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Diamonds and Armed Conflict in Sierra Leone: Proposal for Implementation of a New Diamond Policy and Operations Free essay! Download now

Home > A Level > Politics > Diamonds and Armed Conflict in Sierra Leone: Proposal for Implementation of a New Diamond Policy and Operations

Diamonds and Armed Conflict in Sierra Leone: Proposal for Implementation of a New Diamond Policy and Operations

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Downloads to date: N/A | Words: 6750 | Submitted: 31-Oct-2009
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1. INTRODUCTION
The link between diamonds and armed conflict in Sierra Leone is obvious, and has been exposed, investigated, and deplored by humanitarians, journalists, politicians, and diamond industry leaders. Less obvious are the complex, entrenched relationships between exploitative systems of financial intermediation and resource management, poverty, and the spectacular, mysterious wealth of the diamond trade.

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Diamonds and Armed Conflict in Sierra Leone: Proposal for Implementation of a New Diamond Policy and Operations

1. Introduction 2. Summary 3. Discussion 4. Conclusion

1. INTRODUCTION
The link between diamonds and armed conflict in Sierra Leone is obvious, and has been exposed, investigated, and deplored by humanitarians, journalists, politicians, and diamond industry leaders. Less obvious are the complex, entrenched relationships between exploitative systems of financial intermediation and resource management, poverty, and the spectacular, mysterious wealth of the diamond trade. Diamonds have facilitated, not caused, and armed conflict. Pre-war economic and social injustice, which developed during the war into the illegal, and finally criminal, behavior common of the diamond traffic, must be addressed as a complex development problem. To ignore it is to perpetuate the conditions that gave rise to the war, and invite its resurgence.

2. SUMMARY
The Problem
In 1999, Sierra Leone's official diamond exports were slightly less than $1.5 million, compared to an industry estimate of $70 million as the real commercial value. The other $68.5 million of estimated value was lost to illicit and criminal activity. Diamond resources are linked to financing armed conflict. In addition, the problems of illicit diamond exports for Sierra Leone's economy are as follows.
• Low prices due to gray or black market. The purchase price to Sierra Leoneans is lower than the "fair market value" they would obtain from legitimate, competitive buyers. The discount is typical of any gray or black market.
• Inequities in resource distribution. The allocation of value in the chain from digger to exporter is exploitative.
• Loss of multiplier effect. The full value of diamond purchases does not circulate in Sierra Leone to generate more wealth.
• Lack of reinvestment: This is similar to the multiplier effect, but is an additional problem, over and above the lack of spending in the economy, which is the demand side of the issue.
The Solution
The solution can be summarized simply. The market will correct illicit trafficking, if the following conditions are created:
• Presence of legitimate buyers, trading competitively at world market prices;
• Ability of buyers to trade in dollars, or to have fully convertible currency;
• Presence of world class banking to provide safe deposit of stones and money;
• Provision of credit to producers at fair market terms;
• Existence of systems of financial intermediation, at fair, competitive, market rates, so that wealth can be accumulated, and reinvested into productive activities;
• Transparency, disclosure and oversight of all diamond operations to prevent the operations of buyers who smuggle or undervalue stones, committing fraud on fees, licenses, and export taxes.
• Cooperation of international diamond buying centers and authorities of importing countries to identify and prosecute the use of fraudulent Certificates of Origin.
Areas of Intervention
There are five areas of intervention to put Sierra Leone's diamond sector on a legitimate and prosperous track:
• Buyers: Attract legitimate buyers
• Foreign exchange: Trade in dollars or freely convertible foreign exchange.
• Financial services: Create conditions for financial services to be established, including credit for diggers.
• Oversight and denunciation of violators: Empower and educate citizens to provide citizens' oversight of diamond operations.
• Diamond industry and diamond importing countries: Continue to pressure to obtain their cooperation against smuggling and fraud.
There is no need for policing producers or production areas, restricting access, private security firms to enforce exclusive rights, etc. A market system will work if there are mechanisms to encourage or enforce disclosure of sales, to increase the cost of transacting illegal business, and to increase citizens' disclosure and oversight by making communities have a stake in the legitimate diamond business.
The simple establishment of legitimate, world-class buyers will not suffice, and should NOT be started, even on a trial basis, without at least the adoption of new foreign exchange and banking policy. Unfair competition based in foreign exchange distortions can drive legitimate buyers out of the market before the rest of the financial systems have a chance to develop.
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