The meeting today of the heads of state of Brazil, Russia, India and China (aka the ‘BRIC’s) in Yekaterinburg represents far more than the triumph of labeling (the term ‘BRIC’ was coined by Goldman Sachs’ Jim O’Neill in 2001. As the FT noted, this is ‘almost certainly the first multilateral nation bloc to be created by an investment bank’s research analysts and their sales team’).

Apart from size and economic potential, these countries have little in common: neither history, culture, politics nor geography serve as unifying factors. The structures of their economies are very different.

What binds this disparate group of countries together is their common desire to shape a new economic order that is less dominated by the US. With the BRICs accounting for 15% of the world economy and 40% of its population and holding 42% of global currency reserves their desire to influence the global economic and financial landscape is justified.

DOLLAR DILEMMAS

Of particular concern to the BRICs is the dominance of the US dollar, which is seen by many in China and Russia as the root cause of global economic imbalances and the current financial turmoil (Zhou Xiaochuan, the governor of the Bank of China made explicit reference to the Triffin Dilemma – i.e. the inherent tension between domestic and global monetary policy that arises from having a national currency serve as a global reserve currency – in his landmark speech on ‘Reforming the International Monetary System’, which Alex has written about here). 

Understandably, these countries are increasingly alarmed at the extent to which their own fortunes are tied up with that of the greenback. They are hugely exposed to dollar securities: with combined reserves of US$2.8 trillion they are among the largest holders of Treasuries (China is number one with over US$ 1.5 trillion in its coffers, or 40% of its GDP). A decline in the value of the dollar would result in massive losses for these governments, and in the case of China would undermine social stability. The very loose fiscal and monetary policies being pursued in Washington to prop up the economy are therefore of grave concern. As Steven Mallaby explains:

 “a (highly plausible) 30 percent move in the yuan-dollar rate would cost the country around $450 billion — about a tenth of its economy. And, to make the dilemma even more painful, China’s determination to control the appreciation of its currency forces it to buy billions more in dollar assets every month. Like an addict at a slot machine, China is adding to its hopeless bet, ensuring that its eventual losses will be even heavier.”

Or in the words of Michael Hudson:

“US-style free markets hook them (the BRICs) into a system that forces them to accept unlimited dollars. Now they want out.”

The BRICs have already taken steps to wean themselves off their dependence on the US dollar by diversifying their overseas investment portfolios. China for example has concluded currency swap arrangements with six countries worth CNY 650bn ($95bn), which will allow it to trade in its own currency rather than in dollars. Moreover it has invested $40bn in the ASEAN Reserve Fund, announced it will buy up to $50 bn worth of bonds issued by the IMF. Recent data showed that both China and Russia had trimmed their holdings of US government bonds in April. 

But they are all too aware that they need to tread carefully, as they cannot afford to undermine confidence in the US dollar. Thus even as the BRIC heads of state meet to plot future alternatives to the dollar, the Russian Finance Minister Alexei Kudrin reassured the international press that the US dollar is in ‘good shape’, and further affirmed that there’s no substitute for the world’s reserve currency.

THE EROSION OF US SOFT POWER

Regardless of whether or not the BRIC grouping endures as a political entity, their meeting today is significant in that it signals a waning of US global authority. To Russia and Brazil in particular the unwillingness of the US to taste its own medicine – viz. socially painful structural adjustments through fiscal austerity and monetary tightening as prescribed by the IMF to other debtor countries in crisis – is a blatant case of double standards (see my related post here). As Michael Hudson writes in his recent article in the FT:

Many foreigners see the US as a lawless nation. How else to characterize a country that holds out a set of laws for others – on war, debt repayment and the treatment of prisoners – but ignores them itself? […] US interest rate and tax reductions in the face of exploding trade and budget deficits are seen as the height of hypocrisy in view of the austerity programmes that the ‘Washington Consensus’ has forced on other countries via the IMF and other vehicles.

The fact that US officials, who had requested attending the BRIC meeting as observers, were denied is noteworthy.   

News has emerged over lunchtime that Sir John Sawyers, currently Britain’s Ambassador to the UN, is to become the next head of the Secret Intelligence Service.  Obviously there’s some sort of a cover-up here – do they really think we’re so naive as to be taken in by the idea that they’re just going to, like, publicly announce the next head of MI6?

Well, here at Global Dashboard we started working our network of well-placed sources as soon as we heard the news, and within minutes we uncovered a major new dimension to the story: for www.bibliotecapleyades.net have discovered that Sawyers is part of a secret global conspiracy on UFOs.

French aviation expert Gilles Lorant disclosed the revelations last year in a pre-interview discussion with a French radio journalist, and positively identified Sawyers, the Papal Nuncio to the UN and others as attendees at the meeting when showed photos. Even more startlingly, he also revealed that the conspiracy is being run out of the UN General Assembly.

Such was the level of secrecy surrounding the talks, according to Lorant, that the UN employed a complex double-bluff to disguise the true nature of the talks:

According to Lorant, security at the meetings was not very tight and participants had to merely sign an “appreciation form” at their conclusion. [He said]: “Some meeting rooms were locked in a chain across the door and guarded by a messenger. The meeting room in which I found myself was not so guarded. “

What do they take us for, idiots?

After reading Alex’s post about Kiva, I decided to sign up with the web-based micro-credit lender. I lent money to a woman in the Philippines who wants to buy organic fertilizer for her farm.

Alex made the point that with Kiva “aid can go directly from a miniscule aid donor (like me) to a miniscule recipient (like Nguyen thi Dieu) without having to pass through the giant cogs of the international aid bureaucracy”.

From time to time I’ve considered donating money to international charities that do aid work in Asia and Africa. This is usually when a celeb appears on the TV asking me to give a dollar a day to help villagers get goats and clean water. What’s put me off is knowing that a chunk of my money would never get to the villagers, but would be siphoned off to pay for administration overheads – an aid bureaucrat’s salary, their office expenses, the SUV they drive and so on.

As Alex says, Kiva avoids that problem. You lend direct to the applicant. You can choose to make a donation to Kiva’s admin costs, or not. Some other observations: the process of lending is simple and fast – it would’ve taken me 15 minutes tops to make a loan. The information about the applicant and the field partner was succinct yet enough to make an informed decision. And the facility for individuals to lend in small amounts, which are aggregated with other loans, lets you spread risk while providing the entrepreneur with a substantial sum of money.

I’d be interested to see if Kiva starts offering portfolios which lend for specific purposes, like organic farming and micro-power generation. And if the micro-credit concept can be applied in developed countries for people who can’t get business loans from commercial banks because they lack collateral.

The post-election crackdown in Iran is a frosty ending for what had been a genuinely exciting and optimistic spring in Middle Eastern politics.

Consider: in early June, Lebanon successfully held its second ever free democratic elections. More important than the fact that the ’pro-western’ coalition won is the fact that Hezbollah accepted the result. A Middle Eastern government was democratically elected, without bloodshed.

This follows the provincial elections in Iraq in January, where millions of Iraqis risked their lives to assert the right to choose their government. Monthly civilian casualties in Iraq are now the lowest they have been since the start of the war.

In June, US president Barack Obama did wonders for US-Middle Eastern relations with his speech at Cairo Univerity, by being intelligent and non-patronising, by not dividing the world into simplistic Manichean divisions of Good and Evil and, in short, by not being George W. Bush.

Obama’s insistence on the withdrawal of Israeli settlers from Palestinian territories, and on the creation of a viable state for Palestinians, seems to be bearing fruit. In mid-June, Israeli president Benjamin Netanyahu publicly supported the creation of a Palestinian state, something he’d never done before.

In May, the UAE arrested a businessman for the torture of a former partner. What was unusual was that the businessman is a member of the UAE royal family, and it is the first time any royal has been arrested in the Gulf.

And a little further back, in February, Saudi Arabia’s King Abdullah appointed the country’s first ever female minister, as part of a broad government reshuffle that weakened ultra-conservatives and promoted several reformist-minded politicians.

These are all tiny, incremental steps. But still, they are in the right direction, towards the dream of a stable, prosperous, democratic Middle East.

And then the Iranian Revolutionary Guard weighs in with its batons, while the Ayatollah Khameni, Iran’s Supreme Leader, declares, with Maradona-esque insouciance: “There was truly a divine hand behind this election.”

The risk of that remark, and of the Ayatollah’s support for what appears to be a coup, is that it will drive a wedge between Iran’s youthful population and the Islamic Republic. When that Republic came to power, during the 1979 revolution, it had enormous domestic legitimacy because it appeared to introduce a more virtuous and Islamic democracy, after the despotic excesses of the Shah.

That successful alliance of democracy with Islamism sent shockwaves through the whole Middle East, providing a powerful role-model for other democratic, revolutionary, Islamist forces in Lebanon, Palestine, Egypt, Morocco and elsewhere.

Now, as in Animal Farm, the new revolutionaries have turned out to be just as bad as the old despots. The divine hand of Iran’s theocracy has been caught in the ballot box, stuffing votes. This threatens not just the legitimacy of the Iranian government, but the legitimacy of the wider Islamist movement.

The Middle East’s ayatollahs, imams and mullahs have risen to political prominence, and in some cases power, because they provided an outlet for democratic yearnings denied by many of the region’s autocratic regimes. They risk losing their moral authority and influence if they are seen to stand in the way of people’s desire for a more legitimate and honest form of government.

Over at Hot Air, Ed Morrissey is itching for Obama to get stuck in to the Iranian regime:

We have an opportunity to get the Iranians to use this thick-skulled blunder by the mullahs to press for real regime change.  It wouldn’t take an expression of support for Mousavi from Obama to help increase the momentum in the streets of Tehran and elsewhere for the removal of the theocracy.  An expression of support for self-determination in a free and fair election system in Iran would be plenty.  Obama could use his bully pulpit to point out that the mullahs handpickedall of the candidates, which has obviously left the Iranians feeling manipulated and unrepresented by their government.  Obama could call on the Guardian Council and Ali Khamenei to stage actual elections, without the GC’s interference, and an election with international observers to certify that the Iranian people are allowed to choose their own government.

Morrissey, to his credit, details the other side of the argument – that overt expressions of support from the US could be counter-productive, helping the Iranian regime paint its opponents as stooges of the Great Satan.

I find this argument much more compelling that Morrissey does. It’s not a perfect comparison – but in Pakistan, vocal US support for President Musharraf cut the ground from under the feet of a leader the US was desperate to shore up. Pakistanis love conspiracy theories and I used to joke with them that the Bush adminstration was, in fact, trying to bring down the Musharraf regime – and had chosen vocal praise as a novel, but deadly, weapon.

So I think Obama and his proxies should remain studied, neutral. They shouldn’t recognise the election result, but neither should they get dragged too far in the fray. (Some of Morrissey’s messaging around the importance of democracy would actually work quite well, if the tone and rhetoric were kept low key.)

Instead, I’d like to see the Europeans (with behind-the-scenes encouragement from Obama) start to play bad cop, steadily ramping up the pressure as the regime tries to crack down on demonstrators. In particular, we should look to Germany – a major trading partner for Iran – to take a lead. (The UK probably needs to take a back seat – for similar reasons to the US.)

Will this happen? Probably not. The statement from the Czechs, who hold the EU Presidency, was not just weak – it was barely literate.

The Presidency is concerned about alledged irregularities during the election process and post-electional violence that broke out immediately after the release of the official election results on 13 June 2009.

The Presidency hopes that outcome of the Presidential elections will bring the opportunity to resume the dialogue on nuclear issue and clear up Iranian possition in this regard. The Presidency expects the new Government of the Islamic Republic of Iran will take its responsibility towards international community and respect its international obligations.

But Angela Merkel has gone on the record to says that the election was irregular and to say that she is ‘very worried’ about events that have followed. France, too, has shown some signs of disquiet. Reuters detects signs of an emerging EU campaign to question the election results. So maybe there is hope.

The Americans and Europeans badly need to find a way to work in unison on major foreign policy risks. My fingers are crossed that this crisis in Iran will see the emergence of a deeper, more media savvy, and – above all – more effective mode of transatlantic cooperation. But for that to happen, we need to see the Europeans pull their fingers out and show they too can talk tough.

From a post here last October:

[We can expect] a reduction in commodity prices for the duration of the global downturn (however long that may be) as demand for them falls.  As I’ve mentioned, futures prices for grain crops are already falling; we can expect that trend to be supported by falling energy prices, which will reduce some of the pressure on food that’s come via fertiliser prices, transport costs and demand for crops as biofuels.

That said, let’s be clear: the fall in commodity prices due to a global downturn does not mean that we’re out of the woods for good on high food and fuel prices. As Javier Blas notes in the FT today, the downturn also means that necessary investment in increasing supply will be put off.  As soon as we’re out of the dowturn and demand starts going up again, we’ll discover that there’s been no shift in the underlying supply fundamentals – and hence that the stagflation drivers we were all worrying about until the credit crunch really began in earnest are just waiting where we left them.

Latest oil price data (Jul 08 – now, courtesy of BBC News):

Latest FAO Food Price Index:

US climate envoy, Todd Stern has tried to clarify exactly what the Obama administration wants from China on climate at Copenhagen (see post from Leo and me on the confusing signals the US has been sending out).

So here it is:

• “Very considerable” reductions on China’s business as usual emissions.
• These reductions to be binding, transparently measured and verifiable.
• No absolute emissions reductions but (preferably at least) a designated year when China’s emissions should peak.
• China’s commitment to be consistent with the world stabilising its emissions at around 450 ppm (“we don’t know whether it’s 445 or 460 or… but in that general range”).
• The package to be backed up by carbon offsets from the US to China – but these offsets should have “real environmental integrity” – and technology cooperation.

Obvious questions to ask Stern -

1. Do you believe that President Obama’s domestic commitments on climate are consistent with a 450ppm stabilization target?
2. Will the United States be pushing for a 450ppm target to be enshrined in the Copenhagen agreement?
3. When does the United States think Chinese emissions should peak to meet 450ppm?
4. When does the United States expect global emissions to peak?

Development charity One.org has released its annual report examining how far G8 countries are meeting their Gleneagles commitment to double aid to Africa. The US, Japan and Canada are headed towards meeting or exceeding their pledges, while Germany and the UK are said to be ‘striving’ towards their ‘big commitments’. Unfortunately, France and Italy are letting the rest of us down. Apparently, they account for 80% of the shortfall in aid increases. Italy’s efforts in particular are described as an ‘utter failure’. Bob Geldof is quoted as having commented in a characteristically forthright manner:

Poor, sad Italy. That their economy is in such a disastrous meltdown condition that they must steal from the poor, rob the ill and snatch education from the minds of the young not only beggars the imagination, but must also surely beggar the soul of that most beautiful country. Shame on you. Your government disgraces you.

‘Nuff said.

Andrew Sullivan provides a helpful graph plotting the ratio of Ahmadinejad to Moussavi votes in six different counts. That ratio proves to be remarkably consistent at each count:

Sullivan’s conclusion:

They didn’t even attempt to disguise the fraud. Which, to me, tells me they panicked. This graph is a red flag to Iran and the world.

Update: Nate Silver’s done a fairly comprehensive rebuttal of this graph – see here. He concludes,

these results certainly do not prove that Iran’s election was clean. I have no particular reason to believe the results reported by the Interior Ministry. But I also don’t have any particular reason to disbelieve them, at least based on the statistical evidence … I am not suggesting that any and all statistical analysis purporting to show tampering in Iran’s election results will turn out to be fruitless. I am merely suggesting that this particular analysis is dubious; it is not a smoking gun.

Australian army signaller on patrol in East Timor, 2007 (photo: David Axe).

American strategist Tom Barnett thinks that Australia’s Defence White Paper is “a true work of goofy strategic paranoia”.  He’s perplexed by Canberra’s “recent mental shift” and “sudden fear-mongering”.

I’m not sure why Barnett’s perplexed. Maybe it’s to do with the White Paper’s starting point, that over the next few decades Australia faces an uncertain and risky strategic situation. Or that Australia plans to buy 12 new submarines, 100 F-35 Joint Strike Fighters and sea-based land-attack cruise missiles.

I’ve read the White Paper and I don’t sense a “recent mental shift”. Canberra’s attitude towards Asia has long been one of guarded optimism: engage actively with regional powers, and thereby benefit from Asia’s growing prosperity, but be ready to defend Australia if things go wrong. It’s hard to quarrel with the idea that Australia’s strategic situation is uncertain and risky. Key dynamics include China’s rise as a great power, the greater reach of its military forces, the reaction of other Asian powers to China’s rise, and the relative decline of American power in the region.

Australia also faces the prospect of further turmoil in the island chain to its north – the so-called Arc of Instability – which stretches from Indonesia to Melanesia. Over the past 20 years this archipelago has seen a lot of conflict, with Australian forces intervening in East Timor, Bougainville, Solomon Islands and Tonga.

While Australia places great stock in its alliance with the US, self-reliance is the cornerstone of defence policy. Australia needs to be able to deter potential enemies and defend itself from attack. Hence the emphasis on enhancing maritime, strike, intelligence and surveillance capabilities.

With this in mind, Canberra’s stance doesn’t look like goofy paranoia and fear-mongering. It just seems cautious and prudent.

At the end of his three day visit to Beijing this week Todd Stern, the US Climate Change Envoy, held a press conference with the Chinese press at which he said that China was doing great and the US didn’t expect China to commit to a cap on its greenhouse gas emissions (unsurprisingly this made the first page of the China Daily, the main English language mouthpiece of the Communist Party).