Tag Archives: Iceland

McDonalds and De-Globalization

The only three McDonald’s restaurants in Iceland became the latest victims of the global economic crisis. According to an AP report, all three restaurants will close next week due to rising costs. The three franchise operations are required, according to their franchise agreement, to purchase and import all of their supplies from Germany. But the financial meltdown in Iceland—and the dramatic decline in the value of the krona, Iceland’s currency—combined with high tariffs on imports have led to a spike in operating costs for the restaurants. Indeed, according to the restaurants’ managing director, Magnus Odmudsson, operating costs have doubled over the past year, making it impossible for the restaurants to remain competitive.

According to the Big Mac index, Iceland already has the third most expensive Big Mac in the world, retailing for 650 krona ($5.29), falling behind Norway ($5.79) and Switzerland ($5.60). To meet the higher operating costs, Odmudsson said prices would have to increase to 780 krona ($6.36), a level which would make the restaurants uncompetitive.

The decision to close operations in Iceland represents a reversal of McDonald’s trend of increasing international operations. McDonalds currently operates in 119 countries on six continents. But the expansion has been controversial. In France, McDonald’s has been the target of protestors who claim that the chain restaurant undermines French cuisine, while in India, it faced lawsuits for allegedly using beef fat in the production of French fries. And earlier it was forced to trim operations in countries like Bolivia, where operations were not profitable.

The current global downturn presents new challenges for McDonald’s and other multinational corporations. Currency instability, a rise in protectionism, and an increasing preference for locally produced goods. This shift hardly represents a dramatic shift away from the process of globalization that has defined the global political economy since the end of World War II. But it does present, in a clear way, the challenges transnational operations face in an increasingly interconnected global economy.

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Five Stories You Might Have Missed

The political situation in Iran continued to evolve over the past week. Last week, a standoff between President Mahmoud Ahmadi-Nejad and Iran’s Supreme Leader, Ayatollah Ali Khamenei, culminated in the dismissal of two conservatives from the cabinet and the firing of Vice President (and close ally of Ahmadi-Nejad), Esfandiar Rahim Mashaei. The deteriorating relationship between Ahmadi-Nejad and Khamenei further undermines the political stability of Iran, already weakened by June’s disputed presidential elections and the subsequent protests which have rocked the country. Protests have been a regular feature of the Iranian political scene for the past month, including clashes between police and opposition supporters like those that occurred on Thursday.  Although the Iranian government last week released hundreds of people arrested for participating in the post-election protests, the trial of 100 of the most prominent detainees is moving forward. Critics of the regime have condemned the trial as a spectacle.

Meanwhile, three Americans were arrested on Saturday by Iranian security forces for allegedly entering the country illegally.  The three were camping in Kurdistan (near the Iraqi-Iranian border) when they crossed over into Iran. They have been transferred to the capital, Tehran, where they are currently being held.

In news from outside Iran in the last week:

1. Two statements by the Indian government last week dashed hopes of progress in multilateral negotiations. On Wednesday, India’s commerce secretary, Rahul Khullar, dismissed hopes of rekindling World Trade Organization talks as unrealistic in the current global political and economic climate. The current round of talks, referred to as the Doha agenda, has been under negotiation for nine years. The talks have been suspended numerous times, largely as a result of the inability of WTO member states to agree on binding cuts to agricultural subsidies. According to Khullar, progress is unlikely because, in the context of the global economic crisis, political leaders are focused on job losses and the lack of domestic economic growth, a focus which makes it difficult to move forward on a new global trade deal.

In another development, India’s environment minister, Jairam Ramesh, said on Friday that India would not agree to binding emission cuts for at least ten years, potentially throwing climate talks scheduled to take place in Copenhagen in December into disarray. India and China are both dismissive of western pressure to agree to greenhouse gas reductions, believing that such reductions would undermine future economic growth and development in their countries. But without the participation of China and India in climate change negotiations, progress will be far more difficult, particularly given the historical U.S. negotiating position that it will not be bound by any climate change agreement that does not also include reductions for China and India.

2. Over the weekend, Russia concluded negotiations to expand the Russian troop presence in Kyrgyzstan. The expanded Russian presence is part of Russia’s broader effort to reassert itself in its traditional sphere of influence, an effort which included the development of the Collective Security Treaty Organization, a counterpart to NATO which includes Russia and six other former Soviet Republics, Kyrgyzstan, Kazakhstan, Tajikistan, Uzbekistan, Armenia and Belarus. The United States and Russia have been competing for influence in Kyrgyzstan, which occupies an important geo-strategic position, and Kyrgyzstan’s president, Kurmanbek Bakiyev, has skillfully negotiated between competing Russian and American interests. In February, after receiving $2 billion in aid from the Russian government, Bakiyev ordered the United States to leave Kyrgyzstani bases by June. The bases are part of the U.S. air transit route to supply forces in Afghanistan. After the United States agreed to triple rent payments for use of the base and to offer additional financial assistance to the Kyrgyzstani government, Bakiyev rescinded his request that the U.S. withdraw.

3. Venezuelan President Hugo Chávez has once again sparked widespread criticism, this time among human rights groups. At issue is the latest development in the president’s campaign against “media terrorism”—a new law which would punish journalists and their sources with up to four years in jail for “causing panic,” “disturbing social peace” or compromising national security.

In an unrelated development, the government of Venezuela has “frozen” diplomatic and economic relations with its neighbor, Colombia. Relations between the two countries have been poor since March 2008, when Colombia launched a raid into Ecuador, a close ally of Venezuela. The decision to suspend relations came after Colombia accused Venezuela of supplying rocket launchers to Marxist rebels in Colombia.

4. Clashes between security forces and an Islamist sect in three states in Nigeria continued last week despite the death of Islamist leader Mohammed Yusuf in police custody. More than 150 people have died in five days of fighting in Nigeria, where a sharp economic and political divide between the largely Muslim north and the predominately Christian south has been exacerbated by the country’s declining economic situation. The fighting in the northern part of the country complicates efforts to address the longstanding crisis in the southern, oil producing region of the country, where conflicts between militant separatist groups and the government have continued off-and-on for the better part of a decade. Taken together, these conflicts represent the most significant challenge to the Nigerian government since independence.

5. The International Monetary Fund on Friday issued a statement intended to play down the standoff between the Fund and the government of Iceland. At issue are the conditionalities imposed on the government of Iceland as a requirement for the dispersal of $2.1 billion in IMF loans. The government of Iceland has been under immense political pressure regarding the status of foreign savings deposits in Icelandic banks, which collapsed last year as part of the global economic crisis. The IMF is requiring that the government guarantee all foreign savings deposits, but the government of Iceland has so far refused, bowing to domestic political pressure not to compensate account holders.

Five Stories You Might Have Missed

A new report issued by the International Monetary Fund on Saturday suggests that the globally economy will contract by 1.3 percent in 2009 with a slow recovery beginning in 2010. While the United States has been pushing countries to expand stimulus spending, the IMF said that existing stimulus spending already committed for 2009 should be sufficient to address the crisis. A Friday meeting of the finance ministers of the G7 countries was more cautious, concluding that, “the pace of decline in our economies has slowed and some signs of stabilization are emerging,” but simultaneously warned that “downside risks persist.”

In news outside the global economic crisis from the last week:

1. The outbreak of a new flue strain has raised concern in Mexico, as 68 people have died and more than 1,000 have been infected. The World Health Organization is monitoring the situation to determine if it is likely to reach pandemic status. While the Mexican government is urging people to remain calm, authorities have already canceled more than 500 public events and many residents in Mexico City have opted to stay home rather than travel for shopping and work. Tests have also confirmed the virus has made people in California, Texas, Kansas, and New York ill.

2. Elections in Iceland have produced the country’s first center-left government. The previous government of Iceland had been forced to resign as a result of the devastating impact of the global financial crisis on the country. Preliminary election results give Johanna Sigurdardottir’s Social Democrats 30 percent of the vote. With their coalition partner, the Left Greens’ 22 percent of the vote, the coalition appears well-positioned to drive the political agenda in Iceland. Sigurdardottir becomes the first openly gay person elected head of state in the modern world. The first item on her agenda: Icelandic membership in the European Union.

3. While the Obama administration is hoping to resume the six-party talks with North Korea, the government of North Korea appears to be taking a more hardline stance. Earlier this month it test fired a long-range missile, sparking a confrontation with the UN Security Council. Last week, the government of North Korea last week announced it would put two U.S. reporters on trial, charging them with illegal entry and “hostile acts.” Additionally, after expelling international atomic inspectors two weeks ago, North Korea has announced its intention to resume plutonium extraction. It is widely believed that North Korea already possesses enough plutonium for six to eight nuclear bombs. According to some observers, the deteriorating relations between North Korea and the West may be part of the country’s efforts to force the United States into direct, bilateral negotiations.

4. The sharp upsurge of violence in Iraq, including two suicide attacks that killed 75 people outside a Shia shrine in Baghdad on Friday, have raised concerns that Iraq is sliding back into civil war. Recent attacks raise the concern of sectarian violence, suppressed by a strong U.S. presence over the past year, but never entirely defeated.

5. Reversing a longstanding policy of the Bush administration, Secretary of State Hillary Clinton announced on Thursday that the United States would be willing to work with a Palestinian government backed by Hamas so long as the organization met international demands to renounce violence and recognize Israel’s right to exist.  The Bush administration had refused to work with Hamas, which has effectively controlled the Palestinian government since it defeated its rival, Fatah, in elections in 2007. Meanwhile, Israeli Prime Minister Benjamin Netanyahu is under pressure to engage meaningfully in international diplomacy and to be seen acting.

And because it was such a busy week internationally, here are two bonus stories from this week:

6. The rebel Tamil Tigers in Sri Lanka on Sunday declared a unilateral ceasefire, a move almost immediately rejected by the government. An operation launched by the government last month has effectively confined the Tamil Tigers to a small enclave in the northern part of the country, and the government is expected to announce the defeat of the Tigers any day. But the United Nations has described the situation as a humanitarian disaster, with more than 6,500 civilians already killed and as many as 100,000 refugees created as a result of the fighting.

7. It was announced on Friday that China has become the world’s fifth largest holder of gold reserves, with 1,054 tones of gold. Seen as part of a broader strategy to diversify its nearly $2 trillion in foreign exchange reserves, the government of China has slowly been building its gold reserves over the several years. However, even with the recent purchases, China has a level of gold reserves (as a percent of its total reserves) far below that of the United States and other developed countries.

Five Stories You Might Have Missed

The big story of the week has to be the inauguration of Barack Obama as the 44th President of the United States on Tuesday.  Since then, President Obama has been moving quickly to make sweeping changes to U.S. foreign and domestic policy, including announcements that he was suspending the military tribunal system established to try terrorism suspects, closing the detention facility at Guantánamo Bay and other secret detention facilities, mandating that all U.S. interrogators comply with the Army Field Manual, and issuing orders to national security team that they should develop a plan outlining a “responsible military drawdown in Iraq.”  And that was his first day in office.

Here’s five important stories from the past week you might have missed if you were only focused on the Obama transition.

1. Seeking to improve deteriorating relations with India, Pakistan announced on Friday that it would prosecute militants with links to the November Mumbai terror attacks.  The government of Pakistan is hoping to amend its constitution to permit trials for acts of terror committed outside its borders.  In the meantime, it has announced its intention to try several militants with links to the Mumbai attacks for cyber crimes.  Last week, the Pakistani government arrested 124 alleged militantsThe United Kingdom, the United States, and other western powers have made an effort to improve relations between India and Pakistan, both nuclear powers, which have been particularly tense since the November, and Yousuf Raza Gilani, the new prime minister of Pakistan, is facing considerable domestic and international pressure

2.  The temporary ceasefire between Israel and Hamas in Gaza seems to be holding, but tensions continue to rise.  On Sunday, Hamas announced that it would terminate the ceasefire if Israel continued to maintain its blockade on Gaza.  Israel maintains that the blockade is intended to prevent the shipment of weapons into Gaza, but the blockade also prevents the shipment of food, energy, and reconstruction materials into the territory.  Both U.N. Secretary General Ban Ki-moon and U.S. President Barack Obama have called on Israel to reopen its borders with Gaza.

3.  Congolese rebel leader Laurent Nkunda was arrested last week.  A central player in the ongoing civil war in the eastern part of the Democratic Republic of the Congo, Nkunda was believed responsible for the destabilization of the region which has resulted in the displacement of hundreds of thousands of people and an estimated 5.4 million deaths—half of whom were children—during the past ten years.  Nkunda’s arrest presents an opportunity for peace in the eastern DRC.  It also represents a fundamental shift in relations between the Congo and its eastern neighbor, Rwanda.  The two countries have had tense relations since the mid-1990s, but Nkudna’s arrest was part of a joint operation and Rwandan troops are currently cooperating with the Congolese military to track down remnants of guerilla forces operating in the region.

4.  A national referendum on a new constitution in Bolivia is currently underway.  The constitution, promoted by Evo Morales, Bolivia’s first indigenous president, is widely expected to pass given Morales’ popularity.  However, several groups are campaigning against the constitution, including the Christian groups and the country’s relatively wealthy.  If passed, the new constitution would introduce “community justice,” provide for the election of judges, remove Catholicism as the official state religion, and cap landholdings at 5,000 hectares.

5.  Europe continues to struggle with the fallout from the global economic crisis.  On Friday, French President Nicolas Sarkozy unveiled a new €600 million stimulus package targeting the French newspaper industry.  The Spanish government has called on its citizens to engage in “patriotic” shopping, buying Spanish products as a way to address the economic downturn in that country.  Meanwhile, Iceland became the first county to witness a government collapse as a result of the crisis.  The prime minister of Iceland, Geir Haarde, resigned on Friday, paving the way for early elections and a potentially dramatic shift to the left after nearly twenty years of liberalization in the country.   In November, Iceland became the first developed country to have to turn to the International Monetary Fund since 1976.

Five Stories You Might Have Missed

The U.S. Presidential elections are in their final days, and the candidates are busy touring swing states in last minute pitches to undecided voters.  Early voting is already underway, and some 20 million people have already voted.  Most analysts are projecting a win for Obama, but McCain is still in position to pull off the upset.  Tuesday is the big day, so all Americans should be sure to exercise their right to vote!

In other news from around the world:

1.  The conflict in the Democratic Republic of the Congo, which reignited in late summer after the rebel leader Laurent Nkunda announced his intention to cancel the ceasefire under which the country had effectively been operating since 2002.  The latest round of fighting, centered in the eastern part of the country known as North Kivu, has sparked a humanitarian crisis of epic proportions, as an estimated one million refugees have fled their homes.  On Wednesday, a new ceasefire was announced after four days of intense fighting, and now the European Union is considering sending troops and aid to the Congo.

2. Ukraine became the latest victim of the global financial crisis on Friday, as its parliament was forced to adopt a package of legislation imposed by the International Monetary Fund as a condition for receiving an emergency $16.5 billion loan from the international organization.  Ukraine’s turn to the IMF for a rescue package follows on the heels of similar moves in Iceland and Hungary, signaling the wide scope of the crisis.  More generally, the Eurozone seems to be facing falling inflation and rising unemployment—with some national variation—as the economic crisis expands.

3.  The global economic crisis is also being felt in China, where projections for annual GDP growth have been cut from 12 percent to 9-9 percent.  Chinese companies are slashing production output, as worldwide demand slides.  Some larger Chinese companies are cutting production by as much as 50 percent, while smaller companies are going out of business altogether.  In an effort to rekindle the economy, the Chinese government announced it would cut the benchmark one-year deposit rate

4.  A U.S. raid into Syria last week has provoked a sharp response from within Syria, as protestors demonstrated against the action.  Syria’s foreign minister condemned the move as an act of “criminal and terrorist aggression.”  The U.S. claimed that Syria had been home to foreign fighters moving into Iraq, saying hat the raid had successfully targeted Abu Ghadiya, who U.S. officials described as “one of the most prominent foreign fighter facilitators in the region.”  As a result of the attack, U.S.-Syrian relations have soured and anti-U.S. demonstrations forced the temporary closure of the American Embassy in Damascus

5.  In another development highlighting the continuing efforts of the Russian government to reassert itself on the global stage after the Cold War, Russia is negotiating the construction of a new naval base in Libya.  Russia envisions the base as a necessary counterbalance to American interests in the region.  In recent weeks, Libya has increasingly opened its economy to foreign investment and has dramatically improved relations with the West.

Five Stories You Might Have Missed

The American presidential race is finally entering its final stretch.  With a little more than a week left in the campaign, both candidates are sharpening their attacks against one another, and the news coverage has largely devolved into a horse race in Pennsylvania, Colorado, and a handful of other tossup states.  From a global perspective, perhaps the most interesting story from the campaign trail this week was Joe Biden’s warning that the next American president would be tested early in his new administration.  The McCain campaign seized on the comments, quickly producing an apocalyptic commercial warning of the dangers facing the United States and hinting that McCain was the only candidate who could successfully navigate those dangers.  Despite the gaffe, Obama seems well-poised to win the presidential election next Tuesday.

But enough on the American election.  Here’s five stories you might have missed with all the attention on the race for the presidency: 

1.  Responding to sharp declines in global oil prices over the past few weeks, the Organization of Petroleum Exporting Countries (OPEC) announced it would cut its output by 4.5 percent from November.  On Friday, oil fell to $62.25 per barrel, its lowest level since June 2007 and a sharp decline from the nearly $150 per barrel over the summer.  Oil prices have fallen dramatically as a result of the global financial crisis, which has resulted in sharp declines in demand for oil.

2.  A 43-nation meeting of Asian and European leaders on Friday met to consider a range of issues, including a new system of global financial regulation.  As home to the world’s largest foreign currency reserves, China has come under increasing pressure to help address the global financial crisis.  So far, China has avoided making any public commitments regarding the crisis.  But according to Charles Grant, director of the London-based Centre for European Reform, “All countries with current account surpluses have people knocking on their doors at the moment and China with the biggest surplus will be the most courted.”  A global summit scheduled fro next month will address global financial regulation in greater detail, and China looks to be a key player there.

3.  Israel appears to be headed towards early elections as Tzipi Livni, who replaced Ehud Olmert as leader of the governing Kadima party, was unable win the support of the ultra-orthodox Shas party.  The differences between the two parties center largely on the status of Jerusalem in negotiations with the Palestinians.  Shas demands that Jerusalem be the undisputed capital of Israel and maintains that the status of Jerusalem is off limits in negotiations.  But by refusing to even consider the status of Jerusalem as part of a broader settlement of the Israeli-Palestinian dispute, Shas’ position undermines the likelihood of a negotiated settlement.

4.  Iceland became the first western country since the United Kingdom in 1976 to seek a rescue package from the International Monetary Fund.  Facing an economic contraction as large as 10 percent next year and a decline in currency value of 70 percent during the crisis, the government of Iceland requested a $2 billion loan from the IMF as part of a larger $6 billion rescue package provided by other Nordic countries.   As part of the IMF package, the government of Iceland will have to impose severe financial restrictions, including curtailing government spending with a goal of balancing the structural budget in the medium term.

5.  The government of Mexico has pushed through changes in the country’s oil sector intended to make the country energy independent and halt declining production.  The changes would grant greater flexibility to Pemex, the national oil company of Mexico but imposes strict limits on the ability of private or foreign oil companies from tapping Mexican oil resources.