Wednesday, December 16, 2009
Curbs on financial excess
From The Hindu
After dedicating most of 2009 to jump-starting financial markets through stimulus packages, developed countries are now turning their attention to reforming the basic architecture of those markets, especially the incentives for risk-taking. In a major step towards regulating systemic risks, the United Kingdom last week announced a one-off 50 per cent “super-tax” on bankers’ discretionary bonuses exceeding £25,000. The move could raise £550 million, which would be used to help reduce unemployment, according to Chancellor Alistair Darling. However it has generated, as expected, a torrent of resistance from financial services firms, including threats that they would mass-migrate to other countries. By way of response, an aide to the Chancellor has asserted that the solution was for the banks to “pay less in bonuses” and to realise that this tax was “about changing their behaviour, not raising revenue.” Other members of the European Union such as France and Germany have come out in support of the policy, with France imposing a similar super-tax on bonuses exceeding €27,000. Executive pay has come under fire in the United States too. Kenneth Feinberg, President Obama’s pay czar, has sharply cut cash compensation, requiring instead that 175 most-paid executives in bailed-out companies hold stock compensation for two to four years.
Yet pay is only one dimension of a culture of excessive risk-taking, which precipitated the credit crisis on the back of lax regulatory standards and the availability of cheap credit. Only a comprehensive overhaul of regulatory oversight, of the kind passed by the U.S. House of Representatives last week, stands a reasonable chance of changing deeply entrenched attitudes towards risk. The reform proposals, which mirror some of the policies enacted in the EU, include tighter regulation of derivative instruments, procedures for managing collapse at large banks without resorting to taxpayer money, and the creation of a Consumer Financial Protection Agency to monitor lending practices. The bill also seeks to empower lawmakers to oversee the functioning of the U.S. Treasury and Federal Reserve — not a bad thing considering it was these institutions, during the time of Alan Greenspan, that stubbornly held interest rates at artificially low levels, setting off credit-driven asset bubbles. Finally, the reforms seek to extend the powers of the Securities and Exchange Commission to aggressively patrol the fringes of the financial universe, including hedge funds, with the aim of foiling would-be Madoffs and Rajaratnams. Even as the U.S. and Europe struggle to get unemployment under control over the coming years, they would do well to persist in their mission to curb financial excess through serious institutional reforms.
Labels: EU, financial markets, Madoff, Rajaratnam, stimulus packages, unemployment
Sunday, December 13, 2009
Toppling the Boligarchy
From The Hindu
Hugo Chavez’s government has once again demonstrated its willingness to halt the march of untrammelled capitalist growth in Venezuela. On November 30, his government shut down four medium-sized banks facing financial insolvency; three more followed suit by the end of the week. In an industry-wide crackdown aimed at protecting ordinary deposit-holders, 27 arrest warrants were issued including several for financiers behind the failed banks. These individuals belong to a group of politically connected big businessmen known as “Boligarchs,” after their close ties to President Chavez’s Bolivarian revolution. The arrest that made headlines was that of Arné Chacón, president of the failed Banco Real and brother of Jesse Chacón, Venezuela’s Science and Technology Minister. Minister Chacón soon handed in his resignation, which Mr. Chavez accepted last week, saying: “We are demonstrating that there are no untouchables here.” The arrest of Boligarch Ricardo Fernandez Barrueco further signalled the President’s intention to purge the economy of those who prospered at the expense of the masses. Mr. Barrueco became a billionaire supplying corn and transport services to government-subsidised supermarkets.
The crackdown flies in the face of allegations by the United States and its allies that the Chavez regime is corrupt, populist, and dangerous to mainstream market institutions. In part, western insecurity has been fuelled by Venezuela’s bold approach towards the global oil economy. For example, in 2008, it took on Exxon Mobil — the world’s largest private company — and won against it in British courts in a dispute over oilfields in the Orinoco basin. The U.S. is also hostile to Mr. Chavez’s pursuit of an alternative paradigm in global politics, one in which resource-rich countries like Venezuela, Iran, China, and Russia forge close links based on trade in oil, weapons technology, and agricultural products. Yet the western bloc must concede that the toppling of the Boligarchs is testimony to the Venezuelan leader’s willingness to tackle corruption in high office. While Washington’s hostility towards the Chavez administration peaked during the Bush years, President Obama has an opportunity to repair and normalise the relationship. This would be politically expedient, especially since the people of Venezuela voted overwhelmingly, in a referendum in February, in favour of allowing Mr. Chavez to run for office again in 2012. Mending fences with this charismatic leader from Latin America would have positive effects and implications going beyond the region.
Labels: Boligarchs, capitalist growth, Hugo Chavez, Latin America, Venezuela
Thursday, December 10, 2009
U.S. impressed with progress in resettlement
CHENNAI: The “threats and harassment” that members of the press continue to experience in Sri Lanka remain a “significant concern” to the United States, according to Robert Blake, Assistant Secretary, South and Central Asian Affairs. “That continues to be an important part of our dialogue,” he said, adding that the human rights situation and media freedom are an important part of the reconciliation process.
Speaking at a media roundtable here, Mr. Blake said he was “very impressed with the progress made in terms of resettling Internally Displaced Persons (IDPs) from the camps in Manik Farms and elsewhere.” With 1,15,000 IDPs in Manik Farms no longer under detention and the rest resettled, the U.S. would welcome the completion of the resettlement process by the end of January, as per the date set by Sri Lankan President Mahinda Rajapaksa.
Touching on the need for political reconciliation and devolution of power, Mr. Blake said, “I know that President Rajapaksa has said that following the national elections next year, he intends to take additional steps on political reconciliation. But he has not yet enumerated what those steps will be.”
Mr. Blake said it was important to have measures to devolve power to the provinces so that elections could be held in the Northern Province and IDPs who lived under the rule of the Liberation Tigers of Tamil Eelam could “finally have the opportunity to exercise their democratic rights to vote and choose their own leaders.”
Responding to questions on intelligence sharing with India, Mr. Blake said, “Home Minister Chidambaram made a very successful visit to the United States in September, during which he had very productive meetings with a full range of counterparts in the U.S. — the Director of the FBI, the head of the CIA and the Attorney-General.” Mr. Chidambaram also discussed mega-city policing with the authorities in New York.
Mr. Blake highlighted other areas such as healthcare and education, where cooperation has crystallised since Prime Minister Manmohan Singh’s visit. He said U.S. universities welcomed opportunities to invest in and partner with Indian counterparts as more foreign investment is allowed in the Indian education sector.
Labels: IDPs, Mahinda Rajapaksa, Manik Farms, Manmohan Singh, mega-city policing, P. Chidambaram, Robert Blake, Sri Lanka, U.S.
India, New Zealand plan to begin free trade pact talks next year
India and New Zealand plan to “formally begin a free trade agreement negotiation next year,” according to Rupert Holborow, High Commissioner for New Zealand in India.
Addressing journalists at The Hindu, Mr. Holborow said a preliminary study had been completed, and the Prime Ministers of the two countries were supportive of the idea, “which will be very important for putting a much more dynamic nature into the relationship.”
“That will probably move us from second gear into third gear, and that is a plus.” But this relationship should be in fourth gear, he said.
New Zealand could also make important contributions to fuelling a second Green Revolution in India, and this could be seen through an “investment prism,” Mr. Holborow said. Citing the historical trend of investment following trade, the High Commissioner argued for a more benign trade environment which would permit, initially, more New Zealand products within India.
“This will then give the New Zealand community confidence to take an investment stand in the area, whether that is cold storage, or transport or research and development. In return, there is a lot of potential for India to do more in the New Zealand market, and that would also be facilitated.”
Touching on areas where further cooperation was possible, he said: “For people who would look for education for their children overseas — middleclass people who still want the highest quality education — New Zealand is a very good choice because the cost is considerably lower than it is in the U.K. or the U.S.”
Explaining that New Zealand had a “broad-based” education system, he said: “We do have strengths in international agricultural research. In this field, we have the leading institutions in the world.” However, in other areas like medicine and dentistry too, New Zealand’s educational institutions would be comparable with the world’s best.
Mr. Holborow emphasised that New Zealand also had a vibrant Indian-origin community. “The Indian community in New Zealand is 120,000 on a population of 4 million. It is our second-largest ethnic community of Asian extraction after China. Immigration continues to flow at a fairly steady rate, and we have a points system,” Mr. Holborow explained. Even the New Zealand Head of State and several Members of Parliament were of Indian origin, and this also pointed to the integration of the community into New Zealand.
On the architecture of regional development, he said: “India is very actively and successfully developing a ‘look-east’ policy.” This includes the East Asia Summit, on which New Zealand is working “very closely and collaboratively with India.”
Labels: free trade pact, Green Revolution, India, New Zealand
Sunday, December 06, 2009
Grim prospects for Kannagi Nagar
Located alongside mountains of carelessly dumped garbage are minimalist concrete structures in which the people of this colony live. It sounds like an urban nightmare but it is, in fact, the daily reality of the residents of Kannagi Nagar in south Chennai.
Kannagi Nagar is one of several areas to which around 15,000 families affected by the tsunami in 2004 were relocated. Other areas include Semmancheri, also in south Chennai, and Tsunami Nagar in north Chennai.
While the residents of all these areas face the daily struggle of coping with the trauma of life after the tsunami, the residents of Tsunami Nagar at least have running water and a reliable electricity supply.
This is not the case in Kannagi Nagar.
“When we arrived here in February 2005 there was absolutely no electricity or running water available – only these bare dwellings,” says G. Chitravel, a construction worker and father of six, who was moved from Santhome. It took more than 18 months for the colony to get its first electrical pump, added E. Ezhumalai, another resident who was shifted from Santhome.
Electricity connections are only provided after a deposit has been paid, sometimes as high as Rs.2,500.
Why were hundreds of families moved to this underdeveloped area, lacking even basic infrastructure?
“We were told that these buildings, built more than three years before we moved in, were available for occupation – that is why we were moved here,” Mr. Ezhumalai said. Yet the very location has contributed to loss of livelihood for many of them: they are still entirely dependent on work opportunities in Santhome and need to travel daily if they are to earn any wages at all.
With daily bus fares of Rs.30, a significant part of the Rs.100-150 earned is lost on travel, the residents explained.
Recent steps to improve the connection of the colony with the IT corridor area have not improved employment prospects much – most jobs in that area require skilled labour, which is lacking in Kannagi Nagar.
Some NGOS in this area, such as Asha Nivas, are trying to impart skills to the residents to take up jobs in housekeeping (women) and security (men) services.
“The government needs to provide NGOs with venues for vocational training and related resources – otherwise progress will be impossible,” says Father Kurien Thomas, founder of Asha Nivas. Despite numerous letters sent to the Tamil Nadu Slum Clearance Board (TNSCB) office in nearby Thoraipakkam, there has not been an adequate response, he added.
Education and healthcare are the severest casualties here. Children have to travel, mostly to Santhome, to get any schooling at all, given that there are no higher secondary schools in the vicinity. With their parents struggling to earn a daily wage, many children end up dropping out and staying home.
Rising crime and mafia-style violence are tightening their grip on the community and the youth in this area are particularly vulnerable, according to staff at Asha Nivas.
Affordable healthcare facilities are also scarce in Kannagi Nagar, barring the Isabelle clinic, run by missionaries, which offers basic services.
“For any serious illness we have to go to neighbouring areas to private hospitals and in most cases we cannot afford the high fees they charge,” said A. Malarkodi, a mother of two.
The conditions in the colony do not help. All residents that this reporter spoke to complained that the mosquito problem was unbearable. “The authorities only clean up the stagnant water when some official arrives here – so there is never a respite from mosquitoes,” said Mr. Ezhumalai, who is himself sick now, visibly so. With sewage flowing freely around the dwellings only canned water is safe for drinking – at a price of Rs.20 per unit.
Efforts by the residents to petition the TNSCB to provide basic amenities have not succeeded.
“I collected and handed over to the government documents outlining the accumulation of garbage, sewage overflow and numerous other problems,” said G. Saravanan, head of the colony. However, he is still awaiting a response from the Board, which is the government authority in charge of the area.Redress grievance
TNSCB Managing Director T.K. Ramachandran said that the Board has taken several steps to redress grievances.
As the local panchayat has constraints in managing infrastructure in Kannagi Nagar, the TNSCB has stepped in to maintain and manage these. A solid waste management program based on vermi composting has been put in place. At present, water supply is being provided through public fountains apart from tankers (50 a day).
Water supply augmentation through the New Veeranam project has already been taken up by the Chennai Metrowater and is expected to be completed in two months. Two reverse osmosis plants are to be installed, he said.
In Kannagi Nagar, projects worth Rs.3.75 crore have been initiated, including repairing of roads, constructing drains and building a new market.
Additional buses have also been introduced on this route. The school has been upgraded to higher secondary level this year. A PHC has been sanctioned apart from facilities provided by St. Isabels Hospital on land provided by TNSCB, he said. Government measures
The Slum Clearance and Accommodation Control Minister, Suba Thangavelan, argued that the government has undertaken steps to mitigate the problem of garbage accumulation. “We even provided uniforms for residents in the area who were instructed on garbage collection and sanitation procedures,” he said. However, other issues, including the glaring problems with healthcare, education and crime could not be tackled overnight, he said.
Today, Kannagi Nagar has all the elements of a full-blown socioeconomic crisis waiting to happen.
The government can no longer afford to be complacent about this ticking time-bomb.
Labels: Kannagi Nagar, Semmancheri, Tamil Nadu Slum Clearance Board, tsunami affected
Tackling a jobless recovery
Even as the Obama administration pushes forward with its Af-Pak and healthcare reform policies this month, joblessness in United States will increasingly dominate the attention of the President, Congress and the ordinary Americans. Unemployment may have fallen marginally in November after touching a 26-year high of 10.2 per cent in the month before, but the Federal Reserve has projected that even with positive economic growth it will hover around 8.3-8.7 per cent during 2010. Over the coming months, President Obama will worry that four states that are all Democratic bastions — Michigan, Nevada, Rhode Island, and California — will see the highest rates of unemployment. He will have to also struggle with the limited room for manoeuvre in public finances implied by staggering levels of public debt and the overall budget deficit. Given the elevated spending commitments in the Af-Pak region and subsidies for the proposed healthcare reform, there is practically no fiscal leeway to tackle America’s jobless recovery through further stimulus-like measures.
Yet the deterioration in labour market conditions for middle-class Americans is an ominous threat to President Obama’s already-falling popularity. With the entire House of Representatives and a part of the Senate facing elections next year a decisive strategy to create jobs quickly has become imperative, even urgent. The government has a range of relatively inexpensive policies to choose from. For example, the House will soon pass a bill that may include an extension of transport-related spending, a tax credit for expanding company payrolls, and incentives for credit to small businesses. Some Senators have proposed a plan, at an estimated cost of $600 million, whereby the government could share employers’ labour costs temporarily in a bid to avoid layoffs. If a financial transactions tax is introduced to address the issue of excessive risk-taking by financial institutions, the additional revenue could be productively deployed via local government to create new jobs. Public services such as education would benefit from this type of support. Additionally, policies of the last one year are likely to begin producing results: literally thousands of job-creating projects financed by the $787 billion stimulus package are still in the pipeline. Even the flourish of fiscal dexterity may not, however, save President Obama from politically motivated accusations of profligacy, typically from conservative lobbies opposing big government. The President needs to hold his nerve and soldier on regardless, only ensuring that he is transparent in outlining his plans to those who stand to gain from them.
Labels: Af-Pak, economic downturn, Obama administration, recession, stimulus package, unemployment
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