Return of the Basket Case

On the eve of a fundamentally flawed election, Bangladesh teeters on the edge of the precipice.

Bangladesh rarely registers in the minds of most Americans, but U.S. policymakers would be well advised to devote some urgent attention to the country. As things stand now, general elections scheduled for Jan. 5 look virtually guaranteed to leave a trail of bitter division, wide-scale violence, and chaos in their wake. That's a surefire recipe for disaster -- especially in the world's third most populous Muslim-majority nation.

Born of civil war in 1971, Bangladesh's early history was plagued by cycles of political violence and heavy-handed military intervention. Secretary of State Henry Kissinger once derisively labeled it the "basket case" of South Asia. But while chronic instability continues to plague other poor countries, Bangladesh over the past 25 years has made remarkable progress in establishing civil government and democratic norms. One of the keys to its success was the creation of an institution known as the poll-time caretaker government -- a neutral cabinet of technocrats seated 90 days before national elections with the sole purpose of ensuring a free and fair ballot. Under this system, Bangladesh witnessed multiple democratic transitions over two decades, while turning itself into a center of low-cost global manufacturing where living standards have steadily risen, infant mortality has fallen, and the status of women has improved dramatically.

Now, however, that progress has been put at great peril. Kissinger's basket case looks set to return. The cause, not surprisingly, is politics -- particularly, the aftermath of the unilateral decision in 2011 by Prime Minister Sheikh Hasina and her ruling Awami League (AL) party to abolish the caretaker government system from the Constitution. The reckless maneuver has created a violent impasse between the Awami League and its main political opposition about how to hold credible elections, prompting statements of concern in recent weeks from Washington, the European Union, the United Nations, even China -- which almost never takes a position on the internal politics of other states.

Hasina has ignored the expressions of worry and refused to relinquish power to a neutral government to oversee the Jan. 5 elections. Instead, she formed an "all-party" election-time government in late November that is comprised mostly of members of her immediate past cabinet. AL losses in local elections since 2011 gave Hasina a strong incentive to retain control over the national ballot to ensure her party emerges victorious over more conservative and Islamist foes.

Fearing the AL will rig the 2014 vote, opposition parties have responded with huge protests. Ensuing clashes with security forces have triggered Bangladesh's worst pre-election turmoil in almost two decades, leaving more than 100 protesters dead and the main opposition party's leader under virtual house arrest. This past weekend, the government shut down transportation into Bangladesh's capital and arrested hundreds, including senior opposition leaders, as part of a wider coordinated effort to block an opposition rally from being held.

Further stoking tensions, the government has orchestrated war crimes trials against leaders of Bangladesh's main Islamist party and its allies for sins allegedly committed 40 years ago during the country's founding. Seven opposition leaders have been sentenced to death or executed as part of a campaign that international observers have criticized for lacking due process. During the 1971 war of independence, heinous crimes were committed against the Bangladeshi people. Local collaborators should stand trial as is appropriate for any war criminal throughout the world, but not by a kangaroo court that makes a mockery of the judicial system. The precedent set by the lack of internationally acceptable judicial process in these trials means there is no telling what will come next in the AL government's push against its political opponents.

The country's largest opposition party, the Bangladesh National Party (BNP), has announced that it will boycott the elections. It has also rejected participation in the all-party interim government under Hasina's control -- condemning it as a wholly inadequate substitute for a caretaker government, designed with the sole purpose of providing political cover for the AL's manipulation of the balloting.

Without the BNP's participation, the elections are almost certain to be viewed as a sham, lacking all legitimacy. Indeed, a survey of Bangladeshis had projected an overwhelming defeat for the AL if elections were held freely with all parties participating. Instead, Bangladesh has now been treated to the farce of 154 candidates already being officially certified as victors because they're running unopposed -- securing an AL majority in the 300-seat parliament even before a single vote has been cast. Not surprisingly, in their own vote of no confidence, both the United States and the European Union have declined to send election observers.

This is a slow-motion train wreck that everyone can see coming. The democratic process is about to take a major hit in one of the world's largest Muslim-majority countries, where poverty remains endemic and radical Islamists lurk in the wings to exploit any opportunities that may arise. A fuse has been lit -- and if it's allowed to go off it will almost certainly result in an explosion of ever-worsening protests, violence, and instability.

In an effort to avert the coming disaster, the United States, European Union, and United Nations have repeatedly encouraged the AL and BNP to engage in dialogue to resolve the crisis. Yet they have consistently stopped short of calling for the establishment of a neutral poll-time government -- the only vehicle with a proven track record of ensuring sustainable elections. Officials in Washington may fear that voicing support for a caretaker government would be seen as an endorsement of the BNP, and could hurt relations with an AL-led government if it prevails. But this wait-and-see approach has forfeited significant international leverage to shape a peaceful, credible electoral process that is capable of garnering legitimacy both in Bangladesh and abroad.

Though very late in the game, it's time for the international community to voice support for a clear and proven method for continuing Bangladesh's democratic elections. The world must denounce the coming electoral travesty in Bangladesh and call for the immediate installation of a neutral poll-time government that can ensure free, fair, credible, and inclusive elections. Bangladeshis themselves are calling out for this: a survey shows that almost 80 percent of the public supports elections administered by the non-political caretaker system, far more than the 28 percent who planned to vote for the AL that rejected the neutral poll-time government.

Time is running dangerously short. But aggressive diplomacy, led by Washington, still stands a chance of avoiding the worst-case outcome and helping Bangladesh's citizens salvage the legitimacy of a democratic process that they've struggled hard to achieve. Though success is by no means guaranteed, the alternative to trying appears grim, indeed. If ever there was a time to exhaust the capacity for preventive diplomacy, this is it. With so much of the rest of the Islamic world descending into turmoil, now is not the time to stand on the sidelines as one of the world's largest Muslim countries slips inexorably into chaos.



The One-Year Plan

Six major trends to watch in 2014, as China embarks on monumental economic reform.

If one thing defined China in 2013, it would be how the current and future state of its economy inspired sharply divergent views. Although the Chinese economy will have grown to about $9 trillion at the end of 2013, it is clearly slowing down. Opinions differ widely on whether the slowdown can be managed and orderly or whether it will be precipitous and destabilizing. Some analysts, like Nouriel Roubini, have been predicting for years "a meaningful probability of a hard landing in China after 2013," while former World Bank Chief Economist Justin Lin, an outlier even for optimists, argues that China can maintain near 8 percent growth for decades to come.

The landing in 2014 will be soft, but much still hinges on how Beijing navigates its structural economic reforms and how disruptive they will be to the broader economy. Major change is almost always uncomfortable for those that benefit from the status quo. But the Chinese government feels it has to shake that up -- to reform its way out of potential economic bottlenecks like the middle-income trap, the difficulty that moderately-developed nations face in reaching the elite league of high-income economies.

That's why reform will be the central task as China gallops into 2014, the Year of the Horse. As Chinese leaders have repeatedly exhorted the government to "roll up its sleeves" and get things done, 2014 will prove to be a pivotal year in how the balance between reforms and economic growth plays out. Here are six areas to watch:

The economic slowdown is real, but is it all bad?

In 2014, pundits will go to battle again over how much more deceleration the Chinese economy can withstand, and what will cause that inevitable slowdown. But it seems relatively certain that macroeconomic policy will tilt "pro-reform" rather than "pro-growth." Premier Li Keqiang said in November 2013 that China only needs 7.2 percent GDP growth -- less than the 2013 target of 7.5 percent -- to sustain momentum and create the number of jobs needed to absorb an expected 12 million new workers.

The official mantra for 2014 macroeconomic policy remains "stabilizing growth while progressing" on reforms (wenzhong qiujing), strongly implying that top policymakers are focused on creating the conditions for reforms instead of stepping hard on the growth accelerator. Look for Chinese policymakers to set a 7 to 7.5 percent target for 2014 GDP growth -- if they continue the tradition of setting an official target -- as the ship of state redirects to contend with economic reforms.

Local debt is ballooning and the government aims to deflate it

What exactly is the size of China's local debt? The Chinese Academy of Social Sciences, a leading government think tank, estimated it reached roughly $3.3 trillion at the end of 2012; the market consensus expected it to be around $3 trillion. And in late December 2013, the Chinese government finally provided its own official tally when it released the results of its highly anticipated national audit: $2.95 trillion. Even though slightly below expectations, the official number is nonetheless disconcerting because it shows an increase of almost 70 percent since the end of 2010, when the last audit was conducted. (China's total public debt is an estimated 53.3 percent of GDP -- while it's growing rapidly, it's still quite a bit lower than that of the United States and many European countries.) 

Even if the central government eventually rolls over a large portion of the debt, local governments will still need new sources of revenue to sustain their spending and investments, which is why fiscal reforms will be another priority in 2014. One reason that debts have piled up is that local governments have not only borrowed from state banks but also from shadowy investment vehicles to sustain investment on infrastructure and other construction. If they continue to rely on state bank financing, much of that funding could find its way into nonproductive local investments -- further raising the liabilities on their balance sheets.

Beijing remains officially sanguine over its ability to get the debt under control. But its credibility could easily be called into question in 2014 if it doesn't quickly and clearly articulate a path toward controlling the situation and ensuring that debt does not severely constrain future growth. If Beijing can't convince the market that it considers the debt a serious problem deserving of a swift response, investor confidence in the resilience of the Chinese economy could weaken.  

End of the 12th Five-Year Plan cycle looms

While the reform-focused November 2013 plenum captured most of the attention, international observers seem to have ignored the 12th Five-Year Plan (FYP) -- the massive blueprint that is meant to guide macroeconomic policies from 2011-2015. It is laden with specific targets on energy and environmental goals, including the ambitious call to cut energy and carbon intensity by 16 percent and 17 percent, respectively.

As China enters year four of this cycle, there will likely be a concerted push to meet many of those targets. In the previous administration, former Premier Wen Jiabao made it his mission to achieve the energy-intensive reduction target during the last years of the 11th FYP. At the time, many observers believed Beijing would easily shift back to pro-growth and industry-friendly policies. But Wen instead put significant pressure on heavy industry, which slowed economic activities in certain areas where these industries were concentrated. (Sure enough, the targets were met, at least according to officially published figures.)

A similar push in 2014 could well cause more disruptions to heavy industry, especially as Li and President Xi Jinping have prioritized environmental issues. If anything, pollution and environmental damage have worsened since the last FYP cycle. If policymakers assess that China risks missing its key targets on energy intensity and pollutant reduction, expect stronger environmental and energy regulations to curtail industrial activity and limit the use of coal. At the same time, China is expected to significantly boost the role of cleaner energy, such as natural gas, as a coal replacement.

Shanghai Free Trade Zone will need to show that it means business

The Shanghai government, with the full support of top leaders, inaugurated its newest and biggest free trade zone last September -- to a lukewarm reception from investors and foreign companies. Many observers were underwhelmed by the lack of concrete policies that followed, even as the zone billed itself as a launch pad for meaningful financial liberalization.

Still, the zone has not faded away. Chinese leaders intend it to be a proxy for how key financial reforms proceed in the rest of the mainland and many observers view it as an important step in turning Shanghai into a global financial hub that can rival Hong Kong. In late December, the People's Bank of China, the country's central bank, said that within three months it could formally initiate some of the most important pilot reforms in the zone, including those allowing experimentation with the free flow of capital, market-based interest rates, and an easily convertible currency. If successful, the bank said, the reforms could reach other regions in roughly a year. Expect any reform that makes it out of Shanghai to have a strong chance of receiving the top leaders' blessing to go national.

Urbanization continues to be a key -- and contentious -- driver of growth

Over the next several decades, an estimated 10 million rural Chinese are expected to move into cities and townships each year. Consequently, urbanization remains a key pillar of China's growth, and of the government's strategy of rebalancing away from investment and toward domestic consumption.

By the end of 2013, top policymakers appeared to have become more convinced that a "people-centric" approach to urbanization was better than one focused on infrastructure. Expect more emphasis on social policies, like job creation and welfare protection, and on fixing the hukou -- the household registration system that discriminates against new arrivals to urban areas.

Focusing more on people marks a shift from previous policy, and will trigger contentious debate on the core elements of the urbanization plan in the months leading up to the National People's Congress, an important party meeting held in March. The comprehensive -- though likely vague -- plan that will be released around the meeting will be a good occasion for companies and investors to see how they can benefit from China's renewed push to accelerate a slightly different kind of urbanization.

The anticorruption campaign kicks into high gear

With the release of the 2013-2017 Anticorruption Work Plan, which outlines ways to tackle systemic corruption, Beijing has sent another message demonstrating that fighting graft is a major objective of the top leadership. And the timeframe of the plan suggests that the pressure on fighting corruption will be turned up for the remainder of the current administration, to make progress before another major personnel turnover in 2017.

A full-throttled push should be expected in 2014, potentially culminating in netting the biggest "tiger" -- what Xi calls corrupt high-ranking officials -- of them all: Zhou Yongkang. A former member of the Politburo Standing Committee, China's most elite governing body, Zhou is reportedly under investigation for various actions taken while in the oil industry and then as a top politician.

Even without a Zhou bombshell, anticorruption efforts, so long as they train their fire primarily at the state sector, will continue to pave the way for gradual reforms of the state sector. Indeed, the anticorruption campaign is part of economic reforms: it can help to clear certain roadblocks -- vested interests -- by literally removing those who might oppose change.

In 2014, look for reforms to be much more politicized. After all, whether reforms succeed or not has always been a political question, not an economic one.

WANG ZHAO/AFP/Getty Images