ECOSOC

Maintaining economic stability in a globalized world with special reference to the Eurozone crisis and the devaluation of currency in China.

Note *ECOSOC delegates kindly note that although the agenda states the devaluation of the Chinese currency, we acknowledge the fact that the two subtopics are enormously vast to be covered in the span of time allotted. Hence, due to the paucity of time, we will be focusing more on bringing about and maintaining economic stability with regard to the Eurozone crisis and the relationship which must be adopted by Europe with regard to the world’s largest exporter of goods as well as their major trade partner, namely China.



The Eurozone crisis
"The party's over. It's time to call it a day. They've burst your pretty balloon, and taken the moon away."
So wrote Betty Comden and Adolph Green over fifty years ago, when they couldn't possibly have realized they were creating a lyric that would some day describe the Eurozone. The Eurozone has been swept up in turmoil that has ranged from stock and bond markets to exchange rates, government spending, and tax rates.

What is the Eurozone crisis?
The empty condos may have been in Florida and the mortgages that financed them, repackaged on Wall street. But it was banks in Europe that got hit first by the sub prime crisis. On august 9th 2007, the EU Central bank stunned the financial world by making the first giant emergency loan to banks. This formed the basis of the crisis.

The sovereign debt crisis in the European periphery started in October 2009 when it came to light that the budget deficit of the Greek government was much higher than what had been previously reported, both in the press and in government documents. Figures for the Greek budget deficit were rapidly revised upwards to about 13 percent of GDP, much higher than the 3.7 percent figure released earlier in the year. By the beginning of 2010 it became clear that government statistics were highly unreliable and that there had been deliberate attempts to massage the books, drawing inspiration perhaps from the now infamous examples of Enron and Lehman Brothers. What was especially striking was the heavy involvement of sophisticated Wall Street investment banks like Goldman Sachs in assisting the Greece government to fudge its accounts with the use of complex financial instruments.
With a large budget deficit and a mounting sovereign debt, ratings agencies like Standard & Poor’s downgraded Greek government debt, first in late 2009 and then in April 2010 to junk bond status. The yield and credit default swap (CDS) rates on Greek government bonds increased rapidly, reflecting financial market participants’ expectations of an increased probability of default. Interest rates increased, increasing the debt burden even further, thereby worsening matters for Greece. Because of the complex web of financial interdependence among the countries in the Eurozone area , and especially the countries in the so-called European periphery, real fears of contagion spread rapidly through European financial markets. Bond markets in Spain and Italy were badly hit.

Situation is Spain : It is the only economy in Western Europe still in recession: property prices are crashing, unemployment has risen to more than 4 million, and some are already muttering that it could end up with a financial crisis worse than Greece's. The social impacts of the crisis are widely evident in Spain in the form of high levels of unemployment, riots etc.

Situation in Greece: Greece's spiraling deficit - estimated at 13% of its gross domestic product last year - stands far beyond the 3% threshold permitted by the rules of European Monetary Union (EMU) and has left the single currency facing its biggest challenge in its short history. At these times, one can but question the practicality of a single unified currency in the face of this crisis.

Situation in Italy : Italy is in the same boat but its condition isn’t as bad as Greece’s because its economy is more diversified. Once the world economy recovers, the financial crisis will ease too. Italy’s economy is more diversified than Spain’s which means that Italy has more ways to collect tax to pay for its debt and services. Their deficit is about 12% of its GDP, much higher than 3% required by E. U. If Italian politicians can reduce its deficit to a more manageable level, they should be able to get an emergency loan from Germany, France or Great Britain and the crisis can be avoided.


Situation in Germany: Germany is the largest economy in the EMU (European Monetary Union) – accounting for about a quarter of its GDP – and its growth process is bound to have profound impacts on the European periphery. As we have seen during the current crisis, Germany is clearly the economic center of gravity in Europe. Germany seems to be the decision maker or breaker. Germany has tremendous power in Europe pertaining to economic matters. With a surplus in its current account, it is seen as the only European country better off than the others in this spiraling Eurozone crisis.


All these countries’ problems are rooted in socialism. When economy is booming, the onset of the financial crisis is pushed into the future and politicians will not tackle this problem (entitlement) unless they don’t want to be re-elected. When economy slows down and stays in recession, the government can not collect enough tax to pay for the entitlement programs and to pay for the interests of its debt.

What is devaluation?
The loss of value of currency of a country relative to other foreign currencies is known as devaluation. Devaluation is a process in which the government deliberately cheapens the exchange value of its currency in terms of other currencies by giving it a lower exchange value.


Example-( exchange between India and America)

Ø Lets assume the current rate of exchange between India and USA is 1$= Rs 50.
Ø India is exporting commodity ‘A’(assume) whose price is Rs 100 in the global market. Hence an American consumer will have to pay 2$ for commodity A. (1$=Rs50)
Ø Now let’s say India decides to devaluate its currency. But commodity A;s price continues to remain Rs 100 in the global market. Moreover the exchange rate also remains 1$= Rs100.
Ø Now after devaluation, the value of the Indain currency goes down compared to the dollar value. Hence the American consumer will now have to pay only 1$ for commodity A.
Ø Hence after devaluation. Indian goods become cheaper in the global market, increasing India’s exports.



China- Devaluation or Revaluation? :
Conventional wisdom holds that the Chinese are due (as in overdue) for a revaluation of their currency, the renminbi. For instance, a recent report from Goldman argues that China will raise the value of the RMB against the dollar by 5% this year. The argument is that the move is needed to slow down an overheating economy. We question whether a revaluation is the right answer for them, and more important, whether the Chinese themselves see a revaluation as a plus. The government has engineered an enormous increase in money and credit in the past year. In fact, it seems to be as great as 5 years’ growth in credit in the previous Chinese bubble. The increase in money and credit is so great and so abrupt that you tend to get a high inflation quite quickly even if there are under utilized resources. Add to this the fact that China simultaneously is providing massive fiscal stimulus. This combination is the making of a very messy situation. If China seeks to sustain demand via fiscal policy, the result is likely to be a big inflation problem. But if China didn’t revalue, inflation would do the trick regardless. A continued high rate of inflation relative to its trade partners would push up the price of goods in home currency terms, which in turn translates into higher export prices. This might be the real reason why China is so reticent to revalue its currency. The Americans might go crazy if the Chinese devalued, but if the inflation is high enough, they might have to do it, as it will severely erode their terms of trade and cause their tradeables sector to collapse. Or the hard-line monetarists triumphing by fighting inflation and the result is riots as unemployment increases.
Some evidence suggests that China’s inflation could already be at a double digit level. It is hard to say. But if it is that high, then the resultant inflation will cause a real revaluation of the trade weighted exchange rate. And more so if the dollar rallies. That could well crush the volume of exports and the profitability of the industrial tradeables sector. The export sector is a big contributor to overall super excessive fixed investment in China. Dollar appreciation means foreign direct investment will go to zero net.

EU- CHINA Relations: (Concentrate on China as an export partner with the EU )
The pain of the European debt crisis is spreading as the plummeting euro makes Chinese companies less competitive in Europe, their largest market, and complicates any move to break the Chinese currency’s peg to the dollar. The euros slide is a threat to inexpensive Chinese exports. Chinese policy makers reached a rough consensus about breaking the dollar peg and letting the currency, the renminbi or the Yuan, rise in value, according to people close to Chinese currency policy makers. Uncoupling the currencies would make American goods more competitive against Chinese products. But for various reasons, China has not yet put that policy into place. And in light of the euros nose dive, such a move could be difficult. Letting the renminbi rise against the dollar would also mean a further increase in the renminbi’s value against the euro, creating even more problems for Chinese exporters to Europe.


POSITION PAPER

· Clear statement of your country’s policy on the given agenda. (Country’s background on the agenda including political or foreign policy)

· Action and measures taken by your government on the issues stated.

· Resolutions and declarations your country supports and important or relevant quotes by your country Heads can also be included.

· State the possible aid that your country can render with respect to the ongoing conflicts stated in the agenda.

· Conclude the paper with Your country’s final stance on the agenda.



Questions to address

Ø Practicality of a single currency system (specially in the EU after the crisis)
Ø Should the EU be dismantled to solve the crisis?
Ø How can China’s devaluation or revaluation affect the exchange rate system ?
Ø What is the role of member nations, The UN and other financial institutions like the IMF in combating the crisis and its social impacts , hence bringing about overall stability?



Important economic terms to remember

Ø Severance payments
Ø Bail-out Funds
Ø Budget deficits
Ø Deficit on current accounts
Ø Inflations, recession, sub-prime crisis.

Measures taken by member nations to crack and combat illegal drug trade and human trafficking.

Note: *ECOSOC delegates kindly note that that the debate will pertain mainly to the drug trade in Mexico and the committee will focus more on women trafficking for illicit purposes in South East Asia with respect to the latter half of this agenda.

As members of the ECOSOC Committee, each member nation has a moral and legal obligation to curtail the use and export of illegal drugs and the deteriorating situation of women trafficked for illicit purpose such as the flesh trade. Members must work together to deliberate and form resolutions which will effectively decipher the source and also resolve the crisis surrounding these morbid issues. Each member nation’s position paper and research must adhere to the following guidelines provided.

POSITION PAPER
• Clear statement of your country’s policy on the given agenda. (Country’s background on the agenda including political or foreign policy)
• Action and measures taken by your government on the issues stated.
• Resolutions and declarations your country supports and important or relevant quotes by your country Heads can also be included.
• State the possible aid that your country can render with respect to the ongoing conflicts stated in the agenda.
• Conclude the position paper with an overall view on your country’s stance on these issues.
• Kindly refer to our background guide below which would assist your research.

What is illegal drug trade?
The illegal drug trade is a global black market, which revolves around the cultivation, manufacture, distribution and sale of those substances which are subject to drug prohibition laws. Most jurisdictions prohibit trade, except under license.

Mexican Drug War
The Mexican Drug War is an armed conflict taking place among rival drug cartels (Drug cartels are criminal organizations developed with the primary purpose of promoting and controlling drug trafficking operations.)
Drug Cartels fight for regional control and unlawful economic benefits... Although Mexican drug cartels, or drug trafficking organizations, have existed for a few decades, they have become more potent in recent years. Mexican drug cartels now dominate the wholesale illicit drug market in the United States. Arrests of key cartel leaders, particularly in the Tijuana and Gulf cartels, have led to increasing drug violence as cartels fight for control of the trafficking routes into the United States.
Mexico, a major drug producing and transit country, is the main foreign supplier of cannabis and a major supplier of methamphetamine to the United States. Although Mexico accounts for only a small share of worldwide heroin production, it supplies a large share of the heroin distributed in the United States. Drug cartels in Mexico control approximately 70% of the foreign narcotics that flow into the United States

 In recent years, Mexico's drug cartels have waged increasingly violent battles with one another as well as with the Mexican government.
 Upon taking office in December 2006, Mexican President Felipe Calderon deployed thousands of federal troops in an aggressive crackdown on drug-related violence.
 Yet death tolls continue to rise. There were more than 2,500 drug-related deaths in 2007, and the yearly toll rose to more than 4,000 by the end of 2008.
 Murders and street gun battles are only part of a more entrenched problem that includes corrupt police forces and a lackluster judiciary.
 Experts say recent police and judicial reforms are a step in the right direction, but such reforms will take time to implement. Meanwhile, increased and sustained cooperation from the United States is seen as necessary to stem drug-related violence.

Delegates must focus on preventing the use of illicit drugs within Member States and strengthening international cooperation on policies of drug abuse prevention and strengthening international cooperation in countering the world drug problem focusing on illicit drug trafficking and related offences.
“Drug abuse and illicit trafficking hold back achievement of the Millennium Development Goals (MDGs) and should be fought as part of an overall policy to wipe out social ills”, Secretary-General Ban Ki-Moon said.
What is women trafficking?
Trafficking in women is a criminal phenomenon that violates basic human rights, and totally destroying victims' lives. Countries are affected in various ways. Some see their young women being lured to leave their home country and ending up in the sex industry abroad. Other countries act mainly as transit countries, while several others receive foreign women who become victims of sexual exploitation.
This prevalent form of trafficking affects every region in the world, either as a source, transit or destination country. Women and children from developing countries, and from vulnerable parts of society in developed countries, are lured by promises of decent employment into leaving their homes and travelling away. Victims are often provided with false travel documents and an organized network is used to transport them to the destination country, where they find themselves forced into sexual slavery and held in inhumane conditions and constant fear.
The trafficking of women for sexual exploitation is an international, organized, criminal phenomenon that has grave consequences for the safety, welfare and human rights of its victims. The most frequent destinations for the women are Europe, North America, Japan, Australia, and the Middle East.

What is sexual exploitation?
Sexual exploitation is a violation of human dignity, therefore it is a fundamental human right to be free from sexual
exploitation in all of its forms. Sexual exploitation is a practice by which person(s) achieve sexual gratification or financial gain, or advancement through the abuse of a person's sexuality by abrogating that person's human right to dignity, equality, autonomy, and physical and mental well-being.


The United Nations has established a new multi-donor trust fund to aid victims of human trafficking around the world. South East Asian women remain among the most vulnerable to trafficking, despite their progress in passing laws to combat the problem. Although some South East Asian countries like Indonesia has made some progress on the issue by passing an anti-trafficking law and signing all U.N. conventions and protocols relating to human trafficking, Implementation of these laws, however, remains poor and is subject to corrupt police and government systems similar to the condition of the other countries.
The Protocol to Prevent, Suppress and Punish Trafficking in Persons, especially Women and Children (also referred to as the Trafficking Protocol) is a protocol to the Convention against Transnational Organised Crimes adopted by the United Nations in Palermo, Italy in 2000.
The Trafficking Protocol entered into force on 25 December 2003. By October 2009, the Protocol had been signed by 117 countries, and there were 133 parties.

Reference sites:
www.reuters.com
www.un.org
www.bbc.com
www.cfr.org
www.asiafoundation.com
www.amnestyinternational.com

Kindly refer to your country’s official sites as well.