Global Trends by Martin Khor

Monday 2 January 2012

Be Prepared – a good motto for 2012

Both natural calamities and man-made economic problems marked the passing year, and we should be prepared to face more of the same or worse in the new year.

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At this time 12 months ago, this column had highlighted how the dying year 2010 could be labeled the year of natural calamities, and predicted more on the way.

Sure enough, the year that has just passed witnessed even worse disasters.   If 2010 was marked by the Haiti earthquake, 2011 surpassed that in impact (if not in deaths) by the Fukushima triple tragedy of earthquake, tsunami and nuclear accident.

But Fukushima was only the worst of the calamities that included hurricanes in Central and Latin America, drought in parts of Africa, massive floods in Thailand and elsewhere, and many typhoons and storms in the Philippines.

This new year, more is in store from Mother Nature.  Extreme weather events are expected to be more frequent and more intense, and some of these are linked to climate change, according to a recent report of the inter-governmental panel on climate change (IPCC).

The extensive flooding in Thailand in October and November, which wreaked havoc on homes, factories, farms and entire towns, is a warning to Malaysians on the intensity of what may happen here someday.  The floods that have recently affected many Malaysian states may in future be even more intense and more damaging.

Another disaster in our region was caused by the tropical storm Washi that swept across Mindanao in Southern Philippines in December, killing over 1,000 people and displacing 300,000 in massive flooding, flash floods and landslides.

Better disaster risk preparations would have helped avert the high number of casualties, according to Filipino Senator Loren Legarda, a disaster risk reduction champion for the UN International Strategy for Disaster Reduction (UNISDR).

She called on local authorities throughout Philippines to invest in flood infrastructure, including river embankments, pumping stations, flood walls, drainage systems, storm drains, canals and flood retention areas, noting the high number of casualties caused by Washi could be due to a lack of awareness of the risks involved.

Countries should implement the UNISDR strategy, which aims to guide and coordinate efforts to reduce disaster losses and build more resilient communities and countries.

As Greenhouse Gases continue to increase at an alarming rate in the atmosphere, the effects of climate change are bound to worsen.  Thus, a useful New Year resolution that countries should make is to put in much more effort and funds to strengthen disaster preparedness.  It will save many lives, homes and other properties.

The new year 2012 will likely suffer from man-made disasters as well.  A new world-wide recession is now a larger possibility, as the economic austerity policies across Europe and the deleveraging of its banks take effect this year in reduced demand, higher unemployment, credit tightening and reduced output.

The year will continue to witness the Eurozone governments wrestling to save the Euro.  If, as many analysts predict, the policy makers remain behind the curve of events on the ground, then 2012 will be a disaster year for Europe, with recessionary effects on the rest of the world.

If, however, the European leaders and institutions get their act together, then the disaster could yet be averted.  But fewer experts believe that policy will finally get ahead and prevent chaos.

As with natural disasters, preparedness for economic slowdown or recession is needed, at least to cushion the effects.

A slowdown in the advanced economies will affect developing countries through the trade and finance channels.  On the trade front, developing countries that are more export-dependent must expect to be hit by reduced demand for their products and by lower commodity prices.

On the finance front, developing countries should expect a reversal of the strong capital inflows of the past couple of years as Western funds seek the “safe havens” of their own countries during these uncertain economic times.

Indeed, a significant net outflow of portfolio capital has already begun in several Asian countries, including India, Thailand and Malaysia.

The outflow can be absorbed without much difficulty in countries like Malaysia that have strong current-account surpluses, but can be a significant problem for countries like India which have a current-account deficit and which have relied on capital inflows to cover it.

2011 was a turning point in laying the foundations for the current economic problems. Thus, 2012 could be the year when these problems mature into fully-fledged crises.  Thus we should be preparing early for what the year may bring.