Current Affairs: International - Major Issues 10 to 18 August 2010

CAG Weekly
(Current Affairs & GK)
By Om Prakash (Goldy sir)

China overtakes Japan to become No. 2 economic power

• After three decades of spectacular growth, China passed Japan in the second quarter to become the world's second-largest economy behind the United States, according to government figures released early.
• The milestone was reached early on 16 august, when Tokyo said that in the second quarter, the Japanese economy was valued at about $1.28 trillion, slightly below China's figure of $1.33 trillion. The gross domestic product of the United States was roughly $14 trillion in 2009. Japan's economy grew 0.4 per cent in the second quarter, Tokyo said, substantially less than forecast.
• Experts say unseating Japan — and in recent years passing Germany, France and Great Britain — underscores China's growing clout and bolsters forecasts that China will pass the United States as the world's biggest economy as early as 2030.
• For Japan, whose economy has been stagnating for more than a decade, the figures reflect a decline in economic and political power. Japan has had the world's second-largest economy for much of the past four decades, according to the World Bank. And during the 1980s, there was even talk about Japan's economy some day overtaking that of the United States.
• But while Japan's economy is mature and its population quickly aging, China is in the throes of urbanisation and is far from developed, analysts say, meaning it has a much lower standard of living as well as a lot of room to grow. Just five years ago, China's gross domestic product was about $2.3 trillion, about half of Japan's.
• This country has roughly the same land mass as the United States, but it is burdened with a fifth of the world's population and insufficient resources. Its per capita income is more on a par with those of impoverished nations like Algeria, El Salvador and Albania — which, along with China, are close to $3,600 — than that of the United States, where it is about $46,000.
• “This is just the beginning,” said Wang Tao, an economist at UBS in Beijing. “China is still a developing country. So it has a lot of room to grow. And China has the biggest impact on commodity prices — in Russia, India, Australia and Latin America.”
• There are huge challenges ahead, though. Economists say that China's economy is too heavily dependent on exports and investment and that it needs to encourage greater domestic consumption — something China has struggled to do.
• China is also locked in a fierce debate over its currency policy, with the United States, European Union and others accusing Beijing of keeping the Chinese currency, the renminbi, artificially low to bolster exports — leading to huge trade surpluses for China but major bilateral trade deficits for the United States and the European Union. China says its currency is not substantially undervalued and it is moving ahead with currency reform.

Japan public debt hits record high

• Japan's government debt hit a record high of more than 10 trillion dollars as of the end of June report, 733.81 trillion yen, or 81.2%, of the total accounted for government bonds.
• Per-capita debt is around 7.1 million yen ($83,000).
• The debt is a legacy of massive stimulus spending during the economic “lost decade” of the 1990s, as well as a series of pump-priming packages to tackle the recession which began in 2008. It crawled out of a severe year-long recession in 2009, but high public debt as well as deflation and weak domestic demand are hindering Japan.
• Japan has faced global pressure to do more to cut its debt in recent months, although with around 95% of government bonds held by domestic investors, Japan’s risk of default is seen to be much lower than some eurozone countries.

Sochi summit

• Russia's President Dmitry Medvedev hosted a second quadripartite summit with the leaders of Afghanistan, Pakistan and Tajikistan to discuss security, terrorism, drugs and economic cooperation in the region.
• Analysts said hydropower energy and transport infrastructure would be the foundation of four-corner economic cooperation. Under the Central Asia-South Asian-1000 (CASA-1000) plan sponsored by the World Bank, Tajikistan and Kyrgyzstan will supply surplus electricity to Afghanistan and Pakistan. There is also a plan to build a motorway and a railroad from Pakistan to Tajikistan.
• At the first quadripartite summit in Tajikistan last year Mr. Medvedev said “a new format” of regional cooperation was being borne.
• Chairman of the Russian Parliament's Foreign Affairs Committee Konstantin Kosachev said Russia could become “a donor of economic, social and military-political security” for Afghanistan, Pakistan and Tajikistan.

Mexico down-to-earth on Cancun climate summit

• Patricia Espinosa, visiting Foreign Minister and chairperson of the 16th Conference of the Parties to be held in Cancun.
• Pragmatism is a key word for the Mexican hosts of the next major United Nations conference on climate change this December.
• Unlike their predecessors at the controversial Copenhagen summit last year, the hosts at Cancun have not played up the hype with slogans about time running out for the planet, and have not billed their conference as a summit of world leaders; nor do they expect any earth-shaking treaty.Instead, Ms. Espinosa carries the down-to-earth message that climate change negotiations are a “permanently ongoing process. We need to look at these review conferences as how much progress we have made,” she said in an interview with The Hindu here on Tuesday.
• World leaders will be welcome, but are not courted. A lot of effort is going into ensuring that the negotiations are transparent and inclusive, and are seen to be so.
• While many rich countries have been demanding a new treaty — which would replace the Kyoto Protocol with one that waters down the obligations of the industrialised world and slaps emission targets on large developing countries like India and China — Mexico is taking a pragmatic stance.
• Ms. Espinosa's view that the Kyoto Protocol is not expiring, that we need a “continuity of the regime” and that “the existing legal framework is a good basis” would enthuse Indian hearts. “There is no need for a new treaty,” she said.But she also added, “Not at this point. Of course, any treaty can be improved.”
• Green Fund-This pragmatism extends to the financing aspect. Mexico initially suggested that the Green Fund be funded by all countries, including the developing countries, in a bid to change the “recipient-donor” attitude of climate finance.
• It would be very difficult to say that only public money will be used,” she said, referring to the $100 billion per year till 2020 that has been agreed to. “We are considering ways to encourage the increased participation of the private sector.”
• Mexico is also suggesting proposals to make the Clean Development Mechanism — which allows rich nations to fund climate-friendly projects in poor nations in return for emissions credits — more agile and less bureaucratic to encourage smaller projects in smaller nations. Next month, it also hopes to launch a website www.faststartfinance.org, which will track what is actually happening to the $30 billion that was promised as short-term financing.

Mexico reopens the drugs debate

• President Felipe Calderón of Mexico has effectively signalled an end to the war on drugs declared 40 years ago by Richard Nixon; he has called for a debate on the legalisation of drugs. Drug-related violence in Mexico has claimed an estimated 28,000 lives in just the last four years.
• The major gangs are embroiled in savage turf wars. They give about $100 million a month in bribes to poorly paid police and officials across the country.
• The annual export of narcotics to the United States is now worth $39 billion, which is equivalent to 20 per cent of the Mexican government's budget. The main exports are harder drugs like cocaine and heroin, as most of the marijuana consumed in the U.S. is grown there.
• The gangs have also developed a parallel economy on the basis of people-trafficking, extortion, kidnapping, and the sale of pirated DVDs. Furthermore, the Mexican drugs cartels have gained fearsome firepower since the U.S. lifted its ban on the sale of assault rifles in 2004. Even the weapons seized by the authorities could equip an army; they include 50,000 AK47 and AR15 rifles, 6,000 grenades, 10 million rounds of ammunition, and armour-piercing rifles. Firearms are freely available along the 3,100-km U.S.-Mexican border.
• The Mexican President is himself opposed to the legalisation of drugs. But he is not the first leader on the continent to note the near-impossibility of winning the war on drugs as it is now being waged.
• Several other former heads of state have made similar observations and the Argentine Supreme Court has ruled that punishment for the personal use of marijuana is unconstitutional.
• Mexico itself has ended prosecutions for the possession of small amounts of a range of drugs. The wider issues, however, have an ineradicable political dimension. First, the current militaristic and punitive approach has put many Latin American democracies at risk of collapsing into narco-republics. In Mexico, for example, the main gangs terrify local populations with strung-up corpses, paralyse traffic at will, and have even succeeded in shutting down certain operations by Pemex, the state oil company. Secondly, the export of heavily subsidised U.S. agricultural produce to Latin America has left millions of small farmers with no option but to grow coca leaf for sale to drug mafias and eventual export to the American market. Now Latin America has acknowledged that the damage caused by drugs goes far beyond the incontestably huge harm they do to users. President Calderón has his flanks well protected by his own position on drugs and by creating intelligent space for an honest debate.