Brookings: Topics - BRICs

Inequality and Inclusive Growth in Africa: A Conversation with South African Finance Minister Pravin Gordhan

Wed, 17 Apr 2013 16:00:00 -0400

Event Information

April 17, 2013
4:00 PM - 5:30 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

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Africa is the world’s second-fastest growing region, and South Africa is the continent’s economic leader. The country recently hosted the BRICS Summit and has been working hard to promote growth and encourage investment. Yet inequality has been a persistent challenge. As the economies of South Africa and the African continent continue to expand, governments in the region must ensure that such growth follows a sustainable model that creates wage-paying jobs and lifts citizens out of poverty.

On April 17, the Africa Growth Initiative at Brookings hosted a conversation with the Honorable Pravin Gordhan, minister of finance for the Republic of South Africa, on inequality and inclusive growth in South Africa and the African continent. Minister Gordhan’s remarks were followed by a panel discussion with Brookings Senior Fellow Homi Kharas, deputy director of Global Economy and Development. Brookings Vice President Kemal Derviş, director of Global Economy and Development, moderated the discussion.

You can join the conversation on Twitter using #Africagrowth.

Democracy, Human Rights and the Emerging Global Order

Ted Piccone — Wed, 10 Apr 2013 15:12:00 -0400

The Brookings Institution’s Managing Global Order project convened a two-day workshop to discuss emerging trends in international support for democracy and human rights and the increasingly complex drivers shaping foreign policies. Bringing together policy makers and experts from emerging and established democratic powers at Greentree, the workshop identified areas of convergence and divergence in foreign policy priorities, methods, and discourse, and extrapolated implications for the evolving global order.

On the first day, participants explored the concepts of democracy and human rights and their promotion within the context of competing national interests. On the second day, the focus shifted to international cooperation on issues of democracy and human rights, especially as seen through the lens of the Arab uprisings and the Responsibility to Protect (R2P), and the politics that guide the foreign policies of democracies. The discussions, which were held on the basis of the Chatham House rule of non-attribution to specific speakers, are summarized here.

The conversation was predicated on a working definition of democracy as a liberal, representative political system as articulated in various international instruments like the Warsaw Declaration of the Community of Democracies, UN General Assembly Resolution 56/96 of 2001, and the Inter-American Democratic Charter. While recognizing that it takes different forms in different contexts, democracy in this sense reflects such core principles as the separation of powers with checks and balances, civil and political rights, freedom of the press, universal suffrage in free and fair elections, and civilian control of the military. Although participants disagreed to what extent social and economic rights should be emphasized in the expression of democracy, they agreed that all human rights as defined in the Universal Declaration of Human Rights are interdependent and mutually reinforcing and deserve protection.

Global Governance

In an era when the gap between the demand for and the supply of global governance is growing, it is increasingly urgent that established and emerging democracies find common ground on norms and delivery of global public goods, especially on democracy and human rights issues. There is cause for optimism: Rising democracies like India, Brazil, South Africa, Indonesia, and Turkey are embracing democracy and human rights at home and to varying degrees promoting them in their neighborhoods. But they are not yet stepping up to address the gap on these and other issues in global governance internationally.

Simultaneously, the rules-based system under which international relations take place is in flux, providing an opportunity to reshape and redirect the global order. Emerging powers emphasize the importance of democratization both domestically, where they are grappling with their own internal processes of reform, and multilaterally, where they question whether actions of established powers are commensurate with their principles, argue for universal application of rules and norms, and insist on a greater voice at the decision-making table. They have the opportunity to shape the future of global governance as leaders and are proving themselves important players in global affairs, but this shift has been more marked at the level of regions and neighborhoods. The results of multipolarity in the global sphere have been more ambiguous and it remains to be seen whether the liberal world order persists or a new framework emerges with rising powers at the helm of a more elastic set of norms. While it appears certain that human rights will remain a durable legacy of the era of Western hegemony, the cause of enlarging democracy stands on less solid footing.

The Democracy Advantage and its Place in Defining National Interests

In the modern era, peace generally reigns amongst democracies. Democracies also perform better than non-democracies at economic development, and democracy, economic development, and regional integration work hand-in-hand to promote peace and stability. Non-democracies are more likely to be failed states spawning internal or external conflict. It would be expected, therefore, that democracies would identify the spread of democracy as in their national interests and would partner on certain issues, such as support for democratic transitions, human rights and rule of law. A state’s designation as a democracy or non-democracy, however, is not necessarily a good predictor of foreign policy alignment. While there is strong convergence on the fundamental principles of human rights, emerging and established democracies favor very different methodologies for addressing threats to such core values, resulting in divergence of policy, politicization and stalemate, as in the case of Syria.

There was consensus that democracy cannot be imposed by external actors, but rather must be pursued organically by a population. It is a path, not a destination. Similarly, countries formulate and express democracy differently based on their unique histories; there is no single model of democracy. Aspiring democratic countries seeking advice from other democracies are increasingly turning to states that have undertaken their own transitions more recently, and they, in turn, are responding positively if and when asked to assist. In fact, the “twinning” model of pairing newer democracies with transitioning states is being prototyped by the Community of Democracies through its project pairing Poland with Moldova, and Slovakia with Tunisia. The G8 has arranged similar pairings through the Deauville Partnership with Arab Countries in Transition, which links leaders in aspiring democracies with G8 partners to build institutional capacity, promote knowledge sharing, and strengthen accountability and good-governance practices. In addition, rising democracies like Indonesia and South Africa have been key players in establishing and utilizing multilateral fora like the Bali Democracy Forum and the African Peer Review mechanism to share experiences and best practices in this domain.

Although participants agreed that democracy must be demand driven, disagreement emerged regarding the universality of democracy promotion. Some felt strongly that countries on the path of democracy have a responsibility to assist those who seek the same path. Others noted the negative connotations associated with democracy promotion and its perceived application as a post-hoc, faux justification for military intervention aimed at regime change, as with U.S. involvement in Iraq. Some also pointed to its selective application, especially when energy security interests take precedence over influencing, punishing, or removing repressive regimes, as with U.S. passivity in Bahrain and Saudi Arabia.

Some in the global South interpret democracy promotion as a U.S. agenda rather than a universal aspiration and wish to construct a unique brand of support for democracy in contrast to the U.S. and E.U. model. Rising democracies seek their own identity (also referred to as strategic autonomy) in an effort to avoid being seen as tools of more established powers. In one respect, this attitude has prompted emerging powers to act timidly with regards to democracy promotion, hiding behind the fig leaves of sovereignty and non-intervention when asked by the international community to act outside their neighborhoods.

Nonetheless, such powers have actively promoted democracy in their regions through both bilateral and multilateral mechanisms. Indonesia, for example, was a key player in leveraging ASEAN to encourage Myanmar to undertake political change and in drafting the first ever ASEAN Declaration of Human Rights. However, emerging powers have been as complacent as established powers in indirectly suppressing democracy when other national interests take precedence, as with India’s less than decisive response to the political crisis in the Maldives, or Brazil’s uncritical support for Cuba. In response to the Arab Spring, rising democracies are for the first time being expected to grapple with the notion of democracy promotion beyond their own regions, an expectation many find difficult to fulfill. The prevalence of extremist ideologies and xenophobia, the increased threat of the tyranny of the majority, and the free and fair election of leaders the international community may dislike all posed significant red flags for emerging (and established) democracies and reinforced their reticence regarding democracy promotion. Other national interests like trade relations, energy dependence, migration and diaspora population concerns present roadblocks to greater international engagement on this issue.

The emergence of other domestic political and economic actors with their own interests and values plays an important role in shaping national interests, especially in emerging democratic powers. Some disagreement concerned which actors had the most influence over the definition of national interests. In Brazil, for example, the private sector may be notably more influential than other domestic players, which complicates a truly national definition of priorities. Parliament plays an uneven and unpredictable role in formulating foreign policy, although legislators in emerging powers have begun taking greater interest. For example, Brazilian congressmen and senators recently joined a coalition with NGOs to hold the foreign minister accountable on human rights issues. While recognizing the important role legislators can play in inserting human rights into foreign policy, some acknowledged that their contribution could also be a mixed blessing due to nationalist, religious or ethnic political motivations.

Much conversation also involved the balancing of interests that sometimes conflict with human rights, such as national security and the economy. Some argued that human rights and democracy support must be managed in a way that does not jeopardize other national interests or relations with key trading partners like China. In this respect, constant calibration between interests and values is vital. Rising democracies will continue to define their own pace of democratization at home and support for democracy and human rights abroad, leading many observers to predict a continued period of inertia and inaction in responding to or preventing democratic breakdowns or mass human rights violations. The international community is thus tasked to advance a mutually respectful collaborative approach that appeals to both emerging and established powers and that achieves results. To successfully reach such a compromise, it must identify approaches the global South feels comfortable employing and develop strategies to bring those tools to bear in new and challenging contexts.

The Arab Uprisings and the Responsibility to Protect

Although the Responsibility to Protect (R2P) is embraced as within democratic principles, its primary purpose is not democracy promotion. R2P’s mission is atrocity prevention, though it is difficult to operationalize the concept. The application of R2P in Libya through military intervention authorized by the UN Security Council and the subsequent failure to exercise it in Syria as of yet has revealed many challenges inherent in current understandings of R2P. It also provided an important venue for conversation between established and emerging powers about humanitarian intervention. It is clear that a fundamental shift has taken place regarding humanitarian intervention and that more and more states embrace the broad values expressed by R2P. For example, most of the 118 states that mentioned Syria at the UN General Assembly in 2012 expressed concern about the population, up from less than a third who invoked Kosovo and East Timor in 1999. In addition, the IBSA Dialogue Forum sent a delegation to Syria, as did Turkey, a new rallying of emerging powers to address threats to human rights both inside and outside their own neighborhoods. This level of attention and the unprecedented advocacy of a policy of intervention by rising powers can be attributed at least in part to the improved quality of democracy in the rising democracies.

With the support of emerging powers like South Africa, UN Security Council Resolution 1973 authorized the use of force in Libya, but elicited rancor from some parties when it resulted in the overthrow of Moammar Gaddafi. Suspicions were voiced that Resolution 1973 had acted as cover for regime change, and because it was couched in the language of R2P, states began questioning the concept. In response to this breakdown in consensus, Brazil proposed the Responsibility While Protecting (RWP) principle, which emphasized the sequencing of measures to ensure all options were exhausted before using force, and called for greater accountability and reporting to the Security Council. Participants disagreed as to whether RWP served as a useful basis for conversation between the North and South, or if it represented a counterproductive Brazilian political move that merely inflamed rhetoric. Some of the good will engendered by RWP has begun to disintegrate as the situation in Syria continues to fester with no coordinated international response.

Admittedly, Libya and Syria are very different countries, especially in terms of the roles they play in the strategic interests of key actors. Nevertheless, the application of R2P in Libya but not in Syria highlights the phenomenon of selectivity, a topic of debate throughout the workshop. Participants agreed that crisis situations should be examined on a case-by-case basis, but at the same time many reinforced the global responsibility to support all states that are unable to adequately prevent mass atrocities. Some suggested that selectivity is the principled application of R2P but called for transparency in decision making to better understand a state’s motivations for supporting or denouncing intervention as an option. Others argued that universalizing the concept to make responsibility an obligation at all times in all cases is a fundamental challenge that the international community should pursue. At the very least, discourse must recognize that all states engage in some form of selectivity in order to advance the conversation.

It was pointed out that international responses to the Arab uprisings have been uneven not only in atrocity prevention but also democracy support. Emerging powers hesitate to lend support to the application of R2P in Syria lest it be used as a mask for regime change, as some perceive to have been in the case in Libya. However, established and emerging powers alike have not exercised leadership in universally supporting calls for democracy in countries of the Middle East because of overarching security concerns like energy and relations with Israel. And although emerging and established powers share an interest in energy security, they still differ on methodologies; a country may have leverage in a situation short of intervening militarily which might result in strategies that are most cost effective in money and lives. For example, South Africa resisted intervening militarily in Zimbabwe in response to democracy and human rights crises, despite international calls to do so, but was able, in their view, to improve elections there through alternative means. Likewise, it refused to intervene militarily in Sudan, instead employing a triangulation strategy that led to secession. Similarly, Turkey initially prioritized dialogue and consultation with the Assad regime, relying on the relationship it had cultivated with Syria over the last ten years to exhaust all potential peaceful solutions. IBSA also sent a high-level diplomatic mission to Syria to try to negotiate a peaceful solution to the conflict and thereby ward off military intervention.

The Arab uprisings have fundamentally challenged the Western idea of the separation of church and state, and Arab democracy demands a redefinition of secularism that allows religious values, but not rules and regulations, to take root in society. Discussants will continue to have to confront this new reality as the conversation continues regarding democratization in the Arab world.

Current understandings of preventive diplomacy tools like R2P – especially how they relate to and affect emerging democracies – must be improved. The discussion prompted by the Brazilian proposal of RWP highlights the need for further conversation or clarification about R2P as a tool. There is still fear that R2P provides a blank check to pursue national interests rather than prevent atrocities. Therefore, a refocusing on R2P’s purpose and intentions is needed, and may reduce objections to its proper application. In addition, a multilateral coalition must be built and maintained to address mass atrocities such as in Syria. This requires ongoing messaging with all partners and the public to maintain support and communicate expectations and mission objectives.

Tools for International Cooperation on Democracy and Human Rights

Recent events show a clear incapacity of international mechanisms to effectively address major threats to democracy and human rights. While established democracies are quicker to pursue coercive tactics and emerging democracies strongly prefer dialogue and reconciliation, a variety of tools are available and being tested on the world stage. Indonesia seeks to make democracy and human rights foundational concerns at existing institutions like ASEAN, its new Commission on Human Rights (AICHR), and the G20. Indonesia’s leadership in the adoption of the ASEAN Declaration of Human Rights and the establishment of the Bali Democracy Forum underscore this commitment. The Community of Democracies creates issue-based working groups to involve government and civil society and maximizes technology through the LEND network, connecting key leaders in transitioning countries with those in transitioned countries.

Another key tool touted by many participants is reliance on regional bodies as antenna in noting potential problems and as early movers in response to crises. The AU and SADC both have provisions to suspend any country that experiences an unconstitutional interruption, ECOWAS recently suspended Mali’s membership in response to a coup, and UNASUR recently exercised a similar provision against Paraguay. These and other multilateral mechanisms are critical because they reflect regional ownership without the presence of Northern powers and because such a coalition is less likely than a single nation to create further problems or receive pushback from local actors.

Participants discussed in depth the merits of democracy-inclusive forums and democracy-exclusive forums for discussion of important transnational issues. For example, the Community of Democracies reformed its invitation and governing council selection process in 2010 to ensure leadership consists of staunchly committed democracies while expanding participation at ministerial meetings to include countries at incipient stages of democracy. The Bali Democracy Forum, however, invites a broader base of participants, including China and Vietnam, in an effort to establish a conversation with more parties. While it was agreed that both style of forums are necessary and beneficial, participants lacked consensus as to when democracies should and should not include others in policy conversations.

Most participants with a global South view asserted that for any country to retain credibility in international cooperation on human rights and democracy, a strong human rights record at home is a vital requisite. Otherwise, the rules-based system that governs behavior is weakened by the perception that great powers write the rules but are not necessarily committed to following them. In this respect, emerging powers emphasize the importance of addressing human rights challenges domestically. For example, Brazil recently established a truth commission to investigate human rights abuses under the military dictatorship and passed a freedom of information law to increase transparency. It has also engaged in international efforts to combat violence against women and encourage open government initiatives, key concerns within Brazil and essential to advancing its own democracy. No consensus was reached on the means by which accountability can be increased on the global level, although the need was clearly articulated. Emerging democratic powers are increasingly held to account by vibrant civil society organizations and media that feature voices from victims of violations and question government’s actions abroad. Decision makers have noted this democratization of foreign policy and it continues to shape their processes and actions.

Words of caution tend to outweigh prescriptive solutions in discussing tools for international cooperation. According to some participants, limiting discussions on transnational issues to an exclusive club of democracies is a false dichotomy that discourse must move past. Engaging with imperfect democracies (like Venezuela and Bolivia) is crucial to encourage their continued development on the path of democracy. The regional dimension of democracy and human rights support should also be strengthened so that neighbors hold each other accountable for advancing democratic practices. Trade and regional economic integration can also be considered as a potentially effective tool for promoting values. States should also leverage their private sectors, which engage in new and different ways with civil society when investigating potential investment opportunities abroad, to take advantage of new avenues for dialogue. In addition, they should encourage business leaders to prioritize their obligations to protect human rights and sustainable development. Finally, the international community must better coordinate its efforts to avoid overwhelming target populations, as has occurred with countries rushing to Tunisia’s aid in its transition. It must also ensure that such aid is voluntary and in no way coercive.

The Politics of Foreign Policy in Democracies: The Human Rights Dimension

In the last session, participants articulated the tactics that facilitate action at the global level and the factors preventing further progress, with suggestions for improvement. Agreements at the UN Human Rights Council and other similar international fora are often reached by isolating extremists and working effectively with the middle. Diplomats are also successful when they can effectively navigate their governments in capital to alter a country’s position on an issue. Therefore, personalities of the diplomats at the UN, the Human Rights Council, and other relevant bodies can play important roles in shaping the course of negotiations. Similarly, personal priorities of government leaders can influence how much importance is placed on human rights. U.S. Secretary of State Clinton has prioritized women’s human rights and LGBT human rights, but Dilma Rousseff, President of Brazil, is a technocrat who prioritizes economic growth and social protections. The foreign policies of the countries reflect these priorities.

Many factors, including the realpolitik interests of emerging powers, resource constraints, political dynamics, personalities and what is politically and procedurally possible at international bodies all combine to explain why more action is not taken on human rights issues at the global level. For example, to highlight the importance of human rights in foreign policy, one European expert shared that the human rights section of the foreign ministry receives the highest number of parliamentary questions on foreign policy, while about half of the daily statements from the ministry spokesperson pertain to human rights. However, budget constraints and the current state of the economy prevent more robust action at this time. Another participant from an established democracy shared that internal bureaucratic politics limited the policy options available to diplomats which slowed action at the Human Rights Council and limited that country’s opportunities to lead. Conversely, domestic politics forced India to change its vote at the Human Rights Council regarding a resolution calling on Sri Lanka to address human rights abuses. India had long resisted such resolutions, but thanks to overt pressure from a coalition partner, it became more active. This represents an unusual but important example of domestic politics prompting rather than impeding action on human rights at the international level.

Emerging democracies face major challenges in addressing their own human rights deficits at home. They largely lack a domestic constituency for a more human rights-oriented foreign policy, meaning the few NGOs advocating for these issues have a small pool of support on which to draw. As a result, economic growth and private interests are usually prioritized over accountability. In Brazil, much of civil society has not been actively engaged on these issues, and in Indonesia, the discussion has traditionally been dominated by think tanks. This has begun to shift and influence on foreign policy has begun to diversify, but in many of the emerging powers this change is still in the nascent phases. In some cases, emerging democracies still struggle to maintain a high-quality representative system. The process of decentralization in Indonesia has led to a growing oligarchy which threatens the protection of minority rights – especially religious minorities but also women. Turkey has experienced serious backsliding regarding freedom of the press while continuing to wrestle with its own minority rights challenges. Overall, civil society engagement on foreign policy in emerging democracies has been limited but is improving. Attention should be paid to framing the discussion on a case-by-case basis to bring these issues into the public consciousness in the relevant countries.

Despite these challenges, most participants agreed that civil society and NGOs have an enormous role to play in shaping foreign policy regarding human rights. When governments refuse to act on important issues, civil society can apply pressure to prompt action. For example, when South Africa hesitated to broach LGBT rights at the Human Rights Council, South African civil society held the government accountable by bringing public attention to the prioritization of human rights codified in the 1994 constitution. This shamed South Africa into leading on this issue. However, many participants asserted that civil society and NGOs must be more creative in approaching governments. While the foreign ministry is often the lead on foreign policy regarding human rights, many other ministries have equity in these crosscutting issues and shape (or block) the debate. Civil society and NGOs should approach other ministries – ministries concerned with the economy, education, and security, for example – to apply pressure and enact change. In addition, they can call upon leaders in the executive branch with a personal interest in democracy and human rights matters to apply pressure. For example, in Brazil, NGOs approached an attorney general who had previously worked in the human rights field to question the foreign ministry about an upcoming vote on North Korea. By invoking Article IV of the 1988 Brazilian Constitution, which codifies a commitment to human rights, the attorney general and NGOs were able to elicit a change in Brazil’s vote.

While these recommendations may help civil society and NGOs bolster their impact, they must be prepared for pushback from governments. While governments in the global North revert to funding constraints and domestic pressure as motivations for their action or inaction, governments in the global South might rely on arguments that South-South cooperation should be emphasized over naming and shaming tactics and that the system operates under a double standard. Civil society and NGOs should accept and support South-South cooperation, but not complacency. They must demand leadership from their governments to ensure the safeguarding of the global democracy and human rights order.

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Authors

Ted Piccone

Image Source: © Ho New / Reuters

BRICS Investing in Africa: Geopolitical and Economic Ramifications

Thu, 28 Mar 2013 09:30:00 -0400

Event Information

March 28, 2013
9:30 AM - 10:30 AM EDT

B-354
Rayburn House Office Building
45 Independence Ave. SW
Washington, DC 20515

On Thursday, March 28, the Africa Growth Initiative at Brookings (AGI) and the Congressional African Staff Association (CASA) hosted a briefing for congressional staffers on the growing relationship between the BRICS—Brazil, Russia, India, China and South Africa—and African countries, and implication for U.S. foreign policy and economic relations with Africa. Panelists included: Yun Sun, Brookings visiting fellow, and Haroon Bhorat, professor of economics and director of the Development Policy Research Unit at the University of Cape Town. Brookings Africa Growth Initiative Nonresident Senior Fellow Vera Songwe moderated the discussion, and Gregory H. Simpkins, professional staff member of the House Subcommittee on Africa, Global Health, and Human Rights, provided opening remarks.

This event is part of the Africa Policy Dialogue on the Hill, a monthly congressional briefing hosted by AGI and CASA on topical issues relevant to Africa’s growth and security.

TRANSCRIPT

MR. SIMPKINS: Good morning, everyone. Welcome to the Africa Dialogue on the Hill. I’m Greg Simpkins, Professional Staff Member for the House Subcommittee on Africa, Global Health, Global Human Rights and International Organizations. Our forums offer an African perspective on Africa issues as well as those of outside experts. This is a monthly co-presentation by the Congressional Africa Staff Association, or CASA, and the Africa Growth Initiative of the Brookings Institution.

For those who don’t know CASA, we’re a bipartisan, bicameral association of staff members who seek to educate our colleagues on today’s substantive Africa issues on the continent and within greater Africa diaspora through panel discussions, briefings, and other events with decision makers and officials involved in Africa policy.

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Event Materials

0328_brics_investment_africa_new

BRICS Leadership Will Be Tested by Syria

Salman Shaikh — Mon, 25 Mar 2013 00:00:00 -0400

The humanitarian tragedy unfolding in Syria is probably the most serious crisis facing the world today. And yet, the international community is struggling to find a way forward. With more than four million Syrians in need of humanitarian assistance and three million internally displaced – a conservative UN estimate based on surveys of 6 out of 14 governorates in Syria – the humanitarian response to the plight of civilians so far has been entirely inadequate. A recent UNICEF report highlighted the two million children maimed, orphaned, and suffering from malnutrition as a result of the conflict – an entire generation “scarred for life”. Meanwhile, over one million refugees are seeking asylum in Turkey, Lebanon and Jordan. This number will likely hit the three million mark by the end of 2013 – a ticking bomb for countries based on delicate social, ethnic, and sectarian balance.

Humanitarian access in opposition-held areas, where assistance is most urgently needed, is extremely limited. The humanitarian policy dilemma has shown what a mess we are currently in. Under General Assembly resolution 46/182, the United Nations cannot operate inside rebel-held territory without the explicit consent of the Syrian government. As that government’s authority is waning, however, many wonder whether we should be bound by the sovereignty of a tyrannical regime that continues to aggravate the crisis. Others, meanwhile, are advocating for direct humanitarian cross-border action in coordination with the internationally recognized Syrian National Coalition. With the election of Ghassan Hitto as the interim prime minister of a transitional government in “liberated” areas, this call will no doubt grow louder.

It is time for the international community to overcome this obstacle and allow for a more effective humanitarian response in Syria – whenever and wherever it may be required. One way forward would be for key countries such as Brazil, South Africa, and India to support a more aggressive effort to ramp up the UN’s cross-border aid operations inside the country. Such an opportunity presents itself at the forthcoming 2013 BRICS summit in Durban next week. These countries should use their influence to secure a Security Council endorsement of this approach, principally by applying pressure on Russia and China.

Furthermore, they should use their direct channels with Assad to insist that the regime allow for cross-border operations and give full humanitarian access to all areas of the country.

Why the BRICS? Given their rising prominence on the world stage, it’s become clear that these nations play a key role in steering the international response to this crisis. Bouthaina Shaaban, political and media advisor to Assad, travelled to South Africa last week to deliver a message to President Zuma, urging BRICS nations to intervene to stop the violence in Syria and encourage the opening of a dialogue. Three weeks ago, she was in India, doing the same. It goes without saying that such cynical diplomacy on the part of the regime should be met by more purposeful calls to spare the lives of civilians. This is a strategic opportunity for the BRICS to use their influence and play a more decisive, helpful role.

There is no time to lose. To date, the international community has failed in its responsibilities to protect the Syrian population. Even with regard to the funding of UN humanitarian operations, only 20% of the $ 1.5 billion pledged by international donors in Kuwait in January has been honored. International inaction in Syria will leave a lasting legacy of insecurity and suffering, while the spillover effects of this humanitarian crisis will only contribute to the growing instability in Syria’s neighborhood and across the greater region. The BRICS nations, along with the international community, have a responsibility to act now.

Given the state of emergency on the ground, however, humanitarian cross-border access alone may not be sufficient. In order to protect civilians, guarantee the safe passage of relief organizations as well as refugees attempting to leave the country, there is a growing imperative for the establishment of humanitarian corridors and civilian safe areas along the sensitive borders of Syria. Make no mistake, such safe areas will have to be secured and protected by all means possible. Here, there will be much to learn from the UN’s experience in Bosnia in the 1990s – involving an assessment of what went right as well as wrong.

The BRICS and their international partners should be ready to endorse such measures. The situation demands it. Yet at a minimum, they must now demand that Assad allows the UN to cross Syria’s borders to reach civilians in need. The UN has the required institutional knowledge to deliver aid to fragmented areas making it the organization that is best placed to do so in Syria. Enabling the UN to undertake a country-wide response would help prevent the politicization of assistance as well as ensure a coordinated response in crucial sectors such as water, sanitation, infrastructure reconstruction, food assistance and education. The end goal would be to ensure that the UN is able to meet the basic needs of all civilians and upholding fundamental humanitarian principles in this bloody conflict.

Authors

Salman Shaikh

Publication: Asharq Al-Awsat

BRICS and China’s Aspiration for the New “International Order”

Yun Sun — Mon, 25 Mar 2013 16:24:00 -0400

The destinations of new Chinese leader’s first foreign tour are always carefully chosen and reflect two things: 1) They are important countries and represent certain foreign policy priorities for China, and 2) they are China-friendly, therefore the new leader will be met with open arms and a warm welcome rather than difficult questions or a long list of demands. Russia, China’s close neighbor and former ally, fits the profile and has been the first destination for both former President Hu Jintao in 2003 and for Xi Jinping this year. However, a decade ago, Hu focused on China’s periphery—Russia, Kazakhstan and Mongolia—while today Xi is taking China’s agenda further away. With the exception of Russia, Xi’s foreign tour focuses on Africa: specifically Tanzania, South Africa and the Republic of the Congo. The highlight is the fifth BRICS (Brazil, Russia, India, China and South Africa) summit in Durban, South Africa from March 26-27.

The unprecedented level of emphasis the new Chinese leader is attaching to the BRICS nations reflects the profound changes in China’s perceptions of itself and of the outside world. In the past decade, China has grown into the second largest economy in the world. However, this economic muscle is yet to be translated into comprehensive national power and the United States, despite its relative decline, remains the sole superpower in China’s foreign policy lexicon. As the U.S. rebalances to Asia, China feels a heightened pressure in its immediate periphery from Washington’s enhanced military deployment, alliances and “interference” in China’s territorial disputes. As the new Chinese leaders contemplate how to break away from this new “containment and encirclement of China,” the reliance on and cooperation with non-Western, rising economic powers are of high importance for China.

China sees natural common ground with emerging economies, especially in the pursuit of a new international economic order and the democratization of international relations. In Beijing’s view, the 2008 financial crisis dramatically changed the mapping of the world economy, deeply damaging the strength of the traditional developed countries. The economic recovery of the U.S. and Japan has been sluggish, while the eurozone crisis has lingered on for years. The relatively impressive momentum for growth comes from emerging economies, especially the BRICS nations.

For China, since the BRICS countries’ share and importance in the world economy has been growing but has not yet surpassed the developed countries’, the next step, naturally, would be for them to act as one group to increase their collective voice and bargaining power against traditional developed countries. In China’s view, this momentum would democratize international relations by offering developing counties more voice and rights. As Xi pointed out in his interview with journalists from BRICS nations right before his trip on March 19, the international economic governance system must reflect the profound changes of the global economic reality, and emerging markets/developing countries deserve more representation and bigger voices. The reform of voting rights at the IMF and World Bank signifies the direction to which China aspires—in Beijing’s dictionary, more responsibility is only justified when it is accompanied with more rights.

China also wishes to strengthen its identity as an emerging economy and a developing country by enhancing its contribution to the BRICS nations and their international status. Xi pledged to deepen the cooperative partnership and improve the cooperation mechanism among the BRICS nations. One possible major move would be the potential plan for the BRICS countries to establish their own development bank to provide funding assistance to Africa’s infrastructure development. If this plan transpires, it would demonstrate a major advancement by China in the field of international development assistance. By forming a de facto alliance among themselves, BRICS nations will gain more legitimacy and increase competitiveness for their development assistance, which is often criticized and even marginalized by traditional donors.

Xi’s first overseas trip reveals the international quagmire China is in. The past 10 years witnessed unprecedented growth of Chinese economy, but it was also accompanied by unparalleled foreign policy challenges. As many Chinese analysts observed, China’s external environment did not improve as a result of China’s rise, instead, it has worsened. China has become richer, but less respected. It has more transactions with the world than ever, but less friends.

Therefore, Xi’s trip to Russia, Africa and the BRICS summit genuinely reflects China’s strategic moves to break away from this predicament. It seeks to reconsolidate friendship with a Russia also antagonized by the West, with Africa to reinforce its developing-country identity and solidarity with the developing world, and with other emerging economies to align their collective power against the traditional developed countries. China learned its lesson that it is yet to be strong enough to challenge the existing international order (and the supremacy of the U.S.) alone. Alignment with other rising powers, like the BRICS countries, and reinforcement of its friendship base among developing countries will be a new emphasis for China’s foreign policy in the foreseeable future.

Authors

Yun Sun

Global Swing States and the Human Rights and Democracy Order

Ted Piccone — Tue, 27 Nov 2012 00:00:00 -0500

Editor's Note: This paper was originally published on the German Marshall Fund of the United States website. You can also download the related report titled "Global Swing States: Brazil, India, Indonesia, Turkey, and the Future of International Order."

SUMMARY

The convergence of values and divergence of methods between the “global swing states” — Brazil, India, Indonesia, and Turkey — and the world’s established democracies are on particular display in the arena of democracy and human rights. To varying degrees, all four nations are prepared to play a role in supporting international mechanisms to strengthen human rights and democracy, but this is to be done on their own terms: through quiet diplomacy and mediation, using coercive methods only as a last resort. The challenge before Western democracies is to evaluate when to seek convergence with global swing states on international interventions to uphold human rights and when to yield to parallel efforts that may entail less control but greater acceptance and therefore greater effectiveness on the ground.

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Global Swing States and the Human Rights and Democracy Order

Authors

Ted Piccone

Publication: The German Marshall Fund of the United States

Image Source: © Kevin Lamarque / Reuters

The Energy-Poor BRIC

Charles K. Ebinger and Govinda Avasarala — Fri, 19 Oct 2012 00:00:00 -0400

Editor's Note: The following op-ed, which was originally published in The Indian Express, is an adaptation of the chapter “India and the other BRICs: Energy and the implications for economic growth,” in the Economist Intelligence Unit report Empowering Growth: Perspectives on India’s Energy Future.

Economic aspirations in Brasilia, Moscow, New Delhi and Beijing are inextricably linked to the strength of their national energy sectors. As the economies of the BRIC nations continue to grow, their energy demand will rise sharply. According to data from the US government’s Energy Information Administration, by 2025 the BRICs, led by China, will account for nearly 38 per cent of global primary energy demand, up from 27 per cent in 2005. Some of its members will manage surging energy demand better than the others. Owing to their advantageous resource endowments and the nature of their energy consumption, Brazil and Russia are relatively energy-secure nations. In 2011, Russia and Brazil were the second and ninth largest producers of oil respectively. Last year, Russia was the world’s fifth-largest producer of coal and the world’s largest producer and exporter of natural gas. For its part, Brazil is almost entirely dependent on hydropower for electricity generation, and recent offshore oil discoveries may soon catapult it into the ranks of major oil exporters. China and India are less self-sufficient, but superior infrastructure and a centralised government position China better to meet its rising energy demand. India has the most unstable energy condition in the BRIC club, and possibly the most uncertain energy future of all.

The scale of the energy dilemma is not new, nor are the problems and the solutions. Indian policymakers were aware of the country’s crippling energy shortages decades before the mass blackouts that occurred this July. Policymakers know that power plants are starved of coal and natural gas, that subsidies promote waste and inefficient consumption and that electricity theft is rampant. Pricing reform and better enforcement of electricity theft are still two critical solutions.

To its credit, recent reforms announced by the government suggest that policymakers are refocused on modernising India’s energy policy. However, these same politicos have in the past implemented marginal reforms, while neglecting to implement transformative reforms that truly attract investment. Today, policymakers would be well served not to repeat such an error. The emerging global energy landscape and the new wave of consumers promise a sustained period of expensive energy.

The new global energy gluttons, a group that includes Indonesia, Malaysia, Saudi Arabia, Kuwait and the UAE, are still considered lynchpins of global supply, but are concurrently grappling with surging domestic demand. As a result, export volumes from these nations are in decline. For example, take Saudi Arabia, which accounted for one-fifth of India’s oil imports in 2011-12. Between 1991 and 2010, global demand for oil increased by 31 per cent, and Saudi Arabia’s production increased by more than one million barrels per day. During this same period (albeit with some fluctuations), however, exports from the kingdom remained flat at 6.6 million barrels per day. The natural gas market provides a similar picture: in the mid-1990s Indonesia and Malaysia accounted for roughly half of global LNG exports. Today, both countries are planning import facilities to meet growing demand. Kuwait and the UAE, both considered energy-rich nations, import LNG from as far away as Trinidad & Tobago to satisfy demand.

If nothing else, this trend should crystallise for Indian policymakers the urgency of major pricing reforms. In the short term, the oil price will reflect the prevailing macroeconomic and geopolitical winds at any given time. In the long term, however, most analysts forecast a consistent increase in the price of oil. Similarly, the long-term trend suggests that natural gas prices will remain high. Although GAIL is contracted to receive shipments of LNG from the United States at cheaper US prices, such a contract structure will be the exception, not the norm. Unlike Cheniere, GAIL’s American LNG supplier, most LNG producers are major oil and gas companies that need financing arrangements that justify investments in the exploration and production of natural gas, as well as the construction of multi-billion dollar gas liquefaction facilities. These financing realities suggest that oil-indexed contracts are likely to remain an integral component in global LNG trade. Although macroeconomic headwinds in China have depressed coal prices this year, pricing reform in Indonesia and surging demand in southeast Asia suggest that coal prices will also remain competitive in the future.

In this context, insufficient reforms will be costly. First, the surging cost of imported gas and coal, coupled with stagnant domestic production, have not only left power plants idle and bankrupted State Electricity Boards (SEBs), but they have also burdened the banking sector with a portfolio of non-performing loans. Government efforts to bailout SEBs without dramatic changes to electricity pricing will hinder any lingering incentives to invest in new generation, transmission and distribution projects and may raise the borrowing costs for any new investments. The new oil pricing reality is of greater concern. Reform will not dramatically change India’s import dependence on oil; even increased production will not make India self-sufficient. But now, amid ballooning fiscal deficits and jittery financial markets, market-determined prices are necessary to rid the government and the oil companies of unsustainable subsidies on their deficit-laden balance sheets.

Will such initiatives be too little, too late for India? Will its slowing growth and meandering energy and economic policies result in India becoming the first “fallen angel” among the BRIC nations, as Standard & Poor’s, a rating agency, warned in a June 2012 report? Perhaps not. Recent pro-reform messages from Delhi are promising. But unlike China, where the government can make unpalatable energy decisions relatively quickly, or Russia and Brazil, where they don’t need to because of the abundance of energy resources, India has a government that historically has been incapable of fully executing painful energy reforms. If India is to continue as a vibrant emerging market, it will have to tackle its energy-security weaknesses immediately. If it cannot, BRIC may lose an “I”.

Authors

Charles K. Ebinger
Govinda Avasarala

Publication: The Indian Express

Image Source: © Jayanta Dey / Reuters

From Physical BRICS to Digital CHIIPs

John McArthur — Mon, 02 Jul 2012 14:21:00 -0400

It has become commonplace over the past decade to describe the BRICS – Brazil, Russia, India, China, and, more recently, South Africa – as a defining force in the global economy. While few can dispute the major shifts away from the advanced economies like the United States and those in Europe, the world’s future economic frontiers might be better captured by the acronym CHIIPs— referring to China, India, Indonesia and the Philippines. The world is increasingly defined more by digital chips than physical bricks, and these four countries accounted for more than half the world’s new Internet users since 2008.

The figures are embedded in a recent report by Mary Meeker and Liang Wu of Kleiner Perkins, the Silicon Valley venture capital firm. Meeker and Wu estimate that the global Internet user base grew more than 40 percent since 2008, with 663 million new people bringing the total number of users to 2.3 billion in 2011. The CHIIPs accounted for a remarkable 349 million newbies, with more than 200 million Chinese joining the fold.

Casual observers might think this trend is the result of a one-time catch-up as these countries with 40 percent of the world’s people industrialize and get online. However, Internet penetration hasn’t even surpassed 40 percent of the population in any of these countries, compared to roughly 80 percent in the United States. India still stands at a mere 10 percent penetration and technology there is leap-frogging. In May, its mobile-based Internet traffic surpassed its desktop-based traffic. The explosive transformation of global Internet usage will continue for several years to come.

The digital phenomenon is not limited to Asia. Nigeria had the fifth-fastest reported Internet growth since 2008, adding more than 20 million users. Mexico, ranked sixth, added almost the same amount. If watching Europe’s economy feels like an ever worsening sequel of “Groundhog Day,” the global CHIIPs film is “The Social Network” of rapid change to come.

The mass proliferation of mobile-based Internet carries far-reaching economic and social consequences. This was on vivid display in Shanghai last month when I sat on the jury of an “AppJam”— a meeting of tech-savvy young entrepreneurs who lock themselves in a room for an allotted time to map out new mobile Internet applications. At this particular competition, a handful of local technology companies dangled a blend of feedback, free pizza, and modest prizes to motivate aspiring participants in their quest for breakthrough apps for the Chinese market.

Several teams committed 45 hours over a sleep-deprived weekend in pursuit of a dream to become China’s Mark Zuckerberg. Most groups had a mix of Chinese, European and North America citizens and were fluidly bilingual between English and Mandarin. The average age was mid-20s. Such deeply cross-cultural innovation teams are clearly a growing norm.

The event’s winners tapped into undercurrents ranging from the unique traits of filing Chinese receipts to the deep affections for pets among the country’s growing middle class. I learned during the proceedings that a cute cat has one of the more significant followings on Weibo, China’s version of Twitter. As a non-twentysomething, non-Mandarin speaker who barely manages to tweet most days, I felt inspired for the world but worried for my own laggard ways amidst a joint revolution in global business and technology.

Recent history has underscored the precarious nature of geopolitical predictions, but CHIIPs-type change will probably bring at least two key shifts in favor of young people around the world. First, many of the pathways to accumulating money-based power are evolving fast. Today’s young people with coding skills and business smarts have an unprecedented opportunity to accumulate wealth early in life, since apps have the potential to scale so quickly. Indeed, Meeker and Wu estimate that 44 million apps are downloaded every day on iTunes alone.

Second, relative power balances between age groups will likely adjust as the duration of business innovation cycles seems to be shortening and many technology skills of older generations become outdated at an earlier life stage. This will further amplify young people’s share of long-term economic and political voice, even if that power still takes years to master.

While the advanced economies struggle to stem the risks of systemic meltdown, the underlying global economy is transforming. The shifts are geographic, technological and generational. As the world’s Internet infrastructure continues to evolve and take hold, a new breed of entrepreneurs will keep redefining molds. The CHIIPs label suggests a new frame. We need to start anticipating the implications.

Authors

John McArthur

Image Source: Martin Barraud

World Bank Leadership Should Reflect Emerging Economies

Colin I. Bradford — Wed, 28 Mar 2012 17:32:00 -0400

The U.S. nominee for the World Bank presidency, South Korean-born physician Jim Yong Kim, is one of three candidates for the post, along with Nigerian Finance Minister Ngozi Okonjo-Iweala and former Colombian finance minister Jose Antonio Ocampo. According to Colin Bradford, the presence of several viable candidates—from different parts of the world—for the World Bank presidency means that the entire international community could have a say in selecting the next World Bank president, rather than the U.S. nominee being automatically confirmed. This change in the nominating process, says Bradford, is good for the Bank because it reflects growing demands for representation from emerging economies.

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Change World Bank Nominating Process

The World Order, the United States and the BRICs

Robert Kagan — Wed, 22 Feb 2012 13:06:00 -0500

Robert Kagan answers a question from Twitter user Larry Mark (@LMARKNYT) on how the United States has shaped global dynamics, and what impact this has had on the BRICs (Brazil, Russia, India, and China).

Authors

Robert Kagan

Image Source: ï¿½ POOL New / Reuters

Rising Democracies Take on Russia and China

Emily Alinikoff and Ted Piccone — Fri, 17 Feb 2012 15:25:00 -0500

The Security Council’s recent failure to condemn Bashar al-Assad's brutal crackdown in Syria after months of attacks against unarmed civilians would suggest the case is hopeless. Russia and China vetoed a resolution proposing a process for a negotiated transition to democracy despite full backing from the usually anti-interventionist Arab League. The stalemate raises perennial questions about the international community's ability to respond to crises, the legitimacy of the veto power and the doctrine of responsibility to protect that underpinned intervention in Libya. The Syria vote, however, may have strengthened what appears to be an increasingly common view among the world's emerging democracies: dictators determined to stay in power at any cost are no longer tolerable.

The double veto has made international action in Syria all the more difficult. But it also shows that Russia and China are increasingly isolating themselves from a widening consensus that human-rights violations demand an international response. In one corner, established and newer democracies, more attuned to their voters at home, are under pressure to support movements for universal rights. In the opposite corner, China and Russia are silencing domestic dissent at home while trying to prop up comparable autocrats abroad. This divide became abundantly clear when India and South Africa disassociated themselves from their usual affiliates (BRICS) to support the Security Council resolution on Syria. Brazil likely would have joined its democratic cohorts if it were still on the council.

Rising Great Powers?

Rising democracies like India, Brazil and South Africa, along with their counterparts Turkey and Indonesia, are beginning to stand up for human rights in ways that may reshape the international system. India, Brazil and South Africa already self-identify as IBSA, explicitly invoking their democratic identity to differentiate themselves from Russia and China. Adding Turkey and Indonesia—large Muslim-majority democracies—to the group we call IBSATI would further distinguish these states as examples of developing democracies that, unlike Russia and China, have made remarkable economic progress while also expanding the rights of their citizens.

Cooperation with IBSATI and other like-minded democracies, however, requires some skillful diplomacy. We know from their response to the Arab Spring and other democratic transitions that the IBSATI powers share several characteristics when it comes to supporting political reforms in their respective regions and beyond. All five have made unequivocal commitments to democratic and human-rights standards both as a goal of national development and as a principle of their foreign policies. This shared starting point offers an opportunity to find common ground with each other and with more established democracies.

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Authors

Emily Alinikoff
Ted Piccone

Publication: The National Interest

Regaining Fiscal Credibility in India

Vijay L. Kelkar and Urjit R. Patel — Wed, 15 Feb 2012 10:37:00 -0500

Editor's Note: An abridged version of this commentary was published as an op-ed in Mint on February 13, 2012.

The challenge of reining in large fiscal deficits has re-emerged in diverse parts of the world. In India doubts over sustaining a high growth performance have morphed to reservations on broad stability issues. There are two macroeconomic drivers that have changed the state of affairs. First was a sharp depreciation of the Indian rupee towards the end of last year to the extent of it being the worst performing currency among emerging market peers, despite hikes in policy rates. Notwithstanding official foreign exchange reserves of $293 billion, India’s external position is no longer felt to be impregnable; for example, the ratio of short term debt on a residual maturity basis to reserves has more than doubled since 2006/07 to 40 percent in 2010/11. The second factor is that the stream of poor, mainly self inflicted, trends for the expected budget outturn in 2011/12 have turned into an avalanche for the government’s fiscal balance (after correctly accounting for off-budget items). Most components of the budget have gone awry, viz., lower than projected tax revenues, negligible privatization receipts, and subsidies reaching stratospheric levels, especially those related to energy. At present, India’s fiscal position, as measured by such common indicators as the general government budget deficit and the general government gross debt (as shares of GDP) puts it in the same camp as recognized fiscally stretched economies. India has had a run of four years of general government deficit of about 10 percent of GDP, of which the central government’s share is two-thirds. Against this background, it is difficult to reject claims that recent growth performance has been propped up by unsustainable aggregate demand policies.

For the most part, the disquiet over India’s fiscal stance stems not so much from impending external debt service problems as doubts over maneuverability. To start with, a virtual exhaustion of fiscal “insurance cover” to counter cyclically deal with prospective shocks emanating as backwash from serious crisis elsewhere like the euro zone, or, Iran, not to mention the task of recapitalizing government-owned banks as non-performing assets rise. The fiscal situation also severely circumscribes exchange rate management by the Reserve Bank of India as an instrument of strategic commercial policy. Even more worrisome, and a source of considerable uncertainty for the nation’s public finance, is the impending expansion of entitlements, both explicitly for food and implicitly for petroleum products. Furthermore, there has been an excessive reliance on monetary policy in the absence of the requisite fiscal retrenchment in the fight against inflation.

It is important to observe that the adverse evolution in the central government’s fiscal balances in recent times has not wholly been on account of the operation of automatic stabilizers during a cyclical slowdown. On the contrary, the central government’s revenues have been buoyant – the gross tax-GDP ratio increased from 9.7 percent in 2004/05 to 12.6 percent in 2007/08 – on the back of an almost 9 percent average annual real growth rate. The profligacy of the central government has its primary driver in populist spending policies initiated in early 2008 by the ruling coalition leading up to national elections in May 2009; three stimulus packages (including a reduction in indirect tax rates) starting in late 2008 to counter the global recessionary headwinds only accentuated matters.

The challenge of addressing the parlous fiscal situation was squarely faced by the 13th Finance Commission (TFC). Quantitative signposts for general government consolidation were recommended. The TFC called for general government deficits to shrink by 4 percentage points of GDP between 2009/10 and 2014/15 and for public debt to fall from 79 to 68 percent of GDP. The TFC also sought to impart integrity to the budgetary process of the central government by drawing attention to off-budget liabilities that had been accumulated since 2005/06.

It is natural at this juncture to examine the broad possibilities to obtain the quantum of consolidation envisaged by the TFC. On the revenue side, the decline in indirect taxes on account of excise duty reduction in 2008/09 presents a natural point for efforts to reverse the trend. In addition, removing exemptions on the direct tax side will add to the revenue kitty without upward tinkering of tax rates. Even more importantly, implementing a comprehensive Goods and Service Tax (GST), which encompasses the petroleum sector, should not be delayed. Rationalization of coal prices in tandem with its inclusion in GST is desirable, viz., mitigating distortion between hydrocarbon fuels and although coal has a share of one-half in commercial primary energy consumption its share in revenue is negligible at 0.1 percent of GDP.

The expenditure side, where the government’s credibility is at its lowest, presents the toughest challenge. India has painted itself in a corner in this regard. Analogous to old-age and health related commitments in mature economies, the implementation of schemes for the poor in India (inter alia comprising of sector subsidies) have been mangled into unconditional, uncapped and open-ended entitlements. In political economy terms, all non-merit subsidies are considered part of social spending, hence a holy cow. A widening of the food security net combined with the inability to adjust petroleum product prices has engendered a backdrop to India’s fiscal challenge that almost seems overwhelming, especially since the large number of stakeholders who benefit from the schemes are perceived, rightly or wrongly, to vote against political dispensations that seek to downsize outlays.

One form of expenditure growth mitigation could be a phased expansion in entitlement coverage so that the impact on the budget is spread over several years. Over time, Aadhar – under implementation by the Unique Identification Authority of India – through better targeting should help to plug leakages and assist expenditure control. However in the near term, on balance, given the constraints on the expenditure side, viz., interest payments, defense and education, disproportionate adjustment on the fiscal balance is likely to come from revenue enhancements.

The difficult path of consolidation is further challenged along other dimensions. Growth is faltering, and even as headline inflation finally shows sign of declining, an important caveat is in order. Energy prices, comprising petroleum and power, have not yet been adjusted to the requisite levels by some distance, with concomitant pass through implications. Core inflation is still above the comfort zone and, therefore, the down cycle in interest rate reduction could be delayed. There has been procrastination in reorienting growth drivers towards eliciting supply and productivity responses in key sectors, and away from government sponsored aggregate demand. Lastly, investing in macroeconomic management credibility means that the Indian government cannot postpone matters; easy options have been exhausted for some time.

Authors

Vijay L. Kelkar
Urjit R. Patel

Publication: Mint

Dynamics of Inflation "Herding": Decoding India's Inflationary Process

Gangadhar Darbha and Urjit R. Patel — Tue, 24 Jan 2012 14:22:00 -0500

Compared to immediately preceding years, that is, its own recent history, India’s inflation became unhinged (thereby reversing creditable performance) from as far back as 2006. In the last two years, among its major comparators India has the highest rate of consumer inflation; it is also volatile in relation to its peers in Asia and the BRICs. This paper puts forward an empirical framework to analyze the time series and cross-sectional dynamics of inflation in India using a large panel of disaggregated sector prices for the time period 1994-95 to 2010-11. It has been motivated in no small part to official pronouncements seemingly unencumbered by methodological rigor. There are several grounds for distrust by citizens regarding policy makers in this context. Firstly, officials have attributed the upswing in prices (measured by all indices) to food supply constraints, and therefore claim they are powerless to do anything about it. Secondly, they resort to hand wringing and public communication that essentially amounts to “we are staring the problem down” as the common refrain for an inordinately long time; in tandem, rolling “(mental) spreadsheet forecasts”—that have been optimistic by some distance—were, and still are, put out at regular intervals to give succor and hope to the public. Thirdly, a spate of recent statements seems to suggest that the medium-term objective of around three percent inflation articulated by inter alia the Reserve Bank of India (RBI)3 is being given a quite burial.

The operational methodology introduced in the paper facilitates a rigorous exploration of issues that have been, at best, loosely posed in policy debates such as diffusion or comovement of inflation across sectors, role of common and idiosyncratic factors in explaining variation, persistence, importance of food and energy price changes to the overall inflation process, and contrast the recent experience with the past. It is found that the current period of high inflation is more cross-sectionally diffused, and driven by increasingly persistent common factors in non-food and non-energy sectors compared to that in the 1990s; this is likely to make it more difficult for anti-inflationary policy to gain traction this time round compared to the past.

The paper has also introduced a novel measure of inflation, viz., Pure Inflation Gauges (PIGs) in the Indian context by decomposing price movements into those on account of: (i) aggregate shocks that have equiproportional effects on all sector prices; (ii) aggregated relative price effects; and (iii) sector-specific and idiosyncratic shocks. While aggregate Wholesale Price Index (WPI) inflation by the end of 2008-09 had declined to about 1 percent (from about 8 percent in 2007-08), PIGs were running at around 3 percent; in contrast to the headline inflation, the most recent trough for PIGs was 2005-06 and not 2008-09. The decline in (and the level of) headline inflation in 2008-09 may have conveyed to the authorities that they had less need of (or more time for) tightening than was the case looking at inflation measures corrected for sectoral and idiosyncratic shocks. If PIGs, in conjunction with our other findings, for example, on persistence had been used as a measure of underlying (pure) inflationary pressures, the monetary authorities may not have been sanguine regarding the timeliness of initiating anti-inflationary policies.

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Authors

Gangadhar Darbha
Urjit R. Patel

Image Source: Kim

Rising Democracies and the Arab Awakening: Implications for Global Democracy and Human Rights

Emily Alinikoff and Ted Piccone — Mon, 09 Jan 2012 11:36:00 -0500

INTRODUCTION

As the emerging global order takes shape, debate is growing more intense around the trajectory of the rising powers and what their ascendency to positions of regional and international influence means for the United States, its traditional allies, and global governance more broadly. Commentary about these rising powers— often referred to in a generic way as the BRICS (Brazil, Russia, India, China, South Africa) but actually encompassing a dozen or so countries largely represented in the G-20—ranges from alarmist to sanguine. Pessimists argue that China, with its impressive economic growth and increasingly global reach, is well-positioned to challenge the United States’ role of global superpower and to weaken the commitment of other rising powers, and various international organizations, to liberal values. More optimistic analysts insist that the rise of middle powers, most of which are democracies of varying stripes, bodes well for the world: millions are being lifted out of poverty, rule of law is taking hold and the international system is bound to be a more inclusive, representative one.

Each of these narratives holds some truth. It is in principle a net positive and a success story of the post World War II system that these states are growing stronger and more integrated in the global architecture. As China impressively expands it economic reach, its model for growth— one that has embraces elements of capitalism and a growing middle class while retaining authoritarian powers and repressing dissent—has become increasingly attractive to other developing countries striving to improve their economic performance, and a counterpoint to the so-called Western model of democratic development.

It is misleading, however, to suggest that the rise of emerging powers is inevitably a threat to the predominant Western democratic success story. A group of these rising powers—namely India, Brazil, and South Africa, acting at times under the IBSA banner, along with Indonesia and Turkey, a group we collectively refer to as IBSATI—are making impressive economic strides, including expanding middle classes, while simultaneously consolidating their own democracies and expanding the rights of their citizens. All five are members of the G-20, the leading group of major economies, all of which also happen to be democracies, with the exception of China, Russia and Saudi Arabia. Leaders and activists around the globe are looking to these states as relatable models of economic and political success, opening new opportunities for influence. This is especially true in the context of the Arab Spring, where transitional states increasingly are looking to emerging democratic powers for assistance and advice. Turkey and Indonesia, as large Muslim-majority democracies, play a potentially crucial role in this regard. For those in the West, and elsewhere, concerned with the future trends of global attention to democracy and human rights, it is critical to understand how these new, rising powers incorporate democracy and human rights into their foreign policies.

Of course, while they all share a common identity and sense of pride at having emerged triumphant from the dark days of authoritarian, military, racist and/or colonial rule, each of these states has unique histories and associations with democracy and human rights and each will incorporate these values into its foreign policy differently. All five articulate a strong belief in the value of democracy and human rights as a principle of foreign policy and have signed on to a long list of treaties, charters, declarations and communiqués politically binding them to honor such values at home and abroad. Similar to established democracies, however, these rising powers behave inconsistently and unpredictably when it comes to applying these principles to concrete cases. Like any other country, they are primarily concerned with national security, economic growth and regional stability and carefully and cautiously weigh the costs and benefits of raising democracy and human rights issues bilaterally or multilaterally against these primordial interests.

As they seek to play a bigger role on the global stage, policymakers face a new set of challenges arising from their own domestic situations. Internal democratization coupled with globalization in trade, migration and communications is opening foreign policy decisions to wider attention and scrutiny and presenting governments with more difficult tradeoffs. Within the complexity of this decision-making environment, it is important to learn if and how democracy and human rights fit into these states’ conceptions of national interests as they ascend to positions of regional and international influence.

To better understand how these states have performed on international democracy and human rights challenges in the last five to ten years, we have undertaken an analysis of their approaches on such issues in their own regions as well as their reaction to the widespread demands for democracy and human rights in the Middle East. A review of how these states have performed regionally is a logical starting point for understanding what place democracy and human rights have in their foreign policy. After all, these states are considered— and consider themselves—leaders in their own regions. We then review their responses to the dramatic and unfolding events of the Arab Spring to provide further insight into how they incorporate values in their foreign policies in real time, and how they may address these issues in the future. We conclude with some core findings that help distinguish their individual and collective approaches from the other leading actors in this field, namely: their strong support for sovereignty and non-intervention in internal affairs, their preference for mediation and “constructive engagement” over condemnation and isolation, their deep antipathy to military intervention in the name of protecting or promoting democracy, their demand for greater equity in global governance and complementary resistance to initiatives led by established powers, and their willingness, in varying ways, to offer support to transitioning democracies, as demonstrated in the Arab Awakening. Within this group, the IBSA states act as straddlers between traditional powers in the West and their southern, non-interventionist colleagues, a stance akin to Indonesia’s, while Turkey is moving closer to a more robust stand for democratic change in its own neighborhood. For all five, there is a growing insistence on regional organizations as the frontline responders to political crises in their neighborhoods, a position that reinforces their own agenda for regional leadership.

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Authors

Emily Alinikoff
Ted Piccone

China Development Bank's Oil Loans: Pursuing Policy and Profit

Erica S. Downs — Fri, 09 Dec 2011 00:00:00 -0500

Editor’s Note: The following article originally appeared in China Economic Quarterly, a publication by Dragonomics Research and Advisory.

Since 2009, China Development Bank (CDB) has extended lines of credit totaling almost US$75 bn to national energy companies and government entities in Brazil, Ecuador, Russia, Turkmenistan and Venezuela. The loans are secured by revenue earned from the sale of oil to China’s national oil companies (NOCs), except in the case of Turkmenistan, which is delivering natural gas. These energy-backed loans are distinguished by their large size (up to US$21 bn), long terms (up to 20 years), the relatively short period of time in which they were made (less than two years), and their initial availability during the global financial crisis, when virtually no other financial institutions were willing to lend such large amounts of capital for such long periods of time.

Many outside observers explicitly or implicitly assumed that these deals are the work of China Inc: China’s government, state-owned banks and NOCs operating as a coherent entity on a global pursuit of energy. In this view, CDB and the NOCs are merely arms of state policy, implementing a strategy devised by Beijing to secure oil and natural gas around the world.

To be sure, CDB, the Chinese government and the NOCs worked closely together to structure and execute these transactions. But this coordination between Beijing and Chinese enterprises must be understood in the context of two important caveats. First, each of the participants had its own objectives, including profitability. Second, coordination is not synonymous with top-down decision making. Cross-border deals, even ones that advance the strategic goals of the Chinese government, can originate with different actors. As a result, CDB’s energy-backed loans are better understood as the result of a converging flow of interests rather than as the execution of a state master plan.

China’s Global Bank

CDB is a wholly state-owned bank which aims to support and profit from government policy objectives at home and abroad, including securing energy to fuel China’s economic rise. CDB was established in 1994 to finance domestic infrastructure and strategic industries, with the aim of breaking the bottlenecks in energy, natural resources and transportation created by rapid economic growth. After 2000, Beijing’s concerns about shortages of commodities such as oil and iron ore, and its “going out” policy of encouraging enterprises to secure energy, build national champions and acquire advanced technology abroad, paved the way for CDB to internationalize its operations. CDB has bankrolled the overseas investments of China’s energy and mining firms, and financed the construction of oil and natural gas pipelines from Central Asia, Russia and Myanmar to China. It also provided credit to foreign energy and mining companies, especially those which offered Chinese firms long-term supply agreements, upstream equity positions or equipment manufacturing contracts.

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Authors

Erica S. Downs

Publication: China Economic Quarterly

Rise of the TIMBIs: Turkey, India, Mexico, Brazil and Indonesia

Jack A. Goldstone — Fri, 02 Dec 2011 00:00:00 -0500

Nov. 30 marked the 10th anniversary of Goldman Sachs economist Jim O'Neill's anointing of the BRIC economies—Brazil, Russia, India, and China—as the future leaders of the global economy. Yet 10 years on, the notion of the BRICs already seems out of date. In China and Russia, demographic patterns have shifted. Their working-age populations are declining, as are exports, while still-rigid political systems stifle free thought and hamper technical advance.

Future trends still look robust in Brazil and India, but these countries should now be in new company—a group of dynamic and democratic emerging economies. Let's call them the TIMBIs: Turkey, India, Mexico, Brazil, and Indonesia. These countries form more than just a cute acronym. They all share favorable demographics and democracy and are already large economies. Their GDPs combined have already surpassed that of China and will be much faster growing in the coming decades. Their combination of booming labor forces and political openness points to rapid increases in human capital and innovation that will propel these regional powers into global powers in the near future.

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Authors

Jack A. Goldstone

Publication: Foreign Policy

Religious Revival and Megatrends in Global Security, Economy and Governance

Cesare Merlini — Fri, 02 Dec 2011 12:46:00 -0500

Over the recent past, two veins in political science have been prospering. One is related to the power shift taking place at the world level due to the rise of Asia and the decline of the West (including the United States, its number-one-power status notwithstanding) in a context of high interdependence among nations, with consequent acute problems of global governance. The other is related to the apparently growing role of religion in a globalized and increasingly populated world and the consequent decline, possibly the end, of the secularist approach to the handling of public affairs, including international relations.

Often the two lines of analysis appear to run independently of each other, as if geopolitics and the institutions of the world were indifferent to the spread of religion, and the so-called ‘God’s return’ was indifferent to the changing fabric of the international system. The purpose of the paper is to try to explore interrelations and, when appropriate, make connections between the two.

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Cesare Merlini

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Religious Revival and Megatrends in Global Security, Economy and Governance

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