Archive for February, 2010

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A Second Falkland War?

February 24, 2010

FALKLANDS DRILLING

Oil.  It inspires and devastates.  It builds nations and destroys them.  It makes men rich and ruins others.  It is the stuff of geopolitical legend and international intrigue.  Its pursuit has been blamed as the cause of countless wars, its windfalls have supported despots, and its spillage has wreaked environmental havoc.  Most recently, it has inspired the British to inflame long smoldering diplomatic rivalries over an oft forgotten corner of the Empire—The Falkland Islands.

The Malvinas Islands (as they are known in Argentina) lie just 300 miles off the coast of Argentina, and since 1833, when the British took control of the islands in the wake of a confusing bunch of colonial swaps and conflicts, the Argentineans have maintained the islands are theirs.  They even invaded in 1982, only to be defeated in the Falklands War by the British Army.  Yet they were not deterred, nor have they abandoned their claims of ownership.

For their part, the British have little time for Argentinean protests.  For example, this week, the sea borne drilling platforms on the way to the North Falkland Basin were told to ignore the South American country’s recently imposed shipping regulations in its waters around the Islands.

Whether or not oil is to be found under the seas off the coast of the Falklands remains to be seen, as this is the second attempt in a little over a decade to drill in the area (the first one was abandoned in 1998). This go round, however, seems more likely to succeed.  Most importantly, gas prices are seven times what they were 10 years ago.

Argentina says it will not use military force to take back the islands.  Instead they plan on taking their case to the UN.  Already too, Latin America has come to the support of their Argentine neighbors, but they are not optimistic about Argentina’s chance. Brazilian President Lula de Silva summed up the Latin position saying:
 
 “What is the geographic, the political or economic explanation for England to be in  Las Malvinas? Could it be because England is a permanent member of the UN’s  Security Council where they can do everything and the others nothing?” 
 
Thomas Freidman wrote in 2003 “the single most underappreciated force in international relations is humiliation.”  At the time he was speaking to the ever-present conflict between the Muslim world and the West, but his mantra: “Never, ever underestimate a people’s pride” is easily exportable.  Imagine for a moment that you had lost a war over a territory you believed was rightfully yours, only to find out that it was reasonable to assume that land held untold riches.  What would you do to get it back?

-By Nathaniel Foote

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China’s Eggshell Economy

February 22, 2010

REUTERS/Bobby Yip

The last 25 years indicate that China’s economy is growing faster than any other in history. Its momentum has been particularly manifest during the financial crisis; while other nations were mired in debt, China secured the arguably second-largest economy in the world. The nation has been none too modest in asserting its new economic clout—particularly its state media. But according to Beijing’s economic growth statistics released last Tuesday, all is not well in the $2 trillion-plus powerhouse.

Like many countries pulled under by the economic crisis, China resorted to government stimulus to compensate for the abrupt loss in private demand. But unlike other states, China’s stimulus was merely an addition to the already massive annual infusions of government funds and credit from its state-controlled banking system.

China’s entrenched and seemingly endless flow of loans puts tremendous pressure on exports to accumulate new money. The current numbers, however, indicate that they aren’t. Trade with the United States remains hesitant, as a weak labor market keeps households saving rather than spending. And demand in Europe is even less dependable thanks to its recent financial anxieties.

Under China’s diminishing exports, it is quickly becoming evident that its consumers are too poor to buy all the goods the country produces. Indeed, according to the report, the falling exports nearly canceled out China’s entire GDP gains of domestic consumption. The weight of maintaining growth, therefore, falls entirely upon the centrally controlled financial system. STRATFOR, a strategic intelligence firm, warns that such a system endlessly transferring wealth from efficient internationally-linked sectors to inefficient state sectors will eventually collapse under the weight of bad loans.

Prominent Chinese leaders are acutely aware of their economy’s fragile state. Many are pushing for the transition to a consumer-driven economic model that will provide more steady and long-term growth. Unfortunately, weaning state businesses off of cheap credit is an extremely painful process. It will require a period of slower growth and slower growth is significantly more troublesome in a country with China’s wealth disparities, regional differences, and overwhelming population. Chinese President Hu Jintao attempted to initiate restructuring reforms in the mid-2000s, but the financial crisis forced him to resort back to credit expansion. Hu will most likely not push again for major reform. His term in office ends in 2012 and he’ll want to leave on a good note.

Ultimately, with highly uncertain exports providing Beijing’s only short-term hope, China’s economic glory could be markedly short lived.

-Ellesse Sorbonne