Crisis or no crisis, stay clear of IMF

Editorial, NewAge, February 15, 2009

TRUE to speculations by different quarters, the Bangladeshi economy appears more or less insulated from the raging global financial crisis. At least, as of yet, domestic trends do not reflect a strong impact on the economy due to the financial fallout elsewhere in the world. While experts and economists have speculated about the likely impact on Bangladesh, these speculations have been isolated and based on whatever information was available to them. From that perspective, a government taskforce to assess the likely impacts and probable strategies to overcome the global crisis is a good idea. Although the suggestion of such an assessment exercise, comprising different stakeholders and sponsored by the government, has been in circulation for quite some time, the taskforce is yet to be set in motion. It may very well be that Bangladesh would face some adverse impacts in terms of exports earnings or lower remittance as consumption and demand for services decrease across the world. This assessment exercise, however, either through a taskforce or through commissioned studies, must not be conducted merely to justify further financial assistance from the International Monetary Fund or the World Bank.
   

As a report published in New Age on Friday, indicates, the assessment of likely risks might well turn out to be the prelude to another financial arrangement with the IMF since the last one under the Poverty Reduction and Growth Facility has expired. The possibility, as it was mentioned during a press conference after a meeting between the government and a visiting IMF delegation, would certainly be heartening for the multilateral lending agency that appears to thrive during financial crises such as the present one. It was during the Asian crisis of the 1990s when a number of countries had to turn to this lending agency for funds as they were facing liquidity crunch and were bound to follow the disastrous prescriptions issued by the agency.
   Not only were those prescriptions almost opposite to what developed countries are doing to counter the crisis, but countries that pointedly refused to fall in line and followed their own strategies weathered the crisis much better than those who conformed to the prescribed measures. It is not a surprise then that the IMF has lost a number of large clients in the past several years. A number of its large clients, including Brazil, and Argentina, have paid back their debts earlier than scheduled and refused to renew their arrangement.
   

The lending agency previously made a bid to initiate a new programme with Bangladesh under its newly introduced Policy Support Instrument. Now that Bangladesh does not have any arrangements with the IMF, there could be further pressure for accepting its funds through a new facility, which would presumably stipulate an agreement to the policy support instrument programme. It would only mean that Bangladesh’s sovereignty over its development policies will be undermined. The government should, instead, look for other means to weather through any potential crisis that lies ahead and initiate concrete steps to dissociate itself from the clutches of multilateral lending agencies.

The folly of a South Asian Anti-terrorism taskforce

NewAge, February 13, 2009

For Bangladesh to be part of a South Asian Anti-Terrorism Taskforce alongside the regional hegemon, India, and with the blessings of global military hegemon, the US, will be tantamount to accepting the context in which these two superpowers define terrorism, writes Mahtab Haider*


IN THE past week, prime minister Sheikh Hasina’s idea of a South Asian taskforce to spearhead regional anti-terror operations has repeatedly been in the news, first taking on a renewed political significance when the visiting US diplomat Richard Boucher seemed to strongly back it, and then faltering when the Indian foreign minister Pranab Mukherjee laid it to rest with as diplomatic a dismissal as it could get.
   

Without a doubt, governments across the world — not just the region — need to cooperate in countering radical militant groups seeking to achieve political aims through the use of violence, and as such any move that seeks to bring lasting peace to the communities ravaged by these low-intensity civil wars is pragmatic. But the consensus of what must be done ends there, and rightly so. The idea of the taskforce, be it multilateral as the Awami League-led alliance and evidently the US envisions it, or bilateral as Delhi seemed to prefer, is a deeply troubling one for a number of reasons. First and foremost, the government has, till now, failed to clarify what the legal framework of such a taskforce would be – and what jurisdiction the taskforce would have across national borders. Will this taskforce make recommendations to national governments, and will these recommendations be legally binding, or will it organise joint operations with troops co-opted from national armies across the region, and able to respond to terror groups militarily? If the prime minister expects to be taken seriously on this issue — and the issue is inherently serious — then she must surely understand that the gestation period of this idea is now over, and more details need to emerge on the workings of this proposed body. While there is no denying that governments across South Asia are increasingly finding themselves fighting an uphill battle against organised terrorism, and while many of the insurgents or radical militias in question are taking advantage of porous borders to perpetrate acts of violence, it is equally true that most of these so-called ‘terrorist’ groups are home-grown and country-specific, with national, rather than regional agendas. As such, convening a South Asian taskforce to deal with these disparate and isolated acts of violence would complicate matters, creating a legal framework under which one country could interfere in the internal affairs of another.
   

But talk of the pitfalls of a possible regional taskforce is perhaps getting ahead of ourselves when it comes to the issue of terrorism. There is after all no universally acceptable definition of terrorism, not even in the United Nations, given that in history, it has always been the prerogative of the powerful to denounce weaker opponents as terrorists, drawing attention to their tactics rather than their often justifiable political demands. In Nepal, the decade long Maoist insurgency was originally founded on principles of social and economic justice, and it was a combination of waves of military assaults by successive governments in Kathmandu, troops rampaging through villages raping and killing in search of ‘Maoist insurgents’ that ultimately led to the Maoist high command upping the ante and carrying out an equally horrifying campaign of death and destruction. While the Maoist tactics were certainly deplorable — kidnapping and indoctrinating school children, beheading members of the rural elite, etc — their goals were admirable, and their demands for reforms had been time and again ignored by the elite in Kathmandu before they initiated their so called ‘people’s war’. While the acts of violence in which civilians were killed to advance political aims are certainly acts of ‘terrorism’, would that definition not equally apply to the killings and violence perpetrated by the government in Kathmandu as a counter-terror strategy? How can it be that when the state perpetrates violence — and almost all South Asian nations have a horrifying record of having done so — that it remains outside the ambit of terrorism? For Bangladesh to be part of a South Asian Anti-Terrorism Taskforce alongside the regional hegemon India, and with the blessings of the global military hegemon US, will be tantamount to accepting the context in which these two superpowers define terrorism.
   

This is clearly problematic given the controversy and the criticism that the unjust US ‘war on terror’ is mired in — in the wake of the devastation visited upon Iraq and Afghanistan — and given that this ‘anti-terror’ agenda is predominantly driven by the US’s economic and geo-strategic interests. After all, India is more or less aligned with the US, both in terms of its economic interests and its geo-strategic interests.
   

In fact, when it comes to the definition of terrorism, Bangladesh in many ways represents the best and worst of both examples. If this South Asian Anti-terrorism Taskforce had been in existence in 1971, countries across South Asia would, at least, have had to converge in condemnation of the Bengali people’s struggle for nationhood as being a ‘terrorist’ agenda or as being led by ‘terrorists’ simply because Karachi, as the establishment, would have the prerogative of labelling the struggle as it chose to. In similar fashion, while the government in Dhaka was forced to fight a long and bloody insurgency in its own Chittagong Hill Tracts, the problem was largely one of the government’s making, first by flooding the hill tracts with Bengali settlers, which triggered clashes, and then by hardening the ethnic minority contras through the use of brute military force. If there was terrorism in the hill tracts, there was state-sponsored terrorism as much as there was terrorism perpetrated by the Shanti Bahini. A South Asian taskforce could not morally ignore this state terrorism, of the kind, for example, that Delhi commits in Kashmir, or Colombo commits in Tamil-majority provinces, while seeking to counter the ‘terrorism’ of the JKLF and the LTTE.
   There is a further danger associated with the idea of a taskforce that is difficult to ignore. Not only is it morally unacceptable that Dhaka, for example, might have to be complicit in the repression that Delhi commits in Assam, if joint counter-terror operations were to become a reality, it would also make Bangladesh and its people legitimate targets for the violence that the ULFA perpetrates. In
   similar vein, Delhi will certainly not want to lengthen the list of radical groups it deals with in the home front by now committing political will or troops in counter-terror activities in neighbouring states.
   

Given these realities, as justified as the government may be in seeking a regional compact that seeks to tackle the region’s growing problem of terrorism, the nature of the politics that defines this ‘terrorism’ is country-specific and is best left to national government’s to address, preferably politically rather than through the use of state sponsored violence. Most ‘terrorists,’ who are seeking to achieve political goals, after all, are also desperately seeking public support for their cause, not the public alienation and stigma associated with acts of violence. From that perspective, perhaps it would be far more constructive for a South Asian taskforce for political solutions to the innumerable insurgencies South Asian governments are faced with.

* Mahtab Haider writes for NewAge, a leading national newspaper in Bangladesh.

Contact: mahtabhaider@gmail.com

Let’s put finance in its place!

CALL FOR THE SIGNATURE OF NGOS, TRADE UNIONS AND SOCIAL MOVEMENTS , BELEM, FEBRUARY THE 1ST OF 2009 

Sign the statement

Download the statement (PDF)

The financial crisis is a systemic crisis that emerges in the context of global crises (climate, food, energy, social…) and of a new balance of power. It results from 30 years of transfer of income from labour towards capital. This tendency should be reversed. This crisis is the consequence of a capitalist system of production based on laissez-faireand fed by short term accumulation of profits by a minority, unequal redistribution of wealth, an unfair trade system, the perpetration and accumulation of irresponsible, ecological and illegitimate debt, natural resource plunder and the privatization of public services. This crisis affects the whole humanity, first of all the most vulnerable (workers, jobless, farmers, migrants, women…) and Southern countries, which are the victims of a crisis for which they are not at all responsible.

The resources to get out of the crisis merely burden the public with the losses in order to save, with no real public benefit, a financial system that is at the root of the current cataclysm. Where are the resources for the populations which are the victims of the crisis? The world not only needs regulations, but also a new paradigm which puts the financial system at the service of a new international democratic system based on the satisfaction of human rights, decent work, food sovereignty, respect for the environment, cultural diversity, the social and solidarity economy and a new concept of wealth. Therefore, we demand to:

• Put a reformed and democratised United Nations at the heart of the financial system reform, as the G20 is not the legitimate forum to resolve this systemic crisis.
• Establish international permanent and binding mechanisms of control over capital flows.
• Implement an international monetary system based on a new system of reserves, including the creation of regional reserve currencies in order to end the current supremacy of the dollar and to ensure international financial stability.
• Implement a global mechanism of state and citizen control of banks and financial institutions. Financial intermediation should be recognised as a public service that is guaranteed to all citizens in the world and should be taken out of free trade agreements.
• Prohibit hedge funds and over the counter markets, where derivatives and other toxic products are exchanged without any public control.
• Eradicate speculation on commodities, first of all food and energy, by implementing public mechanisms of price stabilisation.
• Dismantle tax havens, sanction their users (individuals, companies, banks and financial intermediates) and create an international tax organisation to combat tax competition and evasion.
• Cancel unsustainable and illegitimate debt of impoverished countries and establish a system of democratic, accountable, fair sovereign borrowing and lending that serves sustainable and equitable development.
• Establish a new international system of wealth sharing by implementing a progressive tax system at the national level and by creating global taxes (on financial transactions, polluting activities and high income) to finance global public goods.

We call on NGOs, trade unions and social movements to converge in order to create a citizen struggle in favour of this new model. We urge them to mobilize all over the world, in particular in the face of the G20, from March 28th onwards.

Tackling Recession Fallout: Dhaka says no to IMF support offer

Staff Correspondent, The Daily Star, February 13, 2009

IMF offers Bangladesh support in its efforts to offset any negative impact the country may face due to the global financial crisis, but Bangladesh says it does not need such assistance right now.

IMF Director of the Asia and Pacific region Anoop Singh at a press briefing yesterday said IMF has increased its assistance globally and is ready to help Bangladesh. A close dialogue will be maintained over the coming months, he added.

Bangladesh Bank Governor Salehuddin Ahmed told journalists: “IMF has proposed to give assistance if there is any pressure on balance of payment. However, we have said our overall economic situation is still strong. So we don’t need assistance at the moment.”

The central bank governor added the IMF proposal might be considered if any negative impact is found after getting the statistics of January and February.

A three-member IMF team led by Singh yesterday met members of the new government and discussed how best IMF could support Bangladesh’s economic reform efforts.

The team met Prime Minister Sheikh Hasina, Finance Minister AMA Muhith, Planning Minister AK Khandker, Adviser for Finance and Planning Mashiur Rahman, Bangladesh Bank Governor Salehuddin Ahmed and other government high-ups.

“Bangladesh’s economy has been able to resist thus far some of the effects of the global financial crisis. The domestic economy has retained momentum from a favourable agricultural performance and Bangladesh has benefited from the fall in food, fuel and other commodity prices,” Singh said.

“Moreover, limited capital account dependence has largely protected the country’s banks and stock market from the first round impact of the global crisis,” he added.

“However, pressures from the global slowdown are building and growth could begin to moderate. In particular, demand has weakened sharply in Bangladesh’s major export markets in the European Union and North America, and although remittances remain robust there has recently been a decline in the number of workers leaving Bangladesh for employment abroad,” the IMF official observed.

He went on to say, “In this context, the new government is looking to improve the investment and growth orientation of the economy through public sector and financial reforms.

“An important objective is to increase the support of government spending for infrastructure and social investment, thereby also boosting the economy’s medium-term growth potential and accelerating poverty reduction. Another important dimension is financial sector reforms to strengthen the resilience of the sector and broaden and deepen domestic financial market.”

Before the press briefing, the IMF team held about a one-hour-long meeting with the Bangladesh Bank governor and high officials.

Later the governor told the reporters, “Bangladesh does not need any overall bail-out package like the US. However, assistance may be needed in some sectors.”

In the morning after the meeting with the IMF team the prime minister’s Economic Affairs Adviser Mashiur Rahman at the finance minister’s office told the reporters the recession has not yet affected the country’s economy, but it will. He added nobody can say till now what extent the impact will be.

Finance Minister AMA Muhith said the economic condition of the country remains good so far and there was nothing to be worried about the impact during the current fiscal year.

“We’ll have to think about the next fiscal year,” he added.

World Bank loans exacerbate climate change

Press Release, Bank Information Center, February 10, 2009

Study highlights World Bank’s financing of fossil fuels

The World Bank has a difficult task at hand; it must continually work to provide the impoverished with access to energy while at the same time, mindfully investing in technologies that do not further compound the effects of climate change.  Heike Mainhardt-Gibbs, a consultant with the Bank Information Center (BIC), examines the World Bank’s approach to energy sector investments in her February 2009 study entitled “World Bank Energy Sector Lending: Encouraging the World’s Addiction to Fossil Fuels.”  The assessment finds that even with important gains in renewable energy and energy efficiency in recent years, the World Bank Group’s overall lending approach to the energy sector does not support developing countries’ transition towards a low-carbon development path. 

First, World Bank fossil fuel lending is on the rise.  During its 2008 fiscal year, the World Bank and International Finance Corporation (IFC) increased funding for fossil fuels by 102% compared with only 11% for new renewable energy (solar, wind, biomass, geothermal energy, small hydropower). On average, fossil fuel financing by the Bank is still twice as much as new renewable energy and energy efficiency projects combined and five times as much as new renewable sources taken alone.  During the last three years, the Bank spent 19% more on coal than on new renewable energy. Bank lending to coal projects will make a low-carbon transition difficult given that coal emits almost twice as much CO2 as natural gas per unit of energy.

Secondly, Bank fossil fuel projects have a clear impact on global CO2 emissions.“When the fossil fuels involved in the World Bank and IFC lending projects for the 2008 fiscal year are combusted, the project lifetime CO2 emissions from this one-year of financing will amount to approximately 7% of the world’s total annual CO2 emissions from the energy sector, or more than twice as much as all of Africa’s annual energy sector emissions,” emphasized Mainhardt-Gibbs.  Clearly, the World Bank’s investments in fossil fuel-based energy are far-reaching and yet none of their current climate change initiatives adequately incentivize for a reduction in financing for fossil fuels. 

Finally, the Bank must carefully reassess its approach to financing the development of fossil fuels. They share the blame – and thus the shame – for the global climate change crisis.   “The Bank’s continued lending focus on fossil fuels commits many developing countries to fossil-fuel based energy for the next 20 to 40 years,” Mainhardt-Gibbs noted.  When developing countries eventually take on GHG emissions reduction targets of their own, the World Bank’s current approach to energy will make meeting these targets more difficult and costly for these countries.

“The World Bank has the responsibility to assess each project’s full contribution to climate change as its impacts are not bound by project or country boundaries, and are anticipated to negatively affect developing countries and the poor of the world disproportionately – the very countries (and people) Bank programs are trying to benefit,” said Mainhardt-Gibbs.     

CONTACT:

• Heike Mainhardt-Gibbs, Consultant, Bank Information Center 
  hmainhardt@bicusa.org, 202-285-1848
• Rebecca Harris, Information Services Coordinator, Bank Information Center 
  rharris@bicusa.org, 202-624-0632

DOWNLOAD THE REPORT:

World Bank energy sector lending: encouraging the world’s addiction to fossil fuels, By Heike Mainhardt-Gibbs, Bank Information Center, February 2009 (Acrobat pdf, 4.05MB)

Phrasing the transit question right

Tanim Ahmed*, NewAge, February 12, 2009

Clearly the question is not merely what Bangladesh has got to lose if India is given transit. The question must be what Bangladesh might gain besides the pittance in revenue for allowing India to use its infrastructure.

 THE government appears to be projecting bilateral agreements on trade and investment as purely political and devoid of political considerations. The commerce minister, Faruk Khan, has on several occasions over the last couple of weeks stated that the issue of transit facilities to India and a bilateral framework agreement on trade and investment is purely an economic issue, which is being politicised unnecessarily indicating the criticism of the main opposition in parliament. 


The commerce minister, Faruk Khan, with the Indian external affairs minister, Pranab Mukherjee, during the latter’s recent visit to Dhaka. — New Age photo

It should be of little doubt that the recent high-profile visits by Indian and American diplomats were both political decisions of the respective establishments. It should also be of little doubt that their respective initiatives to revive pending bilateral negotiations were also a result of political consideration. It cannot be mere coincidence that two of the most influential players of the region chose to bring up thorny issues within a month of the new government taking office.
   

Since both matters, transit for India and bilateral trade and investment framework agreement with the United States, have seen strong resistance in the past, the interested parties were only being prudent by pushing these issues well within the honeymoon period of the new government. That the establishments were right in floating the bilateral issues was evident from the clear lack of criticism by different citizens’ platforms, non-governmental organisations and political parties compared to previous times.
   

Bilateral treaties and agreements in general almost necessarily have immense political significance, particularly when it relates to politically powerful and economically stronger parties, such as India and the United States. The issues that have featured strongly in the media and been discussed at different forums, although not very extensively, over the last couple of weeks are also of strong strategic importance. Thus, considering them as purely economic issues related to trade and commerce would be a folly. The commerce minister seems to be missing that point repeatedly.
   

Within this short span he has been contradicted twice by his own government. The first was when on January 18, Faruk Khan had commented that the Trading Corporation of Bangladesh would not be reactivated and he was contradicted by the prime minister when on January 20, Sheikh Hasina stated quite the opposite. The second time was when on February 3, Faruk claimed that the government was intent on striking deals with the United States and India at a public meeting and was contradicted the following day by Hasan Mahmud, who is perceived to be an influential figure in the current government despite his portfolio of a state minister for foreign affairs. Mahmud’s more tempered statement clarified that although the bilateral issues were surely under consideration, agreement with either party would still require more deliberation and that the government had not decided whether to make those deals at all in the first place. 
   

Ruling political regimes will understandably ‘politicise’ and ‘stigmatise’ certain issues and deals to serve their political end. But there appears to be a tendency of considering bilateral issues from clinically defensive point of view and without putting the matter into a historical context. Regarding the question of transit, for instance, the government’s argument appears to hinge on the fact that there is no harm in allowing it as long as Bangladesh does not suffer. Regarding the Trade and Investment Framework Agreement, on the other hand, the point seems to be that while this opens up the door to further negotiation there is no immediate problem since it does not have any binding obligations.
   

But if the context is considered and history of negotiations are considered, as a section of economists, academics and experts have deliberated upon recently, then the government’s position would certainly be a more pragmatic one. This consideration need not be limited to matters of trade and commerce but even it were, the reason for careful deliberation would be only too evident since thus far Bangladesh’s justified demands and entitlement have been, time and again, rebuffed.
   

With India it goes back to 1974, when the Bangladesh government, incidentally ruled by the same party as the present one, agreed to hand over a tract of sovereign Bangladesh land — known in the lexicon of border disputes as an ‘enclave’ — to India in good spirit expecting a reciprocal gesture. This initiative was part of an agreement for mutual exchange of enclaves that had fallen on the wrong side of the territorial borders. That reciprocal gesture has not come from India ever since. Although ratified by the Bangladesh government over three decades ago, that agreement is yet to be ratified in India. In the meantime Bangladeshis living in those enclaves inside India are forced to live without government services, amenities and even basic health services. Indians residing in such enclaves inside Bangladesh are not however subjected to similar treatment.
   

A few years later came the Farakka Barrage. The Indian government had then reportedly assured her smaller neighbour, also a lower riparian country that the barrage would be run on an experimental basis for a few weeks and thereafter its operations would be suspended. Now, not only does the Farakka deny Bangladesh of much needed water flow, India fails to meet obligations set out in water sharing deals of common rivers. To make matters worse, and to the grave consternation of a large section of the people even in India, New Delhi’s humongous river interlinking project continues to proceed. It would surely worsen water flow in the rivers flowing through India.
   

Several regional trade deals stipulate that as an advanced developing country, India should allow duty and quota free access to the least developed countries, which includes Bangladesh, so that the smaller countries may gain a small share of India’s affluence. But that has thus far not come about whether under the preferential trade agreement or the regional free trade agreement (SAPTA and SAFTA). Bangladesh products, investment and services often face harsh standard requirements, so much so that they are prohibitive. That much is evident from the trade volume between the two countries. It so happens that Bangladesh provides more business for Indian manufacturers and service providers than the Indian consumer. Bangladesh imports almost 10 times the amount it exports to India which is around over $3 billion worth of goods, excluding the unofficial border trade.
   

On the other hand, it would prove to be beneficial for Nepal, and perhaps also Bhutan if they were allowed to have transit facilities through India reaching Bangladeshi ports. It is not just a moral obligation but also a legally binding obligation under the World Trade Organisation since both Nepal and Bhutan are landlocked countries.
   

As far as trade and commerce is concerned India clearly has miles to go before it matches Bangladesh’s level of openness. As far as the South Asian free trade treaty is concerned, India’s bid to liberalise services in exchange for its reduction of tariffs for goods is becoming increasingly obvious. Reduction of tariff and non-tariff barriers for Bangladeshi goods entering Indian markets have also been linked with the provision of transit.
   

Clearly the question is not merely what Bangladesh has got to lose if India is given transit. But more importantly, the question must be what Bangladesh might gain besides the pittance in revenue for allowing India to use its infrastructure. Transit to Nepal, Bhutan and China under comparable terms that India would prefer for her own transit should be an acceptable offer. The Awami League government should not settle for anything less.

*Tanim Ahmed regularly writes for NewAge. Contact: tanimahmed@gmail.com

Asia: The Coming Fury

By Walden Bello*, February 10, 2009  Foreign Policy in Focus

As goods pile up in wharves from Bangkok to Shanghai, and workers are laid off in record numbers, people in East Asia are beginning to realize they aren’t only experiencing an economic downturn but living through the end of an era.

For over 40 years now, the cutting edge of the region’s economy has been export-oriented industrialization (EOI). Taiwan and Korea first adopted this strategy of growth in the mid-1960s, with Korean dictator Park Chung-Hee coaxing his country’s entrepreneurs to export by, among other measures, cutting off electricity to their factories if they refused to comply.

The success of Korea and Taiwan convinced the World Bank that EOI was the wave of the future. In the mid-1970s, then-Bank President Robert McNamara enshrined it as doctrine, preaching that “special efforts must be made in many countries to turn their manufacturing enterprises away from the relatively small markets associated with import substitution toward the much larger opportunities flowing from export promotion.”

EOI became one of the key points of consensus between the Bank and Southeast Asia’s governments. Both realized import substitution industrialization could only continue if domestic purchasing power were increased via significant redistribution of income and wealth, and this was simply out of the question for the region’s elites. Export markets, especially the relatively open U.S. market, appeared to be a painless substitute.

Japanese Capital Creates an Export Platform

The World Bank endorsed the establishment of export processing zones, where foreign capital could be married to cheap (usually female) labor. It also supported the establishment of tax incentives for exporters and, less successfully, promoted trade liberalization. Not until the mid-1980s, however, did the economies of Southeast Asia take off, and this wasn’t so much because of the Bank but because of aggressive U.S. trade policy. In 1985, in what became known as the Plaza Accord, the United States forced the drastic revaluation of the Japanese yen relative to the dollar and other major currencies. By making Japanese imports more expensive to American consumers, Washington hoped to reduce its trade deficit with Tokyo. Production in Japan became prohibitive in terms of labor costs, forcing the Japanese to move the more labor-intensive parts of their manufacturing operations to low-wage areas, in particular to China and Southeast Asia. At least $15 billion worth of Japanese direct investment flowed into Southeast Asia between 1985 and 1990.

The inflow of Japanese capital allowed the Southeast Asian “newly industrializing countries” to escape the credit squeeze of the early 1980s brought on by the Third World debt crisis, surmount the global recession of the mid-1980s, and move onto a path of high-speed growth. The centrality of the endaka, or currency revaluation, was reflected in the ratio of foreign direct investment inflows to gross capital formation, which leaped spectacularly in the late 1980s and 1990s in Indonesia, Malaysia, and Thailand.

The dynamics of foreign-investment-driven growth was best illustrated in Thailand, which received $24 billion worth of investment from capital-rich Japan, Korea, and Taiwan in just five years, between 1987 and 1991. Whatever might have been the Thai government’s economic policy preferences – protectionist, mercantilist, or pro-market – this vast amount of East Asian capital coming into Thailand could not but trigger rapid growth. The same was true in the two other favored nations of northeast Asian capital, Malaysia and Indonesia.

It wasn’t just the scale of Japanese investment over a five-year period that mattered, however; it was the process. The Japanese government and keiretsu, or conglomerates, planned and cooperated closely in the transfer of corporate industrial facilities to Southeast Asia. One key dimension of this plan was to relocate not just big corporations like Toyota or Matsushita, but also small and medium enterprises that provided their inputs and components. Another was to integrate complementary manufacturing operations that were spread across the region in different countries. The aim was to create an Asia Pacific platform for re-export to Japan and export to third-country markets. This was industrial policy and planning on a grand scale, managed jointly by the Japanese government and corporations and driven by the need to adjust to the post-Plaza Accord world. As one Japanese diplomat put it rather candidly, “Japan is creating an exclusive Japanese market in which Asia Pacific nations are incorporated into the so-called keiretsu [financial-industrial bloc] system.”

China Masters the Model

If Taiwan and Korea pioneered the model and Southeast Asia successfully followed in their wake, China perfected the strategy of export-oriented industrialization. With its reserve army of cheap labor unmatched by any country in the world, China became the “workshop of the world,” drawing in $50 billion in foreign investment annually by the first half of this decade. To survive, transnational firms had no choice but to transfer their labor-intensive operations to China to take advantage of what came to be known as the “China price,” provoking in the process a tremendous crisis in the advanced capitalist countries’ labor forces.

This process depended on the U.S. market. As long as U.S. consumers splurged, the export economies of East Asia could continue in high gear. The low U.S. savings rate was no barrier since credit was available on a grand scale. China and other Asian countries snapped up U.S. treasury bills and loaned massively to U.S. financial institutions, which in turn loaned to consumers and homebuyers. But now the U.S. credit economy has imploded, and the U.S. market is unlikely to serve as the same dynamic source of demand for a long time to come. As a result, Asia’s export economies have been marooned.

The Illusion of “Decoupling”

For several years China has seemed to be a dynamic alternative to the U.S. market for Japan and East Asia’s smaller economies. Chinese demand, after all, had pulled the Asian economies, including Korea and Japan, from the depths of stagnation and the morass of the Asian financial crisis in the first half of this decade. In 2003, for instance, Japan broke a decade-long stagnation by meeting China’s thirst for capital and technology-intensive goods. Japanese exports shot up to record levels. Indeed, China had become by the middle of the decade, “the overwhelming driver of export growth in Taiwan and the Philippines, and the majority buyer of products from Japan, South Korea, Malaysia, and Australia.”

Even though China appeared to be a new driver of export-led growth, some analysts still considered the notion of Asia “decoupling” from the U.S. locomotive to be a pipe dream. For instance, research by economists C.P. Chandrasekhar and Jayati Ghosh, underlined that China was indeed importing intermediate goods and parts from Japan, Korea, and ASEAN, but only to put them together mainly for export as finished goods to the United States and Europe, not for its domestic market. Thus, “if demand for Chinese exports from the United States and the EU slow down, as will be likely with a U.S. recession,” they asserted, “this will not only affect Chinese manufacturing production, but also Chinese demand for imports from these Asian developing countries.”

The collapse of Asia’s key market has banished all talk of decoupling. The image of decoupled locomotives – one coming to a halt, the other chugging along on a separate track – no longer applies, if it ever had. Rather, U.S.-East Asia economic relations today resemble a chain-gang linking not only China and the United States but a host of other satellite economies. They are all linked to debt-financed middle-class spending in the United States, which has collapsed.

China’s growth in 2008 fell to 9%, from 11% a year earlier. Japan is now in deep recession, its mighty export-oriented consumer goods industries reeling from plummeting sales. South Korea, the hardest hit of Asia’s economies so far, has seen its currency collapse by some 30% relative to the dollar. Southeast Asia’s growth in 2009 will likely be half that of 2008.

The Coming Fury

The sudden end of the export era is going to have some ugly consequences. In the last three decades, rapid growth reduced the number living below the poverty line in many countries. In practically all countries, however, income and wealth inequality increased. But the expansion of consumer purchasing power took much of the edge off social conflicts. Now, with the era of growth coming to an end, increasing poverty amid great inequalities will be a combustible combination.

In China, about 20 million workers have lost their jobs in the last few months, many of them heading back to the countryside, where they will find little work. The authorities are rightly worried that what they label “mass group incidents,” which have been increasing in the last decade, might spin out of control. With the safety valve of foreign demand for Indonesian and Filipino workers shut off, hundreds of thousands of workers are returning home to few jobs and dying farms. Suffering is likely to be accompanied by rising protest, as it already has in Vietnam, where strikes are spreading like wildfire. Korea, with its tradition of militant labor and peasant protest, is a ticking time bomb. Indeed, East Asia may be entering a period of radical protest and social revolution that went out of style when export-oriented industrialization became the fashion three decades ago.

*Walden Bello, a Foreign Policy In Focus columnist, is professor of sociology at the University of the Philippines and senior analyst at the Bangkok-based research and advocacy institute Focus on the Global South. He is the author of, among other books, Dilemmas of Domination: The Unmaking of the American Empire (New York: Henry Holt, 2005).

Walden Bello Interviewed by the BBC: Alternative views of the economic crisis

BBC

The dramatic downturn gripping the global economy has breathed new life into old questions about how best to run our economic systems.

Politicians, business leaders and policymakers searched for solutions at this year’s World Economic Forum in Davos. Meanwhile, different debates were taking place at the “alternative” World Social Forum in Belem, Brazil.

There, an eclectic mix of some 100,000 campaigners, thinkers, and working people came to starkly different conclusions about the causes of the downturn, and how best to address it.

We asked four participants from around the globe to give us their opinions.

Walden Bello is a university professor, senior analyst at Focus on the Global South, and president of the Freedom from Debt Coalition.

Week after week, we see the global economy contracting at a pace worse than that predicted by the gloomiest analysts. We are now, it is clear, in no ordinary recession but are headed for a global depression that could last for many years.

The origins of the present crisis lie in the strategies adopted by economic and political elites to resolve the crises of stagflation – the coexistence of low growth with high inflation – which followed rapid growth in the post-World War II era, both in the G8 economies and in the underdeveloped economies.

Stagflation, however, was but a symptom of a deeper problem: the reconstruction of Germany and Japan and the rapid growth of industrialising economies like Brazil, Taiwan, and South Korea added tremendous new productive capacity and increased global competition, while income inequality within countries and between countries limited the growth of purchasing power and demand, thus eroding profitability.

Dilemma

This produced the dilemma of overproduction.

One “escape route” from the conundrum of overproduction, and for maintaining and raising profitability, was “financialisation” .

With investment in industry and agriculture yielding low profits as a result of over-capacity, large amounts of surplus funds have been circulating in or invested and reinvested in the financial sector – that is, the financial sector began turning on itself.

The result has been a divergence between a hyperactive financial economy and a stagnant real economy.

This was not accidental – the financial economy exploded precisely to make up for the stagnation owing to overproduction of the real economy.

Profits, not value

One indicator of the super-profitability of the financial sector is the fact that 40% of the total profits of US financial and nonfinancial corporations is accounted for by the financial sector although it is responsible for only 5% of US gross domestic product (and even that is likely to be an overestimate) .

The problem with investing in financial sector operations is that it is tantamount to squeezing value out of already created value. It may create profit, yes, but it does not create new value – only industry, agriculture, trade, and services create new value.

Because profit is not based on value that is created, investment operations become very volatile and prices of stocks, bonds, and other forms of investment can depart very radically from their real value.

Profits then depend on taking advantage of upward price departures from the value of commodities, then selling before reality enforces a “correction” , that is, a crash back to real values. The radical rise of prices of an asset far beyond real values is what is called the formation of a bubble.

Virus

We are far from over the worst of this crisis.

In the US real-estate sector, millions more mortgages are likely to go into default over the next few years.

Securities with a value of as much as $2 trillion dollars (£1.4 trillion) have already been injected, like a virus, into the global financial system.

Massive injections of taxpayers’ cash have failed to kickstart lending again. Not surprisingly, with global capitalism’s circulatory system seizing up, it was only a matter of time before the real economy would contract, as it has with frightening speed in the last few weeks.

Globalisation has ensured that economies that went up together in the boom would also go down together, with unparalleled speed, in the bust, the end of which is nowhere to be discerned.

US maritime co-op with Bangladesh is wolf in sheep’s clothing

Editorial: NewAge, February 10, 2009

When the visiting US assistant secretary of state Richard Boucher expressed his country’s willingness to help Bangladesh in patrolling and protecting its maritime boundaries on Sunday, the offer had a terrifying resonance though dressed in the clothing of goodwill. At a pre-departure press conference, even as Boucher sought to explain that his country had no plans to establish a permanent military base in Bangladesh, he brought up the possibility of cooperation in this area, as reported in Monday’s New Age. While the US asserts its naval and military dominance on the Indian Ocean through the use of its military base in Diego Garcia — one of the largest US military bases in the world — this dominance would extend into the Bay of Bengal if Bangladesh were to accept this evidently innocuous offer.
   

While Bangladesh has long standing maritime boundary disputes with neighbours India and Myanmar that have gone unresolved for the past 38 years, seeking a military solution, that too with the aid of US military prowess will likely be a deadly endgame in which Bangladesh might see its interests compromised, its standing in the region, and its territorial sovereignty, though US corporate and geostrategic interests may be served. Bangladesh, after all, finds itself at this critical juncture largely because successive governments since 1971 have shirked the responsibility of resolving the disputes over maritime boundaries, as have the establishment in Delhi and Yangon. In fact, we find it unfortunate and malafide that both Myanmar and India engaged in pseudo-military brinkmanship with Bangladesh over the maritime disputes in the past year, possibly exploiting the fact that Bangladesh was at its most vulnerable point at the time, governed by an unelected interim regime. Both countries violated Bangladesh’s territorial sovereignty by sending in mineral exploration survey vessels flanked by navy ships. This is not the sort of neighbourly behaviour which builds confidence in the ongoing diplomatic talks on the maritime disputes. In this context, we urge the incumbents to initiate effective and pragmatic dialogue with Yangon and Delhi so that the culture of brinkmanship and opportunism is replaced with more meaningful processes.
   

In the meantime, we want to politely remind the people of Myanmar and India — and their respective governments — that a US naval dominance in the Bay of Bengal is as much a threat to their geostrategic interests and goals as it is to our territorial sovereignty. Not only will the entire region find itself gradually succumbing to US military and consequently economic control, it is almost axiomatic now that a friendly alignment with US military-corporate interests earns nations more enemies than they can count, making small nations complicit in military aggression and corporate oppression that they can neither stop nor disown. Under these circumstances, perhaps all three nations locked in maritime disputes will find it in their interests to seek a diplomatic solution resisting the mediation and pressure of third parties.

Dhaka, Delhi sign two deals on trade, investment

Staff Correspondent, NewAge, February 10, 2009

Dhaka and New Delhi Monday signed two agreements on trade and investment promotion and protection for increased bilateral trade and investment which is now heavily tilted towards India.
   

India’s external affairs minister Pranab Mukherjee signed the two deals —Bilateral Trade Agreement and Investment Promotion and Protection Agreement — on behalf of India while the commerce minister, Faruq Khan, and the industries minister, Dilip Barua, signed the deals on behalf of Bangladesh.
   

The two agreements were signed at the Sheraton Hotel after Mukherjee held talks with his Bangladesh counterpart Dipu Moni and the home minister, Sahara Khatun, at the state guest house Meghna.
   

The Indian minister also unveiled a model of core shelters for Sidr-affected families in Bagerhat.
   The agreement on mutual investment promotion and protection will give the most favoured nation status to each of the countries.
   

The trade deal is, however, a renewal of an old agreement, originally signed in 1980, on the use of waterways, roadways and railways for commerce between the two countries for passage of goods between two places in one country through the territory of the other.
   

India has for long enjoyed water transport facility through the Bangladesh territory, but the parts on road and rail transit have never been activated.
   

India will construct 2,800 homes capable of withstanding strong winds for Bangladeshi families who lost their houses in a devastating cyclone in November 2007. The homes will be built in 11 villages in the worst-hit southern Bagerhat district.
   

Briefing the reporters, both Dipu Moni and Pranab Mukherjee claimed to have fruitful and comprehensive discussions on a wide range of bilateral issues.
   

The two foreign ministers of the South Asian neighbours informed the media they had touched on the issues of security, border management, strengthening connectivity, promoting trade and investment, and people-to-people contact.
   

Dipu Moni said their meeting in details discussed ‘practical ways’ for the promotion of economic relations and two-way trade, reduction in the trade gap and increase in investment.
   

Besides, matters of security and anti-people activities by fundamentalists and extremists were also discussed.
   

Dipu Moni assured Pranab Mukherjee Bangladesh would not allow its territory to be used by any anti-Indian elements to carry out activities against India.
   

She also sought India’s cooperation against elements who are trying to harm the interests of Bangladesh (from the other side).
   

The Bangladesh foreign minister requested her Indian counterpart to resume the stalled talks on the longstanding issues of the sharing the waters of common rivers and demarcation of land and maritime boundaries.
   

Mukherjee said a joint commission would meet to work out ways to boost trade, such as duty cut and removal of non-tariff barriers on some Bangladeshi exports to India.
   

The volume of two-way trade between the two next-door neighbours was recorded at $ 3.76 billion in the 2007-08 financial year.
   

India enjoys a huge trade surplus with Bangladesh as Bangladesh imported Indian goods worth $3.37 billion in the financial year while its exports fetched only $358 million from the vast Indian market.
   

Later in the day, Mukherjee laid the foundation stone of the specialised classroom of the theatre and music department in Dhaka University.