Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
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.