Georgia election: Scandal and intrigue split voters

from BBC News..

September 29, 2012

The former Soviet state of Georgia will hold fiercely contested parliamentary elections on Monday. For the first time since coming to power in 2004, President Mikheil Saakashvili’s fervently pro-Western government risks being ousted – by a billionaire tycoon, suspected of having close links to the Kremlin, who wants to re-establish relations with Russia.

Two elderly women selling fruit at one of Tbilisi’s many outdoor markets shout loudly at each other, arguing about who should lead the country. A man carrying his shopping yells over his opinion as he walks past.

This is political debate, Georgian-style. Apathy is certainly not a problem in these elections. Both sides regard this vote as an all-or-nothing fight for power.

Most of the people standing behind the stalls here scrape by on a few dollars a day, selling fruit and vegetables. They see Georgia’s richest man – the billionaire opposition leader, Bidzina Ivanishvili, as their saviour – and the possibility of renewed trade links with Russia as an economic lifeline.

“He’s a good man,” says Ilia Makharadze, a 47-year-old market trader. “He will open borders with Russia, and Georgians will be able to travel there again. We don’t need America.”

“No-one in my family has work,” says 57-year-old Tamar Jandgashvili. “I buy a basket of plums. And then come here to this market to try and sell some. Is this a life?”

More than half of the country’s population has no proper job. Older and poorer Georgians, in particular, are struggling in a neo-liberal economy seen as cut-throat and Americanised. Some say life was better as part of the Soviet Union.

Many of them will vote for Mr Ivanishvili, who has promised to use his own fortune to eradicate poverty.

Fear of the past

On the other side of town, President Mikheil Saakashvili holds a glitzy Washington-style rally in a packed sports stadium.

With the coloured balloons, flashing lights and exuberant cheers, it is hard to imagine that just a decade ago Georgia was almost a failed state, still reeling from the civil wars of the 1990s after the collapse of the USSR.

His supporters shudder when they think of the time before President Saakashvili took control. He was tough on crime, made the streets safe and got the lights working again.

People at this rally are convinced things will unravel if the elections are won by the opposition coalition.

“We don’t want to go back to a time when Georgia was ruled by criminal gangs,” says Badri Bakoev, a 31-year-old lawyer. “Something really bad will happen if Ivanishvili wins. We don’t want Russia to rule our country. We want to join Nato and continue democratically.”

Bidzina Ivanishvili, who is the 153rd richest man in the world, made his $6.4bn (£4bn) fortune in 1990s Russia.

He denies having links to the Kremlin. And this year has sold most of his businesses in Russia to counter charges that President Vladimir Putin might influence him.

But his critics argue that if Mr Ivanishvili was not a Putin ally, he would never have been able to hang on to his business empire in Russia for so long – or sell it so quickly.

Some claim that the opposition’s entire campaign is a Kremlin plot to undermine Georgian sovereignty. They say President Putin wants to stop Georgia – traditionally seen as belonging to Russia’s sphere of influence – joining Nato and the EU by creating unrest during the elections.

‘Test of fire’

In a speech to the UN on Tuesday, President Saakashvili accused Moscow of wanting “Georgia off the map”. In an apparent reference to Mr Ivanishvili’s fortune, he talked about “dirty money from the north” in Russia, destabilising Georgian democracy.

Until last week, President Saakashvili’s ruling party was consistently ahead in most polls by about 20%.

Georgian student holds a national flag during a protest against torture in prisons in Tbilisi on 24 September
Protests were sparked in Georgia after footage showing the torture and rape of inmates

But now a scandal is undermining that support.

Videos broadcast on national television last week show prison inmates being beaten and sexually abused by guards. It has been dubbed Georgia’s Abu Ghraib, and has outraged voters.

Thousands have been taking to the streets to express their disgust. Public pressure has forced two ministers to resign.

The government’s tough approach to crime was arguably what saved Georgia from a state of crime-ridden chaos. Until 2003 organised crime bosses, known as thieves-in-law, ruled supreme.

But it seems the crackdown has tipped over, at least in the prison service, into abuse of power. And undermined the government’s credibility.

“It’s a serious blow for the ruling party,” says political analyst Alexander Rondeli. “It places a terrible shadow over all the reforms this government has done.”

The main worry now is that polling day itself could spark violence. Activists from both sides are already reporting attacks. Opposition supporters say they are being arrested and imprisoned on spurious charges to stop them campaigning.

Nato chief Anders Fogh Rasmussen has called these elections a litmus test for Georgia’s democracy.

But right now, it is looking more like a test of fire.

Link to article: http://www.bbc.co.uk/news/world-europe-19731467

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Is good governance always a prerequisite for investment in Africa?

from This is Africa..
By LANRE AKINOLA

September 19, 2012

“Measuring attractiveness on the basis of governance rankings success, a country like Rwanda should be a veritable magnet for foreign capital, while Nigeria should be the reverse.”

This article is not intended to question the role of governance in development. On the contrary, it assumes that improvements in the rule of law, pluralism, democratic participation and other indicators are indispensable components of successful economic and social development.

Yet the equation is not so simple when it comes to the commonly held assumption that improvements in governance are a prerequisite for countries in Africa to attract foreign investment. Rankings that measure the ease of doing business, corruption and political stability are routinely cited as key metrics in this regard.

At the top of the list are indicators such as the World Bank’s Doing Business ranking, Transparency International’s Corruption Perception Index and the Ibrahim Index of African governance. The guiding principle? The easier you make it for the investor, the better.

Many countries feel pressured to perform well on such indicators, regardless of how they relate to national development priorities. In some cases, this leads to policies so geared towards the assumed desire of investors that the country’s interest barely registers.

Measuring attractiveness on the basis of governance rankings success, a country like Rwanda should be a veritable magnet for foreign capital, while Nigeria should be the reverse. In 2010 the former was the top reforming country globally in the World Bank’s ranking, and placed 45th in the 2012 tables, ahead of Brazil, China and India. Rwanda also placed 25th on the 2011 Ibrahim Index and 49th on the 2011 CPI. Nigeria’s performance in each of the indicators was far less impressive: 133rd, 41st and 143rd respectively.

Yet Nigeria routinely trumps Rwanda on the list of preferred target markets cited by international investors. A recent survey of investor sentiment on Africa carried out by Invest AD and the EIU found that more than 51 percent of respondents identified Nigeria as the market offering the best overall prospects for investment returns over the next three years. Just 6 percent picked Rwanda.

That is in part because of Nigeria’s natural resource wealth and the sheer size of its market, but there is something more at play. The reason is simple enough, says Cambridge economist Ha-Joon Chang. “The problem with these indices is that they are built on a particular theory of what is good for investment and growth (basically the view that the closer an economy is to the idealised version of the Anglo-American economy, the more investment there will be), which is not a very good theory,” he argues.

In his latest book, 23 Things They Don’t Tell You About Capitalism, he notes that South Korea required up to 299 permits to open a factory in the 1990s. Yet then, as now, it attracted high levels of foreign capital. “Strange as it may seem… businesspeople will get 299 permits…if there is enough money to be made at the end of the process,” he writes. “If there is little money to be made…even 29 permits may look too onerous.”

Nigeria attracts the interest it does because investors make a calculated decision that its notoriously difficult business environment is worth navigating because of the potential return its 160 million person market offers. This is not to say that countries should not make an effort to improve business and policy environments. If anything, Nigeria attracts interest despite its operating environment, rather than due to any conscious effort to define terms of engagement beneficial to its long-term development.

Many African countries, regardless of their size, have compelling investment opportunities to offer. Identifying and pricing these appropriately by balancing investor expectations with a country’s development priorities is the challenge. As Africa attracts more foreign capital, it is a challenge countries should not shy away from.

Link to article: http://www.thisisafricaonline.com/News/Is-good-governance-always-a-prerequisite-for-investment-in-Africa

Rating Cut in Vietnam Spurs Fears Over Banks

from The Wall Street Journal..
By Natasha Brereton-Fukui
ASIA NEWS

Updated September 28, 2012, 8:31 a.m. ET

SINGAPORE—Moody’s Investors Service cut Vietnam’s credit rating further into junk territory, citing risks that the government will have to pump money into the country’s banks and the sector’s limited ability to support the economy.

Moody’s on Friday downgraded Vietnam by one notch to B2 with a stable outlook and said risks to the rating were balanced going forward.

It also lowered its view on the eight Vietnamese banks it assesses the greater likelihood that they will need government support to survive, amid deteriorating asset quality and pressures on their profitability.

In the wake of a growing banking scandal, Vietnam’s government pledged Friday to revamp banks weakened by regulatory violations and prosecute anyone found guilty of misconduct.

“The government is serious in investigating violations at every level of the banking system and punishing those responsible regardless of who they are,” Vu Duc Dam, head of the Government Office, said in a statement issued by the State Bank of Vietnam. He didn’t say how affected banks would be revamped, which the statement said would happen by the end of 2013.

Moody’s highlighted the vulnerability of Vietnam’s banks, which are facing a growing bad-debt problem after years of rampant credit growth and subsequent policy tightening. In August, the country’s central-bank governor said the bad-debt ratio was thought to be 8.6% to 10%, significantly above what was previously acknowledged.

“Moody’s believes that there is an elevated risk that the costs of recapitalizing the banking system will have to be borne, at least in part, by the government,” which is likely to have a “material” impact on its finances, the ratings firm said.

It noted that banks’ weakness had curbed the provision of credit to the economy, and said the government—if it is saddled with the cost of bank bailouts—might not be able to provide sufficient fiscal stimulus if global growth slows further.

Earlier in September, the government was forced to deny reports—sparked by what the International Monetary Fund described as a routine visit by its new Vietnam mission chief—that it might seek money from the IMF.

Growth slowed to a three-year low of 4% early this year as a series of interest-rate increases succeeded in taming rampant inflation. On Thursday, a government report showed that stimulus measures helped push growth back up to 5.4% in the third quarter, but consumer prices are rising quickly again as well, posing a delicate balancing act for authorities.

Moody’s said Friday it had cut the foreign and local currency ratings on two state-run banks—Bank for Investment & Development of Vietnam, and Vietnam Bank for Industry & Trade—to B2, and six commercial banks to B3. All were assigned a stable outlook.

It said it had given the same stand-alone credit assessments across the board due to opacity on the banks’ economic positions and lack of alignment with international financial standards.

That decision also took into account the risk that confidence in some banks could be shaken as bank executives or shareholders are punished for past misconduct, it said.

Jean-Francois Tremblay, associate managing director for South and Southeast Asia at Moody’s, said Vietnam’s proposed banking reforms would be positive if implemented in full.

“For now, reforms are slow, the next steps are unclear and bank shares are depressed, making new capital raisings unlikely,” he said. “With low profits expected over the next few quarters, it is difficult to see how the banks will be able to improve their capitalization for the time being.”

—Nguyen Pham Muoi in Hanoi contributed to this article.

Link to the article:  http://online.wsj.com/article/SB10000872396390444712904578023843910942954.html?mod=WSJ_World_LEFTSecondNews

Africa Troops Launch Assault on Somali Militant Bastion

from The Wall Street Journal..
By Nicholas Bariyo in Kampala, Uganda and Idil Abshir in Nairobi
AFRICA NEWS

Updated September 28, 2012, 3:46 p.m. ET

[image]

Undated photo from Kenya’s Defense Ministry is said to show troops preparing for assault on Somali port.

Kenya Ministry for Defense/Associated Press

Kenyan forces launched an amphibious assault on the Somali port city of Kismayo on Friday, in a long-delayed offensive aimed at depriving al Qaeda-linked militants of their last stronghold in East Africa.

The African Union-backed drive appears to have surprised al Shabaab militants as well as residents of Kismayo who were hoping to flee before serious fighting began. Kenyan troops seized the city’s port, according to the African Union Mission in Somalia, or Amisom. Other areas of control remained unclear. As of late Friday, al Shabaab continued to defend Kismayo, one of the militant group’s few remaining sources of revenue.

“Some of the opposition have fled, and there are still some inside,” said Col. Ali Aden Houmed, spokesman for Amisom. “We’ll find them.”

Al Shabaab fighters denied earlier reports they had ceded the city to Kenya’s troops and allies of the African Union peacekeepers.

“Kismayo remains firmly in the hands of the Mujahideen,” one al Shabaab fighter said in a Twitter statement. “Stay tuned for updates.”

The battle over the port city of 180,000 people is part of a final push to eradicate extremist rebels who have been blamed for attacks inside and outside Somalia, and sought to undermine recent democratic gains in the troubled East African nation.

African Union peacekeepers—mainly from Uganda, Kenya, Burundi and Sierra Leone—have swept across much of Somalia in the past year, introducing a fragile peace to the long-chaotic capital, Mogadishu. The Somali Army and allied local militias have aided in this push. Earlier this month, Somalia’s parliament voted in a president to head a new government that would replace a transitional administration.

Al Shabaab has pushed back. The group claimed responsibility for attempting to assassinate the newly elected president a few days after his election, and is blamed for a strike at a restaurant that killed several journalists and a parliamentarian. The guerrilla-style attacks signify a potentially new stage of clashes.

The A.U. troops’ gains have placed increasing financial pressures on al Shabaab, which collected taxes on merchants in Mogadishu and on shipments into another Somali port city, Marka. Al Shabaab fighters have concentrated in Kismayo, where they have funded operations by demanding payments for coal exports and imports of commodities for local businesses.

For months, AU troops have formed a cordon some 40 miles inland from Somalia’s second-largest city, awaiting orders to attack. Efforts were delayed amid wrangling over command posts, complications over equipment and logistical snags, participants have said.

Kenya’s army and navy launched its assault before dawn. The A.U. force’s commander, Lt. Gen. Andrew Gutti, urged residents to remain calm as the battle for the city continues. “Operations are ongoing to neutralize specific al Shabaab targets in Kismayo,” he said in a statement conveyed by local media. “We urge all fighters remaining in Kismayo to lay down their arms.”

There were conflicting early reports on whether African Union forces had taken control of the city. Residents who hadn’t been able to flee said by telephone they were hunkering down indoors as fighting raged. “We didn’t think the Kenyans would get here so fast,” said Kismayo resident Asha Ibrahim, 43, adding that the ports and beaches had been secured by Kenyan troops. “We have to stay inside the city because every way out is blocked.”

She and others reported seeing helicopters overhead. Mrs. Ibrahim reported seeing three houses on fire following what she believed were missile attacks. Amisom didn’t provide additional details of the operation or of any casualties.

Al Shabaab militants were preparing to exit the city overnight, according to a businessman there who was reached by telephone, who also said locals were widely reporting that Amison troops were closing in on the city from the airport. The account couldn’t immediately be corroborated.

Al Shabaab initially won support in Somalia for its religious and nationalist agenda. But the group, which began as a faction of a moderate political movement called the Islamic Courts Union, later began implementing an extreme interpretation of Islamic Law that saw them severing limbs to punish transgressions, imposing heavy taxes on local merchants and carrying out suicide bombings that killed scores of civilians. Its popularity waned.

A proclaimed tie-up with al Qaeda, and the integration with foreign fighters, also created strains within al Shabaab—between militants who wanted to focus on toppling the Somali government and others in the group who wanted to use Somalia as a base to strike Western targets.

The U.S. and other governments have helped fund African Union peacekeepers on fears that Somalia would become a staging ground for international attacks, similar to al Shabaab’s 2010 multiple-bomb assault on Kampala, Uganda. That attack killed 89 people, including one American.

Link to the article: http://online.wsj.com/article/SB10000872396390443389604578023770609765356.html?mod=WSJ_World_LEFTSecondNews

Militants Feared Among Iraq Escapees

from The Wall Street Journal..

By Ali A. Nabhan and Sam Dagher

MIDDLE EAST NEWS | September 28, 2012, 2:49 p.m. ET

BAGHDAD—Dozens of inmates, including suspected senior militants linked to al Qaeda, broke out of a prison north of the Iraqi capital on Friday after overpowering and killing their guards, Iraqi officials said.

The jail break in the city of Tikrit, the predominantly Sunni hometown of former Iraqi leader Saddam Hussein, comes amid heightened tensions between the Shiite-led government in Baghdad and Sunni communities across the country.

image

A security checkpoint in Tikrit on Friday. A curfew was imposed in the Iraqi city after officials said more than 120 prison inmates had escaped. (Reuters)

Frustration among Iraqi Sunnis with what they regard as the government’s sectarian bias has colored parliamentary deliberations over a controversial amnesty law, which could see thousands of prisoners freed for the sake of furthering national reconciliation. On Thursday, a Shiite parliamentary bloc that had adopted the bill withdrew it from voting after disagreements over whether those convicted under a terrorism law known as Article Four should be considered for amnesty, as advocated by Sunni lawmakers.

Iraq’s Sunni insurgents have been reinvigorated by the conflict in neighboring Syria, where Sunni rebels are battling the Shiite-linked regime of President Bashar al-Assad with the help of regional Sunni states.

Mishaan al-Jubouri—a former parliamentarian close to the Sunni insurgency in Iraq, who now shuttles between Lebanon and Syria—said he believed the prison break was prompted by the stalling of the amnesty law and piling Sunni grievances.

“This despair that they won’t be eligible for amnesty made them carry out this operation,” said Mr. Jubouri, a native of Salahuddin Province, where Tikrit is the provincial seat.

Many of those held at the Tikrit prison were on death row and were scheduled for transfer to Baghdad to carry out their sentences, said Mr. Jubouri and provincial officials.

The jail break was triggered by a riot Thursday evening and quickly turned into an armed clash when inmates gained access to guards’ weapons, said Mohammed al-Attiyah, who heads the provincial security committee in Salahuddin.

More than 120 of the estimated 300 inmates managed to flee, he said, while others burned prisoner records and files. Prisoners controlled the facility until dawn Friday, when army and counterterrorism units dispatched from Baghdad surrounded it and overpowered them, he said.

Provincial Gov. Ahmed Abdullah later said 19 members of the security forces and eight inmates were killed in the violence and that some of the security officers were brutally knifed. At least 33 escapees were captured, he said.

A curfew was imposed in Tikrit. Columns of military vehicles could be seen on the province’s main roads and helicopters hovered overhead in search of the remaining fugitives.

Jail breaks, including one at the same Tikrit facility in 2009, are common in Iraq, with officials often blaming them on laxity and corruption. In July, a maximum-security prison in central Baghdad was attacked in broad daylight by insurgents wanting to free associates inside, an attempt foiled after a five-hour gunbattle.

Separately, the Iraqi government said Friday it would launch an investigation into the assassination of the former governor of the southern oil-rich province of Basra, who was gunned down late Thursday, according to security officials.

Mohammed Mosbeh al-Waeli served as governor between 2005 and the end of 2008, a time when Basra was overrun by Iranian-backed militias and criminal gangs.

A U.S.-backed military operation in March 2008 reclaimed government control over Basra. Mr. Waeli was openly opposed to Iranian influence but was also accused of oil smuggling and corruption, charges he denied.

Link to the article: http://online.wsj.com/article/SB10000872396390444752504578024572918481886.html?mod=WSJ_World_LEFTSecondNews

Vietnam: Why Did the Tourist Cross the Road? The Real Riddle Is ‘How’

from The New York Times..

By Thomas Fuller,  Published: September 27, 2012

Challenging crossings: The New York Time reporter Thomas Fuller visits Vietnam’s capital to document the daily duel between motorcycles and pedestrians.

[click on video link below]

http://nyti.ms/RmliUk

[ed. note: I filmed identical video clips from my trip to Hanoi in December of 2010]

HANOI, Vietnam — Tourists who check in to the Meracus Hotel, a compact and friendly establishment in the Old Quarter of Hanoi, are handed a tip sheet by the receptionist titled “How to cross roads.”

Be relaxed and self-confident.

Look two ways or make eye contact with drivers.

Walk slowly with purpose.

Never step back.

While visitors to London might discuss the weather and tourists in Paris debate restaurant choices, here in the Vietnamese capital it is hard to escape the elemental conversation on how best to cross the street.

A decade or so of capitalist fervor has transformed Hanoi’s once-quiet, tree-lined boulevards and side streets into roaring rivers of rubber and steel. Tourists, when they are not cowering in their hotel rooms, can be spotted standing by the side of the road wearing expressions that range from startled to stupefied.

“We were terrorized the first day,” said Christelle Rouchaville, a visitor from France who with her husband found the courage to push a baby stroller through rush-hour traffic. “There are times when you just can’t cross.”

Ms. Rouchaville’s recommendation to other visiting pedestrians: Imagine yourself skiing. “The motorbikes slalom through the streets,” she said. “You need to put yourself into the flow.”

Bob Greer, an Australian visiting the country with his wife for a program to help disadvantaged children, invokes the divine. “Trust in God or whoever made you,” he said as he scanned a small side street for motorbikes with the look of a soldier behind enemy lines. “Show no fear, even if your knees are trembling.”

Hanoi is not the only city in the world with a traffic problem. But when thousands of motorcycles — there are nearly four million registered in the city — funnel into the winding streets and narrow alleyways, the resulting rush of two-wheelers makes a Hell’s Angels gathering seem polite and orderly.

The real experts on crossing the street, the residents of Hanoi, offer varied advice.

Nguyen Tuan Minh, a high school student, recommended using “human shields” — crossing while surrounded by other pedestrians. He also disagreed with the advice given by the Meracus Hotel; eye contact is impossible, he said. “The moment you walk onto the street there are 40 motorcycles converging on you,” he said. “If they see you, they will avoid you. Don’t get pinned down!”

Many Hanoi residents complain that the traffic chaos rattles their nerves, especially the nearly incessant honking. Pham Cong Thinh, a Hanoi native who works as the concierge at the Metropole, reminisces about riding his bicycle to work two decades ago down quiet streets, before Vietnam opened its economy to the world.

“Life was easy and calm,” Mr. Thinh said. “Now everyone is stressed; people want to make money.” He attributes the traffic conditions in Hanoi to migrants from the countryside, who ride through the packed, narrow streets according to the traffic rules of their home villages, which is to say none at all.

The Old Quarter of Hanoi is where a visitor’s abstract notions of population density meet a living and breathing reality. With its mix of French colonial architecture and wafts of burning incense, the city is a permanent carnival of food vendors and sidewalk cafes accompanied by the constant whining chorus of internal combustion engines. Hanoi has generally good sidewalks, but in many areas they have been transformed into giant motorcycle parking lots, forcing pedestrians into the streets.

“Sometimes people come back really shocked,” said Nguyen Thi Xoa, a travel agent whose office caters to tourists in the Old Quarter. Her advice on crossing the street: “I always tell people to be very confident and walk slowly. You should never run. Don’t hesitate. Be predictable.”

The government handbook for people taking their driving test says “motorcycles must yield to pedestrians crossing at a crosswalk.” That is wishful thinking. In reality the white lines are little more than decorative paint. Other traffic rules are flouted with seeming impunity.

Residents of Hanoi make a point of looking both ways when crossing a one-way street. And traffic signals at some intersections seem like a waste of electricity.

“In foreign countries when there is a red light everyone stops,” said Mr. Thinh, the hotel concierge. “Here, if there is no police, they go through.”

Mr. Thinh helps his foreign guests by mapping out itineraries specifically designed to guide them to the easiest places to cross roads. Most tourists return without incident, he said.

“Only a few guests come back to the hotel shocked,” he said.

Unlike in Western countries, where they are reserved primarily for leisure, motorcycles and scooters are the main mode of transportation for Hanoi residents. (Cars are for the rich.)

Motorcycles also often carry cargo, adding to the chaos. Motorcyclists can be distracted as they balance flat-screen television sets, crates of beer or large sacks of artificial flowers, to name a few items spotted one recent weekday.

Nationwide, car and motorcycle accidents take a heavy toll.

The state news media reported that last year across Vietnam, there were 44,548 accidents, resulting in more than 11,000 deaths. The National Committee of Traffic Safety declined to disclose the numbers for Hanoi, but the sheer concentration of motorbikes makes it hard to attain high speeds and thus appears to reduce the chance of serious accidents. A traffic police officer at one main intersection said almost all the accidents he saw were minor scrapes and tangles.

The sheer volume of tourists in the Old Quarter of Hanoi — and the large numbers who say they cannot wait to return — suggests that the city’s charms compensate for the traffic challenges.

And for the truly terrified, there is always public transportation.

Ms. Xoa, the travel agent, said she had recently helped a tourist who was badly rattled by the traffic conditions return to her hotel. When it was pointed out that the hotel was walking distance — right around the corner, in fact — the tourist declined the suggestion, Ms. Xoa said.

“She said, ‘I’ll take a taxi.’ ”

Link to the article: http://www.nytimes.com/2012/09/28/world/asia/hanoi-traffic-daunts-tourists.html?ref=asia&_r=0

Emerging states vulnerable to rich nations slowdown

from The Daily Star (Lebanon)..
Source: Reuters
By Lesley Wroughton

September 28, 2012

WASHINGTON: The International Monetary Fund cautioned emerging market countries Thursday that their impressive growth could be at risk if advanced economies should slow, urging policymakers to ensure their economies were ready to respond.The Fund said better policymaking over more than a decade in emerging and developing nations has made these economies stronger and better equipped to handle economic shocks, but stressed that they were not immune to shocks from within or from abroad.

In initial chapters of its World Economic Outlook released Thursday, the IMF warned that a rise in capital flows, rapid credit growth and high commodity prices, which have helped drive strong growth in emerging economies, were also prone to sudden stops.

“There is no guarantee that the relative calm emerging economies have enjoyed over the past two years will continue,” IMF economist Abdul Abiad said. “There is a significant risk that advanced economies could experience another downturn, and in such an event, emerging economies and developing economies will end up ‘recoupling’ with advanced economies.”

Signs that slowing global demand is cooling growth in most emerging economies are already apparent, with manufacturing output falling and business confidence waning. In July, the IMF shaved its growth forecasts for three of the four BRIC countries – Brazil, China and India. Only Russia avoided a cut in its forecast.

China’s central bank has already cut interest rates twice in June and July to deal with its slowing economies, but has so far held off on more aggressive easing measures despite further signs of easing demand at home and abroad.

The IMF report, which looks at economic expansions and downturns in more than 100 emerging and developing economies over the past 60 years, found that emerging economies were spending more time in expansion mode. Downturns and recoveries have become shallower and shorter, the fund found.

Recessions in advanced economies and sudden stops in capital flows doubled the likelihood that expansions in emerging economies will come to an end, according to the IMF report.

Shocks that emanate from within countries, such as credit booms or a banking crisis, are however more likely to lead to more significant slowdowns in emerging economies, the IMF found.

With the threat of a further slowing of the global economy, the IMF said emerging and developing countries should focus on rebuilding their fiscal safety nets so they are able to respond to a further possible downturn in advanced economies.

One reason why emerging countries have managed to weather the global crisis so well, Abiad noted, is because they were able to respond with fiscal stimulus to shore up their economies.

Many countries have yet to rebuild those fiscal buffers.

“That policy space needs to be restored by reducing fiscal deficits and keeping inflation in check,” Abiad said. “These economies would be more resilient to new shocks if recent improvements in their policy frameworks – including greater exchange-rate flexibility – are maintained and rebuilt,” he added.

A version of this article appeared in the print edition of The Daily Star on September 28, 2012, on page 6.

Link to the articlehttp://www.dailystar.com.lb/Business/International/2012/Sep-28/189441-emerging-states-vulnerable-to-rich-nations-slowdown.ashx#ixzz27sYWL6i
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