Political System

1

• Political System
• Democracy
  Authoritarianism
• ( )
  (
• 
  
  )
• 1. political power belongs obedience to
  the authority
• to the citizens
  monopolized by a man/group
• 2. Majority rules
  Minority rules
• 3. Equality
  Inequality
• 4. Relatively open
  Closed society
• 5. Freedom
  Limited freedom
• 6. Fair trial guaranteed
  judicial injustice

2
Economic System

• A) Resource Allocation
• 1. Market
• 2. Planned (Command)
• B) Ownership style
• 1. Private
• 2. Public

3

• Political - Economic Synthesis
  
• A) Political System B) Economic
  System
• a)
  Resource b) Ownership
• 1. Democracy Market
  Private ( )
• 2. Totalitarian Planned
  Public ( )
  
  
• Socialism
  Capitalism
• Problem
• Reason
• Correction
• Variation

4

• Political Risk
• Definition
• Political risk is different from Sovereign
  Risk ,
• which is the risk of (
  ).
• Major elements of Political risk

5

• Political Risk
• A. Macro Risk
• Risk of dramatic abrupt changes in biz
  environ.
• that will influence all foreign operations.
• (e.g.
  )
• B. Micro risk
• Risk of less dramatic but more prevalent changes
• in biz environ. that will influence only a
  specific
• firm/industry.
• (e.g.
  )

6

• Political
  Risk
• Possible outcome
• a. b.
• c. d.
• e. f.
• g.
• Forecasting Political Risk
• a. ASPRO index by Shell Oil Co.
• b. BERI index by Business International
  Corp.
• c. PSSI index by (Haendel-West).
• d. IRIS index by PRS group

7

• Inverted U-curve
  Theory
• Country Political Frustration (expectation
  - econ. reality)
• risk
  income
• LDC
• NIC
• Developed
• political
• risk
• 
  level of
• low middle
  high income/
• 
  development

NICs
high
Developed
LDC
low
8

• China
  India
• Political
• Economic
• orientation
• Economy size 10.2 Trillion
  4.2 triilion
• (
  7,700/capita)
  (3,800/capita)
• Unemployment 4.2
  7.8
• Savings rate 50
  26
• Socio-cultural
• Population 1.32 bil
  1.1 bil
• religion not a serious factor
  serious factor
• (
  
  (multi-religious)
• language Chinese
  English
• advantage

9

• Currency Crisis
• Typical Pattern
• 1. growing economy.
• 2. foreign capital inflow.
• 3. stock/real estate market boom.
• 4. buy, spend and borrow more.
• 5. debt exceeds beyond their capacity.
• 6. foreign banks stop lending.
• 7. risk of default (sovereign risk) rises.
• 8. foreign capital outflow.
• 9. stock market crash.
• 10.currency crisis.

10

• Causes of the crisis
• 1.
• 2.
• 3.
• 4.
• US concerns
• 1)
• 2)
• 3)

11

• Two theories associated with Latin countries
• Modernization vs. Dependencia
• Modernization theory it placed the blame for
  under-
• development on cultural values they are
  under-
• developed because their societies are
  insufficiently
• modern, socially and psychologically.
  Underdevelop-
• ment is thus a locally rooted problem such as
  culture.
• Dependencia theory In favor of a neo-Marxist
  formulation,
• it placed blame on the process of world
  capitalist
• integration under which a group of countries
  are
• deliberately situated to be dependent and
  exploited by
• some dominant countries. It contends that the
  problem
• of underdevelopment could not be solved
  individually
• unless otherwise the whole international
  system changes.

12

• Calvo Doctrine
• The Calvo Doctrine is a foreign policy doctrine
  which holds that
• jurisdiction in international investment
  disputes lies with the host
• country where the investment is located. An
  investor, under this
• doctrine, has no recourse but to use the local
  courts, rather than
• those of their home country. The principle,
  published in 1869 by
• Carlos Calvo, an Argentine jurist, has been
  applied throughout
• Latin America and other areas of the world.
• It has since been incorporated as a part of
  many Latin American
• constitutions, as well as many other treaties,
  statutes, and
• contracts. The doctrine is used chiefly in
  concession agreements,
• the clause attempting to give local courts
  final jurisdiction and to
• obviate any appeal to diplomatic (or armed)
  intervention.