|
Honorable Delegates of the Political Committee at BALMUN 2009,
This year, we, meaning the Political Committee, will be dealing with a topic defined by the headline: “Reducing the dependence of the global economy on countries with monopoly positions in order to establish fair trade and equal distribution of prosperity.”
The purpose of this Guide is to give you some of the most basic information about the topic. However, you should be aware of the fact that preparation of the conference will definitely require some more extensive research.
A monopoly occurs when a certain group of individuals, a business or a country have an extensive enough control over a certain good or service, so that they can effectively determine the terms under which these goods or services are to be accessed by other individuals. The negative effects are obvious – not only do monopolies encourage high prices and lower quality of products, but they also give the holder of the monopoly some extensive power over at least one certain market.
For that reason, many countries have by law prohibited monopolies in any form and also punished noncompliance with these rules and laws. Well-know examples are the Microsoft Corporation, which recently had to face charges by the European Commission or Standard Oil, owned by Rockefeller, which was broken up in 1911 due to their monopoly position.
Although these rules apply for businesses and individuals, things get more complicated, when having a look at nations or countries itself. In fact, in our world of today, many monopolies are held by single countries, or a group of countries that are closely connected to each other. These monopolies can have multiple reasons, natural ones for one (if a certain resource can only be found in a few countries), or historical ones for another (if the goods produced need a higher developed economy, facilities etc.) Therefore these countries are, just like businesses, in the position of defining the terms under which other countries can have access to these goods.
It is therefore necessary, that regulations for these goods and services are made, so that everyone on our planet can have free and fair access to them. Discussing these conditions, and hopefully making good decisions on regulations will be our quest for this year’s BALMUN.
Have fun preparing and see you in June,
Benedikt Achatz
Chair of the PC
Reducing the dependence of the global economy on countries with monopoly positions in order to establish fair trade and equal distribution of prosperity.
"The inflow of capital from the developed countries is the prerequisite for the establishment of economic dependence. This inflow takes various forms: loans granted on onerous terms; investments that place a given country in the power of the investors; almost total technological subordination of the dependent country to the developed country; control of a country's foreign trade by the big international monopolies; and in extreme cases, the use of force as an economic weapon in support of the other forms of exploitation."
[Che Guevara]
Global economy is an extremely complicated mechanism which can be characterized by certain tendencies in its development. These tendencies can be both short-term and long-term. It’s obvious that short-term tendencies usually turn into long-term ones (it’s a normal process).
The tendency that this very issue is concentrated on is the growing dependency of developing countries on developed ones which is theoretically explained by the dependency theory.
Dependency theory is based on the notion that: - resources flow from a "periphery" of poor and underdeveloped states to a "core" of wealthy states, enriching the latter at the expense of the former, which means
- poor states are impoverished and rich ones enriched by the way poor states are integrated into the "world system."
The basics of dependency theory are as follows: - Poor nations provide market access to wealthy nations (e.g., by allowing their people to buy manufactured goods and obsolete or used goods from wealthy nations), permitting the wealthy nations to enjoy a higher standard of living.
- Wealthy nations actively perpetuate a state of dependence by various means. This influence may be multifaceted, involving economics, media control, politics, banking and finance, education, culture, sport, and all aspects of human resource development (including recruitment and training of workers).
- Wealthy nations actively counter attempts by dependent nations to resist their influences by means of economic sanctions and/or the use of military force.
This is based on the Marxist analysis of inequalities within the world system, but contrasts with the view of free market economists who argue that free trade advances poor states along an enriching path to full economic integration.
The dependency theory contrasts with modernization theory (also known as development theory).
There are many different ideas on how developing countries can use the effects of the world system, several of the following protectionist/nationalist practices can be adopted by such countries:
- Promotion of domestic industry and manufactured goods. By imposing subsidies to protect domestic industries, poor countries can be enabled to sell their own products rather than simply exporting raw materials.
- Import limitations. By limiting the importation of luxury goods and manufactured goods that can be produced within the country, the country can reduce its loss of capital and resources.
- Forbidding foreign investment. Some governments took steps to keep foreign companies and individuals from owning or operating property that draws on the resources of the country.
- Nationalization. Some governments have forcibly taken over foreign-owned companies on behalf of the state, in order to keep profits within the country.
This is only theory…the real problem concerns today’s situation in the world which is global economic crisis: it started ‘in’ and ‘because of’ the developed countries (the USA in particular, then it went further to other developed states)
Three challenges face emerging market economies and low-income countries in the wake of the crisis both over the short- and the medium- to long-terms.
In the short-term, the major challenge is how best to respond if there is an economic recession even in the developed world.
In the medium- to long-term, two further challenges arise.
The first is what integration strategy should developing countries pursue within the global financial system?
The second is what role should larger emerging market economies aim or expect to play in a new global financial system that is likely to emerge with the demise of the current one.
Background Note/ October 2008
The global financial crisis and developing countries
Which countries are at risk and what can be done?
By Dirk Willem te Velde
The global financial crisis is already causing a considerable slowdown in most developed countries. Governments around the word are trying to contain the crisis, but many suggest the worst is not yet over. Stock markets are down more than 40% from their recent highs. Investment banks have collapsed, rescue packages are drawn up involving more than a trillion US dollars, and interest rates have been cut around the world in what looks like a coordinated response. Leading indicators of global economic activity, such as shipping rates, are declining at alarming rates.
What does the turmoil mean for developing countries? Many developing country economies are still growing strongly, but forecasts have been downgraded substantially in the space of a few months. And for how much longer can growth persist? What are the channels through which the crisis could spread to developing countries and how are the effects being felt in developing countries? Which developing countries will be able to withstand the international macro economic challenges created by the downturn in developed economies, and which are most at risk? What is the role for development policy and what do developing country policy-makers need to know?
This note discusses recent growth performance in developed and developing countries, the channels through which the global crisis affects developing countries, which countries might be most at risk, and possible policy responses.
Growth in developed and developing countries; decoupling or delayed coupling?
With a recession already underway in the UK, Germany, France, the USA and other developed countries, it is quite startling to hear the Malawian finance minister argue that Malawi’s economy is projected to grow by more than 8% this year. Yet this is today’s stark reality. The USA is going through the greatest financial crisis since the 1930s, but, as the Financial Times has reported, Lagos is not Lehman. Nigeria, held back by decades of economic mismanagement, is growing at nearly 9%. Leaders in China suggest that they can help the world by offering growth rates of up to 10%, and many African countries still gain significantly from this (they are growing at 6-7%).
Growth performances vary substantially among developed and developing countries. African growth exceeds OECD growth by margins not seen for 25 years; East Asia’s growth is diverging as much as it did during the last significant global economic downturn in the early 1990s (see Figure 1).
The relationship between OECD GDP and Africa’s GDP has weakened as a result of the emergence of countries such as China, as well as structural changes in African economies. According to the IMF World Economic Outlook report in April 2008, a decline in world growth of one percentage point would lead to a 0.5 percentage point drop in Africa’s GDP, so the effects of global turmoil on Africa (via trade, FDI, aid) would be quite high. The correlation between African GDP and World GDP since 1980 is 0.5, but between 2000 and 2007, it was only 0.2. As there have been significant structural changes (and a move into services that were able to withstand competition much better) as well as the rise of China, African growth has temporarily decoupled from OECD GDP.
And there are also signs of a slowdown in Asia, the engine of recent world growth. In the space of a couple of months, the Asian Development Bank has revised its forecast for Asian countries downwards by 1-2 percentage points. The IMF growth forecasts have been revised significantly, especially for the UK (-1.8 percentage points down from the last forecast for 2009), but also India (-1.1 percentage points down to 6.9% real GDP growth), and China and Africa (both down by -0.5 percentage points to 9.3% and 6.3% respectively).
The magnitude of the crisis will depend on the response of the USA and EU. Trillion dollar rescue packages are launched around the world, but while the markets may eventually respond, the UK is already in a recession. Its magnitude will depend, in part, on how accommodative monetary policy can be, with the recent interest rate cut a sure sign the authorities are concerned more about the financial crisis than recent inflationary pressures. There is less scope for expansionary fiscal policy – in fact these rescue measures have increased public debt.
Impact of the current financial crisis on developing countries
The current financial crisis affects developing countries in two possible ways.
First, there could be financial contagion and spillovers for stock markets in emerging markets. The Russian stock market had to stop trading twice; the India stock market dropped by 8% in one day at the same time as stock markets in the USA and Brazil plunged. Stock markets across the world – developed and developing – have all dropped substantially since May 2008. We have seen share prices tumble between 12 and 19% in the USA, UK and Japan in just one week, while the MSCI emerging market index fell 23%. This includes stock markets in Brazil, South Africa, India and China. We need to better understand the nature of the financial linkages, how they occur (as they do appear to occur) and whether anything can be done to minimise contagion.
Second, the economic downturn in developed countries may also have significant impact on developing countries. The channels of impact on developing countries include:
- Trade and trade prices.
Growth in China and India has increased imports and pushed up the demand for copper, oil and other natural resources, which has led to greater exports and higher prices, including from African countries. Eventually, growth in China and India is likely to slow down, which will have knock on effects on other poorer countries.
- Remittances.
Remittances to developing countries will decline. There will be fewer economic migrants coming to developed countries when they are in a recession, so fewer remittances and also probably lower volumes of remittances per migrant.
- Foreign direct investment (FDI) and equity investment.
These will come under pressure. While 2007 was a record year for FDI to developing countries, equity finance is under pressure and corporate and project finance is already weakening. The proposed Xstrata takeover of a South African mining conglomerate was put on hold as the financing was harder due to the credit crunch. There are several other examples e.g. in India.
- Commercial lending.
Banks under pressure in developed countries may not be able to lend as much as they have done in the past. Investors are, increasingly, factoring in the risk of some emerging market countries defaulting on their debt, following the financial collapse of Iceland. This would limit investment in such countries as Argentina, Iceland, Pakistan and Ukraine.
- Aid.
Aid budgets are under pressure because of debt problems and weak fiscal positions, e.g. in the UK and other European countries and in the USA. While the promises of increased aid at the Gleneagles summit in 2005 were already off track just three years later, aid budgets are now likely to be under increased pressure.
- Other official flows.
Capital adequacy ratios of development finance institutions will be under pressure. However these have been relatively high recently, so there is scope for taking on more risks.
Each of these channels needs to be monitored, as changes in these variables have direct consequences for growth and development (see e.g. Te Velde, 2008, on pro-poor globalisation). Those countries that have done well by participating in the global economy may also lose out most, depending on policy responses, and this is not the time to reject globalisation but to better understand how to regulate and manage the globalisation processes for the benefit of developing countries. The impact on developing countries will vary. It will depend on the response in developed countries to the financial crisis and the slowdown, and the economic characteristics and policy responses, in developing countries.
Which countries are at risk and how?
The list of channels above suggest that the following types of countries are most likely to be at risk (this is a selection of indicators):
- Countries with significant exports to crisis affected countries such as the USA and EU countries (either directly or indirectly). Mexico is a good example;
- Countries exporting products whose prices are affected or products with high income elasticities. Zambia would eventually be hit by lower copper prices, and the tourism sector in Caribbean and African countries will be hit;
- Countries dependent on remittances. With fewer bonuses, Indian workers in the city of London, for example, will have less to remit. There will be fewer migrants coming into the UK and other developed countries, where attitudes might harden and job opportunities become more scarce;
- Countries heavily dependent on FDI, portfolio and DFI finance to address their current account problems (e.g. South Africa cannot afford to reduce its interest rate, and it has already missed some important FDI deals);
- Countries with sophisticated stock markets and banking sectors with weakly regulated markets for securities;
- Countries with a high current account deficit with pressures on exchange rates and inflation rates. South Africa cannot afford to reduce interest rates as it needs to attract investment to address its current account deficit. India has seen a devaluation as well as high inflation. Import values in other countries have already weakened the current account;
- Countries with high government deficits. For example, India has a weak fiscal position which means that they cannot put schemes in place;
- Countries dependent on aid.
While the effects will vary from country to country, the economic impacts could include: - Weaker export revenues;
- Further pressures on current accounts and balance of payment;
- Lower investment and growth rates;
- Lost employment.
There could also be social effects: - Lower growth translating into higher poverty;
- More crime, weaker health systems and even more difficulties meeting the Millennium Development Goals.
Possible policy responses
The current macro economic and social challenges posed by the global financial crisis require a much better understanding of appropriate policy responses: - There needs to be a better understanding of what can provide financial stability, how cross-border cooperation can help to provide the public good of international financial rules and systems, and what the most appropriate rules are with respect to development;
- There needs to be an understanding of whether and how developing countries can minimise financial contagion;
- Developing countries will also need to manage the implications of the current economic slowdown – after a period of strong and continued growth in developing countries, which has promoted interest in structural factors of growth, international macro economic management will now move up the policy agenda. Do countries have room to use fiscal and monetary polices?
- Developing countries need to understand the social outcomes and provide appropriate social protection schemes;
- There will also be implications for development policy:
There will be limits to financial solutions if the problems lie in the real economy, but development finance institutions may be able to take some risks and support investment flows to developing countries, counteracting reductions in other financial flows. Whether DFIs can take higher risks might be informed by past experience, for example by looking at what happened during the Asian financial crisis of the late 1990s. During this period DFI portfolios were riskier, loan losses higher and returns lower than they are at present. And yet this poorer financial performance has not had an adverse affect on institutional credit ratings. The EBRD argued in 2007 that is able to withstand the impact of a major shock with an impact equivalent to 3.5 times the magnitude of the financial crisis in 1998, without a need to call capital;
Aid volumes will come under pressure,1 but there may also be implications for the composition of aid. Should aid be provided to countries with high risks, and how should this be channelled? Are existing IMF and World Bank schemes sufficient for this, as they already need to address balance of payment problems in countries due to high food and oil prices?
|
|
Dear Participants of this year’s BALMUN conference,
I feel honored to be one of the chairs of the Political Committee at this year’s second BALMUN conference.
My Name is Benedikt Achatz; I am 18 years old and currently attending a school in Rostock. Originally I come from a small town nearby, but by now I live in a dormitory in Rostock itself. By the time you will be reading this, I will have finished my final exams for the German Abitur and be looking forward to going to university for Economics. I am generally interested in sports (watching it more than doing it myself, apart from swimming), music, reading, movies, and of course socializing.
BALMUN 2009 will be my second MUN conference, and my first as a chair. I did participate in last year’s BALMUN conference as a delegate in the Special Conference (for Nigeria, that was) and had a lot of fun. I hope that this year, I will be able to give you the opportunity to have a great conference and be of as much assistance as possible to you. I am certain that we are all going to have a lot of fun this year.
Therefore, I am looking forward to seeing you in June,
Benedikt Achatz
Chair of the Political Committee
Hi, honourable delegates of the Political Committee!!!
I’m Liza Sitkevich, 19. I live in Minsk, Belarus and study at the university here. I do like travelling and I’m really keen on MUNs. In my opinion, the idea of MUN itself deserves applause… it combines the opportunity to feel as if you are a serious grown-up, to meet new people, to improve your language skills, to share opinions with each other and to enjoy the process!!!!
Besides, I like reading good books, watching good films and sending letters in envelopes. I don’t like this fast lifestyle which is popular with most people nowadays, I don’t like people hurrying to reach their aim without paying attention to other people’s interests.
I have a lot of dreams. ‘The latest ones’ are going to Africa to help the children and saving the whales in New Zealand and Australia where they throw themselves out of the ocean. I’ m really sure we should do our best to make this world kinder and better ( I don’t mean any global actions, just little things, just try smiling more often… and somebody will become much happier).
I hope we’ll enjoy our committee’s work, if you have any questions or proposals don’t hesitate to ask us via e-mail: atdawn@mail.ru.
Liza Sitkevich
Chair of the Political Committee
|
