Eurozone versus East Asia (Part 2 of 2)

Anwar Nasution, Seoul | Opinion | Wed, December 05 2012, 11:16 AM

Klipping The Jakarta Post

A- A A+

Paper Edition | Page: 7

As in its programs for the nations hit by the Asian crisis in 1997, the IMF’s programs for the Eurozone periphery also include a wide range of structural reforms as a lending conditionality.

The programs may have long-term merit, but their intermediate impact in restoring confidence and promoting growth is limited.

As they cannot devalue their money, the only instrument to increase the international competitiveness of the Euro periphery countries is to adopt a difficult and costly policy of “internal devaluation”, that is to lower the prices of their goods and services relative to other countries.

This is difficult to implement in the eurozone because of limited labor mobility and price and wage flexibility.

The Asian countries hit by the crisis in 1997 have switched to a flexible exchange rate system and adopted inflation targeting in monetary policy.

In theory, a flexible exchange rate system requires a smaller amount of foreign exchange reserves, as the system reduces the need for market intervention.

The need to build up external reserves has been reduced with the relaxation of the IMF conditionality requirements and creation of a regional safety net, namely the Chiang Mai Initiative (CMI).

In reality, for a number of reasons, all Asian countries, including those hit by the crisis in 1997, have built up large external reserves. This was done for several reasons.

The first reason was to limit credit growth induced by capital inflows and export booms and thus temper excess leverage and asset price booms.

The second reason was to enable governments to avoid extreme fluctuations in their currencies in a relatively shallow foreign exchange market, and thus prevent the adverse impacts on the economy and the balance sheets of the banking system and the corporate sector.

Third, was to mitigate fear of inflation from exchange rate fluctuations by providing greater exchange rate flexibility, particularly given the limited technical and institutional capabilities of central banks to implement transparent
inflation targeting.

To achieve inflation targets, central banks could appreciate its currency to lower the prices of imports.

Fourth, building foreign reserves also allowed the undervaluation of exchange rates to be adopted as an instrument to promote an export-oriented development strategy.

Fifth, it acted as a hedge against speculation and foreign exchange instabilities resulting from a shortfall in exports and from capital flow reversals.

Sixth, the foreign reserves gave nations adequate fiscal space when facing a crisis.

However, holding large foreign exchange reserves incurs large fiscal costs from the negative carry and capital loss in case of appreciation.

In the case of Bank Indonesia (BI), the nation’s central bank, its capital is eroding as the interest expense used to buy the foreign exchange is much greater than the rate of returns to its investment.

At present, the annual interest rate for BI’s SBI certificates is 5.75 percent, while the return from its investment in US Treasury bills is close to zero.

The economic costs in term of foregoing domestic investment opportunities are also large.

Following the Asian crisis in 1997, Asia developed local and regional bond markets to reduce reliance on short-term capital for financing long-term investment projects and therefore avoid the double currency and maturity mismatches.

The emergence of local bond markets in the crisis-hit Asian countries started with the issuance of sovereign bonds to recapitalize ailing banks. Country like Indonesia devised new sovereign debt strategies.

During the administration of Soeharto from 1966 to 1998, budget deficits were entirely financed by official development aid from foreign donors.

After the Asian crisis, the budget deficit has been financed by the issuance of sovereign bonds in local and international markets.

The end of financial repression following the crisis has encouraged the corporate sector to raise fund either through capital market or bond market.

Development of regional bond markets are promoted by the Asian Bond Market Initiatives (ABMI), under the auspices of ASEAN+3, and Asian Bond Fund Initiatives, promoted by the Executive Meeting of East Asia-Pacific Central Bank (EMEAP), and managed by the Regional Office of Bank for International Settlement in Hong Kong.

The writer is a professor of monetary economics at University of Indonesia and a former senior deputy governor of Bank Indonesia.

Add Comment

UN vote for Palestine marks diplomatic isolation of the US

Abdillah Toha, Jakarta | Opinion | Tue, December 04 2012, 10:12 AM

Klipping The Jakarta Post

A- A A+

Paper Edition | Page: 6

When Barack Obama was elected for his first term as US president, there were high hopes in the Middle East and in the Muslim world that the US had finally installed a president who would dare to undertake new and brave foreign policy initiatives, particularly on the unabated conflict between Israel and Palestine.

Obama initially spoke out strongly against Israeli settlements and even coaxed Netanyahu into a partial freeze on settlement construction. But when that freeze expired and Netanyahu rejected Obama’s calls to extend it, Obama dropped the matter altogether.

Since then, as we later witnessed, Obama has shelved all matters relating to Middle East conflicts and imersed himself deeply in Medicare and other domestic affairs. When again early this year he proposed that peace negotiations be revived based on 1967 borders, Netanyahu hurriedly flew to Washington and lectured Obama in the White House on how wrong it was to even start thinking in this direction. Obama once again sealed his lips and dropped the matter.

When Israel bombarded Gaza in December 2008 and in the middle of November this year, to the disappointment of many who had pinned hopes on him, Obama supported Israeli actions and “Israel’s right to defend itself from outside attacks”, rather than stopping the attack on defenseless population of Gaza.

In the meantime the world saw more and more gross violations of human rights and injustice perpetrated by Israel toward Gaza, which has been besieged, blockaded and treated practically as the largest prison in the world.

When last year the UN Security Council blocked Palestinian attempts to become a member of the UN, the only way to get out of the barrier was to go straight to the General Assembly where there is no veto, and that decision was made based on simple majority.

As we now see, despite intense opposition from the US and Israel, Palestine finally got what it wanted — status as a non-member observer state — with the overwhelming majority support of the General Assembly.

The elevation in status, ironically, was granted on the anniversary of the General Assembly vote of Nov. 29, 1947, when British-ruled Palestine was partitioned into Jewish and Arab states, a step that led to the creation of Israel.

The oft-repeated rationale stated by the US and Israel for opposing the vote was that it would only create obstacles toward the peace process. This seemingly illogical reasoning was not acceptable to a majority of the members of the UN, including many European countries.

The unstated concern on the part of the US and Israel is actually a vote that would put Palestine on equal footing with Israel, meaning future talks would be conducted between two states, rather than between a military occupier and a people under occupation.

The vote also grants the Palestinian Authority overwhelming international endorsement for its key position: establishment of a Palestinian state in the West Bank, Gaza Strip and East Jerusalem: the territories captured by Israel in the 1967 war.

There is also an openly stated concern that once the vote is won, the doors will be opened to Palestine to join various UN institutions, including the International Criminal Court, where Palestine would be able to bring cases of war crimes against Israel.

The Geneva Convention forbids occupying powers from moving “parts of its own civilian population into the territory it occupies”, leaving Israeli officials potentially vulnerable to an ICC challenge. Israel says its settlements are legal, citing historical and Biblical ties to the West Bank and Jerusalem.

The fact that only nine countries voted in line with the US against the resolution shows that the US and Israel have been left isolated by a majority of the world’s nations.

This view is strengthened by the fact that even the conventional allies of US in Europe and Japan see the situation differently from the US and either voted in favor of the resolution or abstained.

Apparently trying to belittle the implications of the vote, the US representative at the UN, Susan Rice, stated: “Today’s grand pronouncements will soon fade and the Palestinian people will wake up tomorrow and find that little about their lives has changed, save that the prospects of a durable peace have only receded”.

The hectic campaigning before the vote and the statements made by various US officials before and after the vote, as well as the threat by a bipartisan US Senate group to cut off US contributions to the UN and aid to Palestine all clearly indicate that the US has failed to see the new reality and the shift in how the world views Israeli behavior thus far.

The US even has failed to appreciate the gravity of the challenge to Israel’s fundamental legitimacy in the world.

To the detriment of the US’ long-term national interest, its foreign policy when dealing with Israel has been so rigid and continuously controlled by the strong Israeli lobby in Washington. It is unfortunate that however well intentioned Obama is, his hands are apparently tied when dealing with foreign policy that involves Israel.

The fluidity of the situation in the Middle East, the rising economic and military power of China, the fiscal and debt problems of the US economy, the failure of military power in the last decade to neutralize and stabilize Iraq and Afghanistan, or for that matter to combat terrorism, all should sensibly prompt the US administration, including Congress, to seriously rethink and review its outdated foreign policy.

Present and future US presidents should face off the corporate-controlled mainstream media that regularly misleads the public and come out of their cages to speak directly to the people on the merits of changing the direction of the American way of looking at the world.

To many of us who once admired Obama’s passionate and zealous oratory as a man of principle cannot but feel dispirited by an absence of action to make the world a better place to live in.


The writer is an advisor to the Vice President of Indonesia on strategic matters. The article is his personal opinion

Economic policies in crisis: Eurozone versus East Asia (Part 1 of 2)

Anwar Nasution, Seoul | Opinion | Tue, December 04 2012, 10:15 AM

Klipping The Jakarta Post

A- A A+

Paper Edition | Page: 7

Except in Greece, the causes of the present economic crisis in the periphery of the eurozone are similar to those behind the Asian financial crisis of 1997-1998: a current accounts crisis.

In contrast, the Greece crisis is closer to the Latin American model of financing of budget deficits by selling sovereign bonds to attract short-term capital inflows. At that time Asian countries had adopted fixed exchange rates.

Robust domestic growth and large interest rate differentials attracted huge short-term capital inflows, mainly channeled through weakly regulated and weakly supervised banking systems.

Banks in turn invested the short-term foreign borrowings in long-term investments, mainly in the unproductive non-traded sector of the economy. This led to a surge in investment and in the prices of land-based assets and caused double currency and maturity mismatches.

By joining a monetary union, the member nations of the eurozone abandoned their nominal exchange rates and monetary policies.

The monetary union rapidly integrated the financial systems of the eurozone and brought about a convergence in nominal interest rates through the free movement of capital across the eurozone and through cross-border credit.

Capital mainly moved from the core countries with high saving rates in the northern part of the
eurozone to the periphery countries in the south, which have traditionally been characterized by low savings rates.

In contrast, savings in Asia were invested in international financial markets and were recycled back into the region through non-regional financial institutions and in non-regional currencies.

Price levels in these nations rose more than in the core against a backdrop of excessive credit expansion with very low interest rates, thus fuelling domestic demand and eroding their international competitiveness.

The property boom during the first 10 years of the eurozone monetary union generated windfall revenue for the central and local governments in the periphery.

Combined with cheap credit after joining the euro, this provided extra resources for all tiers of government for building infrastructure projects and for the expansion of generous social programs.

The eurozone has no fiscal union and no unified debt strategy. Meanwhile, the fiscal and debt rules of the Stability and Growth Pact (SGP) of the Maastrictht Treaty of 1991 have been continuously violated by all member countries. The European Union (EU) budget is small and not intended for counter-cyclical purposes.

The banking crisis in the eurozone began in Ireland in 2008 and escalated with increasing concern about the health of public finances in the periphery countries.

The haircut taken by the lenders owed Greece’s private debt raised doubts about the ability of the other crisis countries to service their sovereign debt. Debt reduction requires a primary surplus that can be attained only if the growth rate of the economy is higher than that of interest rates.

Debt forgiveness eroded the ability of the European banks to lend after the decline in the market value of sovereign bonds that they used as collateral on wholesale funding.

It also raised yields on the sovereign bonds of the periphery nations and their spread over the same securities issued by the core nations.

The increased cross-border dispersion of interest rates and worries about a euro break-up have encouraged intra-euro capital flight and reversed the financial integration of the eurozone.

In the process, savers and depositors transferred their savings from the periphery nations to perceived safe nations.

Economic agents in the periphery nations have to pay higher interest rates than in the core, and often banks just do not want to lend
at all. The fragmentation of the single financial market has disrupted the bank lending channel of monetary policy.

To provide liquidity to the banking system in the eurozone, the European Central Bank (ECB) provides long-term refinancing facilities (LTR) and buys sovereign debt in secondary markets to drive interest rates down to smooth market fluctuations.

The independent ECB, however, has no mandate to act as a lender of last resort. The EU has no banking union for the whole eurozone with a common supervisory and macroprudential framework, a deposit insurance scheme and bank resolution authority. As in Asia prior to the crisis in 1997, prudential regulation of financial institutions in the eurozone has been weak.

Controlled by political parties, the cajas, the local saving banks in Spain, for example, borrowed excessively from the core nations to lend to real estate developers, to financing white elephant projects and to make contributions to political parties.

The European Financial Stabilization Fund (EFSF) and the European Stability Mechanism (ESM) provide emergency lending to stabilize troubled banks. The funds, however, are only made available through the national governments and are channeled to ailing banks.

This financing mechanism only transforms banking liabilities into sovereign liabilities, thus raising borrowing costs of sovereign nations that could lead to fiscal crises.

The writer is a professor of monetary economics at University of Indonesia and a former senior deputy governor of Bank Indonesia.

Add CommentShare on facebookShare on twitterShare on emailMore Sharing Services

Editor's Choice

Whither women’s rights in ASEAN?

Mahmudin Nur Al-Gozaly, Melbourne | Opinion | Tue, December 04 2012, 10:18 AM

Klipping The Jakarta Post

A- A A+

Paper Edition | Page: 7

There have been two recent important moments to remember in relation to women’s rights in Southeast Asia: the adoption of the ASEAN Human Rights Declaration on Nov. 18 and the International Day for the Elimination of Violence against Women on Nov. 25. In the context of ASEAN, a fundamental issue to be borne in mind is the direction of women’s rights.

In Southeast Asia, progress in women’s rights has been quicker than other human rights, such as political and civil rights.

Women issues are maybe perceived to be “soft issues” and thus less likely to compromise the political stability of most member states. In fact, all member countries have already ratified or acceded to the Convention on the Elimination of All Forms of Discrimination against Women (CEDAW), which could serve to help them comply with international human rights, especially women’s rights.

Nonetheless, taking a closer look at ASEAN experiences, the region is still facing uncertainty on the future of women’s rights.

First, most existing ASEAN women’s rights documents appear to have failed to address women’s issues. For example, three declarative documents born prior to the ASEAN Charter, namely the 1988 Declaration of the Advancement of Women, the 2004 Declaration against Trafficking in Persons, particularly Women and Children, and the 2004 Declaration on the Elimination of Violence against Women have not overcome gender inequality problems due to their failure to articulate women’s rights in measurable plans, legislation, policies and programs in all areas and at all levels.

Four primary women’s issues in ASEAN, namely economic participation, migration and discriminatory laws, political participation and violence against women (Southeast Asia Women’s Caucus on ASEAN, 2012) cannot be tackled by merely a reliance on the above, inconclusive instruments.

Second, the ASEAN Charter (one might conceives it as “ASEAN constitution”) to which all member states adhere, emphazises the goal of fostering an institution to deal with human rights, but does not define descriptive ways how that objective can be achieved. It gives no mention to particular women’s rights.

Third, the majority of regional instruments are not meant to be legally binding. The Joint Statement and Commitment to Implement Gender Mainstreaming in 2008, for instance, may be considered progress for it recognizes the importance of the CEDAW as a guiding international framework. Yet, it is not legally binding, meaning that it is highly unlikely to tackle various women’s issues in the region.

Fourth, a necessary human rights body mandated by the ASEAN Charter has not reached international human rights benchmarks.

The ASEAN Intergovernmental Commission on Human Rights (AICHR), established in 2009, has come under criticism as its terms of reference (TOR) do not address any single provision on women’s rights.

International Women’s Rights Action Watch (IWRAW) Asia Pacific, for instance, criticized that women’s rights protection in the region not only failed to address the primary issues of women, but also showed failure of the organization to encourage its member states to comply with provisions under the CEDAW (IWRAW, 2008).

In 2010, progress could be seen when the ASEAN Commission on the Promotion and Protection of the Rights of Women and Children (ACWC) was fostered, for it created the opportunity for public participation in the processes of women’s rights protection.

Nevertheless, similar to the AICHR, this commission aims to be an intergovernmental consultative body, so that poses concerns about the independence of its commissioners. Moreover, its TOR appear to put aside women migrant workers issues in the region, whereas they are vulnerable to violence and discrimination in the workplace.

The recent birth of the ASEAN Human Rights Declaration has added to the region’s history of women’s rights. In fact, inherent weaknesses appear to exist in the declaration. A number of human rights limitations and the declaration’s non-legally binding nature are among its loopholes, and it carries little weight in the context of improving human rights in the future.

The full observance of the rights of women has a long way to go if there is no strong political will and determination to reform the structural and functional capacities of existing bodies dealing with women’s issues.

ASEAN leaders have only focused on how to strengthen cooperation but have not yet extended it to form an effective framework that can reinforce obligations as set out in numerous regional agreements. More importantly, such reinforcement mechanisms will be a key element for ASEAN member states’ obedience to the rules of the CEDAW.

Since the inception of ASEAN, member countries have maintained norms, such as non-interference, for the purposes of engaging themselves to manage intergovernmental relations. The principle has effectively promoted peace and stability in the region, but has often brought about a low standard of value recognized internationally.

It has hampered each member country in advocating and making judgments on others on issues of human rights. This fact has actually compromised the group’s external reputation and its collective engagement with other communities across the globe.

Therefore, ASEAN needs a binding treaty, encompassing a list of comprehensive women’s rights, related enforcement subsystems and a mandated independent body dealing with women. Member states should either reform existing ASEAN human rights bodies or establish another independent body that can exercise a fundamental monitoring role and an investigative function for women’s rights cases.

Such a body should be enabled to decide whether a state has committed violations against women or has failed to comply with women’s rights provisions under international human rights standards.

But do member states of ASEAN have such strong political will? The past shows otherwise, while the future remains uncertain.

The writer is a diplomat at the Foreign Ministry. The opinions expressed are his own.

Forging our future in the Asian region (Part 1 of 2)

Richard Woolcott, Adelaide | Opinion | Tue, December 04 2012, 10:20 AM

Klipping The Jakarta Post

A- A A+

Paper Edition | Page: 7

Why does the Asian Century matter deeply to Australia?

We need to accept the reality that Australia is permanently situated in the Southeast Asian and Southwest Pacific region. I have argued this since I joined the then department of external affairs in 1950.

This has always been a geographic reality but some Australians have yet to come to grips with the implications of this fact. Our adjustment to this reality will largely determine the success or possible failure of our diplomatic, strategic and commercial future.

In our approach to the Asian Century we need to acknowledge that Asia is a western geographical description of a huge region of great political, religious and social diversity.

It includes three monarchies, two of the world’s largest three democracies, four countries still administered by Communist Party governments and the extensive practice of four of the world’s main religions, as well as several philosophies (eg Confucianism) which differ from our own western orientated approach.

The idea that Australians do not have to choose between our history and our geography, is simplistic and has been a politically expedient cliché to avoid considering in depth our relationships with the United States and China.

Our history is our past; some of it noble and some of it shameful. The reality is that our future lies in our geography.

The steadily increasing importance of Asia and the need for Australia to adjust to its geographical environment is of course not new. Successive governments have advocated this but their responses, so far, have yet to reach stated outcomes or government rhetoric and have been far from adequate.

What is new is the urgency for Australia created by the unprecedented transfer of wealth from the West to the East, from the Atlantic to the Pacific, which will continue into the foreseeable future.

This seismic shift, driven by the spectacular rise of China in particular but also by the rise of India, the continuing economic strengths of Japan and South Korea in addition to the growing potential of Indonesia and Vietnam constitute an historic global turning point to which Australia must respond, if we are not to find ourselves left behind.

We now live in a much more interconnected and technologically advanced world. The Asia Pacific is the region where the world’s major power relationships most closely intersect.

It is where the template for the United States China relationship will largely be shaped. It is also the crucible in which the interrelationships on Asian and major global issues involving United States, China, Japan, Russia, India, Indonesia, South Korea and the main ASEAN countries will be forged.

What should we do to strengthen our place in the world, especially in Asia?

Firstly, I think Australians need a fundamental change to our national psyche, which will be focused more on Asia, than on our well established links with the United States, the United Kingdom and Europe.

We also need a continuous and sustained, rather than a spasmodic, approach to the countries of Asia. Both the White Paper and our membership of the Security Council are relevant to defining more clearly our national identity and place in a changing world.

The most important foreign and strategic policy issue Australia faces today, is the urgent need, to determine a more appropriate, and updated balance in our relations with the United States and China, the emerging superpower.

On this fundamental question our government will need to assess frankly the extent to which the United States, although it will continue to be militarily, if not economically, the strongest power in the world for the foreseeable future, and China are likely to evolve over the next decade.

We should not be afraid of forward looking change. For example, the ANZUS treaty, now 60 years on, is somewhat out of date and should not be regarded as an absolute guarantee of American military support, which it is not, or as a political sacred cow.

The only occasion on which Australia sought American support under ANZUS during Indonesia’s “confrontation” of Malaysia in 1964 in which our forces were involved in conflict with Indonesian forces in Kalimantan, the United States declined. Moreover, I find an increasing number of Australians consider that ANZUS, or our broader military alliance with the United States, has now involved us in three unsuccessful wars — Vietnam, Iraq and Afghanistan, in support of policy decisions taken essentially in Washington.

In my view we should have withdrawn in 2010 when, as the new Prime Minister, Julia Gillard could have reviewed our policy. By the end of 2014, when the last Americans are due to cease fighting, the Taliban will not have been defeated, and a truly democratic government will not be in place.

Because support for the war in Australia is bipartisan (despite majority popular opposition according to our polls), it does not mean it is either right or in our national interest.

The White Paper is a timely and valuable document — I hope the government will make it clear it intends to maintain an unambiguous signal to the Australian public, to China, and to the United States, as well as other countries in the
Asia Pacific region that, while we have some different attitudes from China and are in an alliance with the United States, Australia welcomes the rise of China, opposes policies directed at the “containment” of China and sees no intrinsic reason why China, under its system of authoritarian capitalism, cannot continue to rise peacefully, although it faces major social and economic problems which it will need to address.

The rise of China, if mismanaged, could lead to instability and frustrate progress towards the shared and necessary goal of Asia Pacific regional cooperation, which is the corner stone for future peace, stability and continuing development in the Asian region.

It will be important for Australia, as an ally, to ascertain the precise nature of the United States “pivot to Asia”. Australia’s interest will be to avoid this developing in the context of a “containment” policy, an approach which Secretary of State Clinton has stated will not be the case. But this will need to be judged by actions rather than words.

This article is excerpted from the “2012 Annual Hawke Lecture” delivered by Ambassador Richard Woolcott on Nov. 5 at the Adelaide Town Hall. Mr Woolcott is Australia’s veteran diplomat who has been assigned to many postings, including Jakarta and the United Nations in New York. He was prime minister Hawke’s special envoy in the development and evolution of the Asia Pacific Economic Cooperation Forum (APEC) throughout 1989.

REDD+ agenda in Doha

Agus P. Sari, Jakarta | Opinion | Fri, November 30 2012, 8:02 AM

Klipping The Jakarta Post

A- A A+

Paper Edition | Page: 6

The concept of Reducing Emissions from Deforestation and Forest Degradation (REDD) and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries (REDD+) has been touted as one of the success stories of international negotiation on climate change.

REDD+ addresses one-fifth of those annual global emissions that had not been addressed under the Kyoto Protocol.

Pouring forth almost 6 billion tons in 2000, Indonesia was the largest producer of forestry and land use–based greenhouse gases. Consequently, the national action plan for the reduction of emission of greenhouse gases (RANGRK), is dominated by cutting production from forestry and land use. REDD+ is the largest item on Indonesia’s climate change agenda.

The 18th Conference of the Parties (COP18) to the United Nations Framework Convention on Climate Change (UNFCCC) is now underway in Doha. REDD+, especially its financing, will be high up the agenda.

Negotiations about REDD+ in Doha will be as follows. First, REDD+ is expected to be financed through “results-based action”. Emission reductions need to be demonstrated and verified before financing takes place, regardless of where the money comes from.

Second, since REDD+ financing is based largely on results, a national forestry monitoring system (which includes reporting, and verification) needs to be agreed upon. Confronting those directly responsible for deforestation is essential in reducing the ongoing destruction.

While deforestation is a big issue, it is not the only issue on the national agenda, and it will be important to ensure that other social and environmental objectives are not compromised by the implementation of REDD+ on the ground.

Third, REDD+ is mostly about carbon and changes the carbon content of forests. But forests are not just about carbon. There are many other ecological, social and cultural concerns in the forest environment which are not measurable by simply counting tons of carbon. More, better forests are not just as a weapon against change.

Protected and expanded forests are good for helping the ecosystem, including us humans, adapt to climate change. Whether and how these non-carbon-based urgencies are integrated into REDD+ remains to be seen.

Fourth, full implementation of REDD+ requires new institutions. A registry, for example, of worldwide activity to keep track emissions seems essential. There are proposals to establish a REDD+ board, though not all parties are for it. Another proposal is the establishment of a carbon reserve bank. This also needs to be negotiated.

Fifth, financing is the hottest topic in REDD+. To make a reduction of 1 billion tons in emissions by 2020 as mandated by RANGRK, Indonesia needs about US$5–$10 billion, assuming a cost of $5–$10 per ton. While up to $1 billion may be made available through the letter of intent for the government of Norway, more is required.

Two more billion dollars may be available to Indonesia from bilateral and multilateral public financing. The remainder — up to $7 billion — may have to be financed through the private sector.

Whether the newly-established Green Climate Fund with funds expected to be at least $100 billion per year by 2020 should open a special window for REDD+ is also to be discussed.

How and to what extent private sector involvement can be done remains to be negotiated in Doha. Whether it is done through market and non-market mechanisms alike, whether REDD+ actions can be used as offset on developed countries’ emissions through a carbon market are issues that are very far from being agreed upon.

Brazil and Bolivia, for example, remain of the opinion that REDD+ should not be a market mechanism, especially not an emissions offset mechanism. Finding funds in the public sector, however, is a great challenge, especially against the backdrop of global economic gloom.

Sixth, finally, the ambition of developed countries to reduce emissions has not been aggressive enough. The overwhelming amount of potential REDD+ credits available to offset emission reduction targets by developed countries will make their previous attempts to solve the problem irrelevant.

This year marks year the end of the first commitment period of the Kyoto Protocol.

A new commitment period must commence. A new set of emission reduction commitments by developed countries needs to be put in place. Ambition must be aggressive if Doha is to keep climate change at bay.

The writer is chair of the working group on funding instruments, Presidential Task Force on the Institutional Preparation for REDD+. The opinions expressed are his own.

Add CommentShare on facebookShare on twitterShare on emailMore Sharing Services

Asian action critical in region and in Doha

Bindu N. Lohani, Manila | Opinion | Fri, November 30 2012, 8:17 AM

Klipping The Jakarta Post

A- A A+

Paper Edition | Page: 6

The jury may still be out on the link between climate change and natural disasters. But one thing is clear: Weather-related disasters are increasing in both frequency and intensity.

Witness the string of severe recent floods across Asia — from Pakistan, to Thailand, to the Philippines — and Hurricane Sandy in the US, which have vividly shown us how extreme weather events can bring entire countries to a virtual standstill. Volatile weather extremes are hitting Asia and the Pacific more often than any other region of the world.

This gives the Asia-Pacific region a huge stake in mitigating global temperature rise while adapting to already rising climate change impacts. Sixty percent of the region’s people rely on highly climate-sensitive farms, forests and fisheries for their livelihoods. Seven out of the 10 countries most vulnerable to climate change and disasters caused by natural hazards are in Asia and the Pacific. A decrease in fresh water availability could affect more than one billion Asian people by 2050.

The region has borne the brunt of the physical and economic damage of increased disasters. It accounted for 38 percent of global disaster-related economic losses between 1980 and 2009. People in Asia and the Pacific are four times more likely to be affected by disasters than those in Africa, and 25 times more likely than in Europe or North America.

A recent report of the Asian Development Bank (ADB) noted that storms and floods, in particular, are becoming endemic to the region, and their increasing frequency and severity can slash economic growth and development. And as we have seen time and again, it is the poorest and most vulnerable citizens who suffer the most. We cannot hope to bring an end to poverty without building resilience to climate change and these associated events.

The challenge is to tackle both at the same time. We need to mobilize massive funds for climate change adaptation — around US$40 billion a year for Asia and the Pacific would be a very conservative estimate. Investing in disaster risk reduction as part of adaptation only makes sense; it has been estimated that every dollar spent to reduce risk saves at least $4 in future relief and rehabilitation costs.

Clearly there is a need to more closely integrate climate change and disaster-related activities. Doing so would present its own challenges, given the different — sometimes competing — interests involved: disaster risk reduction is a well-established area of work handled mainly by engineers, whereas climate change adaptation is relatively new and falls more within the purview of environmental specialists. Nonetheless, we should make every effort possible to do what is most prudent and effective.

The Climate Investment Funds (CIF) have endorsed $1.5 billion to ADB for mitigation and adaptation cofinancing within Asia and the Pacific. The CIF’s pilot program for climate resilience has thus far allocated $278 million to ADB for projects in Bangladesh, Cambodia, Nepal, Papua New Guinea, Tajikistan, Tonga and the Pacific regionally.

Much can be done to supplement these efforts. The region needs, for example, an Asia-Pacific disaster risk insurance scheme, and it would benefit from the wider introduction of catastrophe bonds. Such innovative forms of insurance can increase resilience by forcing communities to model, price and manage the risks of climate change.

A climate-induced disaster fund for the region that would channel critically needed post-disaster assistance into building resilience against future catastrophic events should also be considered.

So far, few developing Asian countries have focused on disaster risks in their economic development plans. As a region, we no longer have a choice. We must invest in disaster prevention — not only in infrastructure, but also in the region’s social development. Neglecting the looming threats of increased weather-related disasters would put millions of Asia’s most vulnerable people at increased risk of poverty, ill health and premature death.

As delegates gather for the 18th Conference of Parties of the United Nations Framework Convention on Climate Change in Doha, Qatar, this issue must be brought to the forefront through enhanced discussion, consideration of innovative solutions, and commitments to act.

The Asia and Pacific region has a critical role to play in reaching a solution to the climate crisis. Its population and economies face ever increasing risks from the consequences of climate change, and future economic growth must be decoupled from the rapid expansion of greenhouse gas emissions.

The impacts are felt at a very personal and local level, and it is critical that we create, invest in, and act upon solutions to improve the resilience of communities across Asia and the Pacific. However, this is a global problem, which will require a global solution involving the full participation of all countries.

The writer is the vice president for knowledge management and sustainable development of the Asian Development Bank.

Add CommentShare on facebookShare on twitterShare on emailMore Sharing Services