Editor’s Note

EVEN as US stock markets continue to exhibit resorting to depreciating their currencies to boost their considerable exuberance, with some registering record exports. This appears to have triggered off a currency highs, there is legitimate cause for concern about the war, a dangerous development which contributed to the health of the global economy. Great Depression of the 1930s. While the US economy appears to have shrugged There have also been a number of other worrisome off the worst effects of the 2007-08 Great Recession, developments which clearly reveal that the lessons of the truth is that its growth prospects are now handicapped the 2007-08 financial crisis have not been fully learnt. by a strong dollar. More critically, as US Federal Reserve One of these is the phenomenal growth of debt, a chief Janet Yellen noted in her recent testimony to the development which increases the risk of global financial US Senate, ‘Foreign economic developments could instability. According to a recent McKinsey Global pose risks to the outlook for US economic growth.’ Her Institute report, since 2007, global debt has grown by primary concern here was presumably the economic $57 trillion, and no major economy has since decreased uncertainty gripping the eurozone. its debt-to-GDP ratio. Developing economies account Much of this uncertainty has centred on fears of a for roughly half of the growth in debt. Greek exit from the eurozone. Although Greece has Surprisingly, China’s debts have grown managed to secure a four-month financial reprieve with exponentially so that today its total debt in relation to its its bailout plan, this has not eased concerns about a population is larger than that of the US. The same report subsequent unravelling of the eurozone. That bailout plan reveals that, fuelled by an overheated real estate market was only approved subject to strong reservations by two and an unregulated shadow banking system, China’s total of the three institutions (the IMF and the European debt has quadrupled, rising from $7 trillion in 2007 to Central Bank) whose imprimatur, along with that of the $28 trillion by mid-2014. Much of the local government European Union, is essential for a deal. debt, says the report, is ‘likely unsustainable’. Quite aside from the Greek crisis, the fact is that While China may well have the capacity to manage the eurozone has never fully recovered from its debt crisis any potential crisis, the same cannot be said of the other which grew out of the 2007-08 Great Recession developing countries. For this reason, the rising volume originating from the US. The austerity regime which it of private debt – both corporate and household – in a adopted as a panacea has only prolonged the crisis, which number of Asian countries is particularly disturbing. has now morphed into a deflationary slide. In the absence Bank credit appears to be a key component in this of a change of economic policies, such deflationary splurge, which raises the spectre of a financial crisis if tendencies will be as much a threat to the global economy there is a surge of defaults by borrowers. This is a real as any crisis associated with Greece. possibility as much of the cheap credit available in Japan has been grappling, largely unsuccessfully, emerging markets is the result of transnational financial with the problem of deflation for the past 20 years. What flows. makes such a threat a global one is that the Chinese The policy of quantitative easing adopted by the economy is now facing similar risks. A recent article in US to stimulate its economy saturated the US financial the Chinese central bank’s official newspaper, Finance markets with cheap monies. In their quest for higher News, has warned that deflationary risks are higher than returns, US financiers have made these monies available many thought. overseas on attractive terms in the form of short-term The collapse in the price of oil has been hailed as a loans. While the US Federal Reserve has already ‘tapered’ major boost to the world economy. However, while it its quantitative easing programme without market certainly will provide a fillip to economic growth by turbulence, a credit crunch can still result if there is a releasing more money for spending in oil-importing sudden reversal of financial flows when the Fed begins countries, any such stimulus to global demand will be to raise domestic interest rates and US creditors pull back counteracted by depressed consumption by the ‘big their loans at short notice. spenders’ in oil-producing countries. Moreover, the Clearly, the prospects for the global economy are plunge in oil prices may not be an unmixed blessing for not as rosy or as sanguine as many commentators portray countries experiencing deflation, as it may well amplify it. such tendencies. Our cover story for this issue spotlights these Likewise, the drop in the prices of commodities potential threats facing the global economy. A number other than oil will, apart from bringing economic distress of articles highlight the deflationary impulses in the global to many developing countries, contribute to further economy, the falling commodity prices and the depressing global demand. vulnerability of the global financial system. Included also The situation is made worse by the fact that the are a couple of articles on the eurozone crisis which has Chinese economy has been slowing down in recent years been contributing to the general economic uncertainty. and cannot provide the ballast for counteracting deflationary tendencies, still less drive the world economy. Perhaps it is symptomatic of the economic – The Editors stagnation that is setting in that countries are now Visit the Third World Network website at: www.twn.my

THIRD WORLD RESURGENCE No 293/294 Third World RESURGENCE www.twn.my No 293/294 Jan/Feb 15 ISSN 0128-357X 33 Global FDI flows fell by 8% last year – Kanaga Raja 36 Wall Street reform aims to bring back the ‘wild old days’ – Danny Schechter 38 It pays to be a banker – Pete Dolack

WORLD AFFAIRS

40 The golden age of black ops – Nick Turse 45 Local versus global in the fight against Boko Haram – Liesl Louw-Vaudran 47 The tragedy of Borno State – Michael Baca 49 The dark side of Cambodia’s The uncertain outlook for the eurozone (picture shows people lining development – Tom up outside a job centre in Athens) is just one of the many challenges Fawthrop confronting the world economy. 12 52 Martelly steadfast in his denial of Haitian democracy ECOLOGY 16 South increasingly vulner- – Kevin Edmonds able in unstable global 54 Five years after Citizens 2 More than half of Africa’s financial system – Yilmaz United, democracy is for arable land ‘too damaged’ for Akyuz sale – Brendan Fischer food production – Busani 18 Bracing for another storm in Bafana HUMAN RIGHTS emerging markets – Kevin ECONOMICS Gallagher 56 US may soon stand alone 20 Asia’s craving for debt – CP opposing children’s treaty – 4 Rising inequality – a major Chandrasekhar Thalif Deen global challenge – Mah-Hui 22 The ECB has shaken the Lim eurozone’s utopian founda- WOMEN 8 The corporate takeover of tions – Ann Pettifor Ukrainian agriculture – 58 Myanmar: Brides for bach- Frederic Mousseau 24 End of the euro is nigh 10 Towards a lasting solution to without radical EU-wide elors – Brennan O’ Connor sovereign debt problems reforms – Chris Rogers 26 ‘Grexit’ and yuan devalua- VIEWPOINT COVER tion could put significant 60 Waiting for Chilcot – Jeremy pressure on Asian currency Seabrook The global economy: Turbulence pegs – Will Hickey ahead? 62 No, we’re not all Charlie 28 Falling commodity prices a Hebdo, nor should we be – 12 Uncertain times ahead for bane for developing coun- Ben Hayes the global economy – Jayati tries – Chee Yoke Heong Ghosh 30 The economic consequences POETRY 14 Currency wars on the hori- of global oil deflation – Jack zon – Ram Garikipati Rasmus 64 Evening – Mohan Singh

THIRD WORLD RESURGENCE is pub- THIRD WORLD RESURGENCE is pub- Publisher and Chief Editor: S.M. lished by the Third World Network, an in- lished monthly by Third World Network, 131 Mohamed Idris; Managing Editor: Chee ternational network of groups and individu- Jalan Macalister, 10400 Penang, Malaysia. Yoke Ling; Editors: T Rajamoorthy, Lean als involved in efforts to bring about a Tel: 60-4-2266728 Fax: 60-4-2264505. Ka-Min, Evelyne Hong; Contributing Edi- greater articulation of the needs and rights Email: [email protected] tors: Roberto Bissio (Uruguay), Charles of peoples in the Third World; a fair distri- Printed by Jutaprint, No. 2, Solok Sungai Abugre (Ghana); Staff: Linda Ooi (Design), bution of world resources; and forms of de- Pinang 3, 11600 Penang, Malaysia. velopment which are ecologically sustain- Cover Design: Lim Jee Yuan Lim Jee Yuan (Art Consultant), Lim Beng able and fulfil human needs. Copyright © Third World Network Tuan (Marketing), Yap Bing Nyi (Editorial) E C O L O G Y More than half of Africa’s arable land ‘too damaged’ for food production The critical problem of soil health has come to the fore in Africa’s development agenda with the release of a new report that says about 65% of the continent’s arable land is too damaged to sustain viable food production. Busani Bafana highlights the issues at stake.

A REPORT published in December by the Montpellier Panel – an eminent group of agri- culture, ecology and trade experts from Africa and Europe – says about 65% of Africa’s arable land is too damaged to sustain viable food pro- duction. The report, ‘No Or- dinary Matter: conserv- ing, restoring and en- hancing Africa’s soil’, notes that Africa suffers from the triple threat of land degradation, poor yields and a growing population. About 65% of Africa’s arable land is too damaged to sustain viable food production. The Montpellier Panel has recommended, all soils on which food production holder farmers to do it they must be among others, that African govern- depends degraded worldwide. With- motivated or incentivised and this can ments and donors invest in land and out new approaches to better manag- come through linkages to markets that soil management, and create incen- ing soil health, the amount of arable bring in income or credit that enables tives particularly on secure land rights and productive land available per per- them to access inputs,’ Tenywa says. to encourage the care and adequate son in 2050 will be a fourth of the ‘Practising climate-smart agricul- management of farm land. In addition, level it was in 1960 as FAO says it ture in climate watersheds promotes the report recommends increasing fi- can take up to 1,000 years to form a soil health. This includes conservation nancial support for investment on sus- centimetre of soil. agriculture, agro-forestry, diversifica- tainable land management. Soil expert and professor of agri- tion, mulching, and use of fertilisers The publication of the report culture at Makerere University in in combination with rainwater har- comes with the UN declaration of Uganda, Moses Tenywa tells Inter vesting.’ 2015 as the International Year of Press Service (IPS) that African gov- Before farmers received training Soils, a declaration the Food and Ag- ernments should do more to promote on soil management methods, they riculture Organisation (FAO) Direc- soil and water conservation, which is applied fertilisers, for instance, with- tor-General Jose Graziano da Silva costly for farmers in terms of re- out having their soils tested. Tenywa said was important for ‘paving the sources, labour, finances and inputs. said now many smallholder farmers road towards a real sustainable devel- ‘Smallholder farmers usually have been trained to diagnose their opment for all and by all’. lack the resources to effectively do soils using a soil test kit and also to According to FAO, human pres- soil and water conservation yet it is take their soils to laboratories for test- sure on the resource has left a third of very important. Therefore, for small- ing.

THIRD WORLD RESURGENCE No 293/294 2 E C O L O G Y

According to the Montpellier Panel report, an estimated 180 million people in sub-Saharan Africa are af- fected by land degradation, which costs about $68 billion in economic losses as a result of damaged soils that prevent crop yields. ‘The burdens caused by Africa’s damaged soils are dis- proportionately carried by the continent’s resource-poor farmers,’ says the chair of the Montpellier Panel, Professor Sir Gordon Conway. ‘Problems such as fragile land security and limited ac- cess to financial resources prompt these farmers to forgo The land terrace system in the highlands of Rwanda has been able to manage soil erosion. better land management prac- tices that would lead to long- term gains for soil health on the con- Fatunbi. ‘Soil fertility measures need for African crops are: maize 22%, tinent, in favour of more affordable to be wrapped in a user-friendly sorghum 17%, millet 17%, ground- or less labour-intensive uses of re- packet. Compost can be packed as nut 18%, and cassava 8%. sources which inevitably exacerbate pellets with fortified mineral fertilis- ‘Hence, in the absence of major the issue.’ ers for easy application.’ interventions in capacity enhance- Soil health is critical to enhanc- Fatunbi cites the land terrace sys- ments and adaption measures, warm- ing the productivity of Africa’s agri- tem to manage soil erosion in the ing by as little as 1.5°C threatens food culture, a major source of employ- highlands of Uganda and Rwanda as production in Africa significantly.’ ment and a huge contributor to GDP, a success story that made an impact A truly disturbing picture of the says development expert and acting because the systems were backed by problems of soil was painted by Na- divisional manager in charge of legislation. Also, the use of organic tional Geographic magazine in a re- Visioning & Knowledge management manure in the savannah region cent edition. at the Forum for Agricultural Re- through an agriculture system inte- ‘By 1991, an area bigger than the search in Africa (FARA), Wole grating livestock and crops has be- United States and Canada combined Fatunbi. come a model for farmers to protect was lost to soil erosion – and it shows ‘The use of simple and appropri- and promote soil health. no signs of stopping,’ wrote ate tools that suit the smallholders’ agroecologist Jerry Glover in the ar- system and pocket should be explored Climate change ticle ‘Our Good Earth’. In fact, says while there is need for policy inter- Glover, native forests and vegetation ventions including strict regulation on Meanwhile, a new report by US are being cleared and converted to land use for agricultural purposes to researchers cites global warming as agricultural land at a rate greater than reduce the spate of land degradation,’ another impact on soil with devastat- any other period in history. Fatunbi told IPS. ing consequences. ‘We still continue to harvest more He explained that 15 years ago According to the report ‘Climate nutrients than we replace in soil,’ he he developed a set of technologies Change and Security in Africa’, the says. If a country is extracting oil, using vegetative material as green continent is expected to see a rise in people worry about what will happen manure to substitute for fertiliser use average temperature that will be if the oil runs out. But they don’t seem in the savannah of West Africa. The higher than the global average. An- to worry about what will happen if we technology did not last because of the nual rainfall is projected to decrease run out of soil. laborious process of collecting the throughout most of the region, with Adds soil scientist Rattan Lal: material and burying it to make com- the possible exception of eastern Af- ‘Political stability, environmental post. rica. quality, hunger, and poverty all have ‘If technologies do not immedi- ‘Less rain will have serious im- the same root. In the long run, the ately lead to more income or more plications for sub-Saharan agriculture, solution to each is restoring the food, farmers do not want them be- 75% of which is rain-fed Average most basic of all resources, the soil.’ cause no one will eat good soil,’ said predicted production losses by 2050 – IPS ÿu

THIRD WORLD RESURGENCE No 293/294 3 E C O N O M I C S Rising inequality – a major global challenge As the issue of rising global inequality highlighted by Thomas Piketty’s bestseller comes to the fore, Mah-Hui Lim argues that such inequality threatens not only social and political stability, but also, in the long run, economic growth and financial stability.

last four decades, i.e., economic in- equality has been rising in most coun- tries in the world despite rapid eco- nomic growth. This is particularly true in Asia, which has witnessed such phenomenal growth. A 2012 report by the Asian Development Bank showed that 13 of 36 Asian economies had a Gini index of 0.4 and above, and 11 economies covering 82% of Asia’s population experienced worsening inequality. Why should we worry about ris- ing inequality? It is imperative to ad- It has been reported that inequality has reached its highest level in the US since such dress this issue because rising inequal- records were kept over 100 years ago. ity threatens not only social and po- litical stability but also economic THE issue of inequality, which was ters, and that the benefits of growth growth and financial stability. shunted aside amidst rapid growth will automatically trickle down to the over the last few decades, has resur- rest of society. This trickle-down Measuring inequality faced with a vengeance, particularly theory of growth is now called into after the latest global financial crisis. question, however, by one of the glo- Economists often use the Gini A recent report on inequality by the bal mega-trends occurring over the index to measure the degree of eco- development charity Oxfam, pre- sented at the 2015 World Economic Figure 1: Share of US income by top 1% and top 10%, 1917-2012 Forum in Davos, hit the headlines. It shows that the top 1% of the world’s population own 48% of the world’s wealth, while the bottom 80% own only 5.5%; and this gap is likely to widen. It has also been reported that top 10% inequality has reached its highest level in the US since such records were kept over 100 years ago. This issue not only afflicts the poor but also worries the rich. Li Ka- shing, Asia’s richest man, said pub- top 1% licly that he is kept awake at night over rising inequality, and Janet Yellen, the US Federal Reserve Chair- person, has raised this issue in one of her recent speeches, inviting the ire of Republican Party leaders. It is widely believed that growth based on free markets is what mat- Source: Piketty and Saez (2013)

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nomic inequality in a country. The Figure 2: Labour share of developed countries, 1970-2010 index covers a scale of 1 to 0; 1 refers to absolute inequality and 0 to abso- lute equality. Countries with a Gini index of 0.4 and above are regarded as highly unequal. In Asia, these in- clude Singapore (0.47), China (0.51), Malaysia (0.46), the Philippines (0.43), India (0.40), Pakistan (0.68, estimated by some sources) and many others. In many cases this index is ris- ing. Among the rich countries, the US, with an index of 0.46, stands among the most unequal. A more intuitive measure of in- equality is the percentage of income or wealth owned by the top 1% or 10% of households in a country ver- sus, say, the bottom 50%. Thomas Piketty’s book Capital in the Twenty- First Century, which uses this ap- proach, is making waves internation- Source: ILO (2013) ally. He and his colleagues have col- widens. However, beyond this, there national monetary system went off the lected such data spanning centuries are other important factors to con- US dollar-gold standard, and from and different countries. For example, sider. Chief among these are events fixed to floating exchange rates. Fi- Figure 1 shows that the top 1% of related to forces of globalisation, nancial liberalisation ushered in the households in the US account for over financialisation and international re- era of free international capital flows. 20% of total income in the period location of production – all of which Together with changes in technology prior to the Great Depression of 1929 weakened the bargaining power of and business organisation, this ena- and the Great Recession of 2008. labour in the less developed as well bles multinational corporations to A more important, but less used, as the developed countries. freely invest and relocate production measure of economic inequality is With the collapse of the Bretton anywhere in the world, pitting one functional income distribution, i.e., Woods Agreement in 1971, the inter- country against another. the percentage of a country’s gross domestic product (GDP) going to la- bour (wages and benefits) compared Figure 3: Labour share of GDP in five selected Asian economies, to capital (profits, rents, interest, divi- 1990-2008 dends). An ILO (2011: 55) study shows that since the early 1990s, three-quarters of the 69 countries for

which functional income distribution China data are available experienced a de-

clining labour share of income. This Taiwan is happening in both developed and Korea less developed countries. Figures 2 and 3 show the declining labour share Malaysia in these countries. In Asia the labour Thailand share declined by almost 20% since 1994. Why is inequality worsening?

Technological change is often cited as the major driver of income inequality; technology favours work- ers with higher levels of education and skills, and hence the income gap be- tween skilled and less skilled labour Source: Lim (2014)

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The entrance of billions of unem- ployed or underemployed workers in Figure 4: US productivity versus wage growth, 1947-2008 peripheral countries like China, India and Southeast Asia into the global workforce facilitated the global Productivity per hour arbitrage of labour, i.e., capital is now able to move freely in search of coun- tries with the lowest costs. Many

Asian countries competed, and still Compensation do, for foreign investments by re- per hour pressing unions and wages, which puts a brake on wage demands in both the poor and richer countries. This weakened labour’s bargaining power globally and is reflected in the rise of temporary and contract labour, and stagnating or declining wage income. As a result of these forces, wage growth did not keep up with the rise Source: Lim and Lim (2010) in labour productivity in many coun- tries. This divergence between pro- social instability, rising inequality is Thirdly, inequality is related to ductivity growth and wage growth is also not good for financial stability financial instability [for a detailed illustrated in Figures 4, 5 and 6 for and economic growth. A recent Inter- analysis, see Lim and Lim (2010), and the US, China and South Korea re- national Monetary Fund study shows Lim and Khor (2011)]. The recent glo- spectively. In other words, capital has that inequality is not good for long- bal financial crisis is not simply the been creaming off most of the gains term growth. While it is possible to result of greedy bankers, poor corpo- from productivity growth since the produce growth spells irrespective of rate governance and inadequate bank- 1980s. inequality, the study finds that income ing regulations, although these prob- distribution is one of the most robust lems must be addressed. There are Impact of rising inequality predictors of sustained growth. Fur- even more serious underlying struc- thermore, extreme inequality tural causes to the crisis, one of which The implications and conse- misallocates human resources and is is rising inequality. quences of rising economic inequal- often associated with weak institu- It is widely recognised that glo- ity are multi-faceted. Firstly, social tions and governance. bal trade imbalances contributed to and political democracy is under- mined when there is extreme inequal- Figure 5: Productivity and wage growth, China, 1998-2009 ity. The Asian Development Bank did a survey of over 500 national policymakers in Asia in 2012 and found that 95% of respondents thought it important to have policies to prevent a further rise in inequality to maintain political stability and eco- Labour Productivity nomic growth. Alan Greenspan, Index former Chair of the US Federal Re- serve, put it succinctly when he said in 2007 that while he did not under- Real Wage stand why there was a long-term di- Index vergence between productivity and wage growth, as shown in Figure 4, he was worried that if the trend con- tinued unabated, political democracy would be threatened. The recent Oc- cupy movements in the US and other parts of the world that followed in the wake of the global financial and eco- nomic crisis speak to this risk. Secondly, beyond political and Source: Lim (2014)

THIRD WORLD RESURGENCE No 293/294 6 E C O N O M I C S the crisis, i.e., China and other Asian countries have enormous trade sur- Figure 6: Labour productivity versus wage growth in South pluses which funded the huge trade Korea, 1990-2010 deficit in the US. But behind this trade imbalance is wealth and income im- balance. China’s declining labour share of GDP is reflected in its dras- tic drop in personal consumption (from over 50% to 35% of GDP in the last four decades) and the con- comitant rise in its savings rate from about 30% to over 50% of GDP. This excess of savings over investment, which is the current account surplus, is recycled through the international financial system and funded US con- sumption, which reached 72% of GDP in 2007. How was it possible for con- sumption to rise in the US when real wages there were stagnating or even declining? Essentially consumption Source: Lim (2014) was supported by debt rather than in- come. Between 1960 and 2006, US GDP rose 26 times but household debt The pendulum of inequality has rose 64 times, reaching close to 100% structive to these countries. veered too far over the past few dec- of GDP in 2006. Much of this was ades and something must be done to mortgage debt that eventually im- What policy responses? bring it to balance lest we face more ploded in 2007. Wages are not sim- serious crises. ÿu ply a cost factor in economic growth; Given the significant risks of un- they are also an important factor driv- checked rising inequality, what can or should be done? It is possible to ad- Mah-Hui Lim was formerly a post-doctoral fellow ing aggregate demand. If wages are at Duke University and Assistant Professor at Temple repressed, then aggregate demand and dress this issue from an ex-ante and/ University in the US, and an international banker. economic growth are negatively af- or ex-post manner in terms of income fected unless there are compensating distribution. To tackle it in an ex-ante References mechanisms to prop up aggregate de- manner, it is clear that real wages must mand. Debt is one such mechanism. rise in tandem with increases in pro- ILO (International Labour Organisa- However, there are risks and limits to ductivity to support healthy aggregate tion), 2011. World of Work Report pumping up consumption through demand growth. A prolonged diver- 2011. Geneva. ILO, 2013. Global Wage Report 2012- debt, as amply demonstrated in the US gence of the two trends, with wages either lagging behind productivity in- 13. Geneva. financial crisis. Lim, Mah-Hui, 2014. ‘Globalization, A number of Asian countries are creases or overshooting productivity increases, is economically and politi- Export-Led Growth and exhibiting similar tendencies. In Inequality: The East Asian Story’. cally destabilising. South Korea and Malaysia, where the Research Paper 57, South Centre, wage share is declining as wages fall Addressing it in an ex-post man- Geneva. behind productivity growth, house- ner, state policies can reduce inequal- Lim, Mah-Hui and Khor Hoe Ee, 2011. hold consumption and debt have been ity through more progressive fiscal ‘From Marx to Morgan Stanley: climbing to dangerous levels. The ra- policies – by increasing capital gains Inequality and Financial Crisis’. tio of household debt to GDP was tax, reintroducing inheritance tax, Development and Change, Vol. 42, 89% in South Korea in 2010 and 87% more progressive taxation and provi- No. 1, January, pp. 209-227. Lim, Mah-Hui and Lim Chin, 2010. in Malaysia in 2013; even more sion of better social services and safety nets. In the past three decades, Nowhere to Hide: The Great alarming, the ratio of household debt Financial Crisis and Challenges to disposable income was 164% in government policies in many coun- tries have favoured the wealthy with for Asia. Institute of Southeast South Korea and 140% in Malaysia Asian Studies, Singapore. reductions in income and capital gains (2012). The lesson from the US debt- Piketty, Thomas, 2014. Capital in the driven consumption and financial cri- taxes, and cutbacks in social spend- Twenty-First Century. Belknap sis because of rising inequality and ing and safety nets. Essentially state Press of Harvard University Press, declining wage share should be in- policies have exacerbated inequality. Cambridge, Massachusetts.

THIRD WORLD RESURGENCE No 293/294 7 E C O N O M I C S The corporate takeover of Ukrainian agriculture One of the ‘benefits’ of Ukraine’s integration with the European Union has been a corporate takeover of the country’s agricultural sector, largely by Western interests. As Frederic Mousseau explains below, this was a part of an IMF-initiated reform programme tied to a $17 billion loan.

AT the same time as the United tural roots’ of the current economic States, Canada and the European crisis in Ukraine, notably the high Union announced a set of new cost of doing business in the coun- sanctions against Russia in mid- try. December last year, Ukraine re- The Ukrainian agricultural ceived $350 million in US military sector has been a prime target for aid, coming on top of a $1 billion foreign private investment and is aid package approved by the US logically seen by the IMF and the Congress in March 2014. World Bank as a priority sector for Western governments’ further reform. Both institutions praise the involvement in the Ukraine con- new government’s readiness to fol- flict signals their confidence in the low their advice. cabinet appointed by the new gov- For example, the foreign- ernment earlier in December 2014. driven agricultural reform roadmap This new government is provided to Ukraine includes fa- unique given that three of its most cilitating the acquisition of agricul- important ministries were granted tural land, cutting food and plant to foreign-born individuals who regulations and controls, and re- received Ukrainian citizenship just ducing corporate taxes and cus- hours before their appointment. toms duties. The Ministry of Finance went Cargill has recently expanded its agricultural The stakes around Ukraine’s to Natalie Jaresko, a US-born and investments in Ukraine to include a stake in vast agricultural sector – the UkrLandFarming, the largest agribusiness in educated businesswoman who has world’s third-largest exporter of the country. Picture shows a UkrLandFarming corn and fifth-largest exporter of been working in Ukraine since the facility in Ukraine’s Poltava region. mid-1990s, overseeing a private wheat – could not be higher. equity fund established by the US to President Viktor Yanukovych’s re- Ukraine is known for its ample fields government to invest in the country. moval from office in February 2014 of rich black soil, and the country Jaresko is also the CEO of Horizon was his rejection of a European Un- boasts more than 32 million hectares Capital, an investment firm that ad- ion (EU) association agreement aimed of fertile, arable land – the equivalent ministers various Western invest- at expanding trade and integrating of one-third of the entire arable land ments in Ukraine. Ukraine with the EU – an agreement in the European Union. As unusual as it may seem, this that was tied to a $17 billion loan from The manoeuvring for control over appointment is consistent with what the International Monetary Fund the country’s agricultural system is a looks more like a takeover of the (IMF). pivotal factor in the struggle that has Ukrainian economy by Western inter- After the president’s departure been taking place over the last year ests. and the installation of a pro-Western in the greatest East-West confronta- In two reports – ‘The Corporate government, the IMF initiated a re- tion since the Cold War. Takeover of Ukrainian Agriculture’ form programme that was a condition The presence of foreign corpora- and ‘Walking on the West Side: The of its loan with the goal of increasing tions in Ukrainian agriculture is grow- World Bank and the IMF in the private investment in the country. ing quickly, with more than 1.6 mil- Ukraine Conflict’ – the Oakland In- The package of measures in- lion hectares signed over to foreign stitute has documented this takeover, cludes reforming the public provision companies for agricultural purposes particularly in the agricultural sector. of water and energy, and, more im- in recent years. A major factor in the crisis that portant, attempts to address what the While Monsanto, Cargill and led to deadly protests and eventually World Bank identified as the ‘struc- DuPont have been in Ukraine for quite

THIRD WORLD RESURGENCE No 293/294 8 E C O N O M I C S some time, their investments in the country have grown significantly over the past few years. Cargill is involved in the sale of pesticides, seeds and fertilisers and has recently expanded its agricultural investments to include grain storage, animal nutrition and a stake in UkrLandFarming, the largest agribusiness in the country. Similarly, Monsanto has been in Ukraine for years but has doubled Harvesting wheat in Ukraine, the world’s fifth-largest exporter of the crop. Ukraine the size of its team over the last boasts more than 32 million hectares of fertile, arable land – the equivalent of one- three years. In March 2014, just third of the entire arable land in the EU. weeks after Yanukovych was de- posed, the company invested $140 modities out of the country – are thus European Union, which ignited the million in building a new seed plant increasingly controlled by Western conflict that ousted Yanukovych, in- in Ukraine. firms. cludes a clause (Article 404) that com- DuPont has also expanded its in- mits both parties to cooperate to ‘ex- vestments and announced in June Working hand in hand tend the use of biotechnologies’ 2013 that it too would be investing in within the country. a new seed plant in the country. European institutions and the US This clause is surprising given Western corporations have not government have actively promoted that most European consumers reject just taken control of certain profitable this expansion. It started with the push GM crops. However, it creates an agribusinesses and agricultural activi- for a change of government at a time opening to bring GM products into ties, they have now initiated a verti- when President Yanukovych was seen Europe, an opportunity sought after cal integration of the agricultural sec- as pro-Russian interests. by large agro-seed companies such as tor and extended their grip on infra- This was further pushed, starting Monsanto. structure and shipping. in February 2014, through the promo- Opening up Ukraine to the culti- For instance, Cargill now owns tion of a ‘pro-business’ reform vation of GM crops would go against at least four grain elevators and two agenda, as described by the US Sec- the will of European citizens, and it sunflower seed processing plants used retary of Commerce Penny Pritzker is unclear how the change would ben- for the production of sunflower oil. when she met with Prime Minister efit Ukrainians. In December 2013, the company Arseniy Yatsenyuk in October 2014. It is similarly unclear how bought a ‘25% + 1 share’ in a grain The European Union and the Ukrainians will benefit from this wave terminal at the Black Sea port of United States are working hand in of foreign investment in their agricul- Novorossiysk with a capacity of 3.5 hand in the takeover of Ukrainian ag- ture, and what impact these invest- million tons of grain per year. riculture. ments will have on the seven million All aspects of Ukraine’s agricul- Although Ukraine does not allow local farmers. tural supply chain – from the produc- the production of genetically modi- Once they eventually look away tion of seeds and other agricultural fied (GM) crops, the association from the conflict in the eastern ‘pro- inputs to the actual shipment of com- agreement between Ukraine and the Russian’ part of the country, Ukrain- ians may wonder what remains of their country’s ability to control its food supply and manage the economy to their own benefit. As for US and European citizens, will they eventually awaken from the headlines and grand rhetoric about Russian aggression and human rights abuses and question their govern- ments’ involvement in the Ukraine conflict? – IPS Columnist Service u

Frederic Mousseau is Policy Director at the Oakland Institute. The views expressed in this article are those of the author and do not necessarily represent the Monsanto has been in Ukraine for years but has doubled the size of its team over the views of, and should not be attributed to, IPS – Inter last three years. Press Service.

THIRD WORLD RESURGENCE No 293/294 9 E C O N O M I C S Towards a lasting solution to sovereign debt problems The following is the text of a submission by 27 civil society groups to the 3-5 February opening session of a UN ad hoc committee formed to elaborate a multilateral legal framework for restructuring sovereign debts.

FOLLOWING the global financial crisis, low-, middle- and high-income countries are seeing increased levels of sovereign debt. Today no interna- tional mechanism exists to deal com- prehensively and effectively with sov- ereign debt problems. A lasting solu- tion requires an independent debt workout mechanism.

A looming debt crisis

Countries all over the world are becoming increasingly vulnerable to sovereign debt problems following the financial crisis: Countries all over the world are becoming increasingly vulnerable to sovereign debt • One quarter of all low-income problems following the financial crisis. countries are in debt distress or at high risk of debt distress. Another 29 coun- tries are at moderate risk of debt dis- an efficient way, including holding complex debt structures. The Heav- tress.1 lenders to account for reckless lend- ily Indebted Poor Countries (HIPC) 4 • External loans to low-income ing and speculation. Initiative is coming to an end, and countries increased by 75% between existing mechanisms do not reflect the 2008 and 2012, a growing share is ex- Why current mechanisms are actual debt situation of developing pensive non-concessional debt, and not up to the mark countries. Ad hoc procedures exist for vulnerabilities are increasing.2 bilateral debt to a few countries and • Two-thirds of impoverished Current debt relief procedures for some bondholders; however, these countries face large increases in the were not intended to deal with today’s creditors hold only a minor part of share of government income spent on 3 debt payments over the next 10 years. The United Nations General Assembly echoes these concerns This looming debt crisis and the and proposals failure to deal efficiently with the cur- rent and past crises have triggered In a landmark session held in Septem- cided to create a new multilateral le- debates on how to ensure fair and pre- ber 2014, the UN General Assembly gal framework for sovereign debt dictable debt workout in the future. noted with concern ‘that the interna- restructurings by September 2015. The current debt crisis within the tional financial system does not have The UN General Assembly also high- eurozone and the vulture-fund law- a sound legal framework for the orderly lighted ‘that debt-restructuring proc- suits against Argentina illustrate once and predictable restructuring of sover- esses should have as their core ele- again that a predictable, efficient, in- eign debt’. It stressed that ‘creditors of ment a determination of real payment dependent and fair procedure is sovereign debt are increasingly numer- capacity so that they do not adversely needed, and that once a crisis hits it is ous, anonymous and difficult to coor- affect economic growth and the ful- too late to define a fast and fair way dinate’, which complicates the restruc- filment of the unfinished business of out. They are also a reminder that debt turing of sovereign debt when neces- the Millennium Development Goals, and the way sovereign debt is dealt sary. It highlighted that the progressive the sustainable development goals with is a highly political issue which development and codification of inter- and the post-2015 development can have enormous social and politi- national law are necessary, and de- agenda’. cal consequences if not dealt with in

THIRD WORLD RESURGENCE No 293/294 10 E C O N O M I C S

‘As you know, much has been done to strengthen the architecture of the international financial system in re- sponse to the recent emerging mar- ket financial crises. But there re- mains a gaping hole: we lack in- UN Photo/Loey Felipe centives to help countries with un- sustainable debts resolve them promptly and in an orderly way. At present the only available mecha- nism requires the international community to bail out the private creditors.’

Anne Krueger, former Vice President of the IMF, in 2002

In a landmark session in September 2014 (pic), the UN General Assembly decided to developing countries’ debt. create a multilateral legal framework for sovereign debt restructurings within a year. While debt relief has freed up valuable resources in a number of developing countries, the mechanisms future. • gives all stakeholders, includ- through which debt relief has been These shortfalls illustrate that ing civil society, the right to be heard granted have serious shortfalls that lending to and borrowing by sover- and give evidence. ÿu prevent lasting solutions. eign states and the resolution of any Some major shortfalls of current quantitative or qualitative debt prob- The above submission was presented by ActionAid mechanisms are: lems are a political issue as much as a International, Afrodad, Both Ends, Christian Aid, CIDSE, CNCD-11.11.11, Debt and Development • They are dominated by credi- technical one. Coalition Ireland, Ekvilib, Erlassjahr, Eurodad, tors who are also affected parties. This A fair solution to sovereign debt Global Justice Now, Global Policy Forum, IGO, creates a conflict of interest, under- problems requires an international ITUC, Jubilee Debt Campaign UK, Jubilee Scotland, mines impartiality and sometimes re- mechanism that: Jubilee USA Network, Kepa, KOO, Latindadd, Methodist Tax Justice Network, Norwegian Church sults in politically biased decisions, • is independent of creditors in Aid, Norwegian Forum for Development and including harmful policy analysis and decision making, and is Environment, Oxfam International, Share the conditionality. situated in a neutral forum; World’s Resources, Third World Network and • They are ad hoc, which means • is comprehensive: Includes bi- WEED. that the process as well as the outcome lateral, multilateral and private credi- Endnotes is highly unpredictable. This length- tors, treating all foreign creditors on ens the solution process, making it an equal basis, and is available to all 1. IMF list of low-income country more costly for both creditors and sovereign states who are at risk of debt debt sustainability analyses, debtors. distress or claim that their debts are October 2014, https:// • They are creditor-specific, illegitimate; www.imf.org/external/pubs/ft/dsa/ hence they fail to assess the full debt • provides a human needs-based dsalist.pdf burden of the country in question and approach to debt sustainability: When 2. Eurodad: The new debt some creditors are left out when a assessing a government’s capacity to vulnerabilities. Ten reasons why solution is negotiated. service its debt, takes into account the the debt crisis is not over, October • All too often, they only make financial resources needed by a gov- 2013, http://eurodad.org/files/pdf/ financial considerations when assess- ernment to fulfil its obligations to pro- 528109fd22bc3.pdf ing how much debt a country can con- vide essential services for its popula- 3. Jubilee Debt Campaign: Don’t turn tinue servicing, and fail to take de- tion; the clock back. Analysing the risks velopment needs into account. • holds lenders and borrowers to of the lending boom to • Last but not least, because of account for irresponsible behaviour impoverished countries, October 2014, http://jubileedebt.org.uk/wp- the lack of a formal procedure that by auditing the legitimacy of claims content/uploads/2014/10/Lending- ensures fair burden-sharing between and demanding the cancellation of boom-research_10.14.pdf creditors and debtors and assesses the unjust debts based on corrupt, irre- 4. IMF: HIPC and MDRI – Statistical validity of claims, current procedures sponsible or undemocratically con- Update, December 2013, https:// fail to discipline lenders and prevent tracted loans which did not benefit the www.imf.org/external/np/pp/eng/ them from irresponsible lending in the people of the borrowing country; 2013/121913.pdf

THIRD WORLD RESURGENCE No 293/294 11 C O V E R Uncertain times ahead for the global economy An air of uncertainty pervades the global economy as it is buffeted by deflationary impulses, falling demand, currency wars and plunging commodity prices. A number of flashpoints within a fragile global financial system – rendered more vulnerable by the phenomenal growth of debt (both public and private) – threaten the stability of the whole system. Jayati Ghosh surveys the bleak international terrain.

WHO would have thought, even a few years ago, that the spectre facing the world economy would be that of de- flation? It is true that deflationary impulses have been quite strongly evident in Europe, particularly the eurozone, for some time now. But this has now spilled over into other im- portant markets, and is reflected not only in the sharp drop in global com- modity prices but also in slowing in- flation rates in many regions that were earlier thought to be less affected, in- cluding the US and important emerg- Despite some recent increase in employment rates, median wages in the US have barely risen and income inequality has increased. ing markets. In the United States, although account deficit has been shrinking ing that is directed to realising the consumer expenditure has pushed the since 2012 despite its output expan- social and economic rights of their much-acclaimed recovery in that sion, in terms of the global economy citizens. economy, the data for the last quarter the net demand impulse will certainly So Europe is now in a classic ‘li- of 2014 indicate that gross domestic not be as strongly positive as it was quidity trap’ situation, in which very product (GDP) in real terms grew by before the global financial crisis – in- loose monetary policy and low to zero only 2.6% over the previous year. And deed, it could even be negative. nominal interest rates are still unlikely it is not clear how much consumption In Europe, the era of uncertainty to do much to lift investment. This will continue to contribute to the re- continues. Deflation in the eurozone means that the much-hyped purchase covery, since wage growth actually has resulted not just from the sover- of sovereign debt by the European slowed in the same quarter. Employ- eign debt crises in some of the periph- Central Bank (which is the European ment costs increased by only 0.6% in eral countries, but even more from the Union’s typically convoluted form of the fourth quarter of 2014 and in the heavy-handed and continued insist- quantitative easing) is not going to month of December 2014, average ence on fiscal austerity. This insist- have much positive effect. As infla- hourly earnings of US workers actu- ence on fiscal consolidation has, re- tion rates fall and turn negative, the ally fell by 0.2%. markably enough, not just been con- debt burden of households, companies So it continues to be the case that fined to deficit economies with debt and governments becomes greater in the economic gains from this recov- problems, even though it has been real terms, making it harder for them ery have been concentrated among the especially strong in those countries. to repay and forcing them to cut back rich and especially those receiving But even countries with current ac- on other expenditure. The downward most of their incomes from profits and count surpluses – such as Germany – spiral of debt deflation that this en- rent. Despite some recent increase in that should really focus on taking up tails was already described by Irving employment rates, median wages the slack, increasing domestic con- Fisher in the 1930s, but all that seems have barely risen and income inequal- sumption and providing markets for to have been forgotten by today’s ity has increased even beyond the countries forced into ‘distress ex- policymakers. ‘historic’ highs. Obviously, this pat- ports’, have been effectively doing the It is true that the victory of Syriza tern of recovery suggests less-than- opposite. They too now emphasise in the elections in Greece provides vibrant demand expansion in the US. fiscal consolidation, which is simply some hope that at least some of these And in any case, since the US current another term for cutting public spend- policies will be sought to be reversed

THIRD WORLD RESURGENCE No 293/294 12 C O V E R in that country, whose people have already suffered so much. But the impact on the rest of Europe – and indeed, on the eurozone – of such a shift is anything but clear. If the credi- tor countries and the European estab- lishment persist in their refusal to write off or restructure at least some of the Greek debt, then many bets must be off in terms of the outlook for the monetary union. But whatever happens, for the immediate future it is next to impossible for the European economy to provide a positive stimu- lus for global demand. Quite the op- posite, in fact – generalising the Ger- An anti-austerity protest in Athens. Heavy-handed and continued insistence on fiscal man strategy of running export sur- austerity has led to deflation in the eurozone. pluses to the entire eurozone would be the only way to keep the monetary junk status by at least one credit rat- (to both those who purchased houses union together. ing agency, as the falling oil prices and those who constructed them). In- Add to this the deceleration of achieve what Western sanctions deed, consumer credit of different Chinese growth, which appears to be against Russia (for the war in forms (for housing, automobiles, much sharper than previously antici- Ukraine) had not managed to do. Ven- other consumer durables, credit cards as well as student loans) had become pated. The government in China has ezuela is suffering from many short- the dominant form of bank lending in been revising downwards its output ages and high inflation; other oil pro- many Asian countries such as Malay- growth projections in every quarter, ducers in Latin America and Africa are also in growing distress; and min- sia and South Korea. Such debt- yet even so the actual output has been driven expansion of consumption usu- lower than the forecasts over the pre- eral and agricultural exporters have also seen export volumes and values ally ends in tears. For housing loans, vious year. Some of this is clearly since the value of the underlying as- because of lower export demand from get slashed. Many ‘emerging markets’ seem to be retreating at the moment. set is critical in making such loans the US and the EU – but a significant viable, one important indicator is proportion also reflects the And there are of course adverse im- plications for those who had placed house prices, and these are now stag- rebalancing of the economy towards nant or falling across most Asian mar- domestic demand, which is a process financial bets on rising commodity prices, although it is not clear whether kets except Hong Kong. that has to involve some pain as well This is the depressed global as gain for wage earners. This changes this in itself will have severe reper- cussions in terms of impending finan- economy in which we are likely to see both the volume and the structure of some increase in US interest rates in China’s import demand, which is bad cial crisis. Rather, it seems more likely that deflation will foster other uncer- the current year. If and when that hap- news not only for primary product pens, there may well be another run exporters who had benefited from tainties that will combine with finan- cial volatility to create brittle and un- on markets across the world, emerg- China’s voracious appetite for food ing or otherwise, leading to more eco- and raw material imports, but also for stable conditions in international trade and payments. nomic instability and certainly more exporters of manufactured goods that negative impulses for growth. The were integrated into global value In Asia, the fall of commodity prices may be a boon for many coun- parallels with the 1930s are startling chains around China as a hub. but sweeping: deflation and in some This helps to explain the dramatic tries, since the region is predomi- nantly oil-importing. But a particular places actual depression; volatile collapse of oil prices as well as sev- capital flows; jittery and fluctuating form of deflation is likely to have dev- eral other mineral and agricultural stock markets and other asset markets; astating consequences nonetheless: prices over the past year. It is true that and the eruption of small-scale but the fall of asset prices, particularly the there is also probably some over- potentially larger wars in different shooting of prices in these markets, unwinding of real estate and housing parts of the world but especially in once again driven by speculative ac- that had experienced a debt-driven Ukraine and the Middle East. tivity in futures markets. But what- boom. Across Asia, real estate and These are certainly interesting ever the causes, the implications of housing prices had levitated upwards times, but they might end up making this decline have been quite severe for as governments responded to the us wish for the more boring periods.u many countries whose economies are Great Recession of 2008 by provid- dependent on such exports. Already ing tax relief and other incentives and Jayati Ghosh is an economics professor at Russian bonds have been relegated to ensuring cheap credit for such loans Jawaharlal Nehru University in New Delhi.

THIRD WORLD RESURGENCE No 293/294 13 C O V E R Currency wars on the horizon With economic growth stagnating and global demand falling, countries are increasingly resorting to weakening their currencies to secure a competitive advantage for their exports. Ram Garikipati warns of a looming currency war.

BRAZILIAN Finance Minister Guido economies recover, we are likely to lus policies, and unveiled a promise Mantega popularised the term ‘cur- see similar actions in 2015. to buy asset-backed securities and rency war’ in 2010 to describe poli- Taking a brief look at the major covered bonds. With Europe’s fragile cies employed at the time by major economies, this trend is not yet fully recovery slowing down the rest of the central banks to boost the competi- confirmed, but the possibility remains world and inflation running at a frac- tiveness of their economies through high. tion of the ECB’s goal, President weakening their currencies. As we The US Federal Reserve has been Mario Draghi has raised the prospect enter 2015, the spectre of currency pursuing quantitative easing for some of large-scale asset purchases. So far, wars appears to be once again loom- time, but with a gradual economic it has stopped short of full-fledged ing on the horizon. recovery, expectations for a pickup in quantitative easing, but is widely ex- In layman’s terms, currency wars inflation and a strong dollar, it has pected to consider a package of broad- are said to occur when countries seek hinted at the possibility of policy nor- based asset purchases including sov- to devalue their currency to gain a malisation. As crude oil prices are competitive advantage – exports be- continuing to slump to historic lows come more competitive while imports and inflation has not picked up, such If global growth become more expensive, leading to a a move would have to be well-timed. rise in aggregate demand, which helps In its 17 December statement, the remains weak and the boost economic growth and reduce Federal Open Market Committee dollar becomes too unemployment. noted that economic activity is ex- However, if one country seeks to panding at a moderate pace. Inflation strong, the Fed might become more competitive through has continued to run below its longer- decide to change its devaluation, it means other countries run objective, partly reflecting de- become less competitive. Therefore, clines in energy prices. Market-based position and continue they may respond by weakening their measures of inflation compensation with monetary easing, currency too. This leads to a situation have declined somewhat further; sur- of competitive devaluation, where vey-based measures of longer-term or even accelerate it. each country seeks to reduce its own inflation expectations have remained currency’s value. In the end, this cre- stable. ates global economic instability by ‘When the Committee decides to ereign debt. discouraging investment and trade. begin to remove policy accommoda- With a decline in oil prices, which With many major economies tion, it will take a balanced approach has led to a fall in the value of the across the world yet to fully recover consistent with its longer-run goals of ruble, economists are of the opinion from the recession, and some facing maximum employment and inflation that Russia won’t speed up its plan to the threat of deflation, central banks of 2%. The Committee currently an- allow the ruble to trade freely next are slowly but surely seeking to boost ticipates that, even after employment year, even though the central bank’s demand through exchange rates. and inflation are near mandate-con- continued defence of the currency has According to data compiled by sistent levels, economic conditions cost it a lot of money. Bloomberg recently, weak price may, for some time, warrant keeping Russia’s central bank, led by growth is stifling economies from the the target federal funds rate below Governor Elvira Nabiullina, has so far euro region to Israel and Japan. Eight levels the Committee views as nor- failed to reverse the currency plunge of the 10 currencies forecast to decline mal in the longer run,’ it said in a state- even after spending a fifth of its in- the most through 2015 belong to na- ment. ternational reserves and raising its key tions that are in deflation or pursuing As such, if global growth remains interest rate five times since March policies that weaken their exchange weak and the dollar becomes too 2014. One can expect sharper rate rates. strong, the Fed might decide to moves to sway the currency market. Lowering interest rates, quantita- change its position and continue with With Japan’s Prime Minister tive easing and intervention buying monetary easing, or even accelerate Shinzo Abe back in the saddle, the are some of the measures that have it. Bank of Japan is widely expected to become more prominent in recent Meanwhile, the European Central continue with its quantitative easing months, and unless the respective Bank recently announced new stimu- programmes to get the economy back

THIRD WORLD RESURGENCE No 293/294 14 C O V E R

on track. At the end of 2014, it en- gaged in one of the largest experi- The Management of Capital Flows in Asia ments in quantitative easing and has been selling yen and buying US as- Edited by Yilmaz Akyüz sets. This may pick up pace, depend- ing on the progress of its recovery. THE 1997 Asian financial crisis brought home China has long been accused of to the region’s economies the importance of managing capital flows in order to avert currency manipulation. Many econo- financial shocks. This book looks into whether mists also expect the People’s Bank and how this lesson was taken on board by of China to continue its monetary eas- policy makers in Asia, and, accordingly, how ing, now that GDP has slowed down. capital account regimes in the region evolved Only recently it lowered lending and in the post-crisis period. saving rates and increased the ceiling The early years of the new millennium saw for deposit rates in an effort to boost a strong surge of capital flows into Asian the growth rate of its economy. The emerging markets amid conditions of ample global liquidity. In response to the influx of country has room to ease further, funds, these countries generally chose to keep which shouldn’t be disregarded if the their capital accounts open to inflows, dealing economic situation fails to improve. with the attendant impacts by liberalizing According to experts, if the risk resident outflows and accumulating foreign ISBN: 978-967-5412-50-9 240pp of deflation rises amid the unwinding exchange reserves. While this approach enabled them to avoid unsustainable currency 16.5 cm x 24 cm Year: 2011 of its credit bubble, there’s a risk that appreciations and external deficits, it did not China will follow Japan and devalue prevent the emergence of asset, credit and Network research project on the yuan. investment bubbles and domestic market financial policies in Asia – vulnerability to external financial shocks – as examines the above Xinhua news agency cited a gov- developments in relation to the ernment official as saying that mon- the events following the 2007 subprime crisis would prove. region in general and to four etary policy will be kept prudent – major Asian developing ‘There will be greater focus on mon- This book – a compilation of papers written economies: China, India, etary policy being appropriately tight in 2008 for the first phase of a Third World Malaysia and Thailand. or loose.’ Price Postage Many other emerging economies Malaysia RM30.00 RM2.00 are trying to either stabilise prices or Third World countries US$14.00 US$7.00 (air); US$3.00 (sea) gain competitiveness by weakening Other foreign countries US$20.00 US$10.00 (air); US$3.00 (sea) their currencies as they ease their Orders from Malaysia – please pay by credit card/crossed cheque or postal order. monetary policies. Everything de- Orders from Australia, Brunei, Indonesia, Philippines, Singapore, Thailand, pends on how the economies fare. UK, USA – please pay by credit card/cheque/bank draft/international money order South Korea, like China, is des- in own currency, US$ or Euro.If paying in own currency or Euro, please calculate equivalent of US$ rate. If paying in US$, please ensure that the agent bank is perately trying to fight deflationary located in the USA. pressures with rate cuts. Malaysia Rest of the world – please pay by credit card/cheque/bank draft/international started raising rates in July 2014 and money order in US$ or Euro. If paying in Euro, please calculate equivalent of US$ Indonesia followed suit in November. rate. If paying in US$, please ensure that the agent bank is located in the USA. The central banks of India and Thai- All payments should be made in favour of: THIRD WORLD NETWORK BHD., land are not engaging in monetary 131 Jalan Macalister, 10400 Penang, Malaysia. Tel: 60-4-2266728/2266159; Fax: 60-4-2264505; Email: [email protected]; Website: www.twn.my loosening right now, although their I would like to order ...... copy/copies of The Management of Capital Flows inflation rates are moderating. in Asia. In a recent note, ANZ forecast 3% depreciation in Asian currencies over I enclose the amount of ...... by cheque/bank draft/IMO. 2015, ‘a similar decline to that seen Please charge the amount of US$/Euro/RM ...... to my credit card: in 2014’, noting that ‘risks are tilted toward a larger depreciation should American Express Visa Mastercard tighter US monetary policy lead to larger portfolio outflows from the re- A/c No.: Expiry date: gion.’ The groundwork for currency Signature: wars in 2015 is clearly being laid. u Name:

Ram Garikipati is a business writer with The Korea Address: Herald, in which this article was first published (5 January 2015).

THIRD WORLD RESURGENCE No 293/294 15 C O V E R South increasingly vulnerable in unstable global financial system The closer integration of emerging and developing economies into an inherently unstable international financial system has left them more open to a new round of financial shocks, says Yilmaz Akyuz.

AFTER a series of crises with severe economic and social consequences in the 1990s and early 2000s, emerging and developing economies have be- come even more closely integrated

into what is widely recognised as an cc Rafael Matsunaga inherently unstable international fi- nancial system. Both policies in these countries and a highly accommodating global financial environment have played a role. Not only have their traditional cross-border linkages been deepened Closer integration of developing economies into the international financial system is and external balance sheets expanded a cause for concern. rapidly, but foreign presence in their domestic credit, bond, equity and still lacking adequate mechanisms for More importantly, the structure of property markets has also reached an orderly and equitable resolution of their external balance sheets has un- unprecedented levels. external financial instability and cri- dergone important changes, particu- New channels have thus emerged ses in developing economies. larly on the liabilities side, bringing for the transmission of financial This process of closer integration new vulnerabilities. shocks from global boom-bust cycles. was greatly helped by highly favour- The share of direct and portfolio Almost all developing countries are able global financial conditions before equity in external liabilities has been now vulnerable, irrespective of their 2008, thanks to the very same credit increasing. An important part of the balance-of-payments, external debt, and spending bubbles that culminated increase in equity liabilities is due to net foreign assets and international in a severe crisis in the United States capital gains by foreign holders. In reserve positions, although these play and Europe. many developing countries, presence an important role in the way such The crisis did not slow this proc- in equity markets is greater than that shocks could affect them. ess despite initial fears that it could in the United States and Japan. Stability of domestic banking and lead to a retreat from globalisation. While still remaining below the asset markets is susceptible even in Integration has even accelerated since levels seen a decade ago as a percent- countries with strong external posi- then because of ultra-easy monetary age of gross domestic product (GDP), tions. Those heavily dependent on policies pursued in advanced econo- external debt buildup has accelerated foreign capital are prone to liquidity mies, notably in the United States, in since the crisis in 2008. This is mainly and solvency crises as well as domes- response to the crisis. due to borrowing by the private sec- tic financial turmoil. The surge in capital inflows that tor, which now accounts for a higher The new practices adopted in re- started in the early years of the new proportion of external debt than the cent years – including more flexible millennium, and continued with full public sector in both international exchange rate regimes, accumulation force after a temporary blip due to the bank loans and security issues. A very of large stocks of international re- collapse in 2008 of the Lehman large proportion of private external serves or borrowing in local currency Brothers financial services firm, holds debt is in foreign currency. There is – would not provide much of a buffer the key to the growing internation- also a renewed tendency for against severe external shocks such alisation of finance in developing dollarisation in domestic loan mar- as those that may result from the nor- countries. kets. malisation of monetary policy in the It has resulted in a rapid expan- As a result of a shift of govern- United States. sion of gross external assets and li- ments from international to domestic And the multilateral system is abilities of developing economies. bond markets and opening them to

THIRD WORLD RESURGENCE No 293/294 16 C O V E R foreigners, the participation of non- residents in these markets has been growing. The proportion of local-currency sovereign debt held abroad is greater in many developing countries than in reserve issuers such as the United States, the United Kingdom and Ja- pan. It is held by fickle investors rather than by foreign central banks as international reserves. International banks have been shifting from cross-border lending to local lending by establishing commer- cial presence in developing countries. Their market share in these countries has reached 50% compared with 20% in developed countries. These banks International banks have been shifting from cross-border lending to local lending by tend to act as conduits of expansion- establishing commercial presence in developing countries. ary and contractionary impulses from global financial cycles and increase discipline over financial markets and etary policy in the United States re- the exposure of developing economies policies in systemically important turns to normalcy after six years of to financial shocks from advanced countries which exert a disproportion- flooding the world with dollars at ex- economies. ately large impact on global condi- ceptionally low interest rates. One of the key lessons of the his- tions. In weathering a possible renewed tory of economic development is that For another, the multilateral sys- instability, they cannot count on the successful policies are associated not tem also lacks effective mechanisms more flexible currency regimes they with autarky or full integration into for orderly resolution of financial cri- came to adopt after the last bouts of the global economy, but strategic in- ses with international dimensions. crises or the reserves they have built tegration seeking to use the opportu- Thus, closer integration of several from capital inflows or the reduced nities that a broader economic space emerging and developing economies currency exposure of the sovereign. may offer while minimising the po- into the international financial system It is important that they, as well tential risks it may entail. This is more in the past 10 years, after a series of as the international community, avoid so in finance than in trade, investment crises with severe economic and so- going back to business-as-usual in and technology. cial consequences, is a cause for con- responding to a new round of finan- For one thing, the international cern. cial shocks, bailing out investors and financial system is inherently unsta- In all likelihood, these countries creditors and maintaining an open ble in large part because multilateral will be facing strong destabilising capital account at the expense of in- arrangements fail to impose adequate pressures in the years ahead as mon- comes and jobs. They need to include many un- conventional policy instruments in their arsenals to help lower the price that may have to be paid for the fi- nancial excesses of the past several years. They should also take the oc- casion to rebalance the pendulum and to bring about genuine changes in the international financial architecture. – IPS Columnist Service ÿu

Yilmaz Akyuz is chief economist at the South Centre in Geneva. The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. This article is based on ‘Internationalization of Finance and Changing Vulnerabilities in Emerging and Developing The surge in capital flows to developing economies that started in the early years of Economies’, South Centre Research Paper No. 60, the new millennium continued with full force after a temporary blip due to the Lehman January 2015, available at www.southcentre.int/ Brothers collapse in 2008. research-paper-60-january-2015.

THIRD WORLD RESURGENCE No 293/294 17 C O V E R Bracing for another storm in emerging markets As growth and interest rates increase in the United States, the surge of financial flows from that region to emerging markets may reverse course precipitately, causing financial instability and weak growth for years to come. In this article, Kevin P Gallagher underscores the importance of developing countries having at their disposal as many tools as possible to weather the resulting storm.

IN 2012, Brazilian President are important, but may not be Dilma Rousseff criticised US available or enough. Federal Reserve Chairman Ben Floating exchange rates Bernanke’s monetary easing and resulting depreciation can policies for creating a ‘mon- cause the debt burden of firms etary tsunami’: financial flows and fiscal budgets to bloat to emerging markets that were overnight. Given that most of appreciating currencies, caus- the capital inflows were in dol- ing asset bubbles and generally lars, depreciating currencies exporting financial instability mean that nations and firms to the developing world. will need to come up with ever Now, as growth increases more local currency to pay debt in the United States and inter- Traders at the Brazilian stock exchange. From 2009 to – but in a lower-growth envi- est rates follow, the tide is turn- 2013, emerging market economies like Brazil ronment. ing in emerging markets. Many experienced massive surges of capital flows. What is more, most coun- countries may be facing capital flight put corporate issuance at close to $700 tries didn’t properly invest their com- and exchange rate depreciation that billion since the crisis, but the BIS modity windfalls into increasing the could lead to financial instability and reckons that the figure is closer to $1.2 competitiveness of their industries. weak growth for years to come. trillion when counting offshore trans- Thus, exports may not pick up at all. The Brazilian president had a actions designed to evade regulations. A study by the International Monetary point. Until recently US banks Fund (IMF) shows that while Latin wouldn’t lend in the United States Turnaround America saw one of the biggest com- despite the unconventionally low in- modity windfalls in its history, it has terest rates. There was too little de- Now the tide is turning. China’s the least to show for it in terms of mand in the US economy and emerg- economy is undergoing a structural savings or investment relative to other ing-market prospects seemed more transformation that necessitates booms. What is more, the massive lucrative. From 2009 to 2013, coun- slower growth and less reliance on exchange rate appreciation that oc- tries like Brazil, South Korea, Chile, primary commodities. Oil prices and curred as a result of the tsunami in Colombia, Indonesia and Taiwan all the prices of other major commodi- short-term inflows made many in- had wide interest rate differentials ties are stabilising or on the decline. dustries uncompetitive and pulled with the United States and experi- It should be no surprise then that many them out of key global commodity enced massive surges of capital flows. emerging-market growth forecasts are chains. The differential between Brazil and continually being revised downward. Thus, weak currencies and more the US was more than 10 percentage Meanwhile, growth and interest rates debt may be apt to lead to falling con- points for a while – a much better bet are picking up in the United States. fidence rather than surges in exports than the slow growth in the United The dollar gains strength; the values that will help their countries adjust to States. of emerging-market currencies fall. the new shocks. According to the latest estimates Some analysts predict that emerg- Local bond markets help, but from the Bank for International Set- ing-market and developing countries most debt is indeed in dollars and tlements (BIS), emerging markets can weather the storm through float- most local debt is held by foreigners now hold a staggering $2.6 trillion in ing exchange rates, the development who are always the first to dump such international debt securities and $3.1 of local bond markets, interest rate debt for foreign shores. Interest rate trillion in cross-border loans – the hikes, or by using some of their for- hikes can also be dangerous. They are majority in dollars. Official figures eign exchange reserves. These tools often not enough to reverse the flight

THIRD WORLD RESURGENCE No 293/294 18 C O V E R to the US and can choke off what lit- tle growth there is to be had in a down- Standing in the Way of Development? A Critical turn. Depleting foreign exchange re- Survey of the IMF’s Crisis Response in serves doesn’t always work, and non- Low-Income Countries Asian countries whose reserves are a function of the commodity boom will By Elisa Van Waeyenberge, Hannah Bargawi and Terry McKinley be reluctant to disperse such reserves in the wake of commodity price de- The International Monetary Fund (IMF), which clines. has been criticised for the rigid economic policy The problem is that too many conditionalities attached to its lending programmes, says it now provides borrower countries failed to regulate during the states greater flexibility to adopt expansionary boom and instead let capital flows policies. Standing in the Way of Development? storm into their countries to bloat bal- assesses this claim in the context of the IMF’s central role in dealing with the effects of the ance sheets and currency values. They global financial crisis in low-income countries are left with increasing debt as cur- (LICs). rencies slide, and not enough competi- This paper evaluates the general tiveness to benefit from currency de- macroeconomic policy scheme promoted by the Fund and closely examines the nature of its preciation. The result could be more engagement during the crisis in a representative financial instability that could further sample of 13 LICs. The authors find that, despite threaten prospects for growth and some relaxation of policy restraints, the IMF employment. essentially remains wedded to its longstanding prioritisation of price stability and low fiscal ISBN: 978-967-5412-60-8 96 pp Emerging-market and developing deficits over other macroeconomic goals. countries may need to resort to regu- Such a policy stance, it is argued, could alternative macroeconomic lating the outflow of capital alongside undermine not only LICs’ prospects for a quick policy framework geared these other measures. Such moves recovery from the crisis but also their longer- towards supporting long-run term development outlook. In light of this, this equitable growth and poverty have traditionally been shunned by paper outlines the broad contours of an reduction. international institutions and capital markets alike. PRICE POSTAGE New research on the cutting edge Malaysia RM11.00 RM1.00 of economics and by the IMF now Developing countries US$7.00 US$3.50 (air); US$1.00 (sea) justifies the regulation of capital out- Others US$10.00 US$5.00 (air); US$1.00 (sea) flows to prevent or mitigate a full- blown crisis. The IMF was bold in Orders from Malaysia – please pay by credit card/crossed cheque or postal order. recommending the regulation of in- Orders from Australia, Brunei, Indonesia, Philippines, Singapore, Thailand, UK, USA flows during the surge, but has shied – please pay by credit card/cheque/bank draft/international money order in own cur- from noting the utility of regulating rency, US$ or Euro. If paying in own currency or Euro, please calculate equivalent of capital in flight. Worse, new US trade US$ rate. If paying in US$, please ensure that the agent bank is located in the USA. agreements such as the Trans-Pacific Rest of the world – please pay by credit card/cheque/bank draft/international money order in US$ or Euro. If paying in Euro, please calculate equivalent of US$ rate. If Partnership have stripped out balance- paying in US$, please ensure that the agent bank is located in the USA. of-payments exceptions that would All payments should be made in favour of Third World Network Bhd., 131 Jalan have allowed nations to regulate capi- Macalister, 10400 Penang, Malaysia. Tel: 60-4-2266728/2266159; Fax: 60-4-2264505; tal. Email: [email protected]. Website: www.twn.my If we have learnt anything from I would like to order...... copy/copies of Standing in the Way of Development? the global financial crisis, it is that A Critical Survey of the IMF’s Crisis Response in Low-income Countries. nations need as many tools as possi- I enclose the amount of US$/Euro/RM ...... (cheque/bank draft/IMO). ble at their disposal to prevent and mitigate financial instability. Instabil- Please charge the amount of US$/RM ...... to my credit card: ity anywhere can lead to instability American Express Visa Mastercard everywhere, so let’s make sure all tools and hands are on deck. ÿu A/c no.: Expiry date:

Kevin P Gallagher is an associate professor of global Signature: development policy at Boston University’s Pardee School for Global Studies, where he co-directs the Global Economic Governance Initiative. His new Name: book, Ruling Capital: Emerging Markets and the Reregulation of Cross-Border Finance, has just been Address: released by Cornell University Press. This article is reproduced from the Triple Crisis blog (triplecrisis.com, 6 February 2015).

THIRD WORLD RESURGENCE No 293/294 19 C O V E R Asia’s craving for debt Debt in Asia is now a source of much concern as its surge since 2009 could create external and internal turmoil, says CP Chandrasekhar.

TO many Asian countries, the finan- cial crisis of 1997 is a bad nightmare best forgotten. The fact that some of them have since then accumulated large foreign exchange surpluses is seen as insurance enough to prevent another such occurrence. But moving to such conclusions may be running ahead of the evidence – that for some time now, debt in Asia that could cre- ate external and internal turmoil has been rising fast, and accelerating since 2009 in particular. Interestingly, this trend has not been commented on much till re- cently. However, a recent study from the Bank for International Settlements There are growing concerns about the state of the banking system in China because (Stefan Avdjiev and Elod Takats, of its exposure to, among others, the housing market bubble. ‘Cross-border bank lending during the taper tantrum: the role of emerging of 2005 to $2,164 billion at the end developing Asia-Pacific, with the fig- market fundamentals’, BIS Quarterly, of the second quarter of 2014. In fact, ure exceeding 50% in all but one. September 2014) points to the dan- in four of the nine years, starting with There are signs of a shift in exposure gers implicit in that attitude. the year ending the first quarter of from Hong Kong to mainland China The study suggests there are rea- 2005, the annual increase in interna- in recent years, encouraged no doubt sons why emerging market econo- tional bank claims in eight leading by liberalisation of banking in the mies’ (EMEs) debt exposure should Asian emerging markets exceeded the mainland. If India is added to these not be ignored. First, the outstanding highest annual increment of $212 bil- countries, the share of the three in stock of cross-border bank claims on lion in portfolio inflows to those coun- developing Asia-Pacific exposure has EMEs stood at more than $3.6 tril- tries, with the increase peaking at fluctuated between 66% and 82% lion at the end of 2013 – roughly as $393 billion in 2010-11. International since 2005. large as the stock of all portfolio in- bank claims in these countries fell by Given the role that local devel- vestment in EMEs. Second, during the $110 billion in 2008-09. In the devel- opments can have in inducing vola- taper tantrum, cross-border bank lend- oping Asia-Pacific as a whole, while tility and the danger of contagion sig- ing to EMEs slowed sharply, with its exposure rose by between 30% and nalled during the 1997 crisis, this con- growth rate dropping to 2.5% in the 40% a year during 2006 to 2008, it centration of debt exposure is discon- second and third quarters of 2013 fell by 17% in 2009 and has recorded certing. More so because banks from around 10% over the previous much lower growth rates since. Thus owned by residents in two countries, two quarters. And, third, it is not just volatility in bank exposure is consid- the US and the UK, account for the factors in the source countries that erable, making it a cause for concern. bulk of the exposure, varying from explain fluctuations in bank loan in- This volatility is a matter for con- 43% to 50% of the total during this flows, but characteristics in the recipi- cern also because of the destination- period. In time developments like in- ent countries such as the current ac- country and source-country concen- terest rate increases in the US, which count deficit. tration of these international bank are still expected though they did not A look at the evidence with re- claims. The three countries in which occur during the December 2013-Oc- spect to Asian emerging markets sug- international bank claims in the Asia- tober 2014 taper, can prove more gests that the exposure to debt is a Pacific are concentrated are Hong damaging than could have been dur- source of concern here as well. To Kong (which serves as a financial ing that period. This does suggest that start with, outstanding international hub), China and India in that order. policymakers in Asia-Pacific EMEs bank claims have risen fourfold in the Over the years, Hong Kong and China must not merely drop their compla- developing Asia-Pacific from $503.5 together have accounted for between cency and think of ways of limiting billion at the end of the first quarter 47-70% of aggregate exposure in the and reducing their exposure to foreign

THIRD WORLD RESURGENCE No 293/294 20 C O V E R

finance, but also take account of their both 2000-07 (before the global cri- that are observed. growing exposure to debt besides sis) and 2008-13. The remaining China and India (besides South portfolio investment. countries fall into two categories. On Korea) are now the target of particu- What is more disconcerting is that the one hand, India and South Korea lar attention because they have been associated with this increase in for- saw relatively large increases in credit registering rapid increases in their eign bank exposure in Asian EMEs is to the private sector during 2000 to private credit to GDP ratios over dif- a huge increase in the overall expo- 2007 of 61% and 87% respectively, ferent periods since 2000. China leads sure to debt of the private – corporate followed by either a low increase (7% in terms of the level of the ratio of and household – sector. The increase in the case of India) or a fall (of 9% credit to GDP and has registered a in domestic liquidity that foreign in- for Korea) during 2008-13. On the continuous increase in the same ex- flows of debt and other financial flows other hand, Thailand, Malaysia, Sin- cept, interestingly, during 2003 to result in, seems to provide the basis gapore and China recorded a fall in 2008 when the ratio fell, precisely for a boom in the credit accessed by the ratio in the first period, followed during the years when it rose in In- the domestic private sector from for- by a significant increase in the sec- dia. However, according to a eign and domestic sources. ond. In sum, if a generalised statement McKinsey and Co report, China’s This signals a reversal of the ten- is to be made for the period since debt increased almost fourfold be- dency to reduce debt and repair bal- 2000, it would be that except for In- tween 2007 and 2014, having risen ance sheets that began immediately donesia that has been an outlier, the from $7 trillion to $28 trillion. after the Southeast Asian crisis in rest have been characterised by rela- Bank credit to the private sector 1997. Stated otherwise, the effects on tively high levels of bank credit out- has exploded since the global finan- Asian debt of the 1997 and 2008 cri- standing and by much volatility, with cial crisis, as part of the government’s ses, or the one that primarily affected periods of bank credit expansion giv- stimulus effort. This has led to grow- a few countries in the Asia-Pacific ing way to periods of moderation or ing concerns about the state of the region and the other that affected the contraction or vice versa. banking system because of its expo- centres of developed capitalism, have When seeking to understand sure to the housing market bubble and been very different. While the former these trends, it may be useful to keep to local government financing vehi- was followed by debt reduction, the three features of the region in mind. cles that have borrowed to invest in latter, the 2014 issue of the IMF’s First, all emerging markets in the re- huge projects without the appropriate Regional Outlook notes, was followed gion have been liberalising regula- revenue model to meet the interest and by a rise in corporate leverage in tions governing their financial sectors amortisation commitments involved. emerging Asia, which ‘may represent and easing monetary policy, both of As for India, though the level of a “fault line”.’ which have increased the flexibility its BCPS ratio is much lower than in While there have been multiple of the banking sector when making other Asian emerging markets (except sources from which this debt was in- lending decisions. This provided the Indonesia), it too experienced a sharp curred, bank credit remained the basis for an important commonality increase in the ratio during the high dominant and important source. Con- across the region: expansion-contrac- growth period between 2003 and sider, therefore, the ratio of domestic tion or even boom-bust cycles in 2008. As a result, signs of stress in bank credit to the private sector credit provision, which all of these bank balance sheets and fears of in- (BCPS) to GDP across the main countries (except Indonesia) have ex- creased default and speculative bub- EMEs in the region, viz., China, In- perienced to differing degrees. An bles in property and other markets dia, Indonesia, Korea, Malaysia, Sin- over-enthusiastic banking sector is now pervade discussion in these two gapore and Thailand. In terms of a forced to correct because of either countries as well. point-of-time picture, in 2013, Indo- balance sheet stress or a full-fledged Overall, therefore, while there are nesia and India recorded relatively crisis. Second, liberalisation came significant differences in the volume lower bank credit to GDP ratios of earlier to Southeast Asia, which then and growth of bank exposure to the 34% and 53% respectively, while the experienced the financial crisis in private sector across Asian emerging others had notched up ratios that stood 1997 that left China and India rela- markets, they are all confronted with well above 100% (varying from 121% tively unaffected. So India’s credit signs of bank fragility due to overex- in Thailand to 140% in China, with boom and China’s moderation during posure to a few markets such as the the rest distributed in between). the first period require explanations retail sector (especially housing), to These substantial differences in that are independent of the last major real estate and capital-intensive the level of exposure are also accom- crisis that affected the Asian region. projects in infrastructure and indus- panied by differences in trends over Third, in the aftermath of the 1997 try. In all these countries, therefore, time in the ratio of BCPS to GDP. In- crisis Southeast Asian countries ad- debt is now a source of much concern, donesia is again an outlier, with its justed differently in terms of both the as the projects financed have not been lower absolute ratio being accompa- restructuring of the banking sector faring well. ÿu nied by relatively moderate increases and the regulation of capital flows, CP Chandrasekhar is an economics professor at in that ratio, of around 30% during leading to the variations in experience Jawaharlal Nehru University in New Delhi.

THIRD WORLD RESURGENCE No 293/294 21 C O V E R The ECB has shaken the eurozone’s utopian foundations While the Greek crisis has hit the headlines, the truth is that 11 of the 18 eurozone countries are facing a deflationary slide. Ann Pettifor contends that the whole architecture of the eurozone is based on a financier-friendly ideology premised on the belief that economies are self-regulating, and this may prove to be its undoing.

THE 4 February late-night de- cision by the European Central Bank (ECB) to reject Greek bank collateral for monetary policy operations will, I confi- dently predict, precipitate not just a run on Greek banks, not just greater price instability across the eurozone – but ulti- mately, the collapse of the fan- tastic machinery that is the ‘self-regulating’ economy of the eurozone. As is well known, the pri- mary duty of the ECB is to pro- mote price stability. Subject to price stability it has a duty to promote the union’s Treaty ob- jectives that include ‘balanced The European Central Bank headquarters in Frankfurt. The ECB had failed to maintain price economic growth full em- stability and to do so at a self-imposed target at or close to 2%. In December, 11 out of 18 ployment, social progress and eurozone countries were in annual deflation. solidarity amongst member states’. Before the decision of 4 Febru- Utopian vision stincts. ary, the ECB had failed lamentably The ECB’s mandate, as Godley in its primary duty: to maintain price But this arrogance, this disregard argued, is premised on a belief that stability and to do so at a self-imposed for the governments and the political ‘governments are unable, and there- target, at or close to 2%. In Decem- will of the Greek people in particular fore should not try, to achieve any of ber, 11 out of 18 eurozone countries and the peoples of Europe in general, the traditional goals of economic were in annual deflation. This is not is wholly in line with the Maastricht policy, such as growth and full em- just lamentable monetary policy fail- Treaty’s utopian vision for the ployment’. ure, it is technocratic misconduct on eurozone. As Wynne Godley argued Instead, the fantastic machinery a grand scale. The Spanish economy way back in 1992, the architecture of of invisible, unaccountable capital has recorded months of negative in- the eurozone is premised on the no- markets is entrusted with the task of flation. Italy registered -0.1% defla- tion that economies are ‘self-righting managing and, above all, disciplining tion in December; Ireland -0.3%; Por- organisms which never under any cir- eurozone economies, governments tugal -0.3%; Belgium -0.4%; Greece cumstances need management at all’. and peoples. -2.5%. Greece has been in annual de- This machinery was made to fit a This enhanced Treaty-embedded flation every month since February financier-friendly ideology based on role for the private finance sector led 2013. contempt for democratic government. to the profligate financing of specu- While failing in their primary According to this ideology, govern- lative activities in Greece, Spain and mandate, ECB technocrats bypassed ments are ‘rent-seeking’ and should Ireland by German, French and Brit- their European political masters and be marginalised. Economic policy ish bankers before 2007. It led to the on 4 February flouted wider EU (monetary and fiscal) must be priva- immense enrichment of the financier Treaty objectives for social and po- tised in the hands of financial mar- class, and to the sector’s co-responsi- litical stability and for solidarity kets that, surprisingly, are regarded as bility for the inevitable financial and amongst member states. having no such ‘rent-seeking’ in- economic crises of 2007-15. The cri-

THIRD WORLD RESURGENCE No 293/294 22 C O V E R

sis in turn demolished the mythology of the free market: finan- ciers socialised losses and extracted govern- ment and taxpayer guarantees to protect them from risk. But just as in the 1930s, the ideologues that laid the founda- tions of the eurozone, and those that have against all odds up- held it, were not pre- pared for the Greek election result. They were not prepared for the fact that, as Karl Polanyi once argued, The Maastricht Treaty was signed in 1992 (pic). The Treaty’s vision for the eurozone is premised on society would take the notion that economies are ‘self-righting organisms which never under any circumstances need measures to protect management at all’. itself from the fantastic, unaccount- able and ruthless machinery of capi- 16.2% in a single day. More worry- Transformation, the second ‘great tal markets. ingly, borrowing costs for bigger transformation’ of the 20th century, For on 25 January 2015 the peo- eurozone governments began to ap- the rise of fascism, was a direct result ple of Greece took a second, bold step proach levels where others had been of the first ‘great transformation’ – the at reversing austerity and restoring forced into bailouts: yields on Italy’s rise of market liberalism. some form of social and political 10-year bond jumped to more than Adherence to this utopian vision stability. They did so by electing a 6.2%.’ of how economies work explains the Syriza government dedicated to re- European leaders, including ECB’s crude and inept handling of the solving the debt crisis and reversing President Sarkozy and Chancellor democratically elected Greek govern- the ‘fiscal waterboarding’ policies of Merkel, rallied behind the capital ment’s attempt to resolve its debt cri- the troika. markets and forced the Greek Prime sis. Their actions will shake the foun- This followed an earlier attempt Minister into a humiliating dations of the eurozone. by Greek society to restore some ac- climbdown. Just as the collapse of the Gold countable form of government. In Standard in Britain and the United October 2011 an angry reaction to the ‘Great transformations’ States led to a dramatic pre-war re- terms of a troika-imposed economic covery in those countries, so the col- programme led to social upheaval. Today’s eurozone’s architecture lapse of the utopian blueprint that is According to the Financial Times, and associated economic policies are the eurozone may herald good news ‘thousands of anti-austerity protesters, not different in intent from the ‘fet- for Europe’s economies, for its thou- including rightwing radicals and an- ters’ or ‘corset’ that was the Gold sands of firms and for its millions of archists, stormed [the President’s] Standard, and that regarded the role unemployed. Above all, it may revive parade route, forcing Karolos of governments with the same con- popular faith in a united, peaceful Papoulias to flee’. In a panic, Prime tempt. They are the same policies that European Union based on collabora- Minister George Papandreou called a led 1930s Europe into unbearable tion, shared responsibility and solidar- national referendum. degradation, poverty and misery. To- ity. The capital markets immediately day these policies once again threaten Indeed we may yet come to thank sprang into action and proceeded to to unleash dangerous tensions. ECB technocrats for shaking the very discipline not just Greek but other Society – locally, nationally and foundations of the current, ill-con- European governments, their firms internationally – is making ‘concerted structed eurozone. ÿu and their peoples. The Financial efforts to protect itself from the mar- Times again: ‘eurozone bond markets, ket’. History is repeating itself. Cur- Ann Pettifor is Director of Policy Research in which had briefly rallied after the rent resistance to market liberalism Macroeconomics (PRIME) and author of Just Money: How Society Can Break the Despotic Power Greek debt restructuring was agreed, echoes past resistance. As Karl of Finance (Commonwealth Publishing, January sold off in a panic. Yields on Greece’s Polanyi argued in his great, and in- 2014). The above article is reproduced from the benchmark 10-year bond spiked by creasingly relevant, work, The Great Social Europe website (www.socialeurope.eu).

THIRD WORLD RESURGENCE No 293/294 23 C O V E R End of the euro is nigh without radical EU-wide reforms In the following interview, conducted before his appointment as Greece’s finance minister, Yanis Varoufakis offers his insight on the fragile state of the global financial system and the eurozone and warns that continuance of current policies is a recipe for disaster.

IT’S not often one gets to interact Chris Rogers the crisis itself. Is this a fair analy- personally with their heroes, so it was sis? with great relish and delight that I Yanis Varoufakis: Central bank- grasped an opportunity to ers and policymakers were engage in intellectual obsessed not so much with swordplay with one of Eu- deflation but with transfer- rope’s leading heterodox ring the losses of financial economists and political ac- institutions onto the shoul- tivist in his homeland, Pro- ders of citizens. When this fessor Yanis Varoufakis of transfer produced defla- the University of Athens – tionary forces, only then courtesy of the new honor- did they enter into quanti- ary Editor Emeritus of the tative easing (QE) territory Journal of Regulation & in an attempt to stem them. Risk – North Asia, Profes- Since then, they have been sor Steve Keen of Kingston trying to contain deflation University. without doing anything Before moving to the Prof. Yanis Varoufakis. that might restore a modi- Question and Answer sec- cum of bargaining power tion of this article, it’s necessary to the Future of the World Economy to labour or income to the dispos- give a brief introduction to Prof. (London and New York: Zed Books) sessed. Varoufakis for those unfamiliar with and Modern Political Economics: CR: Given collapsing global oil his work and personal background; a Making Sense of the Post-2008 World prices, an emerging car loan career greatly impacted by the 2008 (with J Halevi and N Theocarakis; subprime crisis brewing in the United financial crisis and subsequent woes London and New York: Routledge). States, slowdown in China and con- of his country of residency, Greece, A leading figure in the heterodox tinued economic woes in Japan, to- where presently he’s running for elec- economics movement and vociferous gether with fears over Greece ignit- tion to the Greek Parliament as a critic of economic and monetary ing another round of sovereign debt standard-bearer of the Greek politi- policy conducted after the great finan- crisis within the European Union, is cal reform movement Syriza. cial crisis on both sides of the Atlan- it fair to say we may be entering a A dual citizen of Australia and tic Ocean, Prof. Varoufakis is much perfect storm again and a repeat of Greece, Prof. Varoufakis attended in demand by journalists and on the events similar to those witnessed in university at Essex and Birmingham international speakers’ circuit. As 2008? in the UK and was awarded his PhD such, the staff of the Journal and I YV: Whether the next phase of in economics also from the Univer- thank Prof. Varoufakis for taking the global crisis will take the form of sity of Essex. He began his profes- valuable time out from the Greek elec- a major discontinuity or a slow-burn- sional career as a university lecturer, tion campaign to share his valuable ing, ever-increasing loss of socio-eco- influencing undergraduates and post- insights. nomic potential is not something that graduates on three continents. Chris Rogers: Prof. Varoufakis, we can predict. What is clear is that, A prolific author and committed since the demise of Lehman Brothers under the current policy mix, the blogger, Prof. Varoufakis has pub- in September 2008 and the ensuing world is facing either what [Larry] lished numerous academic papers and great financial crisis (GFC), it would Summers described as secular stag- two seminal books on the 2008 finan- seem rather obscene that central nation or another Lehman moment. cial crisis and its aftermath, these be- bankers and monetary policy have Not a great set of options... ing The Global Minotaur: The True been obsessed with ‘deflation’, rather CR: Turning to the EU and the Origins of the Financial Crisis and than remedying the actual causes of eurozone itself, would it be prudent

THIRD WORLD RESURGENCE No 293/294 24 C O V E R for the EU Commission and European market closely, you find that the YV: You are making the wrong Central Bank to countenance the number of Americans wanting a full- assumption that EU officials are in the rapid introduction of a two-tier euro, time job and not having one has re- business of promoting shared prosper- specifically a ‘hard’ eurozone with mained more or less constant over the ity. I wish that were true. No, they are federal Germany at its helm, and a last few years. Employment growth in the business of perpetuating their ‘soft’ eurozone headed by France? has not kept up with labour supply bureaucratic authority within an insti- YV: If Europe continues the way which, in the United States, rises tution that was designed as a democ- it is now going, there will be no soft faster than in Europe. As for income racy-free zone and as a mediator be- and hard euro. The euro will disinte- growth, it is no great wonder that, tween various powerful, oligopolistic grate, the result being a deutschemark courtesy of low investment and QE, vested interests for whom austerity is zone east of the Rhine and north of asset price increases and share a golden opportunity to maximise the Alps and an assortment of national buybacks boost the income of the top their social power over the rest of so- currencies everywhere else. The 1% further, while wages are languish- ciety. And if gigantic unemployment former zone will be gripped by defla- ing on a filthy floor. And so macro and a humanitarian crisis is the result, tion and the latter by stagflation. data prosper while most people suf- so be it... CR: With reference to the second fer. CR: A new Bretton Woods agree- question and your response, is it cor- ment and re-imposition of capital con- rect, as many now argue, that the eco- trols would seem more beneficial, nomic and social ramifications of the ‘If Europe continues the rather than all the supposed ‘free 2008 great financial crisis are greater way it is now going, trade’ orthodoxy we keep hearing in many G20 nations today than those about from both sides of the Atlantic. suffered during the Great Depression there will be no soft and Would you agree? of the 1930s? hard euro. The euro will YV: Capital controls have even YV: It is not useful to make such been adopted by the IMF recently as comparisons. While it is true that the disintegrate...’ essential shock absorbers and stabi- crisis transmission mechanisms are lisers. A new Bretton Woods agree- more poignant now than then, let us ment would need to configure what I not forget that 1929 set in train the CR: Since late 2014, and con- call a global surplus recycling mecha- process leading to the carnage of the tinuing during the first weeks of 2015, nism that prevents bubble-creating Second World War: hardly a minor we have heard many Cassandra-like financial flows during the ‘good’ repercussion. voices warning of a Greek exit from times and limits the extent to which CR: Back to European matters the eurozone should left-of-centre the burden of adjustment falls on the and the development of a nascent political parties gain power in late shoulders of weaker nations and citi- banking union within the EU. Do you January’s parliamentary election. Is zens during the ‘bad’ times. believe it wise of political and eco- this view overstated and fear-monger- Politically, the trouble is that, nomic policymakers to concentrate on ing, no less? unlike in 1944, today there exists no a ‘banking union’ when centrifugal YV: It is pure fearmongering for equivalent to the then United States forces within the EU are growing, the purposes of dissuading Greek vot- to convene such a conference and rather than dissipating, presently? ers from voting for Syriza. It is that underpin the resulting agreement. YV: A banking union would be a cynical. The powers-that-be know that Only the G20 can do this collectively. godsend. It would break up the death Grexit [Greek exit] would unleash But with Europe in a state of comic embrace between insolvent banks and destructive powers that they cannot idiocy and with the United States un- insolvent states. Alas, we created a control. So they are bluffing, hoping governable, the prospects are dim. banking union in name so as to en- that Greeks will fall for this piece of CR: May we thank you for shar- sure it never happens in practice. terror a second time – after 2012. It ing your engaging and somewhat con- And so the said death embrace con- looks as if they cannot fool the Greek troversial answers with the Journal of tinues. voters twice. Regulation & Risk – North Asia and CR: Is it not the case that recent CR: An economically prosperous bid you luck in your effort to seek US unemployment figures (December EU would seem essential for the well- elected office in Greece on 25 Janu- 2014) and the third-quarter 2014 being of the global economy, given ary. I – and the staff at the Journal – GDP growth figure of 5% seem a lit- this assumption. What exactly are EU look forward to following your career, tle unbelievable, particularly given policymakers and the constituent regardless of the outcome of the elec- most statistical analysis that demon- member national governments think- tion. ÿu strates all gains and more since the ing about in hailing austerity as a ‘supposed’ US recovery have accumu- panacea, rather than implementing a Chris Rogers is Editor-in-Chief of the Journal of lated within the top 5% at the expense massive fiscal expansion similar in Regulation & Risk – North Asia, from which this of the average Joe on Main Street? impact to that of Marshall Aid nearly interview is reproduced (Vol. VI, Issue 4, Winter YV: If you look at the US labour 70 years ago? 2015).

THIRD WORLD RESURGENCE No 293/294 25 C O V E R ‘Grexit’ and yuan devaluation could put significant pressure on Asian currency pegs One measure of the fragility of the international financial system is that a Greek exit from the euro or a devaluation of the Chinese yuan could trigger off a financial storm powerful enough to destabilise several Asian currencies. Will Hickey explains how this could happen.

ALREADY driving a housing bubble in all major Asian cities from Seoul to Jakarta, significant hot money in- flows are what Hong Kong, China and Singapore seek to avoid. However, a Greek exit from the eurozone coupled with subsequent quantitative easing by the People’s Republic of China (PRC) to jumpstart flagging growth could quickly exacerbate this Asian dynamic. ‘Grexit’ and the knock-on effect

Though the markets are betting against it, if Greece pulls out of the European Union (EU), expect the The Hong Kong Monetary Authority has had to defend the Hong Kong dollar peg on a few occasions in recent years against speculative flows. euro to immediately freefall as inves- tors and speculators rush for the exits to find a safe-haven currency. The tide a few occasions in recent years when and the People’s Bank of China are could be large indeed, and the usual speculative inflows tested the now considering unleashing quanti- actors, the US dollar and pound ster- HK$7.75 = $1 rate floor. The Singa- tative easing and widening the ling, will no doubt soar. As the US pore dollar has traded in a ‘monitor- renminbi (RMB) or yuan trading band dollar and pound sterling become ing band’, which is no doubt heavily on a more grandiose scale than the EU more expensive with the scrum, savvy skewed towards the US dollar, admin- (and according to the Economist on investors will look to the currencies istered by the Monetary Authority of 22 November 2014, perhaps by $200 of alternative safe-haven economies Singapore (MAS) loosely between billion or more, in anticipation of a with strong balance sheets (but S$1.20 = $1 and S$1.40 = $1 in the currency war with the Republic of smaller liquidity), such as the Hong past several years. A monitoring band Korea and Japan and to slow rising Kong dollar, Singapore dollar and is generally backed by a secret cur- housing prices). Danish krone. Unlike the Australian rency board, or basket of foreign cur- Predictably, then, a tidal wave of dollar or New Zealand dollar (cur- rencies, say 70% in US dollars, 25% hot cash from the PRC with a devalu- rently with weak balance sheets due in euros and 5% Australian dollars ing RMB would swamp Hong Kong, to declines in commodity prices), the (the exact compositions are closely China next door and Singapore down other three are pegged or in trading held and never publicised), whereby the road, with Asian investors seek- ‘bands’ that are undisclosed by cen- a trading band is linked to just one ing to preserve their capital. Neither tral banks, and thus their true market- currency. of these scenarios should be taken derived values, most probably under- lightly by the HKMA or MAS, which valued, are hidden. PRC-style quantitative easing have historically intervened to create Already, the Hong Kong Mon- the most stable and liquid currencies etary Authority (HKMA) has had to A bigger uncertainty surrounds in Asia. Like Switzerland and Den- defend the Hong Kong dollar peg on the PRC, where President Xi Jinping mark, both may have to consider

THIRD WORLD RESURGENCE No 293/294 26 C O V E R

negative interest rates to discourage this cash inflow, but this would also crimp investment and thus growth in the region. It is doubtful the HKMA could seriously hold the dollar peg with the double whammy of both events si- multaneously. A revaluation to HK$7 = $1 might not be out of the question. It might even be possible to bring the Hong Kong dollar to parity or beyond, as it traditionally was until February 2007, as a depreciating RMB con- verges in value to the Hong Kong dollar. This happened in Switzerland in January, when the Swiss National Bank (SNB) lifted its euro cap (es- sentially a SwF1.20 = €1 ‘ceiling The People’s Bank of China, the Chinese central bank. China is considering unleashing peg’) due to an increasingly weak quantitative easing and widening the yuan trading band on a more grandiose scale euro. than the EU.

The Swiss franc undefended tral to ensure adequate monetary con- currency markets, especially those ditions in Switzerland and the SNB ‘shorting’ the Swiss franc in any way Under Mario Draghi, the Euro- stands ready to enforce it by buying with approaching EU quantitative eas- pean Central Bank was preparing for unlimited foreign currency’ ing. Indeed, the sudden whiplash that quantitative easing (printing money) (Bloomberg, 2014, ‘SNB Jordan followed led to the insolvency of at to jumpstart the languishing EU pledges to defend cap as global risks least one brokerage and severe multi- economy. The Swiss had to act before rise’, 16 September). Obviously, this million-dollar hits to Chase, Deutsche it did, otherwise the cost of maintain- was not the Swiss economic reality. Bank and Barclays. The latter two ing the peg with an ever-cheapening The Swiss franc peg had served banks are still recovering from the fi- euro could have become prohibitive. to keep Switzerland in line with the nancial crisis. Nonetheless, the SNB and in particu- eurozone economy and thus shield its The Swiss episode serves as a lar SNB Chairman Thomas Jordan exporters from non-competitive cur- strong reminder that while the Hong proclaimed late in 2014 that the Swiss rency appreciation. Removing the peg Kong dollar and Singapore dollar are franc cap was here to stay and that put immediate upward pressure on the both strongly linked to the US dollar, ‘the franc is still highly valued Swiss franc, causing it to surge as they are becoming more influenced Enforcing the minimum exchange much as 38% against the euro in one by the RMB. For Hong Kong, China, rate of 1.20 per euro is absolutely cen- day and causing havoc with forward this is due to its proximity to the PRC. For Singapore, the RMB serves as a proxy currency for the Association of Southeast Asian Nations member countries due to significant PRC in- vestment in commodities trade. Events in Europe and the PRC are moving more quickly now. As seen with the SNB, currency pegs can be- come quite difficult to maintain if economies diverge, and can also be broken in the crossfire of a currency war with much collateral damage. u

Will Hickey is an associate professor and technical adviser, School of Government and Public Policy (SGPP), Jakarta, Indonesia, and two-time US Fulbright Professor of Management and Energy for A queue outside a currency exchange office in Geneva, Switzerland, on 16 January, Central Asia (2003) and South Asia (2009). This article was first published in Asia Pathways, the blog a day after the lifting of the Swiss franc’s peg to the euro. The removal of the peg put of the Asian Development Bank Institute immediate upward pressure on the franc and caused havoc in forward currency (www.asiapathways-adbi.org). markets.

THIRD WORLD RESURGENCE No 293/294 27 C O V E R Falling commodity prices a bane for developing countries While world attention is focused on plunging oil prices, many other commodities have also seen their values falling sharply over the past year, becoming a bane to commodity-rich developing countries.

Chee Yoke Heong

COMMODITY prices have slumped

to their lowest levels since the global cc Arne Per Wilson financial crisis, sending shockwaves across many commodity-rich coun- tries in Latin America, Africa and Asia as lower export earnings mean less money for development. Prices for iron ore dropped 47% in 2014, while copper fell to a five- and-a-half-year low in January 2015 on the back of slower growth in China, oversupply and a stronger US dollar. Palm oil saw its value plum- met by 20% in 2014. Among the countries in Latin A copper mine in Zambia, a key producer of the mineral. As the copper price weakened, America hit hard by the rapid fall in so too did the Zambian currency the kwacha, which depreciated to record lows against commodity prices are Brazil and the dollar. Chile, both key exporters of iron ore and copper. Brazil’s iron ore was ex- government revenue. modities and a major export destina- ported for an average of $53 a ton in In South Africa, where raw ma- tion for many developing countries, December 2014, a sharp drop from terials account for roughly 60% of which has affected demand for energy, $100 a year earlier, cutting its export exports, its rand currency hit a six- minerals and agricultural products. revenue for the commodity by 38%, year low in December 2014 as the Indeed, many countries have reported according to a Bloomberg report. country’s gold and iron-ore exports slower growth with GDP forecasts In Africa, while Nigeria is reel- declined in value, said the Wall Street revised downward. ing from the drop in oil prices, Zam- Journal. Increased supplies and a stronger bia, a key producer of copper, is also Prices of agricultural commodi- dollar – making dollar prices of com- hit by falling commodity prices. As ties declined by 20% in 2014 due to modities lower – have also taken their the copper price weakened, so too did oversupply and weak global demand. toll. its currency the kwacha, which depre- The average price of crude palm oil Another factor involving the mar- ciated to record lows against the dol- fell to about $599 in the December ket may also be at work, according to lar. This affected the government’s 2014 quarter, down from $754 in the Harvard University professor Jeffrey efforts to narrow its budget deficit March quarter. Major exporters of Frankel. He thinks that the end of the amid slowing growth. The Interna- palm oil include Indonesia and Ma- US quantitative easing has led specu- tional Monetary Fund (IMF) esti- laysia. Elsewhere corn, wheat and lators to shift away from commodi- mated that the Zambian economy soybean also came under pressure. ties in the expectation that interest grew 5.5% in 2014, its lowest level Argentina, as a key producer and ex- rates will rise in 2015; the result is since 2002, the Financial Times re- porter of soybean, will likely be that future price decrease is brought ported. Much is at stake as the min- caught in the downturn. forward, which led to the selldown ing sector attracts substantial foreign The most common reason put last year. investment at $12.6 billion, employs forward for the slump in commodity Overall, analysts believe the com- 90,000 people and contributes about prices is the economic slowdown glo- modity markets will remain volatile three-quarters of the country’s foreign bally, especially in China, one of the this year, with commodity prices in exchange earnings and 25-30% of world’s largest consumers of com- 2015 expected to trend lower for most

THIRD WORLD RESURGENCE No 293/294 28 C O V E R part of the year as the same factors that spooked prices last year are ex- Currencies are falling too! pected to continue. As long as crude AS developing countries grapple with Concerns about the deterioration oil prices remain weak, other com- falling oil and other commodity prices, of the Brazilian economy coupled with modity prices will also follow. their currencies are spiralling down as the expectation of higher US interest The economic situation in China domestic concerns and forces abroad rates have contributed to the real’s 6% is uncertain, with many analysts ex- come into play. fall so far in February, Reuters reports. pecting its growth to fall further, thus ‘The emerging-market slide re- Many developing countries have dampening the outlook for commodi- flects worries about outside forces – fallen out of investors’ radar as ‘a ties going forward. such as a shift in US monetary policy, plunge in commodity prices throttles Copper will continue to lag as ris- or China’s efforts to reorient its their economies and darlings from Bra- ing supply and sluggish demand in economy – colliding with domestic zil to China lose their shine,’ said China will put downward pressure on political and economic tensions, un- Bloomberg. According to WSJ, inves- the commodity, according to settling investors at home and abroad,’ tors have pulled out $58.7 billion of according to the Wall Street Journal cash from developing countries in the Goldman Sachs. (WSJ). past year. The World Bank estimates that A Bloomberg survey of a basket Those developing countries hold- commodity prices will remain weak of 20 developing-country currencies ing debts in foreign currencies such for most part of 2015, citing, among showed a drop of 3.3% in February as the US dollar face an additional risk. others, a slowdown in the euro area 2015, its lowest since 1999. Brazil’s With the dollar having strengthened and emerging economies, a stronger real, Turkey’s lira and South Africa’s markedly in recent months, the inter- dollar, a well-supplied oil market and rand slumped to record lows, while the est and principal of debt taken out in increased supplies as factors for the currencies of Mexico and Peru re- dollars are now significantly more ex- downward trend. treated to levels last seen during the pensive. As a result, these countries’ ‘This year may well see a rare 2009 global financial crisis. balance of payments has deteriorated, occurrence for world commodities In Nigeria, investors are dumping which can lead to a cycle of further the country’s stocks and bonds, send- weakening of currencies and balance markets – a decline in all nine key ing the naira to new lows on worries of payments, according to the Global commodity price indices,’ said a over the political situation in the coun- Risk Insights website. – Chee Yoke World Bank statement. The Bank’s try. Heong energy, metals and minerals, and ag- ricultural raw materials indices de- bilising growth begin to emerge. Some have suggested that the low clined more than 35% between 2011 On the flipside, some analysts commodity prices might also be a and 2014, and will continue to con- said the soft commodity outlook could chance for heavily commodity-de- tract this year. be beneficial if it stimulates global pendent countries to go beyond com- ANZ Research reportedly fore- growth. Low prices for major indus- modities and diversify into other sees a ‘volatile’ year ahead for the trial inputs such as metal ore and growth areas. commodity markets and believes that crude oil could keep inflation low and Analyst Martyn Davies was the first half of the year will be weaker ultimately support consumption de- quoted by Voice of America as say- but the second half will improve as mand, a report by Channel News Asia ing: ‘Africa has predominantly been increased supply discipline and sta- said. this commodity-driven economy where growth is allied to commodity prices. We now see the headwinds of rapidly declining oil prices. What fu- ture does that hold out for continen- tal growth? What implications does that have for business? And I think arguably, is Africa then rebalancing away from traditional commodity- driven growth to one that is more bal- anced, more consumer-driven and new wealth, new value being created, beyond the simplistic business model of non-beneficiated raw materials?’ It is hoped that such a debate will also take place in other countries in a similar situation. ÿu

An oil palm plantation in Malaysia. Prices of agricultural commodities declined by Chee Yoke Heong is a researcher with the Third 20% in 2014 due to oversupply and weak global demand. World Network.

THIRD WORLD RESURGENCE No 293/294 29 C O V E R The economic consequences of global oil deflation A new wildcard has just been introduced into an already increasingly unstable global economy: a growing world glut of oil and consequent oil price deflation.

SINCE June 2014, the price of high- Jack Rasmus those companies. The collapse of fi- grade (ICE Brent) crude oil has fallen nancial assets associated with oil more than 40%, declining from could also have a further ‘chain ef- around $115 a barrel in January 2014 its positive effects. fect’ on other forms of financial as- to just $67 a barrel at the end of No- There are at least three major po- sets, thus spreading the financial in- vember. That’s the lowest since the tential impacts on global economic stability to other credit markets. bottom of the 2009 recession. The instability that will likely follow in the The positive impacts of falling oil price decline has not only been deeper wake of global oil price deflation, prices on economies, including the than expected in a normal cyclical cor- some of which have already begun to US, are generally overrated. Oil price rection, but also appears to be more appear. declines may not have as much posi- than just a temporary event. Some First, a more rapid appreciation tive impact on consumer spending and predict global oil prices will fall be- of the US dollar, and the correspond- business investment as many in the low $60 a barrel in 2015, and could ing relative decline in the currencies AEs now assume. The total net effect potentially fall as low as the $40 level of a number of emerging market on the global economy will therefore that occurred during the 2008-09 re- economies, in particular those de- likely prove more negative than posi- cession. pendent on commodity exports and tive. What effect a deep and sustained especially those for which oil exports oil price deflation will have on the make up a significant percentage of Oil deflation’s potential global economy – which is already total exports. There is a long, histori- impact on EMEs drifting towards stagnation and, si- cal and documented relationship be- multaneously, rising financial insta- tween falling oil prices and a rising The continued collapse of world bility – is hardly being discussed at US dollar. So global oil deflation oil prices since June has already been all in the Western business press. In- means a rising US dollar. having a devastating effect on emerg- stead, oil deflation is reported as a A second destabilising impact ing market economies, especially positive economic development, both from falling oil prices will be to con- those dependent on commodity ex- for the advanced economies (AEs) tribute towards general deflation in ports – like Brazil, Chile, Argentina and for emerging market economies Europe and Japan. Economies there and South Africa, and even Australia (EMEs), as well as the global have already entered recession. De- and a number of economies in South- economy in general. spite trillions of dollars in liquidity east Asia. Oil deflation has had an Economists, the business press injections by their central banks in even more severe impact on those and governments in the advanced recent months, inflation levels have EMEs highly dependent on oil exports economies are all giving a ‘positive still fallen to zero or less. Oil defla- as a large percentage of their com- spin’ to falling oil prices, claiming it tion will add significantly to a gen- modities mix – like Venezuela, Rus- will mean lower costs to both busi- eral deflationary drift in both Europe sia and Nigeria. nesses and consumers in the AEs. and Japan. That in turn will likely lead The initial transmission mecha- Lower oil prices mean lower gasoline to even more liquidity injections by nism by which global oil deflation prices and thus more for consumer their central banks, in the form of negatively impacts EMEs is falling households to spend elsewhere. more quantitative easing (QE), further currency exchange rates. Oil price Lower oil costs will stimulate busi- feeding stock market and bond asset deflation is generally associated with ness investment and spending, it is bubbles. a corresponding rise in value of the argued, and thus also boost economic Thirdly, a decline in financial as- US dollar relative to other curren- growth. But this simplistic view may sets tied to oil could increase the ten- cies. A rising dollar in turn means fall- prove incorrect, not only for the AEs dency towards global financial insta- ing currency values for other coun- but for emerging market economies bility. Oil deflation may lead to wide- tries. in particular and for the global spread bankruptcies and defaults for Since the collapse of global oil economy in general. The combined various non-financial companies, prices began in earnest last June, the negative effects of deep and sustained which will in turn precipitate finan- Russian ruble has fallen approxi- oil price deflation may well outweigh cial instability events in banks tied to mately 38% and the Venezuelan cur-

THIRD WORLD RESURGENCE No 293/294 30 C O V E R rency, the bolivar, by around 45%. lead to capital flight from the EME. verely at the moment. A more gen- Nigeria’s currency, the naira, has de- Both domestic and foreign investors eral negative impact may soon follow, clined 12% since just mid-October. dump those currencies, buy dollars and most certainly will sometime in Even for a developed oil-exporting and send capital out of the country to 2015. country like Norway, its krone has buy US assets, typically US bonds and fallen 17%. After having remained stocks and other assets that may be Oil deflation’s potential stable for several years, the US dollar attractive as well, like real estate. The impact on the eurozone and clearly began to rise last June, as glo- EME capital flight is then reflected Japan bal oil prices commenced their freefall in EME stock market declines and a that same month. So falling oil prices rise in EME government bond inter- In the cases of the eurozone and drive the dollar up and in turn depress est rates. Flows of foreign direct in- Japan, the main risk from global oil EME currencies, especially the cur- vestment into the EME also slow. price deflation is that falling oil prices rencies of oil-exporting economies. Money capital in general dries up. will further push already near-zero And the more dependent the economy Credit becomes scarce. Falling cur- general inflation rates into deflation- is on oil exports, the greater the EME rency values also lead to higher costs ary levels. Already the eurozone’s currency decline. of imported goods for consumers and general inflation is a mere 0.2% and In other words, it’s not sanctions a consequent decline in consumer real Japan’s less than 0.8%. The central on Russia by the West that are respon- incomes and spending. Business ex- banks of both have a public inflation sible for the lion’s share of the ruble’s ports also decline. All the above trans- target of at least 2%, but prices are recent decline. Nor is it Venezuelan late into slowing real economic moving in the opposite direction from domestic economic policies that are growth in the EME, and even reces- that goal, despite trillions of dollar contributing most to the decline in the sion. And all because of a rising dol- equivalents of euros and yen injected value of the Venezuelan bolivar. It is lar – the global trading and reserve into their economies by the central the collapse of global oil prices that currency – and the decline in the banks in recent years. Their general is the main culprit. EME’s currency exchange rate that price levels have continued to fall. All commodities, not just oil, take sets the process in motion. Should oil deflation push their a major hit when sustained oil defla- This very process has already economies over the cliff into general tion sets in. A sharp and sustained been going on, in a muted form, for deflation, it will no doubt be an ex- decline in oil is generally associated the past year for EMEs. Talk by the cuse to inject even more trillions of with declining sales and prices of US central bank, the Federal Reserve, dollars into their economies, in the other commodities. The entire global of its plans to raise interest rates in false ideological notion that, in to- commodities sector may be impacted 2015 has provoked a number of the day’s economy, more money raises negatively. That has already begun to trends above already. Note that just the general price level. History has happen with commodities like copper, the talk of rising rates has resulted in shown this view to be nonsense, of gold and other industrial metals, an ‘on again/off again’ destabilisation course. Massive central bank liquid- which have begun to fall as well in of a number of EMEs during the past ity injections result in financial asset the wake of the current oil price de- year. Some EMEs have been able to inflation, but not in general inflation cline. The Bloomberg index of 22 partially and temporarily offset the for goods and services in the real basic commodities, for example, has effects of a possible rising US dollar economy. In fact, liquidity injections recently fallen to its lowest level since – that is, for now. However, should lead to financial asset bubbles. But oil 2009. the US Federal Reserve actually raise price deflation will be the excuse, Even non-oil but commodity- rates, the effects on EME currency nonetheless, for still more QE money heavy exporting EMEs have experi- depreciation, capital flight and so on injections in both Japan and the enced significant currency declines will certainly grow worse. eurozone in 2015. Should further li- relative to the US dollar since global But even before that ‘worse’ may quidity injections occur, that will con- oil prices began to fall more rapidly occur, the rapid drop of oil prices since tribute even more to financial asset last June. In recent months Brazil’s last June is having the very same ef- bubbles and instability. real has fallen 15.5% and Australia’s fect right now, in the present, that the The argument by European dollar by 12% – and in both cases US Federal Reserve’s policy shift may policy makers – as by their US cous- despite their central banks’ interven- also have in the near future: that is, it ins – is that lower oil costs will free tions in currency markets to prevent is causing the US dollar to rise and up income for households to spend on even further currency declines. EME currencies to fall, thus setting other consumption, as well as add in- Declining currency values set in in motion the aforementioned come to businesses which they will motion a number of critical economic destabilising effects on the latter’s subsequently invest. But both developments that cause EME eco- economies. It is just that the oil de- premises may prove incorrect. Defla- nomic growth to slow sharply, and flation-rising US dollar effect is im- tion produces a negative consumer even precipitate recessions. For exam- pacting the oil and commodity export- and business psychological effect, a ple, sharp declines in currency values dependent EMEs first and most se- ‘deflationary expectations’ psychol-

THIRD WORLD RESURGENCE No 293/294 31 C O V E R ogy. Falling prices, i.e., general price tentially set in motion a more gener- of the US corporate junk bond mar- deflation, may lead consumers to ex- alised global financial instability ket, which is now very over-extended, pect prices to fall still further, and thus event, possibly associated with a col- leading to regional bank busts in turn. cause them to freeze up immediate lapse of the corporate junk bond mar- In other words, another financial in- spending. The same goes for business ket in the US that has fuelled much of stability event eventually traceable investment activity. Uncertainty about US shale production. ultimately to global oil deflation. how far prices for their products may fall by the time they bring them to Is the US economy an A final comment market at some future date may lead exception? businesses to forgo additional invest- Global oil deflation crossed a ment even though they have addi- As in Europe and Japan, the ‘talk- threshold of sorts with the 28 Novem- tional income with which to invest as ing point’ in the US is that global oil ber OPEC meeting in Vienna, Austria, a result of oil cost declines. In other deflation will lower consumer and at which Saudi Arabia drove a deci- words, deflation is perverse. Deflation business costs, which will result in sion by OPEC not to reduce produc- in general prices, made possible by more consumption, investment and tion of crude oil and thus to let the oil deflation, may actually result in growth. The counterargument rel- price of oil continue to drop. less consumer spending and less busi- evant to Europe and Japan, that it The question immediately arises: ness investment – not serve as a stimu- could cause ‘deflationary expecta- why this decision by OPEC and the lus to both. tions’ to set in, leading to the oppo- Saudis? Purely business logic would site impact on consumption and in- argue OPEC should have voted to cut Oil deflation and global vestment, is not as relevant to the US. oil production to support the global financial instability US general price levels are declining, price of oil. They didn’t. So what’s but much more slowly and from a behind the decision? It is likely a com- Oil is not only a physical com- much higher level around 2%. bination of several factors. modity bought, sold and traded on The problem with the ‘positive First, OPEC and the Saudis know global markets; it has also become an growth’ argument in the case of the that global shale production of oil and important financial asset since the US US is that it may not apply due to gas poses a relatively near-term exis- and the world began liberalised trad- other, US-specific reasons. The sav- tential threat to their profits. The Sau- ing of oil commodity futures (i.e., a ings to consumers from lower oil and dis have decided to drive the smaller financial security) in the late 1990s gasoline prices will likely be absorbed and more debt-ridden shale drillers on a global scale. by the rise in costs for healthcare, edu- and producers out of business. And Just as declines in oil spill over cation, rents and other necessities that behind the Saudis on this, no doubt, to declines of other physical com- is now occurring in the US. Another are the big US oil companies which modities (e.g., copper, iron ore, gold, problem is that the rising value of the would like to see the same. etc.), price deflation in oil financial US dollar, associated with global oil But there could be even more to securities (i.e., oil commodity futures) deflation and rising US interest rates, the story. Saudi Arabia and its neocon can also ‘spill over’ to other financial will almost certainly slow US exports friends in the US are targeting both assets, causing their decline as well, and therefore US economic growth. Iran and Russia with their new policy in a chain-like effect. US growth will also be negatively of driving down the price of oil. The That chain-like effect is not dis- impacted by falling oil prices because impact of oil deflation is already se- similar to what happened with the that deflation will bring to a halt the verely affecting the Russian and Ira- housing crash in 2006-08. At that time strong investment and expansion of nian economies. In other words, this the deep contraction in the global production of shale drilling for gas policy of promoting global oil price housing sector ( a physical asset) not and oil. At $60 a barrel for oil, shale deflation finds favour with significant only ‘spilled over’ to other sectors of gas and oil production is not competi- political interests in the US which the real economy, but to mortgage tive with traditional oil production. want to generate a deeper disruption bonds (i.e., financial assets represent- Shale production therefore will be sig- of the Russian and Iranian economies ing housing and commercial construc- nificantly reduced, in turn reducing to serve their global political objec- tion), and derivatives based upon the contribution of industrial produc- tives. It will not be the first time that those bonds also crashed. The effect tion, of which it is a major part, to US oil is used as a global political was to ‘spill over’ to other forms of economic growth. The shakeout in weapon, nor the last. ÿu financial assets, which set off a chain shale that is coming will not occur reaction of financial asset deflation. smoothly. It will mean widespread Dr Jack Rasmus is the author of the forthcoming The same ‘financial asset chain business defaults in the sector. And book Transitions to Global Depression (Clarity Press, 2015); and Epic Recession: Prelude to Global effect’ could arise if oil prices contin- since much of the drilling has been Depression and Obama’s Economy (both by Pluto ued to decline to below $60 a barrel. financed with risky high-yield corpo- Press, 2010 and 2012). His blog is jackrasmus.com That would represent a nearly 50% rate junk bonds, the shale shakeout and website www.kyklosproductions.com, from deflation in oil prices that could po- could translate into a financial crash which this article is reproduced.

THIRD WORLD RESURGENCE No 293/294 32 C O V E R Global FDI flows fell by 8% last year 2014 witnessed a fall in global foreign direct investment inflows, says the United Nations Conference on Trade and Development in its latest report on global investment trends. Reflecting the growing economic uncertainty and the fragility of the global economy, this trend may well continue this year, says the UN agency.

GLOBAL foreign direct investment Kanaga Raja to the repayment of loans to parent (FDI) inflows declined by 8% to an companies, a single large divestment estimated $1.26 trillion in took place (Nestle Switzerland 2014, compared with $1.36 sold its 8% share in L’Oreal for trillion recorded the previous $9 billion). year, the United Nations Con- Lower intra-company ference on Trade and Develop- loans by EU investors dimin- ment (UNCTAD) has said. ished FDI flows to Ireland to In its latest Global Invest- just $10 billion, said the report. ment Trends Monitor (No. 18, According to UNCTAD, dated 29 January 2015), Japan, while still a small host UNCTAD attributed this de- country, continued to perform cline to the fragility of the glo- well, with FDI inflows rising bal economy, policy uncer- to $10 billion in 2014. Inflows tainty and geopolitical risks. to Canada declined by 26% to UNCTAD said that flows Workers at an export assembly plant in Matamoros, $53 billion as a result of a were heavily influenced by Mexico. FDI flows to Latin America are estimated to have sharp fall in intra-company economic uncertainty and geo- decreased by 19% in 2014, with most of the decline taking loans. place in Mexico. political risks including re- gional conflicts, and by the $130 bil- FDI flows to developing lion mega-buyback of shares by sales in the United States declined economies Verizon (United States) from from $60 billion in 2013 to just $10 Vodafone (United Kingdom) which billion in 2014, primarily due to the FDI flows in developing econo- significantly reduced the equity com- Verizon-Vodafone deal. mies reached more than $700 billion, ponent of FDI inflows to the United On the other hand, FDI inflows the highest level ever recorded, and States. to the European Union (EU) rose by accounting for 56% of global FDI China became the largest FDI re- 13% to an estimated $267 billion. flows, said UNCTAD. It attributed the cipient in the world in 2014, with in- Among the largest economies, increase mainly to developing Asia – flows to the country – including both the United Kingdom saw its inflows the world’s largest recipient region – financial and non-financial sectors – rise to an estimated $61 billion, helped while Latin America saw its flows estimated at $128 billion, while the by rising reinvested earnings and decline. United States fell to being the third cross-border M&As. Although economic growth in largest host country. UNCTAD further estimated a sig- developing Asia slowed down, FDI nificant rise in FDI flows to Sweden inflows remained resilient, with pre- FDI flows to developed and Portugal, though this was from liminary estimates demonstrating that economies very low levels in 2013. Inflows to combined inflows to 40 economies in the Netherlands and Luxembourg in- the region grew by an estimated 15% According to UNCTAD, prelimi- creased to $42 billion and $36 billion, to a historic level of around $492 bil- nary estimates show that FDI flows respectively. lion in 2014. to developed countries as a whole In contrast, inflows to Germany Among the sub-regions, East dropped by 14% to an estimated $511 and France were in negative territory, Asia, South-East Asia and South Asia billion. at -$2.1 billion and -$6.9 billion, re- experienced rapid increases in in- FDI flows to the United States fell spectively. flows, while those to West Asia to an estimated $86 billion – almost a In Germany, FDI flows declined dropped. third of their 2013 level. Cross-bor- due to changes in the flows of intra- Inflows to China amounted to an der merger and acquisition (M&A) company loans. In France, in addition estimated $128 billion, rising by about

THIRD WORLD RESURGENCE No 293/294 33 C O V E R

3% from 2013. This was mainly creased inflows to Mozambique by exceptionally high levels of cross- driven by an increase in FDI in the driven by its potential as one of the border M&A sales that increased al- service sector, while FDI to the manu- world’s largest liquefied natural gas most fourfold to $9 billion in 2014, facturing sector fell, particularly from exporters. without which FDI would have reg- Japan, and especially in industries that FDI into North Africa declined by istered a significant decline due to are sensitive to rising labour costs. 17% to $12.5 billion, with continued waning FDI in the mining sector. By contrast, FDI inflows to In- civil unrest in Libya dragging down According to UNCTAD, the lat- dia surged by about 26% to an esti- the region’s potential as an FDI host. ter also affected FDI to Colombia and mated $35 billion, despite macroeco- Notwithstanding strong inflows to Peru where inflows are estimated to nomic uncertainties and financial Mozambique, FDI into sub-Saharan have fallen to $15.8 billion and $7.4 risks. Africa remained flat. billion, respectively. According to UNCTAD, inflows Africa saw cross-border M&A Transition economies experi- to Hong Kong-China – a leading re- sales increase by 41% to $5.4 billion, enced a 51% decline in their FDI in- gional business hub and location of as investors looked to tap into Afri- flows, reaching an estimated $45 bil- regional headquarters of transnational ca’s growing consumer markets. Pri- lion, as regional conflict and sanctions corporations (TNCs) in Asia – rose vate equity firms and Middle East in- on the Russian Federation – the larg- by an estimated 46% to an annual to- vestors also played a role, said the est host country in the region – have tal of about $111 billion. report. deterred foreign investors (especially Similarly, FDI inflows to Singa- In Nigeria, significant cross-bor- from developed countries). FDI flows to the Russian Federa- pore, another international business der M&A growth to $1.3 billion, es- tion are estimated to have fallen by hub in the region, rose by 27% to an pecially into consumer-orientated sec- tors, helped counterbalance the de- 70% to $19 billion, due to both the estimated $81 billion. cline in FDI to other sectors, stem- country’s negative growth prospects According to the UNCTAD re- ming the level at $4.9 billion. and the exceptional level reached in port, FDI was also on the rise in other As for Latin America, UNCTAD 2013 (because of the $55 billion South-East Asian economies, includ- said that FDI flows to the region are Rosneft-BP transaction). ing Indonesia and Thailand. ‘How- estimated to have decreased by 19% ‘Major oil and gas companies ever, as locations for foreign compa- to $153 billion in 2014, after four based in developed countries have nies’ production in labour-intensive years of consecutive increases. cancelled or withheld equity invest- industries, a number of low-income ‘This was mainly the conse- ments in the Russian Federation. In economies in the subregion exhibited quence of a 26% decline in cross-bor- Ukraine, FDI flows turned negative a mixed picture: flows to Myanmar der M&As and of reduced investment to -$0.2 billion. In contrast, FDI flows doubled, while those to Cambodia and in the extractive industries due to to Kazakhstan and Azerbaijan rose.’ Viet Nam fell.’ lower commodity prices.’ FDI flows to West Asia are esti- The report noted that most of the Cross-border M&As mated to have maintained their down- decline took place in Mexico where inflows are estimated to have fallen ward trend in 2014 for the sixth con- UNCTAD also reported that 52% – or by $22 billion – due to both secutive year, decreasing by around cross-border M&As rebounded the exceptional levels reached in 2013 4% to $44 billion. According to strongly in 2014, reaching their high- (after the $13 billion purchase of the UNCTAD, this is due to a further de- est level since 2011. TNCs have Modelo brewery by the Belgian mul- terioration of the security situation in gradually gained the confidence to go tinational Anheuser-Busch InBev) the region that deterred FDI not only back on the acquisition trail and make and the $5 billion divestment by to countries directly affected – like strategic deals, it said. AT&T (United States) of its stake in Iraq, Syria and Yemen – but also in ‘Tax inversion deals also contrib- America Movil. neighbouring countries and uted to the increase in 2014. Cross- Flows to Argentina are estimated regionally. FDI remained sluggish border M&As increased by 19% to to be down by 60% to $4.5 billion due also in the oil-rich Gulf Cooperation $384 billion with strong performance to the $5.3 billion compensation re- Council (GCC) countries, even in finance, as well as pharmaceuticals, though they have avoided large-scale ceived by Repsol for the 2012 nation- metals, and communications and me- political unrest and enjoyed strong alisation of 51% of YPF. dia industries.’ economic growth. In Brazil, despite a significant The financial industry played its FDI inflows to Africa fell by 3% increase of cross-border M&As (by most prominent role since 2008 in to an estimated $55 billion, largely 45% to $14 billion), FDI flows are cross-border M&A sales at $135 bil- accounted for by a decrease of FDI estimated to be down around 4% to lion, accounting for 35% of global into North Africa. $62 billion, affected by a strong fall sales. ‘This industry intensified its Other sub-regions experienced in flows to the primary sector, while ongoing restructuring to cope with similar FDI inflows compared to those to manufacturing and services new monetary policies and meet more 2013, UNCTAD said, underlining that increased. stringent capital adequacy require- FDI into Africa was buoyed by in- In Chile, FDI flows were boosted ments.’

THIRD WORLD RESURGENCE No 293/294 34 C O V E R

The value of announced greenfield investment increased by Financial Policy and Management of Capital Flows: 3% in 2014. Among major groupings, The Case of Malaysia developing economies saw their greenfield investment up by 7%, de- By Martin Khor veloped economies remained flat with This paper looks at how financial policy in a decline of 1%, and transition econo- Malaysia has evolved over the years with regard mies declined by 10%. to management of capital flows into and out of ‘This reinforced developing the country, the exchange rate and related economies as the main hosts of macroeconomic policies. To deal with the financial crisis which struck greenfield investment with their share East Asia in 1997-99, the Malaysian government accounting for three quarters of total had adopted an innovative set of policies that announced deals,’ said UNCTAD. included selective capital controls, exchange rate stabilization and counter-cyclical macroeconomic policy measures. This unorthodox strategy proved Trends for 2015 to be a success, as attested to by Malaysia’s relatively rapid recovery from the crisis. UNCTAD said that trends in glo- Since then, the Malaysian capital account regime has been progressively liberalized. The bal FDI flows are uncertain for 2015. country has largely shifted from a policy of The fragility of the world economy, regulating capital flows to one of managing their with growth tempered by hesitant effects on the domestic economy through such ISBN: 978-983-2729-82-2 104 pp consumer demand, volatility in cur- measures as monetary policy operations, buildup rency markets and geopolitical insta- of foreign exchange reserves and surveillance and risk management in the financial sector. bility will act as a deterrent for inves- However, as this paper cautions, the resulting increased capital mobility has tors. The decline in commodity prices rendered the economy vulnerable to sudden, damaging swings in the direction and will also lower investments in the oil magnitude of financial flows – a very real threat especially in the current period of and gas and other commodity indus- global financial turmoil. In light of these risks, the author calls for a rethink of financial policy liberalization in Malaysia with a view to better shielding the economy from the tries. effects of dangerously volatile capital flows. Among developed countries, said UNCTAD, the increasing divergence PRICE POSTAGE in economic growth between the Malaysia RM10.00 RM1.00 United States and the euro area and Developing countries US$8.00 US$4.00 (air); US$1.00 (sea) Japan will lead to different patterns Others US$10.00 US$5.00 (air); US$1.00 (sea) of FDI. In developing and transition Orders from Malaysia – please pay by credit card/crossed cheque or postal order. economies, slower growth prospects Orders from Australia, Brunei, Indonesia, Philippines, Singapore, Thailand, UK, USA in some emerging markets and re- – please pay by credit card/cheque/bank draft/international money order in own cur- rency, US$ or Euro. If paying in own currency or Euro, please calculate equivalent of gional conflicts are likely to affect US$ rate. If paying in US$, please ensure that the agent bank is located in the USA. investment negatively. Rest of the world – please pay by credit card/cheque/bank draft/international money Despite those risks, said order in US$ or Euro. If paying in Euro, please calculate equivalent of US$ rate. If UNCTAD, TNCs are expected gradu- paying in US$, please ensure that the agent bank is located in the USA. ally to increase strategic investments All payments should be made in favour of Third World Network Bhd., 131 Jalan and to deploy part of their record lev- Macalister, 10400 Penang, Malaysia. Tel: 60-4-2266728/2266159; Fax: 60-4-2264505; els of cash holdings. Email: [email protected] ‘Various corporate surveys point I would like to order...... copy/copies of Financial Policy and Management of to the fact that TNCs are gaining more Capital Flows: The Case of Malaysia. confidence in their business growth I enclose the amount of US$/Euro/RM ...... (cheque/bank draft/IMO). prospects. Stronger economic growth in the United States, the demand- Please charge the amount of US$/RM ...... to my credit card: boosting effect of lower oil prices and proactive monetary policy in the American Express Visa Mastercard eurozone could support increased FDI A/c no.: Expiry date: flows. Increased investment liberali- sation and promotion measures will Signature: also favourably affect FDI flows,’ it added. ÿu Name:

Kanaga Raja is Editor of the South-North Address: Development Monitor (SUNS) published by the Third World Network. This article is reproduced from SUNS (No. 7953, 3 February 2015).

THIRD WORLD RESURGENCE No 293/294 35 C O V E R Wall Street reform aims to bring back the ‘wild old days’ One factor that has dogged attempts to reform the global financial system to prevent a financial crisis like the 2007-08 Great Recession has been the resistance of powerful financial interests and their lobbyists. Danny Schechter reports on the attempts to roll back such reforms in the United States.

EVEN after years of Republicans bashing the Obama administration for its economic policies, the official stats indicate that good times are just around the corner. Yet, Fortune magazine asks, ‘If the US economy is so good, why do we feel so bad?’ CNN went further, reporting last June, ‘When it comes to the US economy, the glass just went from half full to half empty. At the start of the year, economists were op- timistic. Perhaps the economy would grow 3% this year, they said, instead of the measly 2% pace it’s been stuck at for the prior three years. So much for that hopeful thinking. Half-way through the year, forecasts are being slashed.’ US President Barack Obama signing the Dodd-Frank financial reform act into law in The latest job creation figures are 2010. Opponents want ‘to roll back Dodd-Frank as far as possible, until it becomes lower than they were in November. meaningless or they are finally able to repeal it completely’. Worker wages have not risen; minor- ity and youth joblessness remain high ble. Usually an economy would be crisis was a highly compromised re- –14.2% for young people. fully recovered from the impact of a form act called Dodd-Frank, named Could it be that despite the hype, recession seven years after its onset. after its Senate and House sponsors, we never really recovered from the Unfortunately, this is not close to be- Chris Dodd and Barney Frank. The financial crisis? This is not unusual. ing the case now. It would still take passage of the omnibus act went As the economic historian John another 7 to 8 million jobs to bring through a partisan buzzsaw, with the Kenneth Galbraith wrote in his book the percentage of the population em- financial services industry working on the great crash of 1929, ‘The sin- ployed back to its pre-recession level.’ overtime to dilute new rules and regu- gular feature of the great crash of 1929 In 2011, a national commission lations. was that the worst continued to on the causes of the financial and eco- It was reported that the industry, worsen. What looked one day like the nomic crisis in the United States re- writ large, funded 35 lobbyists for end proved on the next day to have leased the Financial Crisis Inquiry each member of Congress to first try been only the beginning.’ Report. Among its findings was that to kill the bill, and failing that, to In one speech that did not get that the crisis was avoidable and was weaken it. There was intense debate much attention, former US Federal not a simple result of flaws in the over its consumer protection aspects Reserve Chairman Ben Bernanke ar- economy. I wrote a detailed foreword while some calmer heads on Wall gued that the financial crisis of 2007- to the report in an edition published Street recognised that new rules could 08 was worse than the Great Depres- by Cosimo Press (2011). Earlier I stabilise their profit takings. sion of the thirties. wrote three books and made two films Now that the Republicans are tak- The economist Dean Baker called – In Debt We Trust and Plunder – ing over Congress, they are making a the ‘recovery’ a ‘turkey’: ‘December about the origins of the crisis, and the new run at the act. Significantly, some [marked] the seventh anniversary of role massive corporate fraud played in the industry prefer some regulatory the beginning of the recession brought in triggering it. framework (with all its loopholes) and on by the collapse of the housing bub- The legislative response to the are not enthusiastic about dumping the

THIRD WORLD RESURGENCE No 293/294 36 C O V E R law. The Republicans had a surprise efforts serve to limit the Fed’s free- when, even as a majority, they failed dom in implementing monetary to dislodge it. policy.’ Reuters reported: ‘Republicans in It’s also important to remember the US House of Representatives what Matt Taibbi wrote some years failed on [7 January] to round up back: ‘Dodd-Frank is groaning on its enough votes for a bill scaling back deathbed. The giant reform bill turned various financial reforms, a surpris- out to be like the fish reeled in by ing defeat in an area conservatives Hemingway’s Old Man – no sooner hoped to prioritise this year Sup- caught than set upon by sharks that porters fell six votes short of what was strip it to nothing long before it ever needed to send the legislation to the reaches the shore With the US Senate. The proposal was among Former US Federal Reserve Chairman Quislingian covert assistance of the first votes House lawmakers took Ben Bernanke has argued that the 2007- Democrats, both in Congress and in after returning to Washington [in 08 financial crisis was worse than the the White House, those bills [to roll January].’ Great Depression of the 1930s. back Dodd-Frank] could pass through Writes former International Mon- the House and the Senate with little etary Fund (IMF) official Simon finally able to repeal it completely.’ or no debate, with simple floor votes Johnson: ‘The House Republican The Repugs are not the only – by a process usually reserved for rhetoric will be “technical fixes” and enemies of the act. Simon Johnson’s things like the renaming of post of- “job creation”. But the reality is that partner, James Kwak, has written in fices or a nonbinding resolution cel- they are determined to strip away all detail on the Baseline Scenario ebrating Amelia Earhart’s birthday. meaningful restrictions imposed on website about what’s called ‘regu- ‘The fate of Dodd-Frank over the Citigroup, JP Morgan Chase, and latory capture’ – the process in which past two years is an object lesson in other megabanks – and to roll-back regulators do the bidding of the in- the government’s inability to institute Dodd-Frank as far as possible, until dustry they are supposed to regu- even the simplest and most obvious it becomes meaningless or they are late. reforms, especially if those reforms He cites an inves- happen to clash with powerful finan- tigation by ProPublica cial interests. From the moment it was and NPR’s This signed into law, lobbyists and lawyers American Life which have fought regulators over every line ‘illustrated the culture in the rulemaking process. Congress- of deference, risk men and presidents may be able to get aversion, and general a law passed once in a while – but sucking-upitude they can no longer make sure it stays among New York Fed passed.’ bank examiners that And why is that? ‘You win the modern financial-regulation game by effectively resulted in filing the most motions, attending the the capture of regula- most hearings, giving the most money tors by the banks they to the most politicians and, above all, were supposed to be by keeping at it, day after day, year regulating. As David after fiscal year, until stealing is legal Beim wrote in a con- again. “It’s like a scorched-earth fidential report about policy,” says Michael Greenberger, a the New York Fed, the former regulator who was heavily in- core problem was volved with the drafting of Dodd- “what the culture ex- Frank. “It requires constant combat. pected of people and And it never, ever ends.”’ what the culture in- The Wall Street crooks can’t wait duced people to do.”’ for the unregulated ‘wild old days’ to The Naked Capi- come back, even if that could lead to talism website reports another crash. ÿu The Federal Reserve Bank of New York building. One that the latest attack media investigation ‘illustrated the culture of deference, ‘would chip away at Danny Schechter blogs at Newsdissector.net and risk aversion, and general sucking-uptitude among New key parts of Dodd- edits Mediachannel.org. His latest book on the York Fed bank examiners that effectively resulted in the Frank. But the bigger subject of financial inequality is The Crime of Our Time, which led to his film Plunder. The above article capture of regulators by the banks they were supposed implication of this is reproduced from the teleSUR English website to be regulating’. campaign is how these (www.telesurtv.net/english).

THIRD WORLD RESURGENCE No 293/294 37 C O V E R It pays to be a banker Financiers may have brought down the global economy in 2007-08, but their capacity to inflict damage in these uncertain times remains undiminished. As Pete Dolack reveals in the following article, the power and profitability of the world’s biggest banks is as formidable as ever.

THEY are bigger and badder than ever. The heightened offensive against regulations launched by the financial industry and carried forward by the new Republican Party majority in the United States Congress is one dem- onstration, but just in case you want more evidence, bank profits got big- ger in 2014. The multibillion-dollar fines US government agencies have assessed banks have merely dented profits, and only in some cases. Four of the six biggest banks in the US – which to- gether hold about two-thirds of all assets in the US financial system – re- The six biggest banks in the US, including Goldman Sachs, racked up a composite ported higher profits for 2014 than in net income of $75 billion in 2014, on revenue of $413 billion. 2013, and in the cases of the other two, it appears that an increase in fines ing that ‘senior executives at authorities to systematic irregularities paid was responsible for their decline JPMorgan Chase & Company are in mortgage securities before the in profits. pressuring managers across the bank crash, but was ignored. Dimon, he- Overall, these six banks – to cut costs,’ according to Reuters. roically holding up against the assault JPMorgan, Bank of America, Wall Street traders have already on his bank, earned $20 million for Citigroup, Wells Fargo, Goldman punished the company by sending its 2013. One suspects he will not be Sachs and Morgan Stanley – racked stock down in three of the first four homeless once his 2014 compensation up a composite net income of $75 bil- trading days following its ‘disappoint- is totalled. lion on revenue of $413 billion. ing’ results. Not even Wall Street That his company will need to The most comical comment dur- banks are immune from their own role come up with billions of dollars by ing the banks’ announcements of their as enforcers. Some low-level employ- 2019 to meet US Federal Reserve 2014 financial results was that of ees are about to pay for that with their capital requirements, which will slow JPMorgan Chairman and Chief Ex- jobs. down its ability to speculate with ecutive Officer Jamie Dimon, who Nevermind that the US Treasury money it doesn’t have in reserve, whined on a conference call with re- Department handed out $700 billion might just have something to do with porters that ‘banks are under assault’, to Wall Street (among other meas- his whining. adding that ‘we have five or six regu- ures), bailing out the very banks lators coming at us on every issue.’ whose bottomless greed and reckless A very good year for banks Those regulators seemed to have gambling brought on a global eco- gone easy on JPMorgan last year. The nomic downturn now in its seventh The year 2014 was a very good company’s total legal costs for 2014 year. A downturn paid for not by the one for banks. Here are the full-year were $2.9 billion, compared to $11.1 banks, nor their executives, but results for the six largest banks, as billion in 2013, according to a report through the endless austerity imposed reported by themselves. carried by financial news network on working people throughout the • JPMorgan Chase & Company: CNBC. Nonetheless, JPMorgan’s $21 world. Not one Wall Street executive net income of $21 billion on revenue billion in profits for 2014 was con- has been prosecuted. of $97.9 billion. This was $3 billion sidered a disappointment by Wall JPMorgan has been assessed more than the year before, but still not Street, because the fourth-quarter fines for a variety of crimes, among good enough in the eyes of specula- profit dipped slightly from the previ- them mortgage fraud and currency- tors. ous year’s fourth quarter. Thus, the market manipulation. A compliance • Bank of America Corporation: company wasted no time in announc- lawyer for JPMorgan tried to alert net income of $4.8 billion on revenue

THIRD WORLD RESURGENCE No 293/294 38 C O V E R of $85.1 billion. The net income is merchants of tangible goods and serv- down from 2013, but that appears to ices). The financial industry is a ‘para- be due to ‘litigation expenses’ of site’ because its ownership of stocks, $16.4 billion, more than double the bonds and other securities entitles it 2013 litigation expenses of $6.1 bil- to skim off massive amounts of lion. Almost all of those extra ex- money as its share of the profits. It is penses occurred in its consumer real also a ‘whip’ because its institutions estate division; the bank agreed in – stock, bond and currency-exchange August to pay nearly $17 billion to markets and the firms that trade these settle charges that it sold toxic mort- and other securities on those markets gages. – bid up or drive down prices, and do • Citigroup Incorporated: net in- so strictly according to their own in- come of $11.5 billion on revenue of terests. $77.2 billion. Citigroup’s profits were A management that fails to max- lower than in the year before, but the imise profits in the short term and culprit is familiar – it reported legal deliver higher stock prices in the costs of $4.8 billion in 2014, more JPMorgan Chairman and CEO Jamie longer term is in danger of being Dimon, who has complained that ‘banks than 10 times the $430 million of pushed out, not because diffuse share- are under assault’, earned $20 million in 2013. Citigroup agreed in November 2013. holders possess that leverage indi- to pay $1 billion for rigging foreign- vidually, but because the financial in- exchange markets and agreed in July dustry as a whole, through the mar- to pay $7 billion for selling bad mort- laws of capitalism as any other indus- kets it controls, can sell off enough gages. try, banking has rapidly consolidated. stock to make the price nosedive, • Wells Fargo & Company: net The percentage of total industry as- leaving the company vulnerable to an income of $23.1 billion on revenue sets owned by the five biggest US unfriendly takeover by a speculator of $84.3 billion. With profits up from commercial banks has increased more 2013, Wells Fargo said it handed out seeking to profit from the reduced than fourfold since 1990. Nor is that value of the company. Executives who $12.5 billion to shareholders through something peculiar to US banking – dividends and net share repurchases, do what the ‘market’ dictates, on the the five largest banks in the European other hand, are showered with riches. $5 billion more than a year earlier. Union hold 47% of their industry’s This at the same time that many of its Moreover, companies with stock total assets. branch tellers can’t move out of their traded on exchanges are legally re- The ‘assault on banks’ must have parents’ house because of low pay. quired to maximise profits for share- • The Goldman Sachs Group Inc.: been conducted with a wet noodle. holders, above all other considera- net income of $8.5 billion on revenue Although by any ordinary human tions. A company that fails to make a of $34.5 billion. Those were higher logic, these colossal sums of money deal, or decides against selling itself than a year earlier. The average pay should satiate the most asocial specu- to another company, is subject to be- for Goldman Sachs employees for lator, the remorseless logic of capi- ing sued in courts because angry talism dictates that more is never 2014 was $373,265, but as that in- speculators will sell their stock, caus- enough, that profits have to increase cludes secretaries and clerks, those ing the price to decline, and then com- steadily. Even the rate of the increase involved in speculation make far plain that the company’s management more. can be expected to increase. While working at a financial failed to maximise ‘shareholder • Morgan Stanley: net income value’. from continuing operations of $6.2 news wire during the stock-market Governments representing the billion on revenue of $33.6 billion. bubble years of the 1990s, I vividly world’s four largest economies – the This profit is more than double what recall one day when a major compu- US, the EU, China and Japan – com- the company made the year before, ter company reported a profit of more but nonetheless is seen as not being than $800 million for its latest three- mitted $16.3 trillion in 2008 and 2009 good enough. The company moved month period, more than the year-ear- alone on bailouts of the financiers quickly to appease speculators, an- lier quarter, only for its stock price to who brought down the global nouncing it would cut the percentage be driven down. Curious, I discovered economy and, to a far smaller extent, of its revenue going to wages, pay that ‘analysts’ had forecast a profit for economic stimulus. These are the higher dividends and buy back more even bigger, and the rate of the in- governments that are ‘assaulting’ stock. crease had been lower than the rate banks. Such is the looking-glass logic of the increase a year earlier. That was of capitalism. ÿu What would they do if they enough for speculators to lash out. The financial industry acts as Pete Dolack writes the Systemic Disorder blog weren’t under ‘assault’? (systemicdisorder.wordpress.com). He has been an both a whip and a parasite in relation activist with several groups. This article is Subject to the same remorseless to productive capital (producers and reproduced from CounterPunch.org.

THIRD WORLD RESURGENCE No 293/294 39 W O R L D A F F A I R S The golden age of black ops Although the US has been waging a massive global war across much of the planet through the deployment of Special Operations forces (SOF), this has remained completely in the shadows, hidden from external oversight or press scrutiny. Nick Turse lifts the lid on these black operations.

Americans. Unlike the December de- bacle in Yemen, the vast majority of special ops missions remain com- pletely in the shadows, hidden from external oversight or press scrutiny. In fact, aside from modest amounts of information disclosed through highly selective coverage by military media, official White House leaks, SEALs with something to sell, and a few cherry-picked journalists reporting on cherry-picked opportunities, much of what America’s special operators do is never subjected to meaningful ex- Navy SEALs make up part of US Special Operations forces. ‘Since 11 September amination, which only increases the 2001, US Special Operations forces have grown in every conceivable way, including chances of unforeseen blowback and their numbers, their budget, their clout in Washington, and their place in the country’s catastrophic consequences. popular imagination.’ The golden age IN the dead of night, they swept in ignominious end to a year that saw aboard V-22 Osprey tilt-rotor US Special Operations forces de- ‘The command is at its absolute aircraft. Landing in a remote region ployed at near-record levels, or an zenith. And it is indeed a golden age of one of the most volatile countries inauspicious beginning to a new year for special operations.’ Those were on the planet, they raided a village and already on track to reach similar the words of Army General Joseph soon found themselves in a life-or- heights, if not exceed them. Votel III, a West Point graduate and death firefight. It was the second time During the fiscal year that ended Army Ranger, as he assumed com- in two weeks that elite US Navy on 30 September 2014, US Special mand of SOCOM last August. SEALs had attempted to rescue Operations forces (SOF) deployed to His rhetoric may have been high- American photojournalist Luke 133 countries – roughly 70% of the flown, but it wasn’t hyperbole. Since Somers. And it was the second time nations on the planet – according to 11 September 2001, US Special Op- they failed. Lieutenant Colonel Robert Bockholt, erations forces have grown in every On 6 December 2014, approxi- a public affairs officer with US Spe- conceivable way, including their num- mately 36 of America’s top comman- cial Operations Command bers, their budget, their clout in Wash- dos, heavily armed, operating with in- (SOCOM). This capped a three-year ington, and their place in the coun- telligence from satellites, drones and span in which the country’s most elite try’s popular imagination. The com- high-tech eavesdropping, outfitted forces were active in more than 150 mand has, for example, more than with night vision goggles, and backed different countries around the world, doubled its personnel from about up by elite Yemeni troops, went toe- conducting missions ranging from 33,000 in 2001 to nearly 70,000 to- to-toe with about six militants from kill/capture night raids to training day, including a jump of roughly al-Qaeda in the Arabian Peninsula. exercises. And this year could be a 8,000 during the three-year tenure of When it was over, Somers was dead, record-breaker. Only a day before the recently retired SOCOM chief Admi- along with Pierre Korkie, a South failed raid that ended Luke Somers’ ral William McRaven. African teacher due to be set free the life – just 66 days into fiscal 2015 – Those numbers, impressive as next day. Eight civilians were also America’s most elite troops had al- they are, don’t give a full sense of the killed by the commandos, according ready set foot in 105 nations, approxi- nature of the expansion and growing to local reports. Most of the militants mately 80% of 2014’s total. global reach of America’s most elite escaped. Despite its massive scale and forces in these years. For that, a run- That blood-soaked episode was, scope, this secret global war across down of the acronym-ridden structure depending on your vantage point, an much of the planet is unknown to most of the ever-expanding Special Opera-

THIRD WORLD RESURGENCE No 293/294 40 W O R L D A F F A I R S tions Command is in order. The list may be mind-numbing, but there is no other way to fully grasp its scope. The lion’s share of SOCOM’s troops are Rangers, Green Berets and other soldiers from the Army, fol- lowed by Air Force air commandos, SEALs, Special Warfare Combatant- Craft Crewmen and support person- nel from the Navy, as well as a smaller contingent of Marines. But you only get a sense of the expansiveness of the command when you consider the full range of ‘sub-unified commands’ US Special Operations Command chief Gen. Joseph Votel III speaking with Air Force that these special ops troops are di- air commandos. Votel has been cited as saying ‘We want to be everywhere.’ vided among: the self-explanatory SOCAFRICA; SOCEUR, the Euro- Shadow ops Philippines remained up and running. pean contingent; SOCKOR, which is ‘JSOTF-P is still active although the devoted strictly to Korea; SOCPAC, Special Operations Command’s number of personnel assigned has which covers the rest of the Asia-Pa- global reach extends further still, with been reduced,’ Army spokesperson cific region; SOCSOUTH, which smaller, more agile elements operat- Kari McEwen told reporter Joseph conducts missions in Central ing in the shadows from bases in the Trevithick of War Is Boring. America, South America and the Car- United States to remote parts of Another unit, Special Operations ibbean; SOCCENT, the sub-unified Southeast Asia, from Middle Eastern Joint Task Force-Bragg, remained in command of US Central Command outposts to austere African camps. the shadows for years before its first (CENTCOM) in the Middle East; Since 2002, SOCOM has also been official mention by the Pentagon in SOCNORTH, which is devoted to authorised to create its own Joint Task early 2014. Its role, according to ‘homeland defence’; and the globe- Forces, a prerogative normally lim- SOCOM’s Bockholt, is to ‘train and trotting Joint Special Operations ited to larger combatant commands equip US service members preparing Command or JSOC – a clandestine like CENTCOM. Take, for for deployment to Afghanistan to sup- sub-command (formerly headed by instance, Joint Special Operations port Special Operations Joint Task McRaven and then Votel) made up of Task Force-Philippines (JSOTF-P) Force-Afghanistan’. That latter force, personnel from each service branch, which, at its peak, had roughly 600 in turn, spent more than a decade con- including SEALs, Air Force special US personnel supporting ducting covert or ‘black’ ops ‘to pre- tactics airmen and the Army’s Delta counterterrorist operations by Filipino vent insurgent activities from threat- Force, that specialises in tracking and allies against insurgent groups like ening the authority and sovereignty killing suspected terrorists. Abu Sayyaf. After more than a dec- of’ the Afghan government. This And don’t think that’s the end of ade spent battling that group, its num- meant night raids and kill/capture it, either. As a result of McRaven’s bers have been diminished, but it con- missions – often in concert with elite push to create ‘a Global SOF network tinues to be active, while violence in Afghan forces – that led to the deaths of like-minded interagency allies and the region remains virtually unal- of unknown numbers of combatants partner’s, Special Operations liaison tered. and civilians. In response to popular officers, or SOLOs, are now embed- A phase-out of the task force was outrage against the raids, Afghan ded in 14 key US embassies to assist actually announced in June 2014. President Hamid Karzai largely in advising the special forces of vari- ‘JSOTF-P will deactivate and the banned them in 2013. ous allied nations. Already operating named operation OEF-P [Operation US Special Operations forces in Australia, Brazil, Canada, Colom- Enduring Freedom-Philippines] will were to move into a support role in bia, El Salvador, France, Israel, Italy, conclude in Fiscal Year 2015,’ Votel 2014, letting elite Afghan troops take Jordan, Kenya, Poland, Peru, Turkey told the Senate Armed Services Com- charge. ‘We’re trying to let them run and the United Kingdom, the SOLO mittee the next month. ‘A smaller the show,’ Colonel Patrick Roberson programme is poised, according to number of US military personnel op- of the Afghanistan task force told USA Votel, to expand to 40 countries by erating as part of a PACOM [US Pa- Today. But according to LaDonna 2019. The command, and especially cific Command] Augmentation Team Davis, a spokesperson with the task JSOC, has also forged close ties with will continue to improve the abilities force, America’s special operators the Central Intelligence Agency, the of the PSF [Philippine Special Forces] were still leading missions last Federal Bureau of Investigation and to conduct their CT [counterterrorism] year. The force refuses to say how the National Security Agency, among missions...’ Months later, however, many missions were led by Americans others. Joint Special Operations Task Force- or even how many operations its com-

THIRD WORLD RESURGENCE No 293/294 41 W O R L D A F F A I R S mandos were involved in, though Af- ghan special operations forces report- edly carried out as many as 150 mis- sions each month in 2014. ‘I will not be able to discuss the specific number of operations that have taken place,’ Major Loren Bymer of Special Op- erations Joint Task Force-Afghanistan told TomDispatch. ‘However, Af- ghans currently lead 96% of special operations and we continue to train, advise, and assist our partners to en- sure their success.’ And lest you think that that’s US Special Operations soldiers in Afghanistan engage in shooting practice. According where the special forces organisa- to the commander of a Special Forces group, ‘There’s a lot of fighting that is still tional chart ends, Special Operations going on in Afghanistan ... We’re still going to continue to kill the enemy, until we are Joint Task Force-Afghanistan has five told to leave.’ Special Operations Advisory Groups ‘focused on mentoring and advising cial Operations Command Forward went awry. In Libya, Delta our ASSF [Afghan Special Security (SOC FWD) elements, small teams Force commandos successfully cap- Force] partners,’ according to Votel. which, according to the military, tured an al-Qaeda militant in an early ‘In order to ensure our ASSF partners ‘shape and coordinate special opera- morning raid, while SEALs continue to take the fight to our en- tions forces security cooperation and commandeered an oil tanker with emies, US SOF must be able to con- engagement in support of theatre spe- cargo from Libya that the weak US- tinue to do some advising at the tacti- cial operations command, geographic backed government there considered cal level post-2014 with select units combatant command, and country stolen. Additionally, SEALs con- in select locations,’ he told the Sen- team goals and objectives’. SOCOM ducted a failed evacuation mission in ate Armed Services declined to confirm the existence of South Sudan in which its members Committee. Indeed, last November, SOC FWDs, even though there has were wounded when the aircraft in Karzai’s successor Ashraf Ghani qui- been ample official evidence on the which they were flying was hit by etly lifted the night raid ban, opening subject and so it would not provide a small arms fire. Meanwhile, an elite the door once again to missions with count of how many teams are cur- quick-response force known as Na- US advisers in 2015. rently deployed across the world. But val Special Warfare Unit 10 (NSWU- There will, however, be fewer US those that are known are clustered in 10) has been engaged with ‘strategic special ops troops available for tacti- favoured black ops stomping grounds, countries’ such as Uganda, Somalia cal missions. According to then Rear- including SOC FWD Pakistan, SOC and Nigeria. now Vice-Admiral Sean Pybus, FWD Yemen and SOC FWD Leba- A clandestine special ops train- SOCOM’s Deputy Commander, non, as well as SOC FWD East Af- ing effort in Libya imploded when about half the SEAL platoons de- rica, SOC FWD Central Africa and militia or ‘terrorist’ forces twice ployed in Afghanistan were, by the SOC FWD West Africa. raided its camp, guarded by the end of December, to be withdrawn Africa has, in fact, become a Libyan military, and looted large and redeployed to support ‘the pivot prime locale for shadowy covert mis- quantities of high-tech American in Asia, or work the Mediterranean, sions by America’s special equipment, hundreds of weapons – or the Gulf of Guinea, or into the Per- operators. ‘This particular unit has including Glock pistols and M4 rifles sian Gulf’. Still, Colonel Christopher done impressive things. Whether it’s – as well as night vision devices and Riga, commander of the 7th Special across Europe or Africa taking on a specialised lasers that can only be seen Forces Group, whose troops served variety of contingencies, you are all with such equipment. As a result, the with the Combined Joint Special Op- contributing in a very significant way,’ mission was scuttled and the camp erations Task Force-Afghanistan near SOCOM’s commander, General was abandoned. It was then reportedly Kandahar last year, vowed to soldier Votel, told members of the 352nd taken over by a militia. on. ‘There’s a lot of fighting that is Special Operations Group at their base In February of last year, elite still going on in Afghanistan that is in England last fall. troops travelled to Niger for three going to continue,’ he said at an The Air Commandos are hardly weeks of military drills as part of awards ceremony late last alone in their exploits on that Flintlock 2014, an annual special ops year. ‘We’re still going to continue to continent. Over the last years, for ex- counterterrorism exercise that brought kill the enemy, until we are told to ample, SEALs carried out a success- together the forces of the host nation, leave.’ ful hostage rescue mission in Canada, Chad, France, Mauritania, Add to those task forces the Spe- Somalia and a kidnap raid there that the Netherlands, Nigeria, Senegal, the

THIRD WORLD RESURGENCE No 293/294 42 W O R L D A F F A I R S

United Kingdom and Burkina the nature of its missions or the ben- from Delta Force took part in the mis- Faso. Several months later, an officer efits of operating in so many sion that secured the release of Army from Burkina Faso, who received nations. The command would not Sergeant Bowe Bergdahl in counterterrorism training in the US even name a single country where US Afghanistan. That same month, Delta under the auspices of SOCOM’s Joint Special Operations forces deployed in Force commandos helped kidnap Special Operations University in the last three years. A glance at just Ahmed Abu Khattala, a suspected 2012, seized power in a coup. Special some of the operations, exercises and ‘ringleader’ in the 2012 terrorist at- ops forces, however, remained activities that have come to light, tacks in Benghazi, Libya, that killed undaunted. Late last year, for exam- however, paints a picture of a four Americans, while Green Berets ple, under the auspices of SOC FWD globetrotting command in constant deployed to Iraq as advisers in the West Africa, members of 5th Battal- churn with alliances in every corner fight against the Islamic State. ion, 19th Special Forces Group, of the planet. In June and July, 26 members of partnered with elite Moroccan troops In January and February, for ex- the 522nd Special Operations Squad- for training at a base outside of ample, members of the 7th Special ron carried out a 28,000-mile, four- Marrakech. Forces Group and the 160th Special week, five-continent mission which Operations Aviation Regiment con- took them to Sri Lanka, Tanzania and A world of opportunities ducted a month-long Joint Combined Japan, among other nations, to escort Exchange Training (JCET) with three ‘single-engine [Air Force Spe- Deployments to African nations forces from Trinidad and Tobago, cial Operations Command] aircraft to have, however, been just a part of the while troops from the 353rd Special a destination in the Pacific Area of rapid growth of Special Operations Operations Group joined members of Responsibility.’ In July, US Special Command’s overseas reach. In the the Royal Thai Air Force for Exercise Operations forces travelled to waning days of the Bush presidency, Teak Torch in Udon Thani, Tolemaida, Colombia, to compete under then-SOCOM chief Admiral Thailand. In February and March, against elite troops from 16 other na- Eric Olson, Special Operations forces Green Berets from the 20th Special tions – in events like sniper stalking, were reportedly deployed in about 60 Forces Group trained with elite troops shooting and an obstacle course race countries around the world. By 2010, in the Dominican Republic as part of – at the annual Fuerzas Comando that number had swelled to 75, ac- a JCET. competition. cording to Karen DeYoung and Greg In March, members of Marine In August, soldiers from the 20th Jaffe of the Washington Post. In 2011, Special Operations Command and Special Forces Group conducted a SOCOM spokesman Colonel Tim Naval Special Warfare Unit 1 took JCET with elite units from Nye told TomDispatch that the total part in manoeuvres aboard the guided- Suriname. ‘We’ve made a lot of would reach 120 by the end of the missile cruiser USS Cowpens as part progress together in a month. If we year. With Admiral McRaven in of Multi-Sail 2014, an annual exer- ever have to operate together in the charge in 2013, then-Major Robert cise designed to support ‘security and future, we know we’ve made partners Bockholt told TomDispatch that the stability in the Indo-Asia-Pacific and friends we can depend upon,’ said number had jumped to 134. Under the region’. That same month, elite sol- a senior non-commissioned officer command of McRaven and Votel in diers, sailors, airmen and marines from that unit. In Iraq that month, 2014, according to Bockholt, the to- took part in a training exercise Green Berets conducted a reconnais- tal slipped ever-so-slightly to codenamed Fused Response with sance mission on Mount Sinjar as part 133. Outgoing Defence Secretary members of the Belizean of an effort to protect ethnic Yazidis Chuck Hagel noted, however, that military. ‘Exercises like this build rap- from Islamic State militants, while under McRaven’s command – which port and bonds between US forces and Delta Force commandos raided an oil lasted from August 2011 to August Belize,’ said Air Force Lieutenant refinery in northern Syria in a bid to 2014 – special ops forces deployed Colonel Heber Toro of Special Op- save American journalist James Foley to more than 150 different erations Command South afterward. and other hostages held by the same countries. ‘In fact, SOCOM and the In April, soldiers from the 7th group. That mission was a bust and entire US military are more engaged Special Forces Group joined with Foley was brutally executed shortly internationally than ever before – in Honduran airborne troops for jump thereafter. more places and with a wider variety training, parachuting over that coun- In September, about 1,200 US of missions,’ he said in an August try’s Soto Cano Air Base. Soldiers special operators and support person- 2014 speech. from that same unit, serving with the nel joined with elite troops from the He wasn’t kidding. Just over two Afghanistan task force, also carried Netherlands, the Czech Republic, Fin- months into fiscal 2015, the number out shadowy ops in the southern part land, Great Britain, Lithuania, Nor- of countries with special ops of that country in the spring of way, Poland, Sweden and Slovenia for deployments has already clocked in 2014. In June, members of the 19th Jackal Stone, a training exercise that at 105, according to Bockholt. Special Forces Group carried out a focused on everything from close SOCOM refused to comment on JCET in Albania, while operators quarters combat and sniper tactics to

THIRD WORLD RESURGENCE No 293/294 43 W O R L D A F F A I R S small boat operations and hostage res- request for an interview with the spe- After more than a decade of se- cue missions. In September and Oc- cial ops chief about current and fu- cret wars, massive surveillance, un- tober, Rangers from the 3rd Battalion, ture operations. In fact, the command told numbers of night raids, detentions 75th Ranger Regiment deployed to refused to make any personnel avail- and assassinations, not to mention bil- South Korea to practise small unit tac- able for a discussion of what it’s do- lions upon billions of dollars spent, tics like clearing trenches and knock- ing in America’s name and with tax- the results speak for themselves. ing out bunkers. During October, Air payer dollars. It’s not hard to guess SOCOM has more than doubled in Force air commandos also conducted why. size and the secretive JSOC may be simulated hostage rescue missions at Votel now sits atop one of the almost as large as SOCOM was in the Stanford Training Area near major success stories of a post-9/11 2001. Since September of that year, Thetford, England. Meanwhile, in in- military that has been mired in winless 36 new terror groups have sprung up, including multiple al-Qaeda fran- ternational waters south of Cyprus, wars, intervention blowback, rampant criminal activity, repeated leaks of chises, offshoots and allies. Today, Navy SEALs commandeered that embarrassing secrets, and all manner these groups still operate in Afghani- tanker full of oil loaded at a rebel-held of shocking scandals. Through a deft stan and Pakistan – there are now 11 port in Libya. In November, US com- combination of bravado and secrecy, recognised al-Qaeda affiliates in the mandos conducted a raid in Yemen well-placed leaks, adroit marketing latter nation, five in the former – as that freed eight foreign hostages. The and public relations efforts, the skil- well as in Mali and Tunisia, Libya and next month, SEALs carried out the ful cultivation of a superman mystique Morocco, Nigeria and Somalia, Leba- blood-soaked mission that left two (with a dollop of tortured fragility on non and Yemen, among other hostages, including Luke Somers, and the side), and one extremely popular, countries. One offshoot was born of eight civilians dead. And these, of high-profile, targeted killing, Special the American invasion of Iraq, was course, are only some of the missions Operations forces have become the nurtured in a US prison camp, and, that managed to make it into the news darlings of American popular culture, now known as the Islamic State, con- or in some other way onto the record. while the command has been a con- trols a wide swath of that country and neighbouring Syria, a proto-caliphate sistent winner in Washington’s bare- in the heart of the Middle East that Everywhere they want to be knuckled budget battles. was only the stuff of jihadi dreams This is particularly striking given To America’s black ops chiefs, back in 2001. That group alone has what’s actually occurred in the field: an estimated strength of around the globe is as unstable as it is in Africa, the arming and outfitting of interconnected. ‘I guarantee you what 30,000 and managed to take over a militants and the training of a coup huge swath of territory, including happens in Latin America affects what leader; in Iraq, America’s most elite happens in West Africa, which affects Iraq’s second largest city, despite be- forces were implicated in torture, the ing relentlessly targeted in its infancy what happens in Southern Europe, destruction of homes, and the killing which affects what happens in South- by JSOC. and wounding of innocents; in Af- ‘We need to continue to synchro- west Asia,’ McRaven told last year’s ghanistan, it was a similar story, with nise the deployment of SOF through- GeoInt, an annual gathering of sur- repeated reports of civilian deaths; out the globe,’ says Votel. ‘We all need veillance-industry executives and while in Yemen, Pakistan and Soma- to be synched up, coordinated, and military personnel. Their solution to lia, it’s been more of the same. And prepared throughout the command.’ interlocked instability? More mis- this only scratches the surface of spe- Left out of sync are the American peo- sions in more nations – in more than cial ops miscues. ple who have consistently been kept three-quarters of the world’s coun- In 2001, before US black ops in the dark about what America’s spe- tries, in fact – during McRaven’s forces began their massive, multi- cial operators are doing and where tenure. And the stage appears set for front clandestine war against terror- they’re doing it, not to mention the yet more of the same in the years ism, there were 33,000 members of chequered results of, and blowback ahead. ‘We want to be everywhere,’ Special Operations Command and from, what they’ve done. But if his- said Votel at GeoInt. His forces are about 1,800 members of the elite of tory is any guide, the black ops black- already well on their way in 2015. the elite, the Joint Special Operations out will help ensure that this contin- ‘Our nation has very high expec- Command. There were then also 23 ues to be a ‘golden age’ for US Spe- tations of SOF,’ he told special opera- terrorist groups – from Hamas to the cial Operations Command. ÿu tors in England last fall. ‘They look Real Irish Republican Army – as rec- to us to do the very hard missions in ognised by the State Department, in- Nick Turse is the managing editor of TomDispatch.com – from which this article is very difficult conditions.’ The nature cluding al-Qaeda, whose membership and whereabouts of most of those reproduced – and a fellow at the Nation Institute. A was estimated at anywhere from 200 2014 Izzy Award winner, he has reported from the ‘hard missions’, however, remain un- to 1,000. That group was primarily Middle East, Southeast Asia and Africa, and his known to Americans. And Votel ap- based in Afghanistan and Pakistan, pieces have appeared in the New York Times, the Los Angeles Times, the Nation and regularly at parently isn’t interested in shedding although small cells had operated in light on them. ‘Sorry, but no,’ was TomDispatch. His New York Times bestseller Kill numerous countries including Ger- Anything That Moves: The Real American War in SOCOM’s response to TomDispatch’s many and the United States. Vietnam received a 2014 American Book Award.

THIRD WORLD RESURGENCE No 293/294 44 W O R L D A F F A I R S Local versus global in the fight against Boko Haram The fight against Boko Haram is not to be won only with guns and rocket launchers, but rather with more holistic counter-terrorism measures that respond to underlying causes and respect the rule of law.

Liesl Louw-Vaudran

THE last thing Africa needs is a new global war on terror. The memories of large-scale arrests of ‘suspects’, blanket mandates to security forces to hunt down so-called terrorists and ran- dom searches of Muslims at Western airports after the 9/11 attacks in the United States, led by former president George W Bush, are still fresh in many people’s minds. Faced with the escalating horror of terrorist groups like Boko Haram on the African continent, however, A Nigerian soldier on patrol in Maiduguri, Borno State. Only looking at a short-term solution to fighting terrorism in Africa could backfire. there have been calls for strong inter- vention in the form of military sup- port to the Nigerian army. Some say previous year. The US-based Coun- Potiskum, north-eastern Nigeria, with foreign intervention is necessary to cil of Foreign Relations’ Nigeria Se- the involvement of female suicide save lives and protect defenceless citi- curity Tracker further estimates that bombers, one reportedly as young as zens against massacres like the one 10,501 people have died at the hands 10 years old,’ the AU said in a state- in Baga, Borno State, on 7 January. of Boko Haram in Nigeria since May ment on 12 January. Figures are still sketchy as to the 2011. Julius Malema, former African exact number of people who died in In addition to the terror threat National Congress youth leader and what has been described as the ‘dead- posed by radical groups like al- now head of the Economic Freedom liest attack ever’ perpetrated by Boko Shabaab in Somalia and Kenya, as Fighters party in South Africa, has Haram, on Baga and surrounding vil- well as al-Qaeda in the Islamic called Nigeria’s President Goodluck lages close to the border between Ni- Maghreb and the Movement for One- Jonathan ‘irresponsible’, and has geria and Chad. Indications are it ness and Jihad in West Africa in the called upon South Africa to intervene might not be 2,000 as initially re- Sahel countries, the escalating vio- and ‘fight’ Boko Haram. ported, but Amnesty International in- lence by Boko Haram on civilians Anton du Plessis, Managing Di- sists that ‘several hundred’ people clearly merits drastic action. rector of the Institute for Security have perished. The Nigerian military In the last few days, and espe- Studies (ISS), however, cautions reports there were ‘only’ 150 deaths cially following criticism that African against inflammatory rhetoric that in Baga. What is clear, though, is that leaders are commiserating with presents Boko Haram as an ‘excep- the threat posed by the Nigerian group France rather than Nigeria for its loss tional military’ enemy to be combated is intensifying almost weekly. of life due to Islamist terror, African through extraordinary measures. Data from the University of Sus- leaders have started to speak out. Af- ‘Casting Boko Haram as part of a glo- sex Armed Conflict Location and rican Union (AU) Commission Chair- bal jihad movement fighting a war to Event Data Project (ACLED) shows person Nkosazana Dlamini-Zuma establish a caliphate in northern Ni- that Boko Haram was responsible for expressed her horror and outrage at geria is exactly what they [Boko around a third of all civilian casual- the ‘despicable acts’ perpetrated by Haram] want. They don’t deserve this ties in conflict in Africa in 2014. A Boko Haram. ‘The chairperson is es- “badge of honour” and should be total of 3,428 people fell victim to pecially horrified by the recent mas- treated as serious criminals who are Boko Haram in 2014, according to sacre perpetrated in the town of Baga, committing horrendous crimes to gain ACLED, compared to 1,009 in the Borno state, and in a market in power and territory,’ he says.

THIRD WORLD RESURGENCE No 293/294 45 W O R L D A F F A I R S

The fight against Boko Haram is not to be won only with guns and rocket launchers, but rather with more holistic counter-terrorism measures that respond to underlying causes and respect the rule of law, he adds. President Jonathan prefers to present Boko Haram as part of a glo- bal terror organisation because this draws the attention away from Niger- ia’s own responsibility in the situation, says Du Plessis. Last year, for exam- ple, Jonathan travelled to France to meet with his neighbours in West Af- rica on the Boko Haram threat, which has been presented as part of a global A policeman at the scene of an attack believed to have been carried out by Boko jihadist movement. Haram. The threat posed by the Nigerian group is intensifying. Jonathan is not the only West Af- rican leader linking the terror move- ment in his own country to a renewed Rights Watch and others have over the state from the region in 2013 in global war on terror. Malian President years raised the alarm about human Yamoussoukro, Cote d’Ivoire. This Ibrahim Boubacar Keita was seen rights abuses perpetrated by the Ni- could be a useful tool in the current marching alongside French President gerian army and police. ISS research context, yet it is never mentioned. Francois Hollande at the symbolic also shows that one of the reasons ‘Why did they spend so much time march of over 40 world leaders in given by Kenyans who have joined and money developing the strategy if Paris on 11 January following the re- the radical group al-Shabaab is the it is not going to be implemented?’ cent terror attacks in the French capi- harsh reaction by the Kenyan govern- asks Du Plessis. tal. In 2013 France intervened ment against terrorism. The AU also has its own coun- militarily in Mali to drive out Islam- Du Plessis says it is clear that the ter-terrorism mechanisms. During a ist armed groups that were occupy- insurgency is deeply rooted in local special summit on terrorism in Sep- ing the north of the country. issues such as the distribution of re- tember last year, the organisation Increasing attacks against vil- sources, corruption and lack of devel- called on states to implement addi- lages in Cameroon confirm that Boko opment in remote parts of northern tional strategies to combat terror on Haram has shifted its focus from lo- Nigeria. These factors, together with the continent. This includes greater cal access to power in northeastern the marginalisation of the youth, cre- cooperation in intelligence gathering Nigeria, mainly in Borno State, to tar- ate a fertile recruiting ground for and regional counter-terrorism units. Not much has come of this, and none geting anyone who stands in its way. groups such as Boko Haram. The of these measures are even mentioned Links between Boko Haram and other same could probably be said of ter- in the current debate – not by African groups in the Sahel have also been rorist groups elsewhere, even in governments, nor even the AU. established. France. Outrage against the Nigerian gov- Du Plessis, however, says only Discrimination against North Af- ernment for not protecting its citizens looking at a short-term solution to ricans in France, pushed to the mar- is mounting across the continent. fighting terrorism in Africa could gins of society in poor suburbs, the Meanwhile, Nigerian politicians are backfire. It could lead to a harsh re- so-called banlieues, is a well-known campaigning countrywide in the run- action by African governments who phenomenon. More fighters for the up to hotly contested elections on 14 will use the opportunity to settle Islamic State in Iraq and Syria (ISIS) February. Both leading candidates, scores in the name of a new war on come from France than any other Eu- Jonathan and his opponent, former terror. This could in turn provoke cer- ropean country. One should add, military leader Muhammadu Buhari, tain groups who already feel though, that not all of these fighters claim that they will win the war marginalised. ‘Overreacting now will are of North African origin or come against Boko Haram if they are just create a recruiting tool for Boko from poor suburbs. elected. Nigerians and the rest of the Haram,’ says Du Plessis. While addressing the root causes, world are keen to see how this is go- One of the reasons for the African governments and the AU can ing to happen. ÿu radicalisation of Boko Haram in 2009 use existing counter-terrorism strate- was the extrajudicial killing of its gies to address the threat. The Eco- Liesl Louw-Vaudran is an Institute for Security members by Nigerian security forces, nomic Community of West African Studies (ISS) Consultant. This article is reproduced from the ISS website (www.issafrica.org/iss-today/ notably the killing of the group’s first States developed a counter-terrorism local-versus-global-in-the-fight-against-boko- leader, Mohammed Yusuf. Human strategy that was adopted by heads of haram).

THIRD WORLD RESURGENCE No 293/294 46 W O R L D A F F A I R S The tragedy of Borno State Underscoring the fact that, as with politics, all insurgencies are local, Michael Baca delineates the local dimensions of the Boko Haram insurgency in Nigeria.

BOKO Haram has yet again made in- ternational media headlines, this time through its alleged kidnapping of nearly 200 civilians from the village of Gumsuri in Borno State. Much of the current commentary on the Salafi- jihadi group frames its insurgency as a violent contest against the Nigerian state. This depiction agrees with the narrative put forth by Boko Haram chieftain Abubakar Shekau in his video communiqués, which identify Boko Haram’s ultimate goal as being the establishment of an Islamic pol- ity on the ruins of secular Nigeria. The Boko Haram insurgency has torn asunder the local social structure in Borno Boko Haram has purportedly carried State. Picture shows families displaced by the conflict. out terrorist attacks in cities through- out the country, including Lagos and Muslim, these sub-regions have in controlled the old Borno Empire (c. Abuja, while its members continue to recent decades received a sizable 1380-1893) that once held sway over target Abuja’s agents. number of Christian southerners, who much of modern-day northeastern However, as with politics, all in- prior to the Boko Haram insurgency Nigeria. Below these two groups lie surgencies are local. If Boko Haram’s made up a key component of the com- the Kanuri commoners (tala’a or violent defiance of Abuja represents mercial class. Meanwhile, the south- talakawa). The vast majority of tala’a a national-level struggle, the Nigerian ern third of Borno features a collec- resided in the countryside as peasants extremist movement is also engaged tion of minority ethnicities. Although until the 1970s oil boom, when many in a more provincial conflict concen- some follow Islam, many, including streamed to Borno’s capital, trated in Borno State and seemingly those in the vicinity of the now infa- Maiduguri, and smaller towns in driven by parochial rivalries fuelled mous town of Chibok, practise Chris- search of employment opportunities, by class, generational and, to a lesser tianity and/or indigenous religions. in part due to the stagnation of north- extent, ethno-religious tensions. The Nestled in the foothills of the eastern Nigeria’s agricultural sector. Kanuri, Borno’s most populous eth- Mandara Mountains that straddle the Some succeeded, but many more did nicity, serve as the chief protagonist Nigeria-Cameroon frontier, these not, forming instead a burgeoning, of this internecine war, dominating populations retained their autonomy disaffected urban underclass. both Boko Haram as well as the re- prior to the colonial era, fiercely re- Borno’s economic dislocations gional political establishment that sisting incursions by Muslim Kanuri threw the existing social system into largely opposes it. Non-Kanuri com- and Fulani slavers. Reverberations of turmoil. Once-revered traditional au- munities in southeastern Borno also these clashes continue to shape ethno- thority figures saw much of their in- feature prominently, especially since religious relations in Borno, with fluence diminish while Islamic reviv- Nigeria’s 2013 military offensive re- southerners bemoaning what they per- alist movements such as Salafism portedly ejected many Boko Haram ceive as their political marginalisation started to gain adherents, particularly militants from the state’s urban cen- at the hands of the Kanuri. among younger generations. Al- tres. It is this local violence that has Despite their ethnicity’s domi- though most Salafis in Borno ab- thus far claimed the majority of the nance of the Borno government, most stained from violence and acknowl- lives lost to the Boko Haram insur- Kanuri also find themselves largely edged the Nigerian state’s legitimacy, gency. disenfranchised. At the apex of Kanuri a substantial subset gravitated toward Borno State consists of two dis- society sits an oligarchy whose mem- the radical teachings of Mohammed tinct cultural zones. The northern and bers trace their families’ initial wealth Yusuf (1970-2009), Boko Haram’s central territories contain a Kanuri to lucrative commercial ventures dur- late spiritual leader. Much of Yusuf’s majority, with communities of ethnic ing the colonial period. Slightly less appeal stemmed from his relentless Shuwa Arabs and Fulani scattered prominent are Borno’s traditional rul- criticism of a sociopolitical system throughout the area. Overwhelmingly ers, descendants of the aristocracy that that had, from all appearances, aban-

THIRD WORLD RESURGENCE No 293/294 47 W O R L D A F F A I R S doned large swathes of Borno soci- ety to their own devices. This revolutionary worldview placed Boko Haram on a collision course with the Borno establishment. Tensions already existed during Boko Haram’s nascent years in the early 2000s, when Yusuf reportedly re- ceived support from former Borno governor (2003-11) Ali Modu Sher- iff. Sheriff, who denies ever having links to Boko Haram, seems to have hoped to burnish his reputation on the Kanuri street by providing patronage to Yusuf but had no inclination to im- Boko Haram leader Abubakar Shekau. ‘Once Boko Haram regrouped under Shekau, plement any of the social reforms ad- Borno’s ruling class became one of its primary targets.’ vocated by Boko Haram. And while Yusuf directed most of his ire towards nor Kashim Shettima enthusiastically Bornoan tragedy. Beyond inflicting a the Nigerian government and its backs the Civilian Joint Task Force staggering level of economic damage northern allies, his thinly veiled calls (CJTF), an anti-Boko Haram group since 2009, the insurgency has torn for economic redistribution ran coun- that gained prominence in the late the local social structure asunder; any ter to the interests of the local elites. spring-early summer of 2013. Report- successful reconstruction effort would Such a dissonance strained Yusuf’s edly instrumental in curbing Boko need to treat Borno as a post-civil war relations with the Sheriff administra- Haram activities in Maiduguri, the environment. Boko Haram’s relent- tion, ultimately contributing to the CJTF stands accused of carrying out less attacks on local traditional au- July 2009 eruption in violence that left many of the same heavy-handed tac- thorities have probably dealt an ir- Yusuf and hundreds of Boko Haram tics allegedly employed by Nigerian reparable blow to the old hierarchy, adherents dead. security forces, including extrajudi- leaving behind no obvious successor Once Boko Haram regrouped cial killings of Boko Haram suspects. around which Bornoan society could under Shekau, Borno’s ruling class The CJTF’s campaign touched off a revive itself. In addition, the violence became one of its primary targets. spike in intra-Kanuri violence, as meted out by predominantly Muslim Boko Haram’s reputed victims in- vengeful Boko Haram fighters Kanuri militants against minority clude Sheriff’s cousin and anointed slaughtered villagers accused of back- populations could translate into en- political heir, the brother of Borno’s ing the CJTF and clashed with vigi- during ethno-religious animosities. preeminent traditional leader, and ru- lante groups. Then there is the fate of the ral district heads. Some observers still Boko Haram has concurrently Borno youths who have fought for speculate that prominent Bornoan entrenched itself in the areas of south- either Boko Haram or elite-sponsored politicians played a role in Boko ern Borno adjacent to the Cameroon vigilante groups. Even if Nigerian se- Haram’s revival. While certain fac- border, the aforementioned heartland curity forces succeeded in vanquish- tions, perhaps to weaken Sheriff, of Borno’s Christian and polytheist ing Boko Haram’s leadership tomor- could have cynically sought to use the populations. Predictably, this devel- row, Abuja would still have to con- Salafi-jihadis, Boko Haram’s relent- opment has led to a series of massa- tend with these militarised young cres and large-scale abductions, with less attacks on individuals tied to the men, many of whom have in all like- Salafi militants’ depredations echoing establishment suggest that what influ- lihood become socially alienated due the bloody 19th-century incursions by ence they might once have held over to their wartime affiliations. Bereft Muslim raiders on Borno’s hill com- Shekau and his followers has largely of their kinship networks and with munities. These attacks have been so crumbled. In a region where author- few employment prospects, they devastating that, according to one an- ity historically rested almost entirely would almost inevitably form a re- thropologist familiar with the troubled in the hands of aged males with con- cruitment pool for future violent non- territory, a mass exodus of non-Mus- siderable material wealth, the specta- state actors. Unfortunately for the lims has already occurred. The sub- cle of armed Boko Haram youths inhabitants of Borno, such grim pros- region, long a redoubt of resistance drawn primarily from the local masses pects suggest that their state will re- to Islamic expansionism, now ironi- overrunning hamlets and violently main wracked by strife well into the cally forms one of the centres of Boko dispatching members of the elite must future. ÿu surely have shaken Borno’s social Haram’s self-proclaimed caliphate. While characterised by many as order to its foundation. Michael W Baca is an Africa analyst. This article is Of course, Borno’s political class a national challenge, Boko Haram’s reproduced from the African Arguments website has not stood idly by; current gover- uprising remains first and foremost a (africanarguments.org).

THIRD WORLD RESURGENCE No 293/294 48 W O R L D A F F A I R S The dark side of Cambodia’s development While Cambodia under Prime Minister Hun Sen has made great progress during the last three decades, the World Bank neoliberal economic agenda adopted by his regime has given rise to gross social inequalities and marginalisation of the poor. Tom Fawthrop reports.

IT is now 36 years since the end its forests opened up to logging of the Khmer Rouge regime in corporations and much of its ag- Cambodia that all but destroyed ricultural land turned over to pre- a nation, decimated its most edu- dominantly Chinese plantation cated people and reduced the firms with 99-year concessions. country to Year Zero. This has been well documented Amazingly the foreign min- over the years by the British non- ister who emerged from the de- governmental organisation bris in 1979, a gaunt-looking 27- (NGO) Global Witness.1 year-old Hun Sen, drafted from In the capital Phnom Penh all the obscurity of a Cambodian the hype about a Cambodian eco- dissidents and defectors camp in nomic boom may have attracted Vietnam to serve in the newly in- some foreign investors, but the stalled Heng Samrin govern- real benefits in soaring land val- ment, is still in power. ues were snapped up by the new Hun Sen’s parents were poor Cambodian elite using strongarm rice farmers. He entered politics tactics by police and private se- without any diplomas or degrees. curity forces to dispossess urban From being the world’s young- poor communities. est foreign minister in 1979, he Tycoons initially acquire the now ranks as the region’s long- land, and only subsequently of- est-serving prime minister after Cambodia’s Hun Sen is now the region’s longest- fer it for lease or sale to private 30 years at the reins. But have serving prime minister after 30 years at the helm. foreign companies. This led to at the survivors of the Killing least 80,000 families having been Fields, one of the worst regimes in late Khmer Rouge head Pol Pot’s evicted from Phnom Penh in recent history, since achieved a society chief accomplices held to account, years to make way for so-called ‘de- which provides for social and eco- given a fair trial and convicted of velopment projects’, with many fami- nomic justice? crimes against humanity. That Cam- lies never receiving any compensatory Cambodia has clearly made great bodia was brave enough to face its money or resettlement for their progress in the last three decades. The tragic history, should command inter- loss. The drive for profit, legitimised nation was reborn in the 1980s.The national respect. by the neoliberal agenda, outstrips Khmer Rouge were finally defeated Today the magic of ancient concerns for human livelihood. and peace returned in 1999. Cambo- Angkorian temples and the nation’s The phenomenon of criminalis- dia long ago lost its hitherto regular cultural revival once again captivates ing the poor is growing in Cambodia, spot on the TV news covering the visitors. Impressive economic growth where street people often complain of world’s most dangerous war zones. rates have been fuelled largely by being arbitrarily arrested and beaten Cambodia’s experience in the tourism and the garments industry. up by the police or gathered up by the field of international justice and the The country has also attained a meas- military and shipped by truck to re- creation of a complex UN-backed tri- ure of political stability and been mote areas, where they are dumped bunal to try senior Khmer Rouge lead- spared the cycle of military coups that and told not to return to the city. ers deserves to be noted. It is the trial has blighted neighbouring Thailand. Meanwhile most of the rural poor that so many cynics predicted would However, there is still a very dark have seen few gains during the last never take place. Whatever the legal side to Cambodia’s development. 16 years of peace and development. shortcomings, a very real justice has Land rights for the poor are lacking, However, the pattern of land con- been belatedly obtained by millions while the country’s precious natural cessions for foreign-owned planta- of Cambodians who finally saw the assets are being rapidly exploited – tions, land-grabbing, real estate

THIRD WORLD RESURGENCE No 293/294 49 W O R L D A F F A I R S speculation in the towns and the brutal evictions of the ur- ban poor has roots that go beyond the domestic political arena. The neoliberal agenda, which has to a large extent dictated the primacy of the free market and the neglect of public sector services es- pecially education and health, was foisted on Cam- bodia in the wake of the UN peacekeeping operation in the 1990s. After the peacekeeping forces withdrew, the interna- tional bankers and Western aid consortia moved in, to direct what many referred to as a post-conflict country in A protester is detained by police officers during a clash over disputed land in the Boeung transition. Kak lake area in Phnom Penh. At least 80,000 families have been evicted from Phnom Penh in Applied throughout the recent years to make way for so-called ‘development projects’. Third World as the recipe for ‘structural adjustment’, the paradigm of the World Bank’s unmotivated teaching staff. low medical standards in both public neoliberal development model – In the 1980s, when Cambodia and private Cambodian hospitals. sweeping privatisation, starving the had been systematically denied West- In short, the stress by external public sector of any significant aid – ern aid, teachers on low salaries but donors on ‘order and stability’ as an was imposed on Cambodia in the mid- supported by state subsidies, seeing indicator of progress has served the 1990s as the supreme conditionality themselves as part of a struggle to re- interests of foreign capital and the lo- demanded by all the major donor build their shattered nation, were gen- cal elite, the two mutually reinforc- countries – Japan, the US, Australia erally highly motivated. ing factors in the economic scramble and the European Union (EU) – con- Then after the 1993 elections, bil- for Cambodia. tributing to the country’s reconstruc- lions of dollars flowed in, but little or tion. none of these funds went to public Western hypocrisy Nearly all aid in education and sector professionals. Doctors, nurses health, except in the cases of tackling and teachers were shamefully Conventional wisdom has malaria and HIV/AIDS, was dis- marginalised in the new economic uncritically viewed Western aid as bursed through NGOs and the private order and, in one of the great devel- being always benign and benevolent, sector. Much international aid was opment ironies, became demoralised which conceals any criminal complic- squandered on a seemingly endless and relatively worse off than they ity and diverts all the blame onto the stream of overpaid World Bank con- were in the period from 1987-90. Cambodian elite. sultants who churned out reports that Since 1993 private schools, col- The case of the EU sugar trade had little impact. leges and universities have flourished. regime puts things in perspective. The The UK NGO ActionAid re- Private medical clinics and hospitals EU has set an appalling example with ported that almost half of a $1.5 bil- have also sprung up with little regu- its support of international sugar cor- lion aid budget went to ‘technical as- lation by the national health authori- porations against the poor farmers of sistance’, and that the 700 or so inter- ties. This has been hailed by the World Cambodia. national consultants working in the Bank as proof of great advances in According to David Pred, country were earning far more than health and education. The reality, founder of the NGO Inclusive Devel- Cambodia’s 160,000 civil servants put however, is that wealthy citizens who opment International, communities in together. fall sick travel to hospitals in Thai- three Cambodian provinces ‘have Meanwhile absurdly low salaries land or Singapore and the not-so-rich been uprooted, women and children of public sector teachers were ignored to Vietnam for medical treatment, not made homeless and preyed upon by despite the fact that the Cambodian trusting Cambodian facilities and doc- traffickers, and human rights defend- education system has been plagued by tors. The World Bank policy has led ers shot and thrown in jail for stand- the problem of a demoralised and to a system steeped in corruption and ing up to’ foreign sugar companies

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engaged in profiteering from the EU’s Every- thing But Arms (EBA) scheme of trade prefer- ences. Cambodia is a ben-

eficiary of the EBA ini- ECCC Pool/Mak Remissa tiative, which provides duty- and quota-free ac- cess to the European market for all products excluding armaments from the world’s least developed countries. That might sound good except that, in the case of the sugar trade, all the advantages have been grabbed by foreign companies such as the British agribusiness corporation Tate & Lyle A UN-backed tribunal (pic) has enabled senior Khmer Rouge leaders to be held to account and and their Thai suppliers Cambodia to face its tragic history. and Cambodian busi- ness partners. – which has opened every possible Pred argues that the effect of this ment. Too soon to dub it a Cambo- door to foreign investment by provid- multinational sugar chain is that com- dian Spring, but it certainly indicates ing a low-tax laissez-faire framework panies such as Tate & Lyle and Coca- clear signals of rising discontent. – in favour of the rise of a radical re- Cola directly benefited from ‘the However, the opposition has form movement that would question forced displacement and impoverish- failed to offer a real alternative to Hun their record of collusion in Cambo- ment of hundreds of thousands of ru- Sen’s ready embrace of the neoliberal dia over the last 20 years. ral Cambodians to clear the way for free-market model of development Just like the European banks re- large-scale agribusiness’ to set up promoted by the likes of the World acting to the spectacular victory of the sugar plantations under the EBA Bank. The surge of support it enjoyed anti-austerity movement in the recent scheme.2 owed more to a massive protest Greek elections, the World Bank and Writing in the Cambodia Daily against the Hun Sen establishment its partners in Cambodia will recoil in 2014, Pred said the EU, despite and the widespread corruption and in horror at the emergence of any new civil society protests, refuses to re- cronyism characterising the status party in Cambodia that would chal- view its policy in the light of these quo. lenge their neoliberal agenda. ÿu rampant abuses. ‘It is hypocritical that But neither side has come up with the EU allows these companies to policies and programmes that could Tom Fawthrop first reported on Cambodia in peddle their dirty goods in Europe, serve to narrow the yawning gap be- December 1980, two years after the ouster of the tween rich and poor. Instead, the best Khmer Rouge. He is co-author, with Helen Jarvis, while professing to be a beacon of of Getting Away with Genocide?: Elusive Justice universal human rights it is a scan- hope for alternative policies to chal- and the Khmer Rouge Tribunal (Pluto Press, 2004). dal that these criminal enterprises are lenge the old order – which includes His work on Cambodia has been published in the Sam Rainsy and many other opposi- Guardian (UK) and Australian media. He is also a actually rewarded by the EU with lu- contributor to BBC and Al Jazeera TV. In 1989 his crative trade preferences.’ tion figures – is for leaders to emerge documentary on Cambodia, Dreams and from the new generation of Cambo- Nightmares, was screened on British television’s A Cambodian Spring? dian graduates, NGOs and restive Channel 4. youth of all social backgrounds who It is really no surprise that an ar- have been excluded by the established Endnotes rogantly complacent ruling elite parties. around helmsman Hun Sen were dealt On their part, however, interna- 1. www.globalwitness.org/ campaigns/corruption/oil-gas-and- a setback in the 2013 elections. The tional donors and lenders like the World Bank, the International Mon- mining/cambodia ruling party suffered the loss of 22 2. www.inclusivedevelopment.net/ etary Fund (IMF) and Western gov- seats, with the united opposition com- eus-everything-but-arms- ing in a strong second with 55 seats ernments may not welcome the de- initiative-is-impoverishing- in the 123-member national parlia- mise of a more or less compliant elite cambodian-farmers/

THIRD WORLD RESURGENCE No 293/294 51 W O R L D A F F A I R S Martelly steadfast in his denial of Haitian democracy Haiti has been wracked by political conflict since Michel Martelly became the country’s President after the dubious elections of 2011. His continuing subversion of the democratic process, particularly his outright refusal to hold elections for three years, has provoked massive protests but has not resulted in a diminution of US support. Kevin Edmonds elucidates.

SINCE President Michel Martelly came to power in an election which was deeply fraught with inconsisten- cies and irregularities in early 2011, he has demonstrated his contempt for the democratic process by consist- ently subverting elections for domes- tic posts within Haiti at every avail- able opportunity. After a string of delays, on 26 October 2014, the Haitian people were supposed to vote for 20 new Senators, the entire lower house of parliament and numerous local offi- cials. It did not happen. As a result, the Haitian Senate and lower house Haitian President Michel Martelly (pic) ‘has demonstrated his contempt for the are no longer functional, and when it democratic process by consistently subverting elections... at every available comes to mayoral elections, 130 have opportunity.’ been politically appointed over sev- eral years by the President as ‘munici- ‘consensus government’. Announced should not last. It is urgent to correct pal agents’. via Facebook, the new government is these deficiencies as soon as possible The fallout from the crisis even- dominated by pro-Martelly appoint- because the big loser in this crisis re- tually led to Prime Minister Laurent ments – leading many to question mains our Haitian nation.’ The fact Lamothe stepping down on 14 De- what ‘consensus’ Martelly had in that he had been responsible for re- cember, amid intense anti-govern- mind. peatedly delaying elections and un- ment protest. Under Lamothe ques- Among Martelly’s appointments dermining numerous government in- tions have also been raised about is Carel Alexandre as the new head stitutions seemed lost on Martelly. widespread fraud, as significant of public security – who was removed On the same day that the ‘con- amounts of money have disappeared from his post in 2012 due to pressure sensus government’ was announced, under his and Martelly’s watch. from human rights groups. The new US Vice President Joe Biden called Replacing Lamothe is the former planning minister, Yves Germain Martelly. Given the increased invest- mayor of Port au Prince, Evans Paul. Joseph, was a senior official with the ment in Haiti after the 2010 earth- According to the Haitian constitution, Duvalier regime. Simon Desras, the quake, in which over $10 billion was the Prime Minister must be approved former Senate president, stated that pledged, it would have been natural by the Parliament – which has since ‘There is not a real opening as prom- to expect greater scrutiny of the gov- dissolved as of 12 January. For all in- ised This isn’t solving the crisis ernment’s action. This was not the tents and purposes it appeared that and, worst, it’s bringing more prob- case. Martelly was going to begin a period lems.’ A press release from the White of rule by decree. In an address to the nation, House stated that ‘The Vice President On 16 January, Martelly kept true Martelly tried his hand at political commended President Martelly for to his unconstitutional pattern of be- humour, saying, ‘The weakness of our his efforts to reach a negotiated agree- haviour and used his executive pow- institutions and in particular the fail- ment with the Haitian parliament and ers to appoint what he has termed a ure of the legislature, cannot and political parties to allow Haiti to hold

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elections The Vice President recognised that President Martelly made several important conces- sions in order to reach con- sensus, and expressed dis- appointment that Haiti’s Parliament did not pass an electoral law before laps- ing on January 12.’

Inconsistencies and hypocrisy

The message of sup- port and sickening praise from Vice President Biden shouldn’t surprise many familiar with Haiti’s his- tory, as the international community’s relationship A protest in Port-au-Prince in January demanding Martelly’s resignation. with Haiti has been domi- nated by inconsistencies and hypocrisy. 2000 presidential elections, the Euro- islative and senatorial elections will The 2010 elections were the first pean Union cut off $100 million in take time – and the date for the 2015 to be held in post-earthquake Haiti, aid to Haiti. presidential election has not been an- with many commentators considering During the May 2000 legislative nounced. It could very well be that them to be the most important in Hai- elections – which the opposition had Martelly is strategising for an exit ti’s history. Despite the fact that 14 boycotted largely for economic and plan – as, according to the Haitian political parties were banned from ideological reasons – there was a con- constitution, he cannot run for two participating in the election, the in- solidation of Fanmi Lavalas’ control consecutive terms. A major reason ternational community gave the proc- over local and national government, elections have been repeatedly post- ess their stamp of approval – in addi- with clear majorities in the Chamber poned is that a functioning democratic tion to footing the bill. It was clear of Deputies (72 out of 83 seats) and system in Haiti would allow for that whoever emerged out of this nearly two-thirds of 7,500 local posi- Martelly, his administration and his deeply flawed exercise fraught with tions. This led Orlando Marville, the immediate family to be held account- irregularities would have to submit to chief of the Organisation of Ameri- able for the numerous accusations and the demands of the numerous inter- can States mission in Haiti, to remark allegations of fraud, financial mis- national investors and governments that there were no grounds to chal- management and political repression. which were leading the neocolonial lenge the validity of the vote: ‘Al- Without the backing of the United reconstruction process. though deplorable, they were isolated States and the occupying forces of the While the United States did warn incidents and cannot affect the results United Nations Stabilisation Mission Martelly that $300 million in aid in any definitive manner.’ in Haiti (MINUSTAH), Martelly’s would be withheld if elections were The United States quickly fol- administration would arguably not not held back in April, Vice President lowed up by blocking $500 million have lasted this long. The interna- Biden was much more conciliatory of development loans to the country, tional community was quick to rush than his predecessors when it came which played a major role in in to Haiti after the earthquake, only to Haiti. While one should be wary of destabilising the Aristide administra- to leave in place a political disaster international pressure, sanction and tion leading up to the 2004 coup (or- which has created more scandals intervention, the fact is that it is never chestrated and carried out by the than schools, more pillaging than implemented consistently. United States, Canada and France). progress. ÿu Contrast this to the very vocal The international community’s issue warnings given by both the United with Haiti was due to the vote-count- Kevin Edmonds is a PhD student at the University States and Canada to the Preval and ing methodology. Compare this to the of Toronto and is affiliated with the Center for Aristide administrations after legisla- Critical Development Studies and the Caribbean soft reaction to Martelly’s outright Studies Program. He is also a member of the tive and presidential elections in the refusal to hold elections for three Campaign to End the Occupation of Haiti. This year 2000. In January 2001, after the years. article was first published in the Stabroek News (26 opposition boycotted the November Without a doubt, organising leg- January 2015).

THIRD WORLD RESURGENCE No 293/294 53 W O R L D A F F A I R S Five years after Citizens United, democracy is for sale The US political arena has become a billionaire’s playground largely as a result of a notorious decision of the United States Supreme Court five years ago. In the case of Citizens United v. Federal Election Commission, the court lifted a longstanding ban on corporate expenditures in federal election campaigns. As Brendan Fischer shows, this has unleashed a flood of unlimited contributions into federal elections through political action committees (PACs) known as ‘Super PACs’.

IN January, Republican presidential hopefuls like Scott Walker, Chris Christie and Rand Paul travelled to an exclusive resort near Palm Springs, Florida to kiss the rings of David and Charles Koch. The New York Times called it the ‘Koch primary’. Over the last five years, the Koch political network has evolved into what many have described as a shadow political party. The Kochs and their network of wealthy donors spent $300 million in the 2014 elections, after raising at least $400 million in the 2012 presidential races, with al- most all of the spending passing A protest held on the fifth anniversary of the Citizens United decision which struck through an array of political vehicles down limits on election campaign spending. that are officially ‘independent’ from candidates and political parties. US Supreme Court’s decision in Citi- tive US Senate races in 2014, a ma- Today, candidates who receive zens United v. FEC. In that decision, jority of outside spending came from the blessing of Charles and David can a narrow majority of the Court struck groups that keep their donors secret. watch their political fortunes sky- down limits on ‘independent’ spend- Although the Court’s rationale in rocket, thanks to the huge financial ing, paving the way for ‘Super PACs’ Citizens United rested on the notion resources the Kochs and their deep- and ‘dark money’ vehicles that can that groups raising and spending un- pocketed allies can funnel into elec- now spend literally billions of dollars limited funds would be ‘independent’ tions. Joni Ernst, for example, was a influencing elections. of candidates and political parties, the local elected official four years ago, Citizens United turned five on 21 reality is that around half of all Super yet this year was sworn in as a US January. PACs were formed to support a sin- Senator and delivered the Republican gle candidate and are often led by the response to the State of the Union Federal, state and judicial candidate’s former staff, the non- address – a rapid trajectory which she elections transformed profit organisation Public Citizen has attributes to support from the Koch found. political network. In the five years since Citizens Besides the $1 billion-plus spent If a ‘Koch primary’ – where a United, Super PACs have spent $1 on federal elections after Citizens handful of wealthy donors can deter- billion on federal elections, accord- United, hundreds of millions more mine political futures, regardless of ing to a Brennan Center analysis. have been spent on increasingly ex- political party – sounds more like an Around 60% of that amount came pensive state races. David Koch’s oligarchy than a democracy, you are from fewer than 200 people. Hun- Americans for Prosperity, for exam- probably right. dreds of millions more have been ple, spent $10 million supporting Wis- The level of political influence spent by so-called dark money groups consin Governor Scott Walker in his made possible by such extravagant – organisations that spend to influence 2012 recall election. In 2014, tens of spending would have been all but elections but evade donor disclosure millions were spent by outside groups impossible five years ago, before the laws – and in the 11 most competi- in the Massachusetts governor’s race,

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more than double the amount spent change Council (ALEC) – passing four years earlier. ‘preemption’ laws at the state level to And, in the years since Citizens crush local efforts to enact paid sick United, judicial elections have in- days or a higher minimum wage. creasingly been dominated by outside (ALEC has also demanded that state spending. At least $56.4 million was legislators protect the ‘right’ of cor- spent on state Supreme Court races porate interests to anonymously influ- between 2011 and 2012, according to ence elections.) Justice at Stake, raising serious con- This big money politics means cerns that justice is truly for sale. That that elected officials are primarily re- concern is particularly pointed in Wis- sponsive to the policy preferences of consin, where the Court will be de- their financial supporters rather than David Koch speaking at an Americans for ciding a case potentially involving average people. And, as Demos has Prosperity Foundation event. Over the criminal liability for the majority’s last five years, the Koch political network described, this dynamic further hin- biggest supporters – and with it, ironi- has evolved into what many have ders a truly multiracial democracy: cally, deciding the future of Wiscon- described as a shadow political party. major political donors, to both parties, sin campaign finance laws. are almost entirely white. This means Although the unlimited spending ties than the general public, as Demos that policymakers are primarily re- made possible by Citizens United has and Common Cause have docu- sponsive to the preferences of a rich, allowed the Koch network to reshape mented. white donor class, and people of col- US politics and the Republican Party For example, vast majorities of our and the poor have their voices to advance their corporate and ideo- Americans support raising the mini- marginalised, even as the country logical interests, wealthy Democratic mum wage and enacting paid sick grows increasingly diverse. donors are increasingly stepping up days, but these policies are not a pri- their game. The political arena is be- ority for the wealthy donor class, and Hope is on the horizon coming a billionaire’s playground. are actively opposed by entrenched corporate interests (and big political Yet, there are flashes of hope. Responsive to tiny sliver of spenders) like the National Restaurant Thousands of people across the ultra-wealthy donors Association. As a result, the federal country took to the streets to raise their minimum wage has remained stalled voices against Citizens United on its As limits on money in elections at $7.25 per hour, and the US is the fifth anniversary. Five million people continue to deteriorate, candidates only developed country on earth that have signed petitions calling for a must increasingly rely on big cam- doesn’t guarantee that workers can constitutional amendment to reverse paign spending from a tiny sliver of stay home sick without losing pay or the decision. And 16 states and over wealthy individuals like the Kochs. their job. 500 cities have passed resolutions Elected officials, in turn, are far more Even worse, when cities and calling for an amendment, including responsive to the preferences of the counties have tried to enact these laws New York, Los Angeles and Chicago, wealthy – who bankroll their cam- in their communities, they’ve been thanks to the work of Public Citizen, paigns – than to the average voter, and thwarted by corporate-backed state People for the American Way, Com- a large body of research shows that legislators – most of whom are mem- mon Cause, Move to Amend, Com- the rich have different policy priori- bers of the American Legislative Ex- munications Workers of America, American Sustainable Business Council and others. And last September, a majority of the US Senate voted to advance a con- stitutional amendment to overturn Citizens United and restore the abil- ity of Congress and states to put lim- its on electoral spending. There is much more work to be done. But momentum – and popular support – is on the side of democ- racy. ÿu

Brendan Fischer is General Counsel for the US- based Center for Media and Democracy, from the website of which (prwatch.org) this article is A joint session of the US Congress. ‘Elected officials ... are far more responsive to reproduced. He graduated with honours from the the preferences of the wealthy – who bankroll their campaigns – than to the average University of Wisconsin Law School. voter.’

THIRD WORLD RESURGENCE No 293/294 55 H U M A N R I G H T S US may soon stand alone opposing children’s treaty It is little known that the country that is most vociferous on the issue of human rights has yet to ratify the UN Convention on the Rights of the Child. Thalif Deen considers this paradox.

WHEN the East African nation of So- malia, once described as a ‘lawless state’, ratified the Convention on the Rights of the Child (CRC) in Janu- ary, it left two countries in splendid isolation from the rest of the world: South Sudan and the United States. UN Photo/Milton Grant South Sudan? Understandable, say human rights experts, because it was created and joined the United Nations only in July 2011 – and has since taken steps to start the domestic process in rati- fying the treaty, probably later this year. But the United States? The then UN Secretary-General Javier Perez De Cuellar meeting with a group of Kul Gautam of Nepal, a former children on 20 November 1989, the day the Convention on the Rights of the Child UN assistant secretary-general and (CRC) was adopted by the UN General Assembly. The US is one of only two countries deputy executive director of the UN yet to ratify the CRC. children’s agency UNICEF, told In- ter Press Service (IPS) the United looks forward to supporting the na- treaties will weaken US sovereignty. States did sign the CRC back in Feb- tionwide effort to translate the rights Asked about the chances of fu- ruary 1995 when Ambassador of the Convention into practical ac- ture ratification, she said, ‘We are Madeleine Albright was the US en- tion for every child in that country. hopeful that the US will eventually voy to the United Nations. But the US He said by ratifying the Conven- ratify the CRC, but it is a question of government has never submitted the tion, the government of Somalia is when?’ treaty for ratification by the US Sen- making an investment in the wellbe- When US President Barack ate, he added (where it needs a two- ing of its children, and thus in the fu- Obama was campaigning in 2008, he thirds vote for approval). ture of its society. said, ‘It is embarrassing that the US Asked if there is ever a chance ‘The central message of the Con- is in the company of Somalia, a law- that the United States will ratify the vention is that every child deserves a less land. If I become president, I will treaty, bearing in mind that a con- fair start in life,’ said Lake. ‘What can review this and other human rights servative, right-wing Republican be more important than that?’ treaties.’ Party now wields power on Capitol The CRC, which was approved But to date, there has been no ‘re- Hill, Gautam said: ‘With the current by the UN General Assembly in 1989 view’ of the CRC, an important first composition of the US Congress, and came into force in 1990, com- step before submitting this to the Sen- there is no chance for its ratification.’ memorated its 25th anniversary last ate. But still he held out hope, add- year. Gardinier said the Campaign for ing, ‘Future ratification is not to be Asked about US objections, Meg US Ratification led an important ef- ruled out.’ Gardinier, chair of the Campaign for fort urging the president to send the Somalia became the 195th State US Ratification of the CRC, told IPS CRC to the Senate Foreign Relations Party to the CRC, described as ‘the US opposition to ratifying the Con- Committee. As a result, executives of most ratified international human vention is largely centred on two ar- some 125 national and global organi- rights treaty in history’. guments. First, the CRC will under- sations signed onto a letter to Presi- UNICEF Executive Director mine the role of parents in raising their dent Obama pressing this request. Anthony Lake applauded Somalia’s children and, second, the US ratifica- These include a diverse group of US ratification of the CRC and said he tion of international human rights organisations, including the American

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Academy of Pediatrics, American Bar Association, Child Welfare League of Uneven Economic Development America, Covenant House, Evangeli- cal Lutheran Church of America and Publisher: Orient Longman Private Limited, Zed Books Ltd and Third World United Methodist Church – all of Network them supporting US ratification of the Published in association with the United Nations CRC. Edited by José Antonio Ocampo and Rob Vos Leading contributor Inequality in the world is high and rising. The problem of global uneven development is central Ironically, the United States was to, and inseparable from, the international a leading contributor to the drafting development agenda. of the treaty and in fact shaped a sig- nificant number of provisions. In to- In Uneven Economic Development, leading tal, the United States initiated seven economists and development experts examine articles, including Articles 10 (fam- the causes and implications of international ily reunification), 14 (freedom of re- ligion), 16 (right to privacy), 19 (pro- economic divergences. This comprehensive and tection from abuse), 13 (freedom of timely book reviews economic growth and structural change patterns since the 1960s, expression), 15 (freedom of associa- ISBN: 978 1 84813 195 8 tion and assembly) and 25 (review of before critically reviewing the respective role and 240 pages placement). impact of trade liberalization, marcoeconomic The provisions contained in the policies, governance and institutions on comparative national economic CRC are largely consistent with US performance, particularly in developing countries. With country studies included law, while additional provisions to exemplify the issues at hand, this is a definitive guide to identifying, addressing would be implemented through fed- and perhaps even finding a solution to this global phenomenon. eral and state legislation in a manner and timeframe determined by the US Price Postage legislative process. Malaysia RM27.00 RM3.00 ‘The US cannot credibly encour- Developing countries US$9.00 US$8.00 (air); US$4.00 (sea) age other nations to embrace human Others US$12.00 US$8.00 (air); US$4.00 (sea) rights for children if it fails to embrace Orders from Malaysia – please pay by credit card/crossed cheque or postal order. these norms,’ Gardinier told IPS. ‘It is the Campaign’s conviction Orders from Australia, Brunei, Indonesia, Philippines, Singapore, Thailand, UK, that the CRC protects children, pre- USA – please pay by credit card/cheque/bank draft/international money order in own serves and strengthens families and currency, US$ or Euro.If paying in own currency or Euro, please calculate equivalent of is unquestionably improving the lives US$ rate. If paying in US$, please ensure that the agent bank is located in the USA. of children,’ she declared. Rest of the world – please pay by credit card/cheque/bank draft/international money Contrary to US misgivings, the order in US$ or Euro. If paying in Euro, please calculate equivalent of US$ rate. If Convention strongly defends the need paying in US$, please ensure that the agent bank is located in the USA. for families and the importance of All payments should be made in favour of: THIRD WORLD NETWORK BHD., 131 Jalan Macalister, 10400 Penang, Malaysia. Tel: 60-4-2266728/2266159; parents, say human rights experts. Fax: 60-4-2264505; Email: [email protected]; Website: www.twn.my The treaty underscores that a strong family is crucial for children I would like to order ...... copy/copies of Uneven Economic Development. and for societies and there is ample language throughout the CRC to sup- I enclose the amount of ...... by cheque/bank draft/IMO. port the responsibilities, rights and Please charge the amount of US$/Euro/RM ...... to my credit card: duties of parents. In fact, 19 articles of the CRC explicitly recognise the American Express Visa Mastercard importance of parents and family in the lives of children. A/c No.: Expiry date: The rights for children in the CRC mirror both the US Constitution Signature: and the Bill of Rights, at the insist- ence of the two former administra- Name: tions – under Presidents Ronald Address: Reagan and George HW Bush – that worked on this treaty. ‘They are not meant to set chil- dren against parents,’ said Gardinier. – IPS ÿu

THIRD WORLD RESURGENCE No 293/294 57 W O M E N Brides for bachelors The overwhelming majority of Myanmar’s human trafficking cases involve women and girls being sold as brides to Chinese men. While both governments have vowed to combat this scourge, civil society groups have been running their independent campaigns to tackle the problem.

LWAY Mai cradles her head in her Brennan O’Connor their village offering them work in lap. She looks exhausted after a China, he added. ‘They thought that bumpy ride from the border town of if they followed her, they would get Muse to Lashio in good pay.’ northern Shan State. In Mai Naww Her uncle is sitting Hment’s own village in nearby, talking to sev- Kutkai Township, three eral male friends of women are missing. their family. A major This happened, he crisis has been averted. said, after a local man There is finally time to had returned from reflect on what just China promising work happened, and how to a group of young- much worse it could sters. Six youths fol- have been. lowed him to a hotel in Hours earlier, the Muse. When they ar- 18-year-old ethnic rived he put the boys Ta’ang teenager and and girls into different her friend Lway Nway, Chinese police escorting suspects accused of trafficking women, rooms. When the boys 16, were being held in including many from Myanmar, for marriage. The Myanmar and Chinese woke up the next morn- a hotel room in Muse. governments recently signed a memorandum of understanding ing the man and the The pair had travelled recognising human trafficking for marriage as a major concern. girls were gone, pre- from their village sev- sumably across the bor- eral hours away with a woman who In this instance the brokers lured der. That was at least four months ago promised them work in China. the two teenagers away without in- and the families still haven’t had any At the Muse hotel, they became forming their parents. The young peo- contact with their daughters. scared. One of the young women ple trusted the older woman, and why The UN Inter-Agency Project on found a way to call her parents, who wouldn’t they? She was originally Human Trafficking estimated that in turn contacted the Ta’ang Students from their village. Her mother still 70% of Myanmar’s reported traffick- and Youth Organisation (TSYO). It lived there. ing cases in 2010 involved women then helped the teenagers to get from It is not uncommon for human and girls being sold as brides to Chi- Muse to Lashio, where the organisa- trafficking rings to hire brokers from nese men. More recent reports from tion has an office. the same village as their victims, said Myanmar’s police force provide an Mai Naww Hment of the TSYO Mai Naww Hment, in between jug- even higher figure, at 80% of all traf- suspected the girls had just had a gling phone calls to the girls’ anxious ficking cases. lucky escape from traffickers who parents and discussing plans to get planned to sell them as brides to bach- them home with Lway Mai’s uncle. Loss of livelihood elors in China. The coordinator for the TSYO’s China’s skewed male-to-female Information and Human Rights Docu- The Ta’ang, also known as the ratio, exacerbated by the one-child mentation project said that this strat- Palaung, have traditionally derived policy and a traditional preference for egy had arisen after villagers began the bulk of their income from culti- male children, has meant that millions distrusting strangers as girls began vating tea. But around five years ago, of Chinese men cannot find partners. disappearing. ‘Now the traffickers are Chinese companies began flooding Chinese bachelors often wind up pay- trying to use people from the villages the local market with cheaper tea. ing marriage brokers to do it for them. who have good contacts,’ Mai Naww Prices have plunged to levels so low Some of these entice women and girls Hment said. that it has essentially destroyed the from neighbouring countries with The young women probably livelihood of the Ta’ang who are un- false promises of employment in thought it was ‘very attractive’ when able to compete with the larger Chi- China. the well-dressed woman arrived in nese firms.

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As tea prices dropped, opium cul- tivation skyrocketed. In many regions where Ta’ang people live, govern- ment-backed militias encouraged the switch to poppy-growing. The drug lords who run these militias often encourage workers to become addicted to yaba, supposedly because it makes them work harder and longer. Once workers are addicts, it’s much cheaper to simply pay them in drugs, Mai Naww Hment said. As a result, drug addiction rates among Ta’ang men are spiralling out of control. A Palaung Women’s Or- ganisation report entitled ‘Poisoned Hills’ found that in one village sur- veyed in Mantong, the percentage of men aged 15 and older who were ad- dicted to opium increased from 57% Ta’ang women at an event marking the anniversary of an insurrection by the Ta’ang in 2007 to 85% in 2009. National Liberation Army (TNLA). Many Ta’ang communities have been attacked by government forces because the TNLA has allied itself with the Kachin Independence To make matters worse, many Army which is engaged in conflict with the Myanmar Army. Ta’ang communities have been at- tacked by government forces because nised as trafficking victims under the The report said that there were the Ta’ang National Liberation Army office’s criteria. Eligible victims are still ‘isolated reports’ of Myanmar has allied itself with the Kachin Inde- provided with financial support and a government officials complicit in the pendence Army, an ethnic armed border pass to ensure their safe return trafficking of women to China. In two group engaged in renewed conflict to Myanmar. cases, the report states, the Interna- with the Myanmar Army since June In Myanmar, the government tional Labour Organisation reported 2011. The fighting has devastated launched a five-year National Action the alleged involvement of the wives many villages in Kachin and north- Plan to Combat Human Trafficking in of military officials in a human traf- ern Shan states and displaced around 2012 with an annual operating budget ficking ring. But ‘no action was taken 100,000 people – mostly women and of $780,000 – covered mostly by in- to prosecute the suspected offenders,’ children – leaving them ‘highly vul- ternational NGOs. As part of the plan, it noted. nerable to forced labour and sex traf- Myanmar created an Anti-Trafficking Mai Naww Hment and his fellow ficking’, according to the US State in Persons Division (ATIPD) within TSYO members aren’t holding their Department’s 2014 Trafficking in Per- the country’s police force that was breath for the government to improve sons (TIP) report. designed to coordinate the activities the situation for Ta’ang communities. Lack of government action of Myanmar’s Anti-Trafficking in His team has organised public aware- Persons Unit, established in 2004, as ness campaigns on human trafficking The Myanmar and Chinese gov- well as 26 Anti-Trafficking Task and mobilised anti-human trafficking ernments have vowed to work to com- Forces based in trafficking hotspots. teams that can be called upon in cases bat the growing crisis of human traf- There are now more than 1,000 like that of the two Ta’ang teenagers. ficking and they recently signed a anti-trafficking police officials either Last year, the TSYO also opened memorandum of understanding rec- working on trafficking cases within a new boarding school in Lashio for ognising human trafficking for pur- Myanmar or stationed overseas as impoverished Ta’ang youth. Mai poses of marriage as a major concern. anti-trafficking attachés, according to Naww Hment hopes that in the future China has created an Anti-Traf- the Global Slavery Index 2013. How- a solid education will give Ta’ang ficking Office under the Ministry of ever, the 2014 TIP report noted that youths like Lway Mai and Lway Public Security. Along with other pervasive corruption and a general Nway the confidence and life skills ministries and non-governmental or- lack of accountability in Myanmar they need to avoid being duped by ganisations (NGOs), it now provides affected the enforcement of traffick- human traffickers. ÿu temporary relief for trafficking vic- ing laws and that police ‘limited in- vestigations when well-connected in- * The names of the women in this article have been tims at several key points along traf- changed. ficking routes. However, only females dividuals were alleged to be involved, and underage males are eligible for including in forced labour or sex traf- This article first appeared in the January 2015 issue protection. Adult males aren’t recog- ficking cases’. of The Irrawaddy magazine.

THIRD WORLD RESURGENCE No 293/294 59 V I E W P O I N T Waiting for Chilcot The inquiry set up in 2009 under Sir John Chilcot to examine Britain’s involvement in the Iraq war is still a work in progress. Jeremy Seabrook explains the role and fate of such inquiries under the British political system.

THE Chilcot report into the Iraq war has been delayed, its publication ad- journed sine die. The inquiry was set up by then Prime Minister Gordon Brown in 2009, its remit, according to chairman Sir John Chilcot, to ‘ex- amine the UK involvement in Iraq, including the way decisions were made and actions taken, to establish as accurately and reliably as possible what happened and to identify lessons that can be learned’. The three knights and the baron- ess who made up the panel, it was asserted, had ‘long and distinguished careers’, which means they will dis- turb no slumber of conscienceless elites. The inquiry has earned the chairman £790 a day and the mem- bers £565, so there is small danger Members of the Iraq war inquiry headed by Sir John Chilcot (centre). they will be pauperised by this sol- emn public duty. The cost of the in- tion into the carnage that killed half a esty, they vow, as Chilcot has, ‘to quiry has risen from £2.3 million in million Iraqis and led to the ferocious learn lessons’; although if History (an 2010 to £7 million in 2013 and more sectarian violence which now disfig- ambiguous and unreliable instructor) than £9 million now. It was originally ures the region. In any case, the ac- teaches anything, it is that those in due to take one year to complete. tions of the UK government before, power make extraordinarily incompe- The committee finished hearing during and after the invasion of Iraq tent pupils and demonstrate a perverse witnesses in 2011. In January 2015 it are a matter of public record. The prin- tendency to repeat their misjudg- was announced no publication would cipals have frequently reiterated their ments. be possible before the general elec- self-justification in the media and on Perhaps the most frequent refrain tion in May. This was, in part, because their lucrative lecture-tours, while echoing down the years is the slogan witnesses had to be given time to re- many politicians whose fateful deci- ‘Never Again’. It has shadowed our spond to the way the report deals with sions led to the war have deserted lives since the Holocaust, attempts to their evidence and to criticisms made ‘high office’, in most cases, for an suppress the freedom of former im- of their conduct; although this even higher one, at least in terms of perial possessions from Cyprus to scarcely explains why many of the rewards. Kenya to Malaya, the fiasco of Suez, actors received an account of their The war in Iraq, the defining for- the debacle of Vietnam, and since contribution only at the end of 2014. eign policy error of our time, will not each economic disaster that has punc- Just what place the responses of those be described as such, even though tuated the long history of capitalism. luminaries will have in the final re- both Bush and Blair have coyly ad- There is no official blunder that can- port we cannot, of course, know. Will mitted that ‘mistakes were made’. not subsequently be exploited to re- they be permitted to excise passages Nothing ever happens in the conduct inforce our sense of perpetual they do not like, revise their testi- of affairs, no matter how tragic, dam- progress. Disaster is sometimes even mony, ‘set the record straight’? aging or disastrous, which cannot be welcomed, for the opportunity it pro- In the wakeful world of 24-hour exploited subsequently by govern- vides for the displays of penitence that media the ponderous deliberations of ments as an object lesson, a source of follow. this august body are proceeding at a chastening instruction and future wis- Tony Blair – who responded with pace suitable for the long summer af- dom. Whenever they can no longer alacrity to an invitation to war from ternoon of an imperial heyday, but avoid confrontation with the conse- George Bush – has denied that he has scarcely appropriate for an investiga- quences of their own folly or dishon- anything to do with the delayed ap-

THIRD WORLD RESURGENCE No 293/294 60 V I E W P O I N T pearance of the Chilcot report. The ing. small coterie of US neo-cons who confidential exchanges between The Butler report was into the produced and stage-managed the Iraq President and Prime Minister are, in intelligence used as a basis to justify war – the supreme war of whim, as it any case, ‘redacted’ (a recent euphe- the war in Iraq. Butler found ‘weak- has been described – is these days a mism for censored), and only ‘the gist’ nesses’ in certain intelligence sources. pale but hyperactive figure, a wander- of them is to be published. It is sug- There was an ‘over-reliance’ on the ing minstrel of a Quartet designed to gested that the chairman wanted to assertions of dissident Iraqis. Stern ‘lead mediation in the Israeli-Pales- publish more of the classified docu- words are deployed about ‘flawed’ tinian peace process’. No wonder he ments than the government allowed, sources. Intelligence played only a has the air of a ghost in this spectral, including ‘conversations’ between ‘limited role’ in determining the le- almost surreal, activity. He is an em- Blair and Bush, a thwarted bid for gality of war, and the conclusion was bodiment of the public afterlife of ‘transparency’ by the powerful prac- that there was ‘no evidence of delib- power, the loss of which is a near- titioners of opacity. The body of the erate distortion or culpable negli- death experience to those accustomed report already exists. Simon Jenkins gence’. to strutting self-importantly across the observed in the Guardian that it is re- Both these reports were widely ‘world stage’. The fabulous sums of puted to consist of over a million perceived as the products of an estab- money Blair is said to have earned words, more than twice the length of lishment naturally predisposed to re- since leaving ‘office’ are a contem- War and Peace, and has been longer gard the power which appoints and porary form of redemption: the ran- in the writing than that majestic work rewards it as beyond reproach, and all som, perhaps, of a troubled soul, still of literature. accusations against it as malicious and reluctant to acknowledge the mendac- While in power all ruling elites unfounded. The culture of this estab- ity and folly of the invasion of Iraq, claim infallibility; only after a lapse lishment – an informal network of and still defending it as worthwhile of time, long enough to erase memory those who govern the country and in the ousting of Saddam. In a blister- of their ineptitude, does a laborious occupy the majority of ‘senior posi- ing speech in the House of Commons process of recantation occur. In Brit- tions’ in all walks of life – remains on 29 January 2015, George Gallo- ain there will be an inquiry, a com- unshaken through all disclosures of way derided the well-educated parlia- mission or a judicial review into this its amateurishness and self-interest. It mentarians who had ‘looked into the decision or that course of action. This depends upon ‘assurances’, ‘unim- Bambi eyes of Tony Blair and be- can speedily produce a conclusion, if peachable integrity’, ‘words of hon- lieved his claims about the threat its purpose is to show there was no our’, ‘solemn promises’, ‘gentlemen’s posed by Saddam Hussein’. need for such an inquiry in the first agreements’ that belong in imperial There are many others anxious place. Two earlier investigations con- public schools of the 19th century not to divulge the full story of this nected with the Iraq war, the Butler rather than in a harsh, unforgiving disaster, including, perhaps, David and the Hutton Inquiries, were gener- present. Cameron, since the Conservatives ally emollient and disinclined to con- It provides a glimpse into an ar- (under the then leadership of that test the account power gave of itself. chaic, but far from abandoned, notion noted humanitarian Iain Duncan- The Hutton report was into the of service to the nation by personages Smith) were not conspicuous dissi- death of the government weapons of privilege: this regards duty to ad- dents in the rush to war. The general adviser David Kelly, who committed minister the fate of the rest of us as a story of what happened is so well suicide in the summer of 2003. There way of paying back the wealth and known that it is difficult to conceive was speculation that he had been the esteem they enjoy. Significantly, the what the publication of the delayed source for a report on the BBC that democratisation of political leaders – Chilcot report could reveal that is not the government had inserted unreli- starting with Harold Wilson, through already familiar. It is part of a myste- able intelligence in the false ‘dossier’ Edward Heath, James Callaghan, rious process, whereby what becomes that ‘revealed’ Iraq was capable of Margaret Thatcher and John Major – mounting a lethal attack with chemi- has had little effect upon the nature ‘known’ only gains official status cal or biological weapons on Britain of those to whom the onerous duty of once it has passed through a triage by ‘within forty five minutes’. The BBC ruling has reverted: more humble eminent men (mostly men) who must was blamed for not checking its story servants of the people have been so certificate the authenticity of the ob- more thoroughly. The Chairman and overawed by the inherited majesty of vious before it can be accepted. These the Director-General of the BBC both pomp and power that they are as ea- are the landlords of truth, the propri- resigned. Allegations against the gov- ger to yield to their demands as any etors of revelation, which may be per- ernment were ‘unfounded’. Tony noble 19th-century lord who reluc- mitted to enter ‘the public realm’ only Blair demanded an apology from the tantly took time out from his estate to in such ways as will not harm the BBC, since the claims ‘undermined take Britain to war or to condemn keepers of secrets of democracy. ÿu his integrity’ – an already threadbare malefactors to transportation or the Jeremy Seabrook is a freelance journalist based in garment at the time, perhaps as a re- gallows. the UK. His latest book is The Song of the Shirt sult of its constant need of re-wash- Tony Blair, bag-carrier to the (published by Navayana).

THIRD WORLD RESURGENCE No 293/294 61 V I E W P O I N T No, we’re not all Charlie Hebdo, nor should we be Ben Hayes explains why, despite his unequivocal denunciation of the murderous terrorist attack on the office of the French satirical magazine Charlie Hebdo, he could not be part of a solidarity campaign to republish the offending cartoons in the name of free speech.

THERE is nothing new about people suspending their critical faculties in the aftermath of terrorist at- tacks; unconscionable atrocities are by their very nature easier to denounce than understand. Such a retreat from rea- son is inevitably accompa- nied by attacks on those who seek it out. After 9/11, merely suggesting that the attacks might have had something to do with US foreign policy was akin to treason; today it is Charlie Hebdo that is beyond re- proach. Now, as then, these constraints should disturb. It is no more than a A demonstrator holds up a banner reading ‘I am Charlie’ at a rally in Marseille, France. simple statement of fact that among the reasons a number of the magazine’s staff were with justice, despite the overwhelm- what Charlie Hebdo is about, satire, selected for assassination by maniacs ing ‘with us or against us’ rhetoric of French secularism or the foundations was its predilection for Muslim-bait- the time. of European civilisation. Ergo you ing – this is not a justification, not an Today’s grand narrative is very should hold your tongue or go live excuse, not a defence – but a relevant similar and goes something like this. somewhere else. part of the historical record. Yet, just This wasn’t carefully calculated mur- Defending free speech does in- as in September 2001, you’d be most der – akin to many other premeditated deed mean defending speech you ill-advised to mention it, lest you wish ‘hits’, and qualitatively different to don’t agree with; no need to misquote to be branded a ‘victim-blamer’, a other recent acts of terrorism – it was Voltaire here. But asserting the sanc- ‘weasel excuser of murder’, or much an attack on ‘Western values’, on ‘Eu- tity of the free press while demand- worse. ropean freedom’, on ‘decent people ing the entire fourth estate publish Much of my working life has everywhere’, etc. Now, just as then, Charlie cartoons is rank hypocrisy. I been given over to the defence of hu- either you’re with Charlie Hebdo, or respect your right to show solidarity man rights in the face of unduly re- you’re with the terrorists. Solidarity with the victims of this horrible crime pressive responses to acts of terror- means nothing less than ‘being by reposting those drawings, but only ism. I remember the climate after 9/ Charlie’. Failing to republish or repost if you respect my right not to do so 11 as if it were yesterday. Those of us offensive cartoons is an act of cow- because I happen to find them bigoted who chose not to wrap our solidarity ardice or self-censorship, not a per- and incendiary. in George Bush’s stars and stripes can sonal or professional choice. And if To be honest, I’d respect your at least find some solace and vindica- anything about that makes you just a sudden interest in free expression a tion in the gradual acceptance that little bit uncomfortable, you clearly lot more if, for example, you’d have ‘war on terror’ is counterproductive, don’t understand one or more of the stood with those of us who defended and that terrorism is better countered following: how to defend free speech, Samina Malik, the hip-hop loving

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‘lyrical terrorist’-cum-WHSmith cashier when she was convicted for writing nursery rhymes about jihad, or if you had offered such a resolute defence of the Nottingham Two when they were arrested and detained for downloading ‘terrorist material’ – when what they were actually doing was researching militant Islam as part of their university course. And since you hold freedom of speech so dear, I expect you to join me in condemning the Council of Europe Convention and the EU Framework Decision that outlaws ‘public provocation to terror- ism’. Not the crime of actually incit- ing terrorist offences, you understand, but speech which ‘creates a danger’ that such offences may be committed. European law drafted solely with lim- its on Muslim freedom of expression Police and rescuers outside the Charlie Hebdo offices after the 7 January attack. in mind. It is surely a myth that the free- dom of expression of the majority is counter-radicalisation’ is going to guess satirical greatness is in the eye under threat when #KillAllMuslims keep us safe. of the beholder. is trending on Twitter and the far right Now the part where you tell me Nor will anyone convince me that in Europe marches from strength to that Charlie Hebdo isn’t racist or big- taking the reification of Charlie to strength. The much less convenient oted because in addition to going out ever more stupefying heights – c.f. the truth is that for many members of of its way to insult Muslims, it is an New Yorker’s likening of its ‘pioneer- minority communities watching all of equal opportunities offender. Full dis- ing free expression’ to that of Gandhi this unfold, nothing says white privi- closure: I’ve never read the thing and and Martin Luther King – will do any- lege more than the visceral amplifi- am quite content that my limited grasp thing other than play into the hands cation of Islamophobia in the name of French culture and language means of the racists and fascists whose fond- of European values. We’re deluding I’ll never understand why so many ness for free speech extends only as ourselves if we think that people suddenly think it the height of far as their desire to use it to destroy simutaneously telling Muslim com- subversive literature, no matter how human rights. As with 9/11, we are munities ‘your sensitivities are stupid many people tell me that as a Private walking into the trap the terrorists and irrelevant – now do your bit for Eye subscriber I should understand. I have set for us. Tragedy, farce, repeat. Again, to be crystal clear, I get why you want to be Charlie and I respect that – especially if you’re French or a journalist. But I vehemently reject the imposition of a monoculture which tells me that standing up to terrorism and ridiculing Islam are two sides of the same coin. When the dust settles, I hope you will too. u

Ben Hayes is project director at Statewatch and a fellow of the Transnational Institute. He tweets @drbenhayes. This article A demonstration by right-wing movement PEGIDA in Dresden, Germany. ‘Nothing says white is reproduced from privilege more than the visceral amplification of Islamophobia in the name of European values.’ openDemocracy.net under a Creative Commons licence.

THIRD WORLD RESURGENCE No 293/294 63 P O E T R Y

Mohan Singh (1905-1978) was a noted Indian poet who wrote in his native Punjabi language. An academic by profession, he is considered as one of the pioneers of modern Punjabi poetry.

Evening

Mohan Singh

The sun horse panting and snorting Reaches the shores of evening Kicking his hoofs and flicking red dust His vermilion mane wet with perspiration He throws red foam from his mouth

The mellow-coloured Evening comes And places her hand between his pricked ears Her long fingers Feel the hot breath from his nostrils And take off the bridle from his mouth

The restive animal Tamed and quietened Walks behind the Evening slowly And goes into the stable of darkness

Translated by Balwant Gargi

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