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Global Trends by Martin Khor

Monday 4 January 2016

What to expect in 2016?

The new year is likely to witness events and trends in the environmental and economic areas that had been set up in 2015.

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It is time again to bid farewell to the old year and welcome to the new one – 2016. 

Last year was very eventful on the environmental and economic fronts.  2016 promises to be equally, if not, more so.

2015 closed with a bang – the adoption of a global deal on climate change, after a nail-biting last day when the fate of the Paris conference hung uncertainly.

Finally, a deal was put together, generally satisfying both developing and developed countries.

The developing countries, led by the G77 and China and also the Like-minded developing countries (LMDC) managed to stand firm on their demands and got most of their points (though diluted through compromise) accepted.

Malaysia played a crucial role on behalf of the developing countries, being both spokesperson for LMDC as well as a coordinator for the G77 and China. 

The US and its allies also got their way. The result is a weak agreement that depends on each country to determine what it can do on mitigation (reducing or slowing down emissions) and with no official compliance mechanism to discipline those countries that do not perform even according to their own expectations.

From a purely environmental perspective, the Paris deal was thus nothing to shout about or even a failure. The pledges by countries (known as intended nationally determined contributions) are so inadequate that they lead to a pathway to global warming by more than 3 degree Celsius rather than the 2 degree or 1.5 degree limit that the Paris Agreement itself says is needed to avoid a global climate crisis.

However, given the state of environmental geopolitics, many countries including the US cannot agree to a “top-down” approach where each country is given an emission reduction goal that it has to comply with, and a deal involving 200 countries needs a consensus by all.

Thus the Paris agreement is the type of deal that was possible, and international cooperation can continue. 

There are also mechanisms in the Paris Agreement, like a “global stocktake” through which countries assess the adequacy of their pledged actions and try to encourage or even pressurise one another to do be better. This stocktake will also assess whether financial and technological resources promised by the developed countries are adequately flowing to the developing countries.

It is understood that without sufficient funds and technology to be provided by the developed countries, the developing countries will not be able to do their adequate share of climate action.

The challenge in 2016 is how to keep the pressure up so that countries move into climate actions. The danger is that after the great relief that a deal was done in Paris, that the situation will return to business-as-usual. The fact is that the climate crisis is real and demands actions straightaway.

In 2015, another big environmental issue was the “haze” – actually thick smog – originating from Indonesia that covered much of Malaysia, Singapore as well as Sumatra and Kalimantan.  It took many weeks before the haze cleared by October.  

The haze led to frustration and questions why after so many years, Indonesia could still not ensure control of its plantations to stop burning the forests.

In December, the Indonesian government announced it had 16 firms in its sights to prosecute. This is good news indeed. But action through so many years has been so absent or slow that we wonder whether it will be different this time.

2016 must become the year in which Indonesia and its ASEAN partners, especially Malaysia and Singapore, can show that it can do something effective about the haze. Otherwise, scepticism and frustration will only grow.

On the economic front, 2016 may be dominated by some of the same issues that preoccupied 2015.

The price of oil will most likely continue to be weak, especially since the OPEC countries have been unable or unwilling to set a production limit for its members overall.  This weak price of oil will of course benefit oil-importing countries. However, oil producing countries like Malaysia will continue to suffer from a fall in government revenue and decline in export earnings.

Emerging economies and developing countries generally had a tough time in 2015, and the difficulties are likely to increase further this year.  Emerging economies, including Malaysia, have become financially inter-dependent in many ways with global finance.

This increases vulnerabilities such as the possibility of global investors moving their financial assets out of the developing countries that they once found attractive. This is especially so when the US has already begun to raise its interest rates, which it most likely will to continue to do in 2016.

In 2015 foreign funds pulled out some of their holdings in Malaysia of bonds and stocks, and this trend may continue in 2016.  If this does happen then we can expect the ringgit to remain weak against the US dollar this coming year.

All eyes will be on China in 2016, watching whether its economy will remain on a slow growth path and if so whether this will continue to affect its trading partners including Malaysia.

China is also being intensely watched for another reason.  At the end of December 2015, there was the official launching of the Asian Infrastructure Investment Bank, which is expected to lend US$10-13 billion a year.

The even more ambitious Chinese initiative known as “One belt, One road” is a gigantic investment plan that China has launched concretely in 2015 and is expected to implement more vigorously this coming year.   Many countries, are seeking to benefit from these huge initiatives and are trying to find a place for themselves to get involved.

Finally, 2015 saw the conclusion of the Trans Pacific Partnership Agreement (TPPA). The TPPA is a controversial animal, hailed by some as a 21st century deal that will benefit all its member states, but also condemned by others as an instrument used by major powers to subjugate the weaker partners.

If 2015 saw the conclusion of the TPPA talks, 2016 is likely to witness an intensification of the debate and a battle of views in many countries, including Malaysia, on whether to sign and ratify this TPPA.

All in all, 2016 will see the continuation of events and trends that were set in 2015. To what extent different countries will benefit or suffer adverse effects, time will tell.

 


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