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December 10, 2013 April 19, 2013
Opinion Business
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Leading reports from Asia’s best business newspapers
Straits Times Police in Singapore have made 27 arrests after hundreds of people took part in a riot sparked by the death of an Indian national. Trouble started after the 33-year-old man was knocked down by a private bus in a district known as Little India. About 400 people took to the streets, hurling railings at police and torching police cars and an ambulance. At least 16 people were hurt, most of them police officers, before the violence was brought under control. Prime Minister Lee Hsien Loong said that “whatever events may have sparked the rioting, there is no excuse for such violent, destructive, and criminal behaviour”.
Wall Street Journal Australia should not be foolish in thinking it is going to continue having uninterrupted economic expansion, RBA governor Glenn Stevens said, warning that a downturn would happen eventually. Mr Stevens said the country was “building up this myth of 22 years of uninterrupted growth” and that sooner or later, there was a “probability of ... more or less 100 percent” that a downturn would happen. “We would be foolish to think that we have found the secret of completely eliminating the cycle, because we haven’t,” Mr Stevens said.
The Star Sona Petroleum Bhd, Malaysia’s oil and gas cash shell, has identified a new oil field asset in Indonesia to buy after failing to clinch a deal in September. Sources claim that Sona Petroleum is looking to buy a 100 percent stake in a Sumatra oilfield which is producing 1,500 barrels of oil per day. The oilfield is also said to have the capability of ramping up production to 4,000 barrels a day. Sona Petroleum is currently conducting a due diligence on the assets and it expects to conclude the deal, valued at US$135 million, by early next year.
Jakarta Globe Indonesia’s small- and mediumsized domestic mineral miners voiced concerns that they lacked the funds to comply with a long-anticipated ban on unprocessed mineral exports, due to begin next year. The current regulation indirectly favours large international firms, they said. “The national mining industry will die before it develops,” the Indonesian Mineral Entrepreneurs Association said in a statement. The association argued that local miners, most with operations less than 10 years old, did not have enough capital to build their own smelters.
An agenda to save the euro Joseph E. Stiglitz
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Nobel laureate in economics, is University Professor at Columbia University
t has been three years since the outbreak of the euro crisis, and only an inveterate optimist would say that the worst is definitely over. Some, noting that the eurozone’s double-dip recession has ended, conclude that the austerity medicine has worked. But try telling that to those in countries that are still in depression, with per capita GDP still below pre-2008 levels, unemployment rates above 20 percent, and youth unemployment at more than 50 percent. At the current pace of “recovery,” no return to normality can be expected until well into the next decade. A recent study by Federal Reserve economists concluded that America’s protracted high unemployment will have serious adverse effects on GDP growth for years to come. If that is true in the United States, where unemployment is 40 percent lower than in Europe, the prospects for European growth appear bleak indeed. What is needed, above all, is fundamental reform in the structure of the eurozone. By now, there is a fairly clear understanding of what is required: 1. A real banking union, with common supervision, common deposit insurance, and common resolution; without this, money will continue to flow from the weakest countries to the strongest; 2. Some form of debt mutualisation, such as Eurobonds: with Europe’s debt/GDP ratio lower than that of the U.S., the eurozone could borrow at negative real interest rates, as the U.S. does. The lower interest rates would free money to stimulate the economy, breaking the crisis-hit countries’ vicious circle whereby austerity increases the debt burden, making debt less sustainable, by shrinking GDP; 3. Industrial policies to enable the laggard countries to
catch up; this implies revising current strictures, which bar such policies as unacceptable interventions in free markets; 4. A central bank that focuses not only on inflation, but also on growth, employment, and financial stability; 5. Replacing anti-growth austerity policies with progrowth policies focusing on investments in people, technology, and infrastructure.
But migration from crisishit countries, partly to avoid repaying legacy debts (some of which were forced on these countries by the European Central Bank, which insisted that private losses be socialised), has been hollowing out the weaker economies. It can also result in a misallocation of labour.
Wrong policies Much of the euro’s design reflects the neoliberal economic doctrines that prevailed when the single currency was conceived. It was thought that keeping inflation low was necessary and almost sufficient for growth and stability; that making central banks independent was the only way to ensure confidence in the monetary system; that low debt and deficits would ensure economic convergence among member countries; and that a single market, with money and people flowing freely, would ensure efficiency and stability. Each of these doctrines has proved to be wrong. The independent U.S. and European central banks performed much more poorly in the run-up to the crisis than less independent banks in some leading emerging markets, because their focus on inflation distracted attention from the far more important problem of financial fragility. Likewise, Spain and Ireland had fiscal surpluses and low debt/ GDP ratios before the crisis. The crisis caused the deficits and high debt, not the other way around, and the fiscal constraints that Europe has agreed will neither facilitate rapid recovery from this crisis nor prevent the next one. Finally, the free flow of people, like the free flow of money, seemed to make sense; factors of production would go to where their returns were highest.
At the current pace of ‘recovery,’ no return to normality can be expected until well into the next decade
Internal devaluation – lowering domestic wages and prices – is no substitute for exchangerate flexibility. Indeed, there is increasing worry about deflation, which increases leverage and the burden of debt levels that are already too high. If internal devaluation were a good substitute, the gold standard would not have been a problem in the Great Depression, and Argentina could have managed to keep the peso’s peg to the dollar when its debt crisis erupted a decade ago.
High price No country has ever restored prosperity through austerity. Historically, a few small countries were lucky to have exports fill the gap in aggregate demand as public expenditure contracted, enabling them to avoid austerity’s depressing effects. But European exports have
barely increased since 2008 (despite the decline in wages in some countries, most notably Greece and Italy). With global growth so tepid, exports will not restore Europe and America to prosperity any time soon. Germany and some of the other northern European countries, demonstrating an unseemly lack of European solidarity, have declared that they should not be asked to pick up the bill for their profligate southern neighbours. This is wrong on several counts. For starters, lower interest rates that follow from Eurobonds or some similar mechanism would make the debt burden manageable. The U.S., it should be recalled, emerged from World War II with a very high debt burden, but the ensuing years marked the country’s most rapid growth ever. If the eurozone adopts the programme outlined above, there should be no need for Germany to pick up any tab. But under the perverse policies that Europe has adopted, one debt restructuring has been followed by another. If Germany and the other northern European countries continue to insist on pursuing current policies, they, together with their southern neighbours, will wind up paying a high price. The euro was supposed to bring growth, prosperity, and a sense of unity to Europe. Instead, it has brought stagnation, instability, and divisiveness. It does not have to be this way. The euro can be saved, but it will take more than fine speeches asserting a commitment to Europe. If Germany and others are not willing to do what it takes – if there is not enough solidarity to make the politics work – then the euro may have to be abandoned for the sake of salvaging the European project. © Project Syndicate