Jul 25 2014

A New Development Bank, An Old Dream Coming True

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By Kamila Pieczara, Doctoral Student at The University of Warwick.

 

Development BankAt the recent summit of major emerging economies called the BRICS (B for Brazil, R for Russia, I for India, C for China, and S for South Africa), they announced the establishment of a new development bank and fund, in order to have an alternative to the old-order World Bank and the IMF (International Monetary Fund). These institutions have served the world’s financing needs, especially in the areas of development and crisis management, since post-war times.

The BRIC countries are known by this acronym thanks to Jim O’Neill of Goldman Sachs, who coined it in November 2001. Originally, it was BRIC, not BRICS – and did not include South Africa.

For a longer while, however, the Western financial institutions were deemed inadequate from the perspective of the rising economies. The problem is that these institutions are by all means “Western”. The IMF and the World Bank, “sister” organizations, were established as parts of the Bretton Woods system after the Second World War, and are both located in Washington DC. The custom has been that a European heads the IMF (now it is Christine Lagarde, ), while an American heads the World Bank (now it is Jim Yong Kim, originally from South Korea). This “tradition” has never been broken. It is indeed a paradox at a time when non-Western economies such as India or China play an ever increasing role not only in the world economy, but in diplomacy and military affairs as well. These countries have complained of their not increasing voting rights. There were changes, most notably in 2010, when China’s voting power in the World Bank was increased so that it overtook the voting power of some of the European countries. But the move to establish new financial institutions suggests that appetites of the BRICS have grown even further.

From many perspectives, it was long overdue for these countries to demand a greater say in world affairs. While they might not find it easy to fight some entrenched ideas, such as who are the presidents of the Bretton Woods institutions, these emerging economies have cash in abundance. They are able, therefore, to go beyond critique of the old order and move to the point where they can call the shots.

This is the story of the New Development Bank (NDB). Its establishment was announced by Brazil’s President Dilma Rosseff at the BRICS summit in Fortaleza in Brazil on 15 July 2014. The new development bank and the reserve fund will have capital of $100 billion. The bank will be located in Shanghai, China, and its first president will be from India. In the official statement, the reasons for establishing the bank are said to be connected to financing deficient infrastructure, so in principle complementing the activities of the World Bank and the IMF. If we had no possibility to recall the criticism that emerging countries of the East and of Latin America had towards global financial institutions, then we may well accept this logic. But the truth is that for a very long time countries such as China have complained that these existing institutions did not reflect their rising share in the global economy.

From this point of view, it is natural that a group of emerging economies has decided to launch its own financial institutions. Yet, the meaning of this step is that things have changed in the emerging world: it stopped to focus on criticism of the Western predominance in world affairs, and moved towards creating a new order.

True, there is the Asian Development Bank (ADB), established in the 1960s. It is located in the Philippines (a developing country), but its president has always been a national of Japan. From the perspective of the BRICS group, Japan is a developed economy and in a sense it is thus part of the Western governance. The New Development Bank, then, highlights the importance of China, with the location of its headquarters in Shanghai. It also opens the possibility for nationals of the BRICS to head the bank, without restrictions posed by the World Bank, the IMF, and even the Asian Development Bank.

From this perspective, the initiative of the NDB and the emergency reserve fund is a big success of the emerging economies. For the first time, they did not limit themselves to critique, but came with tangible results. In the not-so-distant past, such bold steps would have been unthinkable. This is a signal of a growing independence of the emerging world, represented by its most vibrant members, the BRICS. This is a signal of a growing independence of the emerging world, represented by its most vibrant members, the BRICS. An old dream of influencing the world of global finance has come true for the BRICS. It is hard to say at this point whether the practical significance of the BRICS bank will live up to the expectations. In any case, the NDB has become a symbol of the emerging economies’ action towards re-negotiating the pillars of the financial world order.

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Jun 26 2014

In Singapore, the Shangri-La Dialogue reflected tensions in Asian security

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By Kamila Pieczara, PhD student in Politics and International Studies (PaIS), Warwick University

 

2002 was a year of crisis between Pakistan and India, which almost resulted in war.[1]

140530-M-EV637-359This was also the year of the first Asia Security Summit, convened in Singapore by the London head-quartered International Institute for Strategic Studies (IISS): the Shangri-La Dialogue. The IISS chief executive Dr John Chipman informed the audience in that year’s Dialogue about the connection between the Indo-Pakistani conflict and the summit’s mitigating role, showing that summit diplomacy can mean more than simply words to be forgotten. Apart from the role of the Shangri-La Dialogue in appeasing the Indo-Pakistani conflict, another example he quoted was of the IISS’s Middle East Manama Dialogue 2013, where Chuck Hagel promised to foster links with the Gulf Cooperation Council countries, and followed up on that task in 2014.

A specific dialogue at the Shangri-La emerged between the Chinese People’s Liberation Army General Wang Guanzhong and the U.S. Secretary of Defence Chuck Hagel, and between the Chinese representative and Japan’s Prime Minister Shinzo Abe. China took note of the indirect messages aimed at it in Shinzo Abe’s speech at Shangri-La, which approved of the ‘rule of law at sea’, and of the direct messages in Hagel’s statement: that the United States will “not look the other way” in response to China’s “unilateral” actions. Furthermore, General Wang noted that Japan, in Shinzo Abe’s speech, went against the “spirit” of the Dialogue, by indirectly criticizing China. Wang’s responses came in his speech on Sunday, 1st June, while Abe’s speech took place on Friday (30th May) , and Hagel spoke on Saturday (31st May).

While many reports focus on the interaction of Gen. Wang with Prime Minister Abe and Chuck Hagel, it would be unbalanced to portray three intensive days as containing only one dominant theme. Notable was also the French defense minister, Jean-Yves Le Drian’s speech, in which he drew lessons from the French engagement in Africa for their possible application in the Asia-Pacific region. Of further note was also the discussion on crisis management in the region, with reference to the missing plane of Malaysian airlines (MH 370). Another Asia-Pacific power to participate was Russia, represented by the deputy defence minister, Anatoly Antonov, who curiously fell short of including Ukraine in his prepared remarks, and chose to elaborate on the so-called “colour revolutions” of the Middle East and North Africa.

What could we have expected from this year’s Summit? It would be refreshing if China took home the message that some rationale underpins the generally critical reception of its actions, and a mixed reception of Gen. Wang’s speech, which was followed by a multitude of remarks from the audience. If China instead perseveres on the course of collision, on which it is now, then its Shangri-La speech will be a true reflection of its actual position.

China is now in a serious spat over the Senkaku Islands (in Japanese)/ Diaoyu (in Chinese), and is also in conflict with Vietnam. China placed an oil rig recently in disputed waters. That other Asian countries, especially in Southeast Asia, seem to welcome Abe’s promise of Japan’s increased participation in dealing with those security issues should come as no surprise. Why is China surprised by such a course of events? What would China expect of Japan: to completely withdraw from voicing its position on regional affairs? That is unrealistic. Japan will certainly not guard other states’ interests, if this is what China fears. Instead, a more intensive Japanese participation will lead to more balance, which is needed for smaller countries that cannot shape events on their own. Of course, China’s position is to some extent understandable. If it acted according to international law, as it stands, it is likely to lose its claims. This was rightly observed by Singapore’s Defence Minister, Dr Ng Eng Hen, in his closing address at Shangri-La on the 1st June.

It would be over-optimistic to expect that a summit could change the course of events. This year’s Shangri-La Dialogue was a rather faithful portray of tensions which haunt the region, and added to these were the many divisions that have spread throughout maritime Asia. While the Shangri-La Dialogue witnessed many reproaches of major nations vis-à-vis one another’s behaviour, it is indisputable that these open statements served transparency and an exchange of information, rather than the escalation of conflict. Next year, and in the years to come in Singapore, it should be possible to say whether the interaction of Asian powers, ASEAN members, and external actors, led to any betterment in Asian disputes and tensions overall.

As the opening dinner and Abe’s speech at the 13th Shangri-La Dialogue was attended by Lee Kuan Yew, Singapore’s first prime minister, the long history of Singapore’s place at the heart of Asian diplomacy became clear. Many tensions will persist, but efforts such as this security summit bring some peace to the troubled region.

 

[1]                       Andrew C. Winner and Toshi Yoshihara, ‘India and Pakistan at the Edge,’ Survival, 2002, 44 (3).

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May 27 2014

BJP Victory: Leadership Cult or Institutional Change?

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By Dr Manali Desai, Lecturer in Sociology at the University of Cambridge.

 

BJP Leader Narendra Modi Campaigns In GujaratThe BJP’s resounding victory in the 2014 elections is undoubtedly the start of a new era in Indian politics. It will reverberate regionally within South Asia, as well as globally with international investors and governments keen to enter the Indian market. In retrospect we might see the Congress victories of 2004 and 2009, significant as they were, as merely an aberration in the longer march of the BJP since the 1980s. Rising from the margins with a base among traders and small business, the BJP with its superior organizational skills and energetic cadre gradually extended the party’s reach not only among the urban middle classes but to farmers, tribal communities, and sections of the working poor. Its mantra has always been anti-corruption, but the particularly strident pro-business and Hindu nationalist combination has had massive appeal in the country’s majority Hindu population, and is unlikely to fade in the near future. Even a section of Muslim voters, not least in the state of Gujarat where a pogrom in 2002 killed nearly 2,000 people[1], have expressed a willingness to vote for the BJP. With others the pogrom barely registered as a concern. The BJP has steadily and astutely adjusted its Hindu nationalist appeal to fall in line with a global market orientation, modernizing its image, and trumping the Congress as a party of youth, aspiration and forward thinking.  Although analysts have rushed to draw comparisons between Narendra Modi and Obama, Lee Kuan Yew or Thatcher, a better comparison may well be Tayyip Recep Erdogan of Turkey whose Islamist neoliberalism has resonated with the lower middle classes in urban and rural areas. Indeed, among the bitter ironies the Congress Party will be contemplating in the lonely days ahead is that the party that initiated market reforms in 1991 is now seen as having failed the markets. The party leadership has been overall pro-business, although sections of the party under Sonia Gandhi supported ‘social democratic’ policies such as rural employment guarantees, free school meals, health care and education for the poor.  It is a second bitter irony, then, that these well-intended reforms should have brought the party little success. The 2014 election is indeed the worst ever defeat for the Congress Party, and may well beckon the end of the Gandhi dynasty. The mix of frustration, rage, and growing aspiration among its largely youthful population, where unemployment stands at record high, has propelled a somewhat anticipated anti-incumbent spirit into a powerful message to India’s leaders.

This heady mix could produce a dangerous and volatile polity when reality confronts inflated promise. As the Head of Emerging Markets for Morgan Stanley argues, the performance of the Indian economy has been closely tied to the global economy rather than to which party is in power[2]. In other words it makes little difference to the economy whether Congress or BJP rule. The real question we should be asking is what kind of party can harness a developmentalist momentum similar to Korea or Taiwan, prioritizing a medium and long term policy horizon rather than merely immediate political interests. Although many economists and media experts have counter-posed market growth to social development, in reality the experiences of Korea and Taiwan suggest that massive investments in education, health, and relative equality of rural assets (land reforms) are vital underpinnings for a high growth economy. At present neither has Modi’s state government in Gujarat, nor have the two Congress national governments (2004 and 2009) succeeded in arresting the pitiful condition of education, health, land inequality, environmental degradation, and gender inequalities that plague India. Although Gujarat boasts superior infrastructure, ease of doing business and a hospitable environment for investment compared with the national average, it is hardly unique. States such as Tamil Nadu, for instance, easily match this record; moreover, Tamil Nadu has a strong pro-welfare public policy regime which has eluded successive governments in Gujarat. Health indicators for women and children in Gujarat, for instance, are incredibly poor –  44.6% of children below the age of five suffer from malnutrition, while nearly 70% of children suffer from anaemia[3]. To create a judicious and mutually reinforcing relationship between growth and development (one that raises the overall levels of freedoms and capabilities as the economist Amartya Sen argued), requires a deeper level of institutional change than a mere change of party.  There are many mechanisms and laws, most significantly the Right to Information Act (2005) which empowers ordinary citizens to hold officials accountable for implementing the range of programs that exist on the books. This requires an active and procedurally just functioning of democracy.

The future seems wide open, not unlike at the moment of Obama’s victory. But some directions seem more likely than others, based on the BJP’s former tenures in power at the national level (1999-2004) and state level. First, undoubtedly its majority in parliament will give the BJP a mandate to proceed with market reforms at full steam. Among these will be the much anticipated labour reforms – India’s labour laws are likely to be liberalized further, but to do so will mean confronting the large public sector unions who have successfully opposed major labour reforms until now.  Given his close corporate links, Modi is unlikely to challenge the ‘race to the bottom’ model of global capitalism – Gujarat is the archetypal model of low-wage, informal sector driven growth where industrial and agricultural workers have few rights, and union representation and advocacy is among the lowest in the country. Second, less controversially, much needed investments in infrastructure such as power, transport, railways will be prioritized and bottlenecks removed. This will be a major boost for international investors, and is likely to create jobs in some areas.  Whether the quality and quantity of jobs will be enough to satisfy young voters is impossible to predict; the cost of failure, however, is potentially tremendous. Third, beyond the economy this decisive victory will undoubtedly embolden the BJP’s voluntary and activist arm. With a history of extreme intolerance, they are likely assert a Hindu cultural agenda in education[4], and attempt the police venues of artistic expression, as the recent controversy and withdrawal of Wendy’ Doniger’s book The Hindus suggests.  Fourth, Modi is likely to take a firm stance on internal and national security; among other issues including terrorism, he is likely strengthen his predecessor’s tough approach  to the Maoist guerrilla warfare raging in parts of eastern and southern India with major implications for the security and livelihoods of poor tribal communities in these regions. Finally, the election campaign with the rise of social media, holograms and other means of dissemination suggests that we are seeing the start of a new politics of personality cult which will change how democracy and dissent are accommodated in India. There is much to anticipate, and perhaps much more to be concerned about.


[1] Jaffrelot, Christophe (July 2003). “Communal Riots in Gujarat: The State at Risk?” Heidelberg Papers in South Asian and Comparative Politics: 16.

[2] http://timesofindia.indiatimes.com/home/opinion/edit-page/Indias-unreal-election-debate/articleshow/33192451.cms?

[3] http://www.iamrindia.gov.in/ihdr_book.pdf

[4] http://www.hindustantimes.com/india-news/newdelhi/history-books-might-change-again-bjp/article1-1081239.aspx

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