Envisioning trade and transit from Kazakhstan to Karnali

The Nepali text version of this article was published on a Birenderanagar based regional daily Sajha Bisaunee

An article published recently on the Diplomat reported on the progress of the joint Kazakhstan – China projects signed between the Republic of Kazakhstan and the People’s Republic of China (PRC) recognized under “Intergovernmental Framework Agreement on strengthening cooperation in the field of Industrialization and Investment”. Signed in 2015 between the two neighboring governments, the agreement pledges to fulfill 56 industrial capacity development projects of Kazakhstan worth USD 27.6 billion in industrial sectors listed as metallurgy, oil and gas processing, chemical industry, mechanical engineering, power engineering, transport, production of building materials and agro-industrial complex.

The framework agreement comes as a flagship development of Silk Road Economic Belt (SREB) apart from Urumqi-Tehran railway project and China-Pakistan Economic Corridor (CPEC) that aspires to connect and create industrial and trade corridors between Central Asia, Middle-East Asia, and China. As part of the framework, China vows to export is excess industrial capacity in primary commodity manufacturing and processing industries to Kazakhstan while it looks forward to climb the global industrial value chain by becoming the exporter and standard-setter of advanced manufacturing technologies in high-speed railway transport, telecommunication, medicine, and energy across Asia and beyond. In the meantime, Kazakhstan is likely to witness advancement in its processing technologies in oil & gas sector in along with other industrial capacity so in order to be able to diversify its industrial and export portfolio in various industrial and refined petrochemical products. Until present since 1997, nascent oil & gas infrastructure of Kazakhstan has only been able to export low-grade oil in exchange of processed gasoline and motor oil from China.

Most importantly, apart from industrial connectivity, trade development, and strategic economic ambitions, the purpose of China to invest on the framework agreement with Kazakhstan also reveals its geostrategic interest of diversifying its oil supply from sea-route to in-land based route. Regarding which, the article reports the signing of design contract for a new China-Kazakhstan cross-border LPG pipeline in May 2020 as part of the latest progress of the framework agreement. Not to mention, 11 projects of the agreement that relates with oil & gas sector have either completed, in progress, or is pledged to begin in coming years.

Burang city to Kasghar CITY via CHINA NATIONAL Highway 219

Amid the revitalization of the silk road era trade and transit interaction between Central Asia and China, certain benefit from it may as well be imagined for the countries across the Himalayas.Specifically, in the context of Nepal, one can conceptualize the likely possibility for the Karnali region to be able to establish trade and transit connections with the Central Asia-derived economic and trade ambitions of China. This conceptualization derives from the spatial observation that the Hilsa region of upper-Karnali appears to be less than 2000 KM from Kasghar city of Xinjiang Province of China from Burang City of Tibet connected by the China National Highway 219. Meanwhile, the Kasghar and Urumqi city recognized to be the spout of SREB is expected to be multifacetedly connected with the Central Asian capital cities including through the railways and gas pipelines.

This spatial observation is in fact the western aspect of what is dubbed as Trans-Himalayan Multi-connectivity Network (THMCN) that strives to find alternative tract for trade & transit possibility through the Trans-Himalayan route with Nepal being at the center. Meanwhile, the historic ten-pact trade agreement signed between China and Nepal in 2016 during the last visit of Prime Minister KP Oli to Beijing has allowed Nepal to take a leap forward towards realizing the revitalization of its own Himalayan silk road with upper-Karnali region being at the crux of this development.

Specifically, the first point of agreement to allow Nepal to use China to conduct third-country trade and import critical resources, and the second point of the agreement to construct, manage, and maintain the Xiawara boundary river bridge in Hilsa bordering China is what brings Karnali a step closer to be able to regionally find avenues to trade with Central Asia. Having said that, it even improves the chances for Karnali to be able to find its development trajectory independently from the central government. Least to say, such conceptual arrangement can be the difference between Karnali province finding its space in the dawn of trade, transit, and economic revitalization of in-land Asia through SREB and helplessly depending upon the grant of the central government to sustain the livelihood of Karnali known to have historically suffered the incidence of poverty in Nepal.

Moreover, the likeliness of Nepal to also be able to diversify its oil-importing sources also through in-land route from Kazakhstan via Western China by taking advantage of the said energy infrastructure projects between Kazkhstan and China can establish upper-Karnali or specifically the Humla district as the northern dry custom and storage point for petroleum products. In fact, extended trade with Western China and Central Asia through upper-Karnali can even establish the Humla district as the landlocked trade city or strategic hub facilitated by trade-conducive industries as freight & warehousing, banking & insurance within it. In the meantime, the surge in number of tourists from in-land Asia would naturally follow given the natural beauty and socio-cultural destinations throughout the Karnali corridor. Given that, the contribution of such transit connectivity can be phenomenal for the economy of the Karnali.  

While this Karnali-derived idea of THMCN to establish trade and transit linkage with in-land Asia might appear a far-fetched dream, it however should not be taken in a very light note. At least, the developments in Central and in-land Asia as part of the SREB efforts needs to be continuously watched while constantly deliberating the possible ways to integrate the Karnali region with economic momentum in the region to allow Karnali to find its alternative launchpad to economic growth. Suffice to say, the geostrategic significance of upper-Karnali to connect with West China and Central Asia should not be readily dismissed at present.  

The peculiar policy recipe of China in Xinjiang (that may not work)

The demographic composition of the countries around the world is often characterized by ethnic diversities with the prevalence of ethnic minorities vulnerable to socio-economic marginalization and discrimination. Such vulnerabilities have often resulted in minority populations resenting against their government mostly represented by ethnic majority.  On such account, addressing the grievances of the ethnic minorities has always been a challenging yet crucial task for any prevalent government given the sensitivity of the cause to determine the national harmony and peaceful rise of a country. Despite, world history has presented scenarios depicting severe mishandling of the resentment of the ethnic minorities by different governments in Eastern Europe and Central Africa leading to distressing events reckoning to ethnic genocide and mass-murder.

Nevertheless, every government maintains a peculiar method of resolving the grievances of ethnic minorities mostly based upon the political ideology they subscribe to. The responses of the governments can be as diverse as lately seen in the southern region of Asia. As such, the government of Nepal in its outfit of multiparty democracy constitutionally addressed the legitimate concerns of the Madhesi and Tharu ethnic minorities of Southern Nepal, while the military influenced democratic government of Myanmar instead committed atrocities against the Rohingya minority of the Rakhine state with military crackdowns.

On a similar note, the response of the government of the Communist Party of China (CPC) to address the resentment of the Uyghur Muslim ethnic minority in Xinjiang-Uyghur Autonomous Region (XUAR) of Northwest China maintains its own peculiarity as a method to culminate the ethnic tension relating to Uyghur minority.  Besides. the strategy of the CPC government to resolve this domestic conflict ignited from ethnic differences even maintains significance on the international scale as China gradually undertakes leadership in the diverse global society.

Peacebuilding resolution of the CCP government in XUAR

It has been well acknowledged that the CPC government is deploying a two-fronted resolution model in responding to the resentment of the agitating Uyghur Muslim minority to create a state of peace in the troubled XUAR. The model includes (1) pushing development and uplifting economic momentum in XUAR and (2) imposing heavy-handed security & surveillance mechanisms and stringent laws that even repress the cultural lifestyle of resenting Uyghur Muslims for the so-called cause of building sustainable peace in the very North-western autonomous region. On one hand, the government pledges to nourish and fulfill the population of this hinterland North-western province with economic prosperity by promoting industrialization, sectoral development and establishing XUAR as the strategic midpoint of the government’s flagship Silk Road Economic Belt (SREB) program. While, on the other hand, the communist government deploys repressive interventions as tight security checks, intensive surveillance measures, and control on religious-cultural life of the Uyghur ethnic population in XUAR to eliminate the threat and occurrence of security crises known to be erupting from the ethnic cause.  More or less, this peacebuilding resolution of the CPC government resonates with the strategy of connecting the minority ethnic population of the isolated western provinces of China with the core economic value-chain of the country mostly limited to the prosperous eastern provinces. Such is however packaged with forcible seclusion of the very minorities from their own distinct cultural and religious values that are distortedly believed to keep them away from submitting unconditionally to the Communist principles of China devised by the CPC.

How CCP perceives the XUAR ethnic crisis and the Carrot-Stick resolutions with which it believes it can contain such

 

Beholding the criticisms

Amid the peculiarity of this two-fronted resolution mechanism, it has received multiple criticisms that disregard the success of this strategy for the CPC government to maintain harmony with the Uyghur ethnic minority to secure ultimate peace in XUAR. Some critics fear the potentiality of these repressive methods that denies fundamental cultural rights of ethnic minorities to backfire as it may rather “risk fanning the flames of resentment that energize extremism” in marking the words of Ben Hillman of Crawford School of Public Policy from his article published in the East Asia Forum. Others including the spokesman of World Uyghur Congress, Alim Seytoff believe the authoritarian development push in XUAR to rather bring more repression for native Uyghurs.

Besides, the chances for the government’s infrastructure and economic programs in XUAR to reach the marginalized Uyghur community are also meager. With XUAR in along with other western provinces of China acknowledged to be least economically liberal in compared to other eastern provinces of China as per China Economic Research Institute’s Free Market Index, the possibilities for the centrally planned economic programs for XUAR to narrowly fall within the clutches of government bodies, State Enterprise, and individuals with political mileage is rather significant.

It is safe to conclude that the CPC government must have remained insensitive and oblivious to the actual needs of the situation and of the opposing Uyghur ethnic minorities that reside in distance from Beijing. In its attempt to build harmony with the ethnic minority mostly composing the demographic structure of this North-western autonomous region, the Chinese government must have instigated a naïve strategy to forcibly draw patriotism of the ethnically distinct Uyghur minorities towards the atheistic Chinese nationalistic values while exclaiming unconsulted development initiatives at XUAR as the consolation prize.

 

Underperformance Back-to-Back: Gross Fixed Capital Formation

The simplified version of this article was published in The Kathmandu Post on 26th August, 2016

The preliminary Economic Survey Report for FY2015/16 yet again makes the same old assertion regarding the economic performance of Nepal by exhibiting the underperforming state of capital expenditure that has been hampering the real economic growth of the country since multiple years. It is of no surprise that yearly Gross Fixed Capital Formation (i.e., an indicator of Investment expenditure) is again below the required criteria warranted for the Nepalese Economy that is characterized with considerable Capital/Infrastructure deficit and strong potentiality of Marginal Productivity of added Capital (MPK). As I mentioned, it is reasonably legitimate to recognize strong potentiality of MPK of Nepal on technical grounds as it is categorized as a low-income country with Gross Capital formation way below the steady/optimum level of Capital (refer Fig 1 to know steady level of capital).

Statistically speaking, the Gross Fixed Capital Formation (GFCF) for FY 2015/2016 in basis to preliminary Economic survey conducted by Ministry of Finance (MoF) was NRS 562,458 Million, which only makes up to about 25% of the GDP for the FY2015/16 (MoF, 2016). However, in midst of this statistical figure, Sapkota (2016) draws the minimum threshold for GCFC (% of GDP) of about 30% in order to boost required real economic growth of the country that can uplift per-capital income and generate further employment based on Investment Expenditure. On this regard, the negative disparity between the required Gross capital formation and acquired Gross Capital formation in terms of %GDP is numerically observed, whereas the felt observation of this deficit is highly relevant as every layman can relate the lack of adequate infrastructure as major barrier to national progress.

And only to bolster this argument regarding the state of Capital formation deficiency in the Nepalese Economy, we can always refer the graphical comparison of GCFC (% of GDP) of Nepal with the average of low-income countries in last 8 years that is being developed by retrieving data from World Bank’s database and Economic Survey Report 2016. Since the countries belonging to the low-income category (inclusive of Nepal) share the common resolution (i.e., more Investment expenditure) to fuel growth, the comparison is relevant to recognize relative performance of Gross Capital Formation in Nepal.

As it can be observed from the provided comparative graphical representation, the GFCF (% of GDP) of Nepal fell below the average of its kind in last couple years even though it appears to be in the trend of reconvergence. Whatsoever, the GCFC (% of GDP) of Nepal is considerably below the minimum threshold of 30% recommended for the nation’s real economic growth by Sapkota (2016).

If dug down deeper regarding the component of the Gross Fixed Capital Formation of the Nepalese economy, it is surprising to discover wide inequality in the volume contribution of Private Fixed Capital investment and Government/Public Fixed Capital investment throughout the timeline. This figure stays put even though the planned expenditure commitment of the Government is ballooning (The FY 2016/17 budget crosses NRs 1000 Billion) in midst of huge required role of Government to fund Infrastructure development. While the ratio of Private Contribution on GFCF to Government Contribution was about 3.23 times in FY2015/16 as per the Economic Survey 2016, the wide difference in contribution of the two parties through the period of 8 years is exhibited in comparative contribution graph developed below.

In observing the stark difference in contribution towards Gross Fixed Capital Formation by two parties throughout the timeline, it would be reasonable to conclude the underperforming role of Government in inhibiting the growth of GFCF/GDP ratio while the leading role of Private party even in midst of not so friendly regulatory environment exhibits strong enthusiasm. The persistent low absorption rate of the Government budget hovering at about 75% as per Sapkota (2016) due to lagging delivery capacity of the performing stakeholders appears to be relatable to observed underperformance from Government side. On the flip side, the minuscule role of Government in economic affairs might seem reasonable to allow the Free Market system take hold. But, given the huge output gap in merit and social sectors (as Public Infrastructure, Health and Education sector) in our underdeveloped economy that cannot be fulfilled by Private party due to lack of excludability and rivalry features of the sectors, Government is sought to be primarily and emergently responsible to close this output gap (Singh, 2015). And therefore, the demand for larger role of the government/ Public party in Capital formation is legitimate. Besides to it, Sapkota (2016) also recommends jacking up of the Public Fixed Capital Investment (% of GDP) to 10% (presently at 5.9% as per Economic Survey Report) further bolsters the argument for needed higher Public role in Capital formation.

Theoretical Consideration connecting Gross Fixed Capital Formation (GCFC) to National Income (Y) growth:
                  The pattern of statistical data definitely recognizes the Government/public sector as culpable in observed underperformance of Capital Expenditure/Gross Fixed Capital Formation. And as certain level of GFCF is recommended to achieve real economic growth in this paper, there of course is theoretical model to support the causative relationship.

Theoretically, the Solow Growth Model (i.e., an important aspect of classical economics) acknowledges the relationship of National Income per worker (y) with Stock of capital per worker (k) to be y = √k. While holding other ingredient of production (importantly labour (l)) constant, Solow Model, with support from Cobb-Douglas production function has come to this causative relationship that remains valid regardless of the size of the economy based on labour (l) size. Moreover, while this positive causative relationship between some form of National Income/GDP (Y) and Capital stock (K) remains valid, the function is only valid unless an economy reaches the state of steady/Optimum level of capital. Essentially, an economy reaches a steady/optimum level of capital when further addition in-Investment expenditure for capital formation is cancelled by equal unit of accumulated depreciation causing null change in Capital stock/formation (i.e., ∆k = 0). Obviously, the Nepalese economy from every lens is way below steady level of capital, thus it leaves considerable leeway for Capital formation and National Income/GDP growth before it reached steady/optimum level of capital.

given figure recognizes the steady of level of capital at k* at which the economy remains at equilibrium. The goal of every rational economy (including the Nepalese economy) is to reach the steady level of capital (Golden level of Consumption). On a rough guess, Nepalese Economy possibly lies closer to “0” than “k*” at the moment. And, the resolution to it higher Gross Fixed Capital Formation coupled with higher GGCF (% of GDP).

References:

Ministry of Finance (2016). Economic Survey Report 2016. Government of Nepal.

Singh, S.K. Dr, (2015). Public Finance in Theory & Practice. 9^th Ed. S.Chand Publishers.

Sapkota, C. (23 May 2016). Why capital spending is chronically low and what can be done about it. The Kathmandu Post.

World Bank (2016). Gross Fixed Capital Formation (% of GDP). World Bank Group.

Theoretical Foundation:
Mankiw, N. (2010). Macroeconomics (7th ed.). New York, NY: Worth.

SIMPLIFIED OUTLOOK FOR 2014

So, it’s New Year 2014. With this public fuzz of #NewYear, I just remembered a very unpopular proverb that says,” It takes a second to change your mind to change your life, or even a decade might not help, If your life sucked on 31^st December of the year, it’s probably not going to get abruptly better on 1^st January of another year”. Post Script: I just created this proverb!!!

Anyway, so what’s up in this New Year this time? Well, it depends on the stuff that makes you up when it’s up. And for general investors who would want to profit out of stocks, bonds, commodities and currencies, may be I’ve some comments to make. Well, how about putting it as 7 point changes that are going to happen in this year that adds to 7 (2+0+1+4 = 7)? Right on, right?

In here, I’ve gathered these predictions out of comments that were made by various analyst and strategist, and also on basis to my personal analysis. And, the good part is that I am presenting the predictions in a simplified manner.  So here it goes:

1. As the Federal Reserve has started its bond purchase tapering program as announced to be started this January, the interest rate on treasury notes has started to rise gradually, (10 years Treasury note has already risen to 3% approx from 0% approx) and will definitely keep rising. Therefore, even though the bond prices may gradually slow down, the appealing interest rates on the treasury notes shall definitely pull some money out of the equity market (especially from stocks of whose return are to get beaten by the rising rate of treasury notes) towards the treasury notes, thus creating a new normal in Bond and Stock market without the presence of the Fed. In other words, we might eventually see lower averages in American Stock market.

2.  The interest rates rise shall be well felt on mortgage rates as well. And hence, the home prices are going to get cooled off a bit. However, Fed is definitely wary of avoiding another housing recession.

3. Since the Dollar currency shall gradually increase after Fed decelerates on money printing, Dollar shall again regain its status as an attractive currency, thus pulling investments out of emerging economies in Asia and South America. The capital outflows in America shall logically drop the exchange rate of currencies of emerging economies. Indian Rupee, Indonesian Rupiyah, Korean Won, Brazilian Real are some of the currencies that might be observing a harder hit from this mechanism.

4. Since Gold is another alternative to Dollar in along with Emerging economy’s currencies, we might be observing lower long-term average in Gold ETFs as well.

5. Dollar-Yen dynamics is going to observe its record high spread in the nearer future. As the Federal Reserve of America has started its tapering program, the Japanese economy under the theory of Abenomics has instead demanded Bank of Japan (BOJ) to start its monetary stimulus program. Meanwhile, some analyst predict Dollar-Yen spread to break the level of 125 (i.e. 1 Dollar = 125 Yen). Currently, the spread is hovering around 105. Relatively, the decade long stagnating Japanese Export based Economy is expected to observe higher economic growth following heavy stimulus program coupled with accelerated Government spending.

6.  Japanese stock markets (esp. NIKKEI and TOPSI) are expected to see rising trend as profits of Japanese companies (highly dependent on export market) are going to observe rising profit out of rising sales. In fact, the glimpse of it has already been observed. However, under the long-term economic principle, I personally think the rising profits of Japanese Companies might start cooling off a bit, as soon as, imported inputs (esp. Fuel) start becoming more expensive for Corporate economy.

7. It’s hard to say how the upcoming banking union in European Union (EU) is going to fare the European Economy. I find it as a new economic experiment. However, since most of the struggling economies of Euro Zone have started seeing better economic outlook with increasing consumption confidence, better outlook is reserved for Europe in 2014.  Previously troubling big economies, i.e. Spain and Italy have started seeing better outlook, whereas French Economy has surprisingly started to observe a falling trend. Besides, German Economy has always been good as ever.

This Simplified prediction is compiled and developed by Prience Shrestha by acknowledging the views of analysts and strategies of Reuters, CNNMoney, CNBC, and The Financial Times. The author takes no responsibility of losses that are being incurred by the investment decisions pronounced under the prediction provided.

BLACK BERRY RESURRECTION: CASH FLOW MASTERING

As a strategy behind Blackberry resurrection, after it had cancelled its grand plan to sell itself to a potential buyer, the losing company has made a winning unconventional deal with the giant electronic subcontractor Foxconn to delay the payment for inventories unless the devices are sold to the downstream customers (Reuters, 2013). In addition, Foxconn agrees with Blackberry to assume the risk of write-downs of the unsold devices while gobbling in (as remuneration to risk taken) the share of profit made in each device sold (Reuters, 2013). However, it is definite that the remuneration doesn’t replace the usual payment due for the manufacturing works.

Through general analysis, it can be acknowledged that this particular Foxconn deal will put Blackberry in advantage in regards to write-down risk handling and cash cycle gap financing cost. Currently, the despair state of Blackberry is forcing it to absorb high amount of write-downs of its unsold devices, and therefore, this write-down risk transfer deal would definitely heal the company where it could hurt the most. Besides, the postponing the payment of the device production cost unless the device is sold to the downstream customers has definitely narrowed down Blackberry’s operational cash-cycle in order to allow it to reduce the financing cost of the payment gap (the time gap between the time it pays out for its production cost and the time it receives payment for it, including profit). Moreover, the deduction in necessity to maintain high level of liquidity reserve in order to finance the current level of payment gap would also strengthen the ability of the company to service its short-term costs and investments in order to improve its operational efficiency. Comprehensibly, Blackberry currently might be taking high level of cash-flow stress due to considerable write-downs of the devices and cash freezing inventory glut that disables the company to even cover its production and operational cost of each device. And therefore, the decrease in short-term financing stress after the Foxconn deal to narrow down the cash-flow cycle and redeem the company from device write-down cost is big enough to enable the company to turnaround its cash flow position. Furthermore, the profit-sharing scheme in Blackberry-Foxconn deal will hedge the phone company from remunerating the electronic subcontractor for risk taken during the times of operational loss.

All in all, it’s a savior deal for Blackberry. Thanks to John Chen, the new CEO of the phone company for succeeding the deal.

REFERENCE:

Reuters (2013). Blackberry Steps Back on Handset Busienss, Shares Jump. Thomson Reuters

FIGURES:

Blackberry’s current operating cycle:

 

 

 

 

 

 

Blackberry’s potential operating cycle after Foxconn deal:

 

 

 

 

The following operating cycle may not completely reflect the actual operating cycle of the company due to lack of complete information on Blackberry’s operation strategy. This figure only tries to reflect potential decrement in cash-cycle as the payment for inventory defers for Blackberry.

WATCHING UKRAINE: THE BID FOR UKRAINE (EUROPEAN UNION Vs. RUSSIA)

The last attempt by the Ukranian President Viktor Yanukovich to push the political-economic fate of the country towards Russian Custom Union by backing out of the proposed EU pact was definitely sensational in a way it reflected the competition among the two big international union blocs to incorporate new members especially the second biggest Former Soviet Economy, Ukraine (Reuters, 2013).  Both union blocs have offerings to make to Ukraine if it would join forces with any of the union pacts, which essentially remains mutually exclusive. EU automatically has to offer Ukraine the kind of economic , monetary and political benefit that accompanies after being integrated into the EU economic system along with $837.56 million as debt structuring support whereas, Russia promises cheap loans worth $15 billion!! and cuts in price of gas that Ukraine imports from Russia if it chooses to enter the Russian led Custom Union in along with Kazakhstan and Belarus (Rueters, 2013) . However, Fuele, the European Commissioner for Enlargement and European Neighborhood policy, regarded this situation of being interlocked in a bidding war against Russia to incorporate Ukraine as disappointing in nature (Reuters, 2013).

KNOWING THE BASICS OF EUROPEAN UNION (EU) AND EURASIAN ECONOMIC COMMISSION (EEC):

Before we make further comments or analysis on behalf of this issue on hand, it would be better to acknowledge the nature of the custom-unions that Ukraine could choose to integrate in near future. Basically, European Union is simply more than a Custom-union and is also an economic and political union till some extent (Rourke, 2003). EU has its own representing existence in agreements like WTO and UN, and the economy of most of its member nations run on single monetary unit, Euro which is monitored by the European Central Bank (ECB) (p. 235-238). Since it contains its own Legislative and Judicial branch, it remains as one strong political union bloc over its member nations (p.238). However, on the other hand, the Custom Union of Russia, Kazakhstan and Belarus is a rising economic pact led by Russia in order to advance economic integration amongst Former Soviet Union (FSU) (Dragneva & Wolczuk, 2012).  Though the Custom Union, also regarded as Eurasian Economic Commission (EEC) contains its own laws and a judicial branch (EEC Court, alike to the Court of Justice of EU) to enforce the rules and agreements, the decisions inside the bloc has mostly settled after bilateral talks with Russia (p.7).  All in all, EEC is perceived to be in a delicate state in which practical enforcement needs bolstering.

SUSPECTING RUSSIA’S SOVIET REUNION AMBITION:

Part of Kremlin-Moscow

Even since the inauguration of Eurasian Custom Union (ECU) (the former version of EEC) between Russia,Kazakhstan and, Belarus, the western world has remained skeptical of Russia’s effort to reunite with its FSU members to become another stronger political hegemony in the world stage.  In fact, the Russia’s consideration of advancing the fate of EEC to Eurasian Economic Union (EEU) by integrating most of FSUs as its major political agenda is concerting to this very presumption (Dragneva & Wolczuk. 2012). In addition, the way that the US Senator John McCain regarded the interest of Russia in internal affairs of Ukraine as unacceptable evidentially exhibited skepticism from republican side of the past Russian rival over Russia’s Soviet motives (Reuters, 2013).

Moreover, the application of hard lined Carrot and “Stick” approach of Putin to lure Ukraine on Russian side conveyed exceptional desperateness of Russia to fulfill its potential more sensitive political agenda rather than simply some mutually benefiting economic agenda (Reuters, 2013). Besides, the undermining of the fact by Putin regarding the net-benefit that is reserved for Russia  in letting Ukraine get into the EU coalition by having a neighbor under the facilitation of European trade, finance and investment support reflects minimum interest of his agenda towards the economic development of the nation itself and the neighbors. What else could be the major motive of the Putin’s integration agenda then?

EUROPEAN UNION, STILL PEOPLE’S FAVORITE:

Many of us imagine Ukraine as a disturbed post Soviet nation. But after checking out the beauties of the country including “The Tunnel of Love”,. Minds have to change

Popular disdain against EU’s proposal had gathered as it (EU) had directed debt ridden EU member nations, mostly Greece, Ireland, Portugal, Spain and Cyprus with heavy austerity measures in order to succeed bailout packages in 2010-2012 (CNN, 2013). Massive popular protest had become a common subject in the street of such nations that constantly exerted their disagreement and disappointment against the painful conditions proposed by the EU government.  However currently, not to everyone’s surprise, the majority of the Ukrainian citizens from the west and Central Ukraine heavily protested in Keiv (the capital of Ukraine) against the effort of the Prime Minister Yanukovich to settle its faith with the Russia rather than the EU (Reuters, 2013). Though not popularly discussed, it surely was a form of win for the EU in its “impression test” over the citizens of its potential member nations. The success of EU to keep its debt drowning nations afloat and preventing with drawls of any of its current member nations in the last European crisis has definitely resurrected public faith of the member nations and potential member nations over the EU government. The current mass Ukrainian citizens’ protest is definitely a vivid evidence of it.

REFERENCES:

CNN (2013). European Debt Crisis Fast Facts. CNN. Retrieved from

Dragneva.R & Wolczuk. K (2012). Russia, the Eurasian Custom Union & the EU: Co-operation, Stagnancy or Rivalry. Chatham House.

Reuters (2013). Russia Eyes Loan, Gas Deals to Keep Ukraine in Its Orbit. Retrieved from: Thomson Reuters iOS application.

Reuters (2013). EU Suspends Trade Talks with Ukraine, Crowd Rally. Thomson Reuters iOS application.

Rourke, T.J. (2003). International Politics on the World Stage, 9^th Ed. International Organization: The Alternative Structure. Mc Graw Hill.

THE TALKS OF THE COMMONS: SHOULD PROGRAMMED BOTS REPLACE THE THINKING HUMAN IN US MILITARY?

All this discussion came out from the recent Ryan-Murray budget conference decision that endorsed slashing of 1% in the cost of living adjustment for the US Military veterans who were below 62 yrs in age and were not disabled by any means. According to CNN and every other mainstream media, the veterans group were very disappointed by this budget decision as they confirmed it as being betrayed by the very government they had served in the past (CNNMoney, 2013). However, this bill is yet to be approved by the GOP under certain expressed criteria (Committee of the Budget, 2013).

Meanwhile, I, the initiator of the discussion along with my Colleague, M/s Yangchen Gurung, studying International Politics and Comparative Politics started talking about the ramification of replacing human soldiers with bot soldiers in order to at least trim down the welfare services and benefits that are due to the US soldiers when they retire due to disability or oldness and become veterans. Most of us have observed the deployment of bot soldiers in Sci-fi futuristic movies in order to strengthen the offensive and the defensive force of the battalion, and is even somewhat replicated in the real-world scenario by the defense force of the developed west (the American and the wealthy Europeans) mostly for the very purpose. But how many of us would think about the deployment of the bot soldiers in order to optimize the cost-effectiveness of the defense program? Well, the purpose seems quite logical under the current state of US government running under tight budget to cut down spending wherever feasible including defense program. In fact, this replacement idea relies on the assumption that welfare expenses related to Veteran benefits makes a major chunk of the defense spending for the US government and the proposed replacement program might just cut major chunk of the total defense spending in aggregate without compromising on the National security.  In order to at least support a portion of my assumption, even Paul Ryan, the chief of the budget committee regards veterans’ welfare program as one of the costly exceptionally generous program that benefit soldiers for next 40 years on behalf of only 20 years of contribution that they make (CNNMoney, 2013). And the point is, until live soldiers are risking their lives on the battle field, this exception is logical at least under the perception of the disappointed Veterans’ group. But until they aren’t the live soldiers performing on the field, it might definitely be less logical.

The United States spent more on its military than the next 13 nations combined in 2011
Adapted from:  The Washington Post

The 21st century “War against Terrorism” drive initiated by America to deploy forces in Iraq and Afghanistan cost the country dearest in its history. The defense spending hike was phenomenal
Adapted from: The Washington Post

However on the other hand, my colleague would question the idea of replacing the thinking human machine with the artificial programmed machines as she rightly drags down the recent unintended innocents casualties undertaken by unmanned US Drones in Pakistan and Yemen (Reuters, 2013). In addition, she considers the current level of costly US Military occupation in Middle-east and other parts of the world as unhealthily more than necessary in regard to the budget shocks that the country is taking on behalf. She puts forth the reality of austerity the nation is being compelled to absorb in the matters related to social security, basic living and healthcare assistance reserved for the underprivileged and even the normal American citizens due to overspending in international interest fallaciously called upon under the preservation of National security. She connotes the US Congress as an irony that doesn’t sees the real national threat that is being caused in the public socio-economic health of the nation out of budget deficit and its so-called antibiotic measures. Therefore, she highly supports her perceived most logical idea of cutting down on global military deployment  rather than to force spending cuts on any sort of welfare programs including veterans’ by consulting other riskier ideas including replacement of welfare costing human soldiers by so-called use and throw kind bots and drones lethal forces.

In Summary, I am trying to envision a program that would shuffle allocations inside the defense program that would make it more cost-effective and allow more room for further cuts without compromising on the quality of the program under the assumption that I had made above. In addition, I still respect the public social welfare programs (except that I am urging a gradual slash in the veterans’ welfare programs as there wouldn’t be a claimant under their gradual replacement), and even support it as my idea may even imply expanding the budget pie for non-defense programs as the defense programs become more cost-effective.  Conversely, M/s Yangchen regard proliferation of such common sense lacking devices in notoriously sensitive areas like battle field as riskier until now or nearer future while observing the latest past implications. On top of that, she strongly considers the current level of US Military occupation as excessive and deserving of cuts for the betterment.

 

REFERENCES:
CNNMoney (2013). Military Retirees: You betrayed us, Congress. Retrieved from: http://money.cnn.com/2013/12/12/news/economy/military-pensions-budget/index.html

Committee of Budget (2013). House of Representatives: Committee of Budget. Retrieved: budget.house.gov/news

Reuters (2013). Yemen tribesmen protest against drone strikes. Retrieved from: http://uk.reuters.com/article/2013/01/04/uk-yemen-drones-protest-idUKBRE9030J920130104

Washington Post (2013). America’s staggering budget deficit in Charts. Retrieved from: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/07/everything-chuck-hagel-needs-to-know-about-the-defense-budget-in-charts/

FURTHER READS:

The Economist (2013). Robots go to War: March of The Robots. Find at: http://www.economist.com/node/21556103

US UNEMPLOYMENT INDEX: RECOVERY DELUSION

U.S. unemployment data figure in November month was perceived to be very cheerful as it dropped to five years low of 7.0% this November (Reuters, 2013). This sign of easing unemployment figure implied recovering U.S. economic health as it was being widely pronounced in American mainstream media like Reuters, CNBC and CNNMoney. A prominent economic analyst even recognized this economic result as Christmas showing up in November. However, the one-third of the Nobel Prize winning economists, Fama, who also predicted possible world economic recession in 2014, regarded this unemployment figure as delusive and false (Reuters, 2013).

Astonishingly, the conclusion of this Nobel Prize winner is not so complicated and reclusive. Instead, his thought amplifies and applies the basic principle of unemployment rate calculation method that has always been unnecessarily prioritized in determining the economic health of any free-economy. Least of us realize that unemployment rate is a dubious index that doesn’t integrate the socio-economic health of the economy that is being influenced by the prevailing joblessness. Factually, the index of Unemployment rate only includes population that are actively searching for jobs in its base value by strictly ignoring the ones who are passive irrespective to their hopelessness or impossibility in finding one (job) (Mankiw, 2009). On top of that, as a economy falls into stagnation or deflation for a long period of time (resembling the economic state of America), the jobless individuals who were previously classified as unemployed starts losing employment hope and prefers to exit the labor force. Ultimately, the labor force number starts to decrease in along with the number of unemployment population and thus it presents the picture of falling unemployment rate during recalculation even though no economic progress had been made. The fallacy occurs under this prevailing method in calculating the unemployment rate.

Unemployment rate

Labor force = Number of employed adult + Number of unemployed adult

(For instance, if an economy previously had unemployment number of say 3 Million and the employment number of say 5 Million, then the unemployment rate shows 35.5%. However, in case the 2 Million unemployed citizens decides to drop from the labor force due to further hopelessness to find job due to prevailing long term depressive economy, then, the unemployment number is 1 Million and the employment number is 5 Million again. In such case, the unemployment rate drops to astonishing 16.67% even though the economy observed no progress at all!!!)

However, in virtually all of the real economy including the U.S. Economy and other developing and deflating economy, the citizens who don’t belong to the labor force or choose to exit are are not acting  on best will. So, it is not an economic progress at all. In fact, they have either chosen to opt out from the potential labor force mostly because they see no sign of hope in actively remaining in it and have thought to compromise in their quality of life under the dearth of continuous income. Ironically, the other excluded job economy index called the labor force participation rate is rather truthful about the employment health of any economy. The way it comprises all adult population of the nation in its base value more reflects the socio-economic reality of an economy (Mankiw, 2009).

Labor force participation rate

The good side of the labor participation rate is that it’s calculation mechanism is insulated from the fallacy that can happen out of adult population leaving the labor force against best  interest. The logic of this index accurately expresses the depressing trend of the economy as soon as such exiting trend is discovered. After all, the labor force number at the top decreases while the adult population number remain the same after such activity occurs. And hence, the recalculation procedure presents the picture of bitter economic truth. However, it is surprising regarding why the unemployment rate index is still designated with more priority in reporting the economic health of any economy against labor participation rate index.

This particular issue is not only limited to the state of U.S. Economy data reporting style but also applies to almost all other economies. I have only thought to signify the current reported unemployment figure of United States due to its relevant association with the issue on hand.

REFERENCES:

Reuters (2013). Unemployment Rate Hits Five-Year Low, Eyes On the Fed. Retrieved from: Reuters.com

Reuters (2013). Nobel Economics Winner Fama Says Risk of Global Recession in 2014. Retrieved from: Reuters.com

Mankiw.G (2009). Unemployment. Economics: Principle and Application. Cengage Learning.

WATCHING INDIA: CHANGE CALLS (ECONOMIC REORGANIZATION)

Indian Agrarian Economy

Lately, the Bali Round of the WTO member meeting faced a heated debate regarding the clause relating to Agriculture subsidy and food security. The debate represents the conflict of interest between the developed nation and the developing nation of the world on one of the matter. The rich or the developed nation called for the cancellation of Subsidy program in agriculture and food whereas, the developing nation as led by India denied any form of change in subsidy program due to its delicate nature. The representing trade Minister of India, Anand Sharma regarded such subsidy program to be socio-politically imperative in order to protect the vast amount of poorer population of India who either cannot purchase basic food on market price or relies on traditional agricultural practice to make their living (Reuters, 2013).

From this important excerpt from the latest WTO talks, we come to acknowledge that the Indian Government still supports the tradition agrarian economy that instead limit the nation into the category of a developing one.  Besides, the heavy amount agriculture subsidy that Indian government provides for the protection of the wide number of poor traditional farmers of the country has definitely cost the country with alarming budget deficit of around 4% of GDP in 2013 (Reuters, 2013). In fact, the soaring budget deficit, partially caused by the increased amount of subsidy including fertilizer subsidy in along with falling rupee value has put the nation under high economic pressure (Reuters, 2013). Ideologically, it is beneficial for India to break through this conservation economic ideology in order to slowly scrap down this agriculture subsidy in order let go off this very inefficient subsistence based agriculture economy in order to let the free-market policy take its lead.  As of now, it is understood that India has been taking healthy growth rates in sector of telecommunication & IT, financial service, Manufacturing, Aviation etc in order to absorb the unemployment shock that can appear as soon as the government start dumping the troubling subsidized agriculture economy. In fact, under the basic principle of free-market, the subsidization of the traditional agriculture practice in terms of cheap fertilizer, and other concession on irrigation infrastructure can be rather sought culprit for the below par efficiency level of this sector.

On the hand, this transition should definitely be one of the hardest changes that any nation has taken after all it should definitely call upon multiple civil revolution from the middle to low class income group population. However, strategic effort by the government and the Non-governmental agencies in a steady manner could definitely sought minimum distress from the affected group. Increasing the employability of the previous subsistence farmers or would-be subsistence farmers (i.e. the under privileged children of the farmers) into multiple other modern sectors through education and other assistance should smoothen the transition that should operate under the dynamics of free-market economy. In fact, concentrating on flourishing the modern agricultural practices should also enable currently subsistence farmers to be independent of government subsidies in order for this sector to become the boon rather than the curse for the national economy. However, this practice should take India multiple decades in order to brew results if done strategically, But on the other hand, it is the ultimate requirement for the nation to enter the world of developed economy by cutting off the major chunk of poverty as the nation is already doing better in other sectors.

References:
Reuters (2013). India Warns U.S. Over Food Stockpiling as WTO deal goes down to wire.

Reuters (2013). Exclusive: India Eyes $15 billion Rollover of Subsidy Costs into Next Budget.

Asia Times (2013). India Facing Current Account Deficit Bulge. Retrieved from: http://www.atimes.com/atimes/South_Asia/SOU-02-260713.html

 

WORLD TRADE ORGANIZATION: TOO BIG TO SUCCEED???

Lately it had been assumed that the existence of block multilateral trade pacts like Trans Pacific Partnership Pact (TPP) involving countries belonging to Pacific region, and Trans-Atlantic Trade and Investment Partnership (TTIP) involving United States of America and European Union (EU) threatens the existence of the more constituting IGO body World Trade Organization (WTO) (Reuters, 2013).  This 159 nation member largest trade bloc is understood for its historic failure in succeeding agreements incorporated in its Doha round its GATT in 2001. The constituting of large number of member nations belonging to Less Developed Countries (LDC), Highly Developed Countries (HDC), and Newly Industrialized Countries (NIC) having to reach a uniform deal can be regarded as a major gridlock for consensus crisis in WTO. Ironically, WTO has been an official representation of the issue that the interest of Rich and Poor nations do not coincide. Considerations regarding agricultural subsidies, food security, Industrial laws and Intellectual Property (IP) rights have often remained critically controversial among the developing and developed countries participating in WTO talks.

Meanwhile, the director of WTO, General Roberto Azevêdo, acclaims the continuous establishment of regional multilateral trade blocs as a fuel to WTOs obsolesce (Reuters, 2013). He reckons such new comer trade pacts as redundant and unnecessary. He regards the issue put forth in WTO talks as doable and constituting of international trade issues potential and prevalent in every region of the world.

The constituting of economically and ideologically like nations in regional multilateral bloc can be regarded as a major advantage for such blocs to mostly come under consensus. However, the state of WTO is pretty much different as it includes nations irrespective of their economic and ideological identity, in fact, even contradicting. Therefore, it creates faulty doubt if bigger International agenda based organizations are worthwhile and workable, and whether regional organizations that cleverly constitutes alike participant are rather progressive at least to promote international trade.  Ideologically, a sensational deal is a one that was always hard to hammer down. And, Doha round and other agreements comprises of rocky issues regarding Agricultural protection, Industrial facilitation, Intellectual Property Rights, labor laws, Tariff barriers etc that needs to be agreed upon by 159 ministerial members that even support contracting ideologies in almost every ground. Therefore, the WTO’s progress should not be solely judged in basis to the success results that it has achieved, but also in basis to the consensus that had been brought together in every meeting. Obviously, it is relatively easier for regional trade pacts with homogenous constituencies to come under uniform deal much reliably than the one that isn’t. The pre-conditions governing WTO and other homogenous regional trade bloc are pretty much different and therefore should not be compared with common perspective. Ultimately, the success of such regional trade bloc doesn’t totally fulfill the purpose of WTO and rather retains a different significance.

REFERENCE:
Reuters (2013). Multiple issues on WTO. Retrieved from: Reuters.com

World Trade Organization (2013). The WTO in Brief. Retrieved from: http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr03_e.htm