Global Trends by Martin Khor

Tuesday 2 January 2007

What to expect in 2007

As the new year dawns today, it is quite clear that many important events of the previous year remain unsettled and will boil over for 2007 to resolve.  GLOBAL TRENDS looks at the political, economic and environmental issues that are likely to preoccupy the coming year.


In ancient China, there was a greeting reserved for to people you don’t altogether like:  “May you live in interesting times.”

As 2007 dawns, it is certain that we will live in interesting times, for better or worse.

The new year will be decisive on several fronts.  Whether and how the many critical issues are resolved will shape the world for many years or decades to come.

First, there is a whole complex set of Middle East issues. The coming year will see the Iraq situation evolving, probably rapidly, towards some kind of conclusion.

It is not yet clear whether Saddam Hussein’s execution last Saturday will affect events on the ground -- if the fighting spirit will be taken out of the Sunni militias (unlikely), if Saddam will become a martyr and inspire more resistance, or if there will be little effect as his death was already long anticipated.

American President George Bush will decide soon after the new year season whether the United States’ Iraq policy will remain the same (“we are going to stay the course and win”) or change (“the war cannot be won, so let’s bring the troops home without losing too much face”).

The Western countries will also have to face up to the same kind of policy options in Afghanistan, as the growing resistance there will make life increasingly difficult for the Nato forces this year.

When 2006 ended, the Western confrontation with Iran over its nuclear programme reached a new stage with the United Nations Security Council imposing some limited sanctions.

The coming year will see if this escalates into a crisis, with the Bush administration preparing for a new (possibly military) confrontation, or whether Iran rapidly proceeds with its programme, with the West not being able to do anything much.

The Israeli-Palestine problem will remain at the core of the Middle East crisis.  The situation has become even more complex, involving Israel’s attitude towards the Palestinians; the latent conflict among the Palestinian factions that has burst into the open and its effect on the Palestinian resistance; the United States’ relations with Israel and with the Arab world; the response of the European, Arab and other countries.

The tension point is very high at all these many angles. Something will have to give in 2007.

Linked to all the above will be the development of the relations between the Muslim and Western worlds.  It is likely that 2007 will see a further deterioration, with all the ramifications for the future.  Although there is always a hope, however faint at the moment, that the adverse trend can be reversed.

Will the new year also bring more acts of terrorism, perhaps more spectacular than in the previous recent years?  And if so, where?  These are the most urgent of questions, and no one can provide the answers now.

On the environment front, 2007 will be crucial too.  The year 2006 ended with earthquakes off Sumatra and Taiwan, and with the worst floods in the Southern parts of Peninsular Malaysia (as well as in Sumatra).

Climate change and its effects are already a reality, and the awareness and momentum have built sufficiently for there to be decisions in 2007. 

A new comprehensive report is scheduled from the United Nations’ scientific panel on climate change, and negotiations for a post-Kyoto Protocol agreement will enter its crucial phase this year.

The high price of oil is also expected to continue, since OPEC (the oil exporters’ organization) seems to be holding together quite well.  More and more, the developed world will become obsessed with “energy security” and alternatives to oil, while the non-oil producing developing countries will suffer higher oil bills and energy costs.

Many intriguing questions on the economics front will be answered in 2007.  The World Trade Organisation’s Doha Round will face its “moment of truth” by the second quarter, as time runs out on the United States President’s fast-track authority for trade deals. 

If a new fast track authority is not given by the new Congress, the WTO talks will mark time for at least a couple of years. 

Controversial bilateral trade deals, which critics say will bind developing countries into unequal and exploitative economic relations with the developed countries like the United States, European Union and Japan, will be negotiated. 

However, starting a negotiation is one thing.  Whether many of them will be concluded, as awareness and opposition grows, is another thing.

For the public, the biggest question in economics in 2007 is whether the US economy will hold on to its growth, or whether slow-down or recession will set in under the pressures of lower housing demand, the giant trade and budget deficits, and the weakening dollar. 

There will most likely be greater turbulence than in 2006 in the capital and currency markets.  With uncertainty and speculation on the rise, it is possible that there will be greater volatility in capital flows and in currency exchange rates in some parts of the world, including Asia.

This will tax the patience and skills of the policy makers.  The Thai government’s financial measures last month emerged from a need to fine tune capital flows and exchange rates to suit the imperatives of trade and growth.  The new year may well see more of the search for appropriate policies towards the same goals.

The past two years have seen relatively good economic conditions in most parts of the world, including the Western countries, in Asia (especially China and India) and Africa.

There is hope that the good economic weather will continue, but increasing worry that some clouds on the horizon are now visible and that they could herald more rainy times ahead in 2007.