from Development Channel

This Week in Markets and Democracy: Energy Subsidies, Human Rights in Supply Chains, and Poland’s Democracy Rollback

A driver waits to fill his car with fuel at a petrol station in Riyadh, Saudi Arabia, December 22, 2015 (Reuters/Faisal Al Nasser).

January 15, 2016

A driver waits to fill his car with fuel at a petrol station in Riyadh, Saudi Arabia, December 22, 2015 (Reuters/Faisal Al Nasser).
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Oil Prices Plummet—Will Subsidies Follow?

As crude prices fall below $30 a barrel, oil-producing states face mounting fiscal challenges. Saudi Arabia’s 2015 deficit neared $100 billion, roughly 15 percent of gross domestic product (GDP);Venezuela’s reached 14 percent; and Algeria expects foreign reserves to fall by $30 billion in the coming year to cover its looming fiscal gap. Across commodity-dependent nations finance ministers are looking to cut budgets. Energy subsidies are an obvious target, as these expensive and inefficient payments distort markets and undermine development. In December, Saudi Arabia reduced fuel subsidies and prices went up 50 percent. Algeria promised to cut energy subsidies (though in the short term, they are rising). Even in Venezuela, where citizens pay less for gas than water, rumors are the government is considering a hike. The hesitation? Price increases during recessions don’t go over well; in Venezuela, the unpopular move helped bring Hugo Chavez to power.

Companies Accountable for Rights Violations Globally

The United States is increasingly holding multinational companies liable for human rights abuses in other countries. This week, the U.S. Supreme Court upheld a verdict that found Nestlé guilty of aiding and abetting child slavery by knowingly purchasing cocoa from Ivory Coast suppliers that use child labor (Cargill and Archer Daniels Midland were also accused in the original case). Where Nestlé lagged, Intel is leading—announcing that it expects to entirely eliminate conflict minerals from sourcing and production this year. It is one company of many companies working to comply with Section 1502 of the Dodd-Frank Act, requiring them to disclose the use of “conflict minerals” to the Securities and Exchange Commission (SEC).

Poland’s Democracy in Doubt

Democracy is faltering within the European Union (EU). In Poland, long considered Eastern Europe’s democratic anchor, the right-wing Law and Justice Party (PiS) used its absolute majority to replace five judges on Poland’s constitutional court and mandated a two-thirds majority to overturn legislation, in defiance of a judicial challenge and thousands of protestors. The PiS then moved to “legally” curtail rights. President Andrzej Duda signed a law enabling his government to dismiss and replace state radio and television executives, inciting rumors that he may nationalize the media. Yet unlike many other governments that supress freedom of expression and dissent, Poland may face sanctions. The European Commission responded by launching an investigation into whether the new legislation violates the EU’s rule of law framework and democratic norms. Hungary, which managed to avoid EU sanctions for its own authoritarian shift, promises to block any action.

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