Friday, October 15, 2010

Women in Corporate Leadership


There is no doubt that the balance between men and women in corporate leadership positions is not at all balanced. “While women make up about 49% of the world’s population, in no country do they represent nearly half of the corporate managers” (Moran, Harris, Moran, 2007, p. 161).

This is not to say that women haven’t made great strides in the last several decades towards corporate diversity. “Over the last 50 years, an increasing number of professional women have entered and remain in the global workforce” (Moran, et. al, 2007, p. 160).

Why is this? According to Sharma and Skeeton (2010),

Changes in the family structure, such as single-parent families and divorce have created situations where women often become the sole source of the family’s income (Cascio, 2010). Research has also suggested that the upward trend in the divorce rate may be related to the increase in women’s earning ability (Becker, Landes, & Michael, 1977; Sander, 1985). Women who make an adequate wage have less need to remain married. Other changes, such as the declining birthrate, contraception, and abortion have also contributed to this increased participation of women in today’s workforce by decreasing the number of years that they now devote to raising children (Ferber & McMahon, 1979; Sprague, 1988).

Summary of Article

So what does today’s top 100 corporate firms look like? According to Sharma and Skeeton (2010), there is still a “lack of gender diversity among the top 100 US corporations” (p. 12). Sharma and Skeeton’s (2010) study revealed that women,

…are grossly underrepresented at the top levels of management among the top 100 firms. Given that women comprise only 13% of the top management, and 57 firms have none or one female officers, there is reason for concern.

So why are women still so underrepresented? According to Moran, Harris, and Moran (2007), “women are still responsible for the ‘softer’ aspects of work.

Sharma and Skeeton (2010) expand on the idea of “why” women are responsible for the “softer” aspects of work.

One factor that is purportedly holding women back are pervasive stereotypes such as women: (a) do not want the top job, (b) are too emotional or soft to lead, (c) cannot or will not work long or unusual hours, (d) do not want to travel, (e) do not want to relocate, (f) do not want to work, (g) cannot make tough decisions, and (h) are less committed to the organization and to their careers (Carr-Ruffino, 2005). Together, these stereotypes have impeded women’s career progress. (Sharma, et. al, 2010, p. 4)

Despite the stereotypes,

Several gender studies have been conducted which challenge these pervasive stereotypes. For example, one such study found that an equal number of men (57%) and women (55%) desire to be CEO, challenging the notion that women do not want the top job (Lublin, 2004). Other studies indicate that women executives outscore their male counterparts on a wide variety of measures including: motivating others, fostering communication, goal-setting, producing high-quality work, mentoring others, listening to others, recognizing trends, and generating new ideas and acting on them (Sharpe, 2000). Other studies looked at the traits in which women excel. Such traits included teamwork and partnering, being more collaborative, seeking less personal recognition, being more stable, being less turf-conscious, and being more motivated by what they can do for the company and less motivated by self-interest (Sharpe, 2000). (Sharma, et. al, 2010, p. 5)


Despite great numbers of women in corporate roles, they are still vastly underrepresented in corporate leadership positions. Research proves that women have many valuable skills to bring into corporate leadership positions, however women will still be met by the challenges of stereotyping. According to Moran, Harris, and Moran (2007),

[t]he key to making concrete changes in organizations is the leadership, who must have a keen interest in recruiting and retaining a diverse workforce while promoting qualified women.


Moran, R., Harris, P., Moran, S. (2007) Managing cultural differences: Global leadership strategies for the 21st Century.Burlinton, MA: Butterworth-Heinemann.

Sharma, R., Skeaton, G. (2010). Ranking the top 100 firms according to gender diversity. Advancing Women in Leadership Journal, 30. Retrieved on October 15, 2010 from

Wednesday, September 29, 2010

Update: China's Defaulted Debt: Remedies for U.S. Citizens

Update on China’s Defaulted Debt and Remedies for U.S. Bondholders

A complaint was filed last week with the DOJ on behalf of the U.S. Bondholders. Excerpts from the complaint are below, and you may view the full complaint here, (

Excerpt from the Introduction and Prayer for Relief:

I. Introduction

1. This is a Complaint referencing an antitrust injury resulting from third party tortfeasance, including interference with the enforcement of commercial debt contracts and which interference, including the intentional aiding and abetting of the debt obligor’s efforts to evade repayment of the debt, has the effect of the taking of the Complainant’s rights in property, and which have caused the Complainant to be injured in its property.

2. This is also a Complaint alleging a pattern of civil racketeering under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Section 1961 et seq., (“RICO”), and further alleges that the named parties obtained unjust enrichment from their wrongful actions in assisting China in the shedding of its foreign debt obligation owed to the Complainant, and which actions were intentionally designed, constructed, and operated as a continuing enterprise which was specifically and intentionally designed to enrich the named parties at the expense of the Complainant and all other persons similarly situated.

5. The People’s Republic of China (“The People’s Republic of China” or the “Chinese Communist Government” or “Communist China” or “China”), is the internationally recognized Government of China and as such, is the successor government to the predecessor Chinese governments, including the Imperial Chinese Government and the Republic of China.

VI. Prayer for Relief

A. WHEREFORE, Complainant prays for the Antitrust Division of the United States Department of Justice to commence an investigation into the practices of the Three Primary Credit Rating Agencies as described in this Complaint and to bring an antitrust enforcement action against the named parties, including the specific relief stated below.

1. Antitrust Injury

360. Complainant realleges and incorporates herein, as though fully set forth, the allegations of all preceding paragraphs of the Complaint.

361. The Three Primary Credit Rating Agencies collectively control approximately, or in excess of, 95% of the international credit rating industry and so in effect are constituted as the industry.

362. By their actions, the Three Primary Credit Rating Agencies have caused Complainant to suffer economic injury and such injury is of the nature of an antitrust injury.

2. Civil Racketeering

363. Complainant realleges and incorporates herein, as though fully set forth, the allegations of all preceding paragraphs of the Complaint.

364. The Three Primary Credit Rating Agencies, the Debt Underwriters, the Clearing Agents, the Paying Agents, and the Law Firms, collectively constituted as participants in the Capitalist China enterprise, conspired to construct and operate an enterprise, whose operation is dependent upon an artifice, in order to reap windfall profits at the expense of the defaulted creditors.

365. By their actions, the Three Primary Credit Rating Agencies, the Debt Underwriters, the Clearing Agents, the Paying Agents, and the Law Firms, have caused Complainant to suffer economic injury and such injury is of the nature of a civil racketeering injury.

366. On the basis of the factual evidence as stated herein, Complainant prays for a summary administrative adjudication and order of injunction restraining the continuation and furtherance of the injurious actions of the Three Primary Credit Rating Agencies and suspending the publication and distribution of the falsehood, namely the international sovereign credit rating assigned to China, until such time as the Debt is repaid in full, including the loan principal and all interest due thereon; default interest; and penalties.

Following this complaint, the U.S. dollar continues to slide and gold reaches an all time trading high.  And so the battle continues.

Wednesday, September 15, 2010

Multi-cultural Awareness: Lessons Still Learned in the Classroom

Today classrooms are becoming more diverse and present a unique challenge to teachers. Students are coming to class with a greater variance in values, cultural norms, and verbal and non-verbal communication behaviors that may be unfamiliar to some teachers.

According to Nancy Longatan (2009), “[b]y raising awareness of the non-verbal communication strategies familiar to students from other cultures, such as reflectivity, proxemics, volume and eye contact, teachers and students can significantly improve communication in the multicultural classroom”.

Longatan (2009) highlights key elements under each non-verbal communication strategy.

· Reflectivity – Recognize that in most Western culture a “quick response” is often the norm; however this is not the case for all. In some cultures, “reflectivity” or a time to carefully evaluate all of the elements of a question before providing a “detailed answer,” is the norm.

· Proxemics - is the study of how near or far people stand or set to each other when communicating. A student from a culture that values close proximity may be left with a feeling of rejection in a classroom setting where distant proximity is the norm.

· Volume – volume of voice varies greatly among cultures when communicating. This is the case even in “subcultures”. A child who speaks too soft or too loud in comparison to the classroom norm, may be at a disadvantage.

· Eye Contact – in come cultures eye contact is valued as a sign of respect; in others it is disrespectful.

Teachers must be conscious of these differences to be effective multi-cultural communicators. Children will quickly adapt to a new cultural setting, but a teacher can ease the transition by being aware and sensitive to the issues surrounding multi-cultural communication.

A classroom is no different than a multi-cultural workplace. Leaders, managers, and corporations, much like teachers, must be sensitive to cultural differences; including non-verbal differences. According to Moran, Harris, & Moran (2007), the collective image of ones self is projected “through body, bearing, appearance, tone of voice, and choice of words” (p. 44).

Each individual has their own unique perception of reality, influenced by the collective experiences in throughout their life. Therefore, each person, in this case the student, receives the same message and interprets it differently within their own sphere of reality. According to Moran et al. (2007), “[t]he individual working and communicating in a multicultural environment must ‘remember that the message that ultimately counts is the one that the other person gets or creates in their mind, not the one we send’” (p. 46). According to Longatan (2009), the message that is being received by the student includes not only verbal but non-verbal communications that the teacher must be sensitive to.

As good govies we all stand to learn a lesson or two from Longatan's advice. We're constantly working in a world that demands good multi-cultural leadership and communication skills. Being self-aware and conscious of our verbal and non-verbal communication will ultimately increase efficiency within our agency/ organization and the quality of service to those we serve.

Longatan, N. (2009). Issues for the multicultural classroom: Non-verbal communication can be a cross-cultural challenge. Retrieved on September 15, 2010 from

Moran, R., Harris, P., and Moran, S. (2007). Managing cultural differences: Global leadership strategies for the 21st century. Burlington, MA: Butterworth-Heinemann.

Thursday, September 9, 2010

Skills in Cross-Cultural Communications: Success Overseas?

A manager skilled in cross-cultural communications is more likely to succeed in an overseas assignment than a manager with stronger functional skills; true or false?

A manager who is skilled in cross-cultural communications, while he may have the proper training, may not have the willingness nor capacity to use the skills. Having cross-cultural communication skills would make this manager no more likely to succeed or fail than the manager with stronger functional skills.

While the manager with stronger functional skills may not have formal cross-cultural communication skills, he/she may have the natural ability to interpret cultural differences in a way that allows him/her to consider many perspectives and respect the culture in which the behaviour was learned. According to Connerley & Pedersen (2005), "[i]t is our contention that the majority of leaders want to treat employees, clients, coworkers, suppliers, and everyone else with respect, but may not have the tools to do so".

Certainly an awareness of multicultural differneces, and the ability to communicate accross those differences will be beneficial for a manager. However, "[d]eveloping multicultural awareness, knowledge, and skills is not an end in itself, but rather a means toward increasing a person's power, energy, and freedom of intentional choice in a multicultural and diverse world" (Connerley, et. al, 2005, p. 7).

Moran, Harris, & Moran (2007) stated,

[e]very individual communicats a unique perspective of the world and reality. Every culture reflects the group view of teh world. From time to time, one must check whether one's view of the world, or that of an organization, synchronizes with the collective reality. (p. 44)

Essentially, the manager's success will rest in his/her ability and willingness to check his/her own personal views or that of their organization, against the collective reality or norm; and to adjust to a changing reality or norm.


Connerley, M. & Pedersen, P. (2005). Leadership in a diverse and multicultural environment: Developing awareness, knowledge and skills. London: Sage Publications.

Moran, R., Harris, P., & Moran, S. (2007). Managing cultural differences: Global leadership strategies for the 21st Centrury. Burlington, MA: Butterworth-Heinemann

Tuesday, May 25, 2010

China’s Defaulted Debt: Remedies for U.S. Citizens

    Between 1913 and 1942 the Chinese Government, through the Hong Kong & Shanghai Banking Corporation, Deutsche Bank and other international banks, issued Chinese Government Bearer Bonds in Europe and the United States. The most notable of these bonds was the 5% Reorganization Gold Loan of 1913. These loans were "denominated as 'gold loans' and were payable in British pound sterling and three other European currencies in semi-annual interest payments with principal due and payable in 1960" (Green, 2002).
    In 1939 the Chinese Government defaulted on its sovereign debt as a result of the financial stress created by World War II. During that time a group known as the Kuomintang Business Management Committee, ("KBMC"), exerted substantial control over the finances of the Government of China (1912-1926), and the Republic of China (ROC) from 1927 until 2000. The KBMC currently functions as a private, non sovereign entity managing banks, shipping lines, technology companies and assorted other business ventures worth an estimated "$6 billion dollars" (confidential source, 2010).
KBMC has long been involved in the finances of the public and private sectors of China, Hong Kong, and Taiwan. When World War II began in 1939, the ROC defaulted on all of its foreign debt obligations known as "bearer bonds." Following the default, China issued several more instruments of foreign debt known as Victory Bonds and Allied Bonds. In 1949 the Communist party had taken power in China, renaming it the Peoples Republic of China ("PRC") and the ROC government fled in exile to Taiwan. The PRC later renounced all debt obligations incurred under former regimes, despite its assumption of the government owned salt mines and other assets that had been used to secure such debts, including the gold loans.
On October 29, 2003 an Order of the Executive Yuan decreed that the debts would not be repaid prior to national unification. This was to include all outstanding foreign currency bonds issued in the Mainland prior to 1949 and the short term Gold Bonds of 1949. Debts incurred by any government banks or other financial institution that accepted deposits prior to the ROC's retreat to Taiwan were also renounced.

In 2008, the United States District Court for the Southern District of New York found that some of the bondholders' claims against the PRC were barred by the statute of limitation, Morris v. PRC, (2007).
    Despite numerous attempts by United States citizens to redeem their gold loan "bearer bonds", to date, satisfaction has not been made. "That debt includes about $260 billion on bonds issued by the former Republic of China. Of that, more than 300 American citizens are owed nearly $100 billion from bonds on which the People's Republic of China has defaulted"
Various suits within the U.S. court system have cited the Foreign Sovereign Immunities Act "FSIA", denying U.S. citizens the right to sue the PRC. The FSIA places the burden of proof on the defendant to prove that it is a "foreign state" as defined at 28 U.S.C. § 1603(a),(b), thereby entitling such state to sovereign immunity. If the state in question is found to be a "foreign state", the suit may only proceed under one of the exceptions as defined at 28 U.S.C. § 1605, 1605A, and 1607. Common exceptions include: waiver of immunity by the foreign state, § 1605 (a)(1); an agreement to arbitrate the dispute, § 1605(a)(6); engagement in a commercial activity by the foreign state, §1605(a)(2); or the commitment of a tort in the United States, §1605(a)(5). The burden of proof for an exception under the FSIA rests with plaintiff.
The following, is an examination of several cases which have been heard as a result of the PRC's default on the "gold loan" bearer bonds that will evaluate the validity of the United States citizens' rights to collect on the debts, despite the Foreign Sovereign Immunities Act and the Statute of Limitations.


National City Bank of New York v. Republic of China, 348 U.S. 356 (1955)
In 1954 the Republic of China sued National City Bank in a Federal District Court to recover monies deposited by an agency of the Republic. National City Bank filed a counterclaim for over $1.6 billion dollars in defaulted treasury notes that were issued by the Republic. The Republic plead sovereign immunity, and requested a dismissal of the case. The District Court dismissed National City's counterclaims. National City appealed to the Court of Appeals for the Second Circuit, that
affirmed the dismissal and the denial on the ground that the counterclaims were not based on the subject matter of the respondent's suit and therefore it would be an invasion of the respondent's sovereign immunity for our courts to permit them to be pursued. National City Bank of New York v. Republic of China (1955)
However, the pressing question of "sovereign immunity" caused the case to be heard by the U.S. Supreme Court on November 9, 1954. In delivering the opinion of the court, Justice Frankfurter stated, "[t]he status of the Republic of China in our courts is a matter for determination by the Executive, and is outside the competence of this Court" (National City Bank of New York v. Republic of China (1955).
The "status", referring to the recognition of the Republic of China as a "foreign sovereign" was viewed by the court as a duty of the U.S. State Department. "The State Department is responsible for conducting foreign affairs, and as such is the usual determining authority for granting immunity for a particular suit." Ex parte Republic of Peru, 318 U.S. 578. However, in this case, the U.S. State Department refused to issue such a "status" opinion.
The court, fearing interference with international relations, similar to those that resulted after the issuance of an opinion in The Schooner Exchange v. McFaddon (1812), was reluctant to issue such an opinion in this case regarding the "status" of the Republic of China. Essentially, the court was reluctant to advise on a matter that would have a direct affect on foreign affairs and international relations, as it was not seen by the court as a power of the judicial branch.
This case demonstrated the need for a re-evaluation of the ability to circumvent valid "sovereign immunity," through the use of counterclaims that ultimately tested the definition of "original subject matter". In addition, it demonstrated the inability of U.S. bondholders to successfully sue the Republic of China, directly, for the defaulted debt in a U.S. court. Despite the 1952 revisions to U.S. law that stripped foreign governments of their sovereign immunity when engaged in "commercial activity" within the United States (e.g. the sale of government bonds), claims arising prior to the 1952 law were barred from consideration. Thus this issue was no longer a matter for the judicial branch, but rather a matter for the executive branch to settle; or so it seemed.
The 1979 Exclusion
In 1979, a bilateral trade agreement between the United States and China was entered into, and the United States formally recognized the PRC as the established government of China. As part of the agreement, all claims of United States nationals against the Chinese government for losses of property were to be settled. However, this agreement only covered losses occurring between October 1, 1949 and May 1979.
The Chinese Government bonds that had been in default prior to October 1949, were
therefore excluded from this agreement and bondholders were not eligible to receive any of the proceeds from the 1979 settlement. Again, holders of the "gold loan" bearer bonds, which defaulted in 1939, were without remedy.

Jackson v. People's Republic of China, 794 F.2d 1490, 1497-98 (11th Cir. 1986)
    Jackson v. People's Republic of China (1986) was heard in the U.S. Court of Appeals, 11th Circuit on July 25, 1986. The Plaintiffs, were investors in bearer bonds that were issued by the Imperial Government of China in 1911, seeking a review of the 1982 Hu Kuang Railway Case. This decision, of an American court, set aside default judgment against the PRC and dismissed the case for lack of subject matter and jurisdiction.
    Initially, the Hu Kuang Railway Case resulted in default judgment in favor of the plaintiff, do to China's refusal to appear before the court. The default judgment resulted in the Chinese government's prompt attention to the matter in the form of an aide memoire which expressed China's view regarding sovereign immunity. The memoire stated,
[a]s a sovereign State, China incontestably enjoys judicial immunity. It is in utter violation of the principle of international law of sovereign equality of all States and the UN Charter that a district court of the United States should exercise jurisdiction over a suit against a sovereign State as a defendant, make a judgment by default and even threaten to execute the judgment. (Nisuki, 2001, p. 163)
    The same memoire argued that the debts at issue in the Jackson case were "odious debts" incurred by the prior regime, and as such the current government of China refused to recognize them. The Chinese out of fear of internal affairs compromise continued to hold fast to the principle of "state equality," as defined in the UN Charter.

The Foreign Compensation (Financial Provisions) (No.2) Order 1987
    China's refusal to recognize the bonds issued under the PRC regime was a matter of principle. This became increasingly evident in 1987 when China entered into an agreement with Britain to satisfy the bonds of "British citizens holding the 1913, 5% Reorganization Gold Loan bearer bonds – the same bond issue held by many American bondholders" (Testimony of Jonna Z. Bianco, July 17, 2008, p. 4)
    The agreement between Britain and China was reached through the implementation of Britain's Foreign Compensation Act of 1950, which established the Foreign Compensation Commission (FCC). The FCC's duties included the registration, settlement, and disbursement of compensation arising out of claims against foreign Governments.
    Under the Foreign Compensation Act of 1950, section 7(2), the power to direct payment was given to His Majesty. Section 7(2) stated,
…His Majesty may by Order in Council direct the payment into the Exchequer by the Commission, out of any sums paid to the Commission for the purpose of being distributed by them under this Act, of such amount as may be determined by or under the Order…(
    In 1987 Her Majesty exercised this power and, Statutory Instrument 1987 No. 2201, The Foreign Compensation (People's Republic of China) Order, was issued. The Order stated,
…an Agreement (hereinafter referred to as "the Agreement") entered into between Her Majesty's Government and the Government of the People's Republic of China on 5th June 1987 provides that the Chinese Government shall pay to the Government of the United Kingdom the sum of £23,468,008…(
Part I (2) of the Order defined the claims to be settled as,
a bond or other document of title in respect of a loan or obligation issued or guaranteed before 1st October 1949 by a former government of the territory or any part thereof or by another public authority in the territory. (
Prior to this agreement the Chinese government had never formally recognized any debts
issued before 1949. This agreement, however, only remedied the debts owed on pre-1949 bonds that were owned by a British national (individual, corporation, firm, or association) prior to January 1, 1980.
    This restrictive settlement with British nationals meant that China had chosen to finally acknowledge the debts. However, U.S. bondholders were still without remedy, and the pre-1949 bonds were now considered to be in a "selective default" status.
    Selective default is a term often used by various credit rating agencies to describe the default of an issuer on a bond, loan or other material financial obligation. This is different from a "default" rating in that the issuer has not entered into bankruptcy filings or any other proceedings which would otherwise cease business. According to Fitch Ratings, this includes "the selective payment default on a specific class or currency of debt" ).
    In addition to the Fitch ratings, " S&P has maintained an 'investment grade' rating for China since 2001, which S&P defines as an issuer not having any defaulted full faith and credit sovereign debt outstanding and unpaid"(
    China's 1987 agreement with Britain established formal acknowledgement and responsibility for the outstanding PRC bonds by the current regime. This, by definition, should have resulted in a lower credit rating for all issues of sovereign debt until all of the defaulted bonds were satisfied. However, this was not the case.
    U.S. bondholders, recognizing this anonymity and having been barred from remedy in all previous cases, decided to take an innovative approach. If remedy was not available through the U.S. judicial branch; political power and the use of the legislative branch was seen as a possible solution by the bondholders.

Senate Concurrent Resolution 78 (2008) and House Resolution
1179 (2008)
    In 2008 Senate Concurrent Resolution 78 and House Resolution 1179 were introduced on the floor of the 110th Congress of the United States.
    House Resolution 1179
(2008) stated the following:

Whereas the continued publication of artificial ''investment grade'' sovereign credit rating classifications assigned to the Government of the People's Republic of China provides an incentive to the Chinese Government to avoid a negotiated settlement with United States citizens regarding China's default on its sovereign debt obligations;
Whereas the lack of transparency concerning the selective default of the Government of the People's Republic of China poses a material risk to the investing public and threatens the integrity of the United States capital markets… (H.R. 1179 (2008), p. 3, 3-4).
These Resolutions sought remedy for U.S. bondholders by forcing China to disclose all
defaulted debts, including those of the prior ROC regime, when registering prospectuses and other instruments with the Securities and Exchange Commission ("SEC").
    While the SEC does not have any control over Nationally Recognized Statistical Rating Organizations (NRSROs), such as Moody's, Fitch, and S&P, they do have a self proclaimed responsibility to U.S. investors. The SEC homepage states that, "[t]he mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation" (
    The protection of investors in the United States should be derived from the basic laws and rules which are intended to regulate the securities industry. According to the SEC,

[t]he laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it. (
Essentially, Senate Concurrent Resolution 78 and House Resolution 1179, should have
resulted in restricted access to U.S. capital markets to China until the bonds are satisfied; or required the full disclosure of "selective default" status, on pre-1949 sovereign debt instruments, in prospectuses and post-1949 instruments that are registered with the SEC. Instead, Senate Concurrent Resolution 78 was referred to the Foreign Relations Committee and was never brought back to the floor for voting. In addition, House Resolution 1179 was also referred to the House Committee on Financial Services and never returned for voting.
    The SEC, however, did investigate the three major NRSROs, Moody's, Fitch, and S&P. An article in the New York Times, by Michael Grynbaum (2008), stated that a report issued by the Securities and Exchange commission, "confirmed what many on Wall Street had long suspected: the major ratings firms, including Fitch, Moody's and Standard & Poor's, flouted conflict of interest guidelines and considered their own profits when rating securities, among other suspect practices"(http://www.globalsecurities/
    NRSROs are private companies, paid by their clients, in this case China, to evaluate the risk associated with their financial instruments. Often, if risk is determined to be higher than usual by analysts, issuers will buy insurance policies to back their securities and other financial instruments, and thus avoid a lower credit rating. Conflict of interest arises when the analysts ignore obvious facts, such as those associated with China's sovereign credit ratings, for fear that issuing a lower credit rating will result in a loss of revenue from the client.
Possible Remedies for PRC Bondholders
    Thus far U.S. holders of the bearer bonds issued by the Peoples Republic of China have found little prospect for collecting on their investments. Bonds issued prior to 1949 were blocked from remedy by the Foreign Sovereign Immunity Act. The 1952 changes to U.S. law denied sovereign immunity to states engaged in activities that were "commercial"; and the subsequent case, Republic of Argentina v. Weltover (1992), defined commercial activity by a state. Despite this progress, the bonds which were issued prior to 1952 remained barred from consideration under the "commercial" exception of the Sovereign Immunity Act.
    Precedent set by other international agreements and cases, while establishing the current government of China's responsibility for the PRC bonds and commercial activity, have also failed under the time constraints associated with the FSIA and the "commercial exception". Efforts in the legislative branch have not generated results and the Securities and Exchange Commission has yet to issue charges against the NRSROs for fraudulent activity. At this point, it would appear that the only successful remedy for these matters would be the denial of access to U.S. credit markets by executive order, or through the lowering of China's credit rating by the NRSROs.
Denial of access to U.S. markets is not a new practice in the U.S. when negotiating with a non-compliant or un-willing counterpart in international relations. Similar measures have been taken against Iran. The Iran and Libya Sanctions Act ("ILSA") of 1996 authorized the president "to select at least two from a list of six authorized economic punishments for sanctioned firms: for example, the president could deny access to U.S. financial markets" (
    The SEC, while lacking the power to force NRSROs to change credit ratings, could bring charges against the NRSROs for fraudulent business practices. A similar charge was brought against Goldman Sachs & Co by the SEC in 2010. According to Daryl Isherwood (2006),
In its complaint, the SEC alleges that Goldman failed to tell investors in a collateralized debt obligation that a major hedge fund that helped choose the portfolio had also placed bets against it. (
    Goldman Sachs' alleged concealment of the hedge fund, an instrument used to mitigate risk on an investment, essentially deprived potential investors of the knowledge necessary to make an informed decision prior to investing. The "inflated" credit ratings, issued by the NRSROs that ignored China's "selective default" on prior financial instruments, a no different than Goldman Sachs concealing details about the hedge fund. Both instances involve business entities concealing or distorting information about the risk associated with investments and therefore should fall under the regulatory authority of the SEC.
    Finally, the Statute of Limitations should not bar U.S. citizens from collecting on their bonds. The ROC acknowledged in Article 63 (2) of its 1992 amended Constitution, the mutual amity to satisfactory compromise on their debts, upholding the legal effects of any civil matters created in the Mainland Area, with and including "any foreign national". Article 63 (3) of the Constitution was a clear admission that the ROC continued to accept responsibility for all of its pre-1949 debt.
The Statute of Limitations for these defaulted bonds toiled upon the act of default in about 1939, re-toiled again on about September 18, 1992 by the action of acknowledgement of the debt, and has re-toiled again on about March 1, 2004 when Article 63, paragraph 3, was amended and Article 63(3) became Article 63 paragraph (1) and (2), and 63 (3) was deleted, as promulgated by Presidential Order on about October 29, 2003 and subsequently implemented on about March 1, 2004 by Order of the Executive Yuan. (Source Confidential)
For these reasons, U.S. citizens have a clear and apparent right to satisfaction of their
bonds. The key elements to win such a battle in a U.S. court, while complicated, are available. Successful remedy of this situation, however, will require the coordination and cooperation of all three of the U.S. branches of government.

Ex parte Republic of Peru, 318 U.S. 578
Jackson v. People's Republic of China, 794 F.2d 1490, 1497-98 (11th Cir. 1986).
Gallegly, E. (2008, September 8). China debt syndrome. The Washington Time. Retrieved on
May 22, 2010 from

Grynbaum, M. (2008, July 9). Study finds flawed practices at rating firm. The New York Times.
Retrieved on May 22, 2010 from
House Resolution 1179
Isherwood, D. (2010 April 16). SEC charges goldman sachs with fraud. Fox Business New.
Retrieved on May 22, 2010 from
Monterey Institute for International Studies. (2010). Economic sanctions: Pressuring Iran's
nuclear program. Monterey: Sabatini. Retrieved on May 22, 2010 from
Morris v. PRC, 478 F. Supp. 2d 561(2007).
National City Bank of New York v. Republic of China, 348 U.S. 356 (1955).
Nisuki, A. (2001). Japan and international law: past, present, and future. Netherlands: Kluwer
Law and Taxation Publishers.
Office of Public Sector Information. (1950). Foreign Compensation Act. London, UK: OPSI.
Office of Public Sector Information. (1987). Statutory Instrument 1987 No. 2201. London, UK:
Republic of Argentina v. Weltover, 504 U.S. 607 (1992)
Securities and Exchange Commission. (n.d.). Retrieved on May 22, 2010 from

Sites & Harbison PLLC. (2002) Memorandum: Default by China of Full Faith and Credit
Bonds: 40% of Proceeds to Benefit U. S. Government and Many American Communities. Nashville, TN: Greene, R.
Testimony of Jonna Z. Bianco (2008).
The Schooner Exchange v. McFaddon, 11 U.S. 116 (1812).

Tuesday, May 11, 2010

Challenging Global Policy: A 21st Century Evaluation of Sustainability and Global Governance


The reality of the twenty-first century has revealed the need for a comprehensive, logical, coordinated effort from the various agencies responsible for the successful management of global threats. Prior to World War II, international relations occurred within a structure where blood ran thicker than water; conflict resulted over conflicting ethnic values and norms such as religion, race, and tradition. Today, while these issues are still ongoing, international relations and peace operations are occurring in a world where money and, even water, runs thicker than blood. International trade, fresh water supply, food supply, and disease control are key issues that are facing the world today. In short, management of sustainability issues going forward will be the key to peaceful international relations and peace will be the key to a sustainable world.

Keeping the Peace Then and Now

Prior to World War II, keeping the peace meant preventing conflict that resulted from expansionist ideals and opposing religious and cultural values and norms. As far back as 1095, the First Crusade set out with the goal of recapturing Jerusalem and the Holy Land from Muslim rule. These religious wars continued for the next two-hundred years, and the term “crusade” was later used to describe contemporary campaigns outside the Levant in the 16th century.

Over eight centuries later, the blurring of ethnic and cultural boundaries between the Germans and Slavs resulted in a racial, social Darwinism that eventually gave way to armed conflict. Following World War I, the first attempt at modern peace keeping agreements resulted in the Treaty of Versailles.

The Treaty of Versailles did not appease Germany, and did not provide the constraints necessary to prevent it from becoming the dominant continental power once again. Resentment amongst the Germans and Austria-Hungary grew when harsh monetary penalties, breaking of territory, and massive ethnic relocation resulted in the destruction of the German economy.

Hyperinflation and the subsequent German default on sovereign debt owed to the victors of World War I, demonstrated the failure of the Treaty of Versailles and Woodrow Wilson’s Fourteen Points. This failure was evidenced by a short-term goal which failed to evaluate the multi-faceted needs to obtain long-term peace.

Following World War II and progressing through the late Twentieth Century, the United Nations, World Bank, and the European Union were formed. These are just a few examples of today’s international organizations that play a role in international relations and peace keeping operations. In addition to international organizations, the advancement of technology and international business has resulted in many non-governmental organizations (NGOs), and international corporations becoming actors on the international stage.

Today, the international structure has become more complex. While armed conflict, or threat thereof, has decreased, the issues that give rise to conflict have become more abundant and diverse.

Water Wars

A great Twenty-First Century example of the complexity of today’s system and new challenges to international relations can be demonstrated by examining the world’s most abundant resource; water. Water has become a key issue for states, corporations and NGO’s. Privatization of water and an ever expanding global population has resulted in sustainability concerns and conflicts, now called “water wars”.

According to Vandana Shiva (2002),

Paradigm wars over water are taking place in every society, East and West, North and South. In this sense, water wars are global wars, with diverse cultures and ecosystems, sharing the universal ethic of water as an ecological necessity, pitted against a corporate culture of privatization, greed and enclosures of the water commons. (p. x)

In addition to the paradigm wars, real wars, explicitly over water, have already erupted in some areas of the world. The Middle-East has already seen conflicts arise solely over water between Syria and Turkey as well as Egypt and Ethiopia.

Sustainable, strategic, and coordinated policy will be critical to the peaceful existence of this region within the first quarter of the Twenty-First century. According to Adel Darwish’s 1994 lecture at the Geneva Conference on Environment and Quality of Life,

Israel's population is projected to grow from 4.7 million in 1990 to about 8 million in 2025. By that time Palestinians in the west bank - because of their higher birth rate, are likely to reach just under seven million - the two peoples are to share the same water resources which they both now say are not enough. (

Current international law provides little guidance for the control of water. There are very

few agreements that exist today other than customary rights, established by long-term use of the resource. In the Middle-East upstream countries often control the water resources affecting downstream peoples dependant on the water supply. This is the case between Egypt and Israel as well as Turkey.

The conflict between Egypt and Israel dates to the mid 1960’s when Israel acted against the diversion of the Jordan River. Conflict continued until the early 1970’s when meetings at Camp David, resulted in a peace treaty in 1979. Originally, Israel suggested cooperation on water projects. Sadat, Egypt’s president, agreed, but rescinded when the Egyptian army rebelled against him.

Amazed that the army could plot against him, Mr Sadat questioned Field Marshal Abdel Halim Abu Ghazala, the defense minister, who said the loyalty of the Egyptian army could not be guaranteed if a coup was mounted `to stop Israel [from] stealing the Nile’. The president quickly dropped the water-sharing idea. (Darwish, 1994)

The lack of clarity in international law should be the focal point for relevant agencies going forward. Little precedent exists “that the UN International Law Commission or the International Court of Justice could [cite] to establish some rules to arbitrate on water sharing. . .” (Darwish, 1994).

The World Bank, often criticized for its role in the privatization of water resources, financed a dam project in India in the late 1940’s. The bank set precedent by requiring an agreement between surrounding nations that established usage and rights prior to the dam being built. While successful, this practice by the World Bank has been criticized by those like John Perkins (2004), who argues that the financing of such projects is a manipulative move which places emerging countries into large amounts of debt, leaving them no choice but to give into the demands of the Bank and global politics. Perkins (2004) stated,

Ecuador is awash in foreign debt and must devote an inordinate share of its national budget to paying this off, instead of using its capital to help the millions of its citizens officially classified as dangerously impoverished. The only way Ecuador can by down its foreign obligations is by selling its rain forests to the oil companies. (p. xxiii)

These issues combined with a culture that has demonstrated the willingness to use armed force over less crucial matters is a recipe for disagreement. In addition, water plays a primary role in many religious beliefs throughout the world. According to Vandana Shiva (2002),

Those who control power prefer to mask water wars as ethnic and religious conflicts. Such camouflaging is easy because regions along rivers are inhabited by pluralistic societies with diverse groups, languages, and practices. It is always possible to color water conflicts in such regions as conflicts among regions, religions, and ethnicities. In Punjab, and important component of conflicts that led to more than 15,000 deaths during the 1980s was an ongoing discord over the sharing of river waters. However, the conflict, which centered on development disagreements including strategies of the use and distribution of Punjab’s rivers, was characterized as an issue of Sikh separatism. (p. xi)

Twenty-First Century Sustainability

As evidenced by the previously mentioned examples, peace is critical to sustainability and sustainability is important to peace. Conflict of any type reduces the resources that might otherwise be available to a nation’s citizens. In addition to the reduction of resources, war affects human lives, infrastructure, and the global economy. By obtaining peace, critical resources such as human capital, money, and environmental resources are freed for the betterment of a nation’s people. The quality of life is therefore improved and the threat of discord is thereby reduced.

A similar argument was presented in the United Nations’ document titled, Report of the World Commission on Environment and Development: Our Common Future, (“the report”). The report concluded that,

[a] world in which poverty and inequity are endemic will always be prone to ecological and other crises. Sustainable development requires meeting the basic needs of all and extending to all the opportunity to satisfy their aspirations for a better life. (

This leaves one question. What creates and defines sustainable development in a globalized world? The interdependent nature and challenges of today’s world often conflict with the nature of institutions that currently exist. Most of these institutions tend to be “independent, fragmented, and working to relatively narrow mandates with closed decision processes” (

The solution to this problem is simple; sustainable management processes and good governance of the nation state, NGOs, and international corporations can help to bridge the gap that currently exists in the international system.

A 2009 study by the Organization for Economic Cooperation and Development (OECD), Sustainable Governance Indicators (SGI), found that,

… the quality of governance is most important in ensuring sustainable policy outcomes. Countries with ‘good executive management performance, a sound democratic order and an effective inclusion of societal actors into policymaking processes are more successful in terms of sustainability and also in terms of social justice’. (

The quality of governance for a nation, NGO, or corporation should be evaluated by the

willingness to recognize a need for change, and the ability to adapt the policies and processes necessary to implement such change.

If this principle is applied to the current international system, the probability of achieving peace will be much greater. The inclusion of varying societal actors and an open, coordinated, policymaking process will reduce fear, define clear standards, and optimize the existing standards of governance and management.

In conclusion, the Twenty-First Century, while arguably a globalized world, can seize the opportunity to leverage globalization through good governance and sustainable management practices. It should not be seen as a need to “undo” or “reinvent” the current system and hundreds of years of international relations precedent; rather an opportunity to evolve and optimize the current system for the attainment of long-term global cooperation.


Darwish, A. Geneva conference on environment and quality of life. Retrieved from Lecture

Notes Online Web site:

OECD. (2009). Policy performance and executive capacity in the OECD: Sustainable

governance indicators 2009 [PDF document]. Retrieved on May 9, 2010 from

Perkins, J. (2004). Confessions of an economic hit man. New York, NY: Penguin Group.

United Nations. (1987). A/42/427 Our common future: Report of the World Commission on

Environment and Development. Retrieved on May 9, 2010 from

Vandana, S. (2002). Water wars: Privatization, pollution, and profit. Cambridge, MA: South

End Press. Retrieved on May 9, 2010 from

Wednesday, April 21, 2010

The Expanding Reach of International Law: A Historical Evaluation

The expanding reach of international law has been heralded by some and scoffed at by others during the last century. This expansion has not been without atrocity and triumph. To better understand the expanding reach and evolution of international law, it is necessary to understand its evolution from a historical perspective.
    International law, when evaluated through the historical lenses, reveals a transition from "statism" to "positivism", and more recently, "globalism". Understanding each of these concepts individually becomes a critical component when critiquing the application of international law as it applies to matters directly involving the individual.
    Statism became paramount in the nineteenth century following the dissimilation of the concept of nobility and the de facto right and capability of an individual to make decisions. The individual, through this lens, was no longer given consideration, and resulted in a period of reformation and the emergence of the nation-state.
Following the Age of Enlightenment the concept of "sovereignty" changed from Church supremacy to State supremacy. State supremacy and the modern parameters of sovereignty were established by the Treaty of Westphalia in 1648. The concept of statism, therefore, "vested [sovereignty] not in the people but in the national state, and [conceived] that all individuals and associations exist only to enhance the power, the prestige, and the well-being of the state" (Plano, 1973).
This state-centered philosophy gave rise to a positivistic concept of law. This concept of law dominated for more than two-hundred years, resulting in a "subject-based approach" (Huber, 2009). According to Huber (2009), the
"subject-based" approach to international law is firmly founded on the doctrine of inalienable state sovereignty. In this positivistic legal framework, state sovereignty prohibited the imposition of legal obligations on states for the purpose of protecting human rights. In essence, no longer was there any legal or moral authority higher than the state.
The authority of the state was finally challenged following the atrocities of World War II. Grave violations of human rights, during the war, resulted in the Nuremberg trials. The trials resulted in the ability to charge and prosecute individuals under international law.
At the request of the General Assembly of the United Nations, the International Law Commission prepared a formulation of the principles of international law recognized in the Charter and the Judgment of the Nuremberg Tribunal (Nuremberg Principles). The General Assembly unanimously affirmed these principles and in 1947 further requested the International Law Commission to take them into account in preparing the Draft Code of Crimes Against the Peace and Security of Mankind (Draft Code). (Gallmetzer & Klamberg, p. 60)
    The Nuremberg trials ushered in the return of classical political philosophy, as it applied to the individual. Whereas prior reformation had offered protection to the individual by giving supremacy to the state, the Nuremburg tribunal rejected such notions stating that, "'[c]rimes against international law are committed by men, not by abstract entities and only by punishing individuals who commit such crimes can the provisions of international law be enforced'" (Huber, 2009).
    Following the trials at Nuremburg international law further expanded its reach to the individual. This was evidenced by several important cases in international law. One of the first was Liechtenstein v. Guatemala which was held before the International Court of Justice in 1955. The "Nottebohm Case," as it was called, resulted in a decision that defined effective nationality.
    While Liechtensten v. Guatemala could be considered a set-back for the rights of the individual, under international law, later cases returned some protection to the individual's right to be protected under the state.
From or about 1998 the Strasbourg court [ECHR] has further implied or read into article 2, positive obligations on the state to establish and enforce a general framework of laws, regulations and procedures to ensure the due protection of the lives of individuals within their (legal) jurisdiction. (O'Neill, 2009)
    The Nuremberg and later Tokyo International Tribunals established the basis for individual and state liability, under international law, for criminal acts against human rights, global peace, and war crimes.
    The specific responsibilities and guidelines for legal application of these principles were defined by Article 6 of the Charter of the Nuremberg International Military Tribunal, and later affirmed and codified by the International Law Commission, a subsidiary of the United Nations.
    Essentially, Nuremberg was the beginning of many events which would define and recognize, not only individual rights under international law, but also individual responsibilities. This expansion and recognition of the individual forced the decline of statism, the erosion of the concept of nationality as defined by territorial boundaries, and the rise of a new concept known as "globalization".
    Globalization, driven by technology, has resulted in the high-speed sharing of information, ideals and norms between states and individuals. It has challenged the traditional view of sovereignty "by trends toward extraterritoriality, regionalization, and universality of laws" (Huber, 2009).
    The challenges for international law, created by these trends, have resulted in a world that is desperate for guidance. In an attempt to meet these needs many intergovernmental organizations (IGOs) were developed. In 1949 the recognition of IGOs as a "legal personality" by the International Court of Justice essentially transformed international law.
    Today these IGOs, the most important being the United Nations, have played important roles in protecting human rights. Human rights protection has developed and been established through various international tribunals and courts. This too, presents new challenges for international law.
These international courts can suffer from insufficient funding, lack of jurisdiction, and especially impotence in implementing their decisions. Even the International Criminal Court, with its compulsory jurisdiction, must have its jurisdiction originally accepted by parties in treaties. (Huber, 2009)
    Another challenge for the expansion of international law, as argued by many scholars today, is the erosion of the State and the over-empowerment of the individual. If an over emphasis is placed on the individual's rights, national norms and customs will be skewed. Hence the argument emerges that international law should respect and remain "rooted in a transcending moral order, the natural law" (Huber, 2009).
    Globalization has undeniably resulted in the need for structure within international law that can develop and manage mutual respect, reasonable responsibilities, and expectations between and among States, individuals and intergovernmental organizations. The establishment and recognition of human rights has been a great triumph, resulting from this evolutionary process. Nonetheless, a system lacking the power of enforcement struggles, and will likely continue to struggle to find balance.
In conclusion, international law, and the expansion thereof, must be regarded as a malleable science. It should adjust accordingly to the needs of the system, yielding when necessary to the supremacy of the State, and when necessary suppressing that same power for the protection of the individual. It is unlikely that we will see a complete resurrection of prior philosophies. However, historical lenses should be applied when necessary, and the lessons of our ancestors, both "positivists" and "statists" incorporated, in an effort to achieve and maintain this delicate balance.
Effective nationality is a principle critical determining the dual-national citizen's protection under the state. "The application of the 'genuine link' theory, borrowed from the very different context of dual nationality problems, has the unfortunate effect of depriving an individual of a hearing on the merits and the protection by a state willing to espouse his claim in the transnational arena. The net effect is an immense loss of protection of human rights for individuals" (

McCann v. United Kingdom (1996) brought into question Article 2 of the European Convention on Human Rights.

3 "Legal personality" for IGOs was established by the Reparation Case (1949). Prior to this case, international law only applied between States; as States were interpreted as having international personality and were therefore respected to have their claims heard internationally. "The 1949 Reparations of Injuries Advisory Opinion confirmed that IGOs, as well as individuals and multi-national corporations could posses rights and responsibilities as the State may attribute to them" (

Advisory Opinion. (1949). Reparation for injuries suffered in the service of the United Nations:
Advisory opinion of 11 April 1949. Retrieved on April 17, 2010 from
Gallmetzer R., Klamberg, M. (n.d.). Individual responsibility for crimes under international law:
The un ad hoc tribunals and the international criminal court. Retrieved on April 17, 2010 from
Huber, N. (2009). The challenges of expanding the scope of international law. Retrieved on
April 17, 2010 from
O' Neil, A. (2009). The European Court and the duty to investigate deaths. The Journal Online.
Retrieved on April 17, 2010 from
Plano, J. (1973). Statism. In political science dictionary. Dryden Press.
Reviews on the principle. (2004). Reviews on the principle of effective nationality. Retrieved on
April 17, 2010 from

Thursday, April 15, 2010

Ethics in Government Contracting: Time for a Change?

Recent media reports of corruption in government contracting has resulted in a damaged reputation for the profession, government agencies, and government contractors. The problem seems to be the failure to establish clear ethical guidelines. The results of such failure results in ruined reputations, fines, imprisonment, delayed or terminated government programs, and additional costs to taxpayers.

In the April 2010 issue of Contract Management, William Sims Curry, makes several suggestions for the improvement of and development of guidelines for “acceptable limits on gratuities” within the government contracting field.

As a professional in the financial industry for the past three years, I was shocked to learn that current standards for ethical conduct and guidelines for gift giving/ receiving do not exist for contractors and government agencies. Perhaps there are several lessons to be learned from existing FINRA, NASD, and State Department of Insurance regulations which guide and establish annual maximum gift amounts as well as guidelines and reporting standards for “conflicts of interest”.

Sims (2010), concluded that a “zero tolerance gratuity policy” was “impractical,” nonetheless, should be a goal for government contractors, officials, and agencies during the contracting/ subcontracting process. Sims (2010) stated,

“[p]rogress towards zero tolerance with respect to gratuities could be achieved if government agencies would reward contractors that implement effective zero tolerance gratuity practices by providing added consideration with respect to source selection decisions and profit negotiations. Such incentives are presently provided by the federal government by rewarding contractors that establish effective management systems and implement effective social contracting practices [see (FAR) 15.404-4 and (FAR) 15.304” (p. 56-57)

What are your thoughts and feelings on existing ethical guidelines for government contracting as they pertain to “gratuities”? Is it ethical at all or should a “zero-tolerance” policy be implemented? What is your personal experience (good or bad) with the giving and accepting of “gratuities”?

Tuesday, April 6, 2010

International v. Municipal Law

What is International Law

The history of international law has varied over the past four centuries. Origins can be traced back to medieval times, but did not take a prominent place in history until the early Seventeenth Century.

Early international law was based deeply in philosophy and history, focused on the idea that history was driven by nature, and the idea that, that which was right was also divine.

As history progressed through the inter-war period, the study of international law was historically based. However, the end of the Cold War led to a realization that a cosmopolitan idealism was all but perfect. According to Pierick and Werner (2010),

[f]rom ancient philosophy on, the cosmo-polis has been portrayed as a perfect order, guided by divine or natural reason, and contrasted to actual men-ruled polises that were failing ideals of justice and law. Cicero, for example, described true cosmopolitan law as …‘right reason in agreement with nature; it is of universal application, unchanging and everlasting; it summons to duty by its commands, and averts from wrongdoing by its prohibitions . . . We cannot be freed from its obligations by senate or people, and we need not look outside ourselves for an expounder or interpreter of it.’(p. 4)

With the collapse of the inter-war period, it became evident that international law, from the perspective of an ideal cosmopolitan approach based in historic reasoning, had failed and was outdated. This thinking was no longer applicable in a functional world where addressing complex problems such as human rights, trade law, and environmental issues were a critical part of international relations.

During the early 1990’s efforts were made to transition the post-Westphalian focus from “national security” to “human security”. Around the world, issues of human security were putting pressure on decision makers to reform international law.

Essentially, the plausibility of post-Westphalian perspectives involved the rise to high visibility of a multidimensional normative agenda: implementation of human rights, accountability for past crimes of state, abridgements of sovereignty, and the rise of humanitarian peacekeeping. (D’Amato & Abbassi, 2006, p. 4)

This agenda combined with social pressures encouraged multilateral approaches to

global security and the willingness of judicial bodies to recognize and apply international standards of law.

These changes, especially those of the judicial bodies, meant that states were now held to standards domestically and internationally. This caused “the rule of law [to be] extended to the foreign policy of governments…” (D’Amato, et al., 2006, p. 5). International institutions emerged as critical actors and therefore the state-centric, Westphalian, world order began to transform and the critical importance of the new international law began to emerge.

Today international law serves a broad range of interests. It is no longer seen as a simple set of rules whose purpose is solely to maintain peace. Recent cases have turned state supremacy upside-down and new actors, such as non-governmental organizations and corporations, have joined the international stage. According to D’Amato and Abbassi (2006), “[l]ocal acts are internationalized, and national boundaries seem more permeable…” (p. 9).

International Law and Municipal Law

How does municipal law become international law? How does international law affect municipal law? Do they affect each other at all? All of these are questions that have been debated by scholars; none of which have a clear answer.

Municipal law, by definition, can be summarized as the law that governs the relationship between individuals and a sovereign state. It can be specified to a certain degree by region: provincial, territorial, regional or local level. Regardless of the degree of specification, municipal law is created by a body of political superiority within the sovereign state, for the observance of the individual.

In contrast to municipal law, international law governs the relationship between and among States. States submit to the governance of international law only to the extent that they accept it as a common rule of actions amongst themselves. The creation of the law and the acceptance therein, is generally formed from the customs and traditions, international political structure, and the treaties that States form. In addition, international law is decentralized, not regularly enforced and does not necessarily have any consistent mode of adjudication.

While the basic purpose of international law, the governance of a system of relationships, is the same as municipal law, there is a difference of opinion as to whether international law and municipal law form a single conception of law. Those that believe that it does form a single conception of law are known as monists. Others, who believe that international law is distinctly separate from municipal law, are known as dualist.

Monism, usually based in natural law, “may arise either out of a unified ethical approach emphasizing universal human rights or out of a formalistic, hierarchical approach positing the existence of one fundamental norm underpinning both international law and municipal law” ( Essentially, whether international or national, both are merely a particular manifestation of the single entity of law.

Monist also believe that, in the event of conflict, international law will prevail. There are several reasons for this thinking. First and foremost, natural law itself is hierarchal. Therefore, natural law would prevail first, followed by international law and then national law, in the event of a conflict.

Another reason was argued by monist-positivist, Hans Kelson. Kelson argued that the

…'state should behave as they customarily have behaved'. As a consequence International Law is representing a higher legal order and as such supreme, because it is derived from the practice of states and national law is derived from the states as established in international law.

Positivist thinking distinctly separates international law from municipal law. (

And finally, Sir Hersch Lauterpacht, a member of the United Nations’ International

Law Commission and a Judge of the International Court of Justice, argued that, “the 'state' itself is seen as a collection of individuals rather than a legal entity in its own. In this view the international law prevails, because it is the guarantor of individual liberty” (

Dualist, strictly deny the operation of international and national law within the same framework. They argue that international law regulates the relationships between states and that national law regulates the relationships of individuals. Because of their separate jurisdictions, and separate subject matter, some extreme dualist views have argued that it is not possible for national law and international law to conflict.

One such thinker was Sir Gerald Gray Fitzmaurice, judge of the International Court of Justice until 1973. He formulated what is now,

know[n] as the 'Fitzmaurice compromise'. He assumed that since the two systems, international and national law, do not operate in common field, they can never come into conflict. Each one of them is supreme in its own domain, thereby 'any apparent conflict in the domestic field is automatically settled by the domestic conflict rules of the forum and any conflict in the international field would be resolved by international law. (

Both, Fitzmaurice and Lauterpacht, held seats on the International Court of Justice’s bench,

though at different times. Nonetheless, this example is a perfect representation of the continuing power struggle that surrounds municipal and international law.

Success Stories

While it is apparent that there is no clear winner in this debate, the current United

Nations appears to support a monist based approach. In the General Assembly’s 2009 Annual Report on Strengthening and Coordinating United Nations Rule of Law Activities (The Report), the Organization acknowledges the, “linkages between the rule of law at the national and international levels [as] substantial and multifaceted” (p. 6).

The current monist view is a departure from a statement contained on the United Nations’ Rule of Law website which states,

[t]he United Nations works to support a rule of law framework at the national level: a Constitution or its equivalent, as the highest law of the land; clear and consistent legal framework, and implementation thereof; strong institutions of justice, governance, security and human rights that are well structured, financed, trained and equipped; transitional justice processes and mechanisms; and a public and civil society that contributes to strengthening the rule of law and holding public officials and institutions accountable. (

This departure is likely the result of globalization which increasingly requires multilateral

cooperation and mutually agreed upon principals between Member States. In fact the United Nations requires that “States fulfill their international obligations, particularly with respect to the Charter, irrespective of their domestic law, and establish effective internal mechanisms, where necessary, in order to ensure compliance”(

The United Nations’ recent efforts to assist states in incorporating international norms and standards in domestic law have had many success stories. The most notable success is in the area of human rights. According to the United Nations (2009),

[s]ignificant legislation on children’s rights was adopted in Egypt, Nigeria, Uruguay, and — after a nearly 12-year consultative process — in South Africa, with United Nations support. New juvenile justice legislation was passed or legislative revisions were made in Albania, Angola, Montenegro, Mozambique and Thailand. (p. 7)

Furthermore, the United Nations is active in gaining support for constitution-building processes that include eliminating discrimination against women. To this end, the Organization had success in “Ecuador in 2008 and in the Plurinational State of Bolivia in 2009” (United Nations, 2009, p. 7); and is currently working on similar efforts in Nepal.

Other areas of concern, and often conflict, include trade and environmental issues. Often, a conflict between municipal and international standards and norms arises. The United Nations has further worked to integrate international standards and norms into domestic law in regards to these issues. In addition, they have attempted to provide a reasonable means by which conflict can be resolved and damages compensated. In 2009, “The Report,” noted the most recent successes in this area.

Action with respect to adoption of international trade law instruments was taken by Albania, Armenia, the Dominican Republic, Guatemala, Lebanon, Mauritius, Peru and Rwanda. Best practices resulted in two recent United Nations draft guidelines for the development of national legislation on access to information, public participation and access to justice in environmental matters, and on liability, response action and compensation for damage caused by activities dangerous to the environment. (United Nations, 2009, p. 7)


The United Nations approach to the “rule of law” both municipal and international has changed throughout history just as the “rule of law” itself has varied between a monist and dualist system. While a “best choice” is not apparent; it is clear that the “rule of law” plays a significant role in international relations, state sovereignty, and global peace. Both nationally and internationally, the “law” provides, and will continue to provide, a framework of expected norms and standards by which states and individuals are called to adhere to.


D’Amato, A. & Abbassi, J. (2006). International law today: A Handbook. St. Paul, MN: Thomson/West.

International law. (2010). In Encyclopædia Britannica. Retrieved April 04, 2010, from Encyclopedia Britannica Online:

Juristic. (1999). Is the Dualist-Monist controversy in International law simply a fiction?. Retrieved April 4, 2010, from

Pierik, R. & Werner, W. (2010). Cosmopolitanism in context: Perspectives from international law & political theory. Cambridge University Press. Retrieved April 4, 2010 from

United Nations. (2009). Annual report on strengthening and coordinating United Nations rule of law activities: Report of the Secretary-General (United Nations Publication No. A/64/298). Retrieved April 4, 2010, from http://daccess-dds-

Tuesday, March 23, 2010

Review of Anne-Marie Slaughter (2004) - The Real New World Order

Anne-Marie Slaughter argues that globalization has transformed world government from “hierarchies to networks, from centralized compulsion to voluntary association” (Slaughter, 2004). Essentially, these changes have resulted in a deficit, as the transfer of power from state to nonstate actors does not always equal out.

Essentially, the deficit has occurred as a result of globalization in which hierarchies no longer exist, therefore regulatory power has diminished. Furthermore, participation in an agreement, or submission to government without governance has resulted as the power of enforcement does not lie within any one authority. This results in a participatory deficit as states can choose to opt-in or opt-out.

The transfer of power, albeit uneven, Slaughter argues is not the state,

“disappearing, it is disaggregating into its separate, functionally distinct parts. These parts—courts, regulatory agencies, executives, and even legislatures—are networking with their counterparts abroad, creating a dense web of relations that constitutes a new, transgovernmental order.” (Slaughter, 2004).

This also creates a problem, as Slaughter argues, “private power is still no substitute for state power” (Slaughter, 2004).

In order to solve the deficit, Slaughter proposes “transgovernmental cooperation” which, through shared knowledge, will provide a deliberative equality. This equality would stem from the sharing of information, deliberation of such information to be mutually agreeable to all parties, and therefore the most sensible way to fix the participatory and governance power deficit.

Slaughter, A. (2004). The real new world order. Foreign Affairs, 76 (5), 183-197. Retrieved on March 15, 2010 from

Consequences of Global Debt

.    During World War II, participating countries met to hold the United Nations Monetary and Financial Conference. What resulted was the creation of the Bretton Woods Agreement.
The Bretton Woods Agreement created the International Bank for Reconstruction and Development (IBRD). At first, the goal was to help Europe recover from the ravages and devastation of war. However, the IBRD has now become part of the modern day World Bank whose mission has changed from reconstruction to poverty reduction. Today the World Bank states that its mission is to "fight poverty with passion and professionalism" ( But how is this accomplished?
Through the World Bank, primarily the IBRD and the International Development Association (IDA), loans are given to poor countries to help finance development and poverty-reduction programs that the country would, otherwise, be unable to afford. Annually, the World Bank loans "22 billion to developing countries" ( Of that 22 billion, " [t]he Latin American region receives the largest share of World Bank loans – $5.2 billion, or 24% of the total amount loaned" ( These loans are repayable with interest to the lending bank from the country to which it was loaned.
This key aspect, the interest, is commonly overlooked and the consequences are unaddressed. As stated by the Center de Derechos Economicos y Sociales (CDES) (2006),
"[w]hen we hear that countries should honor the payment of their public foreign debts, we need to ask: Who contracted these debts and how were they used? And, why should we pay them if we derived no benefit from them[?]." (
Does the benefit to the borrowing country outweigh the consequences?
Ecuador's Case
"Ecuador is in far worse shape today than she was before we introduced her to the miracles of modern economics, banking, and engineering. Since 1970, during this period known euphemistically as the Oil Boom, the official poverty level grew from 50 to 70 percent, under- or unemployment increased from 15 to 70 percent, and public debt increased from $240 million to $16 billion." (Perkins, 2004, p. xxii)

During the early 1970's Ecuador's economy soared along with global oil prices. Exports in oil increased as a percentage of GDP while non-oil exports decreased. The economy relied heavily on the taxation of oil to provide the funding for an expanding budget deficit. "Public-sector expenditures, adjusted for an average annual inflation rate of 14 percent, [and] swelled about 65 percent during this period" (
In the mid 1970's oil revenues declined, but the budget remained the same. To compensate for the difference Ecuador began to borrow to cover the difference. In addition the Ecuadorian government increased subsidies and public-sector employment in an attempt to "bail out" the economy. "Between 1976 and 1979, the foreign debt more than quadrupled; after 1979 the rate of borrowing decelerated, but still the foreign debt had doubled by the end of 1986" ( The cost to service the debt, effectively the interest, had become more than Ecuador could produce. The threat of default loomed, and led to restructuring of Ecuador's debt by the IMF, World Bank, and other lenders. Restructuring, however, had its prices as well.
While lenders argue that a complete restructuring, economic and political, was necessary for long term debt relief, it appears that short term consequences illustrate a much different picture. Restructuring essentially led to less control for the people of Ecuador. As a condition for additional borrowing, privatization of infrastructure and water was required in some cases. Furthermore, liberalization ensued resulting in larger profits for private corporations and greater market capital.
The Beginning of Debt
    Ecuador's vast supply of oil coupled with an increased deficit and need for revenue opened the door to a barrage of lending and foreign investment. Lending came in the form of loans from the IMF and World Bank; foreign investment came from companies such as Shell and Chevron Texaco. Foreign investment in Ecuador's oil produced revenue, but what were the costs to the people, to the environment, and to the political stability of the country?
The dollar cost to the people of Ecuador, "grew from $574.3 million (13% of the external public debt) in 1981 to $4.1 billion (39.9%) in 2006" (Romero, 2007). These numbers, while alarming, are even more substantial when you compare them to the guidelines established by the IMF for Heavily Indebted Poor Countries (HIPC).
According to the IMF standards,
"for a country to have a sustainable economy, servicing of the foreign debt must not exceed 15 % of total exports, total foreign debt must not exceed 150% of total exports, and total foreign debt must not exceed 280% of total government income." (
By 2001 the cost to service Ecuador's debt exceeded these standards in all three categories.    
The debt problem in Ecuador was exasperated by the devaluing of the nation's currency, the sucre. The devaluing of the sucre began in the mid 1980's as inflation affected Ecuador's economy, and took off when Ecuador adopted a crawling peg exchange rate. By January of 2000 the sucre had plummeted to 25,000/ 1USD, forcing the government to convert to a dollar based currency, that same month, in an attempt to stabilize the crisis.
The Micro-level Cost
    Since the colonial period the people of Ecuador have been affected by conflicts as a result of discrimination, class struggle, and political force. During the colonial period the indigenous tribes of Ecuador were subject to the conquest of the Incas and later the Spanish Conquistadors. In 1822 Ecuador won its independence from Spain and joined the Republic of Gran Columbia. Even then, there was no political stability.
Catholic influence and the Liberal Revolution followed, and war with Peru broke out during the Depression. Political instability continued and changes in power, legitimate or illegitimate, continued to occur approximately every two years. "Since independence from Spain in 1822, there have been more than ninety changes of power" (
    Political instability has provided fuel to the dysfunctional economy throughout history and, in turn, the economy plays a key role in political dysfunction. The heavy reliance on exports has created a rich lowland, coastal region in Ecuador, whose local economy is driven by the export business. The import and export of agricultural products in the lowlands competes with the modest economy of the Andean highlands and the small farms that exist there. This often results in political gridlock within the country which makes it difficult to accomplish any lasting political and economic progress.
    Recent examples of political gridlock in Ecuador include the inability of the government to pass economic reforms which would give the state more control over private institutions. The reforms, introduced to parliament by Ecuador's President Correa in 2007, became so distorted that once passed, they no longer represented their original intent. According to IPS News' Kinto Lucas (2007), "[t]he left-wing Correa does not have legislators of his own, because his Alianza País party did not present legislative candidates in the October 2006 elections, and his initiatives have so far gained only weak support in Congress" (
    Just as economics have affected politics and vis a versa, the same is true for the social structure as well. As stated by the International Debt Observatory's Lidy Nacpil (2005),
"[d]evelopment is a concept and a process that encompasses all of the dimensions of human life - economic, political, social, cultural, emotional, spiritual, gender and sexual, as well as the interaction of humanity with the earth and environment. All of these dimensions are interrelated and mutually influencing." (
On a domestic level, Ecuador has seen many changes to their population and social structure since the beginning. Initially, indigenous tribes were affected by disease which was brought by immigration of the Inca's and Spaniards during the colonial period. Disease and oppression resulted in more than "70 percent of the indigenous population [dying] by the end of the century" (
This societal fraction that began during the colonial period carried on. Indigenous tribes were seen as backward and a barrier to progress as Ecuador attempted to establish a stable economy and political structure.
Since the 1970's and the oil boom corporatism has taken root in Ecuador. In an effort to meet expanding fiscal demands, "[i]ndigenous peoples were under pressure to become 'peasants' and 'agricultural workers' with no special rights or claims to the resources of the state" (Romanow, 2010, p. 19). The social and economic discrimination that began during the colonial period is, to this day, difficult to overcome.
One such example of corporatism which resulted in the displacement of indigenous people and social unrest was the Agoyan hydroelectric project. The project blocks the waters of the Pastaza River by dam and has the capacity to generate 156-megawatts of electricity. According to John Perkins (2004), "[s]uch projects are the reason Ecuador is now a member of the global empire, and the reason why the Shuars and Kichwas and their neighbors threaten war against our oil companies" (p. xxiii).
These billion dollar projects, which are projected by developers to improve infrastructure and to create prosperity, through modernization, have played a role in creating the massive amount of debt that Ecuador faces. Most economic gains, if any, support a small handful of wealthy elite while more than "65% of the population lives below the national poverty line" (

The Macro-level Cost
The effects of Ecuador's debt on international relations and the global economy have also had noticeable impacts. The most noticeable change is how debt is structured and subsequently restructured.
The oil boom around the world transformed Ecuador economically throughout the 1960's and 1970's. The economy saw growth rates of 9% GDP annually. Ecuador also increased imports in the late 1970's at a rate of about 7% annually. As the oil boom came to an end, inflation set in and erosion of income resulted.
In addition to these problems,
"the period between 1976-1979, when, under the dictatorship of the Supreme Government Council, Ecuador contracted $3.4 billion in debt. Of this nearly two-thirds was used to finance military expenditures. After multiple reschedulings, conversions and further borrowing, Ecuador's external debt has risen to more than $10 billion today." (
Much like today's recent financial crisis and debt bubble which was driven by mortgage debt, commercial lenders of the 1970's and 1980's would often lend to emerging economies with no regard to their ability to pay back the debt. This lending resulted in the Third World debt crisis of the 1980's.
Ecuador attempted to re-negotiate their debt in the late 1980's, and through such negotiations, gave up any protection provided under the Foreign Sovereign Immunity Act. Essentially, this reduced Ecuador's power as a "sovereign" state on the international stage, as the Act provided jurisdictional authority for U.S. Courts in, "Foreign States" (28 U.S.C. § 1603(a),(b)) who waived their right to sovereign immunity.
In addition to reducing Ecuador's sovereignty, this agreement soon resulted in higher interest rates on existing debt. According to Dennis Small (2008),
"U.S. Federal Reseve Chairman Paul Volcker's 1981 raising of interest rates up to 21%, drove Ecuador to default on debt it had contracted at 6%, and the ensuing refinancing operations capitalized the unpaid interest into an unpayable mountain of new debt." (
    The IMF and creditor banks recognized that the mountain of debt was insurmountable for Ecuador and stepped in with a plan. The plan allowed private sector debtors to issue payments on foreign debts in sucres, the national currency of Ecuador. However, the sucre was losing value, therefore the government of Ecuador picked up an additional "1.5 billion in private sector debt" (Small, 2008), as it acted as the exchange agent between the private sector and foreign creditors.
    Febres Cordero, Ecuador's president in the late 1980's, implemented policies that continued to devalue the sucre. One policy lifted foreign-exchange controls for private-sector imports and tightened monetary and credit policies in an effort to counter the strong demand for dollars to finance imports. This too proved futile.
    In a final effort to curb "sucretization," Cordero increased government spending and loosened private-sector lending. Again, this "bailout" failed to save Ecuador. From 1987 – 1992, Ecuador again suspended its debt payments.
    In 1992, Ecuador, in an effort to gain credits with the IMF, signed a Tolling Agreement which waived the country's right to prescription (termination) of commercial debt that was more than six years in arrears, as established by law in the United States and England.
    In 1995, Ecuador restructured its debt by use of the Brady Bond. Brady Bonds allowed for the transfer of commercial debt and overdue interest payments into new debt which was collateralized by U.S. Treasury bonds. In the event of a default by Ecuador, the purchaser of the debt in the secondary market would be paid when the U.S. Treasury bond, or collateral, matured. This process, known as the Brady Plan,
"called for the United States and multilateral lending agencies (including the International Monetary Fund and The World Bank) to cooperate with commercial bank creditors in restructuring and reducing the debt of those developing countries that were pursuing structural adjustments and economic programs supported by these agencies." (Lee, 2000, p. 2)
The financial crisis continued and in 2000, the Brady Bonds were again
exchanged for Global Bonds. Finally, in 2007 an independent Public Audit Commission (CAIC) analyzed Ecuador's debt and reported its findings to the government of Ecuador.
    The findings resulted in President Correa's announcement that Ecuador would default on the Global Bonds, on the grounds that the debts were incurred "illegitimately" and therefore in violation of Ecuador's Constitution and international law.
    Default on sovereign debt on the claim of "illegitimacy" fueled fears in international markets in the midst of the 2008 crisis. It is exceedingly rare in global finance for a nation not to honor its debt because it doesn't want to, as opposed to not being able to make payments because of a financial crunch. As argued by Anthony Faiola (2008), staff writer for the Washington Post, "[s]ome analysts fear it may set a precedent, emboldening other leaders who share Correa's ideology -- such as Venezuela's Hugo Chávez -- to make similar pronouncements" (
    In effect, Ecuador's default on these bonds left investors around the world questioning emerging market debt and restructured the way that many analysts viewed this sector of the market.
Macro Level Social Implications
    In addition to restructuring the way that debt was financed, Ecuador's debt and devaluing of the sucre led to massive emigration of Ecuadorians to all areas of the world.
    The first financial crisis of the 1980's which resulted as a collapse of oil prices and massive inflation drove many farmers out of Ecuador as wages decreased. Most of these farmers went north to the United States, following trade routes that had been established through their business.
    This first wave of migrants caused the United States to pass, "[t]he Immigration and Reform Control Act of 1986 [which] granted legal permanent resident status to 16,292 Ecuadorians, many of whom have been able to use this legal status to sponsor family members" (
    The Immigration and Reform Control Act is a minor example of how Ecuador's debt resulted in emigration and changed the domestic laws and social structure of another sovereign nation. This instance, however, would pale in comparison to the massive outflow of Ecuadorians in the early twenty-first century.
    The second wave of emigration occurred in the late 1990's and early 2000's. The devaluing of the sucre had affected the middle class population of Ecuador the most. Elites in Ecuador were wealthy enough that massive inflation and increase in price of imported goods did not impact them. The poor, while affected, were not as reliant on imported goods. It was the middle class of Ecuador that suffered the most consequence, as they relied heavily on imports and the export revenue from the agricultural business of Ecuador for survival.
During this time, "the sucre, lost more than two-thirds of its value, and the unemployment rate rose to 15 percent and the poverty rate to 56 percent" ( These problems were compounded by policy that did not provide assistance to the farming business and floods that damaged the crops of farmers.
This emigration was much larger than that of the 1980's. It,
"sent more than half a million Ecuadorians overseas from 1998 to 2004. In contrast to the previous wave, this one was broader. Emigrants came from every province, and they were more urban and somewhat better educated; they also came from various ethnic groups, including members of the Saraguro and Otavalo indigenous groups." (
    The global social and political consequences of this migration proved to be much broader as well. Most migrants entered into Spain and other Western European countries. Spain was most attractive, prior to 2003, as it did not have a law requiring a visa. Because of this, Ecuadorians entered Spain as tourists under the existing "no tourist visa" agreement. In addition to this agreement, "Ecuador and Spain signed a bilateral agreement which provided legal work visas for nearly 25,000 unauthorized Ecuadorians in January 2001" (
    By 2003 Spain changed its visa requirements and ended the scrupulous tourist issues. This however did not affect the nearly 200,000 Ecuadorians already residing in the country. Therefore, "[i]n 2004, Spain passed a 'regularization' law (Real Decreto 2393/2004) that granted legal status to more than 400,000 Ecuadorians" (
     While some emigrants did move North to the United States, it was in much smaller numbers. Tighter border restrictions in Central America, Mexico, and the United States increased the risk and cost of illegal crossing of borders. Nonetheless, "[f]rom 2000 to 2005, an average of 9,196 Ecuadorians per year obtained legal residency" (
    This number of immigrants to any country can have serious social and political implications. Groups will carry with them political, social, cultural, and religious ideals and norms. Migrants often group together, seeking community and commonality which will change the political composition of the existing population as these norms and ideals are integrated into the surrounding socio-political landscape. This in turn can influence election outcomes on a local and national level and therefore has the possibility to affect international relations.
    Some examples of this impressive change in population are evidenced by this migration.
"In 2005, Spain reported an Ecuadorian population of 487,239; the vast majority live in Madrid (35 percent), Barcelona (18 percent), and Valencia/Murcia (22.8 percent). Some analysts consider the official figure to be an undercount because not all Ecuadorians in Spain are registered. If that is the case, then the Ecuadorian population in Spain may be between 550,000 and 600,000.
Population estimates for the Ecuadorian population in Italy range as high as 120,000. Italian statistics on the other hand, recorded 61,953 Ecuadorian citizens in 2005, 62 percent of whom were women. Ecuadorians, who are concentrated in Genoa, Milan, and Rome, are the largest Latin American immigrant group in Italy and the 10th-largest national group overall" (
These numbers are perfect examples of how drastically a local population can be changed, be it by sheer volume, or by composition.
Environmental Impacts of Debt
"Thus, out of every $100 worth of oil torn from the Amazon, less than $3 goes to the people who need the money most, those whose lives have been so adversely impacted by the dams, the drilling, and the pipelines, and who are dying from lack of edible food and potable water." (Perkins, 2004, p. xxiv)
The impacts of the discovery of oil fields in the Amazonian rainforest have had multiple consequences on the local population and biodiversity of Ecuador. Local indigenous tribes have been uprooted by the development of dams, oil fields, and mines.
Dams, deemed necessary for infrastructure development and energy to drive commercialization, have changed water flow. This has hurt downstream agriculture, decreasing food supply, revenue, and even creating water shortages.
The development of oil fields has resulted in deforestation, conflicts over property rights, and political unrest between displaced indigenous cultures and the government of Ecuador.
Currently, Ecuador is not benefiting from recent increases in oil prices because of a lack of the government's control over private contracts. As a result, commercialization and exploitation of the agribusiness and mining have also begun. In order to fuel energy demands for this work, more dams are planned across Ecuador. One such project, "Zamora would help provide generation for copper and gold production by companies including Vancouver-based Corriente Resources Inc…" (
The Zamora project will further add to the debt cycle of Ecuador, as Bloomberg (2010) estimates place the cost of the project at around "6 billion dollars" ( Most of this will be financed by the government and other external sources such as the "Export-Import Bank of China" (
Other side-effects of commercialization include pollution. Drying up of important water flows have resulted in the stagnation of water and therefore the pollution of some of the only wells available for drinking water to local populations. If not polluted, the wells have all together dried up due to a drop in the water table, caused by a diversion of water supply created by the dams.
The Baba River Dam, in Ecuador, has created issues of human rights violations which have resulted in protests and pressure on the government of Ecuador. The basic right to food is at question in the Baba basin. Food is supplied to this area primarily through fishing, which, "is a vital component of the food habits of the families living in the shores of the Baba river. Since the construction of the Baba project would diminish or eliminate the fishery, it would thus put at stake the right to food of these families" (
Development of oil fields and mines has resulted in contamination of bathing and drinking water surrounding the projects. As recently as 1997 reports have showed an increase in skin problems of people who live around such projects and higher cancer rates.
Angry citizens have banded together to fight the government of Ecuador, who reliant on oil revenue, withdrew from Organization of Petroleum Exporting Countries in an effort to increase production.
Efforts by angry citizens have resulted in international lawsuits.
"In a welter of lawsuits surrounding the Texaco legacy in Ecuador, lawyers who say they represent 30,000 Amazon Indians tribes filed a class-action suit last November in a New York Federal court for $1 billion in cleanup costs and damages; the authors of yesterday's report have filed affidavits supporting the Indians' cause. A few weeks later, Texaco filed five suits in Ecuadorean courts demanding that the Government pay a total of $570 million for breach of contracts." (
    Loose government policies accompanied by massive sovereign debt are a vicious cycle, whose effects, are played out domestically and internationally in Ecuador. Policies create a "rush to the bottom" effect, drawing in international corporations who profit under loose environmental regulations. In turn, the country of Ecuador has suffered, and continues to suffer the consequences.
    So where in lies the solution to such a perpetual problem?
Possible Solutions
    The re-structuring of debt, while a short-term solution has proven itself to be unreliable in Ecuador. International Monetary Fund policies aimed at pressuring the restructuring of economic policy within the country have also failed in Ecuador.
    This top-down approach failed to recognize areas of internal control and external lack of control in regards to Ecuador. Essentially, the IMF's approach assumed that Ecuador's economic structure and irresponsible lending was the only cause for their massive debt. In reality, unregulated, irresponsible lending and fiscal policy was only part of Ecuador's problem. External factors, such as interest rates and global oil prices were completely out of Ecuador's control and contributed to the magnification of the problem.
    For these reasons, "[m]any observers have come to share Jeffrey Sachs's assessment of structural adjustment programs: 'The sobering point is that programs of this sort have been adopted repeatedly, and have failed repeatedly'" (
    The emerging world's ability to cope with external factors will have to be recognized and dealt with in order to produce a system which will be able to produce long-term solutions for debt and poverty.
Trade will undoubtedly play a large role in the process, as emerging markets rely heavily on the export of primary commodities for revenue. To reduce this risk, increasing exports in alternative areas, such as manufactured goods, is vital.
"The newly industrializing countries of East Asia are the exceptions that prove this rule. Because they have been able to expand manufactured exports, they have improved their relative economic situation tremendously in recent years. Other countries have been less successful, and the recent resurgence of protectionist measures against manufactured products from the developing world will make this type of transition only more difficult. Ultimately, the solution to the debt crisis, and the underlying poverty that spawned it, must address this terms of trade issue." (
    In addition to addressing the issue of trade on a macro-level, it is necessary to address and assist in the micro-level development of heavily indebted countries' long-term economic growth. This bottom-up approach would allow countries to grow out of their debt. Unless there is a viable way to produce such results, long-term success is next to impossible.
"The inflows of capital to the IMF from the heavily indebted countries were more than a gross embarrassment; they were conclusive evidence of the IMF's misunderstanding of the causes of the debt crisis. The IMF should shift its perspective to more creative or appropriate ways of stabilizing or depressing interest rates rather than raising them, or ways to prevent capital flight from developing countries, or any number of issues that concern the specific conditions of economic growth." (
Capital flight remains a large problem in the case of Ecuador. While it is arguable that developing countries are incapable of producing the resources and technology necessary to perform tasks such as mining and oil production, efforts must be made to keep investments and capital flow from such projects within the ailing economy.
Evidence of such efforts may be in the near future. In February 2010, Ecuador's President Raffael Correa stated that he, "aims to extend the government's control over the nation's electricity and oil industries...Ecuador is negotiating contracts with oil companies by the end of March that will pay the companies fees based on costs and crude production" (
This will allow Ecuador to benefit from a rise in oil costs, but will also provide greater control over the country's energy resources, protecting it from exploitation and shortages.
    In addition, an international system which realistically addresses the issue of existing debt in countries who are absolutely incapable of paying, without further sacrifice of the environment and human life, is necessary. Those who are able to pay some, but not all of the debt should do so, and a process for determining the appropriate repayment amounts should be implemented. If these issues were addressed, the only remaining problem would be the appropriation of the remaining debts, which could be addressed by an international organization such as the IMF or World Bank.
In conclusion, the international economic system has grown to tolerate increasing levels of poverty, infractions on human rights, and exploitation of emerging countries. As globalization magnifies this problem, situations such as that in Ecuador will produce domestic problems which will eventually have global economic and political effects.
    Consequences of continuing on in the fashion of old have already been evidenced time, and time again. While markets and conflict are cyclical, conscience effort must be made to ease the burden and reduce the debt or else we will all face the consequences. As John Perkins (2004) argued, "[a]ll of those people – millions in Ecuador, billions around the planet – are potential terrorists. Not because they believe in communism or anarchism or are intrinsically evil, but simply because they are desperate" (p.xxiv).
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