherst Raymond Torres, Director of the International Institute for Labour Studies Rami Turayhi, Diplomatic Courier Contributor His Excellency Pierre Vimont, Ambassador of France to the United States Ken Weisbrode, Diplomatic Courier Contributor
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The Evolution of the G20
All together, the 20 states represented at the G20 Summit account for more than three quarters of the world’s economic output. This is a large representation. But the issues on the table are even larger. Assurances on trade relations; end to overseas tax shelters; billions in dollars committed; promises for stricter bank regulation; and, last year, even suggestion of a new world currency. These have been just few of the issues this group’s leaders are seeking to tackle. It is easy to question the expense this kind of a meeting can cause to the host country—especially during the economic downturn. But no expense can be spared when it comes to security. It is hard to ignore the fanfare that comes with hosting world leaders all in one place. But it’s hard to imagine what it would be like if these world leaders did not meet. The G20 is a relatively new venue. But is it the right venue to solve the world’s biggest problems? The forerunner of the G20, the G7, was somewhat effective when in 1985 the group’s leaders successfully devalued the dollar. But the G20 is not the G7 and the world and the current crisis have evolved. They have become certainly larger. So has the Group. The intent of the G6—the original of these groups—was to create a forum for an informal meeting devoted to the discussion of economic issues between the world’s donor countries. As the group evolved, first into the G7, then the G8, the agenda grew exponentially to include other pertinent issues of the time such as weapons proliferation, terrorism, and climate change. The scope changed as well. The summit became a grand affair, which now hosts over 4,000 members of the media during the deliberations. With such media fanfare, little opportunity exists for real negotiations. In fact, much of the talks leading to the final communiqué happen in meetings preceding the big summit, between Sherpas and other special representatives and diplomats appointed by the leaders. In 2009 the debate concentrated on whether the exclusive G8 would be replaced eventually by the more inclusive G20. Could these two groups co-exist? This past June, Canada hosted both summits back-to-back hinting for the first time since the debate started that the G8 is here to stay and will not be replaced by the G20. In fact, there has been no clear consensus in the foreign policy community about whether the two G summits complement each other or whether they compete with each other, indicating strongly, that for the time being (that time being at least the next five years) the two summits will continue to exist side-by-side. That brings us to the significance of the G20 Summit in Korea this November. Korea is the first Asian nation to host the G20 and in doing so it has set a very ambitious agenda that other subsequent summits should look to as a model. The Seoul Summit will be challenged to resolve the currency dispute, push for reform of the IMF and the World Bank, mediate the stimulus-austerity debate, and at the same time respond to crises outside of the agenda, such as North Korea and the European debt. Of all these issues, a currency dispute over currency valuations will prove to be the most challenging of all. Seoul’s foremost goal should be to prevent this from happening so as the process is not compromised. It has proven difficult for the G20 Summit to maintain momentum since the leaders first responded to the 2008 economic downturn with the first of this series of meetings in Washington, DC. But what we can take away from the Korean Summit is a sense that a template for success exists. From the several pre-Summit meetings between Sherpas and Economic Ministers to the C20 Business Summit—a meeting between CEOs of major global companies preceding the G20—Seoul is providing a template for future summits to follow. Ana Carcani Rold Editor-in-Chief
Table of Contents
Welcome message from President Lee Myung-bak President, Republic of Korea Welcome message from Prime Minister Harper Prime Minister of Canada Publisher’s Note 14 12 10 The Mother of All Ponzi Schemes By Rami Turayhi Tackling the Jobs Crisis: The Role of Coordinated Fiscal and Incomes’ Policies of G20 Countries By Raymond Torres and Rudiger von Arnim Back to the Future? China’s Sea of Foreign Exchange Reserves is Not New Editorial Editor’s Note Table of Contents Hyundai Unveils All-New Sub-Compact ‘Solaris’ in Russia Grand Opening Ceremony at Hyundai Motor Manufacturing Rus (HMMR) plant in St. Petersburg, Russia Global Health and Business: A Long Term Sustainability Strategy 22 24 Why the World Needs to Engage With Iran Again By Arash Aramesh 66 16 17 18 20 By David Schneider Dollar Diplomacy Revisited By Ken Weisbrode A Curious Camaraderie: Beijing’s Abiding “Friendship” With Pyongyang By Paul Nash 60 58 56 54
SPECIAL FOCUS The Global Economic Security Significance of Sovereign Wealth Funds An Interview with Dr. Alexander Mirtchev FEATURES
Sustainability ‘From Below’ Or, Why We Shouldn’t Take Cities for Granted 26 By Michele Acuto Investing in the Human Security of Afghanistan By Suraya Dalil and Ashraf Haidari Include Cancer: Why the Global Cancer Movement 70 68
From Korea to France: Continuing the Global Agenda for Economic Recovery By Ambassador Pierre Vimont The Seoul Agenda: On Course to Securing Growth and Stability By Ambassador Klaus Scharioth 36 34
Needs the Support of the G20 Group of Nations By Ambassador Nancy G. Brinker Déjà Vu? World Food Price Hikes Raise Concerns By Daniela Carcani Injecting Life Into the World Economy
Recipe for Global Economic Recovery By Monique Danziger
By Orin Levine and Ciro A. de Quadros Social Work’s Contribution to Global Development:
Living Responsibility By Rainer Wend The G20 Business Summit: Will Business Advocate Free Markets and Innovation to an Attentive G20? By Ambassador James P. Cain Globalization and the Modernization of Financial Executives By Marie Hollein
The Western Lens Impact on Universalism and Opportunity for Collaboration By Ruth Gerritsen-McKane and Courtney H. McBeth 78
Causes, Conditions and Reform of African Economic Neocolonies By Brian Corry
G20 Seoul Summit – Ripe with Opportunities Reaching the World’s Most Vulnerable
The Beginning of History? By Uddipan Mukherjee
Hyundai Unveils All-New Sub-Compact ‘Solaris’ in Russia
- All-new Solaris is Hyundai’s 1st model to be produced at Hyundai Motor Manufacturing Rus (HMMR) - New Solaris offers many specialized features tailored to meet local needs
Dynamic” in both exterior and interior of the new sub-compact sedan. With a coupe-like profile found in the company’s latest models like the allnew Sonata, the Solaris’ outer design is highlighted by dynamic and sophisticated graphic elements like eagle-eye looking two-tone bezel headlamps, unique L-shaped fog lamps and the large hexagonal front grille. Its refined and stately image is completed by continuous character lines that start from right above the front fog lamps and extend out to the rear combination lamps. Inside the cabin where the character lines flow continuously, a Yshaped crash pad showing bilateral symmetry gives a sense of stability. Furthermore, high-glossy black and metallic colors used in the center fascia add more futuristic and hightech looks to the interior of the Solaris. POWERTRAIN Solaris will be powered by the modern Gamma engine, 1.6L or 1.4L DOHC in-line four cylinder gasoline engines that feature multiport fuel injection with CVVT (Continuously Variable Valve Timing). By replacing the old Alpha engine of its predecessor with Gamma, the sedan promises more power and torque, as well as improved fuel economy, in keeping with Hyundai’s pledge to be the
St. Petersburg, Sep. 21, 2010 – Hyundai Motor Company, South Korea’s largest automaker, today unveiled a new sub-compact fourdoor sedan Solaris. The first model to start its production in January next year at Hyundai Motor Manufacturing Rus (HMMR), the company’s sixth overseas manufacturing base located in St. Petersburg, Russia, is expected to shake up the country’s biggest C1-segment sedan market with its daring design and features tailored to meet local needs. THE NAME, SOLARIS Hyundai held a national car naming contest in the early summer of this year to celebrate the first new car of its first manufacturing plant in Russia and “Solaris” has been selected as the winner among more than 27,000 entries from all over the country. The word Solaris is derived from a Latin word for sun, Sol, and implies Hyundai Motor’s strong will to expand its business in the Russian Federation with its new car. DESIGN CONCEPT As intimation was given in the
Concept RB that was displayed at 2010 Moscow International Motor Show (MIMS), the Solaris continues Hyundai Motor’s ‘Fluidic Sculpture’ design philosophy that injects sophistication and dynamic angles as well as elegant lines resembling a calligrapher’s “orchid strokes” into the shape of a vehicle. Like any timeless work of art, the fluidic essence that characterizes molding design of Hyundai’s latest models is inspired by nature, realizing the harmonic coexistence of all things created. Having roots in the Fluidic Sculpture design philosophy, Hyundai designers put their efforts to reflect the design concept key words “Sleek on
Average Fuel Economy 1.4 Gamma
5 M/T 5.9 L/100km (16.9 km/L) 4 A/T 6.4 L/100km (15.6 km/L) 5 M/T 6.0 L/100km (16.7 km/L)
4 A/T 6.5 L/100km (15.4 km/L)
industry’s eco-leader. The power and torque of 1.6 Gamma are respectively 123ps and 155 N.m while
for higher cold start performance are offered as standard. The wiper deicer, front seat warmers and heated outside mirrors are also available. Furthermore, in consideration of local road conditions and driving habits, standard long-lifespan (1,500 hr) lamps as Russian drivers tend to drive with lights on even during day time, standard front/rear mud guards that prevent the car from being contaminated by such carunfriendly elements like dry calcium chloride for snow removal as well as optional Emergency Stop Signal (ESS) which automatically triggers the emergency hazard lights in the event of a panic stop to reduce the risk of rear end crashes are offered.
Established in 1967, Hyundai Motor Co. has grown into the Hyundai-Kia Automotive Group which was ranked as the world’s fifth-largest automaker since 2007 and includes over two dozen autorelated subsidiaries and affiliates. Employing over 75,000 people worldwide, Hyundai Motor sold approximately 3.1 million vehicles globally in 2009, posting sales of US$41.8 billion (including overseas plants, using the average currency exchange rate of 1,276 won per US dollar). Hyundai vehicles are sold in 193 countries through some 6,000 dealerships and showrooms. Further information about Hyundai Motor and its products are available at www.hyundai.com.
those of 1.4 Gamma are 107ps and 135 N.m. The powerful and fuel-efficient Gamma engine will be mated to a four-speed automatic transmission or a standard five-speed manual transaxle. SAFETY INNOVATIONS To meet the most stringent automotive safety and crash requirements, the Solaris is built with hotstamped ultra high-strength steel. In addition, Hyundai offers Electronic Stability Program (optional) further upgrading safety. The top trim model will also feature standard six airbags. RUSSIAN CUSTOMIZATION As a result of Russian automotive market researches carried out by Hyundai engineers and marketers for a couple of years, the Solaris is equipped with many specialized features that suit the local weather, road conditions and driving habits. For long and bitterly cold Russian winter, rear heating duct, 4.0L washer fluid reservoir with a fluid level sensor that warns the driver when a refill is necessary and 60Ah battery SALES Hyundai Motor plans to sell 85,000 units of Solaris annually in Russia starting 2011 including the five-door hatchback model which will join the line-up later that year. Hyundai is confident that the new sub-compact sedan, with trendy and stylish design as well as vastly improved features, will attract and satisfy young Russian aspirants.
Grand Opening Ceremony at Hyundai Motor Manufacturing Rus (HMMR) plant in St. Petersburg, Russia
- 150,000 units per year and 5,300 jobs by 2012 - HMMR is Russia’s 1st full-cycle car production facility of a foreign automaker - The 1st car to be produced at the plant is the all-new 4-door sub-compact sedan Solaris
was a sharp and growing divergence of interest between the two, creating a bifurcated economy susceptible to frequent bouts of social unrest. The fall of the Ming to Manchu conquerors, who established the Qing dynasty in 1644, did not alter these patterns, which, by the time Lord Macartney arrived in Beijing, had become a serious problem in global international relations. The ensuing clash between the British and Chinese empires led eventually to the Opium Wars of the mid-nineteenth century. China subsequently dropped out of the world economy as it became engulfed in civil wars and
China opens its economy, accumulates massive surpluses and immense stores of hard currency reserves. Western powers push for further opening and reform to reduce global imbalances as they begin to affect other major economies. Trade friction builds…The year 2010? No, 1793, the year King George III sent Lord George Macartney as an envoy to the Qianlong Emperor to request normal diplomatic and trade relations. In many ways the main features of China’s growth and rise are not new. The massive accumulation of silver in the Ming and Qing dynasties appears to be re-emerging with Beijing’s present accumulation of foreign exchange reserves, primarily U.S. Treasury bonds. The trade practices that led to these global imbalances are different in form, but quite similar in their underlying meaning and result. China’s modern economic history begins with the collapse of Mongol power and the restoration of native Chinese rule under the Ming
dynasty in 1368. Long-developing economic patterns resumed, especially along China’s eastern and southern coasts. Chinese manufacturers specialized in the production of tea, porcelain and silk textiles for export through Arab and later European traders in exchange for silver mined in Latin America. As the souther n economy boomed, the autocratic Ming moved to bring it under government control. International exchange was now conducted only at designated ports through official state trading companies and strictly regulated. Exports were promoted and imports discouraged. This led to a massive flow of silver out of the Western economies into China, and increasing monetization of the Ming economy. A silver-based, money economy now possible, the Ming government began to collect taxes in coin rather than in kind. This was good for trading provinces with international connections but bad for the inland agricultural economy. The result
invasions by foreign powers, ending only with the establishment of the People’s Republic of China in 1949. The Communist government immediately reoriented the Chinese economy toward the Soviet Union, and in another radical shift Mao Zedong pulled the country into near autarky beginning in 1958. It was yet another twenty years before China would again open to the world. In the 1980s Deng Xiaoping moved to integrate China’s dynamic export potential into global trade and financial markets. Foreign exchange earnings from light industry exports were used to import technology and equipment for investment in further up-market export and heavy industrial capacity. As in the Ming and Qing, trade was conducted through only a handful of state companies, which served to insulate China from the global economy while at the same time reaping the gains from interna-
administrative liberalization. Industrial enterprises were allowed to do more types of business with less government involvement, and could retain a portion of their foreign exchange earnings, and many more SEZs were opened. Administrative reform was only one part of the program, however. As China moved toward full membership in the World Trade Organization (WTO), Beijing instituted vast market-based macroeconomic and financial reforms designed to harmonize the economy
tional connectivity. And in a modern permutation of the open trading ports of imperial times, international capital was invited into China as foreign direct investment, but constrained initially to only three Special Economic Zones (SEZs) opened between 1980 and 1984 in the southern province of Guangdong. But this was only the beginning of a phased program that evolved with experience. Bureaucratic management of trade and investment did not interface well with global markets. The early reforms were followed by successive rounds of
Global Health and Business: A Long Term Sustainability Strategy
gies, sharing of best practices, training of professionals in the field and monitoring and evaluation of health systems, developing countries will be able to meet the Millennium Development Goals (MDGs) for health. The benchmark for different businesses to assess their partnerships, investments and projects must be the Paris Declaration. This standard proposes harmonizing and managing results, with monitoring of health systems’ processes and indicators in different economies. It is necessary to have strategic health planning that is effective and aligned with public sector processes. The private sector can take the opportunity to change its trajectory in terms of its involvement with health in developing economies, generating significant positive impacts for access to health. The private sector has different opportunities for involvement in strengthening health systems in developing countries, to support the fulfillment of Millennium Development Goals (MDGs). These include direct investment in already-established funding mechanisms, aligned with other stakeholders that have a platform for strengthening health systems; technology transfer between the private sector and health systems in management, logistics, procurement, strategic planning, monitoring, evaluation and financial management; and the identification of opportunities to bring other stakeholders into the public arena and to create multilateral structures to make health care provision more effective. Health plays an important role in economic growth. To maintain sustainable growth over the coming years, global health must be a permanent fixture of the agendas of major global discussion forums, such as G20 summits. The private sector must stimulate and reinforce its commitment to the public and non-profit sectors, with a strategy for global health to help strengthen health systems at country level, both in developing and developed countries.
The long-term sustainability of the private sector depends on many variables, including the strengthening of health systems – the combination of people, infrastructure and institutions responsible for providing basic health services. As the second largest diversified mining company in the world and the largest private company in Latin America, with operations in both developed and developing economies in over 35 countries, Vale participates in initiatives designed to strengthen health systems, firstly in Brazil and gradually also in other locations where it operates. Improvements in global health are fundamental to the sustainability agenda. In Vale’s view, this concept mainly refers to investment in people’s lives, and it means that the private sector must be committed to preserving the environment and supporting global health. It is necessary to maintain international support for combating endemic diseases that continue to affect the world’s people, such as HIV/AIDS, tuberculosis and malaria. Sustainable improvements in the health of people, workers and their families will only be achieved through the systematic and strategic strengthening of health systems. By means of innovation, new technolo-
The Global Economic Security Significance of Sovereign Wealth Funds
An Interview with Dr. Alexander Mirtchev
A year ago, in a discussion with Dr. Mirtchev on the global economy, the topic of Sovereign Wealth Funds was brought up. At the time, we had just produced the G8 Summit magazine for the l’Aquila summit in Italy. One of our articles discussed how Sovereign Wealth Funds could be the unlikely saviors of renewable energy. Behind the scenes, SWFs have become a great topic of significance in the ongoing quest for global economic recovery. We are extremely fortunate to have Dr. Alexander Mirtchev provide insights in this important and strategic sector of the global economy. Dr. Mirtchev is President of Krull Corp. USA, a global strategic solutions provider, with a focus on new economic trends and emerging policy challenges. He is also a Vice-President of the Royal United Services Institute for Defence and Security Studies, Council Member of the Kissinger Institute on China and the United States at the Woodrow Wilson International Center for Scholars and a Board Director of the Atlantic Council of the United States. He serves as independent director of a sovereign wealth fund, has served as chairman and director of multi-billion dollar international industrial enterprises and has had distinguished public office and academic career.
economies, at a time when the term “rapidly developing economies” was not in use. More recently, the investment horizon of SWFs has broadened, ranging from “trophy assets” such as Citibank and Merrill Lynch to real “frontier” projects, such as, for example the Sinopec/CNOOC buyout of the stake of Marathon Oil in Angola’s offshore deepwater Block 32 for US$1.3bn or CIC’s $500mln investment in SouthGobi Energy Resources’ mining operations in Mongolia. In the final analysis, SWFs are all unique–they represent different countries with different economic strategies, resources and proclivities. At the same time, they do have common features that provide a basis for comparison and a framework within which it is possible to understand what their future strategies may be.
What lessons did the SWFs learn from the global financial and economic crisis?
The first lesson learned by the SWFs in the present financial crisis is a new type of prudence and the end of growth and intensified “glamour cherry-picking”. This would not be prudence in the traditional sense, but rather prudence on a global scale, with a view to strategic long-term positioning. Before the crisis, prominent SWFs became notorious for their big-name acquisitions, in particular in the financial sector. Now they are sitting on the paper losses from their investments, but with the full understanding that name recognition, past performance of the targeted corporation, etc., are important, but should hardly be the determining factors. For example, Temasek invested 8.3 billion US dollars into Merrill Lynch, which was later acquired by Bank of America in an all-stock deal worth 50 billion dollars, while Government of Singapore Investment Corp (GIC) invested billions into Citigroup and Swiss bank UBS. The stateowned Kuwait Investment Authority injected a total of 5.0 billion dollars in Citigroup and Merrill Lynch in January 2008. The Abu Dhabi Investment Authority, controlled by the largest member of the United Arab Emirates, poured 7.52 billion dollars into Citigroup in late 2007. Now, more than ever, they could be considered to be risk-averse investors. Secondly, SWFs will have learned the hard way that even though they are in many ways “special”, the market is the market, and they should bargain down deals–like any other market player, rather than being the “elephant in the room”. The present lower values in the market and the fact that cash is in short supply will put them in a good position to realize that they do not have to “save face” by paying over the top for assets.
What role do sovereign wealth funds (SWFs) play in the modern global economy?
To begin with, SWFs are a modern iteration of economic power projection by states on the international scene. In one form or another, vehicles resembling SWFs have been around for a long time. Similar entities investing state funds, generated from reserves or trade surpluses (such as from natural resources), or utilizing substantial state support or privilege, could very well include conglomerates such as VOC (the Dutch East India Company) or the British East India Company. Another thing they appear to have in common with modern SWFs is that they were the pioneers in frontier markets, often creating regional trade beyond what the local governments and businesses were able to create. It should not be forgotten, however, that SWFs are often perceived to be driven by political, rather than economic, considerations. At the end of the day, they often are, which is only natural, as their shareholders are governments. Thus, the story is much more complex.
In modern times, the first investments by SWFs were predominantly in “frontier markets”–their own. Both Kuwait Investment Authority (established 1953) and Singapore’s Temasek fund (1974) made investments in their own
SPECIAL FOCUS Thirdly, it is likely that SWFs would place much higher value and give more precedence to the “production” side–they would be focusing even more not only on the acquisitions of natural resources, technologies or capacities that their economies lack, but also on the prospective and targeted growth of their own national and regional markets. For example, the Chinese oil giant Cnooc was persistent, and despite failing to buy Unocal, it was able to acquire Norway’s Awilco Offshore ASA. Countries like China will look for more natural resources that they lack. Sinosteel Corp. completed a full takeover and delisting of Australian iron-ore concern Midwest Corp. The oil producing countries’ SWFs will concentrate on diversification away from oil into equipment manufacturing, hi-tech, telecoms and other valueadded activities. Fourthly, the temptation to “make it big” would be reduced– SWFs would reduce their penchant for “dramatic deals” and be under pressure to stick to their core purpose. Thus, facilitating the economic strategy of their governments and economies will likely come to the fore. Last, but not least, due to the financial crisis there is likely to be increased sensitivity, in the developed countries in particular, about the activities of SWFs, and the funds would not only try to “play by the rules”, but would direct their actions to be widely seen to “play by the rules”. This tendency would result in the SWFs becoming more “accommodating” to the economies they deal with. This may also lead to SWFs creating a parallel system and “arrangements”, including financial. the new governance arrangements surrounding the IMF and the World Bank. How far these concessions would be accepted by the governments that control the SWFs’ activities is still a subject to debate, as SWFs and their governments may decide to take a “proactive” role in the global market on their own, rather than via the established structures of the IMF and the World Bank, as the rules of that game may not be fully to their liking. SWFs were already “bottom fishing” for distressed assets that could be attractive in the long term already when the crisis was still in full swing. In the wake of the global crisis, SWFs have become more active. They have intensified the search for investment projects, and the period of “withdraw and regroup” could be considered at an end. SWFs would be more tempted to forego immediate returns for potential growth in the mid-term, relying on acquisitions that provide synergies and economies of scale with assets and production facilities that they already own.
What current challenges do SWFs face?
One of the biggest challenges for SWFs is likely to be the uncertainty surrounding the intended policies of the developed economies towards SWFs. There is little doubt that SWFs are going to face attempts to impose certain curbs on their operations, imposed by the current and prospective market regulators, putting them under increased regulatory scrutiny, in line with the tightening global financial regulations. Even though host governments would welcome long-term investments from SWFs, there is a growing popular feeling and political pressure to codify and regulate the global financial system, enhance its surveillance and the interventionist powers of governments. This will inevitably affect how SWFs operate in the developed economies–would their governments be happy to have their activities regulated and maybe virtually controlled by foreign states? An additional factor that remains, despite the changing market conditions, is the overall distrusts towards SWFs among the governments of the developed economies, and in particular the fact that any major SWF investment can be viewed through the prism of national security. A range of developed country’s governments have expressed implicit and sometimes explicit concern over the activities of SWFs, in particular those of China. The concerns raised range around protection of local assets of strategic significance and the growing influence of the countries, projected via the activities of their SWFs. According to Natsuko Waki from Reuters, deal participation by SWFs stirs “jitters that foreign governments may take control of assets that are important for national security and strategic reasons”. These concerns will channel more narrowly the ability of SWFs to undertake the projects in the developed economies that their new strategy will dictate. They may
What is the current economic benefit of SWF activity?
Before the financial crisis the SWFs were predominantly welcomed as an alternative source of large-scale equity financing that was cheaper and easier to obtain than to go through an IPO. Now they look more and more as the only source of available financing for a cash-starved international financial system. Increased government scrutiny, regulation and participation in the financial system is not likely to be considered an investment incentive by the SWFs in general. On the contrary, due to the fact that SWFs have not only business rationale to their activities but also a strategic and geopolitical underpinning, they would be loath to be restrained by what they may consider unfair “regulatory shackles”. The SWFs would try to fit in the new global regulatory regime that is likely to emerge, but at the same time would want to be able to dictate, to a certain extent, the terms and conditions under which they operate in the global economy. The new role of SWFs as financing sources has already been acknowledged by the G20 and is to be reflected in
also bring forth considerations that SWFs will be turned away from the developed economies and would concentrate on the emerging markets to look for what they consider strategic investments. It is likely that we will see SWFs taking key industries in relatively small emerging markets.
out any red flags being raised and without appropriate scrutiny. The response to these concerns is that they stem from more of a “protectionist” mindset than a valid political concern, and that recent examples of SWFs working together are much more commercially oriented than having any political imperative.
What are the concerns of states about SWF activity?
From the times when kings invested in building pyramids, raising armies and bankrolling explorers, sovereign wealth has attracted political controversy. And when sovereigns band together, woe on the free world! Fortunately, the sovereigns have changed with times and represent internationally legitimate public authorities. SWFs tend to be viewed in a manner, different from private equity funds or other private investors. This is due to the perception that SWFs have a different outlook on risk, investment periods and other “traditional” investment considerations. Notably, the frontier is part of the DNA of SWFs, and this “frontier” make up to a large extent determines their competitive advantages, as well as, in some cases, the problems that SWFs sometimes face. With the end of the global crisis in sight, SWFs could become unwelcome guests, even if they contributed to the recovery of a specific economy. They provided an alternative source of financing for cash-strapped economies, but when “currency wars” are on the front burner the issue of protectionism is making its presence known in a forceful way across the globe. The concerns raised in some quarters about SWFs belie the reality of their operation: the funds report their activities to the public authorities of home countries which are at least as transparent as a private equity firm would be. Prior to the crisis, a few private equity firms in fact voiced objections to the funds on the grounds of unfair competition based on cheap money, but soon found them good investors and attractive clients. Taking into account that the major SWFs, with a few exceptions, are from countries that are not considered among the “developed” economies, there are also concerns that SWFs represent disguised foreign policy vehicles. This could be of particular importance when the SWF in question is from a country that is considered significant from a national security standpoint, and its investments in a target market, such as the US or the EU can generate perceptions of “encroachment” on matters that are deemed “strategic interests” for the target market, as was the case with Dubai Ports.
Are SWFs a responsible market player?
Sovereign wealth funds in general behave like any other investor, and bear the same level of responsibility. Despite being inherently different from each other, as they reflect their countries’ economies, etc., there is an increasing tendency for cooperation between SWFs in international investments. It could be considered that such cooperation is a sign of their maturity as investors, who are more aware of the market principles and are seeking to offset any limitations or inefficiencies that they may have in respect of specific projects by combining with others that may have access to better “investment tools”. It could be argued that SWFs cooperating in different projects represents a sign of their maturity as investors, who have become more aware of the market opportunities. On certain occasions, such joint activities could help them become market leaders in specific sectors. One example of such cooperation is the joining of forces by China’s CIC, Singapore’s GIC and the Korean Investment Authority to support the Blackrock acquisition of Barclays Global Investors. This was deal-specific cooperation with specific prerequisites and repercussions that signified the new power of SWFs. Another type of cooperation is the recent general agreement of the Korean Investment Company, Malaysia’s Khazanah Nasional Berhad and Australia’s QIC. This is more of a general “cooperation” agreement, which is a framework arrangement that is to provide the basis for potential future joint transactions, but does not entail specific commitments in its own right. One area, where SWFs have already made certain advances, is to increase transparency by joining forces in specific investments, irrespective of political considerations that may be in place. The cooperation of sovereign wealth funds today implies that the international investment advisers, typically form tightly regulated markets, see synergies in bringing a number of funds together for a transaction. The immediate consequence of such cooperation is that at least several parties to the transaction have to open books to each other, negotiate agreement that all parties are comfortable with, and overall increase the level of transparency about the application of the sovereign wealth. Every time one fund manager reaches out to his peers, market gets a bit more information about both and regulators are immediately aware of the intent of the deal. Among others, this would also allow SWFs
The most loudly expressed political concerns are that joint activities by several SWFs could result in them “banding together” to achieve political objectives with-
to introduce elements of comparatively independent supplementary financing mechanisms in their transactions, a phenomenon that could actually evolve into an additional layer of the global financial system. In addition, the increasing tendency of SWFs to “team up” with Western private, institutional and stateowned investors for joint investments abroad is providing an additional impetus towards transparency and accountability that actually benefits Western investors – such as, for instance, the case of the discussions about joint Indian-US exploration of offshore areas off the U.S. East Coast and in the Gulf of Mexico (which may be under threat as a consequence of the Gulf of Mexico oil spill).
reward calculation. As a result, the process of SWFs investing in frontier markets would gradually become more and more transparent, in view of their increasing integration in the financial system and their partnerships with international institutions, such as the World Bank or IFC. SWFs are continuously maturing and realising the advantages that international partnerships could bring, in particular in developing markets, and they are often “brought in” by Western private equity groups or by industry-sector players. This increasing accountability and transparency will not be something that happens overnight, but is already a discernible process.
How can SWFs promote growth in developing and emerging markets?
There are a number of reasons why SWFs are drawing disproportionate attention, mainly growing from the perception that SWFs are “atypical” investor. This perception has a certain level of validity, which is actually self-perpetuating–the more SWFs are considered as a separate breed, the more their actions are viewed from this angle. On that basis, their importance alters, in line with, among others, the following: • They are established as significant market players – they may not be crucial but need to be taken into account. The perception is that they have access to vast resources that can be applied to investments under a completely different level of manoeuvrability, can react much quicker and can affect markets. • In certain cases, SWFs are viewed as an extension of states and perceived within the framework of certain state policies. • They are seen, rightly or wrongly, due to their specifics, as having a more long-term strategy than other investors, and are seen as sometimes going “out-ofstep” with prevailing market sentiments at a given time. • Sometimes, SWFs have an accumulation of funds that are relatively “liquid” which is a consideration, as well as the perception that they have better access to financing. It is fair to say that their risk calculations could sometimes be considered atypical. This view is reinforced by the perception that SWFs have in their arsenal “deeper pockets” or certain unquantifiable guarantees. • They could be a market-maker (or the elephant in the room), in particular in relatively smaller economies. The modern markets are complex, and as complexities carry both opportunities and risks, investors are trying to utilise the complexities to the extent that they can bear the risks involved, and from CITIC to the Government Pension Fund of Norway, it is an issue of risk-
What are the advantages SWFs can bring to the development of the Third World?
SWFs are just like any other investor – they are not a charity, and are interested in returns, reduction of risk and capital growth. Sometimes, however, the long-term or broader view on returns and risks that they take is creating the impression of an agenda, different from that of other investment vehicles and organizations. Yet, at the end of the day, the investment decisions and abilities of SWFs depend on the specifics, nature and size of their holdings in particular regions. Some assets are deemed strategic, others–temporary, or a building block in a long-term approach. In addition, SWFs have a broader take on investment risks, due to their more long term vision and approach, and are gradually becoming more focused on realising new opportunities in asset-backed or more traditional sectors in less developed markets, such as the example of recent mining investments by SWFs in Zambia, Uganda and Liberia, or, at the other end of the spectrum, the recent investment by Diar (Qatar) in a resort in the Seychelles. As evidenced by the recent agreement of the SWFs of countries like South Korea, Netherlands and Saudi Arabia to invest $600 million in a World Bank-sponsored equity fund for less-developed countries or the recent co-investment by IFC and Chinese funds in the development of a 14-story office block in Dar es Salaam, Tanzania, there is also an attraction and added prestige in working together with multilateral organisations in frontier markets.
In what way can global economic security benefit from intensified activities by SWFs?
As long-term investors, sovereign wealth funds could have the potential to stabilize companies they invest in since these funds do not live by quarterly returns. In a way, the ultimate sovereign wealth fund is the International Monetary Fund which combines transparency and long-term perspective with agreed-upon stabilization goals.
G-8 Business Declaration
However, they have already moved beyond the “withdraw and regroup” stage brought about by the crisis, not to mention the time of the “glamour investment”, which is over. This comes with the need for SWFs to prioritize their portfolios and focus on new areas of growth, which underlies the rationale for joining forces on an ad hoc basis. Firstly, SWFs have demonstrated increasing awareness that their level of expertise is not universal, and find that obtaining additional expertise via cooperation is a viable option for them. Secondly, this allows them to share risk and enable access to welcome co-financing, another major consideration. Thirdly, in the crisis and post-crisis environment, such co-operation allows them to achieve a new level of legitimacy in markets where they have not operated before. In the process of cooperation, SWFs appear to be seeking to offset any limitations or inefficiencies that they may have in respect of specific projects by combining with others that may have access to better “investment tools”. It should also not be ruled out that SWFs would also join forces like other traditional market players in order to achieve better transaction returns. Significantly, SWFs could expand their contribution to global economic security and stability by contributing their long-term outlook. According to Ashby Monk of the Oxford SWF Project, “these funds... have intergenerational time horizons that grant them a unique ability to consider risk factors not priced in today’s short-term markets (but which will no doubt be priced in the longterm)”. Down the line, SWF partnerships can enable stateowned funds to optimize local knowledge, leverage capital, spread investment risks and maximize returns. They could also create a bigger, more diverse and transparent entity, whose long-term investments—often holding assets for years—might help stabilize global markets.
to maximize return for their shareholders, where governments are often less patient than private investors. However, as indicated by Andrew Rozanov of Permal Group, who is credited with having coined the term “sovereign wealth funds”, the priorities and mandates of SWFs can bring forth a number of inherent contradictions, due to the divergence of their targets. These targets, which focus on stabilization, long-term savings and economic development at the same time, “push in opposite directions”. In turn, this implies that these priorities may sometimes be in opposition and work at cross purposes, which could affect the performance of SWFs. Those funds that invested in producing assets beyond oil will be able to enjoy whatever spurt of growth other industrial sectors enjoy, or they will be able to minimize the negative effect of the oil price on their funding via diversification of their investments. Another point that needs to be taken into account is the fact that SWFs would more and more make their investments with a more long-term strategy than private equity firms – the government of China for example will eventually benefit from the acquisition of oil producing assets even if the price is low, because that would provide them with sufficient flexibility to satisfy their own energy demand in boom times and sell the surplus on the market in “lean times”. And the revenue of the government from the products which the country was able to produce using the extra oil supplies will eventually find its way to the SWFs.
What are the potential pitfalls to SWFs’ future role in the global economy?
SWFs are part of the market, and the market will inevitably have its say. As pointed out by Edwin Truman of the Peterson Institute for International Economics, whose work inspired the Santiago Principles governing SWF conduct, sovereign funds are not immune to or beyond the effects of global economic cycles, such as the worldwide financial and economic crisis. Irrespective of whether or not the shareholders are private individuals, institutions or governments—the balances are the same, so are the requirements of creditors. In practice, the notion that SWFs are “more patient” than private investors does not really hold water. SWFs often face the same horizon as other market players, and are subject to the same exigencies—they need to maximize return for their shareholders, and governments could be even less patient than private investors. Where a difference may arise is in that SWFs tend to be in a stronger position than other investment companies to withstand the pressure of market fluctuations and “stick” with a specific investment. Size and sovereign support can get you only so far, and the market pressure will eventually tell, so success for SWFs would often depend on whether or not they are aware of the market trends and comply with market realities.
What are the future prospects for SWFs?
Growth for SWFs would predominantly depend on two things—the support of their governments and their own investment strategies (and how successful they are). The SWFs that are largely dependent on their government financing their activities (for example, from oil or other natural resources revenues) will experience a reduction in new capital inflows, but that effect will not be fully translated from the price of oil to the growth of the funds. SWFs, as can be seen by the competition between India’s ONGC and CNOOC in Uganda, face the same risks as any other market players—both systemic market risk, and non-systemic political, legal, commercial and other forms of risk, and are subject to the need
From Korea to France: Continuing the Global Agenda for Economic Recovery
By Ambassador Pierre Vimont
On November 12, France will take over the G20 presidency for one year, and on January 1, that of the G8. We want to use these weighty responsibilities to make a collective difference on a number of issues at a time when questions are being asked about the vocation of both of these bodies.
Created in the Fall 2008 at the United States and France’s behest, the G20 represents 80 percent of the planet’s wealth. It enabled the main economic powers to successfully weather the most severe economic and financial crisis since the 1930s, through close economic policy coordination, bold action to increase the financial markets’ transparency and enhance the stabilizing tools of the IMF, and a clear refusal of any form of protectionism. It also engaged in a long term dialogue to resolve the dangerous imbalances that plague the global economy, that took shape with the establishment of a framework for strong, sustainable, and balanced growth at the Pittsburgh Summit. All in all, the “crisis version” of the G20 has done an unprecedented job. Today, now that relative calm has returned, there is a temptation to limit the G20’s ambitions to the implementation of already taken decisions, supplementing them in 2011 by several useful measures: expanding regulation in areas where it remains insufficient; verifying the implementation of agreements on the exchange of tax information signed since the London summit; adopting strong measures to fight corruption; strengthening the mandate of the Financial Stability Forum; and more broadly, reexamining the prudential framework of banking institutions to avoid a repetition of the crisis we just experienced. Specific proposals are on the table for all these subjects—first, to best prepare the Seoul Summit, then to expand results in 2011. France is committed to carry out this agenda and complete this work. But we also think the G20 needs to be the venue for addressing other pressing global challenges. This is why President Sarkozy expressed the will to use France’s presidency of this still new forum to engage on the following debates with our partners. The first debate is the reform of the international monetary system. It is becoming increasingly clear that the instability in currency exchange rates is a substantial threat to world growth and this issue will be raised for the first time in a G20 format in Seoul. We want to deepen and “operationalize” this debate, focusing on strengthening our common crisis management mechanisms, examining the concept of an international reserve asset, and better coordinating the economic and monetary policies of the major economic zones. Of course, we know it is a sensitive issue that needs consensus and a lot of thorough thinking , and no one is talking about returning to a fixed exchange-rate system. But the evolution of the main currencies exchange rates these last few weeks show us that it is time to have this discussion.
The second debate is the volatility in the prices of raw materials, which we are currently witnessing with the sudden rise of wheat or corn prices. The G20 can tackle this issue with pragmatism, by looking at a better regulation of derivative markets in raw materials (market transparency, storage policies, new tools enabling importing countries to protect themselves against exchange rate volatility). On energy, the Pittsburgh summit gave France a mandate to propose measures for Seoul and for the 2011 summit to curb price volatility. We will come with proposals to increase transparency on energy commodities markets and an enhanced dialogue between producers and consumers. The third issue that the G20 leaders need to reflect on is global governance reform. The G20 decided it would be the “main global forum” for economic and financial issues. But it must still give itself the means to work more effectively. Should we create a G20 Secretariat to monitor the implementation of decisions? Should the G20 also deal with new subjects, such as development or climate change? Beyond the G20, we will also suggest a broader debate on world governance. The G20 gave a decisive impetus to World Bank and IMF governance reform. Now is a good time to think about the articulation between G20 and the UN, and other International Organizations like the WTO. Regarding the G8, there is a still ongoing debate on whether we should keep this format, between those who think it is condemned and those who think it still has a contribution to offer if it refocuses on common challenges, security issues and its partnership with Africa. As President Sarkozy said in a recent speech, “the future will decide”, and France intends to prepare this summit carefully. We are at a crucial point for the global economy. We have not yet fully resumed the path of solid and sustainable growth, and the G20 must prove that it has the determination to pursue the necessary reforms. New actors have joined the recognized powers to save the world economy, calling for their rights to be recognized, but also accepting the duties and responsibilities that come along. The main stake of our presidency of the G8 and the G20 will be to keep this spirit alive and stabilize a new cooperative pattern for global governance. Ambassador Pierre Vimont was appointed Ambassador of France to the United States by President Nicolas Sarkozy on August 1, 2007. Prior to his present appointment, Mr. Vimont was Chief of Staff to the Minister of Foreign Affairs, a position he had held since 2002.
The Seoul Agenda: On Course to Securing Growth and Stability
By Ambassador Klaus Scharioth
The G20 Summit in Korea is taking place at a time when indicators are increasingly pointing to a global economic recovery. The IMF is expecting a global economic growth rate of approximately 4.8 percent for 2010. This positive development is largely due to decisive and far-reaching support measures taken by policy makers worldwide. Yet the challenge of making the global economy more robust and the financial markets more secure remains great. Chancellor Angela Merkel is a driving force in moving the G20 process forward. Strategies and timing for exiting the exceptional crisis measures are important elements in attaining sustainable growth. Especially in light of growing government debt, countries must strengthen confidence in the credibility and long-term sustainability of their public finances. That is why consolidating public budgets is consistent with a credible strategy for the mid-term. Germany is well positioned in this context. The German economy recorded strong growth in the first half of 2010. Growth of 3.3 percent is anticipated for 2010, the highest among the G7 nations, and at least 2 percent in 2011. Today, the number of people employed exceeds pre-crisis levels. Another especially positive trend is that the German economy is growing increasingly broad-based, relying not only on high exports but also on growing domestic demand, in particular private consumption and capital investments. A sharper rise in imports also shows that Germany is contributing to the growth and rebalancing of the global economy. Thus, the German strategy of, among other things, creating more confidence through financial consolidation and thereby strengthening the potential for growth is beginning to bear fruit. Here, it is important to note that Germany is still supporting economic development through its stimulus program in 2010. Turning to the financial markets, we see that while conditions have improved, they are still fragile. We must therefore successfully conclude the ongoing efforts to repair the financial sector and create a stable regulatory framework. In particular, the G20 action plan agreed in Washington and the decisions taken at the London and Pittsburgh G20 summits must be implemented entirely and without delay. The most recent agreement on Basel III – and I expect its endorsement by the G20 in Seoul – is an important step towards making the banking sector more sound and stable. As the main institution of global economic governance, the IMF has played a major role in overcoming the current economic and financial crisis. Comprehensive reform of its own governance will further strengthen this wellfunctioning and efficient institution and increase its legitimacy. Already considerable progress has been made in revising the IMF mandate, including its surveillance function and lending practices. Germany fully and completely stands by the overarching goal of IMF quota and governance reform. Fair representation and equal treatment of all countries is vital to the legitimacy of the IMF. All components of the reform, including revision of quotas, should be handled as one package and within the same timeframe. To this end, the European side already submitted concrete proposals in Washington in October. That notwithstanding, all member states must be willing to compromise to be able to meet the agreed timetable. When the G20 member states meet in Seoul in November, they will look to the challenges ahead. Full in the awareness of our recent accomplishments, we must continue to work together to achieve the common goals of growth, rebalancing, and reform. Dr. Klaus Scharioth has served as German Ambassador to the United States since March 2006. Immediately prior to his posting in Washington, DC, Dr. Scharioth was State Secretary in the Federal Foreign Office, the highest ranking civil servant. A native of Essen, he has been with the Foreign Office since 1976.
Recipe for Global Economic Recovery
By Monique Danziger
There is a disconnect in the current dialogue about economic development and poverty alleviation. For decades the paradigm of development work has been to send aid money. Despite the global financial crisis, Official Development Assistance has continued to grow with 2009 ODA levels being the highest to date. Development achievements, on the other hand, have been below expectations with many countries pushed into worse poverty as a result of the economic crisis. The answer to this is nothing mysterious or complex. Every year the developing world loses $1 trillion—ten times the amount that goes in as development aid—to corruption, trade mispricing, and tax evasion. This money flows abroad into the global financial system ending up in Swiss bank accounts, Western nations like the U.S. and UK, and sometimes even makes headlines when used to buy exorbitant, flashy luxury goods like mansions in Malibu or fleets of Bugatti sport cars in Paris. Looking more closely at some of the nations and regions involved has yielded stark and highly-compelling ratios of diminishing returns: Analysis of data from 1970 through 2008 found that Africa had lost $854 billion in cumulative capital flight— enough to wipe out the region’s total outstanding debt but leave $600 billion for poverty alleviation and growth. In the case of Nigeria, this has the dubious distinction of leading other African nations in terms of total illicit capital loss at $240 billion from 1970 to 2008. ODA to Nigeria from 1970 to 2008 was a tenth of what the country lost; $26 billion in aid compared to $240 billion siphoned out. A forthcoming Global Financial Integrity (GFI) report on India finds that illicit capital flight totaled $125 billion from 2000 to 2008. The report finds that “hidden accumulation of wealth” was one of the primary drivers of India’s illicit capital flight, with much of the money ending up in offshore financial centers. Recognition of the problem of illicit capital flight is slowly but surely growing. The G20 has pledged to tackle illicit financial flows; the World Bank and OECD have noted the crucial nature of finding solutions to the problem. Key to success in this area will be connecting the dots. While flashy, Bugatti-driving kleoptocrats and narco kingpins tend to garner most of the blame for moving dirty money. But complicit international financial insti-
tutions and Western nations are essential to the illicit capital flight process. Nigerian anti-corruption crusader, Nuhu Ribadu, once remarked that a plane never takes off without a place to land. Such is the case with these hundreds of billions in dirty money. The proof of the cooperation is indefatigable, despite the shadowy and furtive nature of the game. A recent Global Witness report found that several High Street banks in London, including Barclays PLC, HSBC Bank PLC, Royal Bank of Scotland, NatWest (owned since 2000 by RBS) and UBS AG had allowed two Nigerian state governors, Diepreye Alamieyeseigha of Bayelsa State and Joshua Dariye of Plateau State, to open accounts and deposit illicit funds from 1999 to 2005. Leading up to Seoul, a coalition of civil society groups including ONE, Oxfam America, Global Financial Integrity, and Global Witness conducted high-level meetings and collected signatures to advocate for a strong United States position on ending the era of banking secrecy and pushing for greater transparency and accountability in global finance. The coalition recommended specific measures, including formally recognizing the links between illicit outflows of capital from developing countries, absorption of those resources by tax havens and financial institutions in international financial centers, and the adverse impact those flows have on poverty alleviation and economic development. Establishing these links will help lead to bigger-picture thinking and holistic policies that will fit the systemic nature of the problem. A global financial system that is transparent and accountable would cut the flow of illicit funds off at the knees. Measures to this end include requiring disclosure of beneficial ownership of all companies, trusts, foundations and charities, countryby-country reporting of profits earned and taxes paid by multinational corporations, and harmonizing predicate offenses for money laundering. In terms of fostering sustained and robust global economic recovery, the health and wealth of the developing world is a critical factor. Creating economic growth and improving governance in the developing world is essential to a stable and healthy global economy. This is not rocket science, it is a matter of political will. There is perhaps no better multinational body to carry forward the endeavor to create a global financial system that is transparent and accountable than the G20 nations.
By Rainer Wend
ering tomorrow—customer needs in 2020 and beyond” and show that climate change will be the key driver for a revolution in new products and services. Eco-friendliness and conscientious consumption will increasingly determine purchasing behavior. The study also shows that the logistics industry is likely to set trends and establish new standards for cooperative efforts and environmentally friendlier business. The results are already part of Deutsche Post DHL’s long-term business strategy and CR strategy. We want to take a leading role in green activities, in humanitarian actions, as well as in education, taking advantage of our expertise and our worldwide presence. The Group’s commitment is therefore focused on environmental protection, disaster management and education in the form of three programs called: GoGreen, GoHelp and GoTeach.
Disaster Management with GoHelp
What do customers expect from their service provider in the next 10 or 20 years? What are their needs and expectations? Customer behavior changes constantly and this trend will increase in the years to come with climate change, the Internet and ongoing globalization as key drivers. In addition, not just customers, but employees and investors as well will focus even more on the social behavior of major companies that do business around the world, impacting the environment and societies in which they operate. Corporate responsibility means combining business success with social and environmental responsibility. Deutsche Post DHL is the world’s leading mail and logistics company with some 500,000 employees around the world. For our Group, market leadership brings with it a special responsibility to use our core expertise in logistics and our worldwide presence to benefit society and to continuously minimize the company’s impact on the environment. For Deutsche Post DHL, corporate responsibility means living responsibility and the global player can rely on its employees and their know-how, talents and passion to do just that. “Living Responsibility” is therefore the motto for our corporate responsibility strategy. Our corporate responsibility (CR) approach is an integral component of our long-term business strategy because we believe that business success and corporate responsibility go hand-in-hand. As a global service provider and one of the biggest employers in the world, it is very important to know what the expectations of customers and employees are. This is why Deutsche Post DHL asked customers, experts and scientists last year about the major issues of the years to come. The results were published in the 2009 Delphi Study “Deliv-
Deutsche Post DHL is present almost everywhere in the world. With GoHelp the Group uses its global presence and its expertise in logistics. The program focuses on disaster management and entails a two-fold approach: disaster response and disaster preparedness. In cooperation with the United Nations, two programs provide support to countries in need free of charge. When a natural disaster hits our DHL Disaster Response Teams (DRTs) are mobilized. Initiated in 2005, the disaster response program has proven to be an important support in tackling logistical problems that arise at the airports closest to disaster zones. When earthquakes, cyclones or flooding have devastated a region, help usually comes from the international community with international aid workers and relief goods flying into regional airports. The regional airports are quickly congested by the food, medical supplies and tents arriving from all over the world—all of which are urgently needed in the field. Very often there is no set disaster plan on how to manage such situations. This is where the DHL Disaster Response Teams come in to solve the bottleneck, cooperating closely with the UN Office for the Coordination of Humanitarian Affairs (OCHA). The DRTs consist of approximately 200 employee volunteers worldwide who are specially trained to handle the challenges on the ground. The DRT members use their extensive logistics expertise to help manage the logistics of disaster relief goods arriving at the airports. Together with local authorities and airport staff, they take care of incoming relief goods, set up and manage professional warehousing, including the sorting and inventorying of goods. We have three DRTs in place, covering the world’s regions most vulnerable to natural disasters: DRT Americas in Panama, DRT Middle East/Africa in Dubai and DRT Asia Pacific in Singapore. The teams
are ready for deployment within 72 hours after being called by OCHA. Each deployment involves about 1520 volunteers. The most recent DRT deployments were in the wake of the earthquake in Chile and only shortly before that in Haiti. A total number of 37 DHL volunteers went to Haiti only a few days after the earthquake hit the island. The teams helped handle over 2,000 tons of international relief aid from over 60 aircrafts in a period of 25 days, and ran an inter-agency warehouse, allowing more than 25 different aid organizations to benefit from our logistics expertise. The second GoHelp pillar of Deutsche Post DHL is called GARD (Get Airports Ready for Disaster). GARD focuses on disaster preparedness. It was launched together with the United Nations Development Programme (UNDP). Piloted in 2009, the program was built around the need to prepare governments, people and airports before a disaster strikes. GARD is a supportive initiative in making worldwide relief efforts more effective. While the DRTs use the company’s expertise in logistics, GARD is a training program for local airports in potential disaster areas designed to enable local authorities and airport staff to better cope with such situations. DHL trainers work with airport personnel on reviewing airport capabilities and capacities, understanding coordination requirements, and helping formulate contingency plans and coordination structures. Deutsche Post DHL has already successfully piloted the program at the Makassar and Palu airports in Indonesia.
Environmental Protection with GoGreen
GoHelp is just one pillar of our “Living Responsibility” approach. The GoGreen environmental protection program is a lighthouse example in the logistics industry. It was founded to minimize the environmental impact of the Group’s core business of logistics services and transportation (particularly road and air transport). With GoGreen Deutsche Post DHL has set itself ambitious targets with a focus on CO2 emissions as an important environmental factor in the logistics and transportation industry. By 2020 the Group aims to improve the carbon efficiency of its own business activities and those of its subcontractors by 30 percent. In other words, the carbon footprint per item shipped, ton kilometer transported or square meter of space used is to be cut by 30 percent compared to 2007 levels. Measures were developed to minimize these impacts. The approach includes optimizing the air and vehicle fleet, raising energy efficiency in buildings, implementing innovative technologies, developing green products and efficient solutions, encouraging the employees to reduce resource usage and CO2 emissions, and getting customers and subcontractors on board. Our employees play a crucial role in all our attempts to make our business as green as possible. Encouraging our 500,000 employees worldwide to join the effort by adopting climate-friendly practices is just as important as driving innovations and using alternative energy sources. An example shows the high commitment of our employees: With the “save fuel” initiative around 50,000 staff of the MAIL division have already helped save over 3.5 million liters of diesel and 3.7 million euros, as well as reducing CO2 emissions by 11,000 tons. They will save a further 2.9 million liters through net-optimization.
Support Education with GoTeach
The third program, GoTeach was established to reinforce the global engagement in the area of education. Education is a high-value asset and key to children’s futures. And it is key to the future of the company as well. As one of the world’s biggest employers Deutsche Post DHL is always looking for well-trained, capable staff with
has developed a strategy that meets the balance between economic, environmental and social interests. The Group-wide programs are constantly communicated, transparently implemented and continuously evaluated. All this would be in vain however, without our employees and customers and without partnerships with non-profit organizations whose core competencies are to tackle the ecological and social challenges the world faces today.
different levels of qualifications. With our GoTeach program, we encourage and develop initiatives that support education and help young individuals expand their personal development and skills. GoTeach also offers employees the opportunity to volunteer in educational projects. For Deutsche Post DHL, corporate responsibility means handling assets entrusted to the company in a respectful and sustainable manner as well as upholding the interests of its employees, customers and investors in benefitting the environment and society. The Group
CR approach at a Glance
GoGreen – Minimizing the impact of the Group’s activities on the environment with the target to improve CO2 efficiency by 30 percent by 2020. GoHelp – Using core logistics expertise to provide effective emergency aid in areas affected by natural disasters in cooperation with the United Nations. GoTeach – Encouraging and developing initiatives that support people’s education and help expand their personal development and skills.
The G20 Business Summit: Will Business Advocate Free Markets and Innovation to an Attentive G20?
By Ambassador James P. Cain
During the summer of 2008 I visited American and Danish troops at Camp Bastion in Helmand Province. Helmand is where the toughest fighting in Afghanistan is taking place. In the midst of the tension of war I was startled to find a teeming bazaar of small businesses operated by eager entrepreneurs, speaking no English, selling everything from camel whips to silk scarves, hand-made musical instruments to hand-made pizzas. Through a translator one of them told me: “If all of Afghanistan were as open to trade as this Camp is, we could solve most of our own problems.” It was an inspiring reminder of the power of capitalism, fueled by entrepreneural innovation, to overcome the diplomatic and economic crises of the day. Governments rarely look to the business community for guidance to solve economic challenges, more often blaming business for those challenges. Hopefully, G20 leaders will actively listen to the world’s top business leaders when business gathers for the first ever G20 Business Summit convening in Seoul just prior to the official G20 Conference.
The G20 Business Summit is being organized by a host committee that includes the major business associations of the region and will be attended by the chief executives of dozens of the world’s leading companies; from Deutsche Bank and HSBC to ArcelorMittal, Li & Fung and Microsoft. Given that the G20 has gained stature as a critical forum for policy collaboration in addressing global economic issues, it is appropriate for the business community to seek to influence G20 gatherings. It is important, however, that business gets this role right. It must view such forums as an opportunity to be forceful advocates for innovation and free market principles. Anything less will lead to such business summits becoming platforms to serve governmental agendas and create political photo ops. What role should the G20 Business Summit undertake? It should voice the interests of the free market, provide experience-based guidance on issues under review by the G20, and illustrate proposed policies’ im-
pact on business and industry. The Forum should respond to policy agreements emanating from previous G20 summits which were contrary to free and open markets. It should measure governmental progress in freeing markets, and share those findings. Most importantly, it should advocate for an unleashing of energetic and entrepreneurial innovation among G20 nations to finally shake off the economic malaise; an “Entrepreneurial Stimulus Package”, if you will. Unfortunately, the business advocacy agenda appears to be modest for the first G20 Business Summit. Issues that will be on the business leaders’ table seem to closely parallel the official Seoul G20 agenda: postcrisis growth, finance, trade, green growth and development, and corporate social responsibility. While it is laudable to be discussing Green markets and corporate responsibility, the forum should most urgently address how the G20 can stimulate innovation and investment to fuel budding entrepreneurs, like the ones I met at Camp Bastion, by freeing markets, cutting government
on a timetable for cutting deficits and slowing respective debt burdens, while endorsing a goal of cutting government deficits in half by 2013, and stabilizing the ratio of public debt to gross domestic product by 2016. As George Osborne, Britain’s Chancellor of the Exchequer said earlier this year, ‘’The best thing that countries with fiscal challenges can do is to show that they can live within their means.’’ In other words, it is time for some accountability. regulation, eliminating disincentives to investment, and reducing taxes, particularly for new businesses. In addition, the G20 Business Summit should review the pro-business policies of those governments who seem to be moving out of the recession faster than others. Canada, which is emerging from the recession much more rapidly than almost every other G20 member, is a good example. Since the global recession began, Canada has implemented a broad array of free market tax and trade policies, eliminating, for example, tariffs on 1,755 different types of machinery and equipment and reducing its corporate tax rate from 21 percent in 2008 to 15 percent by 2012. Canada’s marginal effective tax rate is now two points below the OECD average and capital is flowing in. Finally, the G20 Business Summit should specifically measure how well G20 participants are progressing in meeting the key objective they agreed to at the last G20. In Toronto this past June, the G20 agreed Successful companies know a thing or two about belt-tightening, just as they know what it takes to stimulate innovation and motivate entrepreneurs. Those attending the G20 Business Summit should take the opportunity to share those experiences. Let’s hope the elected leaders who arrive in town a few days later will listen. Ambassador James P. Cain served as U.S. Ambassador to Denmark from 2005 to 2009. Prior to diplomatic service, he served as President and COO of the NHL Carolina Hurricanes, as a partner in the international Law Firm of Kilpatrick Stockton, and founded and Chaired numerous civic and business enterprises. Named North Carolina’s “Business Leader of the Year” in 2002, Cain promoted entrepreneurship and innovation as tools of diplomacy during his overseas posting. Through Kilpatrick Stockton and Cain Global Partners, LLC he now provides legal and strategic advice for international firms seeking U.S. expansion and U.S. firms broadening their international operations.
Globalization and the Modernization of Financial Executives
By Marie Hollein
Global CFOs and treasurers have moved beyond their financial ”traffic cop” role of the past century to become global financial strategists, senior risk managers and partners to the company board of directors and audit committee. The globalization of business has been the main driver of this transformation by shifting marketplaces and financial markets. It’s also spawned challenges and complexities with varying accounting standards, foreign exchange rates, country-specific taxation systems and tax rates. Furthermore, engaging with policymakers, standards setters and regulators worldwide has become “business as usual,” since international organizations are greatly dependent on successfully navigating myriad policies and regulations. In the early part of the twentieth century–with the United States then at the doorstep of unprecedented economic upheaval–company financial leaders were entrusted primarily with two basic tasks: accounting and control. Nearly eight decades later, with the U.S. and the world having withstood the Great Depression, the great recession and many smaller but still damaging recessions, the role of the chief financial officer, corporate treasurer and company auditor looks nothing like that
earlier model.Today’s financial executive is equal parts global financial strategist, senior risk manager and integral partner to the company’s board of directors and audit committee. The globalization of business, particularly over the past few decades, has been the main driver of the financial executive’s added responsibilities, by shifting marketplaces, financial and capital markets and leadership. It’s spawned a raft of challenges, complexities and complications–some of them welcome, and others decidedly not. High on the list of complexity are the varying accounting standards, foreign exchange rates, countryspecific taxation systems and tax rates that differ dramatically from one country to the next. From an accounting standpoint, the U.S. continues to operate through the application of its own generally accepted accounting principles (GAAP), but American regulatory authorities and businesses are considering converging with International Financial Reporting Standards (IFRS). More than 100 countries currently require– or permit–the full or partial use of IFRS and the U.S. Securities and Exchange Commission is studying if, how
and when the global standards might be formally adapted for use by U.S.-based corporations. Such a move is unlikely before 2014, at the earliest. Some of the managerial and operational changes wrought in this era of remarkable global growth and business integration are well-embedded: the hiring of foreign nationals to run country-based operations, regardless of the headquarters of the particular corporation, is one. The move from fragmentation to economic harmonization (as evidenced by the creation of the European Union) is another. That’s as much smart business as enlightened operating philosophy. What this means in terms of the corporate finance function is still unclear, as that chapter is still unfolding. Add to the mix passage of the Sarbanes-Oxley Act of 2002–which dramatically changed the American corporate accounting function–and recent corrective measures imposed in the U.S. and several troubled European capitals, and it’s clear the position of CFO and corporate treasurer is undergoing transformative change. Financial Executives International has been charting the growth and expansion of the finance function in the U.S. and internationally since 1931, when the association was created as the Controllers Institute of America by 30 senior-level financial executives who stepped up to assist the government in trying to help revive the economy. It was an unprecedented environment, with high unemployment levels, emergency government bank loans, rampant business failures and a sense of deep anxiety, even paralysis, pervading the capital markets. There are more than a few similarities to what the world has witnessed since 2007. The enactment in 1933 of the Glass-Steagall Act (legislation widely known at the time as the “Banking Act”), and the 1934 formation of the SEC, more strongly regulated American business and built a firewall between commercial and investment banking. The recent enactment of the most significant legislation since 1934, the Dodd-Frank Wall Street Reform and Consumer Protection Act, adds a plethora of rules and regulations to those already in force. That original small group of 30 is now 15,000 and the organization’s name has been changed to Financial Executives International, representative of its global constituency and a reflection of the maturation of the role and influence of the CFO, a title that started to take hold in the 1960s. With more counterparts in every corner of the globe, members are now engaging–connected to markets and peers–through networking and dialogue in real time.
Besides colleagues, engagement with policymakers, regulators, standards setters and legislators worldwide has become part of “business as usual” for financial executives, particularly those in multinational organizations. The success or failure of international business organizations is greatly dependent on the effect of policies and regulations and an ability to navigate them. As the global financial world has become more complicated, mastering it has become equally difficult. That’s where the expanding responsibility and input of the financial function on a global basis is so crucial. Clear, consistent strategic plans, risk management and financial guidelines must be adapted by internationallyoperated businesses, whether large or small. The senior corporate finance official needs to have the resources to ensure that finance across country borders and conflicting tax and regulatory systems meets standards of consistency and operational excellence. Technology has made the world so much smaller and far more interconnected. As financial measurement tools continue evolving to meet rising international demands, global financial officers must keep on top of this new technology and demonstrate a capacity to apply it effectively and efficiently to growing business needs. But global financial management isn’t the only concern of modern financial executives. They must also assert managerial control over the intellectual and human capital management in an international enterprise. Varying workplace cultures, conditions and structures make achieving a globally coherent, optimal performance more challenging. It’s these often intangible assets that will be more complex and more difficult to identify, manage and make attractive as a business investment to potential shareholders. For nearly 80 years, FEI has been monitoring the global business and financial environment and is committed to continuing its vigilance for the next 80 years and beyond. To be sure, businesses must create value to draw the capital of investors and keep shareholders happy. How the finance and accounting functions adapt to these evolving needs will be critical in determining to what heights the global financial executives can aspire. Marie Hollein is President and CEO of Financial Executives International (FEI). Previously, she was a managing director of Financial Risk Management for KPMG, where she led the firm’s treasury practice.
The Beginning of History?
By Uddipan Mukherjee
The world is facing a multitude of problems. Chief among them are the financial crisis and Islamist fundamentalism. In this backdrop, a few pertinent questions are: Will liberal-democracy remain the only form of political economy for the future? Are communism and militant nationalism totally dead? In the November Summit, it becomes imperative for the G20 leaders to follow a holistic approach in solving the pressing problems of the day whereby they can begin history. In September, the Washington-based Brookings Institute released a paper on ‘governance studies’ by William A. Galston and Maya MacGuineas. The authors expressed concern that the federal budget is on an ‘unsustainable’ trajectory. Public Debt is about 60 percent of the Gross Domestic Product (GDP). According to the authors, by 2011, the ratio is projected to go up by 1000 basis points. And alarmingly, it can skyrocket to 109 percent in the 2020s. It is time the U.S. Federal Reserve and the policymakers to fasten their seat belts as a Public Debt to GDP ratio beyond 100 percent reminds us of the Second World War. Simply put, the money owed by the federal government of the United States is in dangerous proportions to the net output of the country. One of the obvious reasons for the aforementioned scenario has been the recession that the U.S. faced since its housing bubble burst. Global interconnectedness in a post-1991 world led to a rapid proliferation of the same.
To add, a more recent Euro Crisis is also directly linked to a ballooning Public Debt. It ultimately paved the way for a bankrupt Greece. Countries like Latvia, Lithuania and Estonia, which pegged their currencies with the Euro, also suffered significant damages. Now, interestingly, the U.S. recession is ascribed to a ‘lack of prudent intervention’ by the Federal Reserve which led to a fragile banking system. On the other hand, serious fiscal mismanagement is considered to be a major reason that exacerbated the crisis in Greece and other ‘sick’ countries of Europe. In any case, it is affirmed by most analysts that rising Public Debts, compounded by a huge liquidity are the major financial problems faced by the nations of today. Are these features a discernible signature of decay of the philosophy of free market and its political acolyte; the Western liberal democracy? If such a thesis is acceded to, then what happens to Francis Fukuyama’s by now historical assertion of 1989: “What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of postwar history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.” On the flip side, are these financial disruptions mere periodicities of crests and troughs and we are just witnessing a temporary nadir of such a curve? At least, neo-classical economists would vouch for the latter.
Naturally, questions which perturb us at this critical juncture are: In the future, will Western liberal democracy survive as a form of political economy? Will the ‘newly poor’ of the North be able to keep their hold over the ‘newly rich’ of the South? Will the ‘other’ strands of ideology like that of Communism or Militant Nationalism be won over by the equations of supply and demand? Nevertheless, at least in the foreseeable future, it appears unlikely that there shall be a re-emergence of Communist chauvinism or National Socialism in International Relations. However, that does not necessarily mean that those ideologies are ‘dead’ as Fukuyama may force us to believe. There are internal contradictions within the liberal-capitalist system and these may magnify in the form of reactionary regimes or ultra-leftist movements. Interestingly, even the Developing World would experience such instabilities; both in the political and social domain. In essence, globalization seems to have implanted a “First” World inside every “Third” World while the former continues to possess an egotistic worldview. Strategically speaking, the world shall chart a path of counterinsurgency for some time to come. There will be an inevitable struggle of narratives between a “First” World (dominated by the U.S.) and a “Third” World (of Colombia, Sri Lanka et al). However, that is not likely to suppress any alternative measures adopted by emerging powers like China in Xinjiang, India in its ‘red corridor’ or a re-emerging Russia in the Caucasus. That an economic turmoil has strategic repercussions cannot simply be discredited as facetious. However, the world is definitely not exhibiting yet another apocalyptic ‘power block’ arrangement so as to engender a war. Rather, we are more accepting of the premise of non-state actor led insurgencies. And the pathology may be remedied by the troika of Diplomacy, Strategy and Tactics. In 1979, Kenneth Waltz talked about neo-realism in world politics. He believed that the very existence of a ‘superpower’ over and above the emerging powers, shall curtail the latter’s ambitions of waging a war against each other. If that is the case, then in a unipolar world of today, wars are far-fetched. At the same time, admittedly, the world is yet not completely free of the inherent possibilities of a conventional war.
However, by all means, International Relations shall find itself in a cobweb of environmental, socio-economic, political and religious problems. Nation-states are likely to keep on facing volatile security issues, both of domestic as well as of transnational nature. The economic backbone of organizations like Al Qaeda and Taliban needs to be broken. Otherwise, the challenges from their side can turn out to be grave. In this light, it becomes imperative to posit a counterargument to Fukuyama that International Relations, as it stands today, is just not preoccupied with only economics. Politics and strategy have not taken back seats. Sino-India bilateral relation is a glaring example in this regard as a voluminous trade is unable to assuage the political climate. Thus, when the G20 leaders meet in Seoul this November; they would have to contemplate on a spectrum of issues ranging from fiscal stimulus to currency exchange rates to carbon trading to international security. They have the chance to begin history; by a holistic synthesis of the North with the South. They have to engineer adroitness through novel instruments. A peerreviewed format to manage future malfunctions in the banking system is one such. The undercurrent of contradictions in the liberalcapitalist system has to be properly evaluated and preventive measures ratified. A blind adherence to the ideology of end of history may be ahistorical. Uddipan Mukherjee has a doctoral degree from the Tata Institute of Fundamental Research, under the Department of Atomic Energy, India. He writes on strategic issues concerning international security and is a regular contributor for the Diplomatic Courier magazine.
The Mother of All Ponzi Schemes
By Rami Turayhi
Have we been duped? As a layman and relative Wall Street outsider, the more I read about the opaque financial world in New York City and in other major international financial centers, the less convinced I am that much of what Wall Street does today has any real meaningful macroeconomic purpose. A bird’s eye view from Main Street might lead an outside observer to call some of what made Wall Street titans fabulously wealthy over the past decade a “Ponzi scheme”: the majority of Americans have been robbed blind, with the United States and the rest of the world hardly better off than at the turn of the century. Capitalism. Efficiency. Productivity. These are prized words in American culture, and I am a firm believer in all of them. A quick trip to any U.S. Post Office–which often ends up being anything but quick–always serves to reinforce my devotion to the principles of market efficacy and incentivized productivity. Despite this, there comes a point at which one wonders whether unbridled capitalism has an all-too-nasty side-effect: productivity becomes a codeword for greedy, self-interested gain of the “part” at the expense of the “whole.” Perhaps a short story will help to explain my ambivalence about 21st century capitalism in the financial world. Back in 2006, when I was a first-year investment banker at a major Wall Street bank, I was the junior member of what I believed to be a cutting-edge investment banking team devoted to alternative energy companies and products. At the time, we were heavily focused on companies that produced corn-based ethanol. With the stock market in full, bull-market swing and with energy prices on the rise, bankers up and down Wall Street were jetting off to rural farmsteads across the Midwest and Great Plains, hoping to pitch their big-city ideas of easy money and quick profits to farmers and rural cooperatives.
In theory, none of this was a bad thing. Wall Street had “discovered” a (sort of) new, profitable venture, and those lucky enough to have the expertise and resources to devote to this field were to become the overnight financial beneficiaries of their good fortune. There was, however, one problem: corn-based ethanol had little future potential in the marketplace, and anybody with half a brain knew it. Indeed, after making some quick, back-of-the-envelope calculations that pitted the amount of corn produced in the United States against what was presumed to be the minimum demand requirements for this gasoline additive and potential gasoline substitute to take off economically, I was startled to find out that–even putting aside the negative life-cycle energy and water consequences of producing corn and the various costly domestic subsidies that sustain the crop–there was simply no way that corn-based ethanol would have any lasting positive impact on the gasoline market. Stunned by this simple deduction, I took the information to my boss, a Vice-President at my bank and the man spearheading the ethanol charge for our group. Rather than hear an explanation from my elder as to why my numbers were wrong or how I had overlooked a crucial element, his blunt answer–which I have paraphrased here for demonstrative purposes–nearly took the wind out of me: “Yeah, I know that already.” After pressing my boss to explain himself, he went on (again paraphrasing for demonstrative effect): “Look, I know that corn-based ethanol is ridiculous and has no real future, but get this. I am going to make a ton of money IPOing these Midwest farmers’ companies, and when they go bankrupt, I’ll make more money selling them off to other investors and funds and merging whatever companies remain.” I quit investment banking that summer. I wish I could say that I left solely on principle, but it was a confluence of factors that led me to abandon this high-flying world of easy money for the rigors of a law school education. That said, this episode–which, I stress, is by no means unique to this particular bank–led me to come to a number of conclusions about Wall Street, most of which have been reinforced by events over the past couple of years. First and foremost, there is no accountability for much of what Wall Street does. While this is at the heart of the capitalist model, the problem is that a very crucial piece of that model is missing: effective oversight and the balancing of varied interests. So, few people–includ-
FEATURE ing most shareholders, many fund managers, or even credit agencies–truly understand a lot of what banks do day-to-day to make money in the world of 21st-century finance, so the effective marketplace check on bankers’ and traders’ actions does not always occur. This would be akin to an executive and legislative branch functioning without a competent judiciary; abuse of power is a near certainty. Second, much of what Wall Street was primarily designed to do–i.e. allocating capital more efficiently across the American economy, providing services and capital to businesses large and small, and helping to correct inefficiencies in the marketplace–is no longer at the heart of what 21st-century investment banks actually focus on in their quest for increased profits. My example above is one of just many areas where bankers or traders have little incentive to “do the right thing,” because doing the wrong thing–which is almost always legal in fact, if not ethical in spirit–makes so much more money. The effect of this mindset, whether in the world of complex derivatives or with regard to simple allocations of capital, has been to effectively realize gains today at the expense of future generations of Americans; hence, the “Ponzi scheme” analogy. Finally, the much-touted “moral hazard” dilemma plays a major role in all of this, as banks over the past decade engaged in practices that oftentimes had such enormous potential downside risk that there was no way to let them fail without putting the entire financial system in peril: the so-called domino effect. “Too big to fail” banks are the end product of a capitalist system without effective checks and balances on its financial sector. The solution, however, is not merely more regulation, but rather a better set of effective legal tools that allow regulators to oversee and stop activity that is harmful to American society on a net basis. In other words, regulators need to be granted authority to assess where the risks heavily outweigh the potential incremental individual gains in the banking industry, while leaving certain activity–for instance, much of the trading that small- and medium-sized hedge funds do–to the rigors of the free market to sort out: a so-called “common sense” approach to regulation. It also wouldn’t hurt to pay vital actors in government regulatory bodies a more reasonable salary; it is quite difficult to retain top talent when the incentives are so heavily skewed towards joining the “regulated” rather than the “regulators.” The aforementioned are but a few of the problems and solutions that plague Wall Street today, but I believe
that they are indicative of the general crux of the dilemma: how to allow Wall Street to effectively and efficiently allocate capital to American businesses and create a more vibrant marketplace without strangling the innovative rigor and capital flows that set the United States apart from many other nations. The key appears to be effective, not necessarily more, regulation, in conjunction with a common sense that sorts out the systemically hazardous from the merely risky. While greed and self-interest are inherent to the human condition, U.S. policymakers ought to be smart enough to find ways to inhibit the worst kinds of excesses in order to let the creative, productive elements of American society flourish. Rather than act as a giant casino or Ponzi scheme, it is high-time that Wall Street function as the more farsighted, compassionate, and generous uncle of innovation. The future of America–and much of the rest of the world–depends on it. Rami Turayhi is a graduate of Columbia Law School and a former investment banker at a major Wall Street bank.
Tackling the Jobs Crisis: The Role of Coordinated Fiscal and Incomes’ Policies of G20 Countries
By Raymond Torres and Rudiger von Arnim
This past September, the U.S. National Bureau of Economic Research (NBER) announced that, in technical terms, the recession provoked by the financial crisis had ended in June 2009. To many American people, however, the crisis is far from over. Unemployment remains stubbornly high, a sense of job precariousness is spreading and income inequalities are on the rise. Indeed, the crisis will not be overcome until these imbalances are tackled. To achieve this, it is crucial to avoid rapid cuts in government spending, and, more fundamentally, to boost domestic demand in surplus countries like China and Germany. This article shows how it can be done and provides estimates of the benefits of such sustainable exit strategies. The first remedy–fiscal stimulus–is motivated by the fact that the private sector has not acquired sufficient dynamism yet. In the face of high unemployment, the private sector across several large advanced economies continues to withdraw spending. Sustained resumption of growth therefore requires further fiscal support, rather than immediate reduction of fiscal deficits. True, U.S. government deficits increased substantially, primarily due to “automatic stabilizers,” such as reduced tax revenues and increased social insurance payments following the contraction of GDP. The political pressure to reduce the deficit–$1.6 trillion in absolute terms and almost 11 percent relative to GDP in the second quarter of 2010–is immense, even in the face of an unprecedented increase in both the level and duration of unemployment. Further, it is often said that the U.S.’s profligate ways have to change, that saving rates need to increase. Otherwise, the argument goes, the external deficit cannot be corrected. Reducing government deficits is one way to address the twin public and external deficits. However, the build-up of the U.S.’s external deficit largely coincided with increased private indebtedness. The private sector is, of course, frantically trying to lower its debt levels, so that without increased net exports or higher public borrowing, unemployment will continue to rise. A recent study–discussed in more detail in this year’s World of Work Report of the ILO’s International Institute for Labour Studies (IILS)–confirms these insights. Curtailing U.S. public borrowing relative to GDP by two percentage points reduces the external deficit. But it does so at a substantial cost. The unemployment rate increases by three percentage points. Moreover, the trade deficit
improves not because of higher exports, but largely because of lower imports. The demand contraction affects other economies, particularly NAFTA-partners. There are simply no benefits to public deficit reduction in the midst of a fragile recovery. The second policy plank involves a combination of higher wages and stronger currencies in surplus countries. An appreciation of Asian currencies like the Chinese Yuan would make U.S. products more competitive in these markets, and shift production toward the hardhit manufacturing sector. In Asia, production would shift toward domestic goods and services, further deepening national markets and regional economic linkages. Why is this not happening? The IILS study suggests that over the next year, a nominal exchange rate revaluation in China would lead to a significant increase in unemployment of about one and a half percentage points. While it can be expected that improved competitiveness will help rebalancing over a few years, and will have positive effects both on the U.S. and surplus Asia, it is a difficult political option to pursue. What else can the region do to aid global rebalancing without endangering recovery? Higher wages and higher social spending can have two immediate positive effects. First, it would provide a direct stimulus to the domestic economy. Such spending increases the share of nontraded activity and hence aids rebalancing. Second, increased spending on social services reduces precautionary savings of low- and middle-income households. Likewise, policies to support labor incomes can support domestic growth and help rebalancing. There is a time dimension as well. Further fiscal support is necessary to buffer the short-term negative impact of private sector deleveraging on output and employment. The emphasis on sustainable industrial relations, labor income growth and improved social safety nets will provide a longer-lasting effect on demand, output and jobs. Indeed, a degree of international policy coordination is necessary, notably through the G20, to avoid free riding and improve overall outcomes. However, experience with the bank bailouts at the start of the crisis shows that such coordination is possible. Action is all the more needed because what is at stake is the well-being of many people and, beyond that, social cohesion itself. Raymond Torres is Director of the International Institute for Labour Studies, ILO in Geneva, Switzerland. Rudiger von Arnim is Assistant Professor of Economics at the University of Utah, in Salt Lake City.
Back to the Future? China’s Sea of Foreign Exchange Reserves is Not New
By David Schneider
China’s modern economic history begins with the collapse of Mongol power and the restoration of native Chinese rule under the Ming dynasty in 1368. Longdeveloping economic patterns resumed, especially along China’s eastern and southern coasts. Chinese manufacturers specialized in the production of tea, porcelain and silk textiles for export through Arab and later European traders in exchange for silver mined in Latin America. As the southern economy boomed, the autocratic Ming moved to bring it under government control. International exchange was now conducted only at designated ports through official state trading companies and strictly regulated. Exports were promoted and imports discouraged. This led to a massive flow of silver out of the Western economies into China, and increasing monetization of the Ming economy. A silver-based economy now possible, the Ming government began to collect taxes in coin rather than in kind. This was good for trading provinces with international connections but bad for the inland agricultural economy. The result was a sharp and growing divergence of interest between the two, creating a bifurcated economy susceptible to frequent bouts of social unrest. China opens its economy, accumulates massive surpluses and immense stores of hard currency reserves. Western powers push for further opening and reform to reduce global imbalances as they begin to affect other major economies. Trade friction builds… The year 2010? No, 1793, the year King George III sent Lord George Macartney as an envoy to the Qianlong Emperor to request normal diplomatic and trade relations. In many ways the main features of China’s growth and rise are not new. The massive accumulation of silver in the Ming and Qing dynasties appears to be reemerging with Beijing’s present accumulation of foreign exchange reserves, primarily U.S. Treasury bonds. The trade practices that led to these global imbalances are different in form, but quite similar in their underlying meaning and result. The fall of the Ming to Manchu conquerors, who established the Qing dynasty in 1644, did not alter these patterns, which, by the time Lord Macartney arrived in Beijing, had become a serious problem in global international relations. The ensuing clash between the British and Chinese empires led eventually to the Opium Wars of the mid-nineteenth century. China subsequently dropped out of the world economy as it became engulfed in civil wars and invasions by foreign powers, ending only with the establishment of the People’s Republic of China in 1949. The Communist government immediately reoriented the Chinese economy toward the Soviet Union, and in another radical shift Mao Zedong pulled the country into near autarky beginning in 1958. It was yet another twenty years before China would again open to the world. In the 1980s Deng Xiaoping moved to integrate China’s dynamic export potential into global trade and
financial markets. Foreign exchange earnings from light industry exports were used to import technology and equipment for investment in further up-market export and heavy industrial capacity. As in the Ming and Qing, trade was conducted through only a handful of state companies, which served to insulate China from the global economy while at the same time reaping the gains from international connectivity. And in a modern permutation of the open trading ports of imperial times, international capital was invited into China as foreign direct investment, but constrained initially to only three Special Economic Zones (SEZs) opened between 1980 and 1984 in the southern province of Guangdong. But this was only the beginning of a phased program that evolved with experience. Bureaucratic management of trade and investment did not interface well with global markets. The early reforms were followed by successive rounds of administrative liberalization. Industrial enterprises were allowed to do more types of business with less government involvement, and could retain a portion of their foreign exchange earnings, and many more SEZs were opened. Administrative reform was only one part of the program, however. As China moved toward full membership in the World Trade Organization (WTO), Beijing instituted vast market-based macroeconomic and financial reforms designed to harmonize the economy with global norms. The results were nothing short of spectacular— thirty years of average 9 percent GDP growth. This year China overtook Japan as the world’s second largest economy. And since the 2008 global financial crisis, China has been a primary engine of world recovery. Yet, the unbalanced character of China’s development cleaves rather closely to old imperial patterns. Modern macro-economic, controls, combined with continuing strong state guidance, have succeeded in creating a highly successful coastal economy that promotes exports, now primarily by means of an undervalued exchange rate, and massive trade and foreign currency surpluses. Powerful government emphasis on industrial investment directs capital toward large-scale industry, still the main urban employer, and away from investment in the consumer economy, which occupies only about a third of Chinese GDP, the lowest of any major world economy. The provinces on or near the eastern
and southern coasts have been the major beneficiaries of the reforms, leaving the inland provinces increasingly behind, and rather prone to bouts of social unrest. No matter whether it uses traditional administrative regulations or modern market mechanisms China tends toward over dependence on export-led growth, large surpluses that result from shielding the domestic economy from world markets, and uneven development between the coast and the inland areas. This is not simply a matter of economic policy; it is as much a matter of civilization and political culture, both much harder to change. Any lasting solution to the problem of Chinese imbalances will require more than a struggle for momentary diplomatic agreements. The G20 would be wise to move robustly toward a major multilateral effort to strengthen the global free trade and financial system. This is the only way to shape the long-term conditions in which Chinese civilization and political culture could evolve to the point where it would be possible to redress these imbalances through full compliance with WTO norms and eventual full international convertibility of the yuan. David K. Schneider, formerly a U.S. Foreign Commercial Service officer with posts to Beijing and St. Petersburg, is a professor of Chinese studies at the University of Massachusetts, Amherst
Dollar Diplomacy Revisited
By Ken Weisbrode
American proponents of this theory at the turn of the last century coined the phrase “dollar diplomacy” to describe it. This was distinct from the diplomacy of the dollar—that is, the international role of the U.S. economy. Rather, it meant that dollar, or peaceful, commercial diplomacy could supplant what was then known as gunboat diplomacy, better known then and since as power politics. Alas, the first half of the 20th century disappointed many such optimists. But the second half renewed their faith. Western Europe led the way in demonstrating that economic cooperation from the bottom up could undergird peace. Free trade—a liberal mantra that survived from the 19th century—became the ruling doctrine of the latter 20th. The General Agreement on Tariffs and Trade evolved into the World Trade Organization. A large number of bilateral and regional trade agreements crisscross the globe. But trade does not give the full picture. By the mid1970s, international economic relations—particularly monetary relations—had reached a point of crisis with the collapse of the Bretton Woods Institutions and the gold pegged dollar. It was at this moment that the leading economies of the West joined forces to remake the basis of what we now call global governance. The effort began humbly—as informal talks in the library of the White House, hence its original name, “the Library Group”—but was since resuscitated and reinvented as the G6, and later G7 “summits” of industrialized nations. Later this became the G8 and now there is the G20. The agenda of these gatherings is now so broad, and the numbers of attendees so large, that it is a wonder anything meaningful can be accomplished there. Certainly the meetings bear little resemblance to their 1970s predecessors, although even by the end of that decade the summits required professional “sherpas” to guide them. It is on this lower level of interaction—sherpas and deputies and their non-governmental counterparts— that global governance, or what used to be called world order, is hammered out and negotiated on a more or less permanent basis. The work can be tedious. But the alternative—to dollar diplomacy, and to peace—is in nobody’s best interest. The author is a historian at the European University Institute in Fiesole, Italy and the author of The Atlantic Century (Da Capo).
Commercial diplomacy is as old as diplomacy itself. Some of the first treaties dealt with trade; some of the first “overseas” settlements were trading entryports; some of the greatest empires began as commercial enterprises. It is customary to consider commercial diplomacy as subordinate to “great power” relations, and to grand narratives of war and peace. But throughout most of human history, commerce was the normal interaction among people from different places. The interpenetration of goods, markets and the whole variety of commercial activity is a long standing historical fact. Today’s global economy, like its predecessors, is not self-governing. Norms, institutions, laws and treaties give it structure and standards. This has been true to such an extent that some optimists have argued on occasion—since the 18th century, in fact—that commerce can buttress peace. Trade is usually said to follow the flag, but it also happens the other way around. So too with peace.
A Curious Camaraderie: Beijing’s Abiding “Friendship” With Pyongyang
By Paul Nash
In Jilin Yuwen Middle School, under the protective shadow of Beishan Mountain in north-eastern China, 155 miles from the North Korean border, there are two curious relics that symbolize China’s enigmatic relationship with North Korea.
In 1945 Stalin sent Kim back to Soviet-controlled Pyongyang, installing him at the head of a provisional government that would become the Democratic People’s Republic of Korea (DPRK) in 1948. He ruled the North for nearly 50 years, promoting a blend of Stalinism and Juche, a political philosophy of Korean self-reliance, under a personality cult that named him “Great Leader”. His son, Kim Jong-il (“Dear Leader”), who was born in Russia in 1941, took over after his father’s death from heart failure in 1994. Although the Korean Workers Party (WPK) has ideological roots similar to the Chinese Communist Party (CPC), the two have developed along divergent paths. Early Soviet influence and protection ingrained in the WPK Stalinist tendencies that the party’s Chinese counterpart has long shed. China’s Maoist ideology was necessarily more pragmatic to begin with, as Mao’s struggle to build a socialist democracy had to include support from non-communist elements. The CPC drifted further away from orthodox Marxism-Leninism after the Sino-Soviet rift in the 1960s, and since the 1970s it has altered its core policies to jibe with a series of successful market-style economic reforms initiated by Deng Xiaoping. China has embraced greater openness, economically as well as politically, to the point where some cadres wonder if it is beginning, in effect, to abandon its communist agenda altogether. North Korea’s political philosophy, by contrast, has remained stagnant, progressively isolating its regime from the international community while plunging the country into catastrophic famines and economic backwardness. If the Jilin Yuwen Middle School represents a shared revolutionary tradition and the cradle of the modern Sino-DPRK “friendship”, it has become a curiously ambiguous one. It was to this school that the 69-year-old Kim Jong-il made a secretive trip in August 2010. Met by Hu Jintao, China’s president and general secretary of the CPC’s central committee, a slighter and greyer Kim, aged by the effects of a stroke he suffered in 2008, arrived in Changchun in an armoured train from Pyongyang.
An old wooden chair and a student’s desk are carefully preserved within the dreary grey walls. They have been kept there for more than 80 years, ever since Kim Il-sung, the first leader of North Korea’s communist regime, used them from 1927 to 1929. In 1925, Kim Il-sung crossed the Yalu River from Korea into Manchuria with his parents at the age of 13, fleeing famine and Japanese occupation forces. He enrolled in the school in 1927 and there, under the tutelage of the Chinese historian Yan Dan, studied MarxismLeninism. Before his first year was out, Kim had joined an underground Marxist organization. The next year he led demonstrations against “reactionary” teachers, as well as anti-Japanese protests that led to his imprisonment in the autumn of 1929. After his release the following year, he went to Changchun, the capital of Jilin province, to continue his revolutionary work. He later won fame as a guerrilla fighter against the Japanese in north-eastern China. When the Japanese closed in on him in 1940, he escaped to Khabarovsk in Russia, where he enlisted in the Soviet Red Army, rising in rank to captain during World War II.
After a state banquet, he went on to Jilin to revisit his father’s alma mater, inspecting his unspoilt relics and laying a floral basket before his statue. He also paid his respects at the burial site of anti-Japanese independence fighters. As Kim walked in these “footprints of revolution”, “overcome with deep emotion”, former U.S. president Jimmy Carter was kept waiting in Pyongyang. Carter had come to North Korea on a private humanitarian mission, sanctioned by the U.S. State Department and National Security Council, to negotiate the release of an American arrested for illegally crossing over into North Korean territory. Kim’s absence from Pyongyang sent a clear message. China came first. Although official media reports in China and North Korea made no mention of it, it was widely believed that Kim’s third and youngest son, Kim Jong-un, was accompanying his father. In only a few weeks Jong-un, in his late 20s, would be elevated to a four-star general and made vice chairman of the WPK’s central millitary commission, key promotions inteneded to position him to assume the country’s leadership. China was crucial to establishing the son’s credibility as successor. A pilgrimage to Yuwen signified that Jong-un, who attended high school in Switzerland, was inheriting his grandfather’s revolutionary spirit. More importantly, though, an endorsement from North Korea’s chief ally and benefactor would be essential to cementing Jong-un’s diplomatic credentials in Pyongyang. Hu expressed Beijing’s desire to carry the two countries’ relationship “forward through generations” and assigned China’s vice president and future leader, Xi Jinping, to escort him during his visit. China, concerned over North Korea’s deepening isolation and economic degradation, sought to leverage its support for Jong-un’s succession to press Kim for change. The composition of the Chinese welcoming party was telling. There to greet Kim were China’s ministers of foreign affairs, commerce and the national development and reform commission. In exchange for giving its blessing to Jong-un, in addition to continued aid packages, it was clear that China would be asking for Kim’s cooperation on matters of regional security and economic development in the DPRK.
Kim reportedly told Hu that he hoped for an early resumption of the six-party talks on ending his country’s nuclear weapons program, which last convened in December 2008. North Korea walked away from the talks after international condemnation of a long-range rocket test, and its prospets of returning were put in question when it torpedoed a South Korean warship in March.
Kim was then taken on a wirlwind tour of Jilin and Heilongjiang provinces, visiting a chemical fiber plant, an agricultural expo, a Catholic church under construction and various food-processing and electrical utility firms. The tour showcased models of China’s economic reform and opening up. It remains to be seen what effects these inviting glimpses and preasure from the CPC will have on Pyongyang, if any. North Korea’s ministry of foreign affairs, however, has since dispatched its top negotiator to Beijing to discuss restarting the six-party talks. Systemic economic changes will necessarily take more time. They may have to wait for the era of Jongun, but very little seems to be known about him, apart from reports that as a teenager he had a penchant for basketball and James Bond films. His older brother, who has fallen out of favor with his father, now lives mainly in Beijing and Maccau and publicly decries the hereditary transfer of power taking place within a supposedly communist state.
European Chambers’ recommendations to the Seoul G20
To steer the global economy to sustainable growth while consolidating public finances and bringing forward financial sector reforms which ensure the stability and sustainability of the financial system through an international framework for reform based on a principlebased global financial supervision framework. Priority should be given to ensuring adequate financial sector capital and liquidity requirements and to developing an efficient surveillance and early warning system.
Alessandro Barberis, President of EUROCHAMBRES
business skills and training. For European Chambers, aid and trade are inextricably linked to any serious reflection around development. If well managed, trade can be a silver bullet for poverty alleviation. Aid for Trade remains the main instrument to support developing countries to expand trade and to promote growth. In order to maximise outcomes, however, the way SMEs engage with trade also requires particular attention. 3) TRADE European Chambers are convinced that international trade flows can play a crucial role in supporting the nascent global economic recovery. This recovery must be sustained by trade and investment facilitation actions and policies, bringing economic growth and jobs. European Chambers call for national governments to: Speed up the negotiations towards closing the Doha Round of multilateral trade talks. Stop now the moderate, yet persistent, trend in the introduction of trade restrictive measures, which now total almost 300 worldwide. But more importantly, to remove the ones which were introduced at the beginning of the global economic crisis. Start exploring the possibilities of harmonising the existing rules of origin of the bilateral and/or regional free trade agreements signed so far, for the benefit of businesses and especially SMEs. Include the issue of raw materials in international trade agreements.
To halt the start of exchange rates’ tensions. To achieve private sectorled growth by ensuring that businesses, particularly SMEs, have adequate and efficient access to financing, both from banks and capital markets. Employment needs to be fostered decisively through structural reforms and active labour market policies. 2) DEVELOPMENT European Chambers ask the G20 governments in general and the G20 working group on development in particular, to take into account the following: SME development and entrepreneurship are crucial areas in improving economic development and implementing government propoor policies successfully, as well as achieving the UN Millennium Development Goals (MDGs) and the gradual integration of developing economies into the global economy. That Chambers have a crucial role in improving economic performance especially by putting in practice instruments to tackle a myriad of constraints to businesses. Among others, tools aiming at stimulating transparent and effective regulatory frameworks, promoting
For the fifth consecutive time, the European Members of the ‘C20 Group’ (see separate box) have agreed on a common position for the official G20 Summit. Below are the main recommendations from European Chambers to political leaders meeting in Seoul, based on the three key items that appear on the official agenda of the Summit.
1) ECONOMICS AND FINANCE
European Chambers recognise the importance of ensuring sustainable world growth in the short-tomedium term. At the same time, they recognise that this can be only achieved by consolidating public finances, ensuring adequate financing of the real economy and bringing forward balanced financial sector reforms. As one of the main messages, European Chambers call on G20 governments: To ensure that the implementation of the new Basel III regulations is global and rules are implemented everywhere across the world, not only in Europe but also particularly in the US and Asia.
About the C20 Group As the G20 Summit has been gaining in importance as the premier forum for international economic cooperation, Chambers of Commerce from across the globe have joined their forces in late 2009 and announced the creation of the “C20” group – the business counterpart of the G20 conformed by the Chambers of Commerce of the countries belonging to the official Group of 20. The ambition of this group is to represent the views of enterprises – particularly small and medium-sized ones – from the G20 countries and make an impact on economic and financial policies discussed at G20 level. The C20 group is not a formal institution, nor focuses itself as a Secretariat for organising multiple meetings. Instead, its main goal is to support G20 leaders in elaborating solutions to restore economic stability and sustainable growth globally through the development of common positions, the exchange of opinions among the C20 Chambers, and common lobby initiatives. Alessandro Barberis, President of EUROCHAMBRES said: “As the G20 grows in importance in addressing the world’s economic challenges, it is crucial that they can rely on a ‘mirror’ business group that will provide the real economy’s perspective. We wish to establish a regular exchange of information and consultation mechanisms between the G20 and the C20, which should lead to solutions beneficial to businesses worldwide.”
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Argentina – The Argentinean Chamber of Commerce Australia – The Australian Chamber of Commerce and Industry Brazil – The National Confederation of Industry Canada – The Canadian Chamber of Commerce China – China Chamber of International Commerce – China Council for the Promotion of International Trade France – The Assembly of French Chambers of Commerce and Industry Germany – The Association of German Chambers of Industry and Commerce India – the Federation of Indian Chambers of Commerce and Industry Indonesia – The Indonesian Chamber of Commerce and Industry Italy – The Union of Italian Chambers of Commerce, Industry, Crafts and Agriculture Japan – The Japan Chamber of Commerce and Industry Mexico – Confederation of National Chambers of Commerce, Services and Tourism of Mexico Russia – Chamber of Commerce and Industry of the Russian Federation Saudi Arabia – The Council of Saudi Chambers South Africa – Business Unity South Africa South Korea – The Korea Chamber of Commerce & Industry Turkey – The Union of Chambers and Commodity Exchanges of Turkey United Kingdom – The British Chambers of Commerce United States – The US Chamber of Commerce European Union – EUROCHAMBRES
The Netherlands – The Netherlands Chamber of Commerce Spain – The High Council of Chambers of Commerce, Industry and Navigation of Spain
International Security: Why the World Needs to Engage With Iran Again
By Arash Aramesh
President Barack Obama has in many ways told the Iranian leadership that the United States is open to holding talks with Iran on important issues including Iran’s controversial nuclear program and the possibility of utilizing Iranian assistance to combat the Taliban in Afghanistan. Iran’s Supreme Leader Ali Khamenei responded on August 18 that negotiating with America was possible provided that the United States does not behave in an aggressive and hostile manner. But then came President Mahmoud Ahmadinejad’s speech at the UN General Assembly in September, calling for an investigation into possible U.S. involvement in the attacks of September 11, 2001. The West needs to ignore the empty rhetoric of Ahmadinejad and instead work on developing a long-term strategy in dealing with Iran. The first step begins by directly engaging the Iranian government. Despite the anti-American rhetoric coming from the Islamic Republic, it appears that Tehran and Washington have publicly declared willingness for talks. It is necessary to point out the many benefits that could result from such dialogue, before another opportunity is lost. First and foremost, despite what has been touted as conventional wisdom in Washington, engaging the Islamic Republic and helping the opposition are not mutually exclusive. As long as there is no dialogue with Iran, the threat of a possible military strike against Iran’s nuclear facilities looms large. With each passing day, Israel is growing more worried about Iran’s nuclear capabilities and the 5+1 permanent members of the UN Security Council have not reached groundbreaking success in a deal with Tehran. An attack by Israel, or any other country for that matter, would thwart any progress with pro-democracy, pro-peace, and pro-human rights aspirations.
opposition to a degree that would dwarf the brutality it displayed in the aftermath of the June 12 presidential election. History has already shown this to be the case. Thirty years ago, the Islamic Republic, faced with growing domestic tensions and various potent political opposition groups, was handed a most timely gift by the ruling Baath Party in Baghdad when Iraq’s Saddam Hussein invaded Iran. This provided the regime with the best opportunity to rally the crowds around the flag, decimate the opposition through execution and incarceration, and consolidate power. The first decade in the life of the Islamic Republic was defined by a war that allowed the government to resort to the most brutal measures, including the mass executions of political prisoners in summer of 1988, all in the name of retaining the power necessary to fight for victory. With the war’s end, a new era called “Reconstruction” was born during which the government of former President Akbar Hashemi-Rafsanjani focused on rebuilding a country ruined by eight years of a bloody war. Political reconstruction, however, did not commence until almost two decades after Saddam first attacked Iran. Reformist President Mohammad Khatami’s election in 1997 was viewed as the beginning of an era of political modernization. Khatami’s domestic and international supporters were quickly disillusioned, however, once they realized that long-lasting effects of the Iran-Iraq war, were still very much present in Iranian society and had a direct impact on the political equations of the Khatami era. The reform that so many had been anticipating was excruciatingly slow as the war—a war that many in the West had supported hoping Saddam would check Iran’s insurrectionary brand of Islamic revolution—had set the clock back on Iran’s political modernization for three decades. The effects of the Iran-Iraq war are still felt in Iranian society. Today, any military strike against Iran would be
Once attacked, the Islamic Republic would treat dissidents as enemies of the state and would quash the
savi and Karroubi have urged Iran’s leaders to tone down their rhetoric and minimize the possibility of an attack against Iran. It is evident that leaders of the opposition inside Iran see no benefit in a military attack; instead, they are worried about its horrendous consequences. The effectiveness of any attack is also questionable and cannot possibly justify the costs. Israeli bombings of Iran’s nuclear facilities, if successful, would at the very best slow down Iran’s enrichment efforts—not stop it. This would mean that Iran’s program would go underground and there would no longer be any international inspections whatsoever. Inside the country, no one would dare oppose the government. A large number of dissidents would not criticize the government out of a feeling of nationalism and patriotic duty and many more would simply be too afraid of the repressions to do so. The Iranian opposition would be dealt such a violent blow by the government that it would take years, if not decades, for any reasonably strong popular movement to take root again. Some might conclude that possible U.S. negotiations with Iran could legitimize the government of President Mahmoud Ahmadinejad, whose election in 2009 is highly disputed. That is certainly an undesirable outcome for the Iranian opposition. But the alternative is much more grim. Preventing a military strike against Iran promises to best serve the long-term interests of the opposition Green Movement and Iran’s pro-democracy, pro-human rights, and pro-peace movements. Arash Aramesh is researcher at The Century Foundation and InsideIRAN.org. He has published in the Diplomatic Courier magazine, the International Herald Tribune, the New York Times online and the Huffington Post, among other publications.
viewed as a great opportunity for hardliners to once and for all do away with the opposition and its leaders that have been such a thorn in the government’s side. This is one of the primary reasons that de-facto opposition leaders Mir Hossein Moussavi and Mehdi Karroubi have been so vocal in their opposition to any sort of military strikes. Although no empirical data exists, such as reliable opinion polls, regarding whether Iranians would welcome a military attack, opposition leaders have strongly expressed their views of the likely damage to their longterm goal of positive political change. Kaleme, Moussavi’s official website, wrote, “The Green Movement will react to any foreign threat while maintaining its boundaries with hardliners.” Moussavi asserted, “All of us will defend our country’s national interests very clearly.” Mous-
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Sustainability ‘From Below’ Or, Why We Shouldn’t Take Cities for Granted
By Michele Acuto
As this year’s world-wide attention for the negotiations in Copenhagen can bear witness, what might be called a “climate change agenda” has now rapidly crept to the forefront of world politics. Prompted by an increasing international interest in green themes, mostly headed to the center stage of international relations by the more and more pro-active role of transnational advocacy groups as well as by a growth in the media and even entertainment industry attentions, this agenda now lingers in much contemporary diplomacy. The concerns and debates around environmental issues that now inform much of the priorities of the key international fora have progressively become the everyday lingo of global governance, and the latest G20 summit is no exception. While much of the discussion of the Group remains focused on finance issues and the post-GFC recovery, some environmental concerns are deemed to make an appearance in-between growth and developmental considerations, whether in the more classic ‘Commitments’ or the ‘New Agenda’ side of the ministerial talks in Seoul. Yet, as the G20 might aptly demonstrate, this mounting centrality of climate change unveils a broader problématique international politics has only just recently come to grasp with: the sustainability challenge. Climate is only part of a question of endurance that calls for a pairing of environmental and developmental policies to ensure the survival of the species. In this view curbing global warming represents only a step in a multifaceted agenda targeted towards ensuring that the legacy of the present generations is one future one will be able to tell. How can we support the current exploding demographic rates, or how can we best manage the declining natural resource pools? This, in an age of urbanization where the city represents a quotidian experience for most of the world’s population, means that most of these dilemmas bring us to the unavoidable realization that global governance solutions will necessarily need to ‘go though’ the urban scale to make a significant impact on the faith of humanity. In this sense, the cities occupy a very peculiar and certainly pivotal place in contemporary global governance. To begin with, global issues are increasingly paralleled, intertwined, if not originated in urban issues–to the extent that the urban has nowadays become an almost ever-present factor in public policy. Moreover, cities are gradually demonstrating how they hold strategic
governance potential in most of these security, developmental and environmental concerns, and how they do not solely represent partners but agenda-setters in their own right. Metropolises are increasingly less “policy-takers” (as Claus Schultze put it in the case of the European Union) subjugated to the pecking order of the state, as they become more and more “policy-makers” capable of being key stakeholders in various arenas of participatory governance beyond the nation-state. As the development of transnational city-based coalitions such as the ICLEI Local Governments for Sustainability, the Climate Leadership Group or the Sister Cities International coalition can testify, cities are more and more present in international policymaking processes and major sources of lobby on international institutions. This is of course not just a feature of Westerns metropolises only, as testified by the World Mayors and Local Governments Climate Protection Agreement signed in 2007 and now gathering more than one hundred metropolises worldwide. Urban settlement have to date set up environmental cooperation forms that, in structure and competences, might match state-based institutions, thus making it hard to deny the capacity of local government representatives in undertaking foreign policy activities. However, what remains largely unscrutinized is the issue of “sustainability” per se. Few are those who would these days criticize the need for sustainable solutions, yet few are also those who look into what is being made ‘sustainable’ and for whom. This is hardly a new concern, as the 1990s calls by urbanists Peter Marcuse and Mike Davis testify, but it has thus far failed to echo down the corridors of the highest spheres of global governance. The internationalization of cities into the broader spheres of global governance is in fact not just a result of a cosmopolitan drive for the common good: along with the philosophical tenets for the growing presence of key globalizing metropolises in environmental politics, we need to take into considerations the more pragmatic and economically determinist reasons that drive most of this transnational move of City Halls at large. Hence, while much of the pressing questions of sustainability are often implicitly subsumed, in an antipodean logic, under the debate on climate change (rather than vice-versa), the necessary critical inquiry into the basis and underlying rationales of sustainability itself is lost in such erroneous translation.
This is all the more problematic because the internationalization of many metropolises is not a sociallyneutral process free from wicked consequences. The forces of globalization, coupled with the seductive attraction of urbanization and the centralization of advanced producer services in particular cities, are in this sense redefining the textures of the world’s central metropolises in a move towards novel spatial orders that, while not always consistent or affirmed in every city, are certainly producing complex patterns of spatial division. Although today’s globalizing metropolises are, as René Descartes put it, an “inventory of the possible” that open up the spaces of the global to many thanks to their transnational interconnectedness, they also constitute a controversial context of social polarization and growing inequality. The unequal socio-spatial restructurations of 21st century metropolises described by much of the contemporary urban research from David Harvey, to Saskia Sassen and Manuel Castells are not just a product of exogenous forces and purely accidental social dynamics. As this literature tells us, today’s post-industrial settlements are seeing a substantial amount of conscious splintering, which is also mutually-reinforcing as cities copy each others’ ‘best practice’ models. Inequality can in fact be the result, if not the goal, of deliberate sociospatial strategies. Sustainability initiatives are then often prompted by the need for these metropolises to compete in attracting capital, tourism and culture and thus, for instance, progressively driven by the lure of a sprawling genus of city rankings. The ‘marketization’ of city public policy and the commodification of environmental restructruration at the urban level, in this sense, only prompt further polarization and splintering and, in particular, does little to improve the oft-unequal status quo of the contemporary global system. So while on the international politics scale cities contribute to raise awareness and promote new green agendas, at the crucial everyday street level of urban policy the contradictions of the neoliberal system that leads to a call for novel governance solutions at a broader scale are perpetrated with more and more dangerous “politics via markets”–to borrow Ronnie Lipschutz’s expression. This is not to say that a focus on sustainability is the wrong way. On the contrary, there is much to gain from the ‘glocalization’ of environmental initiatives at scales below and above the state, and there is certainly much to be praised when it comes to today’s metropolitan innovative potential. Indeed, as many of the cross-national networks of localities are showing us, urban public policy can demonstrate flexibility and a governance capability that challenge the effectiveness of the machinations of traditional global governance alignments.
Nevertheless, the environmental (if not, more broadly, the political) role of cities should not go unscrutinized. To put it simply, we should not take cities for granted. ‘Cities’ are, after all, nothing but those inherently political systems that organize the urban conditions of much of humanity in manageable collective entities and, as such, they are continually in the making. Problematizing the bases, directions and long-term social consequences of sustainability initiatives, and thus taking into account issues of political participation to policy-formation mechanisms, is an imperative for practitioners and analysts at all governance levels. We should guarantee, as Australian philosopher Clive Hamilton puts it, the “democratization of survivability” at all levels, not solely the global but chiefly the everyday scale of urban affairs. Indeed, the world’s key metropolises have a pivotal role in the global governance of the environment. Our challenge, however, is not assume their active participation without verification – but to ensure the social viability of their sustainable evolution.
Investing in the Human Security of Afghanistan
By Suraya Dalil and Ashraf Haidari Photgraphy by Sebastian Rich
Much of the Afghanistan war reporting is dominated by headlines of civilian or military deaths due to armed conflict. As tragic as these deaths are, their numbers pale in comparison with the loss of lives due to other reasons such as maternal deaths and infant mortality. For example, about 2,000 international troops, mostly from the United States, have lost their
ticularly in Afghanistan with a population of vulnerable groups. Conservatively speaking, more than 60 percent of insurgents in Afghanistan are rented fighters, or “10-dollar-a-day Taliban” who, for a lack of livelihood to support their families, have been recruited by regional terrorist networks. But what do we mean by human security? Unlike protective security, human security is far more than the absence of violent conflict. It encompasses human rights, good governance and access to economic opportunity, education and health care. It is a concept that comprehensively addresses both “freedom from fear” and “freedom from want.” Even though a lack of “freedom from want” may be forcing some 60 percent of insurgents to fight for a daily pay, a whopping 80 percent of international aid resources is spent on protective security measures, or “freedom from fear.” Much of the remaining 20 percent of international aid devoted to civilian assistance bypasses the Afghan government. A multitude of parallel mechanisms sap some 80 percent of civilian aid resources, leaving the Afghan government with only 20 percent. To make matters worse, more than 15 percent of this is earmarked to be spent on donors’ projects of choice. This immense imbalance between security and development, or civilian aid versus military assistance, is partly why the Afghan government continues to remain weak. In effect, the Afghan government receives a very small amount of discretionary funding, which is not even enough to reform a Ministry. Hence, a proportionally small amount of civilian aid coupled with ineffective aid delivery mechanisms has perpetuated weak governance and incentivized petty corruption in Afghanistan’s deeply insecure human environment. Consequently, these overlooked problems continue bolstering the regional and transnational dimensions of instability in the country.
lives since 2001 in Afghanistan. About 3,000 civilians have been killed in the first six months of 2010, while about 20 Afghan policemen and soldiers die every day trying to secure the country against a brutal insurgency that is maintained outside our borders. In contrast, however, more than 50,000 Afghans die annually due to a lack of human security. Newly born babies, children under the age of five and mothers constitute the bulk of these lives that can, and must, be saved. Unfortunately, these silent deaths do not grab Afghan or international headlines. Why is this and what can be done about it? One of the key reasons has to do with the fact that defense spending continues to outstrip spending on development. In other words, protective security is often prioritized at the cost of human security, even though the two types of security are inextricably intertwined, par-
FEATURE The international response to underinvestment in development came in 2000 when world leaders adopted the Millennium Development Goals (MDGs)–a set of 8 development-related goals–to be achieved by 2015. The MDGs provide a framework for the international community to work together towards a common aim, ensuring that human security reaches everyone, everywhere. Because Afghanistan endorsed the Millennium Declaration in 2004, the deadline for reaching its country-specific goals was set at 2020. In addition, Afghanistan has set security outcome as the 9th, selfadopted MDG–a goal that impacts progress toward all other goals. Since 2004, Afghanistan has made continued progress towards its MDGs. We have been able to reduce child mortality from one in every four children to one in every six, an important achievement in MDG4. Seven million more children now attend school, marking unprecedented success toward MDG2. With one of the lowest telephone access rates in the world in 2001, the percentage of cellular subscribers had increased 21 percent of the population by 2006, well on track to reach the target of 50 percent by 2015. In spite of Afghanistan’s strong economic progress, per capita income in the country remains the lowest in the region. Only 27 percent of Afghans have access to safe drinking water, 12 percent to adequate sanitation and just 9 percent to electricity. More than 40 percent of the Afghan population remains unemployed, and more than half hovers at the brink of poverty. Another 8.5 million, or 37 percent of the people, are in the borderline of food insecurity and thus hunger. Clearly, the security picture is mixed in Afghanistan. Much has improved, but so much more needs to be done. To have a secure and prosperous Afghanistan, we must ensure that healthy Afghan mothers give birth to healthy children. Programs must shift from haphazard local projects implemented by various non-state actors to strategic national programs reaching far and wide with a long-term vision. The Basic Package of Health Services (BPHS), implemented by the Ministry of Public Health, and the National Solidarity Program (NSP), managed by the Ministry of Rural Rehabilitation and Development, are the prime examples of the Afghan government’s successful national programs that focus on the basic yet very critical needs of the rural population. The two national programs cover more than 80 percent of the population in over 25,000 villages. As a result, access to health care has increased from less than 5 percent under the Taliban to more than 80 percent now across the country. This government-led effort is saving more than 50,000 lives, mostly mothers and their children, each year. And under NSP, villagers, including women for the first time, have formed community development councils, through which they participate in designing and co-implementing projects that address their acute local needs. This past summer on July 20th in the Kabul Conference, the Afghan government presented to our nation-partners a blueprint for true partnership: the donor community must channel at least 50 percent of all aid resources through Afghan state institutions–including
the Ministry of Public Health–and must align their independent aid efforts with the priorities of the Afghanistan National Development Strategy. One of the core objectives of our Strategy is to address Afghanistan’s human security needs so that children can be better nourished, mothers have skilled assistance in childbirth, and families can have access to electricity, clean water, and education. And when more over 60% of Taliban fighters eventually see that their basic human security needs are met, they will disengage from violence and choose to lead a peaceful life in the society. Indeed, the war in Afghanistan cannot be won militarily alone. We and our partner nations must work together and mobilize our resources to invest at least 50% of all international aid and national revenues to change forever Afghanistan’s dire human security situation. The time to act is now. Dr. Suraya Dalil is Afghanistan’s Acting Minister of Public Health, and Ashraf Haidari is the Chargé d’Affaires of the Embassy of Afghanistan in Washington DC. Sebastian Rich is a Senior Contributing Photographer with the Diplomatic Courier magazine. Sebastian has been a photographer and cameraman for over 30 years. His work can be viewed at: www. sebastianrich.com.
Include Cancer: Why the Global Cancer Movement Needs the Support of the G20 Group of Nations
By Ambassador Nancy G. Brinker
Every 69 seconds a woman dies of breast cancer. The impact of this disease is not just shouldered on the women who are battling, but their families and friends who are supporting them through the treatment and palliative care process. The emotional impact of losing a wife, mother or daughter to cancer is immeasurable, but the economic impact of premature death by all cancers is measurable and it is devastating. A recent study found that twenty-five nations are losing more than 2 percent of the GDP to deaths and disability caused by cancer. These figures are only for the deaths that can be attributed directly to cancer, how many deaths each year go undetected, but are ultimately caused by cancer? Cancer is no longer a “western” or “rich” country disease; it is clearly evolving as a global problem. Cancer is the great equalizer: it affects men, women and families; it affects the rich, the poor, the young and the old; and it burdens rich countries and poor countries alike. Without comprehensive cancer control plans, the developing world is facing a disease tsunami that will overload
healthcare systems, strain national budgets, destroy local economies and devastate families. As the World Health Organization’s Goodwill Ambassador for Cancer Control, I regularly explain the importance of including cancer in the global health agenda. Not only does cancer kill more people globally than HIV/AIDS, TB and Malaria combined, we are witnessing a huge shift in the cancer burden from the developed world to middle and low income countries. By 2020, an estimated 60 percent of all new cancer cases will occur in the least developed nations, however, currently only 5 percent of global resources for cancer are spent there. With so many pressing problems on the global agenda, many will argue that fighting cancer is too complicated or too expensive. That the focus should be on cheaper and less complicated problems. They argue that countries with strained national budgets can’t afford to take on another global health issue. But the world does not have a choice. The cancer burden will con-
FEATURE Engaging Global Leaders Often global leaders and country officials are unaware of the size and scope of the cancer burden in their countries. To ensure that decision makers are well informed about the impact of cancer on their country, Komen’s Global Health Alliance has established a series of high-level roundtables designed to educate and engage decision-makers about the cancer burden in their country. The roundtables engage first ladies, health ministers, ambassadors, corporate and NGO leaders and global health experts in order to educate them about women’s cancers and encourage the development of national cancer control plans. Engaging Local Leaders The success of any global health program is adoption by the general public. Recognizing the need to engage local NGO partners and advocates, Komen has offered the Course for the Cure (CFTC) program in 10 countries with close to 900 participants trained, to date. The curriculum, which is tailored to each country’s specific needs, is based on our 30 years of experience in breast cancer education, awareness, fundraising, advocacy, and survivor support services. Graduates of the CFTC are empowered to educate their communities, fundraise for worthy causes, and work with local lawmakers. The Susan G. Komen for the Cure Global Health Alliance will continue to work with stakeholders at all levels to address the barriers to high quality screening and treatment, battling the stigma of cancer, and educating all. We will need the support and leadership of the G8, G20, and other global health organizations as we work to prevent a global cancer crisis. After all, where a woman lives should not determine whether she lives. Ambassador Nancy G. Brinker is Founder and CEO, Susan G. Komen for the Cure® and Ambassador for Cancer Control, World Health Organization, United Nations.
tinue to grow and so will the economic impact: the total economic impact of premature death attributed to cancer worldwide is estimated to be $895 billion in 2008. It will take a global movement to help prevent a cancer crisis in the developing world and this is why the attention of global organizations such as the G8 and G20 are so important. Recognizing the size and scope of the problem, Komen decided to increase its resources in the global battle against cancer. We recently launched the Susan G. Komen Global Health Alliance to manage our global efforts and develop a strategic vision for including cancer on the global health agenda. In addition to our grassroots education efforts and our global races in 11 countries that raise money for education and research programs, the Alliance has identified four major areas to focus our global efforts: Attacking the Stigma One of the most significant barriers to effective cancer control in many countries is continuing myths associated with the cause of cancer and the stigma associated with admitting one has cancer. In many countries cancer is synonymous with death, a curse bestowed because of bad behavior. Even worse, many societies see cancer as contagious. As a result, cancer patients and survivors are ostracized from their communities and often avoid addressing their cancer in order to prevent any negative stigmas to be bestowed on them or their families. For a disease like cancer, a disease that is best fought early, avoidance is one of the most debilitating courses of action, as early detection and information sharing are some of the most effective ways to battle the disease. Identifying the Information Gaps To better understand incidence and mortality rates for any one country, up-to-date current information is essential to fighting the disease head on. Many lowand middle- income countries lack cancer registries and the necessary data collection techniques needed to assess the burden accurately in order to design effective cancer control programs.
Déjà Vu? World Food Price Hikes Raise Concerns
By Daniela Carcani
Food is a basic human need and an essential ingredient to a healthy and stable society. In many countries around the world, food is less of a given, and lack thereof can cause hunger, malnutrition, and even instability and conflict. United Nations Secretary-General Ban Kimoon has stated that: “Food and nutritional security are the foundations of a decent life, a sound education and the achievement of the Millennium Development Goals.” Fear of a new global food crisis has lurked around the world’s commodity markets as prices for staples such as corn, rice and wheat recently mushroomed. This fear is not new as our memory is still fresh of the dramatic increases in world food prices during the years of 20072008, which led to a global food crisis and caused political and economic instability and social unrest in both developed and developing nations. The spiraling global food prices in 2008 were a threat to global food and nutrition security and were particularly devastating for low-income food deficit countries. The facts were staggering. According to the International Monetary Fund (IMF), global food prices increased an average of 43 percent between March 2007 and March
2008, and according to the U.S. Department of Agriculture, wheat, soybean, corn, and rice prices increased by 146 percent, 71 percent, 41 percent, and 29 percent, respectively. In 2007-2008, price hikes were affected by various supply and demand dynamics including climate-related events in grain-producing nations like droughts, floods, and environmental degradation, rising oil prices, diversions of maize to ethanol production, as well as public reactions such as hoarding which further exacerbated price volatility. Oil price increases also caused general escalations in the costs of fertilizers, food transportation, and industrial agriculture. These factors were compounded by the increasing demand for food worldwide due to a growing world population, the growth of the middle class in China and India, and a decline in agricultural investment. The demand for higher production of biofuels further exacerbated the situation. Corn ethanol production in the United States and elsewhere led to increased corn prices. So, are we in for another global food crisis?
FEATURE The current outlook with regards to price hikes is certainly not as grim as the one leading up to the 20072008 crisis. However, recent incidents have raised concerns of a replication of the 2007-2008 food crisis. Major events that are affecting grain and oilseed crops this year include the Russian fires, droughts in countries like Russia and Brazil, and heavy rain in Canada and Europe. The Financial Times reports that wheat and corn prices rose after Ukraine said it would impose export restrictions on agricultural commodities until the end of the year after. This was due to a drought this summer that ruined its cereal crop. Many of the factors that led to the 2007-2008 crisis and the incidents that have caused the current price increases are a result of unforeseen and uncontrollable forces. However, there are measures we can take to reduce the magnitude of the problem, and most importantly in assisting countries to fight hunger. Subsequent to the 2007-2008 crisis, World Bank President Robert B. Zoellick called for a “New Deal” to combat world hunger and malnutrition. This new deal would entail a combination of emergency aid and longterm efforts to improve agricultural productivity in developing countries. Zoellick’s plan called for a shift from traditional food aid to a broader framework that includes food and nutrition assistance such as cash or vouchers that can help build local food markets and farm production, and create a “Green Revolution” for Sub-Saharan Africa. Preparing for such a situation would only be to our advantage. Whether a “New Deal” for food production is the right answer will remain to be seen. However, it is this kind of thinking outside the box that could arm the international community to respond effectively to another food crisis. Daniela Carcani is a graduate student at the George Washington University. She is studying International Affairs with a focus in International Security Studies as well as International Law and Organizations. Her expertise includes WMD and nonproliferation.
Although current price increases are of concern, the situation is not alarming. However, given the current state of the global economy, another crisis of 20072008 proportions would be devastating, particularly to much of the developing world. The consequences of another crisis would have multiple effects including, humanitarian, socio-economic, developmental, political, and also security-related.
Injecting Life Into the World Economy
By Orin Levine and Ciro A. de Quadros
As the world looks to South Korea this week, there is one vital question that must be posed as G20 leaders seek solutions to inject new life into the global economy. How can we have any hope of achieving and sustaining economic growth without improving the survival rate of the next generation? And if tackling the leading killer of children is imminently achievable, will save millions of children’s lives each year and promises an impressive return on investment, isn’t there both a moral and an economic imperative to do so? The mutually reinforcing ties between improved health outcomes and economic prosperity are well documented–which is why efforts to solve the latter without a plan to improve the former are self-defeating. According to a 2004 paper published by David Bloom in World Development, a 1-year increase in life expectancy improves labor productivity by four percent. And research by Hans Rosling at the Karolinksa Institute demonstrates that decreasing child mortality offers the best hope of lifting countries out of poverty, and stabilizing population growth over the long-term. There is a disease for which prevention offers a dramatic and far-reaching opportunity for return on invest-
ment, both for individual countries and for the global economy: Pneumonia. You may be surprised to learn that pneumonia is the world’s leading killer of children, claiming a young life every 20 seconds. It kills more children annually than AIDS, malaria and measles combined. Yet it can be treated with antibiotics that cost less than US $1, and in many cases prevented entirely with a safe and effective vaccinenow available to developing countrieson an unprecedented timeline and at prices their governments can afford. Allowing young children to suffer and often die from preventable diseases such as pneumonia not only denies children a fair shot at life, but robs families of their meager earnings, and redirects community resources away from economic progress. Alternatively, investing in effective health interventions—particularly the protection afforded young children by immunization against the leading causes of death, including pneumonia—can dramatically improve the economic potential of individuals, families and communities in the developing world. And it’s easy to see why.
A sick child is unable to attend school, help with the family crops or animals, tend to household chores, or care for siblings. Her parents will divert their time and very limited income to caring for her, undertaking long journeys fortreatment, and purchasing medicines that are beyond their means. Her local health clinic will likely be overrun with children who also suffer from preventable infectious diseases. And her parents, knowing she and her siblings have a high likelihood of dying before the age of five because children dying in the developing world is a fact of life, will continue to bear children in hopes that some will survive—all of which perpetuates the same cycle, and keeping families, communities and entire countries mired in poverty. But the cycle can be broken. Brazil, for example, took lessons and momentum from its successful smallpox eradication campaign to better coordinate their broader national health efforts, take on other diseases, improve both the life expectancy and the quality of life for their citizens and ultimately grow their economy. As the world’s most powerful decision makers, world leadershave the power to prioritize efforts to wipe out the leading—and most preventable—killers of children.
Defeating pneumonia will offer a huge step toward achieving Millennium Development Goal 4—a two-thirds reduction in child mortality—and helping to remove one obstacle for countries desperately struggling to achieve economic stability. Fittingly, the G20 meeting coincides with the second annual World Pneumonia Day. There is an opportunity here for those who have the power to make financial commitments to health infrastructure to prioritize pneumonia prevention, and in doing so, realize long term health and economic development goals. There is no greater or more far-reaching return on investment than when we rededicate ourselves to every country’s most important resource: people. Orin Levine is Executive Director, International Vaccine Access Center (IVAC) at the Johns Hopkins Bloomberg School of Public Health. Ciro A. de Quadros is Executive Vice President, Sabin Vaccine Institute. The authors are Co-chairs of the Pneumococcal Awareness Council of Experts (PACE), a project of the Sabin Vaccine Institute dedicated to the prevention of pneumococcal diseases.
Social Work’s Contribution to Global Development: The Western Lens Impact on Universalism and Opportunity for Collaboration
By Ruth Gerritsen-McKane and Courtney H. McBeth
well-being. Utilizing theories of human behavior and social systems, social work intervenes at the points where people interact with their environments. Principles of human rights and social justice are fundamental to social work.” IFSW does include the following footnoted disclaimer specific to the above definition: “This international definition of the social work profession replaces the IFSW definition adopted in 1982. It is understood that social work in the 21st century is dynamic and evolving, and therefore no definition should be regarded as exhaustive.” Just as the term development as a whole is complex and changing, international social work recognizes the dynamisms that globalization brings to developing countries. Development across the globe has become a complex and increasingly important issue when considering the financial and economic crisis in developing countries. International social work, when operating through a universalism lens, is an underutilized resource and voice in the larger global development conversation. Social workers in the 21st century are afforded numerous opportunities that permit collaboration not only in their own countries, but internationally as well. Due to modern technology social workers are made aware within moments of global issues that impact humankind, particularly the issues that impact the most vulnerable among us—those who are subject to “discrimination, oppression, poverty and other forms of social injustice,” according to the National Association of Social Workers Code of Ethics. Social work as a profession is often not involved in crucial conversation and policy discussion surrounding the vital elements of development. However the awareness and attention given to the most vulnerable permits social workers to dialogue, problem solve and respond to these issues in a unique way. According to international social work organizations like the International Federation of Social Workers (IFSW) and the International Association of Schools of Social Work (IASSW), “The social work profession promotes social change, problem solving in human relationships and the empowerment and liberation of people to enhance The values voiced by both social work organizations refer to the fact that social work grew out of humanitarian and democratic ideals. However, it has been argued that the above definition comes from a Western worldview, as well as ideals steeped in Christianity, and as such can undermine the reality of universalism in social work contributing to global imbalance. Universalism is crucial to the utilization of social work as a key tenet to development. Mel Gray, a professor in the School of Social Sciences at the University of Newcastle, Australia, defined universalism as “trends within social work to find commonalities across divergent contexts such that it is possible to talk about a profession of social work with shared values and goals wherever it is practiced.”
Universalism specific to social work is not a new notion or concern. In 1951, Tashiro stated in reference to the impact of the post-World War II occupation of Japan by the United States and the effect on social work, “In social work…it is necessary to reconsider impartially, what occupation has brought, and then criticisms should be made on the matter without emotionalism or intuitionalism, but calmly, and from a broad and high point of view…I think that there may be, or must be, something international or universal in our ideas, and something that cannot be styled either American or Japanese, but world-wide and having all Humanity in view.” Universalism must be addressed when social workers are involved in collaboration on an international level. By so doing ethnocentric musings that perpetuate a one-world view of social work values, ethics and education that can lead to exclusion of thought and dialogue can be recognized and addressed. Acknowledging issues surrounding universalism and social work issues will permit a deeper understanding and ability for international collaborations and the development of international policy and programs to assist developing countries. Strengths and challenges to such collaborations can be responded to, and the end
results should further practitioners and policy makers’ relationships at multiple levels of international social work. Exchange of information regarding social work education within the international social work community will permit discussions that can address and alleviate ethnocentric attitudes thus approaching the salient issues of development with the appropriate cultural lens. This process will permit a sharing of ideas and models that honor diversity and hopefully produce a trusting environment that can facilitate honest academic and political dialogue. If such an environment can be created and maintained, social workers can influence the level of understanding (for example, understanding of issues such as globalization, genocide, oppression and poverty) of future social workers and the way those social workers practice, regardless of their country of origin, in ways never before achieved. This would thereby lend the unique perspectives, practical experience, and culturally sensitive tenants of social work as a key component in the larger conversation of international development.
Causes, Conditions and Reform of African Economic Neocolonies
By Brian Corry
Since European countries have rescinded control over African nations, a new form of colonization has taken root. “It seems that independence of former colonies has suited the interests of the industrial world for bigger profits at less cost,” said Julius Nyerere, the first president of the independent Tanzania. “Independence has made it cheaper for them to exploit us. We became neocolonies.” A large portion of the problems in Sub-Saharan Africa have been caused, either directly or indirectly, by Western governments, former colonial powers and multinational corporations. Tanzania is an example of these forces at work, and the country’s colonial heritage can be traced to both the British and the Germans. The country has had relatively high-quality leaders, but many post-colonial African states have inherited regimes riddled with corruption and oppression. Although there are several African leaders that have emerged to lead their countries to prosperity, many have been corrupted by power or have been pawns of the deposed Europeans or various multinational corporations. During the last half of the 20th century, although the African colonies were no longer under European administration, Europeans still wanted to benefits from African resources. Before leaving, some colonial powers appointed sympathetic elites who continued to siphon off Africa’s wealth to the Northern Hemisphere. Pulling out quickly without properly training the new African leadership created a situation where African leaders and their economies were dependent on Western advice and resources. This dependence created an arrangement of quasi-sovereignty that continues in various post-colonial countries, in some form, today. There was a shift from bureaucratic colonization to economic colonization. As colonial governments withdrew, multinational corporations (many of them based in the very countries which were leaving) replaced them. Economically weak nascent African states, such as Tanzania, desired investment. They gave favorable terms of taxation to these new arrivals with the hopes of greater levels of development. As reported by Third World Network Africa et al., these tax policies began to further lean in favor of multinational corporations under pressure from the World Bank to open up mining to private investors. The result of this opening of investment has been a funnel of wealth from the Global South to the North.
In Tanzania, the mining company AngloGold Ashanti exported around US$2.9 billion of gold from their mining operations there from 2002 to 2006. AngloGold Ashanti paid the Tanzanian government US$17.4 million in royalties, or 0.06 percent of revenue. The tax rates in
developed countries are many multiples of these rates. Even more disturbing is that of all the foreign mining industries operating in Tanzania; as of 2008, AngloGold Ashanti was the only company to have paid any corporate income tax in the country. This situation is not an anomaly; similar cases have been cited in Ghana, Sierra Leone and South Africa, among others. As one of the 10 poorest countries in the world, Tanzania could have expanded its social services tremendously with this foregone revenue. Tanzanian Member of Parliament Zito Kabwe stated, “If all taxes were paid, if no gold was undervalued and if there were no overdeclaration of total cost, this year we should get slightly more [in revenue from mining] than what the donors give us.” In other words, if business were conducted fairly in Tanzania, revenue from mining could replace dependence on foreign aid. The potential of a self-sufficient Tanzania can be seen in other countries that have successfully been able to manage mineral extraction tax policy. Botswana and Chile are examples of former colonies that are now in the top third of the world based on GDP per capita, in part because of effective taxation of multinational corporations operating within their borders.
Nyerere expressed the effects of decolonization and lost revenues in an interview with Ikaweba Bunting of California State University, Long Beach. When asked why Tanzania was failing he explained, “We took over a country with 85 percent of its adult population illiterate. The British ruled us for 43 years. When they left there were two trained engineers and 12 doctors.” Tanzania had been able to overcome these obstacles until they were compelled to ascribe to austerity measures set forth by the International Monetary Fund and the World Bank. Once they complied with these measures, school enrollment fell by 63 percent . Because many African leaders were poorly equipped to run their newly independent countries and because the democratic process was often immobilized by political polarization, there was a rash of African dictators and despots such as Uganda’s Idi Amin, Sudan’s Omar al-Bashir and Liberia’s Charles Taylor came to power. Although entire blame for the negative impacts of these and other African leaders cannot be placed squarely on the shoulders of former colonial powers, they certainly account for the majority of criticism lodged against them.
The inability to enact effective policies to create mutually beneficial relationships with multinational corporations is an enormous barrier to development in Tanzania. The Tanzanian situation is not unique in its problems and similar examples can be seen in Sub-Saharan Africa and other post-colonial societies throughout the world. Former colonial governments need to act responsibly by mitigating the effects of their prior acts of greed and carelessness. They can do this by creating a system that holds multinational corporations that have operations in former colonies accountable for adhering to tax policies in those countries. They can also provide training to leaders on legislating more effective taxation policies. This, in the end, will be more beneficial for the former colonizers and colonized by creating greater autonomy and independence from foreign aid through the cultivation of competent leaders.
Leader: Prime Minister Stephen Harper Geographical information: Area: 9,970,610 km2 Population: 32.6 million (2006) Annual population growth rate: 1.0% (2006) Capital: Ottawa Official languages: English and French Economic data: GDP (nominal) 2007  - Total $1,436 billion - Pro capita $43,674 - % World GDP 2.6%  GDP (PPP) 2007  - Total $ 1,270 billion - Pro capita $38,617 - % World GDP 2% Form of government: Federal parliamentary monarchy G-8s held to date: Kananaskis Summit (2002) Halifax Summit (1995) Toronto Summit (1988) Ottawa Summit (1981)
Leader: President Nicolas Sarkozy Geographical information: Area: 550,000 km2 Population: 63.0 million (2006) Annual population growth rate: 0.5% (2006) Capital: Paris Official language: French Economic data: GDP (nominal) 2007  - Total $2,593 billion - Pro capita $ 42,033 - % World GDP 4.8  GDP (PPP) 2007  - Total $ 2,068 billion - Pro capita $ 33,508 - % World GDP 3.2  Form of government: Presidential republic G-8s held to date: Evian Summit (2003) Lyon Summit (1996) Summit of the Arch (1989) Versailles Summit (1982) Rambouillet Summit (1975)
Leader: Chancellor Angela Merkel Geographical information: Area: 357,021 km2 Population: 82.3 million (2006) Annual population growth rate: -0.2% (2006) Capital: Berlin Official language: German Economic data: GDP (nominal) 2007  - Total $ 3,321 billion - Pro capita $ 40,400 - % World GDP 6.2  GDP (PPP) 2007  - Total $ 2,812 billion - Pro capita $ 34.212 - % World GDP 4.3  Form of government: Parliamentary federal republic G-8s held to date: Heiligendamm Summit (2007) Cologne Summit (1999) Munich Summit (1992) Bonn Summit (1985) Bonn Summit (1978)
Leader: Prime Minister Naoto Kan Geographical information: Area: 377,864 km2 Population: 127.7 million (2006) Annual population growth rate: -0.003% (2006) Capital: Tokyo Language: Japanese Economic data: GDP (nominal) 2007  - Total $ 4,382 billion - Pro capita $ 34,296 - % World GDP 8.0  GDP (PPP) 2007  - Total $ 4,292 billion - Pro capita $ 33,596 - % World GDP 6.6  Form of government: Parliamentary constitutional monarchy G-8s held to date: Hokkaido Toyako Summit (2008) Kyushu-Okinawa Summit (2000) Tokyo Summit (1993) Tokyo Summit (1986) Tokyo Summit (1979)
United States of Ameica
Leader: Prime Minister Silvio Berlusconi Geographical information: Area: 301,255 km2 Population: 58.3 million (2006) Annual population growth rate: 0.3% (2006) Capital: Rome Official language: Italian Economic data: GDP (nominal) 2007  - Total $ 2,105 billion - Pro capita $ 35,745 - % World GDP 3.9  GDP (PPP) 2007  - Total $ 1,787 billion - Pro capita $ 30,365 - % World GDP 2.8  Form of government: Parliamentary republic G-8s held to date: Genoa Summit (2001) Naples Summit (1994) Venice Summit (1987) Venice Summit (1980)
Leader: Prime Minister David Cameron Geographical information: Area: 244,820 km2 Population: 60.5 million (2006) Annual population growth rate: 0.5% (2006) Capital: London Official language: English Economic data: GDP (nominal) 2007  - Total $ 2,804 billion - Pro capita $ 46,098 - % World GDP 5.1  GDP (PPP) 2007  - Total $ 2,168 billion - Pro capita $ 35,634 - % World GDP 3.3  Form of government: Parliamentary constitutional monarchy G-8s held to date: Gleneagles Summit (2005) Birmingham Summit (1998) London Summit (1991) London Summit (1984) London Summit (1977)
Leader: President Barack Obama Geographical information: Area: 9,629,091 km2 Population: 299.4 million (2006) Annual population growth rate: 0.9% (2006) Capital: Washington D.C. Official language: English Economic data: GDP (nominal) 2007  - Total $ 13,808 billion - Pro capita $ 45,725 - % World GDP 25.3  GDP (PPP) 2007 - Total $ 13,808 billion - Pro capita $ 45,725 - % World GDP 21.3  Form of government: Presidential federal republic G-8s held to date: Sea Island, Georgia (2004) Denver, Colorado (1997) Houston, Texas (1990) Williamsburg, Virginia (1983)
Leader: President Dmitriy Medvedev Geographical information: Area: 17,075,200 km2 Population: 142.8 million (2006) Annual population growth rate: -0.5% (2006) Capital: Moscow Official language: Russian Economic data: GDP (nominal) 2007  - Total $ 1,290 billion - Pro capita $ 9,074 - % World GDP 2.4  GDP (PPP) 2007  - Total $ 2,090 billion - Pro capita $ 14,705 - % World GDP 3.2  Form of government: Federal Republic G-8s held to date: Saint Petersburg Summit (2006)
Argentina’s Cristina Fernández de Kirchner became president of Argentina on December 10, 2007, after winning the general election in October. She replaced herhusband, Nestor Kirchner, who was president from May 2003 to December 2007. She is Argentina’s second female president, but the first to be elected. Prior to her current position, she was a senator for Beunos Aires province and Santa Cruz province. She was 64 first elected to the Senate in 1995, and in 1997 to the Chamber of Deputies. In 2001 she won a seat in the Senate again. Born on February 19, 1954, in La Plata, Buenos Aires, she studied law at the National University of La Plata. She and her husband were married in March 1975 and have two children.
Argentina Polity Political party: Frente para la Victoria (FV)/Justicialist Party Head of State: President Cristina Fernandez de Kirchener Most recent election: 28 Oct 2007 Government: Lower House — Majority; Upper House — Majority Political system: Presidential Legislature: Bicameral, elected Chamber of Deputies, elected Senate Capital: Buenos Aires Official language: Spanish Economy Currency: Peso (P) GDP (official exchange rate): $324.8 billion (2008 est.) Predicted change: -2.5% (2009); 1.5% (2010) Composition by sector: 9.2%-agriculture; 34.1%-industry; 56.7%-services (2008 est.) Central Bank interest rate: NA Official reserve assets: $48,908.23 million (Oct. 2009) Foreign currency reserves: $43,752.38 (Oct. 2009) [in convertible foreign currencies] Securities: $5,116.79 million (Oct. 2009) IMF reserve position: $0.31 million (Oct. 2009) 69 Special Drawing Rights: $ 3,216.86 million (Oct. 2009) Gold: $1,829.02 million (Oct. 2009) [including gold deposits and, if appropriate, gold swapped] Financial derivatives: $ -54.47 million (Oct. 2009) Loans to nonbank residents: $130.66 million (Oct. 2009) Other reserve assets: $33.48 million (Oct. 2009) (IMF Commercial Bank prime lending rate: 28.00% (2009, 28 Nov. 2008) Stock of money: $33.93 billion (31 Dec. 2007)
Stock of quasi money: $45.92 billion (31 Dec. 2007) Stock of domestic credit: $72.55 billion (31 Dec. 2007) Household income or consumption by % share: 1.0%-lowest 10%; 35.0%-highest 10% (Jan.-Mar. 2007) Inflation rate (consumer prices): 22.0% (2008 est.) [based on nonofficial estimates] Investment (gross fixed): 23.2% of GDP (2008 est.) Current account balance: $7.6 billion (latest year, Q4 2008) Budget: $86.65 billion-revenues; $82.85 billion-expenditures (2008 est.) Budget balance: -0.8% of GDP (2009 forecast) Public debt: 48.5% of GDP (Q4 2008) [cumulative debt of all government borrowing] Exchange rates (per USD): 3.70 (6 May 2009); 3.18 (6 May 2008) Economic aid-recipient: $99.66 million (2005) Debt-external: $135.5 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $69.1 billion-at home; $26.81 billion-abroad (2008 est.) Market value of publicly traded shares: $52.31 billion (31 Dec. 2008) Distribution of family income-Gini index: 49.0 (Jan-Mar. 2007) Unemployment rate: 7.8% (Sep. 2008) Labour force: 16.27 million (2008 est.) [urban areas only] 38th (world rank, 2008) Oil Production: 29th (world rank, 2008) Oil Consumption: 21st (world rank, 2008) Natural Gas Production: 18th (world rank, 2008) Natural Gas Consumption: Military 1.3% of GDP; 120th in world rank (2005) Military Expenditures: Markets MERV index: 2,352.760 (10 Jan 2010) % change on 31 Dec. 2008: +30.6 (local currency); +21.8 ($ terms) Trade balance: $13.6 billion (last 12 months, May. 2009) Trade to GDP ratio: 45.2 (2006-2008) Exports: $70.02 billion f.o.b. (2008 est.) Top export partners: Brazil (18.9%); E.U. (18.8%); China (9.1%); United States (7.9%); Chile (6.7%) (2008) Imports: $54.56 billion f.o.b. (2008 est.) Top import partners: Brazil (31.3%); EU (15.7%); China (12.4%); U.S. (12.2%); Paraguay (3.1%) (2008)
China’s Hu Jintao has been president of the People’s Republic of China since March 15, 2003. He replaced Jiang Zemin, who had held the position since 1989. Hu also serves as general secretary of the Communist Party of China’s (CPC) Central Committee and chair of the Central Military Commission. Before entering into politics he worked as an engineer. He joined the CPC in April 1964, and began working with the party in 1968. In 1992, he was elected to the Standing Committee of the Political Bureau of the CPC Central Committee and re-elected in 1997. He became vice-president of China in March 1998 and vice-chair of the Central Military Commission in 1999. In November 2002, Hu was elected general secretary of the CPC Central Committee. He was born in Jiangyan, Jiangsu, on December 21, 1942. In 1965 he received his engineering degree from Tsinghua University. He is married to Lui Yongqing and they have two children.
Political party: Communist Party of China Most recent election: 15 Mar 2008 Government: Single House — Majority Political system: Presidential Legislature: Unicameral, elected National Congress Capital: Beijing Official language: Mandarin Currency: Yuan (¥) GDP (real): $4. 327 trillion (2008 est.) Predicted change: 6.1% (Q1 2009); 6.5% (2009) Composition by sector: 11.3%-agriculture; 48.6%-industry; 40.1%-services (2008 est.) Central Bank interest rate: 5.31% (22 Dec. 2008) Official reserve assets: NA Foreign currency reserves: 1, 953.7 billion (Mar. 2009) Securities: NA IMF reserve position: $1,286.78 million (Feb. 2009) Special Drawing Rights: NA Gold: $14,969.06 million (Nov. 2007) Financial derivatives: NA Loans to nonbank residents: NA Other reserve assets: NA Commercial Bank prime lending rate: 5.31% (31 Dec. 2008) Stock of money: $2.434 trillion (31 Dec. 2008) Stock of quasi money: $4.523 trillion (31 Dec. 2008) Stock of domestic credit: $4.653 trillion (31 Dec. 2008) Household income or consumption by % share: 1.6%-lowest 10%; 34.9%-highest 10% (2004) Inflation rate (consumer prices): 6.0% (2008 est.) Investment (gross fixed): 40.2% of GDP (2008 est.) Current account balance: $400.7 billion (latest year, Q2 2008) Budget: $847.8 billion-revenues; $861.6 billion-expenditures (2008 est.) Budget balance: -3.5% of GDP (2009) Public debt: 15.7% of GDP (2008 est.) [cumulative debt of all government borrowing] 75 Exchange rates (per USD): 6.82 (May 2009); 6.99 (Mar. 2008) Economic aid-recipient: $1.331 billion (2007) [ODA] Debt-external: $420.8 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $758.9 billion-at home (2007 est.); $149.33 billion-abroad (2008 est.) Market value of publicly traded shares: $2.794 trillion (31 Dec. 2008) Distribution of family income-Gini index: 47.0 (2007) Unemployment rate: 4.0% (2008 est.) Labour force: 807.3 million (2008 est.) 5th (world rank, 2008) Oil Production: 3rd (world rank, 2008) Oil Consumption: 11th (world rank, 2008) Natural Gas Production: 12th (world rank, 2008) Natural Gas Consumption: Military 4.3% of GDP; 25th in world rank (2006) Military Expenditures: Markets SSEA index: 3,397.15 (10 Jan. 2010) % change on 31 Dec. 2008: +42.3 (local currency); +42.4 ($ terms) SSEB index ($ terms): 255.75 (10 Jan. 2010) % change on 31 Dec. 2008: +52.0 (local currency); +52.0 ($ terms) Trade balance: $316.9 billion (latest year, Mar. 2009) Trade to GDP ratio: 73.4 (2006-2008) Exports: $1.435 trillion (2008 est.) Top export partners: E.U. (20.5%); U.S. (17.7%); Hong Kong, China (13.4%); Japan (8.4%); Japan (8.1%); South Korea (5.2%) (2008) Imports: $1.074 trillion (2008 est.) Top import partners: Japan (13.3%); E.U. (11.7%); South Korea (9.9%); Taipei, Chinese (9.1%); China (8.2%) (2008)
Brazil’s Luiz Inácio Lula da Silva first assumed the office of the president on January 1, 2003, after being successfully elected in October 2002. He was re-elected in October 2006, extending his term until January 2011. “Lula” first ran for office in 1982 in the state of Sao Paulo, but it was not until 1986 that he was first elected to congress. He did not run for reelection in 1990. Instead, he became more involved in the Workers’ Party, where he continued to run for the office of the president. He was born in Caetés, Pernambuco, Brazil, on October 27, 1945. He received no formal education and began working in a copper pressing factory at the age of 14. He became heavily involved in the workers unions at a young age. He is married to Marisa Letícia and has five children.
Political party: Workers’ Party (PT) Head of State: President Luiz Lula de Silva Most recent election: tenacious 29 Oct 2006 Government: Lower House — Minority; Upper House — Minority Political system: Presidential Legislature: Bicameral, elected Chamber of Deputies, elected Senate Capital: Brasilia Official language: Portuguese Economy Currency: Real (R) GDP (official exchange rate): $1.573 trillion (2008 est.) Predicted change: -13.6% (Q1 2009); -1.5% (2009) Composition by sector: 6.7%-agriculture; 28%-industry; 65.3%-services (2008 est.) Central Bank interest rate: 10.25% (29 Apr. 2009) Official reserve assets: $231,122.62 million (Oct. 2009) Foreign currency reserves: $220,508.37 million (Oct. 2009) [in convertible foreign currencies] Securities: $211,853.59 million (Oct. 2009) IMF reserve position: $645.14 million (Oct. 2009) Special Drawing Rights: $4,590.38 million (Oct. 2009) Gold: $1,123.69 million (Oct. 2009) [including gold deposits and, if appropriate, gold swapped Financial derivatives: $1.12 million (Oct. 2009) Loans to nonbank residents: $65.55 million (Oct. 2009) Other reserve assets: $4,188.38 million (Oct. 2009) Commercial Bank prime lending rate: 47.25% (31 Dec. 2008)
72 Stock of money: $95.03 billion (31 Dec. 2008) Stock of quasi money: $724.5 billion (31 Dec. 2008) Stock of domestic credit: $1.249 trillion (31 Dec. 2008) Household income or consumption by % share: 0.9%-lowest 10%; 44.8%-highest 10% (2004) Inflation rate (consumer prices): 5.7% (2008 est.) Investment (gross fixed): 19% of GDP (2008 est.) Current account balance: $-23.0 billion (latest year, Mar. 2009) Budget: NA Budget balance: -2.0% of GDP (2009 est.) Public debt: 38.8% of GDP (2008 est.) Exchange rates (per USD): 2.12 (6 May 2009); 1.67 (6 May 2008) Economic aid-recipient: $191.9 million (2005) Debt-external: $262.9 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $294 billion-at home; $127.5 billion-abroad (2008 est.) Market value of publicly traded shares: $589.4 billion (31 Dec. 2008) Distribution of family income-Gini index: 56.7 (2005) Unemployment rate: 8.5% (Feb. 2008) Labour force: 100.9 million (2008 est.) Military 2.6% of GDP; 62nd in world rank (2006) Military Expenditures: Markets BVSP index: 70,262.7031 (10 Jan. 2010) % change on 31 Dec. 2008: +37.1 (local currency); +50.7 ($ terms) Trade balance: $27.0 billion (latest year, Apr. 2009) Trade to GDP ratio: 26.2 (2006-2008) Exports: $197.9 billion f.o.b. (2008 est.) Top export partners: E.U. (23.5%); U.S. (14%); Argentina (8.9%); China (8.3%); Japan (3.1%) (2008) Imports: $173.1 billion f.o.b. (2008 est.) Top import partners: E,U, (20.9%); U.S. (14.9%); China (11.6%); Argentina (7.7%); Japan (3.9%); (2008) 13th (world rank, 2008) Oil Production: 8th (world rank, 2008) Oil Consumption: 39st (world rank, 2008) Natural Gas Production: 32nd (world rank, 2008) Natural Gas Consumption:
Australia’s Julia Gillard became prime minister of Australia on June 24, 2010, replacing Kevin Rudd, who had held the position since 2007. Before entering into politics, Gillard worked as a lawyer. From 1996 to 1998, she served as chief of staff to Victorian opposition leader John Brumby. Gillard was first elected as a member of the House of Representatives in 1998. Since then she has served in various positions including shadow minister for population and immigration, shadow minister for health and deputy leader of the opposition. From 2007 to 2010, Gillard served as deputy prime minister. She was born in Barry, Vale of Glamorgan, Wales, on September 29, 1961. She moved to Australia in 1966. She earned a bachelor of arts and bachelor of law in 1986 from the Uiversity of Melbourne. She lives with her partner, Tim Mathieson.
Political party: Australian Labour Party Head of State: Prime Minister Kevin Rudd Most recent election: 24 Nov 2007 Government: Lower House — Majority; Upper House — Minority Political system: Parliamentary Legislature: Bicameral, elected House of Representatives, elected Senate Capital: Canberra Official language: English Economy Currency: Australian dollar (A$) GDP (official exchange rate): $1.013 trillion (2008 est.) Predicted change: -2.1% (Q1 2009); -0.7% (2009) Composition by sector: 2.5%-agriculture; 26.4%-industry; 71.1%-services (2008 est.) Central Bank interest rate: 3.00% (7 Apr. 2009) Official reserve assets: $44,768.56 million (Oct. 2009) Foreign currency reserves: $39,912.34 (Oct. 2009) [in convertible foreign currencies] Securities: $34,500.12 million (Oct. 2009) IMF reserve position: $1,143.96 million (Oct. 2009) Special Drawing Rights: $ 4,680.67 million (Oct. 2009) Gold: $2,661.04 million (Oct. 2009) [including gold deposits and, if appropriate, gold swapped] Financial derivatives: $ -0.66 million (Oct. 2009) Loans to nonbank residents: $0.00 (Oct. 2009) Other reserve assets: $371.20 million (Oct. 2009) Commercial Bank prime lending rate: 8.91% (31 Dec. 2008) Stock of money: $298.5 billion (31 Dec. 2007) Stock of quasi money: $667.2 billion (31 Dec. 2007) Stock of domestic credit: $1.312 trillion (31 Dec. 2007) Household income or consumption by % share: 0.9%-lowest 10%; 38.2%-highest 10% (2004) Inflation rate (consumer prices): 4.4% (2008 est.) Investment (gross fixed): 27.6% of GDP (2008 est.) Current account balance: $-44.1 billion (latest year, Q4 2008) Budget: $350.3 billion-revenues; $332.4 billion-expenditures (2008 est.) Budget balance: -3.3% of GDP (2009) Public debt: 14.7% of GDP (2008 est.) Exchange rates (per USD): 1.34 (6 May. 2009); 1.06 (6 May. 2008) Economic aid-donor: $2.9899 billion (2006-2007 expected) [ODA] Debt-external: $799.8 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $366.5 billion-at home; $197.2 billion-abroad (2008 est.) Market value of publicly traded shares: $1.298 trillion (31 Dec. 2007) Distribution of family income-Gini index: 30.5 (2006) Unemployment rate: 4.2% (Dec. 2008) Labour force: 11.25 million (2008 est.) 71 30th (world rank, 2008) Oil Production: 21st (world rank, 2008) Oil Consumption: 20th (world rank, 2008) Natural Gas Production: 26th (world rank, 2008) Natural Gas Consumption: Military 2.4% of GDP; 69th in world rank (2006) Military Expenditures: Markets All Ord. index: 4,981.400 (10 Jan. 2010) % change on 31 Dec. 2008: +4.9 (local currency); +11.2 ($ terms) Trade balance: $+5.2 billion (latest year, Mar. 2009) Trade to GDP ratio: 46.1(2006-2008) Exports: $189.9 billion (2008 est.) Top export partners: Japan (22.8%); China (14.6%); E.U. (10.5%); Korea, Republic of (8.3%); India (6.1%) (2008) Imports: $194.2 billion (2008 est.) Top import partners: E.U (21%); China (15.6%); U.S. (12%); Japan (9%); Singapore (7.2%) (2008)
South Africa’s Jacob Zuma became president of South Africa on May 9, 2009, succeeding Petrus Kgalema Motlanthe, who had held the position since September 2008. Zuma joined the ANC in 1958 and started serving in the National Executive committee of the African National Congress (ANC) in 1977. In 1994, Zuma was elected National Chair of the ANC and chair of the ANC in KwaZulu-Natal. He was re-elected to the latter position in 1996 and selected as the deputy president of the ANC in December 1997. Zuma was appointed executive deputy president of South Africa in 1999. He held that position until 2005 and was elected ANC president at the end of 2007. He was born April 12, 1949, in Inkandla, KwaZulu-Natal Province. He has three wives and several children. Political party: African National Congress Chief of State: President Jacob Zuma Head of State: President Jacob Zuma Most recent election: 22 Apr 2009 Government: Lower House — Majority; Upper House — Majority Political system: Parliamentary Legislature: Bicameral, elected National Assembly, elected National Council of Provinces Capital: Pretoria Official language: Afrikaans, English 49,052,489; country comparison to the world: 24th (July 2009 est.) Population: 0.281%; country comparison to the world: 173rd (2009 est.) Population Growth Rate: NA Economy Currency: Rand (R) GDP (official exchange rate): $276.8 billion (2008 est.) Predicted change: 1.0% (Q4 2008); -1.8% (2009) 89 Composition by sector: 3.3%-agriculture; 33.7%-industry; 63.0%-services (2008 est.) Central Bank interest rate: 7.0% (7 Jan. 2009) Official reserve assets: $39,789.00 million (Oct. 2009) Foreign currency reserves: $32, 764.00 million (Oct. 2009) [in convertible foreign currencies] Securities: $1,518.00 million (Oct. 2009) IMF reserve position: $0.00 (Oct. 2009) Special Drawing Rights: $2,838.20 million (Oct. 2009) Gold: $4,186.90 million (Oct. 2009) [including gold deposits and, if appropriate, gold swapped] Financial derivatives: $0.00 (Oct. 2009) Loans to nonbank residents: $0.00 (Oct. 2009) Other reserve assets: $0.00 (Oct. 2009) Commercial Bank prime lending rate: 15.13% (31 Dec. 2008) Stock of money: $44.66 billion (31 Dec. 2008) Stock of quasi money: $124.1 billion (31 Dec. 2008) Stock of domestic credit: $214.8 billion (31 Dec. 2008) Household income or consumption by % share: 1.3%-lowest 10%; 44.7%-highest 10% (2000) Inflation rate (consumer prices): 11.3% (2008 est.) Investment (gross fixed): 23.2% of GDP (2008 est.) Current account balance: $-12.0.0 billion (latest year, Q3 2009) Budget: $77.43 billion-revenues; $79.9 billion-expenditures (2008 est.) Budget balance: -5.0% of GDP (2009) Public debt: 31.6% of GDP (2008 est.) [cumulative debt of all government borrowing] Exchange rates (per USD): 7.33 (7 Jan 2010); 8.47 (May 2009); 7.52 (May 2008) Economic aid-recipient: $597.18 million (2007) Debt-external: $71.81 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $120 billion-at home; $63.57 billion-abroad (31 Dec. 2008 est.) Market value of publicly traded shares: $491.3 billion (31 Dec. 2008) Distribution of family income-Gini index: 65.0 (2005) Unemployment rate: 24.5% (Sept 2009) Labour force: 17.79 million (2008 est.) [economically active] 41st (world rank, 2008) Oil Production: 30th (world rank, 2008) Oil Consumption: 53rd (world rank, 2008) Natural Gas Production: 54th (world rank, 2008) Natural Gas Consumption: Military 1.7% of GDP; 98th world rank (2006) Military Expenditure: Markets JSE AS index: 27,998.87 (6 Jan. 2010) % change on 31 Dec. 2008: +1.3 (local currency); -10.6 ($ terms) Trade balance: $-2.5 billion (latest year, Nov. 2009) Trade to GDP ratio: 62.1 (2005-2007) Exports: $86.12 billion f.o.b. (2008 est.) Top export partners: U.S. (11.1%); Japan (11.1%); Germany (8.0%); UK (6.8%); China (6.%); Netherlands (5.2%) (2008) 90 Imports: $90.57 billion f.o.b. (2008 est.) Top import partners: Germany (11.2%); China (11.1%); U.S. (7.9%); Saudi Arabia (6.2%); Japan (5.5%); UK (4.0%) (2008)
India’s Manmohan Singh was re-elected prime minister of India in May 2009. He was first elected in 2004 when he replaced Atal Bihari Vajpayee. Before entering into politics, Singh worked as an economist, including for the International Monetary Fund. He was governor of the Reserve Bank of India from 1982 to 1985. Singh was first elected to the upper house of Indian parliament in 1995. He was re-elected in 2001 and 2007 and held cabinet positions including minister of finance and minister for external affairs. Singh also served as minister of finance from November 2008 to January 2009. He was born in Gah, Punjab (now known as Chakwal district, Pakistan), on September 26, 1932. He received his bachelor’s and master’s degrees from Punjab University in 1952 and 1954. He also received an additional undergraduate degree from Cambridge University in 1957 and a PhD from Oxford University in 1962. He and his wife, Gursharan Kaur, have three children.
Political party: Indian National Congress Head of Government: Prime Minister Manmohan Singh Most recent election: July 2007 Government:Lower House — Majority (coalition); Upper House — Majority Political system: Parliamentary Legislature: Bicameral, elected Assembly, indirectly elected Council of States Capital: Delhi Official language: Hindi Economy Currency: Indian rupee (Rs) GDP (official exchange rate): $1.207 trillion (2008 est.) Predicted change: 5.3% (Q4 2008); 5.0% (2009) Composition by sector: 17.2%-agriculture; 29.1%-industry; 53.7%-services (2008 est.) Central Bank interest rate: 4.75% (21 Apr. 2009) Official reserve assets: $284,391.00 million (Oct. 2009) Foreign currency reserves: $266,768.00 million (Oct. 2009) [in convertible foreign currencies] Securities: $150,662.00 million (Oct. 2009) IMF reserve position: $1,581.00 million (Oct. 2009) Special Drawing Rights $5,242.00 (Oct. 2009) Gold: $10,800.00 million (Oct. 2009) [including gold deposits and, if appropriate, gold swapped] Financial derivatives: $0.00 (Oct. 2009) Loans to nonbank 79 residents: $0.00 (Oct. 2009) Other reserve assets: $0.00 (Oct. 2009) Commercial Bank prime lending rate: 8.5% (31 Jan. 2009) Stock of money: $250.9 billion (31 Dec. 2007) Stock of quasi money: $647.3 billion (31 Dec. 2007) Stock of domestic credit: $769.3 billion (31 Dec. 2007) Household income or consumption by % share: 3.6%-lowest 10%; 31.1%-highest 10% (2004) Inflation rate (consumer prices): 7.8% (2008 est.) Investment (gross fixed): 39% of GDP (2008 est.) Current account balance: $-37.5 billion (latest year, Q4 2008) Budget: $126.7 billion-revenues; $202.6 billion-expenditures (2008 est.) Budget balance: -7.7% of GDP (2009) Public debt: 78.0% of GDP (2008 est.) [cumulative debt of all government borrowing] Exchange rates (per USD): 49.6 (7 May 2009); 41.4 (May. 2008) Economic aid-recipient: $903.19 million (2007) Debt-external: $229.3 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $144.2 billion-at home; $61.77 billion-abroad (2008 est.) Market value of publicly traded shares: $650 billion (31 Dec. 2008) Distribution of family income-Gini index: 36.8 (2004) Unemployment rate: 9.1% (2008 est.) Labour force: 523.5 million (2008 est.) 23rd (world rank, 2008) Oil Production: 5th (world rank, 2008) Oil Consumption: 26st (world rank, 2008) Natural Gas Production: 19th (world rank, 2008) Natural Gas Consumption: Military 2.5% of GDP; 66th in world rank (2006) Military Expenditures: Markets BSE index: 17,672.09 (6 May 2010) % change on 31 Dec. 2008: +23.9 (local currency); +21.7 ($ terms) Trade Trade balance: $-109.0 billion (latest year, Mar. 2009) Trade to GDP ratio: 47.6 (2006-2008) Exports: $187.9 billion (2008 est.) Top export partners: E.U. (21.6%); U.S. (11.8%); UAE (10.5%); China (5.6%); Singapore (4.9%) (2008) Imports: $315.1 billion (2008 est.) Top import partners: E.U. (13.9%); China (10.0%); U.S. (7.8%); Saudi Arabia (7.3%); UAE (6.2%) (2008)
Indonesia’s Susilo Bambang Yudhoyono re-elected president in July 2008. He first became president on October 20, 2004, after winning the election in September, replacing the incumbent Megawato Sukarnoputri. Before entering into politics, he served as a lecturer and a military general. His first experience in politics came when he was appointed minister of mines and energy in 1999. He later served as co-ordinating minister for politics and security. He was born on September 9, 1949, in Pacitan, East Java. He received his doctorate in agricultural economics from the Bogor Institute of Agriculture in 2004. He and his wife, Kristiani Herawati, have two children.
Political party: Democratic Party 80 Head of Government: President Susilo Bambang Yudhoyono Most recent election: 8 July 2009 Government: Lower House — Minority; Upper House — Political system: Presidential Legislature: Bicameral, elected House of People’s Representatives, elected House of Regional Representatives Capital: Jakarta Official language: Indonesian Economy Currency: Rupiah (Rp) GDP (official exchange rate): $511.8 billion (2008 est.) Predicted change: 5.2% (Q4 2008); -1.4% (2009) Composition by sector: 13.5%-agriculture; 45.6%-industry; 40.8%-services (2008 est.) Central Bank interest rate: 7.25% (May 2009) Official reserve assets: $64,528.45 million (Oct. 2009) Foreign currency reserves: $58,862.90 million (Oct. 2009) [in convertible foreign currencies] Securities: $57,439.61 million (Oct. 2009) IMF reserve position: $230.90 (Oct. 2009) Special Drawing Rights: $2,797.78 million (Oct. 2009) Gold: $2,442.10 million (Oct. 2009) [including gold deposits and, if appropriate, gold swapped] Financial derivatives: $0.00 (Oct. 2009) Loans to nonbank residents: $0.00 (Oct. 2009) Other reserve assets: $194.77 million (Oct. 2009) Commercial Bank prime lending rate: 13.6% (31 Dec. 2008) Stock of money: $41.71 billion (31 Dec. 2008) Stock of quasi money: $131.5 billion (31 Dec. 2008) Stock of domestic credit: $166.2 billion (31 Dec. 2008) Household income or consumption by % share: 3.0%-lowest 10%; 32.3%-highest 10% (2006) Inflation rate (consumer prices): 11.1% (2008 est.) Investment (gross fixed): 23.6% of GDP (2008 est.) Current account balance: $7.3 billion (latest year, Mar 2009) Budget: $92.62 billion-revenues; $98.88 billion-expenditures (2008 est.) Budget balance: -2.9% of GDP (2009) Public debt: 29.3% of GDP (2008 est.) [cumulative debt of all government borrowing] Exchange rates (per USD): 10,410.0 (6 May 2009); 9,225.0 (May. 2008) Economic aid-recipient: $362.09 million (2007 est.) [ODA] Debt-external: $143.5 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $63.46 billion-at home; $4.277 billion-abroad (2008 est.) Market value of publicly traded shares: $98.76 billion (31 Dec. 2008) Distribution of family income-Gini index: 39.4 (2005) Unemployment rate: 8.4% (Aug. 2008) Labour force: 112.0 million (2008 est.) 22nd (world rank, 2008) Oil Production: 17th (world rank, 2008) Oil Consumption: 13th (world rank, 2008) Natural Gas Production: Natural Gas Consumption: 24th (world rank, 2008) 81 Military 3% of GDP; 50th in world rank (2005) Military Expenditures: Markets JSX index: 2,645.79 (10 Jan. 2010) % change on 31 Dec. 2008: +32.7 (local currency); +38.9 ($ terms) Trade Trade balance: $7.3 billion (latest year, Mar. 2009) Trade to GDP ratio: 60.4 (2005-2007) Exports: $139.3 billion f.o.b. (2008 est.) Top export partners: Japan (20.2%); E.U. (11.3%); U.S. (9.5%); Singapore (9.4%); China (8.5%); (2008) Imports: $116 billion f.o.b. (2008 est.) Top import partners: Singapore (16.9%); China (11.8%); Japan (11.7%); E.U. (8.2%); Malaysia (6.9%); (2008)
Saudi Arabia’s King Abdullah bin Adbul Aziz Al Saud has been in power since August 2005. He replaced Fahd bin Abdul Aziz Al Saud, who had reigned since June 1982. As crown prince since 1987, King Abdullah had previously acted as de facto regent and thus ruler since January 1, 1996, after Fahd had been debilitated by a stroke. He was formally enthroned on August 3, 2005. He also serves as prime minister of Saudi Arabia and commander of the National Guard. King Abdullah is chair of the supreme economic 67 council, president of the High Council for Petroleum and Minerals, president of the King Abdulaziz Centre for National Dialogue, chair of the Council of Civil Service and head of the Military Service Council. He was born August 1, 1924, in Riyadh and has a number of wives and children.
Political party: None Chief of State: King and Prime Minister Abdallah bin Abd al-Aziz Al Saud Head of State: King and Prime Minister Abdallah bin Abd al-Aziz Al Saud Most recent election: None Government: None Political system: Absolute monarchy Legislature: Monarchy Capital: Riyadh Official language: Arabic 28,686,633; country comparison to the world: 41st (July 2009 est.) Population: 1.848%; country comparison to the world: 69th (2009 est.) Population Growth Rate: NA Economy Currency: Riyal (SR) GDP (official exchange rate ): $469.4 billion (2008 est.) Predicted change: 4.2% (2008); -1.0% (2009) Composition by sector: 3.1%-agriculture; 61.9%-industry; 35.0%-services (2008 est.) Central Bank interest rate: NA Official reserve assets: NA Foreign currency reserves: NA Securities: NA IMF reserve position: SDR 1,136.61 million (Feb. 2009) Special Drawing Rights: NA Gold: NA Financial derivatives: NA Loans to nonbank residents: NA Other reserve assets: NA Commercial Bank prime lending rate: NA Stock of money: $113.2 billion (31 Dec. 2008) Stock of quasi money: $134.3 billion (31 Dec. 2008) Stock of domestic credit: $66.94 billion (31 Dec. 2007) Household income or consumption by % share: NA Inflation rate (consumer prices): 9.9% (2008 est.) Investment (gross fixed): 19.4% of GDP (2008 est.) Current account balance: $134.0 billion (2008 est.) Budget: $293.7 billion-revenues; $136.0 billion-expenditures (2008 est.) Budget balance: -0.9% of GDP (2009) Public debt: 18.9% of GDP (2008 est.) [cumulative debt of all government borrowing] 88 Exchange rates (per USD): 3.75 (May 2009); 3.75 (May 2008) Economic aid: NA Debt-external: $82.13 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $108.5 billion – at home; 18.07 billion – abroad (31 Dec. 2008 est.) Market value of publicly traded shares: $246.3 billion (31 December 2008) Distribution of family income-Gini index: NA Unemployment rate: 8.8 (local bank estimate 2008; other estimates vary significantly) Labour force: 6.74 million (2008 est.) [about 1/3 of the population aged 15-64 is non- national] 1st (world rank, 2008) Oil Production: 9th (world rank, 2008) Oil Consumption: 9th (world rank, 2008) Natural Gas Production: 11th (world rank, 2008) Natural Gas Consumption: Military 10% of GDP; 3rd in world rank (2005) Military Expenditures: Markets Tadawul index: 6,260.90 (6 Jan 2010) % change on 31 Dec. 2008: +20.8 (local currency); +20.9 ($ terms) Trade Trade balance: $212.0 billion (latest year, 2008) Trade to GDP ratio: 86.7 (2005-2007) Exports: $313.4 billion f.o.b. (2008 est.) Top export partners: U.S. (17.1%); Japan (15.2%); South Korea (10.1%); China (9.3%); India (7%); Singapore (4.4%) (2008) Imports: $108.3 billion f.o.b. (2008 est.) Top import partners: U.S. (12.2%); China (10.5%); Japan (7.7%); Germany (7.4%); South Korea (5.1%); Italy (4.8%); India (4.2%); UK (4.1%) (2008)
Mexico’s Felipe Calderón Hinojosa became president of Mexico on December 1, 2006, replacing Vicente Fox, who held the position from 2000 to 2006. In his early twenties Calderón was president of the youth movement of the National Action Party. He later served as a local representative in the legislative assembly in the federal chamber of deputies. In 1995 he ran for governor of Michaocán. He served as secretary of energy from 2003 to 2004. Born in Morelia, Michoacán, on August 18, 1962, he received his bachelor’s degree in law from Escuela Libre de Derecho in Mexico City. He later received a master’s degree in economics from the Instituto Tecnológico Autónomo de México as well as a master’s degree in public administration from Harvard University. He and his wife, Margarita Zavala, have three children.
Political party: National Action Party Chief of State: President Felipe Calderon Head of Government: President Felipe Calderon Most recent election: 2 Jul 2006 Government: Lower House — Minority; Upper House — Minority Political system: Federal Republic Legislature: Bicameral, elected Federal Chamber of Deputies, elected Senate Capital: Mexico City Official language: Spanish 111,211,789; country comparison to the world: 11th (July 2009 est.) Population: 1.13%; country comparison to the world: 120th (2009 est.) Population Growth Rate: Economy Currency: Mexican peso (PS) GDP (official exchange rate ): $1.088 trillion (2008 est.) Predicted change: -1.6% (Q4 2008); -4.4% (2009) Composition by sector: 3.8%-agriculture; 35.2%-industry; 61%-services (2008 est.) Central Bank interest rate: 6.0% (Apr. 2009) Official reserve assets: NA Foreign currency reserves: $88,867 million (Mar. 2009) Securities: NA IMF reserve position: SDR503.06 million (Apr. 2009) Special Drawing Rights: $496 million (Mar. 2009) Gold: 175 million (Mar. 2009) Financial derivatives: NA Loans to nonbank residents: NA Other reserve assets: 637 Million (Mar 2009) Commercial Bank prime lending rate: 8.71% (31 Dec. 2008) Stock of money: $92.34 billion (31 Dec. 2008) Stock of quasi money: $147.4 billion (31 Dec. 2008) Stock of domestic credit: $287 billion (31 Dec. 2008) Household income or consumption by % share: 1.8%-lowest 10%; 37.9%-highest 10% (2006) Inflation rate (consumer prices): 6.2% (2008 est.) Investment (gross fixed): 22.1% of GDP (2008 est.) Current account balance: $-11.2 billion (latest year, Q3. 2009) Budget: $257.1 billion-revenues; $258.1 billion-expenditures (2008 est.) Budget balance: -4.0% of GDP (2009) Public debt: 35.8% of GDP (2008 est.) [cumulative debt of all government borrowing] Exchange rates (per USD): 12.78 (7 Jan 2010);14.2 (Mar. 2009); 10.7 (Mar. 2008) Economic aid-recipient: $78.95 million (2007) Debt-external: $200.4 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $289.8 billion-at home; 45.39 billion-abroad (Dec 31 2008 est.) Market value of publicly traded shares: $232.6 billion (31 Dec. 2008) Distribution of family income-Gini index: 47.9 (2006) Unemployment rate: 5.3% (Nov. 2009 est.) Labour force: 45.32 million (2008 est.) 7th (world rank, 2008) Oil Production: 12th (world rank, 2008) Oil Consumption: 17th (world rank, 2008) Natural Gas Production: 13th (world rank, 2008) Natural Gas Consumption: Military 0.5% of GDP; 161st in world rank (2006) Military Expenditures: Markets IPC index: 32,952.82 (5 Jan. 2010) % change on 31 Dec. 2008: +6.8 (local currency); +11.7 ($ terms) Trade balance: $-6.5 billion (latest year, Nov. 2009) Trade to GDP ratio: 64.5 (2005-2007) Exports: $291.3 billion f.o.b. (2008 est.) Top export partners: U.S. (80.2%); Canada (2.4%); Germany (1.7%) (2008) Imports: $308.6 billion f.o.b. (2008 est.) Top import partners: U.S. (49.%); China (11.2%); Japan (5.3%); South Korea (4.4%); Germany (4.1%) (2008)
Turkey’s Recep Tayyip Erdoğan became prime minister of Turkey on March 14, 2003, replacing Abdullah Gül, who had occupied the office since 2002. Before becoming prime minister, Erdoğan was mayor of Istabul from 1994 to 1998. He was born on February 26, 1954, in Rize, Turkey, and studied management at Marmar University’s faculty of economics and administrative sciences. He is married to Emine Erdoğan and has two children. Political party: Justice and Development Party (AKP) Chief of State: President Abdullah Gul Head of State: Prime Minister Recep Tayyip Erddogan Most recent election: 22 Jul 2007 Government: Single House — Majority Political system: Parliamentary Legislature: Unicameral, elected Grand National Assembly Capital: Ankara Official language: Turkish 76,805,524; country comparison to the world: 17th (July 2009 est.) Population: 1.312; country comparison to the world: 102nd (2009 est.) Population Growth Rate: Economy Currency: Turkish lira (YTL) GDP (official exchange rate ): $730.0 billion (2008 est.) Predicted change: -6.2.% (Q4 2008); -4.4% (2009) Composition by sector: 8.8%-agriculture; 27.5%-industry; 63.8%-services (2008 est.) Central Bank interest rate: 6.50% (7 Jan 2010) Official reserve assets: $75,905.47 million (Nov. 2009) Foreign currency reserves: $69,750.01 million (Nov. 2009) [in convertible foreign currencies] Securities: $65,330.62 million (Nov. 2009) IMF reserve position: $181.00 million (Nov. 2009) Special Drawing Rights: $1,559.00 million (Nov. 2009) Gold: $4,415.46 million (Nov. 2009) [including gold deposits and, if appropriate, gold swapped] Financial derivatives: $0.00 (Nov. 2009) Loans to nonbank residents: $0.00 (Nov. 2009) Other reserve assets: $0.00 (Nov. 2009) Commercial Bank prime lending rate: NA Stock of money: $53.25 billion (31 Dec. 2008) Stock of quasi money: $248.4 billion (31 Dec. 2008) Stock of domestic credit: $326.4 billion (31 Dec. 2008) Household income or consumption by % share: 1.9%-lowest 10%; 33.2%-highest 10% (2005) Inflation rate (consumer prices): 10.2% (2008 est.) Investment (gross fixed): 20.3% of GDP (2008 est.) Current account balance: $-11.4 billion (latest year, Oct. 2009) Budget: $160.5 billion-revenues; $173.6 billion-expenditures (2008 est.) Budget balance: -6.3% of GDP (2009) Public debt: 40% of GDP (2008 est.) [cumulative debt of all government borrowing] Exchange rates (per USD): 1.57 (6 May 2009); 1.25 (May 2008) Economic aid-recipient: $237.45 million (2007) Debt-external: $278.1 billion (31 Dec. 2008 est.) Stock of direct foreign investment: $128.7 billion-at home; $14.8 billion-abroad (31 Dec 2008 est.) Market value of publicly traded shares: $117.9 billion (31 Dec. 2008) Distribution of family income-Gini index: 43.6 (2003) Unemployment rate: 13.4% (Sept. 2009) Labour force: 24.06 million (2008 est.) [about 1.2 million Turks work abroad] 64th (world rank, 2008) Oil Production: 27th (world rank, 2008) Oil Consumption: 63rd (world rank, 2008) Natural Gas Production: NA Natural Gas Consumption: 23th (world rank, 2008) Military 5.3% of GDP; 17th world rank (2005) Military Expenditures: Markets ISE index: 68,929.90 (6 Jan 2010) % change on 31 Dec. 2008: +25.5 (local currency); +23.6 ($ terms) Trade balance: $-37.0 billion (latest year, Nov. 2009) Trade to GDP ratio: 48.5 (2005-2007) Exports: $140.7 billion f.o.b. (2008 est.) Top export partners: Germany (9.8%); UK (6.2%); Italy (5.9%); France (5%); Russia (4.9%)(2008) Imports: $193.9 billion f.o.b. (2008 est.) Top import partners: Russia (15.5%); Germany (9.3%); China (7.8%); U.S. (5.9%) Italy (5.5%); France (4.5%); Iran (4.1%) (2008)
South Korea’s Lee Myungbak became president on February 25, 2008, replacing Roh Moo-hyun, who had occupied the position since 2003. Lee joined the Hyundai Construction company in 1965 and eventually became chief executive officer of the Hyundai Group before being elected to the Korean National Assembly in 1992. In 2002 he was elected mayor of Seoul, a position he held until 2006. He was born in Kirano, Osaka, Japan on December 19, 1941. He received a degree in business administration from Korea University in 1965. Lee and his wife, Kim Yun-ok, have four children.
Political party: Grand National Party Chief of State: President LEE Myung-bak Head of State: Prime Minister Chung Un-chan Most recent election: 9 April 2008 Government: Single House — Majority Political system: Presidential Legislature: Unicameral, elected National Assembly Capital: Seoul Official language: Korean 48,508,972; country comparison to the world: 25th (July 2008 est.) Population: 0.266%; country comparison to the world: 178th (2009 est.) Population Growth Rate: Economy Currency: Won (W) GDP (official exchange rate): $929.1 billion (2008 est.) Predicted change: -4.3% (Q4 2009); -5.9% (2009) Composition by sector: 3%-agriculture; 39.5%-industry; 57.6%-services (2008 est.) Central Bank interest rate: 2.0% (7 Jan. 2010) Official reserve assets: $264,187.00 million (Oct. 2009) Foreign currency reserves: $259,436.00 million (Oct. 2009) [in convertible foreign currencies] Securities: $235,776.00million (Oct. 2009) IMF reserve position: $997.00 million (Oct. 2009) Special Drawing Rights: $3,791.00 million (Oct. 2009) Gold: $78.00 million (Oct. 2009) [including gold deposits and, if appropriate, gold swapped] Financial derivatives: $0.00 (Oct. 2009) Loans to nonbank residents: $0.00 (Oct. 2009) Other reserve assets: $-116.00 million (Oct. 2009) Commercial Bank prime lending rate: 7.17% (31 Dec. 2008) Stock of money: $80.66 billion (31 Dec. 2008) Stock of quasi money: $478.0 billion (31 Dec. 2008) Stock of domestic credit: $937 billion (31 Dec. 2008) Household income or consumption by % share: 2.7%-lowest 10%; 24.2%-highest 10% (2007 est.) Inflation rate (consumer prices): 4.7% (2008 est.) Investment (gross fixed): 27.1% of GDP (2008 est.) Current account balance: $+41.9 billion (latest year, Nov. 2009) Budget: $227.5 billion-revenues; $216.7 billion-expenditures (2008 est.) Budget balance: -4.5% of GDP (2009) Public debt: 24.4% of GDP (2008 est.) [cumulative debt of all government borrowing] Exchange rates (per USD): 1,277.0 (May 2009); 1,026 (May 2008) Economic aid-donor: $699.06 million (2007) [ODA] Debt-external: $381.1 billion (31 Dec. 2008 est.) 91 Stock of direct foreign investment: $124.2 billion-at home (31 Dec 2008 est.); $74.6 billionabroad (30 June 2008) Market value of publicly traded shares: $494.6 billion (31 Dec. 2008) Distribution of family income-Gini index: 31.3 (2006) Unemployment rate: 3.5% (Nov. 2009) Labour force: 24.35 million (2008 est.) 69th (world rank, 2008) Oil Production: 11th (world rank, 2008) Oil Consumption: 68th (world rank, 2008) Natural Gas Production: 25th (world rank, 2008) Natural Gas Consumption: Military 2.7% of GDP; 58th world rank (2006) Military Expenditures: Markets KOSPI index: 1,705 (6 Jan. 2010) % change on 31 Dec. 2008: +23.9 (local currency); +22.2 ($ terms) Trade Trade balance: $+41.0 (latest year, Dec. 2009) Trade to GDP ratio: 85.7 (2005-2007) Exports: $433.5 billion f.o.b. (2008 est.) Top export partners: China (22.4%); U.S. (10.9%); Japan (6.6%); Hong Kong (4.6%) (2008) Imports: $427.4 billion f.o.b. (2008 est.) Top import partners: China (17.7%); Japan (14%); U.S. (8.9%); Saudi Arabia (7.8%); UAE (4.4%); Australia (4.1%) (2008)
G20 Seoul Summit – Ripe with Opportunities
Amy Jackson - President American Chamber of Commerce, Korea
changed quite dramatically in the last 50-plus, 20 and even 5 years. On the economic front, Korea is already a leader. In 2009, according to the International Monetary Fund, Korea ranked as the world’s 15th largest economy (by nominal GDP) and the ninth largest exporter. Not only do Korean companies such as Samsung, LG, Hyundai/Kia and POSCO now dominate in many markets around the world, but there is a new and growing recognition among world consumers that these companies are South Korean – giving rise to the new South Korean “brand.” Korea’s economic success is linked to the country’s focus on promoting exports. Exports provided around 44 percent of Korea’s GDP in 2009. Korea’s strong performance in the export of manufactured goods has been crucial not only to the country’s rapid industrial development, but also to Korea’s robust recovery from economic recessions, once in 1998 and again in 2008. It has also strongly shaped Korea’s pro-free trade economic policies. Korea – A Leader on Free Trade In the face of rising protectionist sentiment around the world, a key agenda item for the G20 Seoul Summit is how to ensure free and fair global trade. The G20, as today’s premier forum for discussing global economic issues, has already played an important role in containing the spread of protectionism during the recent global economic crisis. As a globally-competitive mid-sized economy that has reaped significant benefits from cross-border trade and investment, Korea has a fundamental interest in promoting free and fair global trade. At the G20 summit in Washington D.C. in 2008, President Lee Myung-bak took a leading role in advocating free trade, suggesting a ‘standstill’ on all protectionist measures. This concept was accepted by the other participants, and many
Congratulations go to Korea for being selected as host to the November 2010 G20 Summit! Clearly this summit will focus the attention of business and political leaders on many key issues of importance to the G20 membership and beyond, and there are a wide range of anticipated outcomes. Seoul has been busily preparing for this event for months, and it is very aware of the myriad of benefits that hosting this global event can and will bring to South Korea. One of these is to showcase the Korea of 2010 – a country willing and able to act as a global leader. In addition, Koreans and Americans from the public and private sectors are anxiously awaiting a show of leadership by President Barack Obama and President Lee Myung-bak in the form of an announcement that the two countries are finally ready to move forward with the long-anticipated ratification of the U.S.-Korea Free Trade Agreement (FTA).
believe that the coordinated responses by the leading economies played a crucial role in preventing a deeper global recession. However, as the recent surge of trade disputes show, protectionist sentiments have not completely disappeared. Joint efforts are needed to reduce new forms of trade barriers, and Korea has a key role to play in regard.
FTA Leaders and Laggers
The number of bilateral and regional free trade agreements (FTAs) has sky-rocketed in recent years. The United States was one of the quicker countries out of the gate on FTAs, but we have now fallen way behind. The U.S. currently has
Reintroducing Korea to the World As a Leader
Many foreign visitors to Korea express surprise at how modern, always “connected,” and bustling Seoul is. Indeed, there is a distinct lack of knowledge in the United States and many other countries around the world about what really does and does not characterize the Korea of 2010. Many remember the Korea of 50-plus years ago in the aftermath of the devastating Korean War. Perhaps more still think of Korea as the insular, command economy it was 20 years ago. As host of the G20 Summit, Korea has a unique opportunity to “re-introduce” itself to the world as the modern, free nation Korea is today – one which has
FTAs in force with 17 countries, but is not actively negotiating new agreements. On the flip side, Korea was slow to jump on the FTA bandwagon, but is now one of the world leaders in terms of number of FTAs (concluded or in the works) and volume of trade covered by its agreements. As the diagram shows, Korea has completed or is currently negotiating FTAs with many major trading partners. Likewise, Australia has FTAs with 15 countries, and is currently negotiating FTAs with over 10 countries. At a time when so many countries around the world are moving forward rapidly to secure preferential access to other markets for their producers, the absence of the United States in this “race” is quite appar-
ent. It is disappointing that anti-free trade sentiment in the United States has grown to the point that many Americans are openly advocating a return to protectionism and isolationism. Messages as to the very real benefits of free trade seem to have been drowned out, particularly in the aftermath of the global economic recession. But the reality is that the United States is significantly more open to imports from around the world than many of the countries where U.S. exports are headed. By eliminating high tariffs and restrictive non-tariff barriers to trade, FTAs can be very effective as a tool to level the playing field for American businesses and as a means to increase exports and create jobs. A study commissioned by the U.S. Chamber of Commerce found that total trade with the fourteen countries with which the U.S. has FTAs boosted GDP by $1.0 trillion and supported 17.7 million American jobs. Of this total, an estimated 5.4 million jobs were supported by the increase in trade generated by the FTAs. Moreover, the study found that U.S. merchandise exports to these fourteen countries from 1998 to 2008 grew nearly three times as fast as did exports to the rest of the world.
policy. President Obama stated that “It is time that our United States Trade Representative work very closely with his counterpart from the ROK to make sure that we set a path, a road, so that I can present this FTA to Congress. We are going to do it in a methodical fashion. I want to make sure that everything is lined up properly by the time that I visit Korea in November. And then in the few months that follow that, I intend to present it to Congress. It is the right thing to do for our country. It is the right thing to do for Korea. It will strengthen our commercial ties and create enormous potential economic benefits and create jobs here in the United States, which is my number one priority.” This was an important message to Korea and the rest of the world that the United States is a good ally that honors its commitments, puts a priority on staying actively engaged in Asia, and plans to continue to be a leader in the region on the political as well as economic front. The U.S.-Korea FTA is the most comprehensive and large-scale trade agreement the United States has entered into since the North American FTA (“NAFTA”) took effect in January 1, 1994. Under the agreement, almost 95 percent of bilateral consumer and industrial goods trade will become duty-free within three years, with almost all remaining tariffs on goods eliminated within ten years.
But the U.S.-Korea FTA covers more than just reduction of tariffs. The agreement has robust provisions in the areas of regulatory transparency, intellectual property rights, pharmaceuticals and other rules, particularly in the area of services. This is why it is often referred to as the “Gold Standard” agreement by trade experts. Consumers and businesses in both countries stand to gain from the broad benefits of the agreement, as it will eliminate non-tariff market access barriers to goods, services and investment. Moreover, new and mutually-beneficial partnerships between leading American and Korean businesses are expected to flourish in virtually all sectors including future ‘engine of growth’ industries such as energy, green growth and biopharmaceutical sectors. The benefits of the U.S.-Korea FTA to both economies have been well documented by researchers. Apart from the economic benefits, the deal will reinforce the strategic alliance between the U.S. and Korea which remains one of America’s closest allies in Asia and a strong partner in advancing regional security. In addition, this FTA will help the United States stay an active, involved leader in the Asia-Pacific region. We look to the United States and Korea to demonstrate leadership during the G20 Seoul Summit. The opportunities are vast and in today’s economic climate cannot and should not be squandered. We hope that on November 11, the U.S. and Korean Presidents will stand together and make an historic announcement on the U.S.-Korea Free Trade Agreement that will demonstrate the commitment of both countries to each other and to making their G20 pledges a reality.
U.S.-KOREA FTA – An Important Step Forward
President Obama’s announcement in June of this year at the Toronto G20 summit was a pivotal moment for watchers of U.S. trade
Reaching the World’s Most Vulnerable
The Lilly MDR-TB Partnership is a public-private initiative that encompasses global health and relief organizations, academic institutions and private companies, and is led by Eli Lilly and Company. Its mission is to address the expanding crisis of multi-drug resistant tuberculosis (MDR-TB). Created in 2003, the Partnership mobilizes more than 20 global healthcare partners on five continents. Lilly is contributing US$ 120 million in cash, medicines, advocacy tools and technology to focus global resources on prevention, diagnosis and treatment of patients with MDR-TB; and an additional US$ 15 million to the Lilly TB Drug Discovery Initiative to accelerate the discovery of new drugs to treat TB.
The Partnership has implemented community-level programmes to raise awareness about MDR-TB, increase access to treatment, ensure correct completion of treatment and empower patients by eliminating the stigma of the disease. The Partnership also trains healthcare workers to recognize, treat, monitor and prevent the spread of MDR-TB. Because global change requires a global perspective, the Partnership works with policymakers around the world to raise awareness about the toll that TB takes on the global population and encourages new initiatives that curb the spread of MDR-TB.
Empowering Local Communities
A global Approach for Global Results
Seven-year old Manisha, diagnosed with TB in 2008, doing her second grade homework. After nearly seven months of treatment through a community-based program, she was cured of TB in January 2009. The Lilly MDR-TB Partnership strives to improve care for the world’s most vulnerable people, like little Manisha.
Photo: Subhash Sharma
To increase the supply of high-quality, affordable medicines, Lilly has partnered with manufacturers in countries hardest hit by MDR-TB, providing both knowledge and financial assistance to create sustainable, local sources for MDR-TB drugs. The Lilly TB Drug Discovery Initiative is a public-private partnership that will draw on the global resources of its partners, including access to chemical libraries of compounds, to pioneer research on much-needed faster-acting medicines to treat MDR-TB.
Sustainable Access to Medicines
The initiatives of the Lilly MDR-TB Partnership all have one thing in common: improved care for some of the world’s most vulnerable people, delivered in a sustainable manner that builds capacity within the communities where it is needed most.
Helping Those in Need
New Drug Discovery Initiative