Forest industries in South American countries

This paper analyzes the performance of forest industries in South American countries. Special attention is given to the relationships that exist between the evolution of forest industries and the exploitation of natural and planted forest as well as on the role of national governments in stimulating that kind of industries. South America has large natural forest areas and excellent natural conditions for planting trees. However, forest industries have not grown in a way that permit sustainable exploitation of natural forests and improve the Gross National Product and Trade Balance of South America's countries. This paper suggests how the latter can be done better.

The Evolution of Reforestation in Brazil

This paper analyzes the evolution of reforestation in Brazil and makes an evaluation of federal government policies used to stimulate that activity. Despite the huge increase of reforestation areas in Brazil since the 1970s, what put up Brazil as the sixth large country with reforested areas, a scarcity of roundwood from reforested areas is happing in that country during the first decade of the 21st century. Federal government implemented three programs to foster the reforestation in Brazil during the 1960s, 1970s and 1980s. However, nothing was implemented during the 1990s, when demand of roundwood increased, but not its production. This paper analyzes those programs, using a traditional cost-benefit approach. The results of that evaluation are used to suggest new federal government policies to foster the enlargement of reforestation in segments where price mechanism has not working well.

The Use of Forest Resources versus Economic Growth in Brazil: is possible to reach a balance?

This article analyzes how forest resources have been used in Brazil since 1930, in an attempt to prove two hypotheses. The first hypothesis is that the destruction of our forests and the unsustainable use of the remaining forests have always been linked to the developmental policies adopted in the country. These policies, in their turn, have been based on the main economic models in vogue at the time. The second hypothesis is that, even recognizing the ineffectiveness of only adopting policies to regulate and control deforestation, policy-makers have only broadened and sophisticated this type of policy over time (through the forest legislation), without creating meaningful economic incentives to preserve and conserve forest resources. To prove these hypotheses, this article contains a discussion of the importance of forests to a nation and emphasizes that Brazil is destroying them on a large scale in different intensities among the Brazilian states. The latter has taken place despite the deforestation cannot be justified by the need of new farming land in most of Brazilian states. Finally, the article discusses some policies that allow the rational use of forest resources in Brazil without hindering the growth of other economic activities and considering the Brazilian states differences.

Lessons from East Asia's Crisis and Recovery

This paper provides an empirical analysis of the currency crisis and recovery in three East Asian countries, Malaysia, Thailand and South Korea. Using macro economic data for the three countries over a 13 year period, 1990 – 2002, the paper examines the factors leading to the crisis, the policy response to the crisis, an evaluation of their recovery and the lessons that can be learnt. During the seven year period prior to the crisis, all three countries experienced very rapid GDP growth. Collectively, average annual GDP growth was 11.5%. This growth however was fueled by rapid monetary growth, current account deficits, negative S-I gaps and short term capital inflows. As a result, serious structural weaknesses were built. Overvalued exchange rates enhanced the vulnerabilities. The two year period of crisis, saw sharply negative GDP growth in all three countries. These were accentuated by the contractionary policies. While Thailand and South Korea had to turn to the IMF and adopt the IMF package, Malaysia took the ‘unorthodox’ route of capital controls and currency peg. The paper argues that despite different policy stance the underlying responses were the same. All three countries experienced a V-shaped recovery. Malaysia’s controversial policies appears to have provided no additional advantage. The paper concludes with an outline of key lessons for policy makers from the experience of the three countries.Lessons from East Asia's currency crisis; and recovery

The Market for Financial Derivatives: Removing Impediments to Growth

This paper begins with an evaluation of the performance of the Malaysian market for financial derivatives. Despite a headstart, Malaysia appears to be lagging substantially when compared to the performance of other Asian derivative markets. While the other Asian markets though newer, have seen explosive growth in volume, trading volume in Malaysia appears to have shrunk. We examine why this has been the case and identify several macro and micro level impediments. Among macro level impediments have been the imposition of Capital controls, reduced equity market volatility, falling interest rates and a fragmented regulatory/operational structure. The lack of market makers, regulation and settlement rules were identified as impediments at the market micro structure level. We propose several measures to develop the local derivatives market. This includes, privatizing and deregulating risk management, facilitating market making, liberalization of unit trust guidelines with regard to their use of derivatives and the initiation of derivative funds. We also recommend the reactivation of securities borrowing and lending, introduction of new derivative products and streamlining of licensing / regulationsMarket for Financial Derivatives in Malaysia and removing impediments to their growth

Pricing Hybrid Securities: The Case of Malaysian ICULS

This paper provides an indepth analysis of Irredeemable Convertible Unsecured Loan Stocks or ICULS. A Malaysian variant of the convertible bond, ICULS are a hybrid security. Despite their introduction and trading since the late 1980’s, not much work have been done on them. This paper presents the first empirical evidence on the pricing of ICULS. We propose a pricing model for ICULS, built on the replication technique of options. Using 30 months (2½ years) of daily price data, we test our model on a sample of 34 ICULS. Though on average ICULS are underpriced by 2.3%, we find an equal number of under and overpriced ICULS. Our findings show that not only does the market misprice ICULS, the mispricing is sustained over quite a while. Infact, even over a one year window period, marginal mispricing remains. We argue that issuers of ICULS benefit much more than investors do.Pricing of Hybrid Securities; Irredeemable Convertible Unsecured Loan Stocks or ICULS; Option Pricing, Pricing Efficiency

Adapting Mudarabah Financing to Contemporary Realities: A Proposed Financing Structure

Islamic banking in Malaysia, despite its recent start, has seen very rapid growth. This growth however has been uneven. While short-term trade financing has always been dominant and grown rapidly, Mudarabah financing by Islamic banks in Malaysia has reduced to insignificantly amounts. Yet, Mudarabah which is based on profit and loss sharing has always been considered to be at the core of Islamic financing and in tune with the shariah’s injunctions against interest based financing. The paper addresses why this has been the case. Using conventional finance theories it is shown that Mudarabah financing has serious agency problems, lacks the bonding effect of debt financing and can induce perverse incentives. Following an analysis of these problems in Part I. Part II compare: Mudarabah with conventional debt and equity financing within a risk-return framework. Using scenario analysis, it is shown that for a ‘borrower’ faced with the alternative of using Mudarabah, debt or equity financing, Mudarabah would be best in a risk-return framework. For a financier faced with the same three alternatives however, Mudarabah financing would be the worst. Expected returns would be the lowest while risk highest among the three alternatives. This has to do with the structure of Mudarabah financing where strict interpretation of the Shariah requires the financier to absorb all losses, but profits to be shared. It is argued that this inequality in the distribution of risk and returns has caused Islamic banks to reduce Mudarabah financing. Part III proposes an alternative financial arrangement under Mudarabah. Using the principles of mezzanine and vertical-strip financing, currently in use in venture-capital and other high risk financing like Leveraged Buyouts (LBOs), it is shown that a more equitable distribution of risk and returns can be achieved. The proposal requires the mudarib (borrower) to ‘reimburse' the financier in the event of certain outcomes. This reimbursement will be in form of the Mudarib giving up part of his equity to the financier. While this reduces the agency problems and the downside risk faced by the financier it does not eliminate all such risk. Thus, both parties will be required to be responsible and cautious in undertaking new projects. Part IV concludes with an evaluation of the proposed arrangement in the context of the ShariahAn adapted model for Mudarabah; Islamic profit-loss sharing financing

Derivative Instruments and Islamic Finance: Some Thoughts for a Reconsideration

This paper examines contemporary derivative instruments and the Islamic viewpoint of these new instruments. The validity and permissibility of these instruments appears to vary by scholar. Even where Islamic scholars have found them to be objectionable, their reasons for objection differs. Much of the work by Islamic scholars has been of a highly juridical nature. They examine derivatives within narrow confines of contractual arrangements and thereby miss the broader picture of why instruments like futures and options are needed in modern business environments. This paper analyzes forwards, futures and options, examines the evolution of these instruments, their unique benefits and makes a case for why they are needed. Islamic Finance instruments with derivative like features such as the Ba’i Salam and Istijrar contracts are also examined. Some of the key concerns that Islamic scholars have regarding derivatives is addressed. The paper is divided into four parts. Part 1, outlines the objective and introduces derivative instruments. Part 2, examines the Islamic viewpoint and shariah conditions for financial instruments. Part 3, examines Ba’i Salam and Istijrar contracts. Part 4, clarifies why some of the objections of Islamic scholars regarding features and trading mechanism may be misplaced and concludes.Islamic Finance and Derivative Instruments; The need for a reconsideration of their acceptability

A Common Currency Area for MENA Countries? A VAR Analysis of viability

This paper examines the feasibility of a Common Currency Area (CCA) among 10 (Middle East and North Africa) MENA Countries. The 10 sample countries constitute the six GCC Countries and the four Agadir nations. Methodology Approach Macroeconomic data for the 34 year period 1970 to 2003 is used. Feasibility is examined by analyzing the symmetry of response of countries within each group to a common external shock. The impulse response functions (IRF) from a Vector Autoregression Model is used. The strength of lingkages within each economic bloc was examined using Pearson pairwise correlation and variance decomposition. Findings Among GCC countries, the results show the existence of strong lingkages among the monetary variables, signifying strong monetary sector integration. Such integration however is lacking where the real sector is concerned. Despite the symmetry seen in the impulse response functions, variance decomposition showed the absence of any meaningful influence of countries on each other within the bloc. Amongst the Agadir nations, the results show no correlation in real output growth, some correlation among monetary variables but no symmetry whatsoever in response to external shocks. The variance decomposition too did not show mutual influence intra group. Implications The lack of real sector integration will present a challenge to GCC’s desired goal of a CCA by 2010. The Agadir nations appear to be simply a loosely knit economic grouping with little integration of any kind. Thus, hopes of a CCA among Agadir nations is far too premature.Feasibility of Common Currency Area; for MENA (Middle East and North African) countries