by Alex Evans | Jan 14, 2008 | Global system, UK
Sterling’s down nine per cent against the euro since November, which as the FT helpfully reminded us this morning is
a rate of decline not far off that seen during sterling’s enforced exit from the European exchange rate mechanism in 1992, when it fell 11 per cent against Germany’s D-Mark.
Ralph Atkins and Chris Giles continue:
The list of causes is long. UK interest rates are expected to be cut, Britain’s trade position looks increasingly precarious, capital inflows from companies buying UK assets have slowed sharply, and a perception of poor economic management has grown since the credit squeeze hit the world in August.
But most economists think the adjustment is necessary even if it hurts in the short run. The UK’s current account deficit is seen as increasingly unsustainable; it is now the largest among the Group of Seven leading economies after big downward revisions to foreign income at the end of last year.
Over the course of today, news also emerged that annual factory gate inflation reached a 16 year high during December, as the fall in the value of the pound made imports of food and fuel even more expensive. Meanwhile, Britain has slipped from fifth to sixth place in the world’s rich list: the French are now worth £70 billion more than us (the top four remain the US, Japan, Germany and China).
Sigh: more chickens coming home to roost. National Institute of Economic and Social Research director Martin Weale comments that sterling’s hitherto sustained strength had fooled people into believing that
you can run the economy permanently on the back of consumer spending and rising land prices.
by Alex Evans | Jan 9, 2008 | Economics and development
Lawrence Haddad, the thoughtful Director of the Institute of Development Studies at the University of Sussex, has published a list of eight events and trends to watch out for in 2008: here it is. All eight are interesting, but none more so than Haddad’s discussion of a largely unnoticed event last year: the World Bank’s quiet revision of Purchasing Power Parity (PPP) estimates for developing countries.
The new calculations involved big downward revisions for China, India and Brazil GDP after PPP is factored in. In Africa, thirteen countries were revised upwards – and thirty three downwards. According to Haddad, the new estimates will “significantly increase the estimates of those living under a dollar a day in Africa, Asia and Latin America”. While the new figures don’t contradict the basic reality of strong economic growth in emerging economies, Haddad notes that they do…
1. accentuate inter-country estimates of inequality (the rich country GDP estimates were largely unchanged), thus changing the dynamic of discussions around climate and trade.
2. force us to question our assumptions about the elasticity of poverty reduction with respect to economic growth. Has it changed in the last 5 years? This is a key question to be answered given the new development cooperation focus on various forms of economic growth.
3. force us to think about the newly increased number of poor within China and India – are they really living in the midst of a sea with a rising tide that will lift them out of poverty or are they caught in an inequality trap that is every bit as unforgiving as the traps in which Paul Collier’s bottom billion are caught?
If one thing’s missing for me on Haddad’s list, it’s scarcity trends. Rising oil prices and rising food prices are already causing real problems for developing countries that rely on imports of fuel or food – c.f. the IEA’s pronouncement between Christmas and new year that oil prices alone have already offset increased aid and debt relief to African non-oil producers over the last three years.
A pronounced downturn in the US and other western economies may ease the pressure in the shorter term – but the long term trends still look tough for developing countries. As I argued in my presentation last year to the PM’s Strategy Unit on international implications of rising food prices, donors need to pay a lot more attention to scarcity – and resilience to scarcity shocks.
by Alex Evans | Jan 8, 2008 | Climate and resource scarcity, East Asia and Pacific
Via Blake at ForeignPolicy.com, news of the latest casualty of rising food prices: detente with North Korea. Full details:
Measures to stabilize soaring domestic food prices in China have resulted in tighter controls on grain imports, which is likely to threaten food aid to North Korea. China is one of the largest providers of food aid to the impoverished North, where severe flooding in August destroyed crops and further depleted food supplies.
In Dandung, Liaoning Province, near China’s border with North Korea, food exports to the impoverished country have been completely suspended. Up until now, an average of approximately 1,200 tons of food has crossed the border every day, but as of the beginning of the year, the Chinese government has not issued any new permissions for exports. An official in Dandung said on January 4, “We can’t send trains carrying flour to North Korea. We have applied to the authorities for permission but we have no idea when we will get it.”
China’s Ministry of Commerce on January 1 issued emergency decrees, including an imposition of export duties of 5 to 25 percent on major grains such as rice, wheat, corn and beans. The ministry has also adopted an export quota system for powdered goods, including flour.
China began blocking grain exports in late December of last year in order to stabilize domestic food prices. On December 20, 2007, Beijing suddenly abolished tax incentives for grain exports. Since then, food assistance to North Korea has been completely stopped. As China has refused to permit food exports, officials are finding it useless to try to pay duties on grains.
As Blake reports, North Korea isn’t happy – and is once more lapsing into its habitual uncooperative stance on proliferation.
by Alex Evans | Jan 7, 2008 | Climate and resource scarcity, East Asia and Pacific
This year’s G8 summit is brought to you by Japan, who as David Pilling reports have decided to hold the event in a uniquely Japanese-sounding venue: the Windsor Hotel on Hokkaido.
As with the Germany G8 at Heiligendamm last year, Japan plans to put climate change front and centre – an issue on which, Pilling reports, “Japan likes to feel it has strong leadership credentials”.
Japan has among the world’s most advanced energy-saving technology and lent its name to the Kyoto Protocol, a breakthrough agreement, albeit a flawed one. That gives it the moral authority, officials say, to act as a bridge between the far-flung positions of the US, Europe, China and India.
But, he goes on, that strategy is not without challenges:
Japanese officials admit that their “bridging” strategy is fraught with difficulties. At home, the government is handcuffed by the intransigent attitude of business, which insists on voluntary cuts rather than mandatory targets reinforced by a carbon tax. Partly as a result, Japan is far from achieving its Kyoto targets and is likely to make up much of the difference by buying emission rights.
The debate is also moving very quickly, say officials. The growing scientific and political consensus on the urgency of tackling global warming could rapidly make Tokyo’s emphasis on technology and voluntary national targets out of date. Some Japanese officials say that, by July, serious discussion may well have shifted to the cap-and-trade mechanisms favoured by Europe.
International development, too, figures heavily among Japanese priorities. Fletcher Tembo has a good discussion of this on the Overseas Development Institute’s blog, where he observes that while the midpoint for the Millennium Development Goals has just passed, levels of aid to developing countries still haven’t increased significantly – at least, not after debt relief (supposed in theory to be additional to aid) and aid to Afghanistan and Iraq have been taken off the balance sheet.
But in practice, there’s every chance that events will buffet the Japanese agenda – especially if oil prices continue their upward march and the solvency crunch continues to worsen. Meantime, the elephant in the room continues to be: how substantive a discussion of climate and energy is it actually possible to have without China and India as full participants (rather than guests invited for canapes)? Quite a challenge for Yasuo Fukuda, the new PM – Japan’s third in a year…
PS. As preparations for the summit (to be held from 7 – 9 July) get going in earnest, the best website to watch will – as ever – be that of the G8 Information Centre at the University of Toronto. Meanwhile, here’s the official Japanese website too, where the ‘What’s New’ section today helpfully informs us that the domain name has been renewed for 2008. Lucky, that.
by Alex Evans | Dec 19, 2007 | East Asia and Pacific, Global system
This was the arresting discovery made last year by Lester Brown at the Earth Policy Institute. How could he tell?
I know Santa Claus is Chinese because each Christmas morning after all the gifts are unwrapped and things settle down I systematically go through the presents to see where they are made. The results are almost always the same: roughly 70 percent are from China. After some research, it seems that my one-family survey is representative of the country as a whole.Let’s start with toys. Some 80 percent of the toys sold in the United States—from Barbie dolls to video games—are made in China. Talking toys that speak English learned the language from Chinese workers. Electronic goods—from Apple’s iPod to Microsoft’s Xbox—are made in China. Clothing—from the latest cashmere sweaters to gym suits—is also likely to have a “Made in China” label.
The Christmas tree itself may come from China. While real Christmas trees are grown in every state in the United States and are marketed locally, many families now gather around artificial Christmas trees. Eight out of every 10 artificial Christmas trees sold in the United States are made in China. Last year Americans spent over $130 million on plastic Christmas trees from China.
This year Americans will spend over $1 billion on Christmas ornaments from China. And in perhaps the greatest irony of all, even nativity scenes are made in China. Last year Americans spent more than $39 million buying nativity scenes shipped in from the East.
As you may already have guessed, Lester doesn’t feel exactly festive about this state of affairs:
It’s not the fact that our Christmas is made in China, but rather the mindset that has led to it that is most disturbing. We want to consume no matter what. We want to spend now and let our children pay. It is this same mindset that introduces tax cuts while waging a costly war. Economic sacrifice is no longer part of our vocabulary. After the Japanese attack on Pearl Harbor, President Roosevelt banned the sale of private cars in order to mobilize the manufacturing capacity and engineering skills of the U.S. automobile industry to build tanks and planes. In contrast, after 9/11, President Bush urged us to go shopping.In the United States we are so intent on consuming that personal savings have virtually disappeared. We have an average of five credit cards for every man, woman, and child. Of the 145 million cardholders, only 55 million clear their accounts each month. The other 90 million cannot seem to catch up and are paying steep interest rates on their remaining balance. Millions of people are so deeply in debt that they may remain indebted for life.
The official national debt, the product of years of fiscal deficits, now totals $8.5 trillion—some $64,000 per taxpayer. (See data.) By the end of the Bush administration in 2008, this figure is projected to reach a staggering $9.4 trillion. We are digging a fiscal black hole and sinking deeper and deeper into it.
Each month the Treasury covers the fiscal deficit by auctioning off securities. The two leading international buyers of U.S. Treasury securities are Japan and China. In this role, China is now also becoming our banker. This developing country, where income levels are one sixth those of the United States, is financing the excesses of an affluent industrial society. What’s wrong with this picture?
Um… does the answer involve the words “crunch” and “solvency”?
