Glossary

Question 1

Balance of payments

Answer 1

The Balance of Payments shows a countries transactions with the rest of the world. It notes inflows and outflows of money and categorises them into different sections. The different sections of the Balance of Payments are: Current account balance of payments and Financial account balance of payments

Question 2

Current account balance of payments

Answer 2

Measures transactions for goods and services.(used to be called visible and invisibles) The current account comprises the trade balance (which is trade in goods) and also includes the balance for trade in services.
When people refer to a balance of payments deficit they invariably mean a current account deficit

Question 3

Financial account balance of payments

Answer 3

Also known as capital balance of payments. The financial account measures inflows of capital both short term and long term. this includes

1. foreign direct investment
2. Purchase of securities by investors

Question 4

Balance of payments crisis

Answer 4

This occurs when the current account deficit cannot be maintained. It means there will be a fall in foreign exchange reserves and the country can no longer attract sufficient capital flows to finance the current account deficit.

The solution to a balance of payments crisis is usually to devalue the currency and slow down consumer spending on imports, usually by causing a recession

Question 5

Exchange rates

Answer 5

Price for which the currency of a country can be exchanged for another country’s currency. Factors that influence exchange rate include (1) interest rates, (2) inflation rate, (3) trade balance, (4) political stability, (5) internal harmony, (6) high degree of transparency in the conduct of leaders and administrators, (7) general state of economy, and (8) quality of governance

Question 6

IMF quota system

Answer 6

Quota subscriptions are a central component of the IMF’s financial resources. Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy. A member country’s quota determines its maximum financial commitment to the IMF, its voting power, and has a bearing on its access to IMF financing

Question 7

UNCTAD

Answer 7

UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964.
UNCTAD is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues

Question 8

New International Economic Order, NIEO

Answer 8

The New International Economic Order (NIEO) was a set of proposals put forward during the 1970s by some developing countries through the United Nations Conference on Trade and Development to promote their interests by improving their terms of trade, increasing development assistance, developed-country tariff reductions, and other means. It was meant to be a revision of the international economic system in favour of Third World countries, replacing the Bretton Woods system, which had benefited the leading states that had created it – especially the United States

Question 9

Most Favoured Nation, MFN

Answer 9

Under the WTO agreements, countries cannot normally discriminate between their trading partners. Grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members.
This principle is known as most-favoured-nation (MFN) treatment

Question 10

New Institutional Economics

Answer 10

New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules (which are institutions) that underlie economic activity and with analysis beyond earlier institutional economics and neoclassical economics.[1] It can be seen as a broadening step to include aspects excluded in neoclassical economics. It rediscovers aspects of classical political economy

Question 11

East Asian Tigers

Answer 11

The four Asian tigers are the high-growth economies of Hong Kong, Singapore, South Korea and Taiwan. The four Asian tigers have consistently maintained high levels of economic growth since the 1960s, fueled by exports and rapid industrialization, which enabled these economies to join the ranks of the world’s richest nations. Hong Kong and Singapore are among the biggest financial centers worldwide, while South Korea and Taiwan are important hubs of global manufacturing in automobile and electronic components as well as information technology, respectively.

Question 12

Structural adjustment Policies

Answer 12

Economic policies which countries must follow in order to qualify for new World Bank and International Monetary Fund (IMF) loans and help them make debt repayments on the older debts owed to commercial banks, governments and the World Bank. Although SAPs are designed for individual countries but have common guiding principles and features which include export-led growth; privatisation and liberalisation; and the efficiency of the free market

Question 13

Generalized System of Preferences , GSP

Answer 13

Programmes by developed countries granting preferential tariffs to imports from developing countries

Question 14

The General Agreement on Tariffs and Trade (GATT)

Answer 14

GATT was the first world-wide multi-lateral free trade agreement. It was in effect from June 30, 1948, until January 1, 1995, when it was absorbed by the World Trade Organization (WTO).

Question 15

Gold Standard

Answer 15

The gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price

Question 16

Keynesianism

Answer 16

The essential element of Keynesian economics is the idea the macro economy can be in disequilibrium (recession) for a considerable time. Keynesian economics advocates government intervention to help overcome the lack of aggregate demand to reduce unemployment and increase growth

Question 17

Neoclassical theory

Answer 17

Neoclassical economics is an approach to economics focusing on the determination of goods, outputs, and income distributions in markets through supply and demand. This determination is often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by firms facing production costs and employing available information and factors of production, in accordance with rational choice theory.
Neoclassical economics dominates microeconomics, and together with Keynesian economics forms the neoclassical synthesis which dominates mainstream economics today

Question 18

Stable Currencies

Answer 18

A stable currency is a currency which successfully performs its functions as a means of exchange, unit of account and a store of value because its purchasing power is stable

Question 19

Debt default

Answer 19

Default is the failure to pay interest or principal on a loan or security when due

Question 20

Debt restructuring

Answer 20

Debt restructuring is a method used by debtors with outstanding debt obligations to alter the terms of the debt agreements in order to achieve some advantage. This can include rescheduling

Question 21

Sustainability (of debt level)

Answer 21

situation in which a borrower is expected to be able to continue servicing its debts without an unrealistically large future correction to the balance of income and expenditure. Sustainability rules out any of the following: a situation in which a debt restructuring is already needed (or expected to be needed); a situation where the borrower keeps on indefinitely accumulating debt faster than its capacity to service these debts is growing (a Ponzi game); or a situation in which the borrower lives beyond its means by accumulating debt in the knowledge that a major retrenchment will be needed to service these debts (even if nothing in the external environment changes). The cost of financing is a key factor influencing debt accumulation (i.e., the present value budget constraint), and thus sustainability. Sustainability thus incorporates the concepts of solvency and of liquidity, without making a sharp demarcation between them

Question 22

Additionality (in debt restructuring)

Answer 22

debt reduction on top of ODA commitments

Question 23

Debt relief

Answer 23

The reorganization of debt in any shape or form, so as to provide the indebted party with a measure of relief, either fully or partially, from a huge debt burden. Debt relief can take a number of forms: reducing the outstanding principal amount (either partly or fully), lowering the interest rate on loans due, extending the term of the loan and so on

Question 24

Paris Club

Answer 24

A key forum for the delivery of bilateral debt relief from (mainly OECD) governments is the Paris Club. While the Paris Club has provided significant debt relief under the HIPC initiative, non-HIPC low income and middle income countries have also received relief, albeit often on less favourable terms, or debt restructurings to help them deal with balance of payments problem

Question 25

London Club

Answer 25

Informal forum of private creditors

“The London Club, by virtue of its responsibility for the rescheduling of commercial bank debt, has been involved primarily with the heavily indebted commercial borrowers concentrated mainly in Latin America and Asia, while the lower income Sub-Saharan African countries became the Paris Club’s principal clients.” EOLSS

Question 26

HIPC

Answer 26

Definition according to World Bank: “The World Bank, the International Monetary Fund (IMF) and other multilateral, bilateral and commercial creditors began the Heavily Indebted Poor Country (HIPC) Initiative in 1996. The structured program was designed to ensure that the poorest countries in the world are not overwhelmed by unmanageable or unsustainable debt burdens. It reduces the debt of countries meeting strict criteria. As of the most recent annual report, the HIPC and related Multilateral Debt Relief Initiative (MDRI) programs have relieved 36 participating countries of $99 billion in debt.
A comprehensive review of the program in 1999 led to enhancements, including the adjustment downward of the debt-burden thresholds that enabled a broader group of countries to qualify for debt relief. In addition, a number of creditors, including the main multilaterals, started to provide earlier assistance to qualifying countries in the form of interim relief at decision point. Finally, the “floating completion point” was introduced, providing incentives to speed up reforms and increase countries’ ownership.”

Question 27

MDRI

Answer 27

Definition according to IMF: “The Multilateral Debt Relief Initiative (MDRI) provided for 100 percent relief on eligible debt from three multilateral institutions to a group of low-income countries. The initiative aimed to help eligible countries advance toward the United Nations’ Millennium Development Goals (MDGs) focused on halving poverty by 2015. As there is no longer any MDRI-eligible debt to the IMF, staff has initiated the process of liquidating the MDRI Trusts.”

Question 28

Vulture fund

Answer 28

A fund that buys securities in distressed investments, such as high-yield bonds in or near default, or equities that are in or near bankruptcy.

Question 29

Brady bond

Answer 29

Bonds that are issued by the governments of developing countries. Brady bonds are some of the most liquid emerging market securities. They are named after former U.S. Treasury Secretary Nicholas Brady, who sponsored the effort to restructure emerging market debt instruments.

Question 30

Securitization

Answer 30

Securitization is the process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors, and this process can encompass any type of financial asset and promotes liquidity in the marketplace

Question 31

Covered investment

Answer 31

what the investment treaty regulates, for example, if bonds are included or excluded

Question 32

Bail-in

Answer 32

A bail-in is rescuing a financial institution on the brink of failure by making its creditors and depositors take a loss on their holdings.

Question 33

Bail-out

Answer 33

A bailout is a situation in which a business, an individual or a government offers money to a failing business to prevent the consequences that arise from the business’s downfall. Bailouts can take the form of loans, bonds, stocks or cash. They may require reimbursement. Bailouts have traditionally occurred in industries or businesses that are perceived as no longer being viable or are sustaining huge losses.

Question 34

Jubilee framework

Answer 34

Framework for resolving sovereign debt crises, based on the proposal of K. Raffer and modelled on Chapter 9 of the U.S. legal code, which regulates the bankruptcy of municipal and governmental organizations. Central was the idea of a court representative of all creditors and the debtor nation in order to treat their interests on equal part. The IMF would have a role in providing working capital in loans to the debtor country while negotiations proceed (the repayment of these loans would have priority over other loans).

Question 35

“Gamble for redemption”

Answer 35

When countries might take high-interest loans to repay pending ones, in the hope that in the future something will prevent the escalation of debt and help them avoid default.

Question 36

Collective action clauses

Answer 36

Clauses that bind all bondholders by the decisions of supermajority, thus allowing bondholders as a group to protect against individual holdouts.

Question 37

Applied tariffs

Answer 37

Duties that are actually charged on imports. These can be below the bound rates.

Question 38

Bound tariffs

Answer 38

The agreed ceiling / highest rate that a country can apply its tariff. Once a rate of duty is bound, it may not be raised without compensating the affected parties.

Question 39

Non-tariff measures (NTM)

Answer 39

Other measures , apart from tariffs, used by countries to get revenue or to as part of wider economic policy for instance subsidies , quotas, licenses.

Question 40

Subsidy

Answer 40

A benefit that a government confers to a firm to help keep it competitive e.g. by lowering costs of production hence lowering price of its products. There are two general types of subsidies: export, geared towards export industry or products and domestic, which are benefits not directly linked to exports.

Question 41

Quotas

Answer 41

A limitation by the of the physical quantity or value of goods that can be imported into or exported by it. Countries usually target quotas at imports to reduce them hence stimulate domestic production.

Question 42

Shallow integration

Answer 42

The limitation of trade negotiations to goods susceptible to tariffs and NTMs such as agricultural produce, manufactured goods e.t.c . It was especially rampant during the GATT era.

Question 43

Deep integration

Answer 43

Inclusion into trade negotiations of new areas economic requiring extensive policy adjustments by member countries namely services, investment and intellectual property. This happened during the Uruguay Round in the WTO.

Question 44

Positive consensus

Answer 44

An agreement by all WTO members regarding a specific resolution. If (representatives of ) a single member country objects, then there is no consensus.

Question 45

Negative consensus

Answer 45

A situation whereby all WTO members have to object to a resolution for it not to be passed. It is usually applied in dispute settlement process where a negative consensus is required for a resolution by the appellate body to be discarded and not implemented. Such resolutions usually sail through as countries are often divided making it hard to achieve a negative consensus.

Question 46

Implied consensus

Answer 46

During negotiations, an assumption that all members have agreed to it unless a member(s) explicitly voice(s) dissent. It is the main mode of decision making in the WTO

Question 47

Super majority

Answer 47

During a vote where a two thirds majority of members is required to pass a resolution. It is rarely used in WTO

Question 48

Weighted voting

Answer 48

Whereby decisions are taken by a majority or super-majority, with each state assigned votes or other procedural powers in proportion to its population, financial contribution to the organization, or other factors (Steinberg, R.H., 2002: 339)

Question 49

Dumping

Answer 49

when goods are exported at a price less than their normal value or at less than production cost, generally meaning they are exported for less than they are sold in the domestic market or third-country markets

Question 50

Anti-dumping measures(ADM)

Answer 50

duties to be imposed on goods that are deemed to be dumped and causing injury to producers of competing products in the importing country, as allowed by GATT article 6. These duties are equal to the difference between the goods’ export price and their normal value, if dumping causes injury.

Question 51

Countervailing measures

Answer 51

Action taken by the importing country, usually in the form of increased duties to offset subsidies given to producers or exporters in the exporting country.

Question 52

Single undertaking

Answer 52

In WTO negotiations, where parties to an agreement have to abide by all clauses of the agreement and cannot pick and choose some over others as in the GATT era.

Question 53

Non-Agricultural Market Access (NAMA)

Answer 53

Introduced in 2002 by the Trade Negotiating Committee as part of the Doha Development Agenda. Also known as the Industrial Goods Negotiating Group. The aim of these negotiations by developing countries was for reduction or elimination of tariffss for particular non-agricultural goods of export interest and to allow for flexibility in making smaller or no cuts in tariffs for limited percentages of their most sensitive or infant sectors.
Range of non- agricultural goods include: industrial goods, manufactured goods, textiles, fuels and mining products, footwear, jewellery, forestry products, fish and fisheries, and chemicals

Question 54

Working party

Answer 54

Group of WTO members negotiating multilaterally on an issue of interest within the WTO. Usually named after the issue being dealt with e.g a working party on accession will be such a group negotiating with a country applying to join with the WTO.

Question 55

Accession

Answer 55

Becoming a member of the WTO, signing on to its agreements