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Attempt to Pre-empt the post-dollar world

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There are many reasons that the US is pushing on China in the South China Sea. Many articles have been published in recent weeks exploring “why?” None mention an important economic reason that has, at least in part, motivated the US to go to war and is very much at stake in the growing dispute with China: the value of the dollar.

The dominance of the dollar in world trade is critical to its value and to the US economy. Once the US abandoned the gold standard, it signed firm agreements with Saudi Arabia and all of Middle East OPEC nations that bound them to sell oil in dollars. Because of this agreement the dollar is often referred to as the “petrodollar.” The value of the dollar/petrodollar rests on its being the currency of international trade, not only for oil, but for weapons and food and everything else.

Two Dollar Wars

As I discussed in a 2013 Counterpunch article, one reason Bush II invaded Iraq was because Iraq threatened the US by selling oil in Euros. If Sadam Hussein had been allowed to continue, this would have been a major challenge to the dominance of the dollar as the world’s reserve currency. Petroeuros could begin replacing petrodollars.   This would have weakened the value of the dollar and undermined the US economy. That is an underpublicized reason for the elimination of Saddam Hussein. The value of the dollar was at stake as well as the health of our economy. The second Iraq war eliminated this threat and Iraqi oil was again sold in dollars.

Ron Paul made public this rationale but it has been given scant attention. “Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat…There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war.”

Ron Paul also made public the rationale for the surprising US-led removal of Gadhafi and the destruction of his government in Libya. Again, protecting the dollar was the main reason: Gadhafi was planning on selling oil in dinars, an all-gold African currency. According to Ron Paul, the US has targeted any country that threatens the dollar by using a non-dollar currency to conduct international business.

Loss of Confidence in the Dollar

The dollar has been the dominant currency of international trade since Nixon stopped dollars being exchanged for gold. Despite the challenges from Iraq and Libya, this arrangement continued a decade into the twenty-first century.

Two things happened during and after the 2008 crash to weaken confidence in the dollar. The first is not fully appreciated even by many financially astute Americans: the damage the USA did to developing nations when the USA suffered the crash. Short on funds at home, US financial loans were no longer providing developing nations the money they needed to continue with their projects. These countries haven’t forgotten the sudden and crippling loss of funds. The ever-present possibility that this can and will happen again has become an omnipresent nagging worry. These nations realize that relying on the dollar is relying on an external condition over which they have absolutely no control but which can, did, and may again have a devastating effect on their economies. The second was Bernanke’s qualitative easing that diluted the dollar into a mere shadow of its former self (which was already a diminished dollar from the 1971 gold-based dollar). Here are the Reserve Balances with Federal Reserve banks. On September 17, 2008, the Fed banks had $47 billion. On May 27, 2015, the amount was $2,510.791 billion “Bernanke dollars,” which is but a homeopathic dilution of the pre-Bernanke dollar.

Foreign countries noticed. The most vocal were Russia and China. In 2010, China Daily reported that “China and Russia… [intend] to renounce the US dollar and resort to using their own currencies for bilateral trade.” China and Russia, with three other nations, formed BRICS (Brazil, Russia, India, China, and South Africa). Reuters reported last July that BRICS was forming a “$100 billion development bank and a currency reserve pool in their first concrete step toward reshaping the Western-dominated international financial system.”

The Plan for the BRICS Bank

Amy Goodman and Juan Gonzalez interviewed Nobel prize winning American economist Joseph Stiglitz about the planned BRICS bank. Stiglitz said BRICS was very important:

First, the need globally for more investment-in the developing countries, especially-is in the order of magnitude of trillions, couple trillion dollars a year. And the existing institutions just don’t have enough resources….[the new bank] is adding to the flow of money that will go to finance infrastructure, adaptation to climate change-all the needs that are so evident in the poorest countries.”

“Secondly, it reflects a fundamental change in global economic and political power, that one of the ideas behind this is that the BRICS countries today are richer than the advanced countries were when the World Bank and the IMF were founded. We’re in a different world…. The old institutions have not kept up.”

One big complaint was that people from other countries expected, in the 21st century, that people in the top positions of the IMF would “be chosen on the basis of merit, not just because you’re an American. And yet, the U.S. effectively reneged on that agreement.”

Gonzalez asked Stiglitz how China, which obviously has huge monetary reserves, and Brazil, which had its own development bank for several years, would work together as key players in this new BRICS bank.

China has reserves in excess of $3 trillion,” answered Stiglitz. “One of the things is that it needs to use those reserves better than just putting them into U.S. Treasury bills. You know, my colleagues in China say that’s like putting meat in a refrigerator and then pulling out the plug, because the real value of the money put in U.S. Treasury bills is declining. So they say, ‘We need better uses for those funds,’ certainly better uses than using those funds to build, say, shoddy homes in the middle of the Nevada desert. You know, there are real social needs, and those funds haven’t been used for those purposes.”

Stiglitz then talked about Brazil. “Brazil has BNDES… a huge development bank, bigger than the World Bank. People don’t realize this, but Brazil has actually shown how a single country can create a very effective development bank. So, there’s a learning going on. And this notion of how you create an effective development bank, that actually promotes real development … is going to be an important part of the contribution that Brazil is going to make.”

China and Russia Trade without Using the Dollar

In October, 2014, in an exclusive interview with CNBC, Russia’s Prime Minister Dmitry Medvedev said that the world must move away from its dependence on the U.S. dollar, arguing that the global economy would benefit from a more diversified currency system. “We have nothing against the dollar, but we believe that today’s currency system should be more balanced,” he said, calling for a greater number of major reserve currencies. In particular he said that the euro, the yuan, the pound and the dollar would be a good initial grouping. He mentioned BRICS as a group which was implementing this change. “A much more just financial system” was possible, he said.

Medvedev highlighted that when countries “really depend” on the dollar, they are beholden to the fortunes of the US. “The U.S. economy is now improving but we have no proof that it will not go down again, and then everyone will suffer,” he said. “We believe that we should move away from such dependency [on any one currency] in the world’s financial system.”

Medvedev pointed out that incorporating other currencies has allowed Russia to trade with China directly. “This is a good demonstration that if somebody leaves their place, another person occupies their place[italics mine],” he added. October’s agreements follow a high-profile gas supply deal with Gazprom, worth $400 billion, to supply China with gas over 30 years.

The 2014 China-led Asian Infrastructure Investment Development Bank

In addition to being a founding member of BRICS, the Chinese were forming a development back, the Asian Infrastructure Investment Development Bank (AIID). The US controlled the World Bank and theAsian Development Bank. Both of these institutions would face substantial competition if the Chinese development bank went forward. Combined with the BRICS bank, the new development bank would offer an international alternative to the dollar for trade.

According to the New York Times, “the United States, perhaps the most vocal of … critics… has not embraced the Chinese proposal. Instead, in quiet conversations with China’s potential partners, American officials have lobbied against the development bank with unexpected determination and engaged in a vigorous campaign to persuade important allies to shun the project, according to senior United States officials and representatives of other governments involved [italics mine].” The New York Times also reported the irrelevance of US critical arguments: “Washington’s arguments run up against undisputed needs on the ground in Asia – needs that existing institutions have been unable to meet, some development experts said. The Asian Development Bank estimated in 2009 that the region would need as much as $8 trillion in investments in physical infrastructure by 2020 – an amount that exceeds what it or the World Bank can muster, experts at the two banks said.”

Recent Developments

In April of this year the deadline fell for nations to join China’s new Asian development bank. The Chinese were astonished at the last-minute applications by countries not considered especially friendly to Beijing. Among the surprises: Taiwan and 14 of the Group of 20. Japan is the only major Asian ally still standing with the Obama administration. Even Australia and South Korea had decided to join. In Europe, Britain was among the nations that joined, much to the irritation of the US.

Meanwhile, Putin announced the launch of the $100-billion BRICS New Development Bank. It will have another $100-billion as a currency reserve pool to shield the BRICS currencies from the world economy and market volatility. The launch is in July in Ufa, Russia. “We expect to reach agreement in Ufa on the launch of practical operations of the BRICS Bank and a pool of currency reserves,” Putin said. The bank will be a rival to the IMF and World Bank and will finance infrastructure projects in developing countries. It also will challenge the dollar as the currency of international trade.

A Plausible but Underemphasized Motive for Goading China

In his excellent CounterPunch article, Jack Smith wrote that the US goading of China “is happening for one main reason. The U.S. has arrogated world rule to itself, without authority, competition, or oversight, since the implosion of the Soviet Union nearly 25 years ago. There is nothing more important to America’s ruling elite. Every possible danger to Washington’s hegemony must be neutralized. And looming in East Asia is the cause of Washington’s worst anxieties — China.”

Smith is certainly correct as far as he goes. Hegemony has been an official US policy since the Soviet Union collapsed. But there is an aspect of this hegemony that Smith does not mention: protection of the dollar’s status as the dominant currency of world trade. China and Russia are creating alternatives that threaten the dollar’s status as the sole dominant international currency. By instituting trade alternatives to the dollar, they challenge the value of the dollar and so threaten the US economy.

First published in CounterPunch under the title: ‘ An Economic Reason for the US vs. China’

Economy

Is Myanmar an ethical minefield for multinational corporations?

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Business at a crossroads

Political reforms in Myanmar started in November 2010 followed by the release of the opposition leader, Aung San Suu Kyi, and ended by the coup d’état in February 2021. Business empire run by the military generals thanks to the fruitful benefits of democratic transition during the last decade will come to an end with the return of trade and diplomatic sanctions from the western countries – United States (US) and members of European Union (EU).  US and EU align with other major international partners quickly responded and imposed sanctions over the military’s takeover and subsequent repression in Myanmar. These measures targeted not only the conglomerates of the military generals  but also the individuals who have been appointed in the authority positions and supporting the military regime.

However, the generals and their cronies own the majority of economic power both in strategic sectors ranging from telecommunication to oil & gas and in non-strategic commodity sectors such as food and beverages, construction materials, and the list goes on. It is a tall order for the investors to do business by avoiding this lucrative network of the military across the country. After the coup, it raises the most puzzling issue to investors and corporate giants in this natural resource-rich country, “Should I stay or Should I go?”

Crimes against humanity

For most of the people in the country, war crimes and atrocities committed by the military are nothing new. For instances, in 1988, student activists led a political movement and tried to bring an end to the military regime of the general Ne Win. This movement sparked a fire and grew into a nationwide uprising in a very short period but the military used lethal force and slaughtered thousands of civilian protestors including medical doctors, religious figures, student leaders, etc. A few months later, the public had no better options than being silenced under barbaric torture and lawless killings of the regime.

In 2007, there was another major protest called ‘Saffron Uprising’ against the military regime led by the Buddhist monks. It was actually the biggest pro-democracy movement since 1988 and the atmosphere of the demonstration was rather peaceful and non-violent before the military opened live ammunitions towards the crowd full of monks. Everything was in chaos for a couple of months but it ended as usual.

In 2017, the entire world witnessed one of the most tragic events in Myanmar – Again!. The reports published by the UN stated that hundreds of civilians were killed, dozens of villages were burnt down, and over 700,000 people including the majority of Rohingya were displaced to neighboring countries because of the atrocities committed by the military in the western border of the country. After four years passed, the repatriation process and the safety return of these refugees to their places of origin are yet unknown. Most importantly, there is no legal punishment for those who committed and there is no transitional justice for those who suffered in the aforementioned examples of brutalities.

The vicious circle repeated in 2021. With the economy in free fall and the deadliest virus at doorsteps, the people are still unbowed by the oppression of the junta and continue demanding the restoration of democracy and justice. To date, Assistant Association for Political Prisoner (AAPP) reported that due to practicing the rights to expression, 1178 civilians were killed and 7355 were arrested, charged or sentenced by the military junta. Unfortunately, the numbers are still increasing.

Call for economic disengagement

In 2019, the economic interests of the military were disclosed by the report of UN Fact-Finding Mission in which Myanmar Economic Corporation (MEC) and Myanmar Economic Holding Limited (MEHL) were described as the prominent entities controlled by the military profitable through the almost-monopoly market in real estate, insurance, health care, manufacturing, extractive industry and telecommunication. It also mentioned the list of foreign businesses in partnership with the military-linked activities which includes Adani (India), Kirin Holdings (Japan), Posco Steel (South Korea), Infosys (India) and Universal Apparel (Hong Kong).

Moreover, Justice for Myanmar, a non-profit watchdog organization, revealed the specific facts and figures on how the billions of revenues has been pouring into the pockets of the high-ranked officers in the military in 2021. Myanmar Oil & Gas Enterprise (MOGE), an another military-controlled authority body, is the key player handling the financial transactions, profit sharing, and contractual agreements with the international counterparts including Total (France), Chevron (US), PTTEP (Thailand), Petronas (Malaysia), and Posco (South Korea) in natural gas projects. It is also estimated that the military will enjoy 1.5 billion USD from these energy giants in 2022.

Additionally, data shows that the corporate businesses currently operating in Myanmar has been enriching the conglomerates of the generals and their cronies as a proof to the ongoing debate among the public and scholars, “Do sanctions actually work?” Some critics stressed that sanctions alone might be difficult to pressure the junta without any collaborative actions from Moscow and Beijing, the longstanding allies of the military. Recent bilateral visits and arm deals between Nay Pyi Taw and Moscow dimmed the hope of the people in Myanmar. It is now crystal clear that the Burmese military never had an intention to use the money from multinational corporations for benefits of its citizens, but instead for buying weapons, building up military academies, and sending scholars to Russia to learn about military technology. In March 2021, the International Fact Finding Mission to Myanmar reiterated its recommendation for the complete economic disengagement as a response to the coup, “No business enterprise active in Myanmar or trading with or investing in businesses in Myanmar should enter into an economic or financial relationship with the security forces of Myanmar, in particular the Tatmadaw [the military], or any enterprise owned or controlled by them or their individual members…”

Blood money and ethical dilemma

In the previous military regime until 2009, the US, UK and other democratic champion countries imposed strict economic and diplomatic sanctions on Myanmar while maintaining ‘carrot and stick’ approach against the geopolitical dominance of China. Even so, energy giants such as Total (France) and Chevron (US), and other ‘low-profile’ companies from ASEAN succeeded in running their operations in Myanmar, let alone the nakedly abuses of its natural resources by China. Doing business in this country at the time of injustice is an ethical question to corporate businesses but most of them seems to prefer maximizing the wealth of their shareholders to the freedom of its bottom millions in poverty.

But there are also companies not hesitating to do something right by showing their willingness not to be a part of human right violations of the regime. For example, Australian mining company, Woodside, decided not to proceed further operations, and ‘get off the fence’ on Myanmar by mentioning that the possibility of complete economical disengagement has been under review. A breaking news in July, 2021  that surprised everyone was the exit of Telenor Myanmar – one of four current telecom operators in the country. The CEO of the Norwegian company announced that the business had been sold to M1 Group, a Lebanese investment firm, due to the declining sales and ongoing political situations compromising its basic principles of human rights and workplace safety.

In fact, cutting off the economic ties with the junta and introducing a unified, complete economic disengagement become a matter of necessity to end the consistent suffering of the people of Myanmar. Otherwise, no one can blame the people for presuming that international community is just taking a moral high ground without any genuine desire to support the fight for freedom and pro-democracy movement.

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The Covid After-Effects and the Looming Skills Shortage

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coronavirus people

The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.

The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.

In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.

In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.

The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.

From our partner RIAC

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Economy

Accelerating COVID-19 Vaccine Uptake to Boost Malawi’s Economic Recovery

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Lunzu market in southern Malawi. WFP/Greg Barrow

Since the onset of the COVID-19 pandemic, many countries including Malawi have struggled to mitigate its impact amid limited fiscal support and fragile health systems. The pandemic has plunged the continent into its first recession in over 25 years, and vulnerable groups such as the poor, informal sector workers, women, and youth, suffer disproportionately from reduced opportunities and unequal access to social safety nets.

Fast-tracking COVID-19 vaccine acquisition—alongside widespread testing, improved treatment, and strong health systems—are critical to protecting lives and stimulating economic recovery. In support of the African Union’s (AU) target to vaccinate 60 percent of the continent’s population by 2022, the World Bank and the AU announced a partnership to assist the Africa Vaccine Acquisition Task Team (AVATT) initiative with resources, allowing countries to purchase and deploy vaccines for up to 400 million Africans. This extraordinary effort complements COVAX and comes at a time of rising cases in the region.

I am convinced that unless every country in the world has fair, broad, and fast access to effective and safe COVID-19 vaccines, we will not stem the spread of the pandemic and set the global economy on track for a steady and inclusive recovery. The World Bank has taken unprecedented steps to ramp up financing for Malawi, and every country in Africa, to empower them with the resources to implement successful vaccination campaigns and compensate for income losses, food price increases, and service delivery disruptions.

In line with Malawi’s COVID-19 National Response and Preparedness Plan which aims to vaccinate 60 percent of the population, the World Bank approved $30 million in additional financing for the acquisition and deployment of safe and effective COVID-19 vaccines. This financing comes as a boost to Malawi’s COVID-19 Emergency Response and Health Systems Preparedness project, bringing World Bank contributions in this sector up to $37 million.

Malawi’s decision to purchase 1.8 million doses of Johnson and Johnson vaccines through the AU/African Vaccine Acquisition Trust (AVAT) with World Bank financing is a welcome development and will enable Malawi to secure additional vaccines to meet its vaccination target.

However, Malawi’s vaccination campaign has encountered challenges driven by concerns regarding safety, efficacy, religious and cultural beliefs. These concerns, combined with abundant misinformation, are fueling widespread vaccine hesitancy despite the pandemic’s impact on the health and welfare of billions of people.  The low uptake of COVID-19 vaccines is of great concern, and it remains an uphill battle to reach the target of 60 percent by the end of 2023 from the current 2.2 percent.

Government leadership remains fundamental as the country continues to address vaccine hesitancy by consistently communicating the benefits of the vaccine, releasing COVID data, and engaging communities to help them understand how this impacts them.

As we deploy targeted resources to address COVID-19, we are also working to ensure that these investments support a robust, sustainable and resilient recovery. Our support emphasizes transparency, social protection, poverty alleviation, and policy-based financing to make sure that COVID assistance gets to the people who have been hit the hardest.

For example, the Financial Inclusion and Entrepreneurship Scaling Project (FInES) in Malawi is supporting micro, small, and medium enterprises by providing them with $47 million in affordable credit through commercial banks and microfinance institutions. Eight months into implementation, approximately $8.4 million (MK6.9 billion) has been made available through three commercial banks on better terms and interest rates. Additionally, nearly 200,000 urban households have received cash transfers and urban poor now have more affordable access to water to promote COVID-19 prevention.

Furthermore, domestic mobilization of resources for the COVID-19 response are vital to ensuring the security of supply of health sector commodities needed to administer vaccinations and sustain ongoing measures. Likewise, regional approaches fostering cross-border collaboration are just as imperative as in-country efforts to prevent the spread of the virus. United Nations (UN) partners in Malawi have been instrumental in convening regional stakeholders and supporting vaccine deployment.

Taking broad, fast action to help countries like Malawi during this unprecedented crisis will save lives and prevent more people falling into poverty. We thank Malawi for their decisive action and will continue to support the country and its people to build a resilient and inclusive recovery.

This op-ed first appeared in The Nation, via World Bank

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