Impact of the Discovery of Homo Floresiensis

Impact of the Discovery of Homo Floresiensis The discovery of Homo Floresiensis has profound implications for what it means to be human; it raises questions about the uniqueness of human lineage which is the foundation of our society and our religions. The three great problems for nineteenth century ethnology and prehistory were identified by Latham in Man and his Migrations (1851) as: the unity or non-unity of the human species; its antiquity; and its geographical origin. This shortlist has formed the basis for research into human origins ever since. The ambiguity surrounding each question has been reduced to every generation’s satisfaction, then thrown open again as changes in opinion about the world and its people have led to revisions. This cyclical process has provided the spur to fieldwork and the development of new techniques of classification, analysis and dating. Latham was writing at an interesting time in scientific progress of thought, eight years before the Origin of Species was published. This was the foundation text for the biogeography of Darwin and Wallace which accounted for the distribution of life on the plant. The importance of these studies was their contribution to the scientific investigation of variation via the principle of natural selection. Individuals were the units under selection with the evolutionary results measured by their differential reproductive contribution to the next generation. The notion of a cradle for mankind, a discrete geographical centre for human origins, is an ancient idea. The Garden of Eden is the best known example. Adam and Eve might be replaced, as they were in the last century, but the idea of an ancestral homeland continued. The study of human origins now starts from a very different set of assumptions than it did when Latham penned his three questions. It is also extremely well-informed about process and patterns in the data compared to 150 years ago. The celebration of progress has fallen from the agenda. Living peoples are no longer regarded as living representatives of a past which the Western world once possessed.   But for all these apparently fundamental changes the questions on the agenda remain the same. Why should the study of human evolution be restricted, because of the search for cradles, to some continents. What it means to be human The fascination with humanity’s African origins, singular or otherwise, remains unabated. Great strides in understanding the development of modern human beings are currently being taken at the very southern tip of Africa. While much of the press attention over the past few decades has been on the scholarly debate on whether humans evolved once in Africa, universally known as the Out of Africa theory, or several times all over the world, the multiregional hypothesis, a quiet revolution has occurred centred on what it means to be human (Stringer and Gamble, 1993). Within twentieth century archaeology and palaeontology, probably since the discovery of the Lascaux Caves in France, archaeologists have continually believed that, while anatomically modern Homo sapiens evolved somewhere between 100,000-150,000 years ago, humans didnt actually develop modern behaviours and thought processes until around 50,000-40,000 years ago (Wood, 1992). This event, known in some scientific circles as the creative explosion, was announced by what researchers saw as an abrupt blossoming of symbolic thought; the ability to identify and create representations of entities. Thus, according to the creative explosion theory, H. sapiens displayed a recognisable intelligence equivalent to other hominids of the time, identifiable by the cave artwork at Lascaux. Further evidence of the initiation of modern human behaviour is alleged to include fishing, the manufacture of bone tools, and the use of decoration. Following the initial interest in Africa during the early decades of the twentieth century, the majority of archaeological research moved to Europe. The overwhelming concentration on the visible prehistory of Europe, including both cave and portative artwork, resulted in a deficit of research into human origins in Africa. The research of the past forty years has indeed been remarkable in yielding up a great many fossil and cultural remains from a broad range of African environments. After a period of relative neglect, however, increasing attention was being given to the biological and behavioural changes that led to the evolution of H. sapiens, the last major even in human evolution.   The triumph of archaeological research into the earliest prehistory of Africa was trumpeted by the archaeologist Desmond Clark in the Huxley Memorial Lecture of 1974. Titles â€Å"Africa in prehistory: peripheral or paramount?† it pointed to the overwhelming evidence from Africa for the origi n of hominids, which overthrew the previous view â€Å"that the history of Europe is emphatically the prehistory of humanity.† (Clark,1975). Eventually, evidence of an earlier flourishing of the creative mind began to appear, south of the Zambezi River, and dated to the Mesolithic, the earliest date approximating 70,000 years ago. Similar artefact assemblages known as Howiesons Poort and Still Bay had been found at sites such as the Klasies River Caves, Boomplaas, and Die Kelders Cave I in South Africa (Grine et al., 2000). These sites included sophisticated bone tools, backed blades, a careful selection of raw material for stone tools and the use of a punch technique; however, most of these were controversial in one respect or another, until the discovery of Blombos Cave. Research into the Blombos Cave assemblages have been undertaken since 1991, and artefacts identified have include sophisticated bone and stone tools, fish bones, and an abundance of used ochre (Leakey and Lewin, 1993). Ochre has no known economic function, and it is virtually universally accepted as a source of colour for ceremonial, decorative purposes. The Blombos Cave layers containing used ochre are dated 70,000 to 80,000 years BP, and, in 2004, a cluster of deliberately perforated and red-stained shell beads dating to the Mesolithic was found (Aiello and Dean, 1990). Without any obvious practical purpose these artefacts are currently interpreted as personal ornaments or jewellery, possibly belonging to the occupants of Blombos. The most persuasive interpretation of these finds, and numerous others throughout Africa, within the parameters imposed by previous and current discoveries and research, is that the growth of the human symbolic thought was a slow process that continued t hroughout the Mesolithic in Africa. Symbolism, and its deliberate representation, is a phenomenon previously unidentifiable in any extant species other than H. sapiens, despite the genetic and predominantly behavioural similarity between humans and other primates, and can therefore be interpreted as a distinctly human trait (Spencer, 1876-96). Symbolism, in all its forms, however has not always been strictly the prerogative of H. sapiens.   Many investigators of Neanderthal culture believe that H. neanderthalensis was the earliest species of hominid to ritually bury their dead, and important evidence to support this statement originates from Shanidar Cave, located in the Zagros Mountains of northern Iraq (Solecki, 1971). Between 1951 and 1960, excavations in and around the mouth of the cave were undertaken, allowing the recovery of a range of Mousterian tools, and the analysis of eight burials, relating to the remains of seven adults and one child. While four of these individuals appear to have been killed by rockfalls, four others may have been deliberately buried (Gargett, 1989). Soil samples taken around one particular burial, known as Shanidar IV, revealed the presence of pollen grains and small amounts of vegetable matter. While there was very little pollen in most of the soil samples taken around the skeleton, two samples from the burial itself contained a large number of pollen grains representing a total of 28 plant species (Leakey and Lewin, 1993). This evidence was used to support the hypothesis that more than 50,000 years ago the body was deliberately and ritualistically buried on a bed of woody branches and flowers sometime during the months of May through July, during the blooming season for the plant species. Excavations of the cave over the next decade yielded cultural data as well as skeletal remains of Middle Palaeolithic Neanderthals and Proto-Neolithic modern humans, representing two periods renowned for the scarcity of such material (Solecki, 1975). According to subsequent research, the Neanderthal and Proto-Neolithic people of Shanidar Cave potentially followed culturally-defined methods for burying their dead in a base camp, possibly increasing the groups ties to a traditional home site. They practiced both primary burial (interment of a mostly intact body shortly after death) and secondary burial (final interment of disarrayed or isolated bones or of a body that had undergone some other burial process as a first stage) (Aiello and Dean, 1990). Offerings placed in the grave included bead ornaments and assumed favoured personal objects, but no obvious symbols of rank. The variety of materials included reveals an extensive long-distance exchange trade, and the mortuary practices are comparable to those of other contemporary Near Eastern cultures (Leakey and Lewin, 1993; Solecki et al., 2004). The material culture of the cave and the surrounding Zagros area is characterized by chipped stone industry and such innovations as a variety of ground stone tools, worked bone tools and abundant personal ornaments. These suggest growing cultural richness and elaboration, a semi-sedentary lifestyle and a mixed subsistence strategy based both on wild species of plants and animals and early domesticates (Gargett, 1989). Though the interpretation of deliberate and ritualistic H. neanderthalensis burials remains contentious, with opponents suggesting the presence of flower pollen within the grave is a result not of deliberate adornment of the corpse but of the accidental deposition of flower and plant matter from burrowing rodents, until the theory of ritualistic burial is conclusively disproved it remains a highly persuasive hypothesis for cross-species traits of ‘humanity’. Although much has been made of the Neanderthals burial of their dead, their burials were less elaborate than those of anatomically modern humans. The interpretation of the Shanidar IV burials as including flowers, and therefore being a form of ritual burial, potentially evidence for the acknowledgement of a theoretical afterlife, has been questioned (Sommer, 1999). In some cases Neanderthal burials include grave goods such as bison and aurochs bones, tools, and the pigment ochre. Neanderthals performed a sophisticat ed set of tasks normally associated with humans alone. For example, they constructed complex shelters, controlled fire, and skinned animals. Particularly intriguing is a hollowed-out bear femur with four holes in the diatonic scale deliberately bored into it. Estimated to date at approximately 43,ooo up to 82,ooo years old, this ‘flute’ was found in western Slovenia in 1995 near a Mousterian Era hearth used by Neanderthals. Its significance is still a matter of dispute, however, its perfect fit to bother modern and antique diatonic scales implies the deliberate manufacturing of a musical note making device (Aiello and Dean, 1990). Music beyond the percussive, in addition to ritual and symbolism, is another previously assumed trait of H. sapiens alone, and the Slovenian flute suggests a rethink of what it means to be human may be required. Similarly, the concept of prolonged care of community individuals is a trait usually attributed to the H. sapiens species. While other species present evidence of a rudimentary form of care, the deliberate attention paid to the prolonging of life of an individual with no primitive value to a community, such as providing nutrition to an elderly community member for an extended period of time, is peculiarity associated primarily with H. sapiens. It has been previously believed that this trait, in addition to being singular to the human race, can be interpreted as a definition of what it means to be human. However, similar to the evidence presented above, there has been strongly influential evidence of ‘care in the community’ from Neanderthal societies. Following a 6 year excavation season beginning in 1899, the site of the Krapina caves, Republic of Croatia, yielded a number of osteological Neanderthal specimens. Radiographs undertaken in 1997 indicated a number of surpris ing conclusions. While the overall picture of Neanderthal health, based on the radiographs, was impressive, not all the specimens showed perfect health. Archaeologists were able to document one of the earliest benign bone tumours ever discovered and identified, and one individual may have had a surgical amputation of his hand (Leakey and Lewin, 1993). In addition, several individuals had examples of osteoarthritis ranging in severity, and it is suggested that the extended survival of these individuals following surgery or the onset of debilitating arthropathies indicates a sophisticated level of care from the healthy population. Humans are a striking anomaly in the natural world. While we are similar to other mammals in many ways, our behaviour sets us apart. Our unparalleled ability to adapt has allowed us to occupy virtually every habitat on earth using an incredible variety of tools and subsistence techniques. Our societies are larger, more complex, and more cooperative than any other mammals. Evolutionists, and scientists from other fields of study, argue that only a Darwinian theory of cultural evolution can explain these unique characteristics. The twentieth century is offering a radical interpretation of human evolution, arguing that Homo sapiens ecological dominance and singular social systems stem from a psychology uniquely adapted to create complex culture. Richerson and Boyd (2004) illustrate that culture is neither superorganic nor the handmaiden of the genes. Rather, it is essential to human adaptation, as much a part of human biology as bipedal locomotion. Drawing on work in the fields of anthropology, political science, sociology, and economics, Richerson and Boyd (2004) convincingly attest that culture and biology are inextricably linked, and their interaction yields a richer understanding of human nature. Discovery of Homo floresiensis Currently, it is widely accepted that only one hominid genus, Homo, was present in Pleistocene Asia, represented by two species, Homo erectus and Homo sapiens. Both species are characterized by greater brain size, increased body height and smaller teeth relative to the Pliocene Australopithecus genus present in Africa (Brown et al., 2004). But it was the most spectacular fossil find of a generation that has marked twentieth century studies into human evolution. The discovery that a mysterious and apparently ingenious human species may have shared the planet with our own less than 15,000 years ago captured the imagination of palaeontologists and public alike. Excavations at Liang Bua, a large limestone cave on the island of Flores in eastern Indonesia, have yielded evidence for a population of tiny hominids, sufficiently distinct anatomically to be assigned to a new species, Homo floresiensis (Morwood et al., 2004). An excavation team under the leadership of Australian and Indonesian scientists have unearthed the remains of eight human beings of relatively restricted stature and reduced brain volume, comparative to previously understood parameters for anatomically modern humans. In recognition of the combination of primitive and derived features, and their subsequently assumed status as a species distinct from Homo sapiens, the fossils were ascribed the name Homo floresiensis (Flores Man) after the island on which they were discovered. One skeleton, estimated to be that of a woman in her 30s and calculated to be approximately 18,000 years old, was only 1 metre tall, and the endocranial volume of the skeleton in question was a mere 380 cc, significant as it may be regarded as small even for a chimpanzee (Beals et al., 1984) and equal to the smallest-known australopithecines (Brown, et al., 2004). Investigations into the specimens, estimated to belong to at least eight individuals, show that H. floresiensis inhabited the cave at Liang Bua for an extended period of time ranging between 95,000 and 12,000 years ago. The common opinion of the archaeologists responsible for examining the tools and animal bones unearthed in the cave is that H. floresiensis individuals exhibited complex behaviour requiring the capacity for speech, and can therefore be regarded as social and intelligent human beings with creative ability. Stones carved and sharpened for particular purposes, and animal bones discovered in the cave, indicate t hat these people were successful hunters, capable of catching animals larger than themselves, and associated deposits contain stone artefacts and animal remains, including Komodo dragon and an endemic, dwarfed species of Stegodon. There has been some speculation that the stone tools found with it were actually made by Homo sapiens, mainly because it is hard to believe a creature with such a small brain could make such sophisticated stone tools. There is no other evidence in support of this, however, and if it were not for the small brain size, there would be no hesitation about assuming floresiensis made the tools because of the close association between the tools and the fossils. The same tools are found through the entire deposit (from 90,000 to 13,000 years ago) and, interestingly, they are not like any stone tools made by Homo erectus (Kaifu et al., 2005). The finds comprise the cranial and some post-cranial remains of one individual, as well as a premolar from another individual in older deposits. Dating by radiocarbon (C14), luminescence, uranium-series and electron spin resonance (ESR) methods indicates that H. floresiensis existed from before 38,000 years ago (kyr) until at least 18  kyr (reference). It is alleged, with much research still yet to be undertaken, that H. floresiensis originated from an early dispersal of Homo erectus, including specimens referred to as Homo ergaster and Homo georgicus, that reached Flores, and then survived on this island refuge until relatively recently. The most likely explanation for its existence on Flores is long-term isolation, with subsequent endemic dwarfing. H. floresiensis overlapped significantly in time with Homo sapiens in the region, however, interactions between the two species currently remain unknown. Importantly, H. floresiensis shows that the genus Homo is morphologically more va ried and flexible in its adaptive responses than previously thought (reference). The finds further demonstrate that H. floresiensis was not simply an aberrant or pathological individual, thereby interpretable as anomalous and inconsequential within the field of human evolution, but is representative of a long-term population that was present on the island for approximately 80,000 years. According to the dwarfism scenario, it is assumed that the H. floresiensis line descended from Homo erectus. The justification for that belief, however, is currently experiencing much debate within the archaeological academic arena, and relies on the comparison between tool assemblages uncovered from the Liang Bua cave, and thus associated with H. floresiensis, and a series of assemblages reported by Morwood in 1998, and dating to approximately 800,000 BP (Morwood et al., 1998). The similarities between these assemblages resulted in the assumption that H. floresiensis was a descendent of the manufacturer of the older collection of tools, H. erectus. H. floresiensis facial anatomy also generally resembles that of H. erectus, and, in addition, the East Asia region in which the island lies is one of the regions where H. erectus was extant for a long period. One article published in Science journal in 1996 listed evidence that H. erectus had survived on Java, an Indonesian island like Fl ores, until as recently as 27,000 years ago. (Swisher et al., 1996) Implications: Society, religion and politics Despite an academic and generic fascination with the process of human evolution, the creationist arguments in disagreement with evolutionary research remain influential. According to many creationist proponents, the reason why scientists have elected to give the fossils in question the name H. floresiensis is that researchers, who have accepted the idea that humans initially developed through evolution, cannot afford to imply a hypothesis that does not accord with the evolutionary ‘myth’ they have presented. Evolutionists are accused of naming ‘old human races’ by a methodology that relies on exaggerated interpretation of the variations presented between hominids, and in comparison with anatomically modern man, and thus results the declaration of the fossils as a new species. According to current creationist advocates, the H. floresiensis fossils are also a product of this methodology, and their description as a new species rests solely on evolutionist †˜preconceptions’. Predominant creationists have gone further to attest that the description of H. floresiensis as a new human species provides no support at all for the theory of evolution, but, on the contrary, reveals how forced the claims regarding it actually are (reference). The concept of the biological species is used in the present day for organisms included in the same category that are able to mate and successfully produce healthy offspring. This definition is based on mutual reproducibility as setting out the boundary criterion between species. According to creationist proponents, however, there is no means of knowing, simply by analysing and categorising the fossilised bones of organisms that lived in the past, which were able to reproduce with which. Classification based on degrees of similarities between bones, and the variations exhibited among these, may not reveal scientifically definite conclusions as some species, such as the dog, exhibit wide variation, others, such as the cheetah, are known to exhibit only narrow variation. Accordingly, when fossils belonging to extinct species are discovered, creationists attest, the variation observed may stem from one of two reasons. This variation either belongs to a species exhibiting wide variation or to a few separate species exhibiting narrow variation, yet there is no way of knowing which of the two actually applies. Indeed, Alan Walker, palaeoanthropologist and evolutionist, admits this fact by claiming that one cannot know whether or not a fossil is representative of the community to which it belongs. He further states that one cannot know whether it comes from one of the ends of the species range, or from somewhere in the middle (Locke, 1999). Evolutionists define the H. floresiensis fossils as a separate species, and regard its small endocranial volume and short skeleton as characteristics of that species. However, creationists contest this by asserting that individuals may not carry all the features in the population gene pool, and, therefore, the features exhibited by individuals may not be those generally exhibited in a given population. Therefore, the smaller the quantity of fossils analysed the greater the risk of error in assuming that their features are those of the general population. Locke (1999) has elucidated this with a simple analogy: if a palaeoanthropologist of the future discovers bones belonging to a professional basketball player, then twenty-first century man may well seem to have been a giant species. He further stated that if the skeleton belongs to a jockey, on the other hand, then humans will seem to have been short and lightweight bipeds (Locke, 1999). According to creationists, therefore, the defi nition of H. floresiensis as a separate species based on its small brain volume and short skeleton, and the assumption that all individuals possessed those same features, is a mistake, and that these fossils may well be regarded as variations seen in old human races living at that time. In relative support for the creationist viewpoint, the real surprise for evolutionists came from learning that a hominid with such a small brain volume lived not millions of years ago but only 18,000 years BP. Chris Stringer, from Londons Natural History Museum, admits this surprise to the archaeological community; that the very existence of a creature with a brain the size of a chimpanzees, but apparently a tool-maker and hunter, and perhaps descended from the worlds first mariners, illustrates how little is currently known about human evolution (Wood, 1992). Peter Brown, one of the leaders of the research team at Liang Bua, describes the bewilderment within academic circles as a result of the cranial measurements, and admits that H. floresiensis is totally incompatible with evolutionary accounts; that small stature is easy to accommodate within the evolutionary theories, but small brain size is a bigger problem to account for. According to the creationist theory advocates, the evol utionists own statements reflect the ‘heavy blow’ the fossil in question has dealt to the ‘illusory’ scenario of human evolution (Wood, 1992). The confusion with regards to the interpretations of H. floresiensis is not restricted to the disparities in hypotheses between evolutionists and creationists. Scientists have been unravelling the mysteries of when early hominids first left Africa, where they went, how many hominid species there were, and how they relate to modern humans, for more than a century. The H. erectus skull recently found in Indonesia adds a valuable piece to the fossil record, but scientists differ about where it fits in the human family tree. One particular specimen of cranium, known as Sambungmacan 4 (Sm 4), was found in the Sambungmacan district of central Java, Indonesia. It is that of a middle-aged or slightly younger male Homo erectus who had probably suffered and recovered from head wounds. Two partial skulls and the fragment of a tibia had previously been discovered in the area. It is assumed that H. erectus, and perhaps other early hominid species, began leaving Africa approximately 2 million year s ago, and fossil remains have been found in Asia, the Middle East, and Europe, indicating a widespread global distribution of individuals and communities. In addition to the media-friendly discovery of H. floresiensis, given the moniker of â€Å"The Hobbit† by the press, Indonesia, an island nation in southeast Asia, is the site of some of the earliest Homo erectus remains yet found. The relatively abundant fossil material provides scientists with an opportunity to study the evolution of the species and how it relates to modern humans. Anthropologists from the National Science Museum in Tokyo, analyzed the Sm 4 skull using digital visualization techniques, and compared it with other skulls found in Java. It is argued that morphological characteristics of early H. erectus in Java, represented by fossil finds from Trinil/Sangiran, more closely resemble those of modern humans (Baba et al., 2003). Fossil material from Ngandong, which has been dated to anywhere between 25,000 to 50,000 years old, suggests that Java H. erectus had gone off on an evolutionary tangent of its own, developing distinct features that are not shared by modern humans. It is concluded by this research that Javanese populations became progressively more isolated from other Asian H. erectus populations, and made minimal contributions to the ancestry of modern humans (Kaifu et al., 2005). At one time scientists considered it possible that modern humans were the direct descendants of Asian Homo erectus. That idea has been discarded by many scientists who now think that while African H. erectus may be ancestral to H. sapiens, Asian H. erectus was an evolutionary dead end, similar to earlier theories regarding H. neanderthalensis, rather than the immediate precursor to modern humans (Kaifu et al., 2005). However, debate continues and other specialists believe that the African version of H. erectus is dissimilar enough to belong in a separate species category called Homo ergaster. The geological complexity of the Indonesian islands makes precise dating of the fossil material difficult and controversial. Fossils found at Trinil and Sangiran range in age from approximately 1.8 million years old to maybe as young as 780,000 years old (Swisher et al., 1996). Comparatively, fossils found at Ngandong have been dated at approximately 50,000 years old. The Sm 4 specimen is believ ed to fit somewhere between these two groups in age, and therefore may be contemporary with H. sapiens.   The uncertainty of Sm 4s age lies in part with current disagreement as to whether or not all fossils from Sambungmacan represent a single fauna or are composites being derived from various age strata. Whether there is enough difference between the early fossils and the later fossils that they should be considered two separate species or a sub-species is also controversial. Based on variations in skull shape, and a lack of diversity among Javanese populations living 25,000 to 50,000 years ago, it has been concluded that Sm 4 is a transitional form, an evolutionary step taking the later Javanese populations farther away from classical Homo erectus remains found at Trinil and Sangiran (Baba et al., 2003). However, this conclusions is debated on the basis that the larger brain sizes of later materials, fossils dated at 25,000 to 50,000 years ago, are different enough that they sho uld be considered a different species or at least sub-species. Sm 4 phenotypically appears to be a lot of the other material found in Indonesia. The material is morphologically very consistent, and shows continuity within Indonesian Homo erectus. There are some features, particularly around the jaw joint that may be unique to the Ngandong fossils, however it is not clear whether the features are taxonomically significant or useful as species indicators (Baba et al., 2003).The disparities in the skulls seen in Indonesia may be a function of normal variability in any species, illustrated particularly well when considering the variations in height between ‘normal’ humans and those suffering from achondroplasia; both remain within the species of H. sapiens, however difference in stature can be remarkable. The claim by Desmond Morris, that the existence of â€Å"The Hobbit†, or H. floresiensis should destroy religion (Tattersall, 1986), is one which has been made before. Indeed, Richard Dawkins, an evolutionary biologist, still cannot understand why religion survived Darwin (Tattersall, 1986). Yet as science progresses, despite the decline of allegiance to traditional Christian churches in Western Europe, religion continues to grow world-wide in many different forms. Contemporary science, far from solving every question, often highlights the big questions which are central to human existence. This is the case with the discovery of LB1, the 18,000-year-old specimen of the new species Homo floresiensis. The find of this so-called Hobbit on Flores Island excites many academics within many fields, not least archaeology and theology, as it poses the unresolved question of what it means to be human. LB1 becomes part of this contemporary question alongside developments in science, su

The present situation in iraq

The Iraq's general condition, including economic and political condition is bad[1]. During the years Saddam Hussein's dictatorship, there was a great dramatic fall of its economy. It was mainly due to the war Hussein aggressively started against Kuwait.   When US and British troops motivated in invading Iraq, which soon caused his defeat, its economic condition became even poorer. Sending powerful armed forces to fully disarm the Iraqi President Hussein was a big historical success but its remnants were a nightmare. The damage caused by the war made the entire population suffer. Everyone faced the same very difficult conditions. Lots of resources, agricultural and other land areas have been damaged.Recently, it appeared on the news[2] that there is a vague clue of reconciliation in Iraq. It says, â€Å"Leaders of the main factions have haggled over issues behind closed doors and urged Parliament to pass some conciliatory measures.† Although there is a temporary ceasefire, st ill the Iraqi leaders, as well as their supporters in the greater Middle East, have so many unfinished settlements on peace agreement.Seeing the present situation in Iraq, the answer to the question regarding new opportunities in the country is indistinguishable.By year 2006, Iraq is fourth[3] on the rank of the greatest oil reserves in the world. While, the current state of DWI is in Syria and in China, having oil reserves of 2.5 billion barrels and 18.3 billion barrels, respectively.[4] In comparison, Iraq has 115 billion barrels of oil deposit. With this much amount of difference, it is very tempting to venture any oil business in the area. It’s clear to have a predictable rise on the DWI revenue if it would have its development in Iraq. This would also give out opportunities to workers to have better compensation. However attempting to expand market share in Iraq would be too risky. Sending groups of people to work for the company in a particular chaotic place is very une thical.This is the primary reason United States law and U.N Sanctions barred any entry of business in Iraq. If DWI would insist to put in their business in the country, they would have to seek support from the US government first. Another option would be to have dealings with country’s parliament. Even if DWI would have settled with the US government or the parliament issues of Iraq, there is still no guarantee of a long-term settlement because the situation among them is even not fixed yet. Lots of deliberation is still going on among Iraqi leaders, and also between the Iraqi leaders and the US government as well. Thus any business dealings with the country these days are still unreliable. The best suggestion would be to wait for the time when there would be a secured peace in Iraq.References:Kjeilen, Tore. (Copyright 1996-2008). Looklex Encyclopedia. â€Å"Iraq: The Iraqi Republic†.Retrieved April 07, 2008 fromhttp://i-cias.com/e.o/iraq.htm.Mahdi, Kamil A. (2003). Ir aq's Economic Predicament. United Kingdom: Ithaca Press.Nafzinger, Wayne E., Frances Stewart, and Raimo Vayrynen.(2002).War, Hunger, andDisplacement: The Origins of Humanitarian Emergencies  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   New York: Oxford Press.[1] Kjeilen, Tore, â€Å"Iraq: The Iraqi Republic†, Looklex Encyclopedia,http://i-cias.com/e.o/iraq.htm, Accessed 07 April 2008. [2] Taken from â€Å"Overview: The Iraq War† The New York Times, http://www.nytimes.com/ref/timestopics/topics_iraq.html#1, Accessed 08 April 2008. [3] Based from â€Å"Greatest Oil Reserves by Country, 2006†, HighBeam Research, LLC.  © Copyright 2005, http://www.infoplease.com/ipa/A0872964.html, Accessed 08 April 2008. [4] Mentioned in â€Å"Syria:Energy and power†, http://www.nationsencyclopedia.com/Asia-and-Oceania/Syria-ENERGY-AND-POWER.html, Accessed 08 April 2008.

Perspective On Capital In India Essay Online For Free - Free Essay Example

Sample details Pages: 12 Words: 3733 Downloads: 5 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? Just like in any other country, Indias foreign exchange transactions (transactions in dollars, pounds, or any other currency) are also broadly classified into two accounts, namely, the current account transactions and capital account transactions. A current account transaction could be exemplified where an Indian citizen needing foreign exchange of smaller amounts, say $3,000, for travelling abroad or for educational purposes, can obtain the same from a bank or a money-changer. On the other hand, a capital account transaction involves someone who wants to import plant and machinery or invest abroad, and needs a large amount of foreign exchange, say $1 million. Don’t waste time! Our writers will create an original "Perspective On Capital In India Essay Online For Free" essay for you Create order But, the importer will have to first obtain the permission of the Reserve Bank of India (RBI) only then that the transaction becomes a capital account transaction. This means that any domestic or foreign investor has to seek the permission from a regulatory authority, like the RBI, before carrying out any financial transactions or change of ownership of assets that comes under the capital account. Nowadays, there are a whole range of financial transactions on the capital account that may be freed form such restrictions. But this is still not the same as full capital account convertibility. Tarapore Committee on Capital Account Convertibility appointed in February, 1997 defines Capital Account Convertibility as the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. It is associated with the changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by the rest of the world. ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦. In other terms we can say Capital Account Convertibility (CAC)  means that the home currency can be freely converted into foreign currencies for acquisition of capital assets abroad and vice versa. In a more term, it means that irrespective of whether one is a resident or non-resident of India ones assets and liabilities can be freely (i.e. without permission of any regulatory authority) denominated (or cashed) in any currency and easily interchanged between that currency and the Rupee. Background of CAC in India By August 1994, India was forced to adopt full current account convertibility under the obligations of IMFs article of agreement (Article No. VII). The committee on Capital Account Convertibility, under Dr S. S. Tarapores chairmanship, submitted its report in May 1997 and observed that international experience showed that a more open capital account could impose tremendous pressures on the financial system. Hence, the committee recommended certain signposts or preconditions for Capital Account Convertibility in India. However, the agenda of Capital Account Convertibility was put on hold following the South-East Asian crisis. Even the finance minister acknowledged this point that the idea of Capital Account Convertibility was floated in 1997 by the Tarapore Committee, but could not be implemented as the Asian Crisis cropped up. (The Hindu, March 25, 2006). In the early nineties, Indias foreign exchange reserves were so low that even a few weeks of imports were hard to pay.  To overcome this crisis situation,  Indian Government had to pledge a part of its gold reserves to the Bank of England to obtain foreign exchange.  However, after reforms were initiated and there was some improvements on FOREX front in 1994,  transactions on the current account were made fully convertible and foreign exchange was made freely available for such transactions. But, still yet the capital account transactions were not fully convertible. The rationale behind this was that  India wanted to conserve precious foreign exchange and protect the rupee from volatile fluctuations. Nevertheless, by late nineties situation further improved when a committee on capital account convertibility was setup in February, 1997 by the Reserve Bank of India (RBI) under the chairmanship of former RBI deputy governor S.S. Tarapore to lay the road map to capital account convertibility.  The committee recommended that full capital account convertibility be brought in only after certain preconditions were satisfied. These included low inflation, financial sector reforms, a flexible exchange rate policy and a stringent fiscal policy.   However, the report was not accepted due to Asian Crisis. A three-year time frame for complete convertibility by 1999-2000 was recommended by the committee. A report highlighted the preconditions to be achieved for the full float of money and these are as follows:- Pre-Conditions Set By Tarapore Committee: Gross fiscal deficit to GDP ratio to come down from a budgeted 4.5 % in 1997-98 to 3.5% in 1999-2000. A consolidated sinking fund to be set up to meet governments debt repayment needs; to be financed by increased in RBIs profit transfer to the government and disinvestment proceeds. Inflation rate to remain between an average 3-5 % for the 3-year period 1997- 2000. Gross NPAs of the public sector banking system to be brought down from the present 13.7% to 5% by 2000. At the same time, average effective CRR needs to be brought down from the current 9.3% to 3%. RBI to have a Monitoring Exchange Rate Band of  ± 5% around a neutral Real Effective Exchange Rate and the RBI to be transparent about the changes in REER. External sector policies to be designed to increase current receipts to GDP ratio and bring down the debt servicing ratio from 25% to 20%. Four indicators to be used for evaluating adequacy of foreign exchange reserves to safeguard against any c ontingency. Plus, a minimum net foreign asset to currency ratio of 40 % to be prescribed by law in the RBI Act. Phased liberalisation of capital controls. The last precondition for a phased liberalisation of controls on capital outflows over the three year period was a priori: To allow Indian Joint Ventures/Wholly Owned Subsidiaries to invest in ventures abroad and to remove the requirement of repatriation of the amount of investment by way of dividends and so on. Furthermore, the JVs/WOs were allowed to be set up by any party and not be restricted to only exporters/exchange earners. To allow individual residents to invest in assets in financial market abroad up to $ 25,000 in Phase I with progressive increase to US $ 50,000 in Phase II and US$ 100,000 in Phase III. Similar limits were allowed for non-residents out of their non-repatriable assets in India. To allow banks much more liberal limits in regard to borrowings from abroad and deployment of funds outside India . To govern foreign direct and portfolio investment and disinvestment through comprehensive and transparent guidelines. To permit all participants on the spot market to operate in the forward markets in order to develop and enable the integration of FOREX, money and securities market. To allow banks and financial institutions to participate in gold markets in India and abroad and deal in gold products to strengthen the case for liberalising the overall policy regime on gold. The assumption of the committee was that these pre-conditions would take care of possible problems created by unseen flight of capital. Given a sound fiscal and financial set-up, the flight of capital was unlikely to be large, particularly in the short run, as capital would be invested and not all of it would be in a liquid form. The process of opening up the Indian economy has proceeded in balanced steps. The exchange rate regime was allowed to be determined by market forces as against the fix ed exchange rate linked to a basket of currencies. This was followed by the convertibility of the Indian rupee for current account transactions with India accepting the obligations under Article VIII of the IMF in August 1994. Capital account convertibility has proceeded at a steady pace.  RBI views capital account convertibility as a process rather than as an event. The distinct improvement in the external sector has enabled a progressive liberalisation of the exchange and payments regime in India. Reflecting the changed approach to foreign exchange restrictions, the restrictive Foreign Exchange Regulation Act (FERA), 1973 has been replaced by the Foreign Exchange Management Act, 1999. Critical Factors in Adopting Capital Account Convertibility (CAC) There are number of issues which are of concern for adopting CAC in India. Some of which are as follows:   Ãƒâ€š Short-Term External Borrowings The impact of allowing unlimited access to short-term external commercial borrowing for meeting working capital and other domestic requirements. In respect of short-term external commercial borrowings, there is already a strong international consensus that emerging markets should keep such borrowings relatively small in relation to their total external debt or reserves. Many of the financial crises in the 1990s occurred because the short-term debt was excessive. When times were good, such debt was easily accessible. The position, however, changed dramatically in times of external pressure. All creditors who could redeem the debt did so within a very short period, causing extreme domestic financial vulnerability. The occurrence of such a possibility has to be avoided, and the Indian Reserve would do well to continue with its policy of keeping access to short-term debt limited as a conscious policy at all times whether good or bad. Free Convert ibility of Domestic Assets The Indian Monetary System provided unrestricted freedom to domestic residents to convert their domestic bank deposits and idle assets (such as, real estate), in response to market developments or exchange rate expectations. The daily movement in exchange rates is determined by flows of funds, that is, by demand and supply of spot or forward transactions in the market. If supposedly, the exchange rate is depreciating disproportionately and is expected to continue to do so in the near future, the domestic residents would be likely to convert a part or whole of their stock of domestic assets from domestic currency to foreign currency. This was thought to be financially desirable as the domestic value of their converted assets was expected to increase because of anticipated depreciation. It is furthermore thought that if a large number of residents so decide simultaneously within a short period of time, as they may, this expectation would become self-fulfi lling. A severe external crisis is then unavoidable. External Events External events such as the Kargil war or Pokhran Test Although at present our reserves are high and exchange rate movements are, by and large, orderly. However, there can be events like Kargil war or Pokhran Test, which creates external uncertainty. Domestic stock of bank deposits in rupees in India is presently close to US $ 290 billion, nearly three and a half times our total reserves. At the time of Kargil or Pokhran or the oil crises, the multiple of domestic deposits over reserves was in fact several times higher than now. One can imagine what would have had happened to our external situation, if within a very short period, domestic residents decided to rush to their neighbourhood banks and convert a significant part of these deposits into sterling, euro or dollar. No emerging market exchange rate system can cope with this kind of contingency. This may be an unlikely possibility today, but it must be factored in while deciding on a long term policy of free convertibility of stock of domestic assets. Incidentally, this kind of eventuality is less likely to occur in respect of industrial countries with international currencies such as Euro or Dollar, which are held by banks, corporates, and other entities as part of their long-term global asset portfolio (as distinguished from emerging market currencies in which banks and other intermediaries normally take a daily long or short position for purposes of currency trade). Impact of Capital Account Convertibility The first impact of CAC adopted by India is the acceptance of Indian Rupee currency all over the world. In case of  two convertible currencies, Forward Exchange Rates reflect interest rate differentials between these two  currencies. Thus, we can say that the Forward Exchange Rate for the higher interest rate currency would depreciate so as to neutralize the interest rate difference.   However, sometimes  there can be opportunities when forward rates do not fully neutralize interest rate differentials.   In such situations, arbitrageurs get into the act and forward exchange rates quickly adjust to eliminate the possibility of risk-less profits. Capital account convertibility is likely to bring depth  and large volumes in  long-term Indian Rupee (INR) currency swap markets.   Thus, for a better market determination of INR exchange rates, the INR should be convertible. If capital account is made fully convertible it will imply the following: Market forces will regulate all current and capital account transactions and there will be no restriction on the inflow or the outflow of capital either by non-resident Indians or by foreigners. There will be no restriction on foreign exchange transactions and the RBI and the government will not intervene even where the cost or the quantity of the transaction is concerned. Purely market forces will determine the exchange rate of rupee in relation to any foreign currency. RBI can intervene in relation to foreign currency only by buying and selling of the rupee in the market. Indian companies will be free to go aboard and raise money. They will also be free to invest in GDRs and maintain offshore funds. Similarly foreign companies will be free to invest in India without any intervention of the RBI or the government Indians will be free to maintain foreign bank accounts and deposit withdraw and maintain foreign currency in any bank without any restriction. There will be no restriction on the repatriation of capital by foreigners. Dangers from Capital Account Convertibility in India At present very few countries permit absolute free market in foreign exchange. Among developing countries only a handful at present has, what may be called, full convertibility in both current and capital accounts. Even many industrial countries still do not allow free flows of capital account transactions. Some of the Latin American countries notably Uruguay, Argentina and Chile which had prematurely liberalised capital account in the early eighties have subsequently imposed a very tight control on capital mobility in the subsequent periods. It has been estimated that eventual capital flights out of these countries have been much more that initial capital inflows after capital account liberalisation. Some countries have however, notably, The U.K. and New Zealand, implemented capital account convertibility successfully. An examination of case study of successful and unsuccessful capital account liberalisation suggest that capital account liberalisation be best introduced as o ne of the last steps of economic reforms. Whenever it was introduced prematurely it had been disastrous. In general it has been observed that capital account liberalisation and full convertibility of exchange rate succeeds when it follows (and definitely not precedes) Fiscal reform, price stability, domestic financial reform, balance of payments stability and acceleration in growth of domestic output, particularly industrial output. In India very few of these objectives are fulfilled by now. Fiscal deficit of the Centre after falling from 8.3% of GDP in 1990-91 to 6.0% of GDP in 1991-92, has remained around that level since then. What is worst is that while real public investment has fallen sharply, unwarranted subsidies and bureaucratic expenditure have remained virtually at their pre-reform levels. In fact in some states, subsides, instead of falling have actually increased after the reform. Inflation continued at 10% per annum for many years after the reform in spite of man y favourable conditions, including good monsoon and low oil price. It has now come down to around 6% after a very tight squeeze on money and credit since 1995-96. But the credit squeeze increased both nominal and real interest rates, and currently the interest rates in India are well above the international levels. The credit squeeze also hampered the growth of industry and overall growth. Balance of payments situation is far from satisfactory. The improvement in foreign exchange reserve is more due to special factors like NRI remittances and deposits and portfolio capital inflow. There is no notable improvement in either trade balance or balance of payments. There is a dangerous illusion about capital account liberalisation. It is generally assumed that it can encourage only inflow of capital, ignoring the possibility that once deregulation is introduced it may also lead to outflow of capital. Experiences suggest that initially inflow is more than outflow because foreigners t ake advantage of initial low prices of shares and properties. Besides domestic residents may also bring back illegal capital held abroad. But if the real sector of the economy does not improve, especially lags behind more dynamic economy elsewhere in the world, then capital later goes out. The outflow can be more than inflow because not only foreigners can take back capital but even domestic residents can take advantage of the deregulated environment and invest abroad. It would therefore be prudent to wait for the real improvement of the economy, particular in current account balance, industrial growth rate, fiscal deficit and financial reform, before entering into an adventurous path of capital account liberalisation and full convertibility of rupee. Thus India will have to gradually move towards capital account convertibility, step by step, one reform after the other and then finally introduce full convertibility of rupee as the last step of economic reforms when all of the above listed objectives are fulfilled and as Dr. Y.V.Reddy, Deputy Governor RBI, put it as, In India, it is recognised that the pace of liberalisation of the capital account would depend on both domestic factors, especially progress in the financial sector reform and the evolving international financial architecture. Pros (for) of Capital Account Convertibility for India It allows domestic residents to invest abroad and have a globally diversified investment portfolio; this reduces risk and stabilizes the economy. A globally diversified equity portfolio has roughly half the risk of an Indian equity portfolio. So, even when conditions are bad in India, globally diversified households will be buoyed by offshore assets; will be able to spend more, thus propping up the Indian economy. Our NRI Diaspora will benefit tremendously if and when Capital Account Convertibility becomes a reality. The reason is on account of current restrictions imposed on movement of their funds. As the remittances made by NRIs are subject to numerous restrictions which will be eased considerably once Capital Account Convertibility is incorporated. It also opens the gate for international savings to be invested in India. It is good for India if foreigners invest in Indian assets this makes more capital available for Indias development. That is, it reduces the cost of cap ital. When steel imports are made easier, steel becomes cheaper in India. Similarly, when inflows of capital into India are made easier, capital becomes cheaper in India. Controls on the capital account are rather easy to evade through unscrupulous means. Huge amounts of capital are moving across the border anyway. It is better for India if these transactions happen in white money. Convertibility would reduce the size of the black economy, and improve law and order, tax compliance and corporate governance. Most importantly convertibility induces competition against Indian finance. Currently, finance is a monopoly in mobilizing the savings of Indian households for the investment plans of Indian firms. No matter how inefficient Indian finance is, households and firms do not have an alternative, thanks to capital controls. Exactly as we saw with trade liberalization, which consequently led to lower prices and superior quality of goods produced in India, capital account liberaliza tion will improve the quality and drop the price of financial intermediation in India. This will have repercussions for GDP growth, since finance is the brain of the economy. Cons (against) of Capital Account Convertibility for India During the good years of the economy, it might experience huge inflows of foreign capital, but during the bad times there will be an enormous outflow of capital under herd behavior (refers to a phenomenon where investors acts as herds, i.e. if one moves out, others follow immediately). For example, the South East Asian countries received US$ 94 billion in 1996 and another US$ 70 billion in the first half of 1997. However, under the threat of the crisis, US$ 102 billion flowed out from the region in the second half of 1997, thereby accentuating the crisis. This has serious impact on the economy as a whole, and can even lead to an economic crisis as in South-East Asia. There arises the possibility of misallocation of capital inflows. Such capital inflows may fund low-quality domestic investments, like investments in the stock markets or real estates, and desist from investing in building up industries and factories, which leads to more capacity creation and utilisation, and increa sed level of employment. This also reduces the potential of the country to increase exports and thus creates external imbalances. An open capital account can lead to the export of domestic savings (the rich can convert their savings into dollars or pounds in foreign banks or even assets in foreign countries), which for capital scarce developing countries would curb domestic investment. Moreover, under the threat of a crisis, the domestic savings too might leave the country along with the foreign investments, thereby rendering the government helpless to counter the threat. Entry of foreign banks can create an unequal playing field, whereby foreign banks cherry-pick the most creditworthy borrowers and depositors. This aggravates the problem of the farmers and the small-scale industrialists, who are not considered to be credit-worthy by these banks. In order to remain competitive, the domestic banks too refuse to lend to these sectors, or demand to raise interest rates to more co mpetitive levels from the subsidised rates usually followed. International finance capital today is highly volatile, i.e. it shifts from country to country in search of higher speculative returns. In this process, it has led to economic crisis in numerous developing countries. Such finance capital is referred to as hot money in todays context. Full capital account convertibility exposes an economy to extreme volatility on account of hot money flows. It does seem that the Indian economy has the competence of bearing the strains of free capital mobility given its fantastic growth rate and investor confidence. Most of the pre-conditions stated by the Tarapore Committee have been well complied to through robust year on year performance in the last five years especially. The forex reserves provide enough buffer to bear the immediate flight of capital which although seems unlikely given the macroeconomic variables of the economy alongside the confidence that international investors have leveraged on India. However it must not be forgotten that Capital Account Convertibility is a big step and integrates the economy with the global economy completely thereby subjecting it to international fluctuations and business cycles. Thus due caution must be incorporated while taking this decision in order to avoid any situation that was faced by Argentina in the early 80s or by the Asian economies in 1997-98.