Venezuela held nationwide municipal elections on December 8, 2013. Initial official tallies indicated that candidates associated with the governing party received over 49 percent of the vote, while candidates for the main opposition coalition, Mesa de la Unidad Democrática (MUD), received approximately 43 percent of the vote. These elections were the first test of voter support for the ruling party since President Nicolás Maduro came to power in highly contested elections last April. Normally, municipal elections would not draw much international attention, but because of Venezuela’s deepening economic crisis, they were widely portrayed as a referendum on Maduro’s performance in office. President Maduro has claimed victory based on his candidates’ strong performance in rural municipalities and small towns, yet the opposition has pointed out that its candidates won in nearly all major cities.
Both the government and the opposition hoped these local elections would yield national consequences. The (now) unified national opposition wished for a significant victory so it could use the results to build momentum towards a recall referendum on President Maduro. The initial numbers from the December 8 election though are more indicative of an opposition that has held onto its traditional base rather than attracted new voters. President Maduro wishes to erase questions over his leadership of the Chavista movement, which were raised after his narrow victory in the presidential elections in April 2013. He has been quick to note his political movement’s lead, both in the number of votes and municipalities won. Still, this is not a fully reassuring outcome for Maduro as the 6 percent margin with the opposition is still significantly below those achieved by his predecessor, Hugo Chávez.
Regardless of who claims victory, these municipal elections do not provide a particularly clear indicator for Venezuelans’ support for their president or the opposition for two reasons. First, despite the framing of these elections as a referendum, there were a large number of local issues – particularly growing crime, failing infrastructure, and poor municipal government performance – for voters to focus on in individual races. Second, the massive use of state resources to favor government candidates, harass opposition organizing and campaigning, and increase limits on media freedom mean that elections in Venezuela are not truly fair or free.
These election results are also unlikely to produce a change of course in the Maduro administration’s policies to address Venezuela’s deepening economic crisis. Venezuela’s economy is experiencing accelerating inflation, scarcity and a balance of payments problem. It imports almost all of its food and most of its consumer goods, and the black-market rate for dollars, used to pay for many imports, now exceeds the official rate by nearly 1000 percent. The money supply has ballooned as the central bank has resorted to simply printing money to address government revenue shortfalls. Many consumer staples have become increasingly scarce as a consequence, and the combination of too much local currency chasing too few goods and dollars has resulted in the highest inflation rate in the world.
Unlike past Venezuelan governments, the Maduro administration has not been able to use oil revenues to spend its way out of the crisis. Oil accounts for 95 percent of Venezuela’s exports, and Venezuela’s oil revenues have been dropping. This is due to declining production and the fact that a substantial proportion of its output is sold at discounted rates to Cuba, China, its allies in the Americas and its own citizens. The Maduro administration has sought out new international investment in its oil fields, but given Venezuela’s erratic government policies in this area, potential partners are demanding tougher terms. Even if the deals do pan out, it will take time for new production to come online. Venezuela’s balance of payments problems are compounded by increasing domestic demand for refined oil products, which now exceeds local production capacity and has to be acquired from the United States.
The Maduro administration has instead chosen to double down on authoritarian measures to counter inflation and scarcity. The National Assembly recently authorized President Maduro to rule by decree on a broad range of issues after pro-government legislators engineered the required supermajority through selective investigations and impeachments of opposition lawmakers. Maduro has wasted no time in using these powers: in the past two months, he has established government control over additional sectors of the economy, mandated reductions of 50-70 percent in the prices for goods sold by private business, and intervened in the commercial real estate market to drastically lower rents. Maduro has promised that imported goods will continue to be available at the newly decreed prices, and has created two government agencies to manage this process. Yet given the government’s poor management record in sectors it already controls, this is hardly reassuring.
The combination of economic crisis and deepening authoritarianism portend a grim 2014 for Venezuelans. There are at least two more years until the next instance when Venezuelans can once again attempt to influence the government through elections. Moreover, the ability of newly elected opposition municipal authorities to carry out their programs is limited. Much of their budget is provided by the central government, and as occurred following past elections, the Maduro administration is likely to defund opposition municipalities and route resources instead to parallel institutions that it controls. This combination means that once the true extent of scarcity sets in after January, there is a risk that there will be no institutionalized mechanisms for Venezuelans to influence the course of government policy, and the probability of social and political unrest will begin to rise.
Given the troubling prospects for Venezuela’s future, it is incumbent on other actors in the Americas to work towards positive change and prepare for the possibility of negative outcomes. Yet even here, the choices are limited. The states in the Americas that sympathize with the ideology of Venezuela’s Bolivarian Revolution are likely to look the other way. The Organization of American States, which has previously acted as a stabilizing force in Venezuela, faces internal disagreements among its members. Under these conditions, the hemispheric mechanisms designed to defend democracy, such as the Inter-American Democratic Charter, will have difficulty functioning effectively. Relations between the United States and Venezuela remain very poor, and the U.S. government lacks the diplomatic tools, such as democracy assistance, to support positive change in this case.
There is still an opportunity for leading democracies in the hemisphere, particularly Brazil, to speak up and counsel a change in course in Venezuela. Brazil has both economic and political influence in Venezuela, and its credibility is bolstered by its own record on social and economic progress within a democratic context. It would have to overcome its own preference for non-intervention and a history of sympathy for Chavismo, a stretch for President Rousseff in an election year. This means that it may also be time for key countries in the hemisphere to begin a quiet discussion on what is to be done in the case of a possible breakdown of political and economic order in Venezuela. While the probability may still be low, exploring the outlines of a consensus now might forestall a repetition of the rancorous debate that surrounded the 2009 coup in Honduras.
 “El Chavismo amplía su ventaja sobre la oposición en Venezuela,” El Pais (Madrid), December 9th, 2013.Authors
Having visited Cambodia and Korea on this whirlwind tour of the region, I touched down in my third and last country—Myanmar.
What a place! It is rare to find such a combination of enchanting beauty, warm hospitality, and an unstoppable drive to succeed. Myanmar is undergoing a great awakening to the world and all that it has to offer. And it is engaging on multiple fronts. For example, it has recently taken over the chairmanship of ASEAN, and when I arrived I found the country in the midst of hosting the South East Asian games.
I was deeply impressed by the achievements Myanmar has realized in a really short space of time—reducing inflation, freeing up access to foreign exchange and imports and establishing a new central bank. For sure, Myanmar has a long road ahead. And on this journey a “no haste, no waste” strategy will be key; a strategy that shuns reforms simply for the sake of reform, and instead makes progress at a pace that allows the authorities to manage the related risks, all while taking maximum advantage of the available opportunities. I was encouraged by the dedication, determination and optimism of everyone I talked to—the authorities; women leaders; and professors and students at the prestigious Yangon Institute of Economics, where I gave a speech.
In that speech, I noted that the priorities for Myanmar at this stage are threefold. First, invest in the future—especially in health, education, and infrastructure. Second, include all people in development, including the poor and women—for inclusive growth is the only real form of lasting growth. Third, integrate further into the broader regional economy, taking advantage of Myanmar’s auspicious location in the heart of Asia.
I also stressed that the IMF would be a lasting partner on the road ahead, and would always stand with the people of Myanmar.
One of the highlights of my visit was the chance to participate in the Women’s Forum Myanmar. The dialogue at the Forum suggested that, as Myanmar opens up, it is committed to the right kind of development—the kind that incorporates the skills, talent, and leadership of women. At the Forum I talked about the economic potential of women—we know that if women do better, economies do better, and that empowering women is one of the best ways of reducing poverty. I came away most impressed by the creativity, commitment, and compassion of Myanmar’s women.
I also had the chance to engage with one of my personal heroes, Daw Aung Suu Kyi. This was an especially poignant moment for me, as it came right after the passing of another giant on the global stage and another of my heroes—Nelson Mandela.
I remain humbled by Daw Suu’s achievements, and heartened by the resolve she has to create a better future for all citizens of Myanmar. In a moving speech at the Forum, she talked about generosity and empathy as the hallmarks of a decent society—where everyone is valued equally, respected for their innate human dignity and worth, and allowed to contribute and realize their full potential.
I was sad to leave Myanmar, but I also left inspired and optimistic. I felt that I had I glimpsed the future unfolding right before my eyes.
My arrival in Seoul was somewhat delayed when dense fog caused my plane from Phnom Penh to be temporarily diverted from Seoul to Daegu. Still, better late than never! I was delighted to be back in Seoul, capital of one of the world’s most dynamic and innovative economies. Just remember: in a remarkably short period of time, Korea has risen from close to the bottom to close to the top—becoming the thirteenth most prosperous economy with an income per capita that is higher than the European Union average.
With such a track record, Korea plays an increasingly important role on the global stage. It held the annual presidency of the Group of Twenty advanced and emerging economies at the height of the global financial crisis in 2010. It is host to the Green Climate Fund, whose aim is to help developing countries respond to climate change—surely one of the greatest challenges of the 21st century. And it is playing ever increasing leadership roles in other international institutions, including the IMF.
Korea’s enhanced role in global affairs is paralleled by the reach of its “soft power”: the famous “hallyu” (Korean wave) has swept Asia and beyond with the melodies of its K-pop stars, its addictive Korean dramas and the technological wizardry of its products. And who has not danced—or at least tried to dance—to Psy’s insanely catchy viral hit?
I was particularly interested in what the future might hold for the “miracle on the Han”. I learned a lot from my discussions—with the authorities, with women leaders, and with students at the extremely prestigious Seoul National University, where I had been invited for a lecture and dialogue with students.If I could distil the main takeaway from my interactions, it would be this: for Korea to stay at the cutting edge of the global economy, it needs to sustain the inclusive growth that has been the hallmark of its development, and give everybody the chance to develop their multiple talents and fulfill their rich potential.
In part, this means providing more opportunities for young people and women—who tend to be less included in the labor market than is the case in other Organization for Economic Cooperation and Development countries.
I was really struck by the worries of young people about growing inequality and discontent in society—especially related to their fears about finding meaningful work, job security, and a living wage in an ever more competitive world.
I was also struck by the Korean women I met—some of the most talented, determined, and dedicated women anywhere in the world. First among these, of course, is President Park Geun-hye, the first woman elected to the highest office in Korea, whose life has been dedicated to the service of her country. With women of this caliber, it is hard not to be optimistic about Korea’s future—but they must all be given a chance to access and demonstrate their many talents.
Letting everybody contribute also means strengthening the social safety net, and Korea can afford it. And it means making the services sector embrace more fully the dynamism that is the true hallmark of Korea, including by tackling vested interests where needed.
I take great encouragement from the government’s commitment to push ahead in all of these areas.
For my part, I emphasized the importance of an enduring partnership between Korea and the IMF. Korea has and will always have an important place at the IMF—exemplified most recently through our newly-appointed Korean director of the Asia and Pacific Department! I further saw Korea’s contribution in action with its generous commitment to provide $15 million over five years toward the IMF’s capacity building programs—a strong display of global solidarity that will give other countries the chance to follow in Korea’s footsteps.
In turn, the IMF wants to be of service to Korea, through our critical role in international economic cooperation and our multilateral perspective. We bring together the viewpoints of our global membership. And we have a unique cross-country perspective on how the different parts of the global economy fit together, affect each other, and ultimately can cooperate together for the global economic good.
In short, I left Korea feeling energized and optimistic. I also left looking forward to further partnership with Korea as it continues its dynamic quest to forge the best possible future for its people.
Ukraine has plunged into political turmoil following President Victor Yanukovych’s decision to delay signature of an association agreement with the European Union and the authorities’ use of force to break up a peaceful demonstration on November 30. The main players now are Mr. Yanukovych, opposition leaders and the many thousands of citizens on the street. The European Union and Russia are the outside players that can exercise the most influence, while the United States sits more in the background. That is understandable. And in the current situation, it may not be a bad place for Washington to be.
As the crisis has played out in Kyiv over the past two weeks, the European Union has taken the lead as the voice and face of the West. That is appropriate. At the core of the debate in Ukraine is whether and how quickly the country will move to align its norms with—and join a free trade area with—the European Union. Right now, Europe has great attraction for many Ukrainians, who envy European living standards and its rule of law. Moreover, the European Union acquitted itself well in mediating a settlement during the Orange Revolution in 2004.
Russia is fighting to keep Kyiv from moving too far, too fast toward the West, and has imposed trade sanctions and threatened other consequences should the Ukrainian government proceed to sign the association agreement. For Moscow, this is a geopolitical struggle of the first order.
The U.S. government has not taken a position on the front lines of this political drama. Several reasons explain why.
First, an association agreement with the European Union offers the best path for Ukraine to draw closer to Europe (and the trans-Atlantic community). Washington has nothing better to offer. U.S. officials have closely coordinated with their EU counterparts to take a common Western line. To state the obvious, however, the United States is not a member of the European Union.
Second, given everything else in the foreign policy in-box in Washington, Ukraine has not been able to command much attention. The major foreign policy issues for the Obama administration lie elsewhere: the broader Middle East (Iran, Syria, the Arab-Israeli peace process), Afghanistan and the “pivot” or “rebalancing” to Asia. There are only so many hours in the day, and larger, more pressing questions push Ukraine off of the agenda.
This relative diminution in American attention to Ukraine and Europe reflects in part the success of Europe—and of U.S. policy toward Europe—over the past two decades. Central European states such as Poland and the Czech Republic today are firmly anchored in the European Union and NATO. That is a big achievement. A major reason why the United States launched the NATO enlargement process in the mid-1990s and encouraged the European Union to enlarge in parallel was to give the emerging democracies in the area institutional homes so that the region would require less American attention in the future.
Third, while Ukraine was the object of a geopolitical struggle between the West, led by the United States, and Russia in the 1990s, the Obama administration does not think in those zero-sum terms (yes, Moscow still does). Moreover, how much of a struggle is this? The Ukrainian public, elite and business community show little desire to turn toward the east. Russia does not offer a political model attractive to Ukrainian citizens.
Finally, a degree of “Ukraine fatigue” has taken hold in Washington. Part of this results from disappointment over how, following the Orange Revolution, the new leadership in Kyiv failed to take advantage of its opportunities. The fatigue has only grown worse with the democratic regression that has taken place since Mr. Yanukovych became president in 2010.
Congress, a traditionally pro-Ukrainian institution that used to mandate huge sums of assistance funds for Ukraine, now shows considerably less enthusiasm for the country. Notably, some on Capitol Hill have even begun talking about applying sanctions, which would have been unheard of in Congress just a couple of years ago.
The upshot is that the United States devotes less time and attention to Ukraine than was the case in the past. As a result, the European Union—the institution and individual EU member-states, such as Poland, Lithuania and Sweden—have taken the Western lead during the past several years.
Not having the United States on the frontline is, on balance, not a bad thing. As noted, the foreign policy agenda in Washington is jammed. Moreover, were the United States leading the Western charge, Moscow would regard it is a particularly dangerous geopolitical challenge. That would introduce to the complicated politics that are now playing out in Kyiv a U.S.-Russia competitive dynamic that would hardly be helpful to—and might well complicate—efforts to find a peaceful political solution to the current crisis.
The U.S. government should be clear in its support for the right of Ukraine and Ukraine’s people to choose their own course. It should insist that the authorities respect the right of citizens to demonstrate peacefully. It should stress that how the government deals with the demonstrations will affect U.S.-Ukraine relations. And it should be supportive of Ukraine with the International Monetary Fund if Kyiv undertakes serious economic reforms. But at this point in time, Europe has more influence.
The European Union provides the magnet for many in Ukraine. The European Union has the association agreement process—the road-map for Kyiv to follow if it makes the commitment to move in the EU’s direction. And while the Russians see the European Union as a geopolitical competitor, they do not see it in the same way that they see the United States. In the current political crisis in Kyiv, it is appropriate that the European Union take the Western lead.Authors
Negotiators at the recently concluded (and utterly uninspired) international climate change talks in Warsaw, Poland were able to agree on very little. One bright spot may have been consensus on the need to retool international carbon market mechanisms as part of a future global climate agreement and also to use global carbon securities to help close the pre-2020 emissions ambition gap. Perhaps this consensus is unsurprising given that carbon markets are growing in popularity around the world (albeit not in Washington). In fact, carbon markets will cover roughly 3 billion people and a major share of the world’s economy by 2015, despite some high-profile backsliding in Australia. This growth is a good thing. Carbon markets are catalyzing climate action across the world in both developed and developing economies and have already directed billions toward clean energy investments in developing countries. In fact, as our recent study shows, developing countries that were the first to participate in carbon markets a decade ago are racing ahead on climate action now.
Despite the Warsaw consensus, the international community is missing a huge opportunity to strengthen carbon markets now. Like the national economies they mirror, global carbon markets today are struggling, mainly as a result of the financial crisis but also on account of successful climate regulations that have reduced pollution enough to limit demand for carbon offsets. Carbon market prices in Europe, for example, are down an astonishing 85 percent from their 32-euro high. Some experts predict the glut of carbon market securities continuing for some time.
This oversupply of low-cost but valuable carbon credits is an anomaly in a world of rising carbon prices. Nations should join together to buy up these inexpensive credits and use them to establish an international carbon market reserve with the authority and mandate to manage the supply of global carbon market securities when prices rise or fall to extremes. Somewhat like a central bank, the reserve could sell today’s global carbon credits when prices rise in the future to reduce price spikes and then use the proceeds to buy credits and resupply when prices fall again. Reducing extreme price volatility would provide more stable financial flows to least developed countries for investments in renewable energy, energy efficiency and climate-friendly land-use. If governments do a better job of maintaining strong carbon markets in the future, the reserve could sell excess credits for cash (rather than maintaining a price floor function) to generate new financing—perhaps billions of dollars—to build resilience to the adverse effects of climate change in developing countries.
As we noted in December in our Brookings Global Economy and Development working paper with Cecilia Springer, an international carbon market reserve of 600 million tons of carbon securities could fundamentally change the volatility dynamics of the global carbon market. At that size, the reserve could eliminate global carbon price spikes in the early years of the emerging post-2020 climate policy period (when the world has agreed to have a new climate agreement in place). Such a reserve could reduce price spikes by as much as 40 percent.
Even in this age of growing fiscal austerity, nations could act on this recommendation at little cost. In today’s depressed carbon market, stockpiling 600 million tons of clean development mechanism (or “CDM”) credits would cost the international community at most $600 million and would represent a substantial head start toward the larger reserve that might eventually be necessary. Our estimates suggest that by 2030, a reserve of this size would be worth about $14 billion in today’s dollars if managed correctly (buying low and selling high), counting both cash and the value of remaining global carbon securities.
More can and should be done now to build on the world’s growing reliance on carbon markets and ensure that the benefits of climate action accrue to low-income countries as well. Establishing an international carbon reserve could help do just that and in the process help safeguard future global carbon markets from the lackluster performance of the global carbon market in recent years.Authors
- Nigel Purvis
- Abigail Jones
December 6th marks a human rights milestone for Africa – the first anniversary of the Kampala Convention, formally known as the African Union Convention for the Protection and Assistance of Internally Displaced Persons in Africa. Sub-Saharan Africa is home to more than a third of the world’s internally displaced persons (IDPs). The Kampala Convention is an innovative regional response to the rights and needs of IDPs across Africa, addressing every phase of displacement from prevention to solutions. One of the newest human rights treaties in the world, it was negotiated in 2009 and in 2012 it became binding on all those states that have signed and ratified the agreement.
Over the course of the past year, several more states have signed and ratified the Kampala Convention, and with international support the signatories have started to take steps to implement the agreement. This is an opportunity to celebrate these important accomplishments, and to reflect on the steps that can be taken to overcome the challenges surrounding effective responses to internal displacement in Africa.Authors
Cambodia is the first leg of my Asia trip. This is a country that has already grown by leaps and bounds, and now stands at the frontier of becoming an emerging market economy in the heart of the most dynamic hub of the global economy.
I could feel this energy and excitement everywhere. Cambodians, especially young Cambodians, have big dreams and substantial societal aspirations. They want dignity and respect, so that they can fulfill their potential, both as individuals and as a nation. They want to embrace the wider world and all that it has to offer. They want good governance and strong institutions, which are essential to underpin economic development, empower people and ensure that prosperity is broadly shared.
I heard these themes consistently—from inspiring women leaders, from dynamic young economists, and from the students at the Royal School of Administration, where I gave a speech on how Cambodia can keep its forward momentum.
I was very encouraged by my discussions with the authorities. I believe they are resolved to stay on the road of macroeconomic stability and economic growth, to invest in skills and education, and to lay down a firm foundation of good governance.
One of the highlights of my visit was a Royal Audience with King Sihamoni. I came away deeply moved by his thoughtfulness and compassion. This is a monarch who not only cares deeply about the welfare of his people, but is clearly passionately devoted to promoting the cultural and artistic heritage of his country—and Cambodia has a heritage second to none.
I was truly touched by a visit to a school run by an NGO that is focused on educating girls and young women. These beautiful young girls come from underprivileged backgrounds, and are being granted a first-rate education in a zone of safety and security. They are being given an opportunity to obtain the tools for a better future, have their voices heard, and make their mark; an opportunity that for many of them would be but a dream without this unique school.
I told everyone I met that the IMF is here to listen to them and to help as they find useful—that we really value our partnership with Cambodia. We have stood with Cambodia through its transition, especially with capacity building and technical assistance.
I was glad to learn that the IMF’s role is greatly valued in Cambodia. In addition to capacity building, an example that quite a few people raised with me involves rice field irrigation! Not exactly something usually associated with the IMF. But Cambodia used the resources freed up by IMF debt relief to invest in an irrigation scheme that completely transformed the country’s rice production, turning it from a net importer to a net exporter of rice. For me, this was a perfect example of partnership in action, of the multi-layered benefits that can result when we work with a member country like Cambodia that has full ownership of its economic program.
Overall, I was truly inspired to see how confidently Cambodia has escaped its post-conflict past. It is now truly at the frontier of great economic transformation.
For a more detailed look at the IMF’s technical assistance program in Cambodia, watch this video:
Celebrating the Kampala Convention on Internal Displacement as Conflict Escalates in the Central African Republic
Editor's Note: Watch Megan Bradley, UN Special Rapporteur Chaloka Beyani and Josephine Kibe of Brookings discuss the impact of the Kampala Convention on human rights in Africa and the international community.
This week marks a human rights milestone for Africa. December 6th is the first anniversary of the Kampala Convention, formally known as the African Union Convention for the Protection and Assistance of Internally Displaced Persons in Africa. Sub-Saharan Africa is home to more than a third of the world’s internally displaced persons (IDPs). The Kampala Convention is an innovative regional response to the rights and needs of IDPs across Africa, addressing every phase of displacement from prevention to solutions. One of the newest human rights treaties in the world, it was negotiated in 2009 and in 2012 it became binding on all those states that have signed and ratified the agreement.
Over the course of the past year, several more states have signed and ratified the Kampala Convention, and with international support the signatories have started to take steps to implement the agreement. This week is an opportunity to celebrate these important accomplishments, but the anniversary is bittersweet as it comes as the same time as a humanitarian emergency is escalating in one of the signatory states, the Central African Republic (CAR). The strengthened protections for IDPs laid out in the Kampala Convention should inform national, regional and international responses – including through the UN Security Council – to this conflict, and should be at the heart of responses to the displacement crisis it has created.
Since a loose coalition of rebels known as the Seleka overthrew the CAR’s government in March 2013, the already fragile country has descended into chaos. Former President Francois Bozize was ousted and replaced with Seleka leader Michel Djotodia as transitional president. An African Union-led peacekeeping force was deployed to stabilize the situation, but it is increasingly clear that the current arrangements are not working. In early September, some 260,000 people were uprooted within the CAR, mostly in rural areas. In a mere three months, the number displaced has skyrocketed to over 400,000, as the primarily Muslim Seleka has splintered, Christian “self-defense militias” have emerged, and violence has spread into the capital, Bangui. More than 10 percent of the population is now displaced, and half are in critical need of humanitarian assistance. At 48 years, average life expectancy in the CAR is already second-lowest in the world, but as the conflict and the displacement crisis escalate this sad statistic could fall still further as displaced families lack access to shelter and livelihoods, and displaced children are especially susceptible to forced recruitment into armed groups. Humanitarian organizations lack the security and funding needed to respond adequately to these growing needs. To take just one example, the United Nations Office for the Coordination of Humanitarian Affairs reports that only eight percent of the funds needed for emergency shelter for IDPs in the CAR has been received.
This week, at the same time as the first anniversary of the Kampala Convention is being marked, the UN Security Council is expected to debate the growing catastrophe in the CAR.
This week, at the same time as the first anniversary of the Kampala Convention is being marked, the UN Security Council is expected to debate the growing catastrophe in the CAR. A new Security Council resolution on the CAR should authorize more robust efforts to restore law and order, led by the African Union with French support. But it should also explicitly call for a strengthened response to the displacement crisis, rooted in the Kampala Convention and the UN Guiding Principles on Internal Displacement. As Salil Shetty, Secretary-General of Amnesty International has stated, “The Security Council must request that the UN Secretary-General immediately start preparations for the deployment of a robust peacekeeping force, with a mandate to protect civilians, including internally displaced persons.”
Although the CAR is on the brink of collapse, with non-state armed actors controlling much of the territory, the Kampala Convention is nonetheless highly relevant to the immediate and longer-term dynamics of this conflict. The UN Special Rapporteur on the human rights of IDPs, Dr. Chaloka Beyani, has called on the government to “honor the country’s obligations as per the African Union Convention for the Protection and Assistance of IDPs in Africa (the Kampala Convention), ratified by the Central African Republic in 2010 to ensure that IDPs are protected and supported until they reach durable solutions.” Critically, many of the obligations to protect and assist IDPs that are laid out in the Kampala Convention also apply to the armed groups that now control large swaths of the country. And, the agreement calls for individuals, including members of armed groups, to be held criminally responsible, “in accordance with applicable domestic and international criminal law,” for arbitrarily forcing people from their homes, and for otherwise violating the rights of IDPs. The Convention draws particular attention to “the accountability of non-State actors involved in the exploration and exploitation of economic and natural resources leading to displacement,” a particularly important issue in the CAR where trade in ivory and diamonds is fuelling the violence.
In a country such as the CAR, with its dire humanitarian needs and its long history of turbulent governance, making good on the Kampala Convention’s call for individual criminal responsibility for displacement, and for “just and fair compensation and other forms of reparations, where appropriate” for IDPs may seem like a remote possibility. But as the Security Council addresses the crisis in the CAR, this long-term goal should be kept in mind at the same time as immediate responses to the rights and needs of the country’s IDPs are intensified. What better way could there be to mark the first anniversary of the Kampala Convention than for Security Council members, and other governments across Africa and around the world, to insist on its application in this crisis that has gone under the radar for far too long?Authors
When I was asked to produce a video about the Chiang Mai Sustainable Urban Transport Project, I thought it would be really interesting for me to see how Thailand’s second largest city had changed. The last time I visited Chiang Mai before this was 15 years ago, in the 1990s.Ideas for a Greener Chiang Mai
Chiang Mai is now very vibrant and full of potential. There is an energetic, creative buzz about it and yet it still manages to hold on to its unique heritage and identity.
President Cristina Fernández de Kirchner announced a reshuffling in the most important Cabinet positions when returning to the presidential office after five weeks of mandatory medical rest. Her reappearance was in a homey video shot by her daughter, surrounded by pets and stuffed toys.
In recent Latin American history, the position of finance minister has tended to be the second most important one after the presidency. It has been occupied by towering figures that later became presidents or presidential candidates, including Fernando Henrique Cardoso in Brazil, Domingo Cavallo in Argentina, Pedro Pablo Kuczynski in Peru, and Alejandro Foxley and Andrés Velasco in Chile. The Kirchners have followed a different path and degraded that position with weak second-line figures. Over the last few years, the position was occupied by Hernán Lorenzino, a lawyer who became an internet figure in a viral YouTube video when he was unable to explain Argentine inflation during a Greek TV interview. At the end of that interview, he was caught on record saying “Me quiero ir” (I want to leave). His wish was granted on November 18, when he was replaced by Vice-Minister Axel Kiciloff.
Mr. Kiciloff, aged 42, has a higher profile than his predecessor and a good rapport with the president and her son, the leader of La Cámpora. La Cámpora is a group that supports the president and has been described in the World Socialist Website as a “sinister so-called youth movement, allegedly set up to promote human rights and Latin Americanism used by the regime to control and defuse dissent.” Kiciloff is a professor of Marxist economics from the University of Buenos Aires, whose only real-world experience has been holding several simultaneous positions in this administration, including key posts in the nationalized airline and the nationalized oil company YPF (an expropriation that he masterminded). That national airline, Aerolíneas Argentinas, lost over $2 billion in the first quarter and has not presented audited balances yet, and the energy deficit, under YPF leadership, was around $6 billion in the first semester. The initial signals from Minister Kiciloff suggest that nothing will change.
Potentially more relevant, perhaps, is the removal of the secretary of commerce (or better, “secretary of anti-commerce”), Guillermo Moreno. Moreno used to intimidate businessmen with methods that included showing a gun during meetings and threatening the release of personal information, while asking those businessmen to control prices, restrict imports and buy government bonds. His anti-inflation strategy included tampering with economic statistics, and Moreno—being the enforcer—prosecuted independent actors who published more accurate price statistics.
This Gestapo-style policymaking might be softening now, yet the central tenets of “the model,” are still part of the discourse of the president. In the words of the last finance minister of some weight, Robert Lavagna, “[President Cristina Fernandez] locks herself in her small wonderland out of touch with the real world, and thus can’t find the way out according to their mental scheme,” and “the only thing that has avoided Argentina from falling into another major crisis is a tremendously favorable international scenario with very high prices for grains and oilseed prices and the effect this has on farmers to keep increasing their crops.” The initial signals in terms of economic policy continue to be more of the same: price controls, taxes on luxury consumption (which has been stimulated by the overvalued official exchange rate), and further tinkering with the exchange rate system. The official exchange rate has increased by more than 40 percent this year and stands at 60 percent of the (more relevant) black market rate.
The most important change in the Cabinet has been the appointment of Jorge Capitanich as chief of Cabinet. That office was introduced by the constitution of 1994 with the purpose of alleviating extreme hyper-presidentialism. As it is often the case with institutional reforms on paper, it has not worked to that end, and the position has tended to be filled by second-liners subservient to the president. This time, we might be in for a change. Capitanich is the Peronist governor of the province of Chaco, and he has probably been called in to attempt to manage the transition from hard-core Kirchnerism to a new coalition of Peronist territorial bases, which is more friendly to the Kirchner crowd than the alternatives—meaning that in an eventual future government will partly include some Kirchnerists, or at least provide them with some immunity against prosecution, unlike what might happen under opposition Peronists or true opposition.
Capitanich is a typically successful Peronist governor, who was re-elected for a third term last October with 60 percent of the vote. He was granted a leave by the Provincial Legislature in a quick 26-1 vote to become chief of Cabinet. His reign has been built with the standard trick of getting generous transfers from an allied national administration. Chaco continues to be an underdeveloped province, where 60 percent of the population does not have drinkable water, and 76 percent do not have an adequate dwelling (electoral success in the Argentine provinces is more related to short-term clientelism than to long-term solutions for social ills). Moreover, a few years ago, Capitanich went through a noisy divorce in which he got a restraining order forbidding his former wife to approach their children. His wife, not considered sane enough to be with her children, is today a representative in the National Congress, where she was elected in 2009.
All his peculiarities notwithstanding, Capitanich is perhaps today the best hope for the introduction of some elements of rationality in economic policymaking. As a wishful presidential candidate for 2015, his prospects depend in part on the performance of the economy in the next two years until the presidential elections in 2015. He has some training in economics, and, given the plethora of distortions adversely affecting the performance of Argentina´s economy it doesn’t take a Nobel Prize to figure out some necessary adjustments to improve economic prospects. Whether he will be able to pursue those adjustments in spite of the political logic of the president is perhaps the key question.Authors
Were Those Cheers or Jeers? Warsaw Leaves Doubts on Support for Developing Countries to Address Climate Change
The shouting began just before 7 p.m. on what was supposed to be the last day of the COP19 (19th Conference of the Parties) negotiations inside the vast temporary metal and fabric plenary rooms constructed right on the soccer field in Warsaw, Poland’s national stadium. At first, the shouting from activists outside in the bleachers sounded like football cheers, but then they grew in volume.
Polish Environment Minister and COP19 President Marcin Korolec joked that “we are reminded that we are inside a football stadium.” Then it grew louder and more menacing: “Stop climate madness!” again and again. Delegates put on headphones to be able to hear the speakers, even though most did not need the simultaneous translation being produced by teams in seven separate soundproof cabins on a platform at the back of the room.
But then the shouting died down, and Karolec’s gaveling began in earnest. Agenda item after item was gaveled through:
“Hearing no objections, it is so decided.”
That was the easy stuff. The main text on climate finance, sweated over for two weeks by a group of delegates from nations around the world, met an objection from Nicaragua, speaking for the Group of 77 and China bloc, actually 134 developing nations representing nearly six-sevenths of the world’s population. The issue for this negotiating group was how two promises made at the contested Copenhagen negotiations in 2009 would be kept.
At Copenhagen, wealthy nations agreed to provide $30 billion over the three years (2010-2012), in an effort to provide financial assistance quickly to show their seriousness about helping the developing world. The funding was to be “balanced” between support for reducing fossil fuel use in their growing economies (mitigation), and to help them prepare for the expected increase in climate-related disasters (adaptation). This was the first promise, for so-called “Fast-start Finance,” and whether that promise was kept is sharply disputed.
The second promise was that the average of $10 billion a year over those three years would “scale up” to an amount approaching $100 billion annually by 2020. Being the first year after the “Fast-start” period meant that Warsaw was an important place to explain how we’d do that “scaling up.” Many activists called the meeting “The Finance COP,” in expectation that the topic would dominate the discussions.
In the end, that was not really to be the case. A new mechanism on “loss and damage” and a finalized agreement on avoiding deforestation were two major outcomes. Meanwhile, the “Long-term Finance” text debated for two weeks behind closed doors by the negotiating group was sharply divided.
After submissions of proposed text to the UNFCCC Secretariat, two weeks of negotiations, and a ministerial-level meeting on finance, a slim one-and-a-half page decision on a “Work Programme on Long-term Finance” was presented to the world’s nations on the last day at Warsaw. It included 13 brief numbered paragraphs, largely urging and reminding Parties to report on what they were doing on finance, to do their best and to continue their discussions.
On scaling up from $10 billion to $100 billion, just one key paragraph had any significant action, and that was modified by the weak verb, “urges.” The Work Programme states that the Conference of the Parties:
7. Urges developed country Parties to maintain continuity of mobilization of public climate finance at increasing levels from the fast-start finance period in line with their joint commitment to the goal of mobilizing $100 billion per year by 2020 from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources, in the context of meaningful mitigation actions and transparency of implementation.
Some Parties believed this wording implied a straight line from $10 billion in 2012 to $100 billion in 2020. When the text got its turn in the big final plenary session where the protestors were chanting outside the metal rooms on the soccer stadium’s field, Nicaragua spoke for the G77 and China group of developing countries in favor of specifying a mid-term target along the way, saying: “On Long-term Finance, we would like to add the text ‘with at least $70 billion by 2016.’”
Bolivia chimed in: “We are very much disappointed about the text we have in hand. This was expected to be the COP of financial and technological support. We were supposed to emerge with a roadmap to get us to 2020, instead we have unclear language.” Speaking for the 48 Least Developed Countries group, Nepal said “My group came to Warsaw with great expectations. We called for pathways on finance, pre-2020 ambition, and called for a “loss and damage” mechanism separate from adaptation. We have compromised on many issues, but there is a limit to compromise, from the most vulnerable countries in the world.”
The U.S.’s negotiator Todd Stern responded calmly that the Long-term Finance text was a significant compromise for them, and that if it was reopened, that the U.S. would bring up more issues of its own.
Later, COP President Korolec instructed negotiators to join a huddle to work out their differences on this and other core issues remaining at the end of the negotiations. Quietly, the mid-term target demand for $70 billion by 2016 disappeared entirely from the list of demands for the text, and it passed to applause in the giant hall.
“Hearing no objections, it is so decided.”
For years now we’ve heard how promises not kept erode the trust so badly needed to make these critical negotiations a success. Without mid-term targets that create urgency to get us to that substantial 2020 target, it is hard to see how trust can be built. It also makes sense that one does not arrive expecting to win a 90-minute soccer match having only trained for 10 minutes at a time. Annual mid-term targets escalating by about $11 billion a year would get the finance team into shape for 2020 and build confidence that developed countries are good for their word.
So when 2015 comes, will we hear cheering from the stands, or jeers? Delegates from China and the Philippines expressed feelings of frustration common among developing countries. The Philippines stated, “Finance is the big disappointment of this COP. We engaged sincerely in these negotiations and we received in return nothing except a very unbalanced text.” China said, “The Long-term finance text has no balance in it. We need to see a timeframe, some milestones.” The Chinese representative added: “We are not asking too much—the current text does not meet the minimum requirements of developing countries.”
Beyond some small contributions to the Adaptation Fund and for a forests initiative, Warsaw should be seen as a lost opportunity to build trust and fulfill our commitment to create predictable and adequate funding for developing countries to green as they develop, and survive the storm ahead.Authors
The day after P5+1 (the United States, Britain, France, Russia, China and Germany, along with the European Union) and Iranian negotiators reached an interim agreement regarding Iran’s nuclear program, Russian Foreign Minister Sergey Lavrov told the press that implementation of the agreement would make the planned deployment of U.S. SM-3 missile interceptors in Romania and Poland unnecessary.
Perhaps — the SM-3 deployments are to be made as part of the European phased adaptive approach (EPAA) to missile defense. But the United States and NATO would need time, considerable time, before making a decision along the lines that Mr. Lavrov suggests.
The Russian foreign minister based his remark on the fact that NATO’s primary justification for the EPAA has been the threat of Iranian ballistic missiles. Iran has ballistic missiles that can hit targets 1600 kilometers away, including Turkey. It has also tested, but not yet deployed, a ballistic missile with a range of 2200 kilometers, capable of reaching into southeastern Europe.
NATO worries in particular about Iran’s future potential to combine a nuclear warhead with a ballistic missile. Under phase 1 of the EPAA, shipboard SM-3 missile interceptors in the eastern Mediterranean Sea provide a capability to defend against current Iranian ballistic missiles. The planned deployments in Romania in 2015 (phase 2) and Poland in 2018 (phase 3) envisage more capable SM-3 interceptors, including with the ability to engage longer-range Iranian missiles.
The first and obvious response to Mr. Lavrov is that no one yet knows for certain whether the P5+1 and Iran will succeed in reaching a final settlement regarding Iran’s nuclear program. The November 24 agreement was a very positive step. It was only an interim step, however, and the negotiators still face tough issues amidst a considerable degree of mistrust.
In the end, an agreement acceptable to Tehran would almost certainly leave Iran with some uranium enrichment capacity, albeit tightly constrained and under close monitoring by the International Atomic Energy Agency. That would leave a latent nuclear weapons breakout capability. The shorter the time it would take for Iran to exercise a breakout scenario, the more likely that NATO would see missile defense as a useful hedge. The longer the time, the less necessary a missile defense capability against Iran might be.
The P5+1 dialogue with Iran does not address ballistic missiles. If, as part of a settlement of broader differences with Tehran, the Iranians were to cease developing longer-range missiles, that also could undermine the Iran argument for EPAA phases 2 and 3.
This question would only be considered at some point down the road. But if there is a significant walk-back of Iran’s nuclear program (and of its ballistic missile program), questions will naturally arise about the logic for phases 2 and 3. The fact is that, other than Iran, no state near NATO poses a ballistic missile threat to the Alliance — with the exception of Russia. But the SM-3 interceptors to be deployed in phases 2 and 3 will be capable of engaging only medium- and intermediate-range ballistic missiles, which Russia has given up under the terms of the 1987 Intermediate-Range Nuclear Forces Treaty.
To be sure, Iran might continue its ballistic missile program, arming the missiles with conventional warheads. Those, however, would be of far less concern to NATO if the Iranian nuclear program were reliably limited.
So, an Iran settlement could lead to questioning the rationale for going forward with the EPAA. After all, the phased adaptive approach from the beginning implicitly included the notion that the level of missile defense effort could be adjusted downward as well as upward, depending on the assessment of the threat. If there is no serious threat, it makes little sense for the United States and NATO to spend precious defense dollars to deploy SM-3 interceptor missiles in Europe that would have no targets. But it is not yet the slam-dunk call that Mr. Lavrov suggested.
Were Washington and NATO to consider this, they would have to weigh one very important political angle: the need to assure allies — particularly allies in Central Europe who feel more exposed — of the continuing U.S. security commitment to the Alliance.
This would be a particularly tricky question for the Obama administration. While its September 2009 decision to reconfigure missile defense in Europe to the EPAA was correct in substance, the administration terribly mismanaged the rollout, providing no real advance consultations with allies. Understandably, the allies were not amused.
The administration handled the March 2013 decision to cancel phase 4 of the EPAA better. It nevertheless left some allies wondering whether Washington was making decisions regarding their security without taking account of their views.
If developments with and in Iran create the possibility to reconsider the EPAA — still a big if — Washington would want to engage allies early in a consultative process. In that case, Poland and Romania might seek some other U.S. deployment if phases 2 and/or 3 were to be scrubbed. Neither seems to worry about an Iranian missile attack; what interests them most is the presence of the small U.S. military detachments that would deploy to their territory to operate the SM-3s.
Washington would in that case be wise to carefully consider whether and how it might replace the SM-3 deployments. Some limited U.S. conventional capabilities (and U.S. troops) could play the assurance role. They might even contribute to reducing the need that Central European allies now see for keeping U.S. non-strategic nuclear weapons in Europe.
What could the U.S. military deploy to Poland and Romania? That would have to be worked out. The Polish military is interested in Patriot air defense missiles, and the U.S. Army has deployed a training battery to Poland for exercises. That kind of capability would be small, clearly defensive and very likely of interest to both Poland and Romania. It could smooth any decision to alter the EPAA and provide visible assurance of the U.S. security commitment.
The irony is that if things played out this way, it would mean cancelling the deployment of SM-3 missile interceptors, which are too slow to engage Russian strategic ballistic missiles, and deploying in their place U.S. Patriot batteries that would put some very credible air defense capability in Central Europe. Mr. Lavrov might want to think about what he wishes for.Authors
(Version in 中文)
It’s the season for shopping. We have Cyber Monday in the United States and Singles Day in China (November 11 or 11/11). So, while we are pondering shopping, try to guess which consumer market is growing the fastest. The answer is…China!
China had the largest consumption increase in the world. This was true in 2011, true in 2012, and likely to be true again this year (see chart). Consumption in China is also generally thought to be weak. Indeed, the government and the IMF are calling for more consumer-based growth. How could consumption, in effect, be both weak and strong at the same time?
Consumption is not weak…
The chart shows the US$ increase of consumption in China and other large economies. China has been tops for the past few years (see the bars). It has also had the fastest real growth in consumption (see the dots). The US$ increase (bars) is a combination of the pace of consumption growth, size of the economy, and exchange rate. For China, exchange rate appreciation also contributes to the large measured increase in US$, as well as the negative bar for Japan this year. So whether measured in US$ terms or real growth, among major economies, China’s consumer market is the fastest growing in the world.
It is also true that consumption as a share of GDP has been declining. It has fallen by some 10 percent of GDP over the past 10 years or so. However, a big reason for the decline is that GDP has been growing fast, even faster than consumption. This is just arithmetic. In real terms, however, consumption has grown about 9 percent a year for the past decade—a fantastic outcome! This just happens to be less than the 10 percent average growth in GDP.
Two factors are behind the declining share of consumption. First, household saving has been rising. The reasons are complex, and perhaps not fully understood, but pre-cautionary motives are a popular explanation. Households are uncertain about how much health, education, and pension the government will provide, so self-insure by increasing saving. Second, household income has been growing slower than GDP. Same story as above: Household income has been growing fast, but just not as fast as GDP. These factors are each discussed further in “Sino-Spending”.
Moving to consumer-based growth
Rebalancing toward more consumer-based growth means, in short, boosting the consumption to GDP ratio. Consumer-based growth, however, is a foreign concept to macroeconomists. We tend to look at growth from the supply-side of the economy: Capital (factories) and labor (workers) are combined with technology (total factor productivity) to produce output (GDP). The consumer-based growth story, however, can also be told from the supply-side of the economy.
Expanding the service sector is a critical step for achieving more consumer-based growth. The service sector, while growing, is smaller in China in terms of output and employment than comparator economies. As the service sector takes a larger and larger share of the economy, household income (and thus consumption) will naturally rise as a share of GDP. Moreover, advances in the service sector could also lower the price for many consumer services and thereby increase sales (e.g., consumption) see IMF Working Paper.
Other reforms will also help. Strengthening the financial sector will help finance the expansion of the service sector, a part of the economy that currently has difficulty accessing credit. It will also boost household income directly, as new financial products boost investment income. Social security reform, meanwhile, could help reduce pre-cautionary saving. Moreover, payroll taxes are very high and regressive (employee plus employer social contributions often exceed 40 percent of wages). Reducing the contribution rates will help boost labor income directly through lower taxes and indirectly by boosting employment.
These are just some examples. In fact, many other reforms announced at the recent Third Plenum will also help lift the consumption ratio. Higher resource taxation, labor market reforms, and land reform could all help boost household income and lower household saving—either directly or indirectly by shifting the economy more toward services.
As reforms take hold, the end result should be a rise in the consumption to GDP ratio. It happens as a welcome by-product of moving to a more balanced and sustainable growth path, which also leads to a larger service sector, lower household saving rates, and a higher labor share of income. It also means a more inclusive (improved labor market) and environment-friendly (services are less polluting than industry) growth path.
And, since consumption will be growing faster than GDP, it will also be more consumer-based growth.
ตอนที่ผมได้รับมอบหมายให้มาทำวิดีโอเกี่ยวกับโครงการขนส่งอย่างยั่งยืนเมืองเชียงใหม่ ผมว่า คงน่าสนใจมากที่จะได้เห็น เมืองที่ใหญ่เป็นอันดับสองของประเทศมีความเปลี่ยนแปลงไปอย่างไร เพราะครั้งสุดท้ายที่ผมมาเชียงใหม่ก็เมื่อ 15 ปีก่อน ในช่วงยุคปี ค.ศ. 90 นู้น
ตอนนี้ เชียงใหม่เป็นเมืองที่มีชีวิตชีวาและเปี่ยมด้วยศักยภาพ มีเสียงบอกต่อกันมาถึงความกระตือรือร้นและความริเริ่มสร้างสรรค์ แล้วก็ยังคงรักษามรดกและอัตลักษณ์ที่เป็นเอกลักษณ์ของตนไว้
In a couple of days, I will embark upon a trip to Asia. Every time I visit Asia, I can feel that dynamism and intensity are in the air. It feels like moving forward in time. Hardly surprising as under current trends, developing Asia alone will account for half of global GDP by 2050. Back to Asia really means back to the future.
This time, I will visit three countries—Cambodia, Korea, and Myanmar. These countries represent three different chapters of the great Asian story, each in their own unique way.
Korea is a country that has propelled itself from very low income levels to one of the world’s richest economies in an astoundingly short period of time. It has a well-deserved reputation for innovation, technological brilliance and hard work. I am convinced it can stay at the leading edge, especially by making labor markets more inclusive—including for women—and making the services sector more dynamic and productive.
Cambodia is in a different but also very promising place. In true Asian fashion, it has grown strongly in recent years, and is now a frontier economy, ready to take that next step to becoming a dynamic emerging market. To keep the momentum, it needs to continue investing in the future, ensuring that all participate in the prosperity of Cambodia, and ensuring that Cambodia participates fully in the prosperity of the region—including through ASEAN integration.
Myanmar is still at an earlier stage of development. It is now on the verge of a great awakening, a great opening to the world. Well positioned in the heart of Asia, at the intersection of India and China, I am sure that its future will be bright. Right now, its priorities are threefold. First, invest in the future—infrastructure, health, education. Second, include all people in development—the poor, and women too. Third, integrate further into the broader regional economy.
In each country, in addition to government officials, I will meet students, civil society and women leaders—the people destined to inherit the Asian economy with their boundless talent and energy. I am particularly privileged to attend the Myanmar Women’s Forum in Yangon, alongside one of my personal heroes—Daw Aung San Suu Kyi.
In each country too, I will be stressing that the IMF is there to help for the long haul— to listen to them, to serve them, and partner with them as they reach out to take the inheritance that is rightfully theirs. I hope that they will see the IMF as a true and steadfast friend.
As always, I expect to leave Asia inspired and optimistic—and ready for my next visit!
Since the early 2000s, Brazil’s economy has grown at a robust clip, with growth in 2010 reaching 7.5 percent—its strongest in a quarter of a century. A key pillar of its hard-won economic success has been sound economic policies and the adoption of far-reaching social programs, which resulted in a substantial decline in poverty.
In the last couple of years Brazil’s growth slowed down. Although other emerging market economies experienced a similar slowdown, the growth outturns in Brazil were particularly disappointing. And the measures taken to stimulate the economy did not produce a sustained recovery. This is because unleashing sustained growth in Brazil requires measures geared not at stimulating domestic demand but at changing the composition of demand towards investment and at increasing productivity.
Inadequate infrastructure and imbalances in demand are hampering Brazil’s growth process. During 2011-13 private consumption in Brazil has been strongly supported by very low unemployment, broad gains in real wages (partly owing to large increases in minimum wages), and buoyant credit expansion.
But investment has been disappointingly weak. Global uncertainties played a role, especially in 2011, but the main factors behind the sluggish investment have been home-grown, including the steady loss of competitiveness.
To address this situation, the recent report on Brazil’s economy prepared by IMF staff recommends solidifying Brazil’s macroeconomic policy framework and adopting measures and reforms geared at increasing the economy’s productive potential and improving competitiveness.
The tightening of monetary conditions initiated by Brazil’s central bank in April is a step in the right direction that has helped lower inflation expectations and contain inertia.
Sustained fiscal consolidation, through adherence to a fiscal primary surplus of about 3 percent of GDP, would also be important as it would keep domestic demand in check, lower public indebtedness, and bolster a recovery in confidence and investment.
The government’s renewed focus on policies to alleviate constraints on the economy’s productive capacity, in particular infrastructure concessions to the private sector, is also welcome.
The near-term outlook
Staff projects that Brazil will grow by about 2½ percent this year and next. Although higher than the growth rate of 2012, this performance will keep Brazil below its potential growth.
Moreover, the outlook is subject to many risks. The recovery could prove more unbalanced—that is, excessively dependent on consumption—and sluggish than envisaged. The factors underlying weak investment and supply constraints may be more severe than anticipated. Or investor confidence may not be restored. If those risks materialize, the response should not be further demand stimulus. This response would exacerbate domestic demand imbalances, widen the external current account deficit, reignite inflationary pressures and weaken confidence.
There are also external risks to the outlook stemming from Brazil’s reliance on foreign savings, and its highly integrated financial markets. However, the flexible exchange rate, strong monetary policy framework and large holdings of international reserves would provide protection against those risks.
Reaching full potential
Brazil can do better. To get the Brazilian economy close to potential growth—currently estimated at about 3½ percent—the government should focus on enhancing productivity and stepping up investment, including in infrastructure.
As noted, the government’s renewed focus on policies to alleviate constraints on the economy’s productive capacity is welcome. These efforts should be complemented with an overhaul of the minimum wage indexation mechanism and reforms to keep labor costs in check and prevent further erosion in competitiveness. Lowering and simplifying taxes and improving business conditions to lower what has become known as the custo Brasil should also be part of the agenda.
Small steps toward an agreement on climate change in 2015 were made at the recent 19th Conference of Parties (COP19) talks in Warsaw, Poland over the past two weeks. The United Nations Framework Convention on Climate Change (UNFCCC) conference was extremely tense, with emotions running high after the devastation of Typhoon Haiyan in the Philippines, the frustrations over slow-moving texts and the explosive new issues on the table such as “loss and damage.” The conference went a record 38 hours overtime— finally ending on Saturday night— and was marked by fasting, staged walkouts by developing countries and environmental groups, and frenzied last minute negotiations. In the end, the conference left the door open for a new agreement in 2015, but with a lot of work to be done in the coming two years.
The intense and emotional nature of the negotiations is not unusual at this stage of the game. What was meant to be an interim negotiating session whose main role was to produce a timeline from now until the final COP in Paris where a new agreement is to be struck, turned into a battle over familiar, longstanding issues that are inextricably tied to the negotiations on an eventual treaty. Ultimately negotiators were able to achieve compromises on a series of controversial issues—evidence that there is space for agreement and that political momentum is ramping up.
Hard fought compromises were made on issues such as reducing emissions from deforestation and degradation (REDD+), and loss and damage (financial compensation for developing countries most vulnerable to the effects of climate change for damages they would incur as temperatures increase). Crucially, a timetable was put forward to guide negotiations over the coming two years, which was arguably the most important and anticipated outcome of the talks. Small steps were made on discussions of financial contributions to fill existing funding mechanisms like the Adaptation Fund and Green Climate Fund, although this is an area of the UNFCCC process that is among the most contentious and cuts across almost every single issue under negotiation. Here are some highlighted outcomes in four major negotiating areas:1. Structure and timeline of the 2015 agreement
Compromise was reached on the framework for a 2015 agreement, resulting in a new text for the Durban Platform for Enhanced Action (ADP) that will form the basis of negotiations going forward. The key portion of text reads: All nations should “initiate or intensify domestic preparations for their intended nationally determined contributions.” The hard-won language of “contributions” is intentionally vague and steps back from language sought by others that called for “commitments,” which would have implied mandatory actions as opposed to weaker voluntary actions. Additionally, it was agreed that these “contributions” should be ready by the end of the first quarter of 2015. The United States is among those advocating pledges be made by the end of the first quarter of 2015, while the European Union would like to see pledges on the table in 2014. The earlier countries are able to put forward pledges, the more likely a robust international review of these pledges can take place before the 2015 agreement is finalized.
Crucial language remaining in the text defines a 2015 agreement “in the context of adopting a protocol, another legal instrument or an agreed outcome with legal force under the Convention applicable to all Parties." This text reflects a compromise by the United States—who would prefer an agreement that covers all countries by 2020—and large developing countries led by China and India who advocate for a clear division between countries based on common but differentiated responsibilities (or CBDR, a key founding principle of the UNFCCC). This language effectively kicks the conversation on emission reduction commitments and their legal nature down the road, increasing the likelihood for discord at Lima in 2014 and Paris in 2015. This new text also eliminated suggested language calling for a "legally binding treaty under international law," for which the European Union was advocating and for which the United States would not be able to sign up. At this point, the legal nature of the agreement is still undecided, leaving it the most politically important decision facing negotiators over the next two years.
2. Financial contributions
Finance and financial contributions have been a central part of recent negotiations, with developing countries calling for financial contributions to existing funding mechanisms before they were willing to talk about post-2020 emission reduction actions. Several fragmented pledges for new money emerged from Warsaw. The U.S. pledged $25 million as part of a major new $280 million funding initiative aimed at slowing deforestation and stemming its effect on world carbon emissions. In this initiative, the U.S. joined Norway, the U.K. and the World Bank in launching the "BioCarbon Fund Initiative for Sustainable Forest Landscapes." The fund will provide incentives to developing countries that are taking steps to limit deforestation under the United Nations' REDD+ program. Norway pledged substantially more—$135 million—and the United Kingdom pledged $120 million.
Countries also promised $100 million to top up the existing Adaptation Fund, which was set up in 2008 to provide money for poorer countries to adapt to the impacts of climate change. The Adaptation Fund was given new pledges of assistance by mainly European countries: Norway pledged $2.5 million; Sweden pledged $30.2 million; Belgium pledged $1.6 million; and Germany pledged $40.7 million (or 30 million euros). Additionally, Sweden announced a $45 million commitment to the Green Climate Fund once it "becomes operational with all the necessary arrangements and standards in place," and Japan promised $16 billion to help developing countries reduce emissions over the next three years. Adding to the calendar in 2014, the U.K. announced that it will convene a “global summit” on climate finance next spring to build political momentum on financial issues.
3. Loss and damage
In addition to the existing mechanisms for delivering climate finance, such as the Green Climate Fund and the Adaptation Fund, calls have emerged recently for a new and separate process to assist poor countries after climate-linked losses (such as the aforementioned recent Typhoon Haiyan in the Philippines). This loss and damage discussion became a seriously polarizing issue in these talks, and disagreements prompted the developing country G-77 to walk out of discussions late Tuesday night. Bilateral discussions took over late in the week in an attempt to achieve compromise between key countries, and this effort resulted in a new international mechanism. The new “Warsaw International Mechanism for Loss and Damage Associated with Climate Change Impacts” does not promise compensation for damages caused by climate change impacts in developing countries, a red line for the United States and other developed countries. The mechanism places the issue under an adaptation framework for at least three years, with a review built in for 2016. This outcome represents a hard-fought compromise between the United States, Nicaragua, the Bahamas and Fiji, and was seen as a satisfactory interim outcome for both sides.
The REDD+ program covers guidelines and provisions for reducing greenhouse gas emissions from deforestation, and it has emerged as one of the major success stories out of Warsaw. Negotiators reached several goals that were set at the 2010 conference in Cancun, agreeing on key text regarding scientific and technical rules, financing and a national coordination system. Additions to the text on technical issues included decisions to enforce environmental and human rights safeguards in REDD+ projects; lay the groundwork for a system to monitor, report and verify carbon emissions reductions from standing forests; establish national forest monitoring systems; institute reference levels—or base lines—upon which a country measures efforts in reducing deforestation; and create definitions for the drivers of deforestation (text on these decisions can be found here). Negotiators also agreed to text on REDD+ finance, including a clause saying that countries must show recent proof that safeguards are respected in order to receive compensation. Additionally, the United States, Norway and the United Kingdom announced the first major pledge for REDD+ since the 2009 conference in Copenhagen, Denmark, a joint $280 million to the World Bank's BioCarbon Fund (mentioned above).
In conclusion, the Warsaw talks are best seen as the end of the first stage in a roughly three-year arc to develop a new climate agreement. In a difficult negotiation, one would not expect major breakthroughs or concessions in these early stages, nor did we see any in Warsaw. Yet plans for the coming two years were made, and, if followed, they would be an improvement in providing a more orderly discussion of commitments than has been the case in previous high-profile negotiations (such as Kyoto and Copenhagen). The loss and damage mechanism was created, but without any real substance. Provisions on REDD+ were agreed upon and should provide scope for the incorporation of forest carbon activities into national pledges. Despite these small successes, the bigger question is whether the cracks emerging between the developed and developing country parties will widen over the coming months.Authors
- Claire Langley
- Nathan Hultman
2013 has been a year of adjustment for Indonesia’s economy. In the recent edition of the Indonesia Economic Quarterly report, the flagship publication of the World Bank Indonesia office, we asked the questions: what are the drivers of this adjustment and how should policy respond?
As noted in a November 18 blog post, popular support is growing in Ukraine for integration with Europe and for an association agreement. That agreement lays out a road-map for drawing closer to the European Union and contains a free trade arrangement. On November 21, President Yanukovych’s cabinet announced that it would “suspend” preparations for signing the association agreement. While EU leaders have taken pains to make clear that the door remains open, Mr. Yanukovych appears set to miss the opportunity to sign the agreement at a November 28-29 summit with EU leaders in Vilnius. He also appears set to lose the increasingly pro-Europe Ukrainian public.
Within hours of the cabinet announcement, several thousand people gathered in Independence Square (Maidan Nezalezhnosti) in the center of Kyiv to protest the decision. Some of the protestors remained, setting the stage for a mass demonstration on Sunday, November 24, when Ukrainians turned out in force. Citizens wearing the blue and yellow of the Ukrainian and European Union flags marched in the cold holding signs that read “We are Ukrainians, we are Europeans” and “Ukraine = EU.”
In Kyiv, estimates put the number of protestors at 100,000 — making it the largest demonstration in Ukraine since hundreds of thousands took to the streets during the Orange Revolution in late 2004. In Lviv, an estimated 30,000 marched in support of integration with Europe. Since then large numbers of students in both Kyiv and Lviv have gone on strike. Protests continue in Kyiv and other cities, and many have pledged to continue until the end of the Vilnius summit.
The demonstrations undoubtedly bring back bitter memories for Mr. Yanukovych. After all, the Orange Revolution was directed against him, triggered by the overt ballot fraud that attempted to award him the presidential election over Viktor Yushchenko. The weeks-long protest resulted in a nullification of the stolen results and a new ballot — which Mr. Yushchenko won handily — in what domestic and international observers pronounced to be a free and fair process.
Indeed, Mr. Yanukovych remembers what happened. Following his 2010 election as president, this time in a free and fair election, he had changes made to Independence Square, which had served as the heart of the Orange Revolution. The installation of singing fountains and other accoutrements make it harder for the square to function well as a center of protest — harder, but not impossible.
The staying power of the demonstrators remains to be seen. The Orange Revolution taught Ukrainians that they could exercise real political power, even in the face of large-scale fraud and corruption. Unfortunately, following the revolution’s successful conclusion and the new election, President Yushchenko and Prime Minister Yulia Tymoshenko failed to effect major economic reforms and fell into a destructive personal feud, frittering away the opportunity that they had been given. The Orange government’s failure to deliver real change left Ukrainians disillusioned and cynical about politics.
That’s why the size of Sunday’s protest is notable. Also notable in many protest speeches is praise that these “EuroMaidan” protests are not connected to party politics and not led by major political party figures — though the politicians certainly are taking part. The protests appear driven by a desire for the better economic and political future that many Ukrainians feel would come with European integration. That sentiment is largely driven by youth, who make up a large segment of the protestors. As noted in the November 18 blog post, support for joining the European Union is much higher in the 18-29 age bracket than in any other.
During their childhood, Ukraine’s students witnessed the failure of politician-driven initiatives and seem to have chosen to look to ideas — in this case the European idea — for hope and inspiration. They are not willing to be charmed by politicians; as students rallied on Tuesday in Kyiv’s Shevchenko Park, opposition leader (and heavy-weight boxing champion) Vitali Klychko arrived to address them. He reportedly received “a cold shower” from the students. They chanted, “No politics,” and Mr. Klychko wished them luck and departed.
For the protests to achieve their aim, it will take more than students with luck. But the demonstrations show that, despite the democratic regression that has taken place in Ukraine over the past four years, real politics continue, and ordinary citizens have a voice. When Mr. Yanukovych travels to Vilnius for the summit with EU leaders — his office confirmed on Monday that he still plans to go — he will have one eye fixed back on what’s happening on the streets of Kyiv.Authors
- Steven Pifer
- Hannah Thoburn
The subject at the Aspen Strategy Group was “The Future of American Defense.” The speakers were Michelle Flournoy, a former under secretary of defense for policy, and Philip Zelikow, a professor of history at the University of Virginia. Not until time was running out on this otherwise interesting review of American defense policy was a question raised about the future of American policy towards China. Both speakers quickly leaped at the question, labeling it, in no uncertain terms, as the most important strategic question facing the Obama administration. Both argued that the U.S. had to engage China in the solution of global problems — make China a “stakeholder,” they said, using a word many forward-thinking diplomats have begun to apply to the U.S.-China dialogue.
Yes, these same diplomats are acutely aware of the uncertainties in the implementation of the new nuclear agreement with Iran, and they worry deeply about the Syrian civil war, which in recent months has shown a disturbing tendency to cross national boundaries. But when these diplomats and think tank experts lift their sights above the immediate horizon of problems facing the United States, they almost inevitably focus on China.
What will be the nature of U.S.-China relations 10 or 20 years from now? Will China be an ally, with whom cooperation would be the norm of the relationship? Or will China be a rival, against whom the U.S. would have to position its diplomatic and military resources?
The accumulating evidence would strongly suggest that China will become America’s chief rival in the Pacific; maybe China has already become America’s chief rival. One need look no further than recent developments in the East China Sea, where China and Japan have been arguing about which country has sovereignty over a sprawling chain of small uninhabited islands called the Senkakus in Japan and the U.S. The Chinese have another name for them — the Diaoyou islands. Why would either country argue about uninhabited islands? Because it is believed that they sit on vast natural gas reserves.
Last weekend, the Chinese astonished the U.S. and Japan, very close allies with similar views about Senkaku sovereignty, by declaring that all planes flying in this zone must get China’s permission. They must submit flight plans to Beijing. “If an aircraft doesn’t supply its flight plans,” the Chinese Ministry of National Defense announced, “China’s armed forces will adopt emergency defensive measures in response.”
Wait a minute!, was the immediate reaction in Tokyo and Washington. Defense Secretary Chuck Hagel denounced the Chinese announcement as a “destabilizing attempt to alter the status quo in the region,”…increasing “the risk of misunderstanding and miscalculations.” Japan’s Foreign Minister Fumio Kishida echoed Hagel’s statement, describing the Chinese action as “one-sided” with the potential to “trigger unpredictable events” and “cannot be allowed.”
The Chinese Foreign Ministry Spokesperson Qing Gang seized this moment fraught with unpredictable consequences to blast Japan and the U.S. He said, “Japan has no right to make irresponsible remarks” and “groundless accusations,” and the “U.S. should keep its word of not taking sides on the issue…and stop making improper remarks.”
Obviously, the U.S. felt it could not allow China to disrupt the status quo in the East China Sea, because within a few days two B-52 strategic bombers flew over the disputed islands without informing the Chinese. And the Chinese took no action. The U.S. described the overflights as “routine,” planned months before the Chinese announcement.
This is dangerous stuff. The Chinese only recently concluded an important meeting of their top leaders. Is their announcement concerning flights over the East China Sea a signal of a new tough policy? What will happen if the Japanese decide to test the Chinese warning?
President Obama clearly wants to accent diplomacy and lean no longer on military action, which seemed to be American policy in the last decade. That seems to be the message of his recent decisions with respect to Syria’s chemical weapons and Iran’s nuclear program. But, China casts a huge shadow over his strategic deliberations, raising questions about whether his preference for diplomacy can work in Asia, specifically in the East China Sea.Authors