Policy uncertainty threatens trade growth, says World Bank


February 22, 2017

Policy uncertainty threatens trade growth, says World Bank

Warning on protectionism and threats to trade agreements in Trump era

https://www.ft.com/content/9d49b092-f859-11e6-9516-2d969e0d3b65

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Political uncertainty is slowing trade growth, a World Bank report has concluded, indicating that the rise of Donald Trump may already be casting a shadow over the global economy.

Major international institutions such as the IMF, the OECD and World Bank have recently upgraded their forecasts of global economic growth largely due to expectations that tax cuts, rising infrastructure spending and a wave of deregulation will boost the US economy under the new president. But the report by World Bank economists, released on Tuesday, highlights the fragile state of one historically important engine of global growth — trade.

To the extent that the policy uncertainty will remain high we should continue to expect [global] trade growth to be subdued. Michele Ruta, World Bank report co-author

The study avoids naming Mr Trump, but highlights rising protectionism and threats to unwind trade agreements — such as those made by the president. It also raises the prospect that attempts by the Trump administration to force companies to repatriate global supply chains to the US could undermine efforts to boost lagging productivity growth. To the extent that the policy uncertainty will remain high we should continue to expect [global] trade growth to be subdued Michele Ruta, World Bank report co-author International trade has been growing below historic trends for the past five years. The 1.9 per cent growth recorded in 2016, according to the team at the bank, was the slowest since the 2009 collapse in commerce that followed the global financial crisis.

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Prime Minister Justin Trudeau meets with U.S. President Donald Trump in the Oval Office at the White House–The Future of NAFTA

The team found that some of the reasons for the anaemic trade growth, which affected both developed and developing economies, were broader trends such as slow economic growth around the world and a collapse in commodity prices. But in 2016 the principal change was a surge in uncertainty about economic policy. According to the World Bank’s calculations, such uncertainty was responsible for 0.6 percentage points of the 0.8 percentage-point fall in trade growth between 2015 and 2016. The team at the bank based their figure on a study of the relationship between trade and economic policy uncertainty in 18 countries over three decades. They added they expected the impact to continue in 2017. “To the extent that the policy uncertainty will remain high we should continue to expect [global] trade growth to be subdued,” said Michele Ruta, one of the authors. The World Bank team also sought to quantify the impact of trade agreements on global trade growth. World trade grew at an annual rate of 6.53 per cent between 1995 and 2014, they calculated. Had no new members — including China — joined the World Trade Organisation or no new trade agreements been signed, international trade would have grown at just 4.76 per cent annually, they found.

One of the big consequences of the explosion in trade deals in recent decades has been the emergence of global supply chains. Such chains are widely seen by economists to have made businesses more efficient and boosted productivity. But Mr Trump and his administration have said they want to unwind those international supply chains and bring them home. “It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” Peter Navarro, one of the president’s top trade advisers, told the Financial Times last month.

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According to the World Bank team such a move, coupled with unwinding existing trade agreements that have encouraged the establishment of international supply chains, would hurt productivity growth. “Preserving and expanding the reach of trade agreements, rather than backtracking on existing commitments, would help to sustain the growth of productivity,” the bank’s economists wrote.

Racist Politics in Malaysia–Blame the Whole Shebang


February 19, 2017

Racist Politics in Malaysia–Blame the Whole Shebang

by S. Thayaparan@www.malaysiakini.com

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It was obvious that bigotry was never a one-way operation, that hatred bred hatred!”

– Isaac Asimov, ‘Pebble in the Sky’

COMMENT: Readers interested in what I write should consider this a companion piece to my article describing how non-Malay Malaysians (specifically) are a tolerant lot.

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Mahathir’s First Carma (Cari Makan) Journalist–A Kadir Jasin

De facto opposition leader and former Prime Minister Tun Dr. Mahathir Mohamad casually mentioned last week that he was partly to blame for the demonisation of DAP. I suppose this went together with veteran journalist A Kadir Jasin’s admission that he was part of the brainwashing that went, and goes on, in UMNO. They say admitting you have a problem is the first step, but I doubt that the indoctrination of Malay youths will cease any time soon when the opposition is made up of Islamic groups determined to use Islam as a political tool.

I wrote the last part of the above paragraph after the opposition had suffered a setback in the by-election where the current UMNO grand poobah was supposed to receive a black eye but apparently, the opposition punched itself in the face. A reader had emailed and asked if the schadenfreude tasted good, especially since I had predicted the results.

I take no pleasure in any opposition defeat and neither do I take pleasure in a UMNO win. This is the bitter taste of having to choose between the lesser of two evils. Furthermore, when I say “evil”, do not get your panties in a twist because it is an expression and not a description of either political fronts. These days I cannot tell the difference between winning and losing when it comes to “saving Malaysia”.

As I have argued before, a country can recover from corruption scandals, but it rarely recovers from that type of Islam that neutralises the democratic imperative. In Malaysia, where race and religion are not mutually exclusive, the threat from Islamists is coupled with ethno-nationalism.

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The  First Malay Nationalist (or is it Racist?)

The de facto Opposition Leader is right when he says that he demonised DAP as DAP and other opposition parties had demonised him. However, the reality is that these political parties were not only demonising their political rivals, they were demonising entire communities.

So, when you want to win, and you demonise your political opponents, and by extension whole communities, the political terrain becomes a battleground for competing racial interests instead of ideological or policy ideas.

This is why I have always been sceptical of the opposition propaganda about voting across racial lines. In one of my numerous articles about race relations in this country, I wrote: “In addition, this idea that voting across racial lines as some sort of evidence of burgeoning multiracial solidarity is complete bunkum. The real test is when people vote across ethnic and religious lines in support of ideologies that run counter to the interests of their communities and by this, I mean egalitarian ideas that run afoul of constitutional sacred cows and social and religious dogma.”

While the former Prime Minister (and now de facto Opposition Leader) and the system contributed to Malay fear of DAP, the whole political system and voting patterns of Malaysians is also culpable for this sad state of affairs. UMNO succeeded because the majority of Malaysians voted for race-based parties. Racial preoccupations were the currency that sustained BN politics and still does.

The problem is that because we do not have an alternative, BN politics is the only game in town. Non-Malay oppositional voices and voters do not demand an alternative but rather that the system continues but in a more “fairer” manner.

DAP and MCA furiously battle for the Chinese vote. Meanwhile Malay-dominated so-called multicultural parties battle with UMNO and now PAS for the Malay vote. Until the former Prime Minister showed up, there was no central theme that united the Opposition.

While the charismatic Anwar Ibrahim and the late Tok Guru Nik Aziz Nik Mat discovered that populism does not necessarily mean racial or religious preoccupations when it comes to cobbling together a formidable coalition, the emergence of the former Prime Minister as the de facto opposition leader has given the current UMNO regime an opportunity to:

1) Revisit history.

2) Dredge up the financial scandals of the former Prime Minister.

3) Point out that their strategies for securing the Malay vote is based on his strategies that kept him in power for decades.

If anyone is wondering why questions of race always revolves around the Malay and Chinese dialectic, it is because… well, if you are going to ask this question, you have obviously not being paying attention.

All are participants in race game

When I argued that Malaysians were a tolerant lot, the thrust of the piece revolved around how systemic inequalities were a detriment to the non-Muslim population but I failed to emphasise how the non-Malay communities were active participants in the race game in this country.

Voting for race-based parties meant that we did not have to concern ourselves with egalitarian concepts that would have been the basis for a more democratic system. It was not that we were “immature” or “uneducated”, it was just easier to vote for a political hegemon that provided security and stability for decades but not the rights and responsibilities that are part and parcel of a functional democracy.

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UMNO’s Money Stealing Grand Poobah

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Tolerance may have been a one-way street, it was also the street where we stopped by the sidewalk and spat at the “Malays”. There is the other narrative of non-Malays engaging in subtle and overt racism, all the while supporting racial political parties that claimed inclusiveness.

The majority of us did this to ensure that our racial preoccupations were satisfied by a plutocrat class instead of demanding for an accountable and transparent government, but more importantly demanding for a principled opposition who fearlessly made their positions clear instead of championing communal causes under the guise of “multiracial/culturalism”.

The private sector was (is) dominated by Chinese polity who were perpetuating their own form of systemic inequalities and contextualising this reality as a response to the systemic inequality perpetrated by the UMNO Malay state.

While I think, there is generally “a live and let live” vibe between Malaysians, it would be a mistake to assume that this is some sort of national identity or some form of stable unity. I realise that this is political incorrect to say, but the hard truth is that while race relations have been manipulated by establishment (both UMNO and the Opposition), the reality is that there was always tensions between the various races of this country.

This is why talking about “race” in this country is such a demoralising endeavour. Appeals to emotion replace rational discourse. The fact that our constitution is compromised, the system itself is predicated on maintaining racial and religious superiority, makes any discussion about how the non-Malays react to such a system, their complicity in sustaining the system difficult to articulate.

The fault of UMNO and the Opposition is that nobody offered an alternative and Malaysians never expected anything better.

You know what the big difference is between the corruption scandals of UMNO back in the day and the one now is? The difference is that a vast majority of Malaysians kept voting UMNO-BN back then than they do now. This is a testament to not only the political strategies of Mahathir but also the apathy of the Malaysians. This of course is a boon for the Opposition because Mahathir seems to be the only person who can galvanise the opposition. The more things change, the more they remain the same.

 

Harping on Chinese FDIs in Malaysia


January 16, 2017

Harping on Chinese FDIs in Malaysia

by Josh Hong @www.malaysiakini.com

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A leopard never changes its spots, does it? Having failed to offer a set of alternative policies and convince the general public of their ‘reformist’ credentials, Dr. Mahathir Mohamad, Zainuddin Maidin and Muhyiddin Yassin are now all back to bashing Najib Abdul Razak along the not-so-subtle racial lines.

Yes, China has been investing aggressively in Malaysia, but the Chinese are not the first ones who came, saw and conquered our market in recent years.

Before that, the Americans, Japanese and Arabs, too, had pursued very proactive business strategies in South-East Asia. With its relatively well-developed infrastructure and affordable land, Malaysia stood to benefit tremendously from their investments for more than three decades.

Since the 2000s, the Arabs, too, have been investing heavily in strategic industries in Malaysia, especially the petrochemical sector and real estate development, with the United Arab Emirates emerging as one of Malaysia’s largest trading partners and among the most vigorous investors in Malaysia’s oil and gas industries.

Mubadala Petroleum is currently setting its sights on Sarawak, while the International Petroleum Investment Company remains a key investor in Malaysia despite the 1MDB debacle. Both Putrajaya and Abu Dhabi maintain bilateral and trade relations are rock solid.

Meanwhile, the Qatar Investment Authority is a big player in Malaysia’s strategic real estate, commodities and energy sector. In 2013, it had plans to develop the Pengerang Integrated Petroleum Complex in southern Johor that was worth US$5 billion, aimed at making the country a petrochemical regional hub, not too dissimilar from China seeking to help turn Malaysia into a ‘transportation hub’ via Bandar Malaysia and the proposed high-speed rail terminal.

Even less well-known was that an agreement was signed in 2012 to make Qatar Holding a cornerstone investor in Felda Global Ventures Holdings Berhad, no doubt a highly important and vitally strategic global agricultural and agri-commodities company, while the Kuwait Investment Authority invested US$150 million in Malaysia’s IHH Healthcare.

At one time, the Qataris and the Najib government even agreed to build a ‘seven-star’ Harrods Hotel in the Bukit Bintang area in Kuala Lumpur, right next to the upmarket Pavilion shopping mall. The business venture somehow went awry and subsequently called off.

This aside, Saudi Arabia several years ago ranked fifth among Malaysia’s leading sources of investment, just behind Japan, South Korea, the US and Singapore. China was nowhere to be seen then.

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Mind you, PetroSaudi International was deeply involved in the scandal-ridden 1MDB and the Saudi Foreign Minister Adel al-Jubei even confirmed in April last year that money was wired into Najib’s personal account and it was a “genuine donation with nothing expected in return”.

Now, one may derive from the s statement that the Kingdom of Saudi Arabia was complicit in corruption on a global scale but did any Malay or Muslim leader in UMNO or outside of it accuse the Saudi government of seeking to undermine Malaysia’s sovereignty or taking over the country? Is Saudi Arabia beyond reproach simply because it is where Mecca, Islam’s holy city is located?

The Arabs have been coming but no-one, certainly not UMNO, Mahathir or his minions in Bersatu, has said a word against investors from the Gulf region.

Nobody is talking about Najib turning the country into an Arab colony except for Marina Mahathir who lashed out at ‘Arab colonialism’ because traditional baju Melayu for women are now more difficult to find than in the old days as compared to the increasingly popular Arab attire. But her father has yet to cast aspersions on Najib selling Malaysia out to the Arabs through all the strategic investments.

Instead, Mahathir has been harping on Chinese nationals buying up lands and properties and blaming it on Najib, hoping that this would heighten the siege mentality of the Malays which would in turn alienate them further from UMNO.

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But Mahathir’s subterfuge can escape anyone but me. After all, it was his alleged racist rhetoric that kept him in power for over two decades, and Malaysia’s complex racial dynamics have created a fertile ground for a cunning strategist like him.

Crafted with the Malay constituency in mind

The messages by Mahathir, Zainuddin and Muhyiddin are not a coincidence, for they are all carefully crafted with the Malay constituency in mind.

They cannot openly demonise the Chinese Malaysian community because they need to ensure the opposition parties including DAP win enough Chinese votes, but at the same time, they are in dire need of denying Najib critical Malay support. So the best way to achieve this is to play up China as a bogeyman.

Mahathir and Bersatu may appear to be concerned over the influx of mainland Chinese capital and money, but their articulation is nothing but a veiled warning to the Malays that continued support for Najib would mean a greater Chinese presence in Malaysia, to the detriment of the ‘indigenous population’, of course.

Why pick on the Chinese when your Muslim brethren from the Middle East are no less commercially greedy and strategically ambitious?

It is not very different from the days when Mahathir ‘cari pasal’ (find fault) with Singapore in order to consolidate the Malay base. Stigmatising Chinese Malaysians comes at too huge a political cost, hence the sudden ‘realisation’ of mainland Chinese investments being a threat.

It is nothing more than a repackaged argument that, in favouring the (mainland) Chinese, Najib would only end up marginalising the Malays, just like the British.

If Mahathir and his cohorts have an issue with excessive foreign investments, they must not just single out China but the Gulf countries also. Mahathir may even question his own national car policy which only resulted in Malaysia becoming almost totally dependent on Japan for spare parts and technology, while failing to make Proton a car giant as he would have dreamed!

I have a problem with Islamic conservatism, but I have no problems with the Muslims; I am sceptical about American expansionism but I am fine with the American people; I am opposed to Israeli policies on Palestine but I don’t hate the Jews; I disagree with Shinzo Abe’s historical revisionism but I appreciate Japan as a wonderful country, and I look askance at communist ideology yet I enjoy the friendship of my mainland Chinese friends.

And I remain very much a leftist and a liberal who considers neo-liberalism a major source of the global chaos today. But unlike Mahathir, I vow not to use race or religion as my weapon even if I am wary of the destructive power of capitalism, because I have always been acutely aware of the hard fact that capital and money have no motherland.

Go on supporting Mahathir and Bersatu if you want, and I won’t shed a tear for you even if one day you find yourself trapped in the quicksand of racial politics and unable to be free.


JOSH HONG studied politics at London Metropolitan University and the School of Oriental and African Studies, University of London. A keen watcher of domestic and international politics, he longs for a day when Malaysians will learn and master the art of self-mockery, and enjoy life to the full in spite of politicians.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

World Bank Doing Business Report Continues to Mislead


December 16, 2016

More of the Same: World Bank Doing Business Report Continues to Mislead

Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008–2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor, was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007.

Eight of The World Bank's "Doing Business" report 2017’s ‘top 10 improvers’ including  Kenya, Pakistan, the United Arab Emirates and Bahrain have, in fact, worsened workers’ rights, according to the International Trade Union Confederation. Credit: IPS

Eight of The World Bank’s “Doing Business” report 2017’s ‘top 10 improvers’ including Kenya, Pakistan, the United Arab Emirates and Bahrain have, in fact, worsened workers’ rights, according to the International Trade Union Confederation. Credit: IPS

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Malaysia’s Professor Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR, December 15, 2016 (IPS) – The World Bank’s Doing Business Report 2017, subtitled ‘Equal Opportunity for All’, continues to mislead despite the many criticisms, including from within, levelled against the Bank’s most widely read publication, and Bank management promises of reform for many years.

Its Foreword claims, “Evidence from 175 economies reveals that economies with more stringent entry regulations often experience higher levels of income inequality as measured by the Gini index.” But what is the evidence base for its strong claims, e.g., that “economies with more business-friendly regulations tend to have lower levels of income inequality”?

Closer examination suggests that the “evidence” is actually quite weak, and heavily influenced by countries closer to the ‘frontier’, mainly developed countries, most of which have long introduced egalitarian redistributive reforms reflected in taxation, employment and social welfare measures, and where inequality remains lower than in many developing countries.

The report notes that relations between DB scores and inequality ‘differ by regulatory area’. But it only mentions two, for ‘starting a business’ and for ‘resolving insolvency’. For both, higher DB scores are associated with less inequality, but has nothing to say on other DB indicators.

Other studies — by the OECD, IMF, ADB and the United Nations — negatively correlate inequality and the tax/GDP ratio. Higher taxes enable governments to spend more on public health, education and social protection, and are associated with higher government social expenditure/GDP ratios and lower inequality. The DBR’s total tax rate indicator awards the highest scores to countries with the lowest tax rates and other contributions (such as for social security) required of businesses.

Bias

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The DBR’s bias to deregulation is very clear. First, despite the weak empirical evidence and the fallacy of claiming causation from mere association, it makes a strong general claim that less regulation reduces inequality. Second, in its selective reporting, the DBR fails to report on many correlations not convenient for its purpose, namely advocacy of particular policies in line with its own ideology.

The World Bank had suspended the DBR’s labour indicator in 2009 after objections — by labour, governments and the ILO — to its deployment to pressure countries to weaken worker protections. But its push for labour market deregulation continues. For example, Tanzania’s score is cut in 2017 for introducing a workers’ compensation tariff to be paid by employers while Malta is penalized for increasing the maximum social security contribution to be paid by employers.

New Zealand beat Singapore to take first place in the latest DBR rankings following reforms reducing employers’ contributions to worker accident compensation. Nothing is said about how it has become a prime location for ‘money-laundering’ ‘shell’ companies.

Meanwhile, Kazakhstan, Kenya, Belarus, Serbia, Georgia, Pakistan, the United Arab Emirates and Bahrain — eight of DB 2017’s ‘top 10 improvers’ –– have recorded poor and, in some cases, worsening workers’ rights, according to the International Trade Union Confederation. A DBR 2017 annex claims that labour market regulation can ‘reduce the risk of job loss and support equity and social cohesion’, but devotes far more space to promoting fixed term contracts with minimal benefits and severance pay requirements.

In support of its claim of adverse impacts of labour regulations, DBR 2017 cites three World Bank studies from several years ago. Incredibly, it does not mention the extensive review of empirical studies in the Bank’s more recent flagship World Development Report 2013: Jobs, which found that “most estimates of the impacts [of labour regulations] on employment levels tend to be insignificant or modest”.

DBR 2017 adds gender components to its three indicator sets — starting a business, registering property and enforcing contracts — concluding: “For the most part, the formal regulatory environment as measured by Doing Business does not differentiate procedures according to the gender of the business owner. The addition of gender components to three separate indicators has a small impact on each of them and therefore a small impact overall”.

Should anyone be surprised by the DBR’s conclusion? It ignores the fact that the policies promoted by the Bank especially adversely affect women workers who tend to be concentrated in the lowest paid, least unionized jobs, e.g., in garments and apparel production or electronics assembly. The DBR also discourages regulations improving working conditions, e.g., for equal pay and maternity benefits.

Despite its ostensible commitment to ‘equal opportunities for all’, the DBR cannot conceal its intent and bias, giving higher scores to countries that favour corporate profits over citizens’, especially workers’ interests, and national efforts to achieve sustainable development.

Sadly, many developing country governments still bend over backwards to impress the World Bank with reforms to improve their DBR rankings. This obsession with performing well in the Bank’s ‘beauty contest’ has taken a heavy toll on workers, farmers and the world’s poor — the majority of whom are women — who bear the burden of DBR-induced reforms, despite its proclaimed concerns for inequality, gender equity and ‘equal opportunities for all’.

 http://www.ipsnews.net/2016/12/more-of-the-same-world-bank-doing-business-report-continues-to-mislead/

 

Sagging Confidence in Asia toward Business Conditions–Malaysia an exception?


December 15, 2016

Sagging Confidence in Asia toward Business Conditions--Malaysia an exception?

by Reuters@ http://www.khmertimes.com.kh

Confidence in Asia toward business conditions over the coming six months dropped in the final quarter of 2016 to its lowest level in a year as firms fretted about sluggish demand in a persistently low-growth economic environment, a Thomson Reuters/INSEAD survey found.

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Malaysia’s No. 1 Problem–The Source of Political Uncertainty

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2015

Firms also flagged political uncertainty as a key near-term risk, including that brought by the election of Donald Trump to the US presidency – an outcome some cited as a key risk in the same survey three months prior.

The Thomson Reuters/INSEAD Asian Business Sentiment Index, representing the half-year outlook of 118 firms, fell to 63 from 68 in the September quarter, although it remained above the 50 mark separating optimism from pessimism.

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2015

“The fall in the business sentiment index confirms what we have seen over the past few years. The world economy is growing but in a way that looks suboptimal,” said Singapore-based economics professor Antonio Fatas at global business school INSEAD. “It seems very difficult to regain a high state of confidence.”

Asian companies are particularly reliant on demand from China where slowing economic performance has been the main cause for concern over the past few years. But in recent weeks, political worries have come to the fore.

Mr. Trump has advocated more US-centric trade relations and the cancellation of the Trans-Pacific Partnership trade pact. He has also vowed to repatriate jobs such as in the outsourcing industry which flourishes in the Philippines, where new president Rodrigo Duterte is known for anti-American rhetoric.

In South Korea, lawmakers have voted to impeach President Park Geun-hye over an influence-peddling scandal after weeks of protests, while in India, Prime Minister Narendra Modi abolished 86 percent of the country’s cash overnight to tackle corruption.

Firms have to navigate such events “with the possibility of either ‘muddling through’ as we have managed to do over the last two years or hitting a wall because one of these uncertain events turns negative,” said Mr. Fatas.

Thomson Reuters and INSEAD polled firms across Asia from November 28 through December 9. Of 118 respondents, just over 42 percent were positive toward business prospects over the next six months, 41 percent were neutral and 16 percent were negative.

Respondents included Australia’s Transurban Group, India’s Reliance Industries Ltd., PT Telekomunikasi Indonesia (Persero) Tbk., Japan’s Asahi Group Holdings Ltd., Korea Aerospace Industries Ltd. and the Philippine National Bank.

Firms in Australia were the most positive with their subindex of 86 although that was still two points lower than three months prior. Only Singaporean firms were negative with a subindex of 46, albeit an improvement from the 38 of September.

Sentiment tumbled the most in the usually upbeat Philippines, to 70 from 94. Though optimistic, the subindex compared with that economy’s average of 91 over the survey’s seven-year life.

Sentiment fell in China, to 80 from 90, in India to 70 from 75 and in Thailand to 60 from 72. But in South Korea it rose to 57 from 50 despite the political turmoil.

“Outside of Thailand, we expect to see a slower pace of economic growth in our main markets in Asia-Pacific, including Australia, China and Singapore in the near term,” said chairman and chief executive William Heinecke of Thai hotelier and retail distributor Minor International PCL.

Mr. Heinecke also said his company expected global tourism to be resilient in the current climate, and that the retail food service industry would be stable in its key markets.

By sector, the retail and leisure subindex fell to 56 in the fourth quarter from 68 in the third. Household, food and beverage firms were the most optimistic at 79, up from 72, whereas those in the autos sector were the most pessimistic at 40 from 60.

http://www.khmertimeskh.com/news/33160/poll–asia—s-confidence-slips/

The business of US economic diplomacy in Asia


December 7, 2016

The business of US economic diplomacy in Asia

by  Dr. Martin Parkinson PSM, Canberra

The outcome of the US election has created considerable uncertainty at the country’s future policy directions towards the Asia-Pacific. While it is difficult to predict how US economic diplomacy in the region will change, the rule-based order it has led remains crucial to regional security and stability.

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As a general rule, the United States has had more care for the development of the international system of global trade and investment than many other countries. Rather than acting unilaterally, the United States often deliberately constrains itself by acting through the IMF, WTO, the World Bank and other multilateral bodies. While it has used explicit economic levers at times — such as infrastructure spending, concessional finance or highly preferential trade deals — the United States has done so to a noticeably lesser extent than other powers for at least two reasons.

 

First, the great and successful US experiment with constitutionalism has led to clearly defined and separate roles for the public and the private sector. The constitution constrains what various US administrations may do in the short run. But in the long run this increases certainty and enables businesses to prosper through hard work and ingenuity. Separation of powers also limits the US government in its discretion on how to achieve economic ends internationally. The United States simply doesn’t have large state-owned enterprises or development banks that can be directed to international ends.

The second reason why the United States has been exceptionalist in economic diplomacy is pure realpolitik. As the dominant global power, the US benefited from economic activity almost irrespective of where it occurred around the globe. Immediately after World War II, the institutions set up with the support of the United States to regulate businesses around the globe to a significant extent set rules for its own businesses. But as we transition to a more multipolar world there is a risk that the link between US interests and the interests of the global economy is becoming less clear-cut.

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History shows that increased trade and investment delivers job opportunities and rising living standards. We have all benefited from the US inclination for international rules over the exercise of arbitrary power. Global rules and norms have allowed businesses, and even countries, to specialise in production and for investment to flow where it is most valued. As I have said elsewhere, the rules-based order effectively underwrote the massive explosion of regional incomes – from Japan, to the Asian Tigers of South Korea, Taiwan, Hong Kong and Singapore, and now China, India, Indonesia and others.

Despite some shortcomings, the US model of economic diplomacy is still the right bet for our region. First, it’s flexible. The rules-based order creates the conditions for markets to flourish — and markets pivot faster than governments. Second, it’s voluntary. Relying on markets fits neatly with the ‘ASEAN way’ of doing economic diplomacy which emphasises non-interference and relationship building.

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It is a strength of the system that the rising emerging countries now want to participate in setting the global rules. These aspirations are legitimate and the alternative scenario of competing trade and investment blocs is deeply unappealing.

The rules-based order encourages countries to implement best practice policy settings. For example, in recent decades we have seen US multinationals bring expectations around the rule of law and transparent regulations to markets around the world.

Perhaps most importantly, the US model of engaging internationally — with soft power and economic dynamism — is a success. Economic success is the foundation of economic diplomacy. Failing to pursue policies that foster dynamism, help manage shocks, and deliver citizens what they desire and value, risks the capacity to project power and sustain influence. Economic success makes US society attractive around the world, and it is US businesses abroad which help sell the American dream. US soft power remains unsurpassed.

Without a doubt, developments during President-elect Trump’s term will have a lasting impact on how the United States does business in this region. Yet if the United States retreats, whether in terms of economic, trade or military engagement, there is really only one other single player that could attempt to fill the vacuum. China’s economy is as big as the next 13 largest emerging countries combined, though its GDP growth is obviously slowing as it approaches the technological frontier, and with its ageing and shrinking working population.

It is clear that the United States needs help in maintaining support for global rule setting.

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The United States needs the support of its friends and allies to maintain its focus on this region and on far-sighted and open regionalism. This is in our interest — indeed, in the interest of all countries in the region. With the slump in trade growth, the world has lost a key engine of economic growth that benefits all in the world. This requires other countries to step up and do more of the heavy lifting to advocate for the promotion of open markets, the importance of foreign investment and trade, and the benefits of immigration.

While we all need to get used to US dominance being replaced by pre-eminence, continuing to develop the rules-based order could be the most important legacy bequeathed to our region from the US primacy of the 20th century. US president Calvin Coolidge famously said that, ‘After all, the chief business of the American people is business. They are profoundly concerned with buying, selling, investing and prospering in the world’. Since business is certainly something the new US President-elect knows a lot about, we should all aim to ensure that this legacy will continue.

Martin Parkinson is the Secretary of Australia’s Department of the Prime Minister and Cabinet. This is an edited version of an address originally delivered at the American Chamber of Commerce in Australia in Sydney on 16 November 2016

http://www.eastasiaforum.org/2016/12/05/the-business-of-us-economic-diplomacy-in-asia/