Asia

For Africa and Asia, Headway in Branchless Banking

Leila Seradj — Fri, 13 Feb 2009 21:29:00 -0500

They may take their tea with milk and pronounce "tomato" wrong, but here's something on which we can agree with our friends across the pond.

Yesterday, the UK's International Development Secretary Douglas Alexander an no unced DFI D's ₤1.4 million, three-year project: Facilitating Access to Financial Services through Technology (FAST). Working with CGAP and GTZ, FAST's aim is to "lay the foundations for financial services to be ma de available through new and emerging technology across Africa and Asia."

As it stands now, 2 billion people in the developing world lack access to financial services, because of distance or affordability constraints. With that in mind, FAST aims to explore the possibilities and extend the reach of "branchless banking" using new technologies and innovative methods.

Its three-pronged strategy is to:

1) Test pilot projects to extend the reach of technology-based branchless banking in mass markets in countries in Asia and Africa, including government-to-people (G2P) payment services;
2) Carry out research on the use of new technologies (mobile banking, smart cards, biometric banking) in increasing access to financial services, and extending their reach;
3) Work with governments to develop a policy and regulatory framework that embraces the use of new technologies to increase access to financial services in a secure and low-cost manner.

In countries where FAST will be working, like Pakistan-- where only 25 million people have a bank account, but 75 million individuals own a mobile phone-- the potential for increasing access to remittances (fewer than 10% of remittance recipients have bank accounts), wage payments, and government social benefits is enormous. And it's cheap: there's no need to set up costly infrastructure (it uses the existing mobile phone network), and transaction costs are much lower than through traditional banking channels, which could mean over 1 billion extra dollars reaching the poor each year, according to some estimates.

DFID predicts that mobile banking could add a billion banking customers to the system in five years. If this is the case, the ramifications for poverty alleviation are significant, and FAST's work over the next three years should be interesting to follow.

China Buys, Rest of Asia Sells

Ian McAllister — Wed, 02 Jul 2008 15:43:00 -0400

Falling currencies and rising prices for food and fuel are raising inflationary pressures to dangerous levels across Asia. Annualized inflation reached 4.9% in South Korea and over 11% in India. As domestic pressure mounts from consumers and labor unions, Asian central banks are reversing long standing policies designed to maintain weak currencies and benefit exports, and are instead actively intervening to push up currency values and lessen the blow from rising import costs.

The only nation not caught up in this wave is China. While consumer inflation reached its highest levels in a decade, the government has stifled domestic discontent and the trade surplus has held steady despite rising import costs.

Snapshot asks, will rising commodity and fuel prices force a greater Chinese response?

Financial Times - Seoul Intervenes to Push up the Won
The Economic Times - Rupee gains ... against the dollar
Forbes - Hong Kong shares lower on oil worries and China bank reserve hike
Thomson Reuters - China May FX reserves hit $1.797 trillion

Asian Inflation Takes its Toll

Sam Sherraden — Tue, 10 Jun 2008 15:34:00 -0400

In response to growing inflationary pressure, Chinese officials increased banks' reserve ratio last weekend by 100bp to 17.5%. On Tuesday, the first day of trading following the weekend decision (Monday was a Chinese holiday), the Shanghai stock market fell 7.7%. In Asia excluding Japan, headline inflation for April rose to a nine-and-a-half-year high of 7.5%. As inflation pressures increase and tightening policies become necessary, Asian stock markets will continue to adjust downwards.

Snapshot asks, how much further do Asian equities have to fall as a response to increasing inflation?

Morgan Stanley - AXJ's Inflation Challenege
Bloomberg - Asian Economic Miracle Is at Risk All Over Again: William Pesek
Citigroup - Inflation Risk Invokes Divergence
Financial Times - Asia markets plunge as inflation looms

The Next Fault Line: Asia v. The West?

Patrick Doherty — Sun, 01 Jun 2008 17:11:00 -0400

(Kishore Mahbubani speaks at New America Foundation reception on the "Rise of Asia and the Decline of the West. Pictured are Deputy Secretary of the Treasury Robert Kimmitt, Kishore Mahbubani, and New America Foundation/American Strategy Program Director Steve Clemons. photo credit: Samuel Sherraden)

My boss Steve Clemons is hosting a fascinating debate on the future of the international order over at his blog, The Washington Note. The debate is between some of the day's leading geopolitical thinkers, including Kishore Mahbubani, G. John Ikenberry, and Anne-Marie Slaughter. With that kind of fire power, I hesitate to step into the fray, but since I've been asked, here are my two cents:

While I certainly respect all three scholars and find myself in agreement on many of their points, the current thread of the conversation and its focus on the shape of the international order is a bit to academic for my tastes. Though, as one of the commenters said, this has been a great graduate course on the future of the international order, for me, the international order is and will remain, a much more dependent variable.

What determines that order is the interplay of the grand strategies of the major powers. In World War II, that interplay destroyed a weak and unjust international order. In the Cold War, that interplay created two separate international systems, East and West, joined by the frail connective tissue of the United Nations. Certainly, the institutions of the West were powerful elements of international influence, but they were only truly global institutions after the fall of the Berlin Wall when the de facto U.S. grand strategy needed those institutions.

We needed them because the U.S. attempted to extend the rules-based international economic order that organized the Western alliance to the rest of the world. That project ultimately failed for two big reasons: first, the Western economic model could not be extended from the one billion or so in the formal sector of the global economy to the five billion outside it. After including one billion additional consumers to the global economy, we have run into real physical limits in terms of energy, natural resources, food, and pollution, which are reflected in both rising commodity prices and environmental crises.

The second reason the de facto U.S. grand strategy of the 1990s failed is that extending the Western economic order, specifically its model of export-to-the-U.S. model of economic development was the wrong basis for the new global economy over the long-run. Though the price of manufactured goods has dropped considerably, the subsequent trend called "off-shoring" of high-wage manufacturing has ballooned the current account deficit and has failed to generate the follow-on "knowledge economy" necessary to raise middle class incomes in line with popular expectations, contributing mightily to the crisis affecting the housing markets and baby boomer retirement.

Now the international order is in tatters because the U.S. has shifted from an progressive economics-based and attractive de facto strategy to a conservative, status-quo-preserving de facto strategy. The problem is, the status quo is not working except for a very select few and preserving it only breeds animosity and dysfunction.

September 11, 2001 gave the Bush administration the opportunity to shift the U.S. strategic blueprint far and fast--in the wrong direction. Underneath the shallow exterior wrapper of the Global War on Terror, the defining element of U.S. strategy has been the evolution of the U.S. from being a progressive force in international affairs into what Professor Kissenger would have called a "conservative power." That is, the U.S. is more interested in seeking to defend our ailing economic engine and preserve our power than to seek principled progress that would benefit the U.S. and the world in general. Recognizing the central strategic role of oil in the current order, the Bush administration has doubled-down on a regime change strategy in the Middle East.

I would argue that this "conservatism" is held by the great center of the foreign policy establishment, including Ikenberry and Slaughter as well was Dick Cheney and John Bolton. While there is significant disagreement between these two camps, that disagreement is merely arguing about how to implement a conservative strategy. One side wants to use international institutions and "soft power" to advance an inherently conservative agenda the other wants to destroy them and act unilaterally.

And that brings us back to Kishore Mahbubani's original provocation in Steve's original post. Mahbubani that is at once both more provocative and basic than the question of the future of the international order. That challenge is this:

There is a fundamental flaw in the West's strategic thinking. In all its analyses of global challenges, the West assumes that it is the source of the solutions to the world's key problems. In fact, however, the West is also a major source of these problems. Unless key Western policymakers learn to understand and deal with this reality, the world is headed for an even more troubled phase.

I think Kishore is absolutely right, but in his reponse to Ikenberry and Slaughter's comments, he does not go far enough. Mahbubani argues that though the Western-led post-1945 international order has been generally benign, the policies of Western nations within that order (especially the United States), such as our agricultural subsidies and our approaches to dealing with climate change, are making global matters worse.

Likewise for the West's penchant for double standards. Here, the former ambassador from Singapore to the U.N. cites Western some egregious double standards such as when we chastize China for acting on its oil interests in Darfur, Sudan while we deny our own oil interests, in say, Iraq. Oh, and then there is his contention that liberal internationalists like Ikenberry and Slaughter would be hard pressed to apply the U.N.'s responsibility to protect provisions to the Isaeli-Palestinian dispute.

All good points, but they are ultimately tangential. With all due respect, Mahbubani pulls his punch. By focusing on those aspects of U.S. policy that relate to how the United States acts overseas, they miss the larger strategic challenge facing the United States: how to transform an aging domestic economic engine that is a now a strategic and environmental liability into a strategic and environmental asset.

To become a progressive power once again, to be the solution rather than the problem, we have to understand that our grand strategy needs to be rooted in a prosperous, sustainable, and attractive domestic economic engine. This is not a new concept. First President Roosevelt then Presidents Truman and Eisenhower recognized that to preserve the American experiment required more than sending WWI-style expeditionary forces to Nazi-controlled Europe or a short-sighted strategy of military roll back of communism. Rather, both grand strategies had Washington harness the full power of the American economy to defeat our adversaries. In World War II, it was called the "Arsenal of Democracy" in the Cold War, it was called Containment.

In the Cold War especially, we saw a powerful and honest self-assessment: the U.S. would not be able to win a conventional or nuclear military confrontation with the Soviets so Containment was designed to push great power competition onto the field of economic and political systems. Ultimately, the Western, market-oriented model, replete with various versions of democracy, did its strategic heavy lifting and out lasted the Soviet economy and political combine.

Today we need a similarly honest self-assessment. At the core of it will be an admission that our economy is more of a strategic liability than an asset. This is what I believe Mahbubani is really getting at. The Cold War economic engine that for forty years powered a grand strategy of containment is now obsolete. Our addiction to oil is insecure and unsustainable. Our biggest export is debt, not goods or services, and some of that debt is poisoned. The foundation of domestic growth, suburban housing expansion, is dysfunctional, locking us into infrastructure that is not fulfilling the American Dream while it consumes too much land, energy, and natural resources.

The next President faces a tough challenge: to put the domestic economy on a strategically-coherent path, just like FDR, Truman and Ike did. If he or she can do that, our economy will immediately start changing global behavior for the better. Domestically, a decisive shift in terms of energy, land use, transportation and taxes would generate the domestic demand for another boom, just like in the post-war years. Abroad, putting the U.S. on a 25-year trajectory to get the U.S. off oil as a transportation fuel, for example, will dramatically shift our relations in the Persian Gulf, with Russia, and with China. Encouraging sustainable regional economies rather than unsustainable export economies will dramaticaly change the balance of trade.

We just have to think as big as the leaders sixty years ago did.

Sure, many of our specific foreign policies are either self-serving or lacking in principle. Sure, the shape of the international order is in a massive state of fluidity. These are not, however, the main strategic challenges facing the United States. It's time to focus.

Unless the United States learns from the Marshalls, Kennans and Nitzes of the past, and forges a new grand strategy rooted in a sustainable, prosperous, and poltically durable American economic engine, the survival of the post-war international order may be the least of our problems.

American Strategy In the News | April 12 - 14

Sam Sherraden — Mon, 14 Apr 2008 16:03:00 -0400

The New Yorker (4/21) asks Parag Khanna about the end of autonomy for Western nations.
The Guardian (4/12) quotes Flynt Leverett on Gordon Brown's low U.S. profile.
Congressional Quarterly (4/11) talks with Peter Bergen on the threat from al-Qaeda.
Asharq Alawsat (4/10) listens to a New America delegation to Saudi Arabia talking about Guantanamo Bay.

Price of Rice

Sam Sherraden — Wed, 26 Mar 2008 20:30:00 -0400

The price of rice has increased dramatically in the first two months of 2008 according to the Food and Agriculture Organization of the United Nations. Gloria Macapagal Arroyo, the president of the Philippines, recently reached an agreement with Vietnam to guarantee a steady rice supply. Other Asian leaders are also trying to secure their imports. For much of Asia, industrialization has taken precedent over investment in agriculture causing shortfalls in rice production. Factories have taken precedent over rice patties and investment in machinery over research in agriculture.

Snapshot asks, will the rush to industrialize continue to push rice prices higher?

Economist - Empty bowls, stomachs and pockets
Bloomberg - Thailand's Rice Exports Soar on Scarce Supplies
New York Times - Philippines Imports Rice Amid Shortage
Financial Times - WFP plea for $500m to avoid food aid cut
IMF - Coping With Food Price Increases in Sub-Saharan Africa