Emerging economies - The Great Deceleration

The emerging-market slowdown is not the beginning of a bust. But it is a turning-point for the world economy

WHEN a champion sprinter falls short of his best speeds, it takes a while to determine whether he is temporarily on poor form or has permanently lost his edge. The same is true with emerging markets, the world economy’s 21st-century sprinters. After a decade of surging growth, in which they led a global boom and then helped pull the world economy forwards in the face of the financial crisis, the emerging giants have slowed sharply.

China will be lucky if it manages to hit its official target of 7.5% growth in 2013, a far cry from the double-digit rates that the country had come to expect in the 2000s. Growth in India (around 5%), Brazil and Russia (around 2.5%) is barely half what it was at the height of the boom. 

Collectively, emerging markets may (just) match last year’s pace of 5%. That sounds fast compared with the sluggish rich world, but it is the slowest emerging-economy expansion in a decade, barring 2009 when the rich world slumped.

This marks the end of the dramatic first phase of the emerging-market era, which saw such economies jump from 38% of world output to 50% (measured at purchasing-power parity, or PPP) over the past decade. Over the next ten years emerging economies will still rise, but more gradually. The immediate effect of this deceleration should be manageable. But the longer-term impact on the world economy will be profound.

Running out of puff

In the past, periods of emerging-market boom have tended to be followed by busts (which helps explain why so few poor countries have become rich ones). A determined pessimist can find reasons to fret today, pointing in particular to the risks of an even more drastic deceleration in China or of a sudden global monetary tightening. But this time a broad emerging-market bust looks unlikely.

China is in the midst of a precarious shift from investment-led growth to a more balanced, consumption-based model. Its investment surge has prompted plenty of bad debt. But the central government has the fiscal strength both to absorb losses and to stimulate the economy if necessary. That is a luxury few emerging economies have ever had. It makes disaster much less likely. And with rich-world economies still feeble, there is little chance that monetary conditions will suddenly tighten. Even if they did, most emerging economies have better defences than ever before, with flexible exchange rates, large stashes of foreign-exchange reserves and relatively less debt (much of it in domestic currency).

That’s the good news. The bad news is that the days of record-breaking speed are over. China’s turbocharged investment and export model has run out of puff. Because its population is ageing fast, the country will have fewer workers, and because it is more prosperous, it has less room for catch-up growth. Ten years ago China’s per person GDP measured at PPP was 8% of America’s; now it is 18%. China will keep on catching up, but at a slower clip.

That will hold back other emerging giants. Russia’s burst of speed was propelled by a surge in energy prices driven by Chinese growth. Brazil sprinted ahead with the help of a boom in commodities and domestic credit; its current combination of stubborn inflation and slow growth shows that its underlying economic speed limit is a lot lower than most people thought. The same is true of India, where near-double-digit annual rises in GDP led politicians, and many investors, to confuse the potential for rapid catch-up (a young, poor population) with its inevitability. India’s growth rate could be pushed up again, but not without radical reforms—and almost certainly not to the peak pace of the 2000s.

Many laps ahead

The Great Deceleration means that booming emerging economies will no longer make up for weakness in rich countries. Without a stronger recovery in America or Japan, or a revival in the euro area, the world economy is unlikely to grow much faster than today’s lacklustre pace of 3%. Things will feel rather sluggish.

It will also become increasingly clear how unusual the past decade was. It was dominated by the scale of China’s boom, which was peculiarly disruptive not just as a result of the country’s immense size, but also because of its surge in exports, thirst for commodities and build-up of foreign-exchange reserves. In future, more balanced growth from a broader array of countries will cause smaller ripples around the world. After China and India, the ten next-biggest emerging economies, from Indonesia to Thailand, have a smaller combined population than China alone. Growth will be broader and less reliant on the BRICs (as Goldman Sachs dubbed Brazil, Russia, India and China).

Corporate strategists who assumed that emerging economies were on a straight line of ultra-quick growth will need to revisit their spreadsheets; in some years a rejuvenated, shale-gas-fired America may be a sprightlier bet than some of the BRICs. But the biggest challenge will be for politicians in the emerging world, whose performance will propel—or retard—growth. So far China’s seem the most alert and committed to reform. Vladimir Putin’s Russia, by contrast, is a dozy resource-based kleptocracy whose customers are shifting to shale gas. India has demography on its side, but both it and Brazil need to recover their reformist zeal—or disappoint the rising middle classes who recently took to the streets in Delhi and São Paulo.

There may also be a change in the economic mood music. In the 1990s “the Washington consensus” preached (sometimes arrogantly) economic liberalisation and democracy to the emerging world. For the past few years, with China surging, Wall Street crunched, Washington in gridlock and the euro zone committing suicide, the old liberal verities have been questioned: state capitalism and authoritarian modernisation have been in vogue. “The Beijing consensus” provided an excuse for both autocrats and democrats to abandon liberal reforms. The need for growth may revive interest in them, and the West may even recover a little of its self-confidence.

Th e Economist

Buddhism v Islam in Asia - Fears of a new religious strife

Fuelled by a dangerous brew of faith, ethnicity and politics, a tit-for-tat conflict is escalating between two of Asia’s biggest religions

THE total segregation of Buddhist Arakanese from Muslim Rohingyas is now a fact of life in the western Myanmar port-city of Sittwe. Until June last year both communities lived side by side in the capital of Rakhine state, but following several rounds of frenzied violence, the Buddhist majority emptied the city of its Muslim population. The Rohingya victims now scrape by in squalid refugee camps beyond the city boundaries. The best that most of them can hope for is to escape on an overloaded fishing boat to Malaysia. Many of them die trying.

The animosity between the Rohingya and the local Arakanese in this remote corner of Myanmar is a consequence of colonial and pre-colonial patterns of settlement. It is an old and very local affair, and there were hopes that it would stay that way. Not any more. The assault on the Rohingyas, which cost more than 100 lives and made over 100,000 homeless, sparked a wildfire of sectarian violence across the rest of Myanmar which now seems to be spreading to other parts of Asia, too. A tit-for-tat escalation is going on which, with reason, worries many in the region.

While the actual bloodletting in Myanmar has abated, at least for now, no let-up has taken place in the hateful rhetoric directed against the country’s Muslim minority, which makes up about 5% of the 60m population. Radical monks, led by a notorious chauvinist, Wirathu, from a monastery in the northern city of Mandalay, have abandoned any claims to Buddhism as a universal doctrine of compassion and non-violence. For them Buddhism equates with a narrow nationalism. They argue, quite simply, that unless the majority-Buddhist population fights back, Muslims, with alarmingly high birth rates, will overrun the country. On July 22nd he claimed that a small explosion in a car near where he was preaching was the work of Islamic extremists. It all taps into old resentments against the big influx of Indians, many of them Muslim, who came into the country on the coat-tails of British colonialists during the 19th and early 20th centuries. They ran much of the country’s finance and commerce, and were hated for it by the indigenous Burmans. Race riots against Indians and Muslims in the 1930s in Yangon (then Rangoon, the capital) and elsewhere were whipped up then, as now, by a chauvinist Buddhist press.

The latest initiative of Mr Wirathu and his cohorts, organised into a group calling itself “969”, alluding to three core tenets of Buddhism, is to draft a law seeking to curb interfaith marriages in Myanmar. They propose that Buddhist women must seek permission from local officials to marry a man of another faith; meanwhile, the husband-to-be should convert to Buddhism. Under Myanmar’s former military rule, such ideas had little chance of becoming law, but with the onset of democracy all that has changed. The fear is that minority parties, desperate to avoid being wiped out at the next general election by Aung San Suu Kyi’s all-conquering National League for Democracy (NLD), will take up the monks’ cause for the sake of electoral gain, exploiting—and encouraging—anti-Muslim sentiment. The National Democratic Force, an NLD offshoot, may introduce the draft law in parliament, supported by the ethnic Rakhine party.

Another country where Buddhism is becoming conflated with a growing ethnic and nationalist identity is Sri Lanka. There the Bodu Bala Sena (BBS) organisation—literally, “Buddhist force”—made up of members of the country’s ethnic Sinhalese majority, preaches a doctrine of intolerance against a minority Islamic population (in this case, about 10% of the country), whose birth rate, they also claim, is alarmingly high. Galagoda Aththe Gnanasara, a BBS leader, argues that “This is a Sinhala Buddhist country. We have a Sinhala Buddhist culture. This is not Saudi Arabia. But you must accept the culture and behave in a manner that doesn’t harm it.”

The organisation has been campaigning against Islam on specific issues, such as Halal labelling on food. More generally, it is accused of inciting mobs to attack mosques and Muslim-owned shops. The BBS defends the persecution of the Rohingyas in Myanmar, claiming that Buddhists are acting out of self-preservation. As in Myanmar, plenty of politicians are ready to promote the agenda of groups like the BBS by exploiting the ignorance, prejudices and fears of the Buddhist population.

Already, however, a Muslim backlash is under way. In Mumbai in India Muslims have marched in solidarity with the Rohingyas. Muslims may have been responsible for the bombing on July 7th of one of India’s most revered Buddhist sites, the Bodh Gaya in Bihar, where Gautama Buddha is said to have obtained enlightenment.

As for Indonesia, easily the biggest majority-Muslim country in the region, Muslims have been helping the Rohingyas through donations. Now religious solidarity is taking a more violent turn in a country with a record of Islamist terrorism. In early May two Muslim men were arrested for allegedly planning to attack the Myanmar embassy in Jakarta, the capital, with pipe-bombs. They may have been inspired by an imprisoned radical cleric, Abu Bakar Basyir, who in April called for a jihad against Myanmar’s Buddhist population.

Reports have also surfaced of a meeting in Jakarta on June 19th between one extremist Indonesian group, the Forum Umat Islam, and two representatives of the Rohingya Solidarity Organisation (RSO). One Rohingya leader, Abu Shafiya, said that his people are “weak and unarmed” and so need bombs and training to strike back; he claims to have 300 people under arms. The RSO is one of several shadowy groups from either side of the Bangladeshi border with Myanmar that were active some decades ago. It seems logical that a few desperate Rohingyas might now look for defence to other Islamist groups. Sidney Jones, an expert on Islamist extremism in Jakarta, says that the RSO “would be an organisation around which an armed resistance might coalesce.”

This sort of development is worrying, yet countervailing pressures may prevent this kind of violence from spreading too far. On the Muslim side, argues Ahmad Suaedy of Jakarta’s Abdurrahman Wahid Centre for interfaith dialogue, some jihadist groups, reared on the fundamentalist doctrines of the Arab world, would regard the Rohingyas’ brand of Islam as unduly syncretic, even unIslamic, and thus unworthy of support. On the Buddhist side, meanwhile, many argue that the aggressive chauvinism that now flourishes among the monks in Sri Lanka and Myanmar could not take root, say, in Thailand.

That is despite an insurgency raging in Thailand’s four southernmost provinces, where Muslims are in a majority. The conflict has cost at least 5,000 lives since 2004. In fighting the Muslim insurgents, the Thai army has become inextricably bound up with Buddhist monks. Temples are used as army bases, and “soldier monks” are said to operate. Armed all-Buddhist self-defence groups exist as well. For their part, Muslim insurgents have specifically killed Buddhist monks, despite army protection, as symbols of Thai government authority.

Yet it is remarkable that the armed struggle has aroused no wider Buddhist backlash against the Muslim minority in the rest of the country. Maybe this is because the insurgents target ethnic Chinese and Thais equally in their battle for self-rule; their fight is not with Buddhism itself. Meanwhile, Thailand’s Buddhist structure is more hierarchical. The monarch and the political establishment keep the monks on a tight leash.

Indeed, the first official peace talks began earlier this year between the Thai government and some Muslim groups in the south. The hope is that the conflict in Muslim southern Thailand remains contained. It is not fated to spill over into general sectarian violence. The Economist

Myanmar's Demographic Conundrum

Now that its economy is freed from the Burmese Way to Socialism, can the country get rich before it gets old?

There are many reasons why Myanmar should in principle be able to grow very fast for two decades if it can capitalize on change and catch up with neighbors such as Thailand and China. But amid all the potential, a recent short Multi-Dimensional Review report by the Organization for Economic Cooperation and Development (OECD) has noted one possible longer term negative that has otherwise escaped attention: Myanmar's demographics. The report warns that the nation could get old before it gets prosperous - a warning similar to that often made about China. On the face of things, the warning may seem misplaced, at least if one compares Myanmar with most of its neighbors. That means not just China, which boasts some of the world's worst demographics both in terms of fertility rate and sex imbalance, but also by comparison with Thailand and Vietnam. Thus for instance the median age of people in Myanmar is, according to UN Population projections (Medium forecast 2010) is expected to be just 29.8 years in 2015, rising to 33.5 in 2025 and 36.8 by 2035. By contrast Thailand's median age is already close to 36 and is forecast to reach 42.8 in 2025 and 46.8 by 2035. Vietnam's situation is less severe but the median age is forecast to hit 40.9 by 2035. Indonesia's aging process is much slower and it is forecast to be only 34.0 by 2035 - but this may be an underestimate as the fertility rate has already fallen faster than projected in 2010, being only 2.25 in 2012 compared with an earlier forecast of 2.35. Myanmar's fertility rate has fallen fast and at 1.95 is now below long-term replacement level. But again it is better than Vietnam at 1.75 and far ahead of Thailand's 1.40. The problem for Myanmar is not that its demographic outlook is worse than most Asean neighbors and China but that its economy has so much catching up to do. Assuming that it will take two decades to catch up with Thailand and one with Vietnam, its population will already be quite mature with a diminishing number of new entrants into the workforce each year. The largest population cohort is now in the 20-24 age group, with each successive one being smaller. Of course demographic trends can reverse for reasons which are unclear. Possibly reform in Myanmar will raise optimism about the future and hence willingness to have more children. On the other hand, rising incomes and urbanization - currently very low - and access to electricity (only 28% of households have power) could have the opposite effect. Another unknown is whether reform and better job prospects will induce a significant number of those who have left for work in Thailand - variously estimated at three to five million - to return home. Over a decade, even a slow drift back would have significant impact on the economic potential of both countries - and force Thailand to raise its own productivity goals and rely less on cheap imported labour. The OECD makes the demographic point to show why speedy development now is essential now, while the workforce and young and growing. The report is otherwise mostly optimistic about Myanmar's prospects suggesting that the economy can grow at an annual average of 6.3 percent even without major structural reforms. Presumably, with such reforms a sustained 8 percent could be possible. It notes the very favorable resource endowment of plentiful land, the potential for huge increases in agricultural productivity, oil and gas wealth, large and varied mineral deposits and large water resources. Myanmar ranks 14th in the world in terms of water availability - for hydro power, agriculture and fisheries. It also still has huge unexploited forests, which cover 47 percent of the land area, and immense tourism potential, including the many islands of the Myeik archipelago. However, these natural resources need good management and here the OECD is clearly concerned about the prospects for good governance and the rule of law, as well as peace in the minority regions. It points to the need for devolution of power and some form of federalism but acknowledges that a balance between local and central power is hard to achieve. For now there are huge regional variations in incomes and conditions, with border areas mostly more prosperous thanks to interaction with neighbors. Landlessness is also a problem in some areas including the important Ayeyarwady Division rice growing heartland. Without better governance degradation of forest and other resources will be a major issue. More immediately badly needed infrastructure improvements are bedeviled by uncertain divisions of responsibility between ministries. On the plus side the report notes the generally high standard of literacy and numeracy and the favorable position of women but also points to the weakness of vocational and secondary education. It claims that labour productivity is higher than in Vietnam - though the lack of manufacturing and low level of urbanization make this a debateable claim. The potential for manufacturing however is huge given labour costs currently one sixth of China and Thailand and also below Vietnam. However, there is a lack of small and medium enterprises which could provide a support base for manufacturing investment. Asia Sentinel

Coming to Grips with the Banality of Mass Murder in Indonesia’s Past

 “The deeds were monstrous, but the doer … was quite ordinary, commonplace, and neither demonic nor monstrous,” Hannah Arendt wrote in her 1978 book “The Life of the Mind: Thinking, Willing.” She was writing in particular about Adolf Eichmann, one of Adolf Hitler’s henchmen and who was responsible for the murder of millions of Jews

Arendt argues that Eichmann was somehow not capable of thinking independently. It was thoughtlessness that drove him, as the evil was masqueraded so well that its perpetrator did not recognize the cruelty of his deed. It was his unawareness of this evil that made him able to commit such “monstrosity.”

And this seems to be what we find in “The Act of Killing,” a documentary film about the mass murders committed in 1965-66 in Indonesia, released last year.

The film, by Joshua Oppenheimer, an American director based in Copenhagen, takes place mainly in Medan, North Sumatra. There, we meet Anwar Congo, portrayed as a loving grandfather who asks his grandchildren not to hurt the ducklings — and a national hero. Don’t compare him to Rambo — he is not at all muscly. He is even rather soft-spoken and skinny. Sometimes, he even looks subdued compared to his close companion, Herman Koto. Yet he also boasts about having killed thousands of people by various means, including torturing them slowly in horrific ways, slitting their throats or strangling them.

Proudly, Anwar boasts about his “heroic” acts. Other perpetrators of violence Oppenheimer met have also been bragging about murder. One of them recalls how he has raped hundreds of girls, speaking horrendously in front of the camera: “The nice ones are the 14 and 15 years old. Still young and fresh!”

At some point, Anwar, Herman and the other perpetrators even seem to be involved in what looks like a bragging competition in describing their “bravery” (read: cruelty). But this was one of the biggest episodes of mass murder in human history, in which countless numbers of others were also inhumanely tortured or imprisoned without trial.

Some of their assailants at first seemed very excited about Oppenheimer’s project, claiming to know the “truth” and that this history should be revealed, so that young people do not forget the past. The “truth” for them is their sustained heroism and the sustained slander and defamation of the so-called communists, their families and even descendants.

But their reaction slowly changes when some of them start to become aware that the people they killed were ordinary human beings, not merely objects to be discarded. In the film, the re-enactment of the events of 1965 (with plenty of makeup to show the brutality, along with dolls, fire and wire) has made them aware that their victims have undergone massive trauma and suffering. The role reversals seem to have a huge impact on Anwar, who plays his own victims.

This film has made fiction become “reality” for the perpetrators, whereas before, the reality was some kind of fiction for them: the mass-murder, as Anwar admitted, was some kind of manifestation of his imagination influenced by gangster movies.

But are they really unaware of what they have done? Is it Arendt’s banality of evil that drove them?

I guess it is a lot more complex than this, as another perpetrator, Adi, seems to be more aware than Anwar and the other perpetrators featuring in the film of what they have done. He says: “We are actually crueler than the communists.” Also, when he is fishing with Anwar, Adi demonstrates that he knows that the New Order government has imposed a slanted version of history. Adi seems to represent hope for me, when he says: “If we succeed with this film, the whole history will be reversed 180 degrees.”

But no! Later, he stresses that he has no regret for what he has done — narrating the horrific murders that have been committed, while strolling through a shopping mall. In the car with Oppenheimer, he insists arrogantly: “War crimes are defined by the winners. I am the winner, so I can make my own definition!”

Oppenheimer’s camera shows a somewhat different story when Adi is seen together with his wife and daughter. Somehow separated from them as well, as he is immersed in his thoughts with deep lines on his forehead. But it is Anwar who shows real remorse. He even starts throwing up at one of the sites where he murdered his victims.

The film’s portrayal of these perpetrators is powerful and amazing, and Oppenheimer has admitted that he gained their trust because of his being an American, and because the United States supported the anti-communist violence. As he states: “They loved American movies and Americans … When I arrived, they just assumed ‘Oh, this guy must love us.’ ”

This leads me to question whether the banality of their mass murder, or that of evil, is really that simple.

These people may merely have been at ease performing their unawareness (or denial) of their crimes in front of a perceived ally. Later, Anwar shows remorse as he becomes aware of Oppenheimer’s true intentions. Was Anwar previously really unaware? Or has Anwar’s awareness of Oppenheimer’s political stance somehow led him to demonstrate his awareness and his remorse concerning the crimes that he has committed? After all, we represent ourselves differently vis-a-vis different people.

We may never know the definite answers to these questions. But Oppenheimer’s hard work and dedication have brought these nuances and complexities to light. He has spent 10 years filming a documentary with several Indonesian crew members who are only acknowledged as “anonymous” out of fear for their safety. “This is my gift to Indonesia,” said Oppenheimer. A wonderful gift, a touching and important one.

Soe Tjen Marching is the founder of Lembaga Bhinneka.