The World Bank: Right Part of the Time and Wrong On Occasion on Malaysia

October 18, 2016

The World Bank: Right Part of the Time and Wrong On Occasion on Malaysia

by Dr Lim Teck Ghee

The World Bank’s occasional economic reports on Malaysia can generally be relied upon to offer sound analysis on the country’s economic development that is different from those emanating from our national sources. They provide a more critical perspective on entrenched policies or proposed new ones by stake players who should be independent and should not be beholden to the Malaysian government or any interest or lobby group.

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Two recent reports should be of interest to our policy makers. The first which came out in June this year affirmed the importance of leveraging on trade agreements and partnerships for the nation’s continuing economic prosperity.

The Economic Monitor report noted that

  • Malaysia is one of the most open economies in the world, with a trade to GDP ratio of 148% (from 2010 to 2014) compared to 58% in developing countries in East Asia and Pacific.
  • About 40% of jobs in Malaysia are linked with export activities.

Most Malaysians are aware of the importance of trade. But we have also seen the rise of uninformed and often xenophobic sentiments targeting the Trans-Pacific Partnership when it was being negotiated by the government. The Bank’s opinion on this and other similar agreements needs to be reflected upon.

In essence the Bank argues that implementation of new regional trade agreements can help Malaysia carry out key economic reforms and accelerate the country’s transition to high-income status. It notes that the new generation of regional trade agreements – including the Regional Cooperation Economic Partnership, Trans-Pacific Partnership and European Union Free Trade Agreement – will shape trade and investment over the next decade.

It also calls for commitment to these agreements which goes beyond tariff reduction This is because not only will they have a significant impact on attracting investment, and further open up market access for the country’s exports of goods and services; they can also be used to push for deeper reform in competition policy, services trade and support to SMEs that would otherwise be difficult to initiate.

The Bank rightly warns that the transition will not be easy and proactive measures will be needed to ensure wider benefits under the new regional trade agreements.

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Notwithstanding the problems and difficulties, it is important for our policy and decision makers to get the Bank’s message and stay the course of this road of reform if we want our economy to grow and become more resilient.

Reducing Vulnerabilities the Wrong Way

The latest Bank report – a newly released East Asia and Pacific Economic Update entitled “Reducing Vulnerabilities” – focuses on current global economic uncertainties; the risks that come from external developments as well as touches in its country chapter on Malaysia on our own home grown financial crisis arising from 1MDB which “could impact investors’ sentiments and divert the Government’s focus from needed reform, while an unanticipated sharp adjustment among households to a higher cost of living or a more pronounced softening in labour market conditions could also affect private consumption”.

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To alleviate the impact on the bottom 40% population, the Bank is recommending targeted measures “to support the most vulnerable households”. This, in its view, could include the introduction of “unemployment benefits [which] could help to improve matching in the labour market and provide support as the labour market softens” (; p.128).

Bank guidance on this issue is clearly off the mark if not plain wrong. Firstly, the nation’s finances are in no position to support a social welfare system providing benefits to the section of the population that is registered as unemployed or do not currently have a job. For now and the foreseeable future, the nation needs to exercise financial prudence and discipline in spending. In fact, the Bank itself has noted in the same report that recent increases in the minimum wage and public sector salaries would be difficult to sustain as the necessary fiscal consolidation continues.

Any social welfare or social protection system that is being proposed needs to be sustainable, financially viable and well targeted. In Malaysia it is especially important to ensure that the new proposed system does not become a political football and/or is open to wide scale fraud and abuse. Both negative possibilities are very likely given the present state of politics and governance in the nation.

A stronger and more rigorous defence of the proposal for the introduction of unemployment benefits by the World Bank with empirical data proving its case is necessary if it wants this policy recommendation to be taken seriously. For now, the advocates of this policy in the Bank may be comforted by the fact that a de facto unemployment benefits system already exists in Malaysia through the use of the civil service to employ hundreds of thousands of otherwise unemployed and unemployable school leavers, graduates and others primarily from the  Bumiputra community.  Poor Indians have been left out leaving them marginalized from the mainstream.

Such a system has been ongoing for at least the last 20 years and makes Malaysia a role model for countries in this field of racially targeted labour market intervention.


Being clear-eyed about China’s power

October 13, 2016

Being clear-eyed about China’s power

by  Editors, East Asia Forum

Cambodia's Prime Minister Hun Sen (2nd L) and China's President Xi Jinping (R) attend a meeting at Xijiao Hotel in Shanghai May 18, 2014.

There are many anxieties and uncertainties out there in the world about China and its future. In this year’s Pew polling, almost 90 per cent of those surveyed in Japan are anxious about growing Chinese power with only 11 per cent having a favourable view of China. In Australia, the proportion is 52 per cent and 43 per cent of those surveyed saw their country’s relationship with China as important, the same proportion as those who nominated the relationship with the United States important.

A large majority in Australia nominated the Chinese economy a positive factor, while the different system of government and troubles in the South China Sea came through as clear negatives. But despite the average Australian’s clear-eyed view of China, there is a small industry in this country promoting the argument that security concerns on many levels should dominate the positive effects of the big economic relationship and positive inter-personal interaction (79 per cent of those surveyed).

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China’s international economic presence has suddenly become big; people all around the world have to deal with the China factor because it permeates every major issue of the day, whether they know terribly much about it or not.

What China has to deal with in keeping its economy on course and delivering moderate affluence to the Chinese people in the next decade or two — the ambition that the Chinese leadership has declared for the country — is a huge challenge. No country has ever had to effect a set of reforms under such intense international spotlight in the global market or of this scale and complexity ever before in human history.

One major anxiety is that the Chinese political system is different from that of countries which are already rich. Indeed, there are no significantly sized countries in the world that have achieved advanced per capita income levels without some form of representative government, the oil states being the exceptions. Is China capable of delivering on its goals to become rich while preserving its political system, and how can other countries deal with China if it does — or for that matter if it doesn’t?

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No country has trod the path of economic advance before without presuming to use its economic power to carve a greater slice of global political power. Japan — the second time around — is perhaps the exception, with the adoption of its ‘peace constitution’ and its constrained position within the US–Japan alliance. Every move China makes in the political sphere, whether in the South China Sea or in setting up the AIIB, seems open to the interpretation that China is aiming to overthrow the established order. Exacerbating this is that China’s own regional and global ambitions remain unclear. Hence, China’s behaviour in the South China Sea and elsewhere is being used as a proxy for how China might behave when it becomes even more powerful.

These anxieties are major undercurrents in thinking about China in the established industrial powers as well as in smaller countries, especially those within its neighbourhood.

But despite the scale of all the challenges it faces and the anxieties there are about how they will be managed, the clear-eyed perception of China, more now than perhaps even a few months ago, is of a country that is still growing at more than twice the rate of the world economy and appears to be an island of economic stability in a global sea of economic troubles, as Brexit in Europe and the Trump phenomenon in North America have created anxieties in other parts of the world. China’s leadership as president of the G20 this year modestly reinforced that image of reliability and China’s claims to significant ownership in the international public good, though there is still quite a way to go.

James Laurenceson, in this week’s lead essay, reminds us that ‘economics is at the heart of military and strategic power’. Economic analysis, he suggests, is key to getting a clear-eyed understanding of Chinese strategic policy and its limits.

The simple arithmetic is that, with a population of 1.4 billion, income per person in China only has to reach one-quarter of that in the United States for it to have the world’s largest economy, allowing it to buy sophisticated weapons systems from abroad. In purchasing power parity (PPP) terms China’s real output, the measure that is relevant for paying the wages of war, the IMF estimates, will already be 12 per cent larger than that of the United States at the end of this year. China is large and dealing with this reality is not only or even largely at this point about dealing with the risks of its military power. It is more about the risks in China’s transition towards advanced economic power.

‘Economics can also help to restore some clear-headed thinking on complex matters such as the South China Sea’, Laurenceson points out. ‘The narrative proposed by strategic hawks is that since President Xi Jinping came to power in 2012 the Chinese government has begun aggressively pursuing expansionism. Yet since the South China Sea arbitration decision was published in July, both China and the Philippines have shown restraint in their response, albeit neither side has backed down from their original positions’.

Rigorous analysis, informed by a modicum of economic training or business savvy, makes this restraint understandable. The economics opens the possibility of these international relations being a positive, or at least mixed interest, rather than a zero-sum game.

‘With income per person still only at 14 per cent of that in the United States (25 per cent in PPP terms)’, says Laurenceson, ‘China can ill afford a dramatic recasting of its relationship with the rest of the world’.

Continuing to put its own commitments to economic and political reform on the table; moving forward on open trade and investment; committing to deeper financial reform and capital account opening (as well as concomitant political reform); undertaking to be a leading partner in a new global trade and investment agenda; and extricating itself from its overbearing projection in the South and East China Seas will all be critical elements in building momentum for the Chinese in managing to calm some of the anxieties about the impact of China’s rise on the international community.

The EAF Editorial Group is comprised Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.

Being clear-eyed about China’s power

Sarawak Report: Tarek Obaid Questioned

September 24, 2016


Tarek Obaid Questioned In Saudi EXCLUSIVE


Tarek Obaid Questioned In Saudi EXCLUSIVE

Sarawak Report has learnt that Saudi Arabia has added to the list of countries taking an interest in investigating 1MDB, after the Saudi national and shareholder/director of PetroSaudi International, Tarek Obaid, was pulled in for questioning in recent days.

This will surprise those who have expressed the opinion that certain well-connected people related to 1MDB are ‘above the law’ in Saudi, as has appeared to have been the case so far in Malaysia.

Saudi Arabia has been placed in a delicate position by this scandal, ever since the Malaysian Prime Minister chose to claim that the $681 million and other sums which entered his accounts, were a ‘donation’ from an anonymous Saudi Royal.

One BBC report and a UK Telegraph article had indicated that (according to their sources) the ‘donor’ was Prince Turki a seventh son of the previous King Abdullah and co-founder of PetroSaudi.

The country’s Foreign Minister Adel Al-Jubeir had originally given his opinion that this was unlikely to be the case. However, subsequently, during a diplomatic meeting and accompanied by the Malaysian Foreign Minister he told a Malaysian TV team that he now understood the donation to be true:

“We are aware of the donation and it is a genuine donation with nothing expected in return. We are also fully aware that the attorney-general of Malaysia has thoroughly investigated the matter and found no wrongdoing. So, as far as we are concerned, the matter is closed,”

Nevertheless, a recent US Department of Justice indictment has confirmed the longstanding suspicion that the money in fact originated from 1MDB.

PetroSaudi’s “story” – claimed official state backing for ‘Royal’ company

Enjoying the fruits - Obaid partied with fellow Saudis on board a yacht with nude women in July - scandalising Turkish media

Enjoying the fruits – Obaid partied with fellow Saudis on board a yacht with nude women in July – scandalising Turkish media

The Saudi incorporated company PetroSaudi has, of course, played a crucial role in the diversion of much of 1MDB’s missing cash, according to the evidence.

The DOJ referred heavily to the company’s active role, during what it calls the first “Good Star Phase” of the scheme to use 1MDB to steal billions of Malaysia’s public money.

In return for a massive injection of over $300 million into the $100,000 dollar company and also kickbacks sent by Jho Low to Tarek Obaid (initially $105 million), PetroSaudi agreed to ‘act as a front’ for the siphoning out of the rest of the $1.83 billion paid by 1MDB into their ‘joint venture project’.  That money was sent to companies owned by Jho Low, principally Good Star Limited.

The DOJ indictment refers to Obaid (the CEO of PetroSaudi) as having deliberately lied to banks and officials from 1MDB by saying that Good Star belonged to PetroSaudi, thus providing a cover for the misappropriation of the cash by Najib Razak’s nominee Jho Low. In particular the court filing cites an example where Obaid signed a false statement, which assisted Jho Low in siphoning a sum of $330 million into his Good Star account, which had been meant for the joint venture:

“On or about May 12, 2011, the 1MDB-PetroSaudi JV issued to 1MDB a Notice of Drawing (the “Notice”). The Notice was signed by the PETROSAUDI CEO on behalf of the 1MDB-PetroSaudi JV and requested that 1MDB transmit $330 million to the Good Star Account.

Obaid ‘PetroSaudi CEO’ later asked for the money to be sent to Good Star, proving he knew it was not part of the joint venture to which the money was supposed to have been sent:

“On or about May 25, 2011, the PETROSAUDI CEO sent 1MDB a letter on behalf of PetroSaudi and the 1MDB-PetroSaudi JV. This letter confirmed that the account at RBS Coutts in Switzerland had received the $30 million and the $65 million wires referenced in the table above. However, the PETROSAUDI CEO requested that 1MDB send to RBS Coutts a “SWIFT CLARIFICATION” explaining that the beneficiary of these wire transfers was actually “Account No. XXX.2000” (the Good Star Account) and not “Petrosaudi International Limited.”

Separately, it has also been revealed that Tarek Obaid sent a letter in 2015 to 1MDB officials, in order to support their claim to investigators in Malaysia saying that Good Star was a subsidiary of PetroSaudi, clearly now proved a lie.

May 2015 - Tarek wishes to confirm Good Star was owned by PetroSaudi, which the DOJ confirms was a lie

May 2015 – Tarek wishes to confirm Good Star was owned by PetroSaudi, which the DOJ confirms was a lie

Quasi Sovereign’/ ‘Ultimately owned by King Abdullah’

As the Saudi authorities scrutinise this rogue behaviour by their own national, they might also be interested in understanding exactly how the directors of this ‘royally related’ company were peddling its connections on the global stage, presenting PetroSaudi as a “quasi official’ arm of the state.

Indeed, 1MDB Executive Director Casey Tang had informed his board that the company was “ultimately owned by King Abdullah”, which was a lie.

Sarawak Report has been examining documents and emails showing how PetroSaudi’s two key directors, Tarek Obaid and the British/Swiss national Patrick Mahony presented the company to prospective business partners, including former UK Prime Minister and then Middle East envoy Tony Blair.

According to a document they sent to several major companies called “PSI [PetroSaudi International] Story’ the company enjoyed unique and semi-official status, given that Obaid’s fellow shareholder was a son of then King Abdullah. “Governments have been very welcoming to PSI because they feel they are working with a quasi-sovereign entity (given that it is a vehicle of the Saudi Royal Family)”, the document explains:

“PSI’s aim is to approach nations with strong ties to Saudi Arabia and use the friendly relationship with these governments to give it access to oil and gas reserves. Governments have been very welcoming to PSI because they feel they are working with a quasi-sovereign entity (given that it is a vehicle of the Saudi Royal Family) and one that understands them. So PSI has had privileged access to many hydrocarbon regions in the world

The prospectus, which was written in 2009 goes on to brag how this tiny shell company, which as yet barely operated any oil concerns at all, could use the muscle of Saudi Arabia to protect its interests, thanks again to its ‘quasi sovereign’ role:

“…many countries will get a company in but then bully it around once it is there and has sunk billions of dollars in the ground. This will not happen with PSI because these nations do not want to get on the wrong side of the Saudi Royal Family or the Kingdom (many of these countries depend on Saudi aid, they are fellow Muslim nations, etc.). Therefore a partnership with PSI is also good protection on investments made in what can often be difficult operating environments….  Furthermore PSI has full support from the Kingdom’s diplomatic corps when entering and operating in these countries.”

Was the Saudi Arabian Government and the King aware that this seventh prince and his pals were promoting their company in such a way, boasting of guaranteed access and state support?

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With such a pitch it is easy to see why the tiny company appeared to be the ideal front for the scammers managing 1MDB, in particular Jho Low, who sought to present their deal as a ‘state to state’ venture between Malaysia and Saudi Arabia.

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PetroSaudi sent Jho Low the story pitch shortly after they agreed to partner in early September 2009.

Mahony sent Jho Low the pitch

PSI Director Mahony sent Jho Low the pitch

Likewise, time and again the directors of PetroSaudi made in plain in their dealings with other companies that their primary asset was supposed ‘unique access’ and guaranteed backing from the crown and state of Saudi Arabia.

Leveraging Royal connections – ‘Access Capitalism’

This was how directors explained their company’s role to China’s Sinochem for a JV proposal in 2009:

“PSI shall be responsible for … leveraging the royal and political connections of the Kingdom of Saudi Arabia available to PSI to obtain privileged access to O&G Projects in certain regions in the world….  PSI shall continue to leverage the above mentioned connections to closely manage the politics of the projects to facilitate their smooth operations…”.

And again in July 2010 to the team of Tony Blair, who agreed to become a consultant to PSI, seeking out investors and business partners, in return for $65,000 a month (and a 2% success fee), To Tony Blair Associates PSI explained that the attraction for business partners was the opportunity “to leverage off of the shareholders of PSI’s contacts to access government contracts in infrastructure and other areas in the Kingdom

The fact that PSI was making such claims of unique access and guarantees might come as a surprise to Government and Royal officials in Saudi Arabia.  They certainly didn’t want to broadcast what they were up to – the ‘PSI Story” insisted that their prospective partners needed to “understand the sensitivities around how PSI is leveraging off of the Kingdom’s relationships“.

Yet. in a pitch for investors into Venezuela in December 2009 they elaborated further on their business model:

PSI can capitalise on the political connections of the Kingdom of Saudi Arabia to get  advantaged access and provide the necessary drilling services…. Venezuela will have “support” from the most important oil producer in the world – KSA.” PSI explained in a power point presentation.

Don’t say Government to Government!

Sarawak Report has already reported the extent to which PetroSaudi were deeply nervous of making any such claims in public.

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Najib had attempting to make full use of the supposed official connections of PetroSaudi when he was announcing the so-called Joint Venture with 1MDB in 2009 and insisted on the involvement of Prince Turki being included in publicity.  However, Tarek’s brother Nawaf (an official with a job in the Saudi Government) anxiously warned that the press statements must remove any reference to the venture being ‘Government to Government’ in the press releases.

“You have to say it is private” cautioned Nawaf, “as the Malaysians say their company is government!”

Tarek took his brother’s hint he added three words (in bold) to the draft press release

“PSI, based in Al-Khobar, Saudi Arabia, is a private company mandated to carry out investments which can strengthen the relationships between the Kingdom of Saudi Arabia and key countries worldwide.”

Meanwhile, Mahony had expressed hope that the international press would not pick up at all on the PetroSaudi 1MDB joint venture announcement, plainly because it would raise eyebrows that such a tiny company had landed such a big deal amid so much fanfare raised by Najib regarding country to country relations between Malaysia and Saudi Arabia.

Now officials back home are fully aware of the game being played by Obaid and his PetroSaudi colleagues, as they attempted to exploit their shareholder Prince to raise billions of investment on the promise of ‘access’ in Saudi Arabia. What action they take remains to be seen.

Brother Nawaf's warning email to PetroSaudi's Tarek Obaid at the announcement of the 1MDB joint venture

Brother Nawaf’s warning email to PetroSaudi’s Tarek Obaid at the announcement of the 1MDB joint venture.

Fiscal Deficit and Fiscal Reform in Japan

September 13, 2016

Asia Pacific Bulletin

Number 351 | September 13, 2016

Fiscal Deficit and Fiscal Reform in Japan

by Taro Ohno

Over the past few decades, Japan has experienced a number of changes in its social and economic circumstances as its population has been aging, its birth rate has been falling, and its economic growth rate has been declining. These changes all affect central government finances: they encourage increased expenditures (especially with regard to social insurance benefits) and decrease tax revenues, thereby increasing the fiscal deficit.

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The key turning point for central government finance came around 1990 when the economic bubble burst, and since that time Japan has been grappling with the issue of fiscal reform. The first attempt to deal with the fiscal deficit was a set of fiscal reforms introduced in 1997, the goal of which was to reduce the deficit by 2003. However, this effort proved ineffective because of the domestic financial crisis that started in 1997. The second attempt came in 2006, when the government set a policy target that sought to shift the primary budget balance to a surplus by 2011. However, this target was deferred in 2008 as a result of the recession. The most recent attempt was the setting of a new policy target in 2010 to eliminate the deficit and create a surplus by 2020. Currently, the Abe cabinet is continuing to pursue that target. It raised the consumption tax rate to 8 percent in 2014 and will raise it to 10 percent in 2019 to achieve this goal. However, these reforms alone are insufficient.

The major contributor to the current negative fiscal situation is the increasing cost of social insurance, and given the country’s aging population, that trend will continue. The current fiscal reform will not be able to achieve its target by relying only on restraining the costs of social insurance, and so a further tax hike is unavoidable.

What kind of tax policy, then, would be most effective? In Japan, current fiscal policy over emphasizes inter-generational redistribution, which places a heavy burden on the younger generation to fund the benefits of social insurance for the elderly generation. In addition, the burden on the younger generation is already heavy due to pension insurance premiums. Therefore, because an income tax has the disadvantage of the burden falling predominantly on those who are younger, an income tax hike is not a feasible approach. What is desired is that both young and old alike bear the burden. A consumption tax has the advantage that the burden falls on all age groups, making it a more feasible approach. However, it also poses a problem. Namely, the consumption tax burden on lower-income households is heavier than that for higher-income households on a point-in-time basis, as the ratio of tax burden to income is disproportionate. A consumption tax is “regressive,” meaning that some measures for low-income households would be necessary.

A lower consumption tax burden on higher-income households exists because of their high savings rate. As a household’s ratio of savings to income increases, its ratio of consumption to income decreases. This in turn lowers the ratio of consumption tax burden to income. However, a household will spend down its savings in the future, and thus will eventually bear the consumption tax burden on that spending. In other words, savings only has the effect of changing the timing of consumption; it does not relieve the tax burden entirely. Therefore, it is also necessary to evaluate the tax burden on a lifetime basis. Based on the author’s estimates (Ohno et al. 2014), the consumption tax burden of higher-income households is heavier than that for lower-income households. This implies that the consumption tax is in fact “progressive.” This would imply that any measures for low-income households might be adequate if applied only to the younger age brackets.

The current policy debate in Japan emphasizes the results on a point-in-time basis. This leads to the conclusion that some measures need to be taken to protect low-income households. Several such measures exist as options. First is a reduced consumption tax rate for necessities, such as food. Second is a benefit given only to low-income households — for example cash benefits or an earned income tax credit. In September 2015, Japan’s Ministry of Finance proposed a plan for low-income households that included a combination of the reduced tax rate on food and a tax refund. Each individual’s consumption information would be recorded through a unified electronic card called the “My Number Card,” which is similar to a social security card in the United States. Low-income households could apply for a tax refund equal to the amount of the tax cut for food expenditures at the end of the fiscal year. The public, however, reacted negatively and criticized the plan for the complexity of the system and voiced concerns about the security of the identity card. The public prefers a reduced rate for the consumption tax on food rather than the plan proposed by the Ministry of Finance because it is a simpler system and free from worry about the security of personal information in the unified electronic card. As a result, the government decided to raise the general consumption tax rate to 10 percent while at the same time adopting a reduced tax rate for food. However, the reduced tax rate for food is not an optimally effective policy because higher-income households are benefiting as well.

“Given the current situation in Japan, where a further tax hike is unavoidable, a consumption tax hike is a better option than an income tax hike.”

Barring any sudden drastic changes in the country’s birth rate or immigration policy, Japan will continue to face daunting fiscal challenges in the years ahead, and thus finding the most effective and equitable fiscal policy should be a top priority for the Japanese government. We can conclude that a further consumption tax hike is desirable. Given the current situation in Japan, where a further tax hike is unavoidable, a consumption tax hike is a better option than an income tax hike. However, the policy debates in Japan today seem to emphasize the results only on a point-in-time basis. In designing the optimal policy, it is important to evaluate the current tax system not only on a point-in-time basis but also on a lifetime basis. Finally, the reduced consumption tax rate for food needs to be reconsidered. While the public prefers the reduced tax rate, this policy is less effective in terms of being a measure for lower-income households.

About the Author

Taro Ohno is an Associate Professor in the Faculty of Economics and Law at Shinshu University, Japan. He can be reached at

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

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The tide of globalisation is turning

September 9, 2016

The tide of globalisation is turning

Trade liberalisation has stalled and one can see a steady rise in protectionist measures. 

by Martin Wolf

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Has the tide of globalisation turned? This is a vitally important question. The answer is closely connected to the state of the world economy and the west’s politics.

Migration raises quite specific issues. The era of globalisation was not accompanied by a general commitment to liberalising flows of people. So I will focus here on trade and capital flows. The evidence in these areas seems quite clear. Globalisation has reached a plateau and, in some areas, is in reverse.

An analysis from the Peterson Institute for International Economics argues that ratios of world trade to output have been flat since 2008, making this the longest period of such stagnation since the second world war. According to Global Trade Alert, even the volume of world trade stagnated between January 2015 and March 2016, though the world economy continued to grow. The stock of cross-border financial assets peaked at 57 per cent of global output in 2007, falling to 36 per cent by 2015. Finally, inflows of foreign direct investment have remained well below the 3.3 per cent of world output attained in 2007, though the stock continues to rise, albeit slowly, relative to output.

Thus, the impetus towards further economic integration has stalled and in some respects gone into reverse. Globalisation is no longer driving world growth. If this process is indeed coming to an end, or even going into reverse, it would not be the first time since the industrial revolution, in the early 19th century. Another period of globalisation, in an era of empires, occurred in the late 19th century. The first world war ended this and the Great Depression destroyed it. A principal focus of US economic and foreign policy after 1945 was to recreate the global economy, but this time among sovereign states and guided by international economic institutions. If Donald Trump, who has embraced protectionism and denigrated global institutions, were to be elected president in November, it would be a repudiation of a central thrust of postwar US policy.

Given the historical record and the current politics of trade, notably in the US, it is natural to ask whether the same could happen to the more recent era of globalisation. That requires us to understand the drivers.

Read more:

Obama’s unfinished business in Asia

September 8, 2016

by The Editorial Board, New York Times

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President Barack Obama in Laos–Farewell Asia–Thank You, Mr. President

Laos provided fitting closure to President Obama’s 11th official trip to Asia, which ends Thursday. The stop, the first by an American president, acknowledged the devastation caused by American bombing during the Vietnam War and the millions of unexploded bombs that remained in Laos after the war. That visit and the Asian tour was the last of Mr. Obama’s broad efforts to strengthen engagements with countries in the region.

There is significant unfinished business in Mr. Obama’s Asia policy, including the 12-nation Trans-Pacific Partnership trade deal that appears gridlocked in Washington and an expanding North Korean nuclear weapons program that he and other world leaders have failed to halt.

But Mr. Obama has made headway in reassuring Asian nations that the United States intends to remain a stabilizing presence in the region, as it has been for decades, and to serve as a counterweight to China’s growing power and increasing assertiveness, especially in the South China Sea.

In addition to opening a new chapter with Laos, Mr. Obama established relations with Myanmar when the former military dictatorship of that country agreed to move toward a democratic system. Ties were expanded and an arms embargo against Vietnam was dropped. New agreements on military bases for American forces were negotiated with the Philippines and Australia.

Building on work done by the Clinton and Bush administrations, Mr. Obama has brought Indian-American relations to a new level of cooperation, culminating in last month’s defense agreement, which had been under negotiation for a decade. The United States has vastly expanded military exercises with most of these countries as well as expanding its sale of weapons, including a missile defense system to South Korea.

All of this took hard diplomatic work, but the driving force pushing these countries into closer ties with America has been China’s growing military capabilities and its brazen efforts to claim most of the South China Sea as its own, transforming reefs and rocks into artificial islands with airstrips and military structures.

When Mr. Obama took office, he hoped to cooperate with China on solving global problems. By 2011, China’s more aggressive posture and a belief that America’s economic future lay in Asia led the Obama administration to announce plans to intensify engagement with other Asian nations. As the South China Sea tensions have heated up, the administration has played a restraining role in defending America’s commitment to freedom of navigation by sending warships into that strategic waterway. It has also urged China and other claimant countries, including the Philippines and Vietnam, to work out a peaceful solution, but serious provocations by China continue.

In some instances where interests converge, China and the United States have made important contributions, including working together on the 2015 Iran nuclear deal and formally committing to ratifying the Paris accord on climate change.

As he prepares to leave office, there is little expectation that Mr. Obama will be able to end the threat from North Korea, which is now estimated to have enough fissile material for as many as 21 nuclear weapons. China, the North’s main food and fuel supplier, refuses to apply the kind of pressure that might make a difference. There are other concerns about Mr. Obama’s policy, including his playing down of human rights issues in China and Laos and his willingness to sell more weapons to Asia, which risks a new arms race.

Mr. Obama and most Asian leaders believe that the Trans-Pacific Partnership, by promoting deeper economic ties with other member nations, is central to his Asia policy. And despite opposition from both presidential candidates and many lawmakers, administration officials believe they will be able to persuade Congress to approve it.

Regardless of whether that happens, China’s aggressive moves in the South China Sea will increasingly dominate the future of the region and will present a complicated challenge for Mr. Obama’s successor to manage.