CURRENT INTERNATIONAL AFFAIRS
DISASTER
Chile hit by 8.8 magnitude earthquake
On February 27, 2010, more than two million people were affected in some way and more than 300 people were killed as an 8.8-magnitude earthquake hit coastal Chile. Santiago, capital of Chile, is 200 325 km northeast of the epicentre.
The quake was 700 to 800 times stronger, but at a greater depth—35 km—compared to the shallow 14 km depth of the Haiti quake, which contributed towards much of the damage there.
Coastal Chile has a history of deadly earthquakes, with 13 quakes of magnitude 7.0 or higher since 1973. As a result, experts said that newer buildings are constructed to help withstand the shocks. Still, the damage from Chile's earthquake was widespread. A 15-story high rise near the southern city of Concepción collapsed; the country's major north-south highway was severed at multiple points; and the capital city's airport was closed after its terminal sustained major damage.
The epicentre was just a few kilometres north of the largest earthquake recorded in the world: a magnitude 9.5 quake in May 1960 that killed 1,655 and unleashed a tsunami that crossed the Pacific.
WORLD ECONOMY
US Fed signals end to emergency liquidity
On February 20, 2010, the US Federal Reserve Board sent its most explicit signal yet that the emergency supply of liquidity to financial markets is done and the most aggressive monetary policy easing in its 96-year history will eventually reverse. Chairman Ben S Bernanke and his colleagues at the Board of Governors raised the rate charged to banks for direct loans by a quarter-point to 0.75 per cent. It was the first increase in the discount rate since June 2006.
The Fed portrayed the decision as a “normalization” of lending that would have no impact on monetary policy. The assurances didn’t stop investors from increasing bets that the Fed would tighten policy in the fourth quarter. The dollar rose and US stock futures fell after the announcement.
US central bankers closed four emergency lending facilities in February 2010 and are preparing to reverse or neutralize the more than $1 trillion in excess bank reserves they have pumped into the banking system. The discount-rate increase will encourage banks to borrow in private markets rather than from the Fed. In any case, financial institutions have reduced their reliance on the Fed window. Banks had borrowed $14.1 billion as of February 17, 2010, representing less than 1 per cent of the central bank’s $2.28 trillion in total assets. A year ago, borrowing stood at $65.1 billion.
Greek debt crisis tests euro zone
The euro, the single currency that 16 EU (European Union) countries share, is usually highlighted as one of the main achievements of the European project; a rare example of “success” in what has increasingly become a beleaguered tale of EU infighting and lack of vision. But, a threatening debt crisis, with Greece as the main offender, has put the euro-zone to test like never before in its 11-year-long history. February 2010 saw the euro coming in for a pummelling, sending ripple across global markets.
However, it is the political crisis that is posing a question mark before the very future of the EU. The result is a monetary union that features a common currency without a matching fiscal or political union. Thus, although the European Central Bank sets interest rates for the euro-zone, it does so in a vacuum, with constituent governments retaining control over fiscal and economic policy.
The large disparities between euro-zone nations have been thrown into sharp relief by the global economic crisis. On the one hand, you have the unflatteringly named PIGS (Portugal, Ireland, Greece and Spain), all of whom are finding accruing debt increasingly expensive, leading to the spectre of State bankruptcy. The worst of the lot is Greece. Its economy shrank by 1.2 per cent in 2009. Having been found out to be cooking its books for years, Greece’s public debt is expected to break 120 per cent of output.
The poor economic condition of the PIGS, in particular Greece, has thrown up a conundrum for the large, surplus economies of the euro-zone like France, Germany and the Netherlands.
There are three options on the table, none of which are finding immediate takers. The first is to issue a common euro-zone bond, which would be placed at Greece’s disposal. But countries with good credit, like Germany, are opposed to the idea because of the higher interest rates that would result.
An alternative is giving bilateral financial aid with economically healthy countries in the euro-zone taking out loans on the financial market at good rates and passing these on to Greece.
The final option is an old-style IMF bailout, perhaps the most sensible of the choices. But, for the IMF to come to Greece’s rescue would be a slap in the face of EU, implying that it cannot take care of its own house and requires an institution that has always been sceptical of the euro to act as saviour.
Basic Capabilities Index 2009
The Basic Capabilities Index (BCI), 2009, has found that South Asia will get 80 points on the index by 2015, 10 points higher than the present value of 70. India received 68 points in the index, an increase of meagre four points since 2004.
The global NGO Social Watch’s index of 130 countries says 100 points defines well-being of the citizens based on children getting education till primary level, child mortality rate and percentage of births attended by skilled labourers. The BCI does not use income as an indicator.
According to the index, South Asia, a region with worst BCI in 2004, has been making fast progress, but the situation is still “extremely critical”. Since 2004, the report said, one-third of the countries failed to raise their BCI value by more than one per cent and only one out of six countries showed significant progress.
The index also tells about the increasing gap in living standards of rich and poor in the world. The highest BCI is 97 of Iran and lowest is 44 of Chad in Africa, followed by Afghanistan, Ethopia, Bangladesh and Nepal.
Japan still world’s second largest economy
Retaining its position as the world's second largest economy, the Japanese economy grew at a faster-than-expected pace of 1.1 per cent in the last three months of 2009.
China, the fastest-growing large economy, clocked a growth of 10.7 per cent in the December 2009 quarter, bringing it at a sniffing distance to surpass Japan as the second largest economy in the world.
Japan’s economy, which is primarily exports-driven, rose 1.1 per cent in the fourth quarter of 2009. On an annual basis, GDP expanded a much higher pace at 4.6 per cent. For the whole of 2009, the Japanese economy shrank 5 per cent and is valued at 474.92 trillion yen (about $5.1 trillion). The better-than-expected Japanese growth in the December 2009 quarter was mainly driven by better exports and effects of stimulus measures. To bolster the recession-hit economy, Japan had unveiled stimulus measures worth over $130 billion.
NUCLEAR PROLIFERATION
Iranian President declares Iran a nuclear State
Iranian President Mahmoud Ahmadinejad declared on February 11, 2010, that Iran had produced its first batch of 20 per cent enriched uranium, amidst a growing view in the West that Tehran is bluffing.
“Iran was now a nuclear State,” Ahmadinejad told a huge rally of supporters on the 31st anniversary of the Islamic Revolution. Experts say that once Iran can enrich uranium to 20 per cent it should move relatively quickly toward 90 per cent purification, weapons-grade fuel.
Former U.S. officials and independent nuclear experts say continued technical problems could delay—though probably not halt—Iran’s march towards achieving nuclear-weapons capability, giving the US and its allies more time to press for a diplomatic solution.
While Iran says its nuclear program is entirely peaceful, Western nations suspect that the country is intent on developing an atomic bomb.
DISASTER
Chile hit by 8.8 magnitude earthquake
On February 27, 2010, more than two million people were affected in some way and more than 300 people were killed as an 8.8-magnitude earthquake hit coastal Chile. Santiago, capital of Chile, is 200 325 km northeast of the epicentre.
The quake was 700 to 800 times stronger, but at a greater depth—35 km—compared to the shallow 14 km depth of the Haiti quake, which contributed towards much of the damage there.
Coastal Chile has a history of deadly earthquakes, with 13 quakes of magnitude 7.0 or higher since 1973. As a result, experts said that newer buildings are constructed to help withstand the shocks. Still, the damage from Chile's earthquake was widespread. A 15-story high rise near the southern city of Concepción collapsed; the country's major north-south highway was severed at multiple points; and the capital city's airport was closed after its terminal sustained major damage.
The epicentre was just a few kilometres north of the largest earthquake recorded in the world: a magnitude 9.5 quake in May 1960 that killed 1,655 and unleashed a tsunami that crossed the Pacific.
WORLD ECONOMY
US Fed signals end to emergency liquidity
On February 20, 2010, the US Federal Reserve Board sent its most explicit signal yet that the emergency supply of liquidity to financial markets is done and the most aggressive monetary policy easing in its 96-year history will eventually reverse. Chairman Ben S Bernanke and his colleagues at the Board of Governors raised the rate charged to banks for direct loans by a quarter-point to 0.75 per cent. It was the first increase in the discount rate since June 2006.
The Fed portrayed the decision as a “normalization” of lending that would have no impact on monetary policy. The assurances didn’t stop investors from increasing bets that the Fed would tighten policy in the fourth quarter. The dollar rose and US stock futures fell after the announcement.
US central bankers closed four emergency lending facilities in February 2010 and are preparing to reverse or neutralize the more than $1 trillion in excess bank reserves they have pumped into the banking system. The discount-rate increase will encourage banks to borrow in private markets rather than from the Fed. In any case, financial institutions have reduced their reliance on the Fed window. Banks had borrowed $14.1 billion as of February 17, 2010, representing less than 1 per cent of the central bank’s $2.28 trillion in total assets. A year ago, borrowing stood at $65.1 billion.
Greek debt crisis tests euro zone
The euro, the single currency that 16 EU (European Union) countries share, is usually highlighted as one of the main achievements of the European project; a rare example of “success” in what has increasingly become a beleaguered tale of EU infighting and lack of vision. But, a threatening debt crisis, with Greece as the main offender, has put the euro-zone to test like never before in its 11-year-long history. February 2010 saw the euro coming in for a pummelling, sending ripple across global markets.
However, it is the political crisis that is posing a question mark before the very future of the EU. The result is a monetary union that features a common currency without a matching fiscal or political union. Thus, although the European Central Bank sets interest rates for the euro-zone, it does so in a vacuum, with constituent governments retaining control over fiscal and economic policy.
The large disparities between euro-zone nations have been thrown into sharp relief by the global economic crisis. On the one hand, you have the unflatteringly named PIGS (Portugal, Ireland, Greece and Spain), all of whom are finding accruing debt increasingly expensive, leading to the spectre of State bankruptcy. The worst of the lot is Greece. Its economy shrank by 1.2 per cent in 2009. Having been found out to be cooking its books for years, Greece’s public debt is expected to break 120 per cent of output.
The poor economic condition of the PIGS, in particular Greece, has thrown up a conundrum for the large, surplus economies of the euro-zone like France, Germany and the Netherlands.
There are three options on the table, none of which are finding immediate takers. The first is to issue a common euro-zone bond, which would be placed at Greece’s disposal. But countries with good credit, like Germany, are opposed to the idea because of the higher interest rates that would result.
An alternative is giving bilateral financial aid with economically healthy countries in the euro-zone taking out loans on the financial market at good rates and passing these on to Greece.
The final option is an old-style IMF bailout, perhaps the most sensible of the choices. But, for the IMF to come to Greece’s rescue would be a slap in the face of EU, implying that it cannot take care of its own house and requires an institution that has always been sceptical of the euro to act as saviour.
Basic Capabilities Index 2009
The Basic Capabilities Index (BCI), 2009, has found that South Asia will get 80 points on the index by 2015, 10 points higher than the present value of 70. India received 68 points in the index, an increase of meagre four points since 2004.
The global NGO Social Watch’s index of 130 countries says 100 points defines well-being of the citizens based on children getting education till primary level, child mortality rate and percentage of births attended by skilled labourers. The BCI does not use income as an indicator.
According to the index, South Asia, a region with worst BCI in 2004, has been making fast progress, but the situation is still “extremely critical”. Since 2004, the report said, one-third of the countries failed to raise their BCI value by more than one per cent and only one out of six countries showed significant progress.
The index also tells about the increasing gap in living standards of rich and poor in the world. The highest BCI is 97 of Iran and lowest is 44 of Chad in Africa, followed by Afghanistan, Ethopia, Bangladesh and Nepal.
Japan still world’s second largest economy
Retaining its position as the world's second largest economy, the Japanese economy grew at a faster-than-expected pace of 1.1 per cent in the last three months of 2009.
China, the fastest-growing large economy, clocked a growth of 10.7 per cent in the December 2009 quarter, bringing it at a sniffing distance to surpass Japan as the second largest economy in the world.
Japan’s economy, which is primarily exports-driven, rose 1.1 per cent in the fourth quarter of 2009. On an annual basis, GDP expanded a much higher pace at 4.6 per cent. For the whole of 2009, the Japanese economy shrank 5 per cent and is valued at 474.92 trillion yen (about $5.1 trillion). The better-than-expected Japanese growth in the December 2009 quarter was mainly driven by better exports and effects of stimulus measures. To bolster the recession-hit economy, Japan had unveiled stimulus measures worth over $130 billion.
NUCLEAR PROLIFERATION
Iranian President declares Iran a nuclear State
Iranian President Mahmoud Ahmadinejad declared on February 11, 2010, that Iran had produced its first batch of 20 per cent enriched uranium, amidst a growing view in the West that Tehran is bluffing.
“Iran was now a nuclear State,” Ahmadinejad told a huge rally of supporters on the 31st anniversary of the Islamic Revolution. Experts say that once Iran can enrich uranium to 20 per cent it should move relatively quickly toward 90 per cent purification, weapons-grade fuel.
Former U.S. officials and independent nuclear experts say continued technical problems could delay—though probably not halt—Iran’s march towards achieving nuclear-weapons capability, giving the US and its allies more time to press for a diplomatic solution.
While Iran says its nuclear program is entirely peaceful, Western nations suspect that the country is intent on developing an atomic bomb.
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