Malaysia as seen from Washington DC


October 29, 2014

Malaysia as seen from Washington DC

By Kean Wong, Special to the Malaysian Insider

 The White HouseThe White House, 1600 Pennsylvania Avenue

Prime Minister Datuk Seri Najib Razak had just outlined the robust prospects for Malaysia’s economy and was busy posing for photos with Malaysia’s new Ambassador to the United States Datuk Awang Adek and various Manhattan dignitaries on stage when a few visiting Malaysians and an American businessman familiar with what he called the “heyday of Mahathir’s Malaysia” opened up around the coffee stand about the challenges that needed trouncing today if the weather was to clear up in the weeks and months ahead.

Like President Obama – who considers PM Najib a close Asian confidante, andNajib and Obama according to Washington insiders, a “most reliable friend” amid an anxious region – the Prime Minister has sought comfort in foreign policy wins over the often thankless and truculent realities of domestic politics.

So the ringing global endorsement of Malaysia as a new UN Security Council member next year that handily coincides with its much-awaited chairmanship of ASEAN (after Cambodia’s recent vexed leadership) is justly deserved and celebrated, avers a veteran former Asian diplomat now at the United Nations in New York.

Razali IsmailThanks to Malaysia’s “inspired and markets-friendly” global leadership during the Mahathir years, and fondly remembered diplomats like Tan Sri Razali Ismail, Malaysia still glows on the world stage.

The country represents a “necessary and useful” example and plays an international role as a globalised, Muslim-led country at a time of fraught Western relations with the Muslim world, notes a senior American diplomat echoing a common view at Washington-based think-tanks like the Council on Foreign Relations and the Center for Strategic and International Studies (CSIS).

In the current campaign against Isis and its unravelling of Iraq and Syria, where the Obama administration has been desperately keen on stitching together a better “coalition of the willing” (Muslim) nations to combat such extremism, the Najib government is a stalwart ally.

Despite American concerns raised over the alleged use of the Sedition Act to crackdown on Malaysian dissent and an expectation that this week’s Datuk Seri Anwar Ibrahim trial will turn out poorly for the opposition leader, there is a prevailing Washington agenda about terrorism, China’s rise and related trade deals like the Trans-Pacific Partnership (TPP) – not necessarily in that order – that should not be derailed.

John KerrryAs a senior US State Department official explained in a briefing ahead of Secretary John Kerry’s series of bilateral meetings in Jakarta following President Joko Widodo’s inauguration, “at the top of the list (is) the international effort to degrade and ultimately destroy (Isis)… we hope that the individual countries can do more and cooperate more to ensure that, in the first instance, Southeast Asia remains immune to the proselytizing efforts of Isis; and secondly, that these countries assist effectively beyond what they’ve done already to rebut the false ideology.”

“Of course, Malaysia, Brunei, and Singapore are also members of the TPP negotiations. That’s a topic that is likely to be touched on (in bilateral talks),” Kerry said. “Malaysia, I would flag for you, has just won a seat on the UN Security Council circa 2015 and will take over from Burma in 2015 as the next chair of ASEAN. So there’s a lot of good work to be done in the meeting with Prime Minister Najib.”

Yet it was the mixed results so far of Najib’s Economic Transformation Programme (ETP) and worries over the Prime Mminister’s political future that coloured the backdrop of conversations accompanying a slew of Malaysian leaders over the past month of American visits.

For one traveling Malaysian businessman, speculating about life after a Najib Prime Ministership was apparently commonplace among his peers. He was concerned that the “many good ideas and sincerity” of the Prime Minister’s team in pushing Malaysia forward could be jeopardised by the various UMNO-linked pressure groups like PERKASA and ISMA, which “did not understand” how the globalised Malaysian economy worked.

Perhaps surprisingly, his American businessman friend was more adept at working out the realpolitik, contrasting Washington’s acute polarisation of politics and culture by going through Malaysia’s possible list of successors, and echoing what some in UMNO Youth have argued is the ascendancy of leaders like Khairy Jamaluddin to break political deadlocks (and stasis).

But as another visitor remarked, where does that leave the present incumbent? With looming defeat expected at next month’s polls for the Democrats – where losing control of the US Senate means souring prospects for Obama’s domestic agenda and legacy – perhaps navigating past lame-duck leaders will be the corporate world’s biggest challenge on both sides of the globe.

Yet the bilateral relationship between Malaysia and the US has “never been better”, Malaysian Defence Minister Ahmad Zahid Hamidi, pictured in 2010greased along by a “strong” personal bond forged between the Prime Minister and President Barack Obama, explained a diplomat travelling with Home Minister Datuk Seri Ahmad Zahid Hamidi to Washington last month.

As a measure of the depth of bilateral ties, and in time for the current campaign against Isil and related security threats, Zahid was feted across Washington in long meetings with key Obama administration officials such as Homeland Security Secretary Jeh Johnson, CIA Director John Brennan (where Zahid spent three hours at the Langley HQ), and Attorney-General Eric Holder.

Zahid later explained at a Malaysian Embassy dinner that our “strong ties, trust” will also help propel along the likelihood of Malaysians being granted coveted visa waivers to the US, in another sign of the strengthening “people to people” links that are a key feature of bilateral ties.

In an embassy reception marking both Hari Merdeka and Armed Forces Day, Zahid as a former Defence Minister also listed in his speech the various ongoing Pentagon-funded programmes and regional exercises where Malaysia plays a key part, that was as much a legacy of Malaysia’s anti-communist Cold War role as today’s delicate exigencies over the South China Sea.

The Minister waved away concerns over domestic politics by referring to the “national interest”; moreover, as a senior officer working for the Pentagon’s Joint Chiefs staff saw it, Malaysia’s domestic uncertainties paled by comparison to the jostling ASEAN faces in the South China Sea with China and there was “much to look forward to with Malaysia’s ASEAN chairmanship”.

J YunAt a discussion a few nights later at nearby American University, the visiting US Ambassador to Malaysia Joseph Yun (left) also echoed the Home Minister’s celebration of our American relationship, and explained that Malaysia was on track to join the US visa waiver programme as our “5% visa refusal rate” trends down towards a 3% criterion.

While the US envoy was perhaps more circumspect than usual in deference to the Malaysian Ambassador in the audience, Yun did note American concerns over the “social, political challenges” that included vexed differences over religious issues and the ‘politicised’ TPP negotiations.

The audience chuckled along when both envoys agreed the Malaysian government faced such dilemmas in a polarised atmosphere “just like Washington”, blaming much of it on “hard to control” social media and the Internet.

Yet as the former US Ambassador to Malaysia, John Malott, points out, strongambassador-john-malott bilateral ties notwithstanding, Malaysia has been a skilled diplomatic player in an increasingly anxious region, which knows its interests may be between that of the US, China and Asean over immediate issues like the South China Sea – and the need to recalibrate responses to China as it asserts its economic weight and ambitions.

“I find it amazing the US puts so much store in the TPP with Malaysia when there are other economic and trade interests that are just are important to American companies, when American companies don’t get a fair shake because of the problems of corruption, a lack of transparency in such areas as ‘no bid contracts’,” Malott said.

Perhaps a more attractive future Malaysia shimmered into view a week later when the increasingly popular Yuna took the stage at George Washington University’s Lisner auditorium downtown. As the gaggle of so-called “hijabsters” danced, clapped and swayed in the aisles, Yuna charmed the rest of us with her mix of polished pop tunes and modest tales between songs about her experiences as a Malaysian taking on the Los Angeles music world.

In the crowd queueing for photographs and autographs afterwards, the Malaysians who turned out in force for their homegirl merged seamlessly with the wider America on display. The future seemed within grasp for now.

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Malaysian Prime Minister’s 2015 Budget Speech


October 15, 2014

Malaysian Prime Minister’s 2015 Budget Speech

Below are my comments:

Najib at the Press ClubThe Budget Speech was a pathetic demonstration of our Prime Minster’s inability to come clean or present the big picture. The point is not about what he said but what was not said. Most of the 30 pages of the speech were devoted to the spending side which essentially was all about handouts and a laundry list of projects that will benefit  UMNO warlords and their cronies.

Very briefly:

GST & Income Taxes: The GST will yield RM 23.2 billion but with the repeal of Sales Tax (RM13.8billion), net increase will be RM 9.4 billion. This means a net burden on middle and low income households whose incomes are stagnating . This burden is on top of the hit from the withdrawal of subsidies on fuels. True enough the PM hands back in some by way of an increase in BR1M and a few other handouts. Nevertheless, the net outcome is that middle and low income households will bear the brunt. He next lowers corporate and personal income tax – the beneficiaries are the rich, the well-connected and the tycoons and their corporations.The budget ignores all sense of equity and fairness. The effect is that the wide income disparities that exist will be further widened.

Macro-Economic Picture: Najib’s speech hardly provides any details about the basic fundamentals that were used. He essentially painted the usual rosy picture – 5 to 6% growth in GDP. This is higher than what the IMF has projected ( 5.2%).  Najib does not say a word about inflation. Note IMF is projecting inflation at  4.1 % in 2015 a jump from 2.9% in 2014. The tables in the Treasury Economic Report show some detail — key is that Private Consumption and Investment growth will be slower in 2015. Overall growth will thus depend on the public sector.

The critical issue of public debt is dismissed in a sentence or two. He is telling us like the snake oil salesman “ Trust me, the deficit will be 3.0 % next year!” No details are given on how we  can get there! Nor are we told what the hidden contingent liabilities are or how much off budget borrowing there has been or will be in the year ahead. There is not  even a whisper about the ballooning size of private household debt last reported to be in excess of 85% of GDP.

 Najib also hardly makes mention of the huge illicit capital flight that continues or the brain drain that directly impact adversely on his vision of a knowledge based, innovative, high tech economy. He repeats the mantra of joining the ranks of the developed high income countries by 2020. That is a pipe dream given the lower rates of growth experienced in the recent past and now projected.

Here is a bombshell about which we hear not a pip from Najib or for that matter in the media. The bombshell is reported in the Treasury Economy Report. The Economic Report discloses that Malaysia’s external debt totals RM 729 billion, equivalent to 67.6 percent of GDP. This compares with a debt level of RM 335.6 billion or 31.1 percent of GDP before the revision. This more than doubling of the external debt cannot be swept under the carpet.  It should be sounding alarm bells.

The Report goes into a long discourse about revised international standards for debt reporting being the reason for a sudden rise in the level of foreign debt. Under the new definition non-resident holdings of local currency debt, loans and credits and non-resident financial flows are treated as external liabilities.

The Treasury Report offers a weak justification for the high level of external debt asserting that the rapid growth of the bond market has led to sizable increases in the participation by non-residents in lending in the Malaysian market.

However, the Report fails to point out that a sizable part of the debt is short-term (with a ratio of 47.6 percent to GDP). Such short term debt is by nature volatile and subject to flight in periods of uncertainty.  It would appear that we did learn lessons from the 1998 East Asia Crisis which was triggered by the withdrawal of short term funds. It is highly irresponsible to ignore the dangers and not have clear policies to address a potential devastating crisis.

 By the way, speaking of the Treasury Economic Report, here is an indication of sheer incompetence: Take a look at Table 1.3 – Key Economic Data of Selected Developing Countries. Yes, the Whiz kids in the Treasury have taken upon themselves the task of reclassifying Australians and the Russians as part of the Developing World.  It is also noteworthy that Asia’s third largest economy (India) does not merit mention.

Bottom line: Judging by the way the Government is managing the economy, by 2020 we shall as a country, already trapped in the middle income group,  move into the sub-category of Highly  Indebted Countries.

How I wish I could be more generous. For a more sympathetic commentary please read Tan Sri Dr. Ramon Navaratnam’s article [ http://www.freemalaysiatoday.com/category/highlight/2014/10/14/many-thanks-for-the-goodies-mr-pm/%5D

–Din Merican

 

Hot (Headed) Yoga


October 14, 2014

Hot (Headed) Yoga

by
on October 13, 2014

 (The conclusion of a two-part series)

Note to readers: Yesterday, in an article headlined “Fed Up,” I reported that many members of the World Trade Organization have reached the end of their patience with a handful of members — India, and a few African and Latin Americans who love to nurture their grudges against the “rich” countries. Frustrations that such countries have poisoned the WTO’s negotiation atmosphere have been gradually building since the WTO was launched in 1995. The tipping point came in July, when India’s new Prime Minister, Narendra Modi, vetoed the only successful multilateral trade negotiation the WTO has ever conducted.

As the future viability of this vital international trade rule-making institution is now on the line, it’s important to take a closer look at how the present fight started, and why. Today’s report offers more details on: where Modi is coming from, exactly what he wants, and who his sympathizers are. While India claims to speak for the world’s poor, that certainly is not the view of an increasing number of developing countries around the world. India’s trade distorting agriculture subsidies have caused food riots in parts of Asia, Africa, and Latin America. These days, complaints of the harm that India is inflicting upon other poor countries are surfacing again, particularly in Rwanda and other African countries. Concluding, the report highlights how leading WTO member countries plan to move on, with or without the cooperation of India and the other laggard countries.

So where is Modi coming from?

Narendra Modi

Narendra Modi of India at UNGA

Modi, proudly, is a hardline Hindu right-winger, an economic nationalist who boasts of a 56-inch chest. He is a tough guy, a man who loves a brawl. His top political aide is dodging a prosecution for various murders. Modi himself has denied (unconvincingly) his role in the killings of some 2,000 Muslims in organized riots in his home state of Gujarat, back in 2002.

And in the past week, Modi has rather exuberantly been raining mortars and machine-gun fire across a populated India-Pakistan border area of Kashmir. The fighting, which has broken a tenuous truce reached in 2003, has so far killed nearly 20 civilians and displaced nearly 20,000 civilians, according to news reports. “The prime minister’s office has instructed us to ensure that Pakistan suffers deep and heavy losses,” a senior Indian Home Ministry official has told Reuters reporters Rupam Jain Nair and Mehreen Zara-Malik. Modi himself has boasted that “it is the enemy that is screaming.” Kashmir, with the possible exception of the Korean DMZ, is perhaps the world’s most dangerous border. A border where Hot Heads on both sides brandish their nuclear weapons.

Some of the other opinions that Modi brandishes are less scary, but well, unusual. Speaking to the United Nations General Assembly in New York on September 27, Modi called for an “International Yoga Day.” He asserted that “yoga,” “spiritualism” and clean living could contribute to a better global environment. “By changing our lifestyle and creating consciousness, it can help us deal with climate change,” he explained to the diplomatic dignitaries. Meanwhile, back in New Delhi, the clean-living prime minister has authorized “hundreds of projects” to clear pristine forests, making way for mega power plants and other industrial projects that previous Indian governments had rejected on environmental grounds, Tommy Wilkes has reported for Reuters.

Modi held the WTO’s trade-facilitation package hostage to India’s demands to be allowed — permanently — to violate existing WTO restrictions on the subsidies it is allowed to dole out to uncompetitive Indian subsistence farmers. Adding to the indignity: previous Indian governments had agreed to those WTO rules in the 1980s. And the Indian government that Modi replaced in May had duly signed onto the Bali Package last December. As U.S. Trade Representative Michael Froman said last week, India has now “reneged” on its signed obligations.

Moreover, Modi’s demands have left WTO diplomats scratching their heads, wondering what he might have been smoking.

Food Insecurity

Since obtaining independence from Great Britain in 1947, India’s leaders have never figured out how to feed their people. In the name of “food security,” Indian governments have been buying food from the country’s farmers, paying above-market prices. The grains are then stockpiled. Perhaps half of the mountains of grain rot away, or are eaten by rats. Much of the rest is siphoned off by corrupt (politically connected) operators for sale on the black market.

What doesn’t rot or is not stolen is then doled out to feed India’s infamously malnourished urban population — especially when elections loom, which in India is often.

Perhaps because politics trumps economics, Indian politicians — no matter which party is in power —  have been increasing the subsidies, making bigger stockpiles.  And they have been demanding permission from the WTO to keep jacking up the subsidies as much as they want, even higher than the allowable limits that Indian governments have pledged to honor.

In Bali last December, the Indian negotiators won a generous four-year “peace clause.” That gave New Delhi four years to go ahead and violate existing WTO limitations by increasing agriculture subsidies, without fear of being held legally accountable. As the purpose of the WTO’s trade negotiations is to reduce trade barriers, not allow additional protectionism, this was arguably overly generous.

Yet the four-year grace period still wasn’t enough for Modi, when he came into office in May. He demanded that India be given the “permanent” right to break the existing rules — and right away, by the end of this year, thank you. Many diplomats, in many ways, have told the new Indian leader that this would never happen. Undeterred, Modi, somewhat joyously, brought down the Bali Package, thus shaking the foundations of trust that the WTO must have to remain viable.

At least, the ploy has generally played well at home. Indian officials have launched a whispering campaign, some of which has made its way into various Indian news accounts, falsely accusing the WTO’s top leadership of favoring the rich countries.

Claiming the Moral High Ground

Modi, like all of his predecessors dating to Jawaharlal Nehru (who ran India from 1947 to 1964, useful information for readers who are crossword puzzle addicts), has claimed that he holds the high moral ground. We are simply demanding the rights to feed our own poor, and we are the champion the world’s poor, so goes the refrain.

Some champion.

India is the world’s largest exporter of (subsidized) rice. The subsidies distort food markets in other countries by driving down prices. That’s bad enough in normal years for farmers in African and other nations who have to compete with the cheap Indian rice. Of course, the Europeans and Americans aren’t exactly innocents in such matters. But at least they have long ago moved away from stockpiling surpluses that cause real damage in world markets, preferring to pay their farmers cash subsidies that are considered less trade-distorting.

But India seems stuck on stockpiling and other protectionist schemes that cause real harm to trading partners. Remember the 2008 food riots in Haiti, Cameroon, Senegal and other countries? Global rice prices had skyrocketed after India put a damper on supplies by slapping on export controls during the previous year’s election season. Not only has no Indian politician ever apologized for the damage those export controls inflicted — after coming to power this May, Modi quickly imposed new price controls on onions and potatoes.

More recently, Rwanda’s trade minister, Francois Kanimba, explained to Shawn Donnan, the world trade editor of the Financial Times, how India’s present agriculture subsidies are hurting his country’s farmers. Rice and sugar from India had been reaching Rwanda “at such low prices [that] you are left wondering if these are really global market prices, simply explained by the competitiveness of the Indian economy,” Kanimba said. Donnan noted that the same concerns are being expressed in Nigeria, Benin, and other African food importers. This is “why the solution India is seeking at the WTO, which celebrates its 20th birthday in January, is unlikely to be palatable to many of its members,” Donnan concluded.

India’s claims to speak for the world’s poor used to be accepted automatically in the Third World. Signs that that’s been changing surfaced at the WTO’s Bali meetings last December. At a press conference, India’s then top trade official, Anand Sharma, asserted that India was only seeking “food security” for poor people everywhere. Sharma was humiliated by a furious journalist from Benin, one of the world’s poorest countries. “You don’t speak for us,” the Benin journalist angrily shouted. Those of us who were in the room will never forget the emotions on display at that press conference. (For further details, see “India’s Bali Debacle,” which I authored for the Wall Street Journal Asia. The piece, along with two other investigative reports into India’s WTO stance in recent years, is posted on the Wall Street Journal section of www.rushfordreport.com.)

India’s Admirers

These days, Modi’s been enjoying his success in having placed himself on the WTO’s center stage, even though he is playing the role of a pariah. Modi knows he enjoys the tacit backing of envious fellow economic nationalists in places like Venezuela, Bolivia, Zimbabwe, Ecuador and Cuba. Such leaders love to nurture their grudges against the rich countries, seeing the WTO as a tool of the rich. President Jacob Zuma of South Africa runs with this crowd. These days, Zuma must be especially envious of Narendra Modi’s nerve.

Zuma is another economic nationalist who is skeptical that the WTO’s multilateral trade liberalizing negotiations will benefit South Africa. But he might be better advised to seek some sound economic advice as to why South Africa’s economy has been losing its dynamism.

Two very savvy Pretoria-based authorities on what used to be called “political economy” — Mzukisi Qobo of the University of Pretoria and Peter Draper, of Tutwa Consulting — recently succinctly explained Zuma’s attitude on economics in a May 27 article in South Africa’s Business Day. Under Zama’s economic guidance, South Africa’s economic growth has been on a steady decline, Qobo and Draper noted. Nor does Zuma seem to grasp the “gravity” of the economic challenges that are holding his country back, they added. “He also seems to have given up on leaving a great economic legacy, and instead prefers to manage a balancing act of contending factions within the African National Congress (ANC).”

Zuma’s trade minister, Rob Davies, is a member of the Politburo of South Africa’s Communist Party. That fact speaks well of Davies’ personal courage in having opposed apartheid in the days when to do so was to risk one’s life. But it doesn’t necessarily suggest that Davies’ economic credentials are sterling. Many African observers worry that South Africa, traditionally the most solid African economy that still regards itself as the “gateway” to the rest of Africa, will inevitably be left behind. Watch the East Africans — especially the emerging ties and improved infrastructure linking Rwanda, Tanzania, Uganda and Kenya — many African watchers say. Yes, these countries also have their own economic weaknesses. And in the WTO, the East Africans seem to be split on whether to speak out in favor of India, or against. Still, one has a growing sense that their future could be brighter than South Africa’s, depending upon how well they manage to integrate themselves into the global economy. At some point, the South Africans will likely kick themselves for their lack of economic foresight.

Zuma first worked earlier this year behind the scenes with the Addis Ababa-based African Union (an opaque organization which wasn’t even a participant in the Bali negotiations) to reopen the Bali deal. Conveniently, Zuma’s former wife now heads the AU. But Zuma and the AU came under intense pressure, mainly from Europeans and Americans, but also by dozens of other WTO member countries. They backed down during African Union meetings held in Malabo, Equatorial Guinea, in August. Since then the African Group of WTO members has basically been holding their tongues, trying to pretend that what India has done, hasn’t really happened. (For the background, see “Power Plays in the WTO,” www.rushfordreport.com, June 3, 2014). South African and African Union officials declined repeated requests for comment, as did a spokesman for the WTO’s Africa Group.

In sum, what the Africans started and India’s Modi finished was the tipping point. Leading circles in the WTO — the “North” definitely, and many in the “South” — believe that this time, the chronic naysayers have simply gone too far.

An Uncertain Plurilateral Future

While the WTO’s future is presently clouded, one thing appears clear: no longer will a handful of malcontents be allowed to poison the chances of dismantling as many of the world’s remaining trade barriers as possible. That means the WTO will turn away from its tradition of conducting trade-liberalizing negotiations on a multilateral basis. Instead, there will be smaller groups of like-minded countries that will work together to facilitate trade flows. This is the so-called plurilateral option.

The future likely model has precedents. The WTO’s Government Procurement Agreement has 43 member countries (counting the European Union’s 28). The GPA’s rules, which are only extended to participating countries, are aimed at improving transparency and competitive bidding when governments agree to award contracts to all bidders (as opposed to just doling out lucrative contracts to well-connected domestic cronies). China, New Zealand, and eight other countries have been negotiating to join in that plurilateral. No African country has shown interest in joining in such an experiment in open government. Nor has India.

India is, however, a member of the WTO’s Information Technology Agreement, a plurilateral WTO success story that dates to 1997. ITA signatories, including India, have slashed tariffs on imports of high-tech gadgets like computers and telecommunications equipment. But India has refused to participate in ongoing negotiations to expand the ITA’s product coverage to include new inventions — iPhones, iPods and so forth — that weren’t invented in the 1990s. In fact, Modi has already moved in the opposite direction: jacking up tariffs on imports of iPhones.

Late last week, the WTO’s director-general, Roberto Azevedo, described the uncertain future for further WTO multilateral trade negotiations, especially if “no solution” is found for the “Bali impasse.” In such a case, the director-general noted to a business audience in Toronto on Oct. 9,  “then members must ask themselves some tough questions — about how they see the future of the Bali package and the post-Bali agenda. And what this means for the WTO’s negotiating function.”

Translated from the nuanced diplomatic language, Azevedo was pointing to a plurilateral future for the WTO, at least until the benefits of multilateral trade liberalization become apparent to the laggards. It might even turn out that the Bali deal will proceed as a plurilateral arrangement. India and the backward-looking African and Latin countries will be offered the choice to be left behind, if they prefer.  Such, it appears, is their future — at least until the day comes when they will be willing to take off their economic dunce caps.

Fed Up

(First of a two-part series), October 12, 2014

Sometimes in life, there comes a tipping point when — enough is enough. And that pretty much describes the present mood in the Geneva-based World Trade Organization. The Americans, Aussies, Kiwis, Europeans, Canadians, Scandinavians, Japanese — basically, all of the most important trading centers around the world that comprise the vast majority of world trade — have had it. They are fed up. Fed up with India, especially. India’s new prime minister, the pugnacious Narendra Modi, has brought all WTO negotiations to a halt, thanks to his unprecedented recent veto of the only successful multilateral trade-liberalizing negotiation in the institution’s nearly twenty years of existence.  “Disgusted” even more, as one diplomat based in a European country un-delicately puts it, because Modi’s reasons simply defy economic logic.

Leading WTO members have also had it with various African and Latin American leaders like those in South Africa, Zimbabwe, Venezuela, and Bolivia. The leaders of such countries have gradually eroded their credibility by making no secret of the fact they just don’t really believe in the WTO’s core mission of dismantling trade barriers on a multilateral basis. Fed up with how the economic laggards have meanwhile been holding the rest of the WTO’s 160-member countries hostage to their parochial demands.

Over the years, the WTO and its predecessor international trade rules-making organization have operated on two core beliefs. First, that trade liberalization must be done for the good of all members, on a multilateral basis. Second, that the negotiations to dismantle trade barriers will be reached by consensus — but with the expectation that member countries will conduct themselves with a certain civility, and restraint. The institution cannot function when those core beliefs are trampled upon.

True, some WTO members like Switzerland, Norway and Japan who are presently outraged at India have their own protectionist rackets that they defend vigorously in negotiations (think only of Japan’s 500-plus percent rice tariffs). But, in significant contrast with India, such respected WTO member countries always conduct themselves with civility and restraint. It is unthinkable that they would wreck the institution for domestic political gain.

The frustrations with India and the other chronic economic under-achievers who have anti-colonial chips on their shoulders hardly stop at the traditional “North-South” divide between the rich countries and their former colonial possessions. Privately, some key officials from countries that have traditionally identified themselves with the WTO member countries from the “South” — including Mexico, Brazil, Pakistan, and even some in Rwanda, Ghana, Kenya, Nigeria, and Benin — share the frustrations. True, some of these same countries can’t seem to make up their minds which side they are on — Kenya comes immediately to mind, as do Tanzania and Uganda. Africans have often joined in the constant attacks against the WTO since it succeeded the General Agreement on Tariffs and Trade in 1995. But now, there seems to be an emerging fear in Africa that things have gotten out of hand, and that vulnerable African economies will suffer the consequences of India’s irresponsibility.

And there are the more economically enlightened smaller countries in the “South” — like Panama, Costa Rica, Peru, and Chile — that have been prospering because they have wisely embraced the global trading system. These admirable symbols of what trade liberalization can accomplish have been leading by their examples. And they are growing weary of the continuing shrill attacks against the system brought by WTO members who just don’t get it.

In short, there is a growing belief in leading WTO circles that if the institution is going to survive, it can no longer continue to do business as usual. Leading trade diplomats in Geneva and other key capitals have concluded that WTO’s future ability to liberalize trade cannot be based on the traditional consensus-based multilateral approach, where any single member can enjoy veto power. Instead, the WTO’s future negotiations will focus on a so-called plurilateral approach, where smaller groups of like-minded countries that genuinely want to liberalize trade will do so. If the laggards don’t participate, fine. From now on, well-placed diplomatic insiders vow, no longer will weak countries which aren’t really important international trade players anyway, be allowed to poison progress for everyone else. India, for example has about a 1.9 percent share of global trade flows, but Indian leaders seem to think they deserve 90 percent of the attention.

U.S. President John F. Kennedy once famously said, “trade, or die.” Now, for the World Trade Organization, the new mantra is becoming “change, or die.”

Such are the impressions gleaned from nearly two-dozen confidential interviews conducted over the course of several months with key players in the USA, Europe, Africa, Asia, and Latin America. This two-part series offers details and analysis aimed at explaining in in clear language what many thoughtful trade diplomats would like to say publicly, if they were not constrained by the requirements of diplomacy.

An Institution Under Constant Attack

With apologies for the use of the personal pronoun, I have been covering the WTO and its predecessor the General Agreement on Tariffs and Trade — the GATT — for more than three decades. Launched in 1947 by the United States and 22 other countries, the GATT became the world’s most successful international economic experiment. Seven successive multilateral trade-liberalizing rounds contributed to expanding global prosperity by slashing tariffs and dismantling trade barriers. The last of those negotiating successes, called the Uruguay Round, set up the WTO in 1995.

And that’s when multilateral trade liberalizing negotiations pretty much hit the wall. One could say the GATT morphed into the General Disagreement on Tariffs and Trade.

Remember the famous 1999 anti-trade riots in the streets of Seattle? Many Third World countries inside the WTO’s ministerial meetings quietly cheered the unruly protestors who trashed that beautiful city. There would be no Seattle Round. In 2001, the WTO did manage to launch the Doha Round (for trivia fans, named for the city in Qatar where that year’s ministerial meetings were held). But the Doha Round has been in deep trouble ever since.

In 2003 many African countries openly celebrated their success in killing that year’s WTO ministerial in Cancun. We came to make demands, not make concessions, the Africans boasted. Indian negotiators contributed to that failure, although to their credit, the Indian official delegation seemed crestfallen that they had gone too far. They had not meant to put the Doha negotiations in intensive care.

Then in 2008, a deal was close to being struck in Geneva that would have completed the Doha Round. Among other economic benefits, trade-distorting agriculture subsidies for both rich- and poor countries would be substantially reduced. Financial services would be allowed to flow more freely across international borders. And both rich- and poor countries would do more to open their markets to global competition. But that deal also collapsed in bitterness. While there is plenty of shared criticism for the 2008 failure, it was clearly India’s intransigent “non-negotiable” demands that did the most to poison the atmosphere. And this time the Indian negotiators, led by their abrasive trade minister, Kamal Nath, returned to New Delhi boasting of their triumph.

In those previous WTO trade spats, at least, everyone came away from the battlefield vowing, at least for public consumption, to do better the next time. Until this year, when some of the Africans and the Indians struck again. The bitter irony is that the present mood comes in the wake of the WTO’s most impressive negotiating success, where the rich- and poor countries (finally) worked together for the common good to give global trade flows a significant boost.

Meeting in Bali last December, the WTO’s then 159 member countries agreed to a so-called Trade Facilitation deal that promised, over time, a trillion-dollar economic payoff. Essentially, the wealthier WTO members have already been giving poorer countries hundreds of millions of dollars annually to help facilitate trade by fixing embarrassments that have long clogged Third World borders — corrupt customs offices and cumbersome red tape, inefficient ports, shoddy roads, and such. It doesn’t take a PhD in economics to understand why difficult borders prevent the rising economic prosperity that stems from enhanced trade flows. The Bali deal promised much more assistance to speed the movement of goods and services across borders. The deal was a win-win for everyone: both for giant multinational corporations that move goods and services across borders, and for millions of citizens of poor countries whose living standards would stand to rise along with the resulting expanded trade opportunities.

The Bali Package was the first successful multilateral trade-liberalizing deal in the nearly two decades of WTO history. Finally, the institution had shown that it could deliver something meaningful on the multilateral negotiating table. The general belief was that the success in Bali would spur the revival of the Doha Round, which now has been floundering for thirteen years.

But now those hopes have been dashed. On July 31, India’s Narendra Modi vetoed the schedule to implement the Bali deal.  Since then, all subsequent efforts to give Modi a face-saving way to back off have failed. There are some (slim) hopes that meetings in the WTO’s headquarters in Geneva scheduled later this week could put the deal back on track. But the sad truth is that the Bali deal has acquired a definite Humpty Dumpty look. The essential trust in the system — that countries will honor what they have agreed to instead of negotiating in bad faith — has been lost. It will not easily be regained. Whether it will be officially declared or not, the Doha Round is dead.

The WTO’s wealthy countries are even bitterer because they had had to work very hard, for years, just to persuade the poor countries to accept substantial financial sums to bind themselves to do things they should have long ago done themselves, in their own self-interests.

Adding to the bitterness, Modi’s demands simply made no good sense. He was fighting for policies that are clearly not in India’s best interests. “India’s economy is today the least integrated into global production chains among the world’s top-25 exporting economies,” Hosuk Lee-Makiyama, Natalia Macyra, and Erik Van Der Marel of the highly respected European Centre for International Political Economy in a recent paper: India & the WTO. “India is failing in sectors it chooses to protect, and is only competitive in sectors where it chose to liberalise, for example its IT services sector and the outsourcing business.”

Nor are the specific agriculture policies that Modi has fought for in the interests of other WTO countries that import Indian rice and other grains. In recent years, and up to the present, India’s domestic farm policies have inflicted economic damage in other poor countries. India’s grain exports have distorted food prices not only in neighboring Pakistan and Bangladesh, and on to Haiti and some African countries as well.[See Part 2, the conclusion: “Hot (Headed) Yoga”]

 

Without Bureaucratic Cobwebs, ASEAN cooperation can now move forward


October 10, 2014

Without Bureaucratic Cobwebs, ASEAN cooperation can now move forward

by Tunku A. Aziz@www.nst.com.my

tunku-azizWHEN ASEAN came into being on August 8, 1967, it was largely driven by considerations of peace and security among neighbours in a troubled region. We Malaysians had just emerged, with scars to show, from Indonesia’s “Konfrontasi”. There were admittedly serious concerns about countries in Southeast Asia being drawn inexorably into the Communist orbit, but Malaysia refused to be stampeded into embracing the “Domino Theory”.

Although the Malayan Communist Party-inspired insurgency was far from over, we were confident that we were in effective control of our country’s security and with the right mix of poverty eradication and industrial development policies, we could manage our own affairs without unwelcome United States intervention.

Malaysians were with their elected government. Embracing the US would have been the kiss of death for us, an emerging nation in search of a role and an identity. We had to develop our own home- grown model for regional cooperation.

We created ASEAN, then made up of Thailand, Malaysia, Singapore, Indonesia and the Philippines, in the confident expectation that it offered the best hope for our vision of a conflict-free region. However, ASEAN’s founding fathers, in envisioning their grand design, had not given sufficient thought to the role that their civil servants would be playing in policy formulation and implementation. The passage towards some semblance of unity of purpose was excruciatingly slow. ASEAN official inertia had to be experienced to be believed.

The private sector in ASEAN wanted to move at a much faster rate and felt that the civil servants were not only dragging their feet but were being totally obstructive. The ASEAN Chambers of Commerce and Industry (CCI) were quick to see the business potential presented by a regional market of more than 250 million people, and took to the new opportunities like duck to water, only to find that the bureaucrats had forgotten to fill up the pond.

Several industry-based working groups were formed and important trade links were made with the US and European Union chambers of commerce and industry. I remember a trip to Washington DC in the ‘70s by the ASEAN CCI and being received in the White House where a meeting with US officials and senior business leaders was arranged in the Franklin Room.

US Vice-President Walter Mondale was to host the meeting but he had to be called away on urgent state business. We were going all out to promote ASEAN to the American business community, but soon realised that we were so far ahead of the ASEAN governments that we were put in an embarrassing position. We cajoled, huffing and puffing, but to no avail. We were stuck in a bureaucratic maze.

We were running out of patience and the inevitable clash was not long coming. On Dec 12, 1979, some 12 years after the formation of ASEAN, 250 top ASEAN business leaders from all the national chambers met in Singapore. This was the opportunity I needed as chairman of the ASEAN CCI Working Group on Industrial Complementation to read the riot act.

Let The Straits Times of Singapore of December 13 echo my disappointment. Under the headline, “ASEAN civil servants rapped — ‘Too rigid an attitude towards cooperation”, it reported:

“Malaysian business leader, Tunku Abdul Aziz, yesterday lashed out at civil servants of Asean for their rigid, uncompromising and hopelessly impractical attitude towards closer regional cooperation.

Tunku Abdul Aziz said: “I have detected of late evidence of disenchantment and disquiet within the private sector with the way in which the question of economic and industrial cooperation is being handled by the economic ministers through their Committee on Industry, Minerals and Energy (Coime).

“A measure of the general euphoria prevailing throughout the ASEAN private sector is that until a few months ago, most of us were satisfied that Coime understood its role and was prepared to exercise its power and authority in a way that would satisfy private sector aspirations.

“What we did not know, of course, was that this body of hardened bureaucrats, sitting collectively in splendid isolation and insulated from the reality of a real world, was no more ready to deal with its appointed task than the Ayatollah is ready to grant the Shah of Iran the freedom of the city of Teheran.”

Questioning the effectiveness of the guidelines laid down by ASEAN civil servants on industrial complementation of regional projects, Tunku Aziz said:

“In spite of the usual pious declarations of selfless devotion to economic cooperation, these guidelines must be seen for what they are. They are rigid and uncompromising and are so obviously intended to protect the national position at all costs.

“These guidelines are a blight on the concept of regional cooperation. It is not surprising that we are beginning to wonder whether our governments are intellectually ready to cope with the rather special demands of a concept that requires a high degree of political will.

“Let us hope the governments of ASEAN will recognise the importance of private sector participation and involvement at all levels of policy formulation so that what emerges is a concerted effort distilled from the best available talents from both the government and the private sector.”

The Business Times Malaysia in its editorial, “ASEAN — useful plain speaking”, said that: “It needed to be said, sooner rather than later. But no one did until Wednesday when Tunku Abdul Aziz, in his capacity as Chairman of the ASEAN CCI’s Working Group on Industrial Complementation, hit out at the official Committee on Industry, Minerals and Energy in which rests the responsibility for reviewing ideas for reviewing ideas in these fields.”

The Asian Wall Street Journal waded in to support my “blast”, reporting my attack on the official guidelines that “are intended to regulate and control rather than promote and encourage private sector participation in and contribution to economic cooperation. These guidelines are a blight on the concept of regional cooperation”.

The tenor of my speech took ASEAN ministers and their bureaucrats by complete surprise, but it had the desired effect. Governments understood our position better and helped to remove much of the cobweb that had befuddled their collective mind.

Today, ASEAN is jogging along nicely and thriving. Successive regional leaders, 4th PM of Malaysiaparticularly Tun Dr Mahathir Mohamad, can take pride in nurturing ASEAN to become a regional force for good.

ASEAN has been well-served by many distinguished secretaries-general, but in my considered opinion, the best ever was undoubtedly Dr Surin Pitsuwan of Thailand, the quiet and thoughtful man of diplomacy, the United Nations Secretary-General we never had because he was in the wrong party and the government of Thailand did not support his candidature for that high office — a great loss to the world.

The ASEAN bureaucrats of my time very nearly scuttled the vision and hopes of millions of Southeast Asians for their rightful place in the larger global scheme of things. Mercifully, in spite of them, ASEAN has arrived.

Southeast Asia: The Bright Spark


October 8, 2014

Southeast Asia: The Bright Spark in a Gloomy World

by W. Scott Thompson@www.nst.com.my

OLYMPUS DIGITAL CAMERAThe Bright Spark in a Gloomy World

“AROUND the world in 80 days”, or even eight days, might not be a happy trip in 2014. Start with my country: the current issue of political journal Foreign Affairs has a cover saying “See America: Land Of Decay And Dysfunction”. Head south and it’s hard to find success stories. Argentina is in a financial mess, Venezuela is moving back into the hands of the Army and Mexico is all about drugs.

For Europe, the biggest joke is that only Belgium has escaped the financial crisis, mostly because it has no real government and no prime minister during the key years. You can’t blame Germany for being thrifty and resenting to pay for the high life in Greece, Italy and Spain over the last 20 years. A compromise has yet to be found between the northern proponents of austerity and those believing that more consumer spending will get the southern countries out of their doldrums. Unemployment rates at 25 per cent don’t make for easy governance.

Africa is a mixed bag. Even the leading stars in growth, like Ghana, are in financial trouble. Fighting continues in Congo, extremists continue to move south and even if overall, Africa has an average growth rate better than most of the world, it’s too small a part to change things — CNN attempts to show the bright side, notwithstanding.

Let’s just skip the Middle East; it’s a disaster zone and it’s too early to say whether the Islamic State can be stopped — though it has to be. Suffice to say that if IS takes control of Syria’s largest city, Aleppo, the best scenario indicates it would take a year or two to evict them. As usual, Iran is a shadow player and in the end, will be the most important one to stabilise the region.

In South Asia, India’s new Prime Minister has made it big at the United Nations, but it’s an open question whether he can really can open up the Indian economy for the rapid growth on which success depends. Let’s not even mention Pakistan.

All the talk about China centres on Hong Kong and what the demonstrations portend. But I would pay more attention to western China, where the Islamic Uighurs are a far bigger headache for the Politburo.

Jokowi WidodoCome to Southeast Asia and you might start smiling. Discussion is dominated by the old forces of the Indonesian military under the leadership of General Prabowo Subianto, in voting out all the moves of decentralisation that have achieved so much since 1999. President-elect Widodo will be sworn into office on October 20; he does not command a majority in Parliament but he hasn’t even begun to use presidential patronage to block Probowo’s attempts to turn the clock back. I wouldn’t bet against the new President’s powers of persuasion and presidential suasion. On balance, we should be very optimistic about Indonesia.

Now, go around the region and just about everything is moving, if slowly, in the right Thailand Democracy Protestdirection. That is, if you see the Thai coup d’état as a necessary evil that will restart the political system without the cost of long-term death to democracy that former PM Thaksin Shinawatra represents. The political establishment has regained control and let’s not forget the 60 years of transformation that the coalition has provided. Next to China, no sizeable state has grown so fast.

Malaysia provides one of the world’s best examples of a tricky balanmalaysia-truly-asia-girls11cing act in providing stability in a multi-ethnic state. It is basically because it is a strong state; even its critics must admit the remarkable success of its leaders. It is gaining ground in the middle income division of the world’s states. The economic model says that countries well-endowed with natural resources are the first ones to fail, relying too heavily on what they can get out of the ground or grow on trees. But it secured independence with strong leaders who changed all that. This is quite an oversimplification, but the bottom line is a big success story.

The PhilippinesNow, welcome to the Philippines, home of, in my experience, the world’s happiest people. Its growth rate is closing the gap with China. Critics say the rich elite is getting more than its fair share, yet, studies of wealth division show the Philippines with not much different a Gini coefficient of wealth distribution than the other countries in the region.

And if nothing else, everybody is benefiting from investments in infrastructure. Bulldozers and backhoes are everywhere, widening roads to population centres, and providing jobs for the best of the young professionals in the all but ubiquitous call centres. President Benigno Aquino III has managed two thirds of his six-year term without an agenda, but he always says the right things and leaves no taint of corruption — leaving aside consideration of some of his associates whom he’s too nice to fire.

Everyone in the region is worried about China’s claim to much territorial waters of littoral states in the South China Sea. My guess is the new President of China is too smart to let its navy push too far. Anyway, if you came from Mars and could live anywhere, you certainly wouldn’t choose Russia or China, most of Africa, and so many other places with deeply rooted problems.

Well, this is a bit subjective for me, having chosen Southeast Asia 50 years ago as a research area that was on the go — and when the world was my oyster and I could live anywhere. I’m glad I chose Bali, the Philippines, and the capital cities of Thailand and Malaysia.

1MDB: A Financial Time Bomb (?)


October 7, 2014

1MDB: A Financial Time Bomb (?)

by Tony Pua@www.malaysiakini.com

Prime Minister Najib Abdul Razak will on Friday announce the Federal Government’s 2015 Budget. However, any announcement by the Prime Minister without addressing the extravagance of 1Malaysia Development Bhd (1MDB) and its debt of RM36 billion will be missing the massive elephant in the room.

Najib as Finance MinisterShould the 100 percent Finance Ministry-owned 1MDB collapse with the burden of its debt, and with the financial community getting increasingly worried and restless with this possibility, Najib will go down in history as the Prime Minister who will possibly bankrupt the Malaysian government.

Due to explicit and implicit guarantees by the Federal Government, 1MDB has accumulated a debt exceeding RM36 billion within a short span of only five years, some of which are already due and require immediate repayment.

In fact, according to Kinibiz.com, 1MDB plans to raise another RM8.4 billion in sukuk to finance its activities this year. At the same time, it is also busy rescheduling its short-term debts to avoid immediate default throughout the past year.

According to the Singapore’s Business Times, the above rescheduling of debt has come at an expensive price of 2.5 percent interest above the annualised cost of funds, on top of RM20-30 million in upfront fees.

central-bank-of-malaysiaThe report said the real threat of default had “ruffled the feathers of Malaysia’s top banking circles as well as the country’s banking regulator, Bank Negara”.

The financial distress in 1MDB is so serious that the government has been forced to renege on its promises to the market of fair and open tenders for Independent Power Producer (IPP) contracts to ensure the lowest cost of electricity supply to Tenaga Nasional Bhd.

The government has  awarded an IPP contract to 1MDB despite the latter not having bid the lowest price. Subsequently, the government decided to eschew the open tender process altogether to award 1MDB a 50MW solar power plant in March and another 2,400MW gas-fired power plant in August this year. The shocking concern is that the 2,400MW power plant isn’t required till 2021 but it has been awarded via direct negotiations now.

The above actions are clearly expensive bailout exercises of the Federal Government to enable 1MDB to secure sufficient revenue to list its power plant projects. 1MDB desperately needs to do so in order to raise urgent funds to repay its burgeoning debt.

1MDB overpaid for expiring IPP companies

This is especially  since 1MDB overpaid for expiring IPP companies in 2012, which has resulted in a massive impairment of RM2.7 billion recorded in the financial statements ending March 2013.

The irony of the massive cash call is that 1MDB actually has RM7.18 billion in liquid assets, mysteriously invested offshore in the Cayman Islands. The investment has generated a pitiful 5.76 percent in returns recorded in 2013, despite the fact that the cost of funds for 1MDB is in excess of six percent.

Prime Minister Najib must provide a convincing answer as to why these funds residing in well-known, secretive tax havens have not been repatriated home for the much-needed funding for 1MDB’s local projects.

Najib must also provide a detailed road map and explanation for 1MDB’s splurge of RM1.38 billion for 238 acres of land in Penang, where it promised to build 9,999 units of low-cost and affordable housing a mere six days before the last general election.

For more than a year now, 1MDB has done absolutely nothing with the acquisition, which was paid with debt raised from financial institutions. The Prime Minister’s pet project, 1MDB, is able to single-handedly bring down the entire Malaysian financial system. The desperation of the Federal Government in awarding the company with lucrative contracts and cut-price prime property assets cannot be more obvious.

The RM36 billion direct and indirect contingent liability for the federal government4th PM of Malaysia casts a deep and dark shadow over any possible improvements in our budget deficit to be announced by Najib.

To quote former Prime Minister Dr Mahathir Mohamad himself: “The money for 1MDB is not from the country’s surplus. It is a debt. Billions of ringgit in debt that is added to the already-high national debt. The national debt must be paid. If not, we will be bankrupt like Argentina. A country that has been facing a deficit every year could not possibly pay off a debt this big.”

TONY PUA is DAP’s Petaling Jaya Utara MP.