Inside Singapore’s Socio-Economic Success


April 2, 2014

Singaporean Finance Minister Tharman Shanmugaratnam  on Singapore’s Socio-Economic Success

port-of-singaporePort of Singapore

Malaysia in 2014–A Perspective from Singapore


February 22, 2014

Malaysia in 2014–A Perspective from Singapore

For Singapore, due to history, geography, demography, economy and recent political experiences, Malaysia has perpetually been its lynchpin concern and preoccupation. In the past, S Rajaratnam, the Republic’s first foreign minister, had described Singapore’s relations with Malaysia as ‘special’ and there is nothing to suggest that this has changed in anyway. If anything, the ‘specialness’ has been intensified and further reinforced due to a whole array of factors, not least being the imperatives of national, regional and international economics. A weakening United States, an assertive China, an unstable Thailand and a new nationalistic leader in Indonesia can change the political and security architecture in the region to the detriment of both states and hence, their bilateral ties.

MALAYSIA-SINGAPORE-DIPLOMACYIn the 1950s and 1960s, culminating in Singapore’s expulsion from Malaysia in August 1965, the emotive dimension of Singapore’s view of Malaysia was dominant. Even though this has largely dissipated, it is not totally absent. Still, the pragmatism with which both states have moved forward is definitely a milestone achievement in bilateral ties in Southeast Asia.

For Singapore, continuity rather than change remains its key perspective on Malaysia. This was especially true after the May 2013 general elections where the Barisan Nasional (BN: National Front) was returned to power albeit with a weaker majority. Still, Prime Minister Najib, the United Malay National Organisation (UMNO) and the BN are in power and that is what matters even though the winds of change must also be disconcerting. The disquiet would be more, not so much from the economic aspect as it would be from the rising racial and religious polarisation of Malaysia in the last few years that was brought to the forefront during the last general elections.

The ‘Allah’ issue has not been helpful and the recent firebombing of a church in Penang has merely raised the ante of what this will mean for Malaysia and possibly, even multiracial and multi-religious Singapore. All that aside, the single most important development of late has been the rising warmth in Singapore-Malaysia bilateral ties under Lee Hsien Loong and Najib Tun Razak. While past imperatives of history, geography and demography remain relevant, most dominant in the new narrative has been the personal warmth of the two Prime Ministers (Lee and Najib) and the strategic nature of their bilateral ties.

Most of the past issues have been addressed or settled such as relocation of Customs and Immigration Complex, land reclamation and even water. Most importantly, has been the breakthroughs that both leaders have made vis-à-vis two issues, namely, the resolution of the Tanjong Pagar Railway Station and the land exchange deal as well as Singapore’s support for the Iskandar Development Project in Johor. Other positive developments in ties include the holding of annual leader’s retreats, re-establishment of links between both countries’ stock exchanges, Malaysia’s agreement to sell electricity to Singapore, the agreement to build high speed train link from Kuala Lumpur to Singapore, the amicable post-Pedra Branca technical talks to resolve legacy issues over the islands’ dispute and finally, the establishment of a Singapore consulate in Johor Baru.

If there is one key factor that has brought bilateral ties to a new height, it is the cooperation in the Iskandar Project. Not only is the Singapore Government supporting investments in the project through Government-linked companies such as Temasek Holding but also playing an important role in encouraging the private sector to invest in the project. Additionally, thousands of Singaporeans are expected to be permanently based in the Iskandar region and Johor as a whole, bringing interdependence to a level that was never seen before. To that extent, Iskandar has been the key game changer in Singapore-Malaysia bilateral ties of late.

The breakthrough in bilateral ties was a function of a number of factors. First, the decision by both sides to adopt a new approach to bilateral ties in order to garner win-win results. Second, the personal warmth of the top leaders was extremely helpful. Third, the calculation of the mutual benefits that would be gained by both sides in view of the increasing regional and global competition. Fourth, over the years, there has also been increasing economic interdependence with Singapore as one of the top investors in Malaysia over the last two decades or so. Two-way trade and investments are among the highest between the two states. Fifth, there is also the realisation of increasing security indivisibility of both states. Finally, the ideological pragmatism of both sides has also helped in boosting bilateral ties.

While Singapore expects Malaysia in 2014 to have a largely ‘normal’ year barring any unexpected events – all the more to be the case as the UMNO annual assembly has opted for status quo – the Republic is also mindful of the many uncertainties that can unexpectedly crop up to affect bilateral ties. While 2014 can expect the warming of ties to continue, this cannot be taken for granted. First, the warm ties of two Prime Minister, both of whom are sons of two former prime ministers  who were not close, may not survive personalities if a more nationalistic prime minister takes over in Singapore or Malaysia. Second, tensions could surface if the promised cooperation proves futile or produces one-sided benefits, say in Iskandar Project. Finally, growing domestic tensions in Malaysia, especially among the Malay and Chinese communities in Johor or in Malaysia could spill over into Singapore-Malaysia relations.

Hence, for Singapore, while Malaysia in 2014 is expected to continue ‘good business as normal’, there are also potential minefields that might explode, and hence, the need for caution. ‘Special relations’ are important but can never be taken for granted, and this also holds true of Singapore’s view of Malaysia in 2014.

Bilveer Singh is Associate Professor at the Department of Political Science, National University of Singapore, adjunct senior fellow at the S Rajaratnam School of International Studies and President of the Political Science Association of Singapore.

When America Becomes Number Two


January 27, 2014

When America Becomes Number Two

by Kishore Mahbubani(01-21-14)

professor-kishore-mahbubaniKishore Mahbubani is Dean of the Lee Kuan Yew School of Public Policy and author of “The Great Convergence: Asia, the West and the Logic of One World.” 

In 2019, barely five years away, the world will pass one of its most significant historical milestones. For the first time in 200 years, a non-Western power, China, will become the number one economy in purchasing power parity (PPP) terms. America will become number two. Yes, it will take longer for China’s economy to overtake America’s in nominal terms but the trend line is irresistible. And in PPP terms, China’s economy could be twice that of America’s by 2020.

The big question for our time therefore is this: is America ready to become number two? Sadly, it is not, even though Bill Clinton wisely tried to wake up his fellow Americans as far back as 2003. In a very subtle speech at Yale, he asked whether “we should be trying to create a world with rules and partnerships and habits of behavior that we would like to live in when we’re no longer the military political economic superpower in the world.”

Unfortunately, Bill Clinton was too subtle. He was trying to hint to his fellow Americans that America should create a model of rules-based behavior that would then serve as a model for China when it emerged as the number one power in the world. His hint was ignored. Hence, few Americans today are aware that America’s national interests change dramatically when it becomes number two in the world. When it is number one, it is in America’s interests to see that the number one power has complete freedom to do whatever it wants to do. When it is number two, it is not in America’s interests to see that the number one power has complete freedom to do whatever it wants to do. Catch the difference?

Why have American leaders failed to prepare the American population for this significant change of interests? There are at least three reasons. Firstly, it is political suicide for any American politician in office to speak on America as number two. As I document in The Great Convergence, no serving American politician can use the words, “If America is number two…” or “When America becomes number two…” In the land of free speech, there is no effective freedom for serving politicians to speak undeniable truths.

Secondly, most American intellectuals continue to indulge in wishful thinking. In their minds, there is a deep ideological conviction that democracy represents the future and Communism represents the past. Since China is still run by the Chinese Communist Party, it can only represent the past, not the future. Many American intellectuals also believe that since they live in the world’s freest society, they cannot possibly be prisoners of any ideology. This is massive self-deception. When it comes to understanding China, Americans have allowed ideology to trump mountains of empirical data. This is why they cannot even conceive of China becoming number one.

Thirdly, and very sadly, China’s emergence is taking place at a moment of great political paralysis and disunity in the American body politic. If Nixon and Kissinger were managing American foreign policy today, they would have focused on the most critical challenge that America faces and found ingenious ways and means of implementing the wise advice that Bill Clinton offered in 2003 and prepared for a new geopolitical environment. The days of wise foreign policy management are long gone in Washington, DC. Furthermore, with Washington, DC being completely divided and polarized, the challenge of dealing with becoming number two is the last thing on the minds of American policymakers.

Sadly, the last thing on the minds of American policymakers will come true in five years. Will America wake up to this new reality before or after it happens?

http://www.huffingtonpost.com/kishore-mahbubani/when-america-becomes-numb_b_4603125.html 

The Malaysian Consumer and the Fight against Inflation


January 21, 2014

The Malaysian Consumer and the Fight against Inflation

by Tan Sri Dr. Mahboob Sulaiman@www.nst.com.my

As a society, we too have a role to play in ensuring that inflation is controlled. Let us exercise our power, as consumers, to control unreasonable price increases by judicious spending and economising on our energy use as well as changing our consumption spending pattern.–Dr. Mahboob Sulaiman

THE interest on inflation is reactivated now with the Consumer Price Index (CPI) approaching  three per cent.

Dr Mahboob SulaimanMalaysians are used to price stability for a long time, except for a few years, such as in 1973/1974, 1998, and in 2008. The inflation in 1973/74 and in 2008 was caused by an increase in oil and rice prices at the same time.

Some agitators recently conducted a demonstration on the eve of this new year, using the rising prices as an issue to air their grievances.I wonder what would they do if the country was experiencing an inflation rate of eight to 12 per cent annually as is being experienced for many years in China and India, given the countries’ rapid economic growth.

Blaming the authorities alone for the price pressure reflects a poor understanding of market forces. There is a market involving producers and consumers out there whose total effect determines the prices of products. This is the famous Adam Smith’s invisible hand or the market forces. The government’s policy to control prices only covers essential goods and services, enforced especially during festive seasons.

Inflation and high prices are two different things; inflation is a rate of change in general price level. One can have low inflation despite prevailing high prices of goods and services or high inflation at low price levels. It is the rate of annual price increase that is defined as inflation. Nevertheless, high price increases will invariably be translated into inflationary pressures.

High prices can be caused by high level of aggregate demand (demand-pull factor) when the economy grows beyond its sustainable levels. Our current rate of economic growth is still below our growth potential of about six to seven per cent per annum. Hence we cannot say that our current inflation is caused by excessive demand. There are also other contributing factors, such as rising cost of production including high wages, high cost of imports, and supply shortages as well as market imperfection.

One factor that may also cause increase in price level is declining rates of exchange which result in rising cost of imports. The Malaysian ringgit declined recently, with the rising value of the dollar under the impetus of the tapering policy of the Federal Reserve which led to outflows of fund from the region back to the United States, thus strengthening the US dollar vis-a-vis other currencies.

Hopefully, the decline in the ringgit will spur increases in exports thus helping our balance of payments position again. An improved external demand will help the nation to increase industrial production and a higher rate of economic growth.

The current increase in price level has not pressured our central bank to undertake monetary policy measures, such as raising interest rates and initiating open market operations. The bank is therefore still monitoring the price development.

Inflationary expectations by consumers and suppliers may result in price increases, too, as the nation is deliberating on toll increases, wage increases, increases in local government assessment rates and revision in electricity tariffs. Suppliers may have also increased the prices of certain goods now that the government has raised fuel price (RON95) and reduced sugar subsidy.

Powerful supply chain organisations can indeed raise prices much higher than the expected increase brought about by the 20 sen increase in RON95 fuel price and doing away with sugar subsidy. Analysing the supply chain using the input-output technique, tells us that supplies account for the bulk of costs of products and services. Thus, market intermediaries have a lot to explain the price increases if the resultant price adjustment after subsidy rationalisation appears unreasonable.

As usual, we as consumers are again at the disadvantage with price increases because of our weaker position as well as the lack of information on price conditions to enable us to exercise our purchasing power effectively and contribute to price stabilisation. However, this should not be the case. Consumers must exercise their power to ensure suppliers do not willy-nilly increase prices.

A detailed and comprehensive study of the causes of the current high prices needs to be donenajib-razak1 immediately so as to enable an accurate policy prescription to be implemented.

If supply is the cause of price increase then policy prescription may include import liberalisation and reducing domestic supply bottlenecks to increase domestic production and supply. In such a case, the policy response to increase KR1M (Kedai Rakyat Satu Malaysia) outlets therefore appears quite right.

Given the above explanation, one should not jump into conclusion that public policies have failed to arrest price increases. As a society, we too have a role to play in ensuring that inflation is controlled. Let us exercise our power, as consumers, to control unreasonable price increases by judicious spending and economising on our energy use as well as changing our consumption spending pattern.

Vietnam in ASEAN and ASEAN in Vietnam


November 24, 2103

east-west-center-asia-pacific-bulletinNumber 242 | November 21, 2013

ANALYSIS
Vietnam in ASEAN and ASEAN in Vietnam

By Le Dinh Tinh and Hoang Hai Long

Vietnam is increasingly looking to ASEAN as a main pillar for its foreign policy. A landmark shift occurred when Vietnam chaired ASEAN in 2010 and important regional issues such as community-building, economic connectivity, and the South China Sea were discussed and membership for the United States and Russia to the East Asia Summit was granted.

Today, the overriding theme in Vietnam’s foreign policy is international integration; earlier, the country emphasized only domestic economic growth and integration. Acknowledging that economic integration remains the core policy goal of Vietnam, security and regional politics are now also beginning to take a more prominent role.

Why ASEAN?

Vietnam recognizes that by working with ASEAN it can have a greater impact on regional and global events, rather than by just acting alone. ASEAN is Vietnam’s bridge to the wider world and a safety net when the country faces global and regional problems. Economically, ASEAN offers substantial benefits to Vietnam. Bilateral trade was almost $38 billion in 2012, a ten percent increase from 2011 and accounted for 17 percent of Vietnam’s total trade. ASEAN is Vietnam’s third-largest market for exports after the United States and the European Union, ahead of Japan and China. Vietnam’s exports to ASEAN exceeded $17 billion in 2012, a 26 percent increase from the previous year. Singapore and Malaysia are Vietnam’s 7th and 8th largest export destinations, totaling $1.5 billion and $2.8 billion, respectively. Vietnam’s agricultural exports to ASEAN totaled almost $4 billion in 2012, a four-fold increase since 2000.

It is anticipated that intra-ASEAN trade will total 35 percent of ASEAN’s total trading volume by 2020 after implementation of the ASEAN Economic Community in 2015. In addition, over a fifth of the total foreign direct investment that Vietnam receives comes from ASEAN members, almost $47 billion at the end of 2012, with Singapore and Malaysia the largest ASEAN investors. Another growing market is tourism and people-to-people exchanges. Overall, the mutual Vietnam-ASEAN economic benefits continue on an upward trend.

On the geostrategic stage, Vietnam has membership benefits in the Asia-Pacific Economic Cooperation (APEC), the World Trade Organization (WTO) and the ambitious Trans-Pacific Partnership (TPP), partly because it is a member of ASEAN. Other benefits of free trade agreements, including the ASEAN Free Trade Area (AFTA), is that they have enabled Vietnam to meet international standards for macro-economic policies, tackling corruption and stimulating home-grown enterprises.Vietnam policy makers need to focus on a peaceful and stable security environment. For the sake of long-term development, Vietnam must be a fully active participant in the evolving security and political architecture currently unfolding in the region.

ASEAN is not only a logical starting point for this venture; it is the anchor for the region’s future. First, ASEAN provides an open venue for smaller countries to come together and establish new relationships and cement existing ones on the basis of mutual interests. With ASEAN, small member countries can align their interests, thus supplementing their relationships with major countries. As the Asia-Pacific attracts more attention, major countries are proactively seeking to strengthen bilateral ties with various actors in the region.

Taking advantage of this new opportunity, Vietnam has reciprocated positively, deepening relations with all permanent member countries on the UN Security Council, along with other important partners including India, Japan, South Korea, and Australia.

However, as the security climate in the region becomes more complicated, a vortex of constantly shifting interests and alliances is unfolding due to the maneuvering of major powers. Vietnam is naturally seeking an enhanced web of interlocking interests with its immediate neighbors and despite its flaws ASEAN has proven to be a transparent, inclusive and effective partner for Vietnam. This partnership creates, among other things, added leverage for Vietnam to boost relationships with major countries, for instance, via the ASEAN+1 (China) and ASEAN+3 (China, Japan and South Korea) mechanisms.

Second, ASEAN helps magnify Vietnam’s ability to politically integrate into the larger Asia-Pacific region. The East Asia Summit (EAS) is the key framework for regional leaders to discuss political and strategic issues while the ASEAN Regional Forum (ARF) is developing into an inclusive multilateral security forum. The ASEAN Defense Ministers’ Meeting Plus (ADMM+) enables ASEAN member to interact with major powers and provides a high-level venue to discuss transnational defense-security cooperation.

These forums and their success to date have proven ASEAN’s value as an honest broker and mediator for all parties in sensitive security issues. ASEAN’s centrality in regional security architecture cannot be underestimated and this relevance, vitality and influence will continue well into the future.

Why Vietnam?

ASEAN’s strength has always been the unified and combined strength of its members, and in order for ASEAN to be strong and cohesive its members have to be economically prosperous and secure. Vietnam’s successful economic development is certainly due in part to its ASEAN membership, and in turn Vietnam has also made many positive contributions to the strength of ASEAN as an institution.

After more than 20 years of reform and opening up, also known as the era of “Doi Moi” (renovation), Vietnam has made significant achievements on all fronts, including economic growth, social progress and political stability. From an import-based economy, Vietnam has exerted herself onto the global stage in trade and investment. Recently, Vietnam has risen to the status of a lower middle-income economy and is working to achieve a per capita income level of $3,000 by 2020.

Vietnam has already achieved the majority of its Millennium Development Goals ahead of the 2015 deadline, most notably in eradicating poverty and extreme hunger, and reducing child and maternal mortality rates. The country is also set to meet universal education targets by 2015.

Vietnamese Deputy Foreign Minister Pham Quang Vinh, who is also Vietnam’s current and longest-serving ASEAN Senior Officials’ Meeting (SOM) leader, often explains that it is strategically important to create an ASEAN community that applies its dynamism toward creating a shared peace, security and prosperity for the region and beyond. Vietnam’s market is 90 million, the third largest in ASEAN, with approximately 70 percent of the population between 15 and 64 years old.

Vietnam’s chairmanship of ASEAN in 2010 is a vivid example of Vietnam acting as an able and committed member when it comes to translating ASEAN goals into real and tangible results. Vietnam needs ASEAN and ASEAN also needs Vietnam. Vietnam-ASEAN interaction is increasingly inter-twining the two entities’ destinies and identities together into one, to mutual benefit.

About the Author

Mr. Le Dinh Tinh is Deputy Director General of the Institute for Foreign Policy and Strategic Studies at the Diplomatic Academy of Vietnam.Hoang Hai Long is a B.A. Student in the Department of Political Science at Depauw University. Mr. Le Dinh can be contacted via email at tinhiir@gmail.com and Mr. Hoang at longhoang_2014@depauw.edu.

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

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When Wealth Disappears


October 7, 2013
Op-Ed Contributor

When Wealth Disappears

by Stephen D. King@http://www.nytimes.com

Washington DCWashington DC

LONDON — AS bad as things in Washington are — the Federal Government shutdown since Tuesday, the slim but real potential for a debt default, a political system that seems increasingly ungovernable — they are going to get much worse, for the United States and other advanced economies, in the years ahead.

From the end of World War II to the brief interlude of prosperity after the cold war, politicians could console themselves with the thought that rapid economic growth would eventually rescue them from short-term fiscal transgressions. The miracle of rising living standards encouraged rich countries increasingly to live beyond their means, happy in the belief that healthy returns on their real estate and investment portfolios would let them pay off debts, educate their children and pay for their medical care and retirement. This was, it seemed, the postwar generations’ collective destiny.

But the numbers no longer add up. Even before the Great Recession, rich countries were seeing their tax revenues weaken, social expenditures rise, government debts accumulate and creditors fret thanks to lower economic growth rates.

We are reaching end times for Western affluence. Between 2000 and 2007, ahead of the Great Recession, the United States economy grew at a meager average of about 2.4 percent a year — a full percentage point below the 3.4 percent average of the 1980s and 1990s. From 2007 to 2012, annual growth amounted to just 0.8 percent. In Europe, as is well known, the situation is even worse. Both sides of the North Atlantic have already succumbed to a Japan-style “lost decade.”

Surely this is only an extended cyclical dip, some policy makers say. Champions of stimulus assert that another huge round of public spending or monetary easing — maybe even a commitment to higher inflation and government borrowing — will jump-start the engine. Proponents of austerity argue that only indiscriminate deficit reduction, accompanied by reforming entitlement programs and slashing regulations, will unleash the “animal spirits” necessary for a private-sector renaissance.

Both sides are wrong. It’s now abundantly clear that forecasters have been too optimistic, boldly projecting rates of growth that have failed to transpire.

The White House and Congress, unable to reach agreement in the face of a fiscal black hole, have turned over the economic repair job to the Federal Reserve, which has bought trillions of dollars in securities to keep interest rates low. That has propped up the stock market but left many working Americans no better off. Growth remains lackluster.

The end of the golden age cannot be explained by some technological reversal. From iPad apps to shale gas, technology continues to advance. The underlying reason for the stagnation is that a half-century of remarkable one-off developments in the industrialized world will not be repeated.

First was the unleashing of global trade, after a period of protectionism and isolationism between the world wars, enabling manufacturing to take off across Western Europe, North America and East Asia. A boom that great is unlikely to be repeated in advanced economies.

Second, financial innovations that first appeared in the 1920s, notably consumer credit, spread in the postwar decades. Post-crisis, the pace of such borrowing is muted, and likely to stay that way.

Third, social safety nets became widespread, reducing the need for households to save for unforeseen emergencies. Those nets are fraying now, meaning that consumers will have to save more for ever longer periods of retirement.

Fourth, reduced discrimination flooded the labor market with the pent-up human capital of women. Women now make up a majority of the American labor force; that proportion can rise only a little bit more, if at all.

Finally, the quality of education improved: in 1950, only 15 percent of American men and 4 percent of American women between ages 20 and 24 were enrolled in college. The proportions for both sexes are now over 30 percent, but with graduates no longer guaranteed substantial wage increases, the costs of education may come to outweigh the benefits.

These five factors induced, if not complacency, an assumption that economies could expand forever.

Adam SmithAdam Smith discerned this back in 1776 in his “Wealth of Nations”: “It is in the progressive state, while the society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the labouring poor, of the great body of the people, seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state.”

The decades before the French Revolution saw an extraordinary increase in living standards (alongside a huge increase in government debt). But in the late 1780s, bad weather led to failed harvests and much higher food prices. Rising expectations could no longer be met. We all know what happened next.

When the money runs out, a rising state, which Smith described as “cheerful,” gives way to a declining, “melancholy” one: promises can no longer be met, mistrust spreads and markets malfunction. Today, that’s particularly true for societies where income inequality is high and where the current generation has, in effect, borrowed from future ones.

In the face of stagnation, reform is essential.The euro zone is unlikely to survive without the creation of a legitimate fiscal and banking union to match the growing political union. But even if that happens, Southern Europe’s sky-high debts will be largely indigestible. Will Angela Merkel’s Germany accept a one-off debt restructuring that would impose losses on Northern European creditors and taxpayers but preserve the euro zone? The alternatives — disorderly defaults, higher inflation, a breakup of the common currency, the dismantling of the postwar political project — seem worse.

In the United States, which ostensibly has the right institutions (if not the political will) to deal with its economic problems, a potentially explosive fiscal situation could be resolved through scurrilous means, but only by threatening global financial and economic instability. Interest rates can be held lower than the inflation rate, as the Fed has done.

Or the government could devalue the dollar, thereby hitting Asian and Arab creditors. Such “default by stealth,” however, might threaten a crisis of confidence in the dollar, wiping away the purchasing-power benefits Americans get from the dollar’s status as the world’s reserve currency.

Not knowing who, ultimately, will lose as a consequence of our past excesses helps explain America’s current strife. This is not an argument for immediate and painful austerity, which isn’t working in Europe. It is, instead, a plea for economic honesty, to recognize that promises made during good times can no longer be easily kept.

That means a higher retirement age, more immigration to increase the working-age population, less borrowing from abroad, less reliance on monetary policy that creates unsustainable financial bubbles, a new social compact that doesn’t cannibalize the young to feed the boomers, a tougher stance toward banks, a further opening of world trade and, over the medium term, a commitment to sustained deficit reduction.

In his “Future of an Illusion,” Sigmund Freud argued that the faithful clung to God’s existence in the absence of evidence because the alternative — an empty void — was so much worse. Modern beliefs about economic prospects are not so different. Policy makers simply pray for a strong recovery. They opt for the illusion because the reality is too bleak to bear. But as the current fiscal crisis demonstrates, facing the pain will not be easy. And the waking up from our collective illusions has barely begun.

Stephen D. King, chief economist at HSBC, is the author of “When the Money Runs Out: The End of Western Affluence.”

SP Setia: PNB’s Dilemma


October 4, 2013

SP Setia: PNB’s Dilemma

http://www.kinibiz.com/story/tigertalk

tiger-talk-generic-2

The way Tiger sees it, Permodalan Nasional or PNB is in quite a pickle. It has undertaken not to get involved in developer SP Setia’s management. But its President and CEO Liew Kee Sin may be moving to a rival and may well take others with him. Should PNB sit on its hands and do nothing in the meantime? If it were a Tiger, it won’t.

In the corporate jungle, Tiger goes by a number of rules. One of these is a simple one – if you don’t know what to do with a company you want to take over, then stay an investor and keep the stake below a level at which you don’t have to acquire a majority interest in the company.

If you do acquire majority control and ruffle feathers and more, and if top staff leave in droves, then be prepared to put your own people in at the apex, restore confidence and run the company as good or better than before.

SP Setia is Malaysia’s foremost property company and perhaps equally as famous is its President and CEO and one-time major shareholder Liew Kee Sin, widely credited with building up the company from scratch.

Liew Kee Sin

Liew Kee Sin

Unlike many other Malaysian tycoons, Liew and associates, the main ones of whom are Voon Tin Yow (currently his Deputy at SP Setia) and Teow Leong Seng (Chief Financial Officer), somehow did not keep majority control of SP Setia but steadily decreased their stakes. Both Voon and Teow are SP Setia directors.

That puzzled Tiger. Why would they do that? Tiger will have to go into the realm of conjecture  and offer only possible answers. Perhaps there were other backers who preferred to exit and who were happy to sell to whoever was accumulating.

That somebody else who had been accumulating SP Setia shares  was one of Malaysia’s largest funds Permodalan Nasional (PNB), and associated interests who by 2011 had acquired just under 33%, the trigger point at which a mandatory general offer would have to be made. At that time, Liew’s direct and indirect interests amounted to about 11%.

But things continued as per normal – PNB had two board representatives, less than interests aligned with Liew who had five at least. PNB and other government-linked funds, controlled over 50%, making SP Setia effectively a bumiputera company which gave it leverage to do land deals with the government. Crucially, management was firmly vested with Liew and associates.

And then PNB did something unwise and strategically confounding – itsetia-logo pushed its stake above 33%, triggering a mandatory general offer, which it duly made in September 2011 at RM3.90 a share. The floodgates were opened and the protests cascaded. Cries of backdoor nationalisation were heard, and in race-crazy Malaysia the not-so-soft whispers talked of Chinese businesses being taken over by Malay/bumiputera interests.

Tiger being apolitical and more than a bit naive here, wondered aloud: But was not SP Setia already Malay-owned? This was met with suitably disapproving glares which chastened Tiger, but only a bit, as Tiger has a distaste for racial politics.

PNB logoBut Tiger understood well the ramifications. Once PNB gets majority control, it will want board control and that may spell the end of independence for Liew and associates too. To put it bluntly, PNB’s hostile takeover bid evoked hostility too and that just would not do. What if Liew and gang just upped and left?

Tiger is not sure whether PNB thought about that and was prepared to move in. That would have been brave but reckless because none of PNB’s property units, Sime Darby included, had developed the kind of innovativeness, push, panache and marketing coupled with the delivery that SP Setia had. That is why the move was confounding. Why did PNB not attempt to make the takeover friendly?

Recall that at the time of that takeover, the election game was being played out and it just would not do to have Chinese resentment and voter backlash by letting the takeover go through in its format then. It was said that no less than the prime minister intervened to rectify matters.

So this takeover was aborted and another one put in place instead. The offer price was a mere five sen higher at RM3.95 a share. This time there were joint offerors – PNB, and yes, smart reader that you are you guessed it, Liew. It was silly to call it a joint offer because PNB would still be doing the buying.

The real difference was this: a management agreement which gave Liew total executive powers subject to board control in governance and strategic matters. And from what Tiger could see from an examination of the board composition, PNB’s numbers on the board have remained at just two post-takeover, less than those aligned with Liew which at that time would have amounted to at least five.

According to the management agreement, PNB’s involvement is only through its representation on the SP Setia board while day-to-day operations will be led by Liew for the tenure of the management agreement which is three years, unless his appointment is terminated earlier. Reports put Liew’s leaving date sometime in March 2015. The agreement was made in January 2012.

As an incentive for Liew to stay on, PNB gave a put option to Liew to sell his direct over-8% stake in SP Setia in three tranches over three years, effectively giving him a floor exit price of RM3.95 even if the price of the shares fell below that. The share price traded recently around RM3.20.

This was no incentive at all. As a joint offeror for the takeover of SP Setia, he should have been required to just keep the stake and take his chances with market movements. If he did well, he would reap the benefits from higher share prices.

As it is, Liew got the best of both worlds – a high exit price even if the share did not perform and management control to boot even if he exercised part of the options. His direct stake has been whittled down to below 3% from over 8% as he exercised his options but he is still firmly in the driver’s seat. How odd!

At the end of PNB’s revised offer (Tiger excludes Liew here because he was joint offeror in name only) it ended up, together with associate companies, owning nearly 70% of SP Setia, a management agreement which gave Liew total executive powers and for PNB still just two representatives on the board.

That’s a bum deal for PNB in every way – it has taken over the company but has absolutely no say in management and does not even have board control which implies no control over even strategic or governance matters. Again, how odd!

The hope was that Liew would do his utmost for SP Setia in the three years of the management contract. But other events overtook this, leading to serious questions of conflict for Liew which are yet to be resolved. It changed the game completely for SP Setia and PNB to the disfavour of both entities.

Less than a year after PNB’s takeover of SP Setia, a new and rapidly rising name in property emerged –  Eco World Development which is making waves throughout the property circle. Note the “Eco” in it. Its main properties have the “eco” in it too – EcoSky, EcoBotanic, EcoBusiness Park etc.

That’s much like many of SP Setia’s higher end projects – Setia Eco Park, Eco City, Eco Glades, Eco Hills. It’s getting to be very difficult to differentiate one from another. In fact, Eco World is staffed by former top executives of SP Setia. Interestingly, Liew’s son, Liew Tian Xiong, at 22 and a 2012 graduate from Melbourne University, is on the board of Eco World.

Meantime, Eco World, together with Tian Xiong has already bought a 65% stake in listed developer Focal Aims at RM1.40 a share or some RM230 million and is making an offer for the remaining shares. Of the 65%, 35% (more than half) is owned by Tian Xiong and that would have cost about RM124 million.

Eco World and SP Setia pic

Tiger says tender Tian Xiong cannot have that kind of money at his disposal – it must come from his father, don’t you think?  In fact, that is confirmed in a Focal Aims announcement to Bursa Malaysia where Liew and his wife are listed as parties acting in concert for the offer for the rest of Focal Aims as financiers to their son Tian Xiong. The general expectation is for Eco World’s assets, which the company says have a gross development value of RM30 billion, to be injected into Focal Aims via a backdoor listing.

Eventually one can expect Eco World to become a major rival to SP Setia itself. And where would that place Liew?

Isn’t it time PNB satisfies itself as to what Liew’s intentions are? Shouldn’t Liew and PNB CEO Hamad Kama Piah Che Othman have a tete-a-tete and shouldn’t the latter ask the former whether he would stay on in SP Setia or follow his son?

Even if Liew gives his assurance, has PNB evaluated the situation to determine if that is reasonable and fair, to use a term that financial advisers are fond of? And if they have already had the conversation shouldn’t the investing public know the outcome?

Hamad Kama Piah Che Othman

Hamad Kama Piah Che Othman

And what about Battersea, the RM40 billion project in London? SP Setia and Liew lead this venture which is 40% owned by SP Setia, 40% by Sime Darby and 20% by the Employees Provident Fund. Shouldn’t Sime Darby and EPF be concerned about how Liew will handle this and indeed if he can given his potential conflicts?

Will PNB use its voting power to get additional representation on the board? Will it then make changes at the top and replace Liew with someone else who is demonstrably more committed and has no conflicts of interest?

If PNB does that, can it be sure that Liew’s two lieutenants still remaining in SP Setia, Voon and Teong won’t leave as well? These two have been with Liew for the last 17 years and helped him build SP Setia. Won’t their loyalties be with Liew too? Indeed, would PNB want these two to remain there without Liew? And if they stayed, how confident can PNB be that they will work for SP Setia’s interests?

When is PNB, through its various companies the largest owner of property developers and land banks in the country, going to push for in-house expertise and capability to be built within its various holdings instead of depending on other developers indefinitely?

PNB right now is well and truly pickled over this SP Setia and Liew dilemma. It’s damned if you do and damned if you don’t and sometimes it may be better to be damned doing then damned doing nothing at all.

Tiger knows PNB is no Tiger and the answers are a foregone conclusion. Which leaves this final niggling, disturbing question: What’s going to happen to SP Setia? What’s going to happen to Battersea?

Economist Jomo: Inking TPPA will sour ties with China


October 3, 2013

Economist Jomo: Inking TPPA will sour ties with China

by Aidila Razak@http://www.malaysiakini.com

Signing the Trans Pacific Partnership Agreement, which is still locked in negotiations, could sour Malaysia’s relationship with its top trading partner China, said a leading economist.

KS JomoDr Jomo Kwame Sundaram– Winner of the Wassily Leontief Prize in Economics 2007

According to former United Nations Assistant Secretary-General of Economic Development Jomo Kwame Sundaram (above) , this is because the TPPA was designed to “isolate China”.

“That is the whole point of the TPPA,” he told reporters after speaking at a packed forum at Universiti Malaya last night.  Not going into details of the agreement, which Jomo (right) said he has “lots of problems with”, the economist added that TPPA involves many countries, but is negotiated on a bilateral basis.

This, he said, provided an uneven playing field which benefit countries like the United States.

“Malaysia’s trade negotiators are not known for their negotiation acumen. What are we trying to achieve by trying to be in the good books of the US? I’m saying we should (have good ties with the US) and not make scurrilous statements about them, but we shouldn’t swing from one end to the other by embracing the US and turning our backs on the other side,” he said.

Jomo, who is now Assistant Director General at the UN’s Food and Agriculture Organisation (FAO), said the TPPA was first conceived to solve a problem which no longer existed – US trade deficit with China, which has since closed due to US currency devaluation.

Instead of getting involved in a “fight between the US and China”, he said that Malaysia should be more concerned with a likely US and European Union economic alliance, which could further block Malaysia’s top export – refined palm oil.

TPPA won’t guarantee free access

Pro-TPPA quarters have argued that by snubbing the agreement, Malaysia would face closed doors in member countries. Instead, they argued, Malaysia’s competitors like Vietnam who may sign the TPPA, would have greater access to international markets.

To this, Jomo, who won the internationally coveted Wassily Leontief Prize for Advancing Economic Frontier in 2007, said that such deals do not really guarantee free access to markets.

“Vietnam signed on to the World Trade Organisation and now they are no longer allowed to breed the Mississippi catfish for the US. These deals cut both ways. They’ll find ways to protect (their market),” he said.

Jomo spoke to reporters after launching the book ‘Malaysia@50 Economic Development, Distribution, Disparities’ which he co-authored with Wee Chong Hui.

In his speech, he said that the book is about the “unlikely nation” of Malaysia which had gone through half a century despite its “awkward birth”.

Boom time not result of good policy

He said that at 50, Malaysia’s financial sector is squeezing out more industries like manufacturing, which spur still lacking growth fundamentals like innovation.

NONEMalaysia’s rapid growth from 1985 to 1995 was less about good policy and more because the US dollar significantly depreciated against the Japanese Yen, he added.

This resulted in high foreign investment from North East Asian countries in Malaysia and the region which loosely pegged its currency to the US dollar.

The boom time ended and finally boiled over in the 1998 financial crisis when the Yen was allowed to depreciate against the dollar in 1995.

Malaysia@50He said that Malaysia’s recovery effort since then has been compromised by “cronyism or ‘jobs for the boys’”.

“Many people in politics say this is unsustainable but I say it is because we have oil and we can keep turning on the oil tap,” he said cynically.

“We’re depriving the future generation, but it is still not unsustainable in the short or medium run. This is the problem. We do not have a disciplinary mechanism,” he added.

In the book, published by SIRD Centre, Jomo and Wee discuss different stages of Malaysia’s existence, including the “three regimes of the Mahathir era”.

Retailing at RM40, it also looks into distribution and equality over the years across class, gender and regions, and public finances and federalism as practiced in Malaysia.

QE3 exit and Asia’s Policy Trilemma


September 10, 2013

QE3 exit and Asia’s Policy Trilemma

lin See Yanby Dr. Tan Sri Lin See Yan

WE are on the threshold of possibly another crisis. Since my Aug 10 column An Inconvenient Truth: QE Withdrawal Syndrome, financial and currency markets in emerging nations (ENs) have started to feel the full force of US Fed’s moment of reckoning (initial phase of qualitative easing (QE) tapering).

Indeed, these markets are already reacting to expectations of reduced money creation (at best “lite-tapering”) and eventual significant interest rate increases. No decoupling has taken place – if anything, there is now talk of re-coupling.

Since May, emerging markets (EMs) from India to Turkey to Brazil have been the focus of sell-downs, triggered by events half-the-world away. In recent weeks, kept buoyant by (and now reliant on) foreign capital inflows (following the massive injection of QE3 monies), EMs have exhibited more violent price amplifications to adjustments in US macroeconomic policies, than the United States itself.

True, US Treasury yields have spiked and Wall Street has been wobbly, but nothing like what’s happening in EMs following capital flows out of Asia in particular.

Policy trilemma

As global investors adjusted to a world without ultra-cheap money, currencies and shares tumbled. EMs’ shift to become involuntary capital donors has left policymakers with what some analysts call a “trilemma” – three unpalatable policy choices:

–higher interest rates which run the risk of choking-off investment and hence, the push for growth;

–faster growth with the attendant risk of generating higher inflation;

–impose capital controls to stem outflows with the concomitant risk of scaring off investors and cooling business confidence.

Any of the three options is likely to be “equity market negative.” Be that as it may, the outlook for equity markets in ENs, especially those with current balance of payments (BoP) deficits, is kept hostage to future prospects for US bond yields. The higher the yield (an inevitable consequence of QE exit or tapering), the lower would be equity prices.

What’s ironical is that when the Fed started QE monetary expansion in 2010, ENs from China to Brazil cried foul, accusing the United States of waging “currency wars” by pushing the US dollar down (i.e. depreciating) with zero interest rates.

Now, the same nations are again hit hard by a reversal to meet “what they had wished for”; yet they cry foul again, prompting the Mexican finance minister to recently call for implementation of “a more predictable exit … and to co-ordinate as much as possible in order to make it easier for emerging markets” to adjust. Be careful of what you wish

Impact on Asia

The influence of Asia, as the world’s growth engine, has since waned as the Fed Chairman Ben Bernankemajor ENs across the region weaken and investors pull out billions from financial markets as anticipation of the scaling back (tapering) of US QE draws attention to the region’s slackening growth and rising debt. They sent Indonesian equity tumbling and pushing the Indian rupee down to new record lows.

The impact is worldwide: Brazil’s real fell 20% since 2009; the Turkish lira, 10% since its February peak. The most dramatic activity was centred on South-East Asia’s ENs when Indonesian stocks fell 9% on August19 and 20, declining 20% from May, wiping out all its gains in 2013. Thailand’s stocks fell 6% to its weakest level this year, while Malaysia’s stock market fell as the ringgit hit a three-year low. Malaysia posted its second straight quarter of sub-5% growth.

Shares in Japan, Hong Kong and China fell as well. China is reported to have sold US$6.7bil in foreign currency in June to stabilise the yuan, against net purchases of more than US$10bil in May. Nevertheless, the yuan has risen close to 2% so far this year.

Signs are growing that Asia’s economy is losing its shine. Thailand has entered recession while Indonesian economic activity weakened amid worsening trade imbalance and as second-quarter 2013 GDP sputters along at its lowest pace (5.8%) in three years. Overall, Indonesian rupiah is trading at its lowest level since 2009. Indian rupee has since lost about 20% in the past three months. But pressures on these economies are unlikely to abate anytime soon.

This time, however, the rout is selective. Sure the eye of the storm has moved firmly above ENs for now, as liquidity tightens and China’s slowdown (curbing demand for basic commodities and goods) are fuelling a sell-off of EMs’ stocks. This resulted in a reverse flow of money (estimated to-date at US$7.6bil so far) backwards, favouring nascent recoveries in the United States and Europe.

No question the period ahead is proving tougher and more difficult for Asia. Even so, the impact has been uneven. Mexico and South Korea, which were at the locus of past EM meltdowns, have been relatively unscathed this time around. Investors have chosen to punish nations with large BoP imbalances and heavy foreign borrowing (viz India, Indonesia, Brazil, Turkey and Malaysia). The situation worsened with worries of possible US military strikes against Syria.

Nevertheless, economies that used the era of easy global money to reform underlying structural problems are reaping benefits. That’s why South Korea and Mexico have emerged stronger. Fundamentals are key; can’t overstate the importance of sound economic management, strong fiscal positions, credible pro-active monetary policy and vigorous financial sector oversight.

Many of the struggling nations’ currencies were down 15% to 20% over the past year. However, the South Korean won and Mexican peso remain in positive territory. During the good times, they had a window to undertake pro-growth reforms and they did. In Asia, the economy of South Korea had gotten stronger. While Mexico’s growth is still sputtering, it is expected to pick-up speed on the back of a US recovery that’s trying to strengthen. Mexico has little exposure to China.

Overall, EMs in Asia are still extremely fragile and can easily get buffeted by negative developments and headlines! Monies had flowed out of EMs in recent months. Selling of equities by foreign investors totalled US$3.1bil in August. What’s being witnessed is a reaction from expectations being unrealistically positive a year ago to now becoming more realistic and more down-to-earth. Asia still has much potential, but market pressure is unlikely to abate any time soon.

Dicey dominoes

Recent market volatility has done little to ease uncertainty about whether it will blow into a bigger crisis. Indeed, investors are resigned to witness more volatility from now on. Since the global financial crisis began in 2007, the notion that a “risk-on, risk-off” cycle in which asset prices all move together in response to global shocks (like the Fed scare we just had) is back. This means asset prices will reflect investors’ risk appetite.

So, as soon as the Fed’s tapering comes on, it will hit all asset classes with its impact dependent on its speed of implementation – the more decisive and faster it acts, the more disruptive it can be and hence, the greater the damage from prompt adjustment. It’s uncertain.

Here, I was intrigued by the reaction of long-time bearish global strategist at SocGen, Albert Edwards, who has since warned that market volatility will not be confined to EMs: “I see this as the beginning of a process where the most wobbly domino falls and topple the whole, precarious, rotten, risk-loving edifice that our policymakers have built.”

This is scary in the face of a world that has since witnessed the biggest capital outflows from the United States since QE began. It is estimated that investment portfolio inflows into EMs (excluding China) had exceeded US$78bil since 2009. But, I do believe a large bulk of the “tapering” is already priced-in – markets just need to see it start, for sure. Besides, Japan’s aggressive and massive QE expansion, which will continue to drive global liquidity flows, is likely to make up for what the Fed does take out. My hunch is that a domino run is unlikely to start anytime soon.

Paul KrugmanIn similar vein, I share Nobel Laureate P. Krugman’s view that there will be no repeat of the Asian 1997/78 financial crisis. The parallel is tempting. The poorly performing currencies are today floating (fixed during Asian crisis); their nation’s current BoP deficits and high debts are but only one part of the story; and they have ample foreign exchange reserves and access to more “stand-by” liquidity for back-up; many still have credible lines of defence.

As for the recipient developed world, the influx of new capital is likely to find its way into higher yielding opportunities (including junks and bonds) and possibly equity. As I see it, this could prove temporary since some I know are already being tempted back into EMs by their bargain prices and potential for future capital gains.

Recent e-mails brought to my attention the “acronym anxiety” of J. Authers of Financial Times. First, there were “PIIGS” (Portugal, Ireland, Italy, Greece and Spain) that can’t fly. Now, there is the Fragile Five “Biits” viz Brazil, India, Indonesia, Turkey and South Africa, representing the gang of five that was humbled in recent currency and stock market rout following the shift of focus and the pull-out of riskier assets in EMs, sending their currency rates and stock and bond prices spiralling downwards. Conditions have since stabilised but it’s an uneasy calm. Markets are still confused.

Second, there is “Crash” i.e. Conflict, Rates, Asia, Speculation and Housing, which originated from Bank of America Merrill Lynch (BoA). This brings me to the Aug 22 annual retreat of central bankers and academics in the mountains of Grand Teton National Park at Jackson Hole (Wyoming, the United States) to brainstorm latest thinking on matters of growing concern surrounding the EM turbulence and on how best to avoid risky future accidents and shocks. August is a month when investors “sell and go away.” Historically, September and October are prone to market shocks and accidents.

“Crash” is a common sense approach by BoA’s M. Hartnett to assess the risk of an accident. Conflict scares markets and inflict severe economic damage. Rates’ spike are equally damaging, especially for the Fragile Five saddled with serious BoP financing gaps. Another sharp uptick in rates could prove disastrous.

Asia matters. Their recent turmoil, however, indicated that its impact is differentiated. MSCI Emerging Markets indices were already down 13% for the year; for Latin America they were down 20.2% in May, suffering more than Asia (11%). However, South Korea, with strong exports, was unscathed. Whereas India (minus 25.8%), Indonesia (minus 30.7%) and Turkey (minus 35.8%) suffered sharp falls.

Speculation magnifies the risk. Margin debt (money borrowed to fund short-term speculation) on the New York Stock Exchange hit a record in April, while indications of leverage have also spiked. Even though “Biits” account for only 7% of global GDP, it can readily trigger a generalised crisis. After all, Thailand (a mere 0.5% share of global economy in ’97) did trigger-off a global crisis following widespread contagion.

Housing has been a clear plus for US recovery which in turn affects ENs’ well-being. Unmistakably, higher interest rates add fresh uncertainty for housing. In all, the analysis points to a world that’s still a rather dangerous and risky place. Nevertheless, world stocks are up 5% for the year. I see no immediate possibility of a real “crash.” Certainly, no impending crisis – not yet. But the warning signals are on red.

What then, are we to do?

Indications are that momentum is appearing to shift away to theNajib developed world from ENs that had since led global growth. For once since mid-2007, the United States, Europe and Japan together are expected to contribute relatively more speed to growth of the US$74 trillion global economy than ENs, including BRICS (Brazil, Russia, India, China and South Africa) as well as Mexico.

World conditions have slackened to a much greater degree than expected. This turnaround is bound to change the dynamics of world capital flows. The forces driving this shift include:

–resurgent Japan, with a new confidence to beat deflation and to reform the economy for sustainable growth (second quarter 2013 GDP up 2.6%);
–a slowly recovering US (GDP up 2.5% in second quarter 2013) that is gaining traction even though unemployment (at 7.4%) remains stubbornly high;

–euro economy is struggling to grow (GDP up 1.1% in second quarter 2013) after contracting for six quarters previously, and hoping to recover with better momentum; and

–a new China where economic slowdown appears to have stabilised and heading for a soft lending (GDP at 6%-7% in 2013), with a new-found confidence that growth can pick up.

The other EN big-guns (Brazil, Russia, India and South Africa) are still ailing or ratcheting back slowly. While there is optimism, there are good reasons for caution: recovery in Japan and Europe remains tentative; and new China cannot be expected to spur global growth. So any broad rebound globally that depends on the United States has to be fragile and undependable.

Global conditions have slowed down too much to take things for granted. The recent EM rout is still simmering. Frankly, ENs still lack sufficient lines of defence to prevent potentially huge capital outflows from causing domino-like systemic failures. The looming Fed “tapering” is worrisome. Amplifications, feed-back loops and sensitivity to risk perceptions can complicate the process of exit.

That’s why the International Monetary Fund’s (IMF) commitment to “stand ready to provide financial support if needed,” makes a lot of sense at this time. The fund’s standby arrangements and flexible credit lines are intended to be set-up in advance of a crisis to prevent a crisis. This support may be needed sooner than we think.

Former banker Dr Lin is a Harvard educated economist and a British Chartered Scientist who speaks, writes and consults on economic and financial issues. Feedback is most welcome; email: starbiz@thestar.com.my.

The Unsaved World


August 31, 2013

Op-Ed Columnist

The Unsaved World

by Paul Krugman (09-29-13)

Krugman_New-articleInline-v2The rupiah is falling! Head for the hills! On second thought, keep calm and carry on.

In case you’re wondering, the rupiah is the national currency of Indonesia, and, like many other emerging-market currencies, it has fallen a lot over the past few months. The thing is, the last big rupiah plunge was in 1997-98, when Indonesia was the epicenter of an Asian financial crisis.

In retrospect, that crisis was a sort of dress rehearsal for the much bigger crisis that engulfed the advanced world a decade later. So should we be terrified about Asia all over again?

I don’t think so, for reasons I’ll explain in a minute. But current events do bring back memories — and they are, in particular, a reminder of how little we learned from that crisis 16 years ago. We didn’t reform the financial industry — on the contrary, deregulation went full speed ahead. Nor did we learn the right lessons about how to respond when crisis strikes. In fact, not only have we been making many of the same mistakes this time around, in important ways we’re actually doing much worse now than we did then.

Some background: The run-up to the Asian crisis bore a close family resemblance to the run-up to the crisis now afflicting Greece, Spain and other European countries. In both cases, the origins of the crisis lay in excessive private-sector optimism, with huge inflows of foreign lending going mainly to the private sector. In both cases, optimism turned to pessimism with startling speed, precipitating crisis.

Unlike Greece et al., however, the crisis countries of 1997 had their own currencies, which proceeded to drop sharply against the dollar. At first, these currency declines caused acute economic distress. In Indonesia, for example, many businesses had large dollar debts, so when the rupiah plunged against the dollar, those debts ballooned relative to assets and income. The result was a severe economic contraction, on a scale not seen since the Great Depression.

Fortunately, the bad times didn’t last all that long. The very weakness of these countries’ currencies made their exports highly competitive, and soon all of them — even Indonesia, which was hit worst — were experiencing strong export-led recoveries.

Still, the crisis should have been seen as an object lesson in the instability of a deregulated financial system. Instead, Asia’s recovery led to an excessive showing of self-congratulation on the part of Western officials, exemplified by the famous 1999 Time magazine cover — showing Alan Greenspan, then the Fed chairman; Robert Rubin, then the Treasury secretary; and Lawrence Summers, then the deputy Treasury secretary — with the headline “The Committee to Save the World.” The message was, don’t worry, we’ve got these things under control. Eight years later, we learned just how misplaced that confidence was.

Indeed, as I mentioned, we’re actually doing much worse this time around. Consider, for example, the worst-case nation during each crisis: Indonesia then, Greece now.

Indonesia’s slump, which saw the economy contract 13 percent in 1998, was a terrible thing. But a solid recovery was under way by 2000. By 2003, Indonesia’s economy had passed its precrisis peak; as of last year, it was 72 percent larger than it was in 1997.

Now compare this with Greece, where output is down more than 20 percent since 2007 and is still falling fast. Nobody knows when recovery will begin, and my guess is that few observers expect to see the Greek economy recover to precrisis levels this decade.

Why are things so much worse this time? One answer is that Indonesia had its own currency, and the slide in the rupiah was, eventually, a very good thing. Meanwhile, Greece is trapped in the euro. In addition, however, policy makers were more flexible in the ’90s than they are today.

The International Monetary Fund initially demanded tough austerity policies in Asia, but it soon reversed course. This time, the demands placed on Greece and other debtors have been relentlessly harsh, and the more austerity fails, the more bloodletting is demanded.

So, is Asia next? Probably not. Indonesia has a much lower level of foreign debt relative to income now than it did in the 1990s. India, which also has a sliding currency that worries many observers, has even lower debt. So a repetition of the ’90s crisis, let alone a Greek-style never-ending crisis, seems unlikely.

What about China? Well, as I recently explained, I’m very worried, but for entirely different reasons, mostly unrelated to events in the rest of the world.

But let’s be clear: Even if we are spared the spectacle of yet another region plunged into depression, the fact remains that the people who congratulated themselves for saving the world in 1999 were actually setting the world up for a far worse crisis, just a few years later.

A version of this op-ed appears in print on August 30, 2013, on page A19 of the New York edition with the headline: The Unsaved World.

http://www.nytimes.com/2013/08/30/opinion/krugman-the-unsaved-world.html

Obama’s “Déjà vu” Vietnam Diplomacy


August 29, 2013

Obama’s “Déjà vu” Vietnam Diplomacy

by Greg Rushford of The Rusford Report (08-23-13)

rushphotoA high-stakes diplomatic drama is playing out between the United States and Vietnam. While the focus is on enhancing bilateral economic ties in the ongoing Trans-Pacific Partnership negotiations, the economics are also related to broader security- and human rights issues. This article has some fresh news to report on what’s going on behind the scenes: What the ruling Politburo in Hanoi has decided about deepening its economic ties with the major powers. What Vietnamese President Truong Tan Sang and U.S. President Barack Obama had to say to each other during their July 25 White House meeting in the Oval Office. Who else was in the room — and why that was important.

There is also background information to report that sheds light on the intense pressures that U.S. Trade Representative Michael Froman has been bringing to bear on Vietnam, notably last week in Bandar Seri Begawan, Brunei. On August 22-23, Froman had private talks with his Vietnamese counterpart, Vu Huy Hoang, on the sidelines of the 19th round of the TPP trade talks, which are continuing this week in Brunei. Washington has been playing an intimidation game, pressuring Hanoi to accept an economic deal that is clearly not in Vietnam’s best interests — and just might get away with it.

But it’s not the hard news that captivates, but rather, the déjà vu feeling of another Us-Vthistorical turning point in U.S.-Vietnamese relations. On August 30, 1945 — 68 years to the day, it turns out, that the TPP’s 19th round of negotiations will conclude this Friday in Brunei — Ho Chi Minh wrote the first of several letters to U.S. President Harry Truman. Uncle Ho sought Truman’s support for Vietnamese aspirations to gain independence from French colonial rule. The letters went unanswered, as the Truman administration’s higher priority involved helping the French recover from the devastations of World War II.

“In historical terms, it was a monumental decision by Truman, and like so many that U.S. presidents would make in the decades to come, it had little to do with Vietnam herself — it was all about America’s priorities on the world stage,” historian Fredrik Logevall has observed in his acclaimed Embers of War. The concerns of more enlightened observers in the U.S. State Department and in the intelligence community, who worried about the consequences of getting on the wrong side of the battle against colonialism, were overridden.

Sang and Obama

When they met in the Oval Office last month, President Sang displayed a keen sense of history when he gave Obama a copy of one of Uncle Ho’s letters to Truman. Hanoi has good reason to worry that the top Obama White House priority, once again, is not really focused on the Vietnamese economy.

In the TPP trade talks, the White House has been fighting tooth and nail on behalf of the protectionist U.S. textile lobby — Obama’s loyal allies who have supported him in his two successful presidential races. The top priority of the (globally uncompetitive) U.S. mills is denying Vietnam more access to protected U.S. clothing and footwear markets in a TPP trade deal.

As in the late 1940s, a few enlightened U.S. diplomats (quietly) and intelligence officials (very quietly) have now let their concerns be known around Washington. But Washington’s seasoned Asia hands find themselves basically sidelined by the White House domestic political priorities, much as their predecessors were nearly seven decades ago.

Meanwhile, President Sang, on behalf of the ruling Politburo, had his own message to deliver to Obama last month.To better understand the nuanced blend current spot news and history, let’s begin with that White House meeting.

Spinning Oval Office diplomacy

When it comes to diplomacy, sometimes what the public sees is true — just not the whole picture. Consider the video that the White House posted on its website on July 25. Viewers see Sang and Obama meeting alone in the Oval Office, sitting in armchairs in front of a fireplace, each wearing appropriate dark power suits with muted ties. The image that the White House spinmeisters — who also put the video on You Tube — intended to convey recalls famous historical one-on-one diplomatic talks at the highest level: Nixon with Mao, or Roosevelt and Stalin.

But the Obama-Sang meeting was hardly a Roosevelt-Stalin like moment. It was a scripted, ceremonial occasion, typical of how American presidents have come to host visiting foreign dignitaries in recent years.

An unpublished photo shot by someone else in the room with a wide-angle lens shows that Sang had nine men in the Oval Office with him. Trade Minister Hoang was there, along with Agriculture Minister Cao Duc Phat and the head of Vietnam’s presidential office, Dao Viet Trung. Vietnamese Ambassador to the United States Nguyen Quoc Cuong also was present, as was Lt. Gen. To Lam. Gen. Lam is the deputy minister of Public Security, and formerly headed the ministry’s counter-intelligence department. Lam is also a member of the Communist Party’s Central Committee.

With so many watchers — not all of them necessarily loyal to President Sang’s own supporters in the Politburo — no Vietnamese President would be positioned to engage in substantive bargaining.

A sense of history

Perhaps the three most interesting Vietnamese officials present were the translator, Pham Xuan Hoang An; Foreign Minister Pham Binh Minh, and Colonel General Nguyen Chi Vinh, the deputy minister of national defense. These men carry a sense of history with them — and a longstanding serious professional interest in U.S.-Vietnamese diplomacy. To experienced Vietnamese watchers, the news that An, Vinh and Minh were in the Oval Office will convey a sense of Vietnamese seriousness.

Interpreter An’s father, Pham Xuan An, was perhaps the most important communist spy during the Vietnam War. An’s cover was as a reporter for western news outlets, including Reuters and Time magazine. This complicated man was made a general after the North Vietnamese victory in 1975. But then Gen. An was also detained in a camp for “reeducation” for a year, because he was suspected as being too close to the Americans.

In fact, An loved America (he helped one of the CIA’s most important assets escape when the communists took Saigon). But after the war, the spy explained to his American friends that his top priority had always been working for his country’s independence. An’s double life was the subject of Larry Berman’s fascinating Perfect Spy, published in 2007. Now, An’s son, translator Pham Xuan Hoang An, works in Vietnam’s consulate in San Francisco. Like his father, the younger An is a man who knows both countries very well.

While Colonel Gen. Nguyen Chi Vinh is hardly a household name in America, he is well known to Vietnamese watchers. His father, Gen. Nguyen Chi Thanh, was Vietnam’s second-ever general, after Vo Nguyen Giap. Gen. Thanh was the mastermind of the coordinated uprisings in nearly every major South Vietnamese urban center during the Tet Lunar New Year festivities in January of 1968. The Tet Offensive did not succeed in a military sense. But it is credited with being the proverbial last straw for the fed-up American public, which realized that the White House claims that the communists were on the verge of defeat were false.

Vinh is a member of the Communist Party’s Central Committee, and formerly headed the military intelligence department known (and feared) as Tong Cuc2. Veteran Hong Kong-based foreign correspondent Greg Torode has called Vinh Vietnam’s wily “Old Fox,” a man who is generally regarded as “Vietnam’s shrewdest strategic thinker.”

Vinh has been a key actor in Vietnam’s delicate balancing act involving major powers with security interests in the Pacific. He has been an important player in a variety of sensitive issues: countering Chinese intimidation in the South China Sea while simultaneously establishing military ties with Beijing; submarine and other weapons purchases from Russia; and also increasing U.S.-Vietnamese military cooperation. Vinh, who is well known in both Washington and Beijing, also showed up earlier this month for private talks with senior defense officials in Tokyo (who also have good reasons to worry about Chinese continuing aggressive moves in the Pacific).

Foreign Minister Pham Binh Minh also has a famous father. Nguyen Co Thach was Vietnam’s foreign minister from 1980 – 1991, where he worked unsuccessfully to normalize ties with the defeated Americans. Like his father, Foreign Minister Minh has a reputation as being keenly aware of the strategic importance of developing closer ties with the United States, by way of countering undue Chinese influence.

Minh related candidly at a Council of Foreign Relations event in 2011 that he had been full of “hatred” during the war, when as a child he endured the U.S. bombing of Hanoi. But ever since he joined the Vietnamese diplomatic service after the 1975 communist victory, Minh — like his father — has focused his own career upon finding ways to forge closer ties with Vietnam’s former war enemy.

Obama’s Diplomatic Team

While the July 25 Sang-Obama White House meeting was a tightly scripted affair, there was at least one moment of spontaneity, where Obama briefly reached out to strike a personal rapport with his Vietnamese guest. When U.S. and foreign “pool” journalists were admitted to the Oval Office for the usual photo opportunity, they shouted some questions to the two presidents. Obama ignored them, but was overheard whispering to Sang, “reporters are the same everywhere.”

A White House press aide declines to discuss who else was in the meeting on either the Vietnamese- or the American side. Pool reporters who were let in for the photo ceremony saw two U.S. officials besides National Security Adviser Susan Rice: Commerce Secretary Penny Pritzker, and U.S. trade negotiator Froman.

Pritzker, an Obama fundraiser from Chicago, is new to foreign affairs. Her Commerce Department is the agency that is widely resented in Vietnam for inflicting protectionist anti-dumping tariffs on the Vietnamese shrimp and catfish industries. And Froman, although also close to Obama, brings more of a domestic political focus to his job than genuine foreign policy experience. (Any diplomatic heavy lifting that was done would have been done a few blocks away from the White House, at Secretary John Kerry’s State Department. Kerry, a Vietnam War veteran, hosted the Vietnamese presidential delegation on July 24. He was in New York when the Vietnamese visitors met with Obama the next day.)Scripted or not, still, important signals were sent by both Presidents.

A Message from the Politburo

The Vietnamese delegation made it clear to Obama — as they had a day earlier in a meeting with trade negotiator Froman — that they were sincere about attaching a very high priority to advancing economic ties with the United States in the TPP negotiations, according to well-informed Vietnamese officials and also senior U.S. diplomatic officials who asked not to be identified.

Carlyle Thayer, a respected Vietnamese watcher who has excellent high-level connections in Hanoi, explains. Thayer, who is affiliated with the Australian Defense Force Academy, says he has seen a copy of an April 10 resolution drafted by the ruling Politburo, which has not yet been publicly released. “It makes economic integration with all the major powers Vietnam’s top priority, over all other forms of integration, including security,” Thayer reports.

In the Oval Office, President Sang stressed to Obama what Vietnamese officials have been saying for the last three years: that if the TPP negotiations are to succeed, Vietnam will need economic incentives — mainly substantial additional access to U.S. clothing- and footwear markets, which are currently encumbered with high tariffs. Vietnam’s main problem with the TPP is that for the same past three years, the White House has held up progress in the negotiations by refusing to make serious tariff-slashing offers.

White House press officials decline to discuss Obama’s response to Sang. For public consumption the two presidents agreed to put out a (bland) public statement noting that they would instruct their aides to do their utmost to complete the TPP by the end of this year. (The White House said the same thing last year, and also in 2011. Froman has been telling people that this time, the administration really means it.)

Signals from Washington

The White HouseWhat little detail is known about what Obama said during the meeting has been revealed by U.S. Ambassador to Vietnam David Shear, who spoke to a high-powered Vietnamese-American gathering in Washington, D.C.’s Virginia suburbs on August. 16.  Shear said that the Obama administration considers the TPP negotiations to be “extremely important.” But without “demonstrable progress on human rights” by Hanoi on human rights, “we will not be able to generate congressional support” for a TPP deal, the ambassador added.

Shear related that human rights had come up twice in the Obama-Sang meeting. The first, he said, was part of a general reference linking human rights as the key to enhanced economic and security ties.

According to the ambassador, the second reference to human rights came after Sang expressed Vietnam’s desire to purchase U.S. “lethal” weapons. “If you want to do that,” Shear said that Obama replied, “you’ve got to improve your human-rights practices.” (A full transcript of Shear’s remarks has not yet been posted on the U.S. embassy’s website.

As Hanoi’s human-rights record is currently being compared unfavorably to Vietnam’s Asian neighbors — even notorious Cambodia has held elections, while Myanmar has been busy freeing its political prisoners — Obama’s point is well taken. The Politburo must be asking itself these days what benefits the country is getting by continuing to imprison more than 160 peaceable political prisoners, whose “crimes” were merely exercising their rights to free political speech and peaceable assembly.

But the same Politburo members who are on the defense on human rights must also be asking why they should sign onto a TPP deal that would offer Vietnam dubious economic benefits.

Secret “21st Century” negotiations

Some parts of the TPP negotiations, to be sure, would clearly be aimed at boosting the Vietnamese economy. Vietnam has been struggling with the politically difficult task of reforming the country’s famously inefficient state-owned enterprises for some two decades.

Vietnam’s SOEs basically are secretive black holes and a drag on more than a third of the country’s economy. When the Obama White House spins the TPP deal as a “high-standard, 21st century” deal that will set an enviable template for trade in the Asia-Pacific region, SOE reforms come immediately to mind.

But other than the self-serving slogans, the White House has been refusing to explain to the watching publics any details of what the Vietnamese are being asked to do. Ironically, the White House is demanding that the Vietnamese economy become more open to market-oriented economics, while classifying what that might entail as a state secret.

Enter “Yarn Backward”

What Hanoi wants most in the TPP is for the United States to slash its high tariffs on imported footwear and clothing. There is a sort of role reversal here. The commies in Hanoi are pressing for free-market access to protected American markets. The Americans are demanding state control. The economic notion is called “yarn forward,” but the economics are hardly forward looking.

As I’ve previously reported, the French 19th century colonialists required that their Vietnamese subjects supply the mother country with textiles. Such imperial preference schemes supported France’s economic domination of Indochina — and inspired Vietnam’s independence movement.

Now the Americans are demanding the same sort of arrangement in the TPP. Vietnam would only qualify for duty-free treatment on its clothing- and footwear exports to the United States if it bought yarn and fabrics from another TPP country — translation: from the declining mills in the U.S. South, not non-TPP countries like China.

It doesn’t take an economics degree to see the flaws. Nobody — beyond insular-looking U.S. mills that long ago lost their competitive edge in global markets — pretends it makes economic sense. Why would any White House pressure the likes of Levis or Gap to buy their (heavy) denim from U.S. suppliers and ship it across the Pacific to Southeast Asia? Why would Obama even think of trying to force giant underwear manufacturer Hanesbrands to stop supplying its Vietnamese manufacturing from Hanes’ established suppliers in China or Thailand? Why would any White House insist that it has the right to disrupt the global supply chains of such respected major American corporations?

U.S. Trade Representative Froman has refused repeated requests to explain exactly why “yarn forward” would be in Vietnam’s best economic interests.

I have also asked U.S. Ambassador Shear if he was able to point to any economicDavidShear benefits to Vietnam in the yarn forward notion. Shear has been put in the diplomatically awkward position of defending the White House position on yarn forward to the Vietnamese. Shear declined to defend yarn forward’s economic rationale publicly. The ambassador referred the question back to trade negotiator Froman, who again declined comment.

[Ambassador Shear has a reputation as a thoughtful diplomat, albeit something of a team player. His deliberate non-answer could be interpreted as a diplomatic wink, conveying his distaste for the whole business. In private meetings with U.S. corporate executives, Shear has toed the Obama line, but his body language has suggested his discomfort.]

Meanwhile, the White House has been demanding that American clothing manufacturers turn over confidential information on how their global supply chains operate. Intimidated, the companies have mostly knuckled under. The Office of the U.S. Trade Representative even has a special web site for the companies to divulge their business secrets to the government. This access to the private proprietary data has given Froman and his aides the means to instruct the domestic industry where it can source their materials (the U.S. South) and where they can’t (China).

The American clothing importers are now scrambling behind the scenes to receive special exemptions for themselves from the White House. The corporate lobbyists are looking to protect at least parts of their global supply chains from White House interference.

Of course, even with the limited TPP carve-outs that the feds may grant, the rules would always still be subject to sudden change, depending upon unpredictable bureaucratic whims. The American companies could stop the whole business if they had the nerve to stop groveling — which they have never quite summoned in previous U.S. trade negotiations.

China Bashing

The White House unconvincingly denies that the TPP is part of an anti-China economic encirclement strategy. Yarn forward was first included in the U.S. preferential trade deal with Mexico in the early 1990s, and then to other Latin American countries. The idea then, as now, was to hold back Chinese and later, other Asian imports.

It has failed. The rules are so cumbersome that only about 17 percent of Latin American trade goes through the “yarn forward” rules. Companies mostly prefer to pay the tariffs rather than suffer the paperwork.

Relief for Africa

When the Africans were negotiating the Africa Growth and Opportunity Act with the United States in the 1990s, the congressional Black Caucus vehemently objected to yarn forward rules because the principle offended them. Congressmen like Charles Rangel, a Democrat who represents New York’s Harlem neighborhood, fumed that yarn forward reeked of colonialism. Moreover, Rangel protested, such rules were even racist. Consequently, the AGOA trade deal allows the Africans to buy their cotton and other fabrics from China, or anywhere, as long as the final clothes are “cut and sewn” in Africa. In the TPP negotiations, anything short of clean “cut and sew” rules for clothing would hold back Vietnam’s export potential.

Another bitter irony for Vietnam: These days Rep. Rangel and other African-American lawmakers are lobbying for Obama to force upon Vietnam the same yarn-forward rules they formerly attacked as colonial and racist. And Central American countries like the Dominican Republic, who aren’t in the TPP and want to keep Asian competitors at bay, are also piling on Vietnam.

Michael FromanUndeterred, in Brunei last week, trade negotiator Froman still insisted that strict yarn forward rules remained at the “core” of what the U.S. wants in the TPP. He continued to withhold from the public any real details of what was in the TPP, other than the spin that it would be a “high standard, 21st Century” trade template.

The smart money would bet that the Vietnamese will end up swallowing hard and accepting a watered-down TPP deal, giving them modest increased market access for shoes and clothes, while making minimal market-opening concessions to the Americans. Call that TPP Light.

But perhaps the shrewd Politburo operatives in Hanoi, or at least enough of them, have the same sort of determination as did their fathers’ generation. After all, the Vietnamese negotiators should understand that Obama is the one who needs a TPP deal most. Could the American president really allow the TPP to fail, just because the Vietnamese want to sell Americans more pairs of underwear, blue jeans, and sneakers?

Talk about a déjà vu feeling. In the 1940s, President Truman ignored prescient warnings from U.S. intelligence and diplomatic officials that it would be a big mistake for the United States to get on the wrong side of the struggle against colonialism. Now, President Obama pays little heed to warnings that it is unwise to risk important trade talks with Vietnam — and America’s standing in Asia — for parochial domestic politics.

Some people never seem to learn their history.

http://rushfordreport.com/?page_id=6

Say NO to TPPA–Press Release


August 24, 2013

Say NO to TPPA–Press Release


MEMORANDUM

KEKALKAN KEMERDEKAAN, TOLAK TPPA

SAY NO TO CORPORATE COLONISATION, SAY NO TO TPPA

Pertubuhan-pertubuhan yang menganggotai BANTAH TPPA dengan ini menyeru kepada 12 Negara yang menyertai Trans Pacific Partnership Agreement (TPPA) untuk menolak sebarang usaha ke arah Penjajahan Korporat terhadap warga Asia Pasifik dan berusaha untuk melindungi, mengekalkan dan mempromosi sistem perdagangan yang benar-benar bebas, adil dan selamat di antara negara-negara yang terlibat.

Kami menggunakan istilah Penjajahan Korporat untuk merujuk Regim TPPA, kandungannya dan proses perlaksanaannya kerana kepentingan gergasi-gergasi korporat sangat jelas telah mempengaruhi peruntukan-peruntukan kontroversi di dalam perjanjian ini dan kerajaan-kerajaan pula telah ditekan dan dipaksa untuk menerimanya.

Sekali lagi, gabungan Bantah TPPA menyeru kerajaan – kerajaan yang menyertai TPPA untuk menolak sebarang usaha menundukkan rakyat dan negara ini dengan perangkap ekonomi yang tersembunyi di balik tabir oleh syarikat-syarikat transnational Amerika.

Ia adalah satu perjanjian mudarat yang akan memberi kesan kepada kedaulatan negara, memperjudikan kesejahteraan ekonomi, dan akan menyebabkan kesusahan dan penderitaan kepada rakyat negara ini.

Mengkhianati niat tulen kerajaan-kerajaan dan rakyat negara-negara berkenaan untuk meneruskan perdagangan antarabangsa yang adil dan kerjasama ekonomi yang bermanfaat ke arah pertumbuhan ekonomi yang kukuh, kestabilan dan kesejahteraan bersama.

Kami, rakyat Malaysia mewakili semua kaum, budaya, kepercayaan, kepentingan, pekerjaan, kerjaya dan dagangan dengan ini mengumumkan bahawa kami tidak akan menerima dan dengan tegas menolak sebarang keputusan perundingan TPPA jika pandangan, kebimbangan dan tuntutan kami tidak dilibatkan dengan cara yang sepatutnya.

 KEKALKAN KEMERDEKAAN, TOLAK TPPA

SAY NO TO CORPORATE COLONISATION, SAY NO TO TPPA

 

BANTAH TPPA

23 Ogos 2013

TPPA: Kudos to Prime Minister Najib


August 18, 2013

TPPA: Kudos to Prime Minister Najib

by BA Hamzah, DSDK

NajibKudos to Prime Minister Najib Razak for taking pre-emptive measures on the controversial Trans-Pacific Partnership Agreement (TPPA). The Cabinet’s decision is a soft reminder to the Ministry of International Trade and Industry (MITI) to be more sensitive to the aspirations of the rakyat.MITI is accountable to the Cabinet, which in turn is answerable to the rakyat.

The Cabinet has set the litmus test for Malaysia joining the TPPA: favourable terms for those affected by the Treaty. The ball is now back in MITI’s court, which must now make sure the Treaty benefits Malaysians.

It would have been a different narrative if, for example, the MITI negotiators were to first consult some experts in trade and investment policy and the affected parties before taking on the “big boys”. [Five of the TPPA members have GNP per capita above US forty-thousand dollars; US$12,000 for Brazil and US$5,000 plus for Malaysia].

One trade expert that MITI should forthwith consult is the Cambridge- educated, former USM colleague and Penang- based columnist for The Star Martin Khor.

Had it held its belated “Open House” much earlier and long before Tun Mahathir and others criticised the TPPA, MITI would not have to go through this wrenching soul searching process. A few of us including my good friend and blogger, Dato’ Din Merican and I are concerned with MITI’s defensive style, which has inevitably dented its credibility. MITI should not behave like an ostrich burying its head in the sand.

Members of the public are not privy to the negotiations. While we put our trust in MITI, we also expect it to do rigorous homework. Now, we know that a comprehensive study has not been completed and that no cost-benefit study in two critical areas was conducted.

We can only hope that the results of these studies will be made public as the rakyat has every right to know what is in store for them. MITI is not empowered to act without the consent of Parliament, which represents us, the people.

Whether the MITI Open House on August 1 was an afterthought orDatuk-Seri-Mustapa-Mohamed otherwise, the session was a welcome opportunity to “exchange” views. Unfortunately the forum turned out to be an unusual exercise in public relations. At that session, MITI merely restated its position that everything was overboard. Of course, as expected, it promised to bring the expressed concerns for further discussion.

Knowing what we want is half of the picture. Getting what the Cabinet has mandated is a challenge that our negotiators must live up to. Will the “big boys” continue to listen to our pleas and woes? Is it not too little too late to renegotiate the terms when the clock has started ticking? What is the fate of million Malaysians whose livelihood depends on the state-owned–enterprises (SOEs) and small- and- medium enterprises (SMEs) once the TPPA comes into operation, for example?

Many thousand poor Malaysians suffering from cancer, AIDS and myeloid leukaemia who depend on cheaper generic drugs have reasons to smile after the Cabinet made a decision that it would not agree to any provision in the Treaty that limits access to affordable medicine and healthcare.

Under the TPPA rule on intellectual property right, only patented drugs are allowed. With regard to this, the Indians are more fortunate following a recent Supreme Court decision that rejected a patent for a cancer drug; the cheaper generic version costs only US$165; the would- be- patented drug costs US$2,666 a month!

Renegotiating issues like jurisdiction in the investor-state dispute settlement mechanism, status of government procurement policies, status of state-owned enterprises, policies on financial services including capital controls, and the impact of intellectual property rights on the cost of medicine and healthcare, is, in my view, difficult at this late stage.

The multinationals are using the TPPA to rewrite the rules of international trade and financial services. The multinationals are determined to rein in the role of state enterprises and promotion of local small and medium private companies, which they allege have been blocking access to markets in Third World countries.

The role of the state as actor in international relations will likely to be eroded under the TPPA trade-imposed regime; the multinational companies have supplanted their role. The fear in some quarters that the state can no longer exercise sovereign immunity over certain trade -related issues is quite justified.

NajibWith the multinationals in the driver’s seat, anti-smoking pictures or slogans like “smoking is bad for your lungs”, “that second hand smoke kills” or “smoking leads to cancer” will no longer be allowed. Governments can be sued for displaying these slogans!

Whether PM Najib Razak will call- off the unpopular TPPA depends on many factors–external and domestic. Externally, withdrawing from the TPPA will not endear KL to Washington especially when Malaysia is hosting President Obama in October. Domestically, it depends on how much the Treaty will affect his chances of retaining UMNO Presidency in the upcoming UMNO General Assembly slated for October, too. On balance, however, when push comes to shove, the latter will have the final say.

On TPPA: MITI responds


August 14, 2013

COMMENT by BA Hamzah: Judging from the statements of prominentBA Hamzah cabinet Ministers over the TPPA it would seem that Malaysia is now more determined to be a member. More so after Tun Mahathir has openly criticised the treaty for its lack of transparency and unfavourable content.

The TPPA is likely to be debated at the forthcoming UMNO General Assembly in October alongside Pak Lah’s latest “The Awakening”. Don’t be surprised if a few were to thumb the table with late Barry Wain’s book on Mahathir: The Malaysian Maverick: Mahathir Mohammad in Turbulent Times.

Anything under the sun is possible at an UMNO meeting including belacan that Malaysia, under the TPPA, can market to Brunei. Of the twelve, Brunei has the tiniest market. The population of Brunei is one third of Kuala Lumpur. What can we sell to Brunei except for belacan?

Malaysia’s membership of the TPPA is likely to be about UMNO politics as it is about free trade. Well it is not really free trade, as it also talks about financial services. Under the proposed TPPA, Malaysia can no longer introduce capital controls in the event of another Soros type currency speculation. The TPPA is also about state-owned–enterprises (SOEs) and small- and- medium enterprises (SMEs), which have been consciously developed over the years for specific reasons. These two will come under scrutiny.

One Minister has suggested that the TPPA would rein in corruption among Government officials. I have not figured out how this can be achieved, presumably through the proposed intervention in Government procurement policies. It will indeed be a miracle if the TPPA mechanism can rein in rampant corruption in Malaysia.

Without the SOEs, SMEs and Government contracts, not only Malays will suffer. Every one who depends on the Government for business will have to bite the bullet too. It may put an end to the New Economic Policy, which is supposed to favour the Bumiputeras.That’s not a bad outcome since it puts end to crony capitalism and political patronage. But it also means an end to the policy of restructuring the society, the other pillar of the NEP, to eradicate poverty irrespective of race.

Who drives the TPPA? MITI says the decision is by consensus, so it is on auto-pilot mode. Interesting!. Scratch the surface slightly, you will find that the train is auto-piloted by large American multinationals like the tobacco companies and pharmaceutical giants.

Forget about educating Malaysians on the hazards of smoking under the TPPA agreement. Displaying anti-smoking pictures or captions like “smoking is bad for your lungs”, “that second hand smoke kills” or “smoking leads to cancer” is unfair form of trade.

Under the TPPA, Big tobacco companies must be permitted to sell cigarettes, irrespective of the health hazard of smoking.It is OK if it kills people, as long as it fairly traded!

The impact on healthcare is going to be steep for Malaysians who cannot afford patented drugs. Under the TPPA rule on intellectual property rights, only original, patented drugs are allowed. Generics are not.

Imagine those suffering from AIDs and myeloid leukaemia, which need cheaper generics to stay alive.

The Supreme Court in India has done a service to the poor by recently rejecting a patent on a cancer drug that costs a US$2,600 a month. Now Indian drug makers can continue to sell the same drug for US$165 a month. Fortunately for Indians, India is not party to the TPPA.

On the surface, TPPA is designed to benefit the wealthy. The poor must continue to endure and suffer because of bad policies. MITI should have a  heart for the poor Malaysians suffering from cancer and myeloid leukaemia.

MITI should listen to the voices of the educated and well-informed members of the civil society too. It would seem that it is adamant in pushing the agenda. Whose agenda is it? Is a regime agenda? Or should MITI be more concerned with the poor rakyat who voted for the regime?

Fair representation is a key element in a functioning democratic system. Politicians are elected to represent the people and Government officials are mere civil servants whose primary duty is to serve the rakyat. In this particular case, MITI must put the interest of the common people above regime loyalty.

Regime comes and goes; the rakyat stay.

How much of the TPPA is about geopolitics? Plenty. Ten TPPA members are allies, near allies or client states of America: Australia, Canada, Chile, Japan, Mexico, Peru, Singapore and Vietnam.This can probably explain why China is not invited. All eleven have FTAs with the US. Malaysia does not. 

Arguably, the TPPA augments the US military policy of pivoting to the East targeting at China. Since when has Malaysia moved into the US policy orbit of containing China, which is currently our largest trading partner?

The TPPA is a rich-man club, going by the GNP per capita. Except for Malaysia, Mexico, Peru and Vietnam, the GNP per capita of seven other countries are above forty-thousand US dollars; thirty eight thousand for New Zealand and twelve-thousand for Brazil.

Datuk-Seri-Mustapa-MohamedThe majority of Malaysian rakyat want Tok Pa (Dato Seri Mustapha Mohamed) and MITI to first resolve favourably the fate of small and medium scale enterprises, jurisdiction issue in the investor-state dispute settlement mechanism, status of government procurement policies, status of state-owned enterprises, policies on financial services including capital controls, and deal with the impact of intellectual property rights on the cost of medicine and healthcare before moving ahead with the TPPA.

The rakyat will not accept any fait accompli decision. The days when the top can impose their will on ordinary Malaysians are over.

On TPPA: MITI responds

MITI-MalaysiaMPORTANT INITIATIVE: Country’s GDP set to improve, while its goods and services will reach a wider market, says MITI

THE Trans-Pacific Partnership Agreement (TPPA), an initiative to establish a free trade agreement (FTA) between 12 countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam – will see a market of 800 million people and combined gross domestic product (GDP) of US$27.5 trillion (RM89.1 trillion).

The agreement covers new elements such as competition, labour, environment, government procurement and intellectual property rights. The International Trade and Industry Ministry (Miti) has put together a Q&A (question and answer) to address public concerns and fears about the ongoing talks.

Here are the excerpts from Part One:

Question: What is the rationale of joining the TPPA negotiations?

Answer: The government views the TPPA as an important initiative as Malaysia seeks to expand market access opportunities, enhance its competitive advantage and build investor confidence. The comprehensive study conducted by the United Nations Development Programme (UNDP) also identified several major economic benefits to Malaysia, including welfare gains of 1.46 per cent and higher wages for skilled and unskilled labour by 2020, in addition to improved GDP growth due to greater market access among member countries.

The successful conclusion of the TPPA will form a huge market of 800 million people with a combined GDP of US$27.5 trillion. This far surpasses Malaysia’s limited domestic market of 29.5 million people and a GDP of US$300 billion.

According to a simulation study done by the Peterson Institute of Economics in June last year, by 2025, Malaysia will benefit with an increase in gross national income by RM26.3 billion and increase in exports of RM41.7 billion.

Admittedly, the government is aware of the challenges and controversies surrounding the TPPA because unlike other FTAs, it is comprehensive and covers more areas of interest, which would naturally invite more public opinion and debate. The government appreciates all views expressed on the TPPA and will continue to engage the stakeholders and NGOs for inputs and feedback.

Question: What are the benefits of TPPA for Malaysia?

Answer: Consultations with various stakeholders prior to joining TPPA negotiations have revealed an increasing request from Malaysian companies for more open markets and trade facilitative measures. There are increasing numbers of Malaysian companies becoming global investors and they require a level of predictability that can be guaranteed effectively through binding agreements like FTAs.

Concurrently, there is also interest from foreign companies from non-TPPA countries that are exploring Malaysia as a base for their operations as the hope to enjoy the benefits of the TPPA. The combination of greater market access for Malaysian products and services under the TPPA and the continued inflow of foreign investments will create a powerful catalyst in driving Malaysia’s economic transformation agenda.

With TPPA, Malaysia will become an integral part of the greater economic integration within the Asia- Pacific region. It will also significantly enhance Malaysia’s engagement with important trading partners such as the US, Canada, Mexico and Peru. As a member of TPPA, Malaysia will also be able to increase it participation in the regional supply and value chains and facilitate access for Malaysian products and services into bigger markets.

Question: What are the challenges of the TPPA for Malaysia?

Answer:
The government is aware of the many benefits and the challenges involved. For instance, government procurement is one of the new elements in TPP, which was never part of the FTAs that Malaysia has signed. This is one strategic area the government is negotiating cautiously, after taking into consideration feedback from stakeholders, particularly on the concern of safeguarding the interest of local enterprises and the Bumiputera commercial and industrial community.

Intellectual Property Rights (IPR) is another difficult area. One of the main concerns on IPR revolves around access to affordable medi-cine and healthcare as well as longer protection term which might delay manufacturing of generic drugs.

Malaysian negotiators will continue to negotiate an outcome that will give Malaysians access to affordable medicine and healthcare.

Question: What will happen if Malaysia does not join the TPPA?

Answer: The TPPA offers Malaysia an opportunity to be part of a consumer market with 800 million people. Abandoning the TPPA negotiations now would mean allowing other countries to set the terms of agreement without considering Malaysia’s interests and concerns. Acceding to the TPPA later would result in Malaysia having to accept the rules, disciplines, terms and conditions decided by others.

By not joining the TPPA, Malaysia would be at a disadvantage in terms of seeking bigger and better market access for its products and services. The impact of that disadvantage will be even more significant should countries like China, Indonesia and other competitors decide to join later.

Once realised, the TPPA will result in a huge consumer market for Malaysian goods and services. Market access to 800 million people is not an opportunity we can afford to miss, especially since we are an open economy highly dependent on international trade. In an increasingly competitive global environment, our absence will make Malaysia less attractive as an investment destination, compared with those that are TPPA members. As investors avoid Malaysia, this could result in fewer opportunities for job creation.

Question: Who is in charge of the TPPA negotiations?

Answer: The cabinet has mandated MITI to coordinate Malaysia’s participation in the TPPA negotiations. MITI acts as the chief negotiator but other ministries and agencies will lead the working groups for areas under their responsibility. (See Table 1).

With the mandate from the cabinet, the lead ministries and agencies involved are focused on safeguarding Malaysia’s best interest in the ongoing negotiations. Before every negotiating round, the cabinet is briefed on all issues, and for the necessary mandate to be given to all negotiators.

Question: Was there a lack of consultation in forming Malaysia’s position in TPPA?

Answer: The government admits more consultations could have been carried out. In this regard, MITI has made many statements assuring the public that consultations have been carried out by negotiators in their respective fields.

It had also organised a TPPA open day on August 1 to update the public and the media on issues surrounding TPPA, to clear misconceptions about it and to hear the public’s concerns about it.

MITI welcomes the establishment of a bipartisan caucus in Parliament. Its minister had met and briefed the caucus on developments and issues concerning the matter. The caucus provided constructive inputs to the government.

It must be noted that inputs and feedback from industry associations, interest groups and business chambers play a key role in the formation of Malaysia’s negotiating positions. To illustrate a point, Malaysia’s position in the negotiations on government procurement, led by the Finance Ministry, strongly reflects the concerns of stakeholders, the Bumiputera business community and state-owned enterprises (SOEs) as well as that the small and medium enterprises (SMEs).

Malaysia has also maintained the rights of all states on matters related to land and water. On SOEs, Malaysia’s position is determined by the Finance Ministry and Khazanah Nasional Bhd.

The government will continue to engage all stakeholders. In addition to the open day, MITI met the Coalition to Act Against the TPPA Malaysia on August 6 and discussed ways to enhance engagement with stakeholders. Miti welcomes feedback and opinion from all parties regarding the TPPA.

Question: Why the secrecy in TPPA negotiations?

Answer: While the negotiating texts have never been made public as negotiations are ongoing, the government has and will continue to share its negotiating position with relevant stakeholders during the consultation sessions.

A level of confidentiality is required for two main reasons: (a) regulations and the evolving process of negotiations and rules surrounding TPPA oblige negotiators to maintain confidentiality of the negotiating texts and (b) negotiators advancing the interests of Malaysia, strategically do not want to publicly disclose their bargaining positions to ensure the best outcome during the negotiations.

Mindful of the public feedback, the Miti minister will put this issue on the agenda of the forthcoming TPP Ministerial Meeting in Brunei.

Question: Why rush TPPA by October this year?

Answer: As in all negotiations, there is a need to work towards a target date to conclude negotiations. It should be noted that the Trans Pacific Partnership Leaders Statement issued on November 12 2011, in Honolulu, clearly called on the negotiating teams to continue talks with other Asia-Pacific partners that have expressed interest in joining the TPPA in order to facilitate their future participation. TPPA leaders have set an October target for substantial conclusion of the negotiations.

However, this is not a definitive deadline for the conclusion of the TPPA as the parties involved are still negotiating on a number of sensitive issues. It is in Malaysia’s best interest that TPPA is concluded in a manner that benefits the people.

Question: Why is China not in the TPPA?

Answer: The position of all TPPA members is for this agreement to be a building block for the Free Trade Agreement of the Asia Pacific (FTAAP), which will encompass all the Asia-Pacific Economic Cooperation (Apec) economies, of which China is also a member. Membership in TPPA is voluntary. Every APEC member, including China, is free to decide when to join TPPA.

China is a very important trading partner to Malaysia. As such, Malaysia certainly welcomes China into the TPPA.

http://www.btimes.com.my/Current_News/BTIMES/articles/rup1203/Article/

Trans Pacific Partnership Agreement (TPPA) – Why Protest (Bantah)


August 6, 2013

Trans Pacific Partnership Agreement (TPPA) – Why Protest (Bantah)

by Anas Alam Faizli

Back in 2008, the Malaysian government concluded the signing of a US-Malaysia FTA with 58 redlines or “red-stops”, which discontinued the two-year negotiation. Among leading protagonists was then Agriculture Minister Tan Sri Muhyiddin Yassin, who mentioned that he would not compromise the livelihood of local farmers. He was even quoted as saying ‘over my dead body’ by some quarters. YB Khairy Jamaluddin even led a protest, citing that the FTA would take away Malaysia’s sovereignty, while patent protection would deny access to generic medicine. Question is, what has changed in the past five years? One thing for sure, it is definitely not the content of the FTA.

Why Trans Pacific?

We can imply that TPPA is called Trans Pacific because of the geographic locations of the countries taking part in the negotiations, and between whom the agreement aims to conclude amongst. TPPA is unique in the sense that it is open-ended agreement. Any country interested to join can join in as long as they agree with concluded text and other countries agree to the entry.

Every country participating in the TPPA already has existing FTA with America except Japan, New Zealand, Malaysia and Brunei. Japan and New Zealand are developed economies with very large trade sizes with other countries in the world, and Brunei is a resource-rich nation with a less significant trade size. That leaves Malaysia, which has most at stake as a developing nation and a new entrant to an FTA with America.

What does this mean? It means that, for countries with existing FTAs with America, the TPPA will probably just result in minor additions to status quo. But for our small economy, the TPPA will entail a much bigger impact.

The first TPPA negotiation was held in March 2010 amongst 8 countries, while Malaysia joined in December 2010, followed by Mexico and Canada December 2012. Recently, Japan joined in at the Kota Kinabalu negotiation round.

tppa-1
The contents of TPPA’s texts ares confidential and negotiations are held behind closed doors. What we have are five leaked chapters, namely Investment, Intellectual Property, Trade to Barrier and Regulatory Coherence. MITI reported that it has almost concluded 14 out of the 29 chapters.Previous US FTAs have shown that they do not vary much from each, with an average variance of about less than 5%. This clear indicates standardization on the part of the Americans and their reluctance in entertaining non-conforming measures (termed as “exclusions”) at the negotiation table. It can thus be implied that one FTA will not be that much different from another. Other US FTAs with Singapore, South Korea and Chile serve as good guidance for us to know what to expect in the TPPA.

Investment and Sovereignty

This is arguably the largest chapter, which also has linkages to most of the other chapters. This chapter will restrict the policy space of governments through its ‘Investor-To-State Dispute Settlement (ISDS)’ and the ‘State-to-state Dispute Settlement’ (SSDS) clauses. TPPA in this case supposedly “strengthens” trans-national ‘corporate’ justice (fairness and equity) – by providing ways for multinational corporations to trample over national legal systems through international arbitration tribunals comprising of three judges; two international and one local.What do fairness and equity here mean?

Mainly, MNCs can expect no local condition or regulation changes affecting them once there reside in a partner country. For example, if Malaysia suddenly happens to find out that a certain ingredient in tobacco is harmful, and decide to ban it thereby affecting the profitability of a Tobacco MNC, the MNC has the right to sue the government for potential profit loss for the remaining period of their permit in the country, with interest. Such was the case with Phillip Morris, when it sued the Australian government over a new law onto cigarette packaging.

The same could happen if Malaysia decides to be more stringent with LYNAS, for example, in the future.To consider the extreme, we can even go to the extent of saying that legislators and the Parliament will be essentially rendered redundant; their hands will be tied to enacting only new laws that will not affect MNCs’ profitability and business viability! We recall Mexico being sued for USD 16 billion for disallowing removal of toxic waste harmful to its environment by an American corporation.

It is also widely known that developed nations like America and Japan are attempting the ISDS via the TPPA. ISDS is under a provision under the Investment Chapter which essentially will allow any corporations to take the Malaysian government to court for claims for damages or loss. It was not ratified previously under existing World Trade Organization (WTO) agreements. We can only imply with no substantial certainty that these clauses were not ratified by WTO for its potential negative impacts on some signatory countries, but there is still reason to be cautious.

On Government Procurement

With this chapter, all government procurement including that of the GLCs and Petronas cannot have special conditions to help local contractors in any way deemed unfair to other corporations. There is a floor threshold for this ruling; deriving from previous US FTAs, we expect it to be around RM 23 million and above which probably leaves room for only the small peripheral contracts for local companies. Meanwhile, the government procurement bill is sized at RM130 billion, or 25% of the Malaysian GDP.

Empirical evidence has shown that 94% of the American government procurement goes to American companies (Khor, 2008) and only 6% goes to over 170 companies worldwide. Such limited potential gains from what is supposed to be opening our doors to America! It is in fact our floodgate that is being opened for America.

What will happen to our local contractors? And what of all those local oil and gas contractors – Can even our giants like Sapura Kencana and MMHE at their nascent stages survive the competitive onslaught from developed nations? Not to mention the smaller players? Even the Petronas Vendor Development Program and licenses will witness its death.

SMEs and Agriculture

Among other things, The TPPA aims at trade liberalization and tariff reduction, which may cause drastic loss of jobs in many sectors. A direct impact is downward pressure on workers’ wages, expanding even further the currently large income disparity gap. Mexico serves as a good reminder; following the signing of the North American Free Trade Agreement (NAFTA) with Canada and the US, three million out of ten million Mexicans lost their jobs.

Tariff reductions will adversely impact particularly agricultural products. Promoting efficiency and healthy competition, however noble, becomes unfair when more than 90% of Malaysian companies in the agriculture sector are SMEs. They will face unfair competition from giant agricultural exporters from TPPA countries such as the US, Canada, and Japan, whose governments in the TPPA will not reduce huge subsidies to their farmers. A study by UNCTAD showed that subsidies reduce the price of American rice crop by 45% below cost of production, soybean by 32% and cotton by 52%. A rough calculation indicates that their rice can flood the Malaysian market at as low as RM1.40/ kg– what will happen to BERNAS, and more importantly, local planters then?

On Intellectual Property

The Big Pharmas will get medicine patents and obtain longer patents easily. This would also render generic medicines more difficult to, or delayed access, such as medicines for cancer, HIV and other chronic illnesses. This will definitely affect our populace. For example, Herceptin which is used for cancer, currently costs RM8,000 per cycle and is used for 17 cycles. Treating a lung cancer patient costs an average of MYR 44,725 ($14,455) per year, per patient. The chance of access to these medicines for those unable to afford these exorbitant prices becomes slimmer if generic medicines are prohibited due to an extra 20 years to patents where patent law is loosened.

Just as the TPPA’s intellectual property (IP) protection measures would make medical treatment more expensive for ordinary Malaysians, TPPA countries’ educational and research activities could also be harmed – and made more expensive – due to the more stringent copyright laws proposed. These include the ‘digital commons’ such as the Internet-based resources. Current copyright law is proposed to be extended from 50 years to 120. That’s also 70 more years of limited accessibility to students and academia due to prohibitive prices of book and references.

Tobacco control and Public Health

Tobacco is not our average ordinary product – it kills at least 50% of its consumers prematurely. Malaysia, along with all other TPP countries except the USA, is party to the WHO Framework Convention on Tobacco Control (FCTC) which requires countries to regulate tobacco, reduce its use and withhold grant incentives to the tobacco industry. The FCTC is a binding international treaty and Malaysia has been a Party; this entails the aligning of national policies with the goal of reduction in tobacco use and regulating the tobacco industry. Many provisions in various TPPA Chapters contradict those in the FCTC. This alone is cause for concern considering the potential conflicts between the two in the future, and more importantly the general harm to public health of a more heavily tobacco-consuming society.

Capital Control Capability

Another major consequence of the TPPA is restriction on our capability to enforce capital control. According to Reinhart & Roghoff (2009), periods of high international capital mobility have repeatedly produced international banking crises, not only as witnessed here at home and in the region in 1997, but also historically. When financial systems are adequately regulated, the scope for damaging financial cycles can be contained, or at least leave the economy less prone to such large cyclical swings as seen in today’s more liberalized environments. The idea is not to destruct efforts for a liberalized and efficient financial sector, nor to hinder Malaysia’s competitiveness in attracting foreign investments, but rather to cushion impacts of economic shocks to the most vulnerable Malaysian businesses and entrepreneurs. It is not archaic to take some heed from temporary capital controls measures we undertook during the Asian Financial Crisis. Even the IMF admits to the role that capital control played in expediting our recovery compared to that of Indonesia & Thailand.

Trade and FDI Myth

Back to trade itself, it has always been expected that the main benefits of signing an FTA with the US will be reflected through higher gains in trade benefits. How is it then that even in the case of a relatively stronger economy such Singapore, trade deficit had only widened from USD1.4 billion in 2003 when they signed the agreement, to USD4.3 billion in 2004 and USD6.9 billion in 2006 to USD10.5 billion in 2012?! Furthermore, no evidence of increased long term quality investments and FDI were found in bilateral trade agreements, according to a report by the United Nations on FTA impacts. While trade diversion is a valid concern, the loss of incomes and benefits from trade diversion as a result of opting out of TPPA, must be determinedly greater than the various losses and costs that the TPPA entails to the larger economy.

Protests around the World

It is not uncommon for nations worldwide to protest against FTAs with America. In Guatemala, two died protesting, and the people of Guatemala brought the government to court claiming that the FTA would go against at least 130 Acts in the Guatemalan constitution. In Ecuador, Emergency had to be declared due to massive demonstrations. Chief negotiators in Thailand and Colombia also resigned from their positions in protest. In South Korea, a protestor burnt himself to death to show protest against an FTA that it had with the US, which only passed by Parliament after the ruling Government effectively locked up the opposition.

Countries like Argentina, Bolivia, Brazil, Paraguay, Uruguay, Venezuela, South Africa, Botswana, Lesotho, Namibia and Swaziland had also previously engaged in negotiations with America for an FTA, but they were never signed.

In Malaysia, the Third World Network (TWN) and the Consumers Association of Penang (CAP) have been at the forefront of engaging with US-Malaysia FTA issues since 2008, and has continued to do so with the TPPA. Notable efforts have surfaced again lately in light of the TPPA negotiations and the leaked chapters. On 6th of June 2013, YB Nurul Izzah issued a press statement questioning the secrecy of the TPPA negotiation and asked pertinent questions; whether Malaysia plans to trade its sovereignty for free trade. She continued to put pressure from Pakatan Rakyat which led to the setting up of a parliamentary caucus and more engagement from MITI.

Simultaneously, momentum continues to build up with NGOs such as BLINDSPOT, MTEM, MAC, MTUC, GBM, IKRAM continuously engaging in forums and public awareness efforts. These efforts have no other aim than to make the public aware for the need for them to demand their engagement with the government in the negotiations. Other high profile figures like Tun Mahathir and Liow Tiong Lai also openly expressed opposition to the TPPA further fuelling efforts for public to engage in the issue.

The Coalition Act against TPPA

Badan Bertindak Bantah TPPA is a coalition of 52 Non-Governmental Organisations and 7 Coalition Councils formed with the aim of raising the people’s awareness with regards to TPPA in a sincere effort to ensure Malaysia gets the best out of TPPA. Our view is that the TPPA is straddled between the hopes of a relatively small circle of multinational corporations, whose commercial interests stand to benefit the most from the proposals, and the fears of civil society organizations representing the people of all 12 TPPA countries. In fact, the TPPA is neither about fair trade nor even about free trade alone, since it seeks to lock in the monopolistic position of big corporations over their industries. It is about ensuring the protection and prioritization of corporate interests above those of public welfare, safety and the socio-economic interests of less affluent economies than the obvious economic master here, which is America.

We note that America is assisted by a force of 1,000 that form a special advisory committee, mostly represented by industry experts. We demand the same here for Malaysia. A coveted UNDP study is hardly sufficient to ensure the public that our livelihoods and that of our future generations are not under threat here. Given the track record, Malaysia is not exactly a master at negotiations, having lost Block L and M, a skewed water agreement with Singapore, Batu Puteh island and many other international disputes. Negotiators from MITI alone cannot decide the fate of future generations of Malaysia.

Stop TPPA

Ultimately, the Badan Bertindak Bantah TPPA demands for the Government of Malaysia to suspend or pull out its involvement in the TPPA negotiations unless and until, an impartial and comprehensive cost-and-benefit-analysis and a comparative advantage study are carried out, disclosed and publicly debated by all stakeholders in Malaysia, that the texts are examined, scrutinized and assessed by parliament to rectify the TPPA as negotiated is indeed in Malaysia’s favour and interests, that the concerns are seen to have been incorporated into Malaysia’s positions and proposals for the TPPA; and that a popular referendum is held to determine to what extent Malaysians are in support of their government signing and ratifying the TPPA.

We demand for the government to adopt a transparent stance in this and for the voices of the various stakeholders amongst the people of Malaysia are considered in this negotiation round. Or else, pull out from TPPA negotiations in an absolute manner. A textbook outline of the benefits of free trade will not suffice; the TPPA may be a free trade agreement in form, but it is an imperialistic regulatory agreement in substance.Attention and empathy is needed from civil society itself.

Academics, industry experts, practitioners and even lay people who are concerned about the future of Malaysia must search, aim to understand research, speak out and write to contribute to current efforts to demanding the best out of our negotiations. Else, we really should be bidding our farewell to America and run for the door.

Anas Alam F*Anas Alam Faizli is an oil and gas professional. He is pursuing a post-graduate doctorate, co-Founder of BLINDSPOT and BADAN BERTINDAK BANTAH TPPA and tweets at @aafaizli

Mr. Sang Comes to Washington


August 6,2013

Mr. Sang Comes to Washington

by Greg Rushford of The Rushford Report (07-25-13)

The White House1600 Pennsylvania Avenue, Washington DC

Vietnamese President Truong Tan Sang — a powerful senior member of the ruling Politburo, where the major governmental decisions are hammered out for the Central Committee of the ruling Communist Party — will meet with U.S. President Barack Obama in the White House on July 25. One way or the other, Thursday’s meeting for the two heads of state will be important. It comes at a time of increased tensions that have been holding back closer strategic and economic ties between the two former war enemies.

Sang and Obama have an opportunity to forge a deeper (mutually respectful) bilateral relationship. But it is not at all clear whether either leader has the vision or the necessary political instincts to seize it.  The two heads of state may just try to put out an attractive spin, hoping to gloss over important differences on the core issues that presently divide Washington and Hanoi. The two most difficult of those: Vietnamese human-rights practices that insult accepted international legal norms (as seen from Washington’s perspective), and insulting rich-country economic pressures (Hanoi’s view).

The White House has listed “human rights” as the first of three topics that will be on the agenda when the two leaders meet on Thursday. “Climate change” is the second named priority, followed by the Trans-Pacific Partnership trade talks involving the United States, Vietnam and ten other Asia-Pacific countries.

But the real agenda is broader, involving fundamental decisions that need to be made by both countries on whether to deepen their strategic and security cooperation. The sharp-eyed David Brown, a special correspondent for the Asia Sentinel, has written that President Sang and the Politburo appeared to have been “shaken” when Sang visited Beijing in June. Apparently in his private talks with top Chinese leaders, including President Xi Jinping, the Vietnamese president came away with nice words, but little of substance. Because of the “evidently jolting encounter with China’s leaders,” Brown wrote, a “hurried” visit to Washington was then arranged. In Washington, the Politburo wants Sang to find out whether President Obama — a politician who, in some Asian eyes, has acquired a certain reputation for offering mostly happy talk in his dealings with his foreign peers — will be any more helpful.

Neither government was divulging further details of what Sang and Obama will have to chat about on Thursday. A White House spokesman refused even to say in what room of the White House Presidents Obama and Sang would be talking, much less identify who else might be in that room.

A close look at each of the three specific items on the Sang-Obama agenda suggests that for each president, any truly “frank” diplomatic exchanges would pose awkward questions, not to say outright mutual embarrassments.

For Sang, the most awkward question would be to explain to Obama what benefit Vietnamese leaders think they really gain by holding hostage more than 160 political prisoners. These are Vietnamese citizens who have committed no “crimes” — other than to peaceably voice their complaints that their government is seen as becoming increasingly corrupt and unaccountable.  And Obama might ask about a July 15 Hanoi decree that is aimed at prohibiting speech that goes “against the state of the socialist republic of Vietnam,” or any criticism that the party fears could “jeopardize national security,” Radio Free Asia has reported. The targets are popular internet icons like Google and Facebook.

Of course, it’s always tricky business for Americans to express reasonable opinions on human rights without sounding arrogant and self-righteous to always-sensitive Vietnamese leaders. Press too hard, and too publicly, and the commies could just arrest more innocent bloggers to stick it to the Americans. Press too quietly, and the authorities in Hanoi could just keep on doing whatever they please. Nobody’s ever really figured out the most appropriate diplomatic language.

And if Obama’s tone on human rights offends Sang, the Vietnamese President might bring up the subject of dioxin. Sang might ask if the U.S. leader feels a sense of shame over the fact that a spokesman for the U.S. Embassy in Hanoi has recently denied to McClatchy reporter Drew Brown that many Vietnamese citizens today are still suffering from the tragic effects of dioxin sprayed by the U.S. Air Force on Vietnam during the shooting war.]

For Obama, perhaps the most embarrassing thing is that his White House — for purely domestic parochial reasons involving his political ties with U.S. organized labor and the globally uncompetitive U.S. textile lobby — has been stridently making demands of the Vietnamese in the TPP trade talks that the Politburo would be foolish to accept. Obama’s rather crude economic pressures, in fact, have been playing into the hands of those in Hanoi who increasingly question the value of closer commercial and strategic ties with the United States.

Beyond the mutual embarrassment potential, it turns out that what the White House wants to talk about regarding climate change illustrates — most likely, unwittingly for both Sang and Obama — just how complicated deepening the bilateral economic relationship has become.

President Truong Tan Sang with President ObamaPower Politics

On climate change, it could be that all Obama wants to do is burnish his “green” credentials by giving President Sang a nice lecture on the importance of nations’ working together to combat global warming.

But there’s something else important going on between Washington and Hanoi that illustrates how the politics of climate change have interjected themselves into the bilateral relationship. It’s not certain that the White House staff — which seems to be spread pretty thin these days — has briefed Obama on the implications of a decision last week by the U.S. Export-Import Bank to deny U.S. export financing to build a 1,200-megawatt coal-fired power plant in Vietnam’s Thai Binh province. But for sure, President Sang wouldn’t need a special briefing to understand fully the implications of the American act. This is because the Ex-Im decision goes directly to the heart of how political power is exercised in today’s Vietnam — and touches sensitive nerves in the Politburo.

Greenpeace, Friends of the Earth and other environmental groups complained in a July 17 letter to Obama that “this dirty coal plant will emit unacceptable air pollution that will worsen climate disruption and poison local communities.” Obama’s climate action plan, they (rightly) noted, is against U.S. financing of overseas coal projects, on grounds they increase greenhouse gas emissions.

The green lobbyists portrayed the Obama climate-action policies correctly. Ex-Im’s guidelines basically discourage financing for high carbon density overseas projects like coal plants. These days, Ex-Im is more interested in participating in viable renewable-energy projects. Anyway, after conducting an environmental “due diligence” examination, the U.S. export-financing agency found that the Thai Binh plans failed to pass muster. Because of that, the bank did not examine the other details of the project: financing, credit-worthiness, and so forth.

Most of the above was reported by U.S. wire services — but the best part of the story has gone unreported: precisely who wanted U.S. export financing for the Thai Binh coal-power plant?

Ex-Im doesn’t put such details on the public record before projects are approved.  But a little digging reveals that the Ex-Im financing was sought to help one of Vietnam’s giant state-owned enterprises, PetroVietnam Power Corporation, which refers to itself as PV Power. PV Power is a subsidiary of the Vietnam National Oil and Gas Group, which goes by its acronym, PVN. According to a 2011 Vietnamese news report, PV Power’s Thai Binh 2 Thermo Power Plant is a $1.6 billion project. The main players are Korean and Japanese construction firms.

On August 3, 2012 the Charlotte, Va.-based Babcock & Wilcox Co. announced that a Beijing-based subsidiary — Babcock & Wilcox Beijing Co. Ltd. — had won a $300 million Thai Binh-related contract from South Korea’s Daelim Industrial Co. Ltd.  Babcock & Wilcox said that it would do the engineering work in Beijing for two coal-fired boilers for the Thai Binh project, and would also participate in the manufacturing.

While a Babcock & Wilcox spokesman was unable to respond to questions asking about Thai Binh before this article went to press, it seems logical that PetroVietnam and the Korean company could have sought financing from the U.S. Ex-Im Bank to buy U.S.-manufactured equipment. How many American jobs would have been supported with the financing is not on the public record. (Nor is it clear what role coal plays — or perhaps should play — in addressing the energy needs of a developing country like Vietnam.)

The involvement of PetroVietnam, for those who know how what might be called the Vietnamese “political economy” works, suggests that the story’s ramifications go way beyond a normal fight over money and jobs with just one construction project.

State-owned corporations control perhaps a third of the Vietnamese economy. Inefficient, secretive and widely considered corrupt, SOE’s are also cash cows for senior members of the Communist Party. They report to the Prime Minister’s office, and are thus an important source of political patronage. (Imagine if President Obama would appoint the top echelons of a third of the Fortune 500, the likes of Boeing, General Electric, Microsoft, Google, Exxon, and so on.)

In the Trans-Pacific Partnership trade talks, the Americans are demanding that the Vietnamese enact transparency reforms, and also that steps be taken to bring SOEs more market-oriented. It’s asking a lot, considering that the same government corporations have been making a lot of senior party officials — including at the Politburo level — very rich. The Politburo has been wrestling for most of the past decade over what to do about all this.

PetroVietnam  has become controversial in Vietnam. Last October a report by Thanh Nien Daily, a Vietnamese newspaper, noted that PetroVietnam had been cricitized by economist Le Dang Doanh on grounds it “needs to disclose its finances and profit numbers.”

The Thanh Nien report added that the giant government corporation had denied accusations made publicly by National Assembly members that it had been using its taxpayers’ money to engage in real estate speculation. Then the Vietnamese newspaper asked why PV Power and other wholly-owned subsidiaries of PVN have their own real estate companies. The newspaper even ran a photo of the Nam Dan Plaza in Hanoi, described as “a new luxury department store project developed by PV Power.” (From the view of SOE executives, speculating in real estate ought to be more commercially attractive than power, because the government forces them to set electricity rates too low for Vietnamese consumers to be commercially viable.)

This week, Vietnamese officials who will be travelling with President Sang will be pressing their case with their Ex-Im counterparts. It is unlikely they will succeed. The U.S. officials might wonder whether PetroVietnam officials might just take any profits obtained from low-cost U.S. Ex-Im financing to speculate in even more dicey property deals.

A delicate mix

The Obama administration has turned up the pressure on Vietnam’s human rights practices. The price of Vietnam’s admission to the TPP, and of forging a genuine strategic relationship with Washington, will be explicitly linked to “demonstrable” progress on human rights, as U.S. Ambassador to Vietnam David Shear put it on June 1 to a Vietnamese-American audience in Orange County, California. The ambassador’s context was unambiguous: “I have been telling senior Vietnamese officials since my arrival in Vietnam in August of 2011, that if the Vietnamese people want a Trans-Pacific Partnership, if they want stronger cooperation in regional diplomacy leading to a strategic partnership, then we need to see demonstrable progress on human rights in Vietnam.”

Traditionally, it has not been official U.S. policy to make such an explicit link with human rights in any commercial negotiation. Shear’s remarks — which he declines to comment further upon — were initially dismissed as unserious by some veteran trade observers who cautioned that they should not be taken literally. Shear was just telling his California audience what it wanted to hear, according to this interpretation. Vietnamese-Americans and their representatives in the U.S. Congress have been critical of Shear, on grounds he has not done enough to improve Vietnamese human-rights practices.

Still, Shear is a senior, well-regarded American diplomat with considerable experience in Asia — he’s served in Japan, China, and Malaysia, and speaks Japanese and Mandarin. Nor does Shear have a reputation for loose talk. In his June 1 Orange County appearance, the ambassador spoke slowly and deliberately, conveying the impression that he was reciting officially authorized talking points. Also, Shear’s reference to how lack of human-rights progress has been the biggest obstacle to closer U.S.-Vietnamese strategic ties was fully consistent with official U.S. foreign policy as expressed often by senior State Department officials. The official State Department position is that U.S.-Vietnam strategic ties will not improve until there is “demonstrable, sustained improvement in the human rights situation.”

U.S. Trade Representative Michael Froman has declined to engage in any diplomatic walk-back that would put distance between U.S. trade policy and Shear’s remarks in Orange County. So it appears that the White House is comfortable with the notion that the Vietnamese should take Amb. Shear’s words at face value.

Enter the U.S. trade police

From the Vietnamese perspective, what Obama is asking them to do on “human rights” in the TPP trade talks appears, well, insulting.

Obama’s trade negotiators have been insisting in the TPP that the Vietnamese agree to the U.S. labor lobby’s demands that they permit independent union organizing — which U.S. officials insist must be enforceable. Such could be considered “human rights” progress, in American eyes.

Before it signs onto this idea, the Politburo might consider how similar arrangements have worked out for other countries that have struck recent trade deals with the Americans.

In the U.S.-Colombia bilateral trade agreement, that Latin country has been required to set up an “action plan” on labor that contains measurable “milestones” and a “robust enforcement regime,” with American officials playing their roles as the enforcers. The way this works practice in Washington, the American officials pay close attention to AFL-CIO labor activists, who never seem to be satisfied that foreigners are doing enough to live up to American standards.

On April 11, 2013, the Office of the U.S. Trade Representative and the Labor Department touted how they had pressed Guatemala to submit to “a robust enforcement plan to resolve concerns” that had been raised in a labor complaint by the United States in the preferential trade agreement involving the U.S. and the Latin country. The American officials congratulated themselves for making Guatemala come up with an 18-point plan to satisfy Washington’s demands. The plan “includes concrete actions with specific time frames that Guatemala will implement within six months to improve labor law enforcement.”

This is the first labor case that the U.S. has brought in any of its preferential trade deals — but the Vietnamese would have good reason to suspect that the American labor police have plans for them.

U.S. double standard

Enter the outright embarrassing part of the story for Obama. The reason the Vietnamese find the TPP talks attractive is the possibility of gaining additional access to protected U.S. clothing- and footwear markets — protected by high tariffs that hover in the 16-18 percent range, but for some lines, twice that. The Obama trade negotiators have been demanding essentially that the price of any tariff cuts  for shoes and apparel be that the Vietnamese agree to purchase their fabric from U.S. suppliers.

The idea is hardly attractive to Hanoi. First, as I reported in “Imperial Preferences” in this space on Sept. 11, 2012, one of the main reasons that Napoleon III sent the French navy to take the port of Saigon in 1859 was to force the Vietnamese to open their markets to exports of French textiles. Economists would agree that current American pressure in the TPP is just a modern-day version of French colonialism.

Secondly, the so-called “yarn forward” rules of origin don’t work. Only about 17 percent of U.S. imports of clothing from Mexico and other Latin American countries that have been forced by U.S. trade negotiators to accept the cumbersome rules actually get duty-free treatment. The importers prefer to pay the duties, rather than jump through the bureaucratic hoops, bear the costly paperwork burden, and such.

And last, think of how President Sang — under fire from Washington because of the Vietnamese government’s many interventions in its economy —  could turn the tables on Obama. Sang might ask: Is it right for the U.S. government to pressure such major American corporations like the iconic Levi, Strauss & Co. and Gap, to agree to buy their (heavy) denim from U.S. suppliers and ship it all the way across the Pacific to Vietnam? Is it right for the White House to pressure Hanesbrands, which has its underwear plants and supply chains in nearby Asian countries like Thailand and China, to buy its cotton instead from the continental United States, and ship that cotton across the ocean? How about Patagonia, which makes down vests in Vietnam from high-tech Japanese materials? Why would the U.S. government want to disrupt the global operations of other respected private-sector corporations: Nike, Adidas, Macy’s, Nordstrom, and so many others?

Obama would, of course, be hard-pressed to respond with credible economic answers to such questions. But the White House has repeatedly insisted that Vietnam swallow the “yarn forward” rules of origin for textiles, and also the high tariffs on footwear.

From a Vietnamese perspective, Obama’s TPP negotiating strategy is reminiscent of how Presidents Lyndon Johnson and Richard Nixon once based American policies during the Vietnam war upon the premise that, with enough pressure from the rich superpower, this small Southeast Asian nation would ultimately bend to America’s will. But unless the Vietnamese get meaningful additional U.S. market access they are seeking in the TPP, it is difficult to think of good reasons why they should cave.

Prospects for closer U.S.-Vietnamese relations?

The final uncertainties involve just what the Vietnamese really want from their relations with Washington.

V-C“There’s a delicate game going on” presently in the Politburo, explains scholar Carlyle Thayer of the Australian Defence Force Academy. Hardly for the first time in its long history, Vietnam is striving to balance it’s always-contentious relations with China, the Southeast Asian country’s closest neighbor, and at the same time with the United States. “Some in Hanoi want better ties with the U.S., while another group would sabotage those ties,” observes Thayer.

It’s the latter group that currently appears to have the upper hand, according to Thayer and other experienced Vietnam watchers interviewed for this article. That would help explain why Vietnam has arrested more than 40 peaceable bloggers this year, more political prisoners than all of 2012 — perhaps a deliberate hostile signal to the U.S. State Department and the White House.

To be sure, with any issue involving Vietnam there are so many nuances that nothing is ever what it seems to be. Sang’s three-day visit to China that began on June 19 could be interpreted as a sign that closer Vietnamese-Chinese ties were being considered. Even if it’s true that Chinese intransigence marred those meetings, Beijing could recover (by being less aggressive in claiming waters in the South China Sea that are clearly Vietnamese, for instance).

But how to interpret a visit that Vietnam’s Deputy Defense Minister, Sen. Lieut. Gen. Do Ba Ty, made to the Pentagon on June 20, while Sang was in China? The Vietnamese general met with Chairman of the U.S. Joint Chiefs of Staff Martin Dempsey. Gen. Ty’s was the first such visit by a Vietnamese chief of staff to the United States, a Dempsey spokesman observed. The senior Vietnamese military delegation also notably included Lt. Gen. Pham Ngoc Hung, the deputy chief of the general intelligence department. Something’s afoot.

The only reasonably clear conclusion at this point in time is that the traditional Vietnamese foreign-policy balancing act will continue. And because the issues and differences that divide Vietnam, China, and the United States are so difficult to resolve neatly, the situation will continue to remain messier than it should.

rushphotohttp://rushfordreport.com

High Hopes and New Realities for the Vietnam-US Relationship


August 2, 2013

 

East West Center Asia Pacific Bulletin

Number 225 | August 1, 2013
ANALYSIS

High Hopes and New Realities for the Vietnam-US Relationship

By Hoang Anh Tuan

President Truong Tan Sang with President Obama

Vietnamese President Truong Tan Sang’s visit to the United States at the end of July–his first trip to Washington, D.C., and only the second visit by a Vietnamese head of state since the two countries normalized relations in 1995–underscores the extent to which Vietnam’s foreign policy is becoming more and more proactive. Vietnam’s foreign policy activism with ASEAN members, the United States and other leading states is doing much to advance the agenda of the US “rebalancing strategy” towards the Asia-Pacific. Since Prime Minister Nguyen Tan Dung’s visit to Washington, D.C. in 2008, Vietnam has been at the helm pushing for a closer relationship with the United States; now formally acknowledged by both countries as a “Comprehensive Partnership.” Some have inaccurately argued that there has been a lull in the momentum of US-Vietnamese relations. In fact, several factors demonstrate that the opposite is the case.

First, since coming to office in 2009, President Obama has met frequently with either President Truong or Prime Minister Nguyen Tan Dung on the margins of regional forums or summits, including the Asia-Pacific Economic Cooperation (APEC), the East Asia Summit (EAS), the Nuclear Security Summit and the US-ASEAN Summit, among other venues. Moreover, high-ranking officials from both countries have maintained a regular schedule of visits, consultations and exchanges, including a visit to Vietnam in June 2012 by Secretary of Defense Leon Panetta and a visit to the United States, also in June 2012, by Vice Chairwoman of the National Assembly Nguyen Thi Kim Ngan.

Second, the economic-commercial relationship between the two countries continues to develop rapidly. The United States is currently Vietnam’s seventh-largest investor with over $10 billion invested in more than 600 projects. Although the world economy has yet to fully recover from the global financial crisis that began in 2008-09, bilateral trade in goods between the United States and Vietnam reached $25 billion in 2012, making the United States the top export market for Vietnam. Additionally, approximately 17,000 Vietnamese students are currently studying at various educational institutions in the United States. In 2007-08, that number was less than 9,000. This makes Vietnamese students in the United States the largest student community of all Southeast Asian students pursuing degrees at US institutions. For the academic year 2011-12, Vietnam was ranked seventh as the country of origin for foreign students studying in the United States.

Third, the United States and Vietnam are slowly discovering their shared interests and strategic visions. In the words of President Truong Tan Sang, Vietnam regards the United States as “a top partner.” In return, the United States has consistently viewed Vietnam as an important actor within Southeast Asia. With regards to ongoing territorial disputes in the South China Sea, both countries have reaffirmed the shared value that all disagreements must be managed and settled peacefully on the basis of international law, including the 1982 United Nations Convention on the Law of the Sea (UNCLOS), and both countries have vigorously rejected the use of force or the threat of force as a means of dealing with these conflicts. Furthermore, the two states have begun to communicate and work together in a constructive and productive manner in various regional institutions including APEC, ASEAN Regional Forum (ARF), EAS, and the ASEAN Defense Ministers Meeting Plus (ADMM+).

Fourth, bilateral frameworks for dialogue and cooperation between Vietnam and the United States have been expanding in both quality and quantity. This, in turn, has greatly increased mutual understanding and diminished remaining differences over significant bilateral and regional issues. To date, the United States and Vietnam have established ten separate dialogue frameworks that include economics, politics, security and defense, and the development of a peaceful and prosperous Asia-Pacific region. There are even bilateral dialogues on issues such as democracy, human rights and religious freedom, topics once considered highly sensitive and virtually untouchable issues in the bilateral relationship.

Thus, US-Vietnam relations have matured and made great strides to the point that there are now a sufficient number of routine consultations, regular meetings, and other mechanisms from the working level to the highest levels of foreign, defense and security policies that the business of conducting bilateral relations is essentially self-sustaining. This relationship has evolved from an “abnormal” to a “normal” one, from one characterized by limited areas of cooperation to one marked by comprehensive cooperation across a number of spectrums.

During President Truong’s landmark visit, Vietnam and the United States agreed to establish a new framework for cooperation: a “Comprehensive Partnership” that will shape the bilateral relationship for the years to come. True to its name, the new framework covers a wide range of topics including cooperation in politics, diplomacy, economics and commerce, defense and security, and the promotion and protection of human rights. Importantly, Washington and Hanoi have agreed to the establishment of an annual foreign policy dialogue at the ministerial level–upgrading the existing agreement for regular consultations at the deputy foreign ministerial level.

The two sides have also agreed to an early conclusion to negotiations on the Trans-Pacific Partnership (TPP) trade agreement, with the United States pledging to “take into account” Vietnam’s economic development status. Five economic agreements were signed during President Truong’s visit, of which three involve offshore oil exploration projects. On the sensitive and painful subject of war legacy issues, for the first time, the United States has agreed that extensive cooperation in addressing those issues helps to deepen mutual trust and allows both Vietnam and the United States to develop a relationship that looks to the future.

In summary, this visit has showcased a willingness from both Vietnam and the United States to set aside the past and look forward to a future relationship built solely upon shared interests and common concerns, free from the influence of a third party. This willingness also reflects Vietnam’s genuine determination to work towards the goal of building “strategic trust,” as very clearly propounded by Prime Minister Nguyen in his keynote speech at the Shangri-La Dialogue last May. Few can doubt after President Truong’s visit that both the United States and Vietnam are looking to further build on the foundation of bilateral trust already in place between the two countries.

About the Author

Hoang Anh Tuan is Director-General of the Institute for Foreign Policy and Strategic Studies at the Diplomatic Academy of Vietnam and Co-founder of the Southeast Asia Roundtable, Washington, D.C. The views expressed in this article are entirely the author’s own and do not necessarily reflect those of the Vietnamese government or the Southeast Asia Roundtable. He can be contacted via email at tuanmai60@yahoo.com.