Cocoa Traders braced for price rise as Ivory Coast bans exports (FT.com)
By Javier Blas and Orla Ryan in London
Published: January 23 2011 17:11 | Last updated: January 23 2011 17:11

Summary
President Ouattara, the newly elected president in the former election, beating the former president Mr. Gbagbo, declared that Ivory Coast will ban exporting the cocoa. Its aim is to prohibit the money flow available from cocoa trading to go to Mr. Gbagbo, who has the privilege of cocoa exports. Mr. Gbagbo now denies to step down from the presidency after the UN-observed election with Mr. Ouattara. In response to this decision, the commodity market price of cocoa will rise towards a 33 year high, because the share of Ivory Coast in international cocoa exporting market is 40 per cent.

Commentary
This news is about the price increase of cocoa in the global commodity market, but the more complicated political story behind the numbers, as FT. com wrote. Although it is said that the presidential election has fairly been done under the control of the United Nations in November 2010, the former president Mr. Gbagbo did not admit to resign his presidency after the election. He is tightly connected with the economic benefits from cocoa, which accounts 40 per cent of global exports of cocoa. The purpose of the election must have included that the Ivory Coast government cut its relationship which benefits specific politicians with power.

"Wars, Guns, and Votes" by Paul Collier mentions that such corrupt political forces exist in African countries. The author says that these problems are found in many cases and researchers can observe many African countries to write papers about the unlawful elections. This incident will add one more evidence to the claim of Paul Collier that a corrupt political power longs with illegal votes. It is unbelievable as a citizen of a developed countries, but not only Mr. Gbagbo but also the other African countries are not always prosecuted or arrested for breaching the law related to the election.

Although stopping the money flow to Mr. Gbagbo is immediately required, banning huge amount of exporting goods of a country is excessively harmful to the economy of Ivory Coast. Rather, it could be better that the UN and the new president Mr. Ouattara find records of the illegal behavior conducted by Mr. Gbagbo to sue him as a political or economical criminal. Power balance of the former president and the current president are still not clear from this article, but legal procedure of taking presidency by Mr. Outtara will be mush less harmful than the large scale of the economic sanction.
[PR]
# by intldev | 2011-01-25 08:17 | Africa
Eurozone bond markets face testing run
By David Oakley in London and Peter Spiegel in Brussels
Published: December 8 2010 18:48 | Last updated: December 8 2010 18:48

Summary
Eurozone countries are expected to issue bonds as much as 760 billion Euros next year. It is larger than the amount of this year, and the financial market fears that there could be credit crisis for debt financing. Among the Eurozone countries, Italy considers to issue 50 billion Euros of bonds in the first quarter of 2011, and Portugal needs to refinance its 9.5 billion Euros of debt. Although there are fears about the debt amount scheduled for 2011, government officials are optimistic because the European Central Bank bought some bonds in the financial market to calm the condition of debt financing.

Commentary
Credit risks of Eurozone counties will continue next year. The scheduled issuance of government bonds is 150 billion Euros for Italy, 90 billion Euros for Spain, 25 billion Euros for Ireland and 20 billion Euros for Portugal. All of these countries have lower credits in the Eurozone countries, and their credit risks will rise more next year.

It is natural for these countries to issue their bonds, as they are especially in needs of external financing. However, issuance of these bonds at the same time in the first quarter of 2011, which is financing periods for each government, will surely make the financial market unstable, with excessive amount of bonds offered.

Purchase of the bonds by the European Central Bank will only result in the own risk taking of Eurozone countries. This scheme has limitation as the bank conducts it with the purpose of a temporary operation. These bonds would become junk bonds and go around the world financial markets without having any prospective investors.

Considering the credit risks of the European countries issuing the bonds, coupon rates will need to be high. Currently, credit risks for long-term financing and risk free rates of each country are: A+ and 4.050% for Italy, AA and 5.234% for Spain, A and 8.031% for Ireland and A- and 6.079% for Portugal (Retrieved from Bloomberg for risk free rates, and from S&P for credit ratings).
[PR]
# by intldev | 2010-12-10 13:16 | Europe
Bangladesh joins microfinance backlash (FT.com)
By Amy Kazmin in New Delhi
Published: December 7 2010 19:56 | Last updated: December 7 2010 19:56

Summary
This article is about the fact that Grameen Bank, which created a foundation of microfinance system, is being accused of misappropriation of its funding. According to the article, Grameen Bank has been lending its money by as high as 20-50 per cent of interest rate. Moreover, it is said that they have allocated donor money for housing loans from foreign countries to its related fund to avoid taxation. Mr. Muhammad Yunus, a founder of Grameen Bank, and the other 9 board directors in the bank deny the wrongdoing of the money. Mr. Yunus says that Grameen Bank has already resolved the problem in 1998 by welcoming official investigations.

Commentary
It would be inappropriate to comment on whether Grameen Bank conducted embezzlement for funding the loan money, as we don't have enough information for the issue. Instead, I would like to comment on the effectiveness of Grameen Bank and microfinance.

The accomplishment by Mr. Muhammad Yunus for establishing and expanding Grameen Bank for saving the poor is undoubtedly excellent. It is natural for him to receive Novel Peace Prize in 2006. However, after that celebration, there are growing number of money to be used for microfinance in Bangladesh, and it distorts the market economy of the country.

The articles tells us that there are more than 1,000 of microfinance institutions in Bangladesh now. It is apparently excessive institutions and fundings in Bangladesh due to an advertisement effect of Mr. Yunus and Grameen Bank. It is difficult for businesses which are socially benefitable to purely follow the market structure, but excessive amount of money flow to only one country is not really an appropriate flow of money from developed to developing countries.

Actually, some companies which strengthens CSR activities are willing to fund money to Grameen and the other famous microfinance institutions in Bangladesh, just because it is easy to appeal that they funded money for saving the poor, by showing the name of Novel Prize Winner and his native country.

A problem which is not understandable is why the interest rates of microfinance are as high as 20 - 50 per cent, although there is much amount of cash in-flow. Although there are a lot of microfinance institutions which can compete for lending money to poor individuals, the interests are kept high. There should be healthy competitions among financial institutions, and the ones which stick to high interest rates need to disappear from the market. It doesn't seems truly natural competition for microfinance institutions in Bangladesh.

Considering the microfinance market status in Bangladesh, there are too many microfinance institutions and too high interest rates as problems. They should be eliminated by natural competitions. Otherwise, Bangladesh needs to conduct further restructuring of financial market, as Mr. Yunus did over past decades.
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# by intldev | 2010-12-09 13:19 | Asia
I've just set up my blog in English version. Although I've been managing the blog for several months in Japanese, I wanted to start writing experiences at the Fletcher School, one of graduate schools for international relations in the U.S. Aim of this blog is to enhance my writing ability and share my experience at the Fletcher with friends, prospective students and the other viewer who are interested in school life and international relations. This motivation came up from the difficulties of writing 25 pages of paper for the final assignment of a class in Fall term. I hope I will become a super blogger with excellent English in two years.
[PR]
# by intldev | 2010-12-06 06:04
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