Bhutan, Gross National Happiness & Human Rights Issues

♠ Posted by Emmanuel in at 4/30/2014 12:07:00 AM
Oh my, I hereby declare April 2014 "Bash Bhutan Month." Having criticized the small country for catering to wealthier tourists via its minimum spend requirements to obtain a visa despite purportedly pursing anti-materialistic "gross national happiness," I offer another criticism along similar lines. Rest assured that I feel guilty pointing out Bhutan's flaws since it's but a small developing country. However, just as I regularly bash Yanqui blowhards over hoary American exceptionalism--us stupid colored people would be so much better off if we were more like the US--Bhutan also has it coming with all this "gross national happiness" jibba-jabba.

Like other countries, Bhutan has its ethno-religious minorities. Almost without exception, they bear grievances. Think of Tibetans in China, or Muslims in the Southern Philippines and Southern Thailand. In Bhutan, there are the Hindu Lhotshampa people who compose a fifth of the population but are not exactly treated on the same basis as the Buddhist majority. First, a bit of sordid history:
In the 1980’s Bhutan changed its citizenship laws, especially in relation to Lhotshampa citizenship. At the time the Lhotshampa comprised roughly on third of the population, posing a possible threat to political order. By 1990, government policies became more repressive for the Lhotshampa and they fled as refugees from the government’s actions or were expelled as their citizenship was proclaimed illegitimate. The Lhotshampa’s sudden expulsion left Bhutan with abandoned villages, an injured farming base, and international criticism. A few Lhotshampa still remain in Bhutan, yet face discrimination as a marginalized, minority ethnicity.
Anyway, to frame today's discriminatory measures, we begin once more with other countries' uncritical admiration of "gross national happiness" happy talk:
Many nations, including Japan and Canada, have expressed aspirations to emulate GNH, which shuns purely economic yardsticks like gross domestic product (GDP), on the assumption that the policy has resulted in Bhutan’s people being happier than elsewhere. But happiness goes hand-in-hand with human rights. So does Bhutan really have respect for human rights?
I was peripherally aware of Bhutan's minorities before; what I was unaware of was the extent of the discrimination against them. Indeed, there is even a caste system in place that limits their freedom of movement:
Among the main stakeholders in these [UNHCR] recommendations were the “Lhotshampas,” as Bhutan’s southerners are called. They are part of the nation’s ethnic Nepalese minority. While some of them have risen to become ministers, many others do not even have full citizenship rights.

The citizenship ID cards the Ministry of Home and Cultural Affairs issues to them contain seven categories. Category 1 is for “genuine Bhutanese citizens.” Category 2 is for southerners who left Bhutan once and then returned; 3 is for those who were not around when the 1988 census was held; 4 refers to non-national women married to Bhutanese men, and their children; 5 is for non-national men married to Bhutanese women, and their children; 6 is for legally adopted children. And category 7 would mean the card holder is a non-national.

Holders of cards in categories other than 1 and 4 normally do not get the security clearance required for a passport. They cannot get voter ID cards either, which mean they cannot vote. Worse, those who carry category 7 cards, or fall in that category – and there are significant numbers of them – cannot get admission into schools or get government or corporate jobs. They find it difficult to travel even within the country – they get a “route permit” for restricted domestic travel.
I hate to disabuse you of illusions, but Bhutan isn't quite a Magic Kingdom that's a true-to-life happiest place on earth. Like nearly every other country, it has issues with racism and discrimination against ethnic minorities. The reason why it gets the stick is because, unlike most other countries, it makes grandiose claims about making everyone happy. Just like American hypocrisy on strong dollar policy, Internet freedom or any sort of risible, self-serving happy talk they keep coming up with, Bhutanese leaders need to understand how the rest of us see it. In either case, don't drink that Kool Aid so readily.

To paraphrase Imelda Marcos, I guess some people's happiness matters more than that of others.

Japan's Kei Cars & Idiotic US Trade Complaints

♠ Posted by Emmanuel in ,, at 4/29/2014 12:27:00 AM
 Adorable Chuki feels bad when meanies call her a "non-tariff barrier" [sniff].
So the gifted orator (or BS artist depending on your POV) Barack Obama came to Japan, saw his nominal allies, and failed to conquer their hearts and minds concerning removing trade "impediments" to concluding the Trans-Pacific Partnership. Purported intra-industry trade barriers in automobiles reared their ugly head again, with the US complaining about Japanese certification of sub-660cc (that's below 0.66 liters) kei cars being a sore point. These vehicles enjoy tax and parking privileges, the latter being a key selling point in crowded Japanese cities. Supposedly, the Japanese market's preference for these tiny vehicles that constitute a third of all passenger vehicle sales constituted a "non tariff barrier" (NTB) to foreign auto sales. As US automakers love to point out, they have a miniscule market share in Japan, hence accusations of protectionism that have helped sink TPP.

My take on this matter is very, very simple. The real issue here is not Japanese "protectionism" against foreign automakers, but of foreign automakers' inability to adapt to the consumer preferences of Japanese motorists. Debates between the Japanese and their gaijin interlocutors revolve on this point, which can be answered in two ways:
Japan has no tariffs on auto imports. Japanese auto executives say the country's unique tastes are a big reason for global auto makers' failure to thrive in the world's third largest auto-buying country, after China and the U.S. Foreign auto executives say the country's preferential tax treatment for minicars and its unique safety and environmental regulations are nontariff barriers that protect the country from foreign competition...
In some ways, the auto industry's love of minicars here is reminiscent of Japanese smartphone makers, which geared features heavily toward Japanese consumers and struggled to make headway overseas. Their shortcomings led to the coining of the term "Galápagos" to describe the market, like the group of islands cataloged by Charles Darwin : uniquely evolved and ultimately at a disadvantage because of its isolation.
To me it's largely an application of the "when in Rome" principle: In automobiles, tastes vary globally, with variations changing depending on the market in question. For instance, Europeans are big on diesels that account for about half of all cars sold. Meanwhile, even with $100/bbl oil, Americans still love to buy hulking, gas-guzzling monstrosities. These are in part due to physiological considerations--they cannot physically help it. In OECD overweight league tables, blubberly Americans literally weigh in biggest of them all, whereas the Japanese hardly have any such people at the opposite end of the scale. In other words, jus' folks in the Jabba the Hutt/Larry Summers weight class have no chance of fitting into kei cars.

Consequently, Toyota and other Japanese automakers aren't dumb enough to sell kei cars Stateside. Instead they sell oversized, inefficient, gas-guzzling lardbuckets such as the bestselling Toyota Tundra in America. Is the Tundra a Toyota mainstay in any other auto market? Of course not since it was built to suit American tastes and girths. Why should anyone with half a brain be surprised to find American cars unsalable in Japan given that most are too big, consume too much petrol which is considerable more expensive in Japan, and are not even right-hand drive to begin with? Ironically, the only American concern that makes money off kei cars is Disney Pixar by marketing products bearing adorable Chuki's image: toys, backpacks, and what is undoubtedly an impressive array of licensed merchandise.

Bottom line: If Americans spent half as much time developing salable kei cars as they did bullying and hectoring Japanese authorities, they'd actually have some market share by now instead of next to none. If you want to achieve something, shut the #$%^ up and get to work. However, I guess that old-fashioned idea has long lost traction in downwardly mobile modern-day America which more often than not plans to get ahead through strong-arm tactics, subterfuge and legal machinations. What's more, I think Mother Earth would be far better off if the rest of the world preferred small, well-formed and cute kei cars for daily transportation compared to the monstrous, bloated and butt-ugly cars made in America.

Saying it's expensive to develop Japan-only cars is no excuse for multinationals. Heck, tiny British sports car maker Caterham sells less than 500 cars annually, but recently had a smash hit developing a kei car roadster, the Seven 160. It looks great and should appear in Cars 3:

Google Maps & Cartographic Discrimination Against Africa

♠ Posted by Emmanuel in , at 4/28/2014 12:01:00 AM
Oh, the burdens of having ignorant Westerners relate to Africa--a continent that is largely a mystery to them. US television network CBS received much flak for playing Toto's hit "Africa" over mournful footage of Nelson Mandela's funeral. Aside from "Africa" being a composition of an LA band, Toto had never even been to the continent when it released the song back in 1982. Surely there are African performers of note known even to the least curious of Westerners such as Youssou N'Dour, Hugh Masekela, King Sunny Ade or Ladysmith Black Mambazo?

Whatever the case, the example of paying "tribute" to South Africa's deceased leader with "authentic" music is but one in a series of continuing slights against Africa by Westerners. I tend to view the matter on the more optimistic side: the CBS producers were not consciously belittling Africa, African music or African culture. Rather, their limited perspectives tend to present a bland, samey view of the World According to White People. Hence my criticism of much IPE produced by the hegemony of Western universities as "White PE." These scholars may not be trying to parade their ignorance so clumsily--save for a few--but their analysis tends to be limited since (as I've said) they usually represent "lots of monolingual white guys at American and British universities talking to each other and calling it 'international.'"

Today's Western offender du jour is Google. This California outfit is ostensibly about not being evil and observing proper lefty behavior about respecting other cultures. As it turns out, however, they too are guilty of slighting Africa in a way their predecessors have by using the Mercator projection of the world map. From James Wan (not the actor):
[O]ne particular model gradually surpassed all the others to become the world map that is now ubiquitous on classroom walls, in books and now even on Google Maps. For many people today, that projection − invented by the Flemish cartographer Gerardus Mercator in 1569 − is the world map.

The main reason Mercator's projection became so popular was because of its navigational usefulness; in his map, straight lines represent lines of constant compass bearing. However, in manipulating the map to ensure this feature, the sizes of countries become hugely distorted. In particular, the southern hemisphere appears much smaller than it is in reality.

For instance, in the Mercator projection (below), North America looks at least as big, if not slightly larger, than Africa. And Greenland also looks of comparable size.
But in reality, Africa eclipses both. As is apparent in the Gall-Peters equal projection map (below), you can fit North America into Africa and still have space for India, Argentina, Tunisia and some left over. Greenland meanwhile is one-fourteenth the size of the continent.
So Google stands accused of replicating prejudices that show the white man's lands are "bigger" than those of others. Is Google really being hypocritical in violating their so-called motto of "Don't Be Evil"? My guess is that it is again an unconscious decision stemming from not knowing any better being stuck behind computers all day and not really striving to understand other people, places or cultures. Wan then delivers the knockout blow that even if Google knew any better, they still would use the Mercator projection since there isn't anything much of (commercial) interest in the vast African continent from a moneymaking perspective:
Google relies on advertising for almost the entirety of its nearly $60 billion annual income. One way to think of Google's business model is that its massive advertising revenue allows it to offer its services free of charge. But another way to think of it is that the near monopoly the company achieves by providing its ubiquitous services for free gives it the dominance necessary to generate those ad dollars in the first place. Google's corporate motto may be 'Don't Be Evil', but it's bottom line is still 'Make A Profit'.

It is arguably this reality that has led Google to spend massive sums of money on developing Google Maps, but which also affects what is put in and what is left off its maps. "It is telling that some townships in South Africa are just blank spaces on the map," says [cartographer] Brotton...

[I]t is much harder to quickly highlight Google Maps' particularity because there are no real alternatives to which we can look. We can imagine that if all of Google's data and programming ability was suddenly in the hands of a Namibian agriculturalist, a Sahelian nomad or a Senegalese fisherwoman, the maps they would conjure up would be completely different. They might well prioritise soil types over Starbucks, wells over Walmarts and the state of land degradation over panoramic streetviews of American towns. But we can only imagine. As was the case a century ago, it is still just a small group of Western individuals with specific ideas of the world that have the resources to map the world [my emphasis].
And to think that all these years we've been fed a steady diet of white persons' biases by literally grinding Africa small. The cartographer Jerry Broton explains in his book that just as history is written by the victors, so are maps drawn by them to reinforce their biases. I'm saddened but not surprised, and hope this post makes some amends. On this matter we can (correctly) reference Toto:

I know that I must do what's right
As sure as Kilimanjaro rises like Olympus above the Serengeti
I seek to cure what's deep inside, frightened of this thing that I've become...  

UPDATE: It is true that some cartographers do not consider the Gall-Peters projection accurate either and prefer the Robinson projection or the even newer Winkel tripel projection. Fair enough, but keep in mind that both do the same thing as the Gall-Peters projection in rendering Africa significantly larger in relation to Western Europe and North America than the hoary Mercator projection.

Ranking the World's Top Outsourcing Destinations

♠ Posted by Emmanuel in at 4/26/2014 06:04:00 AM
 At the end of last year, "services globalization and investment advisory firm" Tholons released the 2014 edition of its annual outsourcing destination rankings. The rankings have received limited attention outside of business process outsourcing (BPO) hubs, so it's time I brought it to wider attention here. Because of its head start and agglomeration or clustering effects, India still dominates the list. That said, Manila has displaced Mumbai as the #2 rated destination by moving up a place, as has Krakow, Poland which overtook Dublin, Ireland to take #9. Call it the "Catholic Work Ethic" in action once more exemplified by Poland and the Philippines moving up the economic greasy poles in their respective regions.
Speaking of which, what is interesting to me is the emergence of BPO hubs in all regions. (Unfortunately but unsurprisingly Cairo, Egypt takes an 18 place hit due largely to political instability in that country. The entire list linked to above goes to 100 by the way.) To be sure, people are still more likely to deal with those they are more comfortable with. Hence Mandarin speakers congregate around BPO hubs in China which are relatively nearby and thus have similar working hours. A similar phenomenon occurs with Sao Paulo, Brazil and Santiago, Chile being prime Latin American destinations for BPO work. It's certainly a testable hypothesis that BPO work reliant on verbal communication--think contact centers--is more evenly distributed globally than other tasks that do not rely so much on linguistic facility.

Lastly, the criteria which Tholons uses to evaluate various destinations are described as follows, which have both quantitative and qualitative elements. At the end, I have also included slides depicting Tholons' use of these criteria...
[Q]uality and size of the labour market, costs related to conducting business activity in the BPO sector (office area, operational costs, maintenance costs etc.), business environment (investment incentives, investor cooperation), operational environment (transport, technical infrastructure, service accessibility), business risk (political, business, natural and social risk) and quality of life (e.g. healthcare, culture, leisure, free time). In the case of Kraków, the increase in the number and quality of services provided for the benefit of investors was emphasized (advisory services in accounting, finance and resource management).
What's funny to us in Southeast Asia is that ignorant people were surprised the "Flappy Bird" creator Dong Nguyen came from Vietnam when they have a well-established BPO industry there. Indeed, Nguyen's erstwhile day job was in outsourced programming (for tracking taxicabs). As far as these industries go: been there, done that, saw the movie, bought the T-shirt.

Quantifying Effects of Sanctions on Iran's Economy

♠ Posted by Emmanuel in at 4/25/2014 06:01:00 AM
Rouhani at WEF: not exactly the Taliban at TEDx (now that'd be something, wouldn't it?)
Political risk analysis is an interesting IPE-related field which gauges how political factors can disrupt foreign investment. For obvious reasons, Iran has been the modern exemplar of a high risk, high return destination. That is, if you can invest in the country in the first place. Obviously the United States has long prohibited all trade and investment with Iran, so the more interesting thing has always been how other countries react to pressure from the US to do the same. For instance, it was only in 2010-2012 that the EU imposed an embargo on Iranian oil and gas exports, stopped commercial money transfers with Iranian financial institutions, and prohibited investment in Iran's energy sector.

With the more moderate President Hassan Rouhani now in charge--he Tweets and attends the World Economic Forum to drum up foreign investment--Western countries have lifted some sanctions in an act of goodwill. Just when you thought Iran was rather different, here's its leader trying to drum up FDI like everyone else. To provide context, a few months prior to his WEF talk, the US and EU eased sanctions on Iran. In exchange for more scrutiny of its nuclear program, Iran gained a six-month partial reprieve on sanctions:
In November [2013], Iran's government agreed to give Western powers more scrutiny of the country's nuclear program for six months. In exchange, Western capitals eased some sanctions. The relief is limited to just a handful of industries—aircraft, car parts and petrochemicals, for example. And Western authorities are scrutinizing deals closely. Businesses exploring the Iranian market "do so at their own peril right now," U.S. President Barack Obama said last month, "because we will come down on them like a ton of bricks."
But that hasn't stopped companies from boosting their presence or sending in advance teams—essentially making exploratory visits in the hopes that sanctions may be lifted further and permanently.
I see, then, but what is the economic worth of sanctions applied against Iran? More importantly going forward, how will the detente with Western powers affect Iran's economic fortunes? One of the the world's largest political risk consultancies, IHS, puts dollar signs on these important figures:
1.5 percent growth forecast, $270 billion lost due to sanctions. Rapprochement with the West will help to stabilize Iran's economy. IHS forecasts Iran’s real GDP will rise by 1.5 percent in FY 2014/15, after two years of contraction. Signs of improved relations along with temporary and conditional sanctions relief have breathed life into the Iranian economy. The EU has suspended its ban on insurance coverage for Iranian oil shipments, $4.2 billion in oil revenues has been unblocked, and current restrictions on imports of crude will be held steady for the six countries still purchasing oil from Iran.”

 However, Iran is not out of the woods yet. External and fiscal balances will remain under pressure, inflation will continue to run at high double-digit rates and trade and current account balances have been cut sharply due to sanctions. IHS estimates that since 2011, Iran’s economy has shrunk by more than $270 billion due to sanctions. 
The IHS release also details optimistic, downside, and status quo scenarios that contextualize Iran's economic performance going forward mostly on the application of Western sanctions. Especially striking is the prediction that a total lifting of sanctions on Iran may result in 6-8% growth under the optimistic scenario. Whether you approve of them or not, there is little doubt that they have a significant bearing on Iran's economy.

After OLPC: Ten Commandments of ICT for Education

♠ Posted by Emmanuel in , at 4/24/2014 06:00:00 AM
Is tech the global education solution? I have an continuing interest in the information and communication technologies for education (ICT4E) field having worked on education reform and written an article on the ill-fated One Laptop per Child (OLPC) project for UC Berkeley's California Management Review. For the record, it was not an article I found pleasant to write about--these folks were well-intentioned, after all--but we need to explore why they failed. Isn't the appeal of the Internet obvious to all? Doesn't the Internet automatically promote development? Especially with OLPC, failure to read the political-economic environment of education procurement meant that its reception has been muted as the article explains.

There has been much research done in this field ever since not only by international organizations like the World Bank, regional development banks, UN agencies such as UNESCO, etc. Fortunately for us, ICT4E stalwart Tim Unwin (his fine blog comes highly recommended) lists the ten commandments of ICT4E in a new article for the Commonwealth publication Global: The International Briefing commemorating the Internet's 25th anniversary (WWW inventor Tim Berners-Lee is a Brit, right?) With the benefit of hindsight, you kind of wish the OLPC folks considered these earlier on:
  1.  It is the learning that matters and not the technology: Many e-learning and m-learning initiatives place the emphasis on the technology – be it laptops or mobile phones. Effective initiatives begin with identifying the learning objectives and then pinpointing the technologies that are best suited to delivering them.
  2. Teachers must be closely involved in the implementation of ICT for education initiatives: Teachers need to be given effective pre- and in-service training in advance of the introduction of ICT in schools. This is absolutely crucial and goes far beyond the mere learning of Office packages of software.
  3. Sustainability issues must be considered at the very beginning: Computers, laptops, tablets and mobile phones are expensive. While it can be affordable to purchase these as a one-off investment, careful thought must be given to the budget costs of maintaining this equipment and of how to provide it for the next generation of pupils. Computers do not last forever and a substantial budget stream must constantly be made available.
  4. The supporting infrastructure must be in place: All too often, insufficient attention is paid to ensuring that there is sufficient reliable electricity and internet connectivity to enable the equipment to be used, and for teachers and students to gain access to the internet.
  5. Appropriate content must be available to help deliver the curriculum and learning needs: Far too often, ICT initiatives merely provide access to internationally available content delivered in foreign languages. It is important that local content developers are involved in shaping learning content and that as much attention is focused on using ICT to provide new ways of communicating, and not just delivering information.
  6. Ensure equality of access to all learners: ICT devices enhance inequality between those who have access to them and those who do not. It is essential, therefore, that attention is paid to ensuring that all learners are indeed able to access the benefits. Usually, ICT for education initiatives starts with those who are already privileged through their wealth or by living in urban environments with the necessary infrastructure. Enlightened initiatives actually begin with delivering learning solutions to the most marginalised people and those living in rural areas. It is also salient to remember that people with greater disabilities have far more to gain from learning ICT skills than do those with fewer disabilities.
  7. Monitoring and evaluation must be undertaken from the very beginning: Evaluation ensures that learning objectives are indeed being achieved and that any initiative can be tweaked accordingly to improve its efficacy.
  8. Appropriate maintenance contracts for equipment and networks need to be established: Training local people in the maintenance of learning technologies is essential to ensure that the equipment is used effectively. This can also provide a real boost to local economies.
  9. Use equipment and networks in schools for as long as possible each day: ICT equipment and networks in schools should be used by local communities in out-of-school hours. This maximises the use of expensive equipment and can also provide a valuable source of income generation that can help defray the costs of its usage.
  10. Think creatively in your own context: There are no best practices, only a range of good practices from which to choose. Learners and teachers should develop solutions that best fit their learning needs and then get on with implementing them!
Technological revolutionaries have by now been disabused of the idea that ICT is the magic bullet to promoting education in developing countries. Alas, things are never so simple: the form (electronics) is secondary to function (education). Remember that.

Indeed, I am becoming more "computer-agnostic" in thinking that the presence of computers is incidental and not instrumental to learning.

Achtung Baby: Real Dangers of German Denuclearization

♠ Posted by Emmanuel in ,, at 4/23/2014 06:02:00 AM
Chalk this one up as a victory of politics over common sense. Imagine adopting an energy policy that (1) leaves you vulnerable to the whims of vainglorious and unreliable energy suppliers, (2) raises the costs of energy provision, and (3) pollutes the environment more as you return to coal burning, and (4) opens you up to litigation for forsaking agreed-to contracts to maintain nuclear power plants. As it so happens, one of the most rational nations on Earth, Germany, is doing precisely that.

In the wake of the 2011 Tohoku earthquake in Japan, European countries have reassessed their use of nuclear power. The French who already rely on nukes for about three-quarters of their power sensibly shrugged off this concern, correctly reasoning that they were not in the earthquake-prone Pacific ring of fire and had more robust designs. They've even built more plants since. The Germans, however, took fright for reasons that are obscure to me. What, then, have been the negative implications of Germany's decision to phase out nukes by 2022? Let us count the ways...

1. Heightened reliance on energy from a dodgy chap with Cold War fantasies - so Vladimir Putin is a swell guy for frightening EU countries and boosting bond prices. However, he is hardly a reliable economic partner. As Germany mothballs more nuclear plants, its reliance on Russia will increase unless it significantly boosts production from alternative sources--fracking, renewable energy, etc:
Germany, faced with the possibility that restricted energy supply from Russia could undermine its efforts to end nuclear power, needs to reduce its reliance on Russian energy and compensate the loss with renewable energy, Steinmeier said. Germany, which imports one-third of its natural gas from Russia, has decided to phase out all of the country's nuclear reactors by the end of 2022 in the wake of the nuclear accident at the Fukushima Daiichi power plant that broke out in Japan in 2011.
2. Increased costs of energy provision will hit German industry squarely in the gut - as one of the world's genuine manufacturing powerhouses, Germany is set to endure a largely self-inflicted setback. German researchers have modeled the impacts of denuclearization and state:
The model analysis with the electricity market model MICOES shows that the nuclear phase-out has a visible effect on the wholesale electricity prices that will increase compared to the situation with a lifetime extension of nuclear power by 11% in 2015 and 23% in 2020.
3. The quite frankly idiotic German phase-out not only increases environmentally unfriendly coal burning in Germany but also coal and nuclear production in neighboring countries that are ramping up to fill German energy demand. Net result? Zero improvement in cleaning up the air in Europe or making nuclear power "safe" as production is shifted to neighboring countries whose technologies are generally less advanced than Germany's (with the exception of the French):
Previously a net exporter of electricity, Germany now imports as much electricity as it sells abroad. Removing so much German electricity from the market has benefited power companies in neighboring countries that rely heavily on coal and nuclear power, thereby undermining Germany's environmental goals and its nuclear safety concerns.
Although abandoning nuclear power is expected to eventually clear the way for the development of renewable energy, in which Germany is already a world leader, the environmental effect so far has been problematic. Last year's shuttering of eight of the country's 17 reactors has led to an increase in carbon dioxide emissions of 25 million tons annually in Europe, said Laszlo Varro of the International Energy Agency, a European intergovernmental organization.

4. You get your pants sued off by reneging on commitments made by previous governments to run nuclear plants - Germany is hardly our idea of a country high in "political risk," but it may be so in energy. Sweden's state-owned power company Vattenfall has taken the German government to task for doing just that:
In May 2012 the Swedish energy company Vattenfall filed a request for arbitration against Germany at the International Centre for the Settlement of Investment Disputes (ICSID), housed at the World Bank in Washington, D.C., because of Germany’s decision to phase out nuclear energy. Vattenfall relies on its rights under the Energy Charter Treaty, an international trade and investment agreement in the energy sector.

This treaty, like many international investment agreements, grants foreign investors the right to bypass the domestic courts of the host country and to directly file a complaint to an ad hoc international tribunal to challenge proposed government regulations. Vattenfall is expected to claim well over €700 million in compensation in response to the closure of the nuclear power plants Krümmel and Brunsbüttel.
So much for German rationality in all walks of life. They have added to their energy costs, boosted their carbon emissions, reduced their trade surplus as energy imports rise, shifted externalities to neighbors who sell Germany power produced by coal and nukes, and rely more on the wiles of an unpredictable chap named Putin. It's a lose-lose-lose-lose proposition that constitutes the real dangers to denuclearization. 

Asia Fun Club: PRC Seizes Japanese Cargo Ship

♠ Posted by Emmanuel in ,,, at 4/22/2014 03:50:00 PM
The Japanese have literally been, ah, Shanghaied.
Us Asians generally have a longer-term perspective than Americans (whose planning horizon is near-zero as evidenced by all sorts of things ranging from the negligible savings of its retirees to the $17.5 trillion plus they will dump on future generations). However, it can go to ridiculous lengths as we bear grudges against each other stretching for decades and decades. The archetypal example is of remembering wartime atrocities committed during Japanese occupations of WWII. The Greater East Asia Co-Prosperity Sphere and all that stuff. Just recently, the Japanese Prime Minister paid tributes to the Yasukuni shrine which the Chinese and Koreans are greatly offended by since they believe it contains the remains of war criminals.

So how does China get back at Japan over this and lingering territorial disputes over uninhabited rocks in the East China Sea? Even I was shocked by this: Chinese authorities have detained a Japanese merchant vessel the Baosteel Emotion while making steel deliveries in China over commercial disputes dating before WWII:
The seizure of a Mitsui O.S.K. Lines vessel in China may have consequences for Japanese business activity there, Tokyo warned Monday as officials here pondered the true intention behind the move. Embittered by a territorial row, Japan and China were just starting to seek a rapprochement when the Shanghai Maritime Court said Chinese authorities had impounded the Baosteel Emotion on Saturday.

The iron ore carrier appears to have become a pawn in a dispute stretching back to the 1930s. At the time, a Chinese shipowner chartered two freighters to a Japanese shipping company that later changed names and merged with Mitsui O.S.K. Lines. The vessels were commandeered by the Japanese government and subsequently sank. The owner's relatives sued Mitsui O.S.K. Lines for damages in China and won, with a high court upholding the original verdict in 2010.
The company "was seeking the possibility of out-of-court settlement when the vessel was suddenly impounded" by authorities in Zhejiang Province, Mitsui O.S.K. Lines said in a statement Monday.
Dredging up ancient history is an Asian specialty, but this is ridiculous. What will the effects on trade ties be when a Japanese vessel making routine deliveries can be seized at random over some long-forgotten pre-WWII grievance?
The seizure threatens to "fundamentally undermine the spirit of the normalization of Sino-Japanese relations as laid out in a 1972 joint communique," Chief Cabinet Secretary Yoshihide Suga told reporters.

Tokyo maintains that because China renounced its demand for war reparations from Japan, any private claims for war-related damages are void. The Japanese government is calling for an explanation of the ship seizure and, depending on what it hears, may lodge a formal protest.
OTOH, China claims its courts have found against the Japanese shipping concern:
The owners of the shipping company, identified by Kyodo as Zhongwei Shipping, sought compensation after World War Two and the case was reopened at a Shanghai court in 1988, China's Global Times said. The court ruled in 2007 that Mitsui had to pay 190 million yuan ($30.5m, £18m) as compensation for the two ships leased to Daido, a firm later part of Mitsui...
Be that as it may, China's timing is curious, to put it mildly. In one sense it's an idiotic stunt by the Chinese to offset another made by the Japanese. As they say, however, two wrongs do not make a right, and you have to wonder what prospects for regional trade are when its biggest players are so prone to making dumb stunts. It's a tad...immature, really.

UPDATE 1: Thanks to GPS, you can follow the Baosteel Emotion's whereabouts. At of 1600 GMT on April 22 , it's still stuck in Majishan port in Zhejiang province.

UPDATE 2: Mitsui OSK forked over $28M in ransom money to free the ship on April 24.  I guess the shipping line does not have the same resolve as the Japanese government.

VW, GM & Toyota Vie for PRC Auto Supremacy

♠ Posted by Emmanuel in ,, at 4/22/2014 12:11:00 AM
It's definitely not your grandfather's Buick.
Having discussed the troubles Chinese automakers have selling cars at home and what it means for their export prospects, let us now turn our attention to the real battle for market supremacy in the PRC. In 2009, it surpassed the US as the world's largest market in terms of vehicle sales, so it certainly isn't small fry and represents a burgeoning market with vast possibilities relative to the saturated Western and Japanese ones. Yes, China is horribly polluted already. But no, the automakers seem to be implying that sales can continue to grow with hybrids, never mind that charging in China will probably be powered by ubiquitous coal plants. Ride bikes in Beijing? Are you Communist or something? (Ooh, the delicious irony.)

The opening of the 2014 Beijing Auto Show, famous for its equal-opportunity exploitation of female and male models alike--do you come with the car honey, etc, etc--prompted me to write this post. As in the rest of the world, the major combatants are those we've become accustomed with fighting for global supremacy. In 2013 global sales, Toyota came in first, Volkswagen second, and GM third. In China, though, VW is the largest seller, followed by GM in second and Toyota only in sixth place. Toyota isn't even the largest Japanese seller in China, which is Nissan. Unsurprisingly, all three have big plans for the market that ate America and Europe to boot. Let's go through these in order, then:

1. Volkswagen - the Germans plan to double their dealerships in China. It is also relying on its vast portfolio of renowned brands to serve all income segments:
VW, the Wolfsburg, Germany-based carmaker that owns a dozen automotive brands, is planning to increase its number of dealerships in China to more than 3,600 by 2018, up 50 percent from now, the company said. VW said it will also introduce a range of low-to zero-emission models to meet rising demand for such cars in the country, starting with the e-Up! and e-Golf this year, followed by models such as the Audi A3 E-Tron plug-in hybrid. “We will intensify our customer orientation even further so that we can respond even faster and more flexibly to customers’ wishes -- particularly here in China,” Winterkorn said.

Outselling GM in China helped VW surpass the U.S. automaker as the world’s second-biggest carmaker by sales last year. VW, whose businesses include the Audi and Porsche premium marques and the Skoda mass-market nameplate, has said that it may sell more than 10 million vehicles for the first time in 2014, four years earlier than planned. 
So VW is growing like gangbusters, and its upscale brand Audi is leading the charge:
Volkswagen's (VOWG_p.DE) luxury division Audi plans to sell about half a million cars this year in China, the world's biggest auto market, and raise the number of its Chinese dealers to 500 by 2017. The German automaker hopes its car sales will exceed 500,000 this year, executives told reporters on Friday before the Beijing auto show, which opens on Sunday...

In 2013, Audi sold 488,000 vehicles in China and a total of 492,000 including Hong Kong. Executives said it aimed to take advantage of the increasing popularity of SUVs and rising demand for compact premium cars.

2. General Motors - having been dethroned in China, the Yanks plan a fightback based on investing considerable sums there:
U.S. car giant General Motors Corp (GM) (GM.N) plans to invest $12 billion in China from 2014 to 2017 and build more plants next year as it competes with aggressive rivals in the world's largest auto market. "We are investing wisely and accelerating our vehicle development and manufacturing to keep pace with market demand. In total we are investing $12 billion between 2014 and 2017," Matt Tsien, president of GM China, said at the Auto China show in Beijing.

GM plans to build five more plants in China next year, as part of its efforts to ramp up manufacturing capacity there by 65 percent by 2020, executives said on Sunday. 
3. Toyota - being in sixth position in China but first in the world, Toyota is arguably trying the most to make up the deficit. On tap are a boatload of new models--mostly of the more affordable sort:
Japanese automaker Toyota Motor Corp. said Sunday that it plans to launch more than 15 new models in China by the end of 2017 and also strengthen its production operations in the world's largest auto market. At the 2014 Beijing Motorshow, Toyota Executive Vice President Yasumori Ihara said that the new Corolla and Levin sedan models, to be unveiled shortly, will be available from next year as hybrid models with major hybrid components produced in China.

Toyota hopes to achieve auto sales in China of more than 2 million vehicles per year, but did not give any specific time frame to achieve that target. He noted that Toyota's sales target in China for this year is more than 1.1 million vehicles. The company sold 920,000 vehicles in China in 2013...
In order to make its products more attractive to Chinese consumers, Toyota plans to focus on launching highly desirable new models in the compact vehicle segment that accounts for 60 percent of the Chinese market.
Japanese brands are handicapped by being vents for nationalist sentiment when the PRC leadership needs one to distract from homemade problems. Just today, Japanese PM Shinzo Abe made another offering to venerate those at Yasukuni Shrine--considered by the Chinese as housing war criminals. I'll bet Toyota cringes whenever these things arise since it becomes yet another opportunity to smash up Japanese cars in China...
To deflect criticism about being overrun by imports, all the majors are to various extents using the ploy of manufacturing in China to portray themselves as "domestic" producers. Especially in the case of Toyota, we'll see if it works. Make no mistake: there is much money at stake.

NSA Spying: A Visual Guide

♠ Posted by Emmanuel in at 4/21/2014 12:33:00 AM

I likened the NSA to East Germany's notorious secret police the Stasi via a job placement for electro-spooks a few moons ago. Data privacy is very much a hot topic in IPE as to the appropriateness of government spying. The American debate concerns citizens' rights to privacy and their willingness to abrogate them because of purported "security" concerns over terrorism and the like. While I am sure Americans don't particularly care about their spooks spying on foreigners, the issue is even more complicated at the international level. That is, does the American government's utter indifference to privacy concerns when spying on other countries' residents raise global governance concerns?

There are thus two big issues in this respect. First, should the current US-centric architecture continue? Already, plans are afoot to transferring assigned names and numbers away from the American non-profit corporation ICANN. Even if this transfer is done, the question remains of how easy it will be for the NSA to spy on you and me with such great ease. Hence the oft-mooted plans to make the UN International Telecommunications Union (ITU) the primary overseer of Internet governance. (Meanwhile, I am amused by American complaints that doing so may result in Internet security concerns when their government's spying animates much of this discussion. The point is that more proactive Internet governance could have made the system more resilient to American intrusion than today's Pincushion 1.0.) Second, should other nations route their Internet traffic away from US hubs and servers to ensure information privacy? I am inclined to think it's a Brazilian/European PR gimmick since the Americans are endlessly resourceful at sticking their noses into everyone else's business.

Speaking of which, I have long been looking for an overview of American spying technologies care of the NSA. The leaks have produced a steady dribble of oddly-named projects: Candygram, Toteghostly, Gopherset, Dropoutjeep, Monkeycalendar. Bruce Schneier has detailed some of these, but there has not been a single, relatively broad overview...until very recently.

Head over to Bloomberg Businessweek for a neat infographic detailing most of the nefarious programs the NSA is running to extract data. Or, at least those which have been uncovered so far. They are in equal parts ingenious and sinister.

It all makes me want to go back to the good old days of fax machines (remember those?) But seriously, consider using analog technologies for transmitting more sensitive information if they prove more resilient to America's vast data tentacles. Make no mistake: having alienated the rest of the world, the US is pretty much alone against everyone else on this matter.

Bhutan's Gross National Happiness & Money-Grubbing

♠ Posted by Emmanuel in , at 4/20/2014 12:06:00 AM
Everybody Wangchuck [L] Tonight and Meet the Jetsun [R].
Us Asians are routinely amused by Westerners buying our dear neighbor Bhutan's schtick hook, line and sinker. You see, Bhutan is famous the world over for measuring "gross national happiness" instead of the materialistic, output-oriented measures us unenlightened folks use like GDP and GNP. King Jigme Khesar Namgyel Wangchuck is certainly not averse to playing along. Especially among self-styled "progressives" this is taken as evidence for their enlightened stance in the place of mammon-worship common to the rest of us.

Take, for instance, this travelogue from Canada's Globe and Mail:
I was in the Kingdom of Bhutan, a small, mountainous country sandwiched between the giants of India and China. Protected all around by the snow-capped Himalayas, this is a place with its own distinct culture, ruled by a 34-year-old king who loves romantic comedies and Elvis, and guided by the principles of Gross National Happiness. While it may not be the easiest travel destination – Bhutan requires a prepaid daily minimum spend in order to secure a visa, and a trip from Canada will involve at least three separate flights – visiting this kingdom in the clouds can feel like a journey to another world, an almost-mystical destination that’s even more difficult to leave.
At this point I should also mention Jetsun Pema, formerly a student in London who now outdoes Kate Middleton by virtue of her exalted status as queen opposed to just a princess. Like Princess Catherine, she has become tabloid fodder. (Surely it helps draw the tourists?) I guess the glamor got to our Globe and Mail correspondent who goes about tossing lots of softballs Snowden 'n' Putin-style until he elaborates on this part:
The Bhutanese government requires visitors to spend a minimum of between $200 (U.S.) to $250 a day in order to issue a visa. The funds include basic hotel, guide and meals and must be prepaid to an approved tour operator. Visitors are also welcome to spend more, and have many opportunities to do so at one of the country’s luxury lodges. For more information, visit [...]
Wait, wait, wait: In the middle of all these paeans to the progressiveness of being more concerned with happiness than material possessions, we learn that Bhutan does not welcome travelers on a shoestring budget. Shouldn't Bhutan be "sharing" all this happiness with folks of lesser means? What's more, doesn't encouraging a minimum spend contradict the notion of being anti-materialistic? Bhutan's tourist information also points this out:
The minimum daily package for tourists travelling in a group of 3 persons or more is as follows: USD $200 per person per night for the months of January, February, June, July, August, and December. USD $250 per person per night for the months of March, April, May, September, October, and November
So much for Bhutan being the world's biggest hippie commune. To be fair, though, there are two lines of argument here:
  1. Bhutan is populated by money-grubbing hypocrites (see above); or
  2. The minimum spend provision has to deal with promoting sustainable tourism. Backpackers and the sort are not welcome since they go it alone and are more likely to be insensitive to polluting the environment, observing modest behavior, and generally acting ugly. By providing fewer guests with guides, this sort of inappropriate conduct is avoided for the benefit of all.
Bhutan obviously takes the second line:
The royal government has always been aware that an unrestricted flow of tourists can have negative impacts on Bhutan's pristine environment and its rich and unique culture. The government, therefore, adopted a policy of "high value-low volume" tourism, controlling the type and quantity of tourism right from the start.
All that's well and good, but isn't it all a tad elitist and materialistic?
So far, the government’s objective of maximizing foreign exchange earnings while minimizing the potentially adverse cultural and environmental impacts of tourism has paid off. The number of tourist arrivals has increased from just 287 in 1974 to close to 41,000 high-end tourists [my emphasis] in 2010. There was also a 56% increase on 2009 figures in high-end arrivals from neighbouring countries, especially India, highlighting the importance of the regional market.
Actually, Bhutan does not restrict tourist numbers, which would make sense ecologically speaking. So, combine a minimum daily spend with unlimited arrivals and it's hard not to question all these "green" and "post-materialist" marketing gimmicks that ever-so-gullible Westerners keep lapping up. Whatever your opinion of the matter, let's just say that economic considerations are not totally out of the picture. They're quite hard-nosed about all this travel business, actually. Plus, it makes me wonder why Bhutan is included in the Lonely Planet guide when the country is definitely not marketing itself to travelers on a shoestring budget.

TPP Hara-kiri: Will Japan Kill Off This Trade Pact?

♠ Posted by Emmanuel in , at 4/18/2014 12:14:00 AM
Hara-kiri is defined as "ritual suicide by disembowelment." Two years ago, I described Japan joining negotiations to enlarge the existing TPP membership as a non-starter mainly because of Japan's  strong agricultural lobbies blocking off any sort of liberalization of sensitive crops--especially rice. There too remains the quite frankly idiotic complaint Americans have that the Japanese car market is "protected" since they have time and again failed to sell their oversized, gas-guzzling, left-hand drive cars that are unsuitable for sale in Japan. Yet, for obvious reasons, the US has been keen on Japan joining since it's the world's third largest economy and would in theory induce "bandwagoning" effects wherein others will feel they cannot be left behind and join as well.

As it is turning out so far, Japan has [surprise!] been the most intransigent of parties to TPP negotiations over agriculture. The US Trade Representative has already complained about their Japanese counterparts:
The US has accused Japan of blocking progress on a trade deal between 12 countries on the Pacific Rim by not allowing open access to its markets for agricultural products and motor vehicles. In his most critical comments yet on Japan, Michael Froman, the top US trade official, said: “We can’t have one country feeling entitled to take off the table and exclude vast areas of market access while the other countries are all putting on the table more ambitious offers...”

Japan wants to maintain – or phase out slowly – tariffs on five agricultural products including rice, beef, and pork that it has declared “sacred”. The two countries also disagree on what is needed for the three big US carmakers to compete on a level playing field with Toyota, Nissan and others. At a congressional hearing on Thursday, Mr Froman, the US trade representative, said he had told Japan that it was not living up to its commitment to help create a “high-standard, ambitious, comprehensive” agreement.
Harakiri here refers to political suicide by Japanese politicians. Removing protections on what they call "sacred" sectors (including beef, of course) would result in lost votes from rural interests who've traditionally supported the Liberal Democratic Party (LDP) and played a not-insignificant role in keeping it in power. So, apparently, the US is now backtracking. Call it a "low-standard, unambitious, shallow" agreement instead:
It remains highly uncertain to what extent the two countries can move closer on outstanding issues at a series of planned meetings between Akira Amari, minister in charge of TPP talks, and Michael Froman, U.S. trade representative, likely to last until Friday, as they remain far apart after their 18-hour talks held in Tokyo last week...
Washington, which had long called on Tokyo to stick to the basic TPP principle of abolishing all tariffs, gave up on doing so, and it is now asking Tokyo to lower its tariffs on beef — one of the main U.S. interests — to below 10 percent, according to negotiation sources [my emphasis].
So either no deal is done or a highly watered-down one is riddled with exemptions and opt-outs. As I said before, it would be low-standard/unambitious/shallow to the point that American lawmakers and their constituencies would become disinterested altogether
Japan’s position on agricultural products also has broader implications for concluding the TPP negotiations anytime soon. When one member doesn’t eliminate tariffs on a broad swath of products, others are compelled follow suit. Japan’s failure to eliminate tariffs on a large number of food and agricultural products would result in the withdrawal of concessions to Japan not just by the United States but by other TPP members. Some of those countries no doubt are looking for such an excuse to protect their own sensitive products.

The result would be a downward spiral of expectations for the TPP, with the deal moving from a comprehensive, first-class agreement to one that may have difficulty generating the level of interest and support needed here at home to gain congressional approval [my emphasis].
I remain rather pessimistic about TPP's prospects since Japan is far from the only country expressing reservations. If Japan doesn't kill it(self) off, there are others waiting in the wings to do so.

UPDATE: US-Japan bilateral talks have not yielded results, unfortunately for TPP's US boosters.

Cheers to Vlad Putin for Boosting My Euro Bonds

♠ Posted by Emmanuel in at 4/17/2014 12:34:00 AM
Ever heard of the term "financial martyrdom"? If you haven't, don't feel so bad since I just coined it at this very moment. In an earlier post, I talked about a Franklin Templeton bond fund I was offered that was full of Ukraine bonds. Let's just say I was sane enough to dodge that bullet. I have since invested my euro-denominated savings--I am not dumb enough to hold a boatload of dollars as I keep mentioning in this blog. What did I put them in? As a conservative investor, I put it into a bond fund of short duration, "just right" investments: not quite investment-grade but reasonably safe and higher yielding in comparison to German bunds and the like.

Anyway, I placed my funds at the end of last month. I was afraid that I had run out of juice since Eurozone yields were already at historic lows. Could they go even lower? Thankfully they can. What's more, I have Vlad Putin to thank. The geopolitical story goes like this: diversified investors want to keep a European presence, yet they are aware that bond prices don't have much higher to go. Even the brokest of the broke, the Greeks, can actually borrow again at sub-6% rates. It's a miracle if you ask me.

Now, to the "financial martyrdom" part. Putin is sacrificing the well-being of the Russian economy to help small retail investors like yours truly with a few euros to place. Largely because of its leader's military adventurism, Russia has scrapped bond auction after bond auction in 2014:
Russia canceled its eighth bond sale this year as Finance Minister Anton Siluanov said the nation is facing the toughest conditions since 2008, when Lehman Brothers Holdings Inc.’s collapse sparked the financial crisis. Yields on local currency 10-year bonds jumped 76 basis points since Russia’s incursion into Ukraine’s Crimea region at the start of March. Rates on similar-maturity securities of Turkey, ranked one level below Russia at Fitch Ratings, fell 30 basis points in the period.

Russia is being frozen out of government bond markets after President Vladimir Putin’s annexation of Crimea drove relations with the U.S. and Europe to a Cold War low. The economy may not grow this year, with “considerable geopolitical risks” the main driver of Russian capital outflows, Siluanov said at a ministry meeting yesterday.
Yields on Russian debt are circling the stratospheric heights previously occupied by Greece and other European deadbeats:
The government won’t sell bonds when yields are too high, Siluanov said on April 1 after Russia announced a second-quarter borrowing plan of 150 billion rubles, 50 percent smaller than the same period last year.

The yield on Russia’s 10-year securities rose for a third day yesterday, adding seven basis points to 9.14 percent as of 6:27 p.m. in Moscow. The rate reached 9.79 percent on March 14, the highest since October 2009. “The current rates are still too expensive for them,” Yulia Safarbakova, an analyst at BCS Financial Group, said by e-mail yesterday. “That’s as long as the budget is in surplus” no other territories join Russia and the oil price stays high, she said.
Russia isn't exactly desperate to borrow at the moment since it has those $400 billion-something in foreign exchange reserves. That's even as its economy heads towards the zero growth mark due to all those Western sanctions and what else have you as money flees the country. This is where Putin's magnanimous nature comes in. Where else would the money fleeing Russia go but to nearby EU member countries? Investors are still looking for more yield than German bunds and other investment-grade stuff to place in. So, why not invest in places like Romania? As it so happens, this former Soviet-bloc country's borrowing costs are hitting all-time lows:
Romania raised 1.25 billion euros ($1.7 billion) in its second international bond sale this year, taking advantage of record-low borrowing costs to finance its budget deficit. The government sold 10-year bonds today at a yield of 200 basis points above mid-swaps, the equivalent of 3.7 percent, the lowest on record for the country, Budget Minister Liviu Voinea said in a phone interview. Citigroup Inc. (C), ING Groep NV, Societe Generale SA (GLE) and UniCredit SpA (UCG) managed the sale, Diana Popescu, deputy director at the Treasury, said by phone...

“We’ve completed our international funding needs for this year eight months ahead of schedule with today’s sale,” Voinea said. “This doesn’t mean that we won’t issue again if market opportunities allow, but it will be to pre-finance 2015.” 
As investors flee Russia, they are piling into the likes of Romania and other "just-right" investments:
Romania, the European Union’s fastest growing economy in the fourth quarter of 2013, is seeking to attract capital outflows from Ukraine. Investors are pulling money out of Romania’s northeastern neighbor as concern mounts that Russia will seize more of Ukraine after annexing Crimea in March. The yield on Romania’s eurobonds due in 2020 fell 2 basis points to 3.097 percent at 8:14 p.m. in Bucharest, a record low, according to data compiled by Bloomberg...
“The disputes between Russia and Ukraine remain important to watch, but I would say investors have now digested the fact that as long as negotiations continue in Ukraine the contagion impact on central Europe is minimal,” Raffaella Tenconi, a London-based economist at Bank of America Corp., said by e-mail. 
While Russia and Ukraine are locking horns, others stand to benefit as money piles in elsewhere. Thankfully, "elsewhere" happens to be in Europe just as investors seek the relative safety of bonds in parts of that continent where Putin isn't likely to send his guns, goons and gold. It seems Russian aggression is inversely related to bond yields of EU debt issuances.

As I said, what a thoughtful man this Vlad Putin. He's always helping out us small retail bond investors. Just when you thought euro-denominated bonds had run out of room to run, he engages in all these amusing forays into neighboring countries to not only entertain us with his exploits of shirtless machismo but to also improve the performance of our fixed-income investments. Paraphrasing George W. Bush who drew Putin's portrait above, I looked through his eyes and straight into his soul and saw a man who would capsize his country's economy just to help me eke out better returns on my humble euro investments.

Philippine Tax Authority TKOs Manny Pacquiao

♠ Posted by Emmanuel in ,, at 4/16/2014 10:36:00 AM
Why are tax authorities always hate figures? The Good Book portrayed them as untouchables, and tax collectors have had something of an image problem since biblical times. While the entire Philippine nation was cheering Manny Pacquiao to victory over Timothy Bradley in last Sunday's title bout--which he won handily--someone was already seeing Philippine peso signs in her eyes. No, not Manny's manager but the country's tax collecting head honcho, Kim Henares of the Bureau on Internal Revenue (BIR). As the picture above implies, these two pugilists have had previous run-ins. Last year, the congressman accused her of "harassing" him over back taxes:
Pacquiao—who is also a congressman representing Sarangani province—has been slapped with a P2.2-billion bill by the BIR, which alleges that he failed to pay taxes for his income from boxing in recent years. For this, tax authorities have ordered local banks to freeze his accounts.
This prompted Pacquiao to call a press conference, saying that he was being harassed by local authorities for taxes that had supposedly been settled in the United States. [The US Internal Revenue Service itself has issued a levy on Pacquiao’s US bank accounts to recoup more than $18 million in alleged tax liabilities from 2006 to 2010.]
The "Taxman versus Pacman" trope meme has been circulating around the Philippine blogosphere. Kim Henares has become a celebrity herself over her tax crusading. As most development scholars know, collecting revenues is problematic in poor countries where limited institutional capabilities makes it easy for tax cheats to declare Mitt Romney-like incomes--or none at all. IFIs like the World Bank have been especially critical of the Philippines' inability to raise taxes collections as a percentage of GDP. For the past few years, it has not even crossed the relatively low 13% threshold. Quoth the World Bank on the Philippines:
Higher investments can be sustained by institutionalizing reforms in public finance. In this regard, a comprehensive program of tax policy and administrative measures should be pursued to raise tax revenues by up to 8 percent of GDP. The government’s medium-term target of an additional 3 percentage points of GDP by 2016 is on the right track. Higher revenues need not be equated with higher tax rates as tax administration can be improved substantially.
For instance, in the first quarter of 2013, the Bureau of Internal Revenue announced a campaign to boost tax collection from self-employed and professionals (SEPs) such as doctors, lawyers, and traders. The government estimates that only about 403,000 out of 1.8 million SEPs paid taxes and the average income declared by SEPs is not far from the income of a minimum wage worker [my italics]. Successful implementation of this campaign can generate up to 2 percent of GDP in tax revenues without raising tax rates.
Actually, there is a method to Henares' madness. She has taken to chasing the Philippines bling-bling crowd who take pride in ostentatious displays of wealth in a poor nation. Yes, professionals--doctors, lawyers and so on--tend to hide income from medical operations and billable hours. But, going after celebrities like Pacquiao has proven especially fruitful in gaining public attention with the message that no one is safe from the taxman. Ever seen the IRS head get featured in gossip columns? She does in the Philippines:
With her staff members diligently helping her, auditing books and sales reports, she knows exactly who, and how much or little, the rich and famous are paying and evading paying. Her first salvo was running after  reported tax evading celebrities as Judy Ann Santos, Regine Velasquez and Richard Gomez. When President Aquino told a meeting of the federation of Chinese businessmen that most of them were not paying the right taxes, he was using information provided by Henares.

Henares joined BIR in 2010. Statistics from her office showed that BIR collection for 2013 grew by 15 percent, exceeding the December 2013 target by 6.44 percent. For December 2013, collections from BIR operations amounted to P94.07 billion. Which is P8.25 billion or 9.1 percent more than collections made in December 2012.
You have to be tough to go after the Philippines' rich and famous like Manny. Fortunately, she appears up to the job. Her hobby is combat shooting (with a competition-spec .45 by the looks of it in the link). Speaking of whom, here's who you're up against, Manny: the submachine gun-toting BIR chief...
Tax honcho Kim Henares has got Manny Pacquiao in the crosshairs
Anyway, after Manny's cool $20 million in earnings from the Bradley fight, Attorney Henares has fired another warning shot already. The interesting IPE angle here is that Pacquiao can pay taxes from his matches in either the United States or the Philippines. What Henares is arguing is that he's better off paying them back home since (a) the tax rate there is lower and (b) a poorer country needs the money more as his tax bill climbs:
WBO Welterweight champion Manny Pacquiao now faces P2.56-billion in tax deficiencies after Sunday's match, Bureau of Internal Revenue (BIR) Commissioner Kim Henares said. In an interview over dzMM [radio] on Monday, Henares added up Pacquiao's guaranteed $20 million purse from his rematch with Timothy Bradley to his alleged back taxes of P1.1 billion from 2008 to 2009 and interests.
The People's Champion can settle the liabilities in the United States where his last fight was held and organized. Henares said, however, that the US Internal Revenue Service demands a 40 percent tax contribution from Pacquiao's earnings, while the BIR only asks for 32 percent.
Kim Henares gets two thumbs up from me--a true kickass woman if there ever was one. Yes, the Philippines certainly stands to benefit from improved revenue collection. Manny Pacquiao is a tax-dodging sissy next to her. Fair is fair so pay up, man! You learn early on who to pick fights with. My advice to Manny is to not @#$% around with Kimmy. I sure wouldn't.

UPDATE: Some lawmakers are apparently upset with Henares' brazen PR stunts designed to get Manny to pay. As I mention above, there are reasons why she must resort to publicity to get her objectives accomplished.

BRICs Guy on the EU's Road to Smurfdom

♠ Posted by Emmanuel in at 4/15/2014 01:40:00 AM
Jim O'Neill is known to most as the Goldman Sachs guy who termed the terms "BRICs" to represent the bloc of large developing countries Brazil, Russia, India, and China and to football fans as the would-be savior of Manchester United from the dastardly, debt-loving Glazer Ameriscum. (See anyone else buy a football team via LBO?) He also coined "MINTs" for Mexico, Indonesia, Nigeria and Turkey, albeit their subsequent performance is even spottier than the BRICs'.

Now, BeyondBRICs points us to a new report from him published by Bruegel that suggests the developed countries will lose a larger share of the world economy faster than he had thought. In other words, it's not just the BRICs but the entire developing country caboodle that's going to be growing especially in trade terms like gangbusters relative to their industrialized counterparts. Most vulnerable are the Europeans who are set for a kicking, especially after O'Neill and his bean counters totted up the figures post-European crisis:
We highlight the dramatic degree of the shifts taking place in world GDP and trade and include fresh projections of what world trade patterns might look like in 2020, should the trends observed over the past decade to continue. We also show the resulting shift in trade relationships for many key countries. European member states tend to have quite different trading partners’ profiles, and this heterogeneity is quite likely to become more pronounced with time. This, in turn, suggests a significant challenge for the effective functioning of the euro area and weakens the original rationale of its creation.
This figure shows precipitous declines in Europe's share of world trade in the next few years leading to 2020:

Individual EU nations are obviously not expected to fare well, with even Germany becoming less important:

Even as a proponent of developing countries, I think he's a tad optimistic and weighs post-European crisis data too much in extrapolating their future performance. We'll see. O'Neill also writes about things a lot of IPE commentators have commented on in that institutions of global economic governance do not fully reflect changes in the world's changing distribution of wealth. Remember, the US still selects the World Bank head, while the EU does the same for the IMF. The Eurocentric G-7 isn't exactly diverse and has become less so since they downsized from the G-8 after kicking out Russia. These ideas should not be new to IPE Zone readers, but it's good to hear an influential economist say the same things.