'Political Tours': Visit North Korea (and More)

♠ Posted by Emmanuel in , at 7/29/2011 12:01:00 AM
Here's another instalment of Weird Things I Come Across on the Internets. I dunno why I was shown a banner ad for Political Tours--maybe it's a sign that I should visit fewer international affairs sites--but its pitch sure is interesting (if gimmicky):
Political Tours is a revolutionary concept for travellers passionate about politics and current affairs. We offer group tours and tailor-made itineraries in destinations around the globe.
Georgia, North Korea, Northern Ireland [relive the Troubles?], Bosnia & Serbia, Kosovo, Ethiopia, the Kurdish region of Turkey...the list goes on and on of various now-lukewarm hotspots--and I don't mean Wi-Fi. Still, I'd like to ask these folks where's Iran (which I've actually visited recently), Libya, Syria, Somalia, Myanmar, Honduras, the US-Mexico border and other places where the black hawk has a convincingly higher chance of going down if you know what I mean. I've heard much about ecotourism, but this niche market strikes me as a bit...morbid.

Moreover, why pay a premium to go on a guided tour of these places when you can arrange travel on your own and make stunts alike swimming to the lakeside home of Aung San Suu Kyi that make yourself a genuine political cause celebre?

21st Century USA ≈ 17th Century Polish Empire?

♠ Posted by Emmanuel in ,, at 7/27/2011 12:04:00 AM
Tis perhaps appropriate that my fondness for historically informed performances (HIP) of classical music ties into international political economy for two obvious reasons. First, with most music commissioned for religious rather than secular purposes during past eras, it highlights how music played a role in then-common agglomerations of church and state. Second, music was often commissioned for momentous occasions such as feting nobility for obviously political purposes.

So, instead of boring you with a roundup of opinions on whether the impending US technical default matters or not--you can do that yourselves and I can't say my opinion is necessarily more accurate than anyone else's--I bring you music and history. (The IPE Zone values cultural sophistication, historical referents, and attitudes of elegant despair on all epochs of subprime globalization.) You see, dear readers, one of my favourite performances remains the Academy of Ancient Music under Andrew Manze presenting Vivaldi's Concert for the Prince of Poland. The press blurb for the recording goes like so:
On March 21st, 1740, a gala concert was held at the famous Ospedale della Pietà in Venice to honour the visiting Frederick Christian, Prince of Poland. The four concertos written by the sixty-one-year-old Vivaldi still survive in the manuscript which was presented to the Prince as a souvenir of the occasion. Possibly the composer's last works, their brilliant technical writing, unusual scorings and innovative instrumental sonorities surely rank them among his most delightful music.
Obviously, you did not commission Vivaldi to write music for pissant guests. Even before he was immortalized in Muzak renditions of The Four Seasons played in elevators all over the world, he was a most distinguished member of Venetian society in its heyday. Just as Venice was then a trading centre keen on opening up trade routes throughout the continent, so was the Polish Empire no small beer as you can see from the map above. It was an empire in the true sense of the word, spanning vast tracts of Eastern Europe. To be sure, both Venice and the Polish Empire had entered into a stage of decline by this time. Still, the grandeur of the occasion served to reinforce the heights they had achieved before succumbing to the inevitable lethargy and competition from nimbler entities.

And so it was with great interest that I read American Tom Streithorst's comparison between the Polish Empire and modern-day America in Prospect--a left-of-centre British magazine focussing on politics. Although others have compared 21st century USA to the Roman and British empires as obvious analogies, I think there's something to be said for comparing it to the Polish Empire. Some thought-provoking analogies are made on how inbuilt features promoting institutional gridlock ground the show to a screeching halt in a relatively short span of time:
In the 1600s, the Polish Lithuanian state was a behemoth in eastern Europe, rich and powerful, feared from Stockholm to Moscow. One hundred years later, it ceased to exist, devoured by its neighbours. Perhaps the central cause of its decline was the liberum veto. Merely by standing up in parliament and shouting “I will not allow,” a single nobleman could nullify any legislation passed by the house. In the 17th century the liberum veto was used sparingly. By the 18th century it was commonplace. With its government crippled by the requirement of unanimity, and unable to respond effectively to changing circumstances, Poland ceased to exist in 1793, its territory divided between Russia, Prussia, and the Habsburg Empire.

No, even if the unthinkable happens and the US government defaults on its debt, I doubt its land will be taken over by Canada and Mexico. But the destruction of Poland shows how traditional constitutional arrangements can cripple a country. Without a supermajority of 60 in the US Senate, the will of the majority can be totally ignored. The filibuster, like the liberum veto, used to be deployed only in exceptional circumstances. Today it is a weapon used at will. Because each state has two senators, no matter its size, representatives elected by just 10 per cent of the population can stymie reforms demanded by most.
As Harry Lee Kuan Yew might say, the problem may be too much democracy.

US "Foreign Aid," AmeriBankruptcy Victim

♠ Posted by Emmanuel in ,, at 7/26/2011 07:32:00 PM
To be sure, the United States used to actually aid developing countries a long time ago. Sure, the country still doles out cash and kind to exemplars of freedom 'n' growth such as Afghanistan, Pakistan and Iraq, but it appears those times may not last for much longer. "Strengthening fragile states" and "supporting US geostrategic interests," they call it. But, the honest explanation of where the cash for "American aid" comes from is neither from the goodness of their hearts--witness the star donor list above--nor from America per se. Given the size of its external obligations, think of the United States as running a debt-for-aid complex wherein it takes money from Asian exporters and Mideast energy exporters and so forth, attaches strings which mandate benefiting American entities at the expense of local ones [see below for a review], and then "aids" contemporary recipients by recycling American donors' largesse. Cut out the middleman, I say, and change USAID's laughable motto above while you're at it.

Which brings us to another substantive point aside from the fundamental fallibility of "American aid": given that it is mainly meant to buttress US strategic objectives more than anything else, do the shining successes of the aforementioned countries inspire the American public at large to give more? Fortunately, the CFR has an informative new entry on how budgetary constraints together with Bushbama notions that aid spending is tied with security in a "soft power" sense no longer holds water with more and more Republicans. Here are the more interesting Q&As:

The House measure [on overseas development aid] still has to pass the full House and has to be reconciled with Senate priorities, but what does the panel's bill indicate about the trajectory of the debate over foreign aid?

It's clear that in this budgetary environment, everything has to be on the table. You can't simply have State Department operations and foreign assistance as a sacred cow. Everyone realizes that there has to be cuts. But already this year, there have been draconian reductions in State Department budgets that surpass [those called for in] other agencies. For instance, the fiscal 2011 budget got slashed by $8 billion in a deal that was struck to avoid a government shutdown in April. So, already, the State department has taken a hit.

Apparently most [conservative policymakers] don't accept the argument the Obama administration has been making, and which the Bush administration made, which is that the State Department and USAID and are parts of a larger national security budget. The perennial difficulty with the so-called "international operations account," which includes State and USAID, is that there is no national constituency for those programs. When you look at the Pentagon and its gargantuan budget, it's likely that every single congressional district in the United States has either a U.S. military installation or a defense contractor.

It seems foreign aid is already declining and perhaps pegged for future cuts. Can foreign aid get leaner without harming foreign policy?

The current context is that foreign aid has gone up significantly over the last few years. These are cuts to foreign aid that had been increasing in part as a result of 9/11, and also as part of U.S. national security strategy where [the argument that] it was important to increase soft power resources. But the argument that these are soft power resources that we really need to nurture is in question right now. Is there a way to make it leaner and more effective? There have been a lot of efforts to do that. There's been increased emphasis on aid effectiveness within the Obama administration—but one of the ironies of the proposed cuts would be to actually eliminate the budgetary office at USAID geared to improving aid effectiveness.

One problem with foreign aid is it is tied by law to use of U.S. service providers and U.S. sourced materials and commodities—whether it's agricultural goods or technical assistance or other things. Often what's happening is that money ends up actually being spent in the United States, and rather little is spent on procuring things locally within the target countries—helping to build productive and institutional capacity in those countries [my emphasis].

So, you could always do better. There are ways for you to do as well or conceivably even better with less, but you would have to change the paradigm in which we actually deliver foreign assistance--have it be far-less donor driven and donor implemented, and really try to cultivate local partners.

What should the United States be doing on foreign aid going forward, given the debt debate and the country's significant fiscal restraints and political climate?

There's going to have to be some cuts in foreign aid. Those cuts should be proportional and no more than those made to the rest of the federal budget. U.S. foreign aid could definitely be more effective and efficient if there were consolidation of the many spigots in which foreign aid comes out. So many of the different aspects of foreign assistance are not only spread across scores of different U.S. government entities, but they also are subject to the jurisdiction of multiple congressional committees and subcommittees.

The Obama administration should sit down with members of Congress and look at areas of potential consolidation—but [negotiations] will require some compromise from members of congress who don't want to give up jurisdiction over appropriations. That's a serious conversation that we need to have.

The other thing is that we definitely need to look hard at just some of these huge Pentagon weapons programs that we frankly don't need. There are some people who just refuse to cut anything having to do with defense because they don't want to look weak. But it's just totally irresponsible to be going after these important civilian power resources, and at the same time providing something of a blank check to the Pentagon.

Can we afford it? Does it benefit ordinary citizens instead of ostensibly friendly regimes? With pressure mounting on reducing America's gutbusting deficits, you have to wonder if there are any major downsides anyway to weaning the world off US aid. Unburdening the white man of borrowing from coloured people to "aid" to other coloured people while attaching strings that benefit mainly himself in the process--what's there to miss?

New Labour* on Restoring Faith in Globalization

♠ Posted by Emmanuel in , at 7/25/2011 11:03:00 PM
You will have noticed that I have placed an asterisk after New Labour. For, today's mea culpa on the shortcomings of New Labour in hindsight are largely courtesy of Lord Mandelson--formerly the EU trade commissioner and the de facto prime minister during the last days of the ill-fated Gordon Brown. This I got wind of while watching the BBC's Newsnight programme. With jobs still scarce in the north of the UK, there is much at stake in political economy terms.

Mandelson has been collaborating with the left-centre Institute of Public Policy Research (IPPR) to investigate how real the perceived de-industrialization of Britain has been, particularly in terms of eliminating manufacturing jobs and its effects on communities in higher latitudes of the UK. To summarize his thoughts from the BBC feature: there was too much emphasis on financial services, not enough emphasis on engineering and manufacturing and, oh yeah, a lack of industrial policy. (He calls it "industrial activism.")

So, one of the British arch-globalizers has now come to a modified, almost corporatist view of globalization. While he still believes in the opportunities opened up by free markets, free trade, and what else have you, he does not view industrial policy as being necessarily incompatible. Call it the Frenchification of New Labour after the fact. Alike the current government, he thus calls for an emphasis for government to school more in science, technology, engineering, and mathematics (STEM) that are crucial in obtaining the ever-vaunted competitive advantage over the UK's peers.

From the IPPR website comes this preview. Let's begin with the familiar progressives'-lost-faith-in-globalization narrative:
Globalisation was the dominant economic discourse of the 1990s and 2000s, as international trade increased rapidly (facilitated in part by successful WTO negotiations), global capital became more mobile, regions such as the EU pursued economic and monetary union, and new technology significantly reduced transport and communication costs.

But in recent years, faith in economic globalisation has seemed to falter. The global financial and economic crises of 2008–09 not only demonstrated the perils of economic integration, but also led to a collapse in world trade, and (in some countries) a policy retreat from free trade and open markets as governments sought to protect domestic industries.

Free trade and open markets have always been subject to debate among progressives. There is a general economic consensus that a broadly liberal approach to international trade is good for growth and for development in poorer countries – and the experience of China over the last two decades has underlined this conclusion. But there is also uneasiness about the unequal distribution of the benefits of globalisation, the fact that it can create losers as well as winners, and the problem of finding a good mechanism for re-distributing from the latter to the former. There has also been considerable debate about the implications of the unequal economic and political power of rich and poor countries, the distributional impacts of trade within countries, and about the policy frameworks required to ensure that trade is consistent with objectives including human rights, decent work and environmental protection.

It is therefore timely renew commitment to free trade and open markets, in economic, policy and political terms. Globalisation has to be supported but it needs to be re-thought for a new economic and political era.

This is particularly important in the UK. The UK is an open economy, a centre of global capital, firmly integrated into a much larger economic bloc in the EU, and a key player in global economic governance institutions. In these circumstances economic policy must be seen as a ‘cross-border’ issue, but too often economic policy discussions are cast in purely domestic terms. New thinking is needed in the UK economic policy debate about globalisation.
What are the new questions that need answering, then?
This work will seek to answer five key questions:

- Why should progressives support free trade and globalisation?
- How can trade and open markets deliver maximum economic benefits for the world’s poorest countries, and help them to deliver sustainable development for their people?
- How do domestic policy frameworks in developed countries (including industrial policy, fiscal policy, labour market regulation, skills and education, and immigration) need to change to ensure both that developed economies can remain competitive and that trade delivers on progressive values at home?
- How do global and European economic institutions need to change to respond to the changing balance of economic and political power between regions and countries in order to deliver solutions to global economic challenges including trade liberalisation and global imbalances?
- How can the case for a free trade and open markets be made in a new economic and political era?
You can say that it's boilerplate global governance material, but hey, better late than never, right? Moreover, there's always the possibility of his party's current leadership reverting to pre-New Labour stances that were well to the left of where it is now. While New Labour had its failings, the more immediate danger is of disowning it while lurching violently back to the days when they played "The Red Flag" at the conclusion of party conferences and suchlike. That and many other things Mandelson got rid of--things current leader "Red" Ed Miliband should take heed.

In short, is globalization a faulty concept in itself, or has its execution been botched? I, of course, believe the latter and prefer to think Lord Mandelson does too.

WTO Heresy: D-G Pascal Lamy Warms to PTAs

♠ Posted by Emmanuel in , at 7/25/2011 12:04:00 AM
Let's get the obvious out of the way: the WTO Doha Development Agenda still looks as unsalvageable as it did at the start of this year. Being the guy who inherited the stillborn negotiations, failed to get them done during his first term, and likely will pass it on to someone else the way things are going in his second term, WTO Director-General Pascal Lamy is a fellow very much in need of a face-saving exercise. It's only human nature. Aside from say, Charlie Brown and Rodney Dangerfield, few have parlayed repeated failure into career success.

Probably having spent more than a few sleepless nights tossing and turning about the futility of further multilateral trade negotiations, our man appears to have come up with a solution which may yet dissociate his name from WTO failure: If you can't beat 'em, join 'em. To be sure, Pascal Lamy has inveighed against PTAs more than anyone else this side of Jagdish Bhagwati over the years. After all, it's part of the job for the head of an organization whose name features words such as "world" and "trade." And so he begins his latest missive introducing the World Trade Report 2011 to the potential danger of PTAs to global trade. Warning against trade diversion, some scary statistics are marshalled concerning the number of notifications about PTAs the WTO has received. (WTO members are obliged to report negotiations for preferential deals.)

That done, however, Lamy then makes some rather uncharacteristic concessions. Can such minilateral deals get past the old building blocks versus stumbling blocks framing to one which considers the latticework of multilevel trade arrangements with greater verisimilitude? With several trade arrangements being at least as much about political cooperation as trade liberalization, it may make sense. From the WTO blurb...

Deep integration changes the nature of the relationship between the multilateral trading system and preferential trade agreements. For far too long, this relationship has been understood using the building bloc-stumbling bloc paradigm. In its strictest sense, this framework says that bilateral or regional integration either complements or substitutes for multilateral liberalization. One can either lower global tariffs through periodic rounds of multilateral trade negotiations or lower then circuitously through a web of PTAs. However, if PTAs are less and less about tariffs, this paradigm is becoming less relevant and one will need to fashion a new framework more applicable to deep PTAs.

Let me suggest some ideas that could be part of this new way of thinking about PTAs and the WTO. [1] One idea would be that there is little to be concerned about with deep PTAs on the tariffs side, since the limited role of preferential tariffs implies little danger of trade diversion. [2] Another idea would be that we should not ignore the potential difficulties that deep PTAs can give rise to on the regulatory side. One can observe in the sprawl of agreements what can only be called “families” of PTAs, with each family adopting a particular approach to important policy areas such as technical barriers to trade or competition policy. The peril here is that PTAs may lock-in their members to a particular regulatory regime reducing the potential for trade to prosper with countries outside the arrangement.

In a nutshell, the new challenge posed by deep PTAs to the multilateral trading system is one of market segmentation because regulatory systems, which can become divergent, have now more importance on trade flows than tariffs. This is not a statement about the legitimacy of these regulatory systems. It is a factual assessment of their impact on economies of scale, which is what the WTO should care about.

We have a number of options before us to reduce this risk and increase coherence between PTAs and the multilateral trading system.
  • We could fix deficiencies in the WTO legal framework;
  • We could develop a set of non-binding good PTA practices that members could follow;
  • We could extend existing preferential arrangements in a non-discriminatory manner to additional parties;
  • Finally, we could accelerate multilateral trade opening through a more ambitious regulatory agenda; this would surely prove a very effective means of reducing the scope for divergence between the multilateral and preferential trade opening.
The important change IMHO is that WTO leadership is now adjusting to the reality of PTA proliferation and welcomes ideas on how to move with the fashion. In the past, PTAs would always give lip service to being "WTO legal." We may thus see a change in the terminology to highlight the growing importance of PTAs in relation to Doha (or whatever multilateral deal may be on offer in the future). That is, instead of various minilateral deals having to justify their existence by being consonant with existing WTO obligations, the WTO's multilateral negotiations will in the future assume subservient status to PTAs in being "PTA-compatible."

Far fetched? If the WTO chief is beginning to cry uncle, then it may not be long before others' opinions follow.

HMS Ark Royal: Floating PRC 'Disco of Doom'?

♠ Posted by Emmanuel in ,, at 7/23/2011 07:16:00 AM
When at anchor here I ride, my bosom swells with pride,
And I snap my fingers at a foeman's taunts--
And so do his sisters and his cousins and his aunts!

They say the truth is stranger than fiction, and I surely couldn't have made up a dafter story: "China buying the [decommissioned] Ark Royal" is the punch line to "What do you get when you cross eBay [sic], HMS Pinafore and Blood On the Dance Floor? Unusual, I know, but do read on for another bit of geopolitical machinations purportedly involving the Chinese.

It is not a big secret that the Chinese are keen on upgrading their military capabilities--though the same can probably said of every nation, budget permitting. It is the latter proviso that sets China apart in many respects. Alike the US, the UK is undergoing a process of military retrenchment brought forth by plain old overstretch. HMS Ark Royal is a vessel whose name conveys its importance to what remains of the days when Britannia ruled the waves. Still, it had a fleeting moment of strange glory shortly after being decommissioned to great fanfare. Early last year, the aircraft carrier was famously sent to the shores of continental Europe to bring home Britons stranded for days on end by the Icelandic volcano eruption that resulted in mass flight cancellations on the continent.

Anyway, HM Royal Navy has been flogging the Ark Royal on its--get this--Edisposals website ever since it sailed into the British fiscal sunset. Stripped of its military hardware and assumably ready to be retrofitted with civilian niceties, it has been billed for conversion into a pleasure boat. It is here where the Chinese come in. You see, some dodgy characters have placed bids for the vessel, once more arousing suspicion that, actually the PLA is involved. Ostensibly this bid is for converting the vessel into Old Man River-style duty, but suspicions remain:
As it sells off its flagship aircraft carriers over a government website, Britain is finding enthusiastic interest from an unexpected group -- Chinese businessmen potentially keen enough to outbid any other rivals. But some Western strategists suspect the real agenda might be more to do with Beijing's growing naval ambitions, that they might be stripped for construction secrets or simply pressed into the service of the People's Liberation Army Navy.

The Royal Navy decommissioned HMS Invincible and her sistership Ark Royal as part of a wider round of austerity measures, listing them for disposal alongside unused printer cartridges, old office furniture and outdated uniforms. Both ships attracted immediate interest from buyers wanting to sail them to China to be used as floating commercial venues.

Whilst some foreign warships purchased by Chinese businesses have genuinely been used as leisure centers and night clubs, others are believed to have entered military hands. Such worries may have already helped scotch one potential UK carrier purchase and could stymie another. "It is very difficult to gauge what is going on here," said James Hardy, Asia Pacific editor of Jane's Defense Weekly. "The links between Chinese businessmen and the Communist Party are always somewhat ambiguous.

"The Chinese have a reputation for playing a long game, as well as for reverse engineering ... It is (also) possible that they could (aim to) refit Ark Royal as a helicopter carrier. Such a ship would certainly be a useful vessel in terms of power projection in the South China Sea and possibly against Taiwan."
As it turns out, the Chinese military has already used this ruse of purchasing a military vessel for ostensibly civilian purposes only to use it as an aircraft carrier. No wine, women and song here I'm afraid; only armaments:
China's Defense Ministry declined to comment, while the buyers have been keen to stress their independence from government. But experts say China has prior form. Its first aircraft carrier, due to start sea trials in the coming weeks, started life as the Varyag, an unfinished Soviet warship lying in Ukraine. Chinese buyers bought her in the late 1990s, ostensibly to be used as a casino in Macau.

In reality, she spent years being refitted in naval dockyards and some suspect a similar fate could be in line for any purchased British ships. Not only might a sale breach a de facto European arms embargo on China, it might also raise eyebrows in Washington DC and irritate other Asian powers already worried by Beijing's naval growth.
Alike the Japanese in the 70s and 80s, the point of the exercise may be reverse engineering: while the military paraphernalia may have been removed, clues on designing a war vessel remain valuable:
"The casino/entertainment center ploy is something offered by the Chinese since ... the 1980s," said Bud Cole, a former U.S. naval officer now lecturing at the National War College in Washington DC, pointing to the purchase of former Australian aircraft carrier HMAS Melbourne, several Russian vessels and the Varyag. "All were surveyed by Chinese ship builders and designers as fodder for an eventual Chinese-designed carrier ... I would expect the same for the ex-Brit carriers. I personally don't think they should sell..."

But even if the Chinese buyers were being honest in their ultimate intentions of the ships, most intelligence and security experts said they would expect the ships to be given a thorough going over first by China's military.

"There is some merit in acquiring Ark Royal, a successful design, if you want to build your own carriers and only have a badly designed and frankly clapped out vessel like the Varyag to go on," said a London-based naval analyst, requesting anonymity because he was not authorized to talk to the media. "There are limits to its value: all the sensitive kit such as sonar, radar and communications will be taken off. What you would do is get an insight into naval construction techniques."
Which brings us to the shady characters expressing interest in buying the Ark Royal:
Earlier this month, Hong Kong-based investment firm Eagle Vantage Asset Management told Reuters it has put in an offer to buy Ark Royal to turn it into a floating showground. Eagle Vantage, owned by tycoon Huang Guangyu who was jailed for 14 years in China on bribery and insider dealing charges, would not discuss what price it had offered. A spokesman said the company was wholly independent of China's government and that Guangyu himself was not directly involved in the deal.

An MoD spokesman said money alone might not be not enough. The offer period for Ark Royal had now closed, he said, and a decision would likely be reached in September. Assorted other schemes for the ship's use have been floated in the British media, including mooring her in London Docklands for use as a commercial helipad for the 2012 Olympics and after.

"Obviously, the amount of money involved is an important issue," said the MoD spokesman, asking to remain unnamed in accordance with government policy. "But we also look at the business plan for what will be done with the ship once it is sold."
Just as unusually heavy US Treasury purchases out of the UK in recent years is indicative of the PRC using London to conceal the magnitude of its purchases of American assets, so too may it use a "civilian purposes" ploy to acquire military knowledge forbidden by Western countries. Blood on the dance floor it is, then, as unseemly figures polish up the handle of the big front door.

IMF Harps on PRC Yuan Undervaluation (Again)

♠ Posted by Emmanuel in , at 7/22/2011 12:03:00 AM
Here we go again: with China being the country with the world's largest external surplus, its role in the resolution of global economic imbalances is always going to loom large. Given the past and continuing Western dominance of international financial institutions alike the IMF-witness the Christine Lagarde appointment to replace Dominique Strauss-Kahn--it is no real surprise that China's economic practices have been in its crosshairs. Namely, the IMF has done next to everything but declare the yuan undervalued. This together with many other attempts to use the IMF for clubbing China over currency valuation and sovereign wealth fund governance.

However, IMF hypocrisy aside, the obvious thing is that the institution has limited leverage on China. Having witnessed how troubled countries were treated in the aftermath of the Asian financial crisis, China famously embarked on an unprecedented export / reserve-building complex that has taken its holdings to well over a previously unimaginable $3 trillion. With so much cash accumulated, it's actually worked the other way around with the IMF asking the IMF to contribute to its firefighting efforts in Europe and elsewhere.

It is in this context that The IMF recently completed its regular Article IV surveillance of the PRC and made the usual suggestions of currency revaluation to staunch inflationary pressures at home. This being the IMF, it is no surprise that release from "financial supression" is what it prescribes to ward off trouble while putting the country on its professed path of domestic-led growth. What follows is the IMF blurb (you can also download the full report):
Financial liberalization will be essential in transforming China’s economic model to one of more inclusive growth, raising household incomes, boosting domestic consumption, and reducing the reliance on exports as an engine of growth, say IMF economists.

In their regular Article IV assessment of the country’s economy, IMF economists called for a revamp of China’s financial system with a comprehensive set of reforms that strengthen the conduct of monetary policy, improve the financial stability framework, develop financial markets and savings vehicles, and move toward more market-determined loan and deposit interest rates.

The assessment follows a visit by a team of economists led by Nigel Chalk, the IMF’s mission chief for China. This year, for the first time in China, the IMF, in collaboration with the World Bank, also conducted an assessment of the health of the Chinese financial system under the Fund’s Financial Sector Assessment Program (FSAP). The FSAP marked the culmination of more than a year of work by IMF, World Bank, and outside financial sector exports. “In our surveillance work, we have taken up this financial theme and focused on laying out a clear, strategic roadmap to manage the process of financial liberalization in the coming years, in a way that both reduces the risks and delivers the full benefits of a more market-based financial system,” said Chalk. “Financial reform will be of great help in rebalancing China’s economy,” he added.

The report notes that China’s system currently leaves many depositors short changed, with deposit rates well below the rate of inflation. While this helps to sustain high levels of corporate investment and foreign currency intervention, it conflicts with many of the objectives of the government’s 12th Five Year Plan.

The IMF team visited Beijing, Shanghai, and Chengdu from May 23 to June 9 to conduct the annual review and presented their findings to the Executive Board of the IMF on July 15. Both the FSAP and a separate report on the spillovers to the global economy from China’s policies were also discussed by the Executive Board. At the conclusion of his visit to China in June the IMF’s then Acting Managing Director, John Lipsky, paid tribute to the authorities for their adept handling of the economy during the recent global crisis. He said the country’s economy was a “bright spot” of global growth.

In moving ahead with financial liberalization, the staff team highlighted the importance of allowing the renminbi to appreciate to give greater monetary policy autonomy to the People’s Bank of China and to reduce the pace of foreign reserve accumulation. “A stronger renminbi would increase household income, boost consumption, make China’s manufacturing products more affordable for the Chinese people, and help build a stronger service economy,” said Chalk.

The report also recognized that financial liberalization was likely to be a complex and lengthy process, which would need to be carefully sequenced. “Continuing to delay could mean that the financial system, instead, evolves in an uncoordinated and disorderly fashion, outpacing supervisory capabilities, and revealing regulatory gaps,” says the report. This would risk change “proceeding on a timetable driven not by careful, pre-emptive, and concerted policy planning, but rather by the pace of market disintermediation and innovation.”

The report also discussed the main near-term risks to the Chinese economy, including the danger of rising inflation. IMF economists expect inflation to decline in the second half of this year—it rose above 6.4 percent June—as the impact of higher food prices eases. “Barring further food price shocks, and assuming the ongoing tightening of monetary policy is maintained, there was general agreement that inflation should soon peak,” says the report. This monetary tightening should rely more on higher interest rates and an appreciation of the exchange rate, and less on credit controls, it suggests.

In recent years, many China watchers have also been concerned about the threat of a property price bubble in Asia’s largest economy, where the property sector directly makes up 12 percent of GDP. In their report, IMF economists said they did not see imminent risks of a major downturn in the sector, but they warned that as long as the cost of financing continued to be low, and other investment options remained limited, “the propensity for property bubbles will remain.”

The FSAP report concluded that China had made “remarkable progress” in its transition to a more market-based and financially sound system. Consequently the banking sector had entered the global financial crisis from a position of relative strength. But it also noted that the country’s financial sector was confronting several risks, not only from rising real estate prices and economic imbalances, but also from a likely worsening of credit quality following the enormous injection of stimulus in response to the global financial crisis.

IMF staff believe the potential risks in the financial system are manageable given the capitalization of banks, strong economic growth, and proactive approach being taken by the regulators in dealing with these credit risks. But they recommended improving supervision and regulation, and further enhancements to financial institutions’ risk management systems, as China moves toward a more commercially orientated financial system.
The curious thing is that I do not disagree much with any of this--nor do the Chinese authorities, I think. It makes sense. However, I am not hardly convinced that the IMF represents the ideal messenger given reasonable perceptions that it continues to serve Western interests. How can this same message be sugar-coated? After all, the IMF has been urging China to do so at least since 2006. I believe the Chinese are already taking heed, but the messenger needs to be someone more congenial to the PRC leadership.

Vatican vs. China or the Excommunication Blues

♠ Posted by Emmanuel in , at 7/19/2011 01:28:00 AM
Blessed are those persecuted for righteousness' sake, for theirs is the kingdom of heaven (Matthew 5:10)

Aside from the increasingly tenuous connection between today's rather bourgeois "Chinese Communist Party" and Marxist-Leninist thought, two other relationships that give budding Sinologists pause are those (1) between Chairman Mao and his successors and (2) between nominal godlessness and religious tolerance. Both uncertainties have an important bearing on today's feature. Strict-form Marxist-Leninist doctrine would of course disavow the "opiate of the masses." While it's true that the modern CCP allows for religious freedoms, albeit on the margin, it is still keen on maintaining tabs on nearly all aspects of political life. So, do the key concessions of "market authoritarianism" of greater economic freedom also hold for (quasi-)religious diversity? Well, not quite.

To be sure, the Chinese constitution has some pretty nifty passages alluding to religious freedom, particularly this one:
Article 36. Citizens of the People's Republic of China enjoy freedom of religious belief. No state organ, public organization or individual may compel citizens to believe in, or not to believe in, any religion; nor may they discriminate against citizens who believe in, or do not believe in, any religion. The state protects normal religious activities. No one may make use of religion to engage in activities that disrupt public order, impair the health of citizens or interfere with the educational system of the state. Religious bodies and religious affairs are not subject to any foreign domination.
The very careful wording of this article is not by accident. First, religious freedom is couched in a negative sense of not being forced to adopt a state-sanctioned religion. Second, "normal religious activities" allows much leeway in determining what is normal (e.g., performing religious ceremonies in venues with official sanction) and what is not (e.g., protest movements based on religious affiliation). Third, ditto for "disrupt public order" which often translates in practice to any criticism of the ruling party. Fourth, religious bodies not being subject to "foreign domination" is an obvious reference to disdain for external entities exerting influence over religious practice in China.

While the trials and tribulations of the politically active Dalai Lama and Falun Gong have been news fodder for years and years, those of the Roman Catholic Church often get less attention from Western journalists for obvious reasons. Not only are its mores often in the crosshairs of left-leaning media, but it also is not viewed as a champion for the persecuted and oppressed given its still-formidable standing in the West. This being the IPE Zone, however, there are indeed international politics involved here. When it comes to Roman Catholicism, an important point of dispute is the sovereign status of the Vatican. With 1.3 billion customers or souls depending on your point of view, China is an obvious growth market for businesspersons and religious figures alike. Hence Pope Benedict XVI's desire to establish diplomatic relations with China.

Yet, it is over matters of religious freedom that the Holy See and the Middle Kingdom beg to differ. While the list of countries which still recognize Taiwan as the "real China" is dwindling for commercial and instrumental (the PRC is known for handling countries wads of cash for diplomatic recognition) reasons, the Vatican remains one of the holdouts. Since 1951, it has had diplomatic relations with the ROC, not the PRC. In perhaps less divinely inspired acts, the PRC has famously sought to install a successor to the Dalai Lama, while continually choosing bishops instead of the Pope. This sort of meddling in heavenly matters has not gone down too well with the Vatican which is doubly handicapped by being "foreign" and a legitimate diplomatic entity besides.

And so it is that we have another interstate fracas involving the ordination of a bishop by Chinese authorities, Joseph Huang Bingzhang, he of "The Fonz" hairdo in the picture above. Once the Vatican got wind of this event, it promptly excommunicated the fake bishop, reprimanded Chinese authorities, and praised the holdouts. (I don't think the hairdo helped.) From the Catholic News Service:
The Vatican said a Chinese bishop ordained illegitimately in mid-July has been automatically excommunicated and lacks the authority to govern his diocese. At the same time, the Vatican praised bishops loyal to Rome who resisted participation in the ordination ceremony before being forced by authorities to do so. "The Holy Father, having learned of these events, once again deplores the manner in which the church in China is being treated and hopes that the present difficulties can be overcome as soon as possible," a Vatican statement said July 16.

The Vatican was reacting to the ordination of Father Joseph Huang Bingzhang July 14 at St. Joseph's Cathedral in Shantou, in southern China's Guangdong province. Bishop Johan Fang Xingyao of Linyin, president of the government-sanctioned Chinese Catholic Patriotic Association, was reportedly the main celebrant; he was one of eight Vatican-approved bishops at the ordination.

It was the second ordination of a Chinese bishop without papal mandate in the last month. The Vatican has expressed deepening concern and emphasized that willing participants in such ordinations face severe penalties under church law, including automatic excommunication for the ordained bishop and the consecrating bishops.

In the latest case, the Vatican said, Father Huang "had been informed some time ago that he could not be approved by the Holy See as an episcopal candidate, inasmuch as the Diocese of Shantou already has a legitimate bishop." The Vatican statement said officials in Rome had learned that some Chinese bishops, when contacted by civil authorities, were unwilling to participate in the ordination and had offered "various forms of resistance" before being obliged to take part.

"With regard to this resistance, it should be noted that it is meritorious before God and calls for appreciation on the part of the whole church. Equal appreciation is also due to those priests, consecrated persons and members of the faithful who have defended their pastors, accompanying them by their prayers at this difficult time and sharing in their deep suffering," the Vatican said.

The Asian church news agency UCA News reported that some bishops were accompanied to the ordination by government officials. Church sources said many of the diocesan priests went into hiding days before the ordination, but that some were found by government officials and had to attend to the ceremony.

The Vatican sees the right of the pope to appoint bishops as fundamental to church unity and as an essential element of religious freedom. China's civil authorities consider it a foreign interference. "The Holy See reaffirms the right of Chinese Catholics to be able to act freely, following their consciences and remaining faithful to the successor of Peter and in communion with the universal church," the Vatican statement said.
If accurate, it is indeed puzzling why Chinese authorities would force Catholic priests to participate in these sham ordinations. Aside from being questionable affronts to notions of religious freedom enshrined in the Chinese constitution, it also forces citizens to affirm loyalties to state or religion that should not be mutually exclusive in theory. In the past, the CCP and the Vatican have worked more on making mutually acceptable choices for bishops, so it is indeed odd as to why the Chinese authorities would force the issue at this point in time when they are attempting to create a present a more reasonable public image to the rest of the world.

Maoist doctrine circa the Cultural Revolution championed the "Death of God." Despite the passage of time and Chairman Mao having been branded 70% right, 30% wrong by his successors, you still have to wonder whether religious intolerance is part of the seventy or thirty percent in this context. I do think the Vatican's status as a state does complicate matters such as bishop ordinations, as does its recognition of Taiwan as the "real China" which isn't going to go away soon by the looks of it.

Karamoja, UN's Grand Experiment in Weaning Off Aid

♠ Posted by Emmanuel in ,,, at 7/19/2011 12:01:00 AM
Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime

The terrible drought situation in East Africa is once again causing a reappraisal of modern aid along the contours of the oft-quoted line above. Having been asked by our local parish to contribute towards famine relief, I was obliged to do so. However, to say that the development community is very much riven by the debate on whether to give aid unconditionally is an understatement.

Traditionally, the United Nations has been perceived as the kinder-hearted aid-giving counterpart to the World Bank and IMF even if the latter Bretton Woods institutions are nominally components of the UN system. This impression is partly borne of the more sympathetic tone usually struck by its alphabet soup of development-related bodies: World Food Programme, UNICEF, UNHCR, UNDP, UNCTAD, UNEP and so on.

Lest you think the UN is composed solely of bleeding hearts, however, comes news about the World Food Programme trying to experiment with--you guessed it--encouraging domestic food production instead of relying on external aid. You can be sure that efforts such as this one in Karamoja, Uganda are the result of no small amount of external pressure. First, you have the Sachs vs. Easterly debate going on with those sympathetic to Easterly firmly emphasizing a gradual shift from aid to economic self-sufficiency. Second, there is also the promising quasi-experiment movement of Esther Duflo and Abhisit Banarjee of J-PAL that de-emphasizes ideological quarrels (a la Sachs vs. Easterly) in favour of experimenting with what works in the field. To paraphrase Deng Xiaoping, it matters not if positive intervention comes from aid or not as long as it works.

Unfortunately, it appears that Karamoja's experimental combination of developing self-sufficiency for further replication in other parts of Africa (if successful) is encountering technical difficulties borne of the especially difficult background situation there. In particular, drought conditions appear to be making more children resort to begging as food aid is being reduced in line with more emphasis on domestic food production. From Auntie:
As appeals continue for the drought in East Africa, aid agencies' eyes are on a region in nearby Uganda which is the focus of a global experiment in aid. In the past year, the UN's World Food Programme has begun a project to try to end aid dependency in Karamoja and make the 1.2 million people there self-sufficient.

Food handouts are being strictly regulated, but many villagers are complaining of food shortages and charities report an increase in street begging by children. "It's getting worse because now there's no food for the children, they all come back to Kampala to beg to earn a living," says Maureen Mwagale, who runs a small charity called Kaana. "These children are both physically and mentally abused."
Once more, conditions may be too "long tail" to constitute an ideal testing ground for this programme:
The landscape of Karamoja is cruel and arid, the people among the poorest in the world. The UN's experiment includes planting thousands of acres of robust crop like sorghum and cassava that can withstand drought, starting new businesses and bringing infrastructure and some economy to the area.

But even now, serious glitches have arisen. The UN has cut school meals because of what it describes as an administrative problem with the supply chain. "We used to have breakfast, lunch and supper," says Diko Ben, the headmaster of Loodoi Primary School. "Now there's just a midday snack. Many here are now malnourished and if it stays like this, I don't think you will see a future." Mr Ben says 200 children, a quarter of the whole school, have left because of the lack of food, adding that every child in school means one less under threat of being sent to beg in the cities.
On one hand, you have to acknowledge the UN's efforts at trying to do something new. After all, aid agencies have been operating there for four decades now. Aside from conflict being continuously in the background, climate change has also been faulted for the region's recurrent droughts. Make no mistake: rich world austerity also has downstream effects on aid recipients. The changing picture for development aid going forward combined with emerging development trends mentioned above alike Easterly-ism and quasi-experimentation result in efforts alike that in Karamoja. Although we of course wish them well, there are certainly no easy answers. Still, I am favourably disposed to the notion that small-scale experimentation in what works and can be scaled up elsewhere (with situational adjustments) represents a potentially positive step. It's just that Karamoja may not represent the ideal starting point given its extreme conditions.

Detours on Yuan's Road to Global Currency Status

♠ Posted by Emmanuel in ,, at 7/18/2011 12:01:00 AM
Or so the folks at the Wall Street Journal say, at least. In principle, there is much to be said about the Chinese yuan becoming a global currency. After all, isn't it odd that trading which involves the currency of the world's second largest economy is a mere rounding error in global foreign exchange? Although this situation is largely by design--the yuan is neither freely traded nor widely available--Chinese authorities have begun experimenting with making the RMB a vehicle currency in its own right. To achieve this status, it needs to be more widely accepted in the three functions of money as per international terms. The most immediately available option is to make it more of a medium of exchange in trade settlement between China and its trade partners. As China's amazing export tally continues, it would certainly have an interest in denominating trade in its own currency as a unit of account. The long term objective, then, would be making the yuan a store of value for not only the PRC but others as a reserve currency in its own right.

Over the past few months, I've covered Chinese authorities promoting the yuan as an aforesaid vehicle currency for trade settlement with its near neighbours and those farther afield. Consider Southeast Asia--Singapore in particular--and London. After establishing the RMB in its backyard, the world beckons. However, a recent this recent article suggests things are not quite going according to plan in certain respects. While RMB-denominated trade settlement volume has gone up, it has mainly been importers, not exporters, who've been interested in the scheme. Instead of slowing dollar reserve accumulation as intended, the programme is said to have made China's reserve stash even larger since importers do not need greenbacks to settle their transactions, making dollars pile up domestically. Worse still, the programme is said to encourage "hot money" inflows from those keen on comparatively high PRC interest rates or (inevitable?) yuan appreciation.

Let's begin with importers, not exporters, cottoning up to this programme:
It also has boosted, rather than reduced, the amount of foreign-exchange reserves piling up in China's coffers—the opposite of what Beijing intended when it opened the yuan for foreign trade...

On Tuesday, the People's Bank of China said foreign-exchange reserves jumped by $153 billion in the second quarter to $3.2 trillion. Of that increase, $48 billion, or about a third, was attributable to China's decision to allow the yuan to be used in foreign-trade transactions, estimates Zhu Chaoping, head of research at ChinaScope Financial, a market-research firm in Hong Kong. In the prior two quarters, the trade program added a total of $83.5 billion to China's reserves, Mr. Zhu calculates.

Nearly 90% of cross-border trade settled in yuan in the first quarter—totaling 360.3 billion yuan, or 7% of China's total trade—involved China's imports, according to data provided by the People's Bank of China...

The fact that importers are using yuan means that dollars build up at a more rapid clip in the Peoples Bank of China's vaults because importers don't need to tap them. "Everyone thinks there is a one-way bet on which way the currency will move," so only those that get paid in yuan are interested in the business, says University of California at Berkeley economist Barry Eichengreen. "When you internationalize, you can't control all the uses to which money is put."
Thinking of how devaluation is built into US dollars, after all, why should foreign buyers be keen on paying off their Chinese counterparts in yuan which faces the opposite dynamic? Pardon the pun, but yuan to keep RMB and lose the Benjamins:
But the story gets worse since firms able to participate in this programme may have their sights set on arbitrage opportunities rather than helping internationalize the yuan as intended by obtaining the currency at more favourable exchange rates and holding on to it for longer to take advantage of the aforementioned higher interest rates on the mainland:

Some companies also have used the trade-settlement program to profit from the difference between higher yuan interest rates in mainland China and lower U.S. dollar rates in Hong Kong, according to bankers and analysts. Such transactions could be used by speculators betting on the yuan's rise and have the potential effect of adding to China's dollar reserves.

For now, China's central bank is struggling to keep up with companies looking to use the internationalization program as a channel for so-called hot money, which can contribute to dangerous bubbles in China's real-estate market and stock exchanges, as investors look to park their money in sectors seen as paying a high return. The State Administration of Foreign Exchange, the central bank's currency watchdog, has put in place a "special campaign" to crack down on speculative money flows.

Delaying payments for imports is a long-used tactic by Chinese companies to benefit from yuan appreciation. Experts on China's foreign-exchange regulations say the availability of yuan settlement has the potential to make this form of arbitrage even more profitable, because companies now have access to even more favorable yuan exchange rates overseas. The yuan is valued slightly more against the U.S. dollar in Hong Kong than it is on the mainland.
Right...back to the drawing board, then. The mechanics of the current programme may have undesirable consequences that require fine-tuning. Still it's a noble objective--weaning off the world from a currency that, alike its principal unprincipled issuer, has no compunction about letting it slide to heaven knows where. All the while while yakking about "strong dollar" policy on a journey to the American poorhouse.

Study a BA in Football Business [!] at Burnley FC [!!]

♠ Posted by Emmanuel in , at 7/17/2011 06:09:00 PM
The best way to make a small fortune in football (soccer) is to start with a big one

I must confess having taken my share of fluff courses at the graduate and undergraduate levels. You've probably come across those: academically lightweight elective subjects typically offered during the summer term when hard work isn't on the top of the agenda for either students or instructors. Aside from the lighter work, they had the added attraction of being offered by lecturers who gave generally higher marks to bolster one's grade point average. From an instrumental sense, I am thus somewhat befuddled by the appearance of what appears to be a bevy of fluff degrees. Whereas taking a few lightweight courses doesn't really hurt one's employment prospects provided that you obtain a real degree, how about one whose entire legitimacy is in question?

I recently got wind of a fairly obscure university here in England linking up with an equally minor football club to offer--get this--concentrations in BA (Hons) Football Business and Finance, Marketing or Media. Hence, the new University & College of Football Business at Buckinghamshire New University. For readers outside the UK, Bucks News University (for short) is one of the so-called new universities that were formerly polytechnics, or what would have been the equivalent of community colleges in the US. To counter the relative obscurity of the parent academic institution, you would hope for it to partner up with a football club that's relatively well known, right? Well actually, they've linked up with Burnley FC, another not-so-recognizable name. There is a good reason why it's not well known since it plays in the second division (Championship) after being relegated at the end of the 2009-2010 season to little notice.

Here's the press blurb from Burnley. One of its supposed selling points is support from the British football leagues:
The University & College of Football Business (UCFB) is the first ever institute of higher education dedicated to the delivery of undergraduate degree courses in the operational and business facets of football and its surrounding industries. The campus, located at Turf Moor, occupies the Jimmy McIlroy stand, which has undergone a comprehensive redevelopment and now boasts state-of-the-art facilities, lecture theatres and technologies. UCFB will accept its first intake in September 2011 and has capacity for 150 undergraduate students.

Courses have been created for aspiring professionals who wish to work within the football business and its surrounding industries, gaining skills transferable into other business sectors The Professional Footballers' Association (PFA), Premier League, Football League and Scottish Premier League are among the football industry's active supporters of the new institute, whose ambassadors include Alastair Campbell, Brian Barwick and Gordon Taylor OBE.

Degree courses, short courses, an executive speaker series, workshops and executive education will all be on offer. In partnership with key stakeholders in the football industry, UCFB's three-year degree courses will focus on traditional academic subjects within the context of the football business.
I am not sure if the novelty factor of the degree makes up for its next to no-name parent institutions, unless you count Blair's spin doctor Alistair Campbell (diehard Burnley fan) trumpeting its virtues. Moreover, I don't see the point in gaining degrees in finance, marketing or media specifically tailored to football when regular ones will allow graduates to work in so many other industries where these skills are required. Ah well, but that's just me.

At any rate, let me be perfectly honest here: the idea of training students in football management seems a daft idea that's every bit as daft as the characters that populate the sport, from spendthrift owners, vainglorious managers to unfocused players. Having these selfsame characters who've not managed to keep top-performing clubs more or less financially viable teach about football is certainly a dubious proposition. That said, in the spirit of a sucker being born every minute, I'd be glad to teach some courses if they're up to it since I do know a little something about finance, marketing and media. Given my fondness for electives, I have some possible offerings especially designed for the modern sport...

Wayward Player Public Relations Management (1 unit) This course uses a case study method to investigate how press handlers should manage players' recurring errant behaviour. These include
Star player shoots club staff with a BB gun;
Star player cannot get his fill of rent-a-birds;
Star player tries to outdo Tiger Woods in having extramarital affairs

Balancing the Books Without Getting Relegated From Top Division (1 unit) This course instils common sense singularly lacking from many football participants
Don't spend £50M in transfer fees on off-form players;
Don't waste over a billion dollars fruitlessly pursuing elusive Champions League victory;
Prattle about competitors wishing to dupe fair competition authorities

International Football and Corporate Social Responsibility (1 unit) This course navigates the minefield of a colourful cast of characters worldwide in an increasingly globalized era
How not to sell English teams to Chinese owners who may soon be in jail;
How to remove Yankee stinkers like AIG as your title sponsor as soon as possible;
How to market Middle Eastern owners to Little Englanders

If there are suck--I mean, valued students for these courses, well, I will soon release my D-I-Y volume on football management, All I Really Need to Know About Football I Learned Being Kicked Out of Skool. Or something like that ;-)

Indonesia and the Ultimate Tobacco Ban Protest

♠ Posted by Emmanuel in ,, at 7/15/2011 12:02:00 AM
Just look at the size of that sucker. Philip Morris, eat your heart out! I am genuinely of two minds over cigarette smoking bans being imposed throughout the world. The Emmanuel that wants to live a reasonably healthy lifestyle abhors the practice and the many diseases it gives rise to. But, the relatively live and let live me grants that persons have a genuine right to severely impair their health under certain conditions. Truth be told, I have no problems with requiring tobacco firms to place graphic warnings on the dangers of their products--see the recent US FDA graphics (and I do mean graphic). If adults still persist in smoking after seeing these warnings, well, that's their prerogative.

However, both tendencies clash when it comes to smoking in public places. Aside from the offputting aroma, we also have to deal with the reality of second-hand smoke which has been found to be exceedingly unhealthy as well. For example: how far should we go in dissuading smoking from, say, hangouts where people traditionally indulge in vices to (literally) let off some steam? Here in the UK, there is an ongoing debate as to whether thousands of pubs have found their business diminished since smoking bans were instituted at these places. There's even an online petition movement clamouring for a change.

These debates on smoking are now moving to the developing world as tobacco giants join local firms in trying to expand their business there. Call it regulatory arbitrage as laws become more onerous for selling tobacco in the industrialized world--for now. In Indonesia, tobacco farmers want to sabotage legislation that would (1) limit tobacco advertising, (2) place graphic warnings on tobacco products, and (3) ban smoking in public places. Sounds familiar, eh? However, I was particularly taken by the antics of tobacco farmers protesting the bill such as with the "megarette" above. My blogging affiliates at Global Post have more fun if ludicrously unhealthy images. What follows though is a summary of the legislation which has incited the most colourful libertarian--ish protests IMHO from Berita Jakarta:
Thousands of tobacco farmers from various regions who incorporated in Kretek Rescue National Coalition (KNPK)[kretek is the Indonesian term for flavoured cigarettes] demonstrated by surrounding the State Palace on Jl. Medan Merdeka Utara, Central Jakarta. In this action, they demanded the Act Draft (RUU) about Control of Tobacco Products Impact for Health and the Regulation Implementation Draft (RPP) of Security on Materials Containing Addictive Substance in form of Tobacco Products to be canceled.

Abhisam Demosa as Head of National Kretek said the rules were feared threatened the life of tobacco farmers and workers in Indonesia. “It could also threaten the hawkers and cigarettes seller agents,” he expressed, Wednesday. Besides carried coffins [ironic, this], demonstrators also brought a property of big cigarette which burned and smoked alternately. Because of this demonstration, traffic flows in front of the State Palace severely congested. In fact, Jl. Veteran III was closed temporarily.

Hundreds of security officers stand by at the scene equipped with two units of water canon car and one unit of barracuda. To block demonstrators, officers installed barbed wires along 100 meters from the State Palace. This demonstration did not only cause congestion in front of the State Palace, but also on Jl. Veterean, Jl. Merdeka Barat towards HI Roundabout and vice versa, as well as around Harmoni area.
Smoke 'em if you got 'em? These habits are dying hard throughout the world.

40 Years Ago: Ping-Pong Diplomacy & China's Rise

♠ Posted by Emmanuel in ,,, at 7/14/2011 12:01:00 AM
Regard a ping-pong ball as the head of your capitalist enemy. Hit it with your socialist bat and you have won the point for the fatherland - Mao Zedong

Here's a timely scenario for you given the fortieth anniversary of ping-pong diplomacy between the US and China: What if the Cold War never ended, the Iron Curtain never fell, and the US failed to exploit the growing ideological divide between China and Russia? In general, international relations scholars treat counterfactual ("what might have been") research the same way Vogue magazine treats those with normal body weight: with complete and utter contempt. Still, prominent American IR scholar and rat-choice critic Ned Lebow encourages such research when conducted in an intellectually rigorous manner. See his recent work which I have on my virtual bookshelf, Forbidden Fruit: Counterfactuals and International Relations (the PUP site has excerpts of chapter 1).

An obvious point you can raise is that the Iron Curtain was inherently flawed and bound to collapse anyway regardless of developments in China. However, you can also argue that the budding economic renaissance of China in the mid- to late-nineties opened the eyes of many socialist regimes to the possibilities of co-opting some capitalistic activity. At any rate, I merely sketch out here the important international political economy implications of the counterfactual absence of a US-China detente circa 1971. That is, would Chinese development have progressed so far so fast had conditions not been laid out for Western firms experimenting with transferring their manufacturing operations to mainland China when Mao "Death to Capitalist Roaders" Zedong met his end (real Communists don't believe in makers)?

It's certainly a question manufacturing-obsessed and -romanticizing leftists would avidly ponder. Had China not become an FDI destination because MNCs shunned it during the time period in question due to still-lukewarm US-China relations, would it have developed quickly or meaningfully at all? As my erstwhile LSE IDEAS colleague Niall Ferguson likes to point out, Henry Kissinger has literally thousands of critics who froth at the mouth upon hearing his name. LSE IDEAS being a centre for researching strategy, however, give credit where credit is due.

Ping-pong diplomacy was an artful way of publicizing to the world the idea that the (then) arch-capitalist and the not-so-arch-communist had more than a few strategic interests in common. Inarguably, it served both countries' purposes. As early as 1967, Nixon already envisioned "Asia After Vietnam" in the pages of Foreign Affairs by allowing PRC involvement in world affairs. However, it took an accidental bus ride by a hippie US table tennis team member with his PRC counterparts to set things in motion. From there it is not at all a long stretch to trace the rise of modern China. Nixon's Secretary of State Kissinger prepared for such a fortuitous opening and never looked back.

While we can certainly quarrel with the eventual results--did the US dig its own grave by encouraging China's emergence, for instance--modern-day American international relations lacks similar grand strategy. Witness Hillary Clinton's laughingstock "Internet freedom" of an idea and compare it to a time when, to paraphrase Sidney Sheldon, real masters of the game still existed in the United States. In the 21st century world economy, they in all likelihood reside in the PRC with its long-term vision of how to shape the world to their advantage.

In any event, I much recommend a recent LA Times article that touches on the political significance of sport as well as how ping-pong diplomacy set the stage for US recognition of the PRC as China instead of American crony Generalissimo Chiang Kai-Shek's Taiwan:
"It's hard for us to really understand just how little direct contact Americans and Chinese had with each other," said Clayton Dube, associate director of USC's U.S.-China Institute. "It was a place that was much talked about, and it was a place where the imagination ran wild."

In the years leading up to 1971, however, leadership from both countries was sending signals that they might wish to normalize relations. Secret meetings were held in Warsaw in the 1950s, and before his presidency, Nixon had written that "China needs to be brought into the world community."
US and China table tennis teams interacting eventually led up to diplomatically significant gestures such as the former lifting trade restrictions on China:
What happens next is unclear. But officials from both teams expressed interest in a visit, and an invitation and acceptance came quickly. On April 10, nine [American] players plus officials, spouses and journalists crossed a bridge from Hong Kong to China. The group spent a week playing table tennis and sightseeing.

The visit paved the way for Henry Kissinger to conduct a secret visit to China in July, which set up Nixon's historic visit in February 1972. The U.S. then formally recognized that there was only one China and thereby set the Taiwan question aside to normalize relations.

Nixon called it "the week that changed the world," but Wei Wang remembers the words of Chairman Mao. She was a child in the early 1970s and says she doesn't recall much about the events. But the former U.S. Olympian and current Westside Table Tennis Center instructor does remember one thing clearly. "The prime minister [sic] said, 'The little ball moved the big ball' — a pingpong ball moved the earth,' " she said. "That was the metaphor. China opened up from that — from table tennis."
The Nixon Foundation also has a comprehensive and entertaining primer on this momentous occasion if you have some time to spare. Table tennis is renowned as the world's fastest sport, and international relations is probably not far behind in terms of pace. It seems to me and probably most of the rest of the world except for America#1-style flunkies, Palin acolytes, and other gullible Yankee toadies that the US has long since lost the ability to serve up something that befuddles, let alone outpaces, China. Those who succeeded Kissinger who were largely bereft of grand strategy did not fully realize what the consequences of integrating China into the world economy were for the US.

The great game has moved on and left slow-moving and slow-witted America behind.

Of Currency Wars and Capital Controls

♠ Posted by Emmanuel in , at 7/13/2011 12:01:00 AM
As a student of South-South cooperation--no matter how its ambitious goals are often negligible or even contradictory in practice--international bodies promoting such cooperation are of interest to me. One of these happens to be the South Centre, which sends me newsletters every so often either because I subscribed sometime ago or they discovered my research interests in third world issues. It describes itself as an "intergovernmental policy think tank of developing countries" and its HQ is in, er, Geneva. I'd like to think of the location as a manifestation of many important international organizations being based there such as various UN bodies and the WTO. My home country being one of the many LDCs funding this think tank (including China and the DPRK), I have naturally made use of its output once in a while, though it's not always that I agree with its stances.

However, Yilmaz Akyuz recently had a contribution that caught my eye on the quasi-eternal topic of international capital flows. There are, of course, two versions of this story. The first is the one we often hear from the likes of Martin Wolf and other apologists for subprime globalization that goes like something like this:
  • LDCs should welcome capital flows since they are more attractive investment destinations with more future growth opportunities than developed ones;
  • However, LDCs keen on maintaining export competitiveness are wary of local currency appreciation that such inflows bring;
  • Hence, capital controls imposed by developing countries to limit inflows unnaturally distort the global economy and promote economic imbalances
On the other hand, you have the Guido Mantega [1, 2] "international currency war" version:
  • Excessively loose fiscal and monetary policies in developed countries have caused hardships for developing ones by in effect exporting inflation as manifested by heightened prices for food, energy and commodities in the Global South;
  • Meanwhile, exchange rate policies of benign neglect encourage beggar-thy-neighbour competitive devaluations against LDCs;
  • By using capital controls, therefore, LDCs are merely trying to protect themselves from destabilizing policies emanating from developed countries
This coming from the South Centre, you should not be surprised that the second version is what's being promoted here. The major thesis is that large capital inflows tend to precede economic crises felt in the developing world such as the Latin American debt crisis and the Asian contagion. We are said to be on the verge of another lest LDC policymakers introduce capital controls:
Like these past episodes, the current surge in capital inflows is creating fragility in DCs. Deficit countries including Brazil, India, South Africa and Turkey are experiencing currency appreciations faster than surplus economies and relying on capital flows to meet growing external shortfalls. Many of those that have been successful in maintaining strong payments positions are facing credit and asset bubbles. Both categories are now exposed to the risk of instability to a greater extent than during the subprime debacle, though in different ways.

It is almost impossible to predict the timing of capital reversals or their trigger, even when the conditions driving the boom are clearly unsustainable. Still, it is safe to assume that the historically low interest rates in AEs cannot be maintained indefinitely and the current boom can be expected to end as interest rates start to edge up.
And what worse baddie is there other than the USA?
The US is now under deflation-like conditions and the Fed is aiming at creating inflation in goods and asset markets. But its policies are adding more to the commodity boom and credit expansion and asset price rises in DCs.

If commodity prices are kept up by strong growth in China, the continued policy of easy money in the US, along with speculation and political unrest in Arab countries, the Fed may end up facing inflation, but not the kind it wants. In such a case, capital and commodity booms may end in much the same way as the first post-war boom ended in the early 1980s — that is, by a rapid monetary tightening in the US even before the economy fully recovers from the subprime crisis.

The boom may also be ended by a sharp slowdown in China. As a result of a massive stimulus programme financed by cheap credits, large capital inflows and rising commodity prices, the Chinese economy is overheating. Monetary breaks now applied to control inflation could reduce growth considerably, particularly if it pricks the property bubble. The consequent fall in commodity prices could be aggravated by the exit of large sums from commodity futures, creating payments difficulties in commodity-rich economies and leading to extreme risk aversion and flight to safety.

Regardless of how the current surge in capital flows may end, it is likely to coincide with a reversal of commodity prices. The most vulnerable countries are those which have been enjoying the dual benefits of global liquidity expansion. Most of these are in Latin America and Africa and some are running growing deficits despite the commodity bonanza.

When policies falter in managing capital flows, there is no limit to the damage that international finance can inflict on an economy. Multilateral arrangements lack effective mechanisms that restrict beggar-my-neighbour policies by reserve issuers or enforce control on outflows at the source.

The task falls on recipient countries. But many developing countries still adopt a hands-off approach to capital inflows while others have been making half-hearted attempts to control them through taxes that are too low to match large arbitrage profits promised by interest rate differentials and currency appreciations. In either case taking capital controls much more seriously is now the order of the day.
It begs the question of who beggars which neighbours. It kind of beggars belief that we are still in roughly the same place as were when the G20 processes started in being rather more interested in apportioning blame than in devising mutually acceptable solutions. While I am obviously more attuned to the second version of events, I believe that such solutions do exist, but more on those later. Meanwhile, I remain relaxed about imposing such controls.

Become Filthy Steenkin' Rich...in the Falklands

♠ Posted by Emmanuel in , at 7/12/2011 12:01:00 AM
To say British tabloids have output of variable quality is an understatement--witness Rupert Murdoch's fine mess--but the Daily Mail recently ran an interesting feature on the British Falklands. Ever since the 1982 Falklands War between the UK and Argentina put this remaining piece of Empire in the world's consciousness, I've kept tabs on developments there.

Aside from its jingoistic/quasi-strategic value, the Falklands are not quite as barren as certain pop entertainers make it out to be. Indeed, as the article notes, the Falklands are doing quite well, thank you--arguably better than Britain itself. While oil finds may see the Baa-rain [get it?] name become apropos, granting fishing rights has proven to be a money spinner for the Falklands for years and years. Hence--pardon their other pun, not mine--the squidionaires. With farming becoming pretty lucrative in recent years on top of everything, well, it's not such a bad way of living down South:
The once-barren rock, defended at the cost of 255 lives during the 1982 war, is undergoing an economic revolution. In the past, the name ‘Falklands’ summed up images of a windswept archipelago covered in thousands of sheep and penguins, and populated by a rugged rural people rather cruelly dubbed ‘Bennys’ by British soldiers after the simple soul in Crossroads.

But in the nearly 30 years since the war, the place has undergone an astonishing transformation. The population now enjoys a higher average income than the UK, the education and health system is second to none and a booming fishing trade has created at least seven ‘squidionaires’.

In recent days the Falklands, 8,000 miles from London but just 300 from Argentina, have again been in the headlines. Argentine President Cristina Kirchner accused Britain of being ‘a crude colonial power in decline’ as she called for ‘Las Islas Malvinas’ to be returned to Argentine rule. But her sabre-waving is more than just nationalistic pride. For today’s Falkland Islands are a prize indeed.

The prospect of potentially 60 billion barrels of oil less than 150 miles offshore has led to an influx of hundreds of oil workers who have dubbed the remote sheep-filled islands ‘Baa-rain’ after the oil-rich Arab state.
The turning point, as one would suspect, is the post-Falklands War era. "How do you make it safe from the Argentines?" was probably a goal for British leaders seeking to consolidate their dominion over these islands. As you'd suspect, making the place not only economically sustainable to populate but even bountiful in certain respects does help:
The islands’ economy was transformed after the war. Before 1982, the annual GDP was just £3.9 million. The economy was based on the production of wool – there are 250 sheep for every resident – but plummeting prices in the Eighties caused mass emigration. Farms were owned by absentee landlords. There was no international airport, few proper roads and nightlife was non-existent.

After the war, the British Government backed a 200-mile exclusive fishing zone around the Falklands (which locals had been demanding for years) that enabled the islanders to start selling lucrative squid and fishing rights to Japan, Spain, Russia and Korea.

Today, the islands have an annual GDP of £90 million. There is no national debt and the Falklands government has £103 million in savings which generate a further £5.1 million in interest each year. Booming fishing and tourism industries earn £42 million and £7.6 million a year respectively and high wool and meat prices means agriculture brings in a further £6.4 million a year.
You have to give credit where credit is due. They even have a tourist authority that brings the punters in. One of the top draws, evidently, are wartime tours. Generally, the Falklands present an interesting cultural counterpoint to the rest of South America for travellers in that part of the world. As the Brits would say, it's bloody impressive for a bunch of islands with less than 5000 persons for a population.