NAFTA is the North American Free Trade Agreement (NAFTA) signed between U.S, Mexico and Canada. This agreement introduced a free trade region in North America. Arguments for suggest that NAFTA would help in supporting the economic and political reforms in Mexico. Arguments against suggest that the nature of wealth distribution and equality was not being achieved since only corporations benefited with no provisions for protecting workers and the environments effects from the trade. The wave of establishing free trade zone motivated the passage of the agreement.
- The Mexican crisis of 1994 describes the financial crisis that occurred in Mexico in late 1994. After the inauguration of the new president, he announced the devaluation of the peso by the central bank. This affected foreign investments with the foreign investors removing their capital as well as selling off their shares. The central bank has to raise its interest rates, which become difficult to borrow hindering economic growth in the country. The crisis was resolved from the support of U.S government that organized a $50 billion bailout. Among those who bailed out the situation include the International Monetary Fund (IMF) and the Bank for International Settlements (BIS). The situation led to some serious effects by severe recession in the large corporation, Bank for International Settlements (BIS).
- Considering the nature of globalization, it would adversely affect the pension funds. Most of the pension funds such as CALPERS invest in mortgage backed securities and real estates. However, the risk associated with such financial investments is very high. The world’s demographics are shifting and with looming financial crisis in many countries, the pension funds might collapse. Other countries fear globalization due to the differences in economic growth and integration with the developed countries.
- CALPERS head Bill Chitt thinks that free markets vital as they allow for wealth creation. This can be done through the cross-border foreign investments in the different countries. This makes it possible to develop the different economies.
- In the inception of globalization, Japan was unable to match the competitive business environment. For example, other countries had the ability to produce more quality products than Japan. Thus, globalization increased competitiveness causing the decline in the Japanese economy.
- a. Regarding the global contagion, there occurred a financial collapse in Thailand after the floating of the baht. This led to the cutting down of its peg in relation to the U.S dollar. The incidence escalated with the increased foreign debt in Thailand. This caused the occurrence of slumping currencies in Japan and Asia leading the Asian currency crisis.
- The long-term capital management (LTCM) was a specific form of hedge fund. The long-term capital put some enormous pressure during credit calls. Most importantly, after the inception of the Asian crisis, the LTCM was more involved and destabilized.
- I think that Brazil did not suffer due to the stability of its currency. The Asian currencies were slumping, but the currency of Brazil remained stable.
- a. The World Trade Organization (WTO) is a global organization that focuses on developing rules for trade between different countries. It seeks to ensure that smooth flow of trade between the different countries across the world.
- The Organization for Economic Co-operation and Development (OECD) is an organization formed by a group of 30 countries to review and establish relevant economic and social policies. OECD unanimously supports free market economies in the world economy.
- International Monetary Fund (IMF) is an international organization that aims at enhancing global monetary coordination, ensuring financial stability, growth of international trade, and the reduction of poverty across the globe.
- The World Bank is a global financial institute that lends money to developing countries for their capital programs and initiatives. The main purpose of the establishment of World Bank was to reduce poverty among the developing countries.
- a. After the financial currency contagion, the “Global Trade Watch” reacted through protests that sought to protect the human rights from the adverse economic conditions.
- 1) At the Seattle WTO, there are occurred protests during the launching of the new trade negotiations. The negotiations convened by WTO in Washington were cut short by big street remonstrations outside the buildings.
2) The protesting union and groups argued against some of the WTO policies including the issues of free trade. The union did not approve free trade agreements that could affect labor issues and environmental concerns.
3) The developing countries were confused and angry that the United States would be compelled by the union in failing to go through about the agreements. The developing countries condemned the union for their violent protests during the negotiations.
Lawrence Summers meant that the nature of globalization such as international trade does not lead to any much benefit to the economies. He argues that it only leads to “invisible beneficiaries and very visible losers”.
4) Ramesh was concerned that trade in textiles did not form one of the major lines of trade among the major players in the global markets. This could be linked with the changing consumer angle and thus, trade in textiles was not profitable enough.
- Hernando De Sato’s explanation on why Latin American countries have not enjoyed the benefits of globalization is the lack of equalizing the gains of globalization. He argues that the west have property rights while the Latin American countries do not have legal property rights. This makes it impossible to record and track contractual obligations and agreements. This has made it difficult for the Latin American countries to benefit from globalization.