Donald Trump–The Reluctant Multilateralist (?)


February 21, 2017

Donald Trump–The Reluctant Multilateralist (?)

by Barry Eichengreen

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Barry Eichengreen is Professor of Economics at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund. His latest book is Hall of Mirrors:The Great Depression, the Great Recession, and the Uses – and Misuses – of History.–www.project-syndicate.org

FLORENCE – Donald Trump did not assume the US presidency as a committed multilateralist. On that, partisans of all political persuasions can agree. Among his most controversial campaign statements were some suggesting that NATO was obsolete, a position that bodes ill for his attitude to other multilateral organizations and alliances.

Last week, however, Trump stepped back, reassuring an audience at US Central Command in Tampa, Florida (the headquarters for US forces that operate in the Middle East). “We strongly support NATO,” he declared, explaining that his “issue” with the Alliance was one of full and proper financial contributions from all members, not fundamental security arrangements.

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This more nuanced view presumably reflects a new appreciation, whether born of security briefings or the sobering fact of actually occupying the Oval Office, that the world is a dangerous place. Even a president committed to putting “America first” now seems to recognize that a framework through which countries can pursue shared goals is not a bad thing.

The question now is whether what is true for NATO is also true for the International Monetary Fund, the World Bank, the World Trade Organization, and the Basel Committee on Banking Supervision. Trump’s record on the campaign trail and Twitter is not heartening. Back in 2012, he tweeted criticism of the World Bank for “tying poverty to ‘climate change’” (his quotation marks). “And we wonder why international organizations are ineffective,” he complained.

Likewise, last July, he mooted the possibility that the United States might withdraw from the WTO if it constrained his ability to impose tariffs. And he vowed repeatedly during the presidential campaign to withdraw from the Paris climate agreement. But the evolution of Trump’s position on NATO suggests that he may yet see merit to working through these organizations as he comes to recognize that the world economy, too, is a dangerous place.

Following the election, Trump acknowledged having an open mind on the Paris climate agreement. His position seemed less to deny the existence of global warming than to insist that policies mitigating climate change not impose an unreasonable burden on American companies.

The way to limit the competitive burden on US producers is, of course, by ensuring that other countries also require their companies to take steps to mitigate climate change, thereby keeping the playing field level. And this is precisely what the Paris agreement is about.

The real test of Trump’s stance on multilateralism will be how he approaches the WTO. Persuading the US Congress to agree on corporate and personal income-tax reform, a $1 trillion infrastructure initiative, and a replacement for Obama’s signature health-care reform won’t be easy, to say the least. Doing so will require patience, which is not Trump’s strong suit. This suggests that he will feel pressured to do what he can unilaterally.–Barry Eichengreen

The same can be said of the Basel Committee’s standards for capital adequacy. Holding more capital is not costless for US banks, as advisers like Gary Cohn, formerly of Goldman Sachs and now the head of Trump’s National Economic Council, presumably tell the president morning, noon, and night. Leveling the playing field in this area means requiring foreign banks also to hold more capital, which is precisely the point of the Basel process.

Trump may similarly come to appreciate the advantages of working through the IMF when a crisis erupts in Venezuela, or in Mexico as a result of his own policies. In 1995, the US Treasury extended financial assistance to Mexico through the Exchange Stabilization Fund. In 2008, the Federal Reserve provided Brazil with a $30 billion swap line to help it navigate the global financial crisis. But imagine the outrage with which Trump’s supporters would greet a “taxpayer bailout” of a foreign country or Mexican officials’ anger over having to secure assistance from the same Trump administration responsible for their country’s ills. Both sides would surely prefer working through the IMF.

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Jim Yong Kim–From Brown University to The World Bank

Trump can’t be pleased that the Obama administration rushed to push through the reappointment of its chosen World Bank president, Jim Yong Kim. But he clearly recognizes the benefits of development aid. While he has said that the US should “stop sending foreign aid to countries that hate us,” he has also observed that failure to help poor countries can foment instability.

This would appear to be an area where Trump will favor bilateral action, which would enable him to assuage his conservative critics by insisting that no US funds go toward family planning, while taking credit for any and all assistance. At the same time, minimizing the role of the US in the World Bank would create a vacuum to be filled by China, Trump’s bête noire, both in that institution and through the activities of the Chinese-led Asian Infrastructure Investment Bank.

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The real test of Trump’s stance on multilateralism will be how he approaches the WTO. Persuading the US Congress to agree on corporate and personal income-tax reform, a $1 trillion infrastructure initiative, and a replacement for Obama’s signature health-care reform won’t be easy, to say the least. Doing so will require patience, which is not Trump’s strong suit. This suggests that he will feel pressured to do what he can unilaterally.

One thing he can do unilaterally is slap duties on imports, potentially in violation of WTO rules. We’ll soon find out whether those rules will deter him.

https://www.project-syndicate.org/commentary/trump-nato-reluctant-mulitlateralist-by-barry-eichengreen-2017-02

East Asia: Trade Regime critical for Economic Stability and Political Security


East Asia: Trade Regime critical for Economic Stability and Political Security

by  EAF Editorial Group

What the Trump Administration will ultimately do to the shape of the global trade regime is difficult to foretell but there’s no question that it will change it forever, even if there is strong global push-back against Trump’s threat to unravel trade agreements and carry a protectionist stick.

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The trade regime, and the way in which it encourages open trade and international interdependence among those who sign on to its rules, is not simply an instrument of economic policy strategy that can be changed without political consequence. For most countries, and certainly those in East Asia which are so dependent on open trade to sustain their basic livelihood, the trade regime is a critical instrument of political security.

Trump has already signed executive orders to withdraw the United States from the Trans-Pacific Partnership (TPP) and renegotiate the North American Free Trade Agreement (NAFTA). What appeared noisy campaign rhetoric has been transformed into concrete action.

Trump’s withdrawal from the TPP is no big deal in itself: with the exception of what it promised in terms of liberalisation of the Japanese economy, the economic effects of the deal that was on the table were oversold. Even renegotiation of NAFTA may have more limited economic consequences than have been threatened. But these steps, together with the threat of punitive tariffs on imports from China and Mexico, plus a total retreat from multilateral or regional trade agreements, tears at the core principles upon which the US supported postwar economic order had been built.

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POTUS Donald J. Trump and China’s President Xi

Anyone who says that a switch of this magnitude and direction in the trade policy strategy of the world’s largest economy and second-largest international trader is of little consequence is seriously delusional. The old certainties that brought prosperity and a significant measure of stability to world affairs for nearly three-quarters of a century after the Second World War are under serious threat.

A world in which the defining characteristic is a lot of bilateral trade agreements rather than one in which multilateral and regional frameworks are predominant imposes costs on business and consumers alike because of the need for compliance with different rules of treatment across different trading partners. It also injects a different tone into international politics. These concerns are what motivates the argument for regional and global trade regimes that govern international flows of goods and services through unified rules and standards.

The broader the framework within which trade can take place, the greater will be the scope for division of labour and the higher the gains from international trade. Bilateral trade deals can’t replicate the gains from regional and multilateral agreement, and they will unhelpfully cut across global and regional value chains. As the largest centre of production networks, East Asia has much at stake in the push back against an open, global rules-based trading system and the regional arrangements that support it.

While the direct economic costs of Trump turning America’s back on the TPP and other measures might be relatively small, the systemic costs are much larger.

As Shiro Armstrong and Amy King write in this week’s lead essay, Trump’s executive order to withdraw the United States from the TPP agreement in the Asia Pacific ‘is a strategic turning point in the open economic order. It is a blow to furthering reform for some members, a lost opportunity for the United States to write the rules of international commerce, and more worryingly a sign of the United States turning its back on the global economic system it helped create and lead’.

How can East Asia, which includes China and Japan — the world’s largest and fourth-largest trading nations — stand against the corrosion of a global trading order that is so central to their common economic and political interests?

The economies of East Asia must, of course, stand quietly firm in global and regional forums and in all their bilateral representations to the United States against the undermining of the global trading system, giving strength to those forces in America that can help to shape much better outcomes than the present circumstances threaten. But, through their own commitment to collective liberalisation and reform, they can also help to lead the system back from the brink.

With major multilateral trade deals at the WTO now too difficult and bilaterals only able to make slow and incomplete progress towards freer markets, Armstrong and King observe, all eyes now turn to Asia’s Regional Comprehensive Economic Partnership (RCEP) agreement. It is the most important initiative on the global trade scene.

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RCEP comprises the 10 Southeast Asian members of ASEAN as well as Australia, China, India, Japan, New Zealand and South Korea. Though, as Armstrong and King say, there are many misconceptions about the RCEP enterprise.

‘The first misconception is that RCEP is China-led. But China is a spoke and ASEAN is the hub of the arrangement. RCEP was built to consolidate ASEAN’s five separate free trade agreements with China, South Korea, Japan, India and Australia–New Zealand. And the RCEP idea and its guiding principles were crafted not in China, but in Indonesia. ASEAN centrality has ensured that RCEP has incorporated Asia’s other large power — Japan — and reflects Japanese preferences as much as those of China. Originally, China wanted to limit core membership of Asian cooperation to ASEAN plus China, Japan and South Korea. Japan wanted a larger membership, involving Australia, New Zealand and India, to help provide a counterweight to China’.

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In the end, ASEAN centrality and the interests of Australia and India in the region meant a broader and representative group ideally placed to take the lead collectively on global trade.

‘With the world trading system under threat’, as Armstrong and King conclude, ‘it is time for leaders in Asia to step up and push for opening markets and deepening reforms to enhance economic integration, not just with each other but with Europe, the United States and the rest of the world’.

*The EAF Editorial Group is composed of Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.

http://www.eastasiaforum.org/2017/02/20/east-asias-agreement-to-keep-the-world-economy-open/

China’s Quest for Regional Community


February 3, 2017

China’s Quest for Regional Community

by Zhang Yunling, Chinese Academy of Social Sciences

http://www.eastasiaforum.org/2017/02/03/chinas-neighbours-and-the-quest-for-regional-community/

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China’s Xi and Indonesia’s Jokowi

China’s meteoric rise has put the spotlight on the relationships it shares with its neighbours. Distinct national interests and the substantial social and political diversity in the region make the development of a regional community a complex and delicate task.

China shares land borders with 14 countries and has eight maritime neighbours. But to truly understand China’s relations with its neighbours, one must go beyond geography and consider how history, culture, geopolitics and geo-economics have shaped, and will continue to shape, these relationships.

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President Duterte of  the Philippines and China’s Xi Jinping

Serious consideration must also be given to competitive national interests in the evolution of these increasingly interdependent relationships. The rise of China presents new challenges and opportunities for the development of neighbourhood relations and regional strategies. The close involvement of extra-regional powers, such as the United States, Japan and India, serves to further complicate China’s relationships with its neighbours.

China and its neighbours have a shared interest in maintaining a peaceful and friendly relationship. If mishandled, all sides will suffer. This is the implication behind the Chinese leadership’s call for a ‘community of shared interests and common destiny’ with its neighbours through a number of new initiatives. This new, grand strategy is underpinned by China’s growing confidence in its ability to shape the regional environment. It reflects a new mode of strategic thinking on how to position China among its neighbours and how to understand the new importance of China’s neighbouring regions.

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President of China Xi Jinping and Cambodia’s Prime Minister Hun Sen

China has developed initiatives to enhance regional ties, but the political, social and economic diversity among China’s neighbours is immense. Relations are further complicated by conflicts of interest between the neighbours themselves, as well as by intervention from extra-regional powers, which engage in overt and covert competition in the region.

As China’s influence rises, its neighbours’ distrust grows. Some of them worry that China’s harbours ambitions for regional hegemony. Maritime and territorial disputes, over the exclusive economic zones in the East China Sea and South China Sea in particular, have resulted in rising tension between China, Japan and some ASEAN members. There has been widespread concern that confrontations may lead to a military conflict. The announcement and implementation of the United States’ ‘pivot to Asia’ strategy, which stokes US–China competition in the region, has amplified these difficulties.

China’s rise has triggered complex reactions among its neighbours. In some cases, it has exacerbated existing disputes. When China was weaker, disputes were more likely to be shelved — China often lacked the capacity to address them, and neighbouring countries considered their relations with China to be a lower priority.

As a rising power, China will naturally expand its interests and exert its influence. This could lead to competition and conflict, particularly with the United States. As a result, a growing sense of anxiety has emerged among regional states that fear that a strong China would seek regional hegemony at their expense.

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Malaysian Prime Minister Najib Razak with President Xi Jinping

Disputes among nations, including territorial disputes, should — for the sake of all involved — never be resolved by resort to war.

Traditional Chinese culture advocates peace and harmony, commends defusing contradictions, pursues reconciliation and believes in the tactical principle of subduing enemy troops without resorting to war. The time for China to display this ‘culture of harmony’ may be arriving.

The concept of harmony has shaped Chinese culture and politics for centuries. In September 2011, the Chinese State Council Information Office incorporated these values into China’s foreign policy by releasing a white paper entitled ‘China’s Peaceful Development’. This report outlines the core values that should define China’s strategic rise to global prominence, with an emphasis on the concept of a ‘harmonious’ culture.

The Chinese leadership has recently called for building a ‘community of shared interests and common destiny’ among China and its neighbours, based on the guiding principles of ‘amity, sincerity, mutual benefit and inclusiveness’. But realising this communal dream will depend on the will and wisdom of both China and its neighbours.

Both sides have made great efforts made to develop the China–ASEAN relationship. The China–ASEAN Free Trade Area and strategic partnership is just one example of an attempt by both parties to build a cooperative framework based on good will and real interests. But tensions in the South China Sea, especially in light of the Philippines’ unilateral action through the Permanent Court of Arbitration in The Hague, hamper progress. And the United States’ military presence pours oil on the fire.

Fortunately, China and ASEAN have reconfirmed their commitment to a peaceful solution based on negotiations, and the Philippines’ newly elected president, Rodrigo Duterte, supports this approach. Both China and ASEAN recognise that cooperation, rather than confrontation, will lead to the best outcome in handling the dispute. Such an agreement could be based on consultation and negotiation, focusing on easing regional tensions and finding the best way to allocate resources.

The process of regional cooperation helps to build up a sense of community spirit and shared interests. One of the most important changes for East Asia is that the foundation of regional cooperation is now based on a multilayered structure ranging from bilateral to regional-level mechanisms, such as the ASEAN+3 and +6 frameworks and the East Asia Summit.

China has so far played an active role in promoting this kind of regional cooperation, showing that what a rising China wants is to build and reinforce the regional community — not a China-dominated ‘Middle Kingdom order’.

Zhang Yunling is Professor of International Economics and Director of International Studies of the Chinese Academy of Social Sciences.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Managing China’.

The EU and ASEAN Post Brexit


January 18,2017

The EU and ASEAN Post Brexit

by Laura Allison-Reumann, Nanyang Technological University, Singapore

and Philomena Murray, University of Melbourne, Australia
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The result of the UK referendum in June 2016 in favour of leaving the European Union stunned Europe and the world. In the context of the current uncertainty surrounding the negotiations between the UK government and the EU regarding Brexit, expectations and understandings of regionalism and integration will need to be reassessed.

In Asia, Britain’s exit will have far-ranging effects on how European integration is perceived and trigger reassessment of ASEAN’s own endeavours. How will ASEAN cultivate its relationship with the EU? If, in the words of the UK’s Prime Minister Theresa May, ‘Brexit means Brexit’, what does it mean for ASEAN?

The EU has always been perceived as primarily an economic entity characterised by trade and aid in its engagement with ASEAN. There is a certain persistent scepticism in Asian official circles about Europe’s approach to integration, especially regarding its pooling of sovereignty and decision-making on what are regarded as core roles of the state.

The Brexit crisis has to an extent reinforced the view that the EU is not a body to be replicated elsewhere, and that ASEAN and the EU are distinct.  But this idea has been around for quite some time in Asia.

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I want us to be a truly Global Britain – the best friend and neighbour to our European partners, but a country that reaches beyond the borders of Europe too. A country that gets out into the world to build relationships with old friends and new allies alike.–Theresa May, January 17, 2016

While some argue that the Brexit referendum result has threatened the EU’s example of regional integration, the idea that the EU was ever an archetype of integration has long been dismissed by scholars, practitioners and the general public. Brexit will likely consolidate existing perceptions in Asia about the EU — that European style integration has little relevance for ASEAN, even though there are some areas of inspiration — as opposed to triggering novel insights with regard to the nature of regionalism.

But ASEAN must remain modest. ASEAN’s differences and idiosyncrasies have been emphasised to prove that similar exits by ASEAN states are unlikely in contemporary Asia.

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But ASEAN’s unique features are not necessarily strengths. ASEAN elites must avoid the temptation to condescendingly chide the EU for perceived failings. ASEAN needs to strike a fine balance between gaining self-confidence and remaining modest so as not offend its partners.

This is because many of the concerns surrounding European regionalism are also relevant to Asia.

The UK has been an ‘awkward’ partner of the EU since it joined in 1973. So what can we learn from Brexit about difficult or reluctant member states or partners of regionalism in ASEAN?

Might Indonesia, for example, prefer to pursue its own ‘awkward’ stance within ASEAN? Or Vietnam? How might ASEAN deal with the need for public awareness and education, public trust in ASEAN as a regional organisation, issues of social and economic inclusion and the rise of nationalism? After all, nationalism is at the heart of ASEAN and featured prominently in the Brexit referendum.

For regional organisations such as ASEAN and the EU, managing the domestic temptation to treat regional bodies as scapegoats for political failures is crucial. They need to develop clear strategies in order to maintain relevance and to provide clear benefits to their citizens. The Brexit campaign was remarkable for the absence of discussion regarding the domestic benefits of EU membership. ASEAN and the EU must reconsider how they maintain a balanced narrative of both modesty regarding their achievements and confidence that regionalism brings benefits to citizens.

As Paul Taylor has pointed out, the achievements of European integration — peace, open markets and open borders — have been overlooked or taken for granted and have been replaced with concern about ‘a loss of national identity, and remote, unaccountable rulers’.

The shock of Brexit has brought all of these themes to the fore. How Asian regional bodies respond to these concerns and expectations, and how the EU–ASEAN relationship is affected by these issues will be important questions for the future.

The resort to national interests is not only a UK approach. All ASEAN members seek to protect national interests. Yet their elites have all, to date, recognised the benefits of ASEAN membership. The UK case illustrates the dangers of emphasising the cost of membership to a regional body when its national leaders do not promote or even recognise the benefits of such a grouping.

The EU will continue to advance its case for closer strategic engagement with ASEAN. It will do so without the UK. The EU’s Foreign Policy chief, Federica Mogherini, has made clear to Asian partners that the EU seeks to be more embedded in the region.

As for the UK, post-Brexit it will seek to consolidate its relations with its Asian counterparts, but from a starkly different starting point — it has not negotiated trade deals since it joined the EU in 1973, as this is an EU policy competence. Beyond ASEAN, it will have its hands full re-establishing its place in the world outside of the EU and will need to renegotiate a plethora of deals, including within the WTO. It will be a steep learning curve for the UK — and ASEAN may well wish to take advantage of this.

Laura Allison-Reumann is Research Fellow at the Public Policy and Global Affairs Programme, Nanyang Technological University, Singapore. Philomena Murray is Jean Monnet Chair ad personam at the School of Social and Political Sciences, University of Melbourne, Australia.

Free market alternatives


November 27, 2016

Here is something I wrote in The Phnom Penh Post in 1996, which may still be of interest. Of course, Cambodia has come a long way, having achieved average GDP of over 7 per cent p.a. over the last 20 years. It is enjoying peace and security, thanks to the strong leadership of Prime Minister Samdech Techo Hun Sen.–Din Merican

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Free market alternatives

The Editor,

I read Mr Matthew Grainger’s balanced and interesting report on the recent CDRI International Roundtable on Structural Adjustment Programme in Cambodia (January 26, 1996). I also read Dr Walden Bello’s paper titled “Economic Liberalization in Southeast Asia: Lessons for Cambodia”, and Dr K.P. Kannan’s paper, “Economic Reform, Structural Adjustment and Development: Issues and Implications”.

Dr Bello of Chulalongkorn University’s Social Research Institute in Thailand and Dr Kannan, CDRIs research director, are reminding policy makers in Cambodia that there is an alternative paradigm for Cambodian economic development to the standard IMF/IBRD prescription of market economics.

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The trickle-down theory is attractive in concept, but it has limited relevance in the real world due to market imperfections. Government intervention, as a result, is necessary to ensure equity and development without degradation of the environment.

Growth and equity are two sides of the same coin. For that reason, real GDP growth, in my view, is alone not a good indicator, if we ignore the distributional or equity and environmental aspects of development. One has to look at Thailand and Malaysia to realize that this obsession with GDP growth rates among policy makers results in serious socio-economic imbalances with long-term political consequences.

Malaysia’s realization of this problem is now incorporated in its Second Outline Perspective Plan 1991-2000. Even as of yesterday (Feb 13), Malaysia’s Deputy Prime Minister Dato Seri Anwar Ibrahim was reported to have said that in the next Malaysia Plan, our seventh, the social and related aspects of development will receive greater attention. After nearly 40 years of economic management, Malaysia’s decision to evaluate its strategies and adopt new approaches to achieve more balanced development supports Dr. Bello’s call “to articulate an alternative future” and “to ponder carefully the consequences of fast track capitalism…”

We must remind ourselves what development is all about. Here I would quote Dr Kannan:

“In terms of development, the ultimate objective is that of human development and reducing inequities as between people and regions.”

I am, of course, reminded of great development economists of the sixties like Sir Arthur Lewis, Gunnar Myrdal, Jan Tinbergen and Ragnar Nurkse and my mentors in economics, Clifton Wharton Jr., and Ungku Abdul Aziz (Malaysia), who studied the processes of development and underdevelopment with a socio-cultural perspective.

Development is about bringing about systematic change, and providing meaning to the lives of people so that they have opportunities to progress as far as their abilities can take them. It is about ensuring that scarce resources are used responsibly so that succeeding generations can build on the efforts and achievements of their forebears.

It is about institutions, culture and people. It does not exist in a vacuum, certainly not in econometric models, computer simulations, scenario planning systems or in the air-conditioned offices of the World Bank, IMF and the ADB. Most of all, development is about responsibility and accountability for all stakeholders, not a power game.

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Because it is a grassroots process and culture bound, development must be driven by nationals, in the case of Cambodia by Cambodians, with a shared vision, not by experts who have no stake and who do not have to live with the consequences of their prescriptions. This is not to discount the contributions made by the international community, donor countries and multilateral agencies. But it does emphasize that the granting of technical and financial assistance does not confer on the provider the right to impose their own values, preferences and way of life, or to dictate what is best for the beneficiary.

Cambodian leaders know what they want for their country. They have a clear vision of their country’s future as reflected in their National Programme (NPRD) and this is more than what can be said about some countries in the Third World. They have a strategic purpose which is to create a fair, just and peaceful society and, through strong sustainable economic growth, to raise the living standards for all Cambodians.

Cambodia is committed to a democratic system of government with a Constitutional Monarchy, and free market economic system with the private sector as the engine of growth and government in the role of strategist and manager-mentor.

Cambodia is adopting a state-directed economic growth strategy. This approach accepts the price mechanism, and the market in general, as an efficient allocator of resources. It also taps the dynamism of the private sector, but recognizes that government activism is essential in the area of national strategy in a competitive and interdependent world and to tame the excesses of the profit motive and ensure that economic growth is sustainable, balanced and equitable in the long term.

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Their development will be on the back of agriculture which is today the step child of most economies in East Asia. It may not be the “sexy thing” to do, but Cambodia is making its first wise move. Modern agriculture backed by advances in bio-technology, efficient water resource management systems, and strong marketing and distribution networks is a profitable undertaking.

Since the private sector is going to be given a prominent role in the development of the Kingdom, the World Bank and other multilateral agencies should finance a master plan study on small and medium scale industries and businesses and recommend policies and strategies for developing this sector. In many countries in East Asia, this sector is the driver of economic activity with the greatest potential for growth.

It is more refreshing to talk about development than other issues, usually negative ones, about Cambodia. The country has done well since the formation of the Royal Government. The tasks and challenges ahead are daunting. Cambodia needs the understanding and the patient support and cooperation of friends. Credit when it is due should be given. Criticisms, on the other hand, should be constructive.

For democracy to survive in Cambodia, economic development is essential. I have not known of any situation in the world where democracy exists side by side with abject poverty, unemployment, illiteracy and social inequities.

I stand, therefore, to be educated by anyone who has had the privilege of seeing democracy in a symbiotic relationship with the aforementioned phenomena.

I hope your readers – especially those in the IMF, World Bank, ADB and UNDP here in Phnom Penh – will respond with their comments on my letter. If that happens, my purpose in writing this letter as a sort of rejoinder to the Cambodian development debate is well served.

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Din Merican 2016

– Din Merican, Phnom Penh. (Din Merican is an economist with an MBA degree from the United States, who worked for more than 30 years in the Central Bank in Malaysia and in the private banking industry. This letter represents his personal views.)

Indonesia’s ASEAN leadership lost at sea


September 17, 2016

Indonesia’s ASEAN leadership lost at sea

by Ristian Atriandi Supriyanto

Indonesia likes to portray itself as first among equals in ASEAN. But it’s fundamentally wrong to conceive of ASEAN as a flock of sheep with Indonesia as the shepherd. Every ASEAN nation has its own set of interests and priorities with Beijing, which has become more influential in dictating their South China Sea policies.–Ristian Atriandi Supriyanto

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As ASEAN meetings in Vientiane concluded in September 2016, an air of anxiety was already beginning to settle over the Southeast Asian nations. Further resistance against China’s maritime assertiveness in the South China Sea is provingincreasingly futile. Nothing displays this conviction better than ASEAN’s muted acquiescence towards Beijing’s rejection of a legally binding Permanent Court of Arbitration’s (PCA) decision in July 2016; ignoring calls from the United States andothers. And it’s wrong to assume that Indonesia’s diplomatic heft in ASEAN could change that.

Prior to the PCA decision, Indonesia had been consistently arguing about the illegality of China’s ‘nine-dash’ or ‘U-shaped’ line claim. This stems from its critical stake in the UNCLOS-based global maritime order — a point Indonesia made clear in its 2010 UN note. It thus begs the question why Indonesia’s foreign ministrystatement did not explicitly support the decision, although President Joko Widodo’s parliamentary address reiterated the statement’s call for conciliatory efforts among claimants. Indonesia could have at least amplified its diplomatic concerns on the illegality of the U-shaped line. But it didn’t, despite plenty of opportunities to do so.

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Having been embroiled in fishing skirmishes with China recently, Indonesia’s ‘soft’ response towards the PCA decision is surprising indeed. China consistently supports Indonesia’s territorial sovereignty over the Natuna Islands but it remains ambiguous over the maritime boundary. In June, China broke this ambiguity by stating that its ‘traditional fishing grounds’, as part of the U-shape line, overlap with Indonesia’s claimed exclusive economic zone near the Natunas. In spite of Widodo’s ostentatious display, Indonesia is aware of its limitations in the South China Sea, including a disunity of efforts among its government ministries and agencies.

Indonesia’s response to the PCA decision appears to reflect ASEAN’s general tone. During the ASEAN meetings in July, the PCA decision wasn’t mentioned at all in their joint statements. Still, ASEAN foreign ministers were ‘seriously concerned over recent and ongoing developments’, including ‘land reclamation that could further complicate the situation and escalate tensions in the South China Sea’. They also issued a joint statement with China, with both parties pledging ‘to exercise self-restraint’, including refraining from ‘inhabiting on the presently uninhabited islands, reefs, shoals, cays and other features and to handle their differences in a constructive manner’.

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To be fair, the foreign ministers’ statement is noticeably strong, implicitly aiming at China’s ongoing reclamation activities. But the joint statement is a bit disingenuous, given the PCA decision that none of the Spratly features legally constitute islands. The recent Vientiane talks also stopped short of targeting the core issues. For instance, it adopted the Code for Unplanned Encounters at Sea, or CUES, for naval forces, despite the fact that paramilitary forces such as coastguards lead much of the maritime assertiveness, especially from China.

At heart is the question of whether ASEAN is able to coalesce vis-à-vis China when its largest member, Indonesia, is fixated on its domestic front. Amid budget cuts, trickling foreign investment, and a depreciating rupiah, the economy is what every sensible Indonesian would care about first and foremost. Simply put, Indonesia just doesn’t feel it has the luxury of options, at least for now. Sweet talking is enough to persuade Jakarta about the prospect of Beijing funding Widodo’s maritime vision. Jakarta doesn’t want the South China Sea to overshadow its relationship with Beijing.

Yet Indonesia’s present approach towards China isn’t unique. Once the most confrontational of all, the Philippines under President Rodrigo Duterte is now doing something similar. And then there’s Cambodia and Laos. Why should Indonesia confront Beijing when others in ASEAN appear either unwilling or unable to do so?

Indonesia likes to portray itself as first among equals in ASEAN. But it’s fundamentally wrong to conceive of ASEAN as a flock of sheep with Indonesia as the shepherd. Every ASEAN nation has its own set of interests and priorities with Beijing, which has become more influential in dictating their South China Sea policies.

Consequently, a wait-and-see approach towards China appears to have prevailed in ASEAN. They ‘wait’ until the other makes the first move towards China, and ‘see’ how favourable China’s response is before making the next move. No ASEAN country is willing to lay all their cards on the table as a precursor to crafting a concerted strategy towards China. And it’s wishful thinking to argue that Indonesia could make that happen.

Indonesia’s ASEAN leadership isn’t about forging a unity among discords, much less building coalitions. Rather, it’s about cobbling together a consensus from the lowest common denominator or low hanging fruit. If and when discords do arise, at most Indonesia tries to mediate or facilitate rather than enforce consensus. Indonesia to ASEAN is not what the United States is to NATO or even what India is to the South Asian Association for Regional Cooperation (SAARC).

Indonesia’s diplomatic aura reveals more strategic weakness than geopolitical dominance. In short, its ‘big country’ syndrome belies a middle power capacity trying to project itself globally through the use of diplomatic apparatus rather than, say, military expeditionary forces.

Asking Indonesia to lead ASEAN on the South China Sea would be too much and too soon. It’s too much because Indonesia doesn’t think of its leadership as such, and too soon because it doesn’t have the capacity to do so — at least not yet. This is why Indonesia sticks to the Declaration of Conduct and the Code of Conduct — because that’s what it can realistically do. If China decides to disregard international law, intimidate its neighbours or continue reclaiming the ocean, there’s little Indonesia can do through ASEAN.

Ristian Atriandi Supriyanto is an Indonesian Presidential PhD Scholar with the Strategic and Defence Studies Centre at The Australian National University.