Today Fitch Ratings upgraded the Philippines to investment-grade, which will substantially increase investment in the country. Expect particularly strong growth in electronics and textiles, which will buttress current export strengths in electronic assembly and garments.
Update 5/22/2013: The Philippines obtained the #3 position in foreign investment among South-East Asian countries so far in 2013 (WSJ).
French Foreign Minister Laurent Fabius recently indicated that development would be a priority in Mali as a counterinsurgency strategy. The theory is that after winning the war, an infusion of development funding will solidify gains among the population and strengthen their resolve against Islamist rebels. French and Malian officials are currently in Lyon, France, discussing details of 300 projects that will focus on water, health, education, and job training (BBC, EuroNews).
While providing development to impoverished Malians is intuitively good, the likely small scale of the overall project, combined with its implementation in a conflict zone, pose complications and could even lead to confounding effects. Mali has an overall population of 15.5 million sharing a GDP of $9.6 billion ($619 per capita) (CIA Factbook). While the amount of development funding planned by France has not been revealed, development funding in Afghanistan can be used as a point of comparison: $62 billion over ten years from 2002-2011 (National Defense University), or about $200 per person per year. An equivalent development level for Mali would require $3.1 billion for 2014 alone, which is unlikely given the state of France’s economy.
The impact of $200 of funding per person per year in Mali could actually be negative. Twenty-five percent is probably lost to legitimate administration. Through corruption, government officials could absorb 5-15% of the remaining funding. Through extortion, Islamist rebels could “tax” the development contractors doing the actual construction or service delivery in Northern Mali. This could provide them with access to scarce cash necessary to take their rebellion to a more lethal level. Finally, populations with heightened expectations from advance hearsay of the development projects could have those expectations dashed by the inadequacy of those projects once they reach the villages. While a nice gesture, whatever development funding remains after administration, corruption, and extortion costs (about $120 per capita by my calculation) may seem stingy to a Malian villager who is now intimate with the French rolling around in million-dollar armored vehicles, and streaking across the sky in jets.
On March 15, 2011, popular protests erupted in Syria as part of the Arab Spring. The Syrian regime brutally suppressed the protests, which grew into armed opposition and civil war. President Bashar Hafez al-Assad’s Ba’athist government fought against a splintered but militant opposition. The United Nations tracked atrocities committed on both sides, including more than 70,000 killed (CNN).
Assad obtains most of his political support from the authoritarian regimes in China, Russia, and Iran. The Arab League previously supported him, but as the atrocities mounted, now supports the opposition. There is substantial public support for action against the Syrian regime in the United States, France and Britain. The types of action palatable to the voting public in the United States and Britain, weary of wars in Iraq and Afghanistan, do not include intervention. The public in newly-interventionist France does support deploying United Nations troops to Syria. All three countries support economic sanctions, and there is increasing support for supplying opposition groups with military materiel (Council on Foreign Relations). Political leadership in the United States, France and Britain are responding with proxy war proposals consistent with this public opinion.
Expect limited military materiel support to Syrian rebels from the US, Britain and France in the near future. Due to insufficient public support, this will not include deployment of troops, and will only be sufficient to prolong — not win — the war. Over time, limited and therefore ineffectual military support may lead to increasing public support for deployment. If deployment occurs, expect a quick apparent win by the opposition, which turns into a long (5-15 years) and expensive period of nation-building and civil war as in Iraq and Afghanistan. Increased western military expenditures will improve yields in the defense sector, but increase government debt and taxes. Expect lower economic performance overall as defense expenditures aimed at Syria increase.
Opposition groups that will immediately benefit from western intervention in Syria will solicit such intervention in the short term. However, public opinion in Islamic countries find western intervention highly disagreeable, as do China, Russia and Iran. Expect increased global tensions and Islamic terrorism from western intervention in Syria. Expect Syrian opposition groups to quickly spurn their western benefactors as soon as military and other aid ends.
Today, France joined the UK in publicly threatening to rupture a common approach to European Union (EU) foreign policy by sending arms to Syrian rebels (Bloomberg). This, on the heels of the January 11 unilateral French intervention in Northern Mali. Since the May 2012 election of French President François Hollande, France has increased its political independence with respect to the EU. This distresses Germany, which wants closer political union. Without seeing gains in political unity, Germany could decrease its financial support to the European project (Council on Foreign Relations). This augurs poorly for European monetary union, the value of the Euro, and global economic stability.
Lack of German financial support to Europe would increase the probability that Portugal, Italy, Ireland, Greece, or Spain would be forced out of the Euro. Were this to happen without prior agreement from the rest of the eurozone, the cost to the dropout would be catastrophic in terms of trust and with it, access to money markets. The cost to the remaining eurozone countries would be an increase in eurozone per capita money supply and resulting inflation of the Euro. Confidence in the Euro would fall, and the chance of further dropouts would be reflected in the foreign exchange market. Decreasing confidence and loss of value increases incentives for other EU countries to be the next to leave the Euro, with spiraling downward effects on its value. The massive investment in the Euro — and the amount that could be lost given failure — explains why Germany is willing to prop up the currency through stabilization of economically ailing eurozone members. Ailing eurozone countries milk their wealthier neighbors with the threat of Euro collapse.
Euro collapse is not just a European problem. It would have a disastrous effect on the global economy, including major European trading partners such as the United States and China. Thus, all trading partners with Europe have — at least for economic reasons — a stake in the success of a European common foreign policy. This should be considered when jockeying for short-term diplomatic goals such as arming the opposition in Syria.
Increasing European political integration and unity should give the investor increased confidence in the Euro; decreased integration and unity will have downward effects. In part because of understandable historical differences based on the subjective experience of World War II, Germany is profoundly leery of military intervention. France and Britain frequently see intervention as an obligation to stop massacre, genocide, and civil war, especially when such intervention involves ancillary benefits such as removing a rogue or terrorist threat. Increased institutional power to overcome foreign policy differences in Europe would assist common foreign policymaking, and thereby improve market confidence in the Euro. Public pronouncements of Britain and France asserting foreign policy independence from the EU are geared towards influencing Germany and other recalcitrant EU states to take the UK-France-Italy approach on Syria. They show that for the moment at least, short-term foreign policy goals are trumping aspirations of a common EU foreign policy, stability of the Euro, and mitigation of risk to the international economy.
Watch for any hedge by the German government against the Euro, which will precede rapid loss of confidence in the Euro and a decrease in German monetary support to the currency union.
Nepal passed a modest milestone today in its attempts to improve stability . The four top political parties named Supreme Court Chief Justice Khilraj Regmi as head of an interim government. The main goal of Regmi will be to hold elections by June 21 for a new parliament empowered to adopt a constitution (ABC News).
However, we are not overly optimistic. Smaller political parties led violent riots in opposition to Regmi, it is unclear whether elections will actually be held, and even if elections are held, it is unlikely they will lead to a constitution. The last parliament elected for the purpose of deciding on a constitution — in 2008 — was unable to agree on one during its four-year tenure. Nothing fundamental has changed in Nepalese politics to suggest that a constitutional breakthrough will occur in the near future.
Despite the political change that just swept Venezuela — which may indicate a decrease in the promotion of socialism from that country — a more powerful influence for Latin American socialism just arose in Rome. Today Cardinal Jorge Mario Bergoglio became Pope Francis, a name he chose after a Saint known for his asceticism. While socially conservative (e.g., on abortion and gay rights), Cardinal Bergoglio was known to eschew the luxuries of his station for a simple life that included modest quarters, self-cooked meals, and hailing the bus in Buenos Aires. His sermons suggest great sympathy for social justice and the poor, and he comes from Latin America (Washington Post).
Bergoglia’s reputed historical links to 1970s fascism in Argentina, and his political astuteness, means that he wants to prove otherwise. Regardless of his true feelings, it will be hard for him not to play to his massive constituency of poor Catholics in Latin America — the greatest number of Catholics worldwide. Nearly all of Latin America’s poor will be looking to him to address their plight. Regardless of the position he takes on poverty in the future, the lay Catholic ministry in Latin America, and political entrepreneurs farther up the hierarchy, will gain favor among their largely overlapping constituencies for presenting the new Pope as supportive of socialist endeavors. This points to a revival of the liberation theology of the 1980s, and a greater probability of socialist-inspired coups, revolutions, debt defaults, and nationalizations — especially in Latin America.
Gallup opinion polls conducted following North Korea’s third nuclear weapons test found that approximately 64% to 66.5% of South Koreans believe South Korea should develop an independent nuclear weapons capability. They want the capability to defend against North Korea if the United States unexpectedly withdraws its security commitment to South Korea (New York Times).
The United States is fully committed to the defense of South Korea, and North Korea is well aware of this fact. For this reason, South Koreans should not be overly concerned with the latest North Korean antics. The United States stands firmly with its ally South Korea.
Nevertheless, South Koreans are understandably uncomfortable having an unpredictable and highly belligerent nuclear-armed neighbor to the North. South Korean nuclearization would be a major blow to nonproliferation of weapons of mass destruction (WMD). The nonproliferation regime works because member countries show self-restraint by not developing independent nuclear weapons. Rather, they entrust their defense to a close security partnership with the United States, NATO, and other friendly alliances.
If the strength of the alliance is not apparent to the voting population of a non-nuclear country — in this case South Korea — then it is incumbent upon the stronger member of the alliance to take greater measures to display that commitment. These measures should include improved specification of treaty obligations, greater numbers and quality of forces deployed to South Korea, higher levels of South Korean inclusion and diplomatic collaboration in U.S. foreign policy decision-making, and improved diplomatic relations overall through improved trade relations. Deepening all facets of the relationship between South Korea and the United States will enhance the trust required for South Koreans to place the security of their nation in the hands of the United States.
Not taking proactive measures to improve the trust of South Koreans in the United States risks nuclearization of South Korea, which by example, will exponentially increase the risk of further global WMD proliferation. South Korea is a highly respected member of the international community. South Korean nuclearization will erode the taboo against proliferation, making it seem a respectable option for many small and medium-sized nations. We cannot afford the increased risk of nuclear war that this entails.
Unrest in Bangladesh has increased due to trials against Jamaat-e-Islami leaders stemming from war crimes in 1971 (Washington Post). Watch for greater army involvement in attempts to quash violent protesters. Such military action is likely to increase a turn towards terrorism by extremist youth groups. The most active of such groups will be Jamaat-e-Islami’s militant youth wing — the Islami Chhatra Shibir (ICS).
The ICS is strongest in universities and a member of some legitimate international Islamic organizations. However, they are intolerant Wahhabists, linked to Bangladesh domestic terrorism, and likely connected to international terrorist organizations (University of Maryland).
An excellent Economist article dated March 9 discusses Bangladesh unrest due to criminalization of Jamaat-e-Islami. They take a similar stance to Corr Analytics’ posts of February 18 and March 6.
Saber-rattling by China over the Senkaku Islands, most recently in the form of locking weapons on a Japanese ship and helicopter, have led some analysts to warn of war between the two East Asian countries. These analysts go further to question whether the US treaty commitment to Japan’s territorial integrity would hold in this case (Wall Street Journal).
Such warnings are overblown. Militarized jostling of this sort is normal for low-intensity territorial disputes. All parties — including China — recognize that war would be counterproductive. China regularly activates media coverage with its mildly belligerent actions in order to bolster and maintain its long-term claim to the islands should the case go to an international court in future. Japan is a key US ally and trading partner. There is no question that were war to occur between China and Japan, the United States would defend its ally.