20 years after the East Asia crash: is history repeating itself?

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20 years ago this month, a run on the Thai currency triggered a financial crisis that quickly devastated the economy of the entire region, sinking the currencies of Thailand, Indonesia and South Korea and ultimately spreading as far as Russia and Brazil. Far from ‘lessons being learned’, however, history looks worryingly set to repeat itself.

On 2nd July 1997, Thailand’s Prime Minister Chavalit Yongchaiyudh announced that the baht, would be freely floated. The Thai government lacked the foreign exchange reserves necessary to continue pegging the currency to the US dollar – and the result was a collapse of the baht to less than half its former value.

The contagion quickly spread to Thailand’s neighbours as panicked investors began selling off their stocks in other East Asian currencies. Within months, noted the Financial Times on the 2nd January 1998, the crisis had “laid waste to what was once the most dynamic part of the world economy”, leading to a collapse of the currencies of Indonesia, Malaysia, the Philippines, and South Korea. Later that year, the economies of Russia and Brazil were seriously hit by the impact of the crisis on commodity prices, triggering crises of their own.

Across the region, economic devastation reigned. Unable to refinance their debts, companies of all sizes had their loans called in. But the collapse of their currencies meant that the value of these debts – denominated in dollars – had increased exponentially. A wave of bankruptcies drove unemployment through the roof, whilst governments hit by declining tax revenues – and IMF-imposed austerity – were forced to cut back on social safety nets. At the same time, the collapse of currency values led to rapid inflation, forcing up prices of basic essentials such as food and fuel. Poverty rates ramped up – and in Indonesia, the resulting social unrest even led to the overthrow of the government.

What had caused this devastation? In the years preceding the crash, the economies of East Asia had, under IMF tutelage, removed capital controls. This, in turn, had led to an influx of ‘hot money’ into those economies, as low returns in the developed world prompted investors to seek capital outlets elsewhere. As the Financial Times noted in January 1998, “between 1992 and 1996 net private capital flows to Asian developing countries jumped from $21bn to $101bn. …What caused the inflow was largely the search for better returns by investors made insensitive to risk and hungry for profit by the western bull market.” Those investors had been especially encouraged by the 1993 World Bank report “The East Asian miracle” praising the growth those countries had achieved. To keep their exports competitive, they had pegged their currencies to – then undervalued – dollar. But things turned sour when the so-called ‘reverse Plaza accord’ of 1995 brought about a major appreciation of the dollar, decimating the exports of the East Asian economies. It took a while for this to ‘filter through’ to investors, but once it became clear that East Asian currencies and stocks were overvalued, the herd mentality took over. “As usual,” wrote the FT, “mania ended in panic”.

Thailand, Indonesia and South Korea were all forced to take billions of dollars in emergency loans from the IMF – coming, of course, with strict conditions, which exacerbated the crisis. As is standard with the IMF, recipient governments were forced to adopt strict austerity measures, which preventing them from doing anything to stimulate demand. But they were also forced to abolish all barriers on foreigners purchasing assets such as banks and property. As a result, Western capital was able to swoop in and buy up Asian infrastructure – some of the most modern plant and machinery in the world – for pennies on the dollar, as companies unable to meet their dollar debts were forced to sell their assets at rock-bottom prices. As Wade and Veneroso wrote, “the combination of massive devaluations, IMF-pushed financial liberalisation, and IMF-facilitated recovery may have precipitated the biggest peacetime transfer of assets from domestic to foreign owners in the past fifty years anywhere in the world”. For Professor Radhika Desai, this was “the most impressive exercise of US power the world had seen in some time”, providing, in the words of Peter Gowan, “a welcome boost for the US financial markets and through them for the US domestic economy” as “capital flows bypassed emerging-economy financial markets and went directly into the upward-moving US bond and stock markets” (Desai). Western policy had facilitated the crisis, exacerbated it, and profited immensely from it: for, as Peter Gowan has noted, “the US economy depends…upon constantly reproduced international monetary and financial turbulence” – whilst Wall St in particular “depends upon chaotic instabilities in ‘emerging market’ financial systems”.

With the western world poised to ramp up interest rates, could it be that we are again on the verge of just such an episode? The parallels are worrying.

First of all, just as during the years prior to 1997, the past decade has seen a massive influx of capital into the developing world, exacerbated by the British-US-German-Japanese ‘quantitative easing’ (QE) programmes. According to the world bank, “Over the four-year period between mid-2009 and the first quarter of 2013 [ie the first four years of the QE experiment], cumulative gross financial inflows into the developing world rose from $192 billion to $598 billion”, which, it noted, was “more than twice the pace compared to the far more modest increase of $185 billion between mid-2002 and the first quarter of 2006”.  Former foreign secretary of India, Shyam Saran, warned of the potentially destabilising effects of this influx back in 2013: “According to one estimate, about 40 percent of the increase in the U.S. monetary base in the QE-1 phase leaked out in the form of increased gross capital outflows, while in the QE-2 phase, it may have been about one-third. This massive and continuing surge of capital outflows to emerging and other developing economies is having a major impact. Corporations, which have a sound credit rating, are taking on more debt, and increasing their foreign exchange exposure, attracted by low borrowing costs. Their vulnerability to future interest rate changes in the developed world and exchange rate volatility will increase.” The Daily Telegraph has also picked up on this vulnerability, noting that “Nobody knows what will happen when the spigot of cheap dollar liquidity is actually turned off. Dollar debts outside US jurisdiction have ballooned from $2 trillion to $9 trillion in fifteen years, leaving the world more dollarised and more vulnerable to Fed action than at any time since the fixed exchange system of the Gold Standard.” Even the World Bank have admitted that the reversal of QE “is a central concern for developing economies, which have struggled to cope with the surge in financial inflows that they have experienced over the past several years, and are fearful that the renormalization of high income monetary policies will be accompanied by a disorderly sudden stop in capital inflows.” Later in their study, they conclude that “These fears were not unfounded”. Just as during the pre-1997 period, emerging markets are dangerously leveraged, with the influx of ‘hot money’ into the developing world leaving it exceptionally vulnerable to any action that might reverse this flow. And such action is almost certainly on the cards.

On July 18th, the Times’ economics editor Philip Aldrick wrote that “In two months’ time, the US Federal Reserve is expected to begin the next phase in the greatest economic experiment of modern times. America’s central bank has signalled that it may start unwinding quantitative easing in September with the piecemeal sale of the $3.5trn of bonds bought since QE’s 2008 launch. No one quite knows what happens next, but the gloomiest predict another financial maelstrom. One thing is certain. Borrowing costs will rise”. Indeed, he writes, “it’s already happening. Government bond yields, used to price everything from fixed rate mortgages to corporate loans to pension schemes, have jumped. Since June, the yield on ten-year UK gilts has risen from below 1% to 1.275%. The same is happening in US and German bonds.

Against the backdrop of automatic global monetary tightening, a Fed decision to flood the market with more bonds would lift borrowing costs even higher.” In other words, we are entering an era of rising effective interest rates exactly like that which prefigured the 1997 crisis.

A second parallel is that the debts being accumulated in the global South are, again, largely denominated in dollars. In 1997, this was devastating as it meant that, as local currencies dropped in value, their dollar debts effectively escalated by the same amount; had the debts been denominated in local currency, the number of bankruptcies would not have been nearly so large. To guard against a repeat scenario, therefore, the countries hit in 1997 began to issue debt only in their own currency: those wishing to invest would have to first convert their money into the local currency, and only then could they do so. As the years passed, however, complacency seems to have set in: to such an extent that, today, according to the Bank of International Settlements, non-bank borrowers in emerging markets have now accumulated more than $3 trillion in dollar-denominated debt. According to a report published by the Bank last year, “The accumulation of debt since the global financial crisis has left EMEs [emerging market economies] particularly vulnerable to capital outflows. As private sector borrowing has led to overheating in several large EMEs, the unwinding of imbalances may generate destabilizing dynamics.” The report goes on to note that around $340 billion of developing country debt will be maturing this year, “creating a potential default risk if investors start pulling money out of emerging markets”.

All the warning signs are there. Writing for Bloomberg, Lisa Abramowicz wrote in November 2016 that “the debt of developing economies is positioned uniquely for pain.” Noting Adair Turner’s warning that “the large increase of emerging-market debt, much of it denominated in dollars,” is one of the biggest risks in the financial system right now, she added, “All that money is owed to somebody, and a failure to pay it back will cause big ripple effects. So as emerging markets come under stress, bond investors around the world should take note. As the dollar continues to strengthen, it’s not a stretch to see how this developing-market debt selloff can worsen, having far-reaching consequences on markets around the world.”

Others have specifically drawn attention to the parallels with 1997. Reporting on a speech by Bill Dudley, head of the New York Fed, the Telegraph noted that he had “hinted that the Fed may opt for the fast tightening cycle of the mid-1990s, an episode that caught markets badly off guard and led to the East Asia crisis and Russia’s default.” And the above quoted former foreign secretary of India, Shyam Saran, warned that The Asian financial crisis of 1997/98 was, in part, triggered by an earlier version of QE pursued by Japan in the aftermath of the bursting of its property and asset bubble in the early 1990s. Then, too, the large inflow of low-cost yen loans led to the asset price bubbles, inflationary pressures and currency instability in the Asian economies.”

Of course, triggering a new crisis by ramping up interest rates and selling off bonds – precisely at a time when a large portion of developing world debts are maturing – would hurt the West as well. Yet this seems to be precisely what is being planned. Because if a new crisis is inevitable – and I believe the inherent capitalist tendency towards overproduction means it is – it makes perfect sense to time it at a moment when the global South will be forced to bear the brunt. And, even if the US it hit, so long as everyone else is hit harder, that is a net gain for US power. As the Telegraph noted, “The US is perhaps strong enough to withstand the rigours of monetary tightening. It is less clear whether others are so resilient.” And, says Abramowicz, “While bonds globally are posting some of the biggest losses on record, debt of U.S., Germany, Japan and other large economies will eventually have natural buyers that can swoop in and support values.”

Fans of Breaking Bad will remember the memorable scene in which drug lord Gus Fring arrives at the mansion of his arch rival Don Eladio with a bottle of poisoned tequila disguised as a peace offering. Eladio is suspicious, so to prove its purity, Gus drinks the first shot. Whilst the rest of the cartel are poisoning themselves, he heads to the bathroom to make himself sick. After nearly dying, he eventually recovers – whilst his rivals’ corpses  lay strewn around the swimming pool. Is the US hoping to pull the same stunt – choking themselves, but fatally throttling everyone else in the process, so they can swoop in and pick up the pieces? It wouldn’t be the first time.

This article originally appeared on RT.com

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Quantitative Easing – the most opaque wealth transfer in history

 

QEgraph

“Where did the quantitative easing money go? The answer in a graph” – from Tax Research UK

It appears that the massive, almost decade-long, transfer of wealth to the rich known as ‘quantitative easing’ is coming to an end. Of the world’s four major central banks – the US federal reserve, the Bank of England, the European Central Bank and the Bank of Japan – two have already ended their policy of buying up financial assets (the Fed and the BoE) and the ECB plans to stop doing so in December. Indeed, the Fed is expected to start selling off the $3.5trillion of assets it purchased during three rounds of QE within the next two months.

Given that, judged by its official aims, QE has been a total failure, this makes perfect sense. QE, by ‘injecting’ money into the economy, was supposed to get banks lending again, boosting investment and driving up economic growth. But overall bank lending in fact fell following the introduction of QE in the UK, whilst lending to small and medium sized enterprises (SMEs) – responsible for 60% of employment – plummeted. As Laith Khalaf, a senior analyst at Hargreaves Lansdown, has noted: “Central banks have flooded the global economy with cheap money since the financial crisis, yet global growth is still in the doldrums, particularly in Europe and Japan, which have both seen colossal stimulus packages thrown at the problem.” Even Forbes admits that QE has “largely failed in reviving economic growth”.

 

This is, or should be, unsurprising. QE was always bound to fail in terms of its stated aims, because the reason banks were not funnelling money into productive investment was not because they were short of cash – on the contrary, by 2013, well before the final rounds of QE, UK corporations were sitting on almost£1/2trillion of cash reserves – but rather because the global economy was (and is) in a deep overproduction crisis. Put simply, markets were (and are) glutted and there is no point investing in producing for glutted markets.

This meant that the new money created by QE and ‘injected’ into financial institutions such as pension funds and insurance companies was not invested into productive industry, but rather went into stock markets and real estate, driving up prices of shares and houses, but generating nothing in terms of real wealth or employment.

Holders of assets such as stocks and houses, therefore, have done very well out of QE, which has increased the wealth of the richest 5% of the UK population by an average of £128,000 per head.

How can this be? Where does this additional wealth come from? After all, whilst money – contrary to Tory sloganeering – can indeed be created ‘out of thin air’, which is precisely what QE has done, real wealth cannot. And QE has not produced any real wealth. Yet the richest 5% now have an extra £128,000 to spend on yachts, mansions, diamonds, caviar and so on – so where has it come from?

The answer is simple. The wealth which QE has passed to asset-holders has come, first of all, directly out of workers’ wages. QE, by effectively devaluing the currency, has reduced the buying power of money, leading to an effective decrease in real wages, which, in the UK, still remain 6% below their pre-QE levels. The money taken out of workers’ wages therefore forms part of that £128,000 divided. But it has also come from new entrants to the markets inflated by QE – primarily, first time buyers and those just reaching pension age. Those buying a house which QE has made more expensive, for example, will likely have to work thousands of additional hours over the course of their mortgage in order to pay this increased cost. It is those extra hours that are creating the wealth which subsidises the yachts and diamonds for the richest 5%. Of course, these increased house prices are paid by anyone purchasing a house, not only first time buyers – but the additional cost for existing homeowners is compensated for by the rise in price of their existing house (or by their shares for those wealthy enough to hold them).

QE also means that newly retiring pensioners are forced to subsidise the 5%. New retirees use their pension pot to purchase an ‘annuity’ – a bundle of stocks and shares generating dividends which serve as an income. However, as QE has inflated share prices, the number of shares they can buy with this pot is reduced. And, as share price increases do not increase dividends, this means reduced pension payments.

In truth, the story that QE was about encouraging investment and boosting employment and growth was always a fantastical yarn designed to disguise what was really going on – a massive transfer of wealth to the rich. As economist Dhaval Joshi put it in 2011: “The shocking thing is, two years into an ostensible recovery, [UK] workers are actually earning less than at the depth of the recession. Real wages and salaries have fallen by £4bn. Profits are up by £11bn. The spoils of the recovery have been shared in the most unequal of ways.” In March this year, the Financial Times noted that whilst Britain’s GDP had recovered to pre-crisis levels by 2014, real wages were still 10% lower than they had been in 2008. “The contraction of UK real wages was reversed in 2015,” they added, “but it is not going to last”. They were right. The same month the article was published, real wages began to fall again, and have been doing so ever since.

It is the same story in Japan, where, notes Forbes, “household income actually contracted since the implementation of QE”.

QE has had a similar effect on the global South: enriching the holders of assets at the expense of the ‘asset-poor’. Just as the influx of new money created bubbles in the housing and stock markets, it also created commodity price bubbles as speculators rushed to buy up stocks of, for example, oil and food. For some oil producing countries this has had a positive effect, providing them a windfall of cash to spend on social programmes, as was initially the case in, for example, Venezuela, Libya and Iran. In all three cases, the empire has had to resort to various levels of militarism to counter these unintended consequences. But oil price hikes are, of course, detrimental to non-oil-producing countries – and food price hikes are always devastating. In 2011, the UK’s Daily Telegraph highlighted “the correlation between the prices of food and the Fed’s purchase of US Treasuries (i.e. its quantitative easing programmes)…We see

how the food price index broadly stabilised through late 2009 and early 2010, then rose again from mid-2010 as quantitative easing was re-started …with prices rising about 40% over an eight month period.” These price hikes pushed 44 million people into poverty in 2010 alone – leading, argued the Telegraph, to the unrest behind the so-called Arab Spring. Former World Bank president Robert Zoellick commented at the time that

“Food price inflation is the biggest threat today to the world’s poor…one weather event and you start to push people over the edge.” Such are the costs of quantitative easing.

The BRICS economies were also critical of QE for another reason: they saw it as an underhand method of competitive currency devaluation. By reducing the value of their own currencies, the ‘imperial triad’ of the US, Europe and Japan were effectively causing everyone else’s currencies to appreciate, damaging their exports. This is exactly what happened: wrote Forbes in 2015, “The effects are already being felt in the most dynamic exporter in the world, the East Asian economies. Their exports in US dollar terms moved dramatically from 10% year-on-year growth to a contraction of 12% in the first half of this year; and the results are the same whether China is excluded or not.”
The main benefit of QE to the developing world is supposed to have been the huge inflows of capital it triggered. It has been estimated that around 40% of the money generated by the Fed’s first QE credit expansion (‘QE1’) went abroad – mostly to the so-called ‘emerging markets’ of the global South – and around one third from QE2. However, this is not necessarily the great boon it seems. Much of the money went, as we have seen, into buying up commodity stocks (making basic items such as food unaffordable for the poor) rather than investing in new production, and much also went into buying up stocks of currency, again causing an export-damaging appreciation. Worse than this, an influx of so-called ‘hot money’ (footloose speculative capital, as opposed to long term investment capital) makes currencies particularly volatile and vulnerable to, for example, rises in interest rates abroad. Should interest rates rise again in the US and Europe, for example, this is likely to trigger a mass exodus of capital from the emerging markets, potentially prefigurng a currency collapse. Indeed, it was an influx of ‘hot money’ into Asian currency markets very similar to that seen during QE which preceded the Asian currency crisis of 1997. It is precisely this vulnerability which is likely to be tested – if not outright exploited – by the coming end of QE and accompanying rise of interest rates.

This article originally appeared on RT

The new era of famine: made in the West

The Wider Image: Risk of famine looms in Yemen
Salem Abdullah Musabih, 6, lies on a bed at a malnutrition intensive care unit at a hospital in the Red Sea port city of Hodaida, Yemen September 11, 2016. 

The famines threatening four countries today have one thing in common: Western aggression and destabilisation.

In February of this year, the world’s first famine in six years was officially declared in South Sudan. A month later, the UN’s humanitarian chief Stephen O’Brien warned the Security Council that three other countries – Yemen, Somalia, and Nigeria – also stood on the brink of famine, with 20 million at risk of starving to death within months. The world, he said, was now “facing the largest humanitarian crisis since the creation of the United Nations”. Unless $4.4billion in emergency funds was raised by the end of March, warned UN Secretary General Antionio Guterres, 20 million would likely starve to death. When the deadline was reached, he had received less than a tenth of that, a paltry $423million.

The amount raised has increased then, but still stands at little above one third of the target. It is almost certain not to met, with donations dropping sharply since mid-May.

For context, the New York Times helpfully pointed out, that $4.4billion is almost exactly the same amount as Britain has made selling weapons to Saudi Arabia in the past two years – most of which have been used against the famine-stricken Yemenis – and less than 10% of the $54billion in additional spending Donald Trump just pledged for the US military.

Yemen was in the news again this week, twice. First was the announcement by the Red Cross that cholera cases in Yemen have now reached 300,000. Then came the ruling by Britain’s High Court – choosing to believe private government assurances over volumes of first-hand eyewitness accounts – that the UK government’s arming of the vicious Saudi war against the Yemeni people is perfectly above board. These two declarations are not unrelated. For it is precisely Britain’s proxy war against Yemen that has led to the medieval levels of famine and disease now sweeping the country.

Back in October 2015 the head of the International Red Cross wrote that “Yemen after five months looks Syria after five years”. Today, according to Save the Children, one Yemeni child is infected with cholera every 35 seconds. This epidemic comes hot on the heels of last year’s dengue fever outbreak, which the World Health Organisation said they struggled to control due to the “near collapse of the health system” and “disruption of water supplies” resulting from the Western-supplied bombing campaign.  Hospitals have been bombed regularly. Following Philip Hammond’s justification of bombing raids on three Yemeni hospitals in as many months, the MSF warned that targeting hospitals was now becoming the “new normal”.

Bombing of hospitals and grain distribution centres, however, is just part of the story of the West’s genocide against the Yemeni people. Yemen is dependent on imports for more than 80% of its fuel, food and medicine, and 70% of these imports come through the Huydadeh port. This port was bombed in August 2015 by the Saudi-led coalition, and has been blockaded ever since, directly creating the current situation in which 21 million suffer food shortages, including 7 million facing famine. As the UN Special Rapporteur on human rights and international sanctions has noted, this blockade is “one of the main causes of the humanitarian catastrophe”, helping to lead to what he called  “this man-made famine”. Needless to say, this blockade – along with every aspect of the Saudi genocide in the Yemen – is fully supported by the US and Britain.

Yet Yemen is not the only place where Western policy is leading to famine.

This week marks the sixth anniversary of the independence of South Sudan. Yet, for the second year in a row, the planned celebrations have been cancelled because, in the midst of starvation and civil war, there is nothing to celebrate.

The country’s descent into famine was officially announced on 20th February this year, with 100,000 starving and a further 1 million on the brink of famine. The official criteria for a famine are that 20% of a population must be suffering “extreme food shortages”, 30% suffering acute malnutrition, and at least 1 per 5000 dying each day. Whilst those criteria are no longer being met, acute hunger has now reached 6 million, up from 5 million in February – over half the population. As in Yemen, this is a crisis of biblical proportions. As in Yemen, it is man-made. And, as in Yemen, it is the thoroughly predictable outcome of Western militarism.

The US and Britain were instrumental to the partition of Sudan in 2011, and it is precisely this partition which has bequeathed the country’s current tragedy. Just as in Libya, in the same year, a loose coalition of rebels with no unified programme were effectively placed in power by Western largesse. And just as in Libya, the inevitable collapse of this coalition has brought total devastation to the country.

The Southern People’s Liberation Movement (SPLM) was formed by rebel army colonel John Garang in 1983, and in the 1990s, under Clinton, the US began pouring millions of dollars into the insurgent movement. Although formally an uprising against the government in Khartoum, it has often relied on an appeal to ethnic chauvanism to galvanise support. According to former national committee memberDr. Peter Nyaba, for example, the movement’s very first mobilisation “that took more than ten thousand Bor youth to SPLA training camps in 1983 was not for the national agenda of liberation but to settle local scores with their neighbours, the Murles or the Nuers.” Similarly, Riek Machar’s faction of the SPLM, based mainly within the Nuer community, conducted a massacre of thousands of Dinka civilians in 1991. Dr Nyaba argues that political training was neglected in favour of, often very brutal, military training, leading to often horrific excesses against the populations under their control. After liberating an area, said Nyaba, the Movement should have

instituted “democratic reforms: a popular justice system, a new system of

education, health and veterinary services.” Such a move, he says, “would have given the SPLM the opportunity to prove itself to the people and to the world and, therefore,

to build a solid popular power base making the SPLM/A the authentic

representative of the people….the ‘New Sudan’ would have been born in the

physical and objective reality of the people, allowing the SPLM/A to acquire

political sovereignty and diplomatic recognition”. These, indeed, are the normal steps taken by genuinely successful revolutionary movements the world over. But this is not what happened. Rather, says Nyaba, the SPLM “denigrated into an agent of plunder, pillage and destructive conquest”. It was at precisely this point that the US began funding the movement, with the initial $20 million provided by Clinton soon expanding to $100 million per year under Bush’s satirically-named “Sudan Peace Act” of 2002.

Just as in Libya, the impact of such US largesse has been to enable insurgent groups to achieve their aims without providing the visionary leadership or mass organisational skills necessary to galvanise genuine mass support. Put simply, US support has rendered mass support unnecessary. Genuine revolutions – that is, revolutions attained primarily through the efforts of the masses themselves, rather than through pressure applied by external patrons – can only succeed with a visionary programme capable of winning the total commitment of the masses. Yet in South Sudan, the SPLM, thanks to US support, were able to come to power without this. The long term impact of this lack of popular, inspirational leadership has been an ideological vacuum into which have poured power struggles over patronage and resource networks.

Confident of external support, the SPLM – and its leader since Garang’s death in 2005, Salva Kiir – had no pressing need to win the support of all the tribes of the South. Without Western funding, Kiir would had to have reached out to the Nuer and the Murle and the other non-Dinka groups in order to secure enough support to force concessions from Sudan’s government. Had he done so, on the basis of a genuine mass programme capable of galvanising all the peoples of southern Sudan on a non-ethnic basis, this very programme would have formed the basis of a viable unity government following independence. However, confident of US backing, Kiir had no need to develop any of this. Instead, his clear patronage from the US enabled him to impose a false unity on his Nuer and Shilik rivals, in which his proximity to the US alone was enough to force them to fall in line if they did not want to be completely excluded from the power and the money coming his way. Political struggles for mass support were to be eclipsed by factional rivalries over who would control the flow of resources.

The same pattern has continued after independence. Assuming, correctly, that US support would continue to flow, President Kiir has had no particular need to endear himself to those outside his primary Dinka constituency, even going so far as to sack his Nuer deputy Riek Machar in 2013, triggering the latest round of civil war. This latest round of war has taken on particularly nasty ethnic dimensions, as the the SPLM’s rival factions, for years bound together by US dollars rather than by a genuine programme of unity, unravels.

Whilst Yemen’s near-famine was caused by the Western-directed bombing and blockade of that country, then, South Sudan’s actual famine is the result of years of proxy war funded by the West and the disastrous partition it produced. The situation in Nigeria is also a result of war, in this case the Boko Haram insurgency – an insurgency which owes its massive spread in recent years directly to the NATO destruction of Libya, which opened up the country’s weapons dumps to Boko Haram and its partners. Have no doubt, the latest wave of famine is a direct by-product of Western aggression – creating another 20 million victims for whom US and British governments must be brought to justice.

 

The country’s descent into famine was officially announced on 20th February this year, with 100,000 starving and a further 1 million on the brink of famine. The official criteria for a famine are that 20% of a population must be suffering “extreme food shortages”, 30% suffering acute malnutrition, and at least 1 per 5000 dying each day. Whilst those criteria are no longer being met, acute hunger has now reached 6 million, up from 5 million in February – over half the population. As in Yemen, this is a crisis of biblical proportions. As in Yemen, it is man-made. And, as in Yemen, it is the thoroughly predictable outcome of Western militarism.

 

The US and Britain were instrumental to the partition of Sudan in 2011, and it is precisely this partition which has bequeathed the country’s current tragedy. Just as in Libya, in the same year, a loose coalition of rebels with no unified programme were effectively placed in power by Western largesse. And just as in Libya, the inevitable collapse of this coalition has brought total devastation to the country.

 

The Southern People’s Liberation Movement (SPLM) was formed by rebel army colonel John Garang in 1983, and in the 1990s, under Clinton, the US began pouring millions of dollars into the insurgent movement. Although formally an uprising against the government in Khartoum, it has often relied on an appeal to ethnic chauvanism to galvanise support. According to former national committee memberDr. Peter Nyaba, for example, the movement’s very first mobilisation “that took more than ten thousand Bor youth to SPLA training camps in 1983 was not for the national agenda of liberation but to settle local scores with their neighbours, the Murles or the Nuers.” Similarly, Riek Machar’s faction of the SPLM, based mainly within the Nuer community, conducted a massacre of thousands of Dinka civilians in 1991. Dr Nyaba argues that political training was neglected in favour of, often very brutal, military training, leading to often horrific excesses against the populations under their control. After liberating an area, said Nyaba, the Movement should have

instituted “democratic reforms: a popular justice system, a new system of

education, health and veterinary services.” Such a move, he says, “would have given the SPLM the opportunity to prove itself to the people and to the world and, therefore,

to build a solid popular power base making the SPLM/A the authentic

representative of the people….the ‘New Sudan’ would have been born in the

physical and objective reality of the people, allowing the SPLM/A to acquire

political sovereignty and diplomatic recognition”. These, indeed, are the normal steps taken by genuinely successful revolutionary movements the world over. But this is not what happened. Rather, says Nyaba, the SPLM “denigrated into an agent of plunder, pillage and destructive conquest”. It was at precisely this point that the US began funding the movement, with the initial $20 million provided by Clinton soon expanding to $100 million per year under Bush’s satirically-named “Sudan Peace Act” of 2002.

 

Just as in Libya, the impact of such US largesse has been to enable insurgent groups to achieve their aims without providing the visionary leadership or mass organisational skills necessary to galvanise genuine mass support. Put simply, US support has rendered mass support unnecessary. Genuine revolutions – that is, revolutions attained primarily through the efforts of the masses themselves, rather than through pressure applied by external patrons – can only succeed with a visionary programme capable of winning the total commitment of the masses. Yet in South Sudan, the SPLM, thanks to US support, were able to come to power without this. The long term impact of this lack of popular, inspirational leadership has been an ideological vacuum into which have poured power struggles over patronage and resource networks.

 

Confident of external support, the SPLM – and its leader since Garang’s death in 2005, Salva Kiir – had no pressing need to win the support of all the tribes of the South. Without Western funding, Kiir would had to have reached out to the Nuer and the Murle and the other non-Dinka groups in order to secure enough support to force concessions from Sudan’s government. Had he done so, on the basis of a genuine mass programme capable of galvanising all the peoples of southern Sudan on a non-ethnic basis, this very programme would have formed the basis of a viable unity government following independence. However, confident of US backing, Kiir had no need to develop any of this. Instead, his clear patronage from the US enabled him to impose a false unity on his Nuer and Shilik rivals, in which his proximity to the US alone was enough to force them to fall in line if they did not want to be completely excluded from the power and the money coming his way. Political struggles for mass support were to be eclipsed by factional rivalries over who would control the flow of resources.

 

The same pattern has continued after independence. Assuming, correctly, that US support would continue to flow, President Kiir has had no particular need to endear himself to those outside his primary Dinka constituency, even going so far as to sack his Nuer deputy Riek Machar in 2013, triggering the latest round of civil war. This latest round of war has taken on particularly nasty ethnic dimensions, as the the SPLM’s rival factions, for years bound together by US dollars rather than by a genuine programme of unity, unravels.

 

Whilst Yemen’s near-famine was caused by the Western-directed bombing and blockade of that country, then, South Sudan’s actual famine is the result of years of proxy war funded by the West and the disastrous partition it produced. The situation in Nigeria is also a result of war, in this case the Boko Haram insurgency – an insurgency which owes its massive spread in recent years directly to the NATO destruction of Libya, which opened up the country’s weapons dumps to Boko Haram and its partners. Have no doubt, the latest wave of famine is a direct by-product of Western aggression – creating another 20 million victims for whom US and British governments must be brought to justice.

Just like the war on drugs, the war on people smuggling is designed to fail

 

This piece was first published in May 2016

refugee boat

Operation Sophia has contributed to a 42% increase in fatal drownings by encouraging people smugglers to shift to flimsy rubber dinghies. 

The British-led “war on people smuggling”, escalated last week by David Cameron, appears to be modelled on the failed “war on drugs” – and a new House of Lords report shows it is already producing the same disastrous results.

On 19th April 2015, the sinking of a single refugee boat off the coast of Lampedusa led to the drowning of over 700 people. By the end of the month, an estimated 1300 had drowned in the same way, making it the deadliest month on record in the Mediterranean refugee crisis. The tragedy was the direct result of a successful British-led campaign to end the Italian search-and-rescue operation Mare Nostrum, which had prevented such mass drownings before its closure in October 2014. Those events led to a public outcry and pressure to restart search-and-rescue operations; but resisting such pressure, on 23rd April 2015 the European Council instead adopted a British-drafted resolution vowing to “undertake systematic efforts to identify, capture and destroy [refugee] vessels”. The EU was giving notice that its response to the refugee crisis would no longer be based on humanitarian commitments, but on military force. It was, not coincidentally, a proposal originally made by the British fascist Nick Griffin five years earlier.

I wrote at the time that such a policy suffered all the basic economic flaws of the disastrous three-decades long ‘war on drugs’, and would lead to the same devastating results. Focusing on bombing supply without addressing demand, as any economics student could tell you, will push up prices, whilst concentrating the trade in the hands of the most ruthless and militarized providers. As a consequence, it would make the trade deadlier and more profitable but would not reduce it, as demand would remain unaffected. This has been precisely the outcome of the war on drugs, as the murder toll in Mexico’s Jalisco province – 100,000 in the eight years – grimly demonstrates. And, as a House of Lords report earlier this month shows, the same results are starting to emerge from the EU’s war on migration.

The EU’s ‘Operation Sophia’ entered into its second phase – the capture and destruction of refugee boats – last October. Since then, according to European border agency Frontex, it has destroyed 114 vessels and arrested 69 ‘suspected smugglers’. This is supposed to act as a deterrent to ‘people smugglers’, thereby limiting the opportunities for would-be refugees to flee to Europe. It has not worked. As noted by the House of Lords EU Committee’s report, “The mission does not… in any meaningful way deter the flow of migrants, disrupt the smugglers’ networks, or impede the business of people smuggling on the central Mediterranean routeThere is therefore little prospect of Operation Sophia overturning the business model of people smuggling”. Indeed, numbers crossing the Mediterranean this March – almost 10,000 – were three times higher than March 2015.

That the EU’s military campaign would not deter refugee flows was entirely obvious to the witnesses interviewed by the House of Lords Committee, given that the policy does nothing to address the demand for ‘people smuggling’ services. The opening sentence of the report was a quote from Peter Roberts of the Royal United Services Institute that “migrants in boats are symptoms, not causes, of the problem.” Another witness, Steve Symonds of Amnesty International’s Refugee and Migrant Rights Programme, agreed: “If you do not have an answer to the situation of those people, we are sceptical about the mere targeting of the smugglers”, adding that the conflicts from which refugees were fleeing were “becoming more protracted and intractable and they are spreading”. Summing up, the Committee wrote: We conclude that a military response can never, in itself, solve the problem of irregular migration. As long as there is need for asylum from refugees and demand from economic migrants, the business of people smuggling will continue to exist and the networks will adapt to changing circumstances.

 

Whilst unable to reduce the numbers crossing the sea, however, Operation Sophia has had an effect on those crossings: it has made them more dangerous. As the Lords report noted, the destruction of vessels has simply caused the smugglers to shift from using wooden boats to rubber dinghies, which are even more unsafe. In addition, Cameron’s plans to return fleeing refugees to war-torn Libya is likely to escalate the death toll even further. On this proposal, made earlier this year, migration expert Professor Brad Blitz commented: “It’s just outrageous. Libya is a country that is divided, which cannot guarantee human rights, which has produced hundreds of thousands of displaced peopleIf the concern is to prevent deaths, as [Cameron] has said, then really he should be promoting safe passage, rather than diverting people so that they have to seek longer and more dangerous routes.”

The Committee also heard evidence that the EU’s militarized approach is changing the business model of refugee transport in other ways. According to Edward Hobart, Migration Envoy for the British Foreign Office, although there was “plenty of activity that [was] in the grey market or illegal or irresponsible”, at the moment there were no “large-scale organised crime groups.” This, however, was likely to change. Said the report: “Mr Hobart did see a likelihood of an ‘increase in criminal activity.’ He explained that a symptom of better control … at the border, will be an increased opportunity for organised crime.’ As EU borders become more challenging to navigate, migrants will be more likely to turn to smugglers to facilitate their illegal crossings”. Criminal gangs, that is, are likely to be boosted, not deterred, by Operation Sophia. And in an ominous hint of what is to come, Lieutenant General Wosolsobe referred to one incident in which armed men had prevented the destruction of a boat. As the non-violent providers are put out of business, this is likely to become increasingly common. Just as the war on drugs has concentrated the trade in the hands of the most violent paramilitary groups, so too the war on refugees will put nonviolent groups out of business whilst ensuring that only the best armed will thrive.

And these groups will find themselves amassing ever greater profits: noted the report, “Mr Symonds was sceptical of the EU’s efforts to barricade its external border. Analysis had shown that stronger policing of the EU’s external borders had effected only ‘the movement of ever larger numbers of people around different routes by different journeys, usually at greater danger and cost to them, so of greater profit to smugglers.’”

In Latin America, this combination of concentrating the trade in the hands of violent gangs and increasing their profits has given drug smuggling groups the financial and military muscle to buy police protection for their activities. In Mexico, for example, where the drug war has been massively stepped up since 2007, “Drug Trafficking Organisations have operated….with near total impunity in the face of compromised security forces” whilst “official corruption is widespread”. The quotes are from official US Embassy cables from 2010.

 

Again, the EU’s military approach is likely to have the same effects on the refugee transport business in Libya, entrenching corruption and providing the most violent paramilitary groups with the financial means to buy themselves police protection. The report noted that “smugglers are part of the fabric of Libyan political and economic life. Mr Patrick Kingsley, Migration Correspondent, Guardian Media Group, explained that smugglers are often ‘connected to militias’, ‘have important roles to play in their local communities’, and ‘provide quite a lot of money to the local community’. The ‘people at the top are going to be protected to some extent, even by people who are major players in Libyan politics.

In sum, then, the House of Lords is clear on the results of ‘Operation Sophia’: it has failed to deter migration, increased the risk of death for refugees, and is militarizing the trade whilst boosting its profits. The likely result will be a growth in the political and economic power of the most violent paramilitaries currently involved in the trade.

So why did David Cameron last week announce an escalation in this disastrous militarization strategy? Speaking at the G7 conference in Japan, he promised to send another warship to join Operation Sophia, this time hoping to extend its mission into Libyan territorial waters.

Does he not have access to the House of Lords’ report? Is he completely ignorant of the devastating consequences of the war on drugs? Does he lack even a schoolboy level understanding of the basic economic laws of supply and demand? The English ruling class, from India to Iraq, have always presented themselves as essentially well-meaning buffoons when it comes to foreign policy; “absent-minded imperialists” who, with the best will in the world, end up bumbling into the destruction of entire regions due to their misguided commitment to the civilizing mission or to ‘faulty intelligence’. Personally, I don’t buy it.

More likely is that Cameron is pursuing this seemingly counter-productive strategy for two reasons: to justify the re-occupation of Libya, and to facilitate the boosting of his chosen death squads of the so-called ‘Libya Dawn’. Indeed, the Times noted last Thursday that British special forces are already fighting alongside Libya Dawn, the paramilitary force at war with the elected government based in Tobruk. MI6 and the CIA learnt in the 1980s that facilitating the mujahadeen’s takeover of the region’s heroin trade was a great way to allow their allies to fund themselves outside of Congressional approval. It looks like Cameron is planning to repeat the trick for the Libyan death squads’ people smuggling business.

This piece was originally published by RT

The Qatar blockade, the petro-yuan, and the coming war on Iran

 

trump salman

Trump with Saudi Deputy Crown Prince Mohammed Bin Sultan

Trump’s speech to the assembled Gulf leaders in Saudi Arabia on May 21st is worth reading in full. It is deeply disturbing.

Having praised himself for his $110billion arms deal with the Saudis, he goes on to talk about the threat posed by terrorism, and what a wonderful job the US and the Gulfis – that is, the leading state sponsor of the region’s supremacist death squads, and its assembled proxies – are doing in combating it. He then goes on to claim that at the root of the region’s terrorism lurks – guess who? The power leading the regional pushback against ISIS and Al Qaeda – Iran.

 

“Starving terrorists of their territory, their funding, and the false allure of their craven ideology, will be the basis for defeating them” he says, “But no discussion of stamping out this threat would be complete without mentioning the government that gives terrorists all three—safe harbor, financial backing, and the social standing needed for recruitment”. This is pretty much exactly how Joe Biden – in his own attempt to whitewash US involvement – described Trump’s Saudi hosts three years earlier. But Trump is not talking about IS’s Saudi backers; he is talking about Iran – the same Iran responsible, with its Syrian and Russian allies, for that fact that the IS flag is NOT today flying over Damascus.

 

It gets worse. Look at the following passage, just after he calls on “all nations of conscience to work together to isolate Iran”:

“Will we be indifferent in the presence of evil? Will we protect our citizens from its violent ideology? Will we let its venom spread through our societies? Will we let it destroy the most holy sites on earth? If we do not confront this deadly terror, we know what the future will bring—more suffering and despair. But if we act—if we leave this magnificent room unified and determined to do what it takes to destroy the terror that threatens the world—then there is no limit to the great future our citizens will have.

The birthplace of civilization is waiting to begin a new renaissance. Just imagine what tomorrow could bring. Glorious wonders of science, art, medicine and commerce to inspire humankind. Great cities built on the ruins of shattered towns. New jobs and industries that will lift up millions of people.”

This is the language of genocide. Heroism and genocide have always gone hand-in-hand in the settler-colonial ideology internalised by the likes of Trump, for which ‘building great cities on the ruins of shattered towns’, be they native American, Palestinian, or, it seems, Iranian, has always been the highest accolade. Some have accused Trump of making novice blunders during his first lumbering foray into the Middle Eastern maelstrom. But I think he knows exactly what he’s doing. He knows very well that the loosely-defined ‘ideology’ he speaks of as ‘spreading venom’ will be much more readily interpreted by his hosts as Shi’ism – the creed to which Iran actually subscribes – than as Wahhabi’ism, the sectarian ideology behind ISIS, Al Qaeda and the Saudi state. And just to make clear what he is demanding be done to this ill-defined – but, nudge-wink, understood – enemy, he spells it out: “The nations of the Middle East cannot wait for American power to crush this enemy for them. The nations of the Middle East will have to decide what kind of future they want for themselves, for their countries, and for their children.

It is a choice between two futures — and it is a choice America CANNOT make for you.

A better future is only possible if your nations drive out the terrorists and extremists. Drive. Them. Out.

DRIVE THEM OUT of your places of worship.

DRIVE THEM OUT of your communities.

DRIVE THEM OUT of your holy land, and

DRIVE THEM OUT OF THIS EARTH.”

 

Doesn’t this sound horribly like Trump giving the green light to an all-out war of eradication against the region’s Shia – that is, a war very similar to the one actually being waged, in Syria, Yemen and elsewhere, by Trump’s government, his hosts, and their proxies?

 

At the same time, having found it harder than expected to rip up the Iran deal, Trump is instead hoping to render it null and void by simply blackmailing individual nations into not dealing with Iran, ensuring the formal lifting of sanctions is replaced by an informal blockade.

 

This is where Qatar comes in. Qatar  has clearly not been playing ball with the US-approved, Saudi-led ‘isolate Iran’ programme. This is partly because, ever since the current Emir toppled his pro-Saudi father in 1995, the country has made independence from Saudi Arabia a hallmark of its foreign policy. But it is mostly because Qatar and Iran share the world’s largest natural gas field – known in Qatar as North Field and in Iran as South Pars.

 

In fact, the two countries have had decent relations for some time: in May 2010, for example, in stark contrast to the hardline attitude of his Gulf neighbours, the Qatari Emir Al-Thani joined forces with President Assad of Syria, no less, to support Turkey’s diplomatic proposals over Iran’s nuclear programme. Then, in 2014, in a ‘dry run’ of today’s crisis, the Saudis, UAE and Bahrain withdrew their ambassadors from Doha following a Qatari proposal to help Iran develop its side of the North Field/ South Pars gas field. But what’s taking place now is much more serious. And that is largely because of the likely earth-shattering impact of the decisions surely now being considered by the two powers over where their gas will go, how it will get there – and in what currency it will be sold.

 

In April of this year, a self-imposed 12-year moratorium on the development of Qatar’s share of North Field came to an end, potentially opening up a flood of Liquified Natural Gas (LNG) onto the market in the years to come. But where will it go? Qatar had originally been hoping to build an LNG pipeline to the Mediterranean via Saudi Arabia, Syria and Turkey; indeed, many have speculated that Assad’s blocking of this proposal in favour of an Iran-Iraq-Syria route was a major reason for Qatar’s support of the anti-government insurgency there. The failure of this insurgency, however, has spelled the death of this proposal, leaving Qatar bound to look East to Asia – already their biggest customers – for their LNG markets. But most of the existing Eastbound LNG pipeline infrastructure is controlled by Iran. For Qatar, then, cutting its Iran links would be cutting off its nose to spite its face. This is why the Saudis aim to demonstrate that the alternative is having their entire face cut off.

 

For the US, the stakes couldn’t be higher. In 2012, Iran began to accept yuan for its oil and gas payments, followed by Russia in 2015. If this takes off, this could literally spell the beginning of the end of US global power. The dollar is the world’s leading reserve currency, in the main, only because oil is currently traded in dollars. Countries seeking foreign exchange reserves as insurance against crises within their own currencies tend to look to the dollar precisely because it is effectively ‘convertible’ into oil, the world’s number one commodity. This global thirst for dollars is what allows the US to print endless amounts of them, virtually for free, which it can then exchange for real goods and services with other countries. This is what is known as ‘seignorage privileges’; that is, the ability to absorb ever-increasing amounts of goods and services from other countries without having to provide anything of equivalent value in return. In turn, it is this privilege which helps to finance the staggering costs of the US military machine, now running at over $600 billion per year.

 

Yet, this whole system falls apart once other countries stop using the dollar as their prime reserve currency. And they stop doing this once oil stops being traded in dollars. This is one reason why the US were do keen for Saddam Hussein to go after he began trading Iraqi oil in Euros.

 

And, slowly but surely, this change is already occurring. In 2012, the People’s Bank of China announced it would no longer be increasing its holdings of US dollars, and two years later, Nigeria increased its holdings of yuan from 2% to 7% of its total foreign exchange reserves. Many other countries are moving in the same direction.

 

At the same time, China has been on a gold-buying spree, setting up its own twice-daily  pricing of gold in yuan in 2012 as part of what the chair of the Shanghai Gold Exchange called the “internationalisation of renminbi”, ultimately aiming towards making yuan fully convertible to gold. Once this happens, the choice for oil-producing countries between trading oil for ever-more-worthless paper dollars, or trading it for convertible-to-gold renminbi will be a no-brainer. For Qatar, the pull may already be irresistible.

 

Hence the urgency to pre-emptively punish Qatar for its likely move towards a joint venture with Iran to supply Asia with LNG priced in yuan. The aim is to demonstrate that, however economically suicidal it may be in the long term to snub Iran and continue trading in the dollar, it will be politically suicidal in the immediate term to do anything else. Just how far Trump and his Arab friends are prepared to take this remains to be seen. But Trump has repeatedly suggested that the whole point of having a military is to use it.

This article originally appeared on RT.