Posts of August 2012

Non-Alignment Reborn? Morsi, UN's Ban, etc in Iran

♠ Posted by Emmanuel in Development,Middle East at 8/31/2012 03:20:00 PM

The Non-Aligned Movement (NAM) came into existence at a time when developing countries could, yes, align themselves with either the United States and its allies or the Soviet Union and its allies. Even the United States--which dissuaded many countries from attending the 1955 Bandung Conference in Indonesia launching the NAM--has since acknowledged it as a "milestone" for developing countries. Ever-so-suspicious of others' motives, American leaders of the time thought it was some sort of communist shindig, headlined as it was by the attendance of probably the most skilled Asian diplomat of his generation, Chou En-Lai.

The developing countries' stated principles about political self-determination, mutual respect for sovereignty, non-aggression, non-interference in internal affairs, and equality were notable, especially in a world fraught with Cold War tensions. While it is true that developing countries have made countless political-economic mistakes since 1955, some have done spectacularly well, too. At any rate, that they deemed it important to find out on their own what sort of governance would permeate their societies certainly remains an attraction.

To certain white American commentators, the end of the Cold War "ended" the rationale for non-alignment since LDCs no longer had to choose between communism and market democracy. To paraphrase Thomas Friedman, the erasure of the Iron Curtain meant there was no longer an alternative to the "golden straitjacket" of market democracy, and he chides others for their...current deviations.

But, something which surprises most casual observers is that the NAM still lives on in the post-Cold War era. It's not about LDCs being caught in the middle of two would-be oppressors, but still very much the desirable objectives of political self-determination, mutual respect for sovereignty, non-aggression, non-interference in internal affairs, and equality. While one blowhard may have met its end several years ago, another still remains that usually exaggerates the good it's done the rest of the world.

While the Western media largely ignored the recent handover of NAM leadership from Egypt to Iran in Tehran--look around and see how much attention was devoted to the Republican National Convention--the NAM handover matters. Veteran Asia watchers should be familiar with Philip Bowring, former editor of the late, lamented Far Eastern Economic Review (FEER). While he does acknowledge that NAM has itself become marginalized as of late, there is an opportunity to revive the movement and the causes it champions insofar as its aspirations remain those of countries as diverse in NAM membership as Singapore and, say, Fiji:

The Non-Aligned Movement is a shadow of its former self. In a multi-polar world of many criss-crossing alignments it may have no place at all, leaving the 115 member organization, founded in the wake of the 1955 Bandung Conference of independent Asian and African states, as a meaningless relic of the Cold War.

However, the fact that Iran is hosting the Movement’s 16th summit, which began yesterday, is an acute embarrassment to the US and other western countries who have been demonizing Iran...[t]he US even attempted to lean on UN Secretary General Ban Ki-moon not to attend...

Ban is doubtless aware of the hypocrisy of sanctions against a country which is itself surrounded either by nuclear states, or by countries recently invaded by the US. NAM delegates, includ[e] India’s Prime Minister Manmohan Singh and Indonesia’s President Susilo Bambang Yudhoyono...

That India and Indonesia's leaders--generally held up as Western-friendly, democratically progressive sorts--went to Tehran anyway does indicate their respective countries still see value in the aims of non-alignment. Despite the sideshow of Secretary-General Ban's appearance and an Egyptian head of state visiting Iran for the first time in small eternities, Bowring sees the potential of reviving NAM by returning to its founding principles:

Members such as India and Indonesia would like to use the non-aligned movement as a vehicle for pushing their own aspirations to regional and international influence. But it is unclear how this can be achieved given the diversity of nations involved and their varying degrees of ties with the US, China and Russia.

However, for all its lack of identity and common goals the NAM remains a symbol of lingering Afro-Asian (and Cuban) resentment over western colonialism and imperialism and continued western and particularly US assumptions that they can continue to dictate to a wider world whether on politics, social mores or economics. They need only look to the Afghan and Iraq wars and the continued occupation of Palestinian territory for reminders.

Westerners are certainly not infallible and tend to revert to their preachy habits sooner or later. For that reason, it is still a good idea for the developing world to have a gathering where they can point this out and chart their own destinies in the process. Contrary to Friedman, the NAM is not another despot's club, but one that reflects the diverse choices LDCs have made over the years. For better or worse, the choices they've made remain theirs.

Developing an 'Autocracy Index' (World Policy Inst)

♠ Posted by Emmanuel in Socialism at 8/31/2012 06:02:00 AM

You are doubtlessly familiar with the "world's worst dictators" feature from Parade. Apparently, this concept of comparing authoritarian rule remains popular as our colleagues over at the World Policy Institute have come up with their own compilation.

In their composite measure, they take a look at years in power, percentage of GDP dedicated to military spending, prison population per 100000 people, press freedom and a subjective "expert score" to rank these rather nefarious characters. While I see the logic in using national-level indicators for the most part, they have their limits. This consideration is especially true for those countries which have relatively newer leaders.

A case in point is Kim Jong-un. The WPI folks do a shortcut by adding +3 years for tenure for those who inherited their leadership from a family member. While little may change in North Korea, there is certainly the possibility of reform on the margins--or even more extensive changes. For instance, see Parade's 2011 rating in which Myanmar's Thein Sein ranked fifth largely on the strength (weakness?) of his predecessors' actions. It took some time to get going perhaps, but he was intent on reform. We'll see: let's not give up on Kim Jong-un just yet. Sins of the father and all that...

Hillary, More White Man's Burdenish Than Kissinger

♠ Posted by Emmanuel at 8/29/2012 02:39:00 PM

Say what you will about Henry Kissinger and the practice of realpolitik, but it is interesting to note the degeneration in US foreign policy attitudes over four decades. From Kissinger-era live and let live, Missus Clinton has largely returned to the "America knows best" attitude familiar to American exceptionalists. What is of course interesting is that the present secretary of state is even more assured in her smug self-superiority at a time when the US is in clear and obvious political-economic decline. At any rate, here's what Kissinger told South Korean leaders during the Park Chung-Hee era when certain American lawmakers were raising a big stink about human rights in that country. From the account of Kim Chung-Yum

[Kissinger] also added that a country had to adopt a political system that served its environment, as the history, culture, and politics of every country was different...Secretary Kissinger remarked in a press conference that: "We cannot change all the governments and political systems in the world based on our American values." [p. 535-6]

Speaking of Asia and cultural imperialism, contrast those statements with those delivered by Missus Clinton prior to the APEC summit late last year. Essentially, its the familiar theme of "you coloured peoples of Asia would be better off following us enlightened white people in the US and Europe." Yes, precisely--the White Man's Burden of civilizing the unwashed masses in Asia (and elsewhere):

We have a model for what we and our partners in the region are working to achieve. It is what the United States and our partners in Europe achieved together in the past 50 years. The 20^th century saw the creation of a comprehensive transatlantic network of institutions and relationships. Its goals were to strengthen democracy, increase prosperity, and defend our collective security. And it has paid remarkable dividends, in Europe itself, in our thriving two-way trade and our investment, and in places like Libya and Afghanistan. It has also proven to be absolutely critical in dealing with countries like Iran. The transatlantic system is and always will be a central pillar of America’s engagement with the world.

OK, so let me get this straight: First, Afghanistan is a great place. And second, she mentions that the transatlantic system (composed mainly of white nations with colonial imperialist histories) will remain a central pillar of American engagement in the context of supposedly currying favour with Asian nations. Aside from having a tin ear for politics--the ugly American in excelsis--Hillary speaks loudly and carries a teeny-weeny stick, while Henry believed more in having it the other way around.

With Park Chung Hee's daughter being the front-runner to be South Korea's next leader, I guess that nation which is far more progressive than the US at the current time isn't exactly down with Hillary's whitebread "freedom 'n' growth" schtick. As ever, the best way to get the white people to quit telling the rest of the world how great they are is to do them one better--which is not exactly difficult nowadays given the wretched state of their downwardly mobile nation.

Pragmatist Islamists? Those IMF-Loving* Egyptians

♠ Posted by Emmanuel in IMF,Middle East at 8/28/2012 03:36:00 PM

In case you haven't been following the news, IMF Managing Director Christine Lagarde recently visited Egypt, where she was promptly serenaded by a plea from their Muslim Brotherhood-linked President Mohamed "Islam is the Solution" Morsi to increase the prospective bailout amount to $4.8 billion from $3.2 billion. Undoubtedly, Egypt is in dire economic straits with borrowing costs north of 16% for long-term bond issuances and a massive budget shortfall--which even enhanced IMF beggary will fail to plug by most accounts.

That said, there may be an ever-so-slightly improved prospect for a loan coming through (or some hope). Although the previous Freedom and Justice Party (FJP)-dominated legislature made quite frankly unrealistic pleas for conditionality-free loans, its subsequent dismissal and the election of Morsi has supposedly changed matters. Insofar as the caretaker military government of Kamal Ganzouri was treated with understandable contempt by the FJP legislature, his succession by Morsi has, according to some, changed the overall FJP tune on IMF loans. In other words, the twin evils of a military leader and the IMF were probably too much for the Muslim Brotherhood to stomach, but an FJP leader plus the reviled IMF may be something Egypt can digest--at least for a while.

Ahram Online has a fascinating article on the alleged volte-face of the Islamist party on IMF lending in the grandiosely entitled "From hell to heaven: Egypt Islamists change tack on IMF loan" [!--even I cannot make this stuff up]:

On Monday, the former head of the budget and planning committee in the now-dissolved parliament Saad El-Husseini said he completely supports the IMF loan, even if it entails what is considered usury. El-Husseini added that in Sharia law "necessities allow the forbidden," according to a report on Ahram's Arabic-language news-site.

In addition, Adel-Hafez El-Sawi, the FJP's Economic Commission Chairman told Ahram Online on Monday that "we never rejected the idea of borrowing." El-Sawi explained that what the party previously opposed were the economic reforms suggested by Ganzouri's government to attain IMF funding. The plans were not transparent and ignored key issues regarding public debt, wage structures, taxes and governmental spending, he said.

The FJP also issued a statement on Sunday night saying it did not take a "negative" stance towards an International Monetary Fund (IMF) loan to Egypt. "Our decision not to reject borrowing is based on Egypt's supreme economic interest," the statement read.

More interestingly, Morsi is implied to have bought off the Nour Party for whom an Islamic identity is even stronger than the FJP by virtue of giving its leader a place on his advisory team:

For its part, the [even more Islamist] Nour Party said on Sunday that it had never objected to overseas loans and denied that it had ever claimed an IMF loan was tantamount to usury. Emad Abdel-Ghafour, head of the party and a recently-appointed member of Morsi's presidential team, told Ahram Online that the party will not approve any loan until it knows the conditions. “Economists told us that this loan and its interest rates need not be regarded as usury," he said. Abdel-Ghafour said that any previous statement from a Nour Party member rejecting such loans was not representative of party opinion and was purely a personal view.

Under sharia law, of course, charging interest is regarded as usury and is thus prohibited. While Islamic borrowers (especially from the IMF) rationalize borrowing somewhere along the lines of "we had no choice" or the excuse of "the IMF lends at concessional rates and therefore it's not usurious," I am actually in agreement with the Nour Party head in believing that forthcoming conditionalities applied by the IMF on Egypt will make or break this deal as they likely would have before.

The prospect of IMF conditionalities may now be more palatable to Islamists because they believe that popular discontent over the implementation of reform measures alike reducing massive energy subsidies is outweighed by the prospect of being thrown out of power by failing to deliver on the economic front. Prospects going forward depend on the ability of the Islamists to tamp down the IMF conditionalities and keep popular discontent at a manageable level, while at the same time managing to normalize the dire economic situation in Egypt. It's a tall order for the Islamists in a high-stakes bid to keep their grip on power, but an advantage Egypt has over many other countries is the geopolitical importance of Egypt. Would the IMF have been so eager and willing to dispatch Lagarde to, say, Yemen?

Remember, though, that Egypt is an IMF repeat customer--hardly something to be proud of. It has gone to the poorhouse four times since the Eighties. Doing so did not solve Egypt's problems conclusively then as evidenced by repeatedly having to visit the Washington-based emergency funder, and most hardly expect it to do so now when Egypt's shortfall is far more than $4.8 billion. Needless to say, it is generally unpopular there, too.

Good luck, Egypt. You're going to need lots of it.

25 Years Later, World Bank Returns to Myanmar

♠ Posted by Emmanuel in Southeast Asia,World Bank at 8/26/2012 03:36:00 PM

For developing countries, the process of normalizing relations with the rest of the world involves again availing of certain things: Coca-Cola. Pepsi. Aside from re-engaging in trade in (rather unhealthy and fattening) consumer goods, however, you also have development technocrats flogging their services in your country. I am of course talking about World Bank folks coming to your country plying development advice and rather more sought-after loans. From the Inter-Press Service:

At the beginning of August, the World Bank, along with the Asian Development Bank, reopened offices in Yangon , following more than a year of widely watched though still disputed political and social reforms in the country. This marks the first formal engagement between the World Bank and Myanmar, also known as Burma, in 25 years, as well as the first ever entry of the International Finance Corporation (IFC), the World Bank Group's private-sector arm.

Already the bank has pledged an US$85 million loan, also expected for approval in October, alongside a plan to restructure Myanmar's debt [to the World bank, worth some $400 million.

That said, activists are wary of their lack of inclusion and the emphasis on dealing so far mostly with the regime. Given the fractious and contentious nature of Burmese politics on one hand and the supposedly more inclusive and participatory nature of World Bank lending nowadays, these are not minor issues:

To date, local organizations and communities have felt the World Bank's approach is non-inclusive, sparse on details, lacks transparency and, most worrisome, does not solicit input from the organizations and communities most affected by conflict and development to inform their decision-making process, Jennifer Quigley, with the Washington-based US Campaign for Burma, told IPS.

Just prior to the ISN release, four dozen Myanmarese NGOs sent a letter to the World Bank's headquarters, expressing their anxiety that "the Bank's re-engagement activities in our country ... have been rushed, secretive and top-down."

So there's reason to be wary. At any rate, the draft Interim Strategy Note (ISN) mentioned in the article which should be replaced with something more permanent by year end is viewable on the World Bank site. At any rate, after a quarter of a century, the World Bank is back in Burma.

Cold War Still Rages...In US Trade Policy on Russia

♠ Posted by Emmanuel in Russia,Trade at 8/24/2012 02:57:00 PM

Remember the time before China joined the WTO when it was annually subjected to congressional dog-and-pony shows concerning whether a country that did not respect human rights deserved most-favoured nation (MFN) trade status with the US? Just as Americans from various walks of life still have a hankering for the good ol' days when Reagan was in office, so do there remain representatives who cannot let go of the Iron Curtain glory days.

While Russia already acceded to the WTO late last year, the United States still requires its lawmakers to sign off annually on Russia not disallowing emigration of its Jewish citizens--the obscure and quite frankly antiquated reason why Jackson-Vanik was established to stick it to the Soviets in 1974. In American trade lingo, Russia still does not have permanent normal trade relation status (PNTR)--what we know as MFN--alike China, and so most-favoured nation status must be re-approved annually ostensibly based on the appraisal of Russia's human rights practices. The main source of trouble for the United States now is that WTO members are in principle obligated to grant each other MFN status, which is clearly violated by Jackson-Vanik requiring annual re-approvals.

To be sure, the Obama administration has already told congress that Jackson-Vanik must be lifted so that the United States may meet its obligations to its fellow WTO member. That said, there again remain certain holdouts among American lawmakers (dreaming of Pershing missiles and Star Wars missile defence shields, no doubt).

Indeed, there even are legislative proposals to further play up links between human rights and trade with Russia than under Jackson-Vanik. In a Bloomberg editorial:

Some U.S. lawmakers want to combine the repeal of Jackson- Vanik with a punitive measure aimed at pressuring Russia for human-rights violations. The Sergei Magnitsky Rule of Law Accountability Act [text here], which was approved June 26 by the Senate Foreign Relations Committee, would name and sanction Russian officials thought to be responsible for the 2009 death in a Moscow prison of Sergei Magnitsky, a lawyer who disclosed evidence that government officials had embezzled $230 million. The scope of the act has been broadened from its initial focus on Russia and now requires the U.S. to seize the assets of and deny visas to any official deemed to be involved in any human- rights violations.

(There is more on the politicking behind efforts to pass the Magnitsky Rule, which Russia has said it would retaliate against if passed.) This being Bloomberg--a business news organization--the emphasis is less on continuing human rights violations and more on how not giving Russia its due in the trade realm as a WTO member makes it less likely to follow global regimes and disadvantages American firms wishing to do business there in the process:

The Magnitsky case is just one of many reasons for grave concern over the Russian government’s repeated repression of democratic freedoms and human-rights violations. Yet combining the two pieces of legislation would do more harm than good. WTO membership will further bind Russia and President Vladimir Putin to a global regime of rules and laws and also open opportunities for U.S. companies. Those are important goals in their own right. Failure to repeal Jackson-Vanik would just give Russia free rein to punish U.S. companies.

The latter point is similar to that made by the US Chamber of Commerce which has been lobbying for granting Russia MFN (PNTR). If Russia does not receive it from the US, then it has the right to suspend granting US firms PNTR--and disadvantages American firms in the process vis-a-vis those of other WTO member countries:

Under WTO rules, every WTO member must grant all other members unconditional Permanent Normal Trade Relations (also known as Most-Favored Nation status). This WTO rule mandates that any advantage granted to one WTO member by another member must be accorded unconditionally to all other members. The United States will be in clear violation of this rule if Congress fails to graduate Russia from Jackson-Vanik. Russia would thus be fully within its rights to withhold the benefits of its accession-related reforms from U.S. companies.

A newer Agence France-Presse article also cites the economic losses which may accrue if Jackson-Vanik is not dealt away with immediately:

The US Chamber of Commerce, the world's largest business organization, warned that Russia could retaliate if Congress fails to normalize trade relations. "Until Congress approves PNTR with Russia, Moscow will be free to deny the United States the full benefits of its reforms," Chamber president and chief executive Thomas Donohue said.

Under Russia's accession to the WTO, Moscow agreed to apply a final tariff ceiling of 7.8 percent for goods, compared with a 2011 average of 10 percent. "The United States gives up nothing -- not a single tariff -- in approving" normal trade relations, Donohue said. "It's a true jobs bill, and won't cost taxpayers one penny. Because of our inaction on PNTR, European and Asian companies have won a head start in the Russian market."

Russia, which became the 156th WTO member Wednesday after 18 years of negotiation, was the United States's 14th largest supplier of goods imports in 2011, led by oil imports.US goods exports to Russia have climbed steadily in recent years, and jumped almost 40 percent from 2010 to $8.3 billion last year.

How does the saying go? Give peace a chance. Last I checked, Russians could freely emigrate starting in 1991--a long time ago in a political economy far, far away from today's WTO member state--even if certain holdout Cold Warriors dream otherwise.

Myanmar, a Real Frontier Market for Visa Payments

♠ Posted by Emmanuel in Development,Southeast Asia at 8/21/2012 04:01:00 PM

I suppose it's not quite on par with operating a payments system in North Korea, but this is as close as it gets in Southeast Asia as the American multinational corporation Visa is set to enter Myanmar. With many Western firms looking enter to re-enter the till recently off-limits nation due to American and European economic sanctions, Burma is regarded as something of a frontier market. But, keep in mind that it's not as if the Burmese are unfamiliar with Western companies. Rather, the opportunity lies in the capitalizing on the previous familiarity they've had with MNCs until many were forced to leave to comply with sanctions. Hence the attraction.

That said, years of isolation have understandably had their toll on the state of Myanmar's financial system. There are few banks. After all, savings were scarce since investment opportunities were likewise scarce. Nor did many citizens regard banks as safe, preferring to hide money under the proverbial mattress. How about handling international payments and foreign exchange for the consumer market? Get outta here! With few foreign visitors, who needed those? However, it's only natural as tourists flock back to Burma's many attractions and as Western firms seek their fortunes there that financial service firms alike Visa accompany them. With sanctions in the process of being lifted, first-mover advantages may accrue:

"We know from experience that there will be an urgent requirement to provide basic ATM network and point-of-sale terminals for international visitors arriving in Myanmar for business and pleasure—and that is where we will focus first," said Peter Maher, Visa Group country manager for Southeast Asia and Australasia. "The sooner we deliver electronic payments, the sooner Myanmar will benefit from the increased spending."

While noting that credit-card payment machines and ATMs depend heavily on "technical infrastructure," he added that Visa expects visitors to be able to use their internationally issued cards "within a matter of months—not years."

Do not underestimate the challenges, either, as the likes of Visa will literally have to start from scratch. for instance, consider those exotic devices known as "automatic teller machines"...

Visa said it will partner with selected banks to establish training workshops aimed at upgrading banking facilities over the next few months, and has already held one two-day event. It hasn't revealed which banks it is working with, but says they were chosen for "their ability to provide a safe, reliable and quality service." Though Visa is not setting up an office in Yangon, and though infrastructure concerns mean that ATMs and full-fledged electronic-payment systems remain months away, analysts say the move marks a significant step toward the financial modernization of the once-reclusive country.

"It is a predictable move, but a significant one," said Sean Turnell, a Myanmar expert at Australia's Macquarie University, adding that Visa's market entry would have a "broader significance and heavy psychological effect" for keen investors looking to park their money in the nascent market. "The local banking sector is fairly primitive," he said. "Right now the first thing Western businessmen notice is that they can't bring their cards with them—it really makes them think that this is another world."

Moving from "bring wads of cash to pay for everything" to "for everything else there's MasterCard" will take some time. But, the ability of such firms to provide a payment handling service will help indicate how committed Myanmar is to development since it requires quite a lot of cooperation to make their domestic financial system accommodate international payments.

The Fading Dream of Yuan-Yen Direct Exchange

♠ Posted by Emmanuel in China,Currencies,Japan at 8/20/2012 03:12:00 PM

One of the things people unfamiliar with currency markets do not fully appreciate--and these include poo-bahs alike Fred Bergsten of the Peterson Institute of International Economics--is that all currency pairs involve the US dollar and something else. To change Japanese yen into Chinese yuan for instance, you would typically refer to the USD/JPY exchange rate first to obtain dollars, then change the dollars to yuan via the USD/RMB exchange rate.

Recently, the Chinese and Japanese governments established mechanisms to bypass the need to exchange their currencies into dollars first. In other words, you could exchange yen for yuan and vice-versa straight without changing first into dollars. It sounds great in theory: why mess with dollars when you are doing trade within Asia, anyway? The transaction costs of not having to obtain dollars in the process should reduce the costs of foreign exchange.

However, things have not quite worked out that way it seems. Because the market in direct yen-yuan or yuan-yen foreign exchange remains thin or lightly traded, bid-offer spreads tend to be fat. In layman's terms, the prices at which traders are willing to sell yuan and buy yen--or buy yen and sell yuan in the opposite instance--differ markedly. OTOH, in an active market, the prices for both should be nearly identical since there are many buyers and sellers of both currencies competing with each other for business. That is, profit margins would be wafer-thin. As it so happens, the practice of intermediating yen-dollar-yuan or yuan-dollar-yen trades still comes out cheaper since the dollarless trading markets are illiquid. From the WSJ:

When direct dealing started, it met with great fanfare. Japanese finance ministry officials played up their high hopes for the shift and what a step forward it would be for Sino-Japanese economic relations. Following suit, the media extensively covered the move and brokerages started related new services...

According to Mizuho Corporate Bank, direct yuan-yen daily turnover is currently around ¥5 billion ($63 million), half the initial June level. That compares with total dollar-yen daily volume in Tokyo of $145.4 billion, based on the latest Bank of Japan figures released in July.

OK...so the situation is not so promising--yet. What needs to emerge is an economy of scale that reduces transaction costs that quite frankly isn't there yet:

One misconception has been the idea that direct yuan-yen trading would automatically be cheaper than the two steps of yuan-dollar and dollar-yen trading combined. Traders say this can be true in theory, and may eventually happen, but for now the low trading volumes mean the single bid/ask spread is larger than in undertaking the two trades.

"The transaction cost is represented by the difference between offer and bid levels, not the number of trades to execute an order," said Junya Tanase, chief currency strategist at J.P. Morgan Chase Bank in Tokyo. The wider spread for yuan-yen trading reflects the low volume, creating a classic "chicken-and-egg" dilemma for those in the market. "Yuan-yen trading size must match at least euro-yen trading volumes for us to be able to use regularly," a major non-Japanese bank dealer in Tokyo said. That would mean that volumes would need to soar to more than $20 billion daily.

Current yuan-yen turnover is $63 million, while commentators suggest that it would only be cheaper to do direct deals when turnover reaches $20 billion--a 317-fold increase. To make an understatement, the yuan has a long way to go before becoming a "medium of exchange" even in its own backyard.

Speculation, Food Prices & Firm Reputation Risk

♠ Posted by Emmanuel in Agriculture at 8/20/2012 01:00:00 AM

In any number of commodity classes, there is the accusation that speculators and other sorts of profiteers are driving up prices to a degree unwarranted by economic fundamentals. You often hear this with regard to oil, but it's also an accusation heard with regard to foodstuffs as their prices have exploded upwards. (Developing countries are supposed to be especially vulnerable to these shocks since food expenditures take up more of a poor households's expenditures.) And, of course, the normative issues behind speculating in food are much greater than those in oil since you cannot live without the former.

I recently came upon an interesting Reuters article reminding how diversion of corn crops for ethanol is causing the price of this crop to increase Stateside. This concern is especially salient this year when yields of crops alike corn have been hurt by drought conditions. Almost as an aside, the article also mentions controversies over commodity speculation in foodstuffs. Given that many commodity traders were blamed for inflating food prices--there remains considerable controversy over this accusation--many have nevertheless become wary of being blamed this time around.

One of the solutions that traders have devised is to simply avoid inclusion of food-related commodities in various indices and investment funds that may tempt certain parties to speculate on food prices. In any case, many financial services firms which do not wish to subject themselves to this form of reputation risk are avoiding the inclusion of these commodities:

The price surge is also reviving a debate over the role of financial speculators in commodity markets. Big banks and institutional investors were often blamed for inflating prices back in 2008, although academic and government studies have offered conflicting views over the cause. Commerzbank said it had joined two of its German peers in restricting food-related investments by stripping agricultural products from its ComStage ETF CB Commodity EW Index TR, a small $145 million commodity index fund.

The bank declined to say why it had made the change, but lobby groups and traders said the motive seemed clear. "Climbing prices are creating reputational risk for banks," said Alexis Dawance, former manager of the agriculturals-focused Global Agricap Fund. "The big grain traders probably have much more impact in food and commodity trading, but this is part of the bigger picture, with all the fat cat bashing that has been taking place. ... If food prices continue to rise you will see this happening more and more."

These, my friends, are the real hunger games in a globalized world.

Would Korea Have Developed Following World Bank?

♠ Posted by Emmanuel in Bretton Woods Twins,Development,Economic History,South Korea at 8/17/2012 11:45:00 AM

Although more than a few colleagues tend to view the World Bank in quite a negative light no matter what they do, I have come to a more ambivalent position. (Newer readers should note potential conflicts of interest since they gave me not-insubstantial prize a few years back when I was still a PhD student.) Yes, their policies tend to follow what's in vogue among American elites. Yes, their policies too have in the past been less than considerate of the particular circumstances of developing nations in attempting to transplant foreign models of development. But ultimately, I do not think that more sinister motives attributed to them hold. Rather, "America knows best" has often been combined with off-target advice for mixed results in more than a few circumstances.

Which brings me to today's post. While proctoring exams, I've had more time to read Kim Chung-yum's firsthand account in From Despair to Hope: Economic Policymaking in Korea: 1945-1979. Although it's common knowledge that the West didn't rate South Korea's chances for becoming a development success after the Korean conflict, what's starkly evident is how World Bank personnel readily lumped it in as another case of overreach. While the Pohang Iron and Steel Company (POSCO) eventually became regarded as the world's most efficient steel producer in the world, it bears remembering that it could not even avail of any lending whatsoever from the US or the World Bank at first:

[The] KISA [Korean International Steel Association] conducted negotiations with the World Bank, the Export-Import Bank of the United States (EX-IM) and other creditors from the UK, West Germany, Italy, and France, to secure financing. However, there was little progress in the negotiations.

The world frowned upon developing countries that sought to construct an integrated steel and iron mill. At an annual general meeting of the IMF and the World Bank, this view was made clear by Eugene Black, the President of the World Bank (1949-1963), when he said (to paraphrase): “There are three myths in a developing country. The first is construction of expressways, the second is construction of an integrated steel and iron mill, and the third is construction of a monument for the head of state” [pp. 159-160].

And speaking of expressways, it should come as no surprise either that the World Bank didn't think much of them despite paving the way for South Korea's success. As ever, the best way to silence DC-based bigwigs is through success:

In light of the IBRD’s reluctance to assist in the construction of expressways, Korea pressed ahead anyway with the construction of the Seoul-Busan Expressway, the Daejeon-Jeonju section of the Honam Expressway, and the Shingal-Saemal section of the Yeongdong Expressway with its own financial resources. After Korea showed it was able to build the Seoul-Busan Expressway with its own financial and technological resources at half the time and a fraction of the cost, the IBRD began to rethink the economic feasibility of expressways in Korea [p. 312].

Other agencies also dispensed bad advice. USAID didn't help matters by far underestimating the energy requirements of South Korea:

The electricity shortage of 1967 was due to underinvestment. The initial investment proposed in the First Electric Power Development Plan had been reduced based on the recommendations of a US research team (Thomas Research Team) commissioned by US AID to conduct a study of Korea’s electricity requirements in September 1964. The study conducted by the research team concluded that the electricity demand forecasted in the First Five-Year Electric Power Development Plan during period of 1962 and 1966 was too high, recommending to the Korean government and USOM to lower the projections. As such, the downward revisions to the initial investment plans reduced electricity capacity by 224,000 KW [p. 152].

It's interesting to see how sceptical the World Bank was of South Korea at the outset. I do this not to poke fun at World Bank advice, but to again reinforce the point that the World Bank is ultimately just another source of input and finance among others. Ultimately, developing countries are responsible for their own development or otherwise, generally well-intentioned outsiders notwithstanding.

Assange's Last Stand: 'Internet Freedom' Revisited

♠ Posted by Emmanuel in Anti-Globalization at 8/16/2012 03:08:00 PM

Now this is more like it: diplomatic intrigue, a kooky character, lurid accusations...and American baddies to boot (the last does "Diddley" Bo Xilai one better).

The New York Times has a--how should I put this...piquant account of WikiLeaks founder Julian Assange holed up in the Ecuadorean embassy in London. Living in a rabbit hole of a diplomatic premise just off Harrods (I could bring you there even while stone drunk), it was perhaps inevitable that Ecuador grant him asylum, so no surprises there.

However, there are a number of interesting twists, most obviously that the embassy is heavily watched by British security forces for signs that the Ecuadoreans may attempt to smuggle Assange out of the country. That said, there are several twists and turns that make this story particularly fascinating.

1. While I do appreciate that Ecuadorean President Rafael Correa styles himself as a leftist par excellence and a strong ally of Hugo Chavez who would like nothing more than to embarrass the United States, Correa is not exactly a stickler for media freedoms of the kind Assange champions. Persecution of opposition figures is no the rise, and Reporters Without Borders sees the country in decline with regard to media freedoms. I guess the message Correa is implicitly sending out is that certain media messages are more welcome than others when they mock less welcome characters like Americans.

2. Swedes are, in my experience, generally left-of-centre characters, so I am inclined to give them the benefit of a doubt that the case of Assange has merit. That is, they would not go to such lengths to try a character Swedes are generally sympathetic to if there was no reason for doing so. To be honest, Assange does not exactly strike me as a "normal" chap, either.

3. OTOH, that there are no guarantees that extradition to Sweden may result in a further extradition to the United States over WikiLeaks. At the least, this is the sticking point Ecuadorean officials identify:

The [Ecuadorean] minister said his government had taken the decision after the authorities in Britain, Sweden and the United States had refused to give guarantees that, if Mr. Assange were extradited to Sweden, he would not then be sent on to America to face other charges. The minister said his government had taken the decision after the authorities in Britain, Sweden and the United States had refused to give guarantees that, if Mr. Assange were extradited to Sweden, he would not then be sent on to America to face other charges...

Those close to Mr. Assange have said one reason he does not want to be sent to Sweden is that he fears being charged with crimes in the United States for the release in 2010 of thousands of secret documents and diplomatic cables relating to the wars in Iraq and Afghanistan, as well as to American relations with other governments.

An Ecuadorean official said late Wednesday that the British government had made it clear it would not allow Mr. Assange to leave the country to travel to Ecuador, so even with a grant of asylum or similar protection, he would probably remain stuck in the embassy.

Bottom line: The United States has done much to make a martyr out of a dodgy character and a mockery of the quite frankly laughable notion of "Internet Freedom." Meanwhile, Ecuador is probably glad enough to get itself some cheap points from the leftist crowd for harbouring Assange for an extended period. Lastly, the United Kingdom probably wishes the guy never set foot in Blighty since it's a lose-lose situation

Honour Among Thieves, Somali Pirate Edition

♠ Posted by Emmanuel in Africa,Underground Economy at 8/14/2012 03:05:00 PM

Coming from one of the countries worse affected by maritime piracy, I tend not to romanticize incidences of ship hijacking in the Gulf of Aden. That said, it strikes me as remarkable how much more "professional" and "businesslike" Somali pirates have become. Just as banks of yesteryear used to have lavish premises replete with gilt and marble to symbolize the idea that they meant business and were here to stay, so too do modern-day pirates (no contemporary references to the state of the financial services industry intended) understand the value of symbolism.

Accordingly, Reuters has a fascinating article describing how Somali pirates now have a grasp of business essentials such as marketing (i.e., presentation of ransom demands as a worthwhile "purchase"), accounting (ransom valuation of captured crew and vessels), and so forth:

[Pirate captain] Jamal provided the ship owners a breakdown of the value of their tanker, the oil it contained and also the worth of the crew (at least in his opinion), presenting a final demand figure for them to consider. "We will send to you after when we arrange something for the demanding ransom money and after when we finish the meeting among my group and resolve my problem," he wrote in the second page of the kidnap packet.

One expert in ransom negotiation situations said it was little surprise that Jamal and his colleagues were so well organized, their meager circumstances in one of the world's most strife-torn countries notwithstanding. "They want to get the money. If they present themselves and behave as someone who will live up to their commitment to give us the package in good condition, we are much more likely to go ahead and pay the ransom easily and efficiently," said Derek S.T. Baldwin, director of worldwide operations for IBIS International, which operates in 45 countries worldwide.

"If they present themselves as a non-structured group of disorganized loons they stand an awful lot better chance of having an extraction team show up on their front porch and shoot them," said Baldwin, an attorney by training whose firm has been involved in a number of ransom situations over the years.

All they need now are some PowerPoints and they'd be pretty much state-of-the-art. Are they not in some twisted sense SMEs or entrepreneurs? The dividing line is not quite what we think it is in parts of the world where the rule of law is non-existent. They are, after all, in it for the money and do come up with innovations.

Wacky Ways of Middle East Youth Unemployment

♠ Posted by Emmanuel in IMF,Labor,Middle East at 8/13/2012 06:52:00 AM

Over a year ago I penned a much-visited post depicting the world's worst levels of youth unemployment in the Middle East / North Africa (MENA) region that continue to contribute to pressures for regime change in any number of MENA countries. Today, I have an update on certain peculiarities of the MENA situation that make it unique from the rest of the world. While there are any number of regions with a problem with youth unemployment--North America and Western Europe are certainly not exempted--remedies for the MENA region must take its contextual specificities into account.

The IMF's Masood Ahmed recently enumerated a number of.these challenges. Of particular interest for being atypical are the following:

(1) In contrast to much of the rest of the world, the better educated are more likely to be unemployed since they are holding out for better employment opportunities. Think of the implications here: Were scores of the young Arab Springers in reality a bunch of brats who lived lives of leisure out of choice and blamed others for their predicaments? It's certainly a researchable proposition...

Unusually, education in this region is not a guarantee against unemployment. In fact, unemployment tends to increase with schooling, exceeding 15% for those with tertiary education in Egypt, Jordan and Tunisia.

In most regions of the world, the duration of unemployment spells is shorter for youth than for adults, reflecting the natural tendency of youth to more frequently move between jobs. In most MENA countries, however, youth unemployment appears to be the result of waiting for the right job. Thus, unemployment spells may be longer, especially for educated youth, who may require more time to find a good job match for their skills.

Take that, "education is the solution to everything" fantasists. Snootiness aside, it may also be the case that skill mismatches are rife among the unemployed holdouts:

Labour market mismatches have been driven by the inability of the economy to create highly skilled work but also by the inappropriate content and delivery of education...

In addition, entrepreneurs regularly cite the lack of suitable skills as an important constraint to hiring and unemployment rates are highest among the most educated. Taken together, this suggests that education systems in the region fail to produce graduates with needed skills.

(2) Government jobs are not only more common than elsewhere but also more remunerative. In effect, the relative cushiness of civil service makes working in the private sector unattractive with less pay and job security:

The MENA region also has the highest central government wage bill in the world (as a percentage of GDP) – 9.8% of GDP compared to a global average of 5.4%. The high wage bill partly reflects the fact that government employment in MENA is comparatively high, but it also reflects the fact that public sector wages in MENA were on average 30% higher than private sector wages, compared to 20% lower worldwide. Around the turn of this century, the public sector accounted for about one-third of total employment in Syria, 22% in Tunisia, and about 35% in Jordan and Egypt.

Public-sector employment shares are even higher as a percentage of nonagricultural employment – reaching 42% in Jordan and 70% in Egypt. The dominant role of the public sector as employer throughout MENA has distorted labour market outcomes and diverted resources away from a potentially more dynamic private sector. Government hiring practices have typically inflated wage expectations and placed a premium on diplomas over actual skills, influencing educational choices and contributing to skill mismatches.

(3) Once more, these comparatively cushy government sector jobs only makes private sector work look like the pits--especially to the hordes of unemployed youth who would prefer to remain so:

The comparatively greater job security, higher wages, and more generous on-wage benefits offered by the public sector have inflated wage expectations among new entrants. In fact, public sector wages are 48% and 36% higher than those offered by the private sector in Egypt and Tunisia, respectively. Relatively high wages and benefits encourage workers to seek jobs in the public sector instead of potentially more productive jobs in the private sector.

In addition, generous childcare and maternity leave policies encourage females to focus on obtaining public sector jobs. However, public sector jobs remain valued because of job security, high compensation and benefits, and lack of opportunities in the private sector. It appears that the system essentially has created a dual labour market, with the public sector representing the high-wage, high-benefit sector.

It's been quite a while since someone from the IMF authored such an overtly anti-government largesse piece, but I suppose there is a purpose here. Foremost in my mind is Egypt once again vowing to avail of a $3.2B bailout package from the IMF. That is, in addition to crimping fat energy subsidies, there will likely be IMF conditionalities on "rationalizing" the public sector imposed on Egypt. We'll see.

In the meantime, the suggestions provided for improving the unemployment situation there are certainly worth thinking about.

Worse Than Facebook's: Manchester United IPO

♠ Posted by Emmanuel in Casino Capitalism,Sports at 8/11/2012 02:50:00 PM

I guess all's bad that starts badly. In recent years as an erstwhile follower of the English Premier League, I have pondered the dastardly dealings of the rapacious Ameriscum owners of Manchester United [1, 2, 3]. When you hear the words "American" and "finance" mentioned together nowadays, your gut response is that something malodorous is afoot. And so it has been with the means the Glazer family came to acquire England's most storied football club--by leveraged buyout--and their subsequent "management" of it--by saddling it with hundreds of millions of dollars in debt.

Having failed in tricking Hong Kong and Singapore into issuing their IPO, they then headed to America where European professional football (soccer) enjoys less name recognition than the "lingerie football league." Wayne Rooney...who dat? There have been any number of dubious reasons cited for the IPO. Let's start with fundraising. Estimates of the debt saddled onto previously financially team finances vary from $650 million to $1 billion. Make no mistake that this disastrous IPO--again, worse than even the Facebook fiasco if you consider management's ludicrously optimistic opening price target--will fail to pay off any significant amount of IOUs even at the conservative $650 million level. Some background on what's happened:

The failure of the shares to “pop” on its trading debut on the New York Stock Exchange was a second blow for the listing, after underwriters lowered the price to $14 late on Thursday, after pitching the offering to investors with a range of $16 to $20 [and you can call me "Bun E. Carlos"]. The stock eventually peaked at $14.20 and closed at $14 on turnover of more than 30m shares, then dipped below the offer price in after hours trade to $13.90.

It means the football club and its owners raised about $234m from the sale of 16.7m shares. That is nearly $100m lower than the $330m implied at the top end of the price range. The sale of the 10 per cent stake leaves the club with a market capitalisation of less than $2.3bn....

Mind you, of the comparatively puny $234 million (before IPO fees) raised by one of the world's most storied football clubs, half will go straight into the pockets of the reviled Glazer clan, leaving what, $650M - $117M = $533M in debt outstanding at the very least:

What has so outraged fans – aside from the continued Glazer ownership, of course – is that the Americans have backtracked on a promise that all the money raised from a stock listing would go to pay down the roughly $650 million debt the club carries from their leveraged purchase of the team. The new plan will see only half the money used to pay down the debt, leaving the rest for Malcolm Glazer and his sons to feast on

How pathetic was thing listing? The underwriter had to repeatedly intervene on Friday to keep its price above $14 (which it did anyway after hours):

According to one person familiar with the listing, Jefferies, the lead underwriter on the IPO, was forced to step in and buy the shares to prevent the stock slipping below $14 during the regular trading session. “Jefferies is stabilising the shares,” said the person.

These damn Yanquis already went home, yet they are hated even there. As even US media has noticed, it's a junk issue all around. First, "shareholders" will receive no dividends. Second, they will receive no voting rights. Add those to continued Glazer "management" and a stock price sure to drop in the coming days and, well, I guess those who were dumb enough to buy this stock will get what they fully deserve for such an idiotic purchase.

I just hope these dupes don't have the cheek to sue anyone for their lack of due diligence in making such a pathetic purchase. What a joke.

13/8 UPDATE: But don't take my word for it. Your humble blogger notes that other commentators have duly followed in my footsteps in making comparisons to the Facebook fiasco. ESPN quotes an independent financial analyst who believes the fair market value of this joke of a stock is $4.97, or less than a quarter of what the (delusional) Glazers believed the stock was worth. Based on a 10% flotation and a share price of $4.97, the market value of Manchester United would be even less than what the Glazers acquired the club for by borrowing hundreds of millions back in 2005:

The club's current share price is $14 but millions of shares have been bought by the seven banks underwriting the IPO, and PrivCo calculated their true value is just $4.97 each - giving United a value of around $800 million, rather than the $3.3 billion that they want The Glazers paid just under £800 million to complete their takeover in 2005.

"Manchester United's valuation using several accurate valuation methodologies is a mere $4.97/share, only about one third of its $14/share offering price (which is also the price at which it closed its first trading day, but only because IPO underwriters placed large open-market bids at $14/share to prevent the stock from closing below the IPO price)," PrivCo said.

So let me get this straight: Had the underwriters not gamed the market by trading it at $14/share, it would have collapsed from day one? There are few things you can be certain of in this life, but that this stock will dive in the coming months Facebook-style is pretty much guaranteed. I guess we'll be seeing how the market judges the Glazers' value-added [sic] over the course of eight financially miserable years.

Somehow, I do not feel sorry for anyone involved in this disaster

Gold, Copper and Neocolonialism in Peru

♠ Posted by Emmanuel in Latin America,Mining at 8/10/2012 09:57:00 AM

As in any number of other countries, mining remains a most controversial industry in Latin America. If you want an industry which has every possible controversy going with it--pollution issues, labour issues, domestic revenue issues and foreign exploitation issues among others--look no further. It is not encouraging that the issues remain the same after all these years: Being unable to create local mining concerns of requisite sophistication, it remains the case that foreign mining concerns still possess the much-needed expertise to bring extractive industries' output to the world market.

This situation is playing out in Peru as we speak. Listening to the industry's critics and following recent events, it's as if the conquistadors and their rapacious habits never left the Cajamarca region:

North of this sprawling capital city [of Lima] and high in the Andes Mountains lies Cajamarca, a region well-known in Peru for two main reasons: the conquest of the Inca Empire by Spain’s Francisco Pizarro and the area’s extraordinary wealth of natural resources. Here, Colorado-based Newmont Mining Corp. has been operating Latin America’s largest gold mine, Yanacocha, since 1993.

The mine is nearing the end of its life and Newmont wants to develop the nearby $4.8 billion Minas Conga copper and gold project, which will be the biggest foreign investment in Peru’s history. But the project has run into intense local opposition and five people were killed during recent protests, causing the government to impose a state of emergency.

Opponents, led by Cajamarca’s president, contend that the project will harm scarce water resources in the area. Their position has clashed with that of Peruvian President Ollanta Humala, who officially announced his support for Minas Conga in late June. This conflict has become a high-stakes test of how Peru treats foreign investment. The country has more than $50 billion in mining investments in the pipeline and taxes from mining are a key source of government revenue.

The odd thing as followers of Latin American politics are concerned will point out is that Humala originally styled himself as a leftist in the Hugo Chavez mould. Yet, upon ascending to the presidency, he has been quite the opposite in liberalizing opportunities for foreign investment. Is he the Peruvian Fernando Henrique Cardoso? His opponents wish otherwise and desire a Hugo-alike according to some--especially in light of the coloured history of foreign miners operating in the region:

[Miguel] Santillana, an analyst at the Peru Institute who has also worked as a consultant for foreign mining companies said there was bad blood from the beginning between the local community and the Yanacocha mine operators, as people in Cajamarca tend to associate mining with abuse of resources. The current conflict over Minas Conga has much more to do with politics than environmental concerns and it’s an effort to redefine the country’s economic model, according to Santillana, who believes that political leaders in Cajamarca want to weaken Humala and redirect Peru toward left-wing policies like those pursued by Ecuador, Venezuela and Bolivia.

In late June, Newmont said in a statement that before it begins the construction of Minas Conga mining facilities, it will build water reservoirs that will benefit the local community. But this commitment failed to appease the project’s opponents and the conflict has escalated.

More recently, outright hostility has broken out as the regional president has told the foreign miners to pack up and leave--clearly in contrast to the desires of the central government:

The president of the Peruvian region of Cajamarca, Gregorio Santos, said there is no use continuing talks with two Roman Catholic priests trying to reach a peaceful solution to the dispute over the Minas Conga copper and gold project[...]between those who oppose the Minas Conga project and the company, which has been supported by the government of President Ollanta Humala.

"The facilitators have already completed their tasks," Mr. Santos said. "The facilitators aren't going to make any decisions. The executive branch already knows the position of the people of Cajamarca." Mr. Santos has been one of the main leaders of the opposition and the protests against the mining project in the northern region of Cajamarca.

Call it a rebellion over mining, but for now, the state of emergency declared by the central government in this region continues.

M Yunus on Why Japan (!) Needs Microfinance

♠ Posted by Emmanuel in Japan at 8/09/2012 08:16:00 AM

Alike the north of Great Britain or the American rust belt, there are any number of stagnant towns in northern Japan whose difficulties have been magnified by the tsunami's wake. And, just as the UK and the US are mired in a prolonged funk despite having had zero interest rate policies (ZIRP) for some time now, Japan has been there for decades on end it seems.

What to do? Returning to criticisms that many of these economic rescue programmes mounted by many governments are not geared towards helping small- and medium-sized enterprises, The pioneering Nobel Prize winner Muhammad Yunus believes that a way to kick-start Japan's economy is to offer microfinance instead of cheap loans to large, export-oriented firms who have in the past been the beneficiaries of Japanese industrial policy. Of course, Japan has a lot of other pressing and interrelated problems of debt, depopulation, deflation and a strong currency, but here's something that's potentially overlooked that may play a role in reviving its economic fortunes:

That visit to the devastated northeast Tohoku region was on March 11, the one-year anniversary of the nation’s worst earthquake and tsunami on record. Like many, Yunus came away haunted by an economic question: How can the Tohoku region not only rebuild, but reinvent itself and thrive in a time of austerity? Yunus returned recently with an answer that may cause its own tremors: Japan needs a microfinance industry...

You may be sceptical about Japan's need for it--Japan sends Bangladesh quite a lot of foreign aid and not the other way around for some reason as Bill Pesek of Bloomberg notes--but Yunus suggests otherwise:

What does any of this have to do with Japan? It is near the top of national per-capita income tables, has one of the highest savings rates, and Tokyo and Osaka are routinely in the running for world’s most expensive city. Japan gives impoverished Bangladesh billions of dollars in aid each year. “It’s needed everywhere -- it doesn’t matter where you are,” Yunus said in Tokyo on July 26. “When you come to a disaster area like Tohoku, it’s all the more important. You have to rebuild everything all over again. There’s no house, there’s nothing.”

That hope has since been dashed by paralysis in Tokyo and a return to the petty infighting that passes for political leadership. That is prompting local officials to take matters into their own hands. Rikuzentakata is working to create a small, self-sufficient city that creates new jobs in renewable energy to replace those lost to the decline of agriculture and fisheries.

To paraphrase a certain author, the problem is that Japan is seeing like a state when it comes to developing solutions for continuing economic malaise. Worse still, the solutions it comes up with (when it manages to do so) may no longer be applicable in a changed global political economy. In particular, it has never really resolved the "dual economy" problem of a dynamic export sector coupled with a stagnant domestic sector. Now more than ever, the latter needs to become a boost rather than a drag on its economic fortunes:

Microfinance on a grander scale might enable the northeast’s community leaders to steer around the paralysis in Tokyo, where bureaucrats are impervious to their demands and clueless about their needs. It would help local credit systems gain traction in ways the Bank of Japan’s zero-interest-rate policies can’t. Japanese need alternatives to banks, which aren’t lending or offering creative financial products. Micro- lending could help businesses and households steer around the credit logjam.

Japan’s government should provide some startup cash to supplement local savings. Given the huge sums of money it doles out for infrastructure projects in Hokkaido and Kyushu in the far north and south of the country respectively, the cost of setting up a kind of Grameen Japan would be minuscule and the risks limited. Is that likely to happen? The odds aren’t great given how averse Tokyo’s bureaucrats are to anything that smacks of originality or setting a precedent. Yet Yunus showed it was possible for poor people in Bangladesh to get the credit they deserve. There’s no good reason to think the same can’t happen in Japan.

Good stuff from Bill Pesek, and his op-eds on Asia remain well worth reading.

Stateless People: Independent Olympic Athletes

♠ Posted by Emmanuel in Sports at 8/07/2012 08:26:00 AM

My heart naturally goes out to the stateless people of the world. In our part of the globe there are those frequent headline-grabbers the Rohingya in western Burma. Unfortunately, they are far from alone in their persecution by nation-states who think they do not belong and have not been shy about using their monopoly of violence in "othering" these people in academic-speak. For an extreme case, consider the Kurds.

In theory, the Olympics are a celebration of camaraderie among nations through the medium of sport. These events, however, are not primarily a spectacle of nationhood but of sporting achievement. That is, athletes ultimately make the games something worth watching.

Thus, there is a conundrum of what to do with athletes who, through no fault of their own, find themselves as (transitionally) stateless people unrepresented by any particular nation who nonetheless want to compete in the Olympics. Hence the designation of "independent Olympic athletes" for those coming from recently-dissolved states which no longer have Olympic committees, or those from states which have just come into existence and have not had time to form them. Australia's The Conversation has a recap:

Athletes competing at the Olympic Games (both summer and winter events) must be affiliated with their National Olympic Committee (NOC). However there have been times in recent history where nations have been dissolved or new nations have emerged due to political transition, or international sanctions have left athletes without a formal nation or NOC.

Rather than these athletes missing out on the opportunity to participate in the Olympic Games, the International Olympic Committee (IOC) has established the category of Independent Olympic Athletes. Independent Olympic Athletes compete under the Olympic Flag. Should they win a gold medal at their event, the Olympic anthem will be played.

As with many things Olympic, the existence of these athletes owes something to geopolitics. With the end of the Cold War, the former Yugoslavia was Balkanized, posing a challenge for those nonetheless wishing to participate in the 1992 Summer Olympics. Rather than be disqualified from participation through no fauilt of their own, this new category emerged. During the first time out, a number of participants from the former Yugoslavia actually won medals for...no nation-state in particular:

We first saw Independent Olympic athletes at the 1992 Summer Olympics in Barcelona, where athletes from the Federal Republic of Yugoslavia and the Republic of Macedonia competed as Independent Olympic Participants. Macedonian athletes could not appear under their own flag because their NOC had not been formed. The Federal Republic of Yugoslavia (Serbia and Montenegro) was under United Nations sanctions which prevented the country from taking part in the Olympics.

It is further noted that athletes from Timor Leste (East Timor) participated in the 2000 Sydney Olympics in its transition away from Indonesia. During the current Games, meanwhile, we have four independent Olympic athletes. Three come from Curacao, one of two nations emerging from the dissolved Netherland Antilles alongside St. Maartens. During the opening ceremonies, they wowed the audience with their dance routine. Another athlete hails from troubled South Sudan, which alike Curacao presumably did not have an Olympic committee in place:

The Netherlands Antilles was dissolved in 2010; however qualifying athletes from the former Netherlands Antilles were permitted to participate as Independent Olympic Athletes, or could choose to compete for Aruba or the Netherlands, as they have Dutch nationality. The three athletes from the former Netherlands Antilles are Phillipine van Aanholt (sailing), Reginald de Windt (judo) and Liemarvin Bonevacia (athletics).

Guor Marial, from South Sudan, will also be competing in the marathon as an Independent Olympic Athlete, as South Sudan gained its independence from Sudan last year. Marial could have run for Sudan, but did not wish to represent the country he fled. He reportedly lost 28 family members to violence or sickness during the civil war that compelled the south to split away from Sudan.

Guor Marial's story is remarkable in itself. Fortunately, then, it's good to know that these athletes are only momentarily stateless due to circumstances which will be rectified--unlike the aforementioned stateless people whose condition is protracted. But, you never can tell when national breakdown and/or independence in other parts will create further stateless athletes in future events as the world churns.

Serbia Tells EU to Shove Central Bank Independence

♠ Posted by Emmanuel in Credit Crisis,Europe,IMF at 8/05/2012 06:01:00 PM

It was not so long ago that I offered to help improve Serbia's chances of EU accession by going on a Soldier of Fortune-inspired "Ratko Hunt 2010." Just when you thought that Serbia's path to EU membership has been smoothed out by the capture (or death) of the "Big Three" war criminals Slobodan Milosevic, Radovan Karadzic and finally Ratko Mladic, the Serbs go ahead and throw a curveball. Or, for a more appropriate sporting analogy, hit a moonball into the heart of Europe.

Alike any number of former Soviet satellites, Serbia finds itself in economic trouble nowadays. Apparently, the current left-leaning leadership has been keen on pump-priming measures. However, the European Union has warned Serbia against diluting central bank independence (CBI). Whether you take it as a sign that Serbia values EU membership less in this age of PIIGS slaughter or something else, it is happening:

Serbia's Socialist-led government stepped up control over the central bank in the struggling ex-Yugoslav republic on Saturday, ignoring IMF criticism and a warning that the move would hurt its bid to join the European Union. Parliament adopted amendments to the law on the National Bank of Serbia, as the government seeks to harness the bank to a promise of more expansive fiscal policies to halt a slide into recession and rein in unemployment of 25 percent.

Central bank governor Dejan Soskic, who since 2010 had steered a restrictive monetary course in the face of an increasingly bleak economic outlook, had already quit on Thursday. The law creates a powerful, parliament-appointed supervisory body represented on the bank's executive board and gives the assembly responsibility for appointing its entire top management...

Jorgovanka Tabakovic, a lawmaker and senior member of the co-ruling Serbian Progressive Party, is widely tipped to replace Soskic, a move certain to shake investor confidence in the bank's independence even further. It will also deepen doubts in the West over the new government's commitment to the largely reformist, pro-EU path Serbia has taken since the ouster of late Serb strongman Slobodan Milosevic in 2000...

The EU, which made Serbia an official candidate for membership in March under the previous Democrat-led government, said it would be a "step back" for the accession bid.

At the same time, Serbia has hurt its chances of obtaining additional IMF emergency funding this way:

The International Monetary Fund, which Serbia plans to tap for new funding, had warned before the law was adopted that it would mark a "major weakening" of the bank's autonomy...The IMF, in a letter to Soskic before he resigned, cautioned that the law would have "considerable implications" for a 1 billion euro loan program which the Fund froze in February over Serbia's rising debt but which the new government says it wants to renegotiate.

If this story of a left-leaning party defying the powers-that-be sounds like troubled Hungary--both the recipient of IMF emergency funding and a resident of the EU doghouse over violating CBI--you're correct. The big difference here is that Serbia is in a worse spot insofar as Hungary is already a member of the EU. There is trouble all over the continent: a spectre is haunting Europe...

It's the Economy, Stupid, Egypt & IMF Edition

♠ Posted by Emmanuel in Credit Crisis,IMF,Middle East at 8/05/2012 10:44:00 AM

Mirror, mirror on the wall
Who's the most conditionality-laden of them all?
(That's not my cartoon, by the way)

Americans enjoy fairy tales where everyone lives happily ever after: Cinderella. Snow White and the Seven Dwarves. Unfortunately, many of these Americans in positions of power seem to mistake Disneyfied endings with foreign policy: Liberating Afghanistan from the Taliban. Greeting American liberators with flowers in Iraq. (Yeah, right...and I have some beachfront property in Nebraska I want to sell you.)

And so we have yet another of these fanciful stories about Middle East revolution with the various "Arab Spring" events. Supposedly, left-leaning commentators suggest, these countries' regime changes are more likely to succeed given that (a) they were homegrown movements of the politically unwashed masses as opposed to US invasions and (b) social media has forever changed the conduct of politics worldwide. As we are finding out, things are not that way. If anything, uncertainties introduced into Egypt's economy have made things worse economically as tourists and foreign direct investment flee the country. Thus, the aftermath of euphoric events is depressingly simple to describe in (a) simply demonstrating that old power struggles between the military and the fundamentalists still shape politics there without much consideration of the reformist voice and (b) social media's current irrelevance in Egypt for carving out a desirable future political-economic path. Same old, same old.

Make no mistake: Egypt is in serious economic trouble as its foreign exchange receipts dwindle and borrowing costs become onerous. When your 3-year borrowing costs are north of 16% in this day and age, you're obviously regarded as something of an economic basket case. It is here where the split personalities of America come into play. Whereas the Yanqui-led invaders goaded the Paris Club of sovereign lenders to cancel virtually all of Iraq's Saddam Hussein-era debt, they are making no such concessions for economic crisis-ridden Egypt.

Turning to the IMF, the new Islamist-led executive plans to once more approach the Washington-based lender. A few months ago, remember that the Muslim Brotherhood-linked parliamentarians desired a conditionality-free loan. That not quite working out as planned to say the least, perhaps the new finance minister has more realistic proposals to present:

Egypt invited officials from the International Monetary Fund (IMF) to visit to resume talks on a $3.2 billion loan, the state's finance minister Mumtaz al-Saeed told reporters on Saturday. An IMF deal would help Egypt stave off a budget and balance of payments crisis and add credibility to economic reforms needed to restore the confidence of investors who fled the country after the state's popular uprising of last year.

It's the economy, stupid, in the Middle East, although those behind the controls look very familiar:

Hisham Kandil, the first prime minister named by Egypt's newly elected Islamist President Mohamed Mursi has drawn on bureaucrats and Islamists for the new cabinet, disappointing those who wanted a more inclusive government able to achieve the revolution's demands for democracy and prosperity. "The economic file was the first file that the government saw it should give all the needed attention," a cabinet statement said adding that its first meeting discussed means to reduce the state's deficit and bring back the flow of investment to the country.

That said, the considerations the IMF will look at in deciding whether to lend to Egypt will be familiar to its watchers. First, is the Morsi-led government a credible one? Certainly, reformists and Christian voices would point out its lack of representation of other voices when even the IMF has highlighted the need for "broad political consensus." Second, will this government behave realistically and accept IMF conditionalities? Unlike their befallen parliamentary brethren. one certainly hopes. Third, will social disruptions derail IMF conditionalities if implemented? Especially in a hard-hit nation like this one, you cannot ignore such considerations:

The [previous standby agreement proposal] highlighted fundamental structural reforms primarily targeting the costly subsidy scheme, principally food and energy. In fiscal year 2011-2012, the state budget allocated LE124 billion to finance food and fuel subsidies (9 percent higher than in 2010-2011), which amounted to 24 percent of total expenditures. In FY 2012-2013 budget subsidies amount to LE96.6 billion but this number has already increased by more than LE28 billion as the Minister of Finance Momtaz El Saeed has made available additional funds to subsidize petroleum and wheat in light of political turmoil.

To be honest, it's an unpromising situation whether you look at matters from the perspective of domestic politics or those of obtaining IMF lending and its associated conditionalities.

EU Political Economy, France v GB Olympic Ed'n

♠ Posted by Emmanuel in Sports at 8/01/2012 12:16:00 PM

In case you missed it, the Socialist French Prime Minister Francois Hollande yukked it up with his British counterpart David Cameron at the London Games. In particular, he took a swipe at Cameron's assertion that Britain stands ready to welcome tax exiles if the French government charges tax rates over 50%:

President Francois Hollande has had a dig at David Cameron by jokingly thanking Britain for "rolling out the red carpet" for French athletes to win Olympic medals. Mr Hollande was getting his own back on Mr Cameron for comments in which the Prime Minister said he would roll out the red carpet for French businesses fleeing the 75% top rate of tax proposed by the Socialist president.

Hollande is clearly pleased with himself. As I write, France already has 11 medals including 4 gold medals to the host nation's 4. GB has yet to win a single gold medal. Overall, France lies fourth in the medals table, and Great Britain a lowly 21st...

Mr Hollande joined Mr Cameron at the Olympic Park yesterday to watch France take on Spain in the handball, and gave the PM a few tips about the rules of the game. Speaking to the French press later, he could not hide his delight at the fact that France has so far outshone the UK at the London Games..."The British have rolled out the red carpet for French athletes to win medals and I thank them very much," quipped a smiling Mr Hollande.

I also take it as a dig at British and particularly Tory disaffection for the EU that Hollande says the French medals will count towards the "European total":

Mr Hollande also joked that British sports fans could be heartened by seeing their medals as part of the European tally. Referring to Britain's less triumphal start, he smilingly twisted the Brussels knife, saying: "It's Europe's result that counts. We'll put all the French medals in the European pot and that way the British will be happy to be European."

Har-har, Hollande. Then again, I am not so certain whether, having lost the bid for the 2012 Summer Olympics and another before that, France really wants to host one. As you all know, the UK is in recession, and it's unlikely that the Games will rescucitate the country economically since these events have been far from a boon for recent industrialized hosts (but more on that a bit later):

Several French cities, including Paris, are understood to be considering a bid for the 2024 Olympics - the 100th anniversary of the last time the summer Games were held in France. Mr Hollande said he was not announcing a candidacy for the 2024 Games, and that a final decision on mounting a bid will not be made until the venue for 2020 is announced next year. Victory for Madrid in September next year over rivals Tokyo and Istanbul could make a bid by neighbouring France less likely to succeed.