Monday, February 25, 2008

Politics and the Bank of Japan

In years past, the appointment of a new Governor of the Bank of Japan (BOJ) has proceeded uneventfully. One of the many consequences of the divided Diet (parliament) is that partisan politics has now, for the first time, entered into the selection.

Indeed, until last week there wasn’t even a process for Diet members to vet prospective governors. The Diet simply approved whomever the government of the day chose. That situation changed suddenly after last July’s election left the House of Councillors, Japan’s upper house, under the control of the opposition Democratic Party of Japan (DPJ).

Incumbent Governor Toshihiko Fukui’s five year term expires March 19. He is not being considered for reappointment, because of his investment in a fund tied to the Livedoor insider trading scandal. Fukui did not divest himself of the shares even after taking office leaving him open to charges of conflict of interest.

The fear is that partisan infighting could leave the critical posts of governor and the two deputy governors vacant thus roiling the markets. The betting is that the government’s nominee will be appointed to replace Fukui, but that the opposition will make him sweat a little.

A 1998 revision of the Bank of Japan Law that was designed to strengthen the bank’s independence from the government required that the new governor and his two deputies be confirmed by both houses of parliament. And in this matter both houses are equal.

The normally more powerful House of Representatives cannot simply overrule the upper house with a super majority in the event of an impasse, as if did last month (January) when the upper house defeated a bill to permit the Japanese navy to resume refueling coalition vessels in the Indian ocean.

If the government’s nominee is rejected by the upper house, the government would have to withdraw the nomination and submit a new name.

Under an agreement reached between the Liberal Democratic Party (LDP), its coalition partner and the opposition DPJ, the Rules and Administration Committees of each house will hold separate hearings much the same way as the U.S. Congress holds hearings for the Governor of the Federal Reserve Board. Then the bodies will have a straight up if down vote.

But unlike Congress, these hearings will be closed to the press and public. A transcript of the hearings can be made public only after the nominee is confirmed and has taken his post.
Prime Minister Yasuo Fukuda is expected to formally nominate BOJ Deputy Governor Toshiro Muto to become the next governor sometime before the end of February.

Almost everyone agrees that Muto is eminently qualified for the position. A former vice finance minister, he is said to be an expert in all aspects of fiscal, tax and monetary policy. He is also said to be close to Fukuda.

The only real objection to Muto comes from the fact that he served as the top civil servant in the finance ministry before becoming deputy governor. One of the major themes of “reform” in Japanese politics has been an effort to end the revolving door of senior bureaucrats moving seamlessly into government positions and vice versus.

In the past, the finance ministry and the BOJ bureaucracy have taken turns providing the governor, and Muto’s appointment would perpetuate this pattern. But with vacancies in the top three posts looming, it is probably too late to consider appointing some figure from the private sector. The DJP has not put forth its own candidate.

Opposition leader Ichiro Ozawa himself has stated that “Our policy is that bureaucrats should not parachute into other ministries and institutions.”

Some DPJ members actively oppose Muto’s appointment on these grounds. One is Yoshihito Sengoku, a former member of the socialist party who presumably has opposition to anything the LDP stands for in his blood. As he happens to chair the party subcommittee that vets appointment subject to Diet approval, he has the potential to clog things up, if he has a mind.

However, Ozawa has been firm in stating that the final decisions on the appointment of the bank governor will be held by the party leaders, and they seem inclined to vote for Muto once the hearing formalities have concluded.

The Democratic Party has, for the most part, pursued a policy of opposing most government initiatives using its majority in the upper house to defeat or delay government bills. The goal is to force the prime minister to dissolve parliament and call a general election.

This makes sense on certain measures such as the refueling bill or an extension of the gasoline tax, which are unpopular. But it is another matter to be seen as contributing to uncertainty in the global markets or, worse, for allowing these important central bank posts to fall vacant for any length of time. The party then would be held accountable for the disruption that might cause for the markets.

That would severely damage the party’s reputation at a time when it is on a roll. It might be the one thing that could revive Fukuda and his government’s flagging popularity (new polls show Fukuda’s approval ratings dropping from 45% in January to about 38% today).

Thus the betting is that the succession should proceed, though perhaps less smoothly than the government or the markets might have hoped. The democrats will acquiesce in the Muto appointment perhaps in return for having a stronger voice in selection of the two deputy governors

The appointment comes at a critical time, when the world stocks markets are volatile and the U.S. economy is teetering on recession because of the subprime crisis. It is also fair to assume that Japan’s consumption tax will be raised sometime during the five year term of Fukui’s successor, and that he will have to deal with the government huge public debt.

The next governor will also have to decide whether to raise or lower the bank’s benchmark interest rate, After years of zero rates, the bank raised the key interest rate to .25 per cent in July, 2006, and to .5 percent last February. Undoubtedly, the Diet members will be keen to question Muto on these and other matters. But the public won’t know what he had to say about them until after he is confirmed and takes office.

Monday, February 18, 2008

The East Timor Conundrum

Within days after Timorese rebels attempted to overthrow the government of East Timor, Australia’s new prime minister, Kevin Rudd, flew to Dili, the capital. President Jose Ramos Horta, shot in the coup attempt, was flown to a hospital in Darwin, Australia.

Rudd dispatched a naval vessel to Dili and beefed up the Australian army contingent in the country. Little by little, Australia is being sucked deeper into the East Timor morass. Little by little, East Timor is becoming a dependency of its large neighbor.

East Timor is the Haiti of Southeast Asia, miserably poor, badly governed, unfriendly to business, internally divided, chronically unstable. Jakarta must be happy to have pawned the territory off from itself and onto Australia.

I never believed that East Timor was a viable state. The historical accident of being a colony of Portugal rather than Holland did not seem a strong argument for separation from Indonesia. How different are the Timorese from other of Indonesia’s many peoples. For that matter, how different are they from the people of West Timor, which seems to be content to remain Indonesian?

It is true that Indonesia lost the mandate of heaven to administer East Timor through its repression of the East Timorese independence movement. The irony is that East Timor broke off just as Indonesia was emerging from the years of dictatorship to become a viable democracy.

The late president Suharto’s successor, B.J. Habbibie, panicked and pushed an independence referendum onto the island in 1999, which he probably believed he could win. In fact, the vote went against continued association, and East Timor formally declared independence in 2002.
A better statesman might have assuaged East Timor grievances with more sensible autonomy such as was extended to Aceh. (Although, as the current administrators have discovered, the East Timorese are not easy to rule.)

But that’s sort of like arguing that the invasion of Iraq should never have taken place. The issue now is how to foster a more stable East Timor that can stand on its own feet, not forever dependent on Australia and other United Nations peacekeepers.

Obviously, for the near future, Australia is going to have to garrison the country and fight a low key insurgency of the remnants of the rebels. It now has about 1,000 troops in East Timor and roughly equal numbers of troops in and around Iraq and Afghanistan.

It has other commitments, from time to time, throughout the Melanesian “arc of instability” to its north. Some might think that Canberra is becoming overextended, although columnist Greg Sheridan has argued that if Australia can’t keep about 3,500 troops overseas on a defense budget of A$22 billion, it isn’t getting value for its money.

It could help if Australia were to offer East Timor a generous guest worker program to help relieve unemployment that hits 60% or so among youth in the cities. Such liberality was anathema to the previous Howard coalition government, which adopted a very hard line on immigration and refuges.

This might be an easier program for the new labor government to sell, especially as unemployment is very low in Australia and several sectors of the economy are having labor shortages.

It is also time for Indonesia to begin taking a more active interest. Since independence, Jakarta has stayed carefully aloof, and is not implicated in the recent crisis or the one in2006 that bought international peacekeepers back. Canberra should also encourage a closer relationship.

That would include promoting Bahasa, the common lingua franca of the Malay world, and English, the international business language, rather than Portuguese, which few in East Timor use and opens few of any vistas in the region. It could also consider restoring the rupiah as the country’s main currency rather than the US dollar.

Tuesday, February 12, 2008

Can Lee Save the Alliance?

It is hardly a secret that the U.S.-South Korea alliance has been seriously strained in recent years. The main reason, of course, is that the politics of the two countries have been out of sync for some time and may continue to be out of sync.

For the past decade, South Korea has been governed by left-of-center presidents, Kim Dae-jung and Roh Moon-hyun, while, for most of that time, a right-of-center administration held power in Washington.

Now the South Korean voters have placed a conservative in Blue House, just as the American electorate seems inclined to elevate a left-of-center administration headed by either Sens. Hillary Clinton or Barack Obama to the White House.

Neither of the Democratic Party front-runners has had much to say about Korean affairs (nor has purported Republican nominee John McCain), other than some vague platitudes about the need to talk with adversaries.

That has become mostly irrelevant in the case of North Korea, since, after years of stonewalling, Washington is now talking with Pyongyang and negotiating with Kim Jong-il in a meaningful way, not just using the six-party talks as a means of stalling.

Now comes South Korea’s new President Lee Myung-bak, who formally assumes office on February 25, and who wants to return the relationship to the status-quo ante. Lee is expected to meet President George W. Bush in Washington in April, after the National Assembly elections.

The meeting ought to go more smoothly than the one in 2001, between Bush and Kim Dae-jung. Kim (Bush’s first foreign visitor) had been assured that his government and the new administration were on the same page regarding North Korea, only to have the rug pulled out from him in a very public and humiliating way by an administration in full flush “Axis of Evil” mode.

Yet Lee will find a lame duck administration that is far less involved with the Korea question than it was earlier on. The irony is that Lee might want to push for a harder line than Bush.

Lee will be much more receptive than was his predecessor to reviving certain areas of military cooperation that Roh preferred to either duck or go at independent of the U.S. so not to provoke North Korea. This would include joining the U.S. in a missile defense system, joining the Proliferation Security Initiative and reviving OPLAN-5029.

Under Roh, South Korea opted to build its own low-key missile defense system around the Patriot missile independently of the U.S. It demanded that a Korean general have overall command of United Nations forces in the event of an attack and stopped discussion of OPLAN 5029.

The latter contains military options for the U.S. and the South to move forces into North Korea should the regime suddenly collapse. (The Chinese were not thrilled at the prospect of U.S. troops moving Douglas MacArthur-fashion closer to their border either.)

How much Washington will still champion these measures, especially if a Democratic Party president is elected in November, remains to be seen. The U.S. is currently downsizing its forces in Korea. Where there were once 37,000 troops, there are now 28,500, and this number will fall to 25,000 by the end of the year.

Meanwhile, Lee’s first big test concerning its new North Korea policy will come soon after he takes office. That concerns South Korea’s annual gift of fertilizer for the spring planting season in North Korea.

The new president has pledged to tie such aid to more reciprocal concessions from North Korea, including, presumably, more forthcoming information on its nuclear weapons program that Pyongyang promised to supply by the last day of 2007 but so far has not done so.

Most participants in the six-party talks, however, have taken this delay in stride. Outside of the usual neoconservative circles, there have been relatively few accusations of bad faith levied against Pyongyang. Even hardline U.S. Ambassador Alexander Vershbow counseled patience. The US will persevere for “as long as it takes,” he said.

In truth, all sides seem to be grateful for a break as they tune up their negotiating stances. South Korea, of course, is in limbo as it awaits its new president and presumably a fresh negotiating team. The Chinese, too, are in the process of appointing a new chief negotiator.

The North is standing pat, confused over some of the mixed signals it is getting from Seoul. For example, Lee proposed eliminating the Unification Ministry ostensibly as part of a general downsizing of government. He changed his mind after realizing he doesn’t have the votes in the National Assembly to do it.

U.S. chief negotiator Christopher Hill told the Senate Foreign Relations Committee that North Korea was on a work slowdown in the job of dismantling the reactor and other facilities at Yongbyon in protest over slow delivery of promised fuel oil.. They have one shift working instead of three. He said delays in fuel shipments were due to logistical problems

He went on to say that the priority for the U.S., in addition to destroying the plant, was to obtain production records for the plutonium produced by Yongbyon. It wants a verifiable accounting to make sure that none has been diverted to terror groups or nations hostile to us interests.

That may prove easier to obtain than a resolution of the question of whether or to what extent the North Koreans have used uranium enrichment (HEU) as a pathway to a bomb. That would involve fairly large climb-downs for both Washington and Pyongyang.

After all, Washington made a huge issue out of North Korea’s purported HEU program in 2002, using it as an excuse to end the 1994 Agreed Framework. That allowed the North, critics say, to obtain enough plutonium for six to ten bombs. It would be hard now to say, “sorry, it was all a mistake.”

At the same time Pyongyang has flatly denied having any such program or any intention of having such a program, despite evidence in published accounts that it was at least dabbling with the process by purchasing some aluminum tubes to make into centrifuges and possibly some blueprints.

One person who could shed some light on this conundrum is that global trafficker in nuclear materials, Pakistan’s Abdul Qaadeer Khan. But he’s not talking.

Sunday, February 03, 2008

Saving the Himalayas

The upper Himalayas in Nepal and Bhutan are sprinkled with lakes formed by retreating glaciers. As the temperature rises, due to global warming,the lakes are getting bigger while the glaciers are receding. The consequences could be catastrophic.

In 1985 a natural earthen dam holding back the waters of Dig Tsho lake near Mt Everest burst. In four hours the entire lake, about ten million cubic meters of water, had gushed out drowning a hydro power dam and washing away scores of bridges and roads downstream.

The International Center for Integrated Mountain Development (ICIMOD) in Katmandu estimates that 15 glacial lakes have burst in recent years or an average of one every two to five years. It figures another 20 or so are candidates for GLOF – Glacial Lake Outburst Flooding.

The one that everyone is watching is Tsho Rolpa, northeast of Katmandu. A mere pond 50 years ago, the lake has grown to be 3.5 kilometers long and 500 meters wide, according to the last survey.

The Nepalese Ministry of Environment, Science and Technology estimates that if the moraine holding back the water did burst, it would release something like 100 million cubic meters of water. Within minutes the flood would engulf a village 10 kilometers downstream where a few hundred Nepalese tend yaks and sheep.

For more than 30 years scientists at Nagoya University in Japan have been surveying Nepal’s glaciers in cooperation with the Nepalese government. Their latest mission took place late last year. The main purpose of that mission, said Koji Fujita, associate professor of glaciology, was to establish a basis for satellite mapping.

This recognizes that traditional survey methods, such as aerial surveys or even ground mapping are not up to the task. There are simply too many lakes – some 2,323 to be exact – and more than 3,000 glaciers to keep track of. And with the warming climate, they are constantly growing.

This time, given global warming’s higher profile as a public concern, the Asahi Shimbun, one of Japan’s leading newspapers, sent a reporting team and an aerial surveillance aircraft to Nepal along with the scientists. The team flew to northeast Nepal to view lakes close to Mt Everest.

They found, among other things, that Inja Tsho lake, located not far from Everest, had expanded to about 2 kilometers in length and 600 meters in width since 2002 when the Nagoya University team last surveyed the lake.

The reporters also met with Nepal’s Prime Minister Prasad Koirala, who urged Japan to do more to help prevent glacial lake flooding in the Himalaya, by forming a joint GLOF institute with Nepal.

Draining lakes as they expand is one obvious though expensive and uncertain solution. With funds from the World Bank, “the Nepalese government began a difficult draining of Tsho Rolpa lake, but they succeeded in lowering the lake level by only three meters. This is not enough to prevent GLOF,” Fujita said.

Another solution would be a warming system, sort of like that is used for tsunamis. The trouble is that the triggering events are unpredictable and the consequences develop rapidly. The Dig Tsho flood was triggered by an avalanche that created a tidal wave that overpowered the moraine causing the dam to burst.

Such efforts were also hampered by Nepal’s deadly communist insurgency. In the 1990s Nagoya University teams visited Nepal on average twice a year, but the visits diminished during the early 2000s, the years before a truce with the government was negotiated.

Reporters from the Asahi Shimbun walked along the river originating from Tsho Rolpa said that all of the solar panels that the government had installed to power warning devices were gone. “Local people said that the communists took them; others said that the locals did,” Fujita said.

Just how much the growth of glacial lakes in Nepal is a direct consequence of global warming is difficult to say with precision, Fujita noted cautiously. Many lakes began expanding in the 1950s, before people thought in such terms.

Accurate instruments to monitor temperatures in the higher elevations (3,000 meters plus) have only been in place for the past 10 years. The Chinese have had weather monitoring station on the Tibetan Plateau for far longer, and they report a general warming trend. The consensus seems to be that temperatures are rising about six tenths of one percent of a degree of Centigrade per decade.

Fujita pointed out that the problem of GLOF in the Himalayas is exacerbated by local weather patterns. It makes a difference, he points out, whether precipitation falls on glaciers as rain or snow. A covering of snow, tends to reflect sunlight and inhibit melting in winter while restoring some of the bulk lost to summer melting.

The glaciers in Alaska and Greenland, though receding, benefit from a more normal winter-summer cycle of snow and rain. In Nepal the Indian monsoon reigns, bringing more rain and less snow, especially as temperatures rise. "That's why the Himalayan glaciers are so sensitive to global warming,” Fujita said.

While not mentioning the GLOF problem directly, Prime Minister Yasuo Fukuda made global warming the subject of his speech in late January to the World Economic Forum in Davos, Switzerland. He plans to make it the centerpiece at the G8 summit this summer, which Japan is hosting in Hokkaido.

He set forth an initiative to curb greenhouse emissions including country-by-country carbon dioxide emission reductions. He also proposed that Japan provide $10 billion in financial assistance to help developing countries, namely China and India, to promote emission curtailment in a way that is compatible with economic growth.