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Pakistan in chaos following Khan’s arrest

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Eventually, the Pakistani army sent Imran Khan, the former ousted Prime Minister, behind bars in case of corruption, a move sparked deadly protests across the country that so far took the lives of two people.

Mr. Khan was arrested by paramilitary troops in Islamabad on charges brought by the country’s anti-corruption agency.  “Rangers abducted Pakistan Tehreek-e-Insaf (PTI) Chairman Imran Khan, these are the visuals. Pakistan’s brave people must come out and defend their country,” PTI said in a tweet..

The arrest was made when Khan was submitting his biometric data for a court appearance when paramilitary forces broke down a window and dragged him toward a vehicle.

Videos in social media show that the paramilitary forces attacked Islamabad High Court premises before arresting Khan. PTI spokesperson Fawad Chaudhry told CNN that the political leader had been “whisked away by unknown people to an unknown location.”

Former Pakistan Prime Minister Imran Khan is taken into a vehicle by police as they arrest him, in Islamabad, Pakistan May 9, 2023. (Reuters)

The arrest that also caused nationwide deadly protests came one day after Khan once again blamed the army for his ouster and accused a senior leader for attempting to assassinate him.

Khan was ousted in a parliamentary no-confidence vote last year and since then he held several protests across Pakistan and asked for early election, a demand often rejected by the incumbent Prime Minister Shehbaz Sharif.

Khan, a former cricket player, holds a mass popularity among the citizens, where men, women, boys and girls reacted to his arrest and called on the army to immediately release him.

Khan’s arrest sparks violence; two killed  

Chaos reigns on the streets of a nuclear-armed nation with a population of over 231 million after supporters of Mr. Khan staged protests across the country with a clear demand “release Khan”.

At least two PTI activists have lost their lives in Quetta and Malakand during clashes with the law enforcement agencies while dozens were injured.

Following the arrest of Khan, PTI’s workers with tens of thousands of supporters headed toward the military installations and police stations and set fire to some installations.

Social media videos show that Khan’s supporters reached inside the General Headquarters (GHQ) of the Pakistan Army in Rawalpindi, while in other videos they appear vandalizing the army properties in different cities including big cities like Lahore and Karachi. The angry demonstrators also set public properties on fire and engaged in direct clashes with the police. In return, the police used all sources including firing tear gas shells to disperse the demonstrators, but it really did not work and forced the forces to retreat instead.

Khan’s arrest hurls Pakistan into chaos

There have been reports coming from Pakistan that people are still in the streets and protesting against the army and warned to continue protests in the night and day until Khan’s release.

With thousands of protesters now on the streets, the Pakistani government has been facing fresh political turmoil and has to deal with this before it further worsens the situation.

Khan’s supporters already blocked streets in Islamabad, the capital city, Karachi, Lahore, Peshawar and other cities. In the capital city, hundreds of Khan’s PTI’s activists already blocked the main Kashmir Highway. They also blocked the adjacent roads in Lahore outside Khan’s Zaman Park by burning tyres.

To control the situation, the provincial government in Punjab has imposed a law banning demonstration and it has reported that other cities are also announcing the same law to prevent further chase. This law will also empower authorities to arrest politicians and protestors who engage in such gatherings.  There is no clear information where Mr. Khan has been taken.

Meanwhile, before going to the court, Khan in a tweet said that he fears being arrested by the army. “My reply to ISPR and attempts by PDM and their handlers to arrest me for two reasons: 1. To prevent me from campaigning because In Sha Allah when elections are announced I will be doing jalsas. 2. To prevent me from mobilizing the masses for street movement in support of the Constitution if PDM govt and their handlers refuse to obey the SC and violate the Constitution on holding of elections.”

Anticipating Khan’s arrest, the PTI has later released a pre-recorded video by Khan who engaged his supporters to take to the streets in support of “true freedom” in case he was arrested.

Khan’s arrest is legal

Police arrested Khan in relation to corruption involving the Al-Qadir University Trust, headed by the opposition leader and his wife Bushra Bibi. The National Accountability Bureau (NAB) in a statement said that Khan was arrested “for the crime of corruption” in the trust.

Meanwhile, the country’s Interior Minister Rana Sanaullah Khan confirmed that Khan was arrested in a case followed by the anti-corruption body.

“Imran Khan did not appear despite the notices, NAB has arrested him for damaging the national treasury. No violence was done to them,” Sanaullah said in a tweet.

However, Sanaullah’s statement was rejected by PTI leaders who denied the charges leveled by the interior minister. They say that Khan had not been issued any arrest warrant before Tuesday and his arrest was made suddenly.

Mr. Khan has been slapped with more than 100 cases, including corruption but he denies the charges as politically motivated.

Khan’s arrest is illegal

One of top PTI members, Shah Mehmood Qureshi called the arrest of Khan illegal and strongly condemned the act. “Khan was arrested by the Islamabad High Court, which the entire nation has condemned, and which I also condemn. This arrest is illegal, against political norms and inhuman, and it has been carried out under a special plan. Its roots can be traced back to London,” Qureshi told newsmen.

Qureshi called on the all PTI workers and Khan’s supporter to come out from their homes and stage a peaceful protest,

“I appeal to you, wherever you are, to come out of your homes with your children, your daughters, your fathers. We are peaceful people. We should not have sticks in our hands. We have never held arms in our hands, nor will we ever do so. We are not to attack anyone, or harm anyone. We are not to occupy anyone’s house. We have to ask for our rights peacefully. We have to record our protest in peace,” Qurehsi encouraged the people.

ASIA

How will Trump’s potential tariffs affect Southeast Asia?

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Southeast Asia is worried about Donald Trump’s threat of universal tariffs and a new trade war with China. Five of the region’s six largest economies run a trade surplus with the United States.

But experts say the situation may not be so bad. The region, which tries to remain geopolitically neutral, saw an increase in gross trade with both China and the U.S. between 2017 and 2020 during Trump’s first presidency. Vietnam, Indonesia, Malaysia, and Thailand have benefited as companies from China, Japan, South Korea, Taiwan, and the U.S. have expanded their production bases in Southeast Asia to avoid U.S. tariffs.

Experts say exports and economic growth will take a hit in the short term, but the region could benefit from trade diversion and substitution.

What is Trump’s tariff threat?

The goal of Trump’s trade policy is to bring manufacturing jobs back to the U.S. and decouple supply chains from China. Trump and his advisers claim that China’s trade advantage is due to “currency manipulation, intellectual property theft and forced technology transfer”.

During his first term, Trump used executive powers to impose tariffs of up to 25% on $250bn of electronics, machinery and consumer goods imported from China. Beijing retaliated with similar measures on U.S. agricultural, automotive and technology exports.

Now Trump has proposed a 60 per cent tariff on all Chinese goods entering the U.S. and tariffs of up to 20 per cent on imports from everywhere else.

How bad could it be for Southeast Asia?

According to Oxford Economics, about 40 per cent of Cambodia’s exports go to the U.S., making it the largest exporter in Asean as a percentage of total exports, followed by Vietnam with 27.4 per cent and Thailand with 17 per cent. Thanavath Phonvichai, president of the University of the Thai Chamber of Commerce, said the Thai economy could take a 160.5 billion baht ($4.6 billion) hit if Trump fulfils his promises.

Vietnam has the world’s fourth-largest trade surplus with the United States. This imbalance has been growing rapidly as Chinese, Taiwanese and South Korean companies have used Vietnam to avoid Trump-era tariffs. Vietnam’s fortunes could change just as quickly, especially if the U.S. continues to classify Vietnam as a ‘non-market economy’, which requires higher tariffs.

Uncertainty over Trump’s tariffs could cause companies to pause or halt investment plans in Southeast Asia. U.S. companies accounted for about half of Singapore’s $9.5 billion in fixed-asset investment last year, according to the city-state’s Economic Development Board. In his congratulatory letter to Trump, Prime Minister Lawrence Wong was quick to remind him that the United States enjoys a “consistent trade surplus” with Singapore.

Any blow to the Chinese economy will have repercussions for Asean countries that depend on Chinese consumption, export demand and tourism. A reduced appetite for Chinese goods will also affect Southeast Asian suppliers of inputs to Chinese producers. Indonesia, Southeast Asia’s largest economy, will suffer the most because it exports 24.2 per cent of its goods to China, mainly commodities.

Unable to send their goods to the U.S., Chinese exporters may turn to Southeast Asia, where governments have faced complaints from local producers hurt by dumping in metals, textiles, and consumer goods.

What is Southeast Asia’s advantage?

Southeast Asia’s current manufacturing boom started because of the trade war. Over time, analysts expect trade substitution and diversion to outweigh the hit to growth.

“We think a stronger crackdown on China could lead to more supply chain diversion as Chinese companies trade and invest more in Asia,” said Jayden Vantarakis, head of ASEAN research at Macquarie Capital.

“Electric vehicle factories, which some Southeast Asian governments are aggressively pursuing, could provide an economic buffer. Demand for EVs is also growing outside the U.S., so I think there could be a net benefit for Indonesia. Smaller countries that are trying to be carbon neutral, especially as petrol prices get more expensive, will try to take over the supply and buy more electric cars,” said Sumit Agarwal, a professor at the National University of Singapore’s School of Business.

Trump’s promised tariffs could embolden Asean governments to impose anti-dumping duties on Chinese goods, as Thailand did on rolled steel this year. Stricter U.S. rules of origin could also give governments an opportunity to ensure that more high-value parts are produced and assembled locally.

How will Southeast Asian currencies and markets be affected?

Trump’s tariffs could reduce pressure on Southeast Asian central banks to ease monetary policy further.

“Essentially, Trump’s victory is inflationary for the world because of his planned tariffs, so the global monetary normalization or easing cycle will probably not be as sharp as previously thought, including in the Philippines,” said Miguel Chanco, chief emerging Asia economist at UK-based Pantheon Macroeconomics.

Speaking to Nikkei Asia, Chanco said Southeast Asian currencies will not strengthen as much as previously expected, partly because markets are re-pricing the pace of easing by the U.S. Federal Reserve and thus the dollar will continue to strengthen.

Among Southeast Asia’s six major economies, the Thai baht and Malaysian ringgit have been the worst-performing currencies since Trump’s victory, losing 3.2 per cent and 2.9 per cent respectively against the U.S. dollar through Wednesday.

Thai brokerage InnovestX recommended stocks that would benefit from a strong dollar and weak baht. These include companies with significant export earnings, such as CP Foods and Delta Electronics, or tourism-related companies such as Airports of Thailand, property developers and hoteliers.

Governments are already taking steps to reduce their over-dependence on the U.S. or China by deepening ties with other countries and regions and emphasizing their neutrality.

Southeast Asian economies in particular are also expected to focus on building resilience by strengthening intra-ASEAN trade.

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Japan’s exports rise despite global risks, boosted by China

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Japan’s exports rose more than expected in October, driven by strong demand from China and other parts of Asia, despite growing uncertainties in global markets.

Exports increased by 3.1% year-on-year, led by significant growth in shipments of chip-making equipment, particularly to China, according to the Finance Ministry’s report on Wednesday. This marked a rebound following the first drop in 10 months in September. October’s figures exceeded economists’ forecasts of a 1% rise and were also bolstered by increased shipments of medical products to the United States.

Meanwhile, imports edged up by 0.4%, defying expectations of a 1.9% decline. As a result, the trade deficit widened to 461.2 billion yen ($2.98 billion), compared to 294.1 billion yen in the previous month.

This stronger-than-expected export performance has raised optimism about Japan’s economic recovery. Although the country’s gross domestic product (GDP) expanded for the second consecutive quarter through September, the pace of growth has been tempered by the drag from net exports.

“Today’s data raises hopes that external demand will revive in the October-December quarter,” said Hiroshi Miyazaki, Senior Research Fellow at the Itochu Research Institute. “The Chinese government’s stimulus measures have stabilized its economy and reversed the prior decline.”

Exports to China rose by 1.5% last month, rebounding from a 7.3% drop in September, with semiconductor manufacturing equipment exports surging by nearly a third. These gains align with signs that China’s stimulus policies are beginning to yield results, driving growth in certain sectors and boosting consumer spending.

Notably, Japanese exports grew despite the yen’s strengthening against the dollar, averaging 145.87 yen per dollar in October—2% stronger than the previous year, according to ministry data.

The export rebound occurs against a backdrop of heightened concerns about global trade policies. Business leaders are bracing for the potential return of Donald Trump to the White House, with fears that his proposed tariffs—60% on imports from China and 20% on other nations—could disrupt international commerce.

Some regions are already experiencing a slowdown. Shipments to the United States and Europe declined by 6.2% and 11.3%, respectively, in October.

The Bank of Japan (BoJ) is closely monitoring these developments. BoJ Governor Kazuo Ueda noted on Monday that while the Federal Reserve’s prospects for a soft landing have improved, risks tied to the U.S. economy and their impact on global markets require careful consideration.

The most pressing concern for Japan’s trade outlook is the impact of potential U.S. tariffs. Historical data from the U.S.-China trade war (2018-2019) suggests that a 1% increase in export prices, including tariffs, led to a 0.35 percentage-point reduction in profit margins for Chinese exporters, according to research from Stanford University’s Centre for Chinese Economics and Institutions. A similar scenario could hurt Japanese firms’ profitability, counteracting gains from the yen’s depreciation.

“We are not yet at a stage where Trump’s tariff policy is clearly impacting export volumes or exporters’ behavior,” Miyazaki told The Japan Times. “However, there remains significant uncertainty, and we must continue to monitor the policy stance of the next Trump administration,” he added.

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IMF reviews Pakistan’s $7bn bailout

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An International Monetary Fund (IMF) team conducted an unscheduled visit to Pakistan last week to assess the country’s progress on the terms of its $7 billion bailout package. The surprise visit, coming less than two months after the loan’s approval, has raised questions about the future of the bailout program. IMF staff are expected to present their findings to the Washington-based executive board for review.

What prompted the IMF’s unexpected visit to Pakistan?

Several officials, speaking to Nikkei Asia on condition of anonymity, highlighted key factors prompting the visit. These included a $685 million shortfall in the government’s tax collection target for the first quarter of the current fiscal year and a $2.5 billion deficit in the external financing required under the bailout terms. Compounding these issues was the failed sale of Pakistan International Airlines (PIA), a key component of the IMF-recommended privatisation drive.

While routine IMF program review visits are standard, the timing of this visit—just seven weeks after board approval—has raised concerns. “This suggests significant difficulties in implementing the program,” said Naafey Sardar, an economics professor at St. Olaf College in the United States, speaking to Nikkei Asia.

Ikram ul Haq, a lawyer specializing in economic and tax policy, added, “The reality is that the government’s promises to the IMF have not been fulfilled.”

What were the key issues discussed?

The IMF raised the issue of the tax gap and urged action to ensure that Pakistan meets its annual tax collection target of $46 billion.

Islamabad was also asked to engage with Saudi Arabia and China, the largest investor, to bridge the external financing gap. Promised energy sector reforms and the repayment of billions of dollars of debt owed to mostly Chinese-backed power plants in Pakistan were also discussed.

Another issue was for the IMF to press provincial governments for more funds, such as the Benazir Income Support Programme, which provides a $2.1 billion annual cash transfer for poverty alleviation, currently paid for by the central government.

How does agricultural income tax fit into this picture?

As part of the loan agreement, Pakistan’s provinces missed an end-October deadline to harmonize their agricultural income tax laws with the federal income tax.

The IMF had previously said that Pakistan’s loan agreement would be in jeopardy if agricultural income remained largely untaxed. During the meetings, provincial government officials told the IMF that they would face significant difficulties in implementing a higher tax.

Economist Aqdas Afzal said such a move would face significant opposition from big landowners, who are disproportionately represented in the federal and provincial assemblies.

“Given the weak mandate of the current government, a higher agricultural income tax is unlikely as it could trigger major social and political unrest,” he added.

What assurances has the government given to the IMF?

Pakistan has assured the IMF that it will increase the provincial agricultural income tax rate by up to 45 percent. It has also pledged to meet annual tax collection targets and to continue reforms in the energy sector and state-owned enterprises.

“This is an ongoing dialogue process and there have been discussions [with the IMF] on energy and SOE reforms, the privatization agenda and public finance,” Pakistan’s Finance and Revenue Minister Muhammad Aurangzeb told local media.

Haq, a tax expert, said the government’s primary focus would be on meeting the six-month revenue collection target set by Pakistan’s Federal Board of Revenue, a government agency that regulates and collects taxes.

What are the challenges ahead for Pakistan’s loan agreement?

Meeting tough tax targets and implementing structural reforms are major hurdles for the government to overcome.

The IMF has previously cancelled other loan programmes when conditions were not met. Payments to Pakistan could be suspended or stopped altogether, which would be a serious blow to a country struggling with a sputtering economy.

The IMF is pressing for cuts in government spending.

“Structural reforms are being resisted by vested interests, making efforts to meet IMF conditions even more difficult,” Haq said.

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