Make Sense of the World: Weekly Report


January 28, 2014 07:43 EDT

Fair Observer's extended report of the week's events. [Note: Click here for the summary version.]

The past week saw the World Economic Forum gather in Davos to supposedly ponder the perilous year ahead. While Davos wallowed in platitudes, Nobel laureate Michael Spence penned one of the most incisive commentaries on the world economy in recent times.

As he points out, employment remains low and economic growth is still weak. Increasing asset prices boosted by low interest rates and quantitative easing are unlikely to last. Spence is bang on the money when he calls for "a shift from consumption-led to investment-led growth." If increasing inequality and "highly uneven educational quality" are not addressed, they will tear apart social fabrics and cause political upheavals. Yet there are few efforts to grapple with the great challenges of our age and Davos seems like carousing medieval masques as pestilence stalks the land.

North America

Republican Congressman Trey Radel resigned from his seat after pleading guilty to cocaine possession. Radel represented Florida’s ultraconservative 19th Congressional District and had voted to mandate drug tests for poor Americans who apply for food aid.

Scandals involving politicians are old hat. The point is not that some elected representative took drugs or slept with a man or a woman. What is worrying is that such a representative adopted a doctrinaire position that contrasts diametrically to his actions. Prudery has generally led to prurience. James Brundage has an excellent flowchart regarding medieval Christian rules about sex. The one thing we know about these rules is that they caused much unhappiness and did not work, leading to both perversion and hypocrisy.

Radel’s resignation demonstrates the huge problem facing Republicans. Their argument of smaller government and more individual freedom has merit. Red tape does crush businesses and individuals. It has proven the undoing of hitherto great powers such as France.

Yet if Republicans want real liberty, they must accept that their views on sex, drugs and poverty are medieval. Radel’s resignation underscores the fact that Republicans need renewal. Every democracy needs a battle of ideas between a party of the right and a party of the left. There is invariably a tradeoff between equity and efficiency. Healthy competition between the right and the left keeps an economy in some sort of equilibrium. The increasingly anti-intellectual party of Sarah Palin needs to base its arguments on intellectual rigor and not religious fervor. Republicans owe it to the electorate to offer a credible alternative by becoming more tolerant of minorities, sexual behavior and use of intoxicants.

The US government arrested operators of two Bitcoin exchanges for money laundering. Apparently, Robert Faiella of BTCKing and Charlie Shrem of sold bitcoins worth over $1 million to users of Silk Road, an online drug marketplace. Bitcoin is a new digital currency that is decentralized and based on algorithms. When its price crossed $1,000 in December, this author expressed reservations about uncertainty as to how governments would react to it. Since then, China has already acted against bitcoin and the US has followed suit. At the time of writing, its value of $816.8 and the arrests might cause the figure to dip further.

Two implications emerge from the arrest. First, the anonymity offered by bitcoin will make it the favored medium of exchange by many criminal syndicates. Second, governments are likely to stamp out alternative stores of value because they inevitably want the primacy of their currencies within their boundaries. In the case of the US, it wants the dollar to retain its station as the world currency and the primary store of value.

Finally, a week after US President Barack Obama gave a speech on the National Security Agency (NSA) and on the eve of his 2014 State of the Union, Google’s chief legal officer has called upon the government to change its intelligence policies to restore trust in the Internet. This is a serious blow to Obama, whose approval ratings have plummeted to the same level as his predecessor, George W. Bush.

There are two other implications. First, the debate about the NSA and the balance between liberty and security will rage on. Edward Snowden has added fuel to the fire by alleging that the NSA engaged in "industrial espionage," particularly against German companies competing with their US rivals. Second, it might be a ploy by Internet giants like Google, Facebook and Microsoft to divert attention from the fact that they themselves possess increasing amounts of personal information, while the Internet has become increasingly oligopolistic with massive concentration of power in the hands of a few companies.

Latin America

The International Court of Justice (ICJ), the principal judicial organ of the United Nations, delineated the maritime boundary between Peru and Chile. Peru had appealed to the ICJ to settle the matter in 2008. The ICJ gave Peru around 20,000 square kilometers outright and control over a further 28,000 square kilometers. Both countries have pledged to abide by the ICJ ruling.

Clearly, Peru gains from the ruling but the key fact to note is that both countries appealed to the ICJ instead of resorting to saber rattling. China and Japan could draw lessons from their Latin American counterparts.

The ICJ ruling has three important implications. First, Peru has gained while Chile has lost maritime territory. Peru’s fishermen will benefit at the expense of their Chilean counterparts whom their government has promised to help. Second, it sets a precedent for Bolivia to reclaim some of its mineral-rich land from Chile that it lost in the 1879-1883 war between the two countries. Finally, one of the key boundary disputes in Latin America is over. This makes any inter-state conflict in the region unlikely and paves the way for greater economic integration that is more likely than most people imagine.

After protracted violence in Michoacan, Mexican troops have reasserted the authority of the state by arresting a key drug lord. Dionicio Loya Plancarte, a leader of the dreaded Knights Templar known as El Tio — Spanish for, "the uncle" — is finally behind bars. Earlier this month, troops were deployed after vigilantes clashed with gang members of Knights Templar. Some accused the vigilantes of siding with the New Generation drug cartel based in neighboring Jalisco state. Despite the arrest, the conflict between different cartels, vigilante groups and the government will rage on until Mexico improves it governance and the US legalizes the use of drugs while controlling the easy availability of weapons.

Argentina finally allowed its citizens to buy US dollars that amount to a fifth of their monthly salary. Rampant inflation plagues the country and the peso trades at 40% less than its official price on the black market. Last week, the peso posted the biggest daily drop in a decade, prompting this measure. The peso money supply is growing too fast and Argentina’s currency is expected to fall by a further 50% by the end of 2014. Inflation is predicted to rise to 30% putting more pressure on the economy, which in turn will lead to political turmoil.

A week after gaining kudos for its enlightened immigration policy, a deep-water port funded by Brazil has opened in Cuba. The port of Mariel is in the heart of a special economic development zone to which Cuba plans to draw foreign investment. It will be able to host larger ships passing through an expanded Panama Canal.

The opening of the port has two implications. First, the Cuban economy is following the example of other communist economies and gradually opening up. This will unleash new energy and entrepreneurial activity in an economy that has been depressed for far too long. Second, it deepens the already strong relationship between Cuba and Brazil. As described in the previous report, 5,000 Cuban doctors are working in Brazil to alleviate shortages in the medical field. In return, Brazilian banks are providing scarce capital that will boost economic growth in the coming years.


After months of turmoil in Ukraine, the first deaths in the protests and the spread of revolt to towns in the eastern part of the country, Ukrainian Prime Minister Mykola Azorov has finally resigned. The Ukrainian parliament voted by 361 to 2 to repeal controversial anti-protest legislation. President Viktor Yanukovych had already offered Azorov’s job to the opposition leader, who turned it down. Catherine Ashton, the EU foreign policy chief, is set to meet Yanukovych and opposition leaders. The ding dong battle between Russia and the European Union (EU) over Ukraine will carry on as the country seems delicately poised over the precipice of civil conflict.

In 2006, the Russian spy Alexander Litvinenko was murdered through polonium-210 radiation poisoning. Barely three weeks prior, Anna Politkovskaya, a fearless investigative journalist, highly respected both at home and abroad, was brutally murdered on October 7, 2006, in Moscow. That day was Russian President Vladimir Putin’s 54th birthday and it was widely suspected that she had been killed on the orders of Chechen leader Ramzan Kadyrov, a loyal Putin ally.

On April 4, 2007, this author argued that the gruesome murder made Russia a criminal power. Eight years later, the coroner investigating Litvinenko’s murder declared there was a prima facie case that the Russian state was involved. Litvinenko’s widow is fighting a battle in British courts to seek a judicial review of the "legally irrational" decision of Britain’s home secretary to refuse to order a public inquiry. Regardless of the court decision, the fact that Russia will not extradite the person charged with Litvinenko’s murder is damning.

In Italy, the center-left party concluded a deal with Silvio Berlusconi to reform the electoral law and overhaul the constitution. In the original land of bread and circuses, where the Coliseum once provided grisly theater, no deal is murky enough. The proposed amendments are "fiendishly complex" and will perpetuate the supremacy of party bosses who will have the power to select candidates. The names on party lists and the order in which they appear will be decided by party bosses, a far cry from the ferociously democratic primary process in the US. Italy’s dismal economy and dysfunctional state seemed doomed as of now.

In France, facing protests after a messy split with his partner over an affair, President François Hollande has revived a plan to submit Turkey’s bid to join the EU to a referendum. His cautious backing of Turkey now becomes an academic exercise because the French public is most likely to shoot it down, especially in light of Turkish crackdowns on dissent and interference with the judiciary. The EU has already criticized Turkey because it lacks rule of law, judicial independence, separation of powers, and respect for fundamental liberties. Turkey’s EU bid will require approval of all 28 union members and France’s equivocal support will ensure that its bid remains in cold storage for some time to come.

Middle East & North Africa

The Geneva talks between the Syrian government and the opposition have begun. So far, the talks have resulted in a deadlock. President Bashar al-Assad's regime refuses to countenance the demand for a transitional government by the Syrian National Council.

Brutality has been ratcheting up on all sides. Over 130,000 people are dead and millions have fled their homes. Yet the talks are unlikely to reach a successful conclusion because two key actors are missing. Iran and Islamist rebels are not at the table, making any lasting deal impossible. Iran was incongruously disinvited at the last minute from the Geneva talks, while Saudi-backed Islamists had no intention of negotiating peace in the first place.

The Economist wants the rebels to be armed instead of inviting all parties to the table. The descendants of Mr. Sykes fail to realize that the Sykes-Picot deal is dead. On January 21, Syrian Kurds declared the formation of their own provincial government. They will develop their own constitution and hold elections. Syrian developments are making Turkish and Iraqi governments uncomfortable because of implications for their Kurdish minorities. The specter of a Kurdish state is no longer that remote. The lines drawn in the sand by erstwhile colonial powers are unraveling and no effort to maintain the status quo will succeed.

In Egypt, the third anniversary of the Mubarak regime's ouster ended with a sense of déjà vu. Mubarakism continues to flourish even though Hosni Mubarak has gone. As bomb blasts killed six and wounded 100 others, the specter of a full-blown Algeria style civil war continues to haunt Egypt. The banned Muslim Brotherhood strongly denied the attacks, which were held to be the responsibility of Ansar Bayt al-Maqdis, a group inspired by al-Qaeda.

Mohamed Morsi, the former Islamist president, is on trial and Field Marshal Abdul Fattah al-Sisi has been officially backed by the Egyptian military to run for the country’s top job. As a former head of military intelligence, Sisi is likely to tighten the military’s vice-like grip in power.

In the midst of grim news, Yemen’s National Dialogue Conference agreed upon a document that will form the basis of a new constitution. The country will be divided into regions that will enjoy semi-autonomy. The Houthis, a group of Zaidi Shi'a Muslims, have been fighting ultraconservative Salafists along with allied Sunni tribesmen. Two Houthi envoys were killed at the talks. The south has been demanding more autonomy, as have the Houthis in the north. Both will have greater representation in the upper house of parliament. There is no guarantee that the deal may stick but the fact that one has been agreed is a reason for guarded optimism.

Tunisia, the birthplace of the Arab Uprisings, has approved a new constitution and appointed an interim government. The Islamists and the secular opposition have been able to agree upon a deal that has established a caretaker government and will lead to elections later in the year. The new constitution recognizes Islam as the country's religion, while enshrining freedom of conscience and belief as well as equality between the sexes. The great hope is that Tunisia will act as a model for the region.


As predicted in a previous report, a ceasefire has been signed by the government and the rebels in South Sudan. Although rebels have accused the South Sudan army of violating the ceasefire, the uneasy peace should hold.

Three reasons led to the ceasefire. First, major powers such as the US and China put pressure on both parties to conclude a deal. Second, foreign powers had more leverage because of South Sudan’s oil reserves. Both parties want a share of oil revenues and have an incentive to listen to the buyers of oil. Third, neither side has an appetite for a protracted war. All clashes will not entirely cease immediately, but the ceasefire has a decent shot of being a first tentative step to peace.

South African workers at platinum mines have gone on strike demanding huge pay rise. This is the country’s biggest strike since 2012 when the police shot 34 miners in the Marikana massacre. A judge has held the strike to be legal this time and the 70,000 workers cannot be disciplined or dismissed. Workers are demanding 12,500 rand ($1,200) per month, more than double their current pay. The mining companies claim that they cannot afford the pay increase because of high production costs and low demand. About 80% of the known platinum reserves are in South Africa and the strike will disrupt supply, leading to increased prices.

President Jacob Zuma’s African National Congress (ANC) government is under pressure before the April elections. Julius Malema, a former ANC youth leader, has formed a new party, promising nationalization of the mines. The road ahead for the mining industry looks rocky with the ANC and Malema’s new party competing for votes in a country chafing against long-seated inequalities.

The Democratic Alliance led by Helen Zille and Mamphela Ramphele, the former anti-apartheid campaigner of the newly formed Agang party, announced that the latter will be the presidential candidate opposing Zuma and Malema. Ramphele is a former World Bank director and mining candidate. The ANC is deriding her as "a rent-a-leader and rent-a-black face" candidate. South African voters will face three candidates espousing three different economic ideologies, but the ANC is expected to return to power comfortably.

Nigeria’s independent electoral commission will be holding the presidential election on February 14, 2015. President Goodluck Jonathan has been widely criticized and has lost the support of many governors. He will announce his decision to seek reelection in May. Now that a date has been set, campaigning will soon begin in right earnest.

Meanwhile, violence continues in Nigeria as suspected Boko Haram fighters attacked Christian worshippers, killing at least 99 people and razing hundreds of homes. It is little surprise that Jonathan’s popularity continues to plummet.

Acclaimed Kenyan writer Binyavanga Wainaina has declared that he is gay. He is one of the most high profile Africans to ever do so. Wainaina has written about his sexuality in a new essay that he refers to as a "lost chapter" of his memoir, One Day I Will Write About This Place, which was published in 2011.

In 2007, the Pew Global Attitudes Project found that 96% of Kenyans opposed homosexuality, finding it unnatural. It remains illegal under the Victorian legislation that Kenya inherited from the British. Although the legislation is infrequently enforced, homosexuality remains punishable by up to 14 years in prison.

Central & South Asia

Afghan President Hamid Karzai is doing his best to unsettle the US. He has demanded that the US cease military operations and airstrikes, as well as resume peace talks with the Taliban. Only then will Karzai consider signing the Bilateral Security Arrangement (BSA). He is also releasing 37 prisoners that the US deems dangerous from the Bagram prison. Karzai has called the prison a "Taliban-making factory" and accused the US of torture. As poppy production reaches record heights, the US is witnessing the unraveling of its Afghan adventure and following in the footsteps of great powers of the past that were humbled by this fractious land.

Pakistan is emerging as one of the worst hit countries by global climate change. Already, experts estimate that it loses $5.2 billion annually because of environmental degradations. Crop yields are expected to decrease drastically by 2030. Of the 14 warmest years since 1879, 12 of them have been after 2000. In a tottering nuclear state with increasing civil strife, the looming scarcity of water and food looks portentous.

Bilawal Bhutto Zardari, the anglicized heir of the Bhutto family, has called for military action against the Taliban. A darling of the Western press, Zardari Jr. has a reputation as an effete prince who prefers partying in London over dealing with the hoi polloi. At 25 years of age, his sliminess and dishonesty are already being noted by astute Pakistanis who resent the power he wields because of the ill-gotten gains made by his family and the patronage dispensed by them in a highly feudal society. Meanwhile, airstrikes continue against the Taliban regardless of what Zardari Jr. says. Thousands fled Pakistan’s troubled northwest region bordering Afghanistan, following airstrikes against suspected Taliban militant hideouts that killed dozens of people.

In India, Rahul Gandhi is in the news after making a fool of himself in his first individual interview in ten years. He showed his intellectual bankruptcy by parroting clichés for 80 minutes, demonstrating a complete lack of self-awareness.

Gandhi is a scion of the Nehru family that has largely ruled India since its independence in 1947 and, barely ten days ago, The Economist hailed him as "a decent man, shy in public, keen on development work and out of place in the snake-pit of politics." For long, this lily white English publication has had a soft spot for India’s notoriously corrupt ruling dynasty that sided with the Soviet Union, imposed socialism on the country and continues to implement populist economic policies. The Economist conveniently forgets its free-market liberal principles when covering India, which is unsurprising given that it opposed the country's independence since its inception in 1843. Gandhi incongruously kept claiming to fight the system just like Zardari Jr., even though both these young gentlemen are merely in their positions because they are members of the lucky sperm club.

Asia Pacific

The battle for Thailand’s soul is only getting fiercer. On the one side are the "red shirts" of Pheu Thai party from the Shinawatra clan. Its support lies in the poor northern and northeastern provinces of Thailand. On the other side is the Thai establishment led by Suthep Thaugsuban, whose support base lies in the capital Bangkok and the southern provinces. As mentioned repeatedly in earlier reports, Thaugsuban has taken to the streets and brought the country to a standstill. He is boycotting the elections that are due to be held because the Pheu Thai will win again. Instead, he is demanding that the government resign and surrender power to a body appointed by the monarch. This is a ridiculous demand that makes a mockery of democracy and weakens Thailand’s still nascent institutions.

After making a faux pas in trying to give her brother Thaksin immunity, Yingluck Shinawatra has been willing to concede many of Thaugsuban’s demands except for ceding the power that she won at the ballot box. Hence, she has called for fresh elections and the election commission has given the green light. She will win but the prospects of a military coup or a judicial intervention robbing her of power seem strong. If current trends persist and the two sides are unable to reach a resolution, then Thailand’s unity might be in danger. In due course, the poorer northern part, including Chiang Mai and San Khamphaeng, and the northeastern region of Isan might become another country. The ultra-royalist establishment led by Thaugsuban is overplaying its hand.

Wang Yu-chi, chairman of Taiwan’s Mainland Affairs Council, is scheduled to fly to the mainland on February 11 to meet his Chinese counterpart, Zhang Zhijun, leader of China's Taiwan Affairs Office. This is the first official contact between the two rival states for six decades. They will discuss setting up representative offices in both countries, Taiwan's participation in international bodies, and issues pertaining to medical care of Taiwanese students in China. Wang declares that the aim of the talks is to create "a normal communication mechanism so as to avoid misunderstandings."

This is a welcome development in a region where tensions have been rising. Both Chinese and Taiwanese economies will gain from closer cooperation and lesser tension. While any talk of reunification is unlikely, a pragmatic coexistence might become the norm going forward.

The Philippine government and the rebel Moro Islamic Liberation Front have successfully concluded peace talks in Malaysia, which brokered the negotiations. The Moro insurgency began in the 1970s and has killed 150,000 people. The peace deal will end the instability that has exacerbated the poverty of the region.

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.


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