It is useful to reflect on whether lessons have been learnt and if the countries are vulnerable to new crises.
IT’S been 20 years since the Asian financial crisis struck in July 1997. Since then, there has been an even bigger global financial crisis, starting in 2008. Will there be another crisis?
The Asian crisis began when speculators brought down the Thai baht. Within months, the currencies of Indonesia, South Korea and Malaysia were also affected. The East Asian Miracle turned into an Asian Financial Nightmare.
Despite the affected countries receiving only praise before the crisis, weaknesses had built up, including current account deficits, low foreign reserves and high external debt.
In particular, the countries had recently liberalised their financial system in line with international advice. This enabled local private companies to freely borrow from abroad, mainly in US dollars. Companies and banks in Korea, Indonesia and Thailand had in each country rapidly accumulated over a hundred billion dollars of external loans. This was the Achilles heel that led their countries to crisis.
These weaknesses made the countries ripe for speculators to bet against their currencies. When the governments used up their reserves in a vain attempt to stem the currency fall, three of the countries ran out of foreign exchange.
They went to the International Monetary Fund (IMF) for bailout loans that carried draconian conditions that worsened their economic situation.
Malaysia was fortunate. It did not seek IMF loans. The foreign reserves had become dangerously low but were just about adequate. If the ringgit had fallen a bit further, the danger line would have been breached.
After a year of self-imposed austerity measures, Malaysia dramatically switched course and introduced a set of unorthodox policies.
These included pegging the ringgit to the dollar, selective capital controls to prevent short-term funds from exiting, lowering interest rates, increasing government spending and rescuing failing companies and banks.
This was the opposite of orthodoxy and the IMF policies. The global establishment predicted the sure collapse of the Malaysian economy.
But surprisingly, the economy recovered even faster and with fewer losses than the other countries. Today, the Malaysian measures are often cited as a successful anti-crisis strategy.
The IMF itself has changed a little. It now includes some capital controls as part of legitimate policy measures.
The Asian countries, vowing never to go to the IMF again, built up strong current account surpluses and foreign reserves to protect against bad years and keep off speculators. The economies recovered, but never back to the spectacular 7% to 10% pre-crisis growth rates.
Then in 2008, the global financial crisis erupted with the United States as its epicentre. The tip of the iceberg was the collapse of Lehman Brothers and the massive loans given out to non-credit-worthy house-buyers.
The underlying cause was the deregulation of US finance and the freedom with which financial institutions could devise all kinds of manipulative schemes and “financial products” to draw in unsuspecting customers. They made billions of dollars but the house of cards came tumbling down.
To fight the crisis, the US, under President Barack Obama, embarked first on expanding government spending and then on financial policies of near-zero interest rates and “quantitative easing”, with the Federal Reserve pumping trillions of dollars into the US banks.
It was hoped the cheap credit would get consumers and businesses to spend and lift the economy. But instead, a significant portion of the trillions went via investors into speculative activities, including abroad to emerging economies.
Europe, on the verge of recession, followed the US with near zero interest rates and large quantitative easing, with limited results.
The US-Europe financial crisis affected Asian countries in a limited way through declines in export growth and commodity prices. The large foreign reserves built up after the Asian crisis, plus the current account surplus situation, acted as buffers against external debt problems and kept speculators at bay.
Just as important, hundreds of billions of funds from the US and Europe poured into Asia yearly in search of higher yields. These massive capital inflows helped to boost Asian countries’ growth, but could cause their own problems.
First, they led to asset bubbles or rapid price increases of houses and the stock markets, and the bubbles may burst when they are over-ripe.
Second, many of the portfolio investors are short-term funds looking for quick profit, and they can be expected to leave when conditions change.
Third, the countries receiving capital inflows become vulnerable to financial volatility and economic instability.
If and when investors pull some or a lot of their money out, there may be price declines, inadequate replenishment of bonds, and a fall in the levels of currency and foreign reserves.
A few countries may face a new financial crisis.
A new vulnerability in many emerging economies is the rapid build-up of external debt in the form of bonds denominated in the local currency.
The Asian crisis two decades ago taught that over-borrowing in foreign currency can create difficulties in debt repayment should the local currency level fall.
To avoid this, many countries sold bonds denominated in the local currency to foreign investors.
However, if the bonds held by foreigners are large in value, the country will still be vulnerable to the effects of a withdrawal.
As an example, almost half of Malaysian government securities, denominated in ringgit, are held by foreigners.
Though the country does not face the risk of having to pay more in ringgit if there is a fall in the local currency, it may have other difficulties if foreigners withdraw their bonds.
What is the state of the world economy, what are the chances of a new financial crisis, and how would the Asian countries like Malaysia fare?
These are big and relevant questions to ponder 20 years after the start of the Asian crisis and nine years after the global crisis.
But we will have to consider them in another article.
By Martin Khor Global Trend
Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
IN Washington, the swamp Donald Trump is trying to drain is in tumult. The centres of the established order are fighting back against the elected president with a mandate who is doing what he wants.
On the one hand, there is a system of governance based on the rule of law which accords rights and limits the exercise of power. On the other, a president with a style of rule that transcends and challenges that order.
Whether it is working with the enemy, government by executive order, unrestrained authority in a centralised executive arm, president Trump who is already temperamentally in accord with it feels fully supported by those marginalised and on the periphery who had elected him. He sees it as a battle against the elites. Indeed, he increasingly depicts himself as a victim of the elites, especially the media.
The media wants him impeached. This is not going to happen – at least, not any time soon. The Republican-dominated House of Representatives and Senate would not have it. But Trump has to understand he cannot continually push at the boundaries and violate constitutional authority with impunity. If not Congress, the courts will have him.
Fired FBI director James Comey is expected to appear before the Senate to relate if Trump tried to influence investigation into links with Russia he and his aides forged during and after the election campaign. Already, a special counsel, Robert Mueller, has been appointed by the Attorney-General’s office to establish if there had been criminal violations in those links.
The American president is impetuous, sneering and always up for a fight. This is not the way to govern – anywhere.
He chops and changes. He does not use established institutions, even of the executive branch, like the State Department, which he wholly distrusts as a Hillary Clinton bastion.
There is conflict in Washington, not orderly governance. America is bitterly divided. Trump represents the other side. In this conflict, it is a strong incentive for Trump to ride on populist policies to attack his enemies in the swamp in Washington.
Both the disorder in Washington and particularly the populist policies – many of which are not properly thought through – also have an impact on the rest of the world.
It is difficult to know whom to deal with and which way policies may turn. His “America First” policies, like on climate change and on trade, harm and disregard other countries.
Small countries like Malaysia are down the list of his concerns. Yet we are on the list of 16 with whom the Trump administration claims America has trade deficits which are not tolerable.
The cut-off value of US$10 billion just manages to leave out Israel from the black list. What countries like Malaysia would like to know is what the United States proposes to do about it.
With respect to China, which tops the list with a whopping surplus of US$347 billion, Trump has eased from hanging tough to being pliable. No more talk of China as a serial currency manipulator and of slapping a 45% tariff on Chinese exports to America.
Last month the US entered into a so-called trade deal with China which encompassed a 100-day programme as part of a “comprehensive economic dialogue.” There is to be a 10-point action plan covering topics ranging from meat to financial services to biotechnology.
But American companies are dissatisfied, contending matters such as overcapacity, forced technology transfer and equal treatment of US companies should have been covered.
White House professionals in the National Economic Council and the US Trade Representative’s office say there is work in progress on Chinese steel, after which the administration would decide how to pursue the matters of subsidies and overcapacity – either through the World Trade Organisation (WTO) or bilaterally.
This is an interesting twist. Trump does not have any time for the WTO. Yet with China, he might go for the multilateral approach rather than his favoured bilateral dealing.
The officials say they do not want a trade war. So perhaps some sobriety is sinking in.
Meanwhile, Vietnamese Prime Minister Nguyen Xuan Phuc made haste to Washington this week – Vietnam is sixth in that list of 16 – and ended up with extravagant praise from Trump for the deals he entered into worth US$8bil (the prime minister claimed US$15bil), including US$3bil of US-produced content that would support 23,000 jobs. General Electric is the biggest beneficiary with deals worth US$5.58bil in power generation, aircraft engines and services.
Commerce Secretary Wilbur Ross pronounces Vietnam is the fastest growing market for US exports. US Trade Representative Robert Lighthizer is deeply concerned about the rapid growth of the trade deficit with Vietnam (2016: US$32bil). Phuc gets the double squeeze in the firm handshake with President Trump. One must hope he knows where he stands at the end of his visit last Wednesday.
Phuc was the first Asean leader to visit Washington since Trump’s election as president. Philippines president Rodrigo Duterte has not taken up Trump’s invitation. Neither has Thailand’s Prime Minister Prayut Chan-o-cha.
Apart from a report that the Vietnamese prime minister said he was waiting to welcome Trump to Danang for the Apec summit in November, and a statement he made expressing disappointment that America had withdrawn from the Trans-Pacific Partnership, there has been no indication that anything pertaining to Asean had been raised – apart, of course, from Vietnam’s position on the South China Sea.
This is the way of Asean. National concerns and the national interest come first. There is not even some kind of debriefing or discussion on or before a visit of such import. Such a shame.
Perhaps Malaysia should take the lead and try to make a difference. As Trump will be coming for the Asean summits in Manila, including US-Asean and the EAS, would it not make sense to prepare a regional position paper on trade with the US?
We can leave the South China Sea issue pretty much alone as it divides more than unites Asean. But surely there must be consensus on free trade, as the AEC is founded very much on that principle.
Should not Asean take a common position on free trade in discussion with the American president? Not one based on generalities but on specifics and benefits, including to those on the supply chains (in terms of employment, revenue and taxes) before imports reach the US destination, not to mention the benefits to consumers in respect of choice, price and inflation.
Instead of just all the normal niceties, could not the leaders meeting incorporate a short, sharp presentation on the benefits of free trade to America and the costs to its economy of subsidy, support and inefficiency?
Already, it has been estimated about three quarters of job loss in America is attributable to employment displacement through technological development. Not through exports to America.
Everyone wants that 20 minutes with Trump. Asean should not fritter it away with amiable general chatter.
Of course, Malaysia has its own particular issues with the US which could be raised in a visit by the prime minister, perhaps at the end of the year or early next year.
By that time, of course, the 90-day “investigation” into the surpluses of countries on the list of 16 (Malaysia’s US$25bil puts it ninth on that list), which technically began on April 7, would have been completed.
There would be plenty to discuss then, even as bilateral representations would have been made at the working level before and after expiry of that period and whatever subsequent American actions.
Other issues, of course, are outstanding on which views can be exchanged, including on investment and technology. Hopefully, by that time, things would have settled down, that sense can be made out of the disorder in Washington.
Tan Sri Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.
By Tan Sri Dr Munir Majid
Tan Sri Dr Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.
Continuing the climate battle, without the US
https://youtu.be/vDyZy-VRyAY
With President Trump pulling out from the Paris agreement, the US has lost membership of the community of nations that subscribe to humanity's fight for survivial against climate change.
SO in the end President Donald Trump decided to pull the United States out from the Paris Agreement on climate change.
Just as disturbing as the withdrawal was Trump’s speech justifying it. He never acknowledged the seriousness or even the existence of the global climate change crisis, which poses the gravest threat to human survival. He lamented that the Paris accord would displace US jobs, mentioning coal in particular, while ignoring the jobs in renewable energy that would increase manifold if the United States tackled climate crisis seriously.
His main grouse was that the Paris agreement was “unfair” to the United States vis-a-vis other countries, especially mentioning China and India. And he grumbled that the United States would have to contribute to the Green Climate Fund.
The speech was riddled with misconceptions and factual errors.
For example, Trump said the Paris agreement would only produce a two-tenths of one degree Celsius reduction in global temperature by the year 2100, a “tiny, tiny amount”.
But scientists from the Massachusetts Institute of Technology said Trump badly misunderstood their study. “If we don’t do anything, we might shoot over five degrees or more and that would be catastrophic,” said MIT’s programme co-director John Reilly.
Condemnation came fast and furious from within the United States and around the world. Said John Kerry, former Secretary of State: “He’s made us an environmental pariah in the world ... It may be the most self-defeating action in American history.”
The Trump decision to leave Paris may well be a milestone marking an immense loss to the United States of international prestige, influence and power.
In a world so divided by ideology, inequality and economic competition, the Paris agreement was one rare area of global consensus to cooperate, on climate change.
For the United States to pull out of that hard-won consensus is a shocking abdication not only of leadership, but of its membership of the community of nations in its joint effort to face its gravest threat to survival.
The lack of appreciation of this great challenge facing humanity and the narrow-mindedness of his concerns was embarrassingly evident when Trump made his withdrawal speech.
He was more interested in reviving the sunset coal sector than in the promise of the fast-developing renewable energy industries.
He was convinced reducing emissions would cost millions of jobs, ignoring the record of other countries that have decoupled emissions growth from economic growth.
He was miserly towards poor countries which are receiving only a fraction of what they were promised for climate action, while celebrating hundreds of billions of dollars of new armaments deals.
He complained that the United States is asked to do more than others, when in fact the nation has the highest emissions per capita of any major country and its pledges are significantly lower than Europe’s.
He saw the speck in everyone else’s eyes while being oblivious to the beam in his own.
With or without the United States, the negotiations on how to implement the agreement will continue in the years ahead.
A complication is that America has to wait four years before the announced withdrawal can come into effect.
The United States will still be a member of the Paris agreement for the rest of Trump’s present term, although he announced he will not implement what Barack Obama had committed to, which is to cut emissions by 26%-28% from 2005 levels, by 2025. This defiance will likely have a depressing impact on other countries.
While a member, the United States could play a non-cooperative or disruptive role during the negotiations on many topics.
Since Trump has already made clear the United States wants to leave the pact, and no longer subscribes to its emissions pledges, nor will it meet its US$3bil (RM12.8bil) pledge on the Green Climate Fund, it would be strange to enable the country to still negotiate with the same status as other members that remain committed to their pledges.
How to deal with this issue is important so that the United Nations Framework Convention on Climate Change negotiations are not disrupted in the four years ahead.
Finally, Trump’s portrayal of developing countries like India and China as profiting from the US membership of the Paris Agreement is truly unfair.
China is the number one emitter of carbon dioxide in absolute terms, with the United States second and India third. But this is only because the two developing countries have huge populations of over a billion each.
In per capita terms, in 2015, carbon dioxide emissions were 16.1 tonnes for the United States, 7.7 tonnes for China and 1.9 tonnes for India.
It would be unfair to ask China and India to have the same mitigation target as America, especially since the United States has had the benefit of using or over-using more than its fair share of cheap fossil-fuel energy for over a century more than the other two countries.
A recent New York Times editorial (May 22) compared the recent performance of India and China with the recent actions of the United States under President Trump.
It states: “Until recently, China and India have been cast as obstacles ... in the battle against climate change. That reputation looks very much out of date now that both countries have greatly accelerated their investments in cost-effective renewable energy sources – and reduced their reliance on fossil fuels. It’s America – Donald Trump’s America – that now looks like the laggard.”
President Trump has taken the United States and the world many big steps backwards in the global fight against global warming. It will take some time for the rest of the world to figure out how to carry on the race without or despite the United States.
Hopefully the absence of America will only be for four years or less.
By Martin Khor
Martin Khor is executive director of the South Centre. The views expressed here are entirely his own.
Anger as Trump announces US withdrawal from global climate deal
WASHINGTON: President Donald Trump announced America’s shock withdrawal from the Paris climate accord Thursday, prompting a furious global backlash and throwing efforts to slow global warming into serious doubt.
In a sharply nationalistic address from the White House Rose Garden, Trump announced the United States would immediately stop implementing the “bad” 195-nation accord.
“I cannot, in good conscience, support a deal that punishes the United States,” he said, decrying the “draconian financial and economic burdens the agreement imposes on our country.”
Trump repeatedly painted the pact — struck by his predecessor Barack Obama — as a deal that did not “put America first” and was too easy on economic rivals China, India and Europe.
“I was elected to represent the citizens of Pittsburgh, not Paris,” he said. “We don’t want other leaders and other countries laughing at us anymore. And they won’t be.”
Trump offered no details about how, or when, a formal withdrawal would happen, and at one point suggested a renegotiation could take place.
“We’re getting out but we’ll start to negotiate and we will see if we can make a deal that’s fair. And if we can, that’s great. And if we can’t, that’s fine,” he said.
That idea was unceremoniously slapped down by furious allies in Europe, who joined figures from around the United States and the world in condemning the move.
“The agreement cannot be renegotiated,” France, Germany and Italy said in a joint statement.
Worst polluters
The United States is the world’s second largest emitter of greenhouse gases after China, so Trump’s decision could seriously hamper efforts to cut emissions and limit global temperature increases.
Amid Trump’s domestic critics was Obama, who said the United States was “joining a handful of nations that reject the future.”
Nicaragua and Syria are the only countries not party to the Paris accord, the former seeing it as not ambitious enough and the latter being racked by a brutal civil war.
Hillary Clinton, Trump’s opponent in last year’s White House race, called the decision to pull out a “historic mistake.”
“The world is moving forward together on climate change. Paris withdrawal leaves American workers & families behind,” she said in a tweet.
The Democratic governors of New York, California and Washington states formed a quick alliance, vowing to respect the standards agreed on under the Paris deal.
In New York, some major buildings, like the World Trade Center and City Hall, were lit green in solidarity with the climate agreement, echoing a move in Paris.
With much of the implementation of the accord taking place at the local level, the Paris accord’s supporters hope the deal will be in hibernation rather than killed off entirely.
Trump’s decision is likely to play well with the Republican base, with the more immediate damage on the diplomatic front.
The US president called his counterparts in Britain, Canada, France and Germany to explain his decision.
But traditional US allies were uncharacteristically blunt in their condemnation of the move, which comes amid already strained relationships with the hard-charging president.
Germany said the US was “harming” the entire planet, and European Commission President Jean-Claude Juncker called the decision “seriously wrong.”
Trump the showman
Ever the showman, the 70-year-old Trump had given his decision a reality TV-style tease, refusing to indicate his preference either way until his announcement.
Opponents of withdrawal — said to include Trump’s daughter Ivanka — had warned that America’s leadership role on the world stage was at stake, along with the environment.
A dozen large companies including oil major BP, agrochemical giant DuPont, Google, Intel and Microsoft, had urged Trump to remain in the deal.
Ultimately, the lobbying by Trump’s environmental protection chief Scott Pruitt and chief strategist Steve Bannon urging the president to leave won out.
In the wake of the announcement, Tesla and SpaceX boss Elon Musk and Disney chief Robert Iger announced they would no longer take part in presidential business councils.
“Climate change is real. Leaving Paris is not good for America or the world,” Musk said.
GE head Jeff Immelt said he was “disappointed” with the decision: “Climate change is real. Industry must now lead and not depend on government.”
'Morally criminal'
White House officials acknowledged that under the deal, formal withdrawal may not take place until after the 2020 election.
Hours ahead of Trump’s announcement, China’s Premier Li Keqiang pledged to stay the course on implementing the climate accord in a joint press conference with German Chancellor Angela Merkel, and urged other countries to do likewise.
China has been investing billions in clean energy infrastructure, as it battles to clear up the choking pollution enveloping its cities.
China and the US are responsible for some 40 percent of the world’s emissions and experts had warned it was vital for both to remain in the Paris agreement if it is to succeed.
The leader of Asia’s other behemoth, Indian Prime Minister Narendra Modi — who is due to visit the White House shortly — has said failing to act on climate change would be “morally criminal.”
Trump’s announcement comes less than 18 months after the climate pact was adopted in the French capital, the fruit of a hard-fought agreement between Beijing and Washington under Obama’s leadership.
The Paris Agreement commits signatories to efforts to reduce greenhouse gas emissions that cause global warming, which is blamed for melting ice caps and glaciers, rising sea levels and more violent weather events.
They vowed steps to keep the worldwide rise in temperatures “well below” two degrees Celsius (3.6 degrees Fahrenheit) from pre-industrial times and to “pursue efforts” to hold the increase under 1.5 degrees Celsius.
The new automation revolution is going to disrupt both industry and services, and developing countries need to rethink their development strategies.
A NEWS item caught my eye last week, that Uber has obtained permission in California to test two driverless cars, with human drivers inside to make corrections in case something goes wrong.
Presumably, if the tests go well, Uber will roll out a fleet of cars without drivers in that state. It is already doing that in other states in America.
In Malaysia, some cars can already do automatic parking. Is it a matter of time before Uber, taxis and personal vehicles will all be smart enough to bring us from A to B without our having to do anything ourselves?
But in this application of “artificial intelligence”, in which machines can have human cognitive functions built into them, what will happen to the taxi drivers? The owners of taxis and Uber may make more money but their drivers will most likely lose their jobs.
The driverless car is just one example of the technological revolution taking place that is going to drastically transform the world of work and living.
There is concern that the march of automation tied with digital technology will cause dislocation in many factories and offices, and eventually lead to mass unemployment.
This concern is becoming so pervasive that none other than Bill Gates recently proposed that companies using robots should have to pay taxes on the incomes attributed to the use of robotics, similar to the income tax that employees have to pay.
That proposal has caused an uproar, with mainstream economists like Lawrence Summers, a former United States treasury secretary, condemning it for putting brakes on technological advancement. One of them suggested that the first company to pay taxes for causing automation should be Microsoft.
However, the tax on robots idea is one response to growing fears that the automation revolution will cause uncontrollable disruption and increase the inequalities and job insecurities that have already spurred social and political upheaval in the West, leading to the anti-establishment votes for Brexit and Donald Trump.
Recent studies are showing that deepening use of automation will cause widespread disruption in many sectors and even whole economies. Worse, it is the developing countries that are estimated to lose the most, and this will exacerbate the already great global inequalities.
The risks of job automation to developing countries is estimated to range from 55 to 85%, according to a pioneering study in 2016 by Oxford University’s Martin School and Citi.
Major emerging economies will be at high risk, including China (77%) and India (69%). The risk for Malaysia is estimated at 65-70%. The developed OECD countries’ average risk is only 57%.
From the Oxford-Citi report, “The future is not what it used to be”, one gathers there are at least three reasons why the automation revolution will be particularly disruptive in developing countries.
First, there is “premature deindustrialisation” taking place as manufacturing is becoming less labour-intensive and many developing countries have reached the peak of their manufacturing jobs.
Second, recent developments in robotics and additive manufacturing will enable and could thus lead to relocation of foreign firms back to their home countries.
Seventy per cent of clients surveyed believe automation and 3D printing developments will encourage international companies to move their manufacturing close to home. China, Asean and Latin America have the most to lose from this relocation.
Thirdly, the impact of automation may be more disruptive for developing countries due to lower levels of consumer demand and limited social safety nets.
The report warns that developing countries may even have to rethink their overall development models as the old ones that were successful in generating growth in the past will not work anymore.
Instead of export-led manufacturing growth, developing countries will need to search for new growth models, said the report.
“Service-led growth constitutes one option, but many low-skill services are now becoming equally automatable.”
Another series of reports, by McKinsey Global Institute, found that 49% of present work activities can be automated with currently demonstrated technology, and this translates into US$15.8tril in wages and 1.1 billion jobs globally.
About 60% of all occupations could see 30% or more of their activities automated. But more reassuringly, an author of the report, James Manyika, says the changes will take decades.
Which jobs are most susceptible? The McKinsey study lists accommodations and food services as the most vulnerable sector in the US, followed by manufacturing and retail business.
In accommodations and food, 73% of activities workers perform can be automated, including preparing, cooking or serving food, cleaning food-preparation areas and collecting dirty dishes.
In manufacturing, 59% of all activities can be automated, including packaging, loading, welding and maintaining equipment.
For retailing, 53% of activities are automatable. They include stock management, maintaining sales records, gathering customer and product information, and accounting.
A technology specialist writer and consultant, Shelly Palmer, has also listed elite white-collar jobs that are at risk from robotic technologies.
These include middle managers, commodity salespeople, report writers, journalists, authors and announcers, accountants and bookkeepers, and doctors.
Certainly, the technological trend will improve productivity per worker that remains, and increase the profitability of companies that survive.
But there are adverse effects including loss of jobs and incomes for those who are replaced by the new technologies.
What can be done to slow down automation or at least to cope with its adverse effects?
The Bill Gates proposal to tax robots is one of the most radical. The tax could slow down the technological changes and the funds generated by the tax could be used to mitigate the social effects.
Other proposals, as expected, include training students and present employees to have the new skills needed to work in the new environment.
Overall, however, there is likely to be a significant net loss of employment, and the potential for social discontent is also going to be large.
As for the developing countries, there will have to be much thinking about the implications of the new technologies for their immediate and long-term economic prospects, and a major rethinking of economic and development strategies.
Global Trends by Martin Khor
Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
This will be a year like no other, as there will be a thunderous clash of policies, economies and politics worldwide. We should prepare for the challenges ahead and not be only spectators.
THE new year has dawned. Everyone agrees 2017 will be very interesting.
It will also be most problematic. From politics to economics and finance, we’ll be on a roller-coaster ride.
With his extreme views and bulldozing style, President-elect Donald Trump is set to create an upheaval, if not revolution, in the United States and the world.
He is installing an oil company chief as the Secretary of State, investment bankers in key finance positions, climate sceptics and anti-environmentalists in environmental and energy agencies and an extreme rightwing internet media mogul as his chief strategist.
US-China relations, the most important for global stability, could change from big-power co-existence, with a careful combination of competition and cooperation, to outright crisis.
Trump, through his phone call with the Taiwanese president and after, signalled he could withdraw the longstanding US adherence to the One China policy and instead use Taiwan as a negotiating card in overall relations with China. The Chinese perceive this as an extreme provocation.
He has appointed as head of the new National Trade Council an economist known for his many books demonising China, including Death by China: Confronting the Dragon.
Trump seems intent on doing an about-turn on US trade policies. Measures being considered include a 45% duty on Chinese products, extra duties and taxes on American companies located abroad, and even a 10% tariff on all imports.
Thus 2017 will see protectionism rise in the United States, the extent still unknown. That is bad news for many developing countries whose economies have grown on the back of exports and international investments.
Europe in 2017 will also be preoccupied with its own regional problems. The Brexit shock of 2016 will continue to reverberate and other countries facing elections will be less open to the world and become more inward-looking.
As protectionism, xenophobia and narrow nationalism grow in Western societies, Asian countries should devise development strategies based more on domestic and regional demand and investments.
2017 may be the year when resource-rich China, with its development banks and its Belt and Road Initiative, fills in the economic void created by Western trade and investment protectionism.
But this may not be sufficient to prevent a finance shock in many developing countries now beginning to suffer a reversal of capital flowing back to the United States, attracted by the prospect of higher interest rates and economic growth.
In 2017 Malaysia will be among the countries most vulnerable to this, due to the large foreign ownership of local bonds and shares.
As capital flows out and the currency depreciates further, the affected countries’ companies will have to pay more for servicing loans contracted in foreign currencies and imported machinery and parts, while consumers grumble about the rising cost of living.
On the positive side, exporters will earn more in local currency terms and tourism will increase, but this may not be enough to offset the negative effects.
Thus 2017 will not be kind to the economy, business and the pockets of the common man and woman. It might even spark a new financial crisis.
The old year ended with mixed blessings for Palestinians. On one hand, they won a significant victory when the outgoing President Barack Obama allowed the adoption of a United Nations Security Council resolution condemning Israeli settlements in occupied Palestinian territories by not exercising a veto.
The resolution will spur international actions against the expansion of settlements which have become a big obstacle to peace talks.
On the other hand, the Israeli leadership, which responded defiantly with plans for more settlements, will find in Trump a much more sympathetic president. He is appointing a pro-Israel hawk as the US ambassador to Israel.
With Trump also indicating he will tear up the nuclear power deal with Iran, the Middle East will have an even more tumultuous time in 2017.
The commencement of floods in some parts of Malaysia during the holiday season, ironically following days of the taps going dry for millions in the Klang Valley, is a prelude to the environment continuing to be a critical issue in 2017.
Unfortunately, low priority is given to the environment. Hundreds of billions of dollars are allocated for highways, railways and urban buildings but only a trickle for conservation and rehabilitation of hills, watersheds, forests, mangroves, coastal areas, biodiversity or for serious climate change actions.
2017 should be the year when priorities change, that when people talk about infrastructure or development, they put actions to protect and promote the environment as the first items for allocation of funds.
This new year will also be make-or-break for climate change. The momentum for action painfully built up in recent years will find a roadblock in the United States as the new president dismantles Obama-initiated policies and measures.
But Trump and his team will face resistance domestically, including from state governments and municipalities that have their own climate plans, and from other countries determined to carry on without the United States on board.
Indeed, if 2017 will bring big changes initiated by the new US administration, it will also generate many counter-actions to fill in the void left in the world by a withdrawing United States or to counter its new unsettling actions.
There are opportunities to think through and alternatives and reforms that are needed on global and national economies, on the environment and on geo-politics.
Most of the main levers of power and decision-making are still in the hands of a few countries and a few people, but there has also been the emergence of many new centres of economic, environmental and intellectual capabilities and community-based organising.
2017 will be a year in which ideas, policies, economies and politics will clash, thunderously, and we should be prepared for the challenges ahead, not just be spectators.
Global Trends By Martin Khor
Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
Oct 12, 2016 ... Global Trends By Martin Khor Global Trend The Star/ANN. Martin Khor (director
@southcentre.org) is executive director of the South Centre.
The year will be remembered for the West ending its romance with globalisation, and its impact on the rest of the world.
JUST a few days before Christmas, it is time again to look back on the year that is about to pass.
What a strange year it has been, and not one we can celebrate!
The top event was Donald Trump’s unexpected victory. It became the biggest sign that the basic framework and values underpinning Western societies since the second world war have undergone a seismic change.
The established order represented by Hillary Clinton was defeated by the tumultuous wave Trump generated with his promise to stop the United States from pandering to other countries so that it could become “great again”.
Early in the year came the Brexit vote shock, taking Britain out of the European Union. It was the initial signal that the liberal order created by the West is now being quite effectively challenged by their own masses.
Openness to immigrants and foreigners is now opposed by citizens in Europe and the US who see them as threats to jobs, national culture and security rather than beneficial additions to the economy and society.
The long-held thesis that openness to trade and foreign investments is best for the economy and underpins political stability is crumbling under the weight of a sceptical public that blames job losses and the shift of industries abroad on ultra-liberal trade and investment agreements and policies.
Thus, 2016 which started with mega trade agreements completed (Trans-Pacific Partnership) or in the pipeline (the Transatlantic Trade and Investment Partnership between the US and Europe) ended with both being dumped by the President Elect, a stunning reversal of the decades-old US position advocating the benefits of the open economy.
2016 will be remembered as the year when the romance in the West with “globalisation” was killed by a public disillusioned and outraged by the inequalities of an economic system tilted in favour of a rich minority, while a sizeable majority feel marginalised and discarded.
In Asia, the dismantling of the globalisation ideal in the Western world was greeted with a mixture of regret, alarm and a sense of opportunity.
Many in this region believe that trade and investment have served several of their countries well. There is fear that the anti-globalisation rebellion in the West will lead to a rapid rise of protectionism that will hit the exports and industries of Asia.
As Trump announced he would pull the US out of the TPP, China stepped into the vacuum vacated by the US and pledged to be among the torchbearers of trade liberalisation in the Asia-Pacific region and possibly the world.
The change of direction in the US and to some extent Europe poses an imminent threat to Asian exports, investors and economic growth. But it is also an opportunity for Asian countries to review their development strategies, rely more on themselves and the region, and take on a more active leadership role.
China made use of 2016 to prepare for this, with the Asian Infrastructure Investment Bank taking off and the immense Belt and Road Initiative gathering steam.
Many companies and governments are now latching on to the latter as the most promising source of future growth.
The closing months of 2016 also saw a surprising and remarkable shift in position by the Philippines, whose new President took big steps to reconcile with China over conflicting claims in the South China Sea, thus defusing the situation – at least for now.
Unfortunately, the year also saw heart-rending reports on the plight of the Rohingya in Myanmar, and the deaths of thousands of Syrians including those who perished or were injured in the end-game in Aleppo.
On the environmental front, it is likely 2016 will be the hottest year on record, overtaking 2015. This makes the coming into force in October of the Paris Agreement on climate change all the more meaningful.
But there are two big problems. First, the pledges in the agreement are grossly insufficient to meet the level of emissions cuts needed to keep the world safe from global warming, and there is also insufficient financing to support the developing countries’ climate actions, whether on mitigation or adaptation.
And secondly, there is a big question mark on the future of the Paris agreement as Trump had vowed to take the US out of it.
The biggest effect of 2016 could be that a climate skeptic was elected US President.
In the area of health, the dangers of antibiotic resistance went up on the global agenda with a declaration and day-long event involving political leaders at the United Nations in September.
There was growing evidence and stark warnings in 2016 that we are entering a post-antibiotic era where medicines will no longer work and millions will die from infection and ailments that could once be easily treated by antibiotics.
The world will also be closing in a mood of great economic uncertainty. In 2016 the world economy overall didn’t do well but also not too badly, with growth rates projected at 2.4 to 3%.
But for developing economies like Malaysia, the year ended with worries that the high capital inflows of recent years are reversing as money flows back to the US.
The first in an expected series of interest rate increases came last week.
All in all, there was not much to rejoice about in 2016, and worse still it built the foundation for more difficulties to come in 2017.
So we should enjoy the Christmas/New Year season while we can. Merry Christmas to all readers!
Global Trends By Martin Khor
Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
In reality, many developed countries practise double standards, insisting on free trade in areas where they are strong, whilst using protectionist measures in sectors where they are weak.
In the worst case, within the same sector they have designed rules that impose liberalisation on developing countries but allow themselves to maintain high protectionism.
An outstanding example is in agriculture, in which the rich counties are not competitive.
If “free trade” were to be practised, a large part of global agricultural trade would be dominated by the more efficient developing countries.
But until today, agricultural trade is dominated instead by the major developed countries.
For many decades they got an exemption for agriculture from trade liberalisation rules.
This exemption ended when the World Trade Organisation (WTO) was created in 1995 and the rich countries were expected to open their agriculture to global competition.
But in reality, WTO’s agriculture agreement allowed them to have both high tariffs and high subsidies.
The subsidies have enabled farmers to sell their products at low prices, often below production cost, yet allowed them to get adequate revenues (which include the subsidies) that keep them in business.
This has four negative effects on developing countries.
Firstly, those countries that are agriculturally competitive cannot penetrate the rich countries’ markets.
Secondly, the developing countries are deprived of other markets because the United States and Europe can export the same farm products at artificially cheap prices. This is a complaint of African cotton-producing countries.
Thirdly, by exporting a product cheaply, the developed country reduces the demand for a competitor substitute product. If the US did not subsidise its soybean, enabling soybean oil to be cheaper, Malaysian or Indonesian palm oil would have a bigger market.
Fourthly, these cheap products (such as chicken from US and Europe) have entered many developing countries, damaging the livelihoods of their local farmers.
In 2001, the WTO launched a Doha development agenda whose chief goal was to liberalise the agriculture of developed countries.
Much energy was spent over many years to devise methods and formulae to liberalise agricultural trade, and a high degree of consensus was reached.
However, the US, backed by Europe, has now made it clear they do not intend to conclude the Doha Round.
Future WTO negotiations have to be on a new basis, and not based on existing texts.
An article by Chris Horseman in the bulletin Agra Europe (May 12) analysed why the US now cannot accept the existing text.
A reduction in the maximum limit of one type of allowed subsidies (called de minimis) would have pushed the US to increase by 58% another type of disallowed subsidies (known as AMS).
This partly explains “why the US is keen to move away from the formulae on the table and to negotiate a fresh approach,” said the article.
Due to its powerful farm lobbies, the US will not change its domestic policies (embodied in its 2014 Farm Bill) to meet the Doha agenda’s new limits on the allowed amounts of domestic subsidies.
The same article also shows how the European Union has meanwhile changed the types of subsidies it provides, in order to better comply with WTO rules. This also allowed the EU countries to maintain their total domestic subsidies at around €80bil (RM356bil) annually from 2004 to 2013.
Two decades after the WTO was set up, the rich countries have continued the high level of their agricultural protection.
There is little prospect that they will agree to changes in the trading system that will effectively eliminate or reduce the massive subsidies that keep their farming systems afloat.
The poorer countries simply do not have the money to match the subsidies of the rich.
If they want to defend their farmers and their food security, they can only put up tariffs to levels that keep out the cheap subsidised products.
But those developing countries that sign free trade agreements with the US and the EU have to cut their agriculture tariffs to zero or very low levels.
At the same time, at the insistence of developed countries, agricultural subsidies are kept off the FTA agenda. Thus, the rich countries can keep their subsidies and swamp developing countries with their farm products.
The US and EU are also taking protectionist measures in other areas against developing countries.
For example, the US successfully filed a case against India at the WTO, that the latter’s National Solar Mission favours local firms through its domestic content requirements for solar cells and modules.
This kind of objection makes it extra difficult for India or other developing countries to take action against climate change.
The European Parliament recently voted to refuse giving China the status of a market economy in the WTO, although WTO members are obliged to recognise China as a market economy by December 2016, 15 years after it joined the WTO in 2001.
By denying China this status, it is easier for other countries to succeed when taking anti-dumping cases against China, and thus to place extra tariffs on Chinese exports.
China and India are fighting back.
India last week announced it will file 16 cases against the US for violating WTO rules when providing subsidies under its renewable energy programmes.
China won a case against the US in the WTO for wrongly imposing countervailing duties against 15 Chinese products including solar panels, steel sinks and thermal paper.
However, the US has not complied with the panel decision to withdraw the duties, and China is now starting action at the WTO to get the US to comply.
It seems impossible to prevent or reduce the rich countries’ high protection of their agriculture. And it also seems they will continue using protectionist measures against products or policies of developing countries.
There is indeed a big gap between the rhetoric and practice of free trade.
By Martin Khor Global trends
Martin Khor (director@ southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
FINALLY, the negotiations on the Trans-Pacific Partnership Agreement have concluded. But that’s not the end of the story.
It will be many more days before the text is made public. Until then, there will still be so many questions unanswered.
Enough is known, from media reports and some leaked texts and analyses, to make some preliminary comments.
Firstly, trade is only one part of the TPPA. As important, or more important, are other issues including investment, intellectual property, government procurement, state-owned enterprises, labour and environment.
These other issues are at the heart of the country’s socio-economic structures and policies.
On these issues, the TPPA may have problematic elements for Malaysia. The Malaysian negotiating team has been fighting to lessen the adverse impacts of the main proposals.
It says it won concessions. But what these are, whether they are enough, and the effects are still not clear. What is clear is that “policy space” (a country’s freedom to formulate its own policies) would be very significantly narrowed as a result of the TPPA.
On intellectual property, the blow is perhaps the most obvious. Most patents filed in Malaysia are owned by foreigners. So when patent laws are made stronger, it will benefit foreigners who are the patent holders.
The enhanced monopoly given to patent holders will have adverse effects on Malaysian consumers who will have to pay higher prices and Malaysian companies which cannot make or import generic versions during the patent term.
The renowned medical group, Doctors Without Borders (MSF), condemned the TPPA as the “worst trade agreement for access to medicines”. Patients and treatment providers in developing countries will be the TPPA’s big losers as it will raise the prices of medicines by extending the monopolies enjoyed by the big drug companies and further delaying price-reducing generic competition, according to MSF.
The term of the patent may be lengthened (by adding time taken to register the medicine or approve the patent). Data exclusivity is to be granted for five years (or possibly for more than that, for the new drugs known as biologics), during which the generic companies are not allowed to rely on the test data of the originator firm.
On investment, the TPPA opens the road for foreign companies to be treated as well or better than locals, thus giving them rights of entry and ownership, and free transfer of funds, while prohibiting the host state from imposing performance requirements such as local content, technology transfer and joint ventures. The TPPA also contains the investor-state dispute settlement system (ISDS), which enables foreign investors to sue the Government in an international tribunal.
Changes in government policies can lead to claims that this is unfair treatment and the foreign investor can ask for compensation for loss of expected future profits.
According to press reports, the TPPA has some safeguards such as diluting the ability of companies to make frivolous claims. Exactly what these are, is not known. The ISDS in any case remains intact as a powerful tool for foreign investors and puts Malaysia in a defensive position.
On government procurement, the space that Malaysia has had to make policies on how the Government does its procurement will be curbed. The preferences given to locals will now give way to national treatment for foreign companies.
Malaysia has been negotiating for more exceptions in terms of the “threshold” of level of expenditure or project value where preferences for locals can still be given, and an exception for bumiputra policy. Details of the final agreement are still not known.
On state-owned enterprises (SOEs), the TPPA will impose disciplines and rules on how these SOEs operate, the subsidies they can or cannot get, and their need to be non-discriminatory when purchasing materials (they cannot give preference to local companies).
The advocates of the SOE chapter seem to want to curb the advantages that SOEs may have, and enable the foreign companies to more effectively compete and take some of their market share. Malaysia has also been fighting for exceptions for some of its SOEs. The final outcome of this is not yet known.
Investment policy, government procurement, SOEs and access to medicines are right at the heart of Malaysia’s political economy and socio-economic structures.
Policies that have been at the centre of the country’s economic and political development have now to be defended as exceptions and flexibilities, and there is a limit to what the other TPPA partners will accept.
The chapters on these issues are bitter pills to swallow and the debate will continue on whether they are worth swallowing.
The direct trade aspects of the TPPA should have such enormous benefit that they more than offset the disadvantages of the other issues. Otherwise, why join the TPPA?
However, Malaysia’s tariffs are on average higher than those of the United States, the main country with whom we do not yet have a Free Trade Agreement.
If tariffs go to zero through the TPPA, Malaysia will thus have to cut its tariffs by more than the US. Whilst we may gain extra exports through the TPPA, we will also have to import more. There is no guarantee that the TPPA will lead to a better trade balance, and there could be an opposite result.
The debate on the TPPA will intensify now that the negotiations have ended. The text should be made available as soon as possible, so that the discussions can be based on the agreement itself. After the TPPA, it will take another two years for the agreement to be ratified and come into force.
Thus, the TPPA is not a “done deal” and the real debate may only be beginning now. It is unfortunate that till now the text is not available.
BY MARTIN KHOR
Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
The TPP is not an opportunity China cannot miss. Any global trade framework will not be perfect without China's participation. We have nothing to be insecure about.
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