Sunday, 13 October, 2019
06 WORLD VIEW
Is AsIA’s 21st century sustAInAble? IT IS DIFFICULT TO PREDICT THE GROWTH TRAJECTORY FOR ASIA GIVEN THE HIGHLY UNEVEN DEVELOPMENT AMONG COUNTRIES. THERE ARE ALSO TERRITORIAL, RELIGIOUS AND ETHNIC CONFLICTS WHICH NATURALLY AFFECT THE ECONOMY OF CONCERNED COUNTRIES
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SIA has arrived. According to McKinsey Global Institute, the 21st century is truly Asia’s century. Asia is now the dominant economic force of the world, eclipsing Europe and North America, the global powers in the 19th and 20th centuries. The Financial Times of London more or less agrees with the analysis of McKinsey Global Institute. In its March 26, 2019 issue, FT reporters Valentina Romei and John Reed noted that Asia’s output in the 1950s was less than 20 per cent of the world’s total; in 2000, Asia’s share reached about 1/3 of the world’s; and today, to around 40 per cent. Asia’s rise was due to the fast growth of a number of Asian countries. After the United States, the three biggest economies today are Asian: China, India and Japan. And not to be forgotten, there are the original Asian tigers: Singapore, South Korea, Taiwan and Hong Kong (now integrated with China), all of which continue to post high growth rates. The high growth performance of these four tigers has been replicated by Malaysia and Thailand. And in recent years, the world is witness to the phenomenal economic surge in other Asian countries – Indonesia (now poised to become the world’s
7th biggest), Philippines (GDP now bigger than that of Netherlands), Vietnam (which has overtaken 17 countries in just a decade or so), Bangladesh (now rated by ADB as the fastest-growing Asian country and which has overtaken 13 countries), and Myanmar (whose ranking has rapidly increased by over 20 times). The rest of Asia, especially Cambodia and Nepal, have also been posting high growth rates. Tantalising indeed. However, the big question is: Is Asia’s growth surge sustainable? Will the 21st century be truly Asia’s century? The answers to the above will be defined by the policies that governments in the region shall adopt, individually and collectively, in addressing four worrying developments or threats to growth sustainability. They can paralyse, if not debilitate, future growth. First, the unresolved geo-political and geo-economic divisions in the region. Asia is not a united continent. It is composed of diverse countries with diverse historical and cultural background. There are boundary and land disputes which can erupt into shooting wars, e.g., India-Pakistan-Kashmir territorial disputes, China-India border dispute, sea-grabbing disputes between China and its Southeast Asian neighbours, North-South Korea political standoff, water disputes involving the five Mekong River countries Myanmar, Thailand, Laos, Cambodia and Vietnam), and so on. In addition, there are religious and ethnic differences (think of the Rohingya problem involving Myanmar and Bangladesh).
On the economic front, there are also uncertainties. The USChina trade war is leading to a reconfiguration of the so-called global value chains (GVCs) that have transformed Asia as the world’s industrial workshop. A number of GVC investors in China have transferred operations in Vietnam, while the GVCs involving the United States, Japan, South Korea and China have been disrupted and are affecting the production and marketing of a number of electronic products. Japan and South Korea are also at loggerheads at each other, Recently, Japan imposed tighter controls on chemicals that South Korea imports to produce semiconductors. The latter happen to be the top exports of South Korea. The reason used: national security concerns. Japan also withdrew South Korea from the list of trusted trade partners under its so-called “white list”. South Korea immediately retaliated by also de-listing Japan in its own list of trusted trade partners. It also withdrew from a military-cum-intelligence sharing agreement with Japan. In the decades of the 1990s and 2000s, Asia was projected to be on the road to economic integration. This process was seen to be the natural outcome of the endless unilateral, bilateral and regional trade liberalisation measures being embraced by the different Asian countries. The United Nations Development Programme (UNDP) estimated in 2004 that Asia had given birth to over a hundred bilateral and re-
Africa may have 90% of the world’s poor in next 10 years ABOUT 46% OF AFRICAN COUNTRIES WERE IN DEBT DISTRESS OR CONSIDERED AT HIGH RISK IN 2018 COMPARED WITH 22% FIVE YEARS EARLIER
BloomBerg Prinesha naidoo
Africa could be home to 90% of the world’s poor by 2030 as governments across the continent have little fiscal space to invest in poverty-reduction programmes and economic growth remains sluggish, the World Bank said. That’s up from 55% in 2015 and it will happen unless drastic action is taken, the lender said in its biannual Africa Pulse report released Wednesday, in which it also cut growth forecasts for the region’s key economies. The rate of poverty reduction in Africa “slowed substantially” after the collapse in commodity prices that started in 2014, resulting in negative gross domestic product growth on a per capita basis, according to the report. “As countries in other regions continue to make progress in poverty reduction, forecasts suggest that poverty will soon become a predominantly African phenomenon.” While the poverty rate in sub-Saharan Africa, defined as the percentage of people living on less than $1.90 per day, fell between 1990 and 2015, rapid
population growth resulted in the number of poor people on the continent increasing to more than 416 million from 278 million over the same period, according to World Bank data. The lender said pro-poor growth policies are required to accelerate poverty reduction and that fiscal tightening limits governments’ ability to spend on social sectors. “Given the limited scope for redistribution and transfers to raise the incomes of the poor in most African countries, the focus should be squarely on raising their labour productivity, that is, what it will take to increase their earnings in self-employment or wage employment,” according to the report. Government debt increased to 55% of GDP in 2018, from 36% in 2013 due to a lack of fiscal consolidation after countries tried to counter the effects of the global financial crisis by boosting spending, the World Bank said. About 46% of African countries were in debt distress or considered at high risk in 2018 compared with 22% five years earlier. “For many countries it’s not a good idea to borrow non-concessionally because of the risk of the debt distress that they already have,” World Bank Vice President Akihiko Nishio said in an interview Oct 2 in Ivory Coast’s commercial capital, Abidjan. “They should instead focus on concessional credits and grants.” The lender lowered its economic growth forecast for sub-Saharan Africa to 2.6%, down from its April projection of 2.8%. With assistance by Katarina Hoije.
gional free trade agreements (FTAs) and proposals. The Asian Development Bank (ADB) dubbed these agreements and proposals as an “FTA noodle bowl”. This bowl is now leaking towards different directions. For a while, the ASEAN, with its own regional FTAs (in goods, services, etc) was seen as central in the overall economic integration of Asia. ASEAN has its vision of ASEAN Economic Community (AEC), whose full realisation in 2015 was extended to 2025. The AEC, in turn, was supposed to metamorphose into an East Asian Community (EAC) composed of the ten (10) ASEAN countries and the three Northeast Asian countries: China, Japan and South Korea. Then in 2012, China pushed for the formal formation of the Regional Comprehensive Economic Partnership Agreement (RCEP). The idea is to form the world’s largest FTA involving the EAC countries plus the three other “ASEAN dialogue partners”: Australia, New Zealand and India. But despite sustained RCEP talks from 2012 to 2018, the giant FTA remains unsigned. India, fearful of possible backlash from its farmers and manufacturers, has expressed some reservations, citing its widening trade deficits with China. On the other hand, the United States, obviously feeling isolated from the RCEP project, launched in 2016 the Trans-Pacific Partnership (TPP) Agreement. This rivals the RCEP in size and coverage. It includes four ASEAN countries (Brunei, Malaysia, Singapore and
Vietnam), three other Asian countries (Australia, Japan and New Zealand), and five countries from the Americas (Canada, Chile, Mexico, Peru and the United States). The TPP also had a very ambitious goal: transform the area covered by TPP into an EU-type arrangement characterised by deeper trade and investment liberalisation commitments, tighter rules on the protection of intellectual property rights and dispute settlement, observance of labour standards and so on. However, the TPP project was subverted by no less than its originator, the United States. On Day One of his Presidency, in 2017, Donald Trump withdrew from the TPP talks. The obvious explanation: Trump’s America First policy. According to Trump’s supporters, the US has been losing jobs and running deficits under the North American FTA (with Canada and Mexico) and its trade relations with China, Europe and Japan. So the United States did not only withdraw from TPP, it also launched a controversial and high-profile “US-China trade war”. Trump has also been pressing Canada, Mexico, Europe and Japan to balance trade relations. And yet, despite the US withdrawal, the TPP project has been kept alive by Japan and the ten other countries. The TPP-11 countries formally approved it December 2018. But there were major changes. Gone were some of the restrictive provisions or clauses such as the automatic patent extension, which is the object of intense lobbying by big pharmaceutical companies. The TPP’s name has
also been expanded – “Comprehensive and Progressive Agreement on Trans-Pacific Partnership” or CPTPP, for short. Amidst all the foregoing and often confusing FTA and economic partnership initiatives, China came up with its “One Road, One Belt” Initiative in 2013. The initiative immediately caught the imagination not only of leaders of Asia but also of other countries around the globe. The One-Road-One-Belt name was also quickly reduced to a shorter monicker: “Belt and Road Initiative” or BRI. The BRI is a grand development programme aimed at promoting development partnership between China and its trade partners along the imaginary Silk Road Economic Belt and the Maritime Silk Road involving initially around 70 countries. However, the programme has attracted twice this number of interested partner governments, now numbering over 150 — from Asia, Africa, Latin America and Europe. The BRI has its detractors. The China-bashers claim that the BRI puts partner countries in a “debt trap” situation. On the whole, it is difficult to predict the growth trajectory for Asia given the highly uneven development among countries. There are also territorial, religious and ethnic conflicts which naturally affect the economy of concerned countries. The US-China trade war has affected the region and has spawned other trade wars in the region. The idea of having one integrated Asian economy is being subverted by the ambitions of great powers within and outside the region. They sponsor programmes that compete with one another, which explain the highly confusing picture of trade relations across the region amidst the endless media hypes on surging Asia and Asia’s century.
The US and Iran: a way out of the impasse? ALTHOUGH NO MAJOR BREAKTHROUGHS TO END THE CURRENT IMPASSE BETWEEN TEHRAN AND WASHINGTON ARE EXPECTED IN THE SHORT TERM, THE TENSIONS COULD BE ALLEVIATED BY A MEETING BETWEEN US PRESIDENT DONALD TRUMP AND IRANIAN PRESIDENT HASSAN ROUHANI IF ONLY TO BREAK THE ICE AND SHOW GOODWILL
international institute of strategic studies Mahsa rouhi
The dangerous diplomatic and military dance between Iran and the United States shows no signs of ending. As recently as two weeks ago, when world leaders met at the UN General Assembly, there had been hopes for talks between the two countries. French President Emmanuel Macron put forward a reported four-point deal to break the current impasse. Under his proposal, Iran would agree to comply with the terms of the Joint Comprehensive Plan of Action (JCPOA) and remain open to future nuclear negotiations and perhaps even some discussion of Iran’s regional activities, while the US would agree to sanctions relief, including on critical oil exports. Both sides agreed to the terms, but the plan fell through because Washington refused to meet Iranian President Hassan Rouhani’s requirement that sanctions be lifted ahead of any meeting. There are, of course, broader reasons for the current diplomatic frustration. Rouhani needs sanctions relief and a clear framework
for negotiation up front to provide him with the political capital required to sell new talks to Iran’s religious leadership and other hardliners in the country. The US wants reasonable assurances of a deal that President Donald Trump can claim is superior to the JCPOA. In this light, middle ground seems elusive. Tehran is hoping for a series of lowerlevel, mediation-style talks among technical and diplomatic officials to form a road map using the specific, previously-agreed-upon milestones for negotiations between seniorlevel officials from the P5+1 (China, France, Russia, the UK and the US, plus Germany) with Trump at the table. This was how the JCPOA was negotiated. But Trump is keen to burnish his reputation as a dealmaker, and thus to be front and centre during all talks and claim credit for any progress. This is the approach he has employed with North Korea – Trump himself kicks off negotiations with senior officials and engages in the high-profile ceremonial aspects of the event, with substantive technical and diplomatic negotiations to follow. In the long term, both Washington and Tehran want to resolve tensions and avoid a war, but their conflicting negotiating strategies are frustrating that objective. The stalemate is likely to persist unless one side takes a gamble. TAKING A GAMBLE Iranian leaders are well aware of the domestic political pressures Trump is facing. And, as the 2020 US election draws closer, Iranian leaders are calculating that Trump will be more likely to fold first as pressure mounts on him to conclude a deal with Iran that he can cast as superior to the JCPOA. Yet Tehran is also aware of the risks of engaging with the US. Given that the United States has withdrawn from not only the JCPOA but several other major international agreements, Iranian leaders understandably doubt the
credibility and trustworthiness of the US to deliver sanctions relief after an initial meeting. Rouhani has survived domestic turmoil thus far despite US disavowal of the JCPOA and the severity of re-imposed sanctions. But if Tehran were to engage with Washington and the talks were to fail, it would be difficult for the president to recover politically. With the onset of another set of sanctions announced on 20 September, it’s clear that if the current dynamics continue, Iran’s economic deprivation and its people’s suffering will only increase. Iran’s strategy of flexing its muscles in the region is also not sustainable in the long run. With each provocation, the risk of a potentially escalatory confrontation with the United States increases substantially. Furthermore, while Iranian provocations do signal its ability to inflict damage, they could prompt additional US sanctions, and Iran’s capacity to absorb economic pain is shrinking. A meeting between Trump and Rouhani, in the context of the P5+1, could conceivably move forward without any major concessions or breakthroughs if the US were willing to issue some waivers on oil sanctions limited to the duration of the talks. The waivers would function as a confidence-building measure, and enable each side to buy time in an increasingly unstable and untenable situation. Even a slight improvement in US–Iran relations might produce a modest uptick in Iran’s economic performance by encouraging domestic and possibly some international investment. Although a summit or meeting probably would not yield any substantive outcomes, it might at least break the ice, generate a modicum of goodwill, and lead to more fruitful negotiations in the near future. Mahsa Rouhi is a Research Fellow, NonProliferation and Nuclear Policy Programme.