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Global stocks, dollar rise after US data Page 02
profit.com.pk
Wednesday, 02 May, 2012
MAYBE WE NEED APPLES
The Doctor conjures up another hard pill to swallow
IT’S GOING DOWN…
Govt’s three-pronged slipup g
Railways, PIA, PSM continue to spiral down in 2011-12 as govt fails to cut down losses ISLAMABAD
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eSPITe claims by the Cabinet Committee on Restructuring (CCOR), the government has failed to reform the Public Sector enterprises (PSe) during 2011-12. The government had earlier announced the management would be replaced with professionals to make the entities profitable. Prime Minister Yusuf Raza Gilani announced in December last year to form a task force headed by Finance Minister Dr Abdul hafeez Sheikh, to address the issue of energy crisis and for the transformation of public sector entities, including Pakistan International Airline (PIA), Pakistan Railways and Pakistan Steel Mills (PSM). According to Finance Minister, hafeez Shaikh, the government spends an estimated Rs 250 billion as PSe bailout cost every year. A total of Rs 30 billion has already been doled out to the PSM to cover its financial losses. Much of the reduction in expenditures from 20.5 per cent of the GDP in 2010 to 18.9 in 2011, came at the expense of development expenditures, which will “dampen fixed investment” and lower future growth prospects. The federal subsidies were three times higher than envisaged in the budget leading to resource misallocation. Pakistan Railways, PIA and Pakistan Steel are classical examples of the heavy cost of poor governance to the economy. Pakistan Railways, national passenger carrier is into ruin, ending all goods haulage, and
leaving millions of passengers stranded. In the almost last four years since the current government took power, Pakistan railways has retired 64 of its 104 trains, leaving just 40 left for a country larger than Britain and Germany combined. With expected losses of 35 billion rupees $390 million in fiscal year July 2011 to June 2012 the company relies on government handouts of 2.5 billion rupees $2.8 million a month to pay salaries and pensions. In 2007-08Pakistan Railways have faced Rs16.9 billion, 2008-09, the loss went to Rs23 billion, in 2009-10, Rs25 billion while in 2010-11 the loss of national flag carrier went to Rs31.1 billion that makes the accumulated debt of Pakistan Railway to Rs 132 billion in last four years. During first six months of current fiscal year; Pakistan International Airline (PIA) suffered a loss of Rs 10.7 billion. The Cabinet Committee on Restructuring (CCOR) has said that it might use 20 billion rupees on the condition of restructuring the airline. One of the main reasons why the debt is increasing every year for the national flag bearer is its Rs15 billion long term debt,
on which it has had to pay billions of dollars of interest every year. Along with the long term debt, the short term liabilities for PIA are also increasing at an alarming rate and if not dealt with soon, will lead to more liquidity problems. In 2008, the airline’s accumulated losses stood as high as Rs73 billion and have risen to over Rs107 billion at present. Financially, it is this long term debt, and the losses that are not dealt with which is causing most other problems for the airline. There are a number of varied opinions regarding why this does exist; politics, global economy and inefficiency are cited as a few, and they all hold true. The Pakistan Steel with its prevailing inefficiencies is due to the centralized, bureaucratic structure with considerable government intervention. however, with elections just around the corner, privatization doesn’t top the list of solutions for saving PSM. PSes like Pakistan Railways and PIA
have social service provision responsibility and therefore privatization may not be a plausible solution for them. Steel Mills, on the other hand, is free from such restrictions but political hegemony comes in the way to make it a profit-making entity. The solution to these problems is clearly missing in the announced plan, without which any action will fail to achieve the desired results. even if the government opposes privatization, independent boards comprising of private sector experts who are credible and dedicated to work in the interest of the company are much needed. With no government influence in the running of the entity, bureaucratic inefficiencies will cease to exist. Such plans, however, have seldom seen the light of the day. Action and implementation, the key to ensuring the success of such plans, is something that the government lacks. Whether this development will prove the general mindset wrong or will it strengthen our belief about the fate of the PSes as a tool for political patronage remains to be seen.
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Hafeez reviews tax reforms, peddles unrealistic numbers Claims provisional collection up to April was Rs 1,424 billion, FBR would achieve Rs 1.952 billion target ISLAMABAD ONLINE
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he Federal Minister for Finance Dr. Abdul hafeez Shaikh stressed the need of increasing the momentum of revenue collection to achieve the target of Rs. 1952 billion. Finance Minister while addressing the Tax Reforms Coordination Group (TRCG) at Federal Board of Revenue (FBR) expressed hope that after achieving the Provisional Collection upto April was about Rs. 1424 billion figures, FBR would achieve the Rs 1952 billion target. Chairman FBR Mumtaz haider Rizvi, in his opening remarks informed the Minister about the discussions so far held between the TRCG and FBR. exclusive discussions on policies and strategies to improve the tax policy with a view to increase the revenue were held along with presentations by FBR. Budget proposals for the upcoming budget to be presented in May 2012 were extensively discussed and strategized. Shaikh expressed confidence and hope that the assigned budget targets would be achieved through sustained efforts. he desired that the detailed collection under various heads be sent to him on daily basis. The day-long meeting continued till late evening. The Tax Reforms Coordination Group crystallized the current proposals on the forthcoming budget, with the objective to facilitate business, reduce cost of doing the business, avoid economic burden, harmonize tax laws and promote industry and commerce while improving tax collection. The meeting was attended by Deputy Chairman Planning Commission Dr. Nadeem ul haque, Federal Secretary Finance Abdul Wajid Rana, Secretary eAD Dr. Waqar Masood, DG (eRU) Dr. Khaqan Najeeb and Members TRCG Mr. Irfan Nadeem, Arshad Zuberi, Bashir Ali Mohammad, ShabbaMs. Riffat Shaheen Qazi Member (FATe),Shahid hussain Asad Member (IR), Sardar Amimullah Khan Member (enforcement & WhT), Raza Baqir Member (Admin), Azra Mujtaba Member (SP&S) and Nisar Muhammad Chief Collector (North) FBR.
BUDGET BASH
NLPP highlights fund allocation need for education g
Substantial budget to promote education demanded A number of ghost schools still exist g
RAWALPINDI
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hAIRMAN National Literacy Promotion Program (NLPP) Mr. Asif Irshad Satti has demanded allocation of substantial funds for next fiscal year budget to promote better education facilities in the rural and urban areas. Talking to a ceremony of teachers here Tuesday, he said budgetary
allocation for expansion of educational facilities out of the total Gross Domestic Product (GDP) is very low and if the government does not pay any attention to improve the current situation, the on-going education betterment projects instituted at Federal and Provincial level would be badly damaged, he remarked. Mr. Asif Satti pointed out that in the far flung areas, there are still a number “Ghost Schools” exists and
the influential persons normally use these school building for animal farming. he said that dedicated sincere efforts are required to upgrade the standard of education in the country besides enhancing rate of literacy by undertaking effective and positive steps. The Chairman (NLPP) stressed the need for addressing the difficulties being faced by the teaching staff and said that adequate raise in
salaries should be announced in the forthcoming budget 2012-13. he stated that private sector had played significant role in promotion of education and despite of various difficulties and non professional attitude of policy makers, remarkable performance has been achieved in setting high standards of education during last few years. Mr. Asif Satti asked the intelligentsia to highlight the
issues relating to education and encourage such organizations which had been contributing for promotion of quality education in the country. he said achievements of teachers and well as students showing outstanding performance should be acknowledged. he asked the teachers to discharge their responsibilities with national zeal and pay full attention in the character building of young students.
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Wednesday, 02 May, 2012
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Global stocks, dollar rise after US data NEW YORK
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REUTERS
ORLD stocks and the US dollar rallied on Tuesday after data showed US manufacturing unexpectedly picked up last month, soothing recent worries about the global economy. The Australian dollar fell nearly 1 percent against its U.S. counterpart after the Reserve Bank of Australia slashed rates by a deeper-thanexpected 50 basis points. Domestic government bond yields hit 60-year lows. U.S. factory activity expanded in April, the Institute for Supply Management said, with its index of national factory activity rising to 54.8 from 53.4 in March, above expectations of 53.0. World stocks posted a loss of about 1.5 percent last month as worries about global economic growth resurfaced after data showed the U.S. economy cooled in the first quarter and the euro zone recession is deepening. “It shows we may be coming out of this little bit of a lull that manufacturing has had here over the last couple of months,” said Peter Jankovskis, cochief investment officer of Oakbrook Investments in Lisle, Illinois. “europe (recently) flared up and our numbers slackened, but if this trend can be continued the focus will come back to the U.S. economy and that should be a positive for the market.” The MSCI’s world equity index .MIWD00000PUS gained 0.4 percent to 329.89. Trading was limited with many markets in Asia and europe closed for the May Day holiday. On Wall Street, the Nasdaq Composite was up 1 percent and the S&P 500 hit a 1-month high. The Dow Jones industrial average .DJI was up 87.72 points, or 0.66 percent, at 13,301.35. The Standard
& Poor’s 500 Index .SPX was up 12.80 points, or 0.92 percent, at 1,410.71. The Nasdaq Composite Index .IXIC was up 31.39 points, or 1.03 percent, at 3,077.75. Adding to bullish sentiment were signs of recovery in Chinese manufacturing. China’s Purchasing Managers’ Index rose to a 13-month high in April, suggesting the world’s secondlargest economy has found a footing and may be recovering from a firstquarter trough. The FTSeurofirst 300 index of top european shares .FTeU3 was up 0.4 percent at 1,047.62. emerging market shares .MSCIeF gained 0.1 percent. The dollar
rose 0.5 percent to 80.20 yen, rebounding from a low of 79.62, its weakest point since February. The stronger yen hit Japan’s exportrelated equities, sending the Nikkei index .N225 down 1.8 percent to a 21/2-month closing low. The euro slipped 0.1 percent to $1.3221. In the commodities market, Brent crude rose 47 cents to $119.95 a barrel while U.S. crude rallied $1.36 to $106.22. Gold inched up to a twoweek high and last traded around $1,662 an ounce. The benchmark 10year U.S. Treasury note was down 9/32, with the yield at 1.9488 percent.
SECP, KCDR to sign MoU KARACHI ONLINE
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he Securities and exchange Commission of Pakistan (SeCP) and the Karachi Centre for Dispute Resolution (KCDR) have agreed on signing of a Memorandum of Understanding for future cooperation. The Chairman of the (SeCP), Muhammad Ali, along with his team including, Deputy Director Law Natasha Jahangir, Commissioner Insurance, Muhammad Asif Arif, visited KCDR to discuss future cooperation between SeCP and KCDR. The Chairman SeCP directed to interact and coordinate with Director officials to point out the sectors in which SeCP can take benefit from the services of KCDR. President KCDR, Mr. Justice (Retd.) Saiduzzaman Siddiqui, Mr. Anwar Mansoor, Vice President KCDR, Mr. Moin Fudda, member Board of Governor KCDR and Director KCDR, Dr. Zafar Ahmed Khan Sherwani welcomed the Chairman SeCP
Someone actually thinks the govt is doing a good job g
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TRADE BONDING GOING ON DOWN SOUTH
RCCI, Sri Lanka’s CCC sign MoU on bilateral trade g MoU to promote Pakistan-Sri Lanka business, friendly ties g
COLOMBO
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OLLOWING launch of the Grand Made in Pakistan - Single country exhibition in Colombo; Pakistan’s Rawalpindi Chamber of Commerce and Industry (RCCI) signed a Memorandum of understanding (MoU) with the Ceylon Chamber of Commerce (CCC) of Srilanka under the patronage of the high Commission of Pakistan in Sri Lanka, the Pakistani high Commission said Tuesday. The MoU aims to encourage mutual understanding and promote business and friendly relations between the industrial, trade and business communities of Pakistan and Sri Lanka. The Rawalpindi Chamber of Commerce and Industry (RCCI) is the premium business association of Pakistan which was established in 1952. The RCCI is affiliated with the Federation of Pakistan
PEW lauds govt’s move to address concerns of rice farmers, exporters ISLAMABAD ONLINE
he Pakistan economy Watch (PeW) on Tuesday lauded the government for taking steps aimed at addressing the genuine concerns of rice farmers and exporters. The concerns of growers, exporters and other stakeholders came to limelight following the decision of the government to liberalise the import of agricultural products from India. Trade liberalisation could have resulted in onslaught of cheap rice from India hurting local sector which is employing millions and generating around two billion dollars per annum for country, said Dr. Murtaza Mughal, President PeW. he said that Pakistan is following free market economy rules in rice trade while India is heavily subsidising many agricultural products including rice. Dr. Murtaza Mughal said that India agricultural subsidies surpass USD 30 billion while subsidies in Pakistan are said to be around 500 million dollars. Keeping
Love thy neighbour… and their chamber of commerce Chambers of Commerce and Industry, which itself is the member of the International Chamber of Commerce and Industry. The RCCI has more than 4000 members comprising business establishments from large manufacturers to home based small businesses. The Chamber has played a vital role in the development of commercial, industrial and economic activities in the region. The Ceylon Chamber of Commerce (CCC) of Srilanka was founded on March 25, 1839 under the British Rule. The agriculture based services provided by the CCC to its members, has gradually elevated to value added services. Over a period of years, CCC which plays a catalytic role in the development of the business sector, changed its focus on identifying key issues to assist in the development of strategic plans to meet new challenges and opportunities. Pakistan is the 2nd largest
at KCDR. Mr. Muhammad Ali, Chairman SeCP, was briefed about the role of KCDR and the Director of KCDR highlighted the role of mediation in corporate good governance and presented the statistics of the number of cases referred to and resolved by KCDR since its establishment. he emphasized various benefits of mediation such as inexpensive costs, speedy resolution time as well as a win-win solution. It was highlighted that mediation brings easy and quick relief to both parties involved in a dispute. Dr. Zafar Ahmed Khan Sherwani apprised the Chairman SeCP that the Karachi Stock exchange and other exchanges can take benefit of mediation services of KCDR under Regulation 26 of the Karachi Stock exchange regulation “Dispute to be referred to Arbitration” for amicable settlement of dispute before going to arbitration. The Chairman SeCP appreciated the services provided by the Karachi Centre of Dispute Resolution and assured full support for the promotion of KCDR as well as referral of cases.
the situation in view, the Commerce ministry has taken all the stakeholders on board and proposals are being finalised which would be soon sent to National Tariff Commission to impose countervailing duty on Indian rice. Such a decision will mitigate the negative effect of import of Indian rice in Pakistan and ensure level playing field for all stakeholders, Dr. Murtaza Mughal observed. earlier, government had refused to include Indian rice varieties in the negative list despite several requests from concerned quarters which resulted in uncertainty among rice stakeholders, he said. Pakistan rice sector needs government support to survive and retain their share in markets of Afghanistan, Iran, Central Asia, and some other destinations, he said. It is unlikely that India, despite criticism by World Bank and other bodies, would withdraw subsidies reaching to 14 per cent of GDP. Similarly, Pakistan has no plans to pay any grants to farmers or ensure provision of inputs like fertiliser, diesel, and electricity on rates matching that of India, therefore every facet of trade liberalisation needs thorough study, he demanded.
CALIFORNICATION trading partner of Sri Lanka within the South Asian region. The level of bilateral trade between Pakistan and Sri Lanka increased as a result of the Free Trade Agreement (FTA). Trade between the two countries increased from US$ 225 million to over US$ 390 million during the last four years, with the positive support gained from the FTA. Sri Lanka was the first country to sign a Free Trade Agreement (FTA) with Pakistan. FTA between Pakistan and Sri Lanka is operational since 2005. Under FTA, Sri Lanka and Pakistan have agreed to offer preferential market access to each others’ exports by way of granting tariff concessions. Sri Lanka enjoys duty free market access on 206 products in the Pakistani market, while Pakistan, gained duty free access on 102 products in the Sri Lankan market. The aim of a free trade agreement is to reduce barriers, to facilitate exchange so that trade can grow as a result of specialization, division of labor, and most importantly via comparative advantage. The two brotherly countries have also signed the Bilateral Investment treaty in December 1997, which came into force in January 2000 after ratification. In addition a memorandum of understanding between Board of Investment Pakistan and Board of Investment Sri Lanka has also been signed in February 2007 for strengthening of cooperation in all the sectors of investment of both countries.
Sindh could be Pakistan’s California Sindh has every potential to become our economic and power hub: Qaim Ali Shah g
KARACHI
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INDh is a resource rich province of Pakistan with every potential to become economic and power hub, Chief Minister of Sindh, Syed Qaim Ali Shah was quoted to have said during a press conference arranged at the residence of Counsel General of UAe. According to a press release issued on Tuesday a high powered official delegation headed by Syed Qaim Ali Shah is attending the second annual investment conference scheduled being opened in Dubai on Tuesday. Syed Qaim Ali Shah in his press conference appreciated the UAe government for organizing the event and said Pakistan is a country of tremendous opportunities. he said such events will make UAe a destination for business collaborations. Focusing on Sindh’s potential he said Allah has blessed Sindh with all the resources to become regional power house. “Karachi, the largest city, and finance and trade hub of the country is Sindh’s capital,” he was quoted to have said. The chief minister said his province has proven reserves of 175 billion ton coal, that can produce 100,000 MWs of electricity, good enough 300 years. Moreover, it also has a 180 km long wind corridor and produces over 70% of country’s gas and 51 % of oil. Sindh has over 5.4
million hectares of cultivable land and contributes about 23% to country’s agriculture that enhances its scope for food processing and agri-businesses. The Sindh chief minister said the province also has a significant competitive edge in production of horticulture especially dates, mangoes guava, banana, onions and red chilies. In addition, Sindh also has huge potential for livestock including dairy and halal meat production. Sindh has 350 kms coastline and accounts for 71 % of country’s marine resources including fish and shrimp. Syed Qaim Ali Shah emphasized that the government of Pakistan and the provincial government of Sindh were participating in the event to explore possibilities of increasing foreign direct investment. he said both the federal and provincial governments have evolved a very attractive policy regime for foreign investment carrying range benefits for foreign investors. The chief minister of Sindh particularly referred to Thar coal and wind projects with attractive tariff complimented by facility for dollar based repatriation of profits plus a zero rated import duty on import of machinery. Syed Qaim Ali Shah said that given Sindh’s mineral resources and renewable energy resources coupled with an attractive incentive package, it was a great opportunity for international companies to invest in this sector.
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Europe stocks suffer as Spain in recession FTS Eurofirst 300 down 0.8 pct, Euro STOXX 50 down 1.6pct g Spain’s IBEX has worst month in 1-1/2 yrs, GDP data hurts g Corporate offer some relief from a low base g
LONDON
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REUTERS
UROPeAN stocks snapped a four-session rally on Monday, with news of a recession in Spain putting the euro zone’s economic and debt problems back in the spotlight and charts pointing to more market weakness as long as a key resistance level holds. Spain’s IBeX index finished April down 12.5 percent in its worst monthly showing in nearly 1-1/2 years. Investors braced for more turbulence in May, when the second round of presidential elections in France and parliamentary polls in Greece could shake the euro zone’s ability to reach a consensus on how to deal with debts and clamber out of recession. “On a macro front, or political front, in europe things aren’t looking so great ... I am cautious in the short term,” James Butterfill, equity strategist at Coutts, said. The euro STOXX 50 index of euro zone bluechips closed down 1.6 percent at 2,306.43 points on Monday. The pan-european FTSeurofirst 300 fell by a more modest 0.8 percent, cushioned by the presence of Nordic stocks. Strategists at JPMorgan said that Spain would likely remain the underperformer in europe, while Germany - which is up 15 percent for the year-to-date - and Britain
would do well. euro STOXX 50 has lost 8.2 percent in April, its worst monthly showing since August 2010. Volumes on Monday were at just 74 percent of the 90-day daily average, with some investors extending their weekend in anticipation of a holiday on european bourses on Tuesday. A run of relatively solid corporate reports had enabled the index to stage a tentative recovery last week, but it stumbled against technical resistance at the 200day moving average which around 2,348 - also acted as its ceiling on Monday. “It still has a strong obstacle in the form of 200-day moving average ... In order to change (the outlook) to the positive side we need to break above,” Dmytro Bondar, technical strategist at RBS, said, adding that weakness would likely be limited by the bottom of the recent range, at 2,280. Data from ePFR Global showed outflows from european equities totaling $4.6 billion last week - the biggest in eight months. Spain, Italy, Greece and the Netherlands, however, enjoyed small inflows, suggesting that some bargain hunters believe the region will manage to resolve the three-year-old crisis. “Our european equity mutual fund flow sentiment indicator fell sharply ... into the region
that, in our view, reflects very depressed sentiment levels and historically has acted as a useful contrarian buy signal,” Nomura strategists wrote. One thing that could persuade investors back into europe is corporate profits, with strong results driving sports goods maker Adidas 5.3 percent higher on Monday. Of the STOXX 600 companies which have reported first quarter results so far, 58 percent beat or met earnings forecasts, up from 52 percent for full year 2011, according to Thomson Reuters StarMine data. Butterfill at Coutts noted that the beats came against a fairly low base of expectations, but said that overall the earnings picture was supportive for the market. “If the markets begin to price a euro zone breakup, but ultimately avert this scenario, as was the case in September 2011, then we could see a further downside of 8.7 percent, bringing the euro STOXX 50 to 2,115 level,” he said. “however, the markets have already priced for disappointment in Spain and a less favourable outcome in the France/Greek elections. This, supported with better than expected corporate results means unless the markets see greater probability of a euro zone breakup then the recent correction doesn’t have much further downside.”
Stocks, euro fall in April on Europe stress NEW YORK
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ReASURY prices rose, while the euro fell and the dollar slipped to a more than two-month low against the yen as anxiety over economies on both sides of the Atlantic led investors to favor lower-risk investments over stocks and other risky assets. Spain, the euro zone’s fourth-largest economy, slipped into recession in the first quarter as domestic demand fell, joining Italy, Portugal, Ireland,Greece, Belgium and the Netherlands on the list of countries with shrinking economies. In the United States, consumers boosted spending only modestly last month and a gauge of Midwestern business activity fell sharply in April, suggesting the economy entered the second quarter with less steam. “Growth is beginning to fade around the world,” said Justin hoogendoorn, fixed income strategist at BMO Capital Markets in Chicago. The MSCI world equity index .MIWD00000PUS slipped 0.2 percent to 328.66. For the month, the index was down 1.4 percent, though still up nearly 10 percent this year to date. On Wall Street, the S&P 500 posted its first monthly decline since November. The Dow Jones industrial average .DJI ended down 14.68 points, or 0.11 percent, at 13,213.63. The Standard & Poor’s 500 Index .SPX closed down 5.45 points, or 0.39 percent, at 1,397.91. The Nasdaq Composite Index .IXIC was down 22.84 points, or 0.74 percent, at 3,046.36.
The resistible rise of Asia? BRAHMA CHELLANEY
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favorite theme in international debate nowadays is whether Asia’s rise signifies the West’s decline. But the current focus on economic malaise in europe and the United States is distracting attention from the many serious challenges that call into question Asia’s continued success. To be sure, today’s ongoing global power shifts are primarily linked to Asia’s phenomenal economic rise, the speed and scale of which have no parallel in world history. With the world’s fastest-growing economies, fastest-rising military expenditures, fiercest resource competition, and most serious hot spots, Asia obviously holds the key to the future global order. But Asia faces major constraints. It must cope with entrenched territorial and maritime disputes, such as in the South China Sea; harmful historical legacies that weigh down its most important interstate relationships; increasingly fervent nationalism; growing religious extremism; and sharpening competition over water and energy.
Moreover, Asia’s political integration badly lags behind its economic integration, and, to compound matters, it has no security framework. Regional consultation mechanisms remain weak. Differences persist over whether a security architecture or community should extend across Asia, or be confined to an ill-defined “east Asia.” One central concern is that, unlike europe’s bloody wars of the first half of the twentieth century, which made war there unthinkable today, the wars in Asia in the second half of the twentieth century only accentuated bitter rivalries. Several interstate wars have been fought in Asia since 1950, when both the Korean War and the annexation of Tibet started, without resolving the underlying Asian disputes. To take the most significant example, China staged military interventions even when it was poor and internally troubled. A 2010 Pentagon report cites Chinese military preemption in 1950, 1962, 1969, and 1979 in the name of strategic defense. There was also China’s seizure of the Paracel Islands from Vietnam in 1974, and the 1995 occupation of Mischief Reef in the Spratly Islands, amid protests by the Philippines. This history helps to
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explain why China’s rapidly growing military power raises important concerns in Asia today. Indeed, not since Japan rose to worldpower status during the reign of the Meiji emperor (1867-1912) has another non-Western power emerged with such potential to shape the global order. But there is an important difference: Japan’s rise was accompanied by the other Asian civilizations’ decline. After all, by the nineteenth century, europeans had colonized much of Asia, leaving in place no Asian power that could rein in Japan. Today, China is rising alongside other important Asian countries, including South Korea, Vietnam, India, and Indonesia. Although China now has displaced Japan as the world’s second largest economy, Japan will remain a strong power for the foreseeable future. On a per capita basis, Japan remains nine times richer than China, and it possesses Asia’s largest naval fleet and its most advanced high-tech industries. When Japan emerged as a world power, imperial conquest followed, whereas a rising China’s expansionist impulses are, to some extent, checked by other Asian powers. Militarily, China is in no position to grab the
Still, analysts said the picture was not overwhelmingly negative. Last week brought four days of back-to-back gains that helped the index erase steeper losses for the month. The S&P closed above 1,400 for the first time in three weeks on Friday, spurred by better-than-expected corporate earnings. “On the trading front, in equities, we stepped back to neutral several weeks ago,” Goldman Sachs said in a research note. “Our general view is that the U.S. seems to be slowing - though how much and for how long is an open question - while equity market domestic growth views remain elevated.” In the euro area, trading was light ahead of May Day holiday on Tuesday, elections in France and Greece at the weekend and a european Central Bank meeting on Thursday where policymakers will have to consider the region’s worsening economic health. The FTSeurofirst 300 index of top european shares .FTeU3 ended down 0.8 percent to 1,043.28. emerging market shares .MSCIeF however, gained 0.5 percent. eURO ZONe STReSS The euro fell 0.1 percent to $1.3236, off a near onemonth high of $1.3270 hit on Friday. It was on track for its worst month since December. Signs of a deepening eurozone recession raised worries that governments could soften their approach to tackling budget deficits. Several countries in the region are under intense pressure to cut spending to help reduce their debt to
territories that it covets. But its defense spending has grown almost twice as fast as its GDP. And, by picking territorial fights with its neighbors and pursuing a muscular foreign policy, China’s leaders are compelling other Asian states to work more closely with the US and each other. In fact, China seems to be on the same path that made Japan an aggressive, militaristic state, with tragic consequences for the region – and for Japan. The Meiji Restoration created a powerful military under the slogan “enrich the country and strengthen the military.” The military eventually became so strong that it could dictate terms to the civilian government. The same could unfold in China, where the Communist Party is increasingly beholden to the military for retaining its monopoly on power. More broadly, Asia’s power dynamics are likely to remain fluid, with new or shifting alliances and strengthened military capabilities continuing to challenge regional stability. For example, as China, India, and Japan maneuver for strategic advantage, they are transforming their mutual relations in a way that portends closer strategic engagement between India and Japan, and sharper competition between them and China. The future will not belong to Asia merely because it is the world’s largest, most populous, and fastest-developing continent. Size is not necessarily an asset. historically, small, strategically
sustainable levels. Growing opposition to austerity measures is expected to be a large factor in weekend elections in France and Greece after disputes about austerity brought down center-right coalition governments in the Netherlands and Romania last week. “In short, the news from europe continues to point to further structural stress in the system,” said Boris Schlossberg, director of FX research at GFT in Jersey City, New Jersey. The dollar lost 0.5 percent to 79.82 yen after falling as low as 79.71 yen, the lowest level since February. The pair was on track for its worst month since July 2011. The greenback briefly touched a two-month low against a basket of currencies .DXY at 78.638, its lowest since March 1, before recovering to 78.796, up 0.1 percent on the day. The benchmark 10-year U.S. Treasury note was up 5/32, the yield at 1.93 percent. Yields on 10-year note fell from 2.31 percent in the earliest trading sessions of the month to 1.93 percent late on Monday, a fall of nearly 40 basis points and its biggest monthly drop since last September. In commodity markets, gold prices steadied above $1,660 an ounce on speculation of a third round of liquidity stimulus from the Federal Reserve. For the month, bullion dropped about 0.3 percent, posting a third straight monthly decline for the first time since 2000. Brent June crude futures settled down 36 cents at 119.47 a barrel. U.S. crude settled down 6 cents at $104.87 a barrel.
oriented states have wielded global power. In fact, with far fewer people, Asia would have a better balance between population size and available natural resources, including water, food, and energy. In China, for example, water scarcity has been officially estimated to cost roughly $28 billion in annual industrial output, even though China, unlike several other Asian economies, including India, South Korea, and Singapore, is not listed by the United Nations as a country facing water stress. In addition to its growing political and natural-resource challenges, Asia has made the mistake of overemphasizing GDP growth to the exclusion of other indices of development. As a result, Asia is becoming more unequal, corruption is spreading, domestic discontent is rising, and environmental degradation is becoming a serious problem. Worse, while many Asian states have embraced the West’s economic values, they reject its political values. So make no mistake. Asia’s challenges are graver than those facing europe, which embodies comprehensive development more than any other part of the world. Despite China’s aura of inevitability, it is far from certain that Asia, with its pressing internal challenges, will be able to spearhead global growth and shape a new world order. Courtesy: Project Syndicate