June-2010-Internationa;

INTERNATIONAL AFFAIRS

Hatoyama resigns as Japan’s PM
Japanese Prime Minister Yukio Hatoyama, who ended five decades of single-party rule when he swept to power in August 2009, but stumbled when he confronted a long-time ally, the United States, resigned on June 2, 2010. Hatoyama quit at a meeting of leaders of the Democratic Party of Japan in Tokyo, becoming the fourth straight Japanese leader to leave after a year or less in office.

“Since last year’s elections, I tried to change politics in which the people of Japan would be the main characters,” he said later at a nationally broadcast news conference. But he conceded that his efforts weren’t understood.

Hatoyama ran for the premiership on a campaign platform of maintaining a more equal relationship with the United States, which still enjoys enormous support among most Japanese. His decision to challenge Washington over the details of a massive military base relocation plan on the island of Okinawa befuddled Japanese and American analysts and government officials alike.

Hatoyama also called for Japan to become more of an “Asian nation,” which sparked concern in Washington that he wanted to move away from the country’s pro-US stance and closer to China.

Finance Minister Naoto Kan succeeded Hatoyama as the new Prime Minister.

Maoists force Nepal PM to resign
Nepal’s Prime Minister announced his resignation on June 31, 2010, bowing to pressure from opposition Maoists who had been demanding his ouster in Parliament and on the streets. Prime Minister Madhav Kumar Nepal said in a televised speech that he decided to resign to end political deadlock and shore up the peace process.

Mr Madhav Kumar had taken over the post in May 2009 after the previous government led by the Maoists resigned following differences with the President over the firing of the army chief. He had the support of 22 political parties in Parliament and more than half of the 601 members in the Assembly. However, the Maoists, who have the largest number of seats in the Assembly, refused to support his government and instead staged protests to demand disbanding the government.

In May 2010, the Maoists had shut down the nation for more than a week, imposing a general strike. The protests also delayed the writing of a new constitution, which was supposed to be complete by May 2010. The deadline has now been extended by one year.

Landmark US Financial Reform Bill
On July 1, 2010, the US House of Representatives approved a landmark overhaul of financial regulations. The Bill would impose tighter regulations on financial firms and reduce their profits. It would boost consumer protections, force banks to reduce risky trading and investing activities and set up a new government process for liquidating troubled financial firms.

However, the Republicans say the Bill would hurt the economy by burdening businesses with a thicket of new regulations. They also point out that it ducks the question of how to handle troubled mortgage finance giants Fannie Mae and Freddie Mac, which Democrats plan to tackle in 2011.

Ethic Riots in Kyrgyzstan
Russia sent hundreds of paratroopers to Kyrgyzstan on June 13, 2010 to protect its military facilities as ethnic clashes spread in the Central Asian State, bringing the death toll from days of fighting to 97. Ethnic Uzbeks in a besieged neighbourhood of Kyrgyzstan’s second city Osh said gangs, aided by the military, were carrying out genocide, burning residents out of their homes and shooting them as they fled. Witnesses saw bodies lying on the streets.

The interim government in Kyrgyzstan, which took power in April 2010, after a popular revolt toppled President Kurmanbek Bakiyev, appealed for Russian help to quell the riots in the south.

Led by Roza Otunbayeva, the interim government sent a volunteer force to the south and granted shoot-to-kill powers to its security forces in response to the deadly riots, which began in Osh, before spreading to Jalalabad.

Renewed turmoil in Kyrgyzstan has fuelled concern in Russia, the United States and neighbour China. Washington uses an air base at Manas in the north of the country, about 300 km from Osh, to supply its forces in Afghanistan.

G-20 Summit meeting
A Summit meeting of Leaders from the Group of 20 economic powers was held in Toronto, Canada on June 28, 2010. The leaders have agreed to halve deficits by 2013 and stabilise or reduce the government debt-to-GDP ratio by 2016. At the same time, the bloc left it to individual countries to decide on levying taxes on banks or adopting other means to fund future bailouts.

Along the way, the G-20 leaders who completed their fourth meeting since the global financial crisis of 2008, also diluted their position on a number of problems they had decided to fix earlier. For instance, while reinforcing their desire to move to a more stringent capital structure, the communiqué issued after two days of discussions said countries would “aim” to put in place a new framework by the end of 2012, which was earlier the target date. Members will also get flexibility in phasing the new rules.

The good news is that once these rules are implemented banks will have more capital to deal with crises as the ratio of core Tier-I capital of a bank to its risk-weighted assets is expected to double from the present level of 2 per cent.

On trade, too, there was dilly dallying. The G-20 leaders, who had earlier said that the Doha Round of trade liberalisation talks should be concluded in 2010, have not mentioned any deadline now. All that has been said is that they will now deliberate on the ways to take forward the talks when they meet in Seoul in November 2010.

G-20 members have also decided against erecting any new trade and investment barriers.
The decision to increase the quotas for developing countries in the International Monetary Fund by the Seoul summit was touted as another gain.

While many elements in the 19-page statement were a reiteration of the earlier pledges, these were at least two new elements. One of them was a proposal to set up a working group on development. The other was the desire to focus on issues related to corruption with members urging to ratify and implement the United Nations Convention against Corruption.

However, the move by some developed countries to insert another new element — a levy on bank transactions — did not find a mention in the final text as the focus of the deliberations remained on reducing fiscal deficit levels. A key demand of European countries, was resisted by the US and developing countries such as India and Brazil.

Along with deficit reduction, G-20 leaders also agreed on ushering in structural reforms by emerging surplus economies, such as China. These countries, which can tailor their reform moves to strengthen social safety nets, should increase infrastructure spending and enhance exchange rate flexibility to reflect underlying economic fundamentals.

G-20 meeting of Finance Ministers
Finance Ministers and Central Bank Governors of G-20 countries met in Busan, South Korea on June 4, 2010.

At the top of the agenda was Europe’s debt crisis. The Ministers also discussed medium-term growth framework and how to solve economic imbalances which caused the global financial crisis. Canada, the current G-20 President, hopes to secure an agreement in Toronto on the broad suite of policies needed to reduce these imbalances. Individual countries would then commit themselves to specific policies at the next G-20 summit in Seoul.

Building on progress to date, the leaders affirmed their commitment to intensify efforts and to accelerate financial repair and reform. They also agreed that further progress on financial repair is critical to global economic recovery and requires greater transparency and further strengthening of banks’ balance sheets and better corporate governance of financial firms.

The leaders also committed to reach agreement expeditiously on stronger capital and liquidity standards as the core of our reform agenda and in that regard fully supported the work of the Basel Committee on Banking Supervision.

The leaders also emphasized the need to reduce moral hazard associated with systemically important financial institutions and reinforced their commitment to develop effective resolution tools and frameworks for all financial institutions on the basis of internationally agreed principles.

The G-20 was established in 1999, in the wake of the 1997 Asian Financial Crisis, to bring together major advanced and emerging economies to stabilize the global financial market. Since its inception, the G-20 has held annual Finance Ministers and Central Bank Governors’ Meetings and discussed measures to promote the financial stability of the world and to achieve a sustainable economic growth and development.

China announces plans to make its currency more flexible
Equity markets across the world made handsome gains on June 21, 2010, after China announced plans to make its currency, the yuan, more flexible against the dollar. India’s benchmark equity index, the Sensex, and the broad-based Nifty today touched their highest levels in more than two months.

Market analysts said China’s move would go a long way in lifting the global economic sentiment that was under the weather due to the Euro crisis. China’s decision would result in a higher growth rate, especially for countries that have a significant trade relation with the Asian behemoth, as currency appreciation would make imports comparatively cheaper in China.

According to Barclays Commodities, there is a thinking that a stronger yuan will “increase Chinese purchasing power” leading to an increase in its “purchases of base metals”. “This coincides with a strong set of Chinese trade data for May 2010, which showed that the country turned a net importer of aluminium and lead, while copper and zinc imports remained strong”.

UNSC slaps sanctions on Iran
On June 9, 2010, the UN Security Council slapped sanctions on Iran over its controversial nuclear programme, targeting the powerful Revolutionary Guard, ballistic missiles, and nuclear-related investments, despite opposition from Brazil and Turkey.

In the 15-member Council, 12 countries, including the US and Britain, voted in favour of the resolution, with Lebanon abstaining and Brazil and Turkey voting against.

The new resolution, which is fourth against Iran to be adopted by the UNSC, creates new categories of sanctions like banning Iran's investment in nuclear activity abroad, banning all ballistic missiles activities, blocking Iran's use of banks aboard and asset freezes for members of the Islamic Revolutionary Guard Corps.

The resolution blacklists entities that includes 15 enterprises of the Islamic Revolutionary Guards Corps, three entities owned by the Islamic Republic of Iran Shipping Lines and 23 industrial companies. The international community accuses Iran of seeking to develop an atomic weapon. But, Tehran has been maintaining that its uranium enrichment program is for peaceful civilian purposes.

India has been maintaining that it is opposed to such kinds of sanctions as it will affect the common people more than the establishment. Russia and China, which have previously raised objections against such sanctions, supported the resolution and said they were happy with the text of the resolution as long as it did not have any negative impact on the people.

Iran voiced defiance, saying it would not halt uranium enrichment and suggesting it may reduce cooperation with the UN nuclear agency.

SAARC nations pledge coordinated action to tackle terror
Members of SAARC have pledged to step up coordinated action against the common menace of terrorism, including steps to apprehend or extradite persons connected with acts of terrorism and facilitate real-time intelligence sharing.

The meeting of the Interior Ministers of the South Asian Association for Regional Cooperation, held on June 27, 2010 in Islamabad, Pakistan, also resolved to step up cooperation in real time intelligence-sharing and to consider Pakistan’s proposal for creation of SAARCPOL, an institution on the lines of Interpol.

The ministerial statement on cooperation against terrorism adopted at the meeting said the SAARC member States had underscored their “commitment to apprehend and prosecute or extradite persons connected, directly or indirectly, with the commissions of acts of terrorism”. They also reiterated their commitment to strengthen SAARC’s regime against terrorism.

The ministers resolved to ensure that “nationals and entities” of SAARC States who commit, facilitate or participate in commission of terror acts are “appropriately punished”.

The SAARC members—Afghanistan, Bhutan, Bangladesh, India, Pakistan, Maldives, Nepal and Sri Lanka—also acknowledged that linkages between terrorism, illegal trafficking of drugs, human trafficking, smuggling of firearms and threats to maritime security remained a “serious concern” and said these problems would be addressed in a comprehensive manner.