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  Policy: WTO and the East Asia Community
Policy Posted by Martin
Monday, December 12 @ 02:23:22 CST (1083 reads)

What is the outlook for the WTO talks in Hong Kong this week? Do you expect main Asian players like Japan, China, and Korea to push for more agriculture policy concessions that might break the deadlock?
There is not much optimism about the Hong Kong meeting. Japan has offered some additional ODA funds as carrots, but the important step would be to put the cards on agriculture policy on the table. The good news is that Japan as well as China are working hard behind the scenes to get to some results, and they seem to be willing to open their agriculture markets further. One of the big problems of the current negotiations is that the EU Commission might be willing to play ball, but that it seems to be lacking the necessary support from the European member states, which seem to have almost no interest in WTO policy and further concessions right now.
Leaders of East Asian Countries have already started to gather in Kuala Lumpur to found an East Asian Community together with Australia, New Zealand and India. Will this have a positive impact on future trade talks in Asia?
Though there won't be any direct result and because everybody has different and often opposing interests in such an East Asian Community, it helps to push bilateral FTA talks. So far progress depended on talks between Japan, China and Korea with the AEAN group, which basically have been stuck over the year. Some competition and the involvement of India and Australia might help here, and might also increase the interest in the more general WTO framework again.
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  Policy: U.S. China Policy
Policy Posted by Martin
Monday, November 21 @ 03:43:31 CST (945 reads)

In China, President Bush focused more on freedom and human rights than on trade and exchange rate issues. Does the Chinese government feels off the hook concerning a revaluation of the Renminbi?
Some commentators have been frustrated because the U.S. foreign policy towards China seems to be not focused and stable enough – they would have liked to see continued exchange rate related statements instead of general comments about (religious) freedom, which might rather please the religious right in the U.S. before Thanks Giving. But behind the scenes, the pressure towards a revaluation continues. From a U.S. perspective, it was important to show that its policy has not been narrowed down to forex issues, but that trade liberalization, market liberalization in general, and the WTO Doha round in particular remain to be top notch issues. In Asia, the broader approach is welcome because China needs to work on all these issues in parallel.
Is another revaluation of the Renminbi now less likely to emerge anytime soon?
China has to expand the trading bands towards other currencies than the Dollar soon. Since monetary policy in China is now much more expansionary than last summer, and since China's trade surplus is about to triple this year, there seems to be a good chance that the Chinese government might throw in another revaluation to the Dollar early next year.
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  Policy: Policy Prospects in Japan
Policy Posted by Martin
Monday, October 31 @ 02:05:20 CST (1073 reads)

In Japan, all eyes are on Prime Minister Koizumi's cabinet reshuffle. What will be the impact on economic reforms?
The continuation of structural reforms has already been cemented into the government's agenda. But with the cabinet reshuffle the candidates for Mr. Koizumi's succession in September are now officially entering the arena. There has been lots of name dropping, but good indicators for the LDP's future reform stance should be the positions of the Acting Secretary General Shinzo Abe and former Chief Cabinet Secretary Fukuda. A key-position for the younger, hawkish Mr. Abe, would indicate a continuation of a tough stance on reforms against remaining opposition in the party and the bureaucracy. If the well-connected and more compromising Mr. Fukuda gets an important portfolio, and not only an internal mediation position, some mending of existing wounds and consolidation of reform plans might be in the cards first. Since the policy focus should be on the very difficult implementation of tax and social security reforms now, the latter result shouldn’t be interpreted as fall-back into old-style LDP policies.
Will Japan's future Prime Minister try to mend East Asia's foreign relationships? Major companies in Japan seem to be very concerned about the negative impact of frozen political relationships with China and South Korea.
The cabinet reshuffle might provide an indicator as well. Mr. Abe stands for a hawkish line towards relationships with the other main powers in East Asia, and stresses the need for Japan to define its own, possibly conflicting policy agenda. Mr. Fukuda has a more positive stance towards Asian relations and would likely try to calm emotions and put a stronger focus on partnership in Asia again.
Will the BOJ report on its economic outlook hint towards an early tightening of monetary policy and higher interest rates in Japan?
Despite somewhat weaker production, household spending, and inflation figures last weak, the BOJ remains optimistic and will likely upgrade its outlook for the economy. The key-variables for continued optimism are employment gains, income increases and export growth. But these are gradual improvements only, and it won't be enough to make a case for increasing interest rates before the next report in April. With further fiscal tightening already clouding the outlook, it is the job of the BOJ to spread optimism about the economy.
A continuation of Japan's zero-interest-rate policy should be bad news for the Yen. Do you expect the Yen to remain weak until interest rates start to increase in Japan?
Asian currencies are already bottoming out on strong investment demand and exports. As a reaction to booming exports in China, there will also be increasing speculation on an exchange rate hike in China again. In the U.S., on the other hand, the current interest rate cycle will end early next year, which might weaken the Dollar from the domestic side.
Is it likely that China will revalue the Yuan before Mr. Bush's visit in November?
This is unlikely as long as the Dollar is getting stronger. But the Peoples Bank of China has already demonstrated that it is able to fend off speculation and can protect its Dollar peg. Its policy link to a currency basket, on the other hand, is not working well because of diverging currency trends. Last week, the central bank even allowed the Dollar to break its daily trading limit of thirty basis points. It is therefore possible that China will announce further changes in its policy setup and present another one-time revaluation to the Dollar of 2-3 percent this year.
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  Policy: Japan's War Apologies, Nationalism, and Chances for Asian Integration
Policy Posted by Martin
Monday, August 15 @ 05:47:20 CDT (1292 reads)

Ceremonies mark the end of the pacific war and Japan's surrender 60 years ago in all East Asia. It was feared that Japan would anger its neighbors with a visit to the nationalist Yasukuni shrine, which honors the war dead including Class-A war criminals. Is it likely that the tensions between Japan, China and Korea will further increase?
Mr. Koizumi will likely not visit Yasukuni shrine directly after the official public ceremony with the emperor to commemorate the end of the war. He has promised to visit the shrine every year, but does not seem to look for outright confrontation during the memorial ceremonies. It was often feared that Japan's domestic reform struggles would invite more nationalistic undertones from reform supporters to please conservative voters and to divert from the domestic job and income losses as a consequence of public works reforms. But it seems that the Japanese public has developed a more positive and forward looking attitude towards further reform in the meantime. A further escalation of historical disputes with Japan’s neighbors might therefore rather hurt Mr. Koizumi’s reelection campaign.
Are there any positive initiatives on the horizon to relax the political tensions especially with China and Korea?
The main perception gap between Japan and East Asia concerning Japan’s role in WWII cannot easily be overcome. This has very much to do with the final phase of the war, which shifted Japan’s focus towards the war with the U.S., while it remained to be a war against Japan in the rest of Asia. To East Asia, the end of WWII marks the end of Japanese colonial aggression. And any further step towards more Asian integration seems to require even more assurance that Japan has learned the lessons of its colonial past. To Japan’s post-war generation, on the other hand, the end of the war is linked to the tragedy of two atomic bombs, defeat by the U.S., and a rapid democratization and Americanization. So younger Japanese do not only see little reason to step up war apologies beyond what has been done so far, they even consider the focus on the “old Japan” as a possible plot in Asia’s current negotiations on closer economic cooperation and integration. But fortunately, this perception gap will likely narrow with deepening trade and production links and the ongoing cooperative work on free trade and economic partnership agreements on a ministerial level.
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  Policy: Mr. Koizumi's Strategy to Postal Reform and LDP Reform
Policy Posted by Martin
Monday, August 08 @ 04:07:15 CDT (1188 reads)

Japan's upper house rejected the government’s postal reform bills, which puts the fate of the Koizumi government and Japan's stance towards further public sector reform at risk. What is the state of affairs?
In clear break with traditional policy making in Japan, Prime Minister Koizumi has shaped the event as a showdown between his government and the public reform opposition in his own party. Although the anti-reform factions in the LDP look increasingly weak, they were still able to capture the vote in the upper house, which remains a stronghold of regional, public works oriented policies. Since the government has put its entire weight behind the reform, Mr. Koizumi now needs to (try to) punish his opponents or might become ousted by other heavyweights in his party.
Prime Minister Koizumi has promised to dissolve the lower house if the reform is rejected. This is against the interests of his party, which might lose the coming snap election. What is his strategy?
The LDP will almost certainly lose some seats in the coming snap election. But the LDP and its coalition partner still have a cushion of 43 seats to majority in the lower house. So Mr. Koizumi will try to clean his party from reform opponents by refusing them tickets on the LDP’s seats from the proportional share of the national vote, while trying to retain a majority with his pro-reform platform. If he his able to do this, he would have really changed the LDP (he once promised to “destroy” the LDP), and set the government on a firm pro-reform course for the coming health and public works reforms. The risks are high, however. He might not be able to overcome opposition of LDP heavy-weights, or the LDP might even lose against the opposition in the coming snap election.   
Would Japan's main opposition party, the DPJ (Democratic Party Japan), be able to form an effective government if it wins the election in September?
This is unlikely. There are currently no coalition partners for the DPJ and it would have to win more than 64 additional seats. Even if it does, it would likely struggle to deliver on its “small government” promises because it already stroke too many deals with various supporter groups – including the unions of public corporations. The LDP has therefore not yet developed a concrete reform agenda even for the most pressing reforms (like postal or public works reform).
What are the chances for ongoing public sector reforms now?
Mr. Koizumi obviously thinks that he might actually leave the current battle strengthened. If not, Japan runs a risk to fall back into policies with instable governments and with unclear reform agendas. Given the frighteningly high public debt of 160% of GDP, such an outlook would certainly depress investor and consumer confidence.
What is the outlook for Japan's economy on the back of such political uncertainties?
The economy currently looks surprisingly strong, GDP is probably up another 2% in the second quarter, exports are recovering, and consumer confidence is improving. So a win for Mr. Koizumi in September would further improve sentiment and valuations. A loss would increase Japan’s risk premium until the LDP or the DPJ have regrouped around a new (and likely more expansionary and less reformist) tax reform and public works agenda.
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  Policy: The Battle for Japan's Economic Reforms in a Final Phase
Policy Posted by Martin
Monday, August 01 @ 04:32:01 CDT (1451 reads)

Japan's economy seems to be moving out of a soft patch but the Yen remains weak against the Dollar and the Euro. What is still holding back the economy?
Japan’s economy is indeed recovering quite nicely. Unemployment is down to only 4.2%, increasing wages are driving consumer demand, and even real estate price in Tokyo are recovering. But there are a number of factors that are currently holding back the Yen. One factor is the realization that China will move much slower with its revaluation policy then often expected. The second factor is that the Fed is becoming very serious about fighting inflation in the U.S. So the interest rate differential will increase further. But the Yen remains undervalued even when considering these factors. So the main reason is that Japan is currently stuck in a political market. Most likely next Friday, an upper house vote will decide about the fate of Japan's postal reform package. The passing of this bill basically determines Japan's future stance towards economic reforms and the fate of the Koizumi government.
What are the chances of the postal reform to pass the upper house vote?
Mr. Koizumi has promised to count the result as a vote of confidence. So he will dissolve the parliament and call a snap-election if the bill does not clear the upper house. With the LDP being currently split in the middle, this would be very dangerous to the political survival of many LDP members. Based on this threat, Mr. Koizumi already managed to steer the reform through the more important lower house. But many politicians in the upper house follow their own agendas, linked to their regional constituencies, who might lose out if public money starts to flow less freely. So the risks of failure remain to be quite high.   
Why has the postal reform become so contentious? We hear that the reform has been watered down to a level where it would have very little impact for the next years?
The reform would start only slowly from 2007, and the privatization package would even produce more competition for the private banking and insurance sector at first. But it would make public finances more transparent in the longer run and would further limit the scale of public projects in Japan. So the main reason for the current explosive situation is less an immediate threat to pork-barrel policies. It is rather a dangerous mix of a long-standing general opposition of the LDP's old guard, who see their post-war relationship-based political system disintegrate, and a battle for the succession of Prime Minister Koizumi.
What happens if the reform is voted down?
Mr. Koizumi is likely to stand by his threat to dissolve the lower house. The LDP would be hit very hard, and might even lose the election to the opposition. It is quite unlikely that an effective government could be formed anytime soon – by Mr. Koizumi, with a renewed popular vote, another faction of the LDP, or the DP, which is still unable to present a convincing shadow cabinet or program. This would considerably increase Japan’s risk-premium, and put further public finance reforms on hold.
What can be won if Mr. Koizumi gets his vote for postal reform?
Political chaos would be avoided, and the battle for the succession of Mr. Koizumi as LDP President and Prime Minister would start in earnest within the LDP. Although this would also consume political energies, a difference would be that the most serious contenders would compete on basis of pro-reform platforms.
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  Policy: Asian Security Policy and its Economic Impact
Policy Posted by Martin
Monday, February 21 @ 10:47:51 CST (1009 reads)

North Korea has started to talk tough again. Do you expect regional risks to rise if the situation deteriorates?

There is actually not much new from North Korea – except that it lost a soccer game against Japan last week. But instability in North Korea seems to increase - in the government, the military, and Kim Jong Il’s family. Right now North Korea seems to be eager to wake up the U.S. from its benign neglect in area – probably because payments of its regional neighbors have been flat or falling last year. The risk premium for the region would increase if the U.S. brings the case to the UN Security Council because of the breach of the Nuclear Non-Proliferation Treaty. But that also depends on developments as far-reaching as the current Iran atomic-programs stand-off.

Security issues beyond terrorism seem to remain on the agenda in Asia. Japan has just joined with the U.S. on a tougher stance towards China concerning the independence of Taiwan. Is this going to affect economic relations as well?
Rather than further smoothing relations with China, Japan is currently challenging China as a competitor in Asia. This seems to be economically shortsighted, but both governments are trying to stake their claims in terms of resource policies and political influence. Unfortunately, the Koizumi government still does not seem to be very good at gaining positive political and economic capital throughout the region. The competition between Japan and China (and the U.S.) will therefore rather yield positive effects for Asia’s smaller neighbors, like Taiwan, in terms of security, market access and economic support. So in terms of the overall economic result, the regional winners seem to be the smaller countries that are able to play relationships in both directions, like Thailand and Taiwan.
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  Policy: Reasons to defend Saddam Hussein
Policy Posted by Martin
Thursday, January 27 @ 19:30:21 CST (1011 reads)

Former Attorney Gen. (under President Lyndon B. Johnson) Ramsey Clark explains his offer to help Saddam Hussein

By Ramsey Clark, January 24, 2005

Late last month, I traveled to Amman, Jordan, and met with the family and lawyers of former Iraqi President Saddam Hussein. I told them that I would help in his defense in any way I could.
The news, when it found its way back to the United States, caused something of a stir. A few news reports were inquisitive — and some were skeptical — but most were simply dismissive or derogatory. "There goes Ramsey Clark again," they seemed to say. "Isn't it a shame? He used to be attorney general of the United States and now look at what he's doing."
So let me explain why defending Saddam Hussein is in line with what I've stood for all my life and why I think it's the right thing to do now.
That Hussein and other former Iraqi officials must have lawyers of their choice to assist them in defending against the criminal charges brought against them ought to be self-evident among a people committed to truth, justice and the rule of law.
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  Policy: Japan`s Media unanimously Criticis Koizumi`s North Korea Policy
Policy Posted by Martin
Monday, May 24 @ 04:43:39 CDT (1023 reads)

Mr. Koizumi got very critical reviews for his high-profile visit to North Korea. That's strange.

Certainly, Koizumi’s political position is still strong enough to outlast criticism about a lack of progress in Japan’s North Korea relations, or the non-payment of some months of pension dues. Messing around with North Korea relations is also nothing that any Japanese politian would take lightly. So it makes you wonder why the high-profile trip has been criticized as a pure diversion from domestic policy issues and scandals, as Japan’s media seem to suspect. For Mr. Koizumi there was little to win, but lots to lose during his trip to North Korea.

Rather, the usually hawkish Mr. Koizumi seems to have become more inclined to joining Asia's integration oriented "sunshine policy" than with following the U.S. on every move against rogue countries. So the move of Mr. Koizumi to fill in the current policy gap, which opened when the U.S. became preoccupied with the war in Iraq and South Korea with its president’s impeachment process, seems to be rather good news for Asian foreign policies.

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  Policy: Martin Wolf: Bush is not up to the Job
Policy Posted by Martin
Wednesday, May 12 @ 21:26:34 CDT (1077 reads)

Even foreign sympathizers with the War on Terrorism are getting increasingly critical towards the Bush administration. Here is what Martin Wolf writes in his FT column:

So what is wrong with this administration? Put simply, it fails to understand the basis of US power, mis-specifies US objectives and is incompetent in executing its intentions. As a result, the position of the US - and so of the west - is worse, in significant respects, than it was the
day after September 11 2001.

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  Policy: American freedom is a divisive concept
Policy Posted by Martin
Wednesday, August 06 @ 21:21:44 CDT (1152 reads)

By Anatol Lieven

Educated Americans often say rather mournfully that Tony Blair expresses American values and goals better than the current US president. Whether this is what a British prime minister is elected for is, however, questionable. For while many US values may be virtuous in themselves, they can also be terrifying in their naivete.

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  Policy: Robert Kagan: Of Paradise and Power: America Vs. Europe in the New World Order
Policy Posted by Martin
Friday, April 18 @ 03:20:53 CDT (1120 reads)

Nick recommended the book. Here is the review from Amazon:

From its opening-line salvo—"It is time to stop pretending that Europeans and Americans share a common view of the world, or even that they occupy the same world"—Of Paradise and Power announces a new phase in the relationship between the United States and Europe. Robert Kagan begins this illuminating essay by laying out the general differences as he sees them: the U.S. is quicker to use military force, less patient with diplomacy, and more willing to coerce (or bribe) other nations in order to get a desired result. Europe, on the other hand, places greater emphasis on diplomacy, takes a much longer view of history and problem solving, and has greater faith in international law and cooperation. Kagan does not view these differences as the result of innate national character, but as a time-honored historical reality--the U.S. is merely behaving like the powerful nation it is, just as the great European nations once did when they ruled the world. Now, Europe must act multilaterally because it has no choice. The "UN Security Council is a substitute for the power they lack," he writes.

Kagan also emphasizes the inherent ironies present in the relationship. European nations have enjoyed an "American security guarantee" for nearly 60 years, allowing them to cut back on defense spending while criticizing the U.S. for not doing the same. Yet Europe relies upon the U.S. for protection. This has led America and Europe to view the same threats much differently, as evidenced by the split over how to deal with Iraq and Saddam Hussein. Kagan points out that some European leaders are more afraid of how the U.S. will wield its power in the Middle East than they are of the thought of Hussein or other "rogue state" leaders acquiring weapons of mass destruction.

Kagan’s brevity is as impressive as it is appreciated; most writers would have required thrice as many pages to get to their point. At any length, the book is nothing short of brilliant. This is essential reading for those seeking to understand the post-Cold War world. --Shawn Carkonen
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  Policy: Jeffrey Sachs: Bolivia - A world for which Bush cares little (FT2003.04.08)
Policy Posted by Martin
Tuesday, April 08 @ 20:34:19 CDT (1195 reads)

President George W. Bush is presiding over the ruin of US foreign policy. A world united against the war in Iraq is only the start, since US diplomatic failure and neglect extend to virtually every area of foreign policy.
Another stunning example lies in the Andes, where the US administration has proved to be incapable of even the simplest responses to a profound crisis engulfing the region. Venezuela's chaos continues, while Colombia's violence deepens. Most recently, the US has looked on as Bolivia, a close ally and a desperately poor, and until recently stable, Andean nation, teeters on the brink of collapse. This is in large measure because of US policies but the administration has not shown the slightest recognition of the incipient disaster it is helping to create.

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  Policy: Oil is an obstacle to democracy (FT2003.03.06)
Policy Posted by Martin
Thursday, March 27 @ 00:41:46 CST (1086 reads)

What are the prospects for postwar nation-building in Iraq? An optimist would say that the historical precedents are not all bad. The US was, after all, remarkably successful in helping restore democracy in Japan after the second world war. Yet Iraq is a very different proposition and not just because of the difficult political, institutional and cultural legacy. Large oil revenues are a huge obstacle to the entrenchment of democracy and property rights in any developing country.

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  Policy: Martin Wolf - Blair may have to disagree with Bush (FT 2003.03.18)
Policy Posted by Martin
Tuesday, March 18 @ 19:46:39 CST (1094 reads)

 I admire Tony Blair. I have admired him ever since he was responsible for persuading the Labour party to abandon its support for the trade union closed shop. He is far from perfect. But he is principled, brave and thoughtful. He is prepared to take big risks. Now, with the launch of the war against Iraq, he is taking his biggest. He is placing his political capital on the sagacity of George W. Bush.

I have just returned from a visit to India, where many people asked me why Mr Blair was taking this risk. The tone in which the question was asked revealed how deluded they thought he was. This is itself telling since India's interests and values coincide to a high degree with those of the US. It is a democracy, a victim of Islamic terrorism and a worried neighbour of a resurgent China. Yet even Indians worry about a world in which the "sole superpower" claims the right to launch pre-emptive war, at will.

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