Development Channel

Oil Prices Plummet—Will Subsidies Follow? As crude prices fall below $30 a barrel, oil-producing states face mounting fiscal challenges. Saudi Arabia’s 2015 deficit neared $100 billion, roughly 15 percent of gross domestic product (GDP);Venezuela’s reached 14 percent; and Algeria expects foreign reserves to fall by $30 billion in the coming year to cover its looming fiscal gap. Across commodity-dependent nations finance ministers are looking to cut budgets. Energy subsidies are an obvious target, as these expensive and inefficient payments distort markets and undermine development. In December, Saudi Arabia reduced fuel subsidies and prices went up 50 percent. Algeria promised to cut energy subsidies (though in the short term, they are rising). Even in Venezuela, where citizens pay less for gas than water, rumors are the government is considering a hike. The hesitation? Price increases during recessions don’t go over well; in Venezuela, the unpopular move helped bring Hugo Chavez to power. Companies Accountable for Rights Violations Globally The United States is increasingly holding multinational companies liable for human rights abuses in other countries. This week, the U.S. Supreme Court upheld a verdict that found Nestlé guilty of aiding and abetting child slavery by knowingly purchasing cocoa from Ivory Coast suppliers that use child labor (Cargill and Archer Daniels Midland were also accused in the original case). Where Nestlé lagged, Intel is leading—announcing that it expects to entirely eliminate conflict minerals from sourcing and production this year. It is one company of many companies working to comply with Section 1502 of the Dodd-Frank Act, requiring them to disclose the use of “conflict minerals” to the Securities and Exchange Commission (SEC). Poland’s Democracy in Doubt Democracy is faltering within the European Union (EU). In Poland, long considered Eastern Europe’s democratic anchor, the right-wing Law and Justice Party (PiS) used its absolute majority to replace five judges on Poland’s constitutional court and mandated a two-thirds majority to overturn legislation, in defiance of a judicial challenge and thousands of protestors. The PiS then moved to “legally” curtail rights. President Andrzej Duda signed a law enabling his government to dismiss and replace state radio and television executives, inciting rumors that he may nationalize the media. Yet unlike many other governments that supress freedom of expression and dissent, Poland may face sanctions. The European Commission responded by launching an investigation into whether the new legislation violates the EU’s rule of law framework and democratic norms. Hungary, which managed to avoid EU sanctions for its own authoritarian shift, promises to block any action.

As a new year begins, trade is slower, the drive against corruption continues, and electoral struggles shape fragile democracies. Here are three issues the Civil Society, Markets, and Democracy (CSMD) program will be following in 2016: International Trade Slows After two decades of trade growing twice as fast as GDP, the two are now even at best. With government spending largely stagnant and consumption fragile, this decline further diminishes prospects for economic growth. To revive this vital element of GDP, policymakers and economists often turn to Free Trade Agreements (FTAs), one of the most effective tools to boost international commerce. Yet these will face challenges in 2016. The recently-signed Trans-Pacific Partnership (TPP) still requires ratification by its twelve member countries. In the United States, despite fast-track legislation and vocal support from business leaders, opposition in both parties will likely push the TPP vote to a “lame duck” session in November. Meanwhile the China-led Free Trade Area of the Asia Pacific (FTAAP), a TPP alternative, failed to gain traction at the recent APEC meeting, and the U.S. and European Union’s Transatlantic Trade and Investment Partnership (TTIP) remains stalled over regulatory disagreements and European political opposition. As for multilaterals, members left the most recent World Trade Organization (WTO) Doha Round of negotiations without renewing its mandate, though they did promise to eliminate agricultural export subsidies. Policymakers will likely have to find other tools to promote global growth in 2016. Corruption Prosecutions Continue Anticorruption efforts triumphed in many places in 2015. Guatemalan prosecutors brought down President Otto Pérez Molina and Vice President Roxana Baldetti for their roles in a customs fraud scheme. Brazilian prosecutors indicted or convicted eighty business leaders and politicians, including a sitting senator, in the widening Petrobras scandal. In Nigeria, new President Muhammadu Buhari (who campaigned heavily on anticorruption) began investigations into billions of missing defense and oil funds, leading to fraud and money laundering charges against former national security advisor Sambo Dasuki and the UK arrest of former oil minister Diezani Alison-Madueke. And a U.S.-led investigation into FIFA uncovered a culture of “rampant, systemic and deep-rooted” corruption in soccer’s governing body, resulting in the indictment of thirty officials and forcing out its powerful president, Sepp Blatter. The international momentum looks to keep pace in 2016. Nigeria’s anticorruption crusade persists, as its Economic and Financial Crimes Commission (EFCC) marked the new year by bringing charges against another former national security advisor, accused of diverting $1.5 million in defense funds from the fight against Boko Haram. The U.S. Department of Justice (DOJ) is signaling that FIFA was just the start, ramping up its Foreign Corrupt Practices Act (FCPA) staff and plans for high-profile prosecutions. Elections in Fragile Democracies Presidential runoff votes in the Central African Republic (CAR) and Haiti appear headed in opposite directions, highlighting the often-present tensions between stability and democratic legitimacy in fragile states. In CAR, opposition candidates rescinded previous fraud allegations and now support a runoff election scheduled for January 31, paving the way for a democratic transition after years of religious violence. In Haiti, Jude Célestin, the runner-up in a disputed presidential vote, announced he will not participate in an already-delayed runoff. Célestin joins other opposition candidates in questioning the capacity of Haiti’s Provisional Electoral Council (CEP) to administer a free and fair vote on January 24, after an independent commission uncovered evidence of first-round fraud and irregularities. With increasing doubts about an upcoming vote’s credibility, the Obama Administration stressed the importance of a peaceful transfer of power before a February 7 constitutional deadline. Ultimately, in CAR and Haiti’s elections—as well as those to come in 2016— citizens rather than foreign observers will need to accept the results of any outcome.

Modi’s Reforms at Odds A senior official in Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) is pushing a corruption probe that threatens to derail his own party’s Goods and Services Tax (GST). A linchpin of Modi’s economic platform, the reform would replace numerous local and state taxes with a single nation-wide tax. The government expects GST to boost government revenue, attract foreign investment, and add up to two percent to GDP. With the corruption case’s targets—opposition Congress Party leaders Sonia and Rahul Gandhi—denouncing the investigation as politically motivated, the fallout will likely halt Modi’s tax reform in India’s opposition-led upper house. As the Gandhi case advances, the GST may not, putting Modi’s ambitious pro-business and anticorruption agendas at odds. Does the WTO Still Matter? This week’s failure to advance the Doha Round of trade talks further diminishes the World Trade Organization’s (WTO) clout in setting global trading rules. Stuck for over a decade on issues of market access for poor countries and sharing globalization’s gains more equally, the United States and others have already refocused their energies on bilateral and regional trade agreements (RTAs)—completing nearly two hundred such deals during fourteen years of Doha negotiations, most recently the Trans-Pacific Partnership (TPP). U.S. Trade Representative (USTR) Michael Froman made the shift official this week, publicly calling for WTO members to move beyond Doha. Where the WTO’s strength remains is in trade dispute resolution as businesses and nations still turn to it for arbitration. Last week alone, the WTO ruled in favor of Canada and Mexico against U.S. meat labeling with up to $1 billion in damages, and the United States lodged a formal complaint against China for discriminatory aircraft pricing—reflecting the WTO’s evolution from setting the rules to enforcing them. New United Nations Development Report The 2015 Human Development Index (HDI) released this week reflects on the report’s twenty-five year history, with the United Nations Development Program (UNDP) finding that living standards improved for two billion people as dozens of countries climbed the development ladder. Measuring income, life expectancy, and education across 188 countries, Norway leads and Niger lags in the HDI, while Rwanda and China are most improved overall since 1990. Focused on “work for human development,” this year’s report argues for employment’s broader value, offering not only economic but development gains. It also illuminates the still major challenges—the 21 million people in forced labor, 74 million unemployed youth, and the threat to whole categories of workers from technological change.