Inter Press Service » Financial Crisis News and Views from the Global South Fri, 27 May 2016 21:16:02 +0000 en-US hourly 1 Conjuring Growth from the Trans-Pacific Partnership TPP Thu, 26 May 2016 14:58:50 +0000 Jomo Kwame Sundaram Jomo Kwame Sundaram was an Assistant Secretary-General responsible for analysis of economic development in the United Nations system during 2005-2015, and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. ]]>

Jomo Kwame Sundaram was an Assistant Secretary-General responsible for analysis of economic development in the United Nations system during 2005-2015, and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, May 26 2016 (IPS)

It is now generally agreed that the Trans-Pacific Partnership (TPP) has served US foreign policy objectives well. For this purpose, the Peterson Institute of International Economics (PIIE) has provided the fig-leaf for the empire’s new clothes with exaggerated projections of supposed growth gains from the TPP.

Jomo Kwame Sundaram. Credit: FAO

Jomo Kwame Sundaram. Credit: FAO

The only US government study, by the Economic Research Service of the US Department of Agriculture, also uses a computable general equilibrium (CGE) model to find modest growth gains from TPP tariff reductions. Needless to say, the PIIE studies have nothing to say about the more pessimistic findings of US government analysis.

In a timely update of its 2012 study, the PIIE has conjured up even greater gains from the TPP by claiming more, albeit still modest growth gains. Both PIIE studies claim greater benefits by assuming that the TPP will catalyse much more growth from non-trade measures (NTMs) which will, in turn, trigger foreign direct investment (FDI). They have also resorted to other novel methods to inflate its ostensible benefits.

Modest trade gains

To make the case for the TPP, the PIIE underplays costs and risks, and exaggerates benefits. Very diverse TPP provisions are fed into its economic model as simple cost reductions, with little consideration of downside risks and costs. Although associated costs and risks are not seriously considered, such projections are nonetheless presented as cost-benefit evaluations.

The new PIIE study estimates real income growth due to the TPP over 2015-2030 to average 1.1% for all TPP members, i.e. about 0.06% annually over 15 years, instead of the earlier finding of 0.4% growth over a decade, which remains modest by any standards. While this represents an increase over their earlier projections by about half, it is more than ten times what the USDA-ERS exercise yielded.

Most gains would go to the TPP’s Southeast Asian four (Vietnam 8.1%, Malaysia 7.6%, Brunei 5.9% and Singapore 3.9%), followed by Peru (2.6%), Japan (2.5%) and New Zealand (2.2%). NAFTA members (US, Canada, Mexico, Chile) would only gain 0.6% on average.

The biggest loser is expected to be Thailand (-0.8%), ahead of the ASEAN trio of Myanmar, Cambodia and Laos (collectively -0.4%), with Indonesia and the Philippines only slightly worse off (both -0.1%). Thus, the TPP is likely to jeopardize the future of the ASEAN Economic Community as well as the Regional Comprehensive Economic Partnership.

Most of the additional growth attributed to the TPP in 2016 is due to revisions of data and assumptions where the devil is in the detail. For instance, despite reduced and delayed tariff and non-tariff liberalization, the new data supposedly yield greater growth gains.

As before, most of their purported gains from the TPP are not from goods trade liberalization, but due to non-tariff barrier reductions and measures promoting services trade. Only 15% of the GDP increase would be due to tariff cuts, whereas non-trade measures (NTMs) account for 85% of total growth attributed to the TPP.

The PIIE and, since January, the World Bank claim other gains, mainly from investment surges from abroad. Much of the benefits projected have been attributed to foreign direct investment (FDI) booms, justified by the assumption that the TPP will place all participating countries in the top 10% of the World Bank’s Doing Business ranking, despite ambiguous evidence of such effects. The studies arbitrarily assume that every dollar of FDI within the TPP bloc would generate additional annual income of 33 cents, divided equally between source and host countries, without any theory, modelling procedure or empirical evidence for this supposition.

Provisions allowing foreign investors to sue governments in private tribunals or undermining national bank regulation, become trade-promoting cost reductions, ignoring the costs and risks of bypassing national regulations and taxation. Again, the huge gains claimed have little, if any, analytical bases in economic theory, past evidence or experience.

By understating crucial costs, projected benefits have been exaggerated. For example, provisions to strengthen, broaden and extend intellectual property rights (IPRs) become simple cost reductions that will increase the trade in services, ignoring impacts on consumers or governments subsidizing the availability of medicines besides the reduced trade in medicines due to higher prices and the prohibitions on importing generics.

Paltry gains

Thus, the studies greatly overstate benefits from the TPP. While most of its claims lack justification, the only quantified benefits consistent with mainstream economic theory and evidence are tariff-related trade benefits that make up a seventh of the projected gains. Even these gains need to be compared against the costs ignored by the study as well as the actual details of the final deal.

Even unadjusted, the gains are small relative to the GDPs of TPP partner economies. Many benefits are mainly one-time gains, with no recurring annual benefit, i.e. they do not raise the economies’ annual growth rates. Also, while projected trade benefits are expected to take some time, the major risks and costs will be more immediate.

Not surprisingly, the TPP goes much further into redefining the role of government than is necessary to facilitate trade. TPP ‘disciplines’ will significantly constrain the policy space needed for governments to accelerate economic development and to protect the public interest.

The unjustified benefits projected by TPP advocates make it all the more critical to consider the nature and scale of costs currently ignored by available modelling exercises. After all, the TPP will impose direct costs, e.g. by extending patents and by blocking generic production and imports.

The TPP’s investor state dispute settlement (ISDS) provisions will enable foreign investors to sue a government in an offshore tribunal if they claim that new regulations reduce their expected future profits, even when such regulations are in the public interest. As foreign investors are already well protected, ISDS provisions are completely unnecessary for the TPP.

Advocates as well as critics of free trade and trade liberalization have criticized inclusion of such non-trade provisions in free trade agreements. Instead of being the regional free trade agreement it is often portrayed as, the TPP seems to be “a managed trade regime that puts corporate interests first”.

Thus, the TPP, offering modest quantifiable benefits from trade liberalization at best, is really the thin edge of a wedge which will undermine the public interest in favour of powerful, often foreign, corporate interests. Net gains for all in TPP countries are a myth. Only a full, careful and proper accounting based on the full text can determine who benefits and who loses.

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The Caracas Crunch Wed, 25 May 2016 17:37:16 +0000 Mahir Ali By Mahir Ali
May 25 2016 (Dawn, Pakistan)

After Uruguay`s former president José Mujica last week declared that Nicolás Maduro was `mad as a goat`, the latter chose to wear the insult as a badge of honour, announcing at a rally: `Yes, I`m as mad as a goat, it`s true. I`m mad with love for Venezuela, for the Bolivarian revolution, for Chavez and his example.

In other words, he pretty much bore out Mujica`s diagnosis. With most Venezuelans embroiled in a daily struggle to obtain commonplace necessities, amid dire shortages and a rate of inflation purportedly in the vicinity of 500pc (by any measure the highest in the world), whatever remains of the Bolivarian revolution clearly isn`t delivering the goods. And the example of Hugo Chavez, notwithstanding his various flaws, can only be sullied by association with the unsustainable state of affairs in Venezuela today.

Small wonder, then, that even long-standing Chavistas are expressing their disenchantment with Maduro in increasing numbers. As one of them told a foreign correspondent earlier this month, `We voted for Maduro because of a promise we made Chavez, but that promise has expired. Either they solve this problem, or we`re going to have to take to the streets.

A little more than three years af ter Chavez sadly succumbed to cancer, there can be little question that his designated successor`s administration has been an unmitigated disaster. This may not purely be a consequence of poor governance, but the latter has undoubted contributed considerably to the current disarray.

Among oil-producing nations, Venezuela has been worst hit by the precipitous decline in the international price of the commodity.

The failure to diversify is a key culprit here: it was never wise to assume that oil prices would remain high. The energy sector has also been hit by a particularly grievous drought, leading to increasingly common power blackouts and pleas from Maduro that women should relinquish hairdryers for the time being.

A 60-day emergency the president instituted at the start of the year remains in place.

The working week for many government servants has been cut down to two days. There were, meanwhile, huge military exercises last week, amid hints from Maduro that the army would be deployed to maintain law and order.

There has thus far been no indication of military disloyalty despite overtures from the opposition which won a decisive majority in last December`s parliamentary elections amid spiralling popular dismay over the government`s spectacularineffectiveness-butthere can be no guarantee this won`t change, especially if Maduro proves to be stupid enough to contemplate a direct blow against democracy.

He has hinted that parliament can be overridden, amid an opposition effort to curtailMaduro`s six-year term by instituting a recall referendum. Chavez, too, faced such a move, and was able to emerge triumphant from a popular vote. His successor is presumably well aware that he would fail to pull off a similar victory, and his administration apparently is keen to put off a vote until next year, past the halfway mark of Maduro`s presidency, when defeat would merely lead to his replacement by his deputy whereas his loss in a recall referendum this year would automatically lead to a fresh presidential election.

Maduro is doing his ostensible side of polltics no favours by clinging on to power, though. That`s not to suggest that the opposition is a desirable alternative. Many of its components represent forces that resisted Chavez`s policies precisely because they were progressive: they saw nothing advantageous in initiatives to abolish illiteracy or to bring healthcare, with large-scale Cuban assistance, to the favelas where many families had never before encountered a doctor. Theydetested the social programmes that kept Chavez afloat: the beneficiaries of his government`s reforms were sufficiently numerous to guarantee anunprecedented string of electoral successes.

Last December`s result wasn`t so much an anomaly as an indication that something had gone very wrong. And almost everything Maduro has attempted since then merely reinforces that impression. Were he to face up forthwith to a recall referendum and promptly bow out thereafter, the seeds sown during the heyday of Chavismo may well survive to bear fruit in the aftermath of the next inevitable failure of neoliberalism.

Anti-democratic measures, on the other hand, would merely serve to bury whatever remains of the so-called Bolivarian revolution.

The comment by Mujica cited at the outset came in the context of a spat between Maduro and the secretary general of the Organisation of American States, Luis Almagro, Mujica`s formerforeignminister,whomtheVenezuelan leader derided as a traitor and a CIA agent after he warned Maduro against dictatorial tendencies.

The CIA was, no doubt, once keen to depose Chavez and would be delighted to see the back of his successor. And it may well be taking a keen interest in the current goings-on in Caracas, but the fact is that the Maduro administration has effectively dug its own grave.

This story was originally published by Dawn, Pakistan

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Rousseff Is (kind of) Gone. What Now? Tue, 17 May 2016 15:38:32 +0000 Fernando Cardim Fernando J. Cardim de Carvalho, economist and professor at the Federal University of Río de Janeiro, ]]>

Fernando J. Cardim de Carvalho, economist and professor at the Federal University of Río de Janeiro,

By Fernando J. Cardim de Carvalho
RIO DE JANEIRO, May 17 2016 (IPS)

As expected and widely predicted- Brazil’s Federal Senate has begun the impeachment process against President Dilma Rousseff. According to Brazilian Law, the president is likely to be suspended for up to six months while arguments are put forth in the Senate, presided over by the Chief Justice. At the end of the proceedings, the president may be acquitted of all charges and returned to power or if convicted and found guilty, be deposed and banned from political activity for eight years.

Fernando J. Cardim de Carvalho

Fernando J. Cardim de Carvalho

Even though the process has just begun, very few expect Rousseff to survive the political upheaval. The overwhelming result of the impeachment vote make her conviction almost certain. Thus, the transfer of power to Vice-President Michel Temer is widely seen as definitive, and who will serve as president until 2018.

What can one expect of Temer’s presidency? The answer seems to be, very little. The best bet is that the political crisis will continue and, if anything, deepen in the following months and years up to the 2018 elections. The deepening economic crisis will likely continue, possibly mitigated by a “natural” cyclical recovery, which is expected to be minimal due to the probable inability of the newly appointed government to reach some degree of political stability.

Much of the political instability may be due to the peculiar nature of the political support behind the new government. Temer is only the nominal leader of the largest political party in the country, Partido do Movimento Democrático Brasileiro (PMDB). He is the nominal leader because PMDB is a federation consisting of regional interest groups not consistently loyal to a central leadership. A party traditionally adept at deal making, it never gives its full support to a government unless it is done with all the regional interests in mind. Temer as president of PMDB has yielded very little effective power over the party as a whole. The first order of business for a government he leads will be to acquire (and to acquire is the exact term) the support of a number of PMDB groups large enough to provide him with sufficient support in Congress.

The difficulties in such political negotiations have been illustrated by the failures of former presidents Fernando Henrique Cardoso and Lula da Silva, besides Rousseff herself. Every president tries to buy the support of the party by involving its national leadership only to discover that the party must negotiate the support of each group regardless of the national leadership.

There are ofcourse other parties that were part of Rousseff’s coalition until the eve of the Senate vote. They are small parties devoid of any political ideology or consistent program, they tend to adhere to any government that can further their own interests. Their commitment to any given government is highly dependent on the likelihood of an administration remaining in power. When the government’s chances of survival deteriorate, it’s demise is often accelerated by mass defections from the above mentioned parties.

In the end, the only difference between the coalition that has been dislodged and the coalition that takes over is the substitution of PSDB for Partido dos Trabalhadores (PT) and its satellites. PSDB is as incapable of stabilizing a government coalition as PT was. The “new” political configuration is therefore just as unstable as the one that is being replaced.

Temer’s new cabinet is promising tough liberal economic.The rhetoric is clearly conservative but the only difference with respect to Rousseff’s post-re-election rhetoric is the proposal of new privatizations as means to improve the financial situation of the federal government. The new finance minister (that Lula da Silva wanted Rousseff to nominate for her second term) has announced the need to control the fiscal deficit even though he is likely to be aware that very little can be done in the short or even mid-term. There has been talk of age limits for retirement, about the need to increase tax revenues (albeit without raising the necessary taxes) and cuts to subsidies for businesses which had increased dramatically during Rousseff’s first term in office. The political viability of these proposals is poor and in a conservative coalition is unlikely to yield any positive results.

The government is perhaps likely be helped by the fact that there are many signs that the economy is bottoming out. Once the economy has reached stagnant levels, there are only two results that can follow: the economy may either remain there, and governments will point to the recently acquired “stability”, or it may begin to recover, and governments will celebrate the wisdom of their policies in promoting this “recovery”. There can be no doubt that any such stability or recovery will be celebrated by the political groups in government and its friends, but nothing of substance will really have changed and the chances of resuming growth any time soon remain slim.

At the other end of the spectrum, there may be a heightening of political conflicts led by organized groups like MST and unions, particularly in the public sector, that will test the resolve of the new government. If the government is unsuccessful in its negotiations with them, its tenure may be reduced and a new period of crisis may begin. If the government relies on violent repression, it will only strengthen the charges that it is the product of a right-wing coup-d’état, with local voters and with the international community, which seems to be responding cooly to the new government’s attempts to legitimize the change of guard.

Rousseff was removed from the presidency shortly after her re-election. Despite attempts by her followers to present her as the victim of a right-wing conspiracy, the facts suggest that she was largely, if not exclusively, responsible for her downfall, as has been argued in earlier posts on this site. The new government will struggle with problems that are very similar to the ones that plagued Rousseff’s first year-and-a-half of her second term. Temer’s chances of success are exceedingly slim, the political crisis will almost certainly continue, and perhaps, deepen, despite any political advantages that may be provided by the ailing economy.

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OPINION: Fear Is not a Good Counsellor Mon, 16 May 2016 15:27:46 +0000 Roberto Savio Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News.]]>

Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News.

By Roberto Savio
ROME, May 16 2016 (IPS)

A new spectre is haunting the world. It is not the spectre of communism, as Marx’s Manifesto famously proclaimed. It is the spectre of fear, which has increasingly become the rationale behind politics. And, as the old proverb says, fear is not a good counselor.

Roberto Savio

Roberto Savio

Let us take, for example, the last elections in the Philippines. In a country where the of memory of the Marcos dictatorship are still relatively recent (Marcos was forced by a popular revolution to quit in 1986), people have elected by a large margin as their president Rodrigo Duterte, who made his campaign motto: “Let us kill them all”. He was referring to criminals, thieves, drug dealers and others whom he prosecuted using paramilitary gangs, when he was mayor of Davao City. In his campaign, he said that once president he would kill some of them himself. The outgoing President, Benigno S. Aquino III, tried to stop him, saying that was tantamount to return to the dictatorship of Ferdinando Marcos. He asked the other candidates to unite to defeat Duterte, but nobody agreed.

Despite strong economic growth, the Philippines still has a high level of poverty and unemployment, a raging war in the southern part of the country against insurgents and kidnapping gangs. Polls found that there was a general sense of fear: from those unemployed and looking for work, to those who were already working but were concerned with being able to keep their jobs. It was generally believed that this very sense of uncertainty in the population was an important element in the final vote.

On the other side of the world, in Brazil, President Dilma Roussef, elected less than two years ago by 50 million voters, has been deposed by the Congress. She has not been accused of stealing, (in a giant corruption scandal), but of falsifying the budget, a practice commonly used everywhere. A surveyby a specialized Brazilian firm, found that the hundreds of thousands of people who took to the streets calling for her impeachment, were from the middle class, and they knew that over 50 percent of parliamentary Deputees and Senators voting for her impeachment were under criminal investigation, and for far worse crimes than falsifying a budget. While the glue uniting the demonstrators was to eradicate corruption (though Rousseff has not been accused of this), citizens were upset by the growing economic crisis, which has put Brazil in a dramatic situation, where the government is incapable of facing the crisis.

It is important to know that the Workers Party (PT) under the Presidency of Lula da Silva and Dilma Rousseff, has lifted 30 millions from poverty into middle class. Those millions fear that they will go back to where they come from, and are the large majority of those who have taken to the streets. What is impressive is that another poll found that close to 32 percent of the demonstrators were actually dreaming of the period under the military regime,( 1964-1985) when order was guaranteed.

Looking now at the current situation in the United States,a country that that many consider ‘the’ example of democracy, the last book from two noted social scientists, John Hibbing and Elizabeth Theiss-Morse, “Stealth Democracy”, uses results from a Gallup poll carried out in 1998, and updates it today. Incredibly, a surprising number of Americans dislike the messiness of democracy. Sixty percent of respondents believed that government would “run better if decisions were run like a business”. Thirty-two percent were convinced that the US government would “run better if decisions were left up to successful business people”, 31 percent believed it would run better if decisions were instead left to “non-elected experts”.

Some time ago, the NY Times published the results of a striking poll, where one third of respondents would have accepted a military government, if this were more efficient. The two authors think that those data are a good explanation for Trump’s success. But they also concur that the main support base for Donald Trump comes from people that feel that they have been left behind by the system and have fears for the future.

No wonder: the American middle class has shrunk by less than 50 percent of the adult population, compared with 61 percent at the end of the 1960. The Pew Research Centre, together with the Financial Times, has come to a startling conclusion. Society splinters, as the bedrock of post-war economy is “hollowed out” – the American middle class has shrunk by half. For the first time, those in lower and upper incomes households outnumbered those in the middle class. Just to give an example, the number of adults in the upper two tiers has grown by 7.8 million, while those in the middle class by 3 million. Those in the lower two tiers, increased by 6.8 million. In this trend, the most important wedge has been education. Those with a university education were eight times likelier to live in the upper income tiers, than adults who did not finish high school, and twice as likely as an adult who has only a high school diploma. Therefore, those who cannot afford higher education are now becoming excluded from a successful labour market. Many who work in low paying jobs, do not earn enough for a normal living.

Let us now go to Europe. The only country that has made a study about what is happening to its middle class is Spain: but it is certainly representative of many countries in Europe. Between 2007 and 2013, (the years of the great recession, from which Europe has not yet escapted), the lower class grow from 26,6 percent of the population, to 38.5 percent. A study from the Foundation BBVA has found three essential trends: 1) income per capita and for families has now reverted to levels not seen since the end of the last century; 2) the distribution of income has become worsened, increasing economic inequity; and 3) the unstoppable increase of this inequality combined with the decline in income” has created situations of poverty and social exclusion that, a few years ago, appeared to have disappeared from our society”.

In China, the middle class is frantically trying to place savings abroad; China has lifted 600 million people out of poverty but these same people are obviously worried about slide backwards again. The Chinese economy is in the middle of a change of economic model, from the export to the internal market. This is accompanied by the closure of many inefficient factories and companies, just the beginning of a radical process. Individuals and companies have moved about 1 trillion dollarsout of the country in the last year and a half. Economic insecurity adds to the list of daily worries which include pollution, tainted food and water, millions of faulty vaccines, the lack of a real retirement system, coupled with the lack of medical support. Social media now carry articles on “the anxiety of the middle class”, “will the middle class become the new poor?”. The Financial Times found that 45.5 percent of middle income earners wanted to take at least 10 percent of their savings abroad, and another 29 percent has already done so. In 2014, 76.089 Chinese were awarded permanent residency coupled with solid financial requirements, compared with 4.291 the previous year. In the 2014-15 scholastic year, 304 040 Chinese were studying in the US, compared with 110 000 in 2011-12. Meanwhile, according to official figures, there were over 850 000 public demonstrations last year.

All economists agree that we are entering into a post-industrial world, where the share of labour in value-added to products is going to continue to diminish. Automation will rise from the present 12 percent of industrial production, to 40 percent within ten years. The total number of refugees is now close to 20 million, according to the United Nations and will keep growing. The giant fire in Canada, that almost destroyed an entire town, is one of the many sign of climate change. Newspapers in every country devote growing space to corruption, the Panama Papers, youth unemployment, and to the threat of terrorism, just to quote a few elements that lead people to feel fearful. Therefore, the Trump, the Dutertes, the Le Pens, the Erdogans are a mechanic reaction to fear. But is fear a good counsellor?

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The Real Heresy of London’s New Mayor Is that He Is a Liverpool Fan? Mon, 16 May 2016 14:56:36 +0000 Farhana Haque Rahman By Farhana Haque Rahman, Director General, Inter Press Service
ROME, May 16 2016 (IPS)

Sadiq Khan is not just the new mayor of London, but happens to have individually won more votes than any other politician in British history.

Prime ministers and members of Parliament run in their home districts, where the total number of ballots are fewer.

Farhana Haque Rahman

Farhana Haque Rahman

Municipal elections don’t always draw global interest, but London is London, and what the world’s pundits and media has said, and as a result what the bulk of public opinion has heard, is that Mr. Khan is a Muslim, born to a family whose ancestral roots are in Pakistan. The general reaction to a Muslim mayor of London is, thankfully, one of praise for the city’s cosmopolitan spirit and tolerance. Abroad, the tone has been one of great respect, with a few spoonfuls of feigned envy.

Other points could have been made about a vote in which the Labour Party, which last won the general elections 11 years ago, dislodged the Conservatives in the U.K.’s largest city. There’s plenty to muse over the fact that Mr. Khan does not appear entirely on the same page as Jeremy Corbyn, Labour’s new national leader. And then there’s the detail about how Mr. Khan grew up in council housing to parents who worked as a bus driver and a seamstress, went on to become a lawyer and a member of Parliament, and whose victory speech included the assertion that: “I want every single Londoner to get the opportunities that our city gave to me and my family.”

Or there are the photographs, now viral and appearing in the Times of India, of Mr. Khan visiting the Shri Swaminarayan temple in Neasden, wearing a flower garland and with a red bindi dot on his forehead. How frequent are such interdenominational visits in the rest of the world?

On top of that, Mr. Khan voted for the Same-Sex Marriage act, for which he was subject to menacing fatwas from local Islamic clergy. As noted by an editorial in Dawn, Pakistan’s oldest newspaper: “The plain truth is that Sadiq Khan would not have survived in Pakistan, not as a Muslim and not as a non-Muslim.”

Why, in short, does it even register what faith London’s new mayor may profess? One might add that saying “Muslim” is not very informative, given the multiplicity of interpretation of Islam.

Perhaps it should be made standard practice to emphatically mention the religions adhered to by all public figures. That could get difficult. Was Spinoza, the philosopher, a Jew? It’s widely said he was but he was excommunicated in no uncertain terms. Or what about George W. Bush? He was brought up Episcopal but converted to Methodism – does that explain some of his political views? Or Angela Merkel, the one major politician to have openly declared that she is an atheist. Should that adjective be mentioned every time she is?

While such identity tags may carry useful information, they are all divisive by nature. That may be important, as many wars have been fought in the name of religion. But Mr. Khan doesn’t seem interested in fighting any such battles.

And he was baited, notably by the billionaire Conservative candidate he battled, Zac Goldsmith, whose campaign sought out “Hindu-sounding surnames” for a direct-mail effort aimed at sparking fear of Islam. Some say Zac is Jewish, although his mother was an Anglo-Irish aristocrat. Other politicians have mentioned their religion; Ed Miliband said he wanted to be Britain’s first Jewish prime minister. Others say he can’t, as Benjamin Disraeli held the post in the 19th century. Disraeli, however, was a baptized and practising Anglican. More importantly, Miliband didn’t become prime minister at all.

There is a feel-good sentiment for many when someone from a minority group wins an election. The U.S. media duly noted recently when elections in Hawaii sent Mazie Hironi, a Japanese-born woman who practises the Jodo Shinshu strand of Buddhism, to the Senate and Tulsi Gabbard, to Congress. Gabbard, born to a Samoan Catholic father , a veteran who served in Iraq, practises Hinduism, a religion to which her mother converted. Muslim, Buddhist and Sikh men have held elected office in Washington for more than half a century.

It’s probably mostly benign in intent, spun by the chattering class in hopes of sounding modern and convincing the indigenous masses to get with the program. But maybe not. Consider Barack Obama, who is identified far more by the colour of his absent father’s skin than his Kansas-born mother’s. His religion is regularly called into question, along with his birth certificate and anything his adversaries can latch onto.

Hailing Mr. Khan’s Islamic faith may begin as well-meaning but degrades over time into something more sinister. IPS’ founder Roberto Savio recently wrote an eloquent warning of how Islamophobia is used as a political tool. His point is that it is a proxy for xenophobia, an old propaganda trick. But that’s just it: London’s new mayor is guilty of numerous offences he’s a Liverpool fan, for example, and admits that some of his campaign staff had been born in Yorkshire – but he is not a foreigner.

Immigration exists, and is obviously on people’s minds, not only in the affluent West. But it is rarely religion that is the worry; language barriers, unemployment and other forces – including kinship networks are more likely the reason for confusion and fear. Indeed, the U.K. Electoral Commission published a report in 2015 looking at why some communities – Pakistani and Bangladeshi in particular – might be vulnerable to electoral fraud due to internal patriarchal cultural patterns. Such situations are cause for concern, but instead of coded dog-whistling to stoke individual and collective phobias – one case in London involved a very prominent conservative intentionally failing to distinguish between “Islamic state” and “an Islamic state” — public chastising of those who seek to exploit them are in order.

That’s especially the case with highly multicultural populations, and not just in London. Hamtramck, a township near Detroit, Michigan, used to be 90% Polish and as of this year has a majority-Muslim city council – with stronger policing being high on the municipal wish list. But the population no longer has a dominant ethnicity, with the two largest groups, Bangladeshis and Yemenis, accounting for less than half the formerly dominant Poles once did and more than 30 languages are spoken in local schools. The Muslim call to prayer is broadcast from public loudspeakers, but that decision was made almost 15 years ago in a unanimous vote after a compromise was reached on when the noise could be made.

It was another politician from a faraway state– of Asian origin, for the record – who referred to the town as a hotbed of radicalism that other faraway people fear.

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The Crippling Burden of Mounting Foreign Debt Servicing Costs Mon, 16 May 2016 09:47:46 +0000 Editor sunday By Editor, Sunday Times, Sri Lanka
May 16 2016 (The Sunday Times - Sri Lanka)

The massive increase in the country’s foreign debt and its huge debt servicing costs are a severe burden on the economy. They are a severe strain on the public finances and external reserves of the country.

The current balance of payments crisis is very much due to this. Therefore bringing down the foreign debt is vital for reinforcing the external finances of the country and ensuring economic stability.

Increasing foreign debt

The nation’s foreign debt increased sharply since 2000. The increase was particularly high after the end of the war. The foreign debt that was US$ 9.0 billion in 2000, doubled to US$ 18.6 billion in 2009 and increased to US$ 21.2 billion in 2010. It more than doubled again in the next five years to US$ 44.8 billion in 2015. The increase in foreign debt from US$ 18.6 billion in 2009 to US$ 44.8 billion at the end of 2015 was an increase of 140 per cent.

Current debt burden
The foreign debt grew by a significant amount last year, from US$ 42.9 billion to US$ 44.8 billion. As a proportion of GDP, it increased from 53.6 per cent of GDP in 2014 to 54.4 per cent of GDP in 2015. Consequently, foreign debt servicing costs increased significantly in 2015, absorbing 44.5 percent of the country’s export earnings and 27 percent of the year’s earnings from exports and services. The foreign debt was more than four times the 2015 export earnings of US$ 10.5 billion.

According to the Central Bank Annual Report of 2015, both capital and interest payments increased in 2015. Capital repayments were US$ 3.46 billion in 2015 compared to US$ 2.32 billion in 2014. Interest payments increased to US$ 1.22 billion in 2015 compared to US$ 1.16 billion in 2014. The total debt servicing costs (capital repayments and interest costs) of US$ 4.68 billion was 45 per cent of the country’s export earnings in 2015.

Econ-Cartoon1-148x300Gravity of debt
Most worrying is the increasing trend in capital and interest payments that is expected in the coming years owing to the increasing foreign debt and higher interest costs. The Central Bank Annual Report for 2015 has warned of the increasing debt servicing costs:

“With the expected gradual increase in global interest rates and financing requirements” the debt service ratio is “expected to increase further” unless the inflow of non-debt creating financial flows, such as FDI and services exports are increased to compensate additional future borrowing requirements”.

Exports inadequate
Inadequate export growth has been an underlying reason for the increasing debt service burden. Whereas repayment of external debt and interest has more than doubled over the last five years, earnings from exports have not grown commensurately. As a result, the ratio of debt servicing to exports of goods and services more than doubled from 13.2 per cent in 2011 to 27.7 per cent in 2015. While debt service payments increased 160 per cent from US$ 1.8 billion in 2011 to US$ 4.7 billion in 2015, exports grew only 24 per cent from US$ 13.6 billion in 2011 to US$ 16.9 billion in 2015.

Fortunately workers’ remittances and earnings from tourism of nearly US$ 10 billion more than offset the entire trade deficit of US$ 8.4 billion in 2015. Remittances and tourist earnings were only slightly less than the total earnings from the export of goods (merchandise) of US$ 10.5 billion.

Economics of foreign borrowing

Foreign borrowing is not intrinsically bad. It can assist in resolving constraints in foreign resources for development. It could be an important means of spurring an economy to a higher trajectory of economic growth than its resources permit. However, it is important that foreign debt be incurred for developmental purposes.

econtable-159x300Although it has been argued that 75 per cent of recent foreign borrowing has been for infrastructure development such as for power and energy, ports, roads, bridges, water supply, agriculture, fisheries and irrigation, most of these would have a long gestation period. The massive amounts of borrowing at high interest costs and long gestation periods heaped a huge burden on the country’s finances, especially external finances.

All infrastructure development is not necessarily justified from an economic perspective. Many infrastructure projects are not only hugely expensive, they also have a long gestation period. The benefits of some infrastructure investments in relation to their costs are doubtful. Some have been dubbed White Elephants. Infrastructure projects that either save foreign exchange or earn foreign exchange are the least burdensome on the foreign finances of the country. Prioritisation of infrastructure development on the criterion of their contribution to the country’s balance of payments is a prudent strategy for investment from foreign borrowing.

Resolving the problem
The large foreign debt and its servicing cost is a serious constraint to long term economic development and have serious implications for macroeconomic policy, economic growth and development. Ways and means must be found to reduce the foreign debt to manageable proportions.

The foreign debt can be brought down by generating a balance of payments surplus and prudence in further borrowing. Bringing down the trade deficit to below US$ 7 billion is needed to generate such a surplus through earnings from tourism and other services and workers’ remittances. Curtailing unnecessary imports is important to narrow the annual trade deficit, while export growth is vital. Monetary and fiscal policies should be mindful of their balance of payments implications.

Foreign direct investment (FDI) has been sluggish and inadequate. FDI was only US$ 0.7 billion last year. Increased FDI, especially in export industries, is important to expand exports. A political and business environment that is conducive to FDI would be most helpful in increasing exports.

With the IMF loan facility of US$ 1.5 billion, other expected foreign funds and better prospects for exports this year with the lifting of the EU ban on fish exports and restoration of the GSP Plus concession and increased tourism, it should be possible to achieve a balance of payments surplus of over US$ 2 billion that would improve the country’s external finances. This improvement must be used to reduce the foreign debt burden.

This story was originally published by The Sunday Times, Sri Lanka

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Economic Failings Lead to Impeachment of Another Economist in Brazil Thu, 12 May 2016 19:41:43 +0000 Mario Osava “I never thought I’d have to fight against a coup d’etat in Brazil again,” said Dilma Rousseff after she was suspended as president on Thursday May 12, before embracing former president Luiz Inácio Lula da Silva outside the government palace. Credit: Ricardo Stuckert/Lula Institute

“I never thought I’d have to fight against a coup d’etat in Brazil again,” said Dilma Rousseff after she was suspended as president on Thursday May 12, before embracing former president Luiz Inácio Lula da Silva outside the government palace. Credit: Ricardo Stuckert/Lula Institute

By Mario Osava
RIO DE JANEIRO, May 12 2016 (IPS)

Ironically, the only two economists who have served as president of Brazil are also the only ones impeached for economic failures.

Dilma Rousseff, in office since January 2011, was suspended by a vote of 55 to 22 in the Senate on the morning of Thursday, May 12 after a marathon 21-hour session.

The impeachment trial may take up to180 days, during which time Vice President Michel Temer will assume the presidency.

If at least 54 of the 81 senators – a two-thirds majority – vote to remove Rousseff at the end of the trial, Temer will serve as president until Jan. 1, 2019.The impeachment trial is political; the president will be removed if two-thirds of the senators decide that there are grounds for such a move, independently of strictly legal arguments.

Analysts agree that it is highly unlikely that Rousseff, of the left-wing Workers’ Party (PT), will return to power, after the overwhelming defeats she has suffered – first in the Chamber of Deputies, where 71.5 percent of the lawmakers gave the green light to the impeachment proceedings, and now in the Senate.

The most likely scenario is a repeat of the case of Fernando Collor de Mello, elected president in 1989 and impeached in 1992, after a four-month trial.

But there are many differences between the two cases.

Rousseff is not accused of corruption, but of using creative accounting to hide large budget deficits. And she still has the firm support of a significant minority made up of left-wing parties and social movements capable of mobilising huge public protests.

By contrast, Collor de Mello was completely isolated, supported only by a tiny party created to formalise his candidacy. His impeachment was the result of a virtual consensus.

But there are also similarities. Both economists lost their political base due to reckless management of the economy.

When he took office, Collor de Mello immediately froze people’s bank accounts, to curb hyperinflation, releasing only small amounts for essential household expenses.

In 1990, GDP fell 4.3 percent, while unemployment soared and companies went under. The popularity of Brazil’s youngest president, who was 40 when he took office, took a nosedive. And when a corruption scandal broke out two years later, the conditions for impeachment were in place.

In the case of Rousseff, the decline of the economy took longer. Starting at the end of her first term (2011-2014), the recession turned into full-blown depression, with a 3.8 percent drop in GDP in 2015 and a continued downturn in 2016.

Consumption subsidies, tax cuts to give certain sectors a boost, and artificial caps on fuel and electricity prices are among the anti-inflationary or pro-growth measures that led to disaster, especially in the fiscal area.

Michel Temer signs the official Senate notification of Dilma Rousseff’s suspension, which made him interim president, on Thursday May 12. Credit: Marcos Corrêa/VPR

Michel Temer signs the official Senate notification of Dilma Rousseff’s suspension, which made him interim president, on Thursday May 12. Credit: Marcos Corrêa/VPR

Another thing Collor de Mello and Rousseff have in common is that they misled voters in their campaigns.

Collor de Mello was elected in 1989 after accusing his opponent, trade union leader Luiz Inácio Lula da Silva of the PT (who was finally elected president in 2003) of preparing to freeze bank accounts – the very measure that Collor de Mello himself adopted on his first day in office.

Rousseff accused her opponents, during her 2014 reelection campaign, of seeking a fiscal adjustment that she herself tried to push through in her second term. And she hid the scope of the government’s deficit problem and announced an expansion of social programmes that was not economically feasible, due to a lack of funds.

These errors helped spawn the movement for her impeachment, the mayor of São Paulo, Fernando Haddad of the PT, acknowledged in a May 6 interview.

The economic crisis was then compounded by the corruption scandal involving the state-run oil company Petrobras. More than 200 members of the business community and politicians have been implicated, including former president Lula and other PT leaders, which has smeared the image of the government, even though Rousseff herself is in the clear.

This backdrop strengthened allegations that Rousseff violated fiscal responsibility laws by signing decrees increasing public spending without authorisation and by obtaining loans to the federal government from state-owned banks, which is illegal.

These two measures would amount to “crimes of responsibility”, which according to the constitution provide grounds for impeachment. And they allegedly aggravated the fiscal deficit, the key factor in the economic crisis.

Attorney General José Eduardo Cardozo, who represented Rousseff, and ruling coalition legislators rejected the accusations, arguing that the government decrees merely redistributed funds to other areas and that the government’s delayed payments to the state banks did not constitute illegal loans.

A group of weary senators applaud at the end of the marathon session that decided to immediately suspend President Dilma Rousseff during an impeachment trial for her removal. Credit: Marcos Oliveira/Agência Senado

A group of weary senators applaud at the end of the marathon session that decided to immediately suspend President Dilma Rousseff during an impeachment trial for her removal. Credit: Marcos Oliveira/Agência Senado

Dozens of mayors and state governors, as well as former presidents, have used the same accounting maneuvers without being punished in any way, said Senator Otto Alencar of the Social Democratic Party, a majority of whose members voted against Rousseff.

Whatever the case, the trial is political; the president will be removed if two-thirds of the senators decide that there are grounds for such a move, independently of strictly legal arguments.

In the all-night session, the 78 senators (only three were absent) heard 73 speakers who had up to 15 minutes each to speak before the vote.

The result, which was already a given, was a crucial indicator for the opposition: They managed to achieve the two-thirds majority needed to find the president guilty.

However, it is possible that some senators who gave the go-ahead to the impeachment trial will change their position.

At least three senators qualified their votes, clarifying that they were only approving the trial itself because they wanted more in-depth investigations and discussions on presidential responsibility, and that they had not yet decided to vote for Rousseff’s removal.

They included former footballer Romario Faria, a senator for Rio de Janeiro, and Cristovam Buarque, a former governor of Brasilia. They belong to two different socialist parties.

PT senators said there would be a fight, as well as mobilisations to block the “unfair” impeachment. And Rousseff reiterated that she would “fight to the last” against what she called “a coup.”

The vice-president’s rise to president means a heavy concentration of power in the hands of the centrist Brazilian Democratic Movement Party (PMDB), which has the largest number of mayors, many state governors, the post of president of the Senate, and now the presidency (interim, for now).

A group of six senators from different parties called for an alternative to the “traumatic” impeachment process: early elections to allow the people to choose their leaders.

Many senators, such as Tasso Jereissati of the opposition Brazilian Social Democracy Party (PSDB) and Collor de Mello called for political reform, arguing that “coalition presidentialism” has proven to be the source of crisis and instability.

Rousseff’s impeachment also provides an opportunity to debate reforms in the political system.

Edited by Estrella Gutiérrez/Translated by Stephanie Wildes

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OPINION: Greece, the Punching Ball of Germany Wed, 11 May 2016 18:45:52 +0000 Roberto Savio Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News.]]>

Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News.

By Roberto Savio
ROME, May 11 2016 (IPS)

Greece is again in the media, because a new negotiation is due between the embattled country and its creditors. The North-South divide of Europe is coming back with force (while the East-West relationship is increasingly looking as beyond repair). The German minister of Finance, Wolfgang Schäuble , has come back with his peculiar view of the economy as a branch of moral and ethical discipline, and not as a reading of reality. He has asked the Greeks “to not get distracted” by the refugees crisis, and not forget their primary task, which is to pay their debt. The request is to cut 2% of the Gross National Product; in case there will not be a 3.5% budget surplus within 2018.

Roberto Savio

Roberto Savio

Such parameters have never been reached by any country in the world, on occasion though only for a short period. And these are totally out of reality in a small economy, which has lost 25% of its GNP in seven years, and is facing a serious deflation because of lack of demand and because of daunting unemployment caused by the austerity programs.

This has lead to a once unimaginable situation: the International Monetary Fund, against which thousands of mass demonstrations have been held worldwide, as the symbol of fiscal intransigence and total disregard for social issues, has been the force for a more lenient approach against Germany’s wishes. The IMF has declared that either some measures must be adopted for cutting the impossible amount of the debt, or lower interest, or a longer time or it will not participate in the negotiations. This Germany cannot afford.

Schäuble is representing not only the general aversion of German citizens toward leniency for countries from the South, who have spent beyond their means, and must be now disciplined, there is also the fear of playing the game of the extreme right wing party Alternative fur Deutschland (AfD), which is now projected to be a decisive force in the next German elections. Its electors besides being anti euro and anti refugees are also opposed to any help to Greece and any European solidarity. So Schäuble is playing the strong guy not giving any ammunition to AfD.

This strategy of robbing the political platform for the extreme right wing parties, has led the traditional parties, and especially the social democrats, to take positions incompatible with their electorate, without any visible gain. A good example comes from the resignation of the Austrian Prime Minister, Werner Faymann who reversed the original position of openness to immigrants, to erecting barriers and refusing to apply European norms to refugees. Faymann declared: “we are not going to leave to the extreme right the banner of curbing refugees”. The result is that the Freedom Party, came second in the September regional elections in Northern Austria. Faymann then took a harder stance, menacing to close the border with Italy. And on April 24, the Freedom Party candidate, Norbert Hofer, won the first round of the Presidential elections, with more than a third of the votes. For the first time since the end of the war, the President will not be from the two traditional parties: Social Democrat Party and the Austrian People’s Party that received together only 22% of the first round vote. It is clear that this strategy lends legitimacy to the extreme right wing parties, and alienates the traditional faithful.

Schäuble accused Draghi, with its monetary policy of low interest, (which affects those with strong traditions of savings, like Germany and the Netherlands), of being responsible for 50% of the increase in votes for AfD. The growing loss of moral leadership in Germany, increasingly centred on a domestic agenda, and at the same time public urging the other countries to follow its priorities is becoming a serious problem for Europe. Economists know well that the feeble demand still alive in Greece is also due in great measure from the pensioners who act as a safety net in a country with large youth unemployment. But now, after eleven cuts in pension, the request is for another new cut of 6%. Meanwhile hospitals are without bandages, schools without books, public transport is in a mess and the country on its knees.

Schäuble must have read the study from the Berlin European School of Management and Technology (ESMT). The study demonstrates that 95% of subsidy to Greece went to bail out the banks (largely German and French), which were overexposed with Greek bonds. According to ESMT, only 9.7 billion euro of a total of 184.6 billion
reached the Greek citizens. About 86.9 billion went to pay old debts, 52.3 billion to pay accumulated interests, and 37.3 billion to refinance the Greek banks. Why Schäuble does not present these figures to German citizens does not present these figures to German citizens to show that it is not about solidarity, but creditor’ s interests ?

There is a clear lack of an analysis on how different are the Bonn’s Germany and the Berlin’s Germany. The most salient trait is that Bonn’s Germany was an active engine for European Integration. To get accepted the German proposal for the creation of an European Central Bank , Helmut Kohl agreed that the first governor would not be a German (it was Win Duisenberg, a Dutch national). For the Germans, who were afraid of dropping the strong Mark for the unknown euro, was quite a shock. Now Draghi had to fight to phase out the 500 euro notes (widely used for illicit operations), because it did remind the Germans of their 500 Marks note…

And Schäuble, (and Merkel), who always tell others what to do, suddenly became deaf when others did the same with them. The IMF has now again repeated what also OECD have been saying for a long time. Berlin should reinvest at least some of its large economic surplus into the economy, as an urgent and necessary measure to speed up Europe’s recovery. IMF has now come up again with the same request, but Schäuble finds it more convenient to attack Draghi than to implement some of the IMF recommendations.

The German Parliament is to approve a law, which gives access to national welfare only to those who have resided in Germany for at least five years. Germany is coping with Great Britain, that has this clause in the negotiations with Europe to avoid its exit from the European Union. This is the first negative result of the concessions given to Great Britain, which will hold a referendum on Europe in five weeks from now. It was always feared that such concessions would set a precedent for other member states. Germany is the first one…..

So, the Greek agony is here to remind all of us that the constant rise of xenophobes and nationalist parties at every election has not generated until now an appropriate response from the traditional parties, and especially those from the left.

The xenophobes are aiming to form an international coalition and Marine Le Pen is going to campaign in the UK against the European Union. It is interesting though, that Donald Trump has refused to meet any of them, not because of ideological differences, but because he has no interest beyond American borders. He has expressed positive views on Vladimir Putin, as all the right wing European parties have also done (Russia even gave a loan to Le Pen’s party). All this should bring us to reflect deeply when we see Europe, again led by Germany, donate 6 billion dollars to an openly autocratic Recep Erdogan; and block 1 million Syrian refugees (and open the doors to 70 million Turks).

Democracy is on the wane…. May be we should oblige students to read “Authoritarianism goes Global: the challenge to Democracy’, written by Christopher Walker, Marc Plattner and Larry Diamond. They repeat what we know: that in times of crisis, the credibility of a strong man increases exponentially. But their analysis is updated and worrying . And we have only to look at the past Presidential election in the Philippines, to see the winner as a cross between a strongman of the past, like Ferdinand Marcos, with a strident nationalist and xenophobe, like Trump. Rodrigo Duterte has won the elections by promising the execution of thousand of criminals, the expulsion of foreigners, and “not letting the niceties of democracy compromise the need for exceptional measures against corruption and crime”. How is it possible that we hear the same language in so many different parts of the world? Should we agree that we are in a global economic, social and value crisis, that the present globalization is dying, and therefore we are in a time of transition to something of which we have no idea?


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Nobel Laureates Join Forces for Food Security and Stability Wed, 11 May 2016 15:11:36 +0000 Maddie Felts and Robert Williamson-Noble Muhammad Yunus addresses the audience at the launch of the FAO-Nobel Peace Laureates Alliance for Peace and Food Security.

Muhammad Yunus addresses the audience at the launch of the FAO-Nobel Peace Laureates Alliance for Peace and Food Security.

By Maddie Felts and Robert Williamson-Noble
ROME, May 11 2016 (IPS)

“Where food security can be a force for stability, we have to look to food and agriculture as pathways to peace and security. This is a great challenge, but one that we can meet together as we embark on achieving the 2030 Development Agenda.” These were the words of FAO Director-General José Graziano da Silva as he discussed the interplays between food security and peace in New York last March.

Food security and a healthy agricultural sector have important roles in the efforts to prevent conflict and maintain peace. With this challenge in mind, on 11 May, the FAO formally established a new partnership with five Nobel Peace Laureates known for their work to fight poverty, hunger, and violence worldwide. The FAO – Nobel Peace Laureates for Food Security and Peace Alliance links FAO in partnership with Muhammad Yunus, Oscar Arias Sánchez, Tawakkol Karman, Betty Williams and Kofi Annan.

Muhammad Yunus was the first Laureate to speak, calling hunger an issue he and his fellow Laureates consider “dear to our hearts.” Yunus asserted that the distribution of free food is not a sustainable solution to eradicating hunger. Instead, he advocated for the microcredit model he first instituted over forty years ago in Bangladesh. Yunus said that the distribution of small loans to poor individuals promotes financial independence and thus the ability to obtain food.

By combining the objective of charity organizations and the engine of a business, Yunus has created a model of social business that he believes can improve the lives of rural populations currently excluded from the mainstream economy. He hopes to inspire young people to become entrepreneurs in agriculture and looks to challenge the idea that young people must flock to cities to find jobs. The initiative to encourage what Yunus called “entrepreneurs in agriculture” enforces his belief that “we are not job seekers; we are job creators.”

Yunus concluded his address with enthusiasm that the Alliance will bring the world closer to “three zeros”: zero hunger, malnutrition, and poverty; zero unemployment; and zero net carbon emission. His message set a tone of acknowledging the challenges of the present while pushing for a more hopeful future that would be echoed by his fellow Laureates.

Following Yunus’s message, Oscar Arias began his address by focusing on balance between various forms of violence and peace. Describing a Dante-esque scene, Arias forecasted the war between humans and nature. “The earth is complaining, and it is calling for peace” he proclaimed.

In addition to preventing catastrophic damage to the environment, Arias highlighted the necessity of ending violence in order to combat food insecurity and suffering. He discussed how “armed forces are the greatest polluters of the planet.” In times without war, however, he noted that “the absence of war does not automatically mean the consolidation of peace; we cannot say people are living in peace in a post-conflict situation until we can eradicate the many forms of violence on earth.” In addition to armed conflict, Arias explained that a lack of access to medical attention and food are both forms of violence.

Arias called for a renewed effort to protect the environment, seek conflict resolution, and consolidate peace using the reach and resources of the FAO. He appealed to the international community to put into practice the fundamental values of the 2030 agenda, reiterating that there can be no sustainable development without peace and no peace without sustainable development. Within all of us, Arias said, we harbor the potential of life, the power of reason, the strength of dialogue and the capacity to reason, correct our mistakes and make compromises. Arias urged the audience to utilize this potential to promote peace and food security.

Tawakkol Karman built upon Arias’s call to pursue the sustainable development goals, exclaiming that “we need to work hard and work with our hearts to achieve the SDGs.” She emphasized the need to promote a positive, fair globalization where all of mankind can share the benefits, warning that we now face negative effects of globalization that are disproportionately shouldered by the poor. She declared that the fight against hunger and poverty means taking the first steps towards sustainable development and towards a more equitable world. This progress is only possible, Karman argued, through shared bonds of fraternity and a moral commitment to eradicate poverty and promote peace.

Karman considered conflict to be the source of hunger, poverty, famine, and misery. She stated, “Building peace is part and parcel of eradicating hunger and achieving food security, but if we are to achieve this goal in any country, we need to keep one goal in front of us: to guarantee that everyone can have freedom, and by freedom I do not only mean freedom from want; I also mean political freedom.” Transitional justice, Karman explained, can bring peace to an area and a community overcoming a conflict and facilitating progress towards peace. Karman insisted that by 2030, “we need to have lifted the burdens of poverty and hunger,” an accomplishment only possible through the commitment, collaboration, and mobilization of all people and all governments.

Betty Williams began her address by recognizing that there remains work to be done towards eradicating hunger and fostering peace, but she was quick to assert that great work has already been done, as she acknowledged the accomplishments of her peers in the Alliance and expressed her appreciation to call them friends. Williams described her experience during the height of violence between Catholics and Protestants in Northern Ireland in the early 1970s. At first, she said, she wanted to keep her door closed out of fear for her family’s safety. After she witnessed the death of three children on a Belfast street, however, her horror and anger compelled her to action. She described the peace efforts in Northern Ireland as a movement begun by “ordinary extraordinary people.”

In her role as a Nobel Peace Laureate, Williams traveled to areas such as Africa, Afghanistan, Nicaragua, Argentina, and Chile. She explained how she had never truly seen or known hunger until she witnessed some of the world’s poorest communities, some of which she saw in developed nations like the United States. The devastation made her physically sick at times, but she decided to take action, for, as she declared, “Tears without action are wasted sentiment.” After hearing about the possibility of nuclear disposal on the lands of Basilicata, Williams went to the southern Italian region and defended the land alongside the people of Basilicata. She has created a foundation in Basilicata that builds, ecologically sound, inexpensive homes for refugees.

At the heart of her humanitarian work, however, will always be the protection of children, like the children in Belfast that drove her to take action over four decades ago. She concluded her remarks with a reading of the Universal Declaration of the Rights of the Child, which espouses principles Williams said she will fight for “until the day I die.”

Kofi Annan gave his remarks to the conference through a video message, first stating, “A stable and peaceful environment is the foundation for lasting food security and livelihoods.” He discussed the inextricable connections between food security, peace, and sustainable development. His remarks reflected a feeling of hope for a more peaceful future without hunger, as he said, “I know we can eradicate hunger within a generation provided we can mobilize political leadership and political will.”

In the general discussion that followed the addresses, Yunus spoke of the need for a banking system and coordinating legislation that serves the poor. The current model of non-governmental organizations providing microcredit is not sustainable, Yunus said, because it is restrained by the often limited funding of NGOs. He discussed the need for self-sustaining financial systems geared towards lifting individuals and communities out of poverty.

Though the goals before the FAO – Nobel Peace Laureates for Food Security and Peace Alliance may appear lofty, Yunus was hopeful, calling himself a “compulsive optimist.” His message to young people was that “you have the power to change the entire world by yourself.”

Williams reflected Yunus’s optimism, saying we must all be optimistic as we join in the fight for sustainable development. She suggested to Yunus that they open a bank geared towards the poor in Basilicata. If this first meeting is any indicator of the ultimate success of the task force, the future certainly looks promising.


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Hunger, a Matter of Global Security Wed, 11 May 2016 12:41:17 +0000 Enrique Yeves Food insecurity, at the heart of a great number of conflicts, should be considered a matter of world security if the international community wants to succeed in achieving long-lasting peace.

By Enrique Yeves
ROME, May 11 2016 (IPS)

Desperate, frustrated, and with little hope for the future, on 17h December 2010, the Tunisian Mohamed Bouazizi doused himself in petrol and set himself alight. Thus began the popular revolution that toppled the dictatorship of Zine El AbidineBen Ali, in power since 1987, and with it a domino effect that spread across North Africa and the Middle East.

The events took place in the small city of SidiBouzid but they could have taken place in any other part of the world so deeply affected by the high price of goods as basic and vital as bread. Paradoxically, Mohamed sold fruit and his dream was to buy a van and see his business grow.

The global food price crisis in 2008 coincided with revolts in over 40 countries and the fall of several governments such as in Egypt and Libya, highlighting the link between food security and political instability. The protests in Tunisia and other countries were initially demonstrations against the high price of food. This was not the only cause but rather the trigger of deep-rooted public indignation, although there was a common denominator.

In 2011, a similar rise in food prices led to new internal conflicts or exacerbated old ones in many countries, as can be seen in the diagram accompanying this article; when the price of foodstuffs reaches extreme levels, political instability and civil unrest is clear for all to see.

The lack of food, or to be more precise, the ability to acquire food – that is, poverty – is one of the most immediate threats to security and to people’s lives in conflicts, and at the same time makes conflicts more drawn-out affairs. There can be no peace without food security, and no food security without peace. They are two concepts in symbiosis. When FAO was created in 1945, the world was only just emerging from the Second World War and its founders knew that the Organization should play a vital role in the search for peace. That is why, even then, they stated in their first session that “the Food and Agriculture Organization is born out of the need for peace as well as the need for freedom from want. The two are interdependent. Progress toward freedom from want is essential to lasting peace”.

Seventy years after the creation of FAO, the international community has strengthened this idea by adopting the 2030 Agenda for Sustainable Development, based on the premise that there can be no sustainable development without peace, and there can be no peace without sustainable development.

Enrique Yeves. Credit: Giulio Napolitanó/FAO

Enrique Yeves. Credit: Giulio Napolitanó/FAO

The link between food and peace was also behind the award of the 1949 Nobel Prize for Peace to Lord Boyd Orr, the first FAO Director-General. On awarding the prize, the Chair of the Nobel Committee quoted from Lord Boyd Orr’s Welfare and Peace: “We must conquer hunger and want, because hunger and want in the midst of plenty are a fatal flaw and a blot on our civilization. They are one of the fundamental causes of war. But it is no use trying to build the new world from the top down, with political ideas of spheres of influence and so on. We have to build it from the bottom upwards, and provide first the primary necessities of life for the people who have never had them, and build from the slums of this country upwards.

”This is why food security is a prerequisite for peace and world security, and why hunger should be considered a matter of world security. This is even more the case in a globalized world, where something happening in one territory affects the rest of the world. This is also why measures to stabilize food prices and social protection networks are vital instruments to prevent violent conflicts.

All of this is why FAO Director-General José Graziano da Silva has launched a clear signal to the international community of the urgent need to challenge head on the issue of food insecurity in the widest sense of the term. In March he addressed the UN Security Council to highlight the interdependence of hunger and conflict, as well as how hunger destabilizes societies and aggravates political instability. Following this, the Security Council has requested that FAO keeps Council members regularly informed regarding the food situation in the world’s most crisis-hit countries.

Eradicating hunger is, then, not only a moral obligation, but something vital to guarantee a future for all of us. Improving food security can help to construct a sustainable peace, and even prevent future conflicts. We know that action promoting food security can help to prevent crises, mitigate their impact, and foster post-conflict recovery. It is clear that for us to prevent conflicts we must address their root causes, and amongst these are hunger and food insecurity.

Conflicts are a key factor in prolonged food security crises and the vicious circle is repeated time and again. During conflicts people are three times more likely to suffer hunger than in the rest of the developing world, while those countries with the highest levels of food insecurity are also those countries most affected by conflicts. This is evidenced in examples from Syria and Yemen to South Sudan and Somalia.

Other examples demonstrate that peace and food security are mutually dependent, such as post-conflict Angola and Nicaragua, or Rwanda after the genocide and East Timor after gaining independence. Without food security, there is the danger of relapsing into violence.

If attempts to secure food security fail, attempts to stabilize society come under threat: a threat currently facing Yemen and also Central African Republic, where half of the population suffer food insecurity. This was in fact the main subject of a conversation between the FAO Director-General and the new President of the Central African Republic, Faustin-Archange Touadera. He asked for FAO’s support to help disarm and reintegrate armed groups in the country successfully, intensifying efforts in the agricultural sector so that the sector can meet the population’s basic needs.

Promoting rural development can also help efforts to build peace. A specific, current example is FAO’s joint work with the Colombian government to implement programmes to improve food security and rural development quickly in an attempt to consolidate the anticipated peace agreement.

International efforts towards peace will be more effective if they include measures to build resilience in families and rural communities, since it is they and their livelihoods that conflicts harm most.

However, to achieve all of this, hunger, at the heart of a great number of conflicts, should be considered a matter of world security.

Enrique Yeves is a journalist specializing in international politics. He is currently FAO Director of Corporate Communications.

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Refugees and Migrants: A Crisis of Solidarity Tue, 10 May 2016 13:14:37 +0000 Ban Ki-moon By Ban Ki-moon
May 10 2016 (The Daily Star, Bangladesh)

This September, the United Nations General Assembly will bring together world leaders to address one of the leading challenges of our time: responding to large movements of refugees and migrants.

War, human rights violations, underdevelopment, climate change and natural disasters are leading more people to leave their homes than at any time since we have had reliable data. More than 60 million people — half of them children — have fled violence or persecution and are now refugees and internally displaced persons. An additional 225 million are migrants who have left their countries in search of better opportunities or simply for survival.

But this is not a crisis of numbers; it is a crisis of solidarity. Almost 90 percent of the world’s refugees are hosted in developing countries. Eight countries host more than half the world’s refugees. Just ten countries provide 75 percent of the UN’s budget to ease and resolve their plight.

With equitable responsibility sharing, there would be no crisis for host countries. We can afford to help, and we know what we need to do to handle large movements of refugees and migrants. Yet too often, we let fear and ignorance get in the way. Human needs end up overshadowed, and xenophobia speaks louder than reason.

Countries on the frontlines of this crisis are struggling every day to meet the challenge. On September 19, the General Assembly will hold a high-level meeting to strengthen our efforts for the longer term. To help the international community seize this opportunity, I have just issued a report, “In Safety and Dignity”, with recommendations on how the world can take more effective collective action.

We need to begin by recognising our common humanity. Millions of people on the move have been exposed to extreme suffering. Thousands have died in the Mediterranean, on the Andaman Sea, in the Sahel and in Central America. Refugees and migrants are not “others”; they are as diverse as the human family itself. Movements of people are a quintessentially global phenomenon that demands a global sharing of responsibility.

Second, far from being a threat, refugees and migrants contribute to the growth and development of host countries as well as their countries of origin. The better new arrivals are integrated, the greater their contribution to society will be. We need more measures to promote the social and economic inclusion of refugees and migrants.

Third, political and community leaders have a responsibility to speak out against discrimination and intolerance, and to counter those who seek to win votes through fearmongering and divisiveness. This is a time to build bridges, not walls, between people.

Fourth, we have to give greater attention to addressing the drivers of forced displacement. The United Nations continues to strengthen its work to prevent conflict, resolve disputes peacefully and address violations of human rights before they escalate. One powerful new tool is the 2030 Agenda for Sustainable Development, a blueprint agreed last year by all 193 members of the United Nations that includes a strong focus on justice, institutions and peaceful societies.

Fifth, we need to strengthen the international systems that manage large movements of people so that they uphold human rights norms and provide the necessary protections. States must honour their international legal obligations, including the 1951 Refugee Convention. Countries where refugees arrive first should not be left to shoulder the demands alone. My report proposes a “global compact on responsibility sharing for refugees”.

There is a pressing need to do more to combat smugglers and traffickers, to rescue and protect people en route, and to ensure their safety and dignity at borders. More orderly and legal pathways for migrants and refugees will be crucial, so that desperate people are not forced to turn to criminal networks in their search for safety.

The number of migrants is expected to continue to grow as a result of trade, labour and skill shortages, the ease of travel and communications, rising inequality and climate change. My report proposes important measures to improve global governance in this area, including through a “global compact for safe, orderly and regular migration”.

Refugee and migrant crises are far from insurmountable, but they cannot be addressed by states acting alone. Today, millions of refugees and migrants are being deprived of their basic rights, and the world is depriving itself of the full benefits of what refugees and migrants have to offer.

The World Humanitarian Summit I am convening in Istanbul on May 23 and 24 will seek new commitments from States and others to work together to protect people and build resilience. I expect the September 19 meeting of the General Assembly to point the way toward solutions to the most immediate refugee and migration challenges, and commit world leaders to greater global cooperation on these issues.

Human beings have moved from place to place across the millennia, by choice and under duress, and will continue to do so for the foreseeable future. Only by upholding our duty to protect those fleeing persecution and violence, and by embracing the opportunities that refugees and migrants offer to their new societies, will we be able to achieve a more prosperous and fairer future for all.

The writer is Secretary General of the United Nations.

This story was originally published by The Daily Star, Bangladesh

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Is the System Broke or Broken? Wed, 04 May 2016 17:35:19 +0000 Tharanga Yakupitiyage Families displaced from their homes in Pakistan’s troubled northern regions returning home. Credit: Ashfaq Yusufzai/IPS.

Families displaced from their homes in Pakistan’s troubled northern regions returning home. Credit: Ashfaq Yusufzai/IPS.

By Tharanga Yakupitiyage

Though the upcoming World Humanitarian Summit may seem timely, a debate ensues on an important question: is the world humanitarian system broke or broken?

The first-ever World Humanitarian Summit, which takes place in Istanbul on May 23-24, was convened by UN Secretary-General Ban Ki-moon to address the pressing needs of today’s humanitarian problems.

“We believe this is a once in a generation opportunity to address the problems, the suffering of millions of people around the world,” said European Union Ambassador to the United Nations João Vale de Almeida during a press briefing.

More than 125 million people are in need of humanitarian assistance globally. If this were a country, it would be the 11th largest in the world. Over 60 million are forcibly displaced, making it the worst humanitarian crisis since World War II. Crises now last longer, increasing the average length of displacement to 17 years from 9 years.

However, need has surpassed capacity and resources. As of the beginning of May, almost $15 billion in appeals is unmet for crises around the world including in Nigeria, Central African Republic, and Syria. Approximately 90 percent of UN humanitarian appeals continue for more than three years.

The meeting therefore represents not only a call for action, but also an alarm to reform the increasingly strained humanitarian system.

From the recent earthquake in Ecuador to the Ebola crisis in West Africa, local communities and NGOs are often the first responders due to their proximity.

Among the summit’s core responsibilities is strengthening partnerships and a multi-stakeholder process that puts affected civilians at the heart of humanitarian action.

“The current system remains largely closed, with poor connections to…a widening array of actors,” a summit synthesis report stated following consultations with over 23,000 representatives. “It is seen as outdated.”

Senior Research Fellow at the Overseas Development Institute’s (ODI) Humanitarian Policy Group Christina Bennett agrees, noting that humanitarian and aid structures have changed very little since it was first conceived.

“It’s still a very top-down, paternalistic way of going about things,” she told IPS.

In an ODI report, Bennett found that the system has created an exclusive, centralised group of humanitarian donors and actors, excluding local non-governmental organisations (NGOs) from participating.

In 2014, 83 percent of humanitarian funding came from donor governments in Europe and North America.

Between 2010 and 2014, UN agencies and the largest international NGOs (INGOs) received 86% of all international humanitarian assistance. Meanwhile, less than two percent was directly provided to national and local NGOs.

This has prevented swift and much needed assistance on the ground.

Field Nurse for Doctor of the World’s Greece chapter Sarah Collis told IPS of her time working in the Idomeni refugee camp in Greece, noting the lack of medical resources and basic items such as food and blankets.

“Distribution of blankets only happened at night because the aid agencies were worried about mass crowds,” she told IPS. “This meant that single mothers and young families often had no chance,” she added.

Collis also recalled that there were only two ambulances for the whole region and at times, her team often had to pile six people in an ambulance at once.

The most fast acting groups, Collis said, were the small NGOs and volunteers with direct funding sources and less red tape.

From the recent earthquake in Ecuador to the Ebola crisis in West Africa, local communities and NGOs are often the first responders due to their proximity. They also have better access to hard-to-reach areas, have familiarity with the people and cultures, and can address and reduce risk before disaster strikes.

On the other hand, larger organisations or institutions such as the UN often have difficulty conducting efficient and effective humanitarian operations.

Médecins Sans Frontières (MSF) identified the UN as being at the “heart of the dysfunction” in the humanitarian system. They found that UNHCR’s three-pronged role, as being a coordinator, implementer and donor, led to their poor performance in South Sudan, Jordan, and the Democratic Republic of the Congo.

In South Sudan’s Maban county, UNHCR was reportedly slow in response and struggled to mobilise qualified staff.

Their “triple” role also made it difficult for subcontracting NGOs to share implementation challenges and for the agency itself to “admit to bigger problems or to ask for technical assistance from other UN agencies, for fear of losing out on funding or credibility.” This, in turn, impacted the quality of information to make sound decision-making.

Though some funds from UN agencies and INGOs are provided to local NGOs, the relationship is more “transactional” rather than a “genuine, strategic engagement,” Bennett says.

For instance, when aid is provided, it is often determined by the availability of goods and services rather than what people actually need or want on the ground.

“We don’t have more of an alliance…with these organisations as equal players,” Bennett told IPS.

These issues also came to a head during consultations for the World Humanitarian Summit in Geneva.

“Southern NGOs are demanding accompaniment rather than direction,” Executive Director of African Development Solutions (Adeso) Degan Ali told government officials, UN representatives, and civil society. “Be prepared to be uncomfortable.”

Though many acknowledge that there is an important role for INGOs and donor governments in the humanitarian system, there is an emerging understanding that such actors must shift their positions from one that is dominating to one that is enabling.

Organisations such as Oxfam and Adesso have called for the UN and large INGOs to enable local NGOs by directly providing funds. This will not only help them to prepare and improve their responses to crises, but it would also put decision making and power “where it should be,” Oxfam stated.

They have also urged for a target of 20 percent of all humanitarian funding to go directly to local organisations. Already, a charter has been created to commit INGOs to these actions. Among the signatories are Oxfam, Care International and Islamic Relief Worldwide.

Despite these calls to action, Bennett told IPS that she does not believe that the World Humanitarian Summit will lead to change.

“I think it isn’t something on the agenda of the World Humanitarian Summit…partially because they are hard to address and they’re very political—these aren’t easy wins,” she said.

In order to achieve fundamental changes, donor governments and institutions with decision making power must address the underlying assumptions and power dynamics that hold the system back, Bennett remarked.

“Until they move, the system is stuck.”

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Democratic Corruption Mon, 02 May 2016 16:32:11 +0000 Sakib Sherani By Sakib Sherani
May 2 2016 (Dawn, Pakistan)

`Chaste to her husband, frank to all beside / A teeming mistress, but a barren bride` – Alexander Pope

From Brazil to Malaysia, democracy around the world is under threat. Not from the march of army columns, but from the greed and corruption of a rapaclous global political elite. While nation-destroying corruption of leaders such as Ferdinand Marcos, Mobutu Sese Seko, Sani Abacha, Alberto Fujimori, or Robert Mugabe was the accepted `norm` till the 1990s for a select band of unfortunate Third World countries whose people had been made destitute by their leaders` insatiable greed, the latest wave of democracy was thought to have brought in a newer, and lesstainted, leadership.

From Benazir Bhutto in Pakistan to Cristina Fernandez de Kerchner in Argentina, Hugo Chavez in Venezuela to Uhuru Muigai Kenyatta in Kenya, citizens of newly democratic countries have looked up to young, educated and dynamic leaders to provide salvation from the curse of history. But this was not to be.

Wildly popular leaders elected via freer and fairer elections proved to be a false dawn in most countries much like the lament from Alexander Pope`s Rape of the Lock.

Far from strengthening democracy in their respective countries by building or consolidating institutions, most of these leaders chose to become elected autocrats by dismantling, brick by brick, constitutional checks and balances against misrule and established systems of good governance. Their popularity – born out of a politica dynasty, a successful acting career, leadership in the independence movement or just charismatic demagoguery – combined with the decimation of legitimate democratic opposition and institutional safeguards more often than not has bred a sense of entitlement and a culture of impunity. These are fertile grounds for corruption and misuse of unbridled power.

Hence, the scale, brazenness and pervasiveness of corruption in these countries. Hugo Chavez`s family in Venezuela, Tamil Nadu`s chief minister Jayalalitha, the Rajapakse family in Sri Lanka, are just a handful among a host of other recent popularly elected leadersaccused of amassing untold wealth while in office. Similar accusations dog the family of the prime minister of Bangladesh and the erstwhile prime minister of Thailand, Ms Yingluck Shinawatra.

In Brazil, the leftist President Dilma Rouseff and her predecessor Luiz Inacio Lula da Silva are embroiled in a multi-billion dollar embezzlement scandal involving Petrobras, the country`s stateowned oil producer. Prime Minister Najib Razzak of Malaysia has had the good fortune of `someone` crediting his account with $700 million overnight (linked to Malaysia`s state fund 1MDB), while Turkey`s President Recep Tayyip Erdogan is accused of wasting state funds on building a new palace for himself costing over $600m.

Nor is abuse of public office for personal enrichment limited any longer to dirt-poor developing countries. Even in countries with an established, albeit turbulent, tradition of parliamentary democracy, such as Spain and Italy, popularly elected leaders voted into office on a promise of change have quickly become tainted with allegations of corruption.

Closer to home, proceedings of hearings before the US Senate in 1999 provide a detailed account of millions of dollars of funds being moved through Citibank`s private banking centres on behalf of Mr Zardari between 1994 and 1997, including on account of commissions by the Swiss company Cotecna.

Details of beneficial ownership of a web of offshore companies in the British Virgin Islands by the thenprime minister and her spouse is provided in the official record of the proceedings. Further material on beneficial ownership of offshore companies and transactions amounting to millions of dollars during this period is provided in the Global Corruption Report (2004) in the section titled `The hunt for looted state assets: the case of Benazir Bhutto`

Recent revelations about offshore companies and accounts belonging to the prime minister`s family dating to the 1990s a period of intense speculation about corruption involving South Korea`s Daewoo, and in the yellow cabs import scheme that apparently caused a $1 billion loss to Pakistan`s exchequer reinforce the perception that the transition to democ-racy in Pakistan has taken a familiar, and less desirable, path.

Not unlike other parts of the world, where elected kleptocrats have been caught out with their `snouts in the trough` (as the late Ardeshir Cowasjee would put it), Pakistani politicians start crying hoarse about the threat to `the system` whenever their corruption is exposed. Presumably, the system they are out to protect is not one that guarantees education, jobs or basic health services to Pakistan`s teeming poor, but one that allows the entitlement to loot.

However, there is nothing constitutional or democratic about the systematic pillage of state resources for personal enrichment. About the only democratic thing about such large-scale corruption is that, barring the handful who benefit from it, it affects all other Pakistanis indiscriminately, with the poor and the vulnerable bearing the brunt of its pernicious consequences.

These consequences have been on egregious display time and again: when public schools in Azad Kashmir collapsed due to poor construction in the October 2005 earthquake killing thousands of innocent children; when poor Thari children die each year due to lack of basic facilities; when faulty scanners are imported to protect our cities; when expired medicines and vaccines are purchased for public hospitals; when the government does not have the money to pay pensioners, doctors, nurses, teachers and Lady Health Workers their dues for months on end but can cough up $2bn for vanity bus and train projects; when an illfunded and ill-equipped police has to take on wellarmed criminal gangs baclced by powerful politicians; ad nauseam.

True democracy is an aspiration worth pursuing. But passing off large-scale looting and plunder as constitutional democracy does not serve the interest of Pakistan`s citizens or its future generations.

Banay hain ahlay hawwas muda`ee bhi, munsifbhi Kisay vakil karein, kis say munsafi chahein (Faiz)

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

This story was originally published by Dawn, Pakistan

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Opinion: Illicit Financial Flows Fri, 29 Apr 2016 14:34:23 +0000 Jomo Kwame Sundaram Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007. ]]>

Jomo Kwame Sundaram was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Apr 29 2016 (IPS)

International capital flows are now more than 60 times the value of trade flows. The Bank of International Settlements (BIS) is now of the view that large international financial transactions do not facilitate trade, and that excessive financial ‘elasticity’ was the cause of recent financial crises.

Jomo Kwame Sundaram. Credit: FAO

Jomo Kwame Sundaram. Credit: FAO

Illicit financial flows involve financial movements from one country to another, especially when funds are illegally earned, transferred, and/or utilized. Some examples include:
• A cartel using trade-based money laundering techniques to mix legal money, say from the sale of used cars, with illegal money, e.g., from drug sales;
• An importer using trade mis-invoicing to evade customs duties, VAT, or income taxes;
• A corrupt public official or family members using an anonymous shell company to transfer dirty money to bank accounts elsewhere;
• An illegal trafficker carrying cash across the border and depositing it in a foreign bank; or
• A terrorist financier wiring money to an operative abroad.

Global Financial Integrity (GFI) estimated that in 2013, US$1.1 trillion left developing countries in illicit financial outflows. Its methodology is considered to be quite conservative, as it does not pick up movements of bulk cash, mispricing of services, or most money laundering.

Beyond the direct economic impact of such massive haemorrhage, illicit financial flows hurt government revenues and society at large. They also facilitate transnational organized crime, foster corruption, undermine governance and decrease tax revenues.

Where Does The Money Flow To?
Most illicit financial outflows from developing countries ultimately end up in banks in countries like the US and the UK, as well as in tax havens like Switzerland, the Cayman Islands or Singapore. GFI estimates that about 45 per cent of illicit flows end up in offshore financial centres and 55 per cent in developed countries. University of California, Berkeley Professor Gabriel Zucman has estimated that 6 to 8 per cent of global wealth is offshore, mostly not reported to tax authorities.

GFI’s December 2015 report found that developing and emerging economies had lost US$7.8 trillion in illicit financial flows over the ten-year period of 2004-2013, with illicit outflows increasing by an average of 6.5 per cent yearly. Over the decade, an average of 83.4 per cent of illicit financial outflows were due to fraudulent trade mis-invoicing, involving intentional misreporting by transnational companies of the value, quantity or composition of goods on customs declaration forms and invoices, usually for tax evasion. Illicit capital outflows often involve tax evasion, crime, corruption and other illicit activities.

How Low Can You Go?
In the 1960s, there was a popular dance called the ‘limbo rock’, with the winner leaning back as much as possible to get under the bar. Many of today’s financial centres are involved in a similar game to attract customers by offering low tax rates and banking secrecy. This has, in turn, forced many governments to lower direct taxes not only on income, but also on wealth. From the early 1980s, this was dignified by US President Ronald Reagan’s embrace of Professor Arthur Laffer’s curve which claimed higher savings, investments and growth with less taxes.

With the decline of government revenue from direct taxes, especially income tax, many governments were forced to cut spending, often by reducing public services, raising user-fees and privatizing state-owned enterprises. Beyond a point, there was little room left for further cuts, and governments had to raise revenue. This typically came from indirect taxes, especially on consumption, as trade taxes were discouraged to promote trade liberalization. Many countries have since adopted value added taxation (VAT), long promoted, in recent decades, by the International Monetary Fund (IMF) and others as the superior form of taxation: after all, once the system is in place, raising rates is relatively easy.

A progressive tax system would seek to ensure that those with more ability to do so, pay proportionately more tax than those with less ability to do so. Instead, tax systems have become increasingly regressive, with the growing middle class bearing the main burden of taxes. Meanwhile, tax competition among developing countries has not only reduced tax revenue, but also made direct taxation less progressive, while the growth of VAT has made the overall impact of taxation more regressive as the rich pay proportionately less tax with all the loopholes available to them, both nationally and abroad. Overall tax incidence in many developing countries has not only long been regressive, but has also become more regressive over time, especially since the 1980s.

Although there are many reasons for income inequality, hidden untaxed wealth has undoubtedly also increased wealth and income inequality at the national and international level.


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The Hypocrisy of the West and Fiscal Paradise Wed, 27 Apr 2016 15:17:35 +0000 Roberto Savio Roberto Savio, is founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News]]>

Roberto Savio, is founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News

By Roberto Savio
ROME, Apr 27 2016 (IPS)

The publication of the Panama Papers has now been digested, like any scandal, after just a few days. We are now getting so accustomed to scandals, that it is confusing, and the general public reaction often is: all are corrupt and politics is all about corruption.

Roberto Savio

Roberto Savio

This, of course, plays out well for the right wing, xenophobic parties, numbers of which are ever increasing in every election, from Donald Trump in the United States, to Nigel Farage in Great Britain who promptly asked for the resignation of British prime minister David Cameron, who is among the users of the legal office of Mossack and Fonseca in Panama, which has helped more than 14.000 clients to create 214,488 companies in 21 fiscal paradises.

In some cases, like Iceland, that brought the prime minister to his knees, is a concrete response to the public indignation. By and large the general reaction was similar to the model of Cameron’s style: deny any wrongdoing, and just wait for the fury to go die down.

The Panama Papers had of course a very prominent space in the media, where the issue was alive for several days (but never more than five). The media put very little effort into looking beyond the Panama Papers and to find out the real situation of the fiscal paradise. Had they done so, a very uncomfortable truth would have emerged: the same countries who speak publicly against such paradise, do very little to eliminate them.

For instance, according to the Panama papers, it emerges that more than half of the ghost companies created by Mossack-Fonseca were registered in the British Virgin Islands. It works there like in Panama: a company pays a fee to register and an annual fee after that (always less than 500 US dollars), and by law the company will have to pay taxes only on the activities realized in the country. It suffices to not have any commercial activity in Panama or in any other fiscal paradise to be completely out of the grip of local tax authorities.

It is clear that the Virgin Islands are a British territory, like the Bahamas, Bermuda, Turk and Caicos, and therefore London could oblige these territories to comply with the international laws on transparency and accountability. The Panama Papers are just, “one firm in one place” says the economist Gabriel Zucman, author of “The Hidden Wealth of Nations: The Scourge of Tax Havens.” So, it cannot be representative of what is happening in the whole world”. The total amount of registered firms avoiding taxation is not really known. In fact, Zucman estimates that the tax havens are now sheltering a staggering 7.6 trillion dollars, or 8% of the world’s financial wealth. And he draws attention to the fact that the United Sates is a major fiscal paradise, just after Switzerland and Hong Kong, according to the Financial Secrecy Index published by the Tax Justice Network, based in Washington.

And here comes a very good example of double standards. After it became evident that Swiss banks were hiding American capital (for which the US Treasury hit them with a heavy fine), in 2010 the US passed the Foreign Account Tax Compliance Act, which requires all financial firms in the world to surrender details about Americans with offshore accounts. But the US has refused to be part of any agreement for exchanging financial information with other countries.

Edward Kleinbar and Heather A. Lowe, of Global Financial Integrity, say that American Banks are awash with money coming from foreign investors. Kleibard, who was chief of staff of the Congress’s Joint Committee on taxation, declares: “ the United Sates demands that the rest of the world tell it when an American holds an account at a foreign institution, but the US does not return the favour by providing similar information on foreign investors, in US banks to their home jurisdiction”.

But in fact, the secrecy of American banks go beyond that. In fact, several states in the US use their constitutional privileges to shelter their banks also from the central government. Heather A. Lowe, the legal counsel and director of government affairs for Global Financial Integrity, Washington, warned that the problem was in any American state, not just in the more notorious one. ”You can create anonymous companies anywhere in the US: The reason people know about Delaware, Nevada and Wyoming is because those states market themselves internationally”.

For instance, Delaware secretary of State has stressed in his annual reports that this marketing efforts have “helped the state to reach thousands of legal professionals in dozens of countries across the globe, to tell the Delaware story”. And Nevada boasted a similar advertisement on the state’s website: Why incorporate in Nevada? Minimal reporting and disclosing requirement. Stockholders are not public records”.

While the legitimacy of taxes as a concept may be up to personal interpretation, what matters in Hillary Clinton’s use of the so-called Delaware loophole, in particular, is her constant harping on the need for corporations and elite individuals to pay their fair share. In other words, Clinton’s employment of North Orange Street amounts to a telling, Do As I Say, Not As I Do. And, as the Guardian notes, both of “the leading candidates for president – Hillary Clinton and Donald Trump – have companies registered at 1209 North Orange, and have refused to explain why.”

John Cassara, a former special agent for the US Treasury Department, reported in the New York Times on April 8where many of the declarations are coming from, about the frustration that fiscal agents have when they try to investigate “who or what is behind that company: you basically strike out. It does not matter if is the FBI, at the federal level, state or local. Even the Department of Justice can’t get the information. There is nothing you can do.” He had to abandon an investigation in Nevada when they found a corporation that had received more than 3700 suspicious wire transfers, totalling over 381 million dollars.

Clearly, one cannot set up rules for global governance, when important rich countries have double standards and cannot even put their own house in order. But the lack of global governance becomes even more evident, when we find out that the debate about global tax negotiations is exclusive to the 34 members of the Organization for Economic Cooperation and Development (OECD), and all the other countries of the world are left out. The Group of 77 and China, which has 134 members, has repeatedly asked that the UN must play a greater role in global tax cooperation but to no avail.

And it is a fact that in the list of account holders in Panama there is a large presence of personalities from Arab Countries, China, Nigeria, Brazil and so on. But there is a cultural problem, for which there is no solution. The fiscal authorities of the OECD countries think that on delicate matters, it is better to exclude the developing countries, because it would create a mechanism of negotiations where they could find themselves in the minority. That of course, would be to recognize that global governance can only be effective with a democratic system of consultation and decision. That is not at all the prevailing mood in an increasingly fractured world. Therefore, it would be normal to expect many more scandals, with spotlight for a few days on the names that could emerge, followed by a total relapse, until the next scandal explodes.

How long this can last without damaging the foundations of democracy, it is difficult to predict. And some defenders of the present system are already maintaining that scandals are proof that democracy is alive. But if the citizen’s growing lack of trust in the political and economic elites continues, it is difficult to see how scandals will help nurture democracy.


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Will the IMF Facility Be a Turning Point in the Economy? Sun, 24 Apr 2016 08:10:41 +0000 Editor Sunday Times By Editor, Sunday Times, Sri Lanka
Apr 24 2016 (The Sunday Times - Sri Lanka)

The IMF Extended Fund Facility (EFF) of US$ 1.5 billion with an agreement on an economic program supported by the IMF is now imminent. This could be a turning point in the economic fortunes of the country. The IMF facility would replenish the reserves, add confidence in the economy and have a salutary effect on capital inflows.

In as much as the loan is vital for getting the country out of the current critical balance of payments crisis, the commitment to the suggested economic reform program is essential to stabilise the economy and lay the foundation for a high trajectory of economic growth. The suggested corrective measures by ensuring fiscal discipline and prudent fiscal and monetary policies could get the country out of the current crisis, restore economic stability and provide the conditions for rapid economic growth.

Econ-Cartoon3-300x186IMF statement
The IMF statement of April 11th points towards the IMF granting a facility of US$ 1.5 billion with agreement on an economic program supported by the IMF. While the IMF agreement on the Extended Fund Facility (EFF) is not a fait accompli, the tenor and thrust of the statement leaves little doubt that it will be granted after the on going Annual Spring Meetings of the IMF Board and the discussions that are currently taking place in Washington D.C. between the IMF and the Sri Lankan authorities.

Economic recovery
The loan facility and the concomitant economic reform program could usher an economic recovery. The government must however have the political resolve to implement the associated economic reforms that are vital to strengthen the fiscal position, foreign exchange reserves and balance of payments.

The broad objectives of the proposed economic program, according to the IMF, is to achieve “high and sustained levels of inclusive economic growth, restore discipline to macroeconomic and financial policies, and rebuild fiscal and reserve buffers.” The IMF identifies the key objectives underlying the reform agenda as improving revenue administration and tax policy; strengthening public financial management; reform of state enterprises; and structural reforms to enable a more outward-looking economy, deepen foreign exchange markets, and strengthen financial sector supervision.

Tax reform
One of the weakest features of the Sri Lankan economy is the low collection of government revenue. The revenue to GDP ratio has declined over the years from around 20 per cent of GDP to only 12 per cent, despite average annual GDP growth of around 7 per cent in recent years. This tax to GDP ratio is too low for the country’s level of per capita income. Countries with similar per capita incomes gather more than 20 per cent of GDP as revenue.

The low revenue collection results in high fiscal deficits and accumulation of public debt and leaves inadequate fiscal space for education, health and infrastructure development. The foreign funded high cost of infrastructure development in 2010-2014 has been the main reason for doubling of foreign indebtedness.

The reduction of the fiscal deficit is vital for economic stability. The IMF economic reform program lays considerable emphasis on fiscal consolidation. Its objective is “A durable reduction of the fiscal deficit and public debt through a growth-friendly emphasis on revenue generation.”

The cabinet has, according to the IMF statement, decided to reduce the 2016 fiscal deficit to 5.4 per cent of GDP. Although this is inadequate, it may be a realistic target. The government should take steps to achieve a fiscal deficit of 3.5 per cent of GDP in 2020 as targeted in the Prime Minister’s Economic Policy Statement of November 2015.

The IMF strategy to increase revenue consists of broadening the tax base by reducing tax exemptions and introduction of a new Inland Revenue Act. The medium term revenue effort will be based on further reform of tax and expenditure policies, modernizing revenue administration and public financial management by implementation of key IT systems.

Pragmatic tax measures
Tax exemptions, tax avoidance and tax evasion are widespread endemic features. An effective tax system must take into account the inefficiency and corruption that prevails. The IMF proposals are essentially medium term and based on the assumption of an effective administration. New tax measures should be unavoidable and certain of collection such as withholding taxes and license fees. Otherwise the good intentions of curtailing tax evasion and tax avoidance would remain a delusion. Tax exemptions are easier to remove if the government is determined to not permit discretionary exemptions.

State enterprises
The other important economic reform that has been mooted is “a clear strategy to define and address outstanding obligations of state enterprises”. The colossal losses of state enterprises have been a heavy burden on the public finances. The reform of these enterprises is vital to redeeming the public finances. Drastic reforms, including the privatisation or part privatisation of some state owned enterprises are imperative. Will the government have the political will and courage to implement a privatisation program as was done by Chandrika Bandaranaike‘s government.

The IMF loan facility will strengthen the country’s diminished reserves and add considerable international confidence in the Sri Lankan economy. The enhanced international confidence in the Sri Lankan economy would stem capital outflows and reduce the cost of international borrowing. As the Governor of the Central Bank, Arjuna Mahendran has stated “Depending on the success of the Extended Fund Facility with the IMF on which discussions are currently underway in Washington D.C. other global lending agencies will look at us much more favourably in the coming months.” He also said that the People’s Bank of China has given authorization to issue bonds in China in renminbi the official Chinese currency and that all these would enable the raising of US$ 3 billion at lower interest rates quite easy.

Concluding reflections
The expected IMF facility of US$ 1.5 billion will replenish the reserves and add confidence in the economy. This would have a beneficial impact on capital inflows. The corrective measures by the IMF of ensuring fiscal discipline and prudent fiscal and monetary policies are essential to get out of the crisis and restore economic stability and create conditions for higher investment and rapid growth.

This story was originally published by The Sunday Times, Sri Lanka

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Who Guards the Guardhouse? Tue, 15 Mar 2016 10:52:31 +0000 Ziauddin Choudhury By Ziauddin Choudhury
Mar 15 2016 (The Daily Star, Bangladesh)

In a surreal digital theft that befits a high octane movie thriller, we were recently informed of the daring heist at Bangladesh Bank in which nearly a billion dollars were siphoned off last month. As if this was not enough, the theft took place over several days early February through a series of about three dozen electronic fund transfers from the Bank to New York Federal Reserve for a total amount anywhere between eight hundred fifty to eight hundred seventy million dollars. All of the looted amount made through dozens of transfers would have been cashed had it not been due to the now famous spelling error in a twenty million check made to a Sri Lankan NGO. The error prompted the routing bank, Deutsche Bank, to seek clarification from the Bangladesh central bank, which stopped the transaction. But the mystery hackers still managed to swipe $80 million, one of the largest recorded bank thefts in history.

The news struck the headlines in the foreign press, particularly in the UK and the US, but what was possibly more puzzling to everyone is how a spelling error stopped a bank heist than the actual massive pilferage of funds from a central bank. The news highlighted the ability of a spelling error to stop the attempted digital robbery. It is through further investigation that news agencies came to know of the successful transfer of at least $80 million to the Philippines. All major news agencies referred to this latest heist as another instance of CEO fraud, a growing threat to world financial institutions that had cost globally $2 billion in the last two years.

So what is actually a CEO fraud, and how does the attack work? The scam is referred to as a CEO fraud because the perpetrator or perpetrators pose electronically as the chief executive or senior financial official of an institution they are targeting. For an attacker to successfully pull it off, they need to know a lot of information about the company they’re targeting. Much of this information is about the hierarchical structure of the company or institution they’re targeting. They’ll need to know who they’ll be impersonating. Although this type of scam is known as “CEO fraud”, in reality it targets anyone with a senior role – anyone who would be able to initiate payments. They will need to know their names, and their email addresses. It would also help to know their schedule, and when they will be travelling, or will be on vacation. Experts say the criminals managed to breach Bangladesh Bank systems and stole the credentials of its senior officials for online payment transfers. (The Federal Reserve of New York stated that the transfers had valid digital credentials of Bangladesh Bank.)

Frauds and scams that target corporations and financial institutions have happened before, but probably it is the first time a central bank was successfully targeted. The most sobering aspect of the heist is the divine intervention in foiling of the robbery in its entirety in the form of a spelling error.
It saved the bank much of the heist amount, and it could possibly recover some of the eighty million dollars that got away. It is also possible that with the help of international cyber security experts, that the bank has engaged, the source of the breach can be identified as well as corrections made in the bank’s system to prevent future breaches.

But the most unsettling part is the apparent revelation to the government by the bank’s news of the breach and heist after a month of its occurrence. There may be defense of some kind or the other for this delay, but it will be ludicrous to assume that the bank authorities chose to go hush-hush, lest the news adversely affects the financial market. A serious crime of this magnitude is not a paltry incident of burglary in a government office that may not warrant waking up the minister at night and reporting it to him. It is a major incident of financial loss just not to the bank, but the country of which the bank is a financial guard. Keeping news hidden from the government is like a house guard concealing the news of theft in the house from his master.

The original hacking of Bangladesh Bank happened between February 4 and 5, 2016, when the bank’s offices were shut. Security experts said the perpetrators had deep knowledge of the Bangladeshi institution’s internal workings, likely gained by spying on bank workers. This is not to say that some bank employees could be complicit, because the CEO fraud, as said earlier, does not necessarily require direct assistance of employees of the institution. They only need to follow the workers closely.

Perhaps in time, we will come to the bottom of this heist and find ways to prevent such occurrences in the future. But these will concern computer systems and digital security apparatus. What these will not do is change the human guards who watch over the institutions and their behaviour and determine how to react responsibly in crisis situations and own up to mistakes. This requires training and change of management of a different kind; one of accountability and leadership and courage to take responsibility for mistakes.

The writer is a political analyst and commentator.

This story was originally published by The Daily Star, Bangladesh

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Big Question for the UK on the European Union Wed, 02 Mar 2016 16:39:15 +0000 Jonathan Power For 30 years a journalist, of which 17 as columnist for the International Herald Tribune 1974-1991; Jonathan Power he has been a regular guest columnist in New York Times and Encounter.]]>

For 30 years a journalist, of which 17 as columnist for the International Herald Tribune 1974-1991; Jonathan Power he has been a regular guest columnist in New York Times and Encounter.

By Jonathan Power
LUND, Sweden, Mar 2 2016 (IPS)

The British have a problem. A referendum on continuing membership of the European Union scheduled for June may lead to Brexit- Britain heading for the exit. Anybody with any knowledge of Europe’s war-like history knows this would be totally self-defeating.

Writing in 1751 Voltaire described Europe as “a kind of great republic, divided into several states, some monarchical, the others mixed but all corresponding with one another. They all have the same religious foundation, even if divided into several confessions. They all have the same principles of public law and politics unknown in other parts of the world.” But they also had a lot of war.

Fifty years ago in a way that Charlemagne, Voltaire, William Penn and William Gladstone, the early advocates of European unity, could only dream, a united Europe became a reality.

War, time and time again, has interrupted the pursuit of that objective. Continued civil war across the continent, across the centuries, has pitted French against Germans, British against talians, Czechs against Poles, Serbs against Austrians and Spaniards against Spaniards reaching its dreadful climax in World Wars 1 and 2. As Jan Morris has written in her “Fifty Years of Europe”, “great cities lay in ruin, bridges were broken, roads and railways were in chaos. Conquerors from East and West flew their ensigns above the seats of old authority, and proud populations would do almost anything for a pack of cigarettes or some nylon stockings. Europe was in shock, powerless, discredited and degraded”. Over the ages no other continent has been the scene of so much war.

Many, if not most, of that generation wondered in 1945 if they’d ever see Europe again in any state of grace or glory, much less unified.

The fact that the urge to bury the hatchet and forge common institutions has come so far in such a short time against such a background is arguably for the world as a whole the twentieth century’s greatest political achievement. (Following the Declaration of Independence it took the US nearly 90 years to establish a fully mature common currency; Europe has travelled the same course in 40 years.)

Yet this astonishing and triumphant success begs the question, what is the glue that holds it all together? After all what is Europe? Geographically, it is no more than a peninsula protruding from the landmass of Asia. Culturally, it has always been a potage of languages, peoples and traditions. Politically, it is a moveable feast- of the 35 sovereign states in post Iron Curtain Europe nine have been created or resurrected since World War 2.

Indeed it is religion, not politics nor the single market and monetary union that through the ages has made Europe one, held it together through its vicissitudes and bloody wars (many, tragically, of religious origin) and provided the common basic morality and common identity that made the EU, makes a single currency workable, the Schengen agreement making passport-free travel possible inside most of Europe today and political union a tangible, if still hotly debated, goal tomorrow.

Broadcasting to a defeated Germany in 1945, the poet T.S. Elliot reminded his audience that despite the war and* “the closing of Europe’s mental frontiers because of an excess of nationalism it is in Christianity that our arts have developed, it is in Christianity that the laws of Europe – until recently – have been rooted. An individual European may not believe the Christian faith is true; and yet what he says, and makes, and does, will depend on the Christian heritage for its meaning.”*

Of course, today one can ask what do the contemporary European cults of finance, sports, TV, pop culture, eroticism and Ryanair flying wherever it wants have to do with a Christian heritage? Nevertheless, the fact is through changing fashions, through wars big and small, the idea of Europe that persists is essentially Christian- unity of principles and peace in relationships. On its own, economic self-interest never would have created the EU and, more recently, monetary union. Economic, legal, social and monetary union have been driven all along by men and women who were essentially idealistic and visionary. From Jean Monnet, the founder of modern Europe, to Helmut Schmidt, Valery Giscard D’Estaing, Francois Mitterand and Helmut Kohl, the founders and creators of the EU and the Euro, the urge to remove the causes of belligerency and to form institutions that would further the development of a common democracy has been a central purpose.

Europe is not first and foremost a political concept or a financial convenience. It is an ideal. Thus it will never be complete. We will work at it all our lives, as will future generations.

For the British to decide not to pull out now can only happen if the university-trained elite together with the leadership of the pro European trade unions (most of them) educate the public on the history and the ideals of Europe.

Copyright: Jonathan Power

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Brazil 2015: The Year When Everything Went Wrong Wed, 30 Dec 2015 08:15:23 +0000 Fernando Cardim de Carvalho

Fernando J. Cardim de Carvalho, economist and professor at the Federal University of Río de Janeiro.

By Fernando J. Cardim de Carvalho
RIO DE JANEIRO, Dec 30 2015 (IPS)

As 2015 approaches its end, Brazilians live a period of extraordinary uncertainty. The recession seems to get worse by the day. Inflation is high and shows unexpected resistance to tight monetary policies applied by the Central Bank. The sluggish international economy has largely neutralized incentive and the strong devaluation of the domestic currency could represent a reality to exporters and to producers who compete with now more expensive imports. After an initial resistance, employment levels began to fall.

Fernando J. Cardim de Carvalho

Fernando J. Cardim de Carvalho

All this, however, is not just a “normal” recession. It takes place against a background of a major corruption scandal, which has all but paralyzed investment by major firms, like Petrobras. It also raises the concrete possibility of seeing political figures such as the president of the Federal Chamber of Deputies go to jail. The government leader at the Federal Senate is already in jail, as are many former authorities in President Luíz Inácio -Lula- da Silva’s administration (2000-2011). Hardly a day goes by without any news about new scandals or arrests of authorities and businessmen. On top of it all, in the early days of December, the embattled president of the Chamber of Deputies accepted a request to open impeachment proceedings against President Dilma Rousseff for alleged violations of the Fiscal Responsibility Act.

Any subset of that list of events would be enough to generate widespread instability. All of them put together created a hitherto unheard of situation of political and economic crisis of which one has to make extraordinary efforts to see any way out.

Impeachment procedures against the president did not come out of the blue. The revelation of the Petrobras scandal has brewed rumors and suspicions, if not against the president herself, certainly against many of those who surround, or have surrounded, her (she is a former minister of energy in Lula’s government and a former chairman of the administration council of Petrobras.) So far, however, no accusations or evidence emerged against Rousseff. In fact, she does not even seem to be a major target of investigators, who seem to be zeroing in on Lula (and his immediate family.) The piece of accusation justifying the opening of impeachment proceedings relies on the use of accounting artifices to violate the constraints on public expenditure imposed by the Fiscal Responsibility Act, which a majority of opinion makers seem to consider too weak a case to sustain an impeachment. What makes the whole process more menacing is in fact her acute political fragility. Rousseff is universally seen as Lula’s creation, but never really relinquished his power over the party and the coalition it led.

Soon after Rousseff was reelected in November 2014, she announced a radical change of orientation in her administration’s economic policies. Austerity policies, cutting expenditures and raising taxes, seemed to be unavoidable in the face of the increased federal expenditure made to ensure her victory in the presidential elections.

The incumbent president repeatedly stated during the campaign that she rejected those policies, only to announce their implementation a few days after the result of the popular vote became known. Despite the apparent support of Lula, the change in orientation was badly received by the official Workers Party (PT), which grudgingly announced support for her, but conditioning it to a change in macroeconomic policies.

The party seemed to ignore the fact that during 2014, the increase in fiscal deficits failed to have any expansionary impact on the economy, which did not grow at all. The perception that the president had no political support of her own, however, stimulated her adversaries to aggressively advance proposals for her impeachment, based on whatever reason one could find, or the annulment of the election itself, or if nothing else worked, to force her to resign. With an aggressive opposition and unable to count on a supporting political base, the government was paralyzed for the whole year.

No relevant austerity measure has obtained Congress’ approval. Despite the effort of leftist parties to blame the pro-austerity Finance Minister Joaquim Levy for the contraction of the economy, it is impossible to ignore the fact that the failed attempts to get the proposed policies approved by Congress just made explicit the lack of political power that characterized Rousseff’s position. The impasse created by the inexistence of an effective government in the face of an aggressive opposition led decision-makers to postpone any but the most immediate decisions. Investment has fallen, workers have been fired in increasing numbers, consumption has been negatively impacted, etc.

The political crisis has transformed an expected recession into something that threatens to become a major depression, both in depth and duration. The situation is made more difficult by the difficulty to visualize any sustainable solution for the crises in the mediate horizon, let alone the coming months. If the impeachment process prospers, one could expect for sure increased political instability as a result, on the one hand, of attempts by PT and the social movements that are close to it to react somehow, and, on the other, by the fact that there is no organized opposition ready to take the place of the current administration. If the impeachment initiative is defeated, the problem remains that the president does not have any vision or power and it is overwhelmingly difficult to imagine how she could recover enough initiative to last the three remaining years of her term in office.

Paraphrasing the late historian Eric Hobsbawn, who observed that the Twentieth Century had been very short (beginning in 1914 and ending in 1991), 2015 may be a long year for Brazilians. The incompressible minimal duration of an impeachment process will take it to 2016, when the social situation may be more tense than it is now, with high inflation and increasing unemployment. If a national agreement of some sort, be it in terms of allowing Rousseff’s government to work or by removing it altogether, is not reached to avoid the worse, 2015 can last even longer. The country may dive into an unknown abyss of a combination of economic, political and social crises of which it is hard to see how, when and in what conditions it will recover.


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2016: The Forthcoming Adjustment Shock Thu, 10 Dec 2015 14:24:17 +0000 Isabel Ortiz Isabel Ortiz, is the director of the Social Protection Department at the International Labour Organization (ILO). This column is based on the working paper “The Decade of Adjustment: A Review of Austerity Trends 2010-2020 in 187 Countries” by Isabel Ortiz, Matthew Cummins, Jeronim Capaldo and Kalaivani Karunanethy, and its policy brief, published by the ILO Social Protection Department, the Initiative for Policy Dialogue at Columbia University and the South Centre.]]> Isabel Ortiz, is the director of the Social Protection Department at the International Labour Organization (ILO). This column is based on the working paper “The Decade of Adjustment: A Review of Austerity Trends 2010-2020 in 187 Countries” by Isabel Ortiz, Matthew Cummins, Jeronim Capaldo and Kalaivani Karunanethy, and its policy brief, published by the ILO Social Protection Department, the Initiative for Policy Dialogue at Columbia University and the South Centre.]]> 0