Author: Peter Drysdale

Malcolm Cook down at Lowy reckons that ‘times are bad for East Asian security when Christopher Hill, the US envoy to the Six-Party Talks, is more welcome in Pyongyang – the outpost of tyranny and source of nuclear proliferation — than he is in Tokyo, the most important US ally in the region, a country that has the best record in nuclear constraint, and an alliance partner that has contributed to the war in Iraq and Afghanistan’.

Let’s stick to the ‘get real’ school of diplomatic analysis.

Australia needs to be clear-eyed about what is exactly at stake here. US Ambassador Chris Hill has done a deal on American policy towards Pyongyang that keeps North Korea on track to denuclearisation. On this, not unreasonably, America was not going to be held hostage by the Japanese abductions issue on its own particular unilaterally determined policy towards Pyongyang when bigger things were at stake. All other parties to the Six Party Talks process (including South Korea) acquiesced: Tokyo was the odd Party out scrambling after the play. 

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Guest Author: Stephen Grenville, Lowy Institute

The US Treasury’s former attack-dog, Ted Truman, has now got his jaws around another Inconvenient Truth: that the world’s current financial problems not only have their epicenter in the US but can be largely sheeted home to US deficiencies.

Truman wants to argue that the blame is widely spread. One might almost conclude from his piece that the US was an innocent bystander, swept along by events beyond its control. He cites Japan as having had similarly loose monetary policy as the US, blames China’s exchange rate and reserve accumulation, says that housing problems were ‘essentially universal’ and that prudential regulators everywhere were ‘consenting adults’ in their misjudgments of the situation: ‘The finance ministers and central bank governors should not blame Washington, they should blame themselves’. Read more…

Author: Jane Golley

In their recent paper on Trade, Technology and the Environment: Why have poor countries regulated sooner?, Mary Lovely and David Popp observe that late developers have tended to regulate coal-fired power plants at much lower levels of per capita income, because of technological advances made by the pioneers of environmental regulation.

They go on to examine how the availability of new pollution-abating technology speeds up the adoption of environmental regulation in developing economies, focusing in particular on the role of international trade and trade policies in knowledge and cost transmission. The good news – for free traders and greens alike – is that trade openness increases access to environmentally-friendly technologies, which results in earlier adoption of regulations to limit environmental damage. This implies that such technologies may well provide the key to sustainable development, so it’s good news for scientists and innovators too. Read more…

Authors: Andrew Walker and Nicholas Farrelly, New Mandala

If you do the numbers it is clear that the People’s Alliance for Democracy (PAD) leadership has chosen bloodshed over ballots.

The PAD has abandoned electoral politics. With no coherent or credible political platform their only hope is that sufficient blood will be spilt to prompt a military or royal strike against Thailand’s democratically elected government. But the army appears unwilling to act. The queen has publicly shown her support for the PAD, but the king himself has remained silent. And the international community, for its part, is standing firmly by the government.

Make no mistake, the PAD leadership wants blood on the streets and have rushed to turn the imagery of violence to their advantage. Read more…

Author: Luke Nottage

For weeks I have been tracking this latest evolving food safety scandal, but reports and reactions vary markedly across the region. Media coverage is likely to remain disparate. But the saga should provide lessons for developing bilateral and regional infrastructure to “trade up” to a more harmonized regime, better securing consumer product safety in our FTA era.

At a news conference this Wednesday the Chinese Health Ministry announced melamine limits for dairy products, but declined to provide updated statistics on those so far harmed by tainted products. In September the figures given were 53000 children sickened, 13000 hospitalised, and at least three dead from kidney stones due to drinking products made from milk that suppliers or intermediaries had bolstered with this chemical to hide the fact it had been watered down. Yet the government demands notification if Chinese lawyers decide to represent victims. Read more…

Author: Andrew Elek

Many are looking ahead to the Copenhagen United Nations Conference on climate change with foreboding. An agreement adequate to stabilise the proportion of greenhouse gases (GHGs) in the atmosphere at sustainable level will be very difficult.

Ross Garnaut’s report on climate change to the Australian Government has clarified the issues. The report could prove influential in shaping an international consensus on stabilising proportion of GHG in the atmosphere at no higher than 550 parts per million by 2050, based on the principles of contraction and convergence he has proposed. After 2050, the share of emissions per country should be proportional to each country’s share of global population.

It will be very hard to agree on the rights to emit GHGs by each country in the years to 2050 consistent with this ambitious long-term goal.

The world needs to resolve a many-player, cost sharing game. Like any other cost-sharing game, such as paying taxes, there is a risk that free-riding by some can deter others from making any significant contribution.

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Author: Peter Drysdale

In his latest piece on the North Korean issue, Hitoshi Tanaka, formerly Japan’s Deputy Minister of Foreign Affairs and former Prime Minister Koizumi’s chief negotiator on North Korean affairs, goes to the nub of the problem between Tokyo and Washington that threatened to stall President Bush’s delisting North Korea as a terrorist state, a step that was critical to locking down progress on de-nuclearisation in North Korea and hopefully a longer term political settlement with Pyongyang.

North Korea’s past abduction of Japanese citizens is, Tanaka points out, an extremely delicate issue in Japan. The issue has derailed Japan’s approach to the Six-Party Talks. China, Russia, and South Korea were ready to sign on to the deal that US Ambassador Chris Hill negotiated with North Korea. Japan was the odd one out.

Tanaka urges a fundamental re-think of the Japanese approach. US Secretary of State Rice apparently told her Japanese counterpart, Foreign Minister Nakasone, to get out of the way of a deal, in no uncertain terms. President Bush has now signed off on the deal but is left with as few political assets in Tokyo – itself hardly the centre of deep political authority – as he has at home. Presidential candidates McCain and Obama take different lines on the announcement, McCain critical and Obama supportive, but both allude to the importance of sorting out differences with Japan on the way forward. Japan’s negotiators are on the way to Washington in the backwash of the current diplomatic tangle. Read more…

Author: Ronald Huisken

Negotiations with the DPRK to reverse its nuclear weapon program changed character in 2008 with the bilateral US-DPRK channel overshadowing the 6-party forum.  US negotiator, Christopher Hill, secured new freedom from President Bush to secure a positive outcome, ideally before the administration left office in January 2009.  Hill appears to have exploited this freedom to the full.  As details of the arrangements he had agreed with Pyongyang filtered back to the other parties, the Japanese were deeply disturbed that Washington seemed prepared to slide over the abductee issue. For their part, the Chinese were spooked by very private US-DPRK bilaterals.  Beijing feared some dramatic US initiative that could translate into a relationship with the DPRK much closer than China desired.

There was, in addition, the usual blowback from hardliners in Washington. This time, however, they had some real ammunition. Read more…

Author: Greg Lopez

The main factor driving Anwar Ibrahim to topple Barisan Nasional (BN/United Front) is his belief that the window of opportunity will cease to exist in the very near future. Malaysia’s short history has demonstrated that BN is very resilient and adept at breaking down any form of opposition – both with carrots and through the use of big sticks.

Other than the social democrats – the Democratic Action Party (DAP), which was formed when Singapore and the Peoples Action Party (PAP) was expelled from Malaysia and the Islamist Parti Islam SeMalaysia (PAS/Pan Malaysian Islamic Party) – no other party has had the staying power required in the unrewarding and ridiculed role of Opposition. All forms of coalition arrangement have been successfully demolished by the ruling party leaving it as the only legitimate and credible representative of the people.
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Author: Luke Nottage

In Japanese banking, the big boys are back, as I explained last week: The Economist now confirms it. Indeed, the latter suggests that “if Japanese banks have any unique skill, it may well be in coping with crisis”. Not an obvious point, as evidenced by the collective dithering after Japan’s financial markets collapsed in the early 1990s or the almost completely unexpected 1995 Kobe earthquake. But I suppose the Japanese can be very good at responding systematically, once they establish the broad parameters of the problem.

Anyway, Mitsubishi UFJ has now proceeded to take 21% of Morgan Stanley, and is now considering further integrating its securities subsidiary (involved in US$18.3b of M&A advisory work involving Japanese companies in 2007) with Morgan’s Japanese arm (which did $17.9b). This would challenge Nomura, which did $34.2b (“Aiming to Rival Nomura”, Asahi Shimbun, 4-5 October, p 25); but the latter has also snapped up Lehman’s operations in Asia (mostly Tokyo), hoping to retain many staff to grow its own business.

And on Friday, the US government finally agreed on a public bailout plan for up to $700b, which I reviewed critically earlier in the week. Along with $85b for AIG and $29b for Bear Stearns, this amounts already to 5.8% of GDP, “well above the 3.7% of the savings-and-loan bail-out in the late 1980s and early 1990s” and significantly less than the 24% of GDP committed by Japan after 1997.

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Author: Rajiv Kumar, Head of ICRIER, New Delhi

These are unprecedented times. The post independence generation in India gets to experience its first real financial sector crisis and near meltdown. Thank the Lord that it is elsewhere where a trillion dollars is less than one eighth of the GDP! This will hopefully add to its growing confidence by realizing that ‘they in the developed west’ can also make mistakes, can falter and are not infallible.

The success of India’s software and outsourcing industry had, to our great surprise, already seen senior economics professors in the US questioning the merits of liberal and open economies. Now we see a theologically devout Republican President of the US urging the Congress to pass a bill that would effectively nationalize large parts of the financial sector, having already taken into government care the world’s largest insurance company by pumping in $85 billion of taxpayers money. Read more…

Author: Sunita Narain

Grassroots social environmental movements in developing countries might point the way for new approaches in tackling climate change, ‘the biggest challenge of our century’ (the 2008 Narayanan Oration, at the Australia South Asia Research Centre).

Building from the bottom-up, looking closely at principles of equity and need, is what should be encouraged. The environmental movement of the rich is not working, as it is looking for small answers to big problems. Biofuels, which do not decrease demand for fuel, are one example. Instead, we ought to look to more ‘natural’ technologies: technologies that work to nature’s cycles and vicissitudes, linking to Anil Agarwal’s conception of the 21^st century being the century of the environment. In this undertaking, economies ought to look to ‘weaker sources of energy’ and invest in renewables, which are the most important and powerful form of energy production in the long term.

There are political factors influencing climate change policy, many of them related to the treatment of China and India. There is an increasing tendency for Western nations to demonise these two countries for their increasing carbon output, whilst ignoring their own significant contributions to the problem. The West’s hysteria is growing. But so is its inaction. China and India do not intend to pollute, nor is it in their interests to pollute to become wealthy, then ‘clean up’. Instead, China and India ought to invest in energy efficiency, minimising their contribution to climate change.

Author: Ryan Manuel

Albert Edwards, Societe Generale’s global strategist, has recently issued a ‘China alert‘, urging investors to ‘dump shares of banks exposed to the Far East’. Now, we have pointed out a number of problems in China’s development lately, with public finance being top of the hit list.

But dumping shares of banks “exposed to the Far East” is completely ridiculous. Recent events have seemed to support the argument for China’s macroeconomic situation being stronger, rather than weaker. Foreign trade and FDI now account for less than 20% of China’s recent growth – this is important, as China is somewhat insulated now from adverse international trends, although not completely protected (eg. see impact of higher international petroleum, commodity and food prices on China’s inflation rate in the first half of this year). Yes, the World Bank recently predicted that Chinese economic growth (GDP) for this year would probably come out at above 9% p.a., down from over 11 % last year. But this is a necessary slowdown, as 12% p.a. is widely recognized as being unsustainable and inflationary.

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Author: Yiping Huang

Perhaps it’s not accidental that China’s equity price index has tumbled more than 60% since October 2007. It was certainly true that, by late 2007, when the average price-to-earnings ratio reached above 70 times, the Chinese equity markets had already become overvalued. But the market dived further every time when major negative news hit the U.S. markets, including failures of Bear Sterns, Freddie Mac and Fannie Mae, Lehman Brothers, AIG etc. We can forget about the so-called “decoupling” thesis, at least for now. This was perhaps why the People’s Bank of China (PBOC) announced an emergency cut of lending rate by 27 basis points and reduction of reserve requirement by 1 percentage point on September 15, a public holiday in China, when news about Lehman bankruptcy and Merrill acquisition began to spread in the international market.

Chinese financial institutions, especially large banks and insurance companies, already lost hundreds of billions of dollars during the current crisis. More importantly, the State Administration of Foreign Exchange (SAFE) invested at least 60% of its $1.8 trillion foreign reserves in the U.S. dollar assets and, therefore, already incurs far greater losses, at least on the book. The good news is that China still maintains relatively strict capital account controls and the state still owns majority stakes of large financial institutions. Therefore, there is little risk of financial collapse. Read more…

Author: Josef Yap and Jenny D. Balboa, PIDS

Compared with other economies in East Asia, economic growth in the Philippines has been disappointing. The Philippines was, notably, not described as a ‘high-performing economy’ by the World Bank in its 1993 study of the East Asian Miracle, while Thailand, Malaysia and Indonesia were included in this group.

The per capita GDP of the Philippines was almost twice as large as that of Thailand and three times that of Indonesia in 1960. Yet by 2006, Thailand’s per capita GDP was more than double that of the Philippines while Indonesia — which has a population more than twice that of the islands — has nearly caught up.

The Philippines also lags in terms of poverty alleviation. The incidence of absolute poverty — based on the one dollar a day threshold applied to recent data — is 13.2 per cent in the Philippines, higher than Indonesia (7.7 percent) and Vietnam (8.40 percent). In stark contrast, Malaysia and Thailand have virtually eliminated absolute poverty. Inequality, based on the spread of household expenditures, is amongst the highest in developing Asia. This is a serious problem for growth as well as social welfare, as recent studies have argued that an inequitable distribution of wealth constrains economic growth and development.

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