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INTERNATIONAL EDITIONS: HIGHLIGHTS AND EXCLUSIVES, AUGUST 11, 2008 ISSUE

COVER: Inflation Explosion (All overseas editions). Senior Editor Rana Foroohar reports on why globalization, which used to be all about making things cheaper, has led to half the world living with double-digit inflation. Between 2003 and 2007, world GDP grew 5 percent per year-faster than it ever has. But freer trade, cheaper emerging-market labor, better technology and prosperity, made everyone from consumers to policy makers to the bankers financing it forget that this unprecedented growth came with greater global demand for things such as labor, food and energy. And now, for the first time in 35 years, the world is facing a serious, and synchronized, surge in inflation. The fact that so much in the global economy has changed since the last major bout of inflation makes it difficult to predict what the exact fallout will be. It's not clear how inflation will affect global growth, but it won't be pretty. Seminal studies by Stanley Fischer and Robert Barro suggest that the impact really starts to kick in after inflation rises above the range of 5 to 7 percent (the global average is now 5.5 percent). The IMF is predicting that global growth this year will be about 4 percent, a full point lower than last, in large part because of inflationary effects.  All of this underscores just how complex is the new economic order.

http://www.newsweek.com/id/150418

      Explaining the Pain. Newsweek asked several economic leaders and experts to lay out the inflation problem and discuss how to fix it. A sampling:

Dominique Strauss-Kahn, managing director of the International Monetary Fund: "There are actions we can take to ease the pain of those hit hardest by food and fuel price rises. Well-targeted income support can ease the burden of relative price changes on the poorest citizens. Support from donors and multilateral institutions, including the IMF, which I head, can ease the burden on the poorest countries."

Stephen Roach, chairman of Morgan Stanley Asia: "The U.S. has been on the brink of recession for six months, and the growth outlook is deteriorating in Japan and, more recently, Europe. But there is a critical difference between today's stagflation risks and those of the 1970s, which started in rich industrial countries. Policy mistakes and an insidious wage-price spiral led most people to expect that inflation would keep rising, which then became a self-fulfilling prophecy. Now, it's no longer common in developed economies to index wages to inflation, and wages are restrained by structural (global competition) and cyclical (recessionary) forces."

Jeffrey Garten, the Juan Trippe Professor of international trade and finance at the Yale School of Management: "My vote is to attack inflation first, foremost and decisively. Ultimately uncontrolled price increases will fall hardest on the poor and vulnerable, and soaring prices will only create a situation in which the ultimate medicine will be even more painful than it would be today. Moreover, it is crucial to head off inflation before the expectation of price increases becomes a self-fulfilling prophecy for companies pricing their products and workers pushing for raises."

http://www.newsweek.com/id/150419

GLOBAL INVESTOR: Now Green Means Business. Zachary Karabell, president of River Twice Research and senior adviser to Business for Social Responsibility, writes that sustainability and green business are all the rage globally. "The reason: sharply higher prices for oil and raw materials have changed the landscape for countries and global corporations, making reductions in energy use economically viable and strategically important in a way that no amount of green activism ever could. Any company with a supply chain and global operations must either reduce its oil consumption, and so its carbon footprint, or rapidly see its profits eaten up by fuel bills," he writes. 

http://www.newsweek.com/id/150431

Jerusalem Up Against the Wall. Jerusalem Bureau Chief Kevin Peraino reports that the most recent attacks in Israel by East Jerusalemites may not have been coordinated, but there are common denominators among the attackers. All three came from small, provincial East Jerusalem neighborhoods. Even as Israeli settlements proliferate in East Jerusalem, building permits for Palestinian homes are becoming a rarity. Israel's separation barrier has kept potential suicide bombers from crossing out of the West Bank. Yet with their blue ID cards, East Jerusalem's 250,000 Arab residents enjoy significantly greater freedom of movement within Israel than West Bank Palestinians. Even as Israeli leaders have been talking more than fighting with antagonists like Hamas, Hizbullah and Syria, violence is spiking in the heart of Jerusalem.

http://www.newsweek.com/id/150471

Britain's Great Divide. London Reporter William Underhill reports that after 11 years of Labour government the gap between rich and poor is at its widest in at least 50 years and continues to broaden. Making matters worse, social mobility is lower in Britain than in any other developed nation, according to the Organization for Economic Cooperation and Development. Such figures make for bleak reading for Labour Prime Minister Gordon Brown, who has promised this summer to offer a series of new proposals to tackle the problem by the end of the year. 

http://www.newsweek.com/id/150422

Emerging Fault Lines. Special Correspondent Andrew Bast reports on the growing opposition forces in Latin America against the region's populist leaders. Evo Morales in Bolivia and Rafael Correa in Ecuador, who shared a populist vision for what became known as 21st-century socialism, capitalized on the ruling elite's failure to relieve growing poverty. These leaders created a slew of new provincial opposition forces, who are attempting to advance their own interests while retaining or increasing their regions' share of oil and gas revenue.

http://www.newsweek.com/id/150426

WORLD VIEW: China Shouldn't Be Inscrutable. Newsweek International Editor Fareed Zakaria writes that as the Beijing Olympics start, you might think this would be an occasion for serious analysis and reflection about China. But, instead, we've mostly heard a familiar recitation of clichés about the country. "China is a complicated country," Zakaria writes. "It has a closed political system but an open economy and an increasingly vibrant society. It is building up weapons systems at a fast clip, yet is not directly competing against American military power ... To say that this new China is the same as the old (meaning Mao's totalitarian state) is to be ignorant or ideological, or both. It is not an accident that many ferocious China bashers have rarely visited the country."

http://www.newsweek.com/id/150460

THE LAST WORD: Celso Amorim, Brazil's foreign minister and trade chief. Amorim says that the breakdown of World Trade Organization talks in Geneva over a global rule book slated to boost world wealth and lift millions out of poverty means that there will be pressure for bilateral and regional deals.  "The more diversified a country's trading pattern ... the more complicated it is to make the right deals with the right countries. And crucial things, such as farm subsidies that distort markets, cannot be solved in bilateral deals."          

http://www.newsweek.com/id/150430