Lowy Institute

China's long-anticipated formal pledge to international climate change negotiations, it's 'intended nationally determined contribution' or INDC, has arrived.

China's target is a 60% to 65% reduction in the emissions-intensity of the economy by 2030 pegged at 2005 levels, with carbon dioxide emissions peaking around 2030, perhaps earlier. China has also pledged to increase the share of non-fossil fuels to 20% of total energy use and a large increase in forest carbon stocks.

The emissions-intensity target means reducing the ratio of carbon dioxide emissions to GDP by 60% to 65%, or conversely, increasing the amount of economic output per tonne of carbon by almost two-thirds. It's the only new commitment in addition to what China pledged at a joint announcement with the US at last year's APEC meeting. And it packs some punch.

Decarbonisation and how to do it

What it means is that China aims to continue until 2030 the rate of decarbonisation targeted for the 2005 to 2020 period — around 4% per year. This target will require strong action to improve energy productivity and shift to zero-carbon energy sources.

Such a pace of cleaning up  economic growth has rarely been achieved elsewhere over a significant period of time. The decarbonisation rate in the US since its emissions peak in 2007 is 3.3% per year, and this has included an unprecedented boom in cheap gas. EU carbon dioxide emissions peaked in 2002, and its collective emissions intensity declined by an annual average of 2.2% during the following ten years. The main historical precedent for decarbonisation rates above 4% per year over extended periods of time are Russia and other parts of the Eastern bloc following the 1990s collapse of Soviet-era industrial structures.

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The long list of actions listed in China's INDC is a fair indication of the magnitude of the task, and it is an sign of the resolve of the Chinese Government. They range from higher efficiency in coal use and a limit on the total amount of coal; fast development of solar, wind, hydro, nuclear and gas; energy efficient and low-carbon industrial systems; and cutting emissions from buildings and transport. The actions also include broader support for R&D, low-carbon growth patterns, a strong commitment to national emissions trading and to 'make the market play a decisive role in resource allocation'.

Change is underway

Yet China could do better still. China is likely to outperform the 2020 target, given that average annual reductions from 2005 to 2014 were 4.5%, as reported by Beijing. Energy productivity greatly lags that of advanced economies. Enormous gains can be made by further improving technical efficiency and by accelerating the shift in economic structures away from energy-intensive industries. And China will continue to shift its energy mix away from coal and towards nuclear, gas and renewables, and also towards reducing the emissions-intensity of every unit of energy used.

Fundamental changes in the factors that drive China's greenhouse gas emissions are already happening. Total coal use in China fell in 2014 compared to 2013 (on the basis of preliminary data). This is partly because industrial output such as steel has leveled off, heralding the 'new normal' of Chinese economic growth. The era of extremely rapid expansion of infrastructure is coming to an end and the sources of economic growth are shifting to less resource-intensive activities.

Alongside structural changes, China is achieving rapid improvements in the efficiency of energy use. New coal-fired power stations are still being built, but they are state of the art and are replacing old inefficient plants. Industry, road transport and buildings are all getting more efficient and there is huge potential for further improvements. Add to that the push for the expansion of hydroelectricity and nuclear power, as well as solar and wind plants, all of which are beginning to make a dent in China's energy supply.

China's emissions turnaround is driven partly by circumstance and partly by a strong policy effort. That effort is not being undertaken out of altruism for the global climate but for solid reasons of national self-interest. A lower carbon trajectory has tangible short to medium-term benefits for China, as I explained in a recent paper with my colleague Teng Fei from Tsinghua University.

A flat and early peak?

It all adds up to the prospect that China's emissions could peak well before the target date of 2030, as argued recently by Nick Stern as well as Ross Garnaut. Many experts see a peak in the first half of the 2020s as possible, and some think it could happen even earlier.

Ultimately, what matters much more than the date of the peak is the level of China's emissions over years to come. 'Peaking' invokes images of a rapid increase in carbon emissions, then a turning point followed by a rapid decrease. But the historical experience is that countries' emissions trajectories simply flatten out, and the peak is a point not much higher than many others on a drawn-out plateau. The profile looks more like Mount Kosziousku than Mount Everest.

The climate pledge submitted this week does not give an estimate of that level, because it depends on the future growth rate of China's GDP. But that growth rate is slowing, and it could be that emissions levels will rise only gradually in coming years before a peak. That would be very good news for the climate.

Photo courtesy of Flickr user Asian Development Bank.

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The view from New York

Six months into its membership of the UN Security Council, New Zealand will get to wield the gavel at the famed horseshoe table in New York over the course of this month.

Occupying the president's chair will be the Kiwi's new Permanent Representative, Gerard van Bohemen, a refreshingly direct and down-to-earth diplomat who served as deputy head of the mission the last time New Zealand was on the Security Council in the early 1990s. He has taken over from the newly knighted Sir Jim McLay, a former deputy prime minister who commanded New Zealand's successful UN Security Council campaign and last month took up a new position as the country's representative to the Palestinian Authority. 

So far New Zealand's big play on the council, to draft a resolution setting out parameters for a final Middle East peace deal, has come to nought. France and Jordan, the representative of the Arab states, have produced resolutions of their own, and have told New Zealand that a third draft would complicate their efforts. But the Arab League sees July as an opportunity to push for such a resolution, increasing international pressure on Israel, knowing that New Zealand will give it a sympathetic hearing.

New Zealand's Foreign Minister Murray McCully has not given up hope the Kiwis can help spur the Israelis and Palestinians into action, distant though that possibility seems.

Earlier this year, as relations between Washington and Jerusalem soured, the Obama Administration signaled that it might finally countenance such a resolution, partly in diplomatic retaliation for Benjamin Netanyahu's speech before Congress, in which he lambasted the nuclear deal with Iran. In recent weeks, the US has resumed its traditional role of protecting Israel at the UN, although it's also been deliberately ambiguous on whether it would veto a European-backed resolution.

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'Up until this point, we have pushed away against European efforts,' Barack Obama told Israel's Channel Two in early June. But the President also noted that America's support for Israel at the UN was complicated by the widespread perception within the international community that Netanyahu was no longer serious about a two-state solution. 

Benjamin Netanyahu, after meeting Murray McCully in Jerusalem earlier this month, sounded a warning to New Zealand and others pushing for a Middle East peace resolution. 'The main thing we have learned,' the Israeli Prime Minister said pointedly, 'is that peace is achieved, as we did with Jordan and with Egypt, through direct negotiations between parties, and not by fiat.' But the very fact that Israel is even paying attention to New Zealand is testament to the diplomatic clout that comes with membership of the Security Council. On the most nettlesome international issue of them all, Wellington* has become a significant player, if not a decisive or central one. 

The presidency of the Security Council gives members the chance to push their pet projects, and New Zealand will seek to promote the interests of small island developing states, or SIDS as they are known in an organisation addicted to acronyms. The viability of South Pacific tuna fishermen rarely gets an airing in Turtle Bay, but that could change in late July when New Zealand convenes a thematic debate chaired by Murray McCully, at which small island states can bring their concerns to the table. 

The last time New Zealand presided over the Council, the genocide in Rwanda dominated proceedings (the New Zealanders argued forcefully for the UN not to flea Rwanda). This time, the overriding international issue looks set to be the nuclear deal with Iran, the original deadline for which was yesterday, though it looks to have been extended by a week. Given that all the P5 members are signatories to the framework deal, the Security Council is expected to rubber-stamp any agreement. But New Zealand, in its presidential role, will be involved in the nuts and bolts of the oversight provisions and the relaxation of UN sanctions. 

New Zealand's diplomats, though refusing to benchmark themselves against their trans-Tasman rivals, were impressed with how Australia approached its two years on the council. The former Aussie Ambassador Gary Quinlan and his team showed what a temporary member could achieve. As the influential Jerusalem Post noted last month, in language that will sound familiar to Australian ears, New Zealand could hardly be regarded as a 'diplomatic heavyweight', but its membership of the Security Council means it is 'punching above its weight.' 

* My apologies. This piece has been corrected after I inadvertently relocated the New Zealand capital. Not only am I aware that Wellington is the home of government, but also of the finest coffee shop I have ever had the good fortune to visit, which is just across the road from the Beehive. I have not only apologised to the New Zealand ambassador in person, but also to my Kiwi-born wife.

Photo courtesy of Flickr user United Nations Photo.

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English is, fortunately, the global lingua franca. Thus, comments on current events made in English are the final arbiters for most of the world. This is mostly for the good but can misfire. Where the EU is concerned, the nabobs in London, Washington and elsewhere in Tony Abbott's Anglosphere don't get it, as shown by recent comments on events in Greece and on Germany's role in Europe.

No soccer match, tennis game or golf play-off would ever dare to go into the number of prolongations we are all exposed to by the interminable tragi-comedy of Greece vs Europe. At the time of writing, Greek banks are closed but the final outcome is still far from clear. We don't know if there will be a clear cut 'Grexit', the much discussed exit of Greece from the euro. What will certainly ensue, however, is a prolonged period of muddling through, with severe capital controls and budget policies.

Since the beginning of the prolonged negotiations between the present Greek Government and the 'troika' (the European Commission, European Central Bank and the IMF), there have been three main reasons why too much leniency for Greece (including a debt 'haircut') was impossible.

First was the fear of precedent. A European backdown on Greece would have been intolerable for other European countries that had already swallowed bitter budget medicine, mainly Ireland, Portugal and Spain.

The second reason was the presence on the Greek side of a government coalition of populist, far-left and far-right parties such as are on the rise in practically every European country. Massive illegal immigration and violent extremism are severe enough problems for Europe. To hand an easy and undeserved victory to such a coalition would simply make those problems worse. The third factor was the Tsirpas Government and how it used its newly gained power. A recent comment by Christine Lagarde, not normally a fiery orator, says it all: 'Let's have a discussion among adults.' What was unsaid but painfully obvious: '...and not with a bunch of vainglorious adolescents without neckties but full of ill-applied game theory and macho hot air.'

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Europe, and particularly Germany, still prefers to keep Greece within the Eurozone, but Greece represents around 2% of the economic weight of the Eurozone, so Europe can live with Greece going back to the Drachma, and eventually to economic hell. The poor in Greece would be the main victims, not the country's rich and powerful. That includes the present government, which still does not see that the only way back to prosperity is deep structural and fiscal reforms. 

Reports from two FT columnists — one on the necessary death of the Euro, made obvious by the Greek drama; another on the ideological damage which the 'Grexit' will do to the very core of the EU concept and thus of the European soul — are at the very least premature. Even a keen observer like Gideon Rachman, for all his experience, has got it fundamentally wrong for once.

The Eurozone is not a monetary union such as we have seen before but an economic reaction to the fact that the EU some time ago become one large manufacturing and service-providing area made up of countless cross-border value chains. An area-wide currency provides for a level playing field for suppliers and assemblers regardless of national borders. Contrary to what is often claimed, the political decision to create a single currency (and with it a common banking, regulatory and eventually fiscal union) followed economic reality rather than leading it. As a result, national sovereignty was transferred for the greater good of all. (This is of course anathema to nationalists all over the EU, yet the idea that the UK prefers to opt out of full European integration continues to baffle observers on the continent. After all, Britain without Europe is just an island adrift.)

Germany provides another example of this basic failure in Anglosphere understanding of what today's Europe is all about. A recent article by none other than former Fed Chairman Ben Bernanke serves as a telling example. As a citizen of a federalist country, Bernanke should know better. He treats Germany's trade surplus as a national phenomenon, easily fixable by national decisions if there is political will to do so. But German exports, very much including the products of its vaunted car industry, are an amalgamated product of European economic value chains involving goods and persons from various European countries, not all necessarily researching, planning, assembling and selling in the countries they were born in. The ensuing exports happen to be counted as German exports, mainly because trade statistics have not yet found a way to reflect this complex reality.

Consequently, Bernanke's specific propositions to remedy the German surplus fall short. Investment in public infrastructure in Germany will increase in any case, if only because the last generation of infrastructure, thrown up somewhat hastily after World War II, is coming to the end of its life. Spain has built excellent public infrastructure over the last 20 years (albeit with too-cheap money and in parts excessively). This is a boon to anybody traveling or transporting goods there, and will allow allocation of funds elsewhere for decades.

In short, traditional national remedies in economics (and in areas such as immigration, education and research, and energy) simply cannot be applied in today's Europe. So much the better. As we all know (and this includes the wise wags from the Anglosphere), Europe can only master its big challenge with one economy and one currency. What is that big challenge? To remain fully in charge of its future in a world no longer centered on  transatlantic relations but on  the Asia Pacific.

Photo by Flickr user Theophilos Papadopoulos.

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President Barack Obama finally has authority from the US Congress for advancing the Trans-Pacific Partnership (TPP), a signature foreign policy of his final term in office. The TPP aims to establish a free trade zone around the Pacific Rim covering 40% of the global economy, while excluding China.

The future of the agreement had been left in doubt after the President's own party initially voted against granting him trade promotion authority, with some members now vowing to defeat the TPP itself. For Australia, the episode is thus not a story of success, but of the ongoing obstacles Congress poses to coherent American leadership in the Asia Pacific.

US officials focusing on the region repeatedly proclaim a 'rules-based order' as the necessary bulwark against China's rising power. For Obama, 'strong and sustained American leadership is essential to a rules-based international order.' Australia has followed suit, with Defence Minister Kevin Andrews declaring that: 'Notwithstanding China's growth, the United States will remain the single most important country in enforcing a rules-based order.'

In his 2015 State of the Union address Obama directly linked passage of the TPP with halting China's desire 'to write the rules for the world's fastest-growing region.' His recognition that 'we should write those rules' is nevertheless being frustrated by Congress, which has proven itself either unconvinced of the importance of the task, or unable to recognise that US-centred rules are founded on a half-century of American primacy in the Asia Pacific that is now being challenged by China.

The precarious future of the TPP follows the creation of the Chinese-led Asian Infrastructure Investment Bank (AIIB), in the face of US opposition. The AIIB was established in part as a response to Congressional refusal to grant China more representative rights in global financial institutions. Likewise, the US Senate continues to obstruct the UN Convention on the Law of the Sea (UNCLOS), even as America now seeks to enforce freedom of navigation rules in the South China Sea.

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China's construction of artificial islands in the South China Sea is perhaps the most prominent example of the way power is being contested at the level of international legal rules. Under UNCLOS, artificial islands do not attract the same rights as a natural land feature, which would include the right to control sea and airspace out to 12 nautical miles. China has nevertheless attempted to enforce these rights against American 'freedom of navigation' operations in which US aircraft deliberately challenge purported Chinese airspace.

The American claim to be acting in defence of impartial maritime rules is weakened as long as the US itself refuses to ratify UNCLOS. For Obama it is clear that 'ongoing failure to ratify this Treaty undermines our national interest in a rules-based international order.' Defenders of US policy claim that the US already accepts rules pertinent to the South China Sea as established customary international law, while the treaty improperly creates additional obligations in relation to resource exploitation. Yet the legitimacy of taking action under a rules-based order derives from the clear acceptance of legal constraints, rather than the selective application of rules that constrain others.

Responsibility lies with Congress, with every president from George HW Bush onward supporting ratification as consistent with American global interests. Likewise, the most recent Chicago Council on Global Affairs' survey of American leaders confirmed not only universal support among Democrats but solid majority support among Republican leaders. As such, the incoherence in US regional leadership can be traced back to failings specific to the US Senate.

China's artificial islands have been described as 'unsinkable aircraft carriers' that allow the projection of military power far from China's mainland. It is therefore telling that US Defense Secretary Ashton Carter has argued that 'passing TPP is as important to me as another aircraft carrier.' Carter's phrasing was a reminder that the TPP remains necessary in geo-strategic terms if the US is to 'promote a global order that reflects both our interests and our values.'

The US Congress remains an unreliable partner in this strategy, beholden to competing ideological and institutional concerns. Some reservations about the TPP may well have a legitimate domestic basis, while resistance to UNCLOS probably owes more to populist fears about guarding US sovereignty. In either case the alternative is increasingly conspicuous reliance on brute force to sustain the status quo. Conversely the Chinese are steadily increasing their capacity to promote interests through rules.

A future US Congress may ratify UNCLOS, but possibly not until the motivation of containing China is so transparent as to destroy the benefits of doing so. Likewise, faltering on the TPP has increased incentives for China to establish its own financial order – Australia formally joined the AIIB this week.

The objective of establishing a rules-based regional order is a worthy one capable of delivering greater security and prosperity to all. But American allies can take nothing for granted while Congress acts as if setting regional rules is divorced from the underlying contest for regional power.

Photo courtesy of Flickr user Speaker John Boehner.

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Yesterday's announcement of an Australia-Singapore Comprehensive Strategic Partnership (CSP), on the cusp of Singapore's 50th anniversary celebrations, has significance beyond the bilateral relationship. The bundling together of several new economic, law enforcement and security memoranda during Prime Minister Tony Abbott's visit to Singapore amounts to a surprisingly broad agenda, passing the 'comprehensive' test. In what sense might it also be worthy of the over-used 'strategic' tag?

By pursuing closer security relations with Singapore, Canberra is displaying good strategic sense. Reliable partnerships are increasingly hard to come by in Southeast Asia, given a region-wide malaise of domestic introspection and distracted political leadership. So the CSP should be recognised as steadying the tiller of Singapore-Australia bilateral ties, which have had their ups and downs over the years.

The signing of a memorandum of understanding (MoU) on counter-terrorism is an easy win, drawing on the symmetry between the two governments' upfront emphasis on the ISIS threat, and largely compatible approaches towards de-radicalisation. Separate agreements to deepen bilateral cooperation against money-laundering and transnational crime could have multiplier effects, given Singapore's importance as a financial hub and as host to Interpol's Global Complex for Innovation.

Of more strategic significance, the CSP will see an expansion of defence engagement under a new cooperation agreement to be fleshed out by July next year.

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Bilateral engagement with Singapore, arguably already Canberra's deepest defence link in Southeast Asia ( according to Benjamin Schreer), is set for a further expansion of the Singapore Armed Forces (SAF) army and air force training in Australia. This is likely to fall in synch with the release of Australia's 2015 defence white paper in the coming months and the anticipated commitment of additional resources to defence engagement in Southeast Asia.

Singapore and Australia already exercise together regularly through the Five Power Defence Arrangements. However, one clear advantage that marks Singapore apart as an Australian defence partner in Southeast Asia is its comparably advanced military capability. Without the need for any capacity-building element, the SAF and the ADF have many more options for exercising and operating together at the higher end, and for pursuing defence industrial cooperation. For the army this includes amphibious force development, as suggested by the pattern of recent exercises. Singapore will, almost certainly, become the only Southeast Asian country to operate the Joint Strike Fighter, opening up opportunities for advanced air force cooperation as well as potential economies of scale in the maintenance and upgrade of this exorbitantly expensive platform, which will be essential to managing its life-cycle costs.

The bilateral defence relationship certainly has room for growth. Despite the impressive scale of Singapore's military activity within Australia through the annual Wallaby exercise, which involves 5000 Singaporean personnel and 300 SAF platforms, Singapore's defence engagement with Australia is thinner than these numbers suggest. Its priority has been to maintain access to Australia's Shoalwater Bay training area, where the SAF has a rare opportunity to practice large-scale combined operations and live firing. But often the SAF is effectively exercising with itself. As part of a general trend towards cross-bracing Australia's defence relations across the Indo-Pacific, the ADF should be aiming to leverage more joint engagement with Singapore from the enhanced defence cooperation agreement, including trilateral opportunities with the US. Australia also benefits from continued access to Singapore's military ports and airfields.

The upgrading of Australia-Singapore security relations should be appreciated in a broader strategic context that extends to the South China Sea, as well as in the political context of the currently under-performing relationship with Indonesia. Asked about the South China Sea at a joint press conference with Prime Minister Lee Hsien Loong, Tony Abbott was keen to stress that 'like Singapore', we 'deplore any unilateral alteration of the status quo' and 'uphold freedom of navigation on the sea and in the air'.

Although he was also asked if 'Indonesia has pushed both Singapore and Australia into a closer relationship', it would be wrong to paint the CSP in such a reactive light. In his speech, Lee went out of his way to give Abbott credit for taking a personal lead in developing the CSP initiative since 2012. Nevertheless, the subsequent deterioration in Canberra's ties with Jakarta has made Singapore all the more important for Canberra, not as a counterweight but as much-needed diplomatic ballast to compensate for Australia's over-dependence on Indonesia's goodwill. Jakarta will remain Canberra's most important relationship in Southeast Asia, but the perils of placing too many eggs in one basket over recent years have become apparent.

If there is a downside to the CSP, it is that liberal-democratic credentials could be inferred as a diminished consideration in Australia's choice of strategic partners in Southeast Asia, notwithstanding Tony Abbott's appeal to 'common values and instincts' with Singapore. That, unfortunately, is as much a sad reflection on the state of the region as on pragmatism determining Canberra's preferences.

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With the signing of the AIIB's Articles of Agreement in Beijing yesterday, how is the Bank shaping up? Here are some key things that struck me reading the Agreement:

Membership

The Bank's members are split into two groups: regional and non-regional. Regional members include those countries classified by the UN as being in Asia or Oceania. So that extends to Central Asia and the Middle East, as well as Pacific Island countries, if they were to join later.

Regional members contribute 75% of the capital. The largest contributors are China, India, Russia, South Korea, Australia, Indonesia and Brazil. Of the non-regional members, Germany, France and the UK will contribute significant capital.

Voting shares are calculated through a complex formula. The Articles of Agreement don't state the breakdown of voting rights, although Chinese media has said Beijing will have 26.06%. This will give it effective veto power, as the Bank's high-level decisions (eg. on capital, membership, operations) will require the support of at least 75% of the votes. According to the SCMP, China will be followed by India (7.5%), Russia (5.92%), Germany (4.15%), Korea (3.5%) and Australia (3.46%).

Capital subscriptions are to be paid in 20% installments over five years. These can be paid in US dollars or other convertible currency (which the Bank can convert into US$ at any time). Special provisions are made for 'less-developed countries', including the option to pay up to ten installments, or to pay up to 50% of the subscription in their own currency.

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Operations

The Bank can provide financing to its members (governments, agencies or enterprises) or to international and regional agencies operating in member countries. (There are also special circumstances in which the Bank may provide assistance to non-members.)

Assistance will primarily be in the form of direct loans, investment in equity capital and technical assistance. Terms and conditions of financing, including interest rates and length of repayment, will be determined in each case, and will of course depend upon the AIIB's credit rating. Financing can be provided in the currency of the country receiving the loan, if necessary. This may be well-received by some countries who struggle with the currency fluctuations associated with paying back China Eximbank loans in RMB.

There will be an open procurement policy, meaning goods and services (and companies) from non-member states can be engaged in AIIB-funded projects. This is different to the Asian Development Bank. (It also means that those countries that jumped on board at the last minute in order to make sure their companies didn't miss out on opportunities could have gained that advantage without joining.)

China was successful in getting its favourite language into the Agreement: 'The Bank, its President, officers and staff shall not interfere in the political affairs of any member, nor shall they be influenced in their decisions by the political character of the member concerned.' Interestingly, this was taken even further, by stating that 'only economic considerations shall be relevant to their decisions.' I suspect this latter point will in reality be relaxed, as it will be challenging to make sound investment decisions without taking the political economy of a country into account.

There is also a stress on collaborating with existing multilateral and bilateral development institutions. The European Bank for Reconstruction and Development has already put its hand up, with its president ready to propose joint projects to get underway next year. 

Governance

The Bank will have one president, and one or more vice-presidents. (I'm assuming these positions will actually be open to men and women, even though the English version uses the male pronoun.)

Each of the members will have a representative on the Board of Governors. The governors will elect the Board of Directors: nine representing regional members and three representing non-regional members. Directors will represent all members who voted for them, and will serve for two years. They will be responsible for the general operations of the Bank.

Importantly, neither the governors nor the Board of Directors will be paid, and do not need to be resident at the Bank's headquarters (in Beijing). This is part of China's aim to make the Bank more efficient than its counterparts.

Next steps

The Articles of Agreement will enter into force (and the AIIB will become operational) once at least 10 signatories whose capital subscription comprises at least 50% of the total have deposited their 'instruments of ratification, acceptance or approval' to the Government of China. And then, the eyes of the world will be watching China to see how it manages this new leadership role. It won't be easy.

Photo by Flickr user Steve Webel.

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There is heightened speculation in Turkey about a long-debated military intervention in northern Syria, where Kurdish forces are battling militants from ISIS.

Both pro- and anti-government newspapers are reporting that Turkey is mulling sending up to 18,000 ground troops into Syria. The two countries share a 500km border, where fighting has come within a stone's throw.

Late Monday, Prime Minister Ahmet Davutoglu said Turkey would consider 'all necessary measures' to secure its borders. But the Government is yet to comment publicly on reports that ground troops would be sent in. Sources close to the Government say the idea is being seriously considered at a national security conference held on Monday and Tuesday this week, and that an announcement is expected in coming days. 

Any intervention on the part of the Turks would likely be aimed at frustrating efforts by the Kurds to establish their own statelet in Syria. Turkey and Kurdish forces from the PKK have been locked in a decades-long conflict, and Kurds in Syria hope to establish an autonomous zone in the north-eastern part of the country, potentially galvanising separatist sentiments among their counterparts in Turkey. 

In a fiery address on Friday, Turkey's President, Recep Tayyip Erdogan, accused Syrian Kurds of ethnic cleansing and said: 'We will never allow the establishment of a state on our southern border in the north of Syria.'

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Turkey has long pushed for the creation of a 'buffer zone' along its southern border with Syria, but has failed to secure international approval, partly due to its stance against the Kurds who, with the help of US air cover, have proven the only force capable of pushing back the advance of ISIS. The Kurds engaged in intense fighting against ISIS to secure the border city of Kobani, and have advanced east towards Tel Abyad, potentially giving them a 300km stronghold on Turkey's doorstep. 

But such a bold and unilateral move by Turkey could complicate an already crowded battlefield. While a large scale-state intervention could serve as a much needed 'strong hand' in Syria, Turkey risks direct confrontation with the Kurds as well as the Assad-led Syrian military. It could even face retributive attacks by ISIS itself.

There are political risks at play as well.

The ruling AK Party sought to renew its parliamentary majority earlier this month in Turkey's general elections, but instead the Party suffered damaging losses, losing its majority and resulting in a hung parliament. The biggest winner in the election was the pro-Kurdish left-wing Peoples' Democracy Party, which secured about 80 seats in the 550-seat chamber. The Government will have to negotiate a coalition, probably with extreme nationalists, or call a fresh election.

It's highly unlikely that a large-scale military invasion of Syria could be made by an outgoing government. Sources close to the Government say talk of intervention is genuine, but one has to wonder whether the leak was aimed at denting the AK Party's standing as it courts potential partners to form a coalition. An invasion of Syria aimed at the Kurds would almost certainly end Turkey's peace process with the Kurds, a key achievement of Erdogan's leadership and a campaign platform.

Photo courtesy of Wikipedia Commons.

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Photo courtesy of Lee Hsien Loong's Facebook page.

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By exploiting the lonely, that's how. The video below is from the New York Times, with accompanying story here.

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For those who missed the press coverage over the weekend, the Greek Government has scheduled a referendum for Sunday (5 July), with the Greek population being asked a bizarre question: will they accept the latest creditor proposal, of 25 June, which details the terms of an extension of the Greek bailout package?

Why bizarre? Greece needs to repay a €1.6 billion loan to the International Monetary Fund by Tuesday (30 June), and the bailout package Greece is meant to receive from the Eurogroup will expire on 30 June. So by referendum day, the conditions underpinning the terms the Eurogroup extended for its package will have fundamentally changed. In short, the referendum will be based on a meaningless and out-of-date question.

If Greece does miss its payment, the IMF board will probably enact its normal process for dealing with payments in arrears. This does not necessarily represent a technical default in the eyes of credit agencies, but Greece will find it harder to negotiate with creditors.

In the face of an intensifying bank run, the Greek Government has had to close its stock market, declare a bank holiday and impose severe capital controls (a maximum of €60 can be withdrawn from an account in one day and overseas transfers of cash are prohibited, aside from vital pre-approved commercial transactions). These developments will likely result in economic conditions in Greece deteriorating quickly in the coming week.

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The broader international effects of these developments remain unclear.

The risk of contagion certainly looks lower than in the European crisis of 2010, not least due to the creation of European rescue facilities, the presence of quantitative easing, statements from the ECB, and the fact that Greek money is owed primarily to official creditors rather than the private sector. However, the question of whether the international community is able to escape all of the short-term pain, and whether it has identified all of the channels of risk, is likely to be tested in the coming days.

It also remains unclear what the next steps will be in the event of either a 'yes' or a 'no' vote. The best that can be surmised is that a 'no' makes the case for a Grexit that much stronger. In contrast, a 'yes' vote would suggest that a new negotiating team would be needed, given the ruling Syriza Party is actively opposing a 'yes' vote and does not want to return to the European negotiating table.

The long term perspective is that we are witnessing an at-times painful series of negotiations that all contribute to the grand bargain of the European project. In this view, we are simply in a particularly dramatic stage of a complex negotiation path that has already delivered political, monetary and banking union and which will, at some point, result in fiscal union. The Greece case shows that the participation of countries in the project only works up until the point where their populations (and the parliaments they elect) are willing to tolerate the arrangements they are asked to bear. 

Granted, the Greek Government has not handled the negotiations well. But the Eurogroup's truly remarkable list of conditions cover the entire economic policymaking gamut from VAT reform, fiscal structural amendments, pension reform, tax reform, the financial sector, labour markets and competition reforms. The tough-love approach by the troika (the European Commission, IMF and ECB) invites comparisons with the disastrous programs such as the German reparation payments after World War I and the 1998 IMF program for Indonesia, and raises questions about whether the international community is learning from past mistakes.

As the former British cabinet minister Alan Milburn said at the end of the ABC's powerful The Killing Season, 'No one can escape blame for this'.

Photo by Flickr user Duncan Hull.

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When we get enough perspective to write a balanced history of the 2008 global financial crisis and the subsequent feeble recovery, fiscal policy mistakes will surely feature largely in the narrative. In the form of a new IMF paper, we are beginning to see that history taking shape, and with it a clearer idea of what fiscal policy should have done.

After a bold start with the G20-coordinated fiscal stimulus of 2009, the Greek crisis at the end of that year (and the knock-on crises in Ireland, Spain, Italy and Portugal) shifted the focus onto excessive public debt. Instead of making a distinction between these grossly over-indebted countries and others in which the debt was easily sustainable, there was a universal shift to budget tightening in the advanced economies, urged on by all the international economic agencies – the IMF, the OECD and the Bank of International Settlements. The result of this fiscal austerity has been a pathetically weak recovery which has left per capita GDP in quite a few advanced countries not much higher than it was before the crisis, seven years ago.

Some of the IMF's most heterodox thinkers have now begun to make this distinction, which was missing in the rush to austerity in 2010. The full paper is here, but a more accessible version is here

To make sense of the complexity involved in fiscal policy, the authors separate the debt analysis from the heated debate about Keynesian stimulus versus fiscal austerity (whether budget deficits boost the economy through the usual Keynesian stimulatory effects, or alternatively whether a round of fiscal austerity would work better by boosting private sector confidence). Instead, they focus just on the debt.

Should countries that find themselves, post-crisis, with a substantial increase in debt make it a matter of priority to get this debt down?

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If a country pays down its debt, it has to do so by raising revenue or lowering spending, which will slow growth. On the other hand, once the debt is down, underlying growth will be faster because the cost of servicing debt will be a smaller burden on the economy. What's the trade-off here? The IMF authors argue that these two effects are equal, so there is no compelling reason to think that getting the debt down is a policy priority. As they say, 'When and only if countries have ample fiscal space, there is no need to obsess about paying down the debt. Living with the debt is likely to be the better policy.'

They offer the graph below, which identifies the countries with 'fiscal space'.  It's worth noting that in an international comparison, Australia's public debt level is modest and its fiscal space large. You might wonder why the political-economy narrative here is centred on getting the budget into surplus.

Not that this Fund paper is in itself a sufficient basis for policy. To start with, its analytical simplifications need to be taken into account. And there are many other aspects of fiscal policy that need to be considered.

Why not, for example, use the opportunity of low interest rates and spare productive capacity to issue more debt to fund socially profitable infrastructure? Such debt liabilities would then be balanced by the infrastructure assets. If the latter are well chosen, the government's net debt position is stronger, not weaker.

The fiscal rethink at the Fund is also exploring how to make automatic fiscal stabilisers work better so that governments don't simply spend the extra revenue that accrues to them in the cyclical upswing (or, more typically, offer vote-winning tax cuts), but instead put it aside to cover the fall in revenue and extra social expenditure that accompany the downturn of the cycle. The ABC's just-screened The Killing Season touched on the lamentable story of how we fumbled the opportunity to put in place the key element of strong automatic stabilisation in the form of a counter-cyclical super-tax on our minerals industry.

The influence of the Fund's analysis is strengthened because this rethink comes from such a fiscally conservative institution (it's often said that IMF really stands for 'it's mainly fiscal'). Better late than never.

Photo courtesy of Flickr user International Monetary Fund.

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Three terrorist attacks carried out by within hours of each other in Kuwait, Tunisia and France over the weekend raise questions about the degree of coordination between them and whether these attacks have broader implications. At the moment, ISIS has claimed responsibility for the Tunisian and Kuwaiti attacks but has remained silent on the apparent 'lone wolf' attack in France. The timing of the attack reflects the fact that ISIS has called for attacks during Ramadan; the first anniversary of the declaration of the caliphate this week may also have influenced the timing.

Although a full analysis of these attacks can be better made once more details become available, there are some early observations we can make:

1. The attack plans were still pretty simple

A single person with an AK-47 at a tourist beach is going to kill a lot of people before he gets killed. A suicide bomber in a packed mosque during Friday prayers is also going to kill a lot of people. These attacks require a small support team to decide on the target and timing, to source the weapon and the explosives, and to transport the attacker to the target, but the logistic support requirements are pretty minimal for the carnage they facilitate. If the French attack was ISIS-inspired then virtually no planning is required, although the limited damage it inflicted reflects this.

2. The target selection is interesting

The Tunisian target (a tourist beach) has a double advantage of not only targeting Westerners but also of dealing a significant economic blow to the Tunisian state. Tourism accounts for approximately 15% of Tunisia's GDP and thousands of European vacationers have now left the country, which goes to show you that even a single gunman with a rifle can have strategic effects.

The mosque in Kuwait is a Shaykhiyya mosque (a somewhat peripheral, more esoteric sub-group of Shi'a believers), frequented by a largely Hasawiyya group; they  are ethnically Gulf Arab, but more particularly they trace their roots back to al-Ahsa in Saudi's Eastern province. It raises the question of whether the attackers sought out the target because of these peculiarities, whether they even knew or whether they didn't care.

Relations between Kuwait's Shi'a and the Emir of Kuwait are good, so such an attack is unlikely to foment local unrest (more so now the attacker is allegedly a Saudi). So an argument can be made that the attack either simply shows ISIS's religious bigotry or that it is designed with an Iraqi audience in mind. The more ISIS targets the region's Shi'a, the less conciliatory the Shi'a government in Iraq will feel towards their Sunni countrymen and the less able it is to achieve the national unity that is the key to defeating ISIS.

3. Saudi Arabia has problems

Kuwaiti authorities have indicated that the mosque bomber was a Saudi national who flew into Kuwait on the morning of the bombing, which would indicate that there are some linkages between Saudis willing to blow themselves up and regional ISIS support cells who want to use them. There are already more than 3000 Saudis fighting with ISIS in Syria and Iraq, and one English-language Saudi newspapers reported that more than 1300 ISIS sympathisers have been arrested in the Kingdom in the last eight months. As with its al Qaeda problem a decade ago, Saudi Arabia's educational and social system makes it a rich hunting ground for would-be jihadists.

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The suicide bombing of a Shia mosque in Kuwait, shooting of Western tourists in Tunisia, and a beheading and attempt to blow up a chemical factory in France.

Three continents, three different attack methodologies and three different targets, but ultimately the same result. The death of innocent civilians in a brutal, horrific manner that dominates the news agenda. But aside from each attack being linked to ISIS and that they occurred (in all likelihood coincidentally) on the same day, the attacks appear to have had very little in common in terms of strategic aim.

A man reacts next to coffins of victims of Friday's bombing at the Imam Sadeq mosque in Kuwait City (Reuters/Alaa Al-Marjani)

In Kuwait, the attack marks the expansion of attempts by ISIS to undermine the domestic policies and sectarian unity of Sunni regimes across the Middle East.

Although Western tourists were ostensibly the target in Tunisia, the attack appears to be another attempt to degrade the ability of Tunisia's secular government to maintain security, specifically for the valuable but vulnerable tourist economy.

And at this stage, the French attack appears to have been the latest in a series of ISIS-inspired, 'crowd-sourced' attacks, unsophisticated in nature, easy to achieve and difficult to prevent. 

But  the attacks do demonstrate the complexity of the threat posed by ISIS. If the violence associated with ISIS could be described as 'barbaric' or 'stone age', its use of these tactics to achieve strategic aims is anything but. And as pressure on ISIS in Iraq and Syria increases, further attacks outside of the region are likely.

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ISIS have now claimed that it or its affiliates were responsible for the attacks in Tunisia and Kuwait. But I would argue, particularly for attacks similar to the one in France, that the issue of 'responsibility' is becoming less relevant from a counter-terrorism investigative perspective. Al Qaeda's centralised command and control meant that identifying and removing attack planners or bomb makers could also remove the future threat. But the minimal planning and sophistication required for both the Tunisian and French attack makes this more difficult.

Where ISIS responsibility is important is in the media coverage of, and the social media response to, an attack or attack disruption. ISIS is a savvy organisation that uses its propaganda to construct a narrative of continued and inevitable success. In a week where ISIS has suffered significant losses in Iraq/Syria, these attacks allow it to continue this narrative, while encouraging copycat attacks elsewhere.

Which is why we should be careful when attributing attacks or attack plans to ISIS. It is undoubtedly true that ISIS, as AQAP before them, have legitimised the concept of localised and unsophisticated jihad. 

But self-declared links to ISIS or ISIS propaganda, or social media interactions with low-level ISIS foreign fighters and keyboard warriors do not make these attackers 'apart of ISIS' or a plan an 'ISIS plot'. Nor are they relevant to discussions concerning the threat posed by returning foreign fighters. 

That is not to say that such attacks are at odds with the strategic aims of ISIS. But by attributing responsibility, we help to build the ISIS brand and the perception that they are 'coming after us'. 

And most importantly, by viewing ISIS solely through a 'threat to the West' prism, there is a danger of becoming distracted from its true aims and focus. ISIS did publicly call for an escalation in attacks during Ramadan, and the French attack may have occurred in response to that. But we should remember that ISIS has focused on maintaining and building a Caliphate in the Middle East. 

If violence against the West or Western hostages will help achieve this aim, then they may well use it. But its primary tool for achieving this aim is through the carrying out and incitement of sectarian violence within the region, predominantly against Muslims. The bombing in Kuwait represents just the latest terrorist attack against the Shia Muslim minorities in predominantly Sunni countries such as Kuwait and Saudi Arabia.

And by attacking Western tourists in secular and democratic Tunisia, ISIS aims to undermine the Tunisian Government and economy. This is terrorism to encourage regime change in a direction more favourable to ISIS, not mindless violence. Or in other words, ISIS foreign policy.

With ISIS-affiliated groups also emerging in unstable and violence-ridden countries such as Yemen and Libya, ISIS is not predominantly a terrorist threat to Australia and the West, or just a problem to be addressed by military operations in Iraq. It poses a foreign policy challenge with implications across North Africa, the Middle East and perhaps South Asia.

And given the differing motivations and levels of participation in the alliance combatting ISIS, helping to combat it will require a nuanced and sophisticated Australian Government strategy.

So preventing Australian citizens (dual or otherwise) from becoming ISIS cannon fodder in the Middle East is responsible governance. As is doing everything we can to prevent terrorist attacks occurring in Australia. But fundamentally, a much bigger problem is emerging across the Middle East and North Africa, one that could lead to more failed states, civil wars, and the continued forced migration of millions of innocent civilians from war zones.

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This week, The Interpreter concluded former Fairfax Indonesia correspondent Michael Bachelard's seven-part series on the Indonesian provinces of Papua and West Papua. Here is the introductionpart 1 and part 2 from last week. Below are extracts from the rest of this outstanding series. First, on Papua's 'education malaise':

The problem is not just with the administrators. Ob Anggen is funded not by government but by fees and donations, and the school is fighting an uphill battle against some parents, and the culturally important uncles, who can't understand why children need to spend so much time in classrooms to attain certificates which, at other schools, can simply be bought or cheated.

In part 4, Michael concentrated on health care in the provinces:

Poor education in Papua means there are few locally trained doctors. But not many from outside Papua want to stay in these hard postings with their thorny health problems. 

One young physician arrived for his two-year stint in a taxi via the bumpy road from Wamena. He got out and looked around, then climbed back into the same taxi, returned to town and was never seen again.

Dr Poby, by contrast, finds the work satisfying. On the desk in the consulting room are testing kits for patients diagnosed that day with tuberculosis which, along with HIV/AIDS, is in epidemic proportions here. In the eleven months to November 2014, he diagnosed 26 new cases of HIV and three of AIDS.

Michael interviewed several journalists in Papua and West Papua:

Oktavianus Pogau is another journalist, the chief editor of newspaper Suara Papua. After the presidential election last year, he tried to draw attention to the massive irregularities and ballot box stuffing that delivered counts in some places of 100% for Joko Widodo. In most Papuan districts, there was no ballot box at all, but every man and woman miraculously managed to vote. He accuses politicised electoral commission officials, not Joko's party, of wrongdoing.

In the remote village of Lolat the fact that a ballot box never appeared for the election makes people feel they have no stake in the outcome. Asked about the promises of Joko Widodo, a young woman in Lolat says: 'We didn't actually elect him so why should he listen to what we say?'

The reasons why Papuans want independence are often misunderstood in the West, as Michael discovered:

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The men in this darkened room know that their cause is supported by many Western activists, as well as a broader Papuan diaspora. But Balingga is frustrated that these people too often focus on human rights issues to drive their cause. 'The main picture that gets out internationally is that people get killed and that is why we should have freedom. But that is not the true reason in our hearts,' Balingga insists. 'It's much bigger than just killing people. We want our own country because we're different.'

In the conclusion to the series, Bachelard examined Papua's relationship with the central government in Jakarta, what has happened since the election of Jokowi and what local activists believe needs to be done:

In his conversations with Jokowi's ministers, Harsono had three suggestions to make to improve the situation in Papua. Firstly, open it up to international monitors, including the Western media; secondly, release the political prisoners; and thirdly, throw some kind of bone to the military — perhaps a grace period to wind up their financial affairs and improve their performance.

Stephen Grenville wrote on investor-state dispute settlement and the TPP:

Where is the Government's substantive response? What is the case, in the Australian context, for giving foreigners more favoured treatment than domestic players? Negotiating tactics should not be an excuse for lack of transparency here: an open debate is just part of good governance. The Government should make the case why ISDS benefits Australia. ISDS is not something to be bargained away in exchange for some (probably ephemeral) export advantage.

The 200th anniversary of the Battle of Waterloo was last week. Matthew Dal Santo makes a connection between the peace that was achieved afterward and the end of the Cold War in 1991:

The restoration of a European balance after Waterloo was a testament not just to Waterloo or Britain's wealth and geographic invulnerability, but to Castlereagh's vision as a statesman and his skill as a diplomat. The problem in 1991 was that America combined in itself the role of both victors in 1815: that of the offshore balancer (Britain) and that of the dominant military power on the continent (Russia). Castlereagh's vision for peace was available, but the US effectively chose Alexander's.

In another anniversary, it was the 50th year since Japan and South Korea established formal relations. Robert Kelly took the opportunity to argue that now is the time for Shinzo Abe to end the region's history wars:

Usually these sorts of articles end with arguments that both Japan and Korea need to compromise in order to get along and deal with the really serious issues of their neighborhood – North Korea, China, etc. And so they should. In my previous writings on this topic, I have often suggested that Koreans might take steps to ease the tension, such as dropping the needlessly provocative Sea of Japan re-naming campaign that only stiffens Japan's spine rather than encouraging reconciliation.

But it must be said that Abe has veered so widely from accepted fact on Japanese 20th century imperialism that he must now make the first move, not just to the Koreans but to much of the Asia Pacific, including the Americans. 

In an excellent piece, former intelligence analyst David Wells talks risk assessment in counter-terrorism:

We want our intelligence agencies to be risk averse, given the potential consequences of things going wrong. My concern is that the (justified) scrutiny of the Monis case, the desire to apportion blame and political commentary in the aftermath of the attack, could push the intelligence agencies towards risk avoidance. In future, will intelligence agencies make a similar assessment based on similar information as they did with the Monis case? How comfortable will they feel ruling out an individual as an ongoing target? 

The consequences of increased risk aversion are easy to imagine. Intelligence agency target lists will grow and resources will be stretched. Perversely, risk aversion could thus increase the chances of an attack. In practical terms, the coverage needed to 100% prevent these types of attacks is incredibly resource intensive. Monitoring every individual posing a possible threat is simply not feasible nor desirable.

What are the possible outcomes from the dissolution of the opposition alliance in Malaysia? Anneliese Mcauliffe:

But another real possibility is the further fracturing of the opposition, plunging Malaysia into a political realm in which nationalists and religious hardliners unite in one opposition alliance while political moderates form a separate opposition group. Not only would it be far less likely that either of these groups could pose a real threat to the ruling coalition, such political organisation around ethnic and religious lines could pose serious problems for the future of social cohesion and inclusive political life of Malaysia

Responding to a recent debate on The Strategist, Raoul Heinrichs says that by preserving Australia's strategic independence we can protect ourselves from alliance failure:

In practice, that means building powerful, genuinely self-reliant military forces. To achieve their purpose, these would need to be optimised strictly for the limited task of defending Australia – not the regional order; not Japan, Taiwan or Korea; and not the countries contesting Chinese claims in the South China Sea. It would mean prioritising independent operational capability over interoperability (when the two goals conflict), and air and maritime forces over land power. It would also mean taking full advantage of Australia's fortuitous strategic geography, using asymmetric military technologies and doctrines in ways that impose intolerable costs and risks on an adversary seeking to surmount it.

Why does Southeast Asia have a strange obsession with Hitler and Nazi iconography?  Elliot Brennan argues it's a lack of awareness of European history among the region's youth:

The love affair with Nazi imagery seems to be gathering strength among Southeast Asia's youth. Outside the region, this will feed comparisons between, say, Nazi Germany and Myanmar's persecution of the Rohingya. Some commentators argue that this stubborn love affair has taken on new significance under Thailand's repressive military-led government. Since seizing power last year, the junta has used all means to win over Thai youth and when it has failed it has detained activists for what it has termed 'attitude adjustment'.

Visiting scholar to the Lowy Institute Ye Yu wrote on the New Development Bank:

Within China, the NDB is seen as one package with the AIIB, and both banks are still at the preparatory stage. The Shanghai municipal government has given strong support to the NDB as the first international organisation headquartered in Shanghai and the first international financial organisation headquartered in China. The NDB is expected to help strengthen efforts to build up Shanghai as an international financial centre. What the Chinese and Shanghainese governments should provide is more entrepreneurship and intellectual leadership in defining the mandate of the bank. The fact that all the BRICS countries are now founding members of the AIIB could also help the NDB develop a consistent and complementary relationship with that organisation.

Finally, Leon Berkelmans with five points on the Greek debt crisis. Here's one:

If the ECB does cut off Greek banks, and the banks are headed towards bankruptcy, this is the point at which Grexit becomes more likely. If Greece leaves the euro, the Greek central bank can lend money to the banks unencumbered by the ECB's permission. But Grexit will be messy. I have no idea what it would look like. I don't think anybody does.

(Photo: Michael Bachelard/November 2014)

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