Monday, June 27, 2016
UK loses triple-A rating; India needs $1.5trn for infrastructure; When populism distorts democracy
1 UK loses triple-A rating (Jill Treanor & Katie Allen in The Guardian) The UK has been stripped of its last AAA rating as credit agency Standard & Poor’s warned of the economic, fiscal and constitutional risks the country now faces as a result of the EU referendum result.
The two-notch downgrade came with a warning that S&P could slash its rating again. It described the result of the vote as “a seminal event” that would “lead to a less predictable stable and effective policy framework in the UK”. The agency added that the vote to remain in Scotland and Northern Ireland “creates wider constitutional issues for the country as a whole”.
That downgrade was swiftly followed by a cut to the UK’s credit score from rival agency Fitch. Intensifying the pressure on the UK’s standing on international markets, Fitch cut the UK’s rating to ‘AA’ from ‘AA+’. The UK had already lost its top rating with Fitch back in 2013.
S&P was the last of the big three ratings agencies to have a blue-chip rating on the UK’s credit-worthiness. Moody’s, which stripped the UK of its top notch rating amid the austerity cuts of 2013, said last week it might further cut its view of the UK. Rating agency moves have the potential to make it more expensive for the government to borrow.
The pound hit fresh 31-year lows and £40bn was wiped off the value of the UK’s biggest companies on Monday, despite efforts by George Osborne to quell investors’ concerns about the economic and political ramifications of the Brexit vote.
Expectations are mounting that the Bank of England will cut interest rates – possibly to zero from their historic low 0.5% – to stimulate the economy, and yields on government bonds fell below 1% for the first time, which could spell cheaper mortgage rates.
2 India needs $1.5trn for infrastructure (Gulf News) India needs more than $1.5 trillion in investment in the next 10 years to bridge infrastructure gap as the government intends to connect seven hundred thousand villages with roads by 2019 as part of a massive modernisation plan, Finance Minister Arun Jaitley said.
“We have been able to sustain growth in the phase of global slowdown essentially on the strength of the infrastructure creation in India where the gap is huge,” said Jaitley. “Over the next decade, we require over $1.5 trillion in India alone to fill up the infrastructure gap.
“In investing large public finance into infrastructure, for instance, we have seventeen hundred thousand villages in India. We intend to connect each of them by 2019,” he said. He also spoke of massive rural sanitation programme as part of India’s current infrastructure programme.
“In terms of highway construction this year alone our target is 10,000 kms. Our railway system is over 100 years old. We are going in for a massive modernisation,” he said. About arranging funding for the massive development, he said “we realise that starting point is public finances. It is only when the public finances are put into it, you start attracting and the activity begins a lot of private funds”.
3 When populism distorts democracy (Javed Jabbar in Dawn) One of the world’s oldest parliamentary democracies, the UK used an inappropriate electoral system which enabled mere populism to distort the long-term vision of a mature democracy.
Even without a written constitution, a referendum with fundamental implications for the future of the country should have been determined by at least a two-third majority of votes, and not left to be decided by a narrow margin of less than 4pc. A simple majority is valid to enact normal, day-to-day legislation. But it is inadequate to decide on a subject that has far-reaching dimensions embracing not just narrow national interests but larger regional and global values.
The physical proximity of the UK to Europe is an unchangeable reality and related links will always remain. However, the result by only a thin margin will have very thick repercussions. Several are already evident. New uncertainty in the financial sector. Big dips in stock markets. New unknowns for mainland Europeans working in the island country and vice versa. Unprecedented economic imponderables for the country, the continent and the world.
The major setback is to the concept of how to build formal structures for regional cooperation. The multiple institutions of cross-border cooperation which evolved in Europe over the past 40 years were innovative and direction-setting. Regional pacts in other continents looked towards the EU as an inspirational model.
The small margin of the result also disproportionately magnifies the representative credentials of emerging xenophobic elements like the UK Independence Party. It encourages similar elements in France, Germany and elsewhere.
This is in a country that bothered so little about respecting the borders of other countries when it imposed colonial and imperial interests for centuries. It is also clear that the voting principles and processes of old democracies are not necessarily pertinent in a complex new world.