Pandora’s Box
January 17, 2007
By
Serhan Cevik | London
The future of Iraq will likely shape the Middle East’s political and economic prospects. The war in Iraq – bringing the country to the verge of a full-scale civil conflict – has opened a Pandora’s Box in the Middle East. After decades of devastating dictatorship that left Iraq without a tradition of power-sharing and trust between sectarian groups, it is not surprising to see ‘pent-up’ rage and attempts to redistribute power. This is how politically impoverished people all around the world have historically reacted to the end of repression. However, the sectarian and ethnic nature of Iraq’s conflict has escalated the cycle of violence beyond comprehension, killing about 3,000 civilians every month and radicalizing even more people every day. The transition from autocracy to democracy may be destabilizing in the beginning, but Iraq’s deepening fragmentation along sectarian and ethnic lines looks more like a chaotic descent towards disintegration, in our view – not the emergence of a participatory political regime. With such a pattern of vengeance weakening the prospect for political compromise, Iraq is facing the risk of disintegration, which could spiral into sectarian conflicts throughout the Middle East.
Sectarian violence is destroying the atmosphere for any possible reconciliation. Iraq has always been divided, but the war has intensified sectarian and ethnic divisions. Sadly, despite all the well-intentioned efforts, developments after the war ended up legitimizing sectarian politics and failed to produce an agenda for national reconciliation. As a result, Iraq’s central government still lacks a popular mandate and the institutional capability to find a political solution that would help to bridge sectarian divisions and maintain the country’s territorial integrity. Instead, the widening vacuum of insecurity empowers militias and criminal gangs who believe that they can tip the balance of power in their favor by escalating the cycle of violence. Of course, the ensuing collapse of law and order has created a perfect setting for all kinds of insurgents and has set the stage for Iraq’s disintegration. So where do we go from here? Although some commentators use Bosnia or the Algerian civil war as an analogy to the chaos in Iraq, we think that a more appropriate example is Lebanon, where sectarian militias fought one another for 15 years, killing or injuring 5% of the population and displacing the other half. In other words, with its growing sense of insecurity and pessimism, Iraq is fast moving towards a tipping point, after which it may not be possible to restrain the forces of catastrophic change.
Iraqhas experienced severe economic deterioration before and after the war. Violent forms of political discourse do not just lead to a humanitarian tragedy; they also create a vicious circle of social erosion and economic instability. Even though there are some arguable signs of economic recovery, we see the fundamental picture as still extremely challenging and indeed bleaker than ever. According to the UN, sectarian violence has already resulted in an exodus of around 1.8 million Iraqis from the country and displaced another two million within Iraq. This is the worst refugee crisis in history, almost three times the number of Palestinian exiles in 1948. No wonder oil production – the most important source of revenue – is still running at less than 20% of its pre-war level and unemployment remains at 30% or even more in some parts of the country. The root cause of all these problems is the lack of security that hampers reconstruction efforts and normalization. However, we should not overlook the role of administrative stalemate, institutional failures and pervasive corruption in depressing private investment and employment growth. Since Iraq’s challenge is multi-dimensional in every aspect, we believe that usual prescriptions are simply inadequate to bring normalcy and improve socio-economic conditions anytime soon.
Iraqis becoming a failed state devastated by a sectarian civil war that could drag in its neighbors. As unrelenting violence overwhelms a divided society, widespread poverty and frustration create an environment conducive to the escalation of sectarian and ethnic clashes. The risk is not just to the future of Iraq, but also to the greater Middle East. Iraq has already become a breeding ground for terrorism, making sectarian and ethnic tensions a strategic threat in the region. Facing such fallout, especially from Iraq’s total disintegration, neighboring states may opt for unilateral intervention in order to minimize risks, as Israel reportedly did in Lebanon. Further, the shifting sectarian balance creates asymmetric threats and advantages, such as Iran’s increasing influence against Sunni-dominated countries, and thus increases the risk of a regional conflict. Almost everything – good or bad – is interconnected in the Middle East, and so addressing one conflict requires comprehensive measures to deal with all other burning conflicts at the same time. For example, the stabilization of Iraq partly depends on the resolution of the Israeli-Palestinian conflict, which has long radicalized public opinion across the Middle East. Even though there is no quick fix for all these problems accumulated over many decades, the international community cannot afford to wait and see what will eventually come out of the box.
December Exports Decelerates
January 17, 2007
By
Chetan Ahya and
Deyi Tan | Mumbai, Singapore
Trade surplus narrowed in December: Exports declined by 4.0% YoY in December following an increase of 8.0% YoY last month while imports moderated to 7.6% YoY (versus 9.5% in November). Consequently, the trade balance stood at S$2.5 billion (versus S$5.4 billion in November) , the lowest since July 2003. On a quarterly basis, 4Q06 exports (+2.2% YoY) and imports (+4.5% YoY) also slowed markedly compared to 3Q06 (+12.3% YoY and 14.9% YoY respectively).
NODX growth weakened sharply: Non-oil domestic exports contracted sharply to -14.2% YoY (versus 8.0% YoY in November) partly because of base effect (31.6% YoY in December 2005) and as the electronic deceleration continued to pan out. Electronics NODX growth contracted further to -19.3% YoY (versus -8.4% in November). Exports of PCs, the only category that witnessed growth in December, moderated slightly to 28.8% YoY (versus 31.8% in November). Other major products such as disk drives (-41.1% versus -33.4%), integrated circuits (-6.7% versus -3.5%) and telecom equipment (-29.0% versus +19.3%) registered further contraction in December.
Non-electronic NODX also dipped to -9.7% YoY in December (versus +24.9% YoY in November). In particular, pharmaceuticals witnessed a sharp slowdown (-33.0% YoY in December versus 73.9% last month), while petrochemicals contracted to -1.1% YoY in December (versus 10.8% in November). For 4Q06, NODX declined -0.8% YoY (versus +6.4% YoY in 3Q06).
NODX exports to EU, US and China decelerated but recovered in Japan: In terms of export markets, the weak NODX headline was underpinned by poor demand from markets such as the EU (-28.2% YoY versus +40.1%), the US (-5.1% YoY versus +3.6% YoY) and China (-5.6% YoY versus +2.7% YoY). However, NODX to Japan rebounded slightly to 0.4% YoY in December after recording a decline of 4.1% last month.