Wednesday, 14 January 2009

Someone else's meltdown

As the new year begins and further stories of economic downturn abound it is interesting to take stock of the 1997 Asian Financial Crisis and how the world's reaction has differed to today's problems.

South Korea is an excellent case in point. The stock exchange fell by 11% over two days. This is certainly of a similar magnitude to the falls felt by the FTSE this year. The solution proposed for South Korea and the other affected countries (Indonesia & Thailand being especially hit) was very simple: allow insolvent banks and financial institutions to fail.

This stands in stark contrast to the principles applied in the UK and the US. Insolvent bank after insolvent bank has been propped up by the state. From companies that were unheard of to the average UK household twelve months ago (Lehman Brothers) to firms that were seen as bread and butter British institutions (HBOS, Lloyds TSB) public money was showered on banks. After Northern Rock, which itself was nationalised a little less than a year ago, no bank was to be allowed to fail - the government effectively underwrote all deposits, although the nominal government limit was £50,000.

Interest rates offer another sharp contrast. On January 8th 2008 the Bank of England cut interest rates to a record low. Cho and West provide a fascinating study of the efficacy of this policy, but for those who do not wish to examine page 11 interest rates about 10% were common in South Korea, Philippines and Thailand , and above 20% more frequent than one might hope. This rather contrasts with the 1.5% in the UK. As an International Monetary Fund (IMF) press release notes, "Interest rates will be kept high for some time".

The South East Asian crisis was not the same as the current crisis. Many countries had currencies pegged (that is fixed in value) to the US dollar, but structural weaknesses made it increasingly hard for states to maintain this pegging, and when released the currencies fell sharply. There is some logic in increasing interest rates (and thus making owning the currency more enviable) to counter a currency devaluation.

However, one cannot help but feel that what was prescribed for Johnny Foreigner with some gusto by the IMF is not what is being required of today those who, in 1997, were most vocal in setting the direction for the South East Asian economies. The striking difference in the philosophy of what do do with 'bad' banks amply underlines this point. While it was, supposedly, the prudent course of action to allow them to fail in South East Asia, they are, it is reported, 'Too Big to Fail' when they occur a little closer to home.

Perhaps it will be the South Koreans who, having been treated like naughty children, have the last laugh. South Korea's economy, and remarkably Thailand's given its appalling governmental troubles, have been strong since the crisis. Both have suffered in the current downturn, but it is entirely possible that the western contemporary edict requiring massive debt to be accepted, large bail outs provided to failing industries and the protection of almost any bank will not work as effectively. Countries that set the agenda for the South East Asian crisis may yet wish they had listened a little more carefully to their own advice.

Friday, 9 January 2009

A lament to failure and regret

As the age of Bush comes to its inevitable democratic end it is perhaps worth our while reflecting a little.

The one thing that Mr Bush and his officials would like the world to remember him/them for is the 'War on Terror[ism]'. We are not about to scoff at the importance of that focus, although, we would be among the very first to categorise its execution as a shambles almost from beginning to end. However, it is important to remember how inept and incompetent the administration was at attempting to prevent the September 11 attacks and how uninterested in counter-terrorism White House and administration figures seemed, including the president himself.

Richard (Dick) Clarke's book, Against All Enemies, gives the reader the insider scoop on the Cold War-mentality of Bush, Cheney, Rumsfeld and Rice, tells how Clarke's role as the counter-terrorism 'czar' was downgraded under Bush, and that he was able to secure only one meeting with Cabinet-level officals on counter-terrorism before the September attacks in 2001.

Bush's lack of interest is shown, in Clarke's book, in sharp contrast to Bill Clinton's frenetic activity on the topic. He is described as engaged and focused on getting al-Qaeda in general and bin Laden in particular. He chaired counter-terrorism meetings and asked probing questions of his staff and he risked the inevitable accusations of 'wagging the dog' when he took decisive action during the Lewinsky affair.

That's odd. The Democrat was more interested in tackling terrorism than the Republican? Something doesn't quite compute. We've spent the last seven years being told Democrats and liberals are to a man are weak, wet, lily-livered, pathetic, un-patriotic, pacifist, terrorist-excusers. Well, not the WATM duo, my friends, and not the vast majority of the US Democratic Party.

Clarke was attacked, naturally, after the publication of his book, for being a partisan and for trying to influence the outcome of the 2004 US presidential election, during which it was published. In a particularly enjoyable Abbott and Costello-esque pairing Mr Cheney and Ms Rice excused themselves from Clarke's criticism by concurrently stating that Clarke was a) out of the loop on counter-terrorism (Cheney) and b) was so much in the loop that any failings were his (Rice). They also neglected to point out that he'd worked for every president since Reagan.

And yet perhaps Bush will be remembered in the history books as the 'War on Terror[ism]' President. Perhaps that is more testament to their ability to spin, deflect criticism and create their own reality, than on the accomplishments of the presidency. I think so, anyway.

Friday, 2 January 2009

Human Rights Council

Your correspondent has touched upon absolute moral standards before and will do so again. As part of this today's post looks at the UN Human Rights Council (HRC) - a body tasked with strengthening human rights around the world.

Few can doubt the value of such a mission, and for all the UN's detractors this is something in which it has some good form: the Universal Declaration of Human Rights, adopted in 1948, is one of the most powerful documents created by man and a clear demonstration that fundamental rights are not to be picked or chosen by different cultures, but are innate for all citizens.

Since the declaration events have not gone as well for the UN's human rights efforts. The predecessor body to the HRC was the UN Commission on Human Rights. Ironically the trouble with this body boiled down to one of democracy - commission members were elected from any UN state, and inevitably this led to some countries that, to say the least, were unqualified to promote human rights. At the time of the commission's abolition (2005) China, Saudi Arabia, Zimbabwe and Swaziland were all members - not bastions of human rights support.

Thus the HRC was born. While it still features elected members, the process for election is supposed to require applicants to demonstrate high standards of respect for the body's ideals, and each member must individually be elected by the UN General Assembly. This, clearly, assumes that the majority of the world's countries support the application of human rights, something Freedom House, a organisation monitoring world freedoms, would disagree with. As if to prove this point many of the members of this new council are the same states as before, who don't appear to have cleaned their act up as part of the initiation process.

One mechanism, the universal periodic review, may boost the body's standing above that of its forerunner. Every UN state will be audited on its human rights standards, theoretically preventing the worst abusers from avoiding criticism simply by having enough friends to divert attention elsewhere. This could force those who have previously shown no interest in mending their ways to at least be subject to public scrutiny, although all the council can do is make recommendations to its parent, the general assembly.

So far the signs are mixed - the council made some of the right noises over Congo, but has veered into a familiar trap in its preparations for a 2009 anti-racism conference with some countries singling out Israel as the only country worthy of significant attention.

Scepticism is warranted, but support for the body is essential - the audit of every country is certainly a good idea; it cleverly ensures that the unacceptable activities of countries that should be leading lights of the human rights movement are reported, and thus prevents the worst abusers from deploying moral equivalence as their defensive weapon. The council is, perhaps necessarily, rather toothless. The way that the General Assembly responds to recommendations from the HRC will say a lot about the council's worth. Unfortunately, while those who are the persistent rights offenders carry significant clout democracy amongst members will not be enough. Countries who are serious about Eleanor Roosevelt's work will need to put their morals where their mouth in when the council starts to report on some of the less savoury states.