Download Republic of Chad Economic and Financial Committee Regulation of

Republic of Chad
Economic and Financial Committee
Regulation of Foreign Assets
Arthur Kutoroff
Cherry Hill High School East
Rutgers Model United Nations
November 15-18, 2007
As one of the poorest nations in the world (the United Nation Human
Development Report named it in the 5th poorest) the Republic of Chad has had problems
attracting foreign investment. Decades of civil war and foreign (namely Libyan)
intervention combined with excessive state intervention in the economy scarred away
foreign investors, though the situation has somewhat improved in recent years since
President Deby took office in 1990. For example, southern Chad has always had a
significant amount of oil but until recently it was largely unexplored. But it was not until
2003 that foreign investors (notably ExxonMobil, to which Chad gave drilling contracts
in 1994) involved in a 3.7 billion dollar consortium discovered oil and began drilling. Oil
production has doubled government revenues since then, demonstrating the importance
of foreign investment.
In addition to encouraging investment Chad has entered into a monetary union
with several other African nations in the region who all share the same currency, the
Central African CFA (Communaute francais d’Afrique) franc (usually simply called the
franc, after France’s adoption of the Euro). Adoption of the franc encourages regional
cooperation because investors (and other visitors) do not have to change currency. About
30 billion dollars a year are wasted converting currency, which is especially troublesome
for small and medium enterprises (including most of Chad’s economy, which is
dominated by small farmers). And in general, common currencies accompanied by a
common central bank are, on average, more stable than unique currencies. Moreover,
monetary unions also require member states to adopt certain standards before joining,
which was a major motivation in reducing Chad’s massive debt. The government, for
example, has privatized numerous para-statal corporations (corporations partially or fully
owned by a state), which are generally inefficient and open to political interference, and
has taken steps to deregulate the economy (such as by encouraging foreign investment).
The Republic of Chad encourages countries to join monetary unions. Monetary
unions offer numerous advantages to member states, whether developed or developing.
Not do common currencies save money (as previously mentioned, but also they
encourage investment by ensuring that investments are stable. If a country has a unique
currency the government can devalue it (such as by spending too much money and
causing inflation) but if a country has a common currency its value will often depend on a
regional central bank that (ideally) takes in account what is best for the union as a whole
instead of one country. And in general, regional central banks tend to vigorously combat
inflation. The European Central Bank, for example, is modeled after the German
Bundesbank, which was known for suppressing inflation during the post-war German
economic recovery. Furthermore, in order to join a monetary union a country must take
steps toward fiscal responsibility. For example, to join the CFA franc a country must
reduce the national budget debt to four percent of the gross domestic product and develop
a central bank. Within nations, monetary unions help the development of small and
medium size enterprises because they do not possess the bureaucracy of larger businesses
and find it harder to covert to a new currency. A European Union report discovered that
because they lack the bureaucracy to operate more efficiently small businesses pay about
10 times as much as large corporations when converting currency.
Internally, all nations should take steps to liberalize their economies. Subsidies,
for example, not only promote inefficiencies as it encourages to agribusinesses depend on
government handouts instead of create better products but also they are unfair to
developing countries like Chad. Subsidies artificially lower global agricultural prices,
hurting farmers in developing countries. While wealthier countries can afford massive
subsidies to reimburse farmers and repair equipment (the United States spends over eight
billion dollars a year on agricultural subsidies; the European Union spends over 42 billion
euros on the subsidies in the Common Agricultural Policy, which in turn makes up over
60% of the European Union annual budget) poorer countries like Chad cannot. According
to the United Nation’s Human Development Report, in 2003 the average cow on a farm in
Europe receives 913 dollars in subsidies annually; the average farmed in Sub-Saharan
Africa receives a mere 9 dollars annually.
On other hand, developing countries should not discourage foreign investment
through excessive government involvement in the economy. Too often developing
countries fear that foreign investors seek to dominate their economy and thus discourage
foreign investment. For example, Chad prevented foreign oil companies from exploring
in its oil rich territory until the mid 90s. However, in less than a decade they started
drilling oil, doubling government revenues. Moreover, developing countries too often set
up inefficient state industries and unnecessary economic regulations in order to manage
growth, usually unsuccessfully. The Wall Street Journal and Heritage Foundation
combined report on economic freedom lists developing countries as the least free. Many
of the least free nations also have the lowest growth rates, rank lowest on the World
Economic Forum’s Global Competitiveness Report index and rank lowest on the World
Bank’s Ease of Doing Business Index. Therefore, both developed and developing
countries require liberalization of their economies.
The Republic of Chad stresses the responsibility of each individual country to
improve its economy through monetary unions and market liberalization but recognizes
the role the United Nations should play in development through encouraging certain
policies. First, the United Nations should encourage developed countries to forgive debt
to developing countries. Chad, for example, qualified for the International Monetary
Fund’s Heavily Indebted Poor Countries list, which led to some developed countries like
the United States forgiving some of the debt Chad owes them. Not only does doing so
cause goodwill but also it ensures that developing countries can spend more money on
internal improvement instead of paying off debts. As they develop, these countries can
act as markets for goods from developed countries. Second, the United Nations should
support the formation of monetary unions in order to create more stable and reliable
currency. For example, the United Nations should work with the Association of Southern
Eastern Asian Nations (ASEAN) to implement a regional Southeast Asian currency, as
discussed in the 2005 summit. Moreover, it should support the efforts of Venezuela and
Argentina to implement a South American regional currency. Third, United Nations
member states should pass the 2004 “International Trade and Development” resolution,
which called for limitations on subsidies. Subsidies keep the agricultural prices of goods
from developed countries that can afford large subsidies artificially low, which hurts
farmers in developing countries that do not receive large subsidies and depend on higher
agricultural prices for income.
Chad also sympathizes with the concerns of developing countries that entering in
global trade may jeopardize sovereignty and thus recommends that the Economic and
Financial Committee encourage more transparency in trade. Many states, including Chad,
adopted laws originally passed by the Republic of Korea that require all businesses
investing in foreign banks or receiving money from foreign banks provide the
government detailed reports to keep the government informed about how much money is
leaving and entering the country. These laws are a step in the right direction, but the
international community can step in to make the process more efficient. Chad proposes
that the United Nations monitor all banking transactions among willingly participating
countries to keep all member states informed about how much money is entering or
leaving the country. That way, developing countries will be more willing to open their
economies to the global marketplace. If they fear that too much money is entering or
leaving the country they can regulate it more, but at least this way they will have the
necessary information.
Works Cited
Chaneseta, Bert. "Monetary Union in Africa Will Be a Real Challenge." Business Report
(2006). 25 Oct. 2007
<http://www.busrep.co.za/index.php?fSectionId=2508&fArticleId=3256180>.
Itsede, Chris O. The Challenge of Monetary Union: Gains and Opportunities. Department
of Economics, University of Chicago. Chicago, Illinois: University P of Chicago, 2005.
25 Oct. 2007 <http://www.singleglobalcurrency.org/monetary_unions.html>.
Macanda, Phumza. "Mbowni: African Monetary Union a Long Way Off." Mail and
Guardian 9 Oct. 2007. 25 Oct. 2007
<http://www.mg.co.za/articlePage.aspx?articleid=321470&area=/breaking_news/breakin
g_news__business/>.
"Monetary Unions (Current and Future)." Single Global Currency. 10 Oct. 2006. 25 Oct.
2007 <http://www.singleglobalcurrency.org/monetary_unions.html>.
"West African Monetary Union." Encyclopedia Britannica.