Physical Banks are History: Pakistan m-Banking

It may sound strange to people from rich countries, but most people in the developing world have never set foot in a bank branch. Not only are they often confined to urban centers, but they are also geared towards meeting the needs of wealthier clients. To correct both of these failings in banking the so-called "unbanked" or folks without access to financial services, m-banking has become popular in many parts of the developing world. That is, mobile services become instruments for delivering financial services.

Today's example is particularly instructive: Pakistan is a perennially hard-up country riven by never-ending political strife. While numerous factions and politicians go at it without end, in no small part causing great harm, mobile solutions continue to proliferate:

Warid Telecom and Bank Alfalah Limited announced the launch of their marketing campaign for Branchless Banking Services under the brand name Mobile Paisa in Pakistan with Monet (Pvt) Limited as the technology provider. The launch aims to bridge the gap between banking services and consumers as it provides advanced mobile financial services, convenience, reliability and security for customers.

The services include money transfer, bill payments and customer mobile wallets. Services for consumers, corporates and G2P will be launched soon. Speaking on Mobile Paisa hitting over 10,000 agents for branchless banking, Warid Telecom Chief Executive Officer Muneer Farooqui said the facility is aimed at making mobile financial services effortless. “In this era of modernisation and technical development, it is essential to digitise and enhance transacting convenience through a secure and swift system,” said Farooqui. 

They say that necessity is the mother of invention. It is unsurprising that many innovative m-banking services come from the developing world in terms of handling e-payments and extending the range of mobile services. It is conceivable that most developing countries will skip the stage of having bank branches on every major street corner and move directly into m-banking. After all, you don't need checkbooks, ATMs and tellers when your cell phone meets most of your banking needs.

Chinese Fleeing PRC: The Hotel California Effect

There's no getting away from the PRC, mates.

There's an excellent article at the WSJ concerning wealthy Chinese leaving the PRC...for good. It is fairly common for wealthy people in poor countries to secure overseas residences in the event trouble breaks out at home. That is, they have safety nets if, say, the Communist Party starts persecuting capitalist roaders by tossing the in jail or packing them off to reeducation camps. You never can tell when the Communists have an urge to start acting communistic. What I was not aware of, however, is that a fairly large exodus is already underway even in these years of PRC prosperity. After all, there is not much to enjoy living in your Beijing mega-palace when the air is so bad and so is the traffic. So, there's a push for (literally) greener pastures:

But rapidly growing numbers are college students and the wealthy, and many of them stay away for good. A survey by the Shanghai research firm Hurun Report [of "Rich List" fame] hows that 64% of China's rich—defined as those with assets of more than $1.6 million—are either emigrating or planning to. To be sure, the departure of China's brightest and best for study and work isn't a fresh phenomenon. China's communist revolution was led, after all, by intellectuals schooled in Europe. What's new is that they are planning to leave the country in its ascendancy. More and more talented Chinese are looking at the upward trajectory of this emerging superpower and deciding, nevertheless, that they're better off elsewhere.

They are leaving in pursuit of things money can't buy:

 The decision to go is often a mix of push and pull. The elite are discovering that they can buy a comfortable lifestyle at surprisingly affordable prices in places such as California and the Australian Gold Coast, while no amount of money can purchase an escape in China from the immense problems afflicting its urban society: pollution, food safety, a broken education system. 

What is most interesting though is how China's sprawling Maoist-Marxist-Leninist apparatus still keeps tabs on those who have chosen to leave. To ensure that the PRC isn't defamed and that its erstwhile residents act as good ambassadors for the CCP and what it represents, no effort is spared. As the final stanza of the "Hotel California" goes, you can check out any time you like, but you can never leave:

The new political era of President Xi Jinping, meanwhile, has created as much anxiety as hope. Another aspect of this massive population outflow hasn't yet drawn much attention. Whatever their motives and wherever they go, those who depart will be shadowed by the organs of the Leninist state they've left behind. A sprawling bureaucracy—the Overseas Chinese Affairs Office of the State Council—exists to ensure that distance from the motherland doesn't dull their patriotism. Its goal is to safeguard loyalty to the Communist Party.

This often sets up an awkward dynamic between Chinese arrivals and the societies that take them in. While the newcomers try to fit in, Beijing makes every effort to use them in its campaign to project its political values, enhance its global image, harass its opponents and promote the use of standard Mandarin Chinese over the dialects spoken in Taiwan and Hong Kong. 

Hokkien and Cantonese? Getouttahere! It's strange but true: these folks are choosing to leave for greener pastures, yet the country they left still seeks to recruit them in a propaganda campaign aimed at making the PRC top dog not only in Chinese communities abroad but also in communicating the official Party line to others.

It's like someone divorcing you and you wishing to hang on by asking your former spouse to support the very extra-curricular activities that drove them away in the first place. Make no mistake: being prominent Chinese has a lot of baggage wherever you go.

Atlantic City or Detroit: Which Epitomizes US Decline?

They partied till they literally dropped.

Thousands of years into the future, when archaeologists sift through the ruins of the United States as they currently do with empires Aztec, Babylon, Carthage to Zulu, what will be their preferred excavation site for artifacts of once-unrivaled splendor reduced to absolute nothingness? Detroit is a prime candidate given its many imposing edifices long deserted. They even make massive photo essays about it. Motown, however, lacks the tabloid-grabbing bacchanalian excesses that I call "history porn": Babylon has been immortalized as the epitome of sinful existence in the Christian bible. The Emperor Caligula's mad perversion has been immortalized in bad soft porn films. Montezuma upped the ante with human sacrifices and cannibalism. Does modern-day America offer anything remotely as decadent?

Well, not quite, unless you consider "Ivan Kane's Royal Jelly Burlesque Nightclub" [?!] at the now-closed Revel Casino in Atlantic City, New Jersey. Speaking of which, its rate of decline certainly merits the Detroit comparison. If Detroit represents the death of world-leading American manufacturing, Atlantic City does the same for gambling services. It is fast disappearing at an astonishing rate:

How big a loser is Atlantic City? So big that Donald Trump sued to have his name removed from two casinos he no longer controls. He may have to amend the suit, since one of them, Trump Plaza plans to shut down next month. And it will have company. The two-year old, twice-bankrupt, $2.4 billion Revel casino will also close after its owners failed to find a buyer, company officials announced Tuesday. As the saying goes, you don’t throw good money after bad.

Revel’s shutdown brings [Atlantic City's] losing streak to four properties that announced a closing this year. The Atlantic Club was taken out earlier this year and Showboat, owned by Caesars Entertainment, locks down at the end of the month. Through June, revenues at the casinos are down 6.3%, continuing a long-term trend. The city’s casinos brought in $2.86 billion last year compared with $5.2 billion in 2006. 

Why is the boardwalk such a crap place nowadays? Precisely for the same reasons America as whole is: stagnant income = fewer gamblers with less money to gamble with. Add to this the proliferation of gaming industries in other states dreaming of cheap sources of revenue and it all adds up to...lots of red ink:

In Atlantic City, some of those displaced workers will be able to catch on at the city’s remaining seven casinos—who will no doubt see an uptick in business—but the losses and closures are indications that the runaway growth days of gaming are over. Any new casino built in the region—indeed, just about anywhere– will have to take business away from somebody else.

And that’s exactly what’s been happening to Atlantic City– a municipality that never blossomed into the revived seaside resort envisioned when New Jersey opened its first legalized casino in 1978. It has remained mostly a weekend gambling jaunt for many punters, and they have since found other places to play. Oddly enough, north of Atlantic City, from Asbury Park to Long Branch, Jersey’s casino-less shore towns have revitalized and grown, despite taking a hit from Hurricane Sandy.

For those interested in modern history, Atlantic City is still around to catch the few swirling motions left before America is fully flushed down the toilet of history. (I tired of the "dustbin of history" sometime ago. So sue me.)

Like America itself, Atlantic City was a good idea that's since lost its reason for existence.

Unlike China: India's Civil Approach to Territorial Disputes

Civil sorts prefer going this route.

This Southeast Asian is rather tired of intrusions by would-be imperialists into our waters: China and the United States are similarly bullying presences, with the former coming more and more into the focus as the latter embarks on the road to nowhere fast. In the study of international relations, there is the so-called "power transition theory" which is frequently invoked to explain how Southeast Asia is being caught in the crossfire between these rival powers:

One by-product of differential growth is the high potential for conflict when a challenger [China] and a preeminent or dominant nation [the United States] reaches the stage of relative equivalence of power, and specifically when the challenger is dissatisfied with the status quo. Understanding the interaction of the structural and dynamic components of power transition theory provides a probabilistic tool by which to measure these changes, and to forecast likely events in future rounds of change.

The trouble with China with regard to the so-called South China Sea is that, having asserted time and again to its citizens that it is an inseparable part of China, moves to moderate its position and accommodate its smaller neighbors the Philippines and Vietnam will not likely happen. It cannot lose face. Nevermind that China does not respect international law--the law of the sea--but they've learned from the United States that might makes right since the US isn't even a signatory to this law. Imagine, however, an alternate parallel universe where China did not adapt inflexibly totalitarian positions on territorial questions. It may, in this case, be more like India. Recently, India coming into compliance with a ruling against it at the International Tribunal on the Law of the Sea (ITLOS) meant it giving in to Bangladesh--hardly a scary threat to it:

If good fences make good neighbors, that may explain why much of Asia’s recent territorial tension has centered on the ocean. India took a step toward tighter ties with Bangladesh this month in surrendering its four-decade claim to a swathe of the Bay of Bengal about the size of Lake Ontario, opting to heed a United Nations-backed ruling. Bangladesh praised its neighbor’s move, with the head of state-run oil monopoly Petrobangla saying the newfound clarity will unlock drilling opportunities. 

Contrast India's example to our rather less accommodating neighbor:

The decision provides a contrast with China, which declines to acknowledge any UN jurisdiction in its dispute with the Philippines over maritime claims. The difference in approach shows why tensions are rising in the South China Sea as companies ramp up oil and gas investment in the Bay of Bengal. “This is a showcase judgment of how countries can reach an amicable agreement,” said S. Chandrasekharan, New Delhi-based director of the South Asia Analysis Group, referring to India and Bangladesh. “The South China Sea is a glaring example of how one intransigent country can hold up everything.” 

I love that dig aimed at China. To be sure, China added exceptions to its ratification of the law of the sea precisely to avoid legal entanglements with the Philippines and Vietnam over the South China Sea. That said, its neo-imperialist intransigence does nothing for its soft power. To insist on a claim so expansive means that few could call it legitimate with a straight face given that historic grounds are not considered valid by the law of the sea. Meanwhile, here is another article on the ruling. The court's site has the particulars on the decision.

Let India show China the way.

Could Military Rule Work? Thai Junta & Phuket

Cleaning up paradise.

As a pragmatist, I am not wedded to ideas that "democracy" and "free markets" are necessarily the best solutions in all places at all times. If you want simplistic, crusader-grade pontification, there are many other places for you to visit. For a case in point, consider what was happening to Thailand's famous beach resorts during the years when the Thaksinite red shirts were in power: wiseguys were abusing the system, making private what was public for their own gain. With the ouster of sister Yingluck Shinawatra's regime through a military coup, Westerners were ostensibly aghast at this violation of civil rights. A military coup? How barbaric! Me, I prefer to dwell on outcomes rather than processes, so here it goes.

The truth is that the restoration of order has done much to help shore Thailand's tourism industry after the tumult of the pro-Thaksinite era. Consider is the world-famous beach destination of Phuket. The military junta--there is no point calling it something else--has cracked down on abuses in the resort that made it resemble an overcommercialized tourust trap overcrowded with vendors and others encroaching on the beachfront that is supposed ot be public space:

Raddled by allegations of corruption and mismanagement by inept authorities, the Thai holiday island of Phuket looked destined within a few years to have its once-beautiful beaches destroyed by the side-effects of mass tourism. Since the 2004 tsunami made Phuket even more of a household name around the world, tourism boosters have catered to sharply increasing numbers of visitors, with the island's overwhelmed infrastructure deteriorating rapidly...

Along the foreshores at many beaches, illegal businesses sprang up and grew. Beach clubs predominated, but a visitor could spend hours in a beauty salon on the sand or even buy a time-share property. A constant stream of vendors left tourists little time to snooze. Paradise was evaporating, if it hadn't already.

The military has begun putting these slackers in their place:

Today, all that is changing, due to the arrival of khaki and camouflage-clad soldiers. They tromped Patong, Phuket's main west coast beach, enforcing the message that the hedonistic days of lazing on sunbeds were at an end, along with the vendors' privateering ways. Sand was making a comeback.

Though many Western countries have condemned Thailand's latest coup, it may just have saved Phuket from further decay -- also producing some useful social outcomes for similarly troubled holiday destinations in other parts of the country. All beaches in Thailand are public space by law. The prohibition of private business operations on these public beaches is without exception, but has been ignored on Phuket and some other tourism destinations.

Locals are beginning to understand these guys mean business:

Phuket locals interpreted the concept of public beaches as meaning anyone could use them, so first they added sunbeds, then built thatch and bamboo bars on the shore fronts. Over the years, entrepreneurs joined in, expanding the venues into large restaurants and beachclubs. Some businesses grew to the water's edge. There was no enforcement by authorities to force them off the beach.

Once the army took charge, though, local mayor Ma-Ann Samran, of Cherng Talay, says he began receiving daily visits from officers in civilian clothes. He had no hesitation in admitting he eventually acted to save the beaches in his district out of fear. ''I was genuinely scared,'' Ma-Ann said. ''The Army let me know I had to act.''

After decades of local ''law'' being applied, the Army transformation came at great speed, within days of the May 22 coup.  Graders toppled beach clubs and restaurants, while the sunbeds and umbrellas were carted off in pickup trucks, banned forever. Tourists on all Phuket beaches now sit on towels.

To be fair, it is true that the military junta has been more successful at restoring peace and order than generating economic growth. That said, providing a semblance of order is more likely a prerequisite for economic growth than chaos. So we'll see what happens, but tidying up the beaches is undoubtedly a step in the right direction.

China's Plan on Full Yuan Convertibility in 2015

Decisions made in this building shake the world.

It's kind of hard to relinquish on Stalinesque, iron-fisted control once you get used to it: Around 2011, PRC official sources made some noises giving tacit support to the idea that their currency the yuan (RMB) would be fully convertible by 2015. Through fits and starts the yuan has gradually appreciated since then, but now the People's Bank of China (PBOC) has come to an important fork in the road of monetary development: to become fully convertible or not? That is the question that needs to be resolved before 2015 rolls around.

Just like an anxious bride-to-be antsy about leaving the familiar past for an uncertain future, the PBOC is showing second thoughts about leaving behind a monetary system that has proven relatively stable during China's transition to becoming the world's second-largest economy:

China is quietly pushing back its loose timetable to make the yuan freely convertible, policy insiders say, as authorities fear removing capital controls too soon could unleash damaging speculative flows that will make it harder to reshape the economy.

There has never been a hard target date for a freely traded yuan, although the central bank had outlined a goal of making it 'basically convertible' by 2015. That rhetoric has been toned down recently, and now analysts are looking to 2020, a deadline implied by the government's reform agenda set out last November.
 
Heading off a sharp slowdown in growth and domestic reforms, such as fixing the fiscal system to rein in debt, overhauling banks and state conglomerates will be done first, according to economists at top government think-tanks and policy advisers.

"Opening up the capital account will be the last of reforms. We need to improve domestic financial markets and improve legal systems first," said an influential former central bank researcher who now works for the government. "That was the reason why other emerging markets were hit by speculators," said the researcher, who requested anonymity.

A slowing Chinese economy does not quite inspire confidence. Nor does the experience of premature liberalization a la the Southeast Asian nations prior to the 1997 Asian financial crisis. With speculative flows showing few signs of letting up, authorities fear a deluge of inflows that will hurt Chinese competitiveness in export markets:

While the yuan is already convertible under China's current account, the broadest measure of trade in goods and services, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing.

Nearly one-fifth of China's trade is now settled in yuan, up from less than 1 percent in 2009, when internationalisation was seen as a way for firms to reduce currency risks and also to challenge the U.S. dollar's role as the key reserve currency.

As the yuan is increasingly used in trade and investment, as well as in offshore yuan trading hubs, investors have sought to skirt capital controls by exploiting various loopholes - some of which could remain until the currency is fully liberalised.

The government keeps a tight grip on speculative flows, but under the yuan internationalisation scheme, firms can move their funds across the border via trade settlements. One method is to borrow funds cheaply overseas and move them into China to profit from China's higher interest rates and, at least until earlier this year, a view the yuan would steadily rise. The funds are later repatriated.

In other words, don't hold your breath waiting for full yuan convertibility in 2015...or 2016, 2017, 2018 and 2019 for that matter. 2020 is the more realistic target date, but still. Reuters has a video clip of this story as well.

Pity the Children: 'War on Drugs' Fuels Asylum Seekers

This train of pain begins and ends in the United States.

I am not sure if there is a moral to recent events, but the number of children seeking asylum in the United States from gang warfare-torn countries El Salvador, Guatemala and Honduras has dropped in the last month. What to do with these young people has given rise to a fierce debate Stateside on an issue Obama would likely prefer not to deal with domestically at this point in time: immigration reform. With an ever-growing Latino population, the stakes are high for center-left politicians like him. Even so, the Tea Party brigade is hung up on antiquated notions of perpetuating white majority rule despite demographic trends showing they will be less than half the population by mid-century.

In the meantime, however, stricter enforcement coupled with disabusing would-be migrants of the delusional idea that the US was granting asylum have played their part in staunching arrivals. From the Arizona Republic:

The number of children and families apprehended by the Border Patrol in July crossing the U.S.-Mexican border illegally fell by more than half from June, according to Customs and Border Protection. The significant drop reverses the recent surge in unaccompanied children and families fleeing north from Central America, and analysts cited a combination of reasons including tougher anti-smuggling measures.

The decline is much sharper than the fall in overall Border Patrol apprehensions from June to July. And it is steeper than in past years — suggesting that it's not just hotter weather that is drying up the flow of migrants coming primarily from Honduras, Guatemala and El Salvador. "I don't think this is a seasonal shift," said Doris Meissner, a senior fellow at the Migration Policy Institute, a nonpartisan Washington think tank that deals with migration and refugee policies.

"I think it's a combination of factors: stepped up anti-smuggling efforts, the fact that Mexico is returning substantially larger numbers of people crossing their territory ... and the fact that the countries themselves have been making a huge effort to tell people that what the smugglers are saying is not true and that the journey is really dangerous," added Meissner, who served as a commissioner in the former U.S. Immigration and Naturalization Service.

Believe it or not, I do not enjoy bashing the United States for the heck of it. Given its far-reaching influence, however, it bears much culpability here. Why are there gang wars in these central American states that are driving young people to leave? Because the United States' admittedly failed "war on drugs" is causing violence to spread to its backyard. Why is demand so great for illegal drugs? Because United States residents (can't use "American" in this context) consume more of them than any other country on Earth:

The refugee crisis is now our problem, which is appropriate: The drug-linked violence that the children are fleeing is in large part our fault. Anti-drug policies in the U.S. and Europe have not succeeded in curbing drug use or in raising drug prices, but they have considerably increased crime and violence worldwide. It is time to shift the effort to focus on helping drug users at home rather than battling drugmakers and traffickers abroad...

Some in the U.S. may still consider the mission accomplished: at least we’ve sent the problem elsewhere. But if the point of banning domestic production was to reduce domestic consumption, the effort has been a miserable failure—with the side effect of 60,000 kids to care for. Because production can move to countries least able to control output and trade can flow through countries least able to control transport, even the most draconian attempts to reduce overseas supply to U.S. drug consumers have had a limited impact. The U.S.-backed Plan Colombia represented an immense effort to reduce cocaine production—the size of the country’s security forces expanded from 250,000 to 850,000 between 2003 and 2006. In response, farms became more productive, and production shifted to neighboring countries, more than offsetting the increase in drug seizures and coca plant destruction according to World Bank researchers. A U.S. inspector general report suggests attempts to wipe out poppy production in Afghanistan have been a similar failure.

The lure of the US market increases as even more regulations are put in place to combat drugs:

Efforts to control international trafficking–the transport of drugs from producers to drug sellers in the U.S.—have been a little more successful than efforts to control production. The spread between cocaine export prices in Colombia and import prices in Miami reflects a 2,100 percent markup (from about $1,000/kg to $23,000/kg). That associated potential profit margin is what helps fuel gang violence in Central America. But for all the violence of the drug wars in Mexico and Honduras, the big cost of drugs in the U.S. is still accounted for by domestic wholesale and retail distribution costs. The markup from wholesale to retail is about 700 percentnot too different from the markup for imported agricultural products in general. The drug war has considerably destabilized countries in Central and South America and cost tens of thousands of lives—and yet it hasn’t even worked to make drugs in the U.S. or Europe appreciably more difficult to obtain than legal imports.

Just as Prohibition-era gangsterism came to an end with legalizing alcohol, legalizing marijuana in the United States is long overdue to reduce incentives to smuggle drugs into the US for the chance at an exorbitant profit. In this case, the Yanks really should do so on behalf of the children who are victims of the trouble they inflict on neighboring countries.

Give them back the future your country took away, Barack.