Publication in Economics, Politics and Public Policy in East Asia and the Pacific

Doha opportunity lost

Author: Jagdish Bhagwati, Columbia University

It’s too bad about the Doha Round.

But I am afraid Australia could have played a more understanding role over India’s demand for a more generous safeguards provision for agriculture which employs a very large fraction of her labour force. Surely, trade concessions are not possible unless there is a safety net and the safety net has to vary in scope with the size of the feared market disruption. India is being excessively cautious in my view; but this is an election year and the government faces rising food and oil prices, making it risk-averse. Getting India on board by being more understanding of its fears over its farmers and allowing for a more generous Special Safeguard mechanism was surely not beyond US means.

Besides, we must ask: what did the US itself offer by way of cutting the cap on her distorting subsidies? Pretty little! It is very hard for politicians in developing countries to tell their citizens that powerful and rich countries like the US can subsidise their agriculture and have their relatively unsubsidized farmers left open to compete with them. In economics, you can do that; but in politics you can’t. My observations were rather candid, I am afraid.

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On the brink of success – Papua New Guinea’s economic revival

Author: Aaron Batten

PNG is often seen by Australia as a fragile state dependent on foreign assistance with limited economic prospects. It was even described some years back as being on ‘the brink of collapse’. Since 2002 however our 6 million northern neighbours have been experiencing somewhat of an economic revival. While this has been driven by surging commodity prices it has also been underwritten by considerable improvements in macroeconomic and fiscal management. GDP growth rates have been high and the budget has been in surplus for 5 consecutive years – a record for PNG. The question on everyone’s lips however is; is this trend sustainable?

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Tax and hukou hold China back

Author: Ryan Manuel

John Garnaut’s piece in the SMH argues that ‘making taxes more equitable is China’s biggest challenge’.

Garnaut, using an article by Justin Yifu Lin in the recently-released China Update book, argues that ‘perhaps the answers.. lie with a market-driven “primary” distribution of resources’.

He sees this as solving Lin’s dilemma of a price system which is not ‘sufficiently and flexibly reflecting the relative scarcity of every Factor’ of production. Huang Yiping, as reported in Garnaut’s article, suggests that ‘prices for labour, capital and land are still significantly depressed’.

But the ‘market driven primary distribution of resources’ suggested by Garnaut is far from feasible at present. The problem is that you can’t really have market-driven distribution of resources, especially labour, when the hukou system (of household registration) artificially distorts the market for labour.

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Japan’s new sovereign wealth fund?

Author: Peter Drysdale

The Economist reports this week the inevitable might indeed be nigh. Reform is on the way in the management of Japan’s giant publically managed pension fund. Last year the fund lost Yen 5.65 trillion or US$48 billion. The Japan pension fund is the world’s largest. Yen 150 trillion of its assets are parked in low yield Japanese government bonds or squandered on political toys and, unlike public pension schemes in other countries, provide inadequate insurance against future payments to Japan’s rapidly ageing population.

Old kids on the block (Economist)

As the Economist says, ‘Without better returns, the government will have to reduce its support for the old or raise taxes; neither will be popular. To improve the fund’s performance, a group of politicians from the ruling Liberal Democratic Party (LDP) has called for a sliver of the pension purse, ¥10 trillion, to be set aside to create a sovereign-wealth fund. It would be run by professional managers, not necessarily from Japan, rewarded with performance-based salaries. The fund would be independent of bureaucratic and political meddling. Its working language would be English.’

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Poorer Chinese urban households consuming too much coal

Author: Jane Golley

While it seems obvious that households in China with higher incomes will emit more – both directly through their consumption of coal, gas, petrol and electricity, and indirectly through their consumption of other goods, all of which require energy in their production processes – it is less obvious whether rich households will be more or less “emissions-intensive”, that is, emitting more or less carbon per yuan spent. My chapter with Dominic Meagher and Meng Xin in the China Update this year investigates variations in energy requirements and carbon emissions across urban households with different income levels. We find that poorer households are more emissions-intensive and that this is mainly due to their relatively high levels of coal consumption, the least “green” form of energy.

In terms of China’s future emissions trends, policymakers need to find ways to reduce the coal dependence of poorer urban, and presumably most rural, households. Income growth may partially solve the problem, given that richer households tend to consume less coal. However, appropriate investments and infrastructure will also need to be directed towards cleaner energy alternatives in the near future. See chapter for further details.

Indonesia to grow at 8%?

Author: Peter McCawley, ANU Indonesia Project

Stephen Grenville has an article on the latest OECD report on the Indonesian economy in the Australian Financial Review today (Monday 28 July, p. 23).

In his piece, Stephen notes that there has been a welcome lift in the economic growth rate in Indonesia. Annual growth is now slightly over 6% per annum. But Stephen also notes that there is surely room for a further acceleration in the growth rate. He suggests that a longer-term target of 8% per annum is worth thinking about. This issue – the long-term economic growth rate – is surely the single most important matter that economic policy-makers in Indonesia should focus on.

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United States still the power to reckon with in Asia

Author: Peter Drysdale

The decline of the relative US economic and, in the longer term, military power vis à vis China in Asia and Pacific as Hugh White suggests but there is little sign that perceptions of US influence in the region is on the wane. The United States ranks higher than other powers in Asia and the Pacific in terms of its capacity to influence and persuade and its projection across most dimensions of what Joe Nye has called soft power.

Last month’s Chicago Council on Global Affairs analysis of US standing in the region reveals that US prestige is remarkably undented by perceptions of America’s imperial over-reach and in the Middle East and around the world. Only in Indonesia and Vietnam, is the United States ranked a very close second after Japan but the perception in Asia is of America as the power that commands respect, influence and a power whose presence is welcomed, including in Indonesia and Vietnam, as ballast against the rise of China.

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Evidence-based policy for basic education in the Philippines

Authors: Dalisay Maligalig and Jose Ramon Albert, Philippine Institute for Development Studies (PIDS)

Can the Philippines achieve its goal on two key international commitments–the Millennium Development Goals (MDGs) on Education and the Education for All (EFA) Initiative–for the achievement of education for everyone? A close look at the figures shows that the country may be at risk of not achieving its goal of attaining universal primary education by 2015. Given this scenario, the government should intensify its efforts in improving basic education by developing evidence-based policies and actions. In particular, the Department of Education (DepEd) should be required to have a sound monitoring and evaluation system to assess the conditions of basic education regularly.

For more, see the full Policy Note [pdf].

Branding in China

Guest Author: Dr. Fang-Fang Tang, China Centre for Economic Research (CCER), Peking University

The attraction of China is far more important for its consumption potential to multinational companies than for its low labor costs which are anyway now on an increasing trend. Particularly for the protection of international brand image for consumption goods, it is totally unwise to be legally safe but economically stupid.

There is still no clear law about recalling problematic products in China. In December 2004 the Chinese National Bureau of Quality Monitoring approved and issued a series of ‘requirements’ in respect of food safety and food production management, but the standards are still ‘recommended industry standards’ without any legal obligation. Enterprises can follow them voluntarily, or ignore them completely.

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Managing China’s per capita carbon emissions

Author: Frank Jotzo

The challenges of international climate equity are well taken up by Yongsheng Zhang in this post. He suggests that emissions rights may be allocated on an equal per capita basis. Indeed equal per capita seems the one simple principle that could cut work, because it could be acceptable to the majority of developing countries. A gradual transition from current levels to equal per capita levels would be necessary to strike the balance with interests of high-emitting countries. It’s called ‘contraction and convergence’, because the global emissions budget contracts over time, and countries’ per capita allocations converge.

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The carbon tariff is a bad idea

Author: Shiro Armstrong

Some economists have suggested that instead of assisting export sector industries in adjusting to low carbon emissions (the ETS in Australian) it is better to impose tariffs on goods from other countries that are not pricing carbon (countries without a carbon tax or cap and trade scheme).

Who are these economists that are heading down the protectionist route? The most vocal have been Joshua Gans writing numerous blog posts on the Australian case, Joe Stiglitz arguing the global case and Canadians Thomas Courchene and John Allan for the Canadian case [pdf].

This is a bad idea for the following reasons:

1. A tariff will reduce the efficiency in the use and allocation of resources, including energy. Read more…

Investor-state arbitration for Indonesia, Australia and Japan

Author: Luke Nottage

Interesting responses by Andrew MacIntyre and others follow Peter McCawley’s recent posting throwing light on Indonesia’s electricity crisis. Further to my subsequent posting on burgeoning FDI into Japan, yet the recent blocking of a English fund’s bid to expand shareholdings in the J-Power wholesaler, I wonder what Indonesia’s overall experience has been in attracting foreign investment into power projects. From Wells and Ahmad, Making Foreign Investment Safe (OUP, 2007), I do know of three major investments that resulted in arbitrations after Indonesia suspended many projects following the Asian Financial Crisis a decade ago. These already involved some involvement from Australia and especially Japan. Hence the question: why and how should we provide for investment arbitration in the Australia-Japan FTA or in ASEAN+ agreements? Read more…

Energy subsidies of Rp 300 trillion in Indonesia?

Author: Peter McCawley, ANU Indonesia Project

Energy subsidies in Indonesia are threatening to get out of hand. What is very worrying is that Finance Minister Sri Mulyani recently warned that total energy subsidies (which include both fuel and electricity subsidies) might reach Rp 300 trillion (around $US 32.5 billion) next year. This would amount to a 50% increase over the level for the current 2008 fiscal year which is now expected to reach Rp 200 trillion (around $US 22 billion).

Minister Sri Mulyani made her warning on the basis of an assumption that international oil prices might remain around $140 per barrel. Even making the optimistic assumption that oil prices will fall somewhat, it will be hard to contain total energy subsidies in the 2009 fiscal year to less than (say) Rp 230 trillion. This would be around 20% of total forecast government spending in 2009 (currently predicted to be around Rp 1,150 trillion, or close to $US 130 billion). To be spending as much as 20% of the government budget on energy subsidies is no fiscal joke. And some members of parliament have openly speculated that the share of government spending going to energy subsidies could go much higher.

Two points need to be borne in mind in considering the situation. One is that the headline figure to watch is the size of the “energy subsidy”. The “fuel subsidy” and the “electricity subsidy” are included within the total level of the energy subsidy. A focus on just the fuel subsidy or the electricity subsidy alone masks the true size of the problem.

The second is that essentially, the problem concerns prices. Close to four decades ago the international development community spent time discussing the importance of “getting prices right”. It seems that we need to revive discussion of this central issue in development policy.

The rise of the Asian century

Author: Robert Cribb, President of the Asian Studies Association of Australia

If ‘the Asian century’ means a global century in which Asia is a full participant, commensurate with its size and energy, then – within the constraints of resource depletion and environmental change – we can certainly expect an Asian century. In other words, the rise of Asia does not need to mean the fall of the West.

But the bigger question is whether Asia’s enhanced presence on the global stage will change the world’s ways of thinking. The rise of the West generated the new modes of thought about the nature of things and the character of humanity that we call modernity. Western societies themselves were transformed before their expansion transformed the rest of the world. Asian societies responded creatively to the Western challenge, but the most important and creative ideas coming out of Asia – from Gandhism to Maoism to the Grameen Bank – were responses to the global agenda set originally by the West; they were not independent attempts to set new agendas for the future.

A century in which Asia takes charge of the world’s thinking agendas? Now that would be an exciting change.

To read more by Dr. Cribb on this, click here.

Bush wrong on India and China and climate change

Author: Yongsheng Zhang, DRC of the State Council, PRC and Renmin University

Climate change is a common challenge for all countries. All industrial countries, except the US, have signed the Kyoto Protocol to take responsibility for reducing greenhouse gas emissions. US President George W Bush defended the America’s inaction at the G8 summit in early July 2008 in Japan, saying that he wouldn’t agree to cutting emissions unless China and India did so too. ‘I’ll be constructive. I also am realistic enough to tell you that if China and India don’t share the same goal then we’re not going to solve the problem,’ Bush said. Defending US policy by targeting India and China does not make sense.

The problem of carbon emission rights allocation among all countries is a problem in how to clearly define property rights so as to prevent the externalities of emissions. The principle that should be applied is ‘whoever benefits, pays’. According to this principle, it is not fair, at the stage, to impose the same obligations on developing countries to reduce emissions as on the developed countries, though voluntary emission cuts by developing countries are necessary.

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