Night Watch
Recommend this article

Japan-China: Bloomberg has published an excellent report that describes the economic consequences of Japan's dispute with China over ownership of the Senkaku Islands. No other news outlet has published a comparably insightful and detailed account.

The first point the journalists made is that trade relations between China and Japan multiply the costs of a territorial dispute. Japan's trade with China is valued at more than $300 billion per year, which is potentially at risk.

A Chinese boycott of Japanese imports would hurt China but might already have resulted in a reduction of GDP, according to Bloomberg citing JPMorgan Chase, because of reduced Chinese purchases of Japanese goods.

Ripple effects in China from boycotts of Japanese manufactures put at risk the jobs of millions of Chinese who work in Japanese industries in China. Japanese auto sales declined. Air travel cancellations increased in both countries. One Japanese department store retailer closed 60 of 169 stores because of anti-Japanese vandalism and threats.

Comment: The key point is that global economic integration magnifies the consequences of international disputes. Interdependency means both sides seriously suffer economically, although security incidents result in no casualties. Japan might have sustained a .5 per cent decline in GDP in the last quarter of 2012, essentially because of Chinese hostile, nationalistic responses to the islands dispute.

Both sides got hurt, but China can absorb the consequences more than Japan.

Another key point is that the dispute shows how the Chinese fight in every kind of battle space - at sea, in the air, on the land, in cyber space, in international political space and in economic space. Total warfare means total to the Chinese. They are experimenting with that in the Senkakus dispute.

Jordan: For the record. Heavy rainfall, strong winds and snow hit Jordan for a second day on 9 January, along with other Middle East countries. The National published images of the road from Beirut to Damascus closed because of snow. A Jordanian meteorological department official said Jordan already has received 100% of its annual rainfall and the season is not half over. The possibility of snow is predicted for Jerusalem this week.

Egypt: Recent economic analyses of Egypt show that the economic cost of Islamic democracy is heavy.

In the six months of protests about the preparation of the constitution, the Mursi government has neglected the economy to try to build its legitimacy. The economy, by most measures, has come to a halt and 80% of Egyptians voted against Mursi or declined to vote. Mursi heads a minority government with no money.

The budget deficit rose by 38%, or $13.1 billion over six months; the Egyptian pound slipped 6% against the US dollar; unemployment rose from 8.9% to 12.4% and GDP growth fell from 5.0 % in 2011 to 0.5 % last year. The decline in GDP is greater than any other country that experienced an Arab Spring event.

The Egyptian rich did not trust their wealth to the goodwill of the Mursi government. Foreign reserves were halved because of capital flight and the transfer of savings abroad.

The outflow led to the imposition of currency controls at the end of December. Egypt has a 50% trade deficit that used to be offset by earnings from tourism and remittances from workers abroad, but the tourists are staying away and remittances have declined.

Standard & Poor's downgraded Egypt's credit rating to B-minus, six levels below credit grade. Before the downgrade, Egypt paid 13.54% for a one-year treasury bond. After the downgrade, the sale of bonds was canceled to avoid higher interest rates. According to the economic analysts, credit swaps showed Egypt ranking among the ten worst credit risks, along with Greece and Pakistan.

Comment: Entitlements and subsidies needed to be cut, according to Egyptian economic experts, but the government deferred austerity plans and tax increases in order to get the constitution passed in December. Shortages of essentials, including bread, jobs and all kinds of fuel, remain serious.

The government of Qatar has extended $2.5 billion in loans and grants to Egypt as a stop-gap measure. Egypt also is trying to obtain a $4.8 billion loan from the International Monetary Fund, but Fund officials doubt Egypt has the determination to implement the austerity measures they require as a condition for the loan. Meanwhile, simmering political instability and unsettled economic and political issues are likely to deter tourists and investors.

End of NightWatch for 9 January.

NightWatch is brought to you by Kforce Government Solutions, Inc. (KGS), a leader in government problem-solving, Data Confidence® and intelligence. Views and opinions expressed in NightWatch are solely those of the author, and do not necessarily represent those of KGS, its management, or affiliates.

www.kforcegov.com

A Member of AFCEA International

www.afcea.org

Recommend this article

Night Watch

NightWatch is an internationally acclaimed nightly newsletter that tracks and assesses threats to US national security. It has an edgy, executive style unlike any other summary of its kind.
TOWNHALL FINANCE DAILY

Get the best of Townhall Finance Daily delivered straight to your inbox

Follow Townhall Finance!