India’s financial crisis a drag on region

After many years of galloping growth rates, India is grinding to a halt, and countries in the region may soon feel the impact.

To ease pressure on the rupee, the government said it had set up a panel to look at paying for imported items in rupees rather than foreign exchange under bilateral currency swap agreements. Photo: Reuters

INDIA is in the news and for all the wrong reasons. With the rupee collapsing, the current account deficit exploding and corporate debt set to melt down (trimming its contribution to Forbes billionaires’ list), China’s strategic challenger looks set to drag the rest of Asia-Pacific into a prolonged economic crisis.

After many years of galloping GDP growth rates, India is grinding to a halt. Growth in 2012 was 6.3% – this year it will be lucky if it can get above 3%.

For a proud nation with a US$4.684 trillion (RM15.4 trillion) economy, its own nuclear bomb and a navy equipped with both aircraft carriers and submarines, this is a massive loss of face and, indeed, opportunity.

India may well go down in the annals of contemporary economic history as being the trigger of the 2013 financial crisis – much as the South Koreans and Thais were the forerunners of the 1998 meltdown.

So what went wrong in India? Wasn’t the subcontinent’s giant supposed to be a great developmental success story and what are the lessons for us in Malaysia?

According to a pair of extremely high-profile economists, Jean Dreze and Nobel Prize winner Amartya Sen, whose book An Uncertain Glory: India and its Contradictions was launched earlier this year, India allowed its public sector, especially healthcare and education, to wither. This failure of governance and execution compounded deeply-rooted iniquities at the heart of its complex – a caste-driven society.

And with a general election slated for next year, there’s little doubt that a floundering Congress-led administration under Manmohan Singh will once again fail to tackle one of the world’s most inefficient and corrupt bureaucracies.

So, with the precipice fast approaching, it would be wise for Malaysian readers to acknowledge that India will not suddenly rebound and we will all be tainted by association. Moreover when the fear sweeps the markets, the contagion often ends up being far worse than anything crafted by Hollywood’s merchants of doom.

To be fair, India’s track record has been stellar if you’re middle-class and above.

Opportunities have abounded, despite the odd infrastructural glitch such as the July 2012 power blackout across Northern India (at the height of the summer heat).

However, for those at the bottom of the social scale, life has been less enthralling.

Take, for instance, the Indian government’s meagre spending on healthcare – only 1.2% of GDP alongside China’s 2.7% and Latin America’s 3.8%. Converted into absolute expenditure (at PPP terms), India has been spending US$39 (RM125) per capita whilst China has spent US$203 (RM655) per capita.

To put things into perspective, Malaysia spends 4.8% of its GDP on healthcare or about US$400 (RM1,292) per capita. Indonesia spends 2.7% of its GDP and US$100 (RM323) per capita.

Understandably, India has reaped a bitter harvest from this shocking under-investment, achieving Quality of Life indices that pale in comparison even with neighbouring Bangla-desh. This is despite Bangladesh having a GDP per capita of US$747 (RM2,413) compared to India’s US$3,557 (RM11,490).

But it’s the weaker sections of society that have been the most imperilled: women, tribal people and the lower castes. Indeed, female empowerment in Muslim Bangladesh far surpasses anything in India.

However, the story isn’t uniformly bad. India is a vast nation and there are differences in the various indices between the country’s North and West (sub-Saharan African bad) and its South (generally good). So, if one is to subscribe to the Sen/Dreze formulation, India’s failure is primarily a failure of governance with more public money being spent on notoriously corrupt fertilizer subsidies rather than healthcare and education.

We cannot underestimate the cost of this neglect to invest in its people: not only due to higher crime and squalor, but also in terms of lost opportunities via better human capital.

As a result of this terrible under-investment in their own people, India’s “demographic boom” may well be worthless as its burgeoning youth population of some 430 million won’t be adequately educated, employed and/or fed.

Of course, the two men’s thesis hasn’t been uniformly accepted. Free-market thinkers like Columbia University’s Jagdish Bhagwati have taken issue with their prescriptions, seeing rather the need for less state intervention and greater private sector participation. The ensuing debate between the two prominent thinkers has been sharp and acrimonious, reflecting the underlying sense of unease.

Ultimately, the correct policy path for India probably lies midway between the two positions, but for now, we can be sure that little will be done to improve the lot of India’s hundreds of millions of poor.

Dreze and Sen have also criticised India’s free market and much-lauded democracy, arguing that neither has helped address its fundamental inequalities.

Look across the Himalayas to China, however, whose authoritarian system has brought it great wealth, but also the same inequalities and social dislocations and things don’t seem that rosy either.

Where should developing economies go then? Perhaps this is the great paradox of modern capitalism: that nothing countries do will ever be right in the long run and that periodic market scares, if not an outright collapse are only to be expected!

Only then will governments be forced to reassess and change their policies. So as emerging markets ready themselves for the impending squalls, we in Malaysia should also be sharpening our policy “tools” and readying ourselves to address the many failings in our policy “tool-box”.

Contributed by KARIM RASLAN
> The views expressed are entirely the writer’s own.

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An eventful week on the TPPA

Last week saw a series of important events on the hot topic of Trans-Pacific Partnership Agreement, with the official round in Brunei and a round table in Kuala Lumpur, leading to the question: What next?

LAST week saw many important developments on the Trans-Pacific Partnership Agreement (TPPA).

The 19th round of the negotiations concluded in Brunei after an intense week. It emerged that many issues are still controversial and that the target of signing the treaty by year end cannot be met.

Malaysia’s tone at the negotiations has also changed, with Inter-national Trade and Industry Minister Datuk Seri Mustapa Mohamed informing his counter parts of the domestic opposition to the TPPA and various issues which Malaysia has problems with.

Malaysia’s negotiators earned bouquets from NGOs for tabling a new proposal that tobacco control measures should be excluded altogether from TPPA disciplines.

Meanwhile in Kuala Lumpur, a roundtable workshop on the TPPA brought together 200 people. Keynote speaker Tun Dr Mahathir Mohamad reaffirmed his opposition to the TPPA and urged the Government not to join it.

The Aug 26-27 round table was organised by the MTEM (Malay Economic Action Council) and the Perdana Leadership Foundation.

The participants came up with 75 “red lines”, or positions that are non-negotiatble, that they would like the Government to adopt.

Prime Minister Datuk Seri Najib Tun Razak received the “red lines” document from the MTEM leadership at the group’s Hari Raya open house on Aug 28.

Mustapa also announced that the Government was going ahead with organising two cost benefit studies on the TPPA’s impacts on national interests and on SMEs and the bumiputra economy. Only if there are net benefits will the country sign the treaty.

It looks like the strong views voiced by various groups and politicians have influenced the Government’s thinking.

A strong sign of this was at the ministerial meeting of TPPA countries in Brunei on Aug 22-23. Chaired by the American Trade Represen-tative, the meeting was supposed to give ministers the chance to clear the contentious issues that the technical negotiators could not settle, and thus pave the way to a quick conclusion.

Instead, the ministerial meeting turned into an anti-climax as some ministers did not attend, and some others who attended did not stay for the press conference that lasted only 20 minutes.

And instead of clearing hard issues, the ministerial meeting gave a chance to some ministers to highlight contentious issues themselves.

Mustapa was one of those who took that opportunity. “I drew attention to the growing discomfort domestically arising from Malaysia’s participation in the TPP negotiations, the outreach activities that had been undertaken and the concerns raised by the various stakeholders, specifically on the issue of lack of transparency and disclosure of information on the texts being negotiated,” said the minister in a statement.

He also highlighted the difficulties Malaysia has on government procurement, the need for exclusions of SMEs and preferences for bumiputra which are required for the Malaysian government to continue with its socio-economic development goals and affirmative action policy.

He also underscored that Malaysia had serious difficulties with the current proposal on state-owned enterprises, which is seen to go beyond the stated objective of creating a level playing field as it had serious implications for Malaysian SOEs.

And on intellectual property, he reiterated Malaysia’s strong position on access to affordable medicines while on environment, that there was a need to safeguard the state governments’ jurisdictions.

The following day, Malaysia also caused quite a stir by putting forward a new proposal to totally exclude tobacco control measures from the disciplines of the whole TPPA.

This was warmly welcomed by public health groups, which then called on the US and other countries to agree to the Malaysian position.

At the MTEM round table in Kuala Lumpur, Dr Mahathir gave a 40-minute critique of the TPPA, the problems it would create for domestic policy and why Malaysia can expand its trade even without such agreements. He ended with a strong call to the Government not to sign the treaty.

For two days, the participants discussed specific TPPA issues in six breakout groups and at the closing plenary they adopted 75 “red lines” which they called on the Government to take on as part of its negotiating positions.

The “red lines” include a rejection of the investor-state dispute settlement system, the exclusion of the chapters or sections on government procurement and state-owned enterprises, and demands that the intellectual property chapter does not require obligations that are stronger than the World Trade Organisation’s rules, especially with regard to patents and medicines, and copyright issues.

It should be noted that some of these civil society “red lines” correspond to the concerns that Mustapa had taken up at the TPPA ministerial meeting.

It looks as though the Govern-ment’s position has been affected by the voices of civil society, business and experts.

A key question, of course, is whether in taking up these issues, the minister and the negotiators will make their own “red lines” out of the concerns.

The next question is whether the other TPPA participants will accommodate themselves to Malaysia’s positions. And if not, then what happens next.

In any case, it has been a very interesting week or 10 days, full of events and developments, on the hot issue of TPPA, both at the official meeting and on the home front.

  Contributed by Martin Khor Global Trends:

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The sheriff threatens to strike Syria

 

People against war: Supporters of the anti-war group Act Now to Stop War and End Racism (ANSWER) Coalition participate in a rally in Washington DC, in opposition to a possible US military strike in Syria. – EPA

For nearly all countries including the US, a military attack on Syria will only make things worse.

TEN years after US President George W. Bush attacked Iraq, his successor Barack Obama is set to do it with Syria.

A secular Muslim autocrat in West Asia, Iraqi President Saddam Hussein, was accused of possessing weapons of mass destruction (WMDs) so he “had” to be removed. Back then, Senator Obama had accused Bush of an unjustifiable and unnecessary war based on a flimsy pretext.

Now a secular Muslim autocrat in West Asia, Syrian President Bashar Assad, stands accused of using chemical WMDs. No evidence against Bashar had been presented before Washington’s decision to punish Syria.

Obama’s supporters may say it is a little different this time – just a little, though not much. Saddam’s case involved accusations of WMD possession, while Bashar’s involves accusations of actual use.

But what real difference is there once the bombs begin to drop? The arguments and circumstantial “evidence” so far are insufficient to support even a misdemeanour in a civil court, let alone a serious action such as war.

Just as the so-called evidence against Saddam’s Iraq was false, the same may be said of the case against Syria so far.

At a time when the US needed to convince the international community to support action against Syria, no evidence against Bashar had been offered. It nonetheless seemed sufficient to get Washington on the warpath again.

The White House says there is no doubt that Syria had used chemical weapons, but doubts persist. The Syrian government insists it did no such thing.

The issue concerns allegations of chemical weapons use in an area controlled by rebel forces just outside Damascus on August 21. The result – about 1400 civilian deaths.

Critics of military action ask why Syria had agreed to a UN arms inspection if it had just used banned chemical weapons, why it should target civilians including children who were not against it, and why it should do so knowing the likely international consequences. They also question the reliability of the evidence linking the incidents to the Syrian government, and the credibility of the source of the alleged evidence itself.

At the same time, motives also exist for falsifying evidence to blame Syria, so that US military action would weaken or dislodge Bashar. The beneficiaries are within and outside Syria.

The strongest “evidence” against Damascus comes from Israel, specifically Unit 8200 of the Israeli Defense Forces that supposedly intercepted the Syrian military’s electronic communications. According to Prof. John Schindler at the US Naval War College, Israel then fed this information to Washington and London for follow-up action against Syria.

Bashar’s Syria is the latest Muslim country in West Asia to be undermined by Israel, following Iraq, Libya and Egypt. In quietly promoting Western military action against these countries, Israel need not spend a single dollar or risk a single soldier’s life.

Western countries inclined to military action often find they have to depend on Israel. They lack the kind of intelligence information on the ground that Israel has, regardless of whether that information is trustworthy.

This also happens to benefit various militant groups hoping to seize power after Bashar – up to a point. Israel expects them to disagree among themselves and neutralise one another as Syria disintegrates, leaving the door open to Israeli interests.

In a US poll on Friday, 52% of respondents believe that once Bashar falls, Syria would be split. Over the medium and long terms, Israel would be the only beneficiary of another dismembered Muslim nation.

Within Syria, the considerable but still limited military strength of the various opposition groups has meant an armed stalemate while Bashar remains in office. The only factor likely to make a difference is Western military intervention, if that could be “arranged”.

On Thursday, an Associated Press news report said Washington remained uncertain where Syria stored its chemical weapons. US intelligence officials acknowledged that proof of Syria’s use of these weapons was still unclear, and that they were even less certain of Bashar’s guilt than they were of Saddam’s.

On the same day, a report released by the British government revealed that London did not understand why the Syrian government would want to use chemical weapons as alleged. Yet Britain was prepared to support the US position that Syria was guilty, nonetheless.

Meanwhile, the overwhelming majority of international opinion is set against military action. This includes the general populations in Britain and the US.

The US Congress is divided on the issue and insists that its prior approval is needed, while the British Parliament on Thursday voted to oppose military action. But US officials have said none of this would change their plans.

Russia says no evidence exists of chemical weapons use, much less to link the Syrian government to such use. China says the UN Security Council should not be pressured on deadlines to approve any action before UN inspections are complete.

UN Secretary-General Ban Ki-moon appealed for calm and for enough time for UN weapons inspectors in Syria to complete their job. Their mission ends this weekend.

Former chief UN arms inspector Hans Blix, in a similar situation a decade ago when the US had already decided to attack Iraq, now questions the right of any country to attack Syria even if it had actually used chemical weapons.

Despite the international ban on chemical weapons, no international law obligates any power to attack a country for the use of WMDs. The US itself is not restrained against its first use of nuclear WMDs.

The official US line is that “punishing” Syria is not intended to topple Bashar. In the heat of hostilities, however, nobody can guarantee there would be no regime change, especially when US forces meet with resistance and risk international embarrassment for not achieving anything substantial.

The US case for an attack also claims the “immorality” of Syria’s alleged chemical weapons use. But the moral argument is defeated when an attack could result in more civilian deaths and suffering than the supposed use of chemical weapons.

The International Committee of the Red Cross has warned that any action that escalates the Syrian conflict would only result in more civilian suffering. Unesco said the looting of Syria’s rich cultural heritage had already begun.

White House spokesman Jay Carney insisted that logically, there was no doubt about the Syrian government’s guilt. But logic remains the biggest impediment to the US argument.

Attacking another country can be legitimate only in a case of self-defence or when approved by the UN Security Council. The latter requires endorsement by all the UNSC’s Permanent Five members.

A US attack cannot cite self-defence because Syria did not attack the US. Neither will there be UNSC approval, since Russia and China are likely to vote against.

Nonetheless, the US proceeded to attack Iraq in 2003 even after China abstained. Obama may now outdo Bush by attacking Syria when both Russia and China object.

US bombs may also hit chemical weapons stockpiles, releasing poison gas and killing many more people. But then only Syrians would be affected.

Obama’s standing in the Muslim world has declined considerably since its height with his 2009 Cairo speech. Where actions speak louder than words, that decline is also happening in the developing world in general.

BUNN NAGARA is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia