Effect of Internal Controls on Financial Performance Essay Example for Free

Effect of Internal Controls on Financial Performance Essay Over the past decade, Africa and other developing regions have been in the midst of tremendous changes. Market liberalization and governmental decentralization policies have interfaced with globalization and urbanization trends to dramatically transform social, political, economic and cultural lives. In this context of rapid change, SME operations can no longer remain behind serving only to meet sustenance income for their owners. SMEs engagements have to become a dynamic and integral part of the market economy. The identification of factors that determine new venture performance such as survival, growth or profitability has been one of the most central fields of entrepreneurship research (Sarasvathy, 2004). A multitude of research papers has focused on exploring various variables and their impact on performance (Bamford et al., 2004). However, in order to be able to analyze and model the performance of new ventures and SMEs, the complexity and dynamism they are facing as well as the fact that they may not be a homogenous group but significantly different in regard to many characteristics (Gartner et al., 1989) have to be taken into account. In line with the above, there have been challenging debates all over the world on the role played by Small and Medium Enterprises (SMEs) towards economic development. Therefore, a vast literature on the growth and performance of SMEs has been developed over the years. Small and Medium Enterprises (SMEs) have had a privileged treatment in the development literature, particularly over the last two decades. Hardly any arguments are put forward against SMEs, even if development policies do not necessarily favour them and economic programs, voluntarily or not, often continue to result in large capital investment. Arguments for SMEs come from almost all corners of the development literature programs, particularly in the less developed countries (LDCs), tend to emphasise the role of SMEs, even if practical results differ from the rhetoric. (Carlos Nuno Castel-Branco. May, 2003) Therefore, SMEs seem to be an accepted wisdom within the development debate. It is believed that growth in SMEs should have a positive effect on the living conditions of the people, their income level, housing, utilities. Castel-Branco (2003), in a study, revealed that this is not always true because areas where SMEs are performing so well attracts public attention and many competitors begin to troop into the area. This subsequently leads to over congestion with its associated problems of which accommodation is not an exception. The structure of SMEs in Ghana as perhaps one of the main engines of growth can be viewed as rural and urban enterprises. For urban enterprises, they can either be planned or unplanned. The planned-urban enterprises are characterized by paid employees with registered offices whereas unplanned-urban enterprises are mostly confined to the home, open space, temporal wooden structures, and employment therein is family or apprentices oriented. In the recent pursuit of economic progress, Ghana as a developing country has generally come to recognize that the SME sector may well be the main driving force for growth, due to its entrepreneurial resources and employment opportunities. Nevertheless, the existing attempts to explore empirically the roles played by SME in the economic development of a nation are still somewhat ambiguous. This can be attributed, more or less, to the fact that when examining economic progress per se, economists have tended to ignore the industrial structure of the economy and the impact this can have on such development. The ambiguity of the role of SMEs has therefore necessitated the need for a study to be conducted to access the actual impact of the proliferation of SMEs on the inhabitants of the Medina community. 1.2 Problem Statement The small business sector is recognized as an integral component of economic development and a crucial element in the effort to lift countries out of poverty (Wolfenson, 2001). The dynamic role of small and medium enterprises (SMEs) in developing countries as engines through which the growth objectives of developing countries can be achieved has long been recognized. The growth of small scale businesses in Ghana so rapid, that it is now seen as a daily affair. Many Potential owners of SMEs move to areas where the feel they can succeed to set them up there. More so, many factors may contribute to the movement of people to settle at certain geographical areas. It is believed that the factors that influence migration include the need for peaceful and violent free environment, the need for fertile business locations, the desire for privacy, government policy and a host of others. Specifically, with reference to the above, the Medina municipality of the Greater Accra region has experienced a noticeable growth and increase in the number movements into the area and for that matter SMEs increase in the last few years. It is important to mention that some research studies have been conducted to determine the real impact of migrations on host societies. In line with the above, this study sorts to assess the nature of SMEs in Medina with respect to the involvement of men and women, the main sources funds for them, the main objectives and challenges faced by SMEs in Medina, reasons the explosion of SMEs in Medina and the scio-economic impacts of this growth of SMEs in Medina. 1.3 Objectives: 1.3.1 Main Objective The main objective of this study is to assess the general impact of the plorefication of SMEs in Medina on the Medina municipality of the Greater Accra region. 1.3.2 Specific Objectives 1. To assess the nature and forms of SMEs in Medina and the relative involvement of women and men. 2. To identify the main objectives and challenges of SMEs in Medina and to rank them in order of importance. 3. Assess the main sources of capital for SMEs in Medina. 4. To assess the status of SMEs in Medina with regard to business registration, savings, record keeping and business account holding. 5. To determine the factors that account for the emergence of small scale businesses in the Medina community 6. To assess the socio-economic impacts of the growth of SMEs in Medina 1.4 Research Questions The study shall provide answers to the following research questions: 1. What is the nature of SME operation in Medina and the relative involvement of women and men? 2. What are the main objectives and challenges of SMEs in Medina and which are ranked more importance? 3. What are the main sources of capital for SMEs in Medina? 4. What are the status of SMEs in Medina with regard to business registration, savings, record keeping and business account holding? 5. What factors have accounted for the emergence of small scale businesses in the Medina community? 6. What are the socio-economic impacts of the growth of SMEs in Medina? 1.5 Justification of the Study It is difficult to analyze the performance, nature of operation and behavior of the SME sector in Ghana due to the lack of comprehensive data on them and their activities. The sector is not classified into sub-sectors and the last industrial survey was conducted in 1995 but covered only medium and large-scale industries. In respect of this, the justification of this study rests on the fact that, study will help provide information on the nature of SMEs in Medina with respect to the involvement of men and women, the main sources funds for them, the main objectives and challenges faced by SMEs in Medina, reasons the explosion of SMEs in Medina and the socio-economic impacts of this growth of SMEs in Medina. Furthermore, the study while provide vital information policy makers of the Medina municipality and all other stakeholders of the Medina community. Finally the study while produce information to will add on to existing literature for further studies in this area. 1.6 Scope and Limitations of the Study Due to time and resource constrains, this study is restricted particularly to the Medina community. The study focuses on the factors that account for the growth of SMEs in Medina and the socio-economic impacts of this change on the people of Medina among others. The study is limited in scope because it fails to cover the entire population of Ghana. The findings of this study may therefore lack generalizability as far as other communities in Ghana are concern. 1.7 Organization of the Study Chapter 1 deals with the background of the study, the problem statement, objectives of the study, justification of the study and organization of the study. Chapter 2 reviews both theoretical and empirical literatures on SMEs in general, in Ghana among others. Chapter 3 introduces the study area and describes the methodologies used to analyze the problems stated. It includes the methods used for data collection, and procedure for data analysis. Chapter 4 is devoted to presentation and discussion of results. Summary statistics of the variables used in the study are presented and discussed. Chapter 5 winds up this study drawing conclusions, their policy implications. Suggestions for future research based on the findings are made. CHAPTER TWO 2.0 LITERATURE REVIEW 2.1 Introduction This chapter reviews works on small and medium enterprises in the world, Africa and Ghana. The state of SMEs in Ghana is reviewed here. Also, Works on performance and determinants of performance of SMEs are captured. Furthermore, a section of this chapter assesses the various methods of measuring performance of SMEs which while help open up the understanding of the state of SMEs in Medina. Finally, this chapter closes with some migration theories to help facilitate the comprehension of the factors that actually account for human migration, in this case migration to Medina. 2.2 Definitions and Concepts of SMEs There is no single, uniformly acceptable, definition of a small firm (Storey, 1994). Firms differ in their levels of capitalization, sales and employment. Hence, definitions that employ measures of size (number of employees, turnover, profitability, net worth, etc.) when applied to one sector could lead to all firms being classified as small, while the same size definition when applied to a different sector could lead to a different result. The first attempt to overcome this definition problem was by the Bolton Committee (1971) when they formulated an â€Å"economic† and a â€Å"statistical† definition. Under the economic definition, a firm is regarded as small if it meets the following three criteria: i. It has a relatively small share of their market place; ii. It is managed by owners or part owners in a personalized way, and not through the medium of a formalized management structure; iii. It is independent, in the sense of not forming part of a large enterprise. The Committee also devised a â€Å"statistical† definition to be used in three main areas: a. Quantifying the size of the small firm sector and its contribution to GDP, employment, exports, etc.; b. Comparing the extent to which the small firm sector’s economic contribution has changed over time; c. Applying the statistical definition in a cross-country comparison of the small firms’ economic contribution. Thus, the Bolton Committee employed different definitions of the small firm to different sectors. 2.2.1 Criticism of the Bolton Committee’s â€Å"Economic† Definition of SMEs A number of weaknesses were identified with the Bolton Committee’s â€Å"economic† and `statistical’ definitions. First, the economic definition which states that a small business is managed by its owners or part owners in a personalized way, and not through the medium of a formal management structure, is incompatible with its statistical definition of small manufacturing firms which could have up to 200 employees. As firm size increases, owners no longer make principal decisions but devolve responsibility to a team of managers. For example, it is unlikely for a firm with hundred employees to be managed in a personalized way, suggesting that the `economic’ and `statistical’ definitions are incompatible. Another shortcoming of the Bolton Committee’s economic definition is that it considers small firms to be operating in a perfectly competitive market. However, the idea of perfect competition may not apply here; many small firms occupy `niches’ and provide a highly specialized service or product in a geographically isolated area and do not perceive any clear competition (Wynarczyk et al, 1993; Storey, 1994). Alternatively, Wynarczyk et al (1993) identified the characteristics of the small firm other than size. They argued that there are three ways of differentiating between small and large firms. The small firm has to deal with: (a) Uncertainty associated with being a price taker; (b) Limited customer and product base; (c) Uncertainty associated with greater diversity of objectives as compared with large firms. As Storey (1994) stated, there are three key distinguishing features between large and small firms. Firstly, the greater external uncertainty of the environment in which the small firm operates and the greater internal consistency of its motivations and actions. Secondly, they have a different role in innovation. Small firms are able to produce something marginally different, in terms of product or service, which differs from the standardized product or service provided by large firms. A third area of distinction between small and large firms is the greater likelihood of evolution and change in the smaller firm; small firms that become large undergo a number of stage changes. 2.2.2 Criticism of the Bolton Committee’s â€Å"Statistical† Definition of SMEs (i) No single definition or criteria was used for â€Å"smallness†, (number of employees, turnover, ownership and assets were used instead) (ii) Three different upper limits of turnover were specified for the different sectors and two different upper limits were identified for number of employees. (iii) Comparing monetary units over time requires construction of index numbers to take account of price changes. Moreover, currency fluctuations make international comparison more difficult. (iv) The definition considered the small firm sector to be homogeneous; however, firms may grow from small to medium and in some cases to large. It was against this background that the European Commission (EC) coined the term `Small and Medium Enterprises (SME)’. The SME sector is made up of three components: (i) Firms with 0 to 9 employees micro enterprises (ii) 10 to 99 employees small enterprises (iii) 100 to 499 employees medium enterprises. Thus, the SME sector is comprised of enterprises, which employ less than 500 workers. In effect, the EC definitions are based solely on employment rather than a multiplicity of criteria. Secondly, the use of 100 employees as the small firm’s upper limit is more appropriate given the increase in productivity over the last two decades (Storey, 1994). Finally, the EC definition did not assume the SME group is homogenous, that is, the definition makes a distinction between micro, small, and medium-sized enterprises. However, the EC definition is too all embracing for a number of countries. Researchers would have to use definitions for small firms that are more appropriate to their particular `target’ group (an operational definition). It must be emphasized that debates on definitions turn out to be sterile unless size is a factor that influences performance. For instance, the relationship between size and performance matters when assessing the impact of a credit programme o n a targeted group (also refer to Storey, 1994). 2.2.3 Alternative Definitions of SMEs World Bank since 1976 Firms with fixed assets (excluding land) less than US$ 250,000 in value are Small Scale Enterprises. Grindle et al (1988) Small scale enterprises are firms with less than or equal to 25 permanent members and with fixed assets (excludingland) worth up to US$ 50,000. USAID in the 1990s Firms with less than 50 employees and at least half the output is sold (also refer to Mead, 1984). UNIDO’s Definition for Developing Countries: Large firms with 100+ workers Medium firms with 20 99 workers Small firms with 5 19 workers Micro firms with 5 workers UNIDO’s Definition for Industrialized Countries: Large firms with 500+ workers Medium firms with 100 499 workers Small firms with ≠¤99 workers From the various definitions above, it can be said that there is no unique definition for a small and medium scale enterprise thus, an operational definition is required. 2.2.4 Definitions SMEs in Ghana Small Scale enterprises have been variously defined, but the most commonly used criterion is the number of employees of the enterprise. In applying this definition, confusion often arises in respect of the arbitrariness and cut off points used by the various official sources. As contained in its Industrial Statistics, The Ghana Statistical Service (GSS) considers firms with less than 10 employees as Small Scale Enterprises and their counterparts with more than 10 employees as Medium and Large-Sized Enterprises. Ironically, The GSS in its national accounts considered companies with up to 9 employees as Small and Medium Enterprises (Kayanula and Quartey, 2000). An alternate criterion used in defining small and medium enterprises is the value of fixed assets in the organization. However, the National Board of Small Scale Industries (NBSSI) in Ghana applies both the `fixed asset and number of employees’ criteria. It defines a Small Scale Enterprise as one with not more than 9 workers, has plant and machinery (excluding land, buildings and vehicles) not exceeding 10 million Cedis (US$ 9506, using 1994 exchange rate) (Kayanula and Quartey, 2000). The Ghana Enterprise Development Commission (GEDC) on the other hand uses a 10 million Cedis upper limit definition for plant and machinery. A point of caution is that the process of valuing fixed assets in itself poses a problem. Secondly, the continuous depreciation in the exchange rate often makes such definitions out-dated (Kayanula and Quartey, 2000). Steel and Webster (1990), Osei et al (1993) in defining Small Scale Enterprises in Ghana used an employment cut off point of 30 employees to indicate Small Scale Enterprises. The latter however dis-aggregated small scale enterprises into 3 categories: (i) micro -employing less than 6 people; (ii) very small, those employing 6-9 people; (iii) small -between 10 and 29 employees. 2.3 Why Small and Medium Scale Enterprises? The choice of small and medium scale enterprises within the industrial sector for this study is based on the following propositions (Kayanula and Quartey, 2000). (a) Large Scale Industry (i) Have not been an engine of growth and a good provider of employment; (ii) Already receive enormous support through general trade, finance, tax policy and direct subsidies; (b) Small and Medium Scale Enterprises (i) Mobilize funds which otherwise would have been idle; (ii) Have been recognized as a seed-bed for indigenous entrepreneurship; (iii) Are labour intensive, employing more labour per unit of capital than large enterprises; (iv) Promote indigenous technological know-how; (vii) Are able to compete (but behind protective barriers); (viii) Use mainly local resources, thus have less foreign exchange requirements; (ix) Cater for the needs of the poor and; (x) Adapt easily to customer requirements (flexible specialization), (Kayanula and Quartey, 2000). 2.4.0 The Role and Characteristics of SMEs 2.4.1 Role of SMEs in Developing Countries Small-scale rural and urban enterprises have been one of the major areas of concern to many policy makers in an attempt to accelerate the rate of growth in low income countries. These enterprises have been recognized as the engines through which the growth objectives of developing countries can be achieved. They are potential sources of employment and income in many developing countries. It is estimated that SMEs employ 22% of the adult population in developing countries (Daniels Ngwira, 1992; Daniels Fisseha, 1993; Fisseha, 1992; Fisseha McPherson, 1991; Gallagher Robson, 1995). However, some authors have contended that the job creating impact of small scale enterprises is a statistical flaw; it does not take into account offsetting factors that make the net impact more modest (Biggs, Grindle Snodgrass, 1988). It is argued that increases in employment of Small and Medium Enterprises are not always associated with increases in productivity. Nevertheless, the important role performed by these enterprises cannot be overlooked. Small firms have some advantages over their large-scale competitors. They are able to adapt more easily to market conditions given their broadly skilled technologies. However, narrowing the analysis down to developing countries raises the following puzzle: Do small-scale enterprises have a dynamic economic role? Due to their flexible nature, SMEs are able to withstand adverse economic conditions. They are more labour intensive than larger firms and therefore, have lower capital costs associated with job creation (Anheier Seibel, 1987; Liedholm Mead, 1987; Schmitz, 1995). Small-scale enterprises (SSEs) perform useful roles in ensuring income stability, growth and employment. Since SMEs are labour intensive, they are more likely to succeed in smaller urban centres and rural areas, where they can contribute to the more even distribution of economic activity in a region and can help to slow the flow of migration to large cities. Because of their regional dispersion and their labour intensity, it is argued that small-scale production units can promote a more equitable distribution of income than large firms. They also improve the efficiency of domestic markets and make productive use of scarce resources, thus, facilitating long term economic growth. 2.4.2 Characteristics of SMEs in Ghana A distinguishing feature of SMEs from larger firms is that the latter have direct access to international and local capital markets whereas the former are excluded because of the higher intermediation costs of smaller projects. In addition, SMEs face the same fixed cost as Large Scale Enterprises (LSEs) in complying with regulations but have limited capacity to market products abroad. SMEs in Ghana can be categorised into urban and rural enterprises. The former can be sub-divided into `organised’ and `unorganised’ enterprises. The organised ones tend to have paid employees with a registered office whereas the unorganised category is mainly made up of artisans who work in open spaces, temporary wooden structures, or at home and employ little or in some cases no salaried workers. They rely mostly on family members or apprentices. Rural enterprises are largely made up of family groups, individual artisans, women engaged in food production of local crops. The major activities within this sector include:- soap and detergents, fabrics, clothing and tailoring, textile and leather, village blacksmiths, tin-smithing, ceramics, timber and mining, beverages, food processing, bakeries, wood furniture, electronic assembly, agro processing, chemical based products and mechanics ( Liedholm Mead, 1987; Osei et al, 1993, World Bank, 1992). It is interesting to note that small-scale enterprises make better use of scarce resources than large-scale enterprises. Research in Ghana and many other countries have shown that capital productivity is often higher in SMEs than is the case with LSEs (Steel, 1977). The reason for this is not difficult to see, SMEs are labour intensive with very small amount of capital invested. Thus, they tend to witness high capital productivity, which is an economically sound investment. Thus, it has been argued that promoting the SME sector in developing countries will create more employment opportunities, lead to a more equitable distribution of income, and will ensure increased productivity with better technology (Steel Webster, 1990). 2.5 SME Approaches There are several approaches or theories to entrepreneurship and small and medium enterprises. For the purpose of this study, the research team will dwell on three major theories. These include: venture opportunity, Agency Theory and Theory of Equity Funds 2.5.1 The Venture Opportunity The venture opportunity school of thought focuses on the opportunity aspect of venture development. The search for idea sources, the development of concepts; and the implementation of venture opportunities are the important interest areas for this school. Creativity and market awareness are viewed as essential. Additionally, according to this school of thought, developing the right idea at the right time for the right market niche is the key to entrepreneurial success. Major proponents include: N Krueger 1993, Long W. McMullan 1984. Another development from this school of thought is what is described by McMullan (1984) as â€Å"corridor principle’’. This principle outlines that, giving prior attention to new pathways or opportunities as they arise and implementing the necessary steps for action are key factors in business development. The maxim that â€Å"preparation meeting opportunity, equals â€Å"luck† underlines this corridor principle. Proponents of this school of thought believe that proper preparation in the interdisciplinary business segments will enhance the ability to recognise good venture opportunities. Comparing the study with the above theory, the question that arises is: What are the factors or opportunities that have led to the proliferation of small and medium scale enterprises in Medina Township? Is it due to a particular market niche, creativity or market awareness? If so, then what socio-economic impact do they have on the people of Medina Township? 2.5.2 Agency Theory Agency theory deals with the people who own a business enterprise and all others who have interests in it, for example managers, banks, creditors, family members, and employees. The agency theory postulates that the day to day running of a business enterprise is carried out by managers as agents who have been engaged by the owners of the business as principals who are also known as shareholders. The theory is on the notion of the principle of two-sided transactions which holds that any financial transactions involves two parties, both acting in their own best interests, but with different expectations. Major proponents of this theory include: Eisenhardt 1989, Emery et al.1991 and JH Davis – 1997. These Proponents of agency theory assume that agents will always have a personal interest which conflicts the interest of the principal. This is usually referred to as the Agency problem. 2.5.3 Theory of Equity Funds Equity is also known as owners equity, capital, or net worth. Costand et al (1990) suggests that larger firms will use greater levels of debt financing than small firms. This implies that larger firms will rely relatively less on equity financing than do smaller firms’. According to the pecking order framework, the small enterprises have two problems when it comes to equity funding [McMahon et al. (1993, pp153)]: 1) Small enterprises usually do not have the option of issuing additional equity to the public. 2) Owner-managers are strongly averse to any dilution of their ownership interest and control. This way they are unlike the managers of large concerns who usually have only a limited degree of control and limited, if any, ownership interest, and are therefore prepared to recognize a broader range of funding options. Modern financial management is not the ultimate answer to every whim and caprice. However, it could be argued that there is some food for thought for SMEs concerning every concept. For example Access to Capital is really eye-opener for SMEs in Ghana to carve their way into sustaining their growth. 2.6 Policies for Promoting SMEs in Ghana Small-scale enterprise promotion in Ghana was not impressive in the 1960s. Dr. Nkrumah (President of the First Republic) in his modernization efforts emphasized state participation but did not encourage the domestic indigenous sector. The local entrepreneurship was seen as a potential political threat. To worsen the situation, the deterioration in the Balance of Payments in the 1980s and the overvaluation of the exchange rate led to reduce capacity utilization in the import dependent large-scale sector. Rising inflation and falling real wages also forced many formal sector employees into secondary self-employment in an attempt to earn a decent income. As the economy declined, large-scale manufacturing employment stagnated (Kayanula and Quartey, 2000). According to Steel and Webster (1991), small scale and self-employment grew by 2.9% per annum (ten times as many jobs as large scale employment) but their activities accounted for only a third of the value added. It was in the light of the above that the government of Ghana started promoting small-scale enterprises. They were viewed as the mechanism through which a transition from state-led economy to a private oriented developmental strategy could be achieved. Thus the SME sector’s role was re-defined to include the following (Kayanula and Quartey, 2000): (i) Assisting the state in reducing its involvement in direct production (ii) Absorbing labour from the state sector, given the relatively labour intensive nature of small scale enterprises, and; (iii) Developing indigenous entrepreneurial and managerial skills needed for sustained industrialization. 2.6.1 Government and Institutional Support to SMEs To enable the sector perform its role effectively, the following technical, institutional and financial supports were put in place by government. (i) Government Government, in an attempt to strengthen the response of the private sector to economic reforms undertook a number of measures in 1992. Prominent among them is the setting up of the Private Sector Advisory Group and the abolition of the Manufacturing Industries Act, 1971 (Act 356) that repealed a number of price control laws, and The Investment Code of 1985 (PNDC Law 116), which seeks to promote joint ventures between foreign and local investors. In addition to the above, a Legislative Instrument on Immigrant Quota, which grants automatic immigrant quota for investors, has been enacted. Besides, certain Technology Transfer Regulations have been introduced. Government also provided equipment leasing, an alternative and flexible source of long term financing of plant and equipment for enterprises that cannot afford their own. A Mutual Credit Guarantee Scheme was also set up for entrepreneurs who have inadequate or no collateral and has limited access to bank credit. To complement these efforts, a Rural Finance Project aimed at providing long-term credit to small-scale farmers and artisans was set up. In 1997, government proposed the establishment of an Export Development and Investment Fund (EDIF), operational under the Exim Guarantee Company Scheme of the Bank of Ghana. This was in aid of industrial and export services within the first quarter of 1998. To further improve the industrial sector, according to the 1998 Budget Statement, specific attention was to be given to the following industries for support in accessing the EDIF for rehabilitation and retooling: Textiles/Garments; Wood and Wood Processing; Food and Food Processing and Packaging. It was also highlighted that government would support industries with export potential to overcome any supply-based difficulty by accessing EDIF and rationalize the tariff regime in a bid to improve their export competitiveness. In addition, a special monitoring mechanism has been developed at the Ministry of Trade and Industries. In a bid to improve trade and investment, particularly in the industrial sector, trade and investment facilitating measures were put in place. Visas for all categories of investors and tourists were issued on arrival at the ports of entry while the Customs Excise and Preventive Service at the ports were made proactive, operating 7-days a week. The government continued supporting programmes aimed at skills training, registration and placement of job seekers, training and re-training of redeployees. This resulted in a 5% rise in enrolment in the various training institutes such as The National Vocational and Training Institute (NVTI), Opportunity Industrialization Centres (OIC), etc. As at the end of 1997, 65,830 out of 72,000 redeployees who were re-trained under master craftsmen have been provided with tools and have become self-employed. (ii) Institutions The idea of SME promotion has been in existence since 1970 though very little was done at the time. Key institutions were set up to assist SMEs and prominent among them was The Office of Business Promotion, now the present Ghana Enterprise Development Commission (GEDC). It aims at assisting Ghanaian businessmen to enter into fields where foreigners mainly operated but which became available to Ghanaians after the ‘Alliance Compliance Order’ in 1970. GEDC also had packages for strengthening small-scale industry in general, both technically and financially. The Economic Recovery Programme instituted in 1983 has broadened the institutional support for SMEs. The National Board for Small Scale Industries (NBSSI) has been established within the then Ministry of Industry, Science and Technology now (Ministry of Science and Technology) to address the needs of small businesses. The NBSSI established an Entrepreneurial Development Programme, intended to train and assist persons with entrepreneurial abilities into self-employment. In 1987, the industrial sector also witnessed the coming into operation of the Ghana Appropriate Technology Industrial Service (GRATIS). It was to supervise the operations of Intermediate Technology Transfer Units (ITTUs) in the country. GRATIS aims at upgrading small scale industrial concerns by transferring appropriate technology to small scale and informal industries at the grass root level. ITTUs in the regions are intended to develop the engineering abilities of small scale manufacturing and service industries engaged in vehicle repairs and other related trades. They are also to address the needs of non-engineering industries. So far, 6 ITTUs have been set up in Cape Coast, Ho, Kumasi, Sunyani, Tamale and Tema. (iii) Financial Assistance Access to credit has been one of the main bottlenecks to SME development. Most SMEs lack the necessary collateral to obtain bank loans. To address this issue, the Central Bank of Ghana has established a credit guarantee scheme to underwrite loans made by Commercial Banks to small-scale enterprises. Unfortunately, the scheme did not work out as expected. It was against this background that the Bank of Ghana obtained a US$ 28 million credit from the International Development Association (IDA) of the World Bank for the establishment of a Fund for Small and Medium Enterprises Development (FUSMED). Under the Programme of Action to Mitigate the Social Cost of Adjustment (PAMSCAD), a revolving fund of US$ 2 million was set aside to assist SMEs. This aspect is too scanty in the midst of the abundant information, especially with reference to Ghana. 2.7 Gender and Small Business Performance Until more recently gender differences in small business performance remained largely unaddressed by social scientists (Greene, Hart, Gatewood, Brush, Carter, 2003). The majority of studies either disregarded gender as a variable of interest or excluded female subjects from their design (Du Rietz Henrekson, 2000). However, it is generally accepted that male and female owner-managers behave differently and that these behavioral differences influence their performance (Brush, 1992), but these differences have been recognized but not fully explained (Brush Hisrich 2000). A comparison of performance of male and female owner-managers in Java, Indonesia showed that female-owned businesses tend to be less oriented towards growth compared to male-owned businesses (Singh, Reynolds, Muhammad, 2001). Boden Nucci (2000) investigated start-ups in the retail and service industries and found that the mean survival rate for male owned businesses was four to six percent higher than for female owned businesses. Loscocco, Robinson, Hall Allen (1991) in their study of small businesses in the New England region of the USA found that both sales volume and income levels were lower for female- than for male-owned businesses. In a longitudinal study of 298 small firms in the United Kingdom (UK), of which 67 were female owned, Johnson Storey (1994) observed that whilst female owner-managers had more stable enterprises than their male counterparts, on average the sales turnover for female owners were lower than for male owners. Brush (1992) suggests that women perform less on quantitative financial measures such as jobs created, sales turnover and profitability because they pursue intrinsic goals such as independence, and the flexibility to combine family and work commitments rather than financial gain. In contrast to the above findings, Du Rietz and Henrekson (2000) reported that female-owned businesses were just as successful as their male counterparts when size and sector are controlled. In his study of small and medium firms in Australia, Watson (2002), after controlling for the effect of industry sector, age of the business, and the number of days of operation, also reported no significant differences in performance between the male- controlled and female-controlled firms.

Mixed-Ligands Complexes of L-Amino Acid and Ascorbic Acid

Mixed-Ligands Complexes of L-Amino Acid and Ascorbic Acid Electrochemical Studies of Mixed-Ligands Complexes of L-Amino acid and Ascorbic acid by Voltammetric Technique Meena* and O.D. Gupta ABSTRACT Studies of Pb(II) with amino acid L-Serine and Ascorbic acid have been carried out polarographically at pH =7.30 ±0.01,  µ=1.0M KNO3 at 25 °C.Pb(II) formed 1:1:1, 1:1:2 and 1:2:1 complexes with L-Serine and used as primary ligands and L- Ascorbic acid used as secondary ligand.. The values of stability constants (log varied from 2.25 to 11.45 confirm amino acids in combination with L-Ascorbic acid, their complexes could be used against Pb(II) toxicity. The stability constants of mixed ligand complexes have been evaluated by the method of Schaap and McMasters. For the comparison of the simple and mixed-ligands complexes, the mixing constants (Km) and stabilization constants (Ks) have been measured. The positive values of the mixing constants and stabilization constants show that the ternary complexes are more stable than the binary complexes. Keyword: Polarography, Stability Constant, Amino acids, Ascorbic acid, Voltammetric Technique. INTRODUCTION The L-amino acids and their compounds are used in biology, pharmacy, industry and laboratory reagent1-3. They control transamination, decarboxylation and metabolism process in human body. Mixed-ligands complexes of copper glycine with picolinic acid, quinaldinic acid, picolinic acid N-oxide, quinaldinic acid-N-oxide and with o-nitrophenol, 2,4-dinitrophenol have been carried out by D Prakash and coworkers [4-5]. The study of ternary complexes of different metal ions with amino acids and bicarboxylic acids have been carried out by Chandel et al.[6-9] On the other hand Vitamin C (L-ascorbic acid) is found naturally in a wide variety of plants and animals but not produced in human body and its only source is from diet10, L-Ascorbic acid is important drug used against cancer, scurvy and the risk of bronchitis or wheezing11-13. This drug helps the patient to strengthen the immune system. The person who suffered from AIDS has low concentration of Vitamin-C which is responsible for the form ation of various body components and organs but also keeps in order the immune system14-15. Its deficiency causes anemia, dental cavities and thyroid insufficiency. It forms chelate complexes with transition metal ions16 to produce a five membered ring with the enediol part of the molecule17. Pb(II) content is fixed in human body but whenever the concentration of Pb(II) increases, the human being suffers from severe diseases like cancer of the bladder, breast, intestine, leukemia system and sometimes death can also occur. Ascorbic acid is antioxidant alone and in combination with L-amino acids was found to be effective by increasing urinary elimination of lead. This beneficial role of Ascorbic acid was attributed to form complexes with lead18. Data suggest that some antioxidant can function as chelators and this dual benefit makes them strong candidates for treating lead poisioning19. The present study is related with the formation of binary and ternary complexes of Pb(II) with selected L-amino acids and Ascorbic acid by polarographic technique with the view that these drugs or metal complexes could be used against several severe diseases like cancer, AIDS and also metal toxicity. EXPERIMENTAL All polarograms were recorded on ELICO CL 375 DC Polarograph using a saturated calomel electrode (SCE) as the reference electrode and a platinum (Pt) electrode as counter electrode. The capillary had the following characteristics m=1.96 mg/s, t = 4.10 sec/drop and h = 40 cm. The reagents Vitamin C and amino acids were of AR grade and were used as complexing agents. KCl was used as supporting electrolyte to maintain the ionic strength at 1M. Triton X-100 of 0.001% in the final solution has been used as maximum suppressor. The temperature was maintained constant at 303 K. A glass cell is used as electrolytic cell in which all the three electrodes are immersed in test solution. N2 is used to remove the dissolved oxygen. Then increasing voltage was applied to record the current and with the help of the plot between current-voltage (polarogram) the value of E1/2 is calculated. RESULTS AND DISCUSSION Simple complex systems Before the studies of mixed-ligand, complexes, the formation constants of the complexes of lead with Vitamin C and lead with amino acid L-Serine and were determined by the method of DeFord and Hume25. The results are in good agreement with the literature. The values of formation constants of simple systems are presented in Table 1. The conditions corresponded as closely as possible to those for the mixed system. The half-wave potential of Pb(II) for each series ranged between -0.389 and -0.391 volt v/s SCE. Table 1: Stability constants for simple system Systems log à ¯Ã‚ Ã‚ ¢1 log à ¯Ã‚ Ã‚ ¢2 log à ¯Ã‚ Ã‚ ¢3 Pb(II)-VitaminC 2.25 3.18 Pb(II)-L-Serine 4.59 7.88 10.99 Mixed-Ligands Complex System In all the systems, solution containing 2.5 x 10-3 M Pb(II), 1M KC1 and 0.001% Triton X-100 was used. The concentration of weaker ligand (Vitamin C) was kept constant (0.001M and 0.01M) while varying the concentration of strong ligand (amino acids) in each case. In each case, a single well-defined wave was obtained. The plots of Ede v/s log id-i were linear with a slope of 30 ±2mV, showing that the two electrons reduction was reversible. The direct proportionality of the diffusion current to the mercury column indicated that the reduction was entirely diffusion controlled. A shift in half-wave potential to more negative side with the increase in amino acid concentration was observed. This shift in half-wave potential is greater in the presence of the weaker ligand than its absence. It signified mixed-ligands complex formation. The extended Shaap and McMasters26 treatment was applied and Ledens27 graphical extrapolation method to calculate the values of A, B, C and D. Data of calculation are given in table 2. Table 2: Values of A, B, C and D for Pb(11)-Ascorbic acid- Amino acids systems (Ascorbic acid concentration = 0.01M(fixed) System A B C D Pb(II)-Vitamin C-L-Serine 1.32 5.11 9.56 11.22 Table 3: Values of A, B, C and D for Pb(II)-Ascorbic acid Amino acids systems (Ascorbic acid concentration = 0.001M(fixed) System A B C D Pb(II)-Vitamin C-L-Serine 1.30 4.61 9.56 11.22 The stability constants à ¯Ã‚ Ã‚ ¢11 and à ¯Ã‚ Ã‚ ¢12 were evaluated from the two values of B. From the values of C two values of à ¯Ã‚ Ã‚ ¢21 were obtained which are in good agreement with each other. à ¯Ã‚ Ã‚ ¢30 is almost equal to D. The results are recorded in table 4 and the results are summarized in the form of schemes 1 and 2 where the numerical values indicate the log of the equilibrium constants. Table 4: Formation Constants of Mixed-Ligands Systems Systems log ÃŽ ²11 log ÃŽ ²12 log ÃŽ ²21 Pb(II)-Vitamin C-L-Serine 6.23 8.88 11.56 It has been observed that as the size of amino acids increased the stability of its complexes decreased20. The stability of L-amino acids complex also depends upon the chelate ring formation and basicities of ligands21. In case of L-serine and L-threonine, the stability of the latter is less than the L-serine complex owing to the fact that electron withdrawing OH group is nearer to L-threoninate complex than L-serinate complex, causing greater repulsive forces between metal and Off group in L ­-threonine complexes than L-serine complexes22. The same is evident from Pka values of L-amino acids23. In case of Vitamin-C, oxygen of enediol group may take part in bond formation with Pb(II), formed a five membered ring24. It is clear from the values of stability constant of the complexes that Vitamin-C and L-amino acids alone or in combination could be used to reduce the toxicity of Pb(II) in-vivo. One also has to consider the quantity of drugs that should not complex to the other essenti al metals present in-vivo and the same could be excreted easily from the body. On the other hand, the person who suffers from AIDS has low concentration of Vitamin-C, therefore his resistance can be increased by ascorbic acid therapy. The mixed ligands complex formation may also be explained with the help of schemes 1. The tendency to add X (X= amino acids) to PbX and PbY (Y=Vitamin C) can be compared. The logarithm values of stability constants of the above complexes are 3.29 and 3.98 for Pb ­-VitaminC-L-Serine. The tendency to add Y to PbX and PbY can also be compared. The log K values are (1.64, 0.93) and (1.47, 0.93) for Pb(II)-Vitamin C-L-Serine. This indicates that the addition of Vitamin C is preferred to Pb(amino acids) as compared to Pb(Vitamin C). The log K values for the addition of X to Pb[XY] and Pb[Y]2 are (5.33, 5.70) and (5.47, 5.58). This indicates that the mixed ligand complexation is favoured. The log K values for the addition of Y to Pb[XY] and Pb[X]2 are (2.65, 3.68) and (2.78, 3.65) for Pb(II)-Vitamin C-L-Serine and. This indicates that addition of VitaminC is preferred to Pb[X]2 over Pb[XY]. For comparing the stabilities of simple and mixed ligand complexes, it is convenient to measure the mixing constants. Km = and the stabilization constants. log Ks = log Km log2 The log Km values are 0.7 and o.49 and log Ks values are 0.398 and 0.188 for Pb(II)-Vitamin C-L-Serine and Pb(II)-Vitamin C-L-Threonine systems respectively. The positive values of mixing and stabilization constants show that the ternary complexes are more stable than the binary complexes. The tendency to form mixed-lingds complexes in solution could be expressed quantitatively in other approach compares the difference in stability (à ¯Ã‚ Ã¢â‚¬Å¾ log K), which is the result from the substraction of two constants and must therefore, be a constant. This corresponds to: à ¯Ã‚ Ã¢â‚¬Å¾ log K = Since more coordination positions are available for the bonding of the ligand [A] to a given multivalent metal ion,than for the second ligand [B]. > Usually holds i.e. one expects to observe negative values for à ¯Ã‚ Ã¢â‚¬Å¾ log K. Another more satisfactory, manner is to determine statistical values for à ¯Ã‚ Ã¢â‚¬Å¾ log K. The statistical values for regular octahedron (oh) is 5/12 and à ¯Ã‚ Ã¢â‚¬Å¾log Koh = -0.4. for a squar planer(sp), the value of à ¯Ã‚ Ã¢â‚¬Å¾ log K = -0.6 and for the distorted octahedron (oh), the statistical values i.e. à ¯Ã‚ Ã¢â‚¬Å¾ log K = lie between -0.9 to -0.3. The à ¯Ã‚ Ã¢â‚¬Å¾ log K values can be obtained using the following equations: à ¯Ã‚ Ã¢â‚¬Å¾ log K11=log à ¯Ã‚ Ã‚ ¢11-( log à ¯Ã‚ Ã‚ ¢10 +log à ¯Ã‚ Ã‚ ¢01 ) à ¯Ã‚ Ã¢â‚¬Å¾ log K12=log à ¯Ã‚ Ã‚ ¢12-( log à ¯Ã‚ Ã‚ ¢10 +log à ¯Ã‚ Ã‚ ¢02 ) à ¯Ã‚ Ã¢â‚¬Å¾ log K21=log à ¯Ã‚ Ã‚ ¢21-(log à ¯Ã‚ Ã‚ ¢20 +log à ¯Ã‚ Ã‚ ¢01 ) The observed values of à ¯Ã‚ Ã¢â‚¬Å¾ log K11, à ¯Ã‚ Ã¢â‚¬Å¾ log K12 and à ¯Ã‚ Ã¢â‚¬Å¾ log K21 are -0.61, 1.11 and 1.430 for Pb(II)-Vitamin C-L-Serine. The à ¯Ã‚ Ã¢â‚¬Å¾ log K values are higher than statistical values, which again prove that the ternary complexes are more stable than expected from statistical reason. ACTNOWLEDGEMENT The authors are thankful to the Head, Department of Chemistry, University of Rajasthan, Jaipur for providing facilities to carry out this research. REFERENCES + Chemistry Department, SKIT, Jagatpura, Jaipur, India-302025 Brosnan J, Nutr. J (2000) 130: 988S. Pisarewicz K, Mora D, Pflueger F, Fields G, Mari F, (2005) J. Am. Chem. Soc. 127: 6207. Wu G, Fang Y, Yang S, Lupton J, Turner N (2004) Nutr. J 134: 489. Prakash D, Shafyat M, Jamal A, Gupta AK (2005) Oriental J Chem 21:2. Prakash D, Safayat M, Jamal A, Gupta A K (2005) Oriental J Chem 21:3. Malhotra V, Chandel C P S, (2006) J Ultra Scientist Phy-Sci 18(2): 203-214. Jangid R K, Chandel C P S (2006) Ultra Chemist 2(2): 113-126. Verma M K, Chandel C P S, (2005) Oriental J Chem 21(1): 9-20. Malhotra V and Chandel C P S, (2006) Bull Electrochem 22: 301. Davies M B, Partridge D A and Austine J , Vitamin C: Its Chemistry and Biochemistry, Royal Society of Chemistry, London. (1991) Levine M, Rumsey S C, Wang Y, Park J B, Daruala R (2000) Biochemical and Physiological Aspects of Human Nutrition, Philadelphia, W B Saunders, p.541. Roomi M W, Ivanov V, Kalinovsky T, Niedzwiecki A, Rath M (2004) J Res Commun Mol Pathol Pharmacol 115. Martha H, Stipanuk W B (2000) Biochemical and physiological Aspects of Human Nutrition, Sounders Company. Fukuda S, (2005) J Curr Med Chem 12:2765. Harakeh S, Jariwalla R (1997)AIDS Res. Hum. Retroviruses 13:237. Davies M B (1992) Polyhedron 11:285-321. Hughes D L (1973) J Chem Soc Dalton Trans 2711. Dhawan M, Kachru D N, Tondon S K, (1998) Arch Toxicol 62: 301-304. Gurer H, Ercal N (2000) Free radical Biol Med 29: 927-945. Kapoor R C, Agarawal B S Principles of polarography (1991) Wiley Eastern Ltd New Delhi 71. Dodke R, Khan F (1993) J Indian Chem Soc 70: 15. Vajhallya S, Khan F (1999) J Indian Chem Soc 76:294. Mrudula Rao B V, Swamy S J, Lingaish P (1985) Indian J Chem 24 : 887. Allen R N, Shukla M K, Leszczynski J (2006) Int J Quant Chem 106:2366. DeFord D, Hume D N (1951) J Am Chem Soc 73:5812. Schaap W B, Mc Master D L (1961) J Am Chem Soc 83: 4699. Lenden I (1941) J Phys Chem 188:160.

The Great Railroad Strike Essay -- American History

The Great Railroad Strike In the first half of the 19th Century the working class in the newly industrializing American society suffered many forms of exploitation. The working class of the mid-nineteenth century, with constant oppression by the capitalist and by the division between class, race, and ethnicity, made it difficult to form solidarity. After years of oppression and exploitation by the ruling class, the working class struck back and briefly paralyzed American commerce. The strike, which only lasted a few weeks, was the spark needed to ignite a national revolt by the working class with the most violent labor upheavals of the century. Railroads were the big business of the mid-nineteenth century. The rail companies employed thousands of people and ran operations nationwide. The railroad transformed American society from a rural, agrarian society to an urban, industrialized one. The railroads contributed to an economic boom which pulled millions of peasant immigrants from southern and eastern Europe in search of job opportunities and a better life. However, this same industry took advantage of a vast labor surplus and exploited its workers. A record number of immigrants were admitted into the U.S. during the mid-nineteenth century. Attracted mainly by job opportunities and cheap passage from all corners of southern and eastern Europe, a wave of immigrants flooded the American economy. This mass immigration created a labor surplus which produced a marketplace where workers could be hired and fired at will and had to sell their labor for whatever the going rate; labor had become a commodity. Adding to the surplus in available labor was the boom-bust cycle. The depression of 1873 undermined the position of many worke... ...ctuals to the conditions laborers faced. This would lead to the progressive movement at the start of the twentieth century. The railroad was America's first big business. It pulled people from farm labor and individual proprietors to working for wages for a large corporation. Workers were now being treated as a commodity. They were exploited to keep corporate dividends high during an economic bust cycle. In an attempt to stand up to big business small craft unions began to form but they represented a very small segment of the working class. Strike power seemed the only chance to fight backÂâ€"to take a stand for a minimal life-balance. Though the strikes themselves did little to improve things, it brought national attention to the varying middle class as to their labor conditions. This national attention would help launch a new reform movement called progressivism.

Neo-Confucianism Essay -- Chinese Philosophy, Ming

Neo-Confucianism, with a goal of keeping unobscured the inborn luminous Virtue [true goodness] of all men throughout the empire[1] and thus establishing a social harmony, was a complex ethical political system governing the society in late Ming China. Adopting the philosophy as their ideological legitimacy, Choson kingdom and Tokugawa shogunate applied it in different settings due to their structure of government and cultural background. However, they both inherited the main elements of the philosophy: the notion of universal principle encouraging people to behave good, five virtues[2], self-cultivation and five hierarchical relationships of society[3]. By means of traditions, rituals, laws, publications, educational institutions and many more, the philosophy was imbibed in the lives of Choson court and Tokugawa samurai. Yet, as it was in Ming China, the governments of these two realms could not always â€Å"control the interests of its people†[4] and make them adhere to the i deology. Complex situations of life together with the fallibility of human nature making people unable to always lead intellectual, moral and aloof life[5] led to gaps between the philosophy and its experiences. The court of Choson kingdom, where the very state orthodoxy should be practiced in its highest level, was ironically also a haven for its conflicts. Extended royal family lived together in the court and exercised filial piety among each other: devotion between all family members including mourning for deceased ones and visits to the ancestral tombs. Lady Hyegyong, in her memoirs, noted many examples of genuine filial devotion in the royal family; that of King Yongjo himself preparing medicine for his ill stepmother, Queen Dowager Inwon[6], and the sa... ...eeping himself to learning and frugality as Mori Yoshiki did. In order to get what he wanted from others, he even could violate the principle of being true to oneself as he imitated committing hara-kiri. Yet, he then regretted the outcome of his easy life while pondering over in his old age and was also startled with the findings that throughout the history, there were many who acted like him and made mistakes. Human beings are mystery to themselves. Through law, through ideology, one can still be not governed. Neo-Confucianism, with its practical appeal, attracted the governments and was applied. Though, as it claims to be, the philosophy could not be practiced naturally as it should be. Some parts were accepted, some not. People were still free on their own. However, Neo-Confucianism could shape lives of people and contributed its share to human civilization.

Little Charity in Eudora Weltys A Visit of Charity Essay -- Visit of

Little Charity in Eudora Welty's A Visit of Charity  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   In the short story of "A Visit of Charity" by Eudora Welty, a fourteen-year-old girl visits two women in a home for the elderly to bring them a plant and to earn points for Campfire Girls.   Welty implies through this story, however, that neither the society that supports the home nor the girl, Marian, knows the meaning of the word "charity."   The dictionary defines "charity" as "the love of man for his fellow men: an act of good will or affection."   But instead of love, good will, and affection, self-interest, callousness, and dehumanization prevail in this story.   Welty's depiction of the setting and her portrayal of Marian dramatize the theme that people's selfishness and insensitivity can blind them to the humanity and needs of others.   Ã‚  Ã‚  Ã‚   Many features of the setting, a winter's day at a home for elderly women, suggests coldness, neglect, and dehumanization.   Instead of evergreens or other vegetation that might lend softness or beauty to the place, the city has landscaped it with "prickly dark shrubs."1   Behind the shrubs the whitewashed walls of the Old Ladies' Home reflect "the winter sunlight like a block of ice."2   Welty also implies that the cold appearance of the nurse is due to the coolness in the building as well as to the stark, impersonal, white uniform she is wearing.   In the inner parts of the building, the "loose, bulging linoleum on the floor"3 indicates that the place is cheaply built and poorly cared for.   The halls that "smell like the interior of a clock"4 suggest a used, unfeeling machine.   Perhaps the clearest evidence of dehumanization is the small, crowded rooms, each inhabited by two older women.   The room that Marian visits is dark,... ...otted plant qualify as an act of charity.   In fact, as an analysis of the setting reveals, the Home is inhumane in many ways.   Marian indicates in her thoughts, words, and deeds that she is opportunistic and indifferent to the needs and feelings of the aging women.   Welty further suggests in this story that pseudo-charity can destroy the very humanity it pretends to acknowledge and uphold.   People like Marian acting either out of duty or for personal advantages have created the Home and the conditions that have made the inhabitants cranky, clutching, and unlovable.   Marian left the women more lonely and distraught than she found them.   This kind of charity is uncharitable indeed. Work cited Welty, Eudora. â€Å"A Visit of Charity† Making Literature Matter: An Anthology for Readers and Writers. Ed. John Schilb and John Clifford. Boston: Bedford/St. Martin's, 2000.

Financial Crisis Recovery Essay

1997-1998 Financial Crisis The weaknesses in Asian financial systems were at the root of the crisis that caused largely by the lack of incentives for effective risk management created by implicit or explicit government guarantees against failure. The weaknesses of the financial sector also were masked by rapid growth and accentuated by large capital inflows, which were partly encouraged by pegged exchange rates. In the mid-1990s, a series of external shocks began to change the economic environment – the devaluation of the Chinese Renminbi and the Japanese Yen, rising of U.S. interest rates which led to a strong U.S. dollar, the sharp decline in semiconductor prices; adversely affected their growth. The crisis began in Thailand when the Thai baht collapse of in July 1997 with a series of speculative attacks on the baht extended after quite a few decades of outstanding economic performance in Asia. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation. This made the U.S. a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At the same time, Southeast Asia’s export growth slowed dramatically in the spring of 1996, deteriorating their current account position. Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. Impacts of the crisis to the South East Asia Most of Southeast Asia and Japan having currency depreciation, devalued stock markets and other asset prices, and a precipitous rise in private debt. It were resulting large quantities of credit became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level. These asset prices eventually began to collapse, causing individuals, financial institutions and corporations in the affected countries were bankrupt. A change in market sentiment could and did lead into a violent of currency depreciation, insolvency, and capital outflows, which was difficult to stop. In the year after collapse of the baht peg, the value of the most affected East Asian currencies fell 35-83% against the U.S. dollar (measured in dollars per unit of the Asian currency), and the most serious stock declines were as great as 40-60%. Lenders led to a large withdrawal of credit from the crisis countries, causing a credit crunch and further bankruptcies. Foreign investors attempted to withdraw their money; the exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. As a result, short-term economic activity has slowed or contracted severely in the most affected economies like inflation and rising in unemployment. It impossible that the government doing nothing when the crisis happened to their country. To prevent currency values collapsing, countries governments raised fiscal spending in domestic interest rates to exceedingly high levels (to help diminish flight of capital by making lending more attractive to investors) and to intervene in the exchange market, buying up any excess domestic currency at the fixed exchange rate with foreign reserves. But when interest rates were very high, it can be extremely damaging to an economy that is healthy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts. As a strategy to maintain competitiveness, policies to strengthen the country’s balance-of-payments account were pursued. For example, exports were encouraged and imports were discouraged, the latter through an increase in import taxes on certain goods and services. Measures to increase exports for providing handouts directly to people affected included reducing the cost of doing business through such means as tax incentives to boost the manufacturing, agriculture, and services sectors. In the case Malaysia for example, there are policies regarding 1997 crisis: Denial and hesitation, the Malaysian government denied that there was a crisis in the first place; Tight fiscal and monetary policies, and restructuring the banking system; Government proposed to use regional currencies instead of the US dollars in inter-ASEAN bilateral trade; and Financing the recovery programs with the total cost of all measures was RM62 billion. While in the case of Indonesia, the government providing assistance to the poor like efforts to shield poor and vulnerable sections of society from the worst of the crisis, by deepening and widening social safety nets and devoting substantial budgetary resources to increasing subsidies on basic commodities such as rice; measures to increase transparency in the financial, corporate, and government sectors; and steps to improve the efficiency of markets and increase competition. Another example of helping the poor and needy, government must be fair and redistribute the wealth equally to them according their basic necessities of life. In Malaysia, the practicing of zakat system and waqaf contribution to help the poor and needy indirectly will benefit the society. Moreover, Bank Rakyat and ar-rahnu market on Islamic pawn-broking will help the small and medium enterprise to expend their business. Government also must allocate the budget expenditure for subsidizing mainly on education, healthcare and housing for the people. The International Monetary Fund (IMF) is an international organization that provides financial assistance and advice to member countries. It was created out of a need to prevent economic crises like the Great Depression. With its sister organization, the World Bank, the IMF is the largest public lender of funds in the world. It is a specialized agency of the United Nations and is run by its 186 member countries. Membership is open to any country that conducts foreign policy and accepts the organization’s statutes. The IMF is responsible for the creation and maintenance of the international monetary system, the system by which international payments among countries take place. A core responsibility of the IMF is to provide loans to member countries experiencing actual or potential balance of payments problems. This financial assistance enables countries to rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth, while undertaking policies to correct underlying problems. Unlike development banks, the IMF does not lend for specific projects. It thus strives to provide a systematic mechanism for foreign exchange transactions in order to foster investment and promote balanced global economic trade. To achieve these goals, the IMF focuses and advises on the macroeconomic policies of a country, which aff ect its exchange rate and its government’s budget, money and credit management. The IMF will also appraise a country’s financial sector and its regulatory policies, as well as structural policies within the macroeconomic that relate to the labor market and employment. In addition, as a fund, it may offer financial assistance to nations in need of correcting balance of payments discrepancies. The IMF is thus entrusted with nurturing economic growth and maintaining high levels of employment within countries. The large financial packages which the IMF has arranged for countries affected by the Asian crisis and its result have stimulated a debate both among policy-makers and academics as to their costs and benefits. The IMF’s role in providing financial assistance to its members in overcoming short-term balance-of-payment difficulties generally has been evident. Advantages and disadvantages of IMF The IMF offers its assistance which it conducts on a yearly basis for individual countries, regions and the global economy as a whole. However, a country may ask for financial assistance if it finds itself in an economic crisis, whether caused by a sudden shock to its economy or poor macroeconomic planning. A financial crisis will result in severe devaluation of the country’s currency or a major depletion of the nation’s foreign reserves. In return for the IMF’s help, a country is usually required to embark on an IMF-monitored economic reform program, otherwise known as Structural Adjustment Policies (SAPs). An IMF loan provides a cushion that eases the adjustment policies and reforms that a country must make to correct its balance of payments problem and restore conditions for strong economic growth. Supporters argue that the IMF can also impose necessary reforms on an economy. Reforms such as privatization, fiscal responsibility, control of Money supply, and attacking corruption. These policies may cause short term pain, but, are essential for preventing future crisis and long term development. Substantial financial advantages are attached to IMF credits because debtor countries benefit from lower debt service costs. Moreover, commercial banks often demand agreement with the IMF before lending is resumed and generally will charge lower interest rates to countries with an IMF program. The benefits attached to the IMF loan can be regarded as a compensation for the policy adjustments which the debtor countries carry through. At the same time, thanks to the unique role the IMF can play, the costs involved for the creditor countries seem to be rather limited, as the opportunity costs of forgoing the proceeds of alternative investments are relatively small. By temporarily providing finance and at the same time fostering adjustment, member countries could overcome external problems without overly detrimental measures either for their own population or for other countries. The interest rates charged by the IMF in normal circumstances can be relatively low, because the special role of the IMF in the international financial system reduces the risks for the IMF itself as well as for the creditor countries which have provided the resources. Because of its special position the IMF can mitigate the risks attached to its loans. Helped by its low funding costs, the IMF can charge debtor countries lower interest rates than private sector participants which have to charge high spreads because of the sovereign risks involved. Over time, the IMF has been subject to a range of criticisms, generally focused on the conditions of its loans. The IMF has also been criticized for its lack of accountability and willingness to lend to countries with bad human rights record. On giving loans to countries, the IMF makes the loan conditional on the implementation of certain economic policies. These policies tend to involve: * Reducing government borrowing – Higher taxes and lower spending * Higher interest rates to stabilize the currency. * Allow failing firms to go bankrupt. * Structural adjustment. Privatizations deregulation, reducing corruption and bureaucracy. The problem is that these policies of structural adjustment and macroeconomic intervention make the situation worse. For example, in the Asian crisis of 1997, many countries such as Indonesia, Korea and Thailand were required by IMF to pursue tight monetary policy (higher interest rates) and tight fiscal policy to reduce the budget deficit and strengthen exchange rates. However, these policies caused a minor slowdown to turn into a serious recession with mass unemployment. The IMF have been criticized for imposing policy with little or no consultation with affected countries. Jeffrey Sachs, the head of the Harvard Institute for International Development said: â€Å"In Korea the IMF insisted that all presidential candidates immediately â€Å"endorse† an agreement which they had no part in drafting or negotiating, and no time to understand. The situation is out of hand. It defies logic to believe the small group of 1,000 economists on 19th Street in Washington should dictate the economic conditions of life to 75 developing countries with around 1.4 billion people.† Because the IMF lends its money with â€Å"strings attached† in the form of its SAPs, many people and organizations are vehemently opposed to its activities. Opposition groups claim that structural adjustment is an undemocratic and inhumane means of loaning funds to countries facing economic failure. Debtor countries to the IMF are often faced with having to put financial concerns ahead of social ones. Thus, by being required to open up their economies to foreign investment, to privatize public enterprises, and to cut government spending, these countries suffer an inability to properly fund their education and health programs. Moreover, foreign corporations often exploit the situation by taking advantage of local cheap labor while showing no regard for the environment. The oppositional groups say that locally cultivated programs, with a more grassroots approach towards development, would provide greater relief to these economies. Critics of the IMF say that, as it stands now, the IMF is only deepening the rift between the wealthy and the poor nations of the world. Indeed, it seems that many countries cannot end the spiral of debt and devaluation. The relatively low interest rates charged by the IMF can lead to moral hazard behavior on the part of the debtor countries. This is largely reduced through the tough policy measures which the IMF imposes as a condition for its programmers. In practice, most countries do not turn to the IMF if not forced by adverse circumstances. Decisions about which countries may borrow money are made by rich countries. Poor countries have little say about loans and the conditions attached to them. The IMF will only lend money to countries if they agree to certain conditions. These conditions increase poverty. The livelihoods of people in poorer countries are destroyed by unfair competition from foreign goods and services. The IMF does not give good financial advice. Countries have suffered by following it. IMF East Asia Case The IMF was involved in one of the worst East-Asian economic crises thus far. Everything started when Thailand was experiencing difficulties in meeting foreign liability obligations so the IMF intervened by suggested to devalue the Baht. The same suggestion was made to Indonesia, Korea and the Philippine. Soon, South Korea and Taiwan jumped in the trend and Hong Kong and Singapore dollars faced speculative attack. The crisis spread all the way to South America where Brazil and Argentina currency came under attack, but they both stood their grounds and refused to devalue which might have prevented a global financial crisis. Other aspects of the handling of the case that were looked down upon were the issue of the bail-out and the political situation of the borrowing country had once again been ignored. Thailand had already borrowed from the IMF and they were bailed-out very publicly which gave an incentive for surrounding countries to follow very risky projects or decisions, believing that the IMF would be a safety net as opposed to a lender of last resort. This is what happened in South Korea when large, unprofitable investment projects were undertaken, largely due in part to the conglomerates of businesses that are close to the bureaucracy but more importantly, sponsored by the IMF. Likewise, Fund officials protested that many East-Asian countries needed a reform in the banking system and governance, where bad banking, nepotism and corruption do not help create stable and efficient economies. During August – December 1997, the International Monetary Fund signed three emergency lending agreements with Thailand (August), Indonesia (November), and Korea (December). These programs established packages of international financial support at an unprecedented cumulative sum of approximately $110 billion, based on the financing commitments. During the period August to December, the IMF programs failed dramatically to meet the objective of restoring market confidence. In all three countries, the exchange rate was expected to stabilize, but in fact quickly depreciated far below the targets set in the program, and this despite a very sharp increase in interest rates. Foreign investors remained unconvinced about the debt servicing capacity of the private debtors despite the announced availability of IMF loans, and continued to demand the repayment of short-term loans as they fell due. The IMF programs failed to achieve their goal of maintaining moderate economic growth in the Asian countries. The programs also failed on several intermediate goals, including the preservation of creditworthiness, the continuation of debt payments, and the stabilization of the exchange rate at levels that prevailed upon the signing of the original lending agreements Indonesia was deeply affected by the 1997–1998 crises, more so than its East Asian neighbors. Its economic contraction was deeper and more prolonged. It was the only one to experience a (temporary) loss of macroeconomic control. Eight years have passed since the collapse of Suharto’s New Order regime on the heels of the economic crisis of 1997–1998. During that time, Indonesia’s economy contracted by over 13% in 1998 alone. This followed three decades of virtually uninterrupted rapid economic growth and led to deep social and political crises. Although countries such as South Korea and Thailand were able to overcome their economic crises in a few years, Indonesia’s crisis resolution has been complicated by political instability, at least until 2004, and by a slower recovery. Indonesia was formally under International Monetary Fund management from 1997 to the end of 2003. But the presence of the IMF actually increased the severity of the Indonesian economy, not more than one year after that; there were capital flight out of the country that led to massive unemployment, compounded by the drastic decline in the exchange rate. At the end of 1998 more than 50% of Indonesia’s population lives below the poverty line. One of the IMF’s policy prescriptions is to close 16 banks and it caused the anger of people and withdraws their money in national banks and some foreign banks. In May 1998, due to an agreement between the IMF and Suharto, the government revoked subsidies for food, and raises the price of oil and electricity. This policy had a strong opposition from the people and not long after that, Suharto regime fell. During Megawati regime, in August 2003 the government finally decided not to continue the IMF program and choose to enter the post-program monitoring. The government option raises the consequences that are not much different. IMF can still continue to dictate economic policy in Indonesia because the government still had to consult every economic policy that will be taken with IMF. The Indonesian government announced that they would pay the remaining debt to the IMF, totaling U.S. $ 7.8 billion, within 2 years. It seems to be the correct political decision to break away from the economic policy interventions that has continued since the crisis in 1997. 2008 Financial Crisis Triggered by events in The US and EU The cause or trigger of the 2008 global financial crisis was the boom of the United States housing bubble which peaked in approximately 2005–2006. Since banks began to give out more loans to potential home owners, housing prices began to increase. The increase in house price and improvement of construction activity started around 1992. At that time the Federal Reserve was holding its policy interest rate at an unusually low level by the standards of the past few decades. The good times lasted until 2005, when monetary policy was tightening after another spell of low interest rates. Over that period, construction activity contributed 1/5 percentage points annually to the growth rate of real GDP, and the share of employment in construction and finance, out of the total workforce, rose from 10 ¼ percent to 11 ¾ percent. That is, over this period, of the 27.4 million people added to work rolls (which ended 2006 with a total of 136 million), 4.8 million were directly related to construction and fifi nance. Finally, the nation was left with an excess stock of housing. A contraction in construction transpired to wind down the inventory overhang, which is often a feature of economic slowdowns and recessions. In addition to that, easy lending standards also contributed to the Real estate bubble. Loans of various types (e.g., mortgage, credit card, and auto) were easy to obtain. As part of the housing and credit booms, the number of financial agreements called mortgage-backed securities (MBS) and collateralized debt obligations (CDO), which derived their value from mortgage payments and housing prices, greatly increased. That kind of financial innovation attracted institutions and investors around the world to invest in the U.S. housing market. As housing prices declined, major global financial institutions that had borrowed and invested heavily in subprime MBS reported significant losses. While the housing and credit bubbles were expanding, US Government was going a process called financialization. US Government policy from the 1970s onward has emphasized deregulation to encourage business, which resulted in less oversight of activities and less disclosure of information about new activities undertaken by banks and other evolving financial institutions. Thus, policymakers did not immediately recognize the increasingly important role played by financial institutions such as investment banks and hedge funds, also known as the shadow banking system. These institutions, as well as certain regulated banks, had also assumed significant debt burdens while providing the loans described above and did not have a financial cushion sufficient to absorb large loan defaults or MBS losses. These losses impacted the ability of financial institutions to lend, slowing economic activity. The U.S. Financial Crisis Inquiry Commission reported its findings in January 2011. It concluded that â€Å"the crisis was avoidable and was caused by: 1. Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; 2. Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; 3. An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; 4. Key policy makers ill prepared for the crisis, 5. Lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.†[35][36] Table 1 The Causes and Impacts of Global Financial Crisis Taken from Takatoshi Ito â€Å"Comparison of the Financial Crises: Japan and Asia in 1997-1998 vs. U.S. 2008-09† The Collapse of World Trade Although the crisis is originally from financial sector, trade had great implication that hit countries around the world. Exports collapsed in nearly every major trading country, and total world trade fell faster than it did during the Great Depression. From a peak in July 2008 to the low in February 2009, the nominal value of world goods exports fell 36 percent; the nominal value of U.S. goods exports fell 28 percent (imports fell 38 percent) over the same period. Even a country such as Germany, which did not experience their own housing bubble, experienced substantial trade contractions, which helped spread the crisis. The collapse in net export in Germany contributed to the decline in their GDP which put the country into recession. In the fourth quarter of 2008, Germany’s drop in net exports contributed 8.1 percentage points to a 9.4 percent decline in GDP (at an annual rate); Japan’s net exports contributed 9.0 percentage points to a 10.2 percent GDP decline. Real exports fell even faster in the first quarter of 2009. The Decline in Output Around the Globe The financial crisis was rapidly transmitted to the real economy. The financial disruption was so strong and swift in most countries so that their confidence level in economy fell as well. Confidence levels are measured in different ways across countries, but they were generally falling throughout 2008 and reached recent lows in the fall of 2008 and winter of 2009. As noted, world GDP is estimated to have fallen roughly 1.1 percent in 2009 from the year before. In advanced economies, the crisis was even deeper; the IMF expects GDP to have contracted 3.4 percent in advanced economies for all of 2009. For OECD member countries, GDP fell at an annual rate of 7.2 percent in the fourth quarter of 2008 and 8.4 percent in the first quarter of 2009. Despite the historic nature of its collapse, the U.S. economy actually fared better than about half of OECD economies during those quarters. The decline in industrial production across major economies, each of these economies in January 2009 was more than 10 percent below its January 2008 level, and Japan faring far worse relative to the other major economies. Impact on Developing Countries The impact of the crisis on developing countries will affect different types of international resource flows: private capital flows such as Foreign Direct Investment (FDI), portfolio flows and international lending; official flows such as development finance institutions; and capital and current transfers such as official development assistance and remittances. The World Association of Investment Promotion Agencies foresees a 15% drop in FDI 2009. FDI to Turkey has already fallen 40% over the last year and FDI to India dropped by 40% in the first six months of 2008. FDI to China was $6.6 billion in September 2008, 20% down from the monthly average in year 2008 so far, and mining investments in South Africa and Zambia have been put on hold. The crisis has led to a drop in bond and equity issuances and the sell-off of risky assets in developing countries. The average volume of bond issuances by developing countries was only $6 billion between July 2007 and March 2008, down from $ 15 billion over the same period in 2006. Between January and March 2008, equity issuance by developing countries stood at $5 billion, its lowest level in five years. As a result, World Bank research suggests some 91 International Public Offerings have been withdrawn or postponed in 2008. However, not all developing countries were effected tremendously by 2008 financial crisis. In South East Asia we may take a look Indonesia performance towards the 2008 financial crisis. Indonesia experienced a significant macroeconomic shock at the end of 2008. But, of course, Indonesia was not on its own. Indeed, Indonesia was one of the least affected countries in South East Asia. Although GDP growth slowed markedly to 4.4% in the first quarter of 2009, it did not experience the collapse in growth experienced by countries such a Korea, Thailand and Malaysia. Indonesia’s growth in recent years has been driven predominantly by non-tradeables rather than tradeables, and, although the crisis reduced growth across the board, sectors such as transport and communications, and utilities have continued to grow in double digits. At the same time, the tradeable sector which has performed best is agriculture, which, at 4.8%, has experienced its strongest growth since the East Asian crisis, helping to compensate for the effects of the crisis. Indonesia has learnt from 1997 crisis so that they can manage 2008 financial crisis well. The Role of International Institutions of The G-20 The G-20, which includes 19 nations plus the European Union, is the the main nations of much of the coordination on trade policy, financial policy, and crisis response. Its membership is composed of most of the world’s largest economies and makes up nearly 90 percent of world gross national product. The first G-20 leaders’ summit was held at the peak of the crisis in November 2008. At that point, G-20 countries committed to keep their markets open, adopt policies to support the global economy, and stabilize the financial sector. The second G-20 leaders’ summit took place in April 2009 at the height of concern about rapid falls in GDP and trade. Leaders of the world’s largest economies pledged to â€Å"do everything necessary to ensure recovery, to repair our financial systems and to maintain the global flow of capital.† Furthermore, they committed to work together on tax and financial policies. Perhaps the most notable act of world coordination was the decision to provide substantial new funding to the IMF. U.S. leadership helped secure a commitment by the G-20 leaders to provide over $800 billion to fund multilateral banks broadly, with over $500 billion of those funds allocated to the IMF in particular. In September 2009, the G-20 leaders met in Pittsburgh. They noted that international cooperation and national action had been critical in arresting the crisis and putting the world’s economies on the path toward recovery. They also recognized that continued action was necessary, pledged to â€Å"sustain our strong policy response until a durable recovery is secured,† and committed to avoid premature withdrawal of stimulus. They launched a new Framework for Strong, Sustainable, and Balanced Growth that committed the G-20 countries to work together to assess how their policies fit together and evaluate whether they were â€Å"collectively consistent with more sustainable and balanced growth.† Further, the leaders committed to act together to improve the global financial system through financial regulatory reforms and actions to increase capital in the system. It set up emergency lines of credit (called Flexible Credit Lines) with Colombia, Mexico, and Poland, which in total are worth over $80 billion. These lines were intended to provide immediate liquidity in the event of a run by investors, but also to signal to the markets that funds were available, making a run less likely. In each of these countries, markets responded positively to the announcement of the credit lines, with the cost of insuring the countries’ bonds narrowing (International Monetary Fund 2009b). The IMF also negotiated a set of standby agreements with 15 countries, committing a total of $75 billion to help them survive the economic crisis by smoothing current account adjustments and mitigating liquidity pressures. IMF analysis suggests that this program discouraged large exchange-rate f in fluctuate in these countries (International Monetary Fund 2009). These actions as well as the very existence of a better-funded global lender may have helped to keep the contraction short and to prevent sustained currency crises in many emerging nations. The Government Responses The U.S. executed two stimulus packages, totaling nearly $1 trillion during 2008 and 2009. The U.S. Federal Reserve’s new and expanded liquidity facilities were intended to enable the central bank to fulfill its traditional lender-of-last-resort role during the crisis while mitigating stigma, broadening the set of institutions with access to liquidity, and increasing the flexibility with which institutions could tap such liquidity. United States President Barack Obama and key advisers introduced a series of regulatory proposals in June 2009. The proposals address consumer protection, executive pay, bank financial cushions or capital requirements, expanded regulation of the shadow banking system and derivatives, and enhanced authority for the Federal Reserve to safely wind-down systemically important institutions, among others. The response of the Federal Reserve, the European Central Bank, and other central banks was taken shortly and dramatic. During the last quarter of 2008, these central banks purchased US$2.5 trillion of government debt and troubled private assets from banks. The governments of European nations and the USA also raised the capital of their national banking systems by $1.5 trillion, by purchasing newly issued preferred stock in their major banks. In October 2010, Nobel laureate Joseph Stiglitz explained how the U.S. Federal Reserve was implementing another monetary policy —creating currency— as a method to combat the liquidity trap. By creating $600,000,000,000 and inserting this directly into banks, the Federal Reserve intended to spur banks to finance more domestic loans and refinance mortgages. However, banks instead were spending the money in more profitable areas by investing internationally in emerging markets. The bank bailout, more formally called the Troubled Asset Relief Program, failed to achieve the ultimate goal. The goal of these bailouts from the perspective of the largest financial institution is billions of dollars in taxpayer money allowed institutions that were on the brink of collapse not only to survive but even to flourish. The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including protecting home values and preserving homeownership. Congress was told that TARP would be used to purchase up to $700 billion of mortgages and to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. However, almost immediately, as permitted by the broad language of the act, Treasury’s plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending. Treasury, however, provided the money to banks with no effective policy or effort to force the extension of credit. There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds. It raised the issues on accountability in providing the bailouts. Lesson Learnt from 2008 Crisis There are several lessons that can be learnt from 2008 financial crisis. Those lessons are stated below : 1. Aggregate volatility is part of market system. There is a need to have more depth study of aggregate volatility. 2. Long lived large firms (such as financial institutions) may not be fully trusted. We should rethink the role of reputation of firms in market transactions. In addition, we need to revisit the key elements of the economy of organization so that reputation should be derived from the behavior not merely from the asset. 3. Economic growth will only take place if there is real increase in the real commodities not financial commodities. 4. People mistakenly equated free markets with unregulated markets. 5. Policy makers should be flexible in their policies and guided by overall national objectives. 6. All trading countries should diversify both their exports composition as well as export destination. 7. World financial system is becoming fragile so that there is a need to reform the current financial system. Islamic based economy system has great opportunity to alter the existing financial system. Islamic perspective From Islamic perspective, the approach that most suitable which is providing handout to the poor and directly to people affected by financial contracts. There were horrible gaps between the rich and the poor all over the world, which remained existent all the time, even after the fall of the planned economy. It goes without saying that the position in developing and under developed countries is even worse. This uneven and unjust system of distribution needs to be reformed on a conceptual basis. The entire world today is crying on the present financial crisis, but few people have realized that this is basically a crisis of rich people who were playing with loads of wealth, and all of a sudden, their income faced a steep fall. So far as poor people are concerned, they have been living in perpetual crisis all the times, but no one care for them, The present crisis should not be examined within the relatively narrow confines of debt; rather, it is fundamentally a question of social justi ce, a concept that is paramount in Islam. Social justice includes three aspects, namely a fair and equitable distribution of wealth; the provision of basic necessities of life to the poor and the needy; and protection of the weak against economic exploitation by the strong. The debt burden, however, is increasing inequality between rich and poor countries and is tantamount to exploitation. It also means that poor countries are often unable to provide the most basic services for their citizens. The huge debt that currently burdens poor countries has arisen from loans that have charged interest and have not shared risk between the lender and the borrower and have, therefore, contravened the two most fundamental principles of Islamic finance. Islamic commands to refrain from charging interest and to share financial risk seek to avoid the concentration of wealth and the economic exploitation of the weak and thereby prevent situations such as the current debt crisis from arising in the first place. The core belief in Islamic finance is that money should not in itself be an earning asset; therefore, Islam prohibits any and all forms of interest. There are also other systems which prevent an economic crisis of pandemic proportions to arise; contractual relationships in business, finance or trade must be based on trust and familiarity of networks of common experiences (takaful) which implies that debts cannot be repackaged and resold as assets globally to faceless investors while profit must be redistributed directly to the poor (zakat) in the Holy month of Ramadan to build and strengthen social safety nets through institutions of charity welfare and education. Over and above zakat, all Muslims pay zakat fitrah to the poor, during the month of Ramadan, either through state collection centers or direct contributions to the poor. There is a trend within rural areas to identify destitute families and the disabled within the underserved rural areas of the State where they reside. Over the last few years, increasing realization of a topic poverty during an economic crisis creating the new poor among the Muslim working classes and a bnormally high repayment rates through unlicensed loan-sharks and licensed money-lenders have made national banking institutions which serve the poorer rural communities shift their services to the Ar-Rahnu market or Islamic pawn-broking market. Currently four Islamic financial institutions, Bank Rakyat (The People’s Bank); the Yayasan Pembangunan Ekonomi Islam Malaysia (Islamic Foundation of Economic Development, Malaysia); Permodalan Kelantan Bhd (Kelantan Investment Co.); and the Agro bank offer such services to the rural and urban working classes. It has established an Ar-Rahnu X’Change Franchise Network, where it plans to provide an Ar-Rahnu franchise throughout the country, managed by reputable cooperatives of the working classes. Given the acute dependency of the working classes on ready cash in times of emergency and the high rates of interest in regular pawn-broking market, there seems to be few alternatives except to expand the Ar-Rahnu market among Muslims and non-Muslims and charge the poor for ‘safekeeping’ services, rather than interest. Despite the fact that loan disbursements of Bank Rakyat alone is among the services which have contributed to Bank Rakyat’s amazing rise as a successful national cooperative bank, giving out higher than normal dividends to its share holders, loan sharks are virtually setting up desks outside flats and apartment buildings of the Muslim poor in towns and cities to offer cash and carry’ facilities to the desperately poor. This lucrative market speaks volumes of the rise of atopic poverty among those on or below the poverty line, the inadequacy of zakat and disbursements of zakat, the high dependency on regular income earners among the middle classes for welfare driven services and products and unclear nature of the rising wealth of the Muslim and non-Muslim upper classes in Malaysia The Islamic finance can bring on significant gains in money released into public capital and infrastructure. The redistributive mechanisms of surplus are instituted into welfare based institutions such as free or subsidized education, health and child care, education, and even publicly directed employment. Its principles may differ from modern welfare economics except the gains at the far end of the redistributive machinery are similarly directed towards the poor. The policies of the New Economic Policy in Malaysia, state welfares in Brunei, or publicly instituted employment as in MENA countries are more Islamic than regul ar, except they are part of the post-colonial ‘reformist’ policies of Muslim states which preceded the modern up-beat drive towards Syaria’ah compliant finance. Islamic finance, however, has not demonstrated a clear connectivity with redistributive justice as in the post-colonial political economy except through instituted deductions of zakat from dividends of shareholders. Profits from credit or financial corporations are not necessarily redistributed through zakat. Furthermore, for borrowers, the appreciated value of assets and services as forecasted and built into systems and rates of repayments which compensate for the lack of interest and, in reality, repayment rates may even out with the regular—rates are generally fixed in advance unlike regular interest rates which are more flexible, varying according to market conditions. However, it does allow more capital to be released into projects immediately, allowing a more extensive amount of goods and services to be produced, without the worry of serving loans. One, however, has to be assured of significant productivity even in the early stages of the loan but payments of zakat accruing from successful investment, from the financier or production from the borrower are fixed at a low rate of 2.5%. It is also consensual rather than forced (as in income taxation) and Muslim countries in general pur sue income tax collections as the more important thrust of national revenue. There are generally two disparate systems at work in Muslim countries Islamic finance and post-colonial welfare instituted economics. The welfare inputs in Islamic countries which are operational today proceed whether or not there are institutions of Islamic finance in the country. In Malaysia, Brunei, and the MENA countries discussed in this paper, components of welfare economics in heavily subsidized education, health, housing, farming, and welfare for the poor, are part of a post-colonial legacy of social reform to institute economic parity across groups and classes. In these Muslim nations, the public sector has played an important role in employment for Muslim or indigenous citizens, often acting as a social safety net in times of economic crises. However, these welfare driven policies are subject to much criticism since they favour the poor, encourage low productivity, and a non-competitive public sector. As Islamic institutions of welfare catch on with progressive social educa tion through media and networks and become an alternative system of welfare for poorer Muslims through zakat and other contributions, welfare increasingly becomes a social responsibility of the Muslim middle classes. There is hardly any data on how the profits earned by larger corporations of Islamic finance actually become instituted into a system of welfare economics based in Islam. Private investment trusts of political elites or national trusts controlled by them. In a properly instituted system of redistribution, through wages, salaries, educational, and health subsidies and so on, there should be very little wealth differential between the owners of political Capital and citizens but economic disparities are significant in these Muslim countries and it has been shown how gains among the lowest 20% may be offset by higher or equivalent gains among the top 20% income earners of these nations. The production of stable professional middle classes in these nations has led to an enrichment of social capital and welfare driven redistributive institutions through social networks but Islamic conscientisation had sometimes moved this ‘spiritual gain’ as an objective reality. The belief i n ibadah or ‘to do good’ may outweigh the call for greater transparency in the use of national collections of zakat and so on. Many Muslims in Malaysia pay both income tax and zakat, rather than ask for exemption from income tax. They also maintain Islamic voluntary organizations with personal funds, donate to mosques and charities, and make endless food contributions to orphans and the poor. There is very little data gathered on the actual amounts paid privately or anonymously and state-directed contributions, although increasing, are not reflective of actual payments contributed by the middle classes towards Islamic charitable institutions. On the other hand, Muslim based banking and financial institutions are obscure in their social responsibility towards the poor, including their own clients who may be victims of topic poverty during times of economic crises. In conclusion, Islamic institutions of trusts which are state directed or privately administered by banking and credit agencies contain more humanistic principles of investment and redistribution of profits except that there is a missing component—between the principles of redistribution of surplus or profits in Islam finance and the actual mechanisms to provide welfare to the people who are not share-holders or stake-holders. In Malaysia, Brunei, and the MENA countries of the Middle East and North Africa, state agencies assume trusteeships over compulsory collections like the zakat but do not have any institutional mechanisms to enforce private corporations local or foreign to contribute towards the welfare of the poor. Conclusion The first Financial crisis was began in July 1997 when the Thai baht collapse with a series of speculative attacks on the baht extended after quite a few decades of outstanding economic performance in Asia and most of Southeast Asia and Japan having currency depreciation. There some approach to help financial recovery, It is impossible that the government doing nothing when the crisis happened to their country. To prevent currency values collapsing, governments raised fiscal spending in domestic interest rates to exceedingly high levels. And last approach Government providing handouts directly to people affected and providing assistance to the poor like efforts to shield poor and vulnerable sections of society from the worst of the crisis The International Monetary Fund (IMF) is an international organization that provides financial assistance and advice to member countries. It was created out of a need to prevent economic crises like the Great Depression. The large financial packages which the IMF has arranged for countries affected by the Asian crisis and its result have stimulated a debate both among policy-makers and academics as to their costs and benefits. However, IMF has also been criticized for its lack of accountability and willingness to lend to countries with bad human rights record Debtor countries to the IMF are often faced with having to put financial concerns ahead of social ones The cause or trigger of the 2008 global financial crisis was the boom of the United States housing bubble which peaked in approximately 2005–2006. The impact of the crisis on developing countries will affect different types of international resource flows: private capital flows such as Foreign Direct Investment (FDI). However, not all developing countries were effected tremendously by 2008 financial crisis, Indonesia was one of the least affected countries in South East Asia. The G-20, is the the main nations of much of the coordination on trade policy, financial policy, and crisis responses. The first G-20 leaders’ summit was held at the peak of the crisis in November 2008. The bank bailout, more formally called the Troubled Asset Relief Program, failed to achieve the ultimate goal From Islamic perspective approach that most suitable which is providing handout to the poor and directly to people affected by financial contracts the present crisis should not be examined within the relatively narrow confines of debt, rather it is fundamentally a question of social justice, a concept that is paramount in Islam. The practicing of zakat system and waqf contribution to help the poor and needy indirectly will benefit the society. And this is the best approach that government should do by providing help directly to the poor and people affected by financial contract namely firms and banks. If government reduced the amount tax to be paid, cost of production will decrease level of employment and production will increase. Meanwhile, banks will bail out to save company and people indirectly reduced the worry of public causing the level of borrowing and consumption raises. So, as a result, it can stimulate the capital investment of the economy to increase the economic growth and level of GPD. References Fadillah Putra, â€Å"Economic Development and Crisis Policy Responses in Southeast Asia (Comparative study of Asian Crisis 1997 and Global Financial Crisis 2008 in Malaysia, Thailand and the Philippines)† (2008), Public Administration Department, Brawijaya University Federal Reserved Bank of San Francisco Economic Letter †What Caused East Asia’s Financial Crisis?† 98-24; August 7, (1998) Hussein Alasrag, â€Å"Global Financial crisis and Islamic finance† (2007) http://www.muftitaqiusmani.com/index.php?option=com_content&view=article&id=41:present-financial-crisis-causes-and-remedies-from-islamic-perspective-&catid=12:economics&Itemid=15,retrieve on 11 November 2012 http://www.academia.edu/1133515/Global_Financial_Crisis_An_Islamic_Perspectiv e, retrieve on 4 November 2012 http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008#cite_note IMF_Loss_Estimates-31, retrieve on 4 November 2012 Mohamed Ariff, Syarisa Yanti Abubakar,†The Malaysian Financial Crisis: Economic Impact and Recovery Prospects† (1999) The Developing Economies, XXXVII-4: 417–38 Reinhart, V. (2011). A year of living dangerously : The Management of the Financial Crisis in 2008. Journal of Economic Perspective.25 (1). Pg 71-90. Ibid Recovery from the Asian Crisis and the Role of the IMF, IMF Staff (2000) http:// www.investopedia.com/articles/economics/09/international- monetary-fund imf.asp#axzz2EQhoHzz9, retrieve on 4 November 2012 http://www.nrcc.org/default/Issues2012/2012_Issues_Book_Chapter_Financial_Crisis_Bailouts_and_Financial_Reforms ——————————————– [ 1 ]. Federal Reserved Bank of San Francisco Economic Letter: What Caused East Asia’s Financial Crisis? 98-24; August 7, 1998 [ 2 ]. Federal Reserved Bank of San Francisco Economic Letter: What Caused East Asia’s Financial Crisis? 98-24; August 7, 1998 [ 3 ]. www.wikipedia.com [ 4 ]. www.wikipedia.com [ 5 ]. www.wikipedia.com [ 6 ]. Federal Reserved Bank of San Francisco Economic Letter: What Caused East Asia’s Financial Crisis? 98-24; August 7, 1998 [ 7 ]. www.wikipedia.com [ 8 ]. Mohamed Ariff, Syarisa Yanti Abubakar, (1999) The Malaysian Financial Crisis: Economic Impact and Recovery Prospects: The Developing Economies, XXXVII-4: 417–38 [ 9 ]. Economic Development and Crisis Policy Responses in Southeast Asia (Comparative study of Asian Crisis 1997 and Global Financial Crisis 2008 in Malaysia, Thailand and the Philippines) Fadillah Putra, Public Administration Department, Brawijaya University [ 10 ]. Recovery from the Asian Crisis and the Role of the IMF, IMF Staff (2000) [ 11 ]. http://www.investopedia.com/articles/economics/09/international-monetary-fund-imf.asp#axzz2EQhoHzz9 [ 12 ]. http://www.twnside.org.sg/title/sick-cn.htm [ 13 ]. Reinhart, V. (2011). A year of living dangerously : The Management of the Financial Crisis in 2008. Journal of Economic Perspective.25 (1). Pg 71-90. [ 14 ]. Ibid [ 15 ]. Ibid [ 16 ]. Ibid [ 17 ]. Wikipedia. Financial Crisis 2007. Taken from http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008#cite_note-ssrn-8 [ 18 ]. Wikipedia. Financial Crisis 2007. Taken from http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008#cite_note-IMF_Loss_Estimates-31 [ 19 ]. Ibid [ 20 ]. â€Å"Greenspan-We Need a Better Cushion Against Risk†. Financial Times. March 26, 2009. Taken from http://www.ft.com/cms/s/0/9c158a92-1a3c-11de-9f91-0000779fd2ac.html. [ 21 ]. FCIC Report-Conclusions Excerpt-January 2011. Taken from http://c0182732.cdn1.cloudfiles.rackspacecloud.com/fcic_final_report_conclusions.pdf [ 22 ]. CRISIS AND RECOVERY IN THE WORLD ECONOMY. Taken from http://www.whitehouse.gov/sites/default/files/microsites/economic-report-president-chapter-3r2.pdf [ 23 ]. Ibid [ 24 ]. Ibid [ 25 ]. Ibid [ 26 ]. Ibid [ 27 ]. Ibid [ 28 ]. Velde, D. W. (2008). Effects of the Global Financial Crisis on Developing Countries and Emerging Markets. Policy responses to the crisis. INWENT/DIE/BMZ conference in Berlin, 11 December 2008. [ 29 ]. Ibid [ 30 ]. Ibid [ 31 ]. Ibid [ 32 ]. Ibid

Stefan’s Diaries: Origins Chapter 16

It was the lone hoot of an owl–a long, plaintive sound–that caused my eyes to snap open. As my eyes adjusted to the dim light, I felt a pulsing pain on the side of my neck that seemed to keep time with the owl's cries. And suddenly I remembered everything–Katherine, her lips drawn back, her teeth sparkling. My heart pounding as though I were dying and being born all at the same time. The awful pain, the red eyes, the dark black of a dead sleep. I glanced around wildly. Katherine, clad only in a necklace and a simple muslin slip, sat just steps away from me at the basin, washing her upper arms with a hand towel. â€Å"Hello, sleepy Stefan,† she said coquettishly. I swung my legs out of bed and tried to step out, only to find myself tangled in the sheets. â€Å"Your face,† I babbled, knowing I sounded insane and possessed, like a town drunk stumbling out of the tavern. Katherine continued to run the cotton cloth along her arms. The face I'd seen last night was not human. It had been a face filled with thirst and desire and emotions I couldn't even think to name. But in this light Katherine looked lovelier than ever, blinking her eyes sleepily like a kitten after a long nap. â€Å"Katherine?† I asked, forcing myself to look into her eyes. â€Å"What are you?† Katherine slowly picked up the hairbrush on her nightstand, as if she had all the time in the world. She turned to me and began to run it through her luxurious locks. â€Å"You're not afraid, are you?† she asked. So she was a vampire. My blood turned to ice. I took the sheet and wrapped it against my body, then grabbed my breeches from the side of the bed and pulled them on. I quickly shoved my feet into my boots and yanked on my shirt, not caring about my undershirt, still on the floor. Fast as lightning, Katherine was at my side, her hand gripping my shoulder. She was surprisingly strong, and I had to jerk sharply to wrench myself away from her grasp. Once free, Katherine stepped back. â€Å"Shhh. Shhh,† she murmured, as if she were a mother soothing a child. â€Å"No!† I yelled, holding my hand up. I would not have her try to charm me. â€Å"Y ou're a vampire. You killed Rosalyn. Y ou're killing the town. Y are evil, ou and you need to be stopped.† But then I caught sight of her eyes, her large, luminous, seemingly depthless eyes, and I stopped short. â€Å"You're not afraid,† Katherine repeated. The words echoed in my mind, bouncing around and finally taking residence there. I did not know how or why it was so, but in my heart of hearts, I suddenly wasn't afraid. But still †¦ â€Å"Y are a vampire, though. How can I abide ou that?† â€Å"Stefan. Sweet, scared Stefan. It will all work out. Y ou'll see.† She cupped her chin in my hands, then raised up on her tiptoes for a kiss. In the near sunlight, Katherine's teeth looked pearly white and tiny, and nothing like the miniature daggers I'd seen the night before. â€Å"It's me. I'm still Katherine,† she said, smiling. I forced myself to pull away. I wanted to believe that everything was the same, but †¦ â€Å"Y ou're thinking of Rosalyn, aren't you?† Katherine asked. She noticed my startled expression and shook her head. â€Å"It's natural that you'd think I could do that, based on what I am, but I promise you, I did not kill her. And I never would have.† â€Å"But †¦ but †¦, † I began. Katherine brought her finger to my lips. â€Å"Shhh. I was with you that night. Remember? I care about you, and I care about those you care about. And I don't know how Rosalyn died, but whoever did that†Ã¢â‚¬â€œa flash of anger flickered in her eyes, which, I realized for the first time, were flecked with gold–â€Å"they give us a bad name. They are the ones who scare me. Y may be scared to walk ou during the night, but I am afraid to walk during the day, lest I be mistaken for one of those monsters. I may be a vampire, but I do have a heart. Please believe me, sweet Stefan.† I took a step back and cradled my head in my hands. My mind whirled. The sun was just beginning to rise, and it was impossible to tell whether the mist hid a brilliant sun or a day of clouds. It was the same with Katherine. Her beautiful exterior cloaked her true spirit, making it impossible to ascertain whether she was good or evil. I sunk heavily to the bed, not wanting to leave and not wanting to stay. â€Å"Y need to trust me,† Katherine said, sitting ou down beside me and placing her hand on my chest so she could feel my heart beat. â€Å"I am Katherine Pierce. Nothing more, nothing less. I'm the girl you watched for hours on end after I arrived two weeks ago. What I confessed to you is nothing. It doesn't change how you feel, how I feel, what we can be,† she said, moving her hand from my chest to my chin. â€Å"Right?† she asked, her voice filled with urgency. I glanced at Katherine's wide brown eyes and knew she was right. She had to be. My heart still desired her so much, and I wanted to do anything to protect her. Because she wasn't a vampire; she was Katherine. I grabbed both of her hands, cupping them in my own. They looked so small and vulnerable. I brought her cold, delicate fingers to my mouth and kissed them, one by one. Katherine looked so scared and unsure. â€Å"Y didn't kill Rosalyn?† I said slowly. Even as ou the sentence left my lips, I knew it to be true, because my heart would break if it weren't. Katherine shook her head and gazed at the window. â€Å"I would never kill anyone unless I had to. Unless I needed to protect myself or someone I loved. And anyone would kill in that situation, wouldn't they?† she asked indignantly, jutting out her chin and looking so proud and vulnerable that it was all I could do not to take her in my arms right then. â€Å"Promise you'll keep my secret, Stefan? Promise me?† she asked, her dark eyes searching mine. â€Å"Of course I will,† I said, making the promise as much to myself as to her. I loved Katherine. And yes, she was a vampire. And yet †¦ the way the word came out of her mouth was so different from the way it sounded when Father said it. There was no dread. If anything, it sounded romantic and mysterious. Maybe Father was wrong. Maybe Katherine was simply misunderstood. â€Å"Y have my secret, Stefan. And you know ou what that means?† Katherine said, throwing her arms around my shoulders and nuzzling her cheek against mine. â€Å"Vous avez mon coeur. Y have ou my heart.† â€Å"And you have mine,† I murmured back, meaning every word.