The yuan lies in waiting

Jun 18, 2009

SINOGRAPH
The yuan lies in waiting
By Francesco Sisci

BEIJING - Pundits in China are scratching their heads over the future of their currency, the yuan, which has been brought to the fore by the present financial crisis. Their thinking has recently become urgent, compared with previous perceptions that the yuan could be kept not fully convertible - and thus shielded from foreign interference - for many years.

Certainly, there will be no problem if the US economy recovers soon and the dollar makes a robust comeback as the world currency. In that case, the yuan can continue to piggyback on the dollar, or with the exchange rate slowly and steadily crawling upward according to the necessities of trade.

Yet, what if the US economy and its dollar do not come back? David Goldman (also know as ATol's Spengler) already made this suggestion: "I believe that China and other Asian countries will decouple from the United States during the next five years, partly because the American economy will remain moribund, partly because American policy will continue to be incompetent, and partly because their own domestic market and financial systems will be able to bear the burden." [1]

He draws his conclusion from a report in the Far Eastern Economic Review about the May 3 agreement on the implementation of the Chiang Mai Initiative (CMI), involving the 10 members of the Association of Southeast Asian Nations and China, Japan and South Korea, known as ASEAN Plus Three.

"These bilateral currency-swap agreements will now be transformed into a single regional pooling arrangement, comprising at least $120 billion in reserves. Twenty percent of the funds will be provided by the 10 ASEAN members and the remaining 80% by the Plus Three countries. The ASEAN Plus Three finance ministers also agreed to create an independent surveillance unit to monitor and analyze regional economies and support CMI decision-making processes."

Actually, this is not the only move China is taking in the direction of diversifying its de facto peg with the dollar, which came back with the crisis last autumn after three years of crawling appreciation from 8.3 to 6.8 yuan to the dollar.

In the past few months, Beijing has concluded yuan swap agreements with a dozen countries. With some, like Russia and Brazil, China will pay yuan in return for a set amount of commodities. In this way, China will hedge future price fluctuations for commodities, which would influence its domestic industry, and these countries will receive payments in a currency that is bound to become more important.

The swap agreements are still minimal. By the end of May, China's central bank had signed swap agreements totaling 650 billion yuan (US$95 billion) with a few countries, including South Korea, Malaysia, Indonesia and Belarus, as well as Hong Kong. Furthermore, in June, Beijing signaled it would be willing to purchase some $60 billion of International Monetary Fund bonds.

These amounts are not very significant. They will barely dent the $2 trillion purse of China's foreign reserves and will not rock the stability of the dollar. Beijing is sitting on about $1.7 trillion worth of US-related bonds in total. China is just too committed in America to try pulling out of it. The dollar's collapse would engender the collapse of China's economy before causing the collapse of the whole global economic system.

Yet, something more significant would be necessary to hedge China's money, which is now at the mercy of America's policymakers. On June 1, during his visit to Beijing, US Treasury Secretary Timothy Geithner promised the security of China's dollar-denominated assets. The Chinese fear that, with all the money pouring in to revive the US economy, inflation and devaluation will ensue, cutting the value of the Chinese-held bonds. His promise is important, but certainly not sufficient.

In a 2005 paper, Blanchard, Giavazzi, and Sa [2] calculated that for the US economy and the dollar, "The effect of the 15% depreciation is then to reduce the ratio of net debt to GDP by 10 percentage points ... This implies that, after the unexpected depreciation, interest payments are lower by 4% times 10 %, or 0.4% of GDP. Putting things together, a 15% depreciation improves the current account balance by 1.4% of GDP, roughly one-third of it due to valuation effects." [3]

Economists saw the beginning of the problem in what they called "the dance of the dollar", it has swung up and down since the late 1970s. They blamed foreign central banks for buying dollars and pegging to the dollar, saying it kept the American currency artificially high, which prevented what should have been a fall in the price of American assets.

"What the foreign central bank is effectively doing is keeping world demand for US assets unchanged by offsetting the fall in private demand. Pegging leads to a steady increase in US net debt and a steady increase in reserves offsetting the steady decrease in private demands for US assets." [4]

Since 2005, their recipe is both a decrease in the exchange rate, and the yuan has indeed appreciated, and a reduction in the budget deficit. It is impossible to think of depreciating the dollar when the United States still needs China and Japan (its second-largest creditor) to keep bankrolling its debt. But the pressure of the sheer computations could become irresistible in the near future, if things get worse or simply do not improve.

For this reason, the Chinese are proposing, at least since last September, to start issuing to America "panda bonds", bonds denominated in yuan that would insure Beijing against currency fluctuations. America so far has turned down the offer, which would limit its room for maneuvering in working with its currency. Yet, the idea did not die in China.

China has too much money in reserves, and there are limited options for what to do with it. China's image abroad is not good, and Chinese companies have no experience managing foreign companies abroad. Therefore, it is unlikely that Beijing will encourage Chinese companies to go on a buying spree abroad as the Japanese did in the early 1980s.

Chinese economists are now playing with a similar idea: yuan-denominated loans to foreign countries, mainly neighbors. This could be a powerful tool to make the yuan stable against future currency fluctuations. If the yuan appreciates, the loan will keep its value and thus the Chinese assets will not decrease; if the yuan depreciates, the increase in Chinese exports would compensate for the depreciation of the loan. In fact, there could be a mechanism inducing each country to keep exchange rates stable.

If neighboring countries accept yuan loans, they would de facto pressure the US to keep the dollar-yuan exchange rate stable, thus helping China in dealing with the US. But it would only work if there were enough incentive - that is, if the yuan loans were substantial enough to make a difference for a country.

The consequences could be huge. A pool of countries accepting these Chinese loans would push China's yuan to the center stage of world currencies. China's yuan could de facto become the currency of reference for international trade. This could further push China to fully liberalize its exchange rate, and thus update its backward domestic financial structures.

Further pressure in this direction could come from sluggish American demand. "If US demand for Chinese goods does not return, China must concentrate on the expansion of the internal market, which, in turn, requires improvements in financial infrastructure (consumer lending, mortgage lending, business loans, municipal finance, and so on). This is very hard to accomplish without convertibility - investors want liquidity and convertibility. Thus, it is the requirements of an internal capital market that would push China toward greater use of the yuan." [5]
These perspectives are very real and could start very soon. China has a lot of money to move around, while US investment looks increasingly scary. Many countries are knocking on China's door and asking for loans. They fret about the dollar's volatility and appreciate the very conservative attitude of China's central bankers.

Here the euro, so far, is no alternative. It has no political head; it is influenced by the difficult ties among different national agendas. Unless, in the next few months, it manages to come up with a coherent and unified long-term proposal about future financial balances in the world, it will de facto be irrelevant.

Japan, America's second-largest creditor and home of the world's second-largest domestic debt, will try to carefully navigate between the currents. It will have to rescue its dollar-denominated assets, but also its large Asian trade, which is possibly becoming more dominated by the yuan.

The real issue is with the dollar. The uncertainties about America's future economic prospects make the dollar objectively volatile. This would be no problem if the euro, yen or British pound were its competitors as reserve money. But because of their shaky economies, these currencies are even more volatile than the dollar.

Yet, if the yuan, with its priming domestic economy, comes to the fore, the whole game is bound to change. The Chiang Mai Initiative can get real, the swap agreements become alluring, and yuan loans become attractive.

This puts more pressure on the US to establish some form of broad financial agreement with China on the dollar. That would limit America's currency options, but it would also hedge America against possible further economic downturns by anchoring the US economy to China's, and it could help stabilize the dollar. If America's economy fully recovers in a timely manner, it will have no significant drawbacks.

Will America do it, then? Actually, this will also depend on how actively China pursues the many financial options on the table. Beijing is in no hurry. It is naturally conservative, and now even more so. It could start to slowly explore its options, while seeing how they are working and how America fares in the next few months. If things go well for Washington, so much the better. If they do not pick up, the US can still talk to China, yet at a different price level.

If in a few months, US economic prospects still look gloomy, China may want to get a higher price for its yuan-dollar agreement.

Then the United States would have an incentive to talk to China as soon as possible. But the game is not only about economics; it is also - or mainly - about politics. Here it's clear to Washington and Beijing that America has many cards up its sleeve. The reality is that China might have to trade part of its economic strength for some of its many political weaknesses. And this is a different, very complicated story.

Notes
1. "An Asian Commodity-Based Currency?" June 3, 2009, http://blog.atimes.net/?p=1031
2. Olivier Blanchard, Francesco Giavazzi, Filipa Sa, "The US Current Account and the Dollar," May 14, 2005. Blanchard has since become the IMF's chief economist.
3. op cit, p 22-23
4. op cit, p 33
5. David Goldman, in a private exchange with the author.


Francesco Sisci is Asia Editor of La Stampa, based in Beijing. (Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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It's official - cheap oil era is over

Jun 16, 2009

It's official - cheap oil era is over
By Michael T Klare

Every summer, the Energy Information Administration of the US Department of Energy issues its International Energy Outlook (IEO), a jam-packed compendium of data and analysis on the evolving world energy equation. For those with the background to interpret its key statistical findings, the release of the IEO can provide a unique opportunity to gauge important shifts in global energy trends, much as reports of routine communist party functions in the party journal Pravda once provided America's Kremlin watchers with insights into changes in the Soviet Union's top leadership circle.

As it happens, the recent release of the 2009 IEO has provided energy watchers with a feast of significant revelations. By far the most significant disclosure: the IEO predicts a sharp drop in projected future world oil output (compared with previous expectations) and a corresponding increase in reliance on what are called "unconventional fuels" - oil sands, ultra-deep oil, shale oil and biofuels.

So here's the headline for you: for the first time, the well-respected EIA appears to be joining with those experts who have long argued that the era of cheap and plentiful oil is drawing to a close. Almost as notable, when it comes to news, the 2009 report highlights Asia's growing demand for energy and suggests that China is moving ever closer to the point at which it will overtake the United States as the world's number one energy consumer. Clearly, a new era of cutthroat energy competition is on us.

Peak Oil becomes the new norm
As recently as 2007, the IEO projected that the global production of conventional oil (the stuff that comes gushing out of the ground in liquid form) would reach 107.2 million barrels per day in 2030, a substantial increase from the 81.5 million barrels produced in 2006.

Now, in 2009, the latest edition of the report has grimly dropped that projected 2030 figure to just 93.1 million barrels per day - in future-output terms, an eye-popping decline of 14.1 million expected barrels per day.

Even when you add in the 2009 report's projection of a larger increase than once expected in the output of unconventional fuels, you still end up with a net projected decline of 11.1 million barrels per day in the global supply of liquid fuels (when compared with the IEO's soaring 2007 projected figures). What does this decline signify - other than growing pessimism by energy experts when it comes to the international supply of petroleum liquids?

Very simply, it indicates that the usually optimistic analysts at the Department of Energy now believe global fuel supplies will simply not be able to keep pace with rising world energy demands. For years now, assorted petroleum geologists and other energy types have been warning that world oil output is approaching a maximum sustainable daily level - a peak - and will subsequently go into decline, possibly producing global economic chaos. Whatever the timing of the arrival of peak oil's actual peak, there is growing agreement that we have, at last, made it into peak-oil territory, if not yet to the moment of irreversible decline.

Until recently, Energy Information Administration officials scoffed at the notion that a peak in global oil output was imminent or that we should anticipate a contraction in the future availability of petroleum any time soon. "[We] expect conventional oil to peak closer to the middle than to the beginning of the 21st century," the 2004 IEO report stated emphatically.

Consistent with this view, the Energy Information Administration reported one year later that global production would reach a staggering 122.2 million barrels per day in 2025, more than 50% above the 2002 level of 80.0 million barrels per day. This was about as close to an explicit rejection of peak oil that you could get from the Energy Information Administration's experts.

Where did all the oil go?
Now, let's turn back to the 2009 edition. In 2025, according to this new report, world liquids output, conventional and unconventional, will reach only a relatively dismal 101.1 million barrels per day. Worse yet, conventional oil output will be just 89.6 million barrels per day. In Energy Information Administration terms, this is pure gloom and doom, about as deeply pessimistic when it comes to the world's future oil output capacity as you're likely to get.

The agency's experts claim, however, that this will not prove quite the challenge it might seem because they have also revised downward their projections of future energy demand. Back in 2005, they were projecting world oil consumption in 2025 at 119.2 million barrels per day, just below anticipated output at that time. This year - and we should all theoretically breathe a deep sigh of relief - the report projects that 2025 figure at only 101.1 million barrels per day, conveniently just what the world is expected to produce at that time. If this actually proves the case, then oil prices will presumably remain within a manageable range.

In fact, the consumption part of this equation seems like the less reliable calculation, especially if economic growth continues at anything like its recent pace in China and India. Indeed, all evidence suggests that growth in these countries will resume its pre-crisis pace by the end of 2009 or early 2010. Under those circumstances, global oil demand will eventually outpace supply, driving up prices again and threatening recurring and potentially disastrous economic disorders - possibly on the scale of the present global economic meltdown.

To have the slightest chance of averting such disasters means seeing a sharp rise in unconventional fuel output. Such fuels include Canadian oil sands, Venezuelan extra-heavy oil, deep-offshore oil, Arctic oil, shale oil, liquids derived from coal (coal-to-liquids or CTL), and biofuels. At present, these cumulatively constitute only about 4% of the world's liquid fuel supply but are expected to reach nearly 13% by 2030. All told, according to estimates in the new IEO report, unconventional liquid production will reach an estimated 13.4 million barrels per day in 2030, up from a projected 9.7 million barrels in the 2008 edition.

But for an expansion on this scale to occur, whole new industries will have to be created to manufacture such fuels at a cost of several trillion dollars. This undertaking, in turn, is provoking a wide-ranging debate over the environmental consequences of producing such fuels.

For example, any significant increase in biofuels use - assuming such fuels were produced by chemical means rather than, as now, by cooking - could substantially reduce emissions of carbon dioxide and other greenhouse gases, actually slowing the tempo of future climate change. On the other hand, any increase in the production of Canadian oil sands, Venezuelan extra-heavy oil, and Rocky Mountain shale oil will entail energy-intensive activities at staggering levels, sure to emit vast amounts of CO2, which might more than cancel out any gains from the biofuels.

In addition, increased biofuels production risks the diversion of vast tracts of arable land from the crucial cultivation of basic food staples to the manufacture of transportation fuel. If, as is likely, oil prices continue to rise, expect it to be ever more attractive for farmers to grow more corn and other crops for eventual conversion to transportation fuels, which means rises in food costs that could price basics out of the range of the very poor, while stretching working families to the limit. As in May and June of 2008, when food riots spread across the planet in response to high food prices - caused, in part, by the diversion of vast amounts of corn acreage to biofuel production - this could well lead to mass unrest and mass starvation.

A heavy energy footprint
The geopolitical implications of this transformation could well be striking. Among other developments, the global clout of Canada, Venezuela, and Brazil - all key producers of unconventional fuels - is bound to be strengthened.

Canada is becoming increasingly important as the world's leading producer of oil sands, or bitumen - a thick, gooey, viscous material that must be dug out of the ground and treated in various energy-intensive ways before it can be converted into synthetic petroleum fuel (synfuel). According to the IEO report, oil sands production, now at 1.3 million barrels a day and barely profitable, could hit the 4.4 million barrel mark (or even, according to the most optimistic scenarios, 6.5 million barrels) by 2030.

Given the IEA's new projections, this would represent an extraordinary addition to global energy supplies just when key sources of conventional oil in places like Mexico and the North Sea are expected to suffer severe declines. The extraction of oil sands, however, could prove a pollution disaster of the first order. For one thing, remarkable infusions of old-style energy are needed to extract this new energy, huge forest tracts would have to be cleared, and vast quantities of water used for the steam necessary to dislodge the buried goo (just as the equivalent of "peak water" may be arriving).

What this means is that the accelerated production of oil sands is sure to be linked to environmental despoliation, pollution, and global warming. There is considerable doubt that Canadian officials and the general public will, in the end, be willing to pay the economic and environmental price involved. In other words, whatever the IEA may project now, no one can know whether synfuels will really be available in the necessary quantities 15 or 20 years down the road.

Venezuela has long been an important source of crude oil for the United States, generating much of the revenue used by President Hugo Chavez to sustain his social experiments at home and an ambitious anti-American political agenda abroad. In the coming years, however, its production of conventional petroleum is expected to fall, leaving the country increasingly reliant on the exploitation of large deposits of bitumen in the eastern Orinoco River basin.

Just to develop these "extra-heavy oil" deposits will require significant financial and energy investments and, as with Canadian oil sands, the environmental impact could be devastating. Nevertheless, successful development of these deposits could prove an economic bonanza for Venezuela.

The big winner in these grim energy sweepstakes, however, is likely to be Brazil. Already a major producer of ethanol, it is expected to see a huge increase in unconventional oil output once its new ultra-deep fields in the "subsalt" Campos and Santos basins come on-line. These are massive offshore oil deposits buried beneath thick layers of salt some 160 kilometers off the coast of Rio de Janeiro and several kilometers beneath the ocean's surface.

When the substantial technical challenges to exploiting these undersea fields are overcome, Brazil's output could soar by as much as three million barrels per day. By 2030, Brazil should be a major player in the world energy equation, having succeeded Venezuela as South America's leading petroleum producer.

New powers, new problems
The IEO report hints at other geopolitical changes occurring in the global energy landscape, especially an expected stunning increase in the share of the global energy supply consumed in Asia and a corresponding decline by the United States, Japan, and other "First World" powers. In 1990, the developing nations of Asia and the Middle East accounted for only 17% of world energy consumption; by 2030, that number, the report suggests, should reach 41%, matching that of the major First World powers.

All recent editions of the report have predicted that China would eventually overtake the United States as number one energy consumer. What's notable is how quickly the 2009 edition expects that to happen. The 2006 report had China assuming the leadership position in a 2026-2030 timeframe; in 2007, it was 2021-2024; in 2008, it was 2016-2020. This year, the Energy Information Administration is projecting that China will overtake the United States between 2010 and 2014.

It's easy enough to overlook these shifting estimates, since the reports don't emphasize how they have changed from year to year. What they suggest, however, is that the US will face ever fiercer competition from China in the global struggle to secure adequate supplies of energy to meet national needs.

Given what we have learned about the dwindling prospects for adequate future oil supplies, we are sure to face increased geopolitical competition and strife between the two countries in those few areas that are capable of producing additional quantities of oil (and undoubtedly genuine desperation among many other countries with far less resources and power).

And much else follows: as the world's leading energy consumer, Beijing will undoubtedly play a far more critical role in setting international energy policies and prices, undercutting the pivotal role long played by Washington. It is not hard to imagine, then, that major oil producers in the Middle East and Africa will see it as in their interest to deepen political and economic ties with China at the expense of the United States. China can also be expected to maintain close ties with oil providers like Iran and Sudan, no matter how this clashes with American foreign policy objectives.

At first glance, the IEO for 2009 hardly looks different from previous editions: a tedious compendium of tables and text on global energy trends. Looked at another way, however, it trumpets the headlines of the future - and their news is not comforting.

The global energy equation is changing rapidly, and with it is likely to come great power competition, economic peril, rising starvation, growing unrest, environmental disaster, and shrinking energy supplies, no matter what steps are taken. No doubt the 2010 edition of the report and those that follow will reveal far more, but the new trends in energy on the planet are already increasingly evident - and unsettling.

Michael T Klare is a professor of peace and world security studies at Hampshire College in Amherst, Massachusetts, and the author, most recently, of Rising Powers, Shrinking Planet: The New Geopolitics of Energy (Henry Holt).

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No Country for Old Men

No Country for Old Men

Written by Our Correspondent
Tuesday, 16 June 2009

Lee Kuan Yew, the 85-year-old patriarch and minister mentor of Singapore, might have thought he was taking a pleasant eight-day valedictory lap across several Malaysian states last week, but it has turned out to be anything but.

On Monday, Lee came under blistering attack by his old adversary, the 84-year-old former prime Minister Mahathir Mohamad, who referred to him acidly in his blog, Che Det, as "the great man from the little country" and later called him a "little emperor." The full force of his comments on Lee can be found in his blog here.

It was Lee's first visit to Malaysia in four years and his first outside of Kuala Lumpur since 1989, and any visit he makes is certain to kick off a round of invective from Mahathir and others. There has been no love lost between the two octogenarians, both of whom ruled their countries with an iron hand, Lee for 31 years, Mahathir for 22, and who have never passed up an opportunity to slag each other off. But the current round is surprising for its vitriol.

Not only did Mahathir release a blazing attack on Lee, but Mahathir's former political secretary Matthias Chang, writing in a publication called Suara Keadilan, said even worse, saying that, "To many anti-colonial fighters of the third world, Lee Kuan Yew was contemptuously referred to as "ivory-skin Englishman" who "was and still is perceived as the lackey of the British power elites."

The Federation of Malaya and Singapore split into two countries in 1965, and Malaysian has never failed to gleefully bring up the fact that Kuan Yew burst into tears at the dissolution.

Kuan Yew's dream, Chang wrote, of "being the Overlord of Malaysia, comprising of Peninsula Malaya, Sarawak and Sabah was shattered and he has to be content with being a bully of a city state! Given such a traumatic experience, and possessing a vindictive disposition, it is a given that Lee Kuan Yew would harbor a secret agenda against Malaysia. And over the years, he has sowed and continues to sow discord among the races in Malaysia."
Reading various reports of Kuan Yew's visit, he doesn't seem to have done any such thing, instead arguing for more stable relations between the two countries. "It makes no sense for bilateral ties to be sunny one day, stormy the next," he was quoted as saying.


"I leave Kuala Lumpur with some optimism, guarded optimism, because we have to see the words translated into action," he said as he was leaving for Ipoh. "I had to emphasize that it cannot be cooperation today, non-cooperation next year and then back again, backwards and forwards, because these are very big investments both in the Iskandar region and the third bridge to Desaru and the east coast, from Desaru up to Mersing, up to Kuantan and Pekan, massive projects requiring huge investments, the returns can only be calculated in decades, not in terms of years."

Lee's visit appears bound to stir up additional tensions between Mahathir and Najib Tun Razak, Malaysia's prime minister, who extended the invitation to Lee and who has publicly said he wants cooperation with the island republic, especially over the massive Iskandar development at the bottom of Johor state which was begun by former Prime Minister Abdullah Ahmad Badawi, which is being built partly on Singapore money.

Mahathir was quoted last year as saying Singaporean investors could force Malays out of the project. "After the land is sold, the Malays will be driven to live at the edge of the forest and even in the forest itself," he was quoted as saying last May. "In the end, the area in Iskandar Malaysia will be filled with Singaporeans and populated with only 15 percent Malays."

"Kuan Yew also explained that the fear Singapore Chinese would control Iskandar whatever is not justified. Malays can also work there," Mahathir wrote in his blog. "It is good to know that Malays can also work in their own country. I wonder as what? Maybe someone should make a study of the Malays of Singapore just to know what it is like to be a Malay minority in their own country."

During Lee's visit to Malaysia, Mahathir wrote, "he made it known to the Malaysian supplicants that Singapore regards the lands within 6000 miles radius of Singapore as its hinterland. This includes Beijing and Tokyo and of course Malaysia.

"Of course this self-deluding perception places Singapore at the centre of a vast region. It is therefore the latter day Middle Kingdom. The rest are peripheral and are there to serve the interest of this somewhat tiny Middle Kingdom."

Badawi, Mahathir continued, "decided that since the people of Johor did not want to sell sand to Singapore, Malaysia would not build any bridge, straight or crooked, or negotiate and settle the other issues like the Central Provident Fund, the Railway land. Maybe the 5th Prime Minister thinks he is punishing Singapore. Actually he is giving Singapore what it wants including the 3 sen per 1000 gallons water until 2061. Think of how many grains of nasi lemak we can buy with 3 sen in 2061. Imagine what 1000 gallons will earn for Singapore at that time. Can't think of a more astute PM for Malaysia."

All of those who met Lee, Mahathir said, "were lectured on how Malaysia should be run. We should not have any more problems now. We have been told the direction to take. MCA must help UMNO to win because Singapore does not want an Islamic Party like PAS to win. We must ensure this. Sorry PAS. Working with the DAP, the offspring of PAP has not endeared you to Mr Lee.

I have a lot more to say about this little Emperor but I will reserve it for later," he concluded, "but I will say it later."

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US FINANCIAL REFORM: 'Sweeping' rules overhaul

June 18, 2009

US FINANCIAL REFORM

'Sweeping' rules overhaul

		President Barack Obama speaks at the White House in Washington on Wednesday. -- PHOTO: REUTERS

WASHINGTON - PRESIDENT Barack Obama on Wednesday proposed the most 'sweeping' regulatory overhaul since the 1930s, vowing to stop future meltdowns in a financial system humbled by lax oversight, greed and huge debts.

The reforms, which must be approved by Congress, will inject the government deeper into financial markets and industries in a bid to tame the recklessness which saw a mortgage meltdown tip the world into deep economic crisis.

VIDEO Obama unveils bank reform plans (2:19) Key proposals - A new Financial Services Oversight Council of regulators led by the Treasury to identify emerging 'systemic' risks and improve interagency cooperation. - New authority for the Federal Reserve to supervise all firms that could pose a threat to financial stability, even those that do not own banks. ... more Reforms face fight in Congress WASHINGTON - PRESIDENT Barack Obama's proposed financial regulatory overhaul could face big changes in Congress, where over the years members of both parties have permitted lax controls blamed for the US economic meltdown. Democratic and Republican lawmakers found fault with at least some of the ideas put forward in the president's proposal, which seeks to clamp down on the country's biggest financial firms in the hope of preventing another economic crisis. ... more

'We did not choose how this crisis began. But we do have a choice in the legacy this crisis leaves behind,' Mr Obama said, unveiling his reforms at the White House.

'So today, my administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.'

Mr Obama blamed a 'culture of irresponsibility' a Great Depression-era regulatory system, reckless executive compensation, excessive debt and markets awash in new and risky financial products for sparking the crisis.

'An absence of oversight engendered systematic, and systemic, abuse,' Mr Obama said.

'Instead of reducing risk, the markets actually magnified risks that were being taken by ordinary families and large firms alike.'

' There was far too much debt and not nearly enough capital in the system. And a growing economy bred complacency.'

The proposals would give the Federal Reserve new powers to clamp firm regulation on all finance firms or banks that pose a significant systemic risk to the wider financial infrastructure.

They would introduce new discipline and transparency into financial markets and would enable investors to better ride out the failure of one or more large financial institution. -- AFP

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No double standard, says Lim Hwee Hua

June 18, 2009
WOMEN IN PARLIAMENT
No double standard, says Lim Hwee Hua

I REFER to Ms Netina Tan's letter, 'Conflicting signals' (June 6). She said my comment on quotas 'reflects the Government's double standard on ethnic and gender representation in Parliament', and that I have suggested that, 'unlike ethnic minority groups', women can be elected into government on merit, which is contradicted by the 'low women's representation in higher political and corporate office'.

Ms Tan clearly has a genuine concern for the advancement of women, which is laudable. However, she has misunderstood my statement. A 'quota' means a fixed or maximum number to be allowed. A quota of women in political or corporate office would detract from their selection on merit, which I believe to be true. For example, if we set a fixed number of 50 per cent of women in Parliament, but if, based on merit, more than 50 per cent deserve places, then a quota would be unnecessarily restrictive and self-defeating. Conversely, if fewer than the prescribed minimum of 50 per cent deserve places, then there would always be doubt whether the ones admitted were all meritorious.

Ms Tan's suggestion that my comment contradicts the group representation constituency (GRC) scheme is misguided. As explained by the Prime Minister recently in Parliament, the GRC system is designed to ensure multiracial representation and encourage political parties to appeal to all races with moderate policies and not to one race or another with chauvinist or extremist policies.

Moreover, gender and minority representation are not directly comparable. As Mr Wah June Hwang validly observed in his letter last Friday, 'Gender quota - a slippery slope', unlike racial minorities, women make up half the voters.

Nonetheless, I am not suggesting that our minority representatives in Government cannot be elected on merit. All our MPs are selected - and elected - on merit.

The People's Action Party's commitment to including more women is reflected in the increased number of its women candidates in the past two elections. The comparatively low level of representation in higher political and corporate office does not belie the fact that women can attain such office on merit. Those women who have, did so on merit, without quotas. The reasons why there are not more such women are varied and complex. Some have declined due to personal reasons, family commitments or discomfort with public life. So percentages do not tell the whole story.

There is certainly more room for women to advance in all walks of life, including politics and career. Our women are well up to the challenge.

Lim Hwee Hua (Mrs)
Minister (Prime Minister's Office),
2nd Minister for Finance and Transport
Chairman, PAP Women's Wing

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