Thursday, 25 September 2008



Another Wall Street Collapse: Are We Surprised?
Experts' Comment -
Dr Paola Subacchi, Research Director, International Economics
Like a recurrent nightmare the collapse of yet another Wall Street institution is a reminder that the worst may not be over and perhaps other banks, in the US or somewhere else, are in line for a similar fate. Compared with when the sub-prime mortgage crisis erupted in the US in August 2007 the crisis has now moved from the financial and housing sector to the real economy, threatening jobs, consumption and investment - with the surge in commodity prices and inflation in early 2008 adding to the pain. And just as oil prices have fallen back, news of a sharply weaker Eurozone economy, rising US unemployment and further crises in the banks has turned hope to pessimism. How bad is it going to be?
We are now familiar with the chain of events which were sparked in a niche of the US mortgage market, spread out from the US markets in mortgage-related and other complex products and triggered a much broader 'credit crunch'. The current situation is one where credit problems, through various transmission channels, are also acting as a drag on global growth, causing the real economy to become itself a source of disruption - even reversing the causality chain. Nobody knows what to expect, but it is clear that the end of the tunnel is not in sight yet. Not surprisingly, then, all eyes are on central banks, regulators and supervisory authorities. The former are supposed to provide enough liquidity, and so to unblock the arteries of the banking system and reduce spill-overs to the real economy, while the latter should monitor the system to prevent similar crises in the future. Regulators, in their turn, are increasingly regarded as performing the critical tasks of setting the rules and 'guiding' the functioning of the market - and in the current market they even seem to be expected to prevent investors from taking hazardous decisions.
Because of the crisis's scope and intensity, all efforts have been concentrated on how to get out of the current mess while relatively little attention has been given to how to prevent future crises occurring. In particular there is little debate - especially in the current presidential campaign - on how the US has played and may continue to play the role of economic hegemon within the world economy. Its main contribution to global growth has come from consumption, with consumption increasingly more a function of indebtedness - fuelled by high house prices - than of disposable income. The result has been a large trade deficit and a household savings rate now at a record low. The crashing of the property market, the unsound growth of which fed the US consumption binge for almost a decade, has left American households loaded with unsustainable debt. This came as no surprise, though. As early as 2004 it had become clear where the imbalances were and where adjustments, soon or later, needed to come from.
So what to do next? Policy-makers seem to have run out of steam. All possible crisis-preventing measures have been applied to reduce the damage and avoid contagion to many different constituencies - from retail investors to tax payers. These measures stretch from emergency liquidity support to government-backed bailout of financial institutions. Such interventions rest on the widespread perception that the whole financial and banking system is too complex and integrated to fail. But this approach poses the question of to what extent a government is prepared to intervene to prevent a crisis which would wipe the savings and pensions of many individuals and families, and the signals this would send to markets. Any crisis-preventing intervention risks being perceived by markets as a 'macro bail-out', whatever the true intention and concerns of policy-makers may be, with the result that there may be excessive risk-taking, particularly when many systematically important and globally integrated institutions are in the same trade. A further complication in the current picture of integrated global financial markets is the 'globalisation' of risk.
Policy-makers now have to cope with the risks of turbulence in an environment that features universal financial intermediaries, widespread interstate and cross-border banking, complex instruments, and untransparently dispersed risks. Concerns about moral hazard and the resulting risk-taking are seen as being of little importance when the stability of the international financial system is at stake - and the alternative is a higher risk of systemic failure. Before the collapse of Lehman Brothers these measures had proved an effective way of keeping the situation under control and avoiding further deterioration in market conditions. They look less effective now and in any case it is too early to draw any firm conclusion. What seems clear, though, is that with governments having shown the ability and willingness to act as final rescuers, the case for moral hazard has become deeply rooted within the system. Whether this would make crisis prevention and crisis resolution even more difficult in future, it is, however, too soon to say.

Clifton packaging managing directors showing something to the President of Uganda

London news last weekend

Professor Lyons, HRW and the Washington perspective again
Senator Feingold has not been alone in the last week or two in making highly inaccurate and ill-informed comments about Ethiopia . Professor Terrence Lyons of George Mason University entitling a piece ‘Ethiopia: Domestic and Regional Challenges’ virtually managed to ignore Eritrea's central role in the collapse of the Algiers Agreements making no reference to continuous Eritrean violations of the Temporary Security Zone and its enforced withdrawal of UNMEE, both central elements of the Algiers Agreements. These deliberate actions by Eritrea were carried out despite Ethiopia 's full and unreserved acceptance of the Boundary Commission Decisions in November 2004. It really shouldn't be necessary to repeat this fact again and again. Professor Lyons knows it very well. Since then it has been Eritrea which has consistently and repeatedly refused to agree to demarcate the Boundary Commission's Decisions in accordance with international norms or to open any discussions on demarcation or on the normalization of relations. We would remind Professor Lyons that normalization of relations was also an integral element of the Algiers Agreements.
Nor does Professor Lyons appear to have realized that the boundary issue now has nothing to do with the technicalities of demarcation or of territory, and everything to do with the one basic strategic issue: Eritrea is not prepared to negotiate with the present government in Addis Ababa; it is only prepared to do everything it can to remove it, using every effort to destabilize Ethiopia. This includes an alliance with the ICU in 2006, providing arms and support; the provision of arms, support and training to the ONLF and the OLF, and indeed to any other opposition movements prepared to commit themselves to armed struggle. Eritrea has even allied itself with terrorist organizations like Al-Shabaab and the small Asmara-based fragment of the Somali opposition Alliance for the Re-liberation of Somalia, now led by Sheikh Hassan Dahir 'Aweys'. Incidentally, one glaring example of Professor Lyons’ capacity to ignore fact in favor of fiction is his claim that Ethiopia is “bogged down” in Somalia . It is not; it can, and probably will, withdraw at any time.
Professor Lyons makes much of the 2005 elections, an issue on which he has been equally inaccurate on other occasions. Whatever the claims of the Ethiopian opposition in the Washington Diaspora, no serious observer of the 2005 election, then or subsequently, doubts that the EPRDF won, and won convincingly. It is therefore very simple to see why the 2005 elections “failed to usher in an orderly transition based on peaceful multi-party competition” - the opposition lost. Professor Lyons claims that “cynicism and disillusionment with electoral politics have replaced the hope and optimism that characterized the period leading up the 2005 vote.” The hope and optimism he refers to are misleading. The opposition leaders believed in 2005 that if they participated in the election they must win. When they lost they immediately claimed this could only have happened through manipulation. They refused to accept one rather important fact – that parties can lose as well as win elections. Even today, when the evidence is clear enough, those opposition leaders who sent their followers out on the streets to cause violence in which people died, still claim they won. They didn't. The boycott of parliament by CUD leaders in 2005 wasn't just a “miscalculation” as Professor Lyons so carefully puts it. It was a deliberate betrayal of the constituents who elected them, a quite calculated and conscious denial of parliamentary democracy. Most of their own party actually rejected the arguments of their leaders. In meetings before the decision to boycott, 65% of the CUD central committee voted to join parliament. It was the leadership who insisted on the boycott, and it was their action which split the party, with one of the four groups in the CUD walking out. Revealingly, after the arrest of the leadership, almost all the CUD MPs, apart from the ten or so detained, quietly joined Parliament. Incidentally, to use a Gallop poll of a thousand people in Addis Ababa and quote its figures for honesty of elections, confidence in the judiciary, confidence in the government, is hardly meaningful. And hasn't Professor Lyons seen any of the figures for the US or the UK on how politicians (or academics or journalists) are regarded? It is difficult to see how 137/138 seats in Addis Ababa, won by the CUD in 2005 represents a firm basis of support for the CUD, while 137/138 seats won by the EPRDF in 2008 translates into “cynicism and disillusionment”, making the EPRDF's ability to govern “precarious”. It is certainly true that the EPRDF is far better organized than any of the opposition parties. It is, as Professor Lyons grudgingly admits, an extraordinarily effective party, but this does not mean a lessening of political space, though it would certainly be better if the opposition were more effective.
Professor Lyons, apparently quoting directly from HRW and AI, accepts their claim that the draft Charities and Societies Bill (it is not yet a proclamation) is an “assault on civil society” and a narrowing of political space. He appears not to have studied the proposed bill himself with any care, making a series of assumptions based less on the provisions of the bill than on HRW's own distorted view of Government policy and aims. HRW made another “analysis” of the bill last week. As usual it made little or no effort to obtain clarification or query allegations, preferring to reiterate them without qualification or query, a technique it has repeatedly used with reference to alleged abuses in the Ogaden or in Somalia . None of this reflects either the theory or the reality of Government practice or activity, and is simply not borne out by the facts, many of which HRW ignores, deliberately or inadvertently. Limiting political space is a nice catchy phrase, but the bill doesn’t do that. It lays down improved mechanisms to monitor NGOs, but given the casual, free-for-all, approach adopted by many NGOs that's hardly surprising. The bill requires NGOs to take a lot more care in planning and in carrying out activities, in drawing up its statutes, using proper book-keeping and proper audits. Most countries do this as a matter of course. Given that seventeen NGOs had to be closed down for irregularities last year alone, the bill is hardly surprising. Indeed the squawking of horror from NGOs faced by the prospect of stricter controls and oversight, or the need to be checked every three years through a process of re-registration, underlines exactly why the Government finds the bill necessary. Some of the provisions may sound tough, but the gratuitously offensive and cavalier approach of some NGOs, including HRW, makes the reason clearly understandable to any one who looks at the evidence rather than respond to HRW's usual hysterical reflex. Indeed, one of the reasons for HRW 's concern appears to be that the bill requires organizations like HRW, or AI and other international human rights organizations, to obtain permission to carry out activities in Ethiopia . In fact, for NGOs, the real problem with the Charities and Societies Bill is that it demands that NGOs recognize and respond to their responsibilities and are accountable. Given, for example, the efforts of HRW to move outside its own remit and deliberately attempt to interfere in the electoral process as it did with reports specifically designed to influence voting in 2005 and 2008, this is nor unreasonable.
It is deeply depressing to see that “the view from Washington ” as enunciated by Professor Lyons, by HRW, and by Senator Feingold, still continues to be based on a series of exaggerations, half-truths and inaccuracies, or, perhaps to be generous, even misunderstandings.
· A Japanese trade and investment mission in Ethiopia
A Japanese mission to promote trade and investment visited Ethiopia this week, from September 14-16. The delegation, led by Mr. Nobuhide Minorikawa, Parliamentary Vice-Minister of Foreign Affairs, included 36 representatives drawn from both public and private sectors. The visit followed the commitment made by the Japanese government at the TICAD IV Conference in Yokohama in May, to dispatch economic missions to enhance its engagement in trade and investment in Africa . This Joint Mission, which is also visiting Kenya , Uganda and Tanzania , is to explore trade and investment opportunities. Three separate missions have been dispatched to various parts of the continent. During its stay in Ethiopia , the Joint Mission was briefed by Ato Sufian Ahmed, Minister of Finance and Economic Development (MOFED), by the Ministers of State of MOFED, of Trade and Industry, and of Agriculture and Rural Development, as well as senior officials from the Ministry of Mines and Energy, and Foreign Affairs, and the Ethiopian Privatization Agency. Discussions focused on the political and economic climate in Ethiopia and the investment incentives and opportunities available to Japanese Companies in the areas of agriculture, mining, power and energy and other sectors.
The Joint Mission paid a courtesy call on President Girma Woldegiorgis and visited the Japanese Garden at the National Palace . They also met with leaders of the Ethiopian and Addis Ababa Chambers of Commerce and members of the business community. The Joint Mission visited the site of the Ethiopian Commodity Exchange and a flower farm in Holeta, and attended a dinner hosted by the State Minister of Foreign Affairs. The Mission arrived only a few days after the Japanese built 'Hidasie' Millennium Bridge over the Blue Nile was officially inaugurated. Described by Prime Minister Meles as a symbol and a living monument to Japanese-Ethiopian friendship, it is moving Ethiopia into its 21 century. The bridge, which cost $14 million, is part of a road upgrading project from Gohatsion to Dejen. Under a memorandum of understanding signed between the Ethiopian Roads Authority and the Japanese International Cooperation Agency in November 2003, the cost is fully covered by the Government of Japan. [Ethiopian mission uk]