By Mike Whitney

Global stocks were hammered on Friday for a second straight day on news of a slowdown in China and turbulence in emerging markets. The Dow Jones Industrials suffered its worse drubbing in more than two years, tumbling 318 points on Friday to end a 490 point two-day rout. Emerging markets currencies were whipsawed by capital flight as foreign investors fled to the safety of U.S. Treasuries. Turkey’s lira and the Argentine peso were particularly hard hit setting record lows in the 48 hour period. The scaling back of the Fed’s $85 billion per month asset purchase program, called QE, has altered the dynamic that made emerging markets the “engines for global growth”. The policy reversal has triggered a selloff in risk assets and sent EM currencies plunging. Here’s a summary from Bloomberg:

“The worst selloff in emerging-market currencies in five years is beginning to reveal the extent of the fallout from the Federal Reserve’s tapering of monetary stimulus, compounded by political and financial instability.

Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.” (“Contagion Spreads in Emerging Markets as Crises Grow,” Bloomberg)

Paradoxically, Bloomberg editors blame the victims of the Fed’s failed policy for the current ructions in the markets. In an article titled, “What’s Behind the Emerging-Market Meltdown” the editors say,”emerging-market governments … should recognize that this week’s financial-market turmoil was, to varying degrees, their own fault.” … “the best way for emerging-market governments to restore confidence would be to improve their policies.”

Logically, one would assume that the editors would throw their support behind capital controls or other means of stemming the destructive flow of speculative capital into domestic markets. But that’s not the case. What the editors really want, is policies that trim deficits, slash public spending, and allow foreign investors to continue to wreak havoc on vulnerable economies that follow their free market diktats. The article is a defense of the status quo, of maintaining the same ruinous policies so that profit-taking can continue apace.

The Fed was warned early on that its uber-accommodative monetary policy was spilling over into emerging markets and creating conditions for another financial crisis. Take a look at this excerpt from an article in Bloomberg back in 2010 where Nobel prize winning economist, Joseph Stiglitz, explicitly warns the Fed of the dangers of QE.

Bloomberg:

“The U.S. Federal Reserve’s plan to boost purchases of bonds poses “considerable” risks by increasing capital inflows to emerging markets, Nobel Prize- winning economist Joseph Stiglitz said in Santiago today.

“All this liquidity that they’re creating is not going back to grow the American economy and is going to Asia and other emerging markets where it’s not wanted,” Stiglitz said…..Increased capital inflows could cause emerging market currencies to appreciate and could create asset bubbles, he said.” (“Stiglitz Says Fed Stimulus Poses `Considerable’ Risks for Emerging Markets,” Bloomberg, Dec 2010)

Events have unfolded exactly as Stiglitz predicted they would, which means the Fed is 100% responsible the carnage in the stock and currencies markets.

The policy has pumped nearly “$7 trillion of foreign funds” into EMs since QE was first launched in 2009. According to the Telegraph’s Ambrose Evans-Pritchard, “much of it “hot money” going into bonds, equities and liquid instruments that can be sold quickly….Officials are concerned that this footloose capital could leave fast in a crisis, setting off a cascade effect,” Pritchard adds ominously.

Whether last week’s bloodbath was just a prelude to a bigger crash is impossible to say, but it is worth noting that the Fed has only reduced its purchases by a mere $10 billion per month while still providing $75 billion every 30 days. That suggests that markets will probably face greater turmoil in the months ahead. Check out this clip from USA Today:

“Emerging markets need the hot money but capital is exiting now,” says (Blackrock’s Russ) Koesterich. “What you have is people saying, ‘I don’t want to own emerging markets.’…

The bigger fear is if the current crisis in currency markets morphs into a full-blown economic crisis and leads to financial contagion, says Matthias Kuhlmey, managing director of HighTower’s Global Investment Solutions.

“The currency story is fascinating and can be a slippery slope – be cautious,” says Kuhlmey, adding that the Asian crisis in the summer of 1997 that started with a sharp drop in the value of Thailand’s baht, turned into a broader economic crisis that engulfed Indonesian, South Korea and a handful of other countries. It also rocked financial markets.” (“Why emerging markets worry Wall Street,” USA Today)

So, is this the Big One, the beginning of the next financial crisis?

It’s too early to say, but investors and analysts are worried. Fed tightening (via “taper”) will be felt in markets around the world. The trouble in emerging markets will intensify deflationary pressures in the Eurozone and put a damper on China’s growth. Slower global growth, in turn, will create balance sheets problems for undercapitalized and over-leveraged banks and other financial institutions which will increase the probability of another Lehman Brothers-type default.

According to Reuters, a normalizing of interest rates in the US, (which most analysts expect) “could cut financial inflows to developing countries by as much as 80 percent for several months. In such a case, nearly a quarter of developing countries could experience sudden stops in their access to global capital, throwing some economies into a balance of payments or financial crisis, the Bank said.” (“Rout in emerging markets may only be in Phase One,” Reuters)

Clearly, the potential for another financial meltdown is quite real.

For more than four years, the Fed has buoyed stock prices and increased corporate margins through massive injections of free cash into the financial markets. Now the Central Bank wants to change the policy and ease its foot off the gas pedal. That’s causing investors to rethink their positions and take more money off the table. What started as a selloff in emerging markets could snowball into a broader panic that could wipe out the gains of the last four years.

The Federal Reserve is entirely responsible for this new wave of financial instability.

The article Is This The Big One?: The New Wave Of Financial Instability – OpEd appeared first on Eurasia Review.

By Latinamerica Press

By Víctor Liza Jaramillo

After El Comercio’s majority-share purchase of a news organization, it owns 78 percent of the country’s print media, raising questions about freedom of expression.

Nearly 80 percent of print media in Peru is now in the hands of one media group after the Aug. 23, 2013, purchase by El Comercio group of 54 percent of shares of the Empresa Periodística Nacional (Epensa) which until then ran the 14 regional editions of the newspaper Correo and other national publications.

Empresa Editora El Comercio, the umbrella media company owned by the Miró Quesada family, calls itself the “foremost multimedia organization in Peru.” In addition to the daily newspaper El Comercio — which was first published in 1839 — until the August acquisition it also published six other newspapers and six magazines, and also had two television stations. It has now added three more newspapers, five magazines, and several weeklies and supplements that belonged to Epensa.

The purchase triggered a response from the La República media group, which from early last year had shown interest in purchasing a majority share of Epensa. The president of La República’s board of directors, Gustavo Mohme Seminario, was one of the first industry heavyweights to raise a red flag, labeling what El Comercio did as “media consolidation,” which signified a “threat to freedom of expression.”

At the end of November, eight journalists, including Mohme Seminario, filed for an injunction, demanding the Peruvian judiciary system declare null and void the purchase by El Comercio, on the grounds it threatened freedom of expression as established by the Constitution. At the time, however, the debate was put on the backburner.

The debate heats up
On Dec. 29, in a television interview, President Ollanta Humala said the sale of the majority of Epensa shares was “a threat to freedom of expression,” though he added that the buyout “wasn’t currently illegal.” The next day, El Comercio countered with a front-page headline: “Humala issues veiled threat against freedom of expression.” The president, however, didn’t go back on his word as he had on earlier occasions after being pressured by the press, and went so far as to suggest Congress take up the issue.

Humala’s statement was a flashpoint. The debated intensified to the point that former presidential candidate and 2010 Nobel Laureate for Literature Mario Vargas Llosa publicly criticized El Comercio media group.

Although he rejected the ideas of state intervention and media laws such as those in Argentina and Ecuador, Vargas Llosa wrote in his column in the Spanish daily newspaper El País that the courts needed to take up the issue in Peru through that lawsuit filed by the eight journalists. It would be good, he added, if the case reached the Inter-American Court of Human Rights.

El Comercio responded in editorials and columns by its journalists that the Epensa purchase was fair and square, and that the public had “the freedom to choose.” The company also insisted that under current regulations, anyone in the country could start a newspaper.

Renowned journalist César Hildebrandt came out in partial support of El Comercio.

“El Comercio was wrong buying Epensa, but has acted within the current law, which allows this. Journalists who have filed the lawsuit, they all support the liberal system, which allows for [media] consolidation and punishes minorities, those marginalized in journalism,” he said in a critical tone in an interview with Venezuelan channel Telesur.

Hildebrandt went further, saying in the same interview: “of 13 million voters, one million read newspapers and 12 million watch television — (the latter) which is absolutely controlled by conservatives. The real problem is the monopoly the conservative sector has on the political agenda of Peruvian media, not that El Comercio bought Epensa.”

Other interests
Journalist Glatzer Tuesta, host of the show “No Hay Derecho” for Lima’s Radio San Borja, told Latinamerica Press the debate over media consolidation in Peru “is healthy and can’t be covered with one finger.” He believes the buyout is “dangerous for freedom of expression,” adding that El Comercio has “more than just media interests.”

“El Comercio’s partners also have shares in construction and housing [companies]. What would happen if those companies had problems? Would journalists from this media group cover that, if it were of public interest? If you look at how the media group behaved [before the purchase], you’ll see that in the majority of cases, they paid little attention.”

With regard to politics, Tuesta noted that in the 2011 elections El Comercio endorsed the candidacy of Keiko Fujimori, daughter of former dictator Alberto Fujimori (1990-2000) who is currently serving a sentence of 25 years in prison for corruption and human rights violations during his rule.

“When a company owns many media organizations, the possibility of silencing uncomfortable voices is greater, because it can ultimately, at their preferences, ignore some opposing facts, especially in electoral scenarios,” Tuesta explained.

“Let’s suppose El Comercio backs a certain candidate. What’s going to happen with the other campaigns? Sure, they’ll give them coverage, but while still propping up their candidate to the detriment of the other ones.”

The journalist, whose radio program is produced by the non-governmental Legal Defense Institute (IDL), also questioned the purchase by El Comercio on the grounds that it created a “consolidation of advertising” — threatening the livelihoods of local newspapers that don’t have a national reach.

“If [El Comercio] is interested in moving forward and expanding their hold on the market why would they buy out another media group? Why not publish another paper? That’s why this is about consolidation,” he said.

As with Vargas Llosa, Tuesta also believes Peruvian courts should take up the lawsuit to “avoid the government make a law authoritatively.” He added that the Inter-American Human Rights System’s Special Rapporteurship for Freedom of Expression could help with “issues of abuse of power” in this case.

For now, the ball is in the Judiciary’s court; earlier this year, it agreed to hear the request for injunctive relief regarding the sale of Epensa to El Comercio. A new chapter in the story will start once that decision is handed down. —Latinamerica Press

The article Peru: The Danger Of Media Consolidation appeared first on Eurasia Review.

By Published by the Foreign Policy Research Institute

By Felix K. Chang

Controversies rage over military procurement around the world. Few are ever fully satisfied. Taxpayers and politicians who fund it are often displeased with the cost overruns, performance shortfalls, and sheer waste that seem to go hand in hand with it. Government professionals are no less frustrated. They include members of the armed forces, who may go into battle not as well prepared as they could be, and procurement specialists, who feel that their attempts to manage the military procurement process are constantly being undermined. Even defense companies are frustrated by military procurement’s seemingly needless complexity that impedes them from more efficiently delivering innovative products and services.

Here we will examine some of the common reasons why democratic societies have had trouble efficiently managing military procurement. Some are evident; others are less so. We will also broadly look at how the histories and political cultures of India, Malaysia, and the United States have shaped their military procurement practices in different ways.[1]

COMMONALITIES

From the outside, the government departments and ministries that are responsible for national defense can seem like monoliths. But they are not. They harbor a host of bureaucratic interests. These can create incentives that complicate military procurement programs, such as one for a new jet fighter. Unlike the private sector where a company’s units may vie for resources to expand future revenues, government units are locked in a constant struggle against one another for resources that have little or no future revenue generation potential. That is especially true in the case of military procurement, whose output are combat capabilities that most governments hope never to use. The intense competition for limited resources (particularly in times of budgetary constraint) naturally incentivizes military organizations to overestimate capabilities that can be acquired and underestimate the cost of acquiring them at the programmatic level.

Such tendencies can result in “program creep,” the incremental expansion of procurement programs over time. Sometimes it happens when an initially underestimated program’s budget is reflated. At other times, it occurs when requirements for new capabilities are added to a program. The reasons for that can vary: a program’s originally optimistic requirements may have needed to be expanded in order to reach its desired capabilities; or new intelligence about an adversary’s capabilities may have prompted a reappraisal of a program’s requirements; or a military organization may have reckoned that it could gradually turn “nice to have” options into real requirements after its base program is funded. Whatever the case, new requirements not only increase costs, but also delay (sometimes for lengthy periods) the completion of procurement programs.

Of course, military organizations must manage many procurement programs in a given year. At the same time, they are encouraged to spend all of their budgeted resources each year, because much of their budget is allocated annually. The combination of these two factors incentivizes military organizations to “over program,” contract for more than their allotted budget. Realizing that some of their programs might be delayed or derailed (causing the resources devoted to them to go unspent), military organizations are motivated to order more capabilities than they can afford in order to ensure that as much as possible of their budget is spent. Ironically, if too many of their programs are efficiently managed, military organizations may run short of resources or be forced to rein in successful programs.

Like other government organizations, military ones, if left to their own devices, tend to seek greater procurement, unless constraints are placed around what capabilities they really need. Regular strategic and doctrinal reviews can help do that. If done properly, they can clearly define what military organizations should (and should not) be designed to do.[2] But military organizations need not view such reviews as necessarily restrictive. The U.S. Army and Air Force certainly benefited from their development of the Air-Land Battle doctrine in the 1980s. It clearly laid out how American ground and air forces would cooperate to defend Western Europe from a Soviet attack and focused resources on that effort. Stealing a page (if not the name) from that, the U.S. Navy and Air Force recently developed the Air-Sea Battle doctrine to help them not only conduct joint operations in the event of a Pacific conflict, but also support their budgetary requests.

A second set of misaligned incentives can be created by how government units that oversee the military procurement process are organized, even in the absence of inter-service rivalry. For example, natural conflicts can emerge when a unit that is responsible for evaluating acquisition costs is separated from another that is charged with managing the costs of operations and maintenance. The former may seek to optimize immediate acquisition costs without serious consideration of long-term costs. The latter may do precisely the opposite (if they are properly staffed to do so at all). Whichever unit exercises greater influence over the procurement process is likely to skew the results. If the former is favored, procurement of inexpensive equipment could eventually prove to be exorbitant if it is costly to operate and maintain. And if budgets are constrained, those higher operations and maintenance costs will gradually crowd out funding for new kit in the future. On the other hand, if the latter is favored, military organizations may receive equipment that fails to meet their capability requirements.

A third set of misaligned incentives is sometimes created by those charged with improving the military procurement process. In their attempts to correct past problems with the process or simply make it more efficient, they naturally favor some solutions over others. Since military organizations want to maximize the likelihood that their procurement requests are approved, they are incentivized to shoehorn their requests to fit those favored solutions. One area where that can be seen is in the preference toward certain contract types.[3] Sometimes fixed-price contracts are favored and at other times time-and-materials contracts are in vogue. Since it may be easier to get contracts approved using a favored contract type, military organizations are incentivized to maximize the use of that contract type to speed up the procurement process. But the sheer diversity of military procurement programs invariably leaves many of them with ill-suited contracts, making their execution more burdensome.

Finally, sometimes even well-aligned incentives can lead to public controversy. For example, procurement specialists seeking to obtain the best value for the government may knowingly incur periodic cost overruns in the military procurement process. That might sound contradictory. But when funding a new program, procurement specialists have several options. They could allocate an amount that they are certain will accomplish the task. But in doing so, they forfeit possible savings that defense companies could have implemented to reduce costs. On the other hand, they could try to maximize savings by allocating an amount that they are certain will not accomplish the task. That surely pushes defense companies to cut costs, but perhaps so much so that it causes performance shortfalls. Moreover, since only a small number of defense companies can actually do particular tasks (like build a jet fighter), an overly tight budget might prompt them to either try to recoup any financial losses on future contracts or merge with other companies to further reduce costs (and, in doing so, reduce future industry competition). Procurement specialists have a third option: allocate an amount between the two extremes. By accepting some uncertainty in the ultimate procurement cost, they can pressure defense companies to devise new ways to deliver products and services at lower cost. However, they must accept that the ultimate procurement cost could be higher than their initial allocation—in other words a cost overrun.

Past the executive branch of government, there are ways the legislative branch can impact military procurement too. A few are obvious. Legislators might short-circuit the military procurement process and choose less expensive options or those with lower capabilities in order to shift resources to non-military programs, even though the options they choose may cost more in the long run and the acquired capabilities may not meet military needs. Conversely, legislators have been known to procure products and services for the military, which the military did not request. But in doing so, they could benefit their local constituents or districts with defense contracts.[4] By the same token, defense companies also use such “pork” to entice legislators to fund their products and services.

There are also less obvious ways legislators can impact military procurement efficiency. For example, when legislators cut a procurement program, they can do so in two different ways. They could entirely eliminate a program. But they dislike doing so, because of the harmful impact that might have on local defense employment. Instead, they would rather slow the rate at which a program is carried out or trim its output (perhaps reduce the number of jet fighters). Unfortunately, choosing the former raises overhead costs, which must be funded for a longer period, and opting for the latter loads a program’s full development costs onto a smaller number of, say, jet fighters. No wonder then that in both cases the cost of a jet fighter can soar.

Issues entirely apart from the government can also impinge on efficient military procurement. One of the biggest is the structure of a country’s defense industry (and increasingly the global defense industry). Competition among defense companies generally contains costs. But since the end of the Cold War, the number of defense companies has declined. Companies around the world have consolidated in response to the lower rates of military procurement and the rising sophistication of military technology that demands bigger financial investments and a wider array of technical expertise. Given further specialization within the defense industry, near monopolies have been created in some weapon system categories. Even the United States, which has a larger number of defense companies than most other countries, has struggled to keep military procurement costs from growing faster than inflation. Government policies that it put in place to promote competition and second sourcing can only do so much when there are only one or two potential vendors. That is particularly true for high-complexity, low-volume procurement programs, such as nuclear-powered aircraft carriers or strategic bombers.

Some countries have created state-owned or state-subsidized arms manufacturers in an effort to produce world-class military technology at reasonable cost and improve their national security by ensuring domestic sources of military hardware. Sadly, these efforts have generally disappointed. In fact, their costs are often higher and their technological sophistication lower than those of international defense companies. But given their status as national champions, these entities are typically favored in domestic military procurement tenders. As a result, they do not have as great an incentive to be as cost conscious or operate as efficiently as their competitors. Indeed, some become harbors of political patronage. Only a handful of countries have successfully created internationally-competitive defense companies, like Russia’s Sukhoi and Singapore’s ST Kinetics, from formerly state-owned arms manufacturers.

Another major military procurement issue, especially for countries that import most of their armaments revolves around exchange rates. Since countries must pay for imported arms, like any other imported goods, with local currency that is converted into a foreign one, the rate at which that exchange takes place is very important. A stronger local currency means a country can buy more from abroad; a weaker one means it can buy less. To see the impact exchange rates can have on military procurement, one need only to recall India’s experience in the early 1990s when a balance-of-payments crisis caused the value of the Indian rupee to precipitously fall. Higher import costs for new weapon systems, spare parts, and fuel not only wrecked India’s military modernization at the time, but also dented the operational readiness of its existing forces. More recently, the Bank of Japan’s aggressive monetary expansion has caused the value of the Japanese yen to plummet in 2013. That has undermined Japan’s Air Self-Defence Force, whose future rests on the American F-35 Joint Strike Fighter. Under a June 2012 foreign military sales agreement with the United States, Japan purchased its first four F-35 fighters for ¥10.2 billion each, at the then-prevailing exchange rate of 82 yen to the dollar. But since then the Japanese yen depreciated to an exchange rate of 105 yen to the dollar. As a result, each new fighter now costs ¥12.9 billion, over 25 percent more. Worried about rising costs, Japan has begun to consider stretching out its total purchase of 42 fighters from 2021 to 2023.[5]

There are no easy solutions for these military procurement problems. And the particular histories and political cultures of individual countries complicate them further. We will briefly survey some aspects of these in India, Malaysia, and the United States to see how they can influence their military procurement practices.

INDIA

India is the world’s largest democracy. It is also one of its most socially fragmented with a population divided along religious lines and by scores of different languages. To promote greater national cohesion and economic development, Indian leaders chose to concentrate political and economic power in a strong central government soon after their country’s independence. Eventually that central government grew into a sprawling bureaucracy with a predilection for heavy-handed regulations. By the early 1990s, India began to implement reforms to free itself from some of those government controls, which had become a maze of laws and licenses.

As part of that effort in 2002, India revised its military procurement process and set up its streamlined Defence Procurement Procedure, which aimed to bring greater consistency and transparency to the country’s military procurement practices. But the Indian government did not give up on its ambition to create a domestic defense industry. To do so, it shifted its policy from one of import substitution to one of offset obligations—requiring foreign defense companies to source a percentage of their contracts from Indian defense suppliers. Such reforms have met with some success. One example was Hindustan Aeronautics Limited’s licensed manufacture of Su-30MKI fighters from designs and subsystems shipped from Russia.

However, cases like the Arjun main battle tank program still linger. In 1972, the Indian army sought to replace its aging inventory of Vijayanta and T-55 tanks. The Ministry of Defence turned to the state-owned Defence Research and Development Organisation (DRDO). But DRDO took so long to develop its Arjun tank that the army was forced to repeatedly update its capability requirements to match advances in global technology. But every change to the tank’s requirements complicated DRDO’s development process and led to rework that further delayed the program. Finally, 37 years after its inception, the program began to deliver its first batch of 124 tanks in 2009. And although a second batch of 124 tanks was ordered the next year, the total is still far short of the several hundred tanks that the army originally envisioned.

At other times, the Ministry of Defence’s bureaucracy has seemed willing to paralyze its own military procurement process in order to shield itself from the taint of corruption. That certainly appeared to be true of the Indian army’s 27-year struggle to acquire new artillery. In the late 1980s, then-Prime Minister Rajiv Gandhi and other senior officials were implicated in a corruption scandal in which they were alleged to have received kickbacks from Bofors, a Swedish defense company, in return for a government contract to procure its 155mm howitzers.[6] Ever since the Ministry of Defence has been sensitive to any hint of corruption. But rather than find a way to maintain their vigilance while still meeting the army’s need for artillery, the Ministry of Defence exhibited a “penchant for blacklisting foreign arms producers [suspected of corruption] without considering the negative effects it has on India’s military preparedness,” in the words of one Indian senior officer.[7] Even after the Indian army’s lack of modern artillery badly impaired its combat operations during the Kargil War, the Ministry of Defence dithered. A detailed review in 2000 put a spotlight on the army’s artillery deficiencies and concluded that it needed to re-equip as many as 180 of its 220 artillery regiments. Still, the Ministry of Defense took ten more years to reach the point where it conducted artillery field trials. Then, it abruptly canceled one of the two trials and restarted its tender after corruption rumors surfaced about one of the vendors. Fortunately for the army, the government completed the other tender, selecting the American M777 155mm lightweight howitzer in 2011. But two years later, no contract has yet been signed.

These frustrations have not been lost on Indian officials. As a result, the Indian government has often resorted to an alternate military procurement channel, intergovernmental purchases, which are typically noncompetitive agreements between governments, to accelerate its military procurement. Between 2000 and 2010, these purchases accounted for as much as 70 percent of India’s total military procurement. At various times when the Arjun program was unable to meet the army’s timetable, the Indian government directly bought main battle tanks from Russia. The army purchased 310 T-90S tanks in 1999, ordered another 347 T-90S tanks in 2007, and has considered the licensed production of 1,000 more tanks.

MALAYSIA

Malaysia is a country of about 24 million people whose ethnic mix of Malays, Chinese, and Indians has been at the center of national politics. The Malaysian government’s affirmative-action policies, which favored ethnic Malays, the bumiputera, have long fanned tensions among the ethnic groups. Ethnicity even played a role in the course of the only large-scale conflict in Malaysia’s modern history, a long counterinsurgency against mainly ethnic Chinese communist guerrillas.[8] With so much political energy focused on internal issues, the public has been generally indifferent to matters related to external defense and foreign affairs. That has had implications for the country’s military procurement.

Given the lack of public attention, much of Malaysia’s military policies rest in the hands of a small political elite that operates with relatively little transparency. Decisions about military procurement often fall to either those within the elite or those that support them. That creates the potential for priorities other than those dealing with the military to come to control the military procurement process. Hence, some have characterized Malaysia’s military procurement as “rationalized decision rather than rational decision-making.”[9]

Even under Malaysia’s standard military procurement process, an organization other than its Ministry of Defence can wield decisive influence over military acquisitions. When capital expenditures are expected to be high, the Ministry of Finance can actually issue the military procurement tender. While the Ministry of Defence may contribute its technical requirements, it is the Ministry of Finance that ultimately decides on the acquisition, which is often the one with the lowest cost. As a result, the military sometimes receives equipment that does not meet its requirements. Indeed, there are a few instances when Ministry of Finance tenders are awarded without even informing the Ministry of Defence. One case occurred in 1996 when Malaysia awarded a contract for corvettes to a German shipbuilding consortium; the Ministry of Defence learned of the award from the consortium, rather than its own government.[10]

Another example where military requirements were subordinated to other priorities was the Malaysian government’s decision to purchase 18 MiG-29N fighters from Russia. At about the same time, Malaysia ordered eight F/A-18D multirole fighters from the United States. While the decision to purchase the MiG-29Ns may have been designed to demonstrate Malaysia’s continued geopolitical non-alignment or simply to economize over the more-expensive F/A-18Ds, it did overlook many of the MiG-29N’s operational shortcomings. In later years, Malaysia’s MiG-29N fleet was reported to have suffered from low operational readiness and higher-than-anticipated maintenance costs. Moreover, the Malaysia’s air force was forced to maintain separate supply chains for its two sets of aircraft, reducing their flexibility to operate between airbases. Such examples do little to help engender trust between those responsible for procuring military capabilities and the military organizations that must use them.

UNITED STATES

Military procurement preferences in the United States would be difficult to discuss without noting Task Force Smith. In July 1950, the lead element of the U.S. 24th Infantry Division, a reinforced infantry battalion called Task Force Smith (named after its commander), was sent to delay North Korea’s invasion of its southern neighbor. Equipped with materiel left over from World War II, it was decisively beaten by North Korean forces armed with more modern Soviet weapons. One-third of the American troops engaged were lost. While a number of reasons contributed to Task Force Smith’s defeat, those concerned about American military preparedness have since used the phrase “No more Task Force Smiths” to urge the procurement of ever better equipment for U.S. forces.

For much of the Cold War and the decades that followed, most Americans have come to agree with the sentiment that their military should be better equipped than its adversaries, if not with the most advanced equipment possible. However, that kit has not always been efficiently procured. Many resources have been wasted in the process. Of course, there are good reasons why that waste occurs, the most prominent of which being that striving for the most advanced solutions occasionally misses its mark. Risk of failure is always present in the development of something new.

But there have been plenty of cases where the reasons for waste have not been so innocuous. Knowing how much risk to accept is tricky. It requires a clear-eyed assessment of not only the technology, but also the inner workings of the organizations that would use it. The latter is often less straightforward than it sounds, due to the bureaucratic struggles between government units within an organization and their incentives to either protect or gain more resources for themselves. That has been true of even mundane military procurement programs, like accounting systems. In 2003, the Pentagon attempted to procure an ambitious department-wide accounting system to unify hundreds of old and disparate systems. It was a bridge too far. The program was shelved in 2010, because of inter-governmental squabbles and constant demands for exceptions and changes to the new system’s requirements. Similar efforts in each of the three armed services (consuming another $2.1 billion to date), have failed or been delayed. Only one solution, the U.S. Army’s, has come close to reaching its original capability goals.

A preference for the most advanced solutions can also lead to human hubris among military and civilian procurement specialists. One example from the 1980s was the very high-speed integrated chip (VHSIC) program. “The Pentagon bureaucracy said Silicon Valley could not be counted on to produce fast enough chips for the integrated circuits of the high-tech weapon systems then under development. So Washington taxed each service nearly $2 billion a year and sank approximately $12 billion overall into the VHSIC program. When the chip was finally produced in 1989, it was significantly slower and several generations behind the commercial counterpart produced by Silicon Valley companies.”[11]

Starting in the 1990s, procurement specialists hoped that by favoring customized-off-the-shelf (COTS) solutions—those that modify existing technologies rather than develop them from scratch—they could limit risk and reduce the number of failed programs.[12] But given the overriding incentive to gain approval for procurement requests, some in the Pentagon would push to use favored COTS solutions even though they might be unsuited to the tasks. Those COTS solutions can later become so laden with special requirements that they essentially turn into internal development projects. The U.S. Air Force’s Expeditionary Combat Support System is one example. When the program was launched in 2005, it promised to replace over 400 older systems with one that could track all of the air force’s hardware. The program planned to combine three off-the-shelf software products and then modify them only enough so that they could work together. Seven years and $1 billion later, the U.S. Air Force cancelled the program, citing that it produced “negligible” value. It estimated that another $1.1 billion (and eight years) would be needed just to enable the system to meet a quarter of its originally envisioned capabilities.[13]

Pursuing the most advanced solutions also does not come cheaply. New weapon systems usually cost more than the Pentagon initially predicts. Like other military bureaucracies, it overestimates capabilities and underestimates costs to acquire them. Army ground combat vehicles both tend to cost 70 percent more to develop and produce, than originally estimated. Navy ships typically cost about 16 percent more to develop than first projected, and 11 percent more to produce. Such cost overruns are so common that the Congressional Budget Office uses this data as a guide to create its cost forecasts for equipment that is still under development.[14]

Of course, the American preference for the most advanced solutions is not to blame for the underlying problems that vex military procurement in the United States. If done well, it can greatly benefit national defense. But it can exacerbate procurement problems, adding risks and making cost overruns and program failures more likely. When funding is plentiful, the United States can accept those inefficiencies and still procure what it wants. But in an era where budgets are more constrained, the United States will have to find a way to improve how it conducts military procurement or it will have to make even harder choices about what to procure.

CONCLUSION

Military procurement is critical for national defense. But it does come with controversies. One can find them in all democratic societies. They generally arise from poorly aligned incentives that are created by the interaction of cross-cutting interests within both the executive and legislative branches of government as well as the defense industry. Beyond those, there are special challenges formed by the particular histories and political cultures of each country. India’s penchant for a strong central government and a planned economy during its formative years still influences how its government bureaucracy approaches military procurement. Meanwhile, the enduring dominance of domestic issues in Malaysian politics has allowed priorities other than military ones to sometimes drive its military procurement decisions. And in the United States the preference for the most advanced solutions often creates the potential to exacerbate already existing military procurement problems.

Countries are unlikely to eliminate the controversies surrounding military procurement by simply trying to fence it off from bureaucratic or political processes. That would separate it from public oversight and may serve to only reinforce institutional biases. Greater transparency in military procurement could do a better job at curbing the excesses of existing procurement practices. But putting to rest some of the military procurement controversies that we have explored here would require realigning the incentives of the various actors. That is far easier said than done. Changing existing incentives would mean changing the power relationships among those involved in the procurement process. That is sure to meet stiff resistance. Such a realignment of incentives would demand a sustained commitment of political will and a clear understanding of how those incentives systemically interact. It would also require a multi-faceted campaign. Success on one front will not bring victory, only a multi-pronged strategy stands a chance.

About the author:
Felix K. Chang is an FPRI Senior Fellow, as well as the co-founder of Avenir Bold, a venture consultancy. He was previously a consultant in Booz Allen Hamilton’s Strategy and Organization practice; among his clients were the U.S. Department of Energy, U.S. Department of Homeland Security, U.S. Department of the Treasury, and other agencies. Earlier, he served as a senior planner and an intelligence officer in the U.S. Department of Defense and a business advisor at Mobil Oil Corporation, where he dealt with strategic planning for upstream and midstream investments throughout Asia and Africa. His publications include articles in American Interest, National Interest, Orbis, and Parameters.

Source:
This article was published by FPRI and may be accessed here.

Notes:
[1] We will avoid the military procurement practices of autocratic countries, because they tend to have idiosyncratic priorities that are driven by factors other than national defense.

[2] To be a truly useful guide for military procurement, a strategic review should sharpen a military organization’s goals, rather than stretch them to justify its existing programs. Unfortunately for the United States, its Quadrennial Defense Review sometimes veers in the latter direction.

[3] In the United States, there are at times favored “contract vehicles.” These are methods under which a vendor can sell its products or services to the government, and can include GSA contract schedules, public procurement contracts, sole source contracts, etc.

[4] While modern armaments often have lives measured in decades, legislators face election far more frequently. The difference in time horizons can misalign incentives and distort military procurement decisions.

[5] Paul Kallender-Umezu, “Japan Might Delay F-35 Purchases,” Defense News, Jun. 10, 2013, http://www.defensenews.com/article/20130610/DEFREG03/306100018/Japan-Mig….

[6] Ironically, the Indian army’s best-performing artillery pieces in the Kargil War were Bofors’ 155mm howitzers that India acquired in 1986.

[7] Mrinal Suman, “Blacklisting Foreign Vendors,” eSamskriti, Jul. 2011, http://www.esamskriti.com/essay-chapters/Blacklisting-Foreign-Vendors-1…..

[8] The communist Malayan National Liberation Army gained popular support among ethnic Chinese, in part because they were denied equal citizenship and land ownership rights.

[9] Abdul Rahman Adam, “Dynamics of force planning: the Malaysian experience,” SIPRI Arms Procurement Decision Making Project, Working Paper no. 77, revised version, Oct. 1997, p. 17.

[10] Dagmar Hellmann-Rajanayagam, “Malaysia,” in Arms Procurement Decision Making Volume II: Chile, Greece, Malaysia, Poland, South Africa and Taiwan, ed. Ravinder Pal Singh (New York: Oxford University Press, 2000), p. 97.

[11] Summers, Harry G., Jr., “Operations, Procurement, and Industrial Base,” in America the Vulnerable, eds. John F. Lehman and Harvey Sicherman (Philadelphia: Foreign Policy Research Institute, 2000), p. 82.

[12] U.S. General Accounting Office, Better Use of Limited DOD Acquisition Funding Would Reduce Costs (Washington: U.S. General Accounting Office, Feb. 1997), p. 4.

[13] Scot J. Paltrow, “Why the Pentagon’s many campaigns to clean up its accounts are failing,” Reuters, Dec. 23, 2013; Gary R. Bliss, memorandum to Under Secretary of Defense for Acquisition, Technology, and Logistics, “Root Cause Analysis of the Expeditionary Combat Support System Program,” Aug. 28, 2013.

[14] The basic concept is to look at previous weapon systems, take their performance characteristics for all these key attributes, run a regression to create a mathematical formula, and then plug in the expected performance features of the new weapon system to calculate expected costs. Lane Pierrot and Gregory T. Kiley, The Long-Term Implications of Current Defense Plans (Washington: Congressional Budget Office, Jan. 2003), p. 45.

The article Incentives Matter: Military Procurement Problems in India, Malaysia, And The US – Analysis appeared first on Eurasia Review.

By PanArmenian

The official Angry Birds website was defaced late Tuesday, Jan 28, turning everyone’s favorite fowl into “Spying Birds.”

The hack came after The New York Times, citing data provided by Edward Snowden, said that the National Security Agency and British intelligence teamed up to collect and store user data generated by “dozens of smartphone apps,” including popular games like Angry Birds, PCMag.com reports.

According to security analyst Graham Cluley, visitors to angrybirds.com saw the game’s logo replaced with “Spying Birds,” and an NSA logo affixed to the head of one of the iconic characters (pictured).

The Finnish company confirmed the intrusion to PCMag. “The defacement was caught in minutes and corrected immediately. The end user data was in no risk at any point,” a Rovio spokeswoman said in a statement.

“Due to how the Internet name resolution works, for most areas it was not visible at the time, but some areas take time for the correct information to be updated. This attack looks to be similar to the New York Times attacks from last year,” she said.

As of Wednesday morning, the website was back to normal, with access to a variety of games, including the new Angry Birds Go! racing title, as well as Star Wars-themed games and Bad Piggies.

Yesterday, Rovio denied handing over user information to officials, suggesting that any leaked data is coming from third-party ad networks. According to the developers, “the alleged surveillance may be conducted through third-party advertising networks used by millions of commercial websites and mobile applications across all industries.”

This news comes as the Department of Justice announced that tech firms will be allowed to release more data about government requests for information. No longer forced to lump national security-related requests with ordinary law enforcement requests, organizations can now break them out in bands of 250.

The Syrian Electronic Army, which has targeted media companies of late, said in a tweet that the Angry Birds hack was carried out by “a friend.”

The article Angry Birds Website Hacked After NSA Spying Reports appeared first on Eurasia Review.

By Dean Baker

One of the recurring canards in Washington policy debates is that the United States has an aging population that is going to bankrupt our children and grandchildren. According to this tale, an increasingly small number of workers will have to support an ever-growing number of retirees, which will impose an enormous hardship on our descendants. This argument is put forward to justify cutting back Social Security, Medicare and other social protections.

This story makes demonstrably little sense in the context of the U.S. economy. As for the rest of the world, The New York Times reported last week on an effort at Davos to export this story to China and other Asian countries. This is unfortunate, since it makes even less sense in these countries. It’s worth reviewing some simple facts and arithmetic to clear up confusion.

First, aging populations are not new. The United States and other wealthy countries have been seeing aging populations for centuries, as increases in living standards and improvements in medicine have led to longer life expectancies. This has meant a growing population of retirees relative to the number of people working.

The D.C. fearmongers point to projections showing the number of workers per Social Security beneficiary falling from 2.8 his year to just 2.1 in 2035. But this prospect looks considerably less scary when we consider that the number of workers per beneficiary was 5.1 back in 1960. We have seen this number cut almost in half over the last five decades, yet both workers and retirees have seen substantial increases in their standard of living.

The logic here is simple: Productivity growth has allowed workers to produce far more today than they did in 1960. According to the Bureau of Labor Statistics, productivity is more than three times as high today as it was in 1960. This means that for every hour worked, a worker in 2014 on average produces three times as much by way of goods and services as did a worker in 1960. This is the reason that both workers and retirees can enjoy higher living standards even though there are fewer workers to support each retiree.

We should expect this to continue to be the case. Even if productivity grows at only a 1.5 percent annual rate, the same rate as in the productivity slowdown from 1973 to 1995, output per hour will still be almost 40 percent higher in 2035 than it is today. If productivity grows at the same 2.5 percent rate it sustained from 1995 to 2007, output per hour will be almost 70 percent higher than it is today.

While economists’ track records in predicting productivity growth have been abysmal, the talk of robots displacing massive numbers of workers implies productivity growth that is even more rapid than this 2.5 percent rate. In that case, we will have no problem whatsoever supporting a far higher ratio of retirees to workers than will ever exist in the world. Our problem will be finding work for people to do, since the robots will be doing all the work for us.

In fact, raising demographic fears in the context of China is similar to the robot story. China has seen an incredible increase in its productivity since 1980. As a result, its per capita income is more than 17 times as high today as it was in 1980. This increase has taken place over the working lifetime of those about to retire.

This sort of extraordinary income growth means that the country will have no problem providing these retirees with pensions that are much higher than what they earned during their working life while still leaving future workers with wages that are far higher than their parents’. The gains in productivity swamp the potential impact of a falling ratio of workers to retirees.

The arithmetic on this is straightforward, even with the rapid drop in the ratio of workers to retirees projected for the next two decades. In fact, it would take productivity growth of just 0.4 percent annually over this period to keep after-tax wages constant, assuming that benefits for retirees cost 75 percent of the average after-tax wage. (Note: The average Social Security benefit is 40 percent of the average wage.)

The United States has never seen two decades of such slow productivity growth. And after 2035 the ratio of workers to retirees is projected to remain pretty much constant for the rest of the century while productivity keeps growing. In other words, there is no basis for concern that an aging population will prevent future generations from enjoying much higher standards of living than workers today.

The only circumstances in which an aging population could impose a real burden is if productivity growth ground to a halt. But in that case, the problem would be the failure of productivity to grow, not an older populace. It would take some pretty biased thinking to focus on the latter.

There are in fact real threats to the living standards of our children and grandchildren. At the top of this list is inequality. If the pattern of income growth we have seen over the last three decades continues, with most of the gains going to the richest 1 percent, then most of our children will not fare well. Global warming also poses enormous threats to living standards, as a changing climate will make many areas uninhabitable and possibly lead to severe shortages of food and water in many parts of the world.

These are the sorts of issues that desperately need the public’s and policymakers’ immediate attention. The fact that people are living longer is not a problem.

This article originally appeared in Al Jazeera and is reprinted with permission. 

The article Fear Of The Old – OpEd appeared first on Eurasia Review.

By Profit Confidential

By Mitchell Clark

Some prolonged downside is exactly what this stock market needs—a market that’s been looking for a catalyst to sell for quite some time.

While there has been pressure on long-term interest rates, we still have virtual monetary certainty this year with the Fed funds rate staying where it is. Weakness abroad in China is still a story of overcapacity, but there has been some refreshing economic data out of the eurozone.

What’s clear in Western economies is that positive economic data is sporadic and mostly without trend. The lack of consistency in mature economies has equity investors in a bit of a loop. Ten percent downside across the main stock market indices would be a healthy development for the long-term trend. We never did get a stock market correction last year, only consolidation, as investors were only too happy to keep buying.

Fourth-quarter earnings season has been modest so far, with outperformance (according to Wall Street) mostly coming in at the bottom-line, meaning that genuine sales growth is still a very tough thing to accomplish. Furthermore, a lot of corporations aren’t guiding 2014 above previous outlooks, and this makes it very difficult to be a new buyer.

Global capital markets are gyrating on a reassessment of investment risk and the prospect for real economic growth. Add in currency volatility, and there are the makings of a flight to the U.S. dollar and a sell-off in the stock market.

Still, the most important data now is what corporations actually say about their businesses. Beating the Street is less important than a true assessment of business conditions and expectations for the future. Many important benchmark companies are, once again, reporting solid numbers.

Union Pacific Corporation (UNP) is always a benchmark worth following. The company’s shares just broke through another stock market high after management announced a record fourth quarter and fiscal year.

The company’s diluted earnings per share grew 14% to $9.42 during 2013 and 16% to $2.55 in the fourth quarter. Operating revenues showed solid growth of seven percent to $5.6 billion, representing both volume growth and pricing gains.

Fourth-quarter agriculture freight revenues grew 19%, while automotive and industrial products grew 17% and 14%, respectively. These are very good gains and are actually quite surprising.

Naturally, management played its 2014 outlook conservatively, expecting slow but positive economic growth this year. The company increased its dividend to shareholders by 19% to $2.96 per share last year, which is a material development.

While there are not a lot of reasons to be buying this stock market, I’m still an advocate of sticking with existing winners and dividend income is extremely important. (See “Stock Market Focus to Shift in 2014.”)

The most efficient corporations are going to be able to translate single-digit revenue growth into double-digit earnings this year. But with this in mind, 2013’s stock market performance was so unusual in its capital gain that dividend income may very well be the only return on investment this year.

Expect more near-term gyrations in the U.S. stock market, global currencies, and emerging markets. It’s part of the process of the global financial system trying to balance itself out after an extraordinary year.

This article Is This the Correction Investors Have Been Waiting For? was originally posted at Profit Confidential.

The article Is This The Correction Investors Have Been Waiting For? – OpEd appeared first on Eurasia Review.

By RSIS

Islamic governance is rising to the fore again in Malaysia as UMNO and PAS probe each other for meeting points while competing for Malay/Muslim support. Shariah, or Islamic law, is emerging as a new issue catalysed by Brunei’s adoption of hudud, the Islamic penal code.

By Yang Razali Kassim

ISSUES RELATING to Islamic governance look set to dominate the Malaysian political scene this year. New developments at the end of 2013 set the agenda for relations between the country’s two Malay/Muslim parties — the ruling United Malays National Organisation (UMNO) and the opposition Parti Islam SeMalaysia (PAS). Both are entering a new phase of looking for common ground over Islamic issues, while remaining competitors for the support of the majority Malay/Muslim community in peninsular Malaysia.

Following the 13th general election in May, PAS and UMNO held their respective party congresses and elections, which threw up new leadership formations. While PAS continued its shift towards the centre with its slogan of Rahmat untuk Semua (“Blessings for All”), UMNO edged more to the right by its de-emphasis on 1Malaysia and a tilt towards Islam.

The Brunei factor

This has drawn criticism from PAS leaders that UMNO was out to be “more fundamentalist than PAS”, even as the two competing parties probed each other for meeting points in the name of “Malay unity”, which UMNO is trying hard to lure PAS into.

The seemingly contradictory developments mean that PAS is becoming more inclusive to embrace all communities, even softening its rejection of UMNO’s overture for unity talks by offering dialogue on issues of Islamic administration. UMNO, however, is becoming more exclusivist as it backtracks on its all-embracing policy of 1Malaysia, while it tries to expand its Malay/Islamic base.

More significantly, both parties have been converging on the issue of hudud or Islamic criminal law — something which has divided them for years. This apparent convergence has been catalysed from the outside – surprisingly by Brunei’s push to implement hudud for its Muslims from this year.

At the PAS Muktamar or general assembly in November, party President Hadi Awang said: “If they (UMNO) say they are committed to implement an administration based on Islam, let’s muzakarah (dialogue).” The run-up to the Muktamar had been abuzz with Brunei’s move to adopt the Islamic Penal Code, which had even caused some UMNO leaders to rethink their opposition to hudud in Malaysia.

Minister in the Prime Minister’s Department Shahidan Kassim said in the same month that he was ready to debate with PAS the implementation of hudud. Encouraged by this apparent change in attitude – UMNO would in the past not even entertain the idea — PAS leaders urged UMNO to take the lead in tabling a motion on hudud in Parliament where the opposition does not have a majority.

To be sure, PAS has been ahead of the curve on hudud which imposes deterrent corporal punishment for theft, adultery, consumption of alcohol and apostasy, such as possible whipping, stoning and amputation of limbs. While it has enacted the law in Kelantan state, which it controls, PAS’ push for hudud nationwide has met with resistance from its opposition coalition partner, the Democratic Action Party. It also lacks federal support – meaning UMNO’s backing — which it would require to amend the Federal Constitution.

Indeed, support for hudud in UMNO has actually been growing. For example, in 2012, an UMNO politician, speaking in the Johor state assembly, called for its introduction in Johor, which evoked the backing of PAS spiritual leader Nik Aziz.

Umno’s turn to Islamism

Weeks after PAS’ Muktamar, UMNO convened its general assembly following its party elections, which was marked by something unusual: Prime Minister and UMNO President Najib Razak declared that Shariat Islam or the Islamic Shariah would be the first of “three key take-aways” or messages from the assembly. The other two were a stronger Malay and bumiputra agenda and UMNO’s transformation into a “party of the 21st century”.

Although Mr Najib did not spell out what he meant by upholding the Shariah, it is significant that Islam was made the first of three strategic thrusts to propel UMNO towards a bigger victory in the next general election that must be called by 2018.

An ethno-nationalist party, UMNO had never been strong on Islam. Its turn towards Islam as part of its identity began in the early 1980s when then-Prime Minister Mahathir Mohamad co-opted firebrand Islamic youth leader Anwar Ibrahim into UMNO. This coincided with the start of Islamisation of the country, including its government administration.

While Mr Anwar was expelled in 1998, UMNO’s Islamisation continued, although more in form than substance. Its core identity is still Malay nationalism, which strictly speaking, cannot co-exist ideologically in puritan Islamist parties. For this reason, Mr Najib’s declaration of UMNO as an upholder of the Shariah at the December assembly marked a clear shift in the party’s identity from an ethno-nationalist political entity to a semi-Islamist, if not a pseudo-Islamist, party.

This Shariah shift came into sharper focus when, soon after Najib spoke, Home Affairs Minister and UMNO Vice-president Ahmad Zahid Hamidi declared that UMNO would be a defender of Islam Sunnah Wal Jamaah or Sunni Islam. UMNO would amend its party constitution to make this distinction; he dropped hints that it may even aim to amend the Federal Constitution in due time — though this would be more difficult to achieve in view of the ruling coalition’s weakened position in Parliament.

Nevertheless UMNO introduced a clear divide with Shiism, which the minister controversially declared a threat to Islamic unity. Surprisingly, he even launched a blistering attack on the PAS deputy leader, whom he accused of being a closet Shia.

In distancing itself from Shiism, UMNO had planted the seeds of further polarisation within the Muslim community, which has generally been homogenous faith-wise. This can backfire not only on UMNO but also the country, given Malaysia’s aspiration to be a leader of the Islamic world. PAS leaders have called UMNO’s stance a “political ploy” to claim they are the ones true to the religion and not PAS.

New phase for Islam’s role?

These developments have heightened the Islamic factor in Malaysian politics. It marks a new trend in which PAS and UMNO are inching closer towards each other on issues of Islamic governance, the outcome of which cannot be easily predicted given conflicting signals from both key actors, especially UMNO. While PAS appears more sure-footed about its political direction, UMNO’s signals seemed defined by internal political jockeying.

Still, UMNO and PAS have taken the issue to a new level with an unprecedented meeting on hudud due to take place between the chief minister of PAS-controlled Kelantan state and Najib. PAS has made it clear the meeting will not be about Malay unity, as the pro-UMNO mainstream media had portrayed.

This new trend of convergence over hudud, if it remains, could be a game-changer in the dynamics of relations between the country’s two competing Muslim-based parties.

Yang Razali Kassim is a Senior Fellow with the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University. An earlier version first appeared in TODAY.

The article Islamic Governance In Malaysia: Taking The Cue From Brunei? – Analysis appeared first on Eurasia Review.

By Eurasia Review

By Prof. Anis Bajrektarevic and Carla Baumer

1 Introduction

Climate change, its existence, causes and effects, has been disputed by researchers, academics and policy makers. The given degree of international consensus varies greatly between those most affected by changes to climatic conditions in contrast to those who are estimated to only experience a limited effect. Controversially, it can also be claimed that some regions are set to gain from climate change such as the polar region nations currently disputing resource claims and logistic networks. In analysis of available data, research suggests the increased intensity of storms, hurricanes, cyclones, flooding, droughts, bushfires, mudslides and hailstorms along with increased temperatures, rising sea levels, and changing to pressure systems. With climate change as a global phenomenon, not isolated to a certain region, the interest of stakeholders remains strongest in those with the ‘smallest’ voice such as the coastal areas, islands, commonly catastrophe prone and ‘future’ catastrophe prone regions in South East Asia.

The re-insurance industry does not have the luxury of time in which to debate the ‘possibility,’ of climate change but rather to focus on the ‘probability’ of the consequences. With the cost of natural disasters predicted to rise exponentially in coming decades, the issue of human security is measured in economic terms. The economic effect of climate change is vague with popular measures of market costs, changes in quality of life, lives lost, species lost and variations in cost distribution and subsequent benefits. These costs are summoned into willingness to pay (the readiness of people to exchange their capital or income for improved human security) and willingness to accept compensation (the amount of compensation needed to see inhabitants forgo certain standards and accept deteriorating conditions).

With 2005 noted by the insurance industry as holding the highest economic loss (USD $230 billion), the economic implications of natural catastrophes is apparent holding 2-9% of GDP in aggregated monetized damage. As 1-1.5% of this aggregated monetized damage occurs in OECD nations and 2-9% in developing nations the interests of regional stakeholders can be distinguished according to strength of climatic conditions on their area. In response, the re-industry has moved to new catastrophe modeling systems, developed new insurance products, flaunted ‘green’ initiatives and created new defenses against climate-related claims in order to analyse and more effectively assess the probability of risks and integrate problem solving mechanisms.

As in all industries, re-insurance is a case of supply and demand with dominant players holding the reins of the insurance industry to mitigate larger risks by providing financial backing, reduced exposure to insolvency, and stability due to the geographically spread risk. The North American market has long been the most strongly insured of the regional global markets with the Asian region seen as the rising star due to the increased economic development and subsequent demand for insurance. Depending on the region, insurance coverage as well as government relief funding, will be limited in relation to the location’s level of risk. As the South East Asian region hosts increasingly prospering nations, situation in medium to high risk areas for natural disasters, the risk must be carefully calculated; after all, it is a business. This region holds a high propensity for natural disasters including earthquakes, tsunamis, flooding, mudslides, and storms whereby currently effected regions are expected to be joined with newly affected regions due to global warming.

Whilst the economic imperative is addressed through the continuous revision of insurance policy and claim trends, the question of ‘protection’ remains. The role of insurance is that of a safety net; to catch those who stumble and fall in situations which could not have been circumvented. With the individual and the community at the centre of the human security issue the issue prevails; who will catch them when they fall?

Human security surpasses traditional notions of security to comprehensively include environmental, political, social and economic aspects. In the case of environmental security, the threat thereto is not isolated to a particular individual or community, but rather an intensified affected core with global repercussions. Risk management, as in the case of insurance risk, credit risk, market risk, and operational risk, is the cornerstone of re-insurance with underwriting controlling the limits of insurance and identifying information such as in the case of natural catastrophes and environmental threats. Re-insurance is not a philanthropic concept or support network, but rather an industry interdependent with the global economy and market trends whereby weakened global financial markets and investor pessimism are critical factors.

The re-insurance industry, particularly internationally, is marginally transparent with the safety net not extending to all areas. The series of ‘no-go zones’ demonstrates the economic imperative and business rationalism which conducts the insurance, and indeed protection, of regions. The ‘no-go zones’ are specific geographic regions considered too ‘high risk’ for re-insurance and subsequently insurance companies to insure. Thus, the plight of these areas is dependent on effective fiscal policy and a strong national welfare system to mitigate risks associated with climate change.

In the case of the South East Asian region, particularly in coastal areas and islands, the ‘no-go zones’ will have a profound effect on human security as inhabitants seek protection and welfare support. From this it can be suggested that environmental peril may be grounds on which seek and be granted asylum. This may lead to new migration trends and subsequently strain inter-regional relations, immigration policies and welfares systems as well as setting precedents for future ‘no-go zones’ and other un-protected areas.

The economic paradigms dominating the global must be considered in relation to the interests of human securities by examining the re-insurance market and the implications for humanitarian issues in the South East Asian region and subsequent international policy development to cater for social developments.

2 Insurance- Development and Purpose

2.1 Insurance Origins

The urge to circumvent risk is primal, with physiological needs and the ability of humans to ensure that these are met in the unforeseeable future allowing for development. Arguably, the storage of food, the establishment of multiple shelters, as well as group cohesion are all instinctive methods of insurance. These efforts to act in counterbalance of external factors or unsure elements are not only true for mankind but also for flora and fauna; security is primal.

As Maslow suggests, the desire and indeed need for security runs a close second to our innate physiological needs with self actualisation as the ultimate motivation (Mitchie, 2001). When considering human development from the early groups and tribes to civilizations, it is evident that the cohesion was security, prior to fulfilling the need for belonging. These groupings for security lead to protection against natural elements, predators, or unforeseeable events such as fires.

In essence, insurance is the management of risk or possible negative consequences based on the probability of these occurring. The origins of insurance developed in correlation with civilization as the rise of economic activity through trade and organized social welfare systems asserted the need to manage risk. Ancient welfare systems catered to the risk associated with death through the development of charitable or benevolent societies. However, the structures of these are limited in links with current health or life insurance systems. With the development of structured societies and law, the concept of insurance as it is known today, emerged.

The greatest developments were trade and property. Economic implications for civilizations grew as trade flourished, with merchants developing systems to protect their goods from potential loss. In consequence of trade, the development of marine insurance became the first systematic insurance form, due to the enormous economic implication of lost cargo as well as the high risk environment of the freight. The seas and waterways have historically been considered an area of ‘danger’ or risk, often associated with legends and myths whereby man and his mission were at the mercy of the water.

Another key element which affected the need for insurance is fire. As property became synonymous with the ability to address physiological needs as well as security, belonging, and esteem through status objects, the risk of fire critical. Although fire was the essence for warmth, living, and often working, its misuse or mismanagement could lead to significant problems and therefore posed a constant, unpredictable, threat. Indeed the idea of insurance as it is known today was largely developed in Britain and Germany, before spreading across to the United States whereby regulation regarding insurance for fire, property, marine and health with of World War II seeing a rise in Multinational Enterprise insurance (Wilkins, 2009).

2.2 Insurance and Ideology

The concept of insurance relies on the idea of ‘risk,’ and the probability of this risk indeed occurring. However, prior to complex mathematics and statistical analysis, the risk could not be adequately assessed with the likeliness of the occurrence as well as the extent of the consequences being discussed through personal perspective and agreed on through consensus. As ideological beings, humans have attempted to explain life, the world and its meanings through various ideologies, belief systems and religions. Whilst prayer and worship were often used as a means to mitigate risk, economic and social insurance strategies for security were developed. However, the concept of risk may not exist if one’s ideology suggests that indeed all chances, losses and gains are for a specific purpose or destiny determined by a greater power.

Life insurance is a further ideological contrast, as life is given a sum of its worth in monetary form. This commodification of life was rejected as unethical in Europe during the abolitionist movement. However, the critical element of property and security emerged in later years with the benefits outweighing ethical considerations. In some cases, insurance and subsequently reinsurance are against ideological constructs with some community or religious groups therefore refute the concept. The Amish community displays distaste for insurance, suggesting it is the role of the community and church to work together and ensure common security. For this reason, the Amish community reject insurance as well as social security which is a stark contrast to the insurance driven United States of America and a paradox to the security networks for which it strives.

2.2.1 Islam and Insurance

The idea of risk management through insurance is considered illicit as the community is to take care of one another and thus does not need ‘insurance’ as it is commonly understood if the community is following its religion wholeheartedly. This can be seen in the Muslim faith whereby Al-Gharar (Uncertainty) and Al-Maisir (Gambling) as well as Riba (Interest) are associated with common conventions of insurance and therefore are not in accord with the Islamic law (Mayasami & Williams, 2006).

In response to the innate need for security, the Muslim community developed the system of Takaful based on Al-Mudharabah (profit sharing), Al-Takaful (joint guarantee) and Tabarru (elements of donation) (Mayasami & Williams, 2006). The popularity of Takaful operators has increased steadily in the past decades with organizations often run in partnership with government institutions. For example, the Dubai Islamic Insurance and Reinsurance Group (AMAN) is owned by Dubai Islamic Bank and investors whilst licensed to the Dubai Department of Economic Development. According to their website AMAN highlights the aims of Islamic insurance to:

• Support social solidarity.

• Help protect the community from the negative impact of adverse circumstances.

• Improve quality of life through the peace of mind that comes from security.

• Save and invest money through a shared system that distributes profit on premiums invested by policyholders on an annual basis.

The Muslim system of Takaful may be considered insurance in theoretical terms with the involvement of a common finance pool to allow members to bear each other’s burdens. For this purpose, the Islamic banking industry operates differently to the western system and caters to the needs of its religious followers.

2.2.1.1 Implications for South East Asia

The South East Asian insurance and reinsurance market hosts a diverse range of ideological elements which effect practice and operations. In the consideration of human security and the association with insurance and re-insurance, it must be noted that the statutory system of nations not only differs due to sovereign developments but also due to the ideological basis of these constructs. Islam in relation to insurance is particularly strong in South East Asian nations such as Malaysia where Takaful is increasing. As a multicultural nation, Malaysia hosts both the conventional insurance system as well as the Takaful system with the Takaful 1984 Act introduced to supervise Takaful activities no longer covered in the previous insurance act. Indeed the Takaful industry in Malaysia alone is headed by four pillar organisations including not for profit models and variations of cooperative models.

From the example of Malaysia, it can be seen that South East Asia as a region balances many multicultural issues which also pertain to industries such as insurance and re-insurance. Whilst the SEA hosts both conventional and Takaful organizations, the response to risk management in the face of climate change and human security issues will be significant.

2.3 Risk

Confirmed by neuroscience, humans are risk averse by nature with decision making in the face of risk determined by two important components; the rate of error and the predictability of the set outcome. Indeed where the outcome of the decision is ambiguous, the Orbitofrontal cortex becomes the key element in the process. Whilst ‘chance’ is seen in a positive light, risk has a negative connotation. In daily life, as well as in business, the assessment and management of risk ensures survival.

Essentially, the assessment of risk allows educated decisions to be made. The realm of decision making greatly depends on the ability to foresee outcomes and the likelihood thereof with strategies often developed when information is lacking. However, when risks prove immanent, incalculable, or unavoidable, people become willing to accept risk. In the case of the insurance industry, risk is accepted once an external partner is willing to take the risk on the individual or company’s behalf.

Whilst insurance ‘protects’ peoples and business from negative externalities of uncontrollable forces by replacing the loss with monetary assistance, insurance does not protect against the loss itself but acts as a compensatory mean. Indeed, insurance is not the shield with which to ward off the occurrence of such events, but rather limits the negative impact or ‘risk’ by monetary means.

2.3.1 Probability

The basis of risk is probability; or the likeliness of an outcome occurring. This is crucial in decision making as the likeliness of a risk occurring will determine whether or not the person or organization will decide for or against the decision.

Probability is based on the information given including statistics, data, personal information, trends, external factors and others. The probability of the risk occurring is then calculated from this information which demonstrates how high the element of risk is in the decision.
The success of insurance as an industry depends on its ability to establish the probability of the risk and the subsequent likeliness of its occurrence as well as its outcomes. As insurance firms are a business, and not philanthropic organisations, the ability to establish grounds for insurance through probability is critical to their success.

2.3.2 Types of risk

In the insurance industry risks can be categorized into pure risks, fundamental risks, or speculative risks. Pure risk relies on the possibility of loss with chance detracted as a variable leaving the optimal outcome to be status quo. Fundamental risks are large scale events which threaten people and property such as natural disasters. Indeed fundamental risks are a threat to human security. Most commonly insured risks pertain to a particular risk which has limited negative effects whereby the outcome only affects one of a number of people negatively. This is contrary to the fundamental risks borne by a group.

In addition, the corporate sector houses additional risks including speculative or entrepreneurial risk. This is where the risk is often un-insurable as the risk depends on commercial decision taken and whether the subsequent transactions will result in a gain or a loss. To act in compensation of speculative risks, financial management tools such as hedging and forward contracts may be implemented with other business risks reduced through improved efficiency, adapting technology or diversifying the product base.

3 Insurance

3.1 Protection against Risk

Insurance is the promise of protection against potential future risk in exchange for a premium paid today (Swiss Re, 2004). Indeed, Van Cayseele (1991) draws comparisons between insurance and savings accounts from a consumer’s perspectives as both aim to ward off risks. Today, insurance can be sought for tangible as well as intangible assets including health, life, home, car, contents, business, and travel. The insuring party therefore takes a portion or the entire risk by terms of contract or insurance policy, in exchange for a premium or fee. In the event of the risk indeed occurring and negative outcomes prevailing, the holder of the insurance is entitled to claim the amount lost through the occurrence from the insurer according to the amount due as per the policy.

This concept of insurance is common in North America, Western Europe and Asia dominating the market with customers interested in being ‘covered’ in the case of an unlikely, but costly, event occurring. As the insurance firm is made up of many clients, the laws of probability suggest that only a small number of these clients will be effected thus the funds collected by the insurance company through premiums being more than adequate to cover these costs. From this it can be seen that statistical analysis and calculation is crucial.

In order to be able to insure against such risks, insurance firms prescribe conditions which must be met in order for a client to qualify for insurance. A key component of insurance is that the timing or occurrence of the loss is uncertain and therefore a risk; only predictable to a degree but not foreseeable and in essence random.

3.1.1 The Law of Numbers

According to Swiss Re (2004) the law of (large) numbers is a statistical principle suggesting that the more single or independent risks added to the reinsurer’s portfolio, the more stable the outcomes will be as diversification can provide a higher level of protection.

As probability is used to calculate risk, insurance firms depend on the risk assessment of future losses. In order to do so, the likelihood of such occurrences is based on mass. The ‘Law of Large Numbers’ is used to calculate the expected loss of a large group, thus allowing a premium to be calculates when the risk is spread across the group. In the case of insurance, the more unique the risk or the more likely that it will occur, the greater premium be paid.

While economists suggest insurance is, like any market, under the terms of supply and demand, occurrences are not necessarily independent (natural disasters) or unintentional (terrorism) and may indeed depend on the identity of the purchaser (health). Furthermore, Giarini (2001) highlights the concept of insurance as ‘market failure’ in relation to the notion of the perfect market equilibrium where all information is available as insurance firms base their considerations on uncertain future terms.

For this reason, insurance has often been criticized as being discriminative (Palmer, 2007). In contemporary setting, this is particularly of concern with climate change and the denial of insurance coverage for regions of geographic locations ruled to be too high risk.

3.1.2 The insurance market

The insurance market is a multi-billion dollar industry with competitiveness ruled by implications of supply and demand. Private insurance activities have increased at an estimated 5% per annum to address inequalities and vulnerabilities related to industrialisation, production, environmental issues, technological developments, personal vulnerabilities (unemployment, death, health, accident, retirement) and social vulnerabilities (political instabilities and state welfare issues) (Giarini, 2001).

Today, it is common to see advertisement for insurance and the implement insurance brokers to seek the best deal. This ‘shopping’ for insurance has become commonplace whereby some nations prescribe insurance as necessary practice particularly in public institutions.

Although the market is deregulated, in the interest of citizens most governments offer solid statutory base (such as through Insurance Acts) to ensure that the insurance holder as the weaker partner is on par with the firm or vendor. Insurance policies must be approved by regulatory agencies prior to being put on the market. The codification of insurance law on an international level was developed in the Americas and Western Europe post world war two and is today largely governed by the International Association for Insurance Law (AIDA) (Mango, 2003).

4 Re-insurance

In the case of insurance firms facing risk themselves, re-insurance acts as the means with which the firms can reduce their exposure to risk or loss. According to Global Reinsurance Highlights (cited in Swiss Re, 2004) it is estimated that 250 reinsurance entities are in operation globally with shareholder equity in the 40 biggest firms amounting to USD 249 billion in 2003. Furthermore, the top four reinsurance firms in 2002 held 35% of the global market share which is an increase from 22% in 1999 (Trump, 2002) The reinsurance industry is integral to the insurance market as it allows a larger capital base to spread risk (CEA, 2006).

The re-insurer takes on the burden of risk (financial) in exchange for a premium and may chose to manage only single risks through facultative reinsurance or under contract terms through treaty reinsurance. In other words; reinsurance is the insurance of the insurance firms. Reinsurance provides direct or primary insurers, multinational corporations, reinsurance intermediaries, nations, and captive insurers with reduced volatility, improved financing, and access to additional expertise (Swiss Re, 2004).

Reinsurance is purchased for a number of reasons. According to Swiss Re (2004) the degree of reinsurance purchased falls due to portfolios and exposure to catastrophic events (natural disasters), inadequate capital to diversify risk, specialization leading to higher risk, risks hold high exposure (aviation industry), life insurance with mortality or disability risk element are at higher risk, when entering new regions or developing new products, or to improve regulatory considerations through an improved balance sheet. Essentially, these reinsurance reduces the exposure to insolvency and provides balance for insurance issuers.

Re-insurance is different to insurance as the parties negotiate at equal standing through contracts rather than in the case of insurance where the client or insurance holder is at a disadvantage to the insurance company. The reinsurance firm holds an advantage in the contract with the insurance entity stating that the reinsurance firm cannot be held responsible in the case of insufficient funds being available to guarantee support (Swiss Re, 2004). Therefore, it is of interest to the insurance firm to make sure the reinsurance firm is healthy and liquid. Furthermore, reinsurance firms can act globally in order to spread their risk.

4.1 Risk Management in Reinsurance

Naturally, reinsurance entities are not entirely free from risk and therefore invest significant time and resources in accurate calculation and management of risk. The risk capacity of reinsurers cannot be mitigated by lesser conditions than other actors in the capital market as the volatility of the reinsurance business is higher and therefore needs to carry higher returns to capture and retain the interests of shareholders (Trumpp, 2001). Risk management in reinsurance is the balance between underwriting, asset management and capital management. These implications are considered through modelling as seen in Figure 1.

4.1.1 Underwriting

The main objectives of the underwriting process are the assessment of risk including terms and conditions, ensuring that the assigned limits are respected, implementing controls for a peak and accumulation risks, and ensuring appropriate wording and pricing (Swiss Re, 2004). According to Swiss Re (2004) underwriting examines prices, assesses and classifies risk for a certain segment, single risk or contract terms.

4.1.2 Asset management

The premiums received by a reinsurance firm are again invested. Asset management is responsible for delivering portfolio data to risk management where asset allocation corresponds with the characteristics of the liabilities also known as asset and liability management or ALM (Swiss Re, 2004). In asset management, accurate information is critical in order to assess both its value as well as its subsequent liabilities. Considerations in this process include currency exposure, payout patters, inflation, credit risk, changes in interest rates, equity, real estate prices and market movements (Swiss Re, 2004).

4.1.3 Capital management

Capital management is critical to reinsurance as the amount of capital and its management is determinant of reinsurance firm’s ability to meet its promise as well as its appeal to the primary insurer. According to Swiss Re (2004), capital is most critical for adverse situations regarding investment income, depreciation of assets, stock market slumps, economic downturns, or when payments exceed premiums. As in a business situation, capital acts as a shield against unexpected loss or cash flow issues. Capital management must balance the capital and risk of the reinsurance firm whereby a lack of congruence cues the increase the capital base or lighten the investment risks and underwriting (Swiss Re, 2004).

4.1.4 Principles of Insurability

Insurance and indeed reinsurance must adhere to certain principles which limit the insurability of a case or situation according to its associated risk. The risk criteria must be fulfilled in order for the risk to be insured based on assessibility, randomness and economic efficiency (Swiss Re, 2004).

The ability to assess a risk is critical in order to quantify the probability of its occurrence and possible consequences as well as the estimated severity in order to determine the appropriate premium (Swiss Re, 2004). Randomness is also critical as the timing and likelihood of the event occurring critical to the insurance calculation as well as being independent of the will of the insured (Swiss Re, 2004). Regarding the premium, economic efficiency must be identified in relation to the risk (Swiss Re).

Regarding natural catastrophes and associated insurance behaviour, the likelihood of the event occurring and the associated costs are based on scientific data and past record. Consequently, premiums are set according to this level of risk and the likeliness of the occurrence. In an area prone to certain disasters such as flooding, bushfires, storms or earthquakes, the premium for insurance may be higher and/or limited in coverage.

4.1.5 Further Considerations- Capacity and Accumulation

Risks are accepted if they meet the limits of the set criteria as well as demonstrating the principles of insurance. The capacity or the maximum amount of coverage which can be offered by the reinsurance firm for a specific risk, depends on the portfolio and data with the higher the degree of risk, the greater the stringency on applying the limit (Swiss Re, 2004). In correspondence, accumulation refers the interdependency of risk, often the case in natural disasters or in the concentration of shares (Swiss Re, 2004).

4.2 Ethics and Fairness

As discussed by Palmer (2007), insurers and reinsurers aim to be profitable thus setting premiums based on the probability of adverse events occurring. Whilst debate surrounds the assessment of individuals through categorising their case or on statistical discrimination, in the case of human security the ethical consideration is that of access. Palmer (2007) highlights that lack of access to insurance has social implications particularly if the government social security net does not provide a substitute suggesting that goods imperative to an adequate standard of living should not be entrusted in a private, commercial industry.

5 Natural Disaster Insurance

Figure 2. Largest Insured Natural Catastrophes and Associated Potential Losses in USD bn, 2004-Swiss Re, 2004

The exposure to natural disasters corresponds to the location of the insurer, as some locations or geographical areas have a higher propensity for certain natural disasters than others. The assessment of this likeliness is based on past records and scientific data with reinsurance firms, such as Munich Re, having specialized departments dealing with this particular field. The exposure to natural catastrophes is growing due to higher population density and subsequent migration and urbanization as well as climate change (Swiss Re, 2004; Munich Re, 2009). The loss potential for the insurance industry is high in these instances and reinsurance is critical in managing these risks.

5.1 Natural Disaster Trends

According to Berz (2002) the propensity for natural disasters has dramatically increased in recent decades demonstrating clear risking cost trends. Berz (2002) notes that prior to 1987, only one natural disaster ever cost the insurance industry more than USD 1 billion and by 2002, 29 natural catastrophes have cost more than this precedent amount. Whilst highlighting the significant losses to the insurance industry, it must be noted that during this time the insurance market also grew substantially as well as changes in economic implications. It is estimated that claims arise from an estimated 600 natural hazard events annually with the increased costs a combination of increased insured liabilities and their values as well as increased occurrences in highly exposed areas (Berz, 2002).

As the reinsurance industry is based on predicting the risk related to natural disasters, reinsurance firms are attuned to scientific research particularly regarding climate change. The purchase of natural disaster insurance and reinsurance products relates to the propensity for the catastrophe to occur as well as the financial position of the market with more affluent nations having a stronger reinsurance market (Klein, 2009).

Due to the climate trends associated with global warming, reinsurance firms are reconsidering the terms of contract being careful in definitions related to time and randomness (Klein, 2009).

The green industry trend has led reinsurance providers to develop new products for customers exhibiting green behaviour including decreasing carbon emissions and defensive climate change approaches (Klein, 2009). Policies and products are being, and have been, developed to address wind and solar energy production, efficiency renovations, carbon reduction and insurance for humanitarian emergencies as well as products for carbon market related risks (Klein, 2009).

6 Climate Change

The UN Framework Convention on Climate Change (UNFCCC) considers climate change to be attributed either directly or indirectly by human action which may change the natural composition of the environment additional to natural climate patterns (IPCC, 2007). As reported by the International Centre for Technology Assessment (2004) the accumulation of greenhouse gasses in the atmosphere created through the combustion of fossil fuels is the driver of climate change effecting temperature, sea level, climate, biodiversity and geology. Whilst the CTA (2004) focuses its definition of climate change more so on human behaviour as a driver, the IPCC (2007) suggest climate change, whether due to human behaviour or natural patterns, can be identified due to variability of the mean as measured over a period of years or decades (IPCC, 2007). Subsequently, climate change infers issues in health, biodiversity, agricultural production, social movement and migration patterns as well as economic and political implications (Schwartz & Randall, 2003).

The IPCC’s (2007) research notes observations of climate change and the warming of the climate system to be evident in:

• Warming temperatures globally

• The increase of arctic temperature at double the average global rate

• The change in frequency and intensity of extreme weather events

• Rising sea levels

• Decreased snow and ice

• Changes in precipitation

• Increased tropical cyclone activity in the Northern Atlantic region

From these observations using data from the 1970s to present day, the IPCC (2007) related observations of the following effects:

• Temperature changes have effected physical and biological systems

• Changes to permafrost

• The development of glacier lakes

• Changes to Arctic and Antarctic ecosystems

• Changing run off patters for water sources and water ways

• Effects on thermal structure and subsequent water quality

• Changes to terrestrial biological systems

• Changes to marine and freshwater systems

• Changes to human activities in the Arctic

• Health Issues (heat and disease related)

• New patterns for agriculture and forestry management

• Loss of Coastal Wetland

• Increased coastal flooding

The IPCC (2007) suggests that the future of climate change and its subsequent impacts on the social, environmental and economic capacity of the world is clearly related to greenhouse gasses and their effect on temperature. Subsequently, IPCC (2007) temperature forecasts include the scenarios of whether greenhouse gas emissions will remain at the level seen in 2000 (best estimate 0.6*C increase), intermediate population, economic growth, and local sustainable development efforts (best estimate 2.4*C increase), or rapid growth coupled with new technologies and fossil fuel intensive activities (best estimate 4.0*C).

The IPCC (2007) estimates the following future impacts of climate change as exhibited in table 1.

Table 1: Estimated Future Impacts of Climate Change According to IPCC Data (IPCC 2007)

6.1 Climate Change and Insurance

The acknowledgement of climate change resonates a message of social, economic and political issues currently debated with critical future implications. Climate change debate in the past decade has moved from the crusade of left-wing minorities and environmentalists to key industry bodies. The reinsurance industry is sounding a warning bell as it describes the economic and social implications of climate change for the industry. As described, reinsurance is based on calculations, statistics and data to manage risk effectively, contrary to the whimsical connotations often associated with climate change debate.

In 2005, the total fatalities due to natural disasters were 97 000 with a total loss of USD 230bn in losses. Notably, the series of hurricanes in this year accumulated to USD 170bn with the Gulf of Mexico’s hurricane Katharina creating USD 135bn in damages (Swiss Re, 2005). The majority of financial losses related to insurance and natural disasters are in high density areas, particularly in industrialized nations with a greater number of valuable property assets.

The estimated insurance bill for 2050 is expected to exceed £200bn due to climate change related extreme weather conditions and rising sea level (Brown, 2001). The predicted global losses are related to the increasing frequency as well as intensity of natural catastrophes with the sum of these events holding the potential to damage the insurance industry as well as having significant liability costs for nations (Berz cited by Brown, 2001).

As noted by the Association of British Insurers (2009), the economic implication of climate change on the insurance and reinsurance industry has the potential to effect the global economy. Whilst the insurance market aims to cater to the needs of insurance holders by expanding their offers, the impacts of climate change would indeed see a reduction of insurance offers or insurance at much higher costs due to climate change potentially increasing the severity and frequency of natural disaster risks and subsequently equates to increased losses (ABI, 2009). With primary insurers taking on higher risk, a greater call well be made for reinsurance. However, as these funds are also based on capital, they are not free from economic burden.

6.1.1 The implications for reinsurance

The implications for reinsurance are primarily fixated on financial loss. As an industry, financial loss on a large scale will have strong implications for the global economy (ABI, 2007). As reinsurance is not obligated to pay but rather is based on promise, the ability of the reinsurance firm to do so greatly effects the primary insurer (Swiss Re, 2004). This infers health, business and investment, property, social, political and economic considerations will subsequently be effected. Although investment is often thought of in a private sector, it must be noted that reinsurance also caters to the interests of public sector.

The high exposure to natural catastrophes are but one aspect, as the increasing population, urban density and economic growth increase the exposure of areas or nations at a greater rate that climate change with the subsequent increase in demand for insurance and reinsurance seen as a cost effective means of adaption (Swiss Re, 2010). Indeed, reinsurance can be seen as the proponent of risk management (Thumpp, 2002)
Climate change poses a problem for reinsurance not only due to the possibility of economic loss but also due to issues relating to risk calculation, underwriting and forecasting. Further implications include changes to premiums, having to decrease offers, changes in the relationship with certain regions or insurers of that area, changes to investor relations and changes to country risk management and subsequent no-go zones.

However, it can be seen in the case of micro-insurance and country risk management, climate change creates both risk and ambiguity with a possible associated increase in premiums and decrease in reinsurance products as well as proposing opportunities (Swiss Re 2009). The fear in regards to climate related issues as well as the increased risk creates both opportunities and threats for the reinsurance industry.

6.1.2 Country Risk Management

Country risk management sees reinsurance manage the economic, financial, societal, political and environmental risks through an ‘all-hazards approach,’ citing climate change at the forefront of risk considerations and economic imperatives (Swiss Re, 2009). The argument of the reinsurance industry is that risks, particularly in globalised contemporary society, does not halt at national borders with typical risks associated with country risk management including natural disasters (storms, floods, earthquakes, droughts), health issues (pandemics), war (including terrorism), public and corporate assets, infrastructure risks, private property and food and energy security (Swiss Re, 2009).

The economic argument prevails with Swiss Re (2009) highlighting that in 2008 only USD 50bn of USD 225bn in global economic losses due to natural or man-made catastrophes was covered by insurance with governments, businesses and the private sector paying the losses which occurred. This leads to higher debt, the need to raise taxes, deferred investment, decreased investment, and higher debt, all of which according to Swiss Re (2009) can be mediated through country risk management.

Swiss Re (2009) proposes risk mitigation and risk transfer. By shifting the economic impact from post-catastrophe to pre-catastrophe by encouraging government investment in risk mitigation as a pre-emptive measure dealing with the economic impacts of disasters in the long run will be more financially viable. However, as not all catastrophes can be mitigated, thus risk transfer allows the securing of funds before the event through reinsurance or capital market solutions (Swiss Re 2009). This can be developed through government funds where the reinsurance firm will make capital immediately available if the catastrophe meets the set criteria, for programs for charity associations, or in association with the World Bank.

7 The South East Asian Insurance Market

The Asian market for re-insurance has grown dramatically in the past decades as the third largest market region after North America and Western Europe (Swiss Re, 2004). South East Asia has been particularly marked with change in the past decades with economic rises and falls, industrialization, urbanization, a change in socio-economic conditions and political issues. The increase in reinsurance in the South East Asian market is in relation to legislative changes as well as through the increased number of international primary insurers and reinsurers (Banks, 2010). Also, the South East Asian market has been more resilient in the face of the economic downturn than the two other key insurance markets, namely North America and Western Europe, as well as having a more fragmented and less saturated market than its northern neighbours (Banks, 2010).

However, the South East Asian region also carries a high propensity for disaster with typhoons, earthquakes, floods and droughts all examples of common natural catastrophes for this area (Guy Carpenter & Co., 2006). Commenting on individual nations in the South East Asian market AON (2010) noted that international insurance agents have moved into the region in the past two years and that the market has not changed dramatically regarding renewals. Indeed, nations which had higher rates of renewal (such as Indonesia) were the nations which had been exposed to natural disasters in the past year (AON, 2010). Another characteristic of the South East Asian market is that although disasters occur at a large scale the cost is rarely as high as in the North American or Western European markets. For example, Typhoon Ketsana in Vietnam and the Philippines in September (645+ deaths and 7.4million+ claims) only amounted to insurer loss estimates of USD 260mn and economic loss estimates of USD 1.03bn (AON, 2010). In contrast, severe weather during July in Switzerland and Austria (11+ deaths and 5,000+ claims) amounted to an estimated insurer loss of USD 1.25bn and an estimated economic loss of USD 2.5 bn (AON, 2010).

According to Swiss Re (2010) the global nature of the reinsurance market makes it difficult to isolate trends to a specific region, however the following comments on South East Asia can be made:

• Some highly fragmented primary markets result in relatively high cession rates of primary insurers;

• Competition is keen. Apart from international reinsurers, many regional and national reinsurers are also looking to expand into SEA;

• Natural catastrophe reinsurance is developing alongside increasing use of models. However, penetration is still relatively low. Governments sometimes resort to pool arrangements to increase penetration;

• Regulatory changes towards tightening of solvency regulations are having impacts on reinsurance behaviors. More insurers are purchasing reinsurers for the purpose of capital management;

According to Swiss Re (2010) Singapore is currently the regional leader in South East Asia regarding reinsurance and in particular country risk management. Singapore has a ‘Whole of Government Integrated Risk Management’ framework (WOG-IRM) which is considered best practice as it redresses inequalities, helps address gaps in risk management, and identifies risks which would otherwise go unnoticed.

7.1 Climate Change in South East Asia

The diversity of the Asian continent houses a wide scope of climate change effects with different regions experiencing these in different forms and at different levels of intensity. The Asian continent as a whole is at risk of social, economic and political perils with South East Asia also susceptible to specific risks (Schwarz & Randall, 2003). The IPCC (2007) observed the effects of climate change in Asia to date as:

• Climate change effects different sectors of the continent

• Marine and coastal eco-systems are vulnerable to rising sea levels

• Some industries (agriculture and fishing) are experiencing negative effects possibly related to climate change

• Although the Asian continent seems too vast to analyse, the IPCC (2007) noted the following as significant future effects of climate change:

• Decrease in freshwater availability

• Increased risk of flooding in coastal mega-delta areas

• Increased pressure on natural resources due to urbanization

• Health issues associated with floods and droughts set to rise

• Extinction of some flora and fauna

• Rise of health issues particularly air and water borne diseases

The impact of climate change on South East Asia varies as the region’s diverse geography includes the archipelago nations, coastal nations, and landlocked areas (see Figure 4). The IPCC (2007), notes climate change as having a significant impact in the South East Asia and the small islands of the pacific region. This region has experienced change in temperature with an increase in temperature between 0.1-0.3*C per decade (1951-2000) as well as changes to precipitation particularly in the Philippines and Indonesia (Manton et al., 2001, cited by IPCC, 2007). Flooding, droughts, changes in precipitation, changes in temperature, heatwaves and typhoons have all been noted to have increased in past decades (IPCC, 2007).

Figure 4: Map of South East Asia (ASEAN)

Heatwaves were experienced mildly compared to other Asian regions through the increased number of warm days and warm nights however flash flooding and landslides obviously increased with cases in Vietnam, Cambodia and the Philippines (IPCC, 2007). Furthermore, abnormal droughts were experienced in the Philippines, Laos and Cambodia (IPCC, 2007). Between 1990 and 2003 the Philippines saw the number of Cyclones increase by 4.2 (PAGASA, 2001 cited by IPCC, 2007).

7.1.1 Climate Change and Small Islands

Small islands are given special consideration due to their abundance in the South East Asian- pacific area and their vulnerability to climate change as well as their position in reinsurance. The small islands are characterized by the IPCC (2007) as being located in tropical latitudes, being of limited size, housing a small population and being openly exposed to natural forces and subsequently climate change, sea level rises and extreme events.

“While small islands are not responsible for the causes of climate change, they are likely to be the first to experience the worst effects of climate change, particularly through sea-level rise on low lying islands or through water shortages on porous and low lying islands,” (Timothy 2002 cited in Goffman, 2006)

In the Pacific Islands, where 50% of the population lives within one kilometre of the shore, the rising sea level, storm surges and erosion are very real threats to the environment, the society, and the economy (IPCC, 2007). The pacific islands of Tuvalu, Kirribati and Palau are already trying to adapt to, or rather escape from, the implications of climate change and are expected to be followed by others (ALP, 2006). As many small island economies are based on natural resources, the effect on marine life and the related fishing industry is critical in the survival of the island populations (IPCC, 2007). Further soil salinity, sea level rises, flooding and fresh water contamination will bring agriculture and self sustenance to a halt as well as predicted adverse effects on human health (IPCC, 2007). Furthermore, the tourism industry, particularly the leisure market, will suffer as a result of climate change due to lost resources, infrastructure, culture, water shortages and diseases (IPCC, 2007).

7.2 Disaster Prevalence in South East Asia

The region comprises of 10 nations with diverse climatic conditions and susceptible to a range of climatic and geologically related catastrophes. These natural disasters include earthquakes, floods, typhoons, tsunamis, droughts, volcanic eruptions and storms. As indicated by the IPCC (2007) the diverse geography of South East Asia including coastal landscapes, low lying islands, fault lines, rivers, mountains, and volcanoes puts this region at strong risk of the possible negative implications of climate change (Guy Carpenter, 2006). The geographic division of the region can be considered in terms of the archipelago, coastal and land locked countries. The archipelago includes Indonesia, Singapore, the Philippines, Brunei, Malaysia, and East Timor whilst Cambodia, Laos, Vietnam, Thailand and Myanmar are considered the South East Asian mainland with Laos a notably landlocked nation. For the purpose of this paper, some consideration is also given to China and Japan as well as the pacific region due to the geographic proximity of these nations and their considerable interrelations with South East Asia.

Compared to the global insurance and reinsurance markets, Asia has a relatively low insurance penetration with areas such as China seen as upcoming markets (Thumpps, 2002; Guy Carpenter, 2006). In the case studied examined, it may be noted that insurance coverage and the demand therefore, is strongly correlated with the ability of the market to afford such a product. However, as noted by AON Benefield (2010) this has not halted the industry with key players having entered, and successfully remained, in South East Asia in the past decade.

Due to the political structure of some South East Asian countries along with their propensity for natural disasters and the low socio-economic development rate, governments are often the main source of mitigating their financial risks particularly with small primary insurers whereas larger primary insurers choose international reinsurance firms. The regional reinsurance market of Singapore provides greatest capacity of support in South East Asia.

7.3 Mainland South East Asia

Consisting of Laos, Cambodia, Thailand, Vietnam and Myanmar, the South East Asian mainland is climatically affected by a combination or coastal threats as well as land based issues. As noted by ASEAN Leaders’ Statement on a Joint a Response to Climate Change (2010) the Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol (2009) are acknowledged as the legal instruments of the international community to address climate change. The goals of the leaders include moving toward a global solution for climate change as well as ensuring South East Asia’s resilience to climate change (ASEAN 2010).
Concerns for South East Asia in relation to climate change are high due to the diverse levels of development in the region as well as the dependency on natural resources. The mainland area is particularly concerned by the possible effects of increased extreme weather conditions such as cyclones, storm surges, changing coastal conditions, temperature shifts (such as the effects of melting glaciers in alpine regions on the river systems), precipitation and flooding.

Of particular concern is the Mekong region of the South East Asian mainland with the combined impacts on Vietnam, Laos, Cambodia, and Myanmar (Swiss Agency for Development and Cooperation, 2010; ASEAN, 2010). Further, the statement highlights the need for detailed information, climate change assessments and cooperation (ASEAN, 2010).

7.3.1 Case: The Mekong Region

The Mekong Region has received international attention in recent years particularly due to cyclone activity, the impeding danger of water based diseases through flooding, the significant population density and the calls for regional and international cooperation for socio-economic development (Swiss Agency for Development and Cooperation, 2010). The Mekong Region is considered one of the fastest growing economic subregions yet this growth is partnered with its vulnerability to economic shocks and negative repercussions associated with development challenges Asian Development Bank (ADB), the World Bank, and the Mekong River Commission (MRC), ASEAN, the United Nations Economic and Social Commission (UNESCAP) and various state aid programs sharing an interest in the regions sustainable development.

Climate change and the rise of extreme weather events is a critical consideration for the region particularly due to the dependence on natural resources and economic developments synonymous increase in energy consumption (AusAid, 2007). The implementation of development strategies may be impacted by climate change with the developed ASEAN nations urged to assist their developing regional neighbours as the access to, and sustainable use of natural resources is critical the Mekong Region’s success (ASEAN, 2010; AusAid, 2007) A central issue to climate change and the impact on the Mekong Region is the lack of information on current climatic conditions and future implications related to climate change. It is estimated that particularly Vietnam and Laos will be impacted by changing river conditions and precipitation (increase or lack of) due to the dependence on the Mekong River system (AusAid, 2007). Furthermore, the economic development of the area will consequently impact the region’s environment.

7.4 The Archipelago of South East Asia

The archipelago of South East Asia includes Singapore, Malaysia, Indonesia, Brunei, East Timor and the Philippines. These island nations vary greatly in their level of development and population density although their coastal-island geographic unites them in their vulnerability to climate change and changing environmental conditions. As noted by SwissRe (2010), Singapore’s proactive approach to climate change and development is considered best practice for country risk management by the reinsurance industry. The disparity in development in South East Asia calls for the various neighbouring countries to assist one another in a cooperative effort to develop the region’s resilience to climate change (ASEAN, 2010). Environmental sustainability, management of natural resources, and regional cooperation are integral to the success of the region (ASEAN, 1997).

7.4.1 Case: Indonesia

Indonesia’s pacific location places the nation of small islands at the cusp of global warming implications through rising sea levels and storms as well as in a hazardous earthquake zone of the Sumatran fault. Between 2009-2004, Indonesia was hit by at least one devastating earthquake in its region annually with further quakes expected in the future. These off shore earthquakes are known as tsunami triggers with Spranger (2009) demonstrating the implications of such geological occurrences in his assessment of the 2009 Pandang earthquake. Spranger (2009) cites the humanitarian catastrophe as being a result of incomplete evacuation plans, poor reconstruction of buildings after previous major earthquakes, and lagging building and construction regulations.

The insured losses amounted to less than US$ 100ml, making it the most expensive to date in Indonesia however the amount is trivial compared to the death toll and loss of livelihood with the poorest victims lacking financial protection in its most basic form. Again, insurance is a privilege of those who have the financial means to secure themselves, which in Indonesia are only a limited segment of the population. The insurance industry has the know how to address this issue and collaboration is needed in order for future victims to be financially protected (Spranger, 2009).

The Indonesian reinsurance market in 2009 was rather uneventful, apart from losses associated with the Padang earthquake (AON Benefield, 2010). The main area of reinsurance in Indonesia is in business with companies reviewing catastrophe coverage and increasing the capacity as well as a significant increase related to fire risk (AON Benefield 2010). Furthermore, the revised earthquake tariff to be introduced in 2010 will see an increase in costs for earthquake coverage in certain areas (AON Benefield 2010). Suggestedly, these adjustments are related to the changing climatic conditions and the need to change habitual calculations.

7.4.2 China

Although strictly speaking not considered as part of South East Asia, due to the large geo-scape of the country and the effects of its economic movement and participation in the reinsurance industry, China is mentioned in this context.

China as a market for reinsurance has enormous potential as the direct insurance market is largely untapped suggesting potential for future sustainable growth, particularly when considering its complex risk environment including the propensity for natural disasters, industrialisation, high metropolitan population density, urbanisation, and increasing values (Thumpp, 2002). The reinsurance industry also holds a significant interest in China, but the interest in this area is also influenced by the current and future implications of climate change. China’s wide and diverse terrain is susceptible to varied climatic conditions including flooding, sea level rises and earthquakes (IPCC 2007).

China’s extensive waterways have long been a source of life and livelihood, however the changing climatic and geological conditions associated with climate change are expected to alter the current state of this relationship. According to the IPCC (2007) the Yangtze Delta will be effected by geological and climatic effects leading to a 0.5-0.7m sea level rise by 2050 (above estimated global average). Furthermore, increased flooding during the summer months are predicted in the lower- mid reaches of the Yangtze River along with the sedimentary Huang He River also posing potential flood risks (IPCC 2007 cited by Munich Re, 2009). The flood plains are popular settlement areas and home to significantly large populations. In addition, the level of precipitation in areas such as Shanghai also presents a significant risk particularly to property and business with such experiences mirrored across the country.

Although China has a high predisposition for natural disasters, the level of insurance is limited. According to Munich Re (2009), the ten largest natural disaster events since 1980 amounted to an aggregate loss of US $135bn, however insurance losses only accounted for 1-2% of this sum. To mitigate losses related to torrential rain and flood damage, Munich Re (2009) acknowledges that forecasting and therefore protection is extremely difficult. Whilst the state authorities recognize the necessity for flood prevention and act accordingly, true risk prevention is far from certain.

A more destructive force than flooding are earthquakes with China having a reputation for intense and deadly quakes (Munich Re, 2009). Although the earthquakes are sporadic, the highest hazard propensity is in western China and the bordering Himalayan region. Furthermore, the country is ravished by the annual Typhoon season which predominantly effects the southeast provinces.

In calculating probable maximum loss (PML) the insurance industry focuses on China’s economic centre where the hazards are high and the potential for loss are economically significant. Notably, these industrial centres are core business areas ensuring the continuation of the Chinese economy including the areas of Beijing, Tianjin, Guangzhou, Shenzhen and Hong Kong, the Guangzhou metropolitan area (Munich Re, 2009). In relation to typhoons, only 5%- 20 % of the estimated total losses related to these natural disasters are insured.

China’s insurance market is rapidly growing in metropolitan areas, however the demand for this product is limited to those who have the economic means to partake (Munich Re, 2009). China’s socio-economic disparity sees a stark contrast between the growing demand of the affluent urban mid to upper class in contrast to the hampered rural areas or lower socio-economic groups. Whilst Munich Re (2009) suggests that the insurance industry is indeed growing faster than the economy itself, the percentiles previously noted regarding insured losses in the case of natural disaster suggest that insurance is a privilege. Contents, third party and business related insurance are still relatively unknown with life and health insurance becoming more common place. In a culture which focuses on the central family unit and the role of government in taking care of its people, insurance has borne cultural hurdles in entering the market. Essentially, risk mitigation is the role of the family group and the authorities rather than by individual case as seen today as a result of rising incomes, social insurance reforms, health care system changes, and private pensions (Munich Re, 2009).

In order for equality in access and support to be possible, insurance groups, reinsurance bodies and the Chinese government with the assistance of experts must work together. The current data available on natural disasters in China are insufficient for reinsurance firms to effectively calculate the risk and subsequent terms of engagement, leading to a funding pool situation where individual municipalities then administer payouts according to the intensity of the catastrophe (Munich Re, 2009). The interest of insurance firms in the Chinese market is not only related to the newly affluent group but also in health insurance, new forms of catastrophe insurance and engineering insurance (Munich Re, 2009). In order for the reinsurance market to function in the Chinese market, the capital base needs to be expanded to mitigate risks and take on the role of risk manager (Thumpp, 2002)

7.4.3 Japan

Although the IPCC (2007) suggests Japan’s cost is more protected that that of its South East Asian neighbours, Japan has a high propensity for natural disasters given its pacific location in proximity to fault lines as well as its unprotected island landscape making it a target of typhoons. In the 1990s, Japan suffered from the highest number of sequential natural catastrophes in recent history with 2004 being the most significant year of the past decade due to the occurrence of 10 typhoons as well as the Nigata earthquake (Guy Carpenter, 2006). Japan is also subjected to flooding, volcanic eruptions, tsunamis and winter storms. The 2004, typhoons amounted to USD 6bn in insured losses and USD 600 mn in the Nigata earthquake (Guy Carpeter, 2006). The high population density of the island nation, high propensity for natural disasters as well as the its socio-economic wealth in comparison to some of its South East Asian neighbours demonstrates a different aspect of the SEA reinsurance market. Property policies provide protection from some, but not all natural disasters with earthquake shocks or fire following an earthquake notably absent (Guy Carpenter, 2006). This is redressed through the Earthquake Fire Expense Insurance (EFEI) which provides coverage for small expenses caused by fires after the earthquake (Guy Carpenter, 2006). Residential earthquake insurance is administered by local primary insurers with provisions made by the Japanese Earthquake Reinsurance Company and Japan’s largest domestic insurer, TaoRe (Guy Carpenter, 2006). The current level of earthquake coverage taken by policy holders is at 37.4% (Guy Carpenter, 2006).

The Japanese market has a higher rate of insurance, and subsequent reinsurance than its neighbouring South East Asian countries due to its economic advantage and high risk environment (AON Benefield, 2010). Indeed, the Japanese market was the only insurance market to remain stable growing during the period of the financial crisis particularly in life variable annuities and retirement (AON Benefield, 2010). The number of earthquake capacity purchases made between 1996 and 2003 demonstrates a strong growth trend (Guy Carpetner, 2006). Products are continuously developed for this market due to the growing demand, and the financial ability to purchase.

8 Climate Change and the Reinsurance Industry

In 2009, the US National Association of Insurance Commissioners issued a mandatory requirement that all insurance companies disclose the risk the face in relation to climate change yet this was changed to voluntary participation with the association stating that the data from the survey would remain confidential (NAIC, 2010). Beyond the potential losses which could be incurred in relation to climate change, the reinsurance industry must also consider its legal liabilities (Klein, 2009). With class action lawsuits having occurred in gas, oil, mining and chemical companies in relation to environmental damages, the reinsurance industry could also be effected by such suits (Klein, 2009). As Klein (2009) points out, reinsurance has further liability issues due to its relationship with investors and portfolio diversity suggesting plummeting stocks due to incongruent policy or fund behaviour as case for legal implications. Further, professional liability issues related to lack of information disclosure could also provide case (Klein, 2009).

According to Swiss Re (2010), it is not climate change as an isolated factor which effects reinsurance, but rather in association with region and population. The impact of extreme weather conditions can be seen globally, with South East Asia being particularly exposed to natural catastrophes. Yet, the increasing population and economic growth in South East Asia are the dominant concerns in reinsurance as these will ultimately increase the demand for reinsurance as a means to adapt to the changing social setting and environment (Swiss Re, 2010). Essentially, reinsurance can be seen as cost effective adaption to climate change however insurance market penetration in South East Asia remains (Swiss Re, 2010)

A recent study of the Economics of Climate Adaption Working Group (2009) Noted that enough data is available to base decision making on cost efficient adaption measures citing the economic value at risk to due to climate change risk being 1-12% of GDP by 2030 at today’s climate or 1-19% of GDP by 2030 in accordance with high climate change. An estimated 40-65% of identified risk associated losses may be averted with insurance measures holding the potential to address low-frequency events with high severity (ECA Working Group, 2009).

In summary, economic losses as a result of natural disasters in Asia 2009 amounted to close to USD 17bn or 0.07% of GDP, most of which would be uninsured (ECA Working Group, 2009). Of those who perished in the catastrophic events of 2009, an 9400 lived in Asia amounting to over half the total number of victims. Of the natural catastrophes which occurred, typhoons claimed the largest number of lives with Typhoon Morakot in Taiwan, the Philippines and China claiming 900 victims followed by Typhoon Ketsana in the Philippines, Vietnam, Cambodia and Lao resulting in 850 missing or dead.

The implications for the reinsurance industry regarding climate change are summarised as housing the negative consequences associated with incalculable risks and subsequent losses as well as the implications for future liability issues. However, there are also significant human security implications regarding climate change and the reinsurance industry which are most prevalent, currently, in the South East Asian no-go zones.

9 Human security

Human security, along with human development, surpasses traditional notions of security to comprehensively include environmental, political, social and economic aspects and is associated by the increasing role non-state actors play (Shaw, 2004). In the case of environmental security, the threat thereto is not isolated to a particular individual or community, but rather an intensified affected core with global repercussions. Risk management, as in the case of insurance risk, credit risk, market risk, and operational risk, is the cornerstone of re-insurance with underwriting controlling the limits of insurance and identifying information such as in the case of natural catastrophes and environmental threats (Swiss Re, 2004). Re-insurance is not a philanthropic concept or support network, but rather an industry interdependent with the global economy and market trends whereby weakened global financial markets and investor pessimism are critical factors (Thumpp, 2002).

Human security and human development have been strongly advocated with a particular surge since the 1990s as the influence of non-state actors becomes more prominent (Shaw, 2004). Fernandes (2004) pertains the changing political and economic rhythms in Asia to globalisation and the rising middle class with economic prosperity, improved standards of living and education contributing to more democratic political movements and proactive behaviour in uniting the modern and the traditional. However, the South East Asia region still houses human security issues related to civil unrest, welfare, political, social and economic issues.

9.1.1 Environmental and Social sustainability

With the summary aim of the Millennium Development Goals being to halve poverty by 2015, the importance of addressing environmental issues and their social implications are critical particularly in South East Asia’s developing no-go zones which would see a major step back in the development process.

The environmental sustainability index benchmarks nations on environmental stewardship in aim of establishing tools for environmental decision making and policy development, presenting an alternative source of measurement to GDP and the Human Development Index, and as an international benchmarking mechanism (ESI, 2005). Essentially, the higher a nation’s score the better their position for favourable future environmental outcomes with high scores often seen in nations with a low population density, economic prowess and a stable, quality government (ESI, 2005). In the case of South East Asia, the ESI cluster analysis splits the region in different groups including Group 2 (Moderate system and stress scores; high vulnerability and low capacity; above average stewardship) and Group 7 (Low system score; moderate stresses, vulnerability, capacity and stewardship) (ESI 2005). Interestingly, the report shows no distinct correlation between the development of a nation and its score. Whilst this report demonstrates the stewardship of different nations and provides somewhat of a benchmark, the disparity in the South East Asian region demonstrates the diversity in environmental issues and their importance to policy makers.

The Commitment to Global Development (CGD) Index examines the efforts of nations to assist human development and human security by particularly examining the relationship between developed nations and developing nations. Notably, current members of the CGD Index are developed western nations with the CGD Index data demonstrating Australia and New Zealand to be the prominent players in the south east asian region. Suggestibly, this is due to the pacific proximity of the nations as well as the development status of Australia and New Zealand (CGD Index,2009). The CGD Index indicates that developing nations are at greatest risk with economic imperatives prevailing in the assessment threats, education and proactive initiatives.

9.1.2 Development and Disaster Risk Management

As highlighted by the United Nations Development Programme Disaster Reduction Unit (2004), the hindrance of development due to disasters has implications for the development programme and the ability of the participants to achieve the set Millennium Development Goals unless risk prevention measures are undertaken. These include the humanitarian and economic implications of natural disasters with the humanitarian community active in response measures rather than through policy development and proactive initiatives (UNDP, 2004). Indeed, the UNDP Reducing Disaster Risk Report (2004) suggests disaster risk as being an unresolved problem of development and that it is the challenge of the global community to address these risks. In particular, natural disasters and the accumulated risks in relation to climate change need the response of the international community to address, as well as the balancing of the reinsurance industry in ‘country risk management,’ public authorities, and mitigating the development of no-go zones.

The nations of South East Asia are classified predominantly in Disaster Risk Index groups 7-4 with 7 indicating the highest disaster risk. Furthermore, the region is surrounded by other high risk areas (Figure 3) (Peduzzi, Dao, Herold & Mouton, 2009). Essentially countries are grouped in their geographical exposure to natural disasters, the risk level of these disasters occurring as well as the severity of the effects on the population. The Philippines, although commended by their ESI efforts, are considered as a category 7 group nation therefore having the highest quote of risk in South East Asia (Peduzzi et. al., 2009).

Figure 3. Assessing Global Exposure and Vulnerability to Natural Hazards (Peduzzi et al, 2009)

The Catastrophe Risk Evaluating and Standardizing Target Accumulations (CRESTA) is an independent organisation focusing on uniform global data on aggregated exposure for risk control and modelling specifically for the insurance and reinsurance industry. As an independent body, the information collated, processed and provided is publicly exhibited and predominantly used by the insurance and reinsurance industries. CRESTAzones are a visual depiction of risk related regional data providing information on exposure in specific areas. In a CRESTA survey conducted in 2009, 51.2% of respondents belonged to the reinsurance industry demonstrating the value of CRESTA in risk assessment with 68.% of respondents doing business globally and an additional 6.1% specifically in Asia (CRESTA, 2009). According to respondents, the CRESTAzone data is used for inhouse accumulation control and risk management, for pricing tool input, to send exposure data to reinsurance firms and for geo-coding (CRESTA 2009). Recently, CRESTA has indicated the possibility of updating this information as regional figures have changed and the industries seek more detailed risk exposure descriptions specific to areas which will result in a high and low resolution information display (CRESTA, 2009). However, critique suggests that the two options will create confusion in analysis as well as limited data available in some areas remaining a key issue (CRESTA, 2009). Noting the introduction of the earthquake tariff according to Aon Benefield (2010) and the CRESTA (2009) adjustments, it may be suggested that the new data collation efforts and price adjustments are not only due to economic concerns but also as responses to climate change and disaster risk management.

10 No-Go Zones

The reinsurance industry, particularly internationally, is marginally transparent with the safety net not extending to all areas. According to Swiss Re (2010) most nations in South East Asia would not qualify for reinsurance as they are dealing with basic welfare issue including poverty, food and water issues as well as security concerns. Notably, emerging or developing economies are often less sophisticated regarding risk management whilst holding the highest vulnerability to natural disasters due to high population growth, environmental degradation, and negligent urban planning (Swiss Re, 2010). Subsequently insurance markets in these areas are often underdeveloped and therefore not at the capacity for reinsurance to enter the market. Further issues are related to lack of data and risk awareness. Consequently, the lack of reinsurance in these areas is not due to climate change itself, but rather risks exacerbated due to these climatic conditions as can be seen in the example of India which, with 40mn hectares of flood prone, whereby 8% of the total land mass is prone to cyclones and approximately 68% of the area is susceptible to drought, cannot receive reinsurance (Swiss Re, 2010).

For the purpose of this paper, the plight of the pacific region also be considered provide case for subsequent replicas in the South East Asian region. Although international data such as the Environmental Sustainability Index, the UNDP (2004), the IPCC (2007) and the CGD Index have indicated that South East Asia is at risk of similar environmental challenges, there has been limited discussion or publications in this area. For this reason, the data of noted international bodies, research institutes, non-government organisations and government publications will be used to examine this issue.

‘No-go zones’ are specific geographic regions considered too high risk for reinsurance and subsequently insurance companies to insure. The discussion of no-go zones is limited, stakeholders providing limited data and refraining from the definition thereof. Thus, the plight of these areas is dependent on effective fiscal policy and a strong national welfare system to mitigate risks associated with climate change. The series of ‘no-go zones’ demonstrates the economic imperative and business rationalism which conducts the insurance, and indeed protection, of regions.

Although not illicitly expressed, climate change is producing no-go zones for the reinsurance market in which areas pose too high a risk with minimal to no economic return or too great a liability. The impact of climate change on the reinsurance market has thus far seen an increase in purchases and growth in the South East Asian market; however the risk of disaster is only economically viable if the laws of probability ring true.
As discussed by Klein (2009), climate change’s greatest current threat to the reinsurance industry is the impairment in data calculation and effectively assessing the probability and associated estimated scale of the risk. For the purpose of this paper, no-go zones are considered geographic areas, regions or sovereign nations with an incalculable or disproportionately high insurance risk due to their high propensity for disaster, high risk for humanitarian loss, and at risk of becoming unliveable.

10.1 No-Go zones in South East Asia

In the case of the South East Asian region, particularly in coastal areas and islands, the ‘no-go zones’ will have a profound effect on human security as inhabitants to seek protection and welfare support. From this it can be suggested that environmental peril may be grounds on which seek and be granted asylum. This may lead to new migration trends and subsequently strain inter-regional relations, immigration policies and welfares systems as well as setting precedents for future ‘no-go zones’ and other un-protected areas.

In colloquial language ‘no-go’ zones is a common term for dangerous areas particularly in cases of crime, war or civil unrest. However, climate change is creating new ‘no-go’ zones as some areas are considered too high risk for settlement let alone secured by reinsurance. In South East Asia, these no-go zones are typified by:

• High propensity for natural disaster

• Negative effects of climate change leading to ‘un-liveable’ conditions

• High risk for humanitarian loss

For example, certain island nations of the pacific are scientifically assessed to be sinking meaning climate change is leading to increased natural disasters and negative effects making the area ‘uninhabitable.’ In response, reinsurance firms will not be able to support primary insurance suppliers as the risk is either too high making the product unaffordable or the key insurance criteria cannot be met meaning the product cannot be supplied. Assuming the island nation has a fragile and limited economy, this has direct consequence with the ability for the region to be economically viable and be socially sound as the economic imperative ensures health services. In consequence, three options are available to the island nation: to seek international aid, to stay or to go. Notably, all three possibilities significantly affect the human security of inhabitants.

Currently, national initiatives may be supported through international aid or reinsurance as seen in the example of Swiss Re’s Country Risk Management product. However, this product will only remain as long as it is economically viable due to the commercial nature of the reinsurance industry. Critique towards the industry is withheld, as it consists of commercial enterprises rather than public institutions. However, when the financial safety net is no longer on hand, these cases of missing funding will become humanitarian issues for the international community.

10.1.1 Implications and Vulnerabilities of No-go zones on the South East Asian Region

According to Paduzzi et al. (2009) there are a significant number of island nations with insufficient data to acquire an accurate analysis however that is not to say that these nations are all no-go zones. Rather, it illustrates the difficulty in evaluating all regions in South East Asia region. The implications of no-go zones are difficult to estimate due to the lack of official data available on these actual regions complimented by the fact that no official ‘no-go’ zones have been declared for public debate. Understandably, the declaration of no-go zones would have significant immediate political implications. To estimate the repercussions of the regions officially declared ‘no-go zones’ and the currently estimated consequences of climate change ringing true, issues of human security including welfare, security and protection and migration are core implications.

10.1.2 Migration

As noted by the UNDP (2004), migration is a developed survival strategy with seasonal or permanent migration used in risk aversion. Migration is caused by the individual’s drive to improve their quality of life including the exercise of fundamental human rights, health and education with the risk associated with the migration itself often seen as the necessary sacrifice for the potential gains upon arrival at the chosen destination (UNDP, 2004). As discussed by the UN Refugee Agency (2009), the population displacement due to climate change is immense in correlation with disaster risk areas and scarcity of resources. Currently, it is estimated that there are potentially 25 million environmental refugees currently (Goffman, 2006). The definition of environmental refugees is debateable with Myers (2005 cited in Goffman, 2006) stating it to be:

“People who can no longer gain a secure livelihood in their homelands because of drought, soil erosion, desertification, deforestation and other environmental problems, together with associated problems of population pressures and profound poverty.”

However Black (2001 cited in Goffman 2006), argues that:

“Although environmental degradation and catastrophe may be important factors in the decision to migrate, and issues of concern in their own right, their conceptualization as a primary cause of forced displacement is unhelpful and unsound intellectually, and unnecessary in practical terms.”

Migration is one of the key issues in the development of no-go zones and relates to the third cited option of ‘leaving’ which, depending on the circumstances, may result in mass exodus. For the south east asian region, the inhabitants of no-go zones will follow current migration patterns of moving, out of necessity, to other nations on hope of security, protection and a new beginning. In reference to the CGD Index, it can be seen that Australia and New Zealand hold the highest migration levels of listed developed countries in receipt of migrants for South East Asia (CGD Index, 2009). When considering Australia and New Zealand’s geographic proximity to South East Asia, the trade links, security, aid, and the overall high CGD indicators it would suggest that these nations would be the logically primary movers in the migration movement of the no go zone population.

Furthermore, as categorised ‘developed nations’ with a lower disaster risk factor Australia and New Zealand would be first ports of call (UNDP, 2004; CGD 2009).

In the case of migration as an option, it is assumed that the possibility of living in the no-go zone remains however the non-voluntary movement from this area would mean a case for asylum. Article 14 of the UN Declaration of Human Rights 1948 declares that all people have the right to seek and enjoy asylum in another country free from prosecution. In South East Asia, the inhabitants of no-go zones will indeed go somewhere. Climate change perhaps becoming the newest ground for asylum. This poses significant problems as climate change is a global issue, thus not the responsibility of a single nation or community suggesting that asylum free from environmental risk is the criteria for this status. Indeed, the plight associated with economic deterioration, infrastructure loss, and crumbling welfare systems as well as inadequate governance due to the inability to finance initiatives creates a hostile living environment. The no-go zones are set create climate change asylum seekers and orphans of global warming.

10.1.3 Implications for Australia and New Zealand

Cases of environmental refugees have already confronted Australia and New Zealand from their pacific neighbours. As signatories to the United Nation 1951 Convention and/or 1967 Protocol relating to the Status of Refugees, Australia and New Zealand agree to the status of a refugee as defined by the convention as:

• People outside their country of usual residence or nationality

• People unable to or unwilling to return or to seek protection of that country due to well founded fear of prosecution for reasons of race, religion, nationality, membership of a particular social group or political opinion

• People who are not war criminals or have committed serious non-political crimes

(Australian Immigration Fact Sheet 61 – Seeking Asylum within Australia, Australian Department of Immigration and Citizenship 2009).

The Australian Immigration Fact Sheet 61 also highlights that signatories to the convention are not obligated to provide protection to those who do not meet the stated criteria or who, “have left their country of nationality or residence on the basis of war, famine, environmental collapse or in order to seek a better life for themselves or their family.” Notably this specifically excludes environmental collapse or environmental refugees. The federal government’s recent policy paper ‘Our Drowning Neighbours’ is expected to see Australia move into a new direction of immigration policy particularly considering the harsh international criticism the nation’s immigration has received in the past decade. Additionally, it has been noted by the international press that Australia has indeed taken on refugees from nearby pacific islands.

According to the CGD Index, New Zealand outgrows Australia in its migration policy in the South East Asian region and was markedly the first country to accept environmental refugees. It is expected that the pacific cases of Kirribati and Tuvalu amongst others, will set a precedent for environmental migration policy and will be replicated across the South East Asian region due to the number of island conglomerate and predominantly coastal landscapes. According to Peduzzi et al (2009) the South East Asian region boasts predominantly nations of the high risk category with many small island areas missing data and therefore undefined, similar to the pacific cases.

10.1.4 Welfare

Welfare is a key predicament in the case of no-go zones internationally. As noted by Swiss Re (2010), the level of development is critical in enabling reinsurance with basic welfare needing to be addressed prior to products becoming available. As the areas, regions or nations transcend from stable or in some cases even prosperous areas to deserted habitats, welfare is a ground for the population to move and the international community to be called to attention. The welfare issue in climate change affected areas, particularly small islands, include decomposing eco-systems, lack of fresh water sources, extreme weather events, and rising sea levels (ALP, 2006). In essence, the basic physiological needs cannot be met. The case for welfare issues depends on the starting point of the area, region or nation with welfare considered either a the responsibility of the state (often supported by reinsurance) or the responsibility of the individual (in the case of primary insurance). As examined, South East Asia hosts a great diversity in welfare standards often exhibiting distinct class systems therefore influencing the primary access to welfare. Welfare considers the quality of life by meeting physiological needs as well as education and healthcare with access thereto diverse in the region and again gapped by socio-economic strata.

The process begins in an area where extreme weather conditions are becoming more intense or more frequent often disrupting development or economic activity (UNDP, 2004). Conversely, forms of agricultural production or natural resource dependent industries deteriorate creating economic and social problems. The government, depending on the region, may or may not act in response to such issues by using national funding, reinsurance products, or international aid. These issues lead to civil unrest as the population moves in closer proximity to remaining available resources, which in some cases will see a form of urbanisation leading to an eruption of civil unrest regarding resources and a deterioration of welfare due to lacking economic means and increased population density. The increased population density is expected to, see a strain on infrastructure and welfare systems such as healthcare with an increased population or spread of diseases (for example water borne diseases) or both. At this point, areas will start to become ‘unliveable’ with the propensity for risk too high for the reinsurance industry to support national governments with areas thus seeking the aid of the international community as it becomes a humanitarian issue.

Figure 4. Highest 25 Countries According to the DRI (Peduzzi et al. 2009)

In the US Department of Defence Report (Schwarz & Randall, 2003), global future scenarios are depicted for the global community with examined country cases closest to South East Asia being Bangladesh and China, which are both predicted to be plagued by humanitarian issues due to lack of natural resources and famine (Schwarz & Randall, 2003). Furthermore, the issue of development and mortality in relation to high risk areas and regions with a significant propensity for natural disaster have been determined (UNDP, 2004; Peduzzi et al, 2009). The 25 nations bearing the highest figures for disaster mortality, demonstrated in Figure 4, host numerous South East Asian nations.

As outlined by the Australian ‘Our Drowning Neighbours’ (ALP, 2006) report on the plight of the pacific and the case of environmental refugees, the assistance of these people is not only in environmental interests and humanitarian obligation, but also for the welfare and security of Australia. Indeed, the fear of waterborne diseases and the incapacity to act methodically in addressing migration issues sees the welfare of not only the nations in plight but also the supporting nations to be of concern (ALP, 2006).

10.1.5 Security

Climate change presents a challenge to regional, national and human security with the potential to destroy development gains as well as to dramatically hinder future development as well as possibly destroying food systems, deteriorating living conditions and causing conflict and disruption (ALP, 2006; UNDP, 2004; Schwarz & Randall 2003). The security issue in South East Asia is to emerge strongest in 2020 when the impact of climate change on the region congregates and subsequently creates regional conflict (Schwarz & Randall, 2003).

As civilisation is based on the ability of humans as a group to rely on the resources of their habitat to address physiological needs as well as provide elements with which to forage political, economic and social identity, the lack thereof proposes the disintegration of human security and subsequently of the population. In the case of no-go zones, the ability to maintain a mode of economic security is reliant on the combination of resource endowment, the supply and demand movements of the market, and indeed the assurance of future prospects. Here, reinsurance stands as an influential factor with a security needed for economic stability. This security of livelihood is integral to the ability of the sovereign state as an independent body.

Human security is greatly influenced by the ability of the governing bodies of these risk imbedded areas to manage the needs of their populations. As the lack of economic progression leads to a decline in income and subsequently of national finance, the state comes to rely on reinsurance plans or foreign aid. As expressed, the reinsurance industry at such a late stage bears no interest in supporting areas which may cease to exist. The issue of protection is another key factor in security. Whilst the welfare issues associated with food systems and living conditions deteriorating cause civil unrest in dispute over resources, the threat to national security also exists (Schwarz & Randall, 2003; ALP, 2006). Schwarz & Randall (2003) suggest that disputes related to energy and food resources will replace the ideological conflicts common today although the nature of the conflict is debateable as is which weathers will surface as attackers and which as victims.

In the case of no-go zones, the security issues will predominantly focus on regional human security issues as it is assumed these areas are not desirable by other nations due to the propensity for disaster and the possibility that these areas may cease to exist. However, the forced fleeing of the population to other areas will create civil unrest in the new vicinity due to increased population in contrast to the limited carrying capacity. The carrying capacity refers to the ability of the earth’s ecosystem to support the population with areas differing in their ability to meet these needs (Schwarz & 2003). In the case of no-go zones, the propensity for disaster decreases the carrying capacity of the area therefore threatening human security. As long as the carrying capacity of the eco system exceeds the population peace will remain, whereby the opposite would cause significant conflict (Leblanc cited in Schwarz, 2003).

10.1.6 Reinsurance v government

The reinsurance industry supplies financial support and advice to government or organisations regarding a wide range of risk issues. In the case of human security, two prominent concepts in the past decade include terrorism and disaster risk. South East Asia has a low reinsurance penetration with the reinsurance products in these areas prominently seen in the US and in the European markets (Guy Carpenter, 2006). The role of reinsurance in contrast to the responsibilities of government is continuously examined with fiscal policy often favoured over the commercial reinsurance industry, however it is also acknowledged that the lacking capital base makes reinsurance a player in the health equation with governments opting for fund pooling solutions particularly in areas of welfare (Dror, 2001).

Country risk management is seen as a product with which nations can counter these risks through reinsurance to manage natural disasters, health issues, war, assets, infrastructure, energy, property and security (Swiss Re, 2009). These can be seen as consequences of climate change, however there is no insurance against climate change as such. Furthermore, the economic argument prevails with the financial implications of un-insured consequences falling on government, business and the private sector creating significant economic, political and social implications (Swiss Re, 2009). Essentially, reinsurance in the case of negative consequences due to the risks associated with climate change (such as increasing frequency or ferocity of natural disasters) secured by country risk management is a transfer of risk from the public sector to the reinsurance industry.

Naturally, the reinsurance industry is a commercial sector which means that the interest in supplying reinsurance products must sustain a level of profitability. As discussed by Palmer (2007) there is an innate conflict in the notion of bestowing welfare and human security on the reinsurance as a commercial industry as these issues are clearly in the public sphere of responsibility. As the representative body of the population, it is the role of the government to ensure that the needs of the population are addressed. These needs are commonly addressed through legislative measures and fiscal policy, yet if the government does not have the sufficient funds or if the government is not trusted by the population, as often the case in developing nations, alternative measures such as reinsurance or foreign aid may be taken.

In the case of no-go zones, reinsurance is no longer an option leaving foreign financial assistance and international financial institutions as the remaining funding avenue. However, as the no-go zone is considered uninhabitable and the region or state is expected to cease to exist, the willingness of the international community to provide financial assistance, particularly for redevelopment, is impossible. Furthermore, the economic impacts of debts have implications for the no-go zone as well for the supplying nation, which may lose the invested finance permanently.

10.1.7 International Community and Foreign Aid

The role of the international community regarding no-go zones is mixed as currently there is no public consensus of this concept, however the role in regards to climate change seems obvious. In considering the pacific cases currently being discussed by the international community, the states as sovereign entities are focusing on reactive strategies including disaster protection structures, strategies to manage food and resource shortages, and migration policy to ensure that inhabitants have a safe haven once the area is indeed uninhabitable. As noted by the UNDP (2004), the focus of humanitarian issues by the international community in disaster risk areas focuses on post factum aid rather than proactive measures.

Reducing disaster risk is considered of interest to the international community to due to the consequences it bears on development as well as further repercussions on the international realm including climate change policy, financing, international trade, foreign aid, and migration policy (UNDP, 2004). As the IPCC (2007)notes, south east asia is at the threat of climate change with the majority of these nations categorised in the top 25 disaster risk exposed nations (Peduzzi et al, 2009). The linkages with the international community have been integral to the development of South East Asia in recent decades particularly in relation to trade. The international community may support eachother through political and economic endeavours as well as through foreign aid, often in the form of loans rather than grants and is provided by either the private or the public sector (Mango, 2003).

In the case of no-go zones specifically, the responses are mixed as the debate of whether climate change exists wages and if so, when, where and how it will be experienced. Political agendas and sovereign interests still outweigh the voices of such no-go zones which are notably smaller players and economically and politically seen as less significant in the international community. This ‘insignificance’ is affirmed through the lack of action undertaken to address these issues. Reflecting on the case of the pacific, proactive measures must be taken to address the possible consequences prior to their actualisation. In particular, the South East Asian no-go zones will have significant impact on the neighbouring nations in immediate vicinity having limited resources to effectively address the social, economic and political consequences. With Australia and New Zealand acknowledging the desirability of their nations, these states have noted that aid and migration assistance are not the only solution in addressing these problems with education and training programs implemented in the pacific to ensure the new population will be assisted in the integration process as well as not becoming an economic burden to their new host nations (ALP, 2006).

However, the actions of the international community in response to climate change, the issues for change hotspots becoming no go zones, little international activity has come about. This can be seen in the leaders of international hotspots such as Darfur, Bangladesh, Tuvalu, Kirribati, and Palua seeking assistance in the international arena (UNHCR, 2009). In the assistance of the international community, the efforts are aimed at ensuring the inhabitants are able to remain in their country of nationality or residence through development aid, financial assistance, peacekeeping forces, or in the case of refugees in repatriation.

No-go zones, however, become uninhabitable therefore the current strategies applied by the international community under the heading of humanitarian assistance must be re-defined with new policies developed to address this changed situation.

11 Conclusion

In conclusion, the symbiotic relationship of climate change and reinsurance has a profound effect on the human security issues of South East Asia’s no-go zones. Whilst climate change has been disputed over decades, the international arena today leaves little room for discussion of ‘if’ climate change ‘will’ occur, and has been overrun by the commencing effects taking place. The role of international organisations in monitoring climate change, as well as the wealth of scientific literature, demonstrates the possible effects of climate change with current situations mirroring these predictions.

In the discussion of reinsurance, it is evident that the commercial sector dedicated to business and private interests, has become the realm of public policy with government budgets and risk management efforts backed by reinsurance firms. The reinsurance industry is a case of supply and demand with changing environmental conditions providing an opportunity (China) and a risk with too high a burden to undertake (India/Bangladesh). As the industry moves to new catastrophe modelling systems, revised disaster risk indexes and an adjustment of risk zones, it is undeniable that climate change is affecting the industry and its risk calculation. Based on probability, the industry is cautious in its acceptance of risk, therefore adopting green initiatives and country risk management problems to cater to market demand. As demonstrated in the literature, there is ample scepticism for government’s reliance on reinsurance to safeguard human security, particularly as the reinsurance industry has enunciated its dedication to commercial and shareholder interests.
As noted in the case of South East Asia, the climatic conditions hold a high propensity for natural disasters with the increased frequency and severity estimated as a consequence of climate change. The region’s diversity is exemplified through the best practice example of Singapore in contrast with the case of Indonesia and the lack of data on the smaller South East Asian areas. The region’s high population growth and diverse level of welfare as well as dispersed economic development demonstrates the difficulty in ensuring human security for the entire region. As noted, the marginally transparent safety net of reinsurance does not extend to all areas. The lack of adequate governance, reinsurance and international funding leaves a battlefield for no-go zones.

In essence, perhaps an examination of the dependence on the reinsurance industry by sovereign states is to be examined, particularly due to the human security issues related to the emergence and development of no-go zones. As exemplified, human security issues relating to the development of no-go zones through the effects of lacking reinsurance and climate change include migration, security and welfare issues as well as the international community and the need to examine the role of government in this equation.

Although human security is a sovereign issue, it is of international interest. In the parallels drawn between the current pacific cases, it can be assumed that South East Asia will experience similar issues in future decades leading to critical human security concerns by the states and region as well as the international community. In order to do so, it is recommended that the development of no-go zones foremost be publically acknowledged by the international community in order to create a context or pro-active cooperation rather than hoping to address the issue after the fact. Furthermore, the data collated on the South East Asian reinsurance market as well as on climatic change and human security issues in the area must be conducted in further depth. Critically, the dependence of governments on reinsurance must be reviewed. The cooperation of the international community is critical, however South East Asia as a region must first come to a level of consensus particularly due to the disparity in levels of development and human security issues within the region. This must be supported by policy development and proactive risk management.

International law and policies enshrine the values and commitments of the international community however this law of consensus is subject to criticism due to the limited power it holds over the decisions of sovereign nations. Furthermore, the international sanctions employed in an attempt to force conformity to the prescribed laws by signatories are often seen to have ulterior motives and limited influence. In the case of human security, international policy has been developed, yet it is the responsibility of each community, state, and region to focus on their commitment in order to facilitate this concept on an international level.

About the authors:
Anis H. Bajrektarevic, Geopolitics of Energy Editorial Member, Chairperson for Intl. Law & Global Pol. Studies, contact: anis@bajrektarevic.eu

11.1 Bibliography

Achraya, A 2003, ‘Seeking security in the dragon’s shadow: China and southeast Asia in the merging asian order’, Institute for Defence and Strategic Studies, Singapore
ALP 2006, Our drowning neighbours: Labor’s policy discussion paper on climate change in the pacific, Australian Labor Party
AON Benefield 2010, Reinsurance market outlook: Remarkable outlook, AON Benefield Inc
Association of British Insurers 2009, Assessing the risks of climate change: financial implications, Report ABI, London
Association of South East Asian Nations (ASEAN) 1997, ASEAN Vision 2020, ASEAN, Kuala Lumpur, accessed 29.04.10 http://www.aseansec.org/1814.htm

Association of South East Asian Nations (ASEAN) 2010, ASEAN Leaders’ Statement on Joint Response to Climate Change, ASEAN, Ha Noi accessed 29.04.10 http://www.aseansec.org/24515.htm
AusAid (2007), The greater Mekong subregion: Australia’s strategy to promote integration and cooperation 2007–2011, Australian Agency for International Development, Commonwealth of Australia Canberra

Berz, G 2002, ‘Insuring against catastrophe’, United Nations Environment Programme OurPlanet, pp. 1-4

CEA Insurers of Europe 2006, Guidance Paper on Reinsurance Including Finite Reinsurance, CEA Brussels

CRESTA 2009, CRESTA Survey 2009, CRESTA Secretariat https://www.cresta.org/ accessed 12.03.10

Dror, DM 2001, Reinsurance of health insurance for the informal sector, World Health Organisation (WHO Bulletin, vol. 79, no.7)

Dubai Islamic Insurance and Reinsurance Group (AMAN) http://www.aman-diir.ae/ accessed 12.03.10
Durieux, J 2009, Climate change and forced migration hotspots: From humanitarian response to area wide adaption, UNCHR

Economics of Climate Adaption Working Group 2009, Shaping Climate Resilient Development, Economics of Climate Change
Giarini, O 2001, ‘Insurance Industries,’ in RJ Barry Jones (eds 1) Routledge Encyclopaedia of International Political Economy, Taylor & Francis
Goffman, E 2006, ‘Environmental Refugees: How Many, How Bad?,’ CSA Discovery Guides, pp.1-15
Guy Carpenter 2006, The world catastrophe reinsurance market: Steep peaks overshadow plateaus, Guy Carpenter and Co
International Centre for Technology Assessment 2004, Gasoline Cost Externalities Associated With Global Climate Change, Real Price of Gasoline Report, CTA USA
Intergovernmental Panel on Climate Change 2007, Climate Change 2007: Synthesis Report, IPCC
Intergovernmental Panel on Climate Change 2007, Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, IPCC Cambridge University Press, NY, USA.
Mango, A 2003, Encyclopedia of the United Nations and International Agreements, Taylor & Francis
Mayasami, RC & Williams, JJ 2006, ‘Evidence on the relationship between Takaful insurance
and fundamental perception of Islamic principles,’ Applied Financial Economics Letters, vol. 2, pp. 229–232

Mitchie, J 2001,Reader’s Guide To The Social Sciences, (eds 1) Fitzroy Dearborn Publishers
MunichRe 2010, Natural catastrophe’s 2009 analyses, assessment, positions, GeoTopics, Geo Risks Research
National Association of Insurance Commissioners 2010, Adapted version: insurer climate risk disclosure survey, NAIC Insurer Climate Risk Disclosure Survey, USA
Palmer, D.E 2007, ‘Insurance, risk assessment and fairness: An ethical analysis,’ Insurance Ethics for a More Ethical World Research in Ethical Issues in Organizations, vol. 7, pp. 113–126

Pedouzzi, P, Dao,H, Herold, C, Mouton, F 2009, ‘Assessing global exposure and vulnerability towards natural hazards: the Disaster Risk Index,’ Natural Hazards and Earth Systems Science, vol. 9, pp.1149–1159

Schwarz, P & Randall, D 2003, An Abrupt Climate Change Scenario and Its Implications for United States National Security, US Department of Defence

Swiss Agency for Development and Cooperation http://www.swiss-cooperation.admin.ch/mekong/ accessed 4.04.10
SwissRe 2004, Country risk management: Making societies more resilient, Swiss Reinsurance Company Ltd, Zurich

Swiss Re 2010-Submission of Answers Specific to the Paper ‘Climate Change and Re-insurance: The Human Security Issue.’

Trumpp, U 2002, Global Trends of the Reinsurance Market, OECD/CIRC Technical Expert Meeting on
Reinsurance in China, MunichRe, Suzhou

Van Cayseele, P 1991, ‘Current problems in insurance economics,’ Insurance: Mathematics and Economics, vol. 10, pp. 239-248

Wilkins, M 2009, ‘Multinational enterprise in insurance: An historical overview,’ Business History, vol. 51, no. 3, pp. 334–363

The article Climate Change And Re-Insurance: The Human Security Issue – Analysis appeared first on Eurasia Review.

By Eurasia Review

Bahraini authorities should urgently open an independent and impartial investigation into a January 8, 2014 incident in which police officers shot and fatally wounded one man and seriously injured a 17-year-old boy, Human Rights Watch said Wednesday. Authorities should make the results public and explain why they did not inform the victims’ families of their injuries or their whereabouts for more than two weeks.

According to a death certificate issued by the Bahrain Defense Force military hospital, Fadhel Abbas Muslim Marhoon, 19, died from a “traumatic cerebral oedema” on January 8. Photos of his body show what appears to be a gunshot wound in the back of the head, but the location of the entry wound appears to contradict a January 26 Interior Ministry statement saying that Marhoon was driving an “oncoming car” at police officers in the town of Markh and that the police fired at the car in self-defense.

“If Bahraini security forces want to fix the reputation they have for covering up abuses, they should promptly investigate the conduct of the officers who fired the fatal shots at Fadhel Marhoon and seriously wounded a 17-year-old boy,” said Joe Stork, deputy Middle East and North Africa director. “The Interior Ministry needs to explain why it didn’t say a word to the victims’ frantic families about their missing sons for more than two weeks.”

Authorities did not alert Marhoon’s family or inform them of his whereabouts until they announced his death on January 25. Nor did the authorities notify the family of Sadeq al-Asafoor, 17, whom the police shot, seriously injured, and detained in the same incident, until January 23, when they transferred him out of a military hospital to a clinic at the Interior Ministry headquarters.

A third person involved in the incident, Ali Abd al-Amir Khamis, was not injured. On January 29, a court charged him with planting explosives that injured police officers. A lawyer engaged by his family told Human Rights Watch that authorities have prevented him from seeing his client. Family members who visited al-Amir in prison on January 29 told Human Rights Watch that after the incident he spent 20 days in detention at the Criminal Investigation Directorate (CID) headquarters, where he says he was tortured.

The Interior Ministry statement says that the shooting of Marhoon and al-Asafoor was linked to a highly publicized incident in which the government alleges that unnamed people attempted to smuggle weapons and explosives into Bahrain by boat. The statement says of the shooting:

There were two suspects in the building when police arrived. While the two were trying to flee in their car, the driver, Fadhel Abbas, attempted to run over the policemen despite being repeatedly warned, both verbally and by warning shots. Finally, police were compelled to use their weapons to defend themselves and stop the oncoming car.

A member of al-Asafoor’s family told Human Rights Watch that he went to visit a friend in the village of Markh at around 9 p.m. on January 8. What happened leading up to the shooting is not clear. The family member who visited al-Amir in Jau prison on the morning of January 29 told Human Rights Watch that al-Amir claims that he and his two friends were caught in a police trap.

The police shot al-Asafoor when he left the car, apparently to collect something, based on the relative’s account from al-Amir. Al-Amir and Marhoon fled the scene in a car under fire from police, but returned later to look for al-Asafoor. A police jeep then rammed their car, forcing it to stop, and the police fired multiple shots into the vehicle, killing Marhoon.

This account of events as well as the photos of Marhoon’s fatal wound call into question the Interior Ministry’s narrative. The photos Human Rights Watch examined appear to show a bullet wound 1 centimeter in diameter in the back of Marhoon’s head. No bullet wound is visible on the front of his head. The death certificate states that the cause of death, at 11:30 p.m. on January 25, was an “intracranial injury” that caused a “traumatic cerebral oedema” but it makes no reference to a gunshot.

Family members visited al-Asafoor on January 24 in the al-Qala’a clinic at Interior Ministry headquarters. They told Human Rights Watch they saw what appeared to be gunshot injuries on his lower torso. They later told Human Rights Watch that plainclothes officials at the clinic warned the family not to discuss the incident that led to his injuries or they would prevent them from making further visits. They added that security officials supervised their visit and did not permit them to meet with medical personnel responsible for treating their son.

Had Marhoon been driving an oncoming car toward police officers, it would seem likely that any shots they fired in self-defense would have struck him in the front of his head, not the back.

“The families’ accounts of the incident, if true, indicate that Marhoon’s death may have constituted an extrajudicial execution,” Stork said. “Police may have had legitimate reasons for wanting to apprehend these three men, but it does not appear that they had any legitimate cause to shoot them.”

The Bahrain Independent Commission of Inquiry, appointed to investigate official conduct during antigovernment protests in 2011, concluded that: “police units used force against civilians in a manner that was both unnecessary and disproportionate. This was due, at least partially, to inadequate training of field units [and] ineffectual command and control systems…”

As a state party to the International Covenant on Civil and Political Rights, Bahrain is required to protect and respect the right to life. It should abide by the United Nations Basic Principles on the Use of Force and Firearms, which state that lethal force may only be used when strictly unavoidable, to protect life, and must be exercised with restraint and proportionality. The principles require governments to “ensure that arbitrary or abusive use of force and firearms by law enforcement officials is punished as a criminal offense under their law.”

A family member told Human Rights Watch that the authorities consistently refused to acknowledge they were holding Marhoon or al-Asafoor, or inform either of the families of their relatives’ whereabouts or well-being. In the days following the incident, the family member said, al-Asafoor’s family went to Salmaniya medical center, the Bahrain Defense Force military hospital, and the Office of the Public Prosecutor to ask if al-Asafoor was injured or in custody. All denied holding him or any knowledge of his whereabouts.

On January 12, a staff member at the military hospital told the family that al-Asafoor was in custody at the hospital and stable, but the following day staff there again denied he was in the hospital.

International law classifies authorities’ refusal to acknowledge the fact they are detaining persons, or their whereabouts, as enforced disappearance. The authorities should explain why they failed to inform the family of a grievously injured child of his whereabouts and life-threatening injuries, even though the family was actively searching for him.

Al-Amir made a brief phone call to his family in the week after the shooting. The family contacted a Bahraini lawyer, who filed a written application to represent al-Amir and submitted it to the public prosecutor on January 13. The public prosecutor informed him that he would be unable to speak to his client until after an initial trial hearing on January 29, where he is to face charges of attacking a police officer, the lawyer told Human Rights Watch.

Neither Bahrain’s Criminal Procedure Law, nor its 2006 counterterrorism law, make provision for refusing access to a lawyer in such a way. This would be a violation of fair trial rights guaranteed by Bahrain’s constitution as well as international human rights law.

The article Bahrain Should Investigate Fatal Shooting By Police, Says HRW appeared first on Eurasia Review.

By Paul Woodward

The article ISIS selling Syrian Oil To Assad Regime – OpEd appeared first on Eurasia Review.

By Mary L. G. Theroux

Having spent 9 hours in the Atlanta airport yesterday, my husband David and I observed the human condition first-hand, as travelers and crews left idle in the airport by canceled and delayed flights politely aided one another and made the best of uncertain conditions. Fortunately for us, we were all relatively safe and warm, well serviced by the ample selection of vendors throughout the airport, with blankets provided by the airlines, and strangers helping one another.

Those on the roads were not so fortunate, and as under other treacherous conditions, the grace of individuals and for-profit concerns came to the fore.

Atlanta-based Home Depot opened up 26 stores in Alabama and Georgia for stranded travelers. Hotels and churches provided food and shelter, and individuals opened their homes to strangers. One church member reported:

His guests included a family that got stuck in the Atlanta area en route to Texas, several motorists, and two homeless men.

“Everyone is sitting around chitchatting like they’ve known each other for years.”

And demonstrating its corporate culture in action, Birmingham, AL employees and owner of the Chick-fil-A restaurant a mile and a half from Highway 280:

“We cooked several hundred sandwiches and stood out on both sides of 280 and handed out the sandwiches to anyone we could get to – as long as we had food to give out.”

The staffers braved the falling snow and ice and Chick-fil-A refused to take a single penny for their sandwiches.

The restaurant also offered shelter to anyone who wanted to sleep there.

Chick-fil-A is uniquely bold in declaring its Corporate Purpose: “To glorify God by being a faithful steward of all that is entrusted to us. To have a positive influence on all who come in contact with Chick-fil-A,” and the company has clearly been successful in instilling that purpose throughout its vast operations. Asked why they would go to such extraordinary lengths to help stranded strangers, the manager leading the efforts cited Chick-fil-A’s much-misrepresented creed:

This company is based on taking care of people and loving people before you’re worried about money or profit. We were just trying to follow the model that we’ve all worked under for so long and the model that we’ve come to love. There was really nothing else we could have done but try to help people any way we could.

Among the few lucky ones whose flight departed Atlanta last night, we were thus chagrined at the selection of in-flight movies and TV shows—with one after the other portraying business as a snake-pit of greed and corruption. Strategically located in earthquake country, Hollywood may some day learn the lessons the unfortunate victims of the Arctic Blast, Katrina and other natural disasters have seen first-hand: when it comes to aid, those in the “for-profit” and private charity sectors beat “public service” every time.

The article Arctic Blast Heroes: Chick-Fil-A To The Rescue – OpEd appeared first on Eurasia Review.

By Anthony Gregory

In last night’s state of the union, an uncharacteristically boring speech climaxing in a bipartisan tribute to sacrificial militarism, the president had very little to say about civil liberties, one of the main focuses of his campaign in 2008. He uttered less than a paragraph. And with every word, he treated us like we’re all idiots. He spoke so little about human rights in respect to the war on terror, I might as well go through each line, including his preceding sentences when he declares he has pushed for restraint:

“So, even as we aggressively pursue terrorist networks—through more targeted efforts and by building the capacity of our foreign partners—America must move off a permanent war footing.”

This sounds good. But he has said this before, such as when he ended the “war on terror” in August 2009 and again in May 2010. And yet on the fundamentals of detention policy, drones, and his escalation of the war in Afghanistan, he has pretty much maintained this permanent war footing for five long years. If he finally does ratchet the war effort back, it will still mean he spent half a decade exercising ghastly powers and shredding liberties in a war that began seven years before he took office.

“That’s why I’ve imposed prudent limits on the use of drones – for we will not be safer if people abroad believe we strike within their countries without regard for the consequence.”

He’s being vague here. He has in fact vastly expanded the use of drones abroad. Obama has killed about 2,400 people in his drone attacks, and the administration has long defined a terrorist pretty much as any male of military age killed by an attack.

And meanwhile, the militarization of law enforcement at home, from the local governments up to federal agencies, has continued, including in its use of drones. Amazingly, federal immigration officials assisted local and federal law enforcement with drone missions over 700 times between 2010 and 2012. They are collecting evidence to be used in normal legal proceedings. Is this prudent? We can debate that, but for Obama to suggest that he’s limiting a trend that began in earnest after he took office is a little disingenuous. Obama is very good at taking credit for making things better than they were under Obama.

Now for the biggest insult to our intelligence:

“That’s why, working with this Congress, I will reform our surveillance programs – because the vital work of our intelligence community depends on public confidence, here and abroad, that the privacy of ordinary people is not being violated.”

This is almost not worth criticizing, it is so ludicrous. The NSA surveillance state was in full swing when Obama took power, but it has considerably expanded on his watch. The administration has been building a facility it Utah able to store more telecommunications data than is currently on the entire internet. One of Obama’s own useless task forces has concluded large swaths of the program is illegal—and the White House officially disagrees —and even the Republican National Committee sound like civil libertarians compared to the administration on this.

One more terrible insult:

“And with the Afghan war ending, this needs to be the year Congress lifts the remaining restrictions on detainee transfers and we close the prison at Guantanamo Bay – because we counter terrorism not just through intelligence and military action, but by remaining true to our Constitutional ideals, and setting an example for the rest of the world.”

So, it’s true that Congress, back when it was ruled by Democrats, inconvenienced Obama’s release of prisoners. But there is so much he could have done to close the prison base down by now.

Here he is, claiming the executive authority to bypass Congress on basic domestic policy, and yet he claims that, as commander in chief, he can’t simply order these prisoner transfers? But of course this is a lie. Keep in mind that he has been releasing prisoners—just as Bush released prisoners. He could have released the majority of them who were innocent five years ago. He could have issued executive pardons or used his authority as commander in chief over detention policy, the same authority Bush used to set these programs up in the first place. And if you argue that that authority was illegitimate, then surely a president unilaterally discontinuing the policy that’s illegitimate must be legitimate.

Obama’s task force on this issue also embarrassed him when it cleared many prisoners for release, a number of them also judicially cleared by judges during both Bush’s and Obama’s administration. The Obama administration actively appealed and blocked these releases, resulting in the prolonged torture and even death of inmates. Obama also effected the prolonged mistreatment of Chelsea Manning and the awful military trial of Omar Khadr, captured as a wounded child soldier in Afghanistan.

If there’s any more disgusting joke than Obama’s attempts to deny responsibility for the human rights abuses perpetrated by his own executive branch, a joke compounded in its awfulness by his constant attempts to butt in to areas he has much less business in. As with the NSA, he claims he needs Congress to rein in civil liberties abuses, and yet these are some of the easiest problems in government for him to snap his fingers and end this afternoon.

With the Obama presidency, we have seen civil liberties continue to suffer violence while, because of politics, fewer people seem to care. Progressives have softened their vigilance on these issues, and Republicans can criticize the abuses on the periphery, appearing hypocritical given their past in defending Bush.

On the kill list, on detention policy, on surveillance, on the TSA, on most areas of the war on terror that touch on civil liberties, matters have stayed the same or gotten worse under Obama. The few areas that have seen improvement were largely symbolic, as such policies as black sites and official torture ended at the end of the Bush years.

Watch this page for more critical analysis of his speech. I watched the whole thing. If you didn’t, and want a good rundown, Cato has one:

The article Obama Insults Our Intelligence On Civil Liberties – OpEd appeared first on Eurasia Review.

By Eurasia Review

Reporters Without Borders said Wednesday it is deeply saddened to learn that the Afghan journalist and intellectual Mohammad Qasim Akhgar, founder of the prestigious 8 sobh(8 a.m.) daily newspaper and winner of the 2012 Reporters Without Borders press freedom prize, died aged 62 yesterday after a long illness.

A staunch defender of democracy, justice and free speech, he was a symbol of democratic resistance first to the Soviet occupation and then to the Taliban’s Islamic fundamentalism and obscurantism.

“My writing was censored and destroyed firstly by the Soviet Union’s self-styled democratic regime, then in Iran when the Revolutionary Guards forced me into exile and finally during the civil was between the Mujahedeen, but I always continued to write,” he told Reporters Without Borders in 2011.

“A real icon of freedom of expression has passed away,” said Reza Moini, the head of the Reporters Without Borders Iran-Afghanistan desk. “We offer our heartfelt condolences to his family and to all his colleagues and we address a special message of support to all his friends.”

A visiting Reporters Without Borders fact-finding team was received by Akhgar at his newspaper’s Kabul headquarters in June 2011. As a tribute to this journalist and ardent advocate of freedom of information, we are publishing an extract of the interview he gave us:

“The duty and goals of 8 sobh have always been clear. We are committed to peace and democracy. Between the Taliban threat on the one hand and government pressure on the other, we have a duty to resist, to set an example to intellectuals and above all to the youngest generation. We are critical of both the government and the foreigners and we defend our independence.

“We are in favour of peace but President Karzai’s proposal to reach out to the Taliban is shameful, if not to say an act of treason. Peace with the Taliban under the announced conditions would have no meaning. It’s a surrender, a submission to Taliban rule, and we don’t want that. We have clear positions on fundamental freedoms and rights. We will not stand for these rights being trivialized.

“For example, women’s rights as defined by the government are an enormous lie. When you see that no government official is accompanied by his wife on an official trip, you realize it is not sincere. You have to be sincere to defend human rights and democracy. These two concepts mean nothing without the people’s participation.

“Part of the government talks about democracy but does not want the people to participate. In their eyes, the people are sculptures with no awareness. They want to create more sculptures while we want to create a nation state. For our newspaper and its journalists, the key issue is democratic elections. They must be free and obtain the participation of an aware electorate. Our newspaper has chosen to inform the people so that they can have knowledge and can make an informed choice.”

The article Afghanistan: Newspaper Editor, Symbol Of Democratic Resistance, Dies In Kabul appeared first on Eurasia Review.

By EIA

Congo (Brazzaville) is among the top five oil producers in Sub-Saharan Africa. Oil production comes almost entirely from offshore oil fields. Congo exports almost all of its oil production, and the largest recipients are China and the European Union.

Congo, formerly known as the Republic of the Congo, is a mature oil producer with declining output at most of its fields. Congo’s economy is heavily dependent on its oil production as it accounted for almost 87% of the country’s export revenues and almost 80% of the government’s total revenue in 2011, according to the International Monetary Fund (IMF). A vast majority of oil and natural gas exploration and production activities in Congo are conducted offshore.

Congo holds sizable proved natural gas reserves, but only small amounts are commercialized because of the lack of infrastructure. Congo also may hold large oil sands deposits (petroleum deposits of bitumen also known as tar sands) and Eni, an Italian oil company, recently launched a feasibility study. If the project is undertaken, it would be the first tar sands project in Africa.

Congo also has extensive hydropower potential, but most of it remains untapped. Despite Congo’s rich energy resources, the electrification rate is low, especially in rural areas, mainly because of a lack of electricity infrastructure. According to the latest (2010) estimate from the World Bank, 37% of the country has access to electricity, leaving more than 2.5 million people without access.

The Congolese civil war (1997-1999) left much of the country’s transmission and distribution infrastructure damaged, especially in southern Brazzaville (the capital city) and in the Pool, Bouenza, and Niari regions, which have not yet been restored. The government has looked to restore and expand the distribution network, but until then, wood fuel will remain a dominant fuel, especially in rural areas. The latest (2011) U.S. Energy Information Administration (EIA) estimate indicates that more than 80% of Congo’s primary energy consumption was from traditional biomass and waste (typically consisting of wood, charcoal, manure, and crop residues). This high share represents the use of biomass and waste to meet off-grid heating and cooking needs, mainly in rural areas.

Management of oil and natural gas industries

Total (France) and Eni (Italy) are the leading oil and natural gas producers in Congo. The companies produce nearly three-fourths of Congo’s total oil production.
Regulation

The Ministry of Mines, Energy, and Water Resources manages the country’s oil and gas resources, while exploration and production operations are governed by production sharing agreements (PSAs). Congo’s national hydrocarbon company, Societe Nationale des Petroles du Congo (SNPC), manages Congolese government-owned shares in hydrocarbon operations. SNPC has an operating interest alongside international oil companies (IOCs) through PSAs, which also include tax breaks and a royalty system. There are several IOCs, such as Chevron, Perenco, Murphy Oil, and SOCO Internationals, that participate in the oil and gas industries, but the companies that dominant the industries are Total and Eni.

Major companies

Total and Eni have both operated in Congo since 1968. Total is the country’s leading oil producer through its subsidiary, Total E&P Congo. In December 2013, Qatar Petroleum’s international unit became a shareholder of Total E&P Congo and now holds 15% of its capital.

Total produced 107,000 barrels per day (bbl/d) of petroleum and other liquids (or total oil) in 2012, accounting for almost 40% of the country’s total production. Most of Total’s oil production comes from its deepwater Moho-Bilondo license and the Nkosso oil field. The company also produced 31 million cubic feet per day (MMcf/d) of natural gas in 2012, which came from associated gas at its oil fields.

Eni is the leading natural gas producer in Congo. Natural gas is used for re-injection into oil wells or processed to fuel power plants in populated areas, as a part of Eni’s access to energy projects initiative. Eni’s gas production in Congo has increased from 67.9 MMcf/d in 2010 to 120.5 MMcf/d in 2012. The company also accounted for more than 35% of the country’s total oil production (98,000 bbl/d) in 2012. Most of Eni’s oil and gas production is from the M’Boundi field, which the company hopes to expand in the future.

Oil

Congo’s first deepwater field came online in 2008, boosting oil production. However, over the past few years, oil production decreased as a result of natural declines at mature fields. A few deepwater projects are slated to come online in the next five years, but in the near term oil production is expected to continue to fall.

Congo holds 1.6 billion barrels of proved crude oil reserves, according to the latest estimates from Oil & Gas Journal (OGJ) released in January 2014. In the late 1970s, Congo emerged as a significant oil producer. Production expanded considerably during the 1990s, but output fell for most of the 2000s as oil fields matured. In 2008, Congo’s first deepwater field, Moho-Bilondo, came online and temporarily reversed the country’s production trend. As a result, in 2010, Congo produced 311,000 bbl/d of total oil (petroleum and other liquids), surpassing the country’s previous peak. Total oil production has since fallen gradually as a result of natural declines, averaging slightly less than 280,000 bbl/d in 2013.

Exploration and production

The large offshore Moho-Bilondo oil field, operated by Total, is the chief contributor to the increase in oil production from 2008 to 2010. The oil field came online in April 2008 and reached plateau output at 90,000 bbl/d in June 2010. However, the field’s production is declining, according to Total’s 2012 annual report. Moho-Bilondo is the country’s first deepwater project and marks the largest successful expedition to tap into Congo’s deepwater reserves. Additionally, three other oil fields—the Ikalou complex, Azurite, and Libondo—started producing after 2008, according to IHS Global Insight and reports from Total.

Despite the addition of new fields over the past few years, Congo’s total oil production is projected to decline in the short term. The decline is attributed to maturing fields and a slowdown in field development, according to IHS World Energy Markets. As a result, the government is keen to develop onshore and offshore fields to supplement production at mature fields. SNPC plans to hold a licensing round in 2014 to award 10 onshore and offshore blocks.

In the medium term, offshore deepwater prospects in Congo have the potential to boost production again. According to Total, the northern (Moho North project) and southern (Phase 1B) parts of the license that encompasses the Moho-Bilondo field hold additional hydrocarbon resources. Total completed basic engineering studies on Phase 1B and the Moho North project in 2012, and in March 2013, Total announced it would start to develop the projects. The company expects production at Phase 1B will start in 2015 and Moho North in 2016, reaching a total of 140,000 barrels of oil equivalent per day (boe/d) in 2017.

In early 2012, Congo and Angola agreed to jointly develop and share profits from the Lianzi field, a deepwater field located within the two countries’ maritime border in the Lower Congo Basin. Chevron is the field’s operator (31.25%), with interest held by Total (36.75%), Eni (10%), Sonangol (10%), SNPC (7.5%), and the Portuguese company Galp Energia (4.5%). According to Chevron, production from Lianzi is expected to start in 2015 and produce a maximum of 46,000 boe/d.

Eni announced that it launched a small pilot feasibility oil sands project in Congo in 2012. Oil sands are unconventional petroleum deposits of bitumen. In 2008, Eni and the Congolese government signed a deal to explore and develop the oil sands deposit located in Tchikatanga and Tchikatanga-Makola, two areas covering a total of 1,790 square kilometers in the south of Congo. According to preliminary studies, the area is estimated to contain up to 2.5 billion barrels of bitumen unrisked (amount of resources in-place without accounting for the portion that can be recovered because it is technically feasible and economically viable) and 500 million barrels of bitumen risked (amount of resources estimated that can be recovered but are not yet discovered). However, it is highly uncertain what level of resources will be discovered or will be economically and technically viable to recover. Eni has said it could potentially cost up to $7.5 billion to develop. If the project is actually undertaken, it would be the first tar sands project in Africa.

Downstream

Congo has one refinery, the 21,000 bbl/d Congolaise de Raffinage (CORAF) plant in Point-Noire. EIA estimates that total refinery output of petroleum products in 2010 was 13,800 bbl/d. The refinery’s poor performance causes it to operate at nearly half capacity. The vast majority of the refinery’s output is used to satisfy domestic demand, and the remainder is exported. Congo consumed almost 12,000 bbl/d of petroleum in 2012. For a number of years, the Congolese government proposed to privatize and expand CORAF, but it has not yet found a committed investor.

Exports

Congo exports nearly all of the crude oil it produces and sends a small amount to its refinery for domestic consumption. According to analysis of trade data from Global Trade Atlas, EuroStat, and FACTs Global Energy, Congo exported almost 250,000 bbl/d of crude oil in 2012. China (43%), the European Union (28%), and the United States (12%) are the top destinations for Congolese oil.

Natural gas

Almost 85% of Congo’s natural gas production is re-injected into oil wells to aid oil recovery, vented, or flared (burned off). Eni has led efforts to reduce gas flaring by constructing gas-fueled power plants in Congo.

Congo holds 3.2 trillion cubic feet (Tcf) of proved natural gas reserves, according to the latest estimates from OGJ, released in January 2014. The country’s gross natural gas production was 335 billion cubic feet (Bcf) in 2011, although only 16% (52 Bcf) was marketed or commercially used. Most of the marketed production was consumed domestically in the form of dry natural gas (occurring when associated liquid hydrocarbons are removed). Congo consumed 41 Bcf of dry natural gas in 2012. A majority of the natural gas produced in Congo, 68% (229 Bcf), was re-injected into oil wells to aid oil recovery and 16% (55 Bcf) was flared (burned off) or vented.

Flaring and venting of gas in Congo decreased by 30% over the previous decade, from its peak of 79 Bcf in 2005 to 55 Bcf in 2012. Eni has led efforts to reduce gas flaring and commercialize the gas instead. In 2008, Eni began constructing two gas-fired electric power stations, with the dual purpose of increasing electricity capacity and reducing gas flaring. Eni recently constructed the Centrale Electrique du Congo (CEC), a 300-megawatt (MW) gas-fueled power station that can be expanded to 450 MW by installing steam turbines. The power station is fueled by associated gas from the M’Boundi deposit. The company also recently doubled capacity at the Djeno power station, Centrale Electrique de Djeno (CED), from 25 MW to 50 MW. The Djeno power station also uses associated gas as fuel that was previously flared.

Electricity

Hydropower accounted for more than 60% of Congo’s net electricity generation in 2011. There are a number of hydropower projects under consideration for development.

Société Nationale d’Electricité (SNE), the national electricity company, controls the electricity generation, transmission, and distribution sectors. Power consumption is low in Congo because of the limited transmission system that mainly serves the country’s principal cities, Brazzaville and Point-Noire. According to the latest (2010) estimate from the World Bank, 37% of the country has access to electricity, leaving more than 2.5 million people without access. In urban areas, demand for electricity has increased over the past decade, and Congo has had to rely on power imports to satisfy domestic consumption.

Congo’s installed electricity capacity was 148 MW in 2011, according to the latest EIA estimate. Installed capacity increased over the past five years because of the construction of the CEC and CED gas-fueled plants, which mostly serve the densely populated Pointe-Noire area.

Hydropower accounts for a substantial portion of the country’s power generation. In 2011, hydropower accounted for more than 60% of net electricity generation, while fossil-fueled electricity made up the remainder. Hydroelectricity is generated from the Imboulou, Bouenza, and Djoue hydroelectric plants. The Imboulou Hydropower Plant, built by the Chinese company CMEC, came online in 2011 and almost doubled Congo’s hydroelectric generation to power Brazzaville and several other towns. Additionally, there are plans to upgrade the capacity at the Djoue hydro plant.

Congo’s technically feasible hydropower potential is 3,932 MW, but only 4% of this has been developed so far, according to the International Journal on Hydropower and Dams. Projects under consideration include a 150-MW hydroelectric plant in the Bas-Congo Province called Zongo II, a 600-MW plant on the River Tcha in Cameroon to serve both Congo and Cameroon, and a 1,200-MW power station at Sounda Gorge.

Notes

Data presented in the text are the most recent available as of January 29, 2014.
Data are EIA estimates unless otherwise noted.

The article Congo (Brazzaville) Energy Profile: Exports Almost All Oil Production – Analysis appeared first on Eurasia Review.

By EIA

The severely cold temperatures entrenched over a broad swath of the United States in recent weeks are affecting numerous energy markets, including the heating oil market in the Northeast. As temperatures have dropped, prices for heating oil in the Northeast have risen, with spot prices for heating oil in New York Harbor on January 28 at $3.17 per gallon (gal), 17 cents/gal higher than at the beginning of 2014.

Demand for heating oil has outpaced supply during January’s cold snaps, resulting in a drawdown of stocks. The EIA estimate for distillate consumption (a category which includes heating oil) for the United States has risen sharply over the past three weeks, averaging 4.0 million barrels per day (bbl/d) for the three weeks ending January 24, an increase of 500,000 bbl/d from the three weeks ending January 3. In addition to increased demand from consumers that regularly use oil heat, press reports indicate that some commercial, industrial, and electricity generating customers that typically burn natural gas delivered under less-expensive non-firm contracts are turning to oil because their natural gas suppliers have exercised their interruption rights in order to serve customers with firm contracts. Interruptible customers often use heating oil or residual fuel oil as a backup fuel for space heating. This fuel switching is creating incremental demand for heating oil.

EIA estimates petroleum product consumption in the United States each week. Roughly 80% of homes heated primarily with oil are located in the Northeast ((PADD 1A and 1B). Distillate inventories in the Northeast have fallen 4.8 million bbl (19%) in the past three weeks (ending January 24), much faster than the 2.1-million-bbl draw typically seen during this time (Figure 2). The region’s distillate inventories are now 20.0 million bbl (50%) below the five-year average. EIA estimates that as of January 24, the Northeast had 22 days of demand cover in inventory, about 47% less than typical during January.

The recent tightness in the heating oil market is evidenced by increasing backwardation in the heating oil futures curve. As of January 28, prompt heating oil contracts for February delivery were trading 13 cents/gal above contracts for March delivery, a sharp increase from January 2, when that spread was just 1 cent. This steep backwardation indicates a strong incentive to sell supplies out of inventory into the prompt market. Additionally, spot prices farther north along the Atlantic coast are higher than the $3.17/gal in New York Harbor. On January 28, Boston spot prices stood at $3.21/gal, and prices in Portland, Maine, were reported to be even higher.

Distillate spot prices in the U.S. Northeast have also moved higher than spot prices in northwestern Europe. Typically, distillate prices in Europe are higher than U.S. prices because during times of normal demand, Europe is structurally short of distillate fuel. As of January 28, New York Harbor spot prices were 21 cents/gal above prices in Europe’s Amsterdam Rotterdam Antwerp (ARA) hub, after averaging 8 cents/gal under ARA prices for all of 2013. While the United States has experienced colder-than-normal temperatures in January, temperatures in Europe have generally been warmer-than-normal.

This shift in trans-Atlantic pricing has encouraged refiners in Europe, and as far away as India, to export distillate fuel to the United States. When these shipments arrive they could help to temper U.S. prices by adding supply to the Northeast market. Trade press reports that there are up to 6.6 million bbl of distillate fuel coming to the United States, scheduled for delivery in February. Most of these ships are coming from Russia.

Gasoline price flat while diesel fuel price increased

The U.S. average retail price of regular gasoline decreased less than one cent to remain at $3.30 per gallon as of January 27, 2014, six cents lower than last year at this time. Prices increased by two cents in the Midwest to $3.22 per gallon and decreased one cent in all other regions of the nation. The Gulf Coast price was $3.09 per gallon, the Rocky Mountain price fell to $3.13 per gallon, the East Coast price was $3.38 per gallon, and the West Coast price was $3.49 per gallon.

The national average diesel fuel price was up three cents to $3.90 per gallon, two cents lower than last year at this time. Prices increased in all regions of the nation. The largest increase occurred on the East Coast where the price rose five cents to $4.00 per gallon. The Midwest price increased four cents to $3.87 per gallon and the West Coast price was $3.98 per gallon, up one cent from last week. Both the Gulf Coast and Rocky Mountain prices were up a fraction of a penny to remain at $3.77 per gallon and $3.86 per gallon, respectively.

Propane inventories fall

U.S. propane stocks fell by 3.6 million barrels to end at 31.7 million barrels last week, 25.8 million barrels (44.9%) lower than a year ago. Midwest and Gulf Coast inventories both decreased by 1.4 million barrels. East Coast inventories dropped by 0.6 million barrels and Rocky Mountain/West Coast inventories decreased by 0.2 million barrels. Propylene non-fuel-use inventories represented 11.7% of total propane inventories.

Residential propane price surges while heating oil price also increases

Residential heating oil prices increased 12 cents per gallon to reach a price of nearly $4.18 per gallon during the period ending January 27, 2014. This is 13 cents per gallon higher than last year’s price at this time. Wholesale heating oil prices increased by more than 18 cents per gallon last week to $3.39 per gallon.

The average residential propane price jumped by $1.05 per gallon last week to $4.01 per gallon, almost $1.72 per gallon higher than the same period last year. This is the largest single weekly increase since the survey began in 1990. Ten states (all located in the Midwest) in the residential propane survey had price increases of 97 cents per gallon or more during the week ending January 27, 2014. Wholesale propane prices increased by $1.43 per gallon to nearly $3.55 per gallon as of January 27, 2014.

The article US Northeast Sees Hikes In Heating Oil Demand, Prices – Analysis appeared first on Eurasia Review.

By Ben Tanosborn

Doesn’t everyone have at least a song with special significance… a telltale from some event or happening in the past? The song “Goodnight, Irene” has that significance for me; more specifically the version sang by The Weavers in the 50’s, my unannounced introduction to Pete Seeger, the folk singer, as a Weaver. It would be a decade later, however, that I would learn about this later-to-be iconic singer-songwriter and, more importantly for me, his sociopolitical activist persona.

Here I am this evening, trying to start with the digestive process of yet another speech of milquetoasty flag-motherhood-and-apple-pie things that need to be heard by most Americans at this annual, meaningless, State of the Union address. As irate as I would get years back at this whorish, political display… I’ve come to realize that truth is not in the political parlance of communication between politicians and the American public. So, I take it in stride and say amen. But the thing that sticks heavily in my mind from the long address is Obama’s reiteration of his desire to close Guantanamo, putting an end to a depravity that has soiled the American soul in cruel fashion for almost a decade.

And here I am, also trying to make sense of how two paths have crisscrossed today: randomness and coincidence. Last night Pete Seeger died peacefully in his sleep… perhaps getting ready to lead us in song today to his much beloved “Guantanamera” on the 161st anniversary of the birth of José Martí, the Cuban poet, hero and founding father from whose poetry, “Versos sencillos,” the lyrics for the song developed; a song with national-anthem status for Cubans, just like “God Bless America” is for us. And, with a crown of glory, Guantanamera has found a level of universality, immigrants to the United States singing it. Both music and lyrics command much respect and love for the song; but it took the genius of Pete Seeger to discover it for us ba= ck in 1963.

I am trying to reminisce on the life of this great American folk singer and humanist as I play his video online singing Guantanamera at Wolftrap (1993) with his grandson, Tao Rodriguez-Seeger. And the four stanzas of the song, each containing four verses, are finally defining for me who this talented and honest man we have just lost was/is: a truthful man, whose feelings must find shelter; always seeking friendship and solidarity; always, always identifying and casting his lot with the poor of this earth.

Seeger has been a progressive purist all his life; to the very end. Creative activism in song dates back to his late teens and his support for the Republican forces during the Spanish Civil War (1936-9)… to his efforts as recent as two years ago, when at the ripe age of 92 he added his hands-on support to the Occupy Mo vement, as part of a march with Occupy Wall Street to Columbus Circle in New York City, where he performed with his grandson Tao, Arlo Guthrie and other celebrated musicians.

For a man of his stature, his death is receiving the minimal obligatory news in most of the corporate press; after all he was a true vocal progressive, not much of a fan of the two ruling parties, a critic of predatory capitalism, and even held membership – from which “he drifted away” – in the Communist Party USA (CPUSA).

I can’t help but think what the State of the Union address might have been like if composed and sang by a folk-singer, and humanitarian, such as Pete Seeger. He might even have recommended that the US leave the Guantanamo military base – and all the unpleasant memories of the last decade – returning it to the Guantanameros.

Although Seeger did not know Spanish, he preferred singing Guantanamera with its original Spanish lyrics, always manifesting his love for bilingualism. And, in our desire to eulogize his life among us, and his legacy to music and humanity, we’ve added a fifth stanza to Guantanamera… in Spanish… and untranslated:

“Pit Siguer soy, busco entereza,
Quiero mostraros mi alma…
Unirme a vuestr a pobreza,
Y en esa unión, hallar calma.
Guantanamera, guajira Guantanamera.”

Good night, Pete Seeger… we wish for your soul (alma), “calma eterna.”

The article Good Night, Pete Seeger – OpEd appeared first on Eurasia Review.

By Observer Research Foundation

By Raghav Sharma

“The coordinated group martyrdom attack which struck the restaurant ‘Taverna du Liban’ of foreign invaders at 07:30 pm last night (January 18) lasted till 09:30 pm local time in which the invaders suffered heavy losses, according to officials. The target of the attack was a restaurant frequented by high ranking foreigners.”

The above statement by Zabiullah Mujahid, the Taliban spokesperson claimed responsibility for the dastardly attack in the heart of Kabul’s diplomatic zone on 18 January that killed 21 people. The scale of preparation and ammunition required to execute the attack must have been smuggled into the capital. This points to gaps in the intelligence mechanism — something that the country can ill-afford as Afghans increasingly take to the drivers seat. The attack was a stark reminder of the escalating levels of violence. Further, such attacks underscore a significant psychological victory for the Taliban and their patrons. It also helps the Taliban capture public imagination far more than their ability to control territory in their traditional strongholds. Finally and significantly, it causes immense anxiety concerning if and how would Afghanistan be secured once the transition process is complete. Accentuating this sense of anxiety is the impending political transition in April 2014 as well as the refusal by President Karzai to sign the Bilateral Security Agreement (BSA) with the US.

Spelling out a chronological timeframe for the transition, not necessarily linked to performance benchmarks of the Afghan National Security Forces (ANSF), Obama in June 2011 appeared resigned to the inability of the US mission to secure Afghanistan. He remarked: “Our mission will change from combat to support. By 2014, this process of transition will be complete, and the Afghan people will be responsible for their own security?.We won’t try to make Afghanistan a perfect place. We will not police its streets or patrol its mountains indefinitely. That is the responsibility of the Afghan government.”

This admission comes notwithstanding the monumental scale of international intervention can be gauged from the fact that since 2001 over US $ 286.4 billion in military and humanitarian aid have been allocated to Afghanistan. The security sector has been the largest recipient of aid flows, with US $ 29 billion of the 57 billion dollars in aid disbursed being allocated to the security sector.

However questions abound in many people’s minds is that as Afghanistan inches closer to completing the inteqaal ( the Pushtu-Dari word for transition) process by December 2014, is the Afghan state ready to truly step up to the plate?

As the ANSF takes the lead in providing security across the country, figures available do not appear to support Obama’s proclamation in his last state of the Union address: “?by the end of next year, our war in Afghanistan will be over”. It contradicts the Worldwide Threat Assessment of the US Intelligence Committee which notes that the “…Taliban-led insurgency?remains resilient and capable of challenging US and international goals.” As the ANSF takes charge of security there has been a steady escalation in levels of violence with United Nations Assistance Mission to Afghanistan (UNAMA) recording a “…10 per-cent increase in civilian casualties in 2013″ compared to 2012. Further, according to the United Nations High Commission for Refugees (UNHCR) on-going conflict has internally displaced an estimated 600,000 and with this number expected to rise further in 2014. It has also ensured that Afghanistan continues to be the world’s largest producer of refugees.

North Atlantic Treaty Organization (NATO) attempts to highlight the ANSF’s quantitative surge as a tangible measure of progress. While the growth of the ANSF cannot be denied, nor should one overlook the growth in the ability of the Afghan National Army (ANA) to respond to crisis. Yet the ANSF continues to be saddled with multiple challenges. To begin with attrition rates in ANSF remain high, averaging at 3 per cent- almost double the monthly target of 1.4 per cent. This is undermining the ability of the ANSF to train and retain people whom it would need the most as transition inches completion. Added to this is the spike in casualty rates of the ANSF, which is increasingly leading combat operations. According the Ministry of Defence in Kabul have shown an increase of 14.25%, leading NATO Commander General Dunford to remark “I’m not assuming that those casualties are sustainable.”

Second, the ANSF lacks a full-fledged air wing to speak off. This is unlikely to change at least until 2017 according to the NATO’s own timeline for complete operationalisation of air force. With impending departure of NATO troops the ANSF will lose firepower from the skies. While the US military has also cancelled contract for delivery of refurbished cargo planes that would impede transportation capability of the ANSF. This could seriously undermine the operating capability of the ANSF in the field as the insurgency escalates.

Third, the creation of Afghan Local Police (ALP), set up with the intention of aiding ANSF counter-insurgency operations, may help yield dividends in short term. However stories of abuse of local populace by the ALP, coupled with their allegiance primarily being to their international paymasters may in long term end up repeating mistake of 1990′s by creating militias that turn predatory on the population.

Fourth, with a view to make ANSF financially viable, the strength of the forces is to be whittled down from a high of 3,50,000 by end of 2014 before being cut to 2,50,000. However plans for the socio-economic reintegration of such sizeable numbers of retrenched soldiers remain unclear. Questions surrounding the sustenance of the country’s security sector-vital for providing security and creating an enabling environment for economic growth- are likely to be further thrown into sharp relief in 2014. Consider in this context the World Banks projections: while the security sector expenditure has ballooned from 7.3% of the GDP in 2009 to 11.7% in 2014; economic growth fell from a high of 14.4% in 2012 to 3.1% in 2013; while revenue collection for the first half of 2013 too has fallen by 11% compared to 2012. Afghanistan’s targets of raising domestic revenue and increasing self-sustenance to meet its expenditure on security and infrastructure development are contingent on attaining average economic growth of 5% which in turn is contingent on growth of agriculture, extractive industry and a stable political and military transition. However fragile security situation has translated into scaling down of investment pledges. Consider for instance that The Afghan Iron and Steel Consortium from India that won the bid to extract iron ore from one of the biggest deposits at Hajigak has already tweaked its investment from a whopping US $ 11 billion to US $1.5 billion.

Fifth, the existence of sanctuaries in Pakistan for senior Taliban leaders continues to undercut progress towards securing Afghanistan. According to the US Intelligence Community assessment the Taliban leadership operating from Pakistani sanctuaries continue”…to provide strategic guidance to the insurgency without fear for their safety.” For neighbouring countries such as India the re-emergence of provinces such as Nuristan as hotbeds for recruitment and training of groups like the Lashkar-e-Taiba, is not inimical for its security but would also make it even more excruciating to hold Islamabad to account in event of future attacks. For the operation of these groups technically would fall outside Pakistan, yet in a territory where writ of the Afghan state does not exist. Noteworthy in this context is the fact that while safe havens have allowed the insurgency to acquire an unprecedentedly strong foothold in the south and south-eastern provinces that border Pakistan, including in areas previously cleared by the NATO troop surge, inept governance has aided its spread beyond in Logar and Wardak that ring the capital.

Finally, the ANSF’s biggest handicap is the lack of a clear and coherent ideology. This is seminal towards boosting the morale of the forces. However President Karzai’s repeated references to the Taliban as “our brothers” created a vacuum. The lack of clearly defined enemy and ideology and values that the troops are fighting to protect is deeply problematic.

Clearly the road towards securing a stable and functioning Afghanistan is going to be a tumultuous one. Developments unfolding in Afghanistan would foremost have implications for the larger neighbourhood. New Delhi must put its best foot forward to prevent a relapse of Afghanistan into the hands of forces inimical to its security interests as had happened in the late 1990′s. Pockets in the South-East and Eastern parts of Afghanistan already conducive for operations of the Haqqani network and the Lashkar-e-Taiba that are inimical to India’s security interests. Notably in the BSA, it is al-Qaeda and not its local allies or sympathisers such as the Lashkar and the Haqqani’s who are identified as the primary threat. Clearly differences concerning prioritisation of terrorist threats exist between New Delhi and Washington.

India must seize the moment by using the emerging camaraderie between Washington and Tehran to build a broad consensus on Afghanistan. It must also provide teeth to its Strategic Partnership Agreement (SPA) it inked with Kabul in 2011. New Delhi needs to go beyond symbolism of the kind on display during Karzai’s last visit whereby a transfer of measly three military transit choppers was announced. India’s commitment towards “?training, equipping and capacity building programmes for Afghan National Security Forces” under the framework of the SPA must be wisely executed. The training component in particular could include specific focus on counter-insurgency and mountain warfare techniques. As for equipping the Afghan army, there does exist healthy scepticism of the equipment falling into wrong hands should the existing order collapse but New Delhi would have to undertake this calculated gamble. Building up a strong security sector should be one of the crucial components of India’s policy to support the Afghan state.

India cannot afford to be a mere bystander to developments in its immediate neighbourhood. As transition nears completion India must rise up to the challenge of helping secure Afghanistan as a relatively stable, functioning and sovereign state. A failure to assist Afghanistan, at this crucial juncture would not only undermine India’s long term security interests but would reflect poorly on New Delhi’s reliance as a friendly partner in troubled times.

(The writer is a doctoral candidate at the Willy Brandt School of Public Policy, University of Erfurt, Germany)

The article Securing Afghanistan: India Needs To Go Beyond Symbolism – Analysis appeared first on Eurasia Review.

By Arab News

By Stephen Collinson

Once he galvanized vast crowds with the cry: “Let’s go change the world!”

Now, if Barack Obama is still remolding the planet, he’s doing it in baby steps. Hemmed in by Republicans, slowed by personal missteps and leaking inspiration after five rough years, the US president has embraced incrementalism.

Obama did unfurl a punchy, optimistic State of the Union address on Tuesday, billing the fight against income disparity as the defining project of the age. But there was no multibillion dollar program or a “moonshot” style challenge for 21st century Americans. Instead, Obama offered modest, targeted plans using the power of his office to bypass Congress, which has let its own reforming muscle wither. Once, Obama vowed to slow the oceans’ rise and to mend Washington’s “broken politics.”

Now, he plots a way over the political mire — with “ladders” to give everyone a leg up on retirement savings, a decent wage, education and health care. “What we are seeing is a different Barack Obama,” said William Rosenberg, a professor of political science at Drexel University, Philadelphia. Obama powered into office on a wave of expectation and had the luck to follow a deeply unpopular predecessor in George W. Bush. He exploited Democratic control of Congress to pile up the kind of legislative record that few recent presidents could boast — banning torture, saving the auto industry and passing big health care and Wall Street reforms. But now, with power in Washington divided, the hope and change that defined him is largely in the past.

One example: Obama has spent years waxing lyrical on the need for immigration reform. But on Tuesday, he trod carefully on the issue — his one potential second term domestic legacy win — — lest he spook conservatives agonizing whether to sign up. On the other potential big ticket item — a nuclear deal with Iran — Obama was more firm, promising to veto any new sanctions he says could kill diplomacy.

But the new Obama is neither a seeker of consensus nor a political pit bull fighting Republican lawmakers to exhaustion.

Instead, he bills himself as an independent, activist president, using regulation and fiat to bend the political climate his way.

He will raise the minimum wage for federal workers even if Congress won’t do it for everyone. He will regulate power plants to cut harmful emissions if he can’t pass meaningful climate change bills. And he will call on CEOs not to discriminate against the long-term unemployed even as Republicans will block job stimulus plans. But the power a president can wield alone is finite — more tinkering than transformation. And at times Tuesday there was a sense of a White House assigning work to keep itself busy with three years still to go — for example Obama’s charge to Vice President Joe Biden to launch a review of work training programs. Obama’s evolution from change-animated campaigner into trudging administrator is not unique.

Presidents are often frustrated by America’s adversarial centers of power, a political system that auto-corrects after sharp changes of direction and power that ebbs with the two-term clock. But Obama’s eclipse has been more marked; such was his historic promise as the first African American president.

It is tempting to wonder what the Obama of 2008 would think of the program he rolled out Tuesday. Candidate Obama had no time for nudging the ball forward. He saw himself as a transformative president, more Ronald Reagan than Bill Clinton — who Obama aides privately criticized for an incremental approach.

At least Obama appeared fresh on Tuesday — more lively than the listless leader who limped off to Hawaii after a brutal 2013.

He came across as a president determined to make the best of his remaining time. “Presidents, Republican and Democratic are there because they want to accomplish things,” said Rosenberg, in a glimpse into the president’s psyche. Obama seems to have made a calculation that while he lacks power to pass tax reform or bring peace to Syria, he must concentrate influence where it is most effective.

One senior aide, however, argued vehemently hours before the State of the Union speech against claims Obama was now just working at the margins. Try telling a poor student that got into college that their chance was not a big deal, the official said, in remarks not for quoting, slamming conventional media wisdom in Washington.

While they lack sparkle, moves like raising take home pay, and widening access to health care and education can make a difference, said Maureen Conway, of the Aspen Institute. “I think they do have a tangible impact; they get at basic family economic issues. They are fundamental to the way people live their lives every day.” But the president must be careful ahead of mid-term elections in November. Pushing executive power too far will spur Republican charges of a power grab and discomfort vulnerable Democrats in mid-term elections.

But if Obama holds back, Washington pundits will be ready to brand him a lame duck.

The article Obama’s Audacity Of Hope Facing Yet Another Test – OpEd appeared first on Eurasia Review.

By Eurasia Review

Reporters Without Borders said Thursday it regrets that the launch of 16-year-old blogger Malala Yousafzai’s memoir “I am Malala” at Peshawar University’s Area Study Centre in northwestern Pakistan on 28 January was cancelled as a result of pressure from local officials, who cited security reasons.

“We deplore this politically-motivated manoeuvre, which violated freedom of information,” said Benjamin Ismaïl, the head of the Reporters Without Borders Asia-Pacific Desk.

“Claiming an inability to protect the book launch in order to prevent it taking place was totally specious. The provincial government’s opinion of this book should be of no consequence and should certainly not result in any form of censorship. We hope the rescheduled event goes ahead without interference on 5 February.”

The organizers were forced to cancel the book launch after the police told them that they were unable to provide security for the event.

Khadim Hussain, one of the organizers, said two members of the government of Khyber Pakhtunkhwa province (of which Peshawar is the capital) – information minister Shah Farman and local government minister Inayatur Rehman ¬– intervened personally to prevent it going ahead.

On the day scheduled for the Malala book launch, the government said it did not oppose the event but rather the university’s use by the organizers “for political ends.”

The book’s complete title is: “I am Malala: the story of the girl who stood up for education and was shot by the Taliban.” Its author, who has written a blog on the BBC Urdu website since 2009, has lived in Britain with her family since theOctober 2012 shooting.

Still threatened by the Taliban in Pakistan, Yousafzai had not been due to attend the launch, which was organized by the Bacha Khan Education Trust, an NGO called Strengthening Participatory Organization and the university’s Area Study Centre.

Pakistan is ranked 159th out of 179 countries in the 2013 Reporters Without Borders press freedom index.

The article Pakistan: Malala Yousafzai Book Launch Censored In Peshawar appeared first on Eurasia Review.

By RT

The two suicide bombers responsible for the attacks in Russia’s Volgograd in December have been identified, the National Anti-Terrorism Committee said. Their alleged accomplices, suspected of aiding their travel to Volgograd, have been detained.

The two terrorist attacks took place in the space of just over 24 hours on December 29 and 30. The first one, a huge blast at the Volgograd railway station on December 29, was followed by another a day later inside a packed city bus. More than 30 lives were claimed in the attacks, and dozens of people were injured.

“In the course of the investigation… our leads resulted in the identification of two suicide bombers of the Buynaksk terrorist group – Asker Samedov and Suleyman Magomedov,” a committee official said in a statement.

However, those responsible for planning the terrorist attacks may still be at large, the anti-terrorism committee said. A search is underway.

Dagestan has been the scene of several recent anti-terrorist operations, three of them on January 22, leading to the elimination of a prominent militant leader allegedly responsible for a series of bombings and attacks on the police, Eldar Magatov.

A member of the so-called Babayurtovskaya gang, Magatov was hiding out in rural Dagestan.

A total of three operations by Russia’s security forces were carried out in an attempt to apprehend the suspected terrorist.

Blasts, shootouts and other violence are a common occurrence in the volatile republic as extremists face off against security forces on an almost-daily basis.

Dagestan, as well as neighboring Chechnya and Ingushetia – which at one point or another also harbored suspected militants from Dagestan – have all lived in fear of terrorist attacks recently.

The article Russia: Volgograd Suicide Bombers Identified, Suspected Accomplices Detained appeared first on Eurasia Review.