Archive for April 10th, 2012

Preemptive Contract Sanctions …A New Tool to Pressure Syria’s Bashar Assad

April 10, 2012

Kimberly Ann Elliott and Owen Barder of CGDEV write this short note on the topic.

They say trade sanctions are not enough to  pressurise Syria’s despot. A new tool is needed which says  that all new contracts with the Assad regime are illegitimate and need not be honored by a legitimate successor government:

It’s time to try a new tool that would strengthen existing measures: preemptive contract sanctions. This would take the form of a declaration that any new contracts with the Assad regime are illegitimate and need not be honored by a legitimate successor government. Such a declaration would discourage new contracts with or loans to the regime because of the increased risk that that they would be repudiated by a successor government. 

Discouraging new contracts would make it harder for the regime to sustain itself. It could encourage senior officials or military officers to abandon the regime and cause outsiders considering doing business with the regime to drive a harder bargain. If contracts are signed despite such a declaration, it would lessen the burden on a legitimate successor government, which could repudiate such contracts without endangering access to international credit markets.

They say unlike trade sanctions which are worked upon, contract sanctions will be difficult to get by:

How would this work? Suppose the United States and the United Kingdom, which are home to the world’s leading financial centers, acting with support of the European Union and the Arab League, announced that any new contracts signed with the Assad regime are illegitimate. How would governments and firms considering doing business with Assad respond? Would Russians continue to sell weapons, knowing they might not get paid and that their contract could not be enforced? Would China and other countries risk investing in Syria’s oil sector, knowing that the contract—and promised oil deliveries—could be repudiated if the Assad regime falls?

Will this work? I mean how difficult is it to work on contract sanctions just like the trade sanctions. I don’t think any of these sanctions can really work unless the whole world decides not to do any business with Syria…

But a nice thought. Needs to expanded further using eco perspective..

Institutional Transformations: Testing the North-Wallis-Weingast Doorsteps Framework

April 10, 2012

With Acemoglu-Robinson’s much discussed book – Why nations fail – institutions are the surprise flavor of the season.

Even before their book, we had another development framework centered on institutions by North-Wallis-Weingast (paper here). Douglass North as we all know one Nobel for his work on institutions.

The authors divided the countries into open door and closed door societies with former being developed and latter non-developed. And gave a three door strategy for countries to transit from closed to open societies:

  • the establishment of rule of law among elites;
  • the adoption of perpetually existing organizations; and
  • the political control of the military.
Those following AR’s book-blog will realise they also talk more or less  the same transition issues.
Sophia Gollwitzer Franke and Marc Quintyn of IMF test the NWW 3 door framework in this paper empirically. They develop indices for all the three doors and see how different countries have fared over the years in the 3d framework. Findings:
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How framing manipulations succeed in changing investor fund choices…A case of close ended mutual funds in India

April 10, 2012

A nice paper by  Santosh Anagol and Hoikwang Kim of Wharton.

The paper is based on SEBI’s regulation of distribution charges in  mutual funds industry. In 2008,  a SEBI policy   allowed close-end mutual funds to amortise the distribution charges over three years. However, for open ended funds only entry loads were allowed which was a one time charge. The policy was changed in 2010 with both close and open ended funds charging entry loads. (Open-ended funds are those where one can enter and exit from fund at any time. Close end funds allow to exit only after a selected period of time usually three years. In case one wants to exit penalties are severe.)

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