Monday, March 30, 2009

Bambi or not, Lama’s ban a blow to freedom

FINANCE Minister Trevor Manuel has a point when he says that, in many quarters, criticising the Dalai Lama is “equivalent to trying to shoot Bambi”.

The Tibetan leader shares a deified space occupied by several international icons who’ve fought for peace, democracy and freedom, including Che Guevara, Nelson Mandela and Myanmar’s Aung San Suu Kyi. Converts to the cause cannot tolerate criticism of their high priests, even when it’s based on fact. This is not because airing dirty linen betrays a noble cause by supplying ammunition to enemies of the struggle, but for the simple reason that it amounts to sacrilege.

I presume Manuel was taking a dig at this sort of myopic, unquestioning support for Tibet’s cause — and the man who popularised it — when he addressed a gathering at the University of Cape Town last week. Manuel reportedly said it was time to interrogate the Dalai Lama’s credentials. Was he just a spiritual leader of Tibetan Buddhists, or an illegitimate secessionist trying to drum up support for his selfdeclared government in exile “in the same way Taiwan was established to counter the legality of a single China”?

We needed to understand the role of lamas in Tibet’s history, he said. They were high priests and feudal overlords, which makes it problematic to elevate them to the status of demigods of democracy.

I quite agree. No one should ever be beyond well-reasoned reproach based on fact. Critical debate that doesn’t admit to holy cows is the essence of a robust democracy. But using this argument to justify clamping down on freedom of speech is a bit rich.

I don’t pretend to know much about Tibet’s history, or the Dalai Lama for that matter. But I can’t quite see how questions about the Nobel laureate’s legitimacy can translate into denying him a visa to stop him from making “a big global political statement about the secession of Tibet from China … on the free soil of SA”, as Manuel puts it. This amounts to a banning order.

I recall a much younger Manuel in a hall on the same university campus , railing against the injustices of the apartheid state, including banning orders against leaders of the African National Congress, Pan Africanist Congress and South African Communist Party, who were prevented from freely propagating their views on their chosen podiums. As students, we indignantly punched the air with every “Amandla!” from Manuel, while outside rows of riot police lounged against Casspirs lined up on the edge of our campus.

Freedom of speech is not a complicated concept. It’s about being allowed to punt whatever views you want on any platform you’ve been invited to air them as long as you don’t defame anyone or break any laws, such as those governing hate speech or incitement to violence.

By banning the Dalai Lama from coming to SA until after the 2010 Soccer World Cup, our government has shown itself as eager as its apartheid predecessor to silence views it finds threatening or embarrassing.

No one really buys government spokesman Thabo Masebe’s argument that the Dalai Lama’s presence here would divert attention from the World Cup and that Chinese pressure had nothing to do with the decision to block his visit.

For a start, the conference he was scheduled to attend, along with fellow Nobel laureates and a few Hollywood stars, would have discussed ways of using soccer to fight racism and xenophobia ahead of the World Cup. You don’t get better publicity for a sporting event than that.

When the Chinese embassy reportedly confirmed it had appealed to SA not to let the Dalai Lama attend as it would harm bilateral relations, the cat was out of the bag.

Any ruling party that seeks to silence views that threaten its cozy relationship with a key trading partner, and perhaps even campaign funder, is guilty of a direct attack on our hard-won freedom of speech. And that’s worse than shooting Bambi.

  • Hofstatter is contributing editor

  • http://www.businessday.co.za/articles/opinion.aspx?ID=BD4A969777

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    Winds of Change Evident in U.S. Environmental Policy

    Daniel Reifsnyder, a 25-year State Department veteran, knew even before President Obama was elected that U.S. environmental policy was going to change. So in early November, he called a couple of his Environmental Protection Agency counterparts about drafting documents to lay the groundwork for endorsing a treaty to curb global emissions of toxic mercury.

    The Bush administration had resisted proposals for a United Nations-sponsored mercury treaty since at least 2005 on the grounds that voluntary measures were sufficient, but Reifsnyder told his fellow career officials that they had an opportunity to quickly formulate a new U.S. position in time for an upcoming meeting in Nairobi. They knew that as a senator, Obama had sponsored legislation banning the export of mercury overseas and that he was likely to be sympathetic to the treaty proposal.

    "To anyone who was aware of what was happening, it was pretty clear the chances of the Bush administration position continuing into the new administration was pretty remote," recalled Reifsnyder, who is deputy assistant secretary of state for the environment and jokes that he started working at the department "before Moses parted the waters."

    By Feb. 20, the efforts of Reifsnyder and dozens of other rank-and-file federal employees had borne fruit: After the United States voiced support for the idea of a new, binding mercury treaty, the world community embraced it in Nairobi.

    The rapid policy reversal is just one of more than a dozen environmental initiatives the new administration has undertaken in its first two months. In nearly every case, the decisions were based on extensive analysis and documentation that rank-and-file employees had prepared over the past couple of years, often in the face of contrary-minded Bush administration officials.

    After years of chafing under political appointees who viewed stricter environmental regulation with skepticism, long-serving federal officials are seeing work that had been gathering dust for years translate quickly into action.

    Whether that is a good thing depends on one's point of view.

    "It is kind of how government works, at its best," said Eric Schaeffer, who headed the EPA's office of regulatory enforcement before resigning in protest in 2002. He now runs the Environmental Integrity Project, an advocacy group. "With government bureaucrats, we fuss at them, but in this case I think they're doing some good."

    Businesses facing new regulation, however, often call it a case of unelected government employees running amok.

    "It's safe to say [that] within the regulatory bureaucracy, there's a built-in inclination to draft regulations, because that's what they do," said Hank Cox, a spokesman for the National Association of Manufacturers. "With some of these bureaucrats and activist groups, there's an obliviousness to the costs of these regulations. We're more comfortable with having people high up in government taking a fairly tough line on new rules."

    After years of behind-the-scenes disputes with their superiors who favored regulatory restraint, many longtime federal workers are now what Cox calls "more in sync" with the new political hires running their agencies.

    This shift has helped produce broad policy reversals that encompass such issues as writing new regulations and prosecuting violators of old ones, with still more in the pipeline. Drawing on earlier spadework, the administration has issued a proposal to create a national greenhouse gas registryfiled a lawsuit accusing a coal-fired power plant in New Roads, La., of violating the Clean Air Act; and put electric utilities on notice that they may have to account for their greenhouse gas pollution.

    Political appointees have also asked career employees for background material on how to regulate pollution from cement kilns; whether refineries have done enough to curb their harmful emissions; and whether the federal government should grant California and more than a dozen other states the power to curb greenhouse gas emissions from vehicles.

    Margo Oge, director of the EPA's office of transportation and air quality, said the approximately 400 people who work in her division have drawn on "thousands of pages" of documents that they drafted during the past administration to advise new EPA Administrator Lisa P. Jackson quickly on questions such as whether the agency is obligated to regulate gases that contribute to global warming and how it might accomplish that.

    Bush officials had extended the public comment period on the question, in part because they thought a positive finding would trigger an elaborate regulatory scheme that would harm the economy. On March 20, the EPA sent a finding to the White House that greenhouse gases endanger public health and welfare, based in part on the work that Oge's office had done.

    "There is a sense of urgency by the president and the administrator to address climate change," Oge said. "The agency is in a very good position to provide technical assistance to the president, to Congress and to the administrator."

    In many instances, career officials have spent a couple of years preparing the reports and briefings they are now delivering to Obama officials. Under Bush, for example, senior EPA officials such as former deputy administrator Marcus Peacock made it clear that the government would not devote significant resources to prosecuting coal-fired power plants for Clean Air Act violations because the administration was more interested in curbing air pollution through regulatory reform.

    But according to a Justice Department official, who spoke on the condition of anonymity to discuss ongoing litigation, career employees continued to research such allegations in the hope of securing settlements or bringing cases in the future.

    On Feb. 18, less than a month after Obama was sworn in, the United States filed a complaint against the Big Cajun 2 Power Plant charging that for more than a decade it has operated without required pollution controls; the case was based in part on about 2,000 boxes of documents from the EPA's enforcement office.

    The Justice official said the fact that EPA employees continued to research these sorts of complaints kept a 1999 federal initiative aimed at coal-fired utilities "alive, and that's what gives us the ability now to file a couple of these cases."

    In some cases, agency officials have been able to revive proposals that languished under the previous administration with the tiniest of changes. A proposal to establish a national greenhouse gas registry stalled at the Office of Management and Budget for three months because Bush administration officials did not think the EPA should use its authority under the Clean Air Act to establish the monitoring system. Within two weeks of Jackson taking office, however, career officials briefed her on the matter, and she agreed that they could base the rule on the act. The registry proposal that the EPA issued this month is nearly identical to the one it sent to the OMB in September.

    Scott Segal, a lobbyist for coal-fired utilities at the law firm Bracewell & Giuliani, said the fact that Obama has yet to fill many sub-Cabinet appointments at federal agencies has created "a power vacuum in which career employees fill in the gap."

    "The old joke about EPA employees is they would either write the rule, or if they couldn't, they would leak the draft," Segal said. Now, he added, they seem to be getting their chance to write the rules.

    By Juliet Eilperin
    Washington Post Staff Writer



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    Sunday, March 29, 2009

    Dubai - Economy to Shrink by 1.7pc: EFG Hermes

    The UAE economy will shrink by 1.7 per cent this year, with an expected steep decline in population leading to more pain for the property sector, a report by EFG Hermes said on Saturday.

    The outlook contrasts sharply with the 7.4 per cent growth that the UAE achieved in 2008 period. EFG Hermes had originally forecast in January that the UAE economy would contract by only 0.04 per cent.

    As global economic conditions worsen, droves of expatriates, who make up about 80 per cent of the UAE’s population, are being sent home as companies downsize or close shop altogether.

    EFG-Hermes, the largest investment bank based in the Middle East, said it estimates the country’s population to fall by 5.5 per cent this year, led by a 17 per cent drop in the population of Dubai alone. The bank predicts that the UAE’s population will shrink to 1.49 million this year from 1.79 million in 2008. It said there will be a sharp 30 per cent contraction in the number of employees in the construction, real estate and financial services sectors.

    “This sharp fall in population will have a marked impact on private consumption, along with the greater economic uncertainty, correction in the property sector and lower tourism numbers,” said Monica Malik, economist at EFG-Hermes in Dubai.

    Data from the Dubai Ministry of Interior Naturalisation & Residency show that Dubai cancelled 54,684 residency visas in January, or an average of 1,764 every day, up 89 per cent from a year ago.

    The outflow of non-construction workers, which have a far greater impact on the economy, will curb private consumption by 13 per cent this year, EFG-Hermes said.

    As a result, the bank expects a price deflation of 2 per cent this year, with housing and rental prices sliding further. Housing is the largest component of the consumer price index, amounting to 36 per cent.

    Tougher days lie ahead for the property industry, with rents seen falling by as much as 50 per cent in Dubai compared to last year’s increase of 21 per cent. Rents in Abu Dhabi and the rest of the emirates will remain flat in 2009.

    EFG-Hermes forecasts that the downward spiral in Dubai property prices will also continue, with prices in 2009 sliding by as much as 60 per cent from their peak levels last year.

    “We believe that 2009 and even next year will be tough for Dubai, and while Abu Dhabi will continue to diversify its economy, we hold the view that both consumption and investment are likely to slow,” said Sana Kapadia, property analyst at EFG Hermes.

    The impact of a shrinking UAE economy will be particularly harsh in Dubai, in contrast to the other emirates and the rest of the region, said Malik.

    “This is because of both the highly leveraged and externally facing nature of the Dubai economy. We will see a slowdown or contraction in a number of economic sectors, notably in real estate and construction as projects are cancelled or put on hold.”

    Outside of property, other sectors such as finance, advertising and marketing will also contract.

    “The reduction in advertising spent by real estate companies, falling hotel occupancy and room rates exemplify the weakness of the labour market and service-related sectors, EFG-Hermes said.

    Lower oil prices and production will dent export revenue, adding further to the UAE’s economic woes.

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    Obama starts climate change forum for big economies

    President Barack Obama on Saturday invited 16 "major economies" including the European Union and the United Nations to take part in a forum on climate change to facilitate a U.N. pact on global warming.

    Obama, a Democrat who has taken a more aggressive stance on climate change than his predecessor, Republican George W. Bush, invited the group to a preparatory session on April 27 and 28 in Washington.

    The White House made clear that Obama's new initiative would aim to augment U.N. talks that are meant to culminate in an agreement in Copenhagen in December.

    "Our goal is to use this forum very much as a key part in how we reach an overall agreement," a senior administration official told Reuters, adding the review was "an important piece of the puzzle of how we get from here to Copenhagen."

    The "Major Economies Forum on Energy and Climate" has echoes of a similar set of meetings organized by the previous administration.

    Bush's "major economies" initiative drew skepticism from participants, who were wary the process was his administration's way of circumventing broader U.N. talks to forge an international deal.

    The U.S. official said countries around the world had expressed interest in restarting the major economies process because of Obama's differences from Bush on climate change.

    The president, who took office in January, has said he wants the United States to take the lead in global warming talks.

    The April meeting, to be hosted at the State Department, would likely touch on a range of issues including technology, financing, and emissions trading, the official said.

    POLITICAL WILL

    In a statement, the White House said the forum would "help generate the political leadership necessary" to achieve an international pact to cut greenhouse gas emissions later this year.

    It said the meeting would spur dialogue among developed and developing countries about the issue, "and advance the exploration of concrete initiatives and joint ventures that increase the supply of clean energy while cutting greenhouse gas emissions."

    The major economies include: Australia, Brazil, Britain, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, South Africa and the United States.

    Denmark, which is hosting the U.N. meeting in December to forge a pact that would take over from the Kyoto Protocol, was also invited.

    The group's preparatory sessions are to culminate with a major meeting on the subject in La Maddalena, Italy, in July, hosted by Prime Minister Silvio Berlusconi.

    The Group of Eight rich nations also meets at the same location in Italy in July, and the senior official said the climate summit would take place on the margins of the G8.

    The U.S. official said he expected other meetings would take place before July, probably outside of the United States.

    Obama's announcement comes shortly before a fresh round of U.N. climate talks on Sunday. Up to 190 nations are to meet in Bonn, Germany, to work on plugging huge gaps in the international pact, which is slated to be agreed to in Denmark in December.

    Obama wants to cut U.S. emissions by roughly 15 percent back to 1990 levels by 2020 -- tougher than Bush, who saw U.S. emissions peaking as late as 2025.

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    Saturday, March 28, 2009

    Retooling Strategies to Help Dubai Retain its �Sizzle�

    BGR Group Managing Director Morris Reid says companies in the Gulf should change their approach and pursue business with smaller US companies

    Morris Reid loves his cigar and is a self-confessed watch and cuff-links freak. A big man, when he is not jumping in and out of trans-continental flights to push what he calls commercial diplomacy, Reid can often be found on US television networks commenting on political and economic issues.

    As Managing Director of the BGR Group, a large US lobbying firm, Reid mostly works with a full plate � at conferences, seminars, meetings and, as I learned, at lunches too. He worked earlier with the Clinton administration, following which he ran his own public affairs company for several years until it merged with BGR around the time the United States was electing a new president, at the end of last year.

    Lobbying, for Reid, is a necessity in the world�s biggest economy. �I think the Catholic Church has a lobbyist too,� he says, tucking into his green salad on a fine March afternoon at the Capital Club (Reid was in town for the CONNECT-World CEO Conference). His mother strictly enforced a vegetables-first policy on the dining table, he tells me, adding that while lobbyists could be found everywhere in the world, the system has been formalised in the United States.

    �Lobbying has been around since governments were created. There will always be a situation where people have interests that need to be represented and advocated for. Again, in the world�s biggest economy, there are certain winners and losers, and you certainly want to be able to advocate your position,� Reid tells me, defending lobbyists and power brokers while expanding on his definition of commercial diplomacy.

    Reid calls himself a pro-business Democrat and tells me that, in a world that has changed hugely since Barack Obama took over the US presidency in January, he is seeking opportunities to bring together small and medium-sized businesses � the backbone of the US economy � with similar-sized firms in the Gulf region.

    �I see my role as a facilitator of business-to-business, business-to-government and government-to-government interaction, but at the end of the day politicians cannot be the only solution. I see my role as being a conduit of bringing parties together from the Gulf and in America to do business,� he tells me.

    Deals are important to a man who has worked with high-profile individuals, government officials and corporate executives in solving political and corporate issues for more than 15 years. His best deal, he says, is always the one he�s working on at the moment. �The deals I remember and reflect upon the most are those that had major economic impact and also serve a larger agenda,� he explains, while quickly asking questions about the impact of the global economic downturn on Dubai and the United Arab Emirates.

    The world has changed in the past few months, perhaps forever. Uncertainty and a financial collapse have forced most governments to intervene in markets and companies, doling out money to the needy and nearly nationalising private companies. Big government is everywhere, watching, questioning, demanding, and interfering. Is socialism (that dreaded word) taking roots in capitalistic societies, I ask Reid.

    �The answer is yes, but a government has to always act in an appropriate way. When the very stability of the global markets is hanging in the balance, the government must step in. And that is what they are doing,� Reid says, adding that a government must also know when to stop.

    Is that always possible? �No,� he says. �It is the people who have to be vigilant and make sure the government does not over-step. One thing we always say is that it is hard to get it back once you give it up. That is a real concern now.�

    However, the new administration has taken care of the one big concern he had in the past about America�s global image. �It is a whole new game� America is ready to re-engage the world. The good news is that with President Barack Obama, America is a welcoming society again. By and large, people, particularly from this region, felt that they were not welcome. Clearly, under President Obama, the welcome mat is open.� But there are internal issues that America faces as it battles recession and works to extricate itself from its financial mess.

    �In the short term, America is looking inward because it is in lot of pain. The reason why we are in pain is because we are not long-term planners. We are short-term planners. We are more of a reactor society than a strategic one. We generally don�t plan for the long term, whereas the Chinese and some of the Asian societies are much better at planning,� Reid says. He cites the example of a ravaged US automobile industry that was once the world leader but lost out due to its lack of innovation. He also blames American entrepreneurs who lacked a global perspective, unlike their counterparts from other parts of the world.

    �Long term, America is going to have a more open outlook because we are becoming more diverse. We still have three exports that people of the world want,� he tells me, counting education, health care and entertainment on his fingers.

    Obama, according to him, has two and half years to fix things. �In 30 months, if the average American does not feel that we have turned a corner on the economic crisis... that cripples the President�s political posturing. So he has 30 months to turn this page, because if the will of the people [is] not with him, politicians will act differently with Barack Obama. Right now, politicians generally want to give him the benefit of doubt, as he has got public sentiment on his side. In 30 months, these politicians will be fighting for their own survival.�

    The Gulf region, Reid says, needs to focus more on the small and medium-sized businesses in America in its attempt to diversify their economies beyond energy. Then he returns to his mother and her vegetables. �In a lot of ways, they (this region) didn�t eat vegetables. They went for the sizzle. The real trick for the region is how to sustain it when oil is below $40� per barrel, he says, urging governments here to engage with different US companies than they have in the past. Instead of trying to do deals with the 1,000 largest companies in the United States, firms in the Gulf should pursue America�s 23 million small businesses, he says, donning his analyst�s hat.

    Dubai, he says, needs to identify its core customer to jump quickly out of its crisis. �The core customer is the family that wants to come and have a great experience, maybe look for a second home. There is a super-high end of the market, and there is the middle tier of the market. This is where they need to focus,� he says, giving the example of Las Vegas, which retooled its marketing efforts once it figured out that it needed to send out welcome notes to families and not just gamblers.

    Editor Rahul Sharma savours the idea of mixing work with pleasure for this column. You can write to him at rahul@khaleejtimes.com.


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    So what are SWFs Investing in?

    Sovereign wealth funds have not escaped the effects of the global downturn, and some have seen their total assets fall considerably as a result of the drop in value of their investments.

    But a new Prequin report says that the aggregate assets under management for sovereign wealth funds currently stands at $3.22 trillion, which although is not as big a growth as we have seen in previous years, still represents a 6% increase from a year ago when the figure stood at $3.05 trillion.

    This growth is primarily due to the reclassification of China’s US$312 billion SAFE Investment Company as a sovereign wealth fund following its purchase of a number of public and private equity interests in 2008. Khazakstan has also formed a new fund—the US $29 billion Samruk Kazyna National Welfare Fund over the course of 2008, whileKorea is one of the existing funds that has boosted the assets of its SWF over the past year. These funds have counteracted the effects of declining total assets of some SWFs that have suffered as a result of poor investment returns in the wake of the global economic downturn.

    So what are SWFs Investing in? While the majority of the capital is invested in stocks and bonds, SWFs carved out a 49% allocation to private equity and 38% to hedge funds.

    “When the enormous collective total assets of sovereign wealth funds are considered, the potential effect that these investors can have on every area of finance becomes clear,” said Tim Friedman, head of publications at Preqin.

    “Other institutional investors such as pension funds have been holding back on making new investments, and with traditional sources of financing drying up, and many industries desperate for a cash injection, sovereign wealth funds will be a vitally important source of capital in 2009. They will also be well positioned to take advantage of opportunities that arise as a result of the global downturn, and we have already seen an interest from SWFs in alternatives funds focusing on distressed markets, and also in the private equity secondaries market.”

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    Friday, March 27, 2009

    Rising joblessness remains a key risk to South Africa's recovery

    Key Points

    • The South African Reserve Bank has cut its repurchase rate by another 100 basis points to 9.5%.
    • Producer prices continued to contract in February, but consumer prices rose more than expected.
    • The uptick in the CPI will likely be short-lived.
    • The central bank has room to continue its monetary easing campaign.
    • South Africa's outlook has deteriorated sharply in recent months.
    • The risks facing Africa's largest economy remain skewed to the downside.

    The South African Reserve Bank lowered its benchmark policy rate this week by another 100 basis points to 9.5%. Rapidly deteriorating domestic and external demand has prompted the country's central bankers to cut interest rates three times since December, by a cumulative 250 basis points. Whilst annual consumer price inflation is still well above target, the combination of weak domestic demand and diminishing global price pressure is expected to drive the annual CPI inflation rate back within the bank's 3% to 6% target by the second half of 2009.

    Further rate cuts are likely in coming months in a bid to revive the ailing economy, even though consumer prices rose more than expected during February. Price data released during the week showed that the SARB's new reweighted CPI inflation gauge jumped 1.2% m/m following a 0.4% rise in January, pushing the annual inflation rate further above target to 8.6%, from 8.1% in January.

    The pickup in consumer prices during the month was widespread, with most submeasures rising. The large depreciation in the rand on a year-ago basis has also made imported goods more expensive, adding some upward pressure to the annual CPI inflation rate. Nevertheless, the uptick in consumer price inflation will likely be short-lived. Lower global commodity prices and weak domestic demand through most of 2009 will generate disinflation pressures, despite the weak rand. In addition, producer prices continue to contract, falling 0.3% m/m during February and lowering the annual growth rate to 7.3%, from 9.2% in January.

    South Africa's economy is on the brink of recession. Output contracted for the first time in a decade in the final quarter of 2008. GDP fell 1.8% in seasonally adjusted annualized terms, after rising just 0.2% in the third quarter. High-frequency indicators suggest another contraction in GDP in the first quarter. With household spending cooling, and with businesses reining in production and investment and cutting staff amid the deepening slump in sales at home and abroad, economic activity will be extremely weak through most of 2009. Whilst looser monetary policy and a moderate recovery in external demand are expected to help put the economy back on track next year, growth will remain well below potential. Thus, South Africa's highly indebted households will still be threatened by soft employment growth next year. Rising joblessness remains a key risk to the recovery. A number of structural imbalances and sociopolitical tensions also threaten the outlook, including uncertainty surrounding the path of economic policy after the national election in April.

    This commentary is produced by Moody's Economy.com, a division of Moody's Corporation, engaged in economic research and analysis. Commentary produced by Moody's Economy.com is independent and does not reflect the opinions of Moody's Investors Service Inc., the credit ratings agency which is also a subsidiary of Moody's Corporation. If sourcing this article please quote Moody's Economy.com.

    Authors:

    Ruth Stroppiana

    Ruth Stroppiana is chief international economist at Moody's Economy.com. Based in London, Dr. Stroppiana is responsible for European-related research on the Dismal Scientist web site. Ruth formerly directed Asia/Pacific economics in the Moody's Economy.com Sydney office as the company's lead economist in the region. She has extensive experience in analyzing countries in the Asia/Pacific region and Europe and has been quoted by a wide range of global news outlets. Dr. Stroppiana received her Ph.D. in economics from the University of Queensland, Australia.

    Melanie Bowler

    Melanie Bowler is an economist in the Moody's Economy.com London office. Melanie is the key analyst for the Russian, French, Swiss and Irish economies. She completed her M.Sc. in European political economy at the London School of Economics after obtaining her undergraduate degree in economics and European studies at Heriot-Watt University in Edinburgh.


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    Strong growth forecast for GCC

    INTERNATIONAL. The GCC’s share in the world economy is expected to grow steadily up to 2020, since the world would become more dependent on the GCC oil and gas, says a report.

    Changing demographics, energy advantages and large-scale capital investments clearly put the GCC into a higher growth orbit in the long term and its economy is poised to rise to $2tn by 2020.

    However, the region, whose share in the world economy is slated to rise steadily, could see resurfacing of food crisis, according to the Economist Intelligence Unit (EIU).

    The GCC, which has now delayed the formation of common currency, should explore pegging the currency to a basket that includes oil and gold, said the EIU report titled ‘The GCC in 2020: Outlook for the Gulf and the Global Economy’, prepared in association with the Qatar Financial Centre Authority.

    EIU Economist Jane Kinninmont yesterday said in a presentation in Doha that the GCC region could see its real gross domestic product (GDP) growing by 5.4% in 2010, 4.9% by 2015 and 4.5% by 2020.

    The report assumed an oil price of US$50 to US$60 a barrel, which would provide sufficient government revenue to boost investment in infrastructure and human capital.

    The pace of growth would be slightly higher than aggregate global growth; an annual average of 4.5% real GDP versus 3.3% globally, said Kinninmont, who is also the editor of the report.

    “In 2020, the GCC is projected to be a US$2 trillion economy, providing nearly one-quarter of the world’s oil supplies as well as increasing quantities of petrochemicals, metals and plastics,” said the report.

    The GCC region’s per-capita real GDP was expected to grow 1.3% to US$18,643 in 2010, by 1.7% to US$20,260 in 2015 and by 2.1% to US$22,543 in 2020, she said.

    The GCC’s share in the world economy was expected to grow steadily up to 2020 as it could grow from 1.5% in 2010 to 1.6% in 2015 and 1.7% in 2020, since the world would become more dependent on the GCC oil and gas and that non-OPEC oil supply would be limited as well as the region will continue to look eastwards for trade and investments.

    China, India and Brazil were expected to take the centre stage as their share in the world economy was poised for higher growth, she said, adding that by 2020, China would have overtaken Japan as the world’s largest economy.

    Although “the GCC is well positioned to benefit from these trends”, the region faced challenges due to intensifying competition from other countries as well as in their “fledgling” manufacturing and services sub-sectors, including knowledge-based industries, Kinninmont said.

    The report said production of hydrocarbons in the GCC could rise substantially by 2020, but much of it would be used for manufacturing to value add their economies and provide more jobs rather than being exported.

    “The GCC will remain dependent on foreign labour by 2020 despite a range of efforts to encourage the employment of nationals,” the report said.

    She also cautioned that the food security issue would resurface as the GCC food import bill was expected to more than double to US$49.4 bilion by 2020 from US$24 billion in 2008, mainly due to water scarcity, which meant that domestic farm production tends to be costly.

    “If the GCC presses ahead with investments in agriculture overseas, it could potentially give a significant boost to agricultural production in poor countries” but there could be a risk of a “political backlash” against GCC investors, like any foreign landowners, especially in times of food shortages, it said.

    In this context, the report said the GCC countries would also explore wide-ranging purchases of agricultural land in the regions such as Africa, Central Asia and Southeast Asia.

    On the proposed Gulf currency, she said it was ideal that the GCC pegged it with the basket, which also includes oil and gold, as it has been argued that commodities could act as a counterweight to currencies.

    The inclusion of oil in particular would help the currency to at least partly reflect fluctuations in demand for the GCC’s key export, she added.

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    UN's Ban says U.S. to work for 2009 climate deal

    The Obama administration will work with the United Nations to reach a climate change deal acceptable to the world community by the end of 2009, U.N. Secretary-General Ban Ki-moon said on Thursday.

    Speaking to reporters after a two-day trip to Washington earlier this week, Ban said he and the new American leader agreed completely on the urgency of tackling the problem of global warming.

    "President Obama and I share a fundamental commitment -- 2009 must be the year of climate change. That means reaching a comprehensive agreement in Copenhagen by year's end," the U.N. chief said at a monthly news conference.

    "With U.S. leadership, in partnership with the United Nations, we can and will reach a climate change deal that all nations can embrace," he added.

    The U.N. hopes to have a new global treaty on climate change in place at a conference in Copenhagen in December. Some experts warn that the world will face more droughts, floods and rising seas if global warming is not addressed soon.

    Ban will attend the G20 leaders' summit in London next month amid fears that the issue could be pushed far down the agenda by the global economic crisis and the need to restore faith in shattered financial markets.

    The U.N. chief had planned to invite Obama and other leaders to New York this month for what was dubbed a "mini summit" on climate change, hoping that the U.S. president would use the occasion to announce a reversal on the issue.

    Former U.S. President George W. Bush was criticized in much of the developed world for rejecting the U.N. Kyoto Protocol, which set binding targets for reducing the greenhouse gas emissions that contribute to global warming.

    The mini summit was shelved because of the unlikelihood that the U.S. president would attend and the realization that the issue would be raised by the G20 in London, according to diplomats and U.N. officials.

    Ban also said on Thursday that he would urge the G20 nations to honor their commitments to help the world's poorest and most vulnerable countries and push ahead with investments in environmentally friendly initiatives.

    "President Obama and I further agreed that 'green' investments must be a major part of any global stimulus plan," he said. "If we are going to spend such tremendous sums of money, let us be smart about it."

    British Prime Minister Gordon Brown, who is hosting the April 2 summit, supports the idea, according to Ban. Britain also has dismissed objections from countries like Russia who want the summit to focus exclusively on the financial crisis.

    "We must not allow the financial turmoil to distract us from meeting the challenges of climate change and development," said a British government document obtained by Reuters on Wednesday.



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    Tuesday, March 24, 2009

    Foreign Firms Eye Stimulus Dollars

    Spain's Prince Felipe and his wife, Princess Letizia, visited New York and Washington last week on an unusual mission for one of Europe's most glamorous celebrity couples: to drum up business for Spanish companies from the U.S. economic stimulus package.

    "Only by working together with U.S. businesses and government, as well as coordinating our needs and priorities, can we get our countries, and world, back on track," Felipe said at a Manhattan business luncheon, which also featured former vice president Al Gore.

    U.S. firms are not the only ones hoping to cash in on the $787 billion stimulus program. Foreign nations and companies are stepping up their lobbying efforts in Washington and in state capitals, hoping to gain vital business in hard times. Hundreds of foreign-owned companies, many of them with significant operations in the United States, are selling their expertise in clean energy, high-speed transit and other technologies that undergird key aspects of President Obama's stimulus efforts.

    Meanwhile, foreign companies, trade ministries and business groups are proceeding cautiously for fear of stoking nationalistic objections from U.S. lawmakers and their constituents. Lobbyists and consultants hired by the companies are warning them to proceed carefully and to emphasize that any contracts would lead to jobs in the United States rather than overseas.

    The effort also poses a political challenge for Obama, who is pushing the United States to focus stimulus projects on alternative energy, rapid transit and other technologies pioneered in Europe and Asia. "Buy American" provisions in the stimulus legislation and elsewhere in U.S. law require that most materials and work be produced in the United States, but such statutes are effectively silent on where the parent firm should be based.

    "Once you get into some of these specialized technologies, only one or a few companies worldwide can provide it," said Jayson Myers, president and chief executive of Canadian Manufacturers & Exporters, an Ottawa-based industry group. "If you want to advance the innovation priorities of the Obama administration, it becomes very difficult without involving foreign companies."

    Telecommunications companies such as Alcatel-Lucent of France, for example, and its New Jersey-based research arm, Bell Labs, are eligible to seek part of $7.2 billion in stimulus money set aside for upgrading broadband networks. Most global firms specializing in the transit and high-speed rail projects envisioned under the stimulus act are based in other countries -- Canada's Bombardier and France's Alstom, for example. Transurban Group of Australia, which is helping develop high-speed toll lanes along the Capital Beltway, is a world leader in developing toll roads.

    Sanyo North America, an arm of the Japanese technology giant, has broken ground on a solar-panel plant in Oregon and is readying strategies to tap into stimulus-related business, according to company officials. The firm recently registered as a lobbying organization in Washington for the first time since 2001, Senate records show.

    "With the new stimulus package that the federal government has announced, it is starting to appear that the U.S. market will be a prime location to focus much more effort on our environmental and energy-related technology and products," said spokesman Aaron S. Fowles, based in San Diego.

    Foreign-owned firms play a significant role in the U.S. labor force, according to federal statistics. They employ 5.3 million workers in the United States, spend $336 billion on American payrolls and account for 20 percent of U.S. exports.

    But such firms are admittedly nervous about the idea of publicly angling for U.S. stimulus money, fearing the kind of political uproar that erupted in 2006 over plans by a United Arab Emirates-owned company to take over management of six U.S. seaports. In recent weeks, some lawmakers have objected to the revelation that billions of dollars in bailout money for American International Group ended up in the vaults of foreign-owned banks to which the company owed money. "We have concerns that others may try to use the fact that these companies are based abroad as some sort of gotcha," said Nancy McLernon, president of the Organization for International Investment, which represents 150 foreign companies with major U.S. operations. "But you can't put American jobs in the clean little baskets that you put them in 50 years ago. Simply put, more work for companies operating in the U.S. means more jobs for U.S. workers."

    If a foreign firm received a stimulus-related contract, most of the wages and product purchases would stay within the United States. But some portion, perhaps up to 40 percent, could leave the country, trade experts said.

    Obama has treaded carefully on the issue, echoing campaign statements in which he generally favored free-trade policies while promising to aggressively preserve and create U.S. jobs. "The purpose of the recovery act is to put people to work in this country, and that's what the administration is focused on as we implement it," said Elizabeth Alexander, press secretary for Vice President Biden, who is overseeing the stimulus effort.

    Obama's own biography illustrates the difficulty in drawing sharp national boundaries around commerce. His favorite communications device, the BlackBerry, is manufactured by Canada's Research in Motion, which has significant operations in the United States. During the campaign, Obama visited a wind-turbine manufacturing facility in Pennsylvania owned by Gamesa of Spain, one of the many European companies dominating that market. Sen. John McCain (R-Ariz.) made a similar stop during his presidential campaign last year at a Portland, Ore., plant owned by Vestas, the world's leading wind-power supplier, which is headquartered in Denmark and is pursuing joint projects with Boeing.

    Former congressman Max Sandlin (D-Tex.), co-chairman of the International Government Relations Group, said many overseas firms seek opportunities under the stimulus act, but they need to stress benefits to the U.S. economy. Sandlin's lobbying firm represents such companies as the Macquarie Group, an Australian investment bank that specializes in toll roads, airports and other infrastructure.

    "A lot of foreign companies with a particular niche or expertise are looking to partner with American companies to make a win-win situation," Sandlin said. "What I'm telling these companies is they have to understand that bread on American tables and jobs for American families has to be the top priority."

    The trip by Felipe included business-related events in New York as well as talks with officials in Washington. Spain's fast-growing economy has been pummeled by the global recession, and the nation has the highest unemployment rate in Europe.

    Bisila Bokoko, executive director of the Spain-U.S. Chamber of Commerce, called the trip a success. "Because of the stimulus package, a lot of Spanish companies have opportunity here," she said.

    By Dan Eggen
    Washington Post Staff Writer
    Monday, March 23, 2009; A01

    Research editor Alice Crites contributed to this report.

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    Sunday, March 22, 2009

    How is the Middle East poised to ride out the global crises?

    Emirates Business discussed the economy, strategies and trends with leading U.S. executives.


    How is the Middle East poised to ride out the global crises?

    Morris Reid: It's time to invest in different products and services. The Middle East needs to diversify.

    Robert Blackwell: It depends on energy prices and their ability to leverage their human capital.

    James Reynolds: Very strong. We think the Middle East is much stronger than it has ever been and is poised for more growth.

    Joseph Meyer: The Middle East has a long term focus for business and growth.

    How will venture capital investing change in 2009?

    MR: Expectations are lowered. No one will be trying to find the next Google. People are trying to find opportunities that will grow over time. They're not swinging for the fences.

    RB: I believe VC investing will be different in the short-term. People will be more risk averse and diligent in their investigations. I also believe the amount of leverage in the market will be significantly reduced for at least a couple of years.

    After that there will be the beginning of some new bubble that we cannot foresee until a few years down the line. The other challenge will be governments competing for investment resources to pay their entitlement obligations.

    JR: Venture Capital firms will be managing smaller funds and some firms will go out of business while others thrive.

    JM: Valuations will drop significantly, unless you can prove your model.

    What is your current business forecast? What level of confidence do you have in this forecast?

    MR: Great conflicts in a free market system provide quality and service; customers will be there; it'll be about old fashioned know-how and knowing your customers.

    RB: We feel with a little luck we can have modest growth. We feel 60 per cent confident in our ability to achieve modest growth.

    JR: We forecast a significant growth of 70 to 100 per cent up this year. We are highly confident in the forecast.

    JM: We expect fairly significant growth over last year, over 50 per cent, and are comfortable with this projection.

    How are you using the economic downturn to improve your business?

    MR: We are consolidating. We will spend more time on research and development, with a greater emphasis on retention.

    RB: We are using this time to find better people.

    JR: This economic downturn has allowed us to hire talented personnel that compliment our business model.

    Additionally, it has allowed us to expand our infrastructure and enter new lines of business.

    JM: We will focus on customer satisfaction and are looking to make acquisitions of competitors.

    What are you going to spend more money on in 2009 vis a vis 2008?

    MR: Research and travel.

    RB: More on top quality people, less on trying to develop under performers.

    JR: Personnel – Adding significantly but as a percentage of revenue I expect that to be lower.

    JM: Advertising and marketing.

    Is it better to reduce headcount, go to a four-day work week, or reduce salaries?

    MR: Reduce headcount. There is no reason to carry dead weight.

    RB: Better to purge the weak performers and invest in the best people.

    JM: Reduce headcount.

    In addition to headcount reductions, what other expenses are you reducing?

    MR: We have cut spending and there is no paid advertising. We are spending more time on the phone and research prior to spending money.

    JR: Given the consolidation that has occurred in financial services, it has allowed us to gain new clients and penetrate our current clients more deeply.

    JM: Our marketing spend is more focused on proven strategies.

    Will you, at any point consider outsourcing?

    RB: Yes, for non-strategic operations.

    JR: No.

    JM: Yes.

    When do you predict market conditions will improve?

    MR: Second half of 2011.

    RB: When everyone is sure the world over.

    JR: I expect the first quarter in 2010.

    JM: Fall 2009.

    How much does executive compensation cost your firm? How effective is it?

    MR: Got to pay well to retain the best people, since we need the best.

    RB: This is not a huge expense for us.


    Joseph Meyer, Chairman, FirstView Financial

    Meyer has more than 20 years of successful leadership and management experience. He founded the ACH payment processing company which processed over 1.5 million transactions per month. He's also the founder of Skylight, a debit card company, the former President of BellSouth Products and served as a Major in the US Army.


    James Reynolds, CFA – Co-founder, Chairman and Chief Executive Officer, Loop Capital Markets.

    In 1997, Reynolds collaborated with Albert Grace to form Loop Capital Markets. He also serves as a board member of The Lincoln Academy of Illinois, Chicago State University, University of Chicago Hospitals, University of Chicago Laboratory School, Chicago Zoological Society, Chicago Historical Society, Scholarship Chicago, and is treasurer for the Chicago Urban League.


    Morris Reid, Managing Director, BGR Group

    For the past 15 years, Reid has consulted and provided counsel to the leaders of hundreds of Fortune 500 companies. Reid was also director of Vice President Al Gore's office at the 1996 Democratic Convention. As a branding and political consultant and political strategist he has worked with celebrities from Kanye West to Bill Clinton.


    Robert Blackwell, Founder and President, Electronic Knowledge Interchange

    EKI serves some of the largest companies in the US, as well as the city of Chicago and the state of Illinois. Its president Blackwell has been credited with founding several companies including a real estate development company. He also developed the Enterprise-Wide Spreadsheet Methodology for complex financial applications.



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    Saturday, March 7, 2009

    Standard Bank buys 33% of Russia's Troika

    Africa's biggest bank by assets, Standard Bank, bought a third of Russia's number two investment bank, Troika Diago, in an asset swap and cash deal on Thursday.

    The deal marks the first major foreign investment in the Russian financial sector since the onset of the economic crisis, which sent capital flooding out of the country late last year and effectively froze all mergers and acquisitions.

    Troika and Standard Bank, which is 20% owned by China's biggest lender, Industrial and Commercial Bank of China (ICBC), said in a joint statement released for Russian media that Standard Bank would buy 33% in Troika.

    Troika, Russia's oldest brokerage, in exchange will acquire Standard Bank's Russian unit and get a cash injection of $200-million "initially in the form of a convertible loan". Two executives of Standard Bank will join Troika's six-member board.

    The acquisition will allow Troika to get access to Russian central bank's refinancing resources that it had been unable to get before being a brokerage.

    "Troika will get support it has been seeking for several months. And Standard Bank will obtain Troika's client base," a source at one of Russia's financial regulators said on condition of anonymity because he was not allowed to talk to the press.

    Russian investment banks have been badly hit by the stock market collapse as the demand for investment banking products such as debt issues and initial public offerings has evaporated.

    Renaissance Capital, Troika's biggest peer, sold half its shares to Russian metals and banking tycoon Mikhail Prokhorov in September for $500-million.

    Troika, whose main owner is businessman Ruben Vardanyan, said its capital would amount to $850-million after the deal with Standard Bank is closed.

    Standard Bank's Russian arm ranks among the country's top-200 banks by assets and equity capital.

    OKSANA KOBZEVA | MOSCOW, RUSSIA - Mar 06 2009

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    New US Commerce Secretary can set stage for stronger economic recovery

    Former Washington Gov. Gary Locke has some depressing economic data to confront as he prepares for the job of America's Chief Export Officer. There is little good news anywhere in the world on the trade front and 2009 does not promise export growth. However, reinforcing President Obama's confidence in American business "as the engine of growth," trade data show that, once confirmed, Commerce Secretary Locke has good reason to lead the charge in encouraging U.S. businesses to invest in future success overseas thus creating jobs at home.

    As has been typical for the past three decades, global activities reflect, in an outsized way, the shifts in the domestic economy. When domestic consumption is up, trade is up even more. Nowadays, when domestic activities are down, trade is down as well, only much more so. With expected economic decline in 2009 and contracting global demand, further international slides are probable. The release of annual trade data by the Commerce Department last month showed U.S. exports declined 6 percent in December following a depressing November. Yet, a look at the trade data offers encouraging longer-term implications for U.S. exporters and the workers they employ.

    First, the decline in the U.S. trade deficit, which hit a six-year low in December, was good news. The trade data reveal underlying strength in U.S. exports. Barring a steep rise in the price of oil imports, the decline in the trade deficit, which stands at a daunting $678 billion for the year 2008, promises to continue. Imports are down more sharply than exports, despite their larger base. Economic theory, recent trends, and experience from previous cycles promise a continuation of that import decline. Any import growth in 2008 was attributable to the high price of petroleum products.

    On the export side, American goods and services have continued to build demand among overseas customers. 2008 was a record year for U.S. exports, which passed $1.8 trillion. Exports grew at a rate of 12 percent over 2007 and now comprise 13.1 percent of U.S. GDP. This marks a continuing trend, since U.S. annual export growth has been in double digits from 2004 through 2008 and has outpaced import growth since 2006. Through mid-summer, U.S. export growth had been sizzling along at a rate of nearly 19 percent before slowing as the global economy began to contract and Boeing workers went on strike.

    In seven of the top 10 export markets for the United States in 2008, American exports growth exceeded that of imports by nearly twice or more. U.S. exports to Mexico and China, our second- and third-largest export markets, grew at 11.4 percent and 9.5 percent, respectively, while imports only grew at 2.5 percent and 5.1 percent. Exports to Canada, our largest market, grew at 5 percent while imports grew slightly more at 5.8 percent, reflecting the interconnectedness of the two economies.

    Trade liberalization has been a significant reason. The U.S. merchandise trade deficit with free-trade-agreement (FTA) partner countries narrowed by $ 16 billion, while the deficit with the non-FTA countries increased by $22 billion. In 2008, the United States actually had a trade surplus in manufactured goods of $17 billion with the 14 countries with which it had an FTA in effect. Free trade agreements work!

    Equally important is also the fundamental fact that American manufacturers and service providers are increasingly delivering what the world prefers and wants. American companies have a good competitive position globally because of a decades-in-the-making dedication to improved productivity, innovation, quality, customer-centrism, marketing research and branding. When global buyers regain confidence, American brands can be confident.

    So, what can Commerce Secretary Locke do to support the growth track of exports?

    For one thing, given the advantages free-trade agreements bring to American exporters, he should be a champion for Congressional passage of pending agreements with Colombia, Panama and Korea. These agreements would give a much-needed shot-in-the-arm during this difficult economic stretch as they would lessen the current uneven tariff burden for U.S. companies in these markets. There are no fundamental obstacles to the Panama FTA. With Colombia, there are paths forward to help resolve Congressional reservations over the issues of violence against labor leaders and related criminal impunity. The Korean FTA presents a bigger challenge in Congress but it would also bring a bigger economic reward.

    But, more immediately, Locke needs to ensure funding and commitment for export-promotion efforts. The Commerce Department's International Trade Administration has a powerful export-promotion capability all around the world and the expertise needed to help more American companies sell overseas. The timing is right. Our research shows that it takes new exporters about two years to get their international legs before they begin to realize good sales results. Just as our university sees a great increase in the applications for our MBA program — since many students want to stock up on knowledge and capabilities during bad times, companies can do the same.

    Now is the time to use slack resources to explore new market opportunities, new cultures and new customers. Then, when economic conditions get better, companies can pounce on the markets they have researched and prepared for. Export promotion is a vital economic stimulus. Let's not lose time in applying the government capabilities to support our firms.

    Michael Czinkota researches international marketing issues at Georgetown University and the University of Birmingham in the United Kingdom.

    Charles Skuba teaches international business and marketing at Georgetown University.

    http://seattletimes.nwsource.com/html/opinion/2008823056_opinb08czinkota.html

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    China- The Africa Plan

    There’s not a lot on television in Kenya. Only eight stations broadcast from inside the country, so nightly news options are limited. Choose from state-run KBC, independent KTN, and of course…CCTV.

    “I was in Kenya about two years ago, and on terrestrial VHF broadcast television is CCTV-9 (China Central Television) over the air in English!” said Adam Clayton Powell III, Vice Provost for Globalization at the University of Southern California. “I said wait a minute, this is amazing. The BBC wasn’t there, the U.S. certainly wasn’t there, but the Chinese were there on television."

    Powell, a long-time observer of the China-Africa relationship, was astounded by the sheer visibility of China on the continent. From television broadcasts to cultural projects, China’s presence in Africa has been rapidly increasing.

    “They are putting in Confucius institutes, where the Chinese are paying for the study of Mandarin, the study of Chinese culture and history,” Powell said. "Just as the French have their programs, the British have the British Council, the U.S. has American libraries, the Chinese are putting in their culture and educational outreach in a very significant way.”

    Chinese language and culture is also receiving much interest from African universities. There are now sixteen Confucius Institutes across Africa with Mandarin Chinese an increasingly popular foreign language among college students. In 2007, BBC News reported on a Mandarin language competition among students at Khartoum University in Sudan’s capital city. China’s Ministry of Education reported that 3,737 African students came to China for study in 2006, up from just 2,757 in 2005.

    There are also an increasing number of Chinese tourists in Africa. In 2005 alone, 110,000 Chinese tourists visited Africa, compared to only 50,000 in 2004. With the South Africa World Cup approaching in 2010, Chinese tourism is expected to grow rapidly.

    Yet China’s involvement in Africa has not been so rosy in the eyes of some international observers. While some see opportunity, others see exploitation. In order to sustain its staggering domestic growth figures, the country has pushed further into Africa in search of energy resources and increased trade. It is not the drive for economic sustainability, however, that troubles politicians abroad. The sheer extent of China’s developments on the continent suggests to some that a grand strategy may be the driving force behind the Asian nation’s Africa push.

    One of China’s greatest development strengths has been its penchant for investing in a very diverse range of global markets. From the developed economies of the West to developing nations in Africa and Latin America, China is there. Yet the country’s approach to relations with several African governments has been watched by the international community with concern. With a humanitarian crisis raging on in Darfur and Zimbabwean politics in upheaval, the country’s relationship with some questionable African governments remains a heated subject.

    "It is in China's interest to demonstrate to the international community that its policies in Africa are not driven solely by the desire to secure natural resources and access to markets and access to major infrastructure projects, and that the Chinese government is committed to improving the long-term welfare of people across the continent,” said then Deputy Asst. Secretaries Thomas J. Christensen and James Swan, East Asian & Pacific Affairs and African Affairs respectively, in a June 2008 statement before the Senate Foreign Relations Committee. Both men emphasized that China must take a more active stance in explaining its goals for African engagement.

    While China is often portrayed as an oil-thirsty giant caring more about pipelines than people, the country’s involvement in Africa is not so cut and dry. While Christensen and Swan noted China’s strategic aims in Africa, the two shed light on the actual figures surrounding China’s energy projects on the continent.

    “Contrary to what many assume, China's large oil companies are not dominant players in Africa's energy industry. With the important exception of Sudan, where the China National Petroleum Company (CNPC) is the major operator, Chinese oil companies are relatively minor players in Africa,” the diplomats stated. “In 2006, total output by all Chinese producers was approximately one-third of a single U.S. firm's (ExxonMobil) African production. Some energy assets now held by Chinese companies were in the past run by international oil companies that found more profitable opportunities elsewhere in Africa.”

    Nevertheless, trade is growing exponentially. Total trade between China and Africa reached US $107 billion in 2008, a 45% jump since the previous year. There are now over 800 different Chinese enterprises doing business in China. The Southern African reported in January 2009 that Angola recently became China’s largest African trader, with total volume exceeding US $25 billion. With China’s continued drive for natural resources and Africa’s need for infrastructure development, the relationship appears to be a match made in economic heaven.

    Carine Kiala, a Senior Analyst for the Centre for Chinese Studies at Stellenbosh University in South Africa, said that in general, “Certain African governments are receiving credit lines and services in exchange for their natural commodities. How this benefits the general population is subject to interpretation.”

    Oil is just one of the critically important resources concentrated in Africa. The abundance of natural resources other than oil makes Africa an even more attractive hot spot for Chinese investment.

    The Chinese have become creative in working with African states whose heavy indebtedness makes it difficult for them to get construction loans. China Exim Bank permits such nations to use natural resources to pay for infrastructural development.

    Kiala said that the infrastructure projects undertaken jointly by China and the local governments are having a highly visible impact on African societies.

    “Most certainly, the infrastructure being put in place will solidify internal and regional linkages, thus facilitating trade and empowering the masses,” Kiala said. “Although job-creation is a direct benefit, African countries need sustainable employment and skills development.” A lack of capacity building - the development of the domestic population’s capabilities as a work force - has been one charge against China’s “resources for infrastructure” trade strategy.


    Source: ChinaVest


    Besides cultural exchanges and industrial development, China has also played an active role in providing aid for poverty-stricken African countries. In late 2006, President Hu Jintao pledged to provide African countries with US$5 billion in aid including soft loans and credits over the next few years. With this pledge China hoped to bolster trade between the two regions. Others, however, see more harm than good in China’s aid packages. In early 2007, the British government warned Beijing that their assistance agreements and inexpensive loans threaten to drive countries back into debt after just recently beginning to realize the benefits of other debt relief programs.

    In discussions with African governments, Chinese officials emphasize the country’s long-term commitment to the relationship. Given the region’s colonial past, several African nations see this as a refreshing change. Furthermore, China’s “hands-off” approach in political affairs is a business advantage. Unlike its Western competitors, the Chinese government has chosen to keep political matters completely separate from business engagements.


    Source: International Monetary Fund, March 2008


    Chris Burke, a research fellow with the Centre of Chinese Studies at Stellenbosch University, said that these distinct patterns of trade and exchange between Beijing and African nations have fostered a relationship focused on the future.

    “There are some unique features to a Chinese engagement with the continent, with generally a long-term perspective,” Burke explained.

    USC’s Powell also highlighted this:

    “This is a long-term commitment for them,” Powell noted. “Some people worry about it in terms of the Chinese only wanting oil and raw materials, which is true. But they see this as a very long-term commitment.”


    Source: International Monetary Fund, March 2008

    Over the past decade, Chinese companies have increasingly taken on rather large-scale projects in several African nations. In Tanzania, for example, China is supplying half the funds for a US $56 million project to build a much-awaited national stadium. The stadium will hold 60,000 people and will be constructed by a Chinese construction company. The current Tanzanian national stadium can only hold 25,000 people and is in desperate need of repairs.

    On a grand scale, as China’s trade relationship with Africa has flourished, investments have been spread throughout Africa’s 47 nations in a diverse mix of industries.

    “The Chinese presence is not uniform across the continent,” Kiala said. “In South Africa, for instance, the Chinese have invested heavily in the ICT sector and most recently in the vehicle retail sector.”

    Joshua Eisenman, a UCLA political science doctoral student, thinks that the Chinese are making a genuine attempt in developing a workable and mutual Sino-African relationship.

    “The Africans need infrastructure and the Chinese are building it,” Eisenman said. “The Chinese have shown an effort to cultivate this relationship and reassure the Africans that they are not going to step in there and manipulate and put conditions on things. That is reassuring to them.”

    ________________________________________________________________________

    Billy Noiman is a senior East Asian Languages & Cultures student at the University of Southern California. March 2009

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    The Great Crash, 2008

    A Geopolitical Setback for the West

    From Foreign Affairs , January/February 2009

    Summary: The financial crisis has called into serious question the credibility of western governments and may precipitate an eastward shift of power.

    ROGER C. ALTMAN is Chair and CEO of Evercore Partners. He was U.S. Deputy Treasury Secretary in 1993-94.

    audio iconListen to this essay on CFR.org

    The financial and economic crash of 2008, the worst in over 75 years, is a major geopolitical setback for the United States and Europe. Over the medium term, Washington and European governments will have neither the resources nor the economic credibility to play the role in global affairs that they otherwise would have played. These weaknesses will eventually be repaired, but in the interim, they will accelerate trends that are shifting the world's center of gravity away from the United States.

    A brutal recession is unfolding in the United States, Europe, and probably Japan -- a recession likely to be more harmful than the slump of 1981-82. The current financial crisis has deeply frightened consumers and businesses, and in response they have sharply retrenched. In addition, the usual recovery tools used by governments -- monetary and fiscal stimuli -- will be relatively ineffective under the circumstances.

    This damage has put the American model of free-market capitalism under a cloud. The financial system is seen as having collapsed; and the regulatory framework, as having spectacularly failed to curb widespread abuses and corruption. Now, searching for stability, the U.S. government and some European governments have nationalized their financial sectors to a degree that contradicts the tenets of modern capitalism. Much of the world is turning a historic corner and heading into a period in which the role of the state will be larger and that of the private sector will be smaller. As it does, the United States' global power, as well as the appeal of U.S.-style democracy, is eroding. Although the United States is fortunate that this crisis coincides with the promise inherent in the election of Barack Obama as president, historical forces -- and the crash of 2008 -- will carry the world away from a unipolar system regardless.

    Indeed, rising economic powers are gaining new influence. No country will benefit economically from the financial crisis over the coming year, but a few states -- most notably China -- will achieve a stronger relative global position. China is experiencing its own real estate slowdown, its export markets are weak, and its overall growth rate is set to slow. But the country is still relatively insulated from the global crisis. Its foreign exchange reserves are approaching $2 trillion, making it the world's strongest country in terms of liquidity. China's financial system is not exposed, and the country's growth, which is now driven by domestic activity, will continue at solid, if diminished, rates.

    This relatively unscathed position gives China the opportunity to solidify its strategic advantages as the United States and Europe struggle to recover. Beijing will be in a position to assist other nations financially and make key investments in, for example, natural resources at a time when the West cannot. At the same time, this crisis may lead to a closer relationship between the United States and China. Trade-related flashpoints are diminishing, which may soften protectionist stances in the U.S. Congress. And it is likely that, with Washington less distracted by the war in Iraq, the new administration of President Obama will see more clearly than its predecessor that the U.S.-Chinese relationship is becoming the United States' most important bilateral relationship. The Obama administration could lead efforts to bring China into the G-8 (the group of highly industrialized states) and expand China's shareholding position in the International Monetary Fund. China, in turn, could lead an effort to enlarge the capital base of the IMF.

    AT BOTTOM

    Conventional wisdom attributes the crisis to the collapse of housing prices and the subprime mortgage market in the United States. This is not correct; these were themselves the consequence of another problem. The crisis' underlying cause was the (invariably lethal) combination of very low interest rates and unprecedented levels of liquidity. The low interest rates reflected the U.S. government's overly accommodating monetary policy after 9/11. (The U.S. Federal Reserve lowered the federal funds rate to nearly one percent in late 2001 and maintained it near that very low level for three years.) The liquidity reflected, among other factors, what Federal Reserve Chair Ben Bernanke has called "the global savings glut": the enormous financial surpluses realized by certain countries, particularly China, Singapore, and the oil-producing states of the Persian Gulf. Until the mid-1990s, most emerging economies ran balance-of-payments deficits as they imported capital to finance their growth. But the Asian financial crisis of 1997-98, among other things, changed this in much of Asia. After that, surpluses grew throughout the region and then were consistently recycled back to the West in the form of portfolio investments.

    Facing low yields, this mountain of liquidity naturally sought higher ones. One basic law of finance is that yields on loans are inversely proportional to credit quality: the stronger the borrower, the lower the yield, and vice versa. Huge amounts of capital thus flowed into the subprime mortgage sector and toward weak borrowers of all types in the United States, in Europe, and, to a lesser extent, around the world. For example, the annual volume of U.S. subprime and other securitized mortgages rose from a long-term average of approximately $100 billion to over $600 billion in 2005 and 2006. As with all financial bubbles, the lessons of history, including about long-term default rates on such poor credits, were ignored.

    This flood of mortgage money caused residential and commercial real estate prices to rise at unprecedented rates. Whereas the average U.S. home had appreciated at 1.4 percent annually over the 30 years before 2000, the appreciation rate roared forward at 7.6 percent annually from 2000 through mid-2006. From mid-2005 to mid-2006, amid rampant speculation in the housing market, it was 11 percent.

    But like most spikes in commodity prices, this one eventually reversed itself -- and with a vengeance. Housing prices have been falling sharply for over two years, and so far there is no sign that they will bottom out. Futures markets are signaling that, from peak to trough, the drop in the value of the nation's housing stock could reach 30-35 percent. This would be an astonishing fall for a pool of assets once valued at $13 trillion.

    This collapse in housing prices undermined the value of the multitrillion-dollar pool of lower-value mortgages that had been created over the 2003-6 period. In addition, countless subprime mortgages that were structured to be artificially cheap at the outset began to convert to more expensive terms. Innumerable borrowers could not afford the adjusted terms, and delinquencies became more frequent. Losses on these loans began to emerge in mid-2007 and quickly grew to staggering levels. And with prices in real estate and other asset values still dropping, the value of these loans is continuing to deteriorate. The larger financial institutions are reporting continuous losses. They mark down the value of a loan or similar asset in one quarter, only to mark it down again in the next. This self-reinforcing downward cycle has caused markets to plunge across the globe.

    The damage is most visible at the household level. Americans have lost one-quarter of their net worth in just a year and a half, since June 30, 2007, and the trend continues. Americans' largest single asset is the equity in their homes. Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008. Total retirement assets, Americans' second-largest household asset, dropped by 22 percent, from $10.3 trillion in 2006 to $8 trillion in mid-2008. During the same period, savings and investment assets (apart from retirement savings) lost $1.2 trillion and pension assets lost $1.3 trillion. Taken together, these losses total a staggering $8.3 trillion.

    Such large and sudden hits have shocked U.S. families. And because these have occurred amid headlines reporting failing financial institutions and huge bailouts, Americans' fears over the safety and accessibility of their deposits are now more pervasive than they have been since 1933. This is why Americans withdrew $150 billion from money-market funds over a two-day period in September (average weekly outflows are just $5 billion). It is also why the Federal Reserve established a special $540 billion facility to help these funds meet continuing redemptions.

    ROUGH-AND-TUMBLE

    It is increasingly evident that the severe recession unfolding in the United States and Europe will be the deepest slump in the world economy since the 1930s. The United States' GDP fell in the third quarter of 2008 and was forecast to drop precipitously, by nearly four percent, in the fourth quarter. Of 52 economists surveyed by The Wall Street Journal throughout last year, a majority expected the U.S. economy to contract for at least three consecutive quarters, which it has not done in 50 years. At least for the medium term, the global roles of the United States and European states will shrink along with those countries' economies.

    Stock markets in the United States and globally are signaling a brutal economic period ahead. By early November 2008, the broadest of the U.S. market indices, the S and P 500, was down 45 percent from its 2007 high. That is a considerably steeper fall than occurred in 1981-82, which, until now, was the worst recession period since the 1930s. The only logical explanation for the plunge is that the market is anticipating an even worse drop in corporate profits for 2009 than occurred almost three decades ago.

    Such a major drop in corporate profits might occur because U.S. consumers are deeply frightened and have stopped spending on discretionary items. Shocked by the financial crisis, fearful about the security of their bank and money-market deposits, and rocked by the sense of doom pervading Washington and the U.S. media, they have quickly raised their savings by curtailing spending and paying down debt. The result last September was the biggest monthly drop ever recorded in the widely followed Conference Board Consumer Confidence Index. That month also saw the sharpest monthly drop in consumer spending since 1980 -- and the drop in October was even worse. The chief executive officer of Caterpillar and other business leaders have described these conditions as the worst they have ever seen and are cutting back severely on capital spending.

    As former Treasury Secretary Lawrence Summers has observed, this recession will be prolonged partly because of the unusual nature of this downward financial spiral. As the value of financial assets fall, margin calls are triggered, forcing the sale of those and other assets, which further depresses their value. This means larger losses for households and financial institutions, and these in turn discourage spending and lending. The end result is an even weaker economy, characterized by less spending, lower incomes, and more unemployment.

    This recession also will be prolonged because the usual government tools for stimulating recovery are either unavailable or unlikely to work. The most basic way to revitalize an ailing economy is to ease monetary policy, as the U.S. Federal Reserve did in the fall. But interest rates in the United States and Europe are already extremely low, and central banks have already injected unprecedented amounts of liquidity into the credit markets. Thus, the impact of any further easing will probably be small.

    Another tool, fiscal stimulus, will also likely be used in the United States, Europe, and Japan -- but to modest effect. Even the $300 billion package of spending increases and tax rebates currently under discussion in the U.S. Congress would be small in relation to the United States' $15 trillion economy. And judging from the past, another round of stimuli will be only partially effective: the $168 billion package enacted last February improved the United States' GDP by only half that amount.

    The slowdown in Europe is expected to be every bit as severe. European consumers are spending less for the same reasons American consumers are. The financial sectors of European countries, relative to those countries' GDPs, have suffered even more damage than that of the United States. The British government reported a contraction of its economy last fall, and the eurozone countries are now officially in recession.

    The international financial system has also been devastated. The IMF estimates that loan losses for global financial institutions will eventually reach $1.5 trillion. Some $750 billion in such losses had been reported as of last November. These losses have wiped out much of the capital in the banking system and caused flows of credit to shut down. Starting in late 2007, institutions became so concerned about the creditworthiness of borrowers, including one another, that they would no longer lend. This was evidenced by the spread between three-month U.S. Treasury bills and the three-month LIBOR borrowing rate, the benchmark for interbank lending, which quadrupled within a month of the collapse of the investment bank Lehman Brothers in September 2008.

    This credit freeze has brought the global financial system to the brink of collapse. The IMF's managing director, Dominique Strauss-Kahn, spoke of an imminent "systemic meltdown" in October. As a result, the U.S. Federal Reserve, the European Central Bank, and other central banks injected a total of $2.5 trillion of liquidity into the credit markets, by far the biggest monetary intervention in world history. And the U.S. government and European governments took the previously unthinkable step of committing another $1.5 trillion to direct equity investments in their local financial institutions.

    THE ROAD TO RECOVERY

    As of this writing, there has been a modest thaw in credit-market conditions. But a return to normalcy is not even on the distant horizon. The West's financial system is already a shadow of its former self. Given ongoing losses, Western financial institutions must reduce their leverage much more just to keep balance sheets stable. In other words, they will have to withdraw credit from the world for at least three or four years.

    In a classic pattern of overshooting, markets are swinging from euphoria to despair. Now, the psychology of financial institutions has swung to a conservative extreme. They are overhauling their credit-approval and risk-management systems, as well as their leverage and liquidity ratios. Stricter lending standards will prevail for the foreseeable future.

    These new lending patterns will be further constrained by sharply tightened regulation. It is widely acknowledged that this crisis reflects the greatest regulatory failure in modern history -- a failure that extended from bank supervision to U.S. Securities and Exchange Commission disclosures to credit-rating oversight. The recriminations, let alone the criminal prosecutions, are just beginning. There is unanimity that broad regulatory reform is necessary. Obama and the new U.S. Congress will surely pursue legislation to implement reform this year. European authorities will undoubtedly take similar steps. Minimum capital and liquidity standards for regulated institutions will likely be tightened, among other measures.

    If history is any guide, however, financial reform will go too far. The Sarbanes-Oxley legislation that followed the collapse of Enron and WorldCom is an example of such an overreaction. Should something like this occur again, tighter restrictions on the U.S. and European banking systems could delay their return to robust financing activity.

    The United States will be further constrained by gigantic budget deficits, the product of sudden government spending designed to fight the financial crisis and of the sharp drop in revenues caused by the recession. It now appears that the United States' deficit for the fiscal year that began in October 2008 will approach $1 trillion, more than double the $450 billion for the year before. This would be by far the largest nominal deficit ever incurred by any nation and would represent 7.5 percent of U.S. GDP, a level previously seen only during the world wars.

    THE IMPACT

    There could hardly be more constraining conditions for the United States and Europe. First, the severe recession will prompt governments there to focus inward as their citizens demand that national resources be concentrated on domestic recovery. The priorities of Obama, as expressed in his campaign, fit this mold. If the matter has not already been handled in the lame-duck session of Congress in late 2008, Obama's first major act as president will be to introduce economic-stimulus legislation. He is also likely to take steps to further alleviate the financial crisis, address the plight of U.S. automakers, and begin the complex task of reforming health care and energy policy.

    European leaders will also be focusing on the home front. They, too, will be implementing stimulus programs and trying to manage the financial damage. This past fall, French President Nicolas Sarkozy and Italian Prime Minister Silvio Berlusconi were already making fiery speeches about protecting their domestic companies from being acquired by foreign interests -- hardly a message consistent with modern economics.

    Second, unprecedented fiscal deficits and difficulties in the financial systems will also preclude the West from embarking on major international initiatives. If Obama inherits a $1 trillion deficit, and temporarily enlarges it to $1.3 trillion with a stimulus program, there will not be much of a constituency calling for increased U.S. spending on endeavors abroad. Indeed, the country may be entering a period of forced restraint not seen since the 1930s. Should a crisis like the 1994 collapse of the Mexican economy present itself again, it is doubtful that the United States would intervene. And even in the event of economic crises in strategically important areas, such as Pakistan, major economic assistance from the United States or key European nations is unlikely. Instead, the IMF will have to be the primary intervenor.

    On the private side, Western capital markets will not return to full health for years. For the indefinite future, large financial institutions will shrink as losses continue and as they reduce their leverage further. The overshooting pattern that occurs after crises will also make markets averse to risk and leverage for the foreseeable future.

    Historically, U.S. capital markets were far deeper and more liquid than any others in the world. They were in a league of their own for decades, until European markets also started developing rapidly over the past 10-15 years. The rest of the world was dependent on them for capital, and this relationship reinforced the United States' global influence. They will now be supplying proportionately far less capital for years to come.

    Third, the economic credibility of the West has been undermined by the crisis. This is important because for decades much of the United States' influence and soft power reflected the intellectual strength of the Anglo-Saxon brand of market-based capitalism. But now, the model that helped push back socialism and promoted deregulation over regulation -- prompting the remaking of the British Labour Party, economic reforms in eastern Europe, and the opening up of Vietnam in the 1990s -- is under a cloud. The U.S. financial system is seen as having failed.

    Furthermore, the United States and countries in the eurozone have resorted to large-scale nationalist economic interventions that undermine free-market doctrines. The U.S. government has taken equity stakes in more than 20 large financial institutions and, according to Treasury Secretary Henry Paulson, may eventually invest in "thousands" of them. In addition, it has temporarily guaranteed the key debt of its entire banking system. France, Germany, and the United Kingdom have intervened even more extensively, each in a slightly different way, with Germany, for example, backing the full amount of all private deposits. The British government's banking interventions, when measured in relation to the country's GDP, are even larger than those of the U.S. government relative to U.S. GDP.

    All these interventions will stop the global shift toward economic deregulation. As President Sarkozy put it, "Le laisser-faire, c'est fini." Or, as Chinese Vice Premier Wang Qishan said more diplomatically, "The teachers now have some problems." This coincides with the natural and very long-term movement away from the U.S.-centric world that started after the fall of the Berlin Wall two decades ago.

    CHINA'S GAIN

    This movement also reflects the rapid rise of other economies, especially China and India. The U.S. share of world GDP had been declining for seven years before the financial crisis hit. And it looks increasingly likely that China's GDP will surpass the United States' at some point during the next 25-30 years. The rising nations' growing economic strength brings increased global influence and competition with it. The result, in the words of Richard Haass, president of the Council on Foreign Relations, is the emergence of a "nonpolar world."

    China, for example, will suffer a lesser blow from the global crisis. It is experiencing some economic pain. Its export markets, led by the United States and Europe, are slowing dramatically. China is also suffering from price declines in certain urban real estate markets. Its growth slowed to nine percent during the third quarter of 2008 -- a rate that other nations would envy but was China's slowest in five years. These factors explain why the Chinese leadership is implementing a multiyear economic stimulus plan worth over $500 billion, or approximately 15 percent of GDP. Still, the IMF is projecting that the country's economy will grow by 8.5 percent in 2009.

    In financial terms, China is little affected by the crisis in the West. Its entire financial system plays a relatively small role in its economy, and it apparently has no exposure to the toxic assets that have brought the U.S. and European banking systems to their knees. China also runs a budget surplus and a very large current account surplus, and it carries little government debt. Chinese households save an astonishing 40 percent of their incomes. And China's $2 trillion portfolio of foreign exchange reserves grew by $700 billion last year, thanks to the country's current account surplus and foreign direct investment.

    This means that although China, too, has been hurt by the crisis, its economic and financial power have been strengthened relative to those of the West. China's global influence will thus increase, and Beijing will be able to undertake political and economic initiatives to increase it further. China and the Association of Southeast Asian Nations are just concluding an agreement that would create the world's largest free-trade area, and Beijing could take additional steps toward Asian interdependence and play a stronger leadership role within the region.

    China could also expand its diplomatic presence in the developing world, in order to further its model of capitalism and, in places such as Angola, Kazakhstan, and Sudan, satisfy its thirst for natural resources. In the midst of this crisis, it might also help finance emergency loans, either directly, through bilateral financing arrangements, or indirectly, by creating an additional facility at the IMF that could expand the organization's available credit beyond what current quotas allow. China should also be expected to make strategic investments through its sovereign wealth funds. Given China's appetite for natural resources, this is one likely area of interest; its relatively underdeveloped financial-services infrastructure is another.

    THE FALL OF THE REST

    India may also survive the crisis relatively unhurt. There, as in China, the financial system plays a small role in the overall economy. India also remains a fairly closed economy in terms of foreign investment, and so it is less dependent on external capital. Close observers expect India's growth to continue, perhaps at an annual rate of 6.5-7 percent. But India does not have nearly the wealth or the internal cohesion of China. This past fall, the government of Prime Minister Manmohan Singh narrowly avoided losing a parliamentary vote of no confidence and having to dissolve itself over opposition to the nuclear agreement it signed with the United States in 2005. The overall result is that India is inwardly focused and not particularly equipped to advance its geopolitical standing.

    Much of the rest of the world, however, has been hit hard by the crisis. The damaged Western banks, which had consistently supplied credit to businesses in the developing world, have abruptly stopped providing it. As foreign capital has been withdrawn, currencies, local banking systems, and stock markets in already poor states have weakened sharply. Eastern European countries that had been running exceptionally large current account deficits and had built up substantial foreign debts are particularly hurting. Hungary, Latvia, and Ukraine are prominent examples, and Hungary and Ukraine have already secured emergency loans from the IMF.

    In Russia, the plunge in oil and other commodity prices has caused a near collapse of the ruble and of local share prices. The government of President Dmitry Medvedev has been spending huge amounts, perhaps $200 billion so far, to prop up the currency, Russia's financial system, and several highly leveraged state-controlled enterprises. With $500 billion in foreign exchange reserves, Russia remains in a strong financial condition even after these rescue efforts. Yet these sobering events will make some of its renewed geopolitical ambitions harder to achieve. In theory, this could permit a thaw in U.S.-Russian relations if Obama were to make an overture. Before that happens, however, Moscow might try the "get tough" approach that Soviet Premier Nikita Khrushchev used with U.S. President John F. Kennedy in Vienna in 1961.

    The outcome of the crisis will be more serious for Iran and Venezuela, which, like Russia, have suffered from the fall in oil prices but, unlike Russia, have limited foreign exchange reserves. Iran's economy was already rickety, and internal pressures are now likely to grow. Venezuela, which has been spending freely to advance President Hugo Chávez's international agenda, is facing an even more severe problem.

    A SCALPEL, NOT A HATCHET

    This historic crisis raises the question of whether a new global approach to controlling currencies and banking and financial systems is needed. Many economists and leaders are advocating such a reordering and calling for a Bretton Woods II. But creating a wholly new global financial order would be unworkable. Financial and currency markets are too large and too powerful to be contained; the days of managed exchange rates are over. Global financial regulation would probably cause more problems than it would solve, if only because the reforms needed in the West differ too much from those required elsewhere.

    A better approach is to focus on a few key measures. First, the crisis is an opportunity to strengthen and reshape the IMF. The organization has $250 billion in unused lending capacity, but this capital base has not been adjusted since 1997 and may not be large enough to help the many developing nations currently suffering balance-of-payments and liquidity crises. (Hungary, Iceland, Pakistan, Ukraine, and six other countries have negotiated or are currently negotiating emergency-financing packages with the IMF.) This should be remedied. The IMF can also be made more flexible. Historically, it has conditioned its assistance to borrowing countries on their tightening their belts, by, for instance, reducing their budget deficits. Conditionality remains necessary over the long term, but with this crisis still unfolding, the IMF is rightly moving toward temporarily suspending it. Furthermore, high-surplus countries, such as China and the oil-producing states in the Persian Gulf, should be made larger shareholders in the IMF. It would be logical, for example, for these nations to lead any new and separate lending facility established by the IMF.

    Second, the G-8 framework is increasingly obsolete. The economic power and wealth of China mandate that it, at a minimum, be included in the group. Because it is more representative, the G-20 framework (19 of the world's largest national economies plus the European Union) should be used more often, and the G-8 less so.

    Third, the Basel II guidelines regulating the capitalization of banks should be revised. They proved severely inadequate at protecting banks against the balance-sheet crises that have befallen them. A better approach would be to build capital cushions for banks during prosperous times that could be depleted during crises.

    The United States will remain the most powerful nation on earth for a while longer. Its military strength alone ensures this. But the crash of 2008 has inflicted profound damage on its financial system, its economy, and its standing in the world; the crisis is an important geopolitical setback. The international acclaim that greeted Obama's presidential victory may soften its effects, but even this enthusiasm cannot wipe those away. This is partly because the crisis has coincided with historical forces that were already shifting the world's focus away from the United States. Over the medium term, the United States will have to operate from a smaller global platform -- while others, especially China, will have a chance to rise faster.

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