by Leo Horn Phathanothai | Mar 5, 2011 | Climate and resource scarcity, Conflict and security, East Asia and Pacific
Nearly two years ago I had warned on this blog of the deep risks linked to China’s (then-widely-praised) fiscal stimulus and financial easing measures, which while displaying early signs of efficacy also reinforced the structural imbalances at the source of China’s economic vulnerabilities and environmental ills (see my earlier blog post here). I pointed out that much of the RMB 1 trillion (GBP 100 billion) stimulus spend and an even larger amount in bank lending was being funneled into energy-intensive manufacturing and export-oriented sectors already plagued by overcapacity, even as global demand was dropping off (hence dimming prospects for Chinese exports).
In a follow up post later that year (see the post here) I again highlighted concerns about the sustainability of the stimulus and pointed to the environmentally detrimental consequences of the fiscal and credit ‘binge’, noting that the recovery was unlikely to be nearly as ‘green’ as many pundits at the time – including analysts at HSBC – had made it to be (NB: HSBC were so gung-ho as to speak of a ‘New Green Deal’ in China. See their report here), and notwithstanding China’s pledge to join other G20 leaders in using fiscal stimulus programs to build a “resilient, sustainable, and green recovery.” I lamented that the government had missed the opportunity of a massive counter-cyclical boost to steer the economy on to a more equitable and sustainable growth path powered by domestic demand.
Now finally, Premier Wen has come clean on the fragility of the recovery. During a recent online chat with netizens ahead of the meeting of China’s congress, Wen explained that the government would reduce its growth target down a percentage point to 7% (GDP growth was 10.3% last year) in order to check inflationary pressures and mitigate the environmental and socially adverse consequences of runaway growth fueled by the stimulus. In the interview, he counseled that:
“We must not any longer sacrifice the environment for the sake of rapid growth and reckless roll-outs, as that would result in unsustainable growth featuring industrial overcapacity and intensive resource consumption”
He further noted that China must become more self-sustainable by increasing domestic consumption and reducing its reliance on exports and investment. He cautioned that:
[continuing on the current path] will lead to production capacity gluts and deepening pressure on the environment and resources so that economic development will be unsustainable.
Mr. Wen’s online interview was held against the backdrop of widespread public dissatisfaction with soaring inflation and a call for Chinese “Jasmine rallies” – a reference to the Jasmine revolution in Tunisia which set of a domino of unrest through the Middle East.
by Claire Melamed | Mar 4, 2011 | UK
I’ve spent too much of my week arguing that yes we should give aid and yes it can work. The launch of DFID’s Aid Reviews launched another round of argument, some of it valid, about the what, why and how of aid. But my colleague Jonathan Glennie probably said it best here, in this letter which sadly we didn’t actually send:
Dear Mr Daily Mail,
Aren’t we bored yet of this bogus debate between the “aid lobby” and “aid sceptics”. There is simply no evidence to support a position that “aid never works” any more than there is to suggest that “aid always works”. There are, of course, enough anecdotes of aid being put to good use and aid being put to disastrous use to continue to fill column inches of lazy journalists for some years yet. But people who have actually bothered to spend time to look at this subject will realise that aid can work, depending on a range of factors. Aid has, sometimes, saved or improved millions of lives. On other occasions, it has propped up dictators and imposed devastating economic policies that have destroyed fledgling industries. Sometimes it has helped poor countries on their way to becoming richer (South Korea, Vietnam, Botswana) and sometimes it has led to concerning levels of aid dependence (Mali, Sierra Leone, Tanzania).
Rather than selecting anecdotes and pretending that they constitute evidence on which to base policy making, isn’t it time to engage in a more serious discussion of how to use aid most effectively. While not everything the present aid review suggests is sensible, it does, at least, engage professionally and thoughtfully with these questions. If only your columnists had the time to do the same.
by Alex Evans | Mar 4, 2011 | Conflict and security, Middle East and North Africa
International Crisis Group’s deputy president Nick Grono made an excellent speech recently on ‘challenges for conflict prevention and resolution over the next two decades’, the text of which is now up on ICG’s website. The whole thing is well worth a read, but especially interesting and topical is his list of seven key lessons on “what approaches [can] best support reform and improve the chances of a transition ultimately leading to a peaceful and democratic state”. Here’s a paraphrased summary:
1) Reform has to happen quickly before impetus runs out – which it will, quickly. “If reforms don’t happen almost immediately, the opportunity is soon lost. Not full democratic transition of course, but enough to establish momentum for continued transformation.”
2) Democratisation after protests can happen faster and more easily in places that don’t have entrenched traditional elites. “…frequently popular uprisings are co-opted or taken over by the members of the existing elite. Sometimes this is defensive, to ensure the elites’ survival, after the sacrifice of a few leaders … other times, as recently in Kyrgyzstan, the revolt was simply an extra-constitutional, intra-elite, reshuffle.”
3) Try to get the military out of politics as soon as possible. “All too frequently Western nations seem comfortable with this, as the militaries are known entities, create a semblance of order and normality, and their commanders have often been trained at Leavenworth or Sandhurst. But more often than not, the military just ends up undermining democratic development, as in Pakistan.”
4) Get elections right. Not too early, not too late, and understanding that “they’re not an endgame”. “Often it will be better to build elections from the ground up – starting with local elections before moving to parliamentary or presidential polls, as local democracy helps build capacity.”
5) Understand that outsiders are largely bystanders during the transition, at least in the early chaotic stages. “The US did not persuade Mubarak to leave, nor could the Saudis convince him to stay – the Egyptian army decided.”
6) Don’t try to pick winners. Often irresistible to international actors, but rarely successful (Grono cites Karzai, Kagame, Meles, Museveni); external actors should focus on institutions rather than on individuals.
7) Conflict prevention matters. “The long term, painstaking work of investing in institutions, building the rule of law and developing civil society may be the most effective way for outsider actors to influence these transitions, in the years before they occur. Those countries with more developed institutions and more entrenched rule of law will likely stand a better chance of a stable transition than those without – think Jordan, or even Egypt, as compared to Libya.”
by Alex Evans | Mar 3, 2011 | Climate and resource scarcity
The Obama Administration has a respectable story to tell on food security in lots of ways: its Feed the Future initiative, particularly, put it in a genuine leadership position among G8 governments (although there are now lots of question marks over whether Congress will allow the program to go forward).
But on one aspect of US food policy, there’s a deafening silence: the government’s support for corn-based ethanol. Here’s Robert Hormats, Under-Secretary of State for Economic, Energy and Agricultural Affairs, on USAID’s blog:
World food prices have been increasing over the past six months, due to weather-related production losses and strong global demand. The growing demand is fueled by rapid expansion of middle-class households in emerging markets.
Er, hello? Let’s stop by at FAO’s Food Price Index (February data out today – you guessed it, another record high). What do they think is driving cereal prices upwards?
The increase in February mostly reflected further gains in international maize prices, driven by strong demand amid tightening supplies, while prices rose marginally in the case of wheat and fell slightly in the case of rice.
In other words, this is mainly about corn. And who’s the biggest corn exporter in the world? The United States.
And where is 40% of US corn production going this year? Ethanol, for use in US car engines.
And will USAID acknowledge that this has anything at all to do with spiking food prices? Don’t hold your breath.
