Africa

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Instead of cutting forests to make charcoal for household energy, these Chinese women use bamboo which will grow back. Photo Courtesy of INBAR

By Manipadma Jena
NEW DELHI, Jun 12 2018 (IPS)

As governments scramble for corrective options to the worsening land degradation set to cost the global economy a whopping 23 trillion dollars within the next 30 years, a humble grass species, the bamboo, is emerging as the unlikely hero.

“Bamboo being grass, all 1640 species have a very strong root system that binds soil, and are the fastest growing plants making them best suited for restoring unproductive farmland, erosion control and maintaining slope stability,” Hans Friederich, Director-General of the International Network for Bamboo and Rattan (INBAR), told IPS from their Beijing headquarters.

Bamboo is a strategic resource that many countries are increasingly using to restore degraded soil and reverse the dangers of desertification.

“Our members pledged to restore 5 million hectares degraded land with bamboo plantation by 2020 for the Bonn Challenge in 2015. Political pledges have already exceeded the commitment and are today close to 6 million hectares,” Friederich said. “Planting on the ground however is much less , because nurseries have to be set up and planting vast areas takes a few years,” he added.

INBAR, an intergovernmental organization, brings together 43 member countries for the promotion of ecosystem benefits and values of bamboo and rattan. Before joining INBAR in 2014, Friederich was regional director for Europe at the International Union for Conservation of Nature (IUCN).

The Bonn Challenge is the global effort to restore 150 million hectares – an area three times the size of Spain – of deforested and degraded land by 2020, and 350 million hectares by 2030.

Western Allahabad rural farmland under 150 brick kilns in the 1960s.
Photo Courtesy of INBAR

The same farmland today revived by integrated bamboo plantations.
Photo Courtesy of INBAR

When soil health collapses, food insecurity, forced migration and conflict resurrect themselves

According to the United Nations Convention to Combat Desertification’s (UNCCD) latest review released in May, to take urgent action now and halt these alarming trends would cost 4.6 trillion dollars, which is less than a quarter of the predicted 23-trillion-dollar loss by 2050.

Globally, 169 countries are affected by land degradation or drought, or both. Already average losses equal 9 percent of gross domestic product (GDP) but for some of the worst affected countries, such as the Central African Republic, total losses are estimated at a staggering 40 percent of GDP. Asia and Africa bear the highest per year costs, estimated at 84 billion and 65 billion dollars, respectively.

“Healthy land is the primary asset that supports livelihoods around the globe – from food to jobs and decent incomes. Today, we face a crisis of unseen proportions: 1.5 billion people – mainly in the world’s most impoverished countries – are trapped on degrading agricultural land,” said Juan Carlos Mendoza, who leads the UNCCD Global Mechanism, which helps countries to stabilize land and ecosystem health.

Hans Friederich at a Chinese bamboo plantation. Photo Courtesy of INBAR

Indian farmlands ravaged by 150 brick kilns are nurtured back by bamboo plantations

In the 1960s, construction was newly taking off in India. Brick kiln owners came calling at the 100 villages of Kotwa and Rahimabad in western Allahabad, a developing centre in central India’s Uttar Pradesh state. Rice, sugarcane, and bright yellow fields of mustard flowers extended to the horizon on this fertile land. Attracted by incomes doubling, the farmers leased their farmlands to the brick makers. Within a decade, over 150 brick kilns were gouging out the topsoil from around 5,000 hectares to depths from 3 to 10 feet.

When the land was exhausted, the brick makers eventually left. Thousands of farm-dependent families sat around, their livelihoods lost, while others migrated away because nothing would grow on this ravaged land anymore. With the topsoil cover gone, severe dust storms, depleted water tables and loss of all vegetation became the norm.

Starting bamboo plantations on 100 hectares at first in 1996, today local NGO Utthan with the affected community and INBAR have rehabilitated 4,000 hectares in 96 villages. Here bamboo is grown together with moringa, guava and other fruits trees, banana, staple crops, vegetables, medicinal plants and peacocks, oxen and sheep. Annually bamboo stands add 7 inches of leaf humus to the soil and have also helped raise the water table by over 15 metres in 20 years.

Selling bamboo adds 10 percent to the farmers’ income now. But the best benefit has accrued to women – 80 percent of cooking is done with biogas, not charcoal or wood. Much of the waste bamboo goes into biomass gasifiers that run 10 am to 1 pm powering 120 biogas generators at the NGO’s centres to keep refrigerators running, keeping vaccines and critical medicines safe during the regular power shortages.

A family of bamboo artisans sells household items in Satkhira district of Bangladesh. Bamboo provides a sustainable livelihood for the poorest communities in Asia and Africa. Credit: Manipadma Jena/IPS

Multi-functional bamboo’s global market is 60 million dollars and community is reaping benefits

Today, bamboo and rattan are already among the world’s most valuable non-timber forest products, with an estimated market value of 60 million dollars. Rural smallholder communities are already benefiting by innovating beyond their traditional usages.

“The more they benefit from this growing market of bamboo and rattan, the more they can become an integral part of conservation efforts,” according to Friederich, an explorer and bamboo enthusiast.

He narrates to IPS how rural Chinese women have carved out economic opportunities, are being innovative and entrepreneurial with bamboo to reap rich incomes. After the devastating 1998 Yangtze floods and 1997 severe drought in the Yellow River basin, the Chinese government began a massive restoration programme afforesting degraded farmland with bamboo which today involves 32 million farming households in 25 provinces.

Like millions of others, a woman in Guizhou province in central China made furniture out of the abounding bamboo available. As she expanded the business, the larger pieces of bamboo waste went into the furnace generating electricity and heating but the bamboo powder heaps grew mountainous. She experimented growing mushrooms on them – high value delicacies restaurants vie to buy from her today.

The bamboo leaves are fodder for her 20,000 free-running plump chickens. A 2017 study shows fiber in the bamboo leaves enlarges the chickens’ digestive tract, enabling them to consume more and increase in body weight by as much as 70 percent more than chicken fed on standard organic diets. The dye in bamboo leaves the chicken eggs a slightly bluish tinge akin to the pricey duck egg. Consumers pay more for her blue chicken eggs. She’s not complaining.

Her yearly earnings have grown to 30,000 million Renminbi or 5 million dollars.

In Ghana again, a young woman manufacturing sturdy bamboo bicycles, employing and training local village girls who have few opportunities, is already exporting her innovation to Netherlands, Germany and the US.

Realizing bamboo’s disaster reconstruction value

“Peru, Ecuador, Colombia and other earthquake-prone regions have changed building regulations to allow bamboo as a structural element. They have seen, after disasters bamboo structures may crack or damage but have not collapsed as often as concrete structures have,” Friederich said.

Nepal is building 6,000 classrooms still in need of repairs post -2015 earthquake, with round earthen walls, and bamboo roofs which allow the building to flex a little bit even when the ground trembles.

Besides housing, furniture, household items, bamboo can be used for a number of other durable products, including flooring, house beams, even water carrying pipes.

An efficient carbon sink

But in a warming world, that bamboo as a very effective carbon sink is not as widely known. Because of their fast growth rates and if regularly harvested allowing it to re-grow and sequestrate all over again, giant woody bamboos (grown in China) can hold 100 – 400 tonnes of carbon per hectare. But bamboo’s carbon saving potential increases to 200 – 400 tonnes of carbon per hectare if it replaces more emissions-intensive materials like cement, plastic or fossil fuels, according to Friederich.

Partnering with International Fund for Agricultural Development from its start, INBAR now has recently entered a strategic intra-Africa project with the UN organization, focusing on knowledge sharing between Ghana, Cameroon, Madagascar and Ethiopia, regions in dire need of re-greening.

The Global Bamboo and Rattan Congress (BARC 2018), starting 25 June in Beijing will see this project kick-started, besides plenary discussions on bamboo and rattan’s innovative, low-carbon applications, and how bamboo has and can further support climate-smart strategies in farming and job creation.

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The post When a Grass Towers over the Trees appeared first on Inter Press Service.

Excerpt:

This article is part of a series of stories and op-eds launched by IPS on the occasion of the World Day to Combat Desertification and Drought on June 17.

The post When a Grass Towers over the Trees appeared first on Inter Press Service.

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Phumzile Mlambo-Ngcuka is UN Under-Secretary-General and Executive Director of UN Women & Michael Kaufman is Co-founder, White Ribbon Campaign and Senior Fellow, Promundo institute

By Phumzile Mlambo-Ngcuka and Michael Kaufman
UNITED NATIONS, Jun 12 2018 (IPS)

For most people, the annual G7 meeting may just seem like an expensive photo-op that doesn’t connect with any concrete change in people’s lives. But for us, appointed by Canadian Prime Minister Justin Trudeau to sit on his G7 Gender Equality Advisory Council, it was a unique opportunity to push for strong commitments for girls’ and women’s rights.

Canada’s Prime Minister Justin Trudeau holds a press conference at the G7 summit last week.

We had the opportunity to meet the seven leaders for breakfast and make a strong case for concrete commitments and accelerated action to achieve gender equality within a generation.

There is unprecedented momentum and support for gender equality and women’s rights. With the universal adoption of the Sustainable Development Goals, which put gender equality at the center, and the global attention brought by #MeToo and related campaigns on ending sexual harassment and other forms of violence against women, support for improving outcomes for girls and women has never been so high.

The explosion of discussions in our offices and shop floors, our boardrooms and locker rooms, our dining rooms and bedrooms must come right to the G7 table. It is therefore significant that leaders spent two hours discussing gender equality and that it was also part of other discussions.

As the richest economies in the world, G7 countries can bring about far reaching systemic changes envisaged in the global agenda for sustainable development. The impact of G7 countries goes well beyond their borders. We have told leaders that they must use this unique footprint for the benefit of women and girls.

Together with the Gender Equality Advisory Council, we have put forward a comprehensive set of recommendations.

As a foundation, it is critical to eliminate discriminatory legislation which persists in G7 countries and around the world. We also called for the removal of barriers to women’s income’s security and participation in the labour market.

Concrete measures, such as legislation and implementation of pay equity can close the wage gap between men and women. And the jobs of the future, whether it is in the digital economy or artificial intelligence, must help close – not further widen – the gender gap.

For most women, the challenge of balancing productive and reproductive lives creates a “motherhood penalty” that triggers major setbacks for women in the economy. G7 leaders can shape an economy that closes the gap between women and men through affordable childcare, paid parental leave, and greater incentives for men to do half of all care work.

Addressing violence against women in the workplace is critical. Employers, shareholders, customers, trade unions, Boards, Ministers all have an obligation to make workplaces safe, hold perpetrators accountable and end impunity.

The emerging International Labour Organization’s standard to end violence and harassment at work should be supported to drive greater progress in this area.

None of this will happen without the full participation and voice of women at all decision-making tables. We applaud the increasing numbers of countries with gender equal cabinets. We need more countries to follow suit, as well as the private sector.

Because men still disproportionately control our political, economic, religious, and media institutions, they have a special responsibility to actively support policies and cultural change. Men’s voices and actions, including those of our predominately male political leaders, are critical because they have such a big impact on the attitudes and behavior of other men.

We welcome the announcement by Canada, the European Union, Germany, Japan, the United Kingdom, and the World Bank of an investment of nearly US$ 3 billion for girls’ education, including the single largest investment in education for women and girls in crisis and conflict situations. This is a significant step forward to build a foundation for greater progress.

In our own work, as the Executive Director of UN Women, and as a writer and activist focused on engaging men to promote gender equality and end violence against women, we’ve been witness to dramatic changes over the past few decades. The courage of individual women and the leadership of women’s movements have meant that patriarchy is being dismantled in front of our eyes.

But greater leadership is required. A strong commitment by G7 leaders to take this agenda forward beyond the Summit can push forward the most dramatic and far-reaching revolution in human history. The one that will make gender inequality history.

The post We Have Told G7 Leaders to Make Gender Inequality & Patriarchy History appeared first on Inter Press Service.

Excerpt:

Phumzile Mlambo-Ngcuka is UN Under-Secretary-General and Executive Director of UN Women &
Michael Kaufman is Co-founder, White Ribbon Campaign and Senior Fellow, Promundo institute

The post We Have Told G7 Leaders to Make Gender Inequality & Patriarchy History appeared first on Inter Press Service.

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By WAM
MAKKAH, Jun 12 2018 (WAM)

The UAE, Saudi Arabia and Kuwait have agreed to provide a US$2.5 billion economic aid package to Jordan, to help the country which is facing an economic crisis following anti-austerity protests.

The announcement was made this morning in a joint statement following an emergency summit of the four nations which was held in Makkah on Sunday. The meeting was hosted by the Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud at Al-Safa Palace with His Highness Sheikh Mohammed bin Rashid Al Maktoum, the Vice President, Prime Minister and Ruler of Dubai, King Abdullah II bin Al-Hussein of Jordan, and Emir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah of Kuwait to discuss ways to help Jordan overcome the crisis.

The package will include a deposit in the Central Bank of Jordan, World Bank guarantees for Jordan, annual support for the Jordanian Government’s budget over five years, and financing from funds for developmental projects.

The Jordanian King expressed his appreciation to the three Gulf nations for their quick response and for the aid which will ease the country’s economic crisis.

WAM/Rasha Abubaker

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By Wahiduddin Mahmud
Jun 11 2018 (The Daily Star, Bangladesh)

There are two prominent themes of contemporary development discourses, both lacking a consensus, as reflected in academic research and in their popular versions in bestseller books. One of these is about finding the reasons for the decline of democracies since the late 1980s and the early 1990s when the erstwhile military rule and dictatorships gave way to democratically elected regimes in many developing countries. A representative book on this is Competitive Authoritarianism: Hybrid Regimes After the Cold War by Steven Levitsky and Lucan A Way. Levitsky has also recently co-authored another bestseller, How Democracies Die, with his Harvard University colleague Daniel Ziblatt. The second theme is about how the quality of governance could explain why some countries economically prosper and others do not. On this, one of the best-known books is Why Nations Fail: The Origins of Power, Prosperity, and Poverty, co-authored by two well-known political economy experts, Daron Acemoglu and James Robinson. The two themes, though interrelated, are quite distinct, and much confusion is created by not recognising these as such.

At the time of the so-called new wave of democratisation across the developing countries, it was believed that these countries would pass through an initial transition phase for building and consolidating their democratic institutions. In reality, only a few followed this path of gradual deepening of democracy; Indonesia or Botswana are often cited as examples. Some others degenerated into unstable and fragile states and returned to authoritarianism or worse. But in most cases, the transition phase did not lead to more democracy, but resulted in a new kind of stable hybrid regimes—authoritarianism mixed with democratic institutions in various degrees.

The initial democratic aspirations in most of the countries did not materialise for various reasons. In some cases, such as in South Africa, Singapore or the erstwhile Malaysia under Mahathir’s rule, the dominance and popularity of a single party left little room for multi-party democratic competition. Sometimes, charismatic leaders like Hugo Chavez of Venezuela who themselves did not believe in democracy but enjoyed popular support, came to power through genuinely contested elections. More often, however, democracy was gradually weakened at the hands of democratically elected leaders faced with fading popularity.

In the latter case, democracy is diminished slowly, in barely visible steps, unlike in an abrupt fashion of a military coup. The nominally democratic institutions remain in place and these steps are taken “legally”, in the sense that these are approved by the legislature and accepted by the courts; yet democracy is subverted by more subtle means, by gradually eroding the credibility of state institutions including higher judiciary, capturing the business bodies, bullying the media, curtailing the space for civic activism, and rewriting the rules of politics to tilt the playing fields against the opponents. A former president of Kenya, Daniel arap Moi, once famously remarked: Politics is not a football game that you need a level playing field. Ironically, thus, democracy may ultimately die at the hands of those leaders who got elected with a popular mandate to strengthen democracy.

When it comes to the economic performance of these hybrid regimes, it will depend on how they are advantaged or disadvantaged by the democratic and authoritarian characteristics that they simultaneously embody. We now know that developing countries can achieve high economic performance both under democracy—as in India—and under authoritarian regimes—as in contemporary China and the erstwhile East Asian countries. The common element shared between these contrasting governance systems seems to be “accountability”, which lies behind the more proximate preconditions for good economic management such as efficiency and the primacy of public good over private gains through rent-seeking.

The way accountability in policymaking is ensured in a well-functioning democracy is too well-known to need elaboration, but the issue is more complex in the case of the successful authoritarian regimes. In the case of the erstwhile authoritarian regimes in East Asia, the key to ensuring accountability lay in their quality of economic bureaucracies which were “technically insulated” from patronage politics and whose policies were subject to performance-based scrutiny. In China, the governance reforms introduced in the wake of economic liberalisation have put in place a hierarchical system of strict accountability within the communist party’s bureaucracy regarding achieving economic targets. As one commentator on China has aptly brought out the contrast in the structure of performance incentives under democratic and authoritarian regimes: in democracy, politics is interesting while bureaucracy is boring; in China, the reverse is true.

The new breed of authoritarian democracies may try to deliberately pursue an approach of “technical insulation” of economic policymaking, as Malaysia did under Mahathir’s previous regime; but these regimes generally lack the kind of governance effectiveness or party cohesion that is needed for mimicking the purely authoritarian mechanisms of accountability. At the same time, the regimes have the advantage of having some of the democratic accountability mechanisms. Even poorly functioning democratic institutions can help. How?

So long as the ruling regimes face periodic well-participated elections, they are aware of the risk that even flawed or rigged elections may be lost; this may happen if the extent of corruption in high places and the excesses of patronage politics cross certain thresholds of public tolerance. The voice of the opposition party even in a weakly functioning parliament of elected representatives may sensitise public opinion against excesses committed by the ruling regime. In case of rigged elections and non-functional parliaments, the watchdog bodies and the judiciary can act as a fallback, even when the integrity of these state institutions is compromised to an extent. Beyond these institutional mechanisms of accountability, the media and civic activism can be another fallback. And lastly, the ruling regime knows that its survival ultimately lies in its legitimacy in the eye of the common people, unless it increasingly resorts to coercive measures to stay in power. In a hybrid regime, that legitimacy can be maintained only by compensating the democratic deficits by delivering visible, rapid economic progress.

Herein lies a potential for both a virtuous and a vicious cycle in the new hybrid authoritarian democracies. Strengthening the democratic institutions of accountability may contribute to creating an environment for better economic performance that may in turn enhance the legitimacy of the regime, thus creating incentives for the regime to further loosen its authoritarian grip on those institutions. The opposite is a downward spiral of lesser accountability leading to poorer economic performance and even further curtailing of the democratic accountability mechanisms in the face of declining regime legitimacy. Only countries with exceptionally strong growth drivers that can withstand poor economic governance can escape such a vicious cycle, at least for some time.

At one point or another, many of the new democracies may thus find themselves to have arrived at such a crossroads. Whether a country will choose the right direction at such a time will depend on a range of factors like the prevailing norms of political behaviour, aspirations of the people, and the vision and statesmanship of the political leadership. These factors are mostly country-specific, so that academic generalisations based on stylised facts are not of much help in making predictions.

Wahiduddin Mahmudis a former professor of economics at the University of Dhaka and is currently on the Board of Global Development Network.

This story was originally published by The Daily Star, Bangladesh

The post How Democracies Die and Economies Grow appeared first on Inter Press Service.

Flash flooding has damaged key infrastructure including this bridge in Balukhali camp. Credit: IOM 2018

By International Organization for Migration
COX'S BAZAR, Bangladesh, Jun 11 2018 (IOM)

Heavy monsoon rains that began on Saturday (9/6) have caused severe structural damage to Bangladesh’s Cox’s Bazar Rohingya refugee camps. Over 31,000 of the camps’ one million refugees, who fled Myanmar, are still living in areas considered to be at high risk of deadly flooding and landslides.

Within 24 hours of the rains starting, humanitarian agencies reported some 59 incidents, including landslides, water logging, extreme wind and lightning strikes. The incidents are being mapped and shared on an interagency communal incident overview platform. Over the same period aid agencies reported that over 9,000 people were affected and that this number will increase as the rains continue.

IOM, the UN Migration Agency, is working against the clock to secure infrastructure, including road access and drainage, and to improve preparedness. Working with partners, it is ensuring that refugees continue to receive lifesaving assistance, including water, sanitation and hygiene, health, protection and shelter support during the monsoon.

The risks remains huge, given the vast size and nature of the congested, makeshift camps. The hilly terrain is now largely bare of vegetation and the rains have made the soil extremely unstable, increasing the risk of large scale flooding and landslides.

IOM and its partners have responded by relocating thousands of vulnerable households to safer ground ahead of the rains. Since January, 5,196 households (about 25,000 individuals) vulnerable to landslides and floods or in areas of communal infrastructure construction have been moved to safer areas. Before the end of June, IOM and its partners plan to move another 1,602 vulnerable households (7,248 individuals) to safer ground.

In Unchiprang, a camp in Teknaf sub-district, IOM moved 787 households ahead of the heavy rains. But another 65 households remain at risk of landslides and floods. “Yesterday 19 households were identified as at risk of landslides and moved to learning centers and child friendly spaces of the camp. They’ll be relocated to a new land once the rain stops. Relocation of these families is not possible as their shelters can’t be properly constructed amid continuous heavy rains,” said IOM site manager Mohammed Manun.

“The situation in the camps is growing more desperate with every drop of rain that falls,” said Manuel Pereira, IOM’s Emergency Coordinator in Cox’s Bazar. “You have close to one million people living on hilly, muddy terrain with no trees or shrubs left to hold the ground in place. People and their makeshift shelters are being washed away in the rains. We are racing to save lives, but we urgently need more funding to maintain and expand key humanitarian support during these rains. Without this, our operations, which are currently only 22 percent funded, will run out of money by the end of this month,” he added.

IOM, WFP and UNHCR have also strategically positioned heavy machinery in key camp locations for disaster response operations in a joint project called the Site Maintenance Engineering Project (SMEP.) Teams are also continuously working to increase available land for relocations. IOM has already prepared 186.8 acres of new land to relocate at least 7,000 people.

Existing refugee shelters have also been upgraded to better withstand heavy rain and high winds, and refugees have been advised on measures they can take to reduce their vulnerability to any upcoming disaster.

Key shelter and non-food items have been stockpiled to ensure sufficient provision during times of high demand. Mobile medical teams will also ensure that displaced and hard to reach populations have uninterrupted access to healthcare.

Access to clean water also poses a huge challenge during the monsoon and IOM and its partners have worked to improve water and hygiene infrastructure, as well as pre-positioning acute watery diarrhea kits and aquatabs in remote areas to meet basic needs.

For more information, please contact IOM Cox’s Bazar:
Manuel Pereira, Tel: +8801885946996, Email: mpereira@iom.int
Shirin Akhter, Tel: +88034152195 or +8801711187499, Email: sakhter@iom.int

The post Two Days of Heavy Rain Hit Bangladesh’s Rohingya Refugee Camps – Over 31,000 at High Risk from Flooding, Landslides appeared first on Inter Press Service.

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Credit: Bigstock

By Martin Khor
PENANG, Malaysia, Jun 11 2018 (IPS)

There are increasing warnings of an imminent new financial crisis, not only from the billionaire investor George Soros, but also from eminent economists associated with the Bank of International Settlements, the bank of central banks.   

The warnings come at a moment when there are signs of international capital flowing out of some emerging economies, including Turkey, Argentina and Indonesia.

Some economists have been warning that the boom-bust cycle in capital flows to developing countries will cause disruption, when there is a turn from boom to bust.

All it needs is a trigger, which may then snowball as investors in herd-like manner head for the exit door.  Their behaviour is akin to a self- fulfilling prophecy: if enough speculative investors think this is the time to move back to the global financial capitals, then the exodus will happen, as it did in previous “bust” phases of the cycle.

Soros recently told a seminar in Paris:  “The strength of the dollar is already precipitating a flight from emerging-market currencies.   We may be heading for another major financial crisis. The economic stimulus of a Marshall Plan for Africa and other parts of the developing world should kick in just at the right time.”

Martin Khor

If Soros is right about an imminent crisis, its trigger could come from another European crisis.   Or it could be outflow of funds from several developing countries. Some had received huge inflows when returns were low or even zero in the rich countries.  With US interest rates and bond prices going up, the reverse flow is now taking place and it is only the start with more expected to take place.

Soros’ prediction may not be widely shared.  “Honestly I think that’s ridiculous,” said the head of investment bank Morgan Stanley commenting on Soros.

The Soros warning reminded me of a South Centre debate held in Geneva in April, when we hosted two eminent main speakers to launch their book, “Revolution Required: The Ticking Bombs of the G7 Model.”

The authors were Peter Dittus, former Secretary General of the Bank of International Settlements (BIS), and Herve Hamoun, the former Deputy General Manager of BIS.  The BIS is a club of 60 central banks, known as the bank for central banks.

You can’t get a more respected conservative establishment than the BIS, also famous for the quality of its research.

Yet the two recently retired top BIS leaders wrote a book in simple direct language warning of “ticking time bombs” in the global financial system waiting to explode because of the reckless and wrong policies of the major developed countries. Nothing short of a revolution in policy is required, to minimise the damage of a crisis that is about to come, they say.

At the Geneva meeting, Dittus and Hannoun pointed to several problems or “time bombs” that had developed in the developed countries, with potential to harm the world.

The main problem is what they call the G7 debt-driven growth model.  The major countries, except Germany, have lax fiscal policies with high government liabilities as percent of GDP.  In particular the United States has an irresponsible fiscal policy which it has exported to other G7 countries, except Germany.

The unprecedented asset price bubble engineered by G7 central banks is a ticking time bomb that is ready to burst, after seven years of near zero interest rates and speculative excesses in bonds, stocks and real estate. The Federal Reserve has dealt with the bursting of every asset bubble of the last 20 years by creating another, larger bubble.

The US administration has expanded new expenditure and tax cuts by over a trillion dollars, with no funding other than more debt. This “reckless behaviour”, leading to a US fiscal deficit projected to be around 1 trillion USD in 2019, was made possible by the permissive monetary policy conducted by the Fed since 2009, the silence or complacency of the big three US based ratings agencies, and the IMF’s blessing.

The G7 central banks have also become the facilitators of unfettered debt accumulation, according to the authors. The near zero or negative nominal interest rates are a huge incentive to borrow and extreme monetary policies have destroyed any incentive to fiscal rectitude.

G7 total debt in 3rd quarter 2017 was around USD 100 trillion. Together the US, the UK, Canada, Japan and the Eurozone account for 64% of the world total debt.

The authors assert the G7 extreme monetary policies since 2012 have undermined the foundations of the market economy.

There are now centrally planned financial markets and the break up of key elements of the market economy model.

Long term interest rates are manipulated, valuations of all asset classes are deeply distorted, sovereign risk in advanced economies is deliberately mispriced, and all these do not reflect fundamentals.

They warn that the unprecedented asset price bubble engineered by G7 central banks is a ticking time bomb that is ready to burst, after seven years of near zero interest rates and speculative excesses in bonds, stocks and real estate. The Federal Reserve has dealt with the bursting of every asset bubble of the last 20 years by creating another, larger bubble.

They also warn that the quantitative easing policy of recent years may shift to a worse policy of government debt monetisation.

Although central banks have made it very clear that large scale government bond purchases are a temporary measure taken for monetary policy reasons, they are slipping into a different concept – that of a permanent intervention of central banks in government bond markets.

This is seen as a way to solve the sovereign debt crisis in major advanced economies, by transferring a growing part of government debt to the central bank: 43 per cent of G7 government bonds in major reserve currencies are now held by central banks and other public entities

G7 central banks are at risk of heading towards the slippery slope which ultimately leads to government debt monetization.

G7 central banks at the cross roads: normalisation or debt monetisation?

They are facing a dilemma, the authors point out.  They have to choose between highly risky scenarios: policy normalisation or government debt monetization?

For the time being, the Fed and the Bank of Canada are leaning towards normalization, albeit at a slow pace, while the ECB and the Bank of Japan are dangerously heading towards a continuation in a way or another of the debt monetization experiment.

Here is the dilemma: G7 central bank’ policy normalisation is the only option consistent with their mandate and with a return to the rules of a market economy. But when G7 Central Banks eventually exit from their unconventional policies, they will contribute to the bursting of the asset price bubbles engendered by their monetary experiment.

This could well be the worst financial crisis ever experienced, as the level of debt and the artificial level of asset prices have no precedent.

But an even worse systemic crisis would result from the continuation of current unconventional policies leading central banks to cross the rubicon of government debt monetisation. The perpetuation of these policies, with their zero or negative interest rate policy and large-scale purchases of government debt, would encourage fiscal deficits and the continued expansion of public debt.

Public debt monetisation, through the transfer of always more government bonds on G7 central banks balance sheets, would destroy the market economy as it would pave the way for an unlimited expansion of the public sector, say the authors.

The above shows why the former BIS officials believe a new financial crisis is brewing.  Changing the recent policy will lead to an explosion, but continuing with the same policy while buying time will lead to an even bigger crisis.

Their analysis of the crisis in the G7 countries matches that of Yilmaz Akyuz, the South Centre’s Chief Economist and author of the book, Playing With Fire.

Akyuz goes further, in analysing the impact a global crisis will have on developing countries.  Since the 2009 global crisis, the developing countries have built up new and increased vulnerabilities to global financial shocks.

Their financial sector has established even more and deeper links to international financial markets, shown for example by high percentage of the ownership of foreign funds and investors in the domestic stock markets and in government bonds of developing countries.

Therefore if there is a significant or big outflow of these foreign funds, the some economies may suffer from loss of foreign reserves, currency depreciation, higher external debt servicing, higher import prices, falling prices of houses and equities and in worse cases an external debt crisis.  A few developing countries are already facing crisis and seeking IMF bail-outs.

Many developing countries still have strong economic fundamentals.  But in many cases, their economies are weakening in one way or other, and the worsening global economic prospects (including the real possibility of a trade war) do not augur well.  The conditions for an external-debt problem have increased.

It would thus be wise for them to monitor and analyse what is happening globally, as these will significantly affect the economy. Scenarios should be established on what may happen externally, including the onset of a new global crisis, how this may affect the economy in various ways, and to prepare for various measures that can be taken.  Crisis prevention and crisis aversion should now be a priority.

Dealing with the domestic economic issues should go together with preparations to cope with changing external situations. Though we may not be able to control what happens abroad, we can take measures to respond appropriately.

 

The post Warnings of a New Global Financial Crisis appeared first on Inter Press Service.

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Martin Khor is Executive Director of the South Centre, a think tank for developing countries, based in Geneva

The post Warnings of a New Global Financial Crisis appeared first on Inter Press Service.