Sunday, July 20, 2014

BRICS Challenge Western-Run International Finance System

The leaders of the BRICS nations – the emerging markets of Brazil, Russia, India, China and South Africa – announced in Brazil the launch of a $50 billion development bank this week. The move by the five nations is in response to the Western influence of the US-dominated World Bank.

Though it will be much smaller and less funded, the new bank is an attempt to counterbalance the hegemony of US and Western banking interests. In essence, it is an attempt to expand the financial relevance of the world's emerging economies.

The BRICS also set up a $100 billion currency reserves pool to help countries manage their short-term liquidity troubles during a currency crisis. The decision presents a small, but potentially growing, challenge to the International Monetary Fund (IMF), which is based in Washington, DC.

The World Bank finances development projects around the world, and the IMF is the lender of last resort to countries that don't have the dollars to pay their foreign debt.

Unable to exert more influence over the World Bank and IMF, the BRICS will now gain greater control over the funding decisions that directly affect them.

Though China is one of the world's two largest economies, it has less voting power in the IMF and World Bank than Belgium, the Netherlands and Luxembourg. Yet, China has 1.3 billion people, while those three European nations have less than 30 million people combined.

Belgium — a county with 11 million people and a $508 billion economy — has more IMF votes than Brazil — a nation of 199 million people and a $2.2 trillion economy.

Frustrated that their economic weight is not reflected in global financial institutions, the BRICS countries have now established one of their own.

In the process, they have suddenly carved out a larger role for themselves in international finance.

At the least, they have created some global competition for international lending.

Initially, the bank will have $50 billion in capital, divided equally among its five founders. The bank will start with just $10 billion in cash put in over seven years and $40 billion in guarantees, and it won't start lending until 2016. However, capital is planned to eventually grow to $100 billion.

To put this in perspective, subscribed capital in the World Bank is $223 billion.

The development bank, which will be based in Shanghai, intends to fund development and infrastructure projects in developing nations. India will lead operations for the first five years, followed by Brazil and then Russia.

The BRICS nations banded together in 2009 to press for a large role in the global financial system created by Western powers in the post-World War II Bretton Woods agreement.

Given that they account for almost half the world's population and about a fifth of global economic output, the BRICS' influence will likely continue to grow.

In fact, other nations, such as Indonesia, Mexico and Turkey, could ultimately join the development bank.

The bank is the biggest undertaking and the most significant achievement of the BRICS in their five-year partnership.

When the BRICS first announced their intention to form the bank in April of 2013, it was greeted with great skepticism in the West. But the emerging nations have shown their willingness to coordinate, cooperate and act.

Wary, and weary, of the terms and conditions applied by IMF and World Bank, the BRICS can now turn to one another for the financing of their development and infrastructure needs.

The US and, more broadly, the West may not have taken seriously this challenge to their supremacy in the world economy a year ago. But it's a good bet they're paying attention now.

Moreover, the creation of the development bank is not the end of the BRICS' ambitious plans.

These nations have previously called for an end to the dollar's singular role in international trade and the settlement of debts.

For example, since crude oil is bought and sold in dollars, the BRICS have publicly voiced their interest in collaborating in non-dollar oil payments. Their hope is to have an alternative payment system in place by 2018.

In 2012, the BRICS announced plans to extend credit to each other in their own currencies, with the goal of eventually replacing the dollar with their own currencies for trade amongst themselves.

That's a direct challenge to the dollar's role as the world's reserve currency.

So, the development bank may be just the beginning. It may take a few more years, but the BRICS are determined to increase their role and influence in international finance and credit, while simultaneously diminishing that of the US and the West.

Wednesday, July 09, 2014

Officials Unprepared for Southwest's Unfolding Water Crisis

The American Southwest is a vast, arid desert. Yet, it is home to some 40 million people and the cities of Las Vegas, Phoenix and Los Angeles. All of them are served by the dwindling water resources of the Colorado River and one of its primary reservoirs, Lake Mead.

A massive civil engineering project in the 1960s diverted part of the Colorado River to feed Phoenix and Tucson. Those cities could not exist in their current state without this unnatural influx of Rocky Mountain snowmelt.

A quarter of Arizona's water comes from the Colorado River, which has been drained to dangerously low levels. There's not enough water in the basin to keep Arizona's crucial Lake Mead reservoirs topped up. As of this week, the lake is about 39 percent full.

Lake Mead's surface is now about 1,080 feet above sea level, which is below the 1,082-foot level recorded in November 2010 and the 1,083-foot mark measured in April 1956 during another sustained drought.

If current trends continue, the level will drop to 1,000 feet by 2020, says the federal government. That's just six years from now.

Under present conditions, that would cut off most of Las Vegas’s water supply and much of Arizona’s. Phoenix gets about half its water from Lake Mead, and Tucson nearly all of its.

The problem is worsening quickly.

The federal Bureau of Reclamation forecasts that Lake Mead will fall this week to a level not seen since the lake was first filled in 1938. Again, Lake Mead is now about 39 percent of capacity and is dropping steadily.

Last month, officials at the Central Arizona Project (the state’s canal network) said they may have to cut water deliveries to Phoenix and Tucson, its two largest cities, due to the dire state of the dwindling Colorado River.

Despite Arizona's dwindling water resources, the state's population continues to swell. Here's a look at Arizona's population in recent decades:

1970: 1,745,944
1980: 2,718,215 (55.7% increase)
1990: 3,665,228 (34.8% increase)
2000: 5,130,632 (40% increase)
2010: 6,392,017 (24.6% increase)
2013 (est.): 6,626,624 (3.7% increase)

In essence, Arizona's population has nearly quadrupled since 1970. Yet, the desert state is getting ever drier.

Arizona is in the midst of the worst drought ever seen in the state's 110-year long observational record. The last two years were the driest in a century in the Southwest.

Consequently, the state will have to reduce water consumption rather quickly. Mandatory cuts could begin as early as 2019, according to an analysis by the state's water project.

Arizona does not presently have a plan to deal with water shortages as extreme as those being predicted by 2020, just six years from now. It's unconscionable that state officials have allowed the situation to come this far with no actual, valid plan.

The fact that a pending water shortage in Arizona's two biggest cities is just now being raised publicly is tough to comprehend. Denial, or withholding vital information from the public, are not solutions.

Arizona's groundwater levels have dropped by hundreds of feet over the last century. Yet, the state still grows cotton on its arid lands.

According to the Arizona Department of Water Resources, more than two-thirds of Arizona’s water is still used to irrigate fields, down from a peak of 90 percent last century.

However, roughly 42 percent of the land in Arizona is covered by desert. In fact, there are four different deserts in the state, making it a very difficult place to grow food, much less sufficiently feed its 6.6 million residents.

Of Arizona's total area, just 0.32% consists of water, which makes Arizona the state with the second lowest percentage of water area (New Mexico is the lowest at 0.19%).

Climate change will only make the drought situation worse, and the effects are continually occurring faster than scientists had predicted a few short years ago.

Most scientists believe global warming will make an already arid desert Southwest even drier in this century.

Research done at the University of California, Berkeley shows that the 20th Century was an abnormally wet era in the West and that a new mega-drought may be starting.

The U.S. Global Change Research Program projects 20 percent to 50 percent less water by the end of this century, with temperatures 5 to 10 degrees warmer (Fahrenheit).

With 6.6 million residents in Arizona, 4.3 million of whom live in the metropolitan Phoenix area, there are simply too many people vying for far too little water.

Given its limited water resources, the desert region was not meant to support a population that large. Yet, those limited water resources are rapidly dwindling.

However, Phoenix is not alone in facing this issue. Most of the Southwest is reliant on the same water source.

Seven southwestern U.S. states share the Colorado River's water supply under a 1928 allocation agreement that also provides shares of the river water to Native American tribes and Mexico.

“The Colorado is essentially a dying river. Ultimately, Las Vegas and our civilization in the American Southwest is going to disappear, like the Indians did before us,” said Rob Mrowka, a Las Vegas-based scientist at the Centre for Biological Diversity.

Las Vegas, which has more than 2 million residents and about 40 million tourists a year, is almost completely dependent on Lake Mead for drinking water. The city is presently grappling with a water crisis.

“The situation is as bad as you can imagine,” said Tim Barnett, a climate scientist at the Scripps Institution of Oceanography. “It’s just going to be screwed. And relatively quickly. Unless it can find a way to get more water from somewhere, Las Vegas is out of business. Yet they’re still building, which is stupid.”