Joachim Gauck Becomes German President

Seventy-two-year-old activist pastor Joachim Gauck became German president by an overwhelming majority on March 18, marking the first time a candidate from the former communist east will serve as head of state. It was the third presidential election in three years for Germany after the abrupt resignations of Gauck's two predecessors.
Gauck secured 991 votes out of 1,232 from a special assembly of MPs and other dignitaries. Seventy-three-year-old renowned Nazi hunter Beate Klarsfeld nominated as a protest candidate by a far-Left Party, attracted 126 votes while a candidate for the extreme right drew three.
Leader of Peaceful Revolution
Gauck is a former pastor who opposed East Germany’s then—communist regime and became head of a federal agency overseeing the files of the Communists’ ubiquitous domestic intelligence service after Germany’s reunification. Gauck helped drive the peaceful revolution that brought down communist East Germany and later fought to ensure that the public would be granted access to the vast stash of files left behind by the despised Stasi secret police after reunification in 1990. He oversaw the archive for the next decade.
Hard-Won Freedom
Chancellor Angela Merkel, who also grew up under communism, hailed Gauck's victory as a sign of how Germany had transformed in the approximately 23 years since the Berlin Wall fell.
Merkel gave her backing to the plain-spoken Lutheran pastor in February after then President Christian Wulff stepped down amid a flurry of corruption allegations dating from his time as a state premier. Wulff served only 20 months of his five-year term in office.
He had replaced Horst Koehler, a former head of the International Monetary Fund (IMF) who bowed out after an uproar over comments he made appearing to justify using the military to serve Germany's economic interests.
Expectations are outsized for the new president, who has won a reputation across the country as an inspiring public speaker.
As a staunch Protestant like Merkel, he is keen to remind Germans that their hard-won freedoms carry weighty responsibilities with them -- a lifelong theme he has said he will take to the presidential palace.
Gauck himself warned scandal-weary Germans against seeing him as a redeemer, telling reporters the night he was nominated that they should not expect "Superman." He stressed again Sunday that he would "surely not be able to fill all expectations."
People’s Expectations
Expectations are outsized for Gauck, who has won a reputation across the country as an inspiring public speaker, albeit with a notorious touch of vanity. But as a staunch Protestant like Merkel, he is also keen to remind Germans that their hard-won freedoms carry weighty responsibilities with them -- a lifelong theme he has said he will take to the presidential palace.

Money-Laundering (Amendment) Bill, 2011

Money laundering refers to the process of concealing the source of illegally obtained money. The methods by which money may be laundered are varied and can range in sophistication. Many regulatory and governmental authorities quote estimates each year for the amount of money laundered, either worldwide or within their national economy. In 1996, the International Monetary Fund (IMF) estimated that two to five percent of the worldwide global economy involved laundered money. However, the Financial Action Task Force on Money Laundering (FATF), an intergovernmental body set up to combat money laundering, admitted that "overall it is absolutely impossible to produce a reliable estimate of the amount of money laundered and therefore the FATF does not publish any figures in this regard." Academic commentators have likewise been unable to estimate the volume of money with any degree of assurance.
Regardless of the difficulty in measurement, the amount of money laundered each year is in the billions (US dollars) and poses a significant policy concern for governments. As a result, governments and international bodies have undertaken efforts to deter, prevent and apprehend money launderers.
PMLA (Amendment) Bill, 2011
Keeping these points in view and to bring prevention of money laundering legislation on par with global norms, Finance Minister Pranab Mukherjee has introduced PMLA (Amendment) Bill, 2011in the Lok Sabha. The Bill seeks to allow confiscation of proceeds of crime even during the trial.
The Bill also provides that in any proceedings relating to proceeds of crime "...it shall be presumed that such proceeds of crime is involved in money-laundering".
The proposed Bill has provision for attachment and confiscation of the proceeds of crime even before conviction, "so long as it is proved that offence of money-laundering has taken place and property in question is involved in money-laundering. The amendment was necessiated in view of India being an important member of the FATF and also chairing its Asia Pacific group. Therefore, it was important to make the existing PMLA in tune with the practice being followed across the world.
Provisions of Indian Law
The Bill proposes to introduce the concept of corresponding law to link the provisions of Indian law with the laws of foreign countries and provide for transfer of the proceeds of the foreign predicate offence in any manner in India.
The Prevention of Money-laundering Act, 2002 was enacted to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering. The Act was amended in the year 2005 and 2009 to remove the difficulties arisen in implementation of the Act.
Moreover, the amendment bill seeks to use proceeds of crime as criminal activities and remove existing limit of five lakh rupees of fine under the Act.
About FATF
The FATF, formed by the G7 countries in 1989, is an intergovernmental body whose purpose is to develop and promote an international response to combat money laundering. The FATF Secretariat is housed at the headquarters of the Organization of Economic Cooperation Countries (OECD) in Paris. In October 2001, FATF expanded its mission to include combating the financing of terrorism. FATF is a policy-making body, which brings together legal, financial and law enforcement experts to achieve national legislation and regulatory AML and CFT reforms. Currently, its membership consists of 34 nations and territories and two regional organizations.
In addition, FATF works in collaboration with a number of international bodies and organizations. These entities have observer status with FATF, which does not entitle them to vote, but permits full participation in plenary sessions and working groups.
FATF has developed 40 Recommendations on money laundering and 9 Special Recommendations regarding terrorist financing. FATF assesses each member country against these recommendations in published reports. Countries seen as not being sufficiently compliant with such recommendations are subjected to financial sanctions.

Importance of BRIC

The importance of Brazil, Russia, India and China (BRIC) in the world economy has increased manifold since the acronym was first coined nearly seven years ago. Few could have imagined then how the American economy would collapse and bring down with it much of the rest of the world. It is worth revisiting the original formulations on the significance of these four major countries that were made by representatives of a major American investment bank — now a much-maligned tribe and justifiably so — to understand why these economies would together influence the future of the planet we live in.
In October 2003, a report by two economists then employed by Goldman Sachs, Dominic Wilson and Roopa Purushothaman, argued that over the next half-century, the four countries of Brazil, Russia, India and China would become a much larger force in the world economy than the Group of Six (G6) developed countries, namely, the United States of America, Japan, Germany, France, Italy and the United Kingdom. According to the report, in 2050, India’s economy would be the third largest in the world after China and the United States. However, in terms of per capita income measured in US dollars, India would come last among the 10 countries being compared.
Economic Stability
The four BRIC economies taken together would be bigger than the G6 by 2039, it was pointed out. By 2025, these countries could account for over half the size of the G6 whereas the combined Gross Domestic Product (GDP) of the four economies were worth less than 15 per cent at the time the report was written.
The report predicted that in terms of US dollars, China would overtake Germany by 2007, Japan by 2015 and the United States by 2039. India’s economy could be larger than all but the United States and China in 30 years and Russia would overtake Germany, France, Italy and the United Kingdom. Of the current G6 countries, only the US and Japan may be among the six largest economies in the world by 2050.
What is noteworthy is that the Goldman Sachs report pointed out that India has the potential to show the fastest rates of growth over the next 50 years compared to the other nine nations. The real rate of growth of India’s GDP could be higher than five per cent over the next 30 years and close to five per cent till as late as 2050, the report claimed. India would be the only country among the BRIC economies recording growth rates significantly above three per cent per year. These figures appear rather conservative today — the Indian economy has grown by over nine per cent four years in succession and even at a time when the world economy is in recession, the most pessimistic estimate of this country’s GDP growth rate would be four to five per cent.
Goldman Sachs Report
It is important to note the downside that was mentioned in the Goldman Sachs report. Despite much faster growth, individuals in the BRIC "are still likely to be poorer on an average than individuals in the G6 economies by 2050". The exception would be Russia, which would catch up with the poorer among the G6 countries in terms of income per capita by 2050. China’s per capita income could be similar to where the developed countries are now (about $30,000 per capita per year) for, by 2050, the per capita income in the US would be roughly $80,000. By way of contrast, India’s per capita income would be a much lower $18,000 against around $50,000 in Russia and over $26,000 in Brazil, the report prognosticated.
A second report focusing only on India was written by Ms Purushothaman in April 2004 in which she pointed out that India and China (together account for 40 per cent of the world’s population) have both witnessed strong growth, both have surplus labour and both countries have diasporas to contribute to economic development. Yet, according to her, India was 10-15 years behind China in the "reform process", suggesting that better growth was yet to come in India.
Ongoing Economic Crisis
While pointing out the differences in economic orientation, Purushothaman did not mention the important political differences between the world’s two most populous nation-states: India is a heterogeneous, noisy, anarchic democracy while Chinese society is relatively more homogeneous, regimented and wary of granting its citizens excessive political freedom. On hindsight, it is also apparent that the BRIC report by the economists engaged by Goldman Sachs erred extremely on the side of caution. After the ongoing economic crisis, it has become apparent that the gap between the BRIC countries and the G6 would narrow at a much faster pace than had been anticipated.
India currently has no choice but to engage with Brazil, Russia and China in a more proactive manner, simultaneously competing and collaborating with them. Over the past three years, China has overtaken the United States as India’s largest trading partner. Russia, the world’s largest exporter of oil and natural gas, had been badly hit by the sharp fall in world oil prices but is expected to revive with oil prices firming up and expected to rise further. The International Monetary Fund (IMF) projected in April that Russia’s economy would grow by 0.5 per cent in 2010 after shrinking by six per cent during the current calendar year.
Changing Geo-Political Realities
With more than an element of hyperbole, there is no gainsaying the potential of Brazil becoming the "granary" of the planet, China the world’s "factory" and India, its "communications centre." Many in this country, particularly the Left, have been critical of Prime Minister Manmohan Singh for his ideological "tilt" towards the imperialist and capitalist US and the West. But in today’s recession-hit world, economic ideologies have turned upside down and India certainly cannot ignore the rapidly-changing geo-political realities or the fast shift in global economic power balances.
There is one glaring omission in the BRIC combine that needs urgent rectification. The acronym needs to be made BRICS with the addition of the letter "S" to include South Africa, the most powerful economy in the continent of Africa. That would make the grouping truly representative of the world and, perhaps, even a formidable combination for the future.

Fifth IBSA Summit

The fifth India-Brazil-South Africa (IBSA) Summit, which was held in Pretoria on 18 October, has come out with a declaration on major global issues with focus on reforms of multilateral organisations, including the UN Security Council (UNSC), the IMF and the World Bank to give greater voice to emerging countries like India.
The Summit came out with the Tshwane Declaration following the discussions between the leaders of India, Prime Minister Manmohan Singh, President Jacob Zuma of South Africa and President Dilma Rousseff of Brazil.
On global governance reform, the three leaders reaffirmed their commitment to increase the participation of developing countries in the decision-making bodies of multilateral institutions.
UN and IMF Reforms
They underscored the need for urgent reform of the United Nations (UN) to render it more democratic and consistent with the current geopolitical reality. They particularly emphasized that no reform of the United Nations will be complete without a reform of the UNSC, including an expansion in both the permanent and non-permanent categories of its membership, with increased participation of developing countries in both.
IBSA, as like-minded countries, will continue to strive to contribute to a new world order whose political, economic and financial architecture is more inclusive, representative and legitimate, the declaration stated.
It also called for the early implementation of the targets for the reform of the International Monetary Fund (IMF) in order to ensure that the body is democratic, responsive and accountable. The leaders reiterated that the governing structure of the Fund should reflect the changed realities of the global economy in the 21st century, through the increased voice and representation of emerging economies and developing countries.
Global Economic Growth
The leaders agreed that the Heads and senior leadership of all international institutions should be appointed through an open, transparent and merit-based process beginning with the selection of the next President of the World Bank in 2012.
The declaration expressed concern at the ongoing deterioration of the global economic scenario, which presents particular challenges for the economic policy and growth prospects of developing and low-income countries. Downside risks have increased substantially in recent weeks. They stressed the importance of the implementation of a credible plan of macro-economic and financial policies and structural reforms by the Eurozone countries, as a necessary step to prevent further negative shocks to the world economy. They also highlighted the importance of complementary measures by other key developed economies to boost recovery and help the global economy as a whole.
The leaders stressed on the need to increase policy coordination among G20 nations, with a view to avert a new recession and to promote a robust recovery in order to ensure strong, sustainable and balanced growth of the global economy in the medium term.
The current impasse in the World Trade Organization (WTO) negotiations is a source of serious concern, the declaration said.
At the Summit of three leading economies, Manmohan Singh, joined by Zuma and Rousseff, cautioned that economic crisis in developed countries could affect developing nations and pressed for urgent steps by Europe and other advanced economies to prevent “double-dip” recession.
The three leaders also demanded reform of global institutions of governance, including the United Nations and financial bodies, to address current international challenges.
India’s Stand
The Indian prime minister said that the world financial and capital markets were showing signs of “acute distress” due to the negative signals sent by the sovereign debt crisis in Europe and recessionary trends in the “traditional engines” of global economy - the United States, Europe and Japan.
Dr Singh, Zuma and Rousseff, who represent the fast developing economies, discussed the crisis being faced by the advanced countries at their day-long trilateral Summit and were in agreement that the situation needs to be prevented from spiralling out of hand.
The Indian prime minister voiced his hope that effective and early steps will be taken by Europe and other advanced economies to calm the capital and financial markets and prevent the global economy from slipping into a double-dip recession.
Manmohan Singh said that there has been steady growth in the three economies despite the global economic slowdown and intra-IBSA trade has almost touched the $20 billion dollar mark, the Indian prime minister said. The IBSA countries have set a target of $25 billion by 2015.
India will host the next IBSA summit in 2013.

Deepening International Economic Crisis

The crisis of capitalist system is rapidly increasing. The US economy is the backbone of the capitalist system. The United States is feeling it difficult to maintain this system. The economic rating of the United States has declined for the first time in the history. I will not try to make difficult my point of view through statistics and terminology. It is a simple thing that now the United States as state has nothing. The national growth and state loans have become equal. The annual national growth of the United States was $14.8 trillion and loan was $14.6 trillion. It means that the United States as leader of the capitalist system of the world has become debtor. The state has nothing to provide to its masses.
Obama’s Efforts
US President Barack Obama has struck a deal with Republican Party and decided to increase volume of state loans but the growth could not protect to the extra state loans. Although China has gathered lots of dollars yet the internal differences in the Chinese economy and like capitalist countries, Chinese development benefits are limited only to the upper class.
During the past three years, there were a large numbers of strikes in the history of China. A major part of Chinese foreign exchange income has been due to trade with the United States. However, now, the United States may not be able to purchase a large number of items which put direct impact on Chinese exports.
State of Allied Countries
The condition of the allied countries of the United States, which have capitalist system, is not good. The western media has always tried to hide the demerits and weakness of the capitalist system but now it has become impossible to conceal news in this regard as the disease has worsened. The economic condition of Greece has also become worst. There is shortage of resources with allied countries to steer Greece out of this economic crisis. This situation would also affect United States to a greater extent since it is not a welfare state.
The so-called reliefs to the common people which was being provided has become just nominal after the 80s decade. The welfare states of the Europe are facing problems to provide facilities to their people. For the first time, the demonstrations were held against economic problems in the United Kingdom. The capacity of the people to pay loan of the banks is declining day by day. The source was found to boost the industries through banks loans and plastic money, which now has put greater burden on the people and now they are unable to pay it. So, the demand is increasing in Britain that the banks should share the burden of the loans as they get so much income and the people have little capacity to pay it. Italy is sinking in the economic problems and it will be the next European country to become target of the economic crisis after Greece.
Impact on India
India which was being considered a fast growing developed country has failed to introduce practicable capital distribution system although the middle class achieved opportunities of growth in capital productions which helped in the running of trade and industries there. However, the majority of Indian population is quickly going down the line of poverty and more than 800 million people are living in a very miserable condition. The ruling circles of India are involved in corruption. At the moment, not only the governments are under pressure but all the political parties are also facing crisis.
The opposition pressure is mounting on the government of Congress in India. No one could object to the honesty and character of Indian Prime Minister Manmohan Singh but now he too is facing demands of resignations on account of allegations of corruption. The opposition is not leveling any allegation against his personality and they are saying that he is responsible for the corruption committed by his cabinet ministers and thus he should resign. The Bharatiya Janata Party (BJP) has forced one of its chief ministers to step down to increase pressure on the Congress government as he was involved in a big corruption scandal. The BJP is also not different from others with regard to corruption. The BJP ministers were involved in corruption, which was unearthed after the Kargil war. But then the pressure of the masses was not so strong against the corruption.
However, now, keeping in view the pressure of the people, the BJP has sacrificed one of its chief ministers to justify launching of campaign against corruption and making preparations to put Congress under pressure. The chief ministers of Tamil Nadu and Uttar Pradesh belong to regional parties and their governments were badly involved in the corruption whereas the situation of other states is also not different.
Declining Pakistan’s Economic Resources
The Pakistani economy is depending on capitalist system and the United States, its allies and their controlled financial institutions are providing most of our economic resources. However, the United States and its allies which themselves are facing crises could not provide any more help to Pakistan. Britain itself is failing to satisfy its people and its top priority would be its own people and it is not in a position to provide loans and aid to Pakistan. The United States already is avoiding to provide two-third of the assistance allocated for Pakistan. Similarly, it would be wastage of time to expect more aid from the United States. The International Monetary Fund, World Bank and Asian Development Bank can provide loans on strict conditions and their strictness would increase for the return of the loans. The war on terror has been imposed on us. No other power of the world is ready to share with us the burden of the expenditures of the war against the terrorism. The resources would not allow if any government will want to help Pakistan in this regard. The foreign reserves which are being maintained through loans have become doubtful now after the declining rate of the dollar and this fund of reserves could not go along with us for a long time.
Moreover, there is very little chance to increase income through exports. The Pakistani staying aboard could not save more in this present circumstances as their expenditures would increase to reduce the amount which they are sending to their kith and kin in Pakistan. Recently, a delegation of Pakistani traders had warned the government to avoid holding of foreign exchange in the shape of dollars and transfer the foreign exchange in other currencies, if it is possible, as the crisis of dollars would not be affordable for Pakistan.

War Hysteria Responsible for US Economic Crisis

The serpent of debt is about to swallow the United States. The day of 2 August carries much importance for US economy. This fear has considerably increased that the US crisis will affect the global economy as well.
IMF’s Warning
Christine Lagarde, chief of the International Monetary Fund (IMF), has once again stated emphatically that the debt crisis in the United States should be resolved as early as possible, as a further delay in it cannot be afforded. Any crisis in the US economy will badly affect the economies all over the world.
If realities are kept in view, it becomes crystal clear that the United States has torn apart global economy directly or indirectly. By plunging several countries into the war, the United States has deteriorated their economies. But, the United States has itself fallen prey to this complex crisis today.
If the United States' past 20-year history is reviewed, we will find that it is its war hysteria that has made it to face this situation. Whether it is senior Bush or junior Bush, their combatant thinking has broken the back of US economy. The Iraq and Afghan wars have been waged without any reasons and only to maintain its status of being a superpower. America's wars did not end, but George W. Bush's government did end and he passed on these gifts to President Barack Obama. The ongoing wars in Iraq and Afghanistan forced the US economy to breathe its last.
Wars in Iraq and Afghanistan
The United States has to spend approximately $2 billion a week on the wars, while the country's revenue has considerably decreased. The prices of food and other commodities are increasing and it is becoming difficult for American people to cope with this situation. On the other hand, the income is falling. Unemployment and inflation are witnessing an upward trend. President Obama has curtailed the war hysteria, but the situation appears to be slipping out of hand. Economic situation in the United States is going from bad to worse and becoming complex with each passing day. Neither President Obama nor the Congress has a solution to this situation. According to experts, if the Congress and the President did not come out with a proper arrangement before 2 August, the United States can face problems from the IMF, which the US economy will not be able to withstand.
Moreover, energy reserves in the United States are also at the lowest level, which is a big challenge for the US Administration and people. If the huge sum of money spent on the wars in Iraq and Afghanistan is used to resolve the economic crisis, perhaps US economic situation can improve. The earlier the United States gets rid of these futile and meaningless wars, the better it is for the country.

Internationalization of Renminbi

Singapore's Deputy Prime Minister Tharman Shanmugaratnam opines that in the coming 10 years, China will emerge in the middle- and high-end manufacturing industries and stop exporting capital to developed economies like it has always done. These two changes are expected to bring both challenges and opportunities to the world. However, if it is handled appropriately, the big changes in China in the next 10 years will be a favorable development.
Major and Important Changes
In his speech during the luncheon in the Future China Global Forum on 11 July, Tharman said that in the next 10 years, China will see two major and important changes: (1) rapid improvement of productivity and emergence of knowledge-based white collar professionals; and (2) the capital surplus of Chinese enterprises will no longer flow out like what happened in the past. The country will find a new balance of savings and investment and this signifies that China will raise its market interest rate significantly.
Tharman said: ‘One big danger at the moment is that people have paid too much attention on the past issues and overlook the real challenges that will come as a result of the upcoming changes in China. This is going to be brand new phase of globalization.’
Also Finance Minister and Minister of Human Resources Tharman said that the wages of the labor force in coastal cities of China like Dalian and Zhuhai in the south are rising continuously. This is actually a phenomenon that reflects the enhancement of productivity and shows that China is moving towards the direction of a higher value supply chain.
Education and Employment Scenario
China's advanced education system has cultivated an enormous high quality labor force. China has also gradually transformed itself to a global innovation center. There is still much room for China to improve its productivity.
He said that should a multinational company employ an accountant from China, the accountant could significantly improve his knowledge and skills to a reasonable level within a year. Apart from that, high income occupations such as software engineer and architect are no longer jobs exclusively found in developed economies. China will earn a share in the middle-and high-end manufacturing industries and service industry soon. Developed economies would have to face the competition from China.
This will make things worse in European countries and the United States, which are still plagued by the ensuing problems of the financial crisis and high unemployment rates. There is no chance for white collar professionals who have lost their jobs to find jobs that offer them the income they used to earn.
In addition, China also has adequate supply of low-skilled workers from the middle part and inland areas of China like the northeastern provinces. In other words, China would continue to compete with the world in low-skilled manufacturing industry while trying to tap into the middle- and high-end manufacturing industries.
Tharman said that China is making efforts to transform many of its cities into knowledge cities. From the phenomenon of the emergence of white collar workers in emerging countries like India and Brazil, people can observe an ongoing fundamental change in the world and all have to adapt themselves to such a change.
He said: ‘This fundamental change will force all countries to formulate their policies from the perspective of supply instead of demand. All countries have to reconsider matters including the training of all workers in the employment market, the public education system, and how to improve the employers' productivity in each of the new economic sectors.’
Talking about the possible drop of surplus in China's domestic economy, Tharman said that as China is gradually transforming to a consumer economy, its saving rate will definitely decline. Now Chinese state-owned enterprises have to distribute its profits while the Chinese working population will shrink after this. All these factors will cause pressure to savings.
Infrastructural Investment
Because of the demand for urbanization of up to 300 million population, infrastructural investment in China will remain strong in mid and long term. This will rectify the current imbalance between savings and investment, but it also entails that the current low interest rate environment will not last long.
‘I am not predicting the interest rates for the coming two years. But if we examine the development in the next 5 years, and for sure in the next 10 years, it is very likely we would conclude that the actual interest rates around the world, including in the United States, will rise significantly.
Tharman said: ‘This is a huge financial challenge to many countries because the financing cost for their public debt will become even higher.’
However, this also means that more capital will flow into developing countries. Tharman opined that Asia will have to further develop its own capital market under this drive. The current development is still very much inadequate.
Role of Singapore
When replying to a question from an audience, Tharman said that in contrast to the importance of China in international trade, the Renminbi is currently ‘disproportionately under utilized.’ Thus, it is inevitable that the currency will become more internationalized in the next 10 years. As a financial center, Singapore could assist China in this regard.In his opinion, as the residents of Chinese coastal cities become rich, the actual exchange rate of the Renminbi will rise to prevent the risk of inflation from increasing. Tharman also believes that sooner or later the post of the chairperson of the International Monetary Fund (IMF) will fall into the hand of a non-European. However, such an appointment has to be premised on the fact that all countries including developed economies are convinced by the person's capability, instead of doing it for the sake of appointing a non-European chairperson.

Bangladesh Economy Faces Uncertainty: Taka Becoming Weaker Against US Dollar

When the value of US dollar is declining across the world, the reverse is happening in Bangladesh. Bangladesh taka is becoming weaker against the greenback. The main reason behind this depreciation of taka is that the foreign capital investment is coming in a very small-scale. The import cost cannot be tackled with export earnings and remittance. And as a result, the central bank thinks that the current financial year (2010-11) will be ended with a deficit in the balance of payment.
The International Monetary Fund (IMF) has warned the government saying that Bangladesh's foreign currency reserve will decline by $4 billion to $5 billion within the next one year to one-and-a-half years.
Except inflation, Finance Minister Abul Maal Abdul Muhith will have to spend most of his time in anxiety in the next financial year (2011-2012) in dealing with this imbalance in the balance of payment. The country's macro economy has long been in a stable condition. This is the first time that the stability has come under threat. The external sector has been gripped with a tremendous pressure due to a rise in the import cost, a nominal growth in remittance, the lowest overseas loan and investment. The finance minister is going to announce the new budget with the overall economy remaining under pressure. Implementation of the major fiscal plans will mostly depend on coming out of that pressure.
Advice to Exercise Caution
The country's position in the balance of payment was almost sound. The foreign currency reserve was at a satisfactory level. But the situation has changed very fast. The export earning this year made a record increase, but the import cost surpassed the rise. The economy has been failing to rein in the pressure coming from a 41 percent rise in the import cost. This situation is virtually created due to a huge rise in the price of food and fuel oil in the international market and also a rise in import cost of cotton, an export supportive import item. There are also pressures for importing various equipment for the power sector.
The remittance inflow in the last few years has been protecting the sound position of the foreign currency reserve. But this time the reserve is dwindling. This is leaving its impact on the exchange range between taka (Tk) and US dollar. Simultaneously this has been creating pressure on the balance of payment.
Renowned economist Prof Wahiduddin Mahmood advised the government to proceed with caution in maintaining macro economic stability. He told the Prothom Alo that the government could undertake in its hands the projects of private sector partners in the infrastructure development sector. Ensuring adequate foreign assistance and private sector foreign investment are urgent for the implementation of those. Otherwise these projects might stop in the half way. In addition, a crisis may be crated in the balance of payment while funding those from internal sources.
Prof Mahmood suggested giving due importance to the balance of payment while preparing project plans and said the big projects have economic necessity. He said that such projects had also political demands. But at the end the projects have to be finalized considering the supply of fund. Funding risks, analyzing profit, and loss and the priority issues involved the projects are also very urgent matters. Drawing an example, he said that some investment in the development of the Hazrat Shahjalal International Airport could alleviate its standard up to the mark. But in spite of doing this preparations are afoot to construct another big international airport.
State of Balance of Payment
The latest current account of balance of payment prepared by the Bangladesh Bank is for the period of July-March (2010-11). According to it, the country has a current account surplus of $689 million. If the monthly average for first nine months and the trend are taken into consider and equated with 12 months the country will face a deficit at the end of the year.
It has been observed that there has been a nominal capital income until March. The foreign direct investment was also very insignificant at $574 million. There is also a very minor mid and long-term investment at $863 million. A huge deficit has been created in the financial sector because of payment of huge loan and interest against short-term loan and halt in channeling huge export earning. And as a result, the overall deficit until March stood at $529 million.
The US-based international credit standard determining organizations -- Modish Investor Services and Standard and Poor -- publishes its report on Bangladesh's annual rating evaluation in March. These two organizations reminded about future pressure on the balance of payment.
Apprehension about export: In a news conference, the organization of readymade garment producers, Bangladesh Garment Manufacturers and Exporters Association (BGMEA), has expressed the apprehension that the growth in the country's garment sector might sufferer slump in the coming days. The garment factories are not receiving huge delivery order like in the past. Many buying orders are going to China, India and Pakistan. The backward linkage industries, including cotton production, have achieved tremendous progress in the said countries.
According to statistics of the Bangladesh Bank, the import cost against exported garment items has almost increased by twice. Two reasons are responsible for this. The price of cotton in the international market has been doubled. Nearly a doubled quantity of cotton and yarn is being imported to the contrary this year for export in comparison with that of 2010. The owners of the garment industry have doubled the import of cotton and fabrics this year as the EU has relaxed its priority in export-the rules of origin of general system of preference (GSP).
According to the date available with National Board of Revenue (NBR), the import of woven fabrics during the period January-March 2010 was at 41808 tons. The import in the current year stood at 78,741 tons. That means the import has risen by 88 percent in the first three months of the same period of the previous year. However, in the first three months of the previous year the net fabric import was at 1,710 tons. This has stood at 2,263 tons in the current year. That means the import has been increased by 32 percent.
The growth in the garment export during the same period was 42 percent. It is being told that for introduction of the new rules of origin the owners of the garment industry have stooped purchasing local yarn and are brining in cloth from Europe before exporting the same after sewing. A big pressure has been created on the balance of payment as the use of locally made yarn and cloth have reduced significantly.
Bangladesh Textiles Mills Association President Jahangir Al Amin said that approximately 200,000 tons of yarn had already piled up in 250 spinning mills of the country.
IMF Puts Conditions Again
One year ago the government refused to take assistance from the IMF for maintaining the 'balance of payment' because of political outlook. But at present and under a fragile condition, it has to sit for dialog for taking recourse to the IMF. An IMF delegation will visit Bangladesh in the first week of June before placing the national budget.
It has been learnt that Anup Shing, director of the IMF for Asia-Pacific division, sent a letter to the finance minister in April 2010. In the letter, he said that the government and Bangladesh Bank would have to make clear commitments for getting loan from them. The rate of foreign exchange will have to be relaxed. At the same time, the IMF set a condition for launching contractionary monetary policy. The organization said that the credit flow would have to be reduced further. The pressure that has been created on the revenue expenditure centering the coming budget would have to be removed.
Multifaceted Moves
Bangladesh Bank Governor Atiur Rahman in a recent letter to the top executives of the scheduled banks reminding them of bringing in foreign capital and fixed loans. The letter said that Bangladesh had been successful to infuse dynamism into investment and foreign trade overcoming the global economic meltdown, but it could not do the same in the field of foreign investment. Despite being surplus in the current account of the balance of payment this weakness in the inter-flow of the capital sector has been exerting pressure on the exchange rate of taka.
Moreover, the Bangladeshi Bank on 11 May had asked the chief executives of the commercial banks to bring home quickly the income of the export items. It was told at that time there was gap of $2billion between export price and realization of export earning. The set deadline of bringing in export earning is four months. The central bank believes a quick channeling of this income will increase the loan distribution and LC opening ability of the banks.

2012: Year of Change of Big Powers’ Governments

US President Barack Obama has announced that he would contest the presidential election in 2012. Not only he, the leadership of four more permanent members of the UN Security Council is also facing election phase in their respective countries and the change of leadership may possible be seen. Obama announced to participate in the presidential election at a time when he recalled his bombers from Libya. But perhaps to fulfill his this promise or for the time being to show the American people that he intends to fulfill his promises, including the promises he had made in 2008 that he would call back the US troops from across the world, but it is the phase of producing the proof of his US citizenship. He is presenting his birth certificate.
Economic Crisis
British Prime Minister David Cameron too faces elections and perhaps he too may be far away from the success because his coalition government may face any economic crisis. There are signs of change in China as well. Xi Jin Yung will replace Hu Jintao there.
In the case of Russia, the election of Russian President Dmitry Medvedev depends on Vladimir Putin.
The success of the French president depends on his success in Libya and his office is at stake in the Libyan war.
As far as Obama is concerned, he still enjoys popularity and is moving fast and the killing of Usama Bin Laden has upped his popularity graph and history is with him. Republicans have yet not nominated their candidate. Perhaps, the 2016 election may be their target because currently they have no personality, who could compete with Obama. They are, however, definitely being accused in the US that they do not take hard stance against the enemies and ignore friends. If Sarah Palin emerged successful, it would be a historical jerk but its chances are very slim. For the success, Obama also needs success in Libya while the game of the chances of success in Afghanistan and withdrawal of troops from there will have to be played whereas in the US, there is talk of dialogue with 400 Taliban.
The Americans have made much investment on Russian President Medvedev, as they consider him a moderate person and supporter of a moderate policy. The Americans believe that he would avoid the policy of confrontation with the US because their problems too are of very serious nature. This is the reason that he avoids raising voice against the US and NATO because he is aware of the difficulties hovering around Russia. Their economy is not on sound footing and their population is decreasing. They too face threat from the Islamic extremists and they face the threat of the vacation of Siberia. As far as China is concerned, Obama knows that China is preparing to challenge them. It will definitely happen one day.
Correcting World Situation
The Americans are saying themselves that the US hunger that it correct the world situation or can lesson the difficulties of the world has died and it has started looking inwards. Then, the Americans know a little less about the incoming Chinese president but they are supporters of establishing relations on the economic lines.
1. The China challenging the US and the competition between the US and China is unavoidable. It is very important question as what arrangement Obama makes for it.
2. The Russian wholly depends on one vote of Vladimir Putin as to whether he supports the Russian president or not or he himself becomes the president. If he himself becomes the president, the difficulties may increase for the US but the affairs of Putin are not much good.
3. Third issue is of Afghanistan. This issue will be very important in the election campaign of Obama and that whether he starts fulfillment of his promise or not. The American people will definitely want to see it.
4. Last, the most important thing is that another major terrorism incident can change the entire global scenario. Any non-state actor may do anything such that the power game in the world can be turn down. The world may plunge into a global war or the tension may increase in the world. If the US president wins but the British and French rulers face defeat and in addition to Putin does not accept the pro-US president in Russia, the scenario may change. Bu after the arrest and humiliation of the International Monetary Fund Chief Dominique Strauss-Kahn of French origin, who was a candidate for the French presidency, in a sex scandal, the chances of the success of the incumbent French president have increased. Thus, the US president is advancing the game of next five years.

ASEAN+3 Agrees To Form AMRO

The Association of South East Asian Nations (ASEAN)+3 countries have agreed to form financial surveillance institution, ASEAN+3 Macroeconomic Research Office (AMRO). The forming of the institution is an effort to minimize the dependency on the International Monetary Fund (IMF). The new institution which starts to operate on 1 May 2011 needs initial fund of US$ 120 billion. In the future, AMRO fund is hoped to be larger with the support from China, Japan, and South Korea which also join in the ASEAN+3 cooperation forum.

The new institution will be based on Singapore and lead by Japan and China. During the ASEAN Finance Ministers Meeting (AFMM) in Nusa Dua, Bali, Executive Director of Fiscal Policy Agency of the Ministry of Finance, Bambang PS Brodjonegoro, said: 'We hope that there will be additional members. Therefore, it will enlarge the Chiang Mai Initiative Multilateralization (CMIM) scheme. AMRO and CMIM strengthen each other. If AMRO gets stronger, CMIM also gets larger. The nations believe that CMIM can be a mechanism to maintain economic stability in Southeast Asia.'

Monitor Financial Development

According to Brodjonegoro, the agreement was a result of deputy finance ministers meeting. The institution functions as first defense if ASEAN+3 members face financial problem before involving IMF.

In the long run, AMRO will monitor financial development, especially ASEAN members. Next, this institution will give early warning if one of the members is in a condition in need of support. AMRO will issue a recommendation after receiving request from the nation in need.'

Brodjonegoro explained that there are three pillars which must be built so that financial defense of a nation can survive from pressure of global money market speculative action, which could weaken the currency exchange rate. First, regional surveillance or monitoring effort and financial risk calculation in Asia. Second, Bilateral Swap Arrangement (BSA) or exchange of foreign reserves between two nations. Thirdly, development of the financial sector.

Indonesia is currently developing one pillar, which is BSA agreement as much as $18 billion involving China as much as $ 4 billion, Japan as much as $12 billion, and South Korea as much as $2 billion.

Considering AMRO's initial capital is only US$ 120 billion, this institution can only help in a certain scale according to the CMIM scheme. If the scale of the problem is considered too big, the IMF involvement is needed. AMRO is like a first line of defense for Southeast Asia.'

Foreign Reserves Depletion

Brodjonegoro explained that the size of the case depends on each nation. In a foreign reserves depletion, for example, the size for Indonesia is different than smaller ASEAN member. A US$ 1 billion foreign reserves depletion might not affect in Indonesia, but it might have a large impact in another nation.

In facing the possibility of financial pressure, Indonesia can request for additional emergency fund as much as $31.68 billion consisting of $18 billion from the BSA and $13.68 from ASEAN+3. The emergency fund will strengthen Indonesia's foreign reserves which is currently $102 billion. Elsewhere, Deputy Governor of Central Bank (BI) Hartadi Agus Sarwono, explained that Indonesia will use its foreign reserves according to the need, including to prevent capital outflow. The BI must prepare itself considering the swiftly capital inflow to ASEAN, including Indonesia. However, he hopes that the government also prepares budget allocation as backup.

Infrastructure Fund

In the previous meeting, ASEAN finance ministers have agreed to form a special new institution to support infrastructure development (infrastructure fund). The institution which will be formed in September 2011 will involve Asian Development Bank (ADB).

In the meeting, they will finalized the concept of infrastructure fund. This institution is scheduled to be formed in September 2011. Brodjonegoro said: 'There are still several technical factors to be discussed.'

So far, infrastructure fund has collected fund about US$ 450 to 480 million. In supporting this institution, Indonesia has allocated budget as much as US$ 120 million, while Malaysia as much as $150 million, and ADB about $480 million. He said: 'This is still initial capital, but addition is still open.'

This year, Indonesia is the chairman of ASEAN Finance Ministers Meeting (AFMM). Indonesia also has three opportunities. First, chairmanship position is a mandate and also Indonesia's opportunity to increase its role in ASEAN region. Moreover, chairmanship position is an opportunity to execute a larger regional role, such as ASEAN+1, ASEAN+3, ASEAN+6, and East Asia Summit. Thirdly, the success of holding ASEAN meeting in Indonesia will give a positive impact as a media of promotion and imaging. This success will show that Indonesia is a conducive, safe, and has potential of cooperation opportunity in economy, finance, politics, social, culture, and investment.

AFMM is an annual ASEAN finance ministers' summit, which is held in the first week of April and held by each ASEAN member. In this meeting, there are also bilateral and multilateral meetings between the members. The Ministry of Finance will form cooperation including stock market development, customs, and infrastructure funding.

Catastrophic Bond

In the meeting, ASEAN members started to plan a new scheme insurance or natural disaster relief fund by issuing catastrophic bond. There are two options, which can be implemented: strengthening existing catastrophic insurance or issuing catastrophic bond. It is just the initial observation.

The catastrophic bond buyer must pay the premium just like insurance. Therefore, the collected fund becomes stronger due to involvement of other nations. The target of forming will be as soon as possible. Hopefully, it could form it this year. However, next year is the most realistic target. In the long-run, ASEAN will form a special company to issue catastrophic bond. The company can be private or state-owned. This company issues the bond, while the nations are the buyers. The money must be reinvested because it will be idle.

Financial Crisis in Vietnam

As the world community focuses attention on Egypt and on the political crisis in its surrounding countries, the financial crisis in Vietnam is spreading subtly and speedily. If Vietnam's financial crisis cannot be handled by its government properly, Vietnam can become a new financial disaster center in this region.

When the International Monetary Fund (IMF) advocates Asian countries to use their respective currency appreciation to resolve inflation problem; but of late, the devaluation of Vietnam's currency Dong against the US dollar has already reached as high as 9.3 percent. Such a development has caused export pressure to Vietnam's neighboring countries.
In 2003, since Vietnam implemented its Free Trade Area, the speedy economic growth of Vietnam and the economic future and prospect of Vietnam were viewed by all sectors as very good. Vietnam has even been viewed by many as "the next China."

Pursuing Rapid Economic Growth
However, to pursue rapid economic growth, Vietnam has introduced massive foreign investment to its country. Vietnam has absorbed more foreign capital than what its own economy could bear. Within a short period of less than one year, Vietnam has already faced severe inflation and its economic bubble has burst. All of a sudden, Vietnam's economy plunged into the verge of collapse. It was only through the Vietnamese Government's strong intervention that Vietnam was able to barely stabilize the spread its financial crisis.

At present, Vietnam's currency has devalued drastically and its inflation is getting out of country. At this juncture, no one dares to optimistically speculate if the financial crisis in Vietnam has indeed reached the bottom and from now onward, Vietnam's financial outlook should face a brighter future. This is because simultaneously, political and societal crisis have also emerged in Vietnam. If the Vietnamese Government cannot handle these entire crisis properly, the ruling party of Vietnam which is described as an evergreen party that can last a thousand year, may face collapse and disintegration. In short, Vietnam has suddenly turned into a modern apocalypse for other countries to observe of how a developing country can suddenly suffer such a severe setback.

To the outside world the multiple crises in Vietnam have seen to burst out too sudden and too fast. Although on the surface, whether it is in the area of politics or economy, Vietnam has given the outside world an illusion of progress and prosperity. But in actual fact, the problem relating to Vietnam's real structure crisis has long existed. But all along, Vietnam's ruling party refuses to face the fact. This has led to the present deteriorated condition in Vietnam that is difficult to clean up.

Toward Open Reform Process
In 1986, Vietnam has already begun to push forward economic reform. Vietnam has, from the past collective economy gradually transformed and transited into a free market socialist economy. In 2007, Vietnam entered the World Trade Organization as an equal status member. The fact that Vietnam can become a member of this international organization has reflected the reality that Vietnam has already gone through its past suffering and adversity, entered a better road and allowed its politics to move toward an open reform process.

The steady and rapid growth in trade and economy in Vietnam has helped to resolve its foreign debt crisis and the people in Vietnam are full of confidence and hope toward the nation's future. It is because of such development that many Asian countries have used Vietnam as a good development model and vowed to follow the economic growth path of Vietnam. Many other Asian countries hope that like Vietnam, their countries also can also go through economic and economic reform similar to that of Vietnam within short period of time. Many Asian countries also hope that they can promote the development of Free Trade Area and together with Vietnam, also enjoy a new era of political reform and economic prosperity.

Present Danger and Situation

However, at the 2006 Annual General Assembly of the Communist Party of Vietnam, the leadership transition process for both Vietnam's party leadership and its government leadership from one generation to another has set off the nightmare of Vietnam's present danger and crisis. Because of the fact that the Communist Party of Vietnam is the single domination ruling party that controls Vietnam's political, economical, societal and communication media, the Communist Party of Vietnam has become Vietnam's 'thousand-year" evergreen and an unmatched ruling party in the country.

However, when a party such as the Communist Party of Vietnam takes up a single party dominant structure that has also controlled too many vested interests, benefits and resources of the nation, it has the tendency to produce too many self-interest pipelines for their leaders and create issues relating to corruption and abuse of power.

Impact of Asian Financial Crisis
After Vietnam went through the Asian financial crisis, the Communist Party of Vietnam did carry out innovative efforts to encourage local people with good reputation as well as with good international experience to take part in politics to push forward its economic reform.

As such, under Vietnam's favorable condition of having geopolitical competitive advantage, the economy of Vietnam has also begun to rebound from the valley and appeared to attain an affluent and prosper economy on the surface. Because of the fact that the United States has the intention to pull Vietnam closer to its side in order to strengthen the US controlling power and influence in the South China Sea, the United States has given Vietnam many opportunities to participate in international organizations' programs and activities. Overnight, Vietnam has entered an international community that is fully open. However, Vietnam's political structure could not adjust to such changes. As such serious crisis occurred within the nation.

Communist Party of Vietnam's Interest
The conservative fraction of the Communist Party of Vietnam that controls major party affairs felt uneasy and shock when the reformation fraction of the party wanted to expand its full fledged influence and demanded the ruling party and government to carry out comprehensive reform. On the handling of personnel, financial affairs and vested advantage, the reformation fraction wanted these issues to be done in a transparent manner.

However, leaders from the conservative fraction were disturbed and shocked about such reformation measures. This was because all along, they were the ones who have taken up the vast and wide vested interest of the Communist Party of Vietnam. How could they withstand the impact of such party reform? As so, the conservative faction of the party began to make plot and block the reform in Vietnam. At the recent Communist Party of Vietnam reelection, this rule party has appointed Nguyen Phu Trong as its secretary general and it seems that the retaining of its Prime Minister Nyuyen Tan Dung who was earlier rumored to step down was a compromise reached between the conservative and reformation fraction of the party.

Development Trend
In recent years, the developments in many developing countries have also suffered the bottleneck phenomenon. One of the main reasons is due to the fact that the reformation pace of the ruling parties in these countries cannot catch up with the pace of advancement in economics, societal and political progress of their countries.

As of today, some of the ruling parties in the developing countries have not even gotten rid of the Lenin's political decisionmaking model. Under these governments, many decisions relating to personnel, finance, party affairs are manipulated and controlled by the different political factions within the party. Under such development trend, outstanding party talents that process good image and integrity can suffer what is termed as "count-you-out" phenomenon. Good leaders could be phased out in the process. Moreover, when it is general election time, since the talents of the ruling party are limited, the ruling party leaders must depend on money politics and money power to gain the different political camps' support to win the election battle.

However, once the ruling leaders counted on the support of the different camps within the party through money power and money politics to win the election, the ruling party has to pay a high price to reward their supporters for what they have done. Second, those politicians from the different political camps who depended on money power to retain their position and power are usually those without any lofty goals to implement good national policy for the people. These politicians only know how to please the voters blindly. As such, they tend to give out astonishing welfare checks to the people and caused massive deficits in their nation's federal treasury. To many countries, the problem in Vietnam can serve as a good warning and lesson for many countries to learn.

US-China Currency War

The US dollar has dominated the world since the mid 20th century, but that something has recently changed in the so-called global currency war. The United States pressures China to float its yuan and Japan is working hard to keep the yen at bay not to harm its exports." For its part, the Chinese giant is making the mission more difficult by buying Japanese bonds at this critical stage and Brazil is also trying to stop the rising value of its currency. The other problem is that the euro is suffering severe blows because of Greece's indebtedness crisis, which raises fears that the currency may collapse.

The US banks have officially been accused of having contributed to Greece's financial crisis by hiding important data on the country's budget deficit, wondering if this means anything other than a global currency war that expands with each passing day. General Dominique Strauss-Khan, IMF (International Monetary Fund) director, has ruled out the outbreak of such a war and warned against interference in the financial market for purposes of revenge.

Song Hongbing, an American researcher of Chinese origin issued a book titled the Currency War in 2008 saying that the US Administration will be challenging China's miraculous economy by devaluating the dollar and raising oil and gold prices. As a result of the global economic crisis, firms have been shut down, the world trade has been crippled, investment projects have been paralyzed, and unemployment rates have increased all over the world. Nevertheless, China has found a way out of the crisis by achieving the highest growth rate in the world, thanks to its huge gold reserve and its huge investments in US and other international bonds. In one year, China succeeded in replacing Japan as the second largest economy in the world, Germany as a major exporting country, and the United States as the largest consumer market in the world. Moreover, the weak yuan has increased Chinese exports as the other major economies moan under the burden of the economic crisis. The US market has been overwhelmed by Chinese goods; currency is a more fatal weapon in economic wars than weapons of mass destruction.

Germany and Japan are joining the US in pressuring Beijing to let the yuan appreciate to prevent an international currency war from spiraling out of control. Still, China remains firm that a gradual rate change is all it will allow.

Causes of Concern
The US dollar has fallen by about 25 percent against the Brazilian real since the beginning of 2009, making the real one of the strongest performing currencies in the world. This is supposed to sharply contrast against a series of recent interventions by central banks in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi.

At the end of July 2008, before the global crisis erupted, the Brazilian real traded at 1.56 to the US dollar. In late September 2010 it traded at 1.71, that is, 10 percent lower. What then about the 25 percent, which had made the real one of the strongest performing currencies in the world? That was because during the crisis, the real was the worst performer against the US dollar: from 1.56 in July 2008 to 2.62 in early December 2008, a massive drop of 68 percent. In contrast, the euro fell 24 percent; the Indian rupee by 22 percent, the Korean won 55 percent and the Chinese renminbi by 0 percent. The Japanese yen appreciated during the crisis by as must as 23 percent at one point. In fact, all Asian currencies, having first lost much less (or actually gained) ground vis-à-vis the US dollar, have also recovered more ground — whether it be the yen, renminbi, rupee, Malaysian ringgit or Taiwan dollar. Only the Korean won is in a position comparable to the real.

US Frustration
Just 13 years ago, the IMF , supported by the developed West, sought to amend its articles to define currency convertibility away from current account convertibility toward “capital account liberalization,”, the term “liberalization” replacing “convertibility” at the last moment being a nod to the then ongoing Asian currency crisis. And today, we get advice from many in the West on how capital flows are a concern and controls may be a good idea. Of course, having so greatly profited from capital, developing a disdain now is not unexpected. It is an inevitable and defining characteristic of old elites.

The US frustration and anger over what it sees as Chinese “intransigence” seems understandable. On all occasions since November 2009 — when on a visit to Beijing President Barack Obama went to great lengths to placate his hosts in the hope that they would respond positively to his urgent request for a revaluation of the yuan, as the Chinese currency is named, but drew a blank — China has resolutely said no to the US demands for a revaluation of the yuan. Just a few days before the passage of the anti-China Bill Chinese Prime Minister Wen Jiabao, at a meeting with Obama on the fringes of the UN General Assembly flatly refused to budge from the Chinese position. To the passage of US law Beijing’s reaction was that it would retaliate and others would join the trade wars.

At the IMF ministerial meeting Governor of the Chinese People’s Bank, Zhou Xiaochuan, stated that the value of the Chinese currency had nothing to with the high rate of unemployment in the US and Europe. He advised the US to “practice self-criticism” about its economic policies. He wasn’t alone in pointing out that the US and its allies were concentrating on China but were reluctant to blame each other for “misalignments” in their currencies. This was a pointed reference the US Treasury Secretary Timothy Geithner’s refusal to comment on Japan’s decision to lower the value of the yen. Brazil has also done roughly the same thing.

Impact of Global Financial Crisis
Battered by the financial crisis and prompted by self interests, the United States and some European countries have been doing the opposite of what is right and trying to dump their problems on the laps of other countries. They have been pursuing trade protectionism and putting pressure on China to revaluate its currency. The result of their actions will be to hinder global economic recovery and growth.

The important point is how the current global economic crisis has affected the dollar? The crisis facing the US dollars is more serious than it was during the seventies of the past century. The problem are the indebtedness levels, which reached 375 percent in 2008, the highest since the Second World War, compared to indebtedness which reached 1 percent during the seventies of the past century.

According to economists, the crisis is extremely serious this time. The United States will have to export its dollar to the world in accordance with international agreements. As far as US currency reserves are concerned, the United States should achieve a trade balance by exporting its currency and getting goods, even if this may result in a trade deficit.

China's Role in International Economy
China's economy has a global influence. Today more than half of the commodities (both finished products and materials) consumed in the world today are made in China. If the renminbi appreciates too rapidly, the prices of Chinese products sold overseas will necessarily go up, which will certainly have a major impact on the bottom line of overseas operators and countless businesses involved will see a drop in profits or even go bankrupt. The damage that may be caused by an overly rapid appreciation of the renminbi cannot be underestimated.

The international community often wonders what prevents China from playing a greater role in the international economy. The reason they find that China pursues a cautious policy in making its decisions, especially since the United States is now pressuring it to raise the value of the yuan. Moreover, the United States has huge investments in China, which depends on the US market and technology, although it wants to have its own strong, stable currency.If the dollar continues to lose its purchasing power, the United States will lose its political influence and military power. The United States to draw up a responsible plan to reduce spending and indebtedness and increase tax in order to remain confidence in the dollar.

Pakistan-Iran Power Project

Pakistan and Iran have agreed on getting the 1,000 MW power import project off the ground. In this regard, it has been decided that energy experts of both the countries will hold meetings every two months so that the import of power from Iran to Pakistan could be ensured in the least possible time. On the other hand, the Federal Minister for Water and Power, Raja Pervez Ashraf has said that Pakistan is desirous of immediate implementation of the project of importing 1,000 MW power from Iran.

An Iranian delegation, led by Syed Amir Mansour, Iranian Deputy Foreign Minister; met Raja Pervez Ashraf, Federal Minister for Water and Power. It was informed during the meeting that work on three different power import projects between Pakistan and Iran are in progress. In the first project, 39 MW of power will be imported; while, in second 100 MW and in third project 1,000 MW will be imported to Pakistan.

It is a fact that, in addition to several other crises, the incumbent government has inherited power crisis too.. However, the question is whether the incumbent government will be able to satisfy the nation in this regard by holding the previous governments responsible for the energy crisis?

Taking Practical Steps
Certainly not, because the nation understands well that the present power shortage is not something that has happened today; rather, it has in its background the mistakes committed by the previous governments. However, today when the incumbent government has completed two years, the nation also asks, what steps have been taken so far in this regard other than giving different dates of overcoming power cut? Moreover, when it was already too late, a conference regarding power crisis was called and this issue was discussed for the two days. However, the conference did not produce the results that the nation had hoped for.

Instead of taking practical steps in order to overcome power shortage and energy crises, suggestions of weekend holidays and closure of markets at 20 hrs are given. Although, such steps will surely save power, it is not a long-lasting solution. How long will it work?

On one hand, the dragon of power cut has swallowed national economy and, on the other, hefty power bills have buried the poor people alive. On one hand, the power cut duration has risen up to 18 hours [a day]; and on the other, while obeying the International Monetary Fund (IMF) orders, the government has raised power charges to a level where the poor people cannot spare money for household expenses after paying these bills.

God has enriched Pakistan with natural resources; however, regrettably, there is no sincere leadership that should benefit from these natural resources and should let the country prosper. The international imperialists have entangled the poor countries, especially the Muslim countries and Pakistan, in a net so that the Zionist imperialists have not only confiscated our sovereignty, but we also cannot benefit from our natural resources. In their lust for power, the ineligible leaders of the Muslim world have mortgaged their sovereignty and economy to the international powers. That is why Muslim world is dependant on the international powers, in spite of being rich in natural resources. A small Jewish country, Israel, despite being surrounded by Muslim countries from all sides, has occupied the Muslims' Jerusalem for so many years. And it is patronized by the United States. The Muslims cannot free themselves from Israel despite being large in number.

Impact of War on Terror
The matter of fact is that these very powers are hampering Pakistan-Iran gas and power projects because they cannot see any Islamic country achieving economic independence, especially, if we consider the hostile role that the United States is playing behind the cover of being Pakistan's friend, it will be obvious that a country like Pakistan, which is rich in natural resources, is faced with economic crisis only because of playing the role of a frontline ally in the so-called war on terror. The United States itself does not fulfill its claims and promises of giving aid. Moreover, if Pakistan wants betterment of its economy and signs accords with other Muslim countries to resolve its energy crises, the very United States is creating hindrances.

India had also partnered Iran gas pipeline project in the past; however, it backed off owing to the US pressure whereas Pakistan and Iran inked the gas pipeline project; however, the United States does not want completion of the said project. The United States does not want to see Pakistan-Iran power projects growing up. It is the very cause why these projects are being delayed. As far as India is concerned, the United States has already penned civil nuclear accord with India. In this regard its behavior toward Pakistan is very obvious. Despite playing the role of a frontline ally in war against terrorism and sacrificing thousands of troops and ruining our economy, Pakistan could not attain the status it deserves.

Demand of the Situation
In such a situation, the government should try to strengthen its relations with every country so that power shortage could be overcome and our economy could prosper. In this regard, it is vital to design short-term and long-term plans. This crisis cannot be overcome by two weekly holidays and closure of markets at 2000 hrs. We will have to find a lasting solution to this problem.

As far the power shortage is concerned, Dr Ishfaq is of the view that if the government utilizes the coal reserves present in Thar, we can produce 50,000 MW of power for so many years. It will not only be adequate for national needs, but we can also earn handsome foreign exchange by selling it to other countries. In this regard, we will have to forget all political conflicts in order to build new dams only in national interest. We will have to give precedence to the solar energy projects and will have to benefit from all available sources of power generation so that our industries and factories should continue working, the country should stand independent in agriculture and thus the wheel of economy may never stop.

The demand of the situation is that without falling victim to any kind of pressure regarding power projects with Iran, decisions should only be taken in national interests. Moreover, immediate steps should be taken to exercise power projects with Iran as soon as possible.

Greece Faces Debt Crisis

The collapse of Lehman Brothers in 2008 transformed a credit crunch into a full-blown financial panic that all but brought down the Western banking system। Similarly, financial turmoil in Greece may seem like a technical problem but it threatens to turn into a human catastrophe. The country is laboring under a mountainous national debt of 300 billion, amounting to 124 per cent of the Gross Domestic Product (GDP).

Bailout Package
A bailout package amounting to 45 billion has been negotiated with the European Central Bank and the International Monetary Fund (IMF), but there are big doubts about whether Greece can service that debt। Standard & Poor's, the international ratings agency, has downgraded Greece's credit rating to junk status. A credit downgrade means that a country is regarded as a riskier place in which to invest. Greece will now find it even more difficult to service its debt, as foreign investors demand higher interest rates. Stock markets fell sharply yesterday, while the euro fell to its lowest level against the dollar for a year.

Amid the concerns of British voters in the general election, high finance in Greece may seem a distant problem। But it matters for the entire European Union (EU). Political unrest in Greece is spreading. The country's budget deficit amounts to 13.6 per cent of GDP, some four times the allowable limit under the euro zone's rules (known with unintended irony as the Stability and Growth Pact). The Socialist Greek Government has pledged to cut the deficit to fewer than 3 per cent by 2012. It plans to do this by cracking down on tax evasion, reductions in public sector pay, a higher retirement age and privatization of utilities.

Credit Card Rates
Athens' austerity pledge is dramatic। As far as the financial markets are concerned, it is also not credible. Ten-year government bond yields have now risen above 11 per cent. Interest rates on two-year bonds are not far from 20 per cent. Ordinary Greeks will pay a heavy price and may seek to compensate with inflationary wage demands. The costs of borrowing for consumers and businesses are already at levels comparable to credit card rates in this country.

As the crisis has intensified in Greece, international investors have also become more worried about the debt positions of other economies in Southern Europe। Yields on Portuguese long-term government bonds have risen to almost 6 per cent, and in Spain they are above 4 per cent: the highest level since the euro was launched a decade ago. Both of these economies have structural problems -- Spain is suffering the aftermath of a crash in the housing market -- but neither is as extended in its borrowing as Greece. The fear of regional contagion is powerful, however, and Portugal and Spain have both suffered downgrades in their credit ratings this week.

There are two scenarios that investors fear especially। One is that the country will look at the fiscal retrenchment ahead and decide instead to default on its debt. The second is that it might then attempt to ease its economic pain by electing to leave the euro zone altogether.

Increasing Interest Rates
If Greece does default, the consequences for financial markets would be huge। Investors in the neighboring economies would flee। Contagion would spread to the bond markets of Southern Europe, pushing up interest rates and threatening what is at the moment a weak and uncertain European recovery. It would also be a further financial hit to international banks that hold Greek sovereign debt. In short, Europe might face not just the second bout of a double-dip recession, but also a second stage of the banking crisis. This is not only a Greek or even a euro zone problem.

Immediate Task
The immediate task is to ensure that Greece is able to service its short-term debts by providing the bailout money agreed in principle by the EU and the IMF। But there is an important obstacle. Germany, the biggest EU contributor, is reluctant to take part. With public opinion on its side, Berlin has delayed approval of the bailout package. You can see its point. Prudent German taxpayers do not readily understand why they should meet the bill for another country's profligacy.

However, the bailout is essential, and may well require substantially greater sums than the current package envisages। The first responsibility for coping with Greece's crisis lies with the other members of the euro zone, and Germany and France in particular. The episode illustrates the most pressing problem in today's global economy.

Boosting Domestic Demand
There are huge imbalances between countries that have high savings and have lent them out, and countries that have lived beyond their means by attracting those savings। Germany has been a beneficiary of these imbalances, by being able to grow through its exports while doing little to reform the inefficiencies of its domestic economy. On a bigger scale, this relationship also characterizes the economic links between the US (a huge debtor nation) and China, whose savings surplus was recycled in the US economy and sparked the consumer boom that eventually led to a crash.

If the global economy is to recover sustainably, rather than experience continued boom and bust, the imbalances will have to be addressed। The debtor countries need to save more.

The countries with savings surpluses need to boost domestic demand। Greece's crisis is in microcosm, and extreme form, a parable of the stresses in the global economy. A bailout is a palliative compared with these imbalances; but it needs to be done.

Unmitigated Failure
There is another reason that Germany and France need to aid Greece: they are all part of a currency union। Greece joined the euro zone in 2001; its experience has been an unmitigated failure. As its interest rates converged on the euro zone's at the start of this decade, it enjoyed a boom in consumption, for which it is now paying. But as Greece no longer has its own currency, it cannot ease the pain by allowing the exchange rate to adjust.

A currency depreciation would allow real incomes to fall, by raising import prices। But within a monetary union the only way in which Greece can address its debt problem is by a savage deflation. It will cause human misery.

Consequence of Euro Membership
If the principal countries in the euro zone wish the project to succeed, they cannot abdicate the responsibility for bailing out its weakest member to the IMF। The United Kingdom stands outside the euro zone, and that is where it should remain। Looking at the Greek situation and the constraints on Athens as a consequence of euro membership, the United Kingdom must surely count its blessings. But the stresses within the euro zone are not a major cause. The member states of the EU are the main British trading partners. If financial contagion spreads there, then recession will return here. And the next British Government, also contending with a huge budget deficit, will find its policy options severely limited in dealing with the crisis.

Spat Between China, US Over RMB Value Will Not Help Resolve Trade Disputes

The spat between China and the United States over the appreciation of RMB (Renminbi) exchange rate seems to have the tendency to heat up and expand. The US Treasury will release its annual report on 15 April. In this report, whether China will be blacklisted as a currency manipulator country might decide the future international trade direction.

As the date of the release of the US Treasury annual report approaching, the pressure coming from all directions in pressuring China to raise its RMB exchange rate has also intensified. Recently, 130 members of the US Congress have collectively sent letters to US Treasury Secretary Timothy Geithner and US Commerce Secretary Gary Locke, requesting that the United States should list China as one of the countries that manipulates its currency. In addition EU Trade Commissioner De Gucht also felt that China's RMB is undervalued and that China should allow its currency to appreciate. Then came the World Bank and International Monetary Fund (IMF) that followed through and exerted pressure on China to appreciate the value of its RMB.

Revival of Global Economy
Facing overwhelming pressure coming from the western society, Beijing's tone has also been raised. In his work paper for the "two sessions" this year, Chinese Prime Minister Wen Jiabao announced that the Chinese Government would not yield to external pressure and the RMB exchange rate will remain "basically stable." At a public forum held on 21 March, China's Minister of Commerce Chen Deming also said that if China was listed by the United States as a currency manipulator and if China suffered trade sanction, China would take retaliatory measures against the United States. He made this remarks in response to US corporate executives' questions on this issue at the public forum.

Issue relating to the currency rate of RMB has tremendous impact on the world community. As the world's two largest trading countries, if a trade war really breaks out between China and the United States, it will affect all other countries in the world and it may lead to the gradually reviving global economy back to the valley of economic setback again. Objectively speaking, the RMB exchange rate issue is not without a solution.

However, using high profiled propaganda measure to resolve the issue is not the best way to end the trade conflicts between China and the United States. It is obvious that the policy makers in Washington and Beijing are forced to take their respective stand on the RMB exchange rate issue because both governments are confronted by their respective internal situation and pressure.

US Health Care Reform Bill
Although the Obama Government has had its health care reform bill passed, the effort taken by the Obama administration to get it through has already consumed considerable political capital of Obama. Since becoming the US President, Obama has been actively promoting rational public affairs. But now his bipartisanship appeal has also fallen apart.

However, the unemployment rate in the United States has remained high. With the mid-term congressional election approaching, the White House has no choice but to pay more attention to the public opinion and value the feedback from the public opinions as well as to attend to the pressure coming from the opposition party and the pressure from within the ruling party.

The US public opinions attributed the US unemployment problem to the exchange rate of RMB. They said the RMB was unreasonably depressed by the Chinese authority and that as a result it has become a setback to the US export industries. At this very moment, the US domestic political scene is such that the Obama administration is n the defense side when facing the US public. As such, in dealing with the RMB issue, the weaken US Government has subtly reflected its intention to diverge its domestic pressure onto China's RMB by raising its voice sternly.

Economic Transformation
Similarly, on diplomatic front, China also cannot afford to show its weakness. This is because within China, its economic transformation has been slow, its employment situation is grim and its societal tension is on the rise. Voices coming from China's civil society demanding for societal structural change are continued to be heard. The Chinese Government is now faced with a populist movement. At this period of time when the Chinese Government has to pay full attention to handle domestic challenge, China really cannot afford to show its weakness in public diplomacy.

International pressures can only force the Chinese government to hold firm to its position and will not give in an inch. In other words, policy makers in Washington and Beijing were forced out of the internal situation to demonstrate a strong stance. However such situation will not help to solve the RMB exchange rate issue, but would further weaken each other's room for maneuver.

Trade Problem and RMB Issue
In fact the US-China trade problem and the RMB issue are not as insoluble as reflected on the surface. China's gradual accumulation of inflationary pressures will eventually prompt the Chinese Government to let the RMB to appreciate (but the appreciation rate and speed may not be what the United States intends it to be).

To this end, the Chinese Government has also sent a signal. Chinese Prime Minister Wen Jiabao said that China advocated free trade. He said China would not go for the pursuit of trade surplus. In response to the US concern, he also stressed that China would make effort to expand imports. He said maintaining China-US trade balance should be a long-term efforts and direction.

Earlier, China's central bank governor Zhou Xiaochuan also said China's current exchange rate policy was a temporary strategy in response to the global financial crisis. He said that adjustment of the value of Chinese currency was but a matter of time.

Exerting Pressure on China
Past experience has shown that if the United States publicly and openly exerts pressure on Beijing, it will be counterproductive. EU Trade Commissioner De Gucht has also pointed out that on dealing with China's RMB issue; the US Congress should adopt a cautious approach.

De Gucht believed that exerting pressure on China publicly and openly would only lead to negative and counterproductive result. As such he said he would not recommend that EU and Euro zone should adopt such an open approach to deal with China's RMB issue.

Pakistani Economy in IMF Perspective

Because of piling up of loans taken by Pakistan in the past, liability of debt servicing has increased manifolds for Pakistan nowadays, because of which, a major chunk of new external loans is consumed in debt servicing of external loans. This results in decreasing trend of real, foreign aid for Pakistan.

Growth Rate
At present, debt to be paid by Pakistan has increased manifolds, and Pakistan has to spend a lot of its foreign exchange in payment of loan installments and interest on it and debt servicing has become a serious issue for Pakistan. According to a recent policy statement by Finance Ministry, released in parliament, the total value of Pakistan's debt is 58.1 percent of its Gross Domestic Product (GDP). According to Fiscal Responsibility and Debt Limitation Act, the total value of Pakistan's debt, shouldn't exceed 60 percent of its GDP, in any case. Presently, the value of internal and external debt of Pakistan is close to the highest level. This is an alarming situation. The government should take effective measures for increase in tax revenue, in order to decrease its dependency on external debt.

It has further been mentioned in the statement of Finance Ministry, that value of debt has reached 8100 billion rupees, in the fist quarter of 2009-10, and a loan of 495 billion was taken in this period. Reasons of this are, delay in release of coalition support fund by the United States, marked devaluation of Pakistani rupee and decrease to lowest level of tax GDP ratio. Pakistan's debt has increased rapidly, during the last two years.

Debt Burden
According to report of the International Monetary Fund (IMF), Pakistan's debt will further increase in next five years. In order to lessen pressure on local currency due to increasing debt of Pakistan and bleak situation of balance of external payments, it is being apprehended that Pakistan's economy will entangle again in the vicious circle of loans, when new loans will be needed for payment of service charges of previous loans. But according to some economic experts, Pakistan's debt is still within bearable level as per GDP ratio.

According to IMF figures, Pakistan's external debt will touch 57.1 billion dollar mark, by the end of this year. There will be an increase of 12.3 percent (7 billion dollars) in next year and external debt will reach the value of 64 billion dollars, while in 2015-16, volume of our external debt will be 72.6 billion dollars. Increase in Pakistan's debt is mainly due to increasing deficits of fiscal and current payments.

The Government is compelled to take more internal and external loans to fill these gaps. Between 2000 and 2007, average deficits of fiscal and current payments were 3.8 percent and 0.7 percent respectively, and external debt was reduced to 28.1 percent of GDP, but value of external debt was 40 billion dollars and foreign exchange reserves were 16.4 billion dollars, but in 20007-08 the external debt increased to 30.4 percent of GDP.

Foreign Exchange Reserves
There was a sharp increase in oil and commodity prices during 2008.Foreign investment shrunk and foreign exchange reserves started eroding and in a few months reduced to 4 billion dollars, while rupee was devalued more than 25 percent. Fiscal and current payment deficits started increasing sharply. Previous government, due to vested interests, didn't pass on the increase in oil and commodity prices to the consumers and stability of economy was put at stake. In order to stabilize the economy, government took 7.6 billion dollar loan from IMF in July 2009.

There was sharp increase in external debt during the last two years and an increase of 20 billion is expected in next five years. According to IMF observation, Pakistan will not face any difficulty in payment of service charges of external debt. In 2010-11, external debt will be 34.1 percent of GDP, after that it will start falling and will reduce to just 31 percent in 2015-16.

Yearly increase in external debt, basically, is due to availability of scheduled loans of IMF and payments. External debt will start stabilizing, when government will pay the standby loan of IMF. Pakistan will not spend more that 2 billion dollars per year in next five years, on service charges of these IMF loans, because loans taken from other sources are long term and on concessional rates. If exports are frozen and economy doesn't show significant growth, then external debt can cross the bearable limits.

Minimizing Fiscal Deficit
Our basic problem is that, from day one, we are spending more than our income. Neither did our rulers take any serious measures to increase the revenue of government, nor did they formulate any strategy to control non developmental expense. Incumbent government is towing the same line, as the previous government.

Neither has it been able to impose tax on agriculture nor has it been able to convince the resourceful and powerful businessmen and industrialists to pay taxes honestly. Instead government cuts the development expense to minimize the fiscal deficit, resulting in negative impact on efforts for development of social and economic infrastructure and increase in poverty and unemployment.

It is important that government should review its income and expense policies on emergency basis and bring in the tax net, all sectors of economy, abolishing all tax exemptions and nondevelopmental expense should also be reduced. If exports are frozen, government fails to control the slowing economy and private investment doesn't take place in economic sectors, then there will always be a chance of external debt crossing the tolerable limits.