Lowy Institute

There is pride in Hong Kong that a local private company is pushing ahead with perhaps the world's largest-ever civil works project, the 280km long, 500m wide Nicaragua Canal. Construction began in December 2014.

HKND Group Chairman Wang Jing waves to youths in Brito Town, Nicaragua, 22 December 2014

The South China Morning Post dismisses outside suspicions while modestly describing the scheme as being 'centered on the creation of a more just, reasonable and equitable world order.' That a private company should be undertaking such munificence is remarkable. One thing's for certain: it can't be doing it for the money. Financially the numbers don't add up.

At a cost of at least US$50 billion, the project will take many years and require tens of thousands of workers. Legal, social, corruption and environmental concerns aside (and all are daunting), the financial returns are violently challenged.

The century-old Panama Canal, which is struggling through its own US$5 billion upgrade to double its potential traffic, generates about US$2 billion in annual revenues, about half of which are retained as profits. Building parallel infrastructure in Nicaragua at huge sunk expense will provoke a knife-fight response from Panama, which has capacity to spare. Although the Nicaragua canal will allow larger-sized ships to pass, Panama should retain most of the transit share, and will slash pricing to make sure. In that case, the canals' combined annual profit pool might be much less than the US$1 billion today.

Commercially speaking, this US$50 billion gambit is courageous, if not reckless.

There is of course another possible explanation: that the company is a front for Beijing, that it will rely heavily on cheap long-term financing from state institutions, and that the canal is to secure access for Chinese shipping.

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There is plenty of scuttlebutt on the internet about the company's mysterious chairman (he says he is 'just a businessman') and China's strategic game plan. US$50 billion is serious money, way beyond the exposure limits of institutions like the World Bank but feasible for the Chinese agencies which long ago surpassed it. If this canal is built, it will mostly be with Chinese state contractors and funds. True, companies can raise US$10 billion or even US$20 billion in international public equity, but these are special cases (like Alibaba) for proven businesses. 

This gargantuan engineering enterprise also has the audacious hallmarks of a Chinese Government design. But if it is, why would Beijing wish to hide behind a supposed Hong Kong-based entrepreneur?

China enjoys excellent relations with Nicaragua's charismatic Daniel Ortega, who in turn is no friend of the US. Maybe Ortega is simply downplaying Beijing's role in order not to antagonise the yanqui. Perhaps Beijing is happy to maintain plausible deniability for now, and will later assume greater ownership over the enterprise once it has matured and the Americans have resigned themselves to its existence. Although the targeted financial payback is just 12 years, with operations underway by 2019, both these estimates seem fanciful. In reality, the project is likely to see over-runs and delays, so the operating concession might be 50 or even 100 years.

Then a Chinese entity – perhaps the state itself – will have long-term control over a key 'chokepoint' into the Atlantic.

The Nicaragua canal would prioritise Chinese shipping: containers to the US eastern seaboard, tankers from Venezuela, iron-ore carriers from Brazil, perhaps even PLA Navy warships. That sounds pretty sensational. But what is really gained here? As noted above, the canal is broadly replicating what already exists in Panama. The shipping distance to the western Atlantic is not shortened; Hong Kong is equidistant via the Suez. And the Atlantic southern capes offer other entry points. If the specific objective is ensuring passage for Chinese naval vessels through the central American isthmus into the Caribbean, it must be obvious to Beijing that – with or without a second canal – it can only be at the forbearance of the US. And those PLA Navy ships will be a very long way from their home port.

There is a broader agenda here, obviously. With its diplomatic 'whirlwind' China is seeking greater access to world markets and wants new trade routes opened, preferably under its own aegis.

The most significant is the One Belt One Road (OBOR) program, which envisages continental and maritime pathways west to Europe and Africa, away from the US-contested Pacific. There are good reasons why China should seek to build strategic 'keys' like OBOR, not least to secure its restive frontiers. But in reinforcing its periphery it will encounter powerful rivals. Nicaragua's canal is a clear challenge to the US. New Delhi strategists are already muttering that OBOR pincers India. Russia, distracted for now in Ukraine, may come to resent greater Chinese influence in Central Asia. 

The other risks in holding these access points should also be well known to Beijing's leaders: grassroots protests, wars, coups, external interventions, nationalisations, and – most unpredictable – democratic elections. It is already evident that Nicaragua, which is hardly a stable jurisdiction, will be divided by the canal in more ways than one.

Indeed, compared to the serious public effort China is making with its OBOR initiative, the whole Nicaragua canal adventure seems quirky and speculative. Perhaps that's why it's in the hands of a private Hong Kong developer.

Photo: Reuters/Oswaldo Rivas

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President Obama set the theme for this year's State of the Union address early: 'the shadow of crisis has passed', he declared, and throughout the speech he returned repeatedly to the idea that America is a 'strong, tight knit family' that has 'made it through some tough times.'

So although this wasn't much of a foreign policy speech, that renewal theme was no doubt intended to send a message to a global audience: the declinists were wrong; America has recovered and is roaring back, determined to maintain global leadership.

How will it exercise that leadership? There wasn't much of a unifying theme other than a clear enunciation of Obama's Don't Do Stupid Stuff doctrine. Although Obama's predecessor wasn't mentioned by name, Bush's shadow clearly lingers: the President talked in his introduction of America having approached the world 'fearful and reactive, dragged into costly conflicts that strain our military and set back our standing'. Obama mentioned his reluctance to 'getting dragged into another ground war in the Middle East'. And there was this (emphasis mine):

My first duty as Commander-in-Chief is to defend the United States of America. In doing so, the question is not whether America leads in the world, but how. When we make rash decisions, reacting to the headlines instead of using our heads; when the first response to a challenge is to send in our military — then we risk getting drawn into unnecessary conflicts, and neglect the broader strategy we need for a safer, more prosperous world. That’s what our enemies want us to do.

In the following paragraph he tried to reinforce the point, but was let down by what looks like some really poor speech drafting (my emphasis):

I believe in a smarter kind of American leadership. We lead best when we combine military power with strong diplomacy; when we leverage our power with coalition building; when we don’t let our fears blind us to the opportunities that this new century presents. That’s exactly what we’re doing right now — and around the globe, it is making a difference.

You see the point he's trying to make, but it sounds like he's saying that letting fear blind America to opportunities is 'exactly what we're doing right now'.

Speaking of unintended messages, what about this line: 'If you want somebody who’s going to get the job done, hire a veteran.' I wonder if John McCain smiled when he heard that. It would have made a decent campaign slogan in 2008...

Asianists would probably have been disappointed with the speech; the region was mentioned only in passing and mainly to provide a segue to a long section on climate change. There was no mention of the pivot. Asia specialists who are perpetually let down by the lack of presidential attention on their pet issue should read this piece by Robert Kelly. The region just doesn't have as much foreign policy resonance in Washington as terrorism, Iran and Russia.

But despite the lack of Asia focus, Obama did use the issue of free trade to take a sharp geopolitical jab at Beijing: 

China wants to write the rules for the world’s fastest-growing region. That would put our workers and businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field.

I don't think he was just talking about Trade Promotion Authority.

Back to climate change: Obama landed some nice rhetorical blows ('I’m not a scientist, either. But you know what — I know a lot of really good scientists at NASA, and NOAA, and at our major universities. The best scientists in the world are all telling us that our activities are changing the climate') and made a loud public declaration that the US would take the lead in 2015:

I am determined to make sure American leadership drives international action. In Beijing, we made an historic announcement — the United States will double the pace at which we cut carbon pollution, and China committed, for the first time, to limiting their emissions. And because the world’s two largest economies came together, other nations are now stepping up, and offering hope that, this year, the world will finally reach an agreement to protect the one planet we’ve got.

Watch out, Paris. Obama is coming.

Speaking of rhetorical blows, you've got to hand it to Obama for his relaxed and folksy demeanour. No matter what the polls say, the guy remains confident and supremely self-assured. There was the little aside to Republicans who did not clap Obama's list of economic achievements ('this is good news, people'), and there was his devastating ad lib after Republicans applauded his statement that he would have no more campaigns to run: 'I know because I won both of them', then a sly wink.

I'm told Republicans regard Obama's growing informality in his successive State of the Union speeches as unbecoming because it gives the speech a campaign flavour. From an Australian perspective, I would say it gives his remarks a parliamentary tone. It's quite common here for parliamentary speakers to engage with their own side and tease the opposition. The public hates it but good parliamentarians and effective leaders know it is a crucial tool for building morale among your own MPs and undermining the opposition. Maybe Obama sees that too.

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The South China Morning Post has published a terrific series on the remarkable story of a near-derelict unfinished Soviet aircraft carrier which was rebuilt by China to become its first carrier, the Liaoning.

Most incredible is the revelation that the ship, which is now the centrepiece of the Chinese fleet, was originally purchased by Chinese businessman Xu Zengping at the private urging of PLA Navy officers but with no official backing from the Government: 

Xu said that when naval officials approached him (in the mid-1990s) to buy the carrier on China's behalf, they also warned him of two major impediments: the navy was severely underfunded and there was no support in Beijing for the carrier project. If Xu took on the job, he would be taking a gamble on government policy.

"I was chosen to do the deal. I realised it was a mission impossible because buying something like a carrier should be a national commitment, not one by a company or an individual," Xu said. "But my passion pushed me to take on the mission because it was a now-or-never chance for China to buy a new carrier from a nearly insolvent state-owned Ukrainian shipbuilder."

So in sum, a group of freelancing  military officers effectively made policy without approval from the central government, and the nationalism and entrepreneurship of a Chinese businessman eventually pushed Beijing into a more militarily assertive posture. Students of Chinese governance may recognise some of these themes.

The policy implications of this anecdote are alarming, but as a yarn, the South China Morning Post's story just gets better:

The deal-making was not for the faint-hearted. Apart from the stacks of US dollars he handed over to the shipyard's management, Xu plied the Ukrainian sellers with fiery, 62-per-cent-proof Chinese liquor called erguotou.

"I felt that I was soaking in liquor back then when I was negotiating with the management of the carrier builder," Xu said. "At every meal I needed to drink two to three litres of erguotou. In the critical four days, I brought them more than 50 bottles. But I still felt I had the energy to do it and was always able to keep a sober mind because my drinking was goal-directed; the Ukrainians were drinking to get drunk."

It all paid off. After several alcohol-drenched days, the shipbuilder and government agreed to sell Xu the carrier - and the ship's all-important blueprints - for the bargain-basement price of US$20 million. They shook hands and arrangements were made to transfer the money.

But what had seemed like a done deal wasn't. In mid-February, Ukrainian officials told him the carrier would be sold through an open auction. Other countries were interested in the ship and he had just three days to put in his bid. The sudden change in the negotiations worked to Xu's advantage - with the help of his Ukrainian friends, he was the only bidder to get his documents ready on time and meet all the key requirements. On March 19, 1998, Xu outbid opponents from the US, Australia, South Korea and Japan and won the ship.

Excuse me, but does that say there were bidders on the aircraft carrier from Australia? Scrap-metal dealers, presumably, though I would love to know more. You can read the three-part series here (though you will need a free registration with SCMP first): part 1; part 2; part 3.

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Amid the range of articles marking Hun Sen's 30 years as Cambodia's prime minister, including Elliot Brennan's in The Interpreter and a similarly thoughtful piece by Mark Dodd in the Financial Review of 19 January drawing on personal experience in Cambodia, there has been very little reflection on why the West has tolerated Hun Sen.

After all, the criticisms being aired of him today have applied over most if not the whole of his domination of Cambodian politics since 1993. There have been an almost endless number of occasions when he has demonstrated his readiness to preside over corruption, brutality and a readiness to subvert popular will.

The most notable of the latter was his refusal to cede power to the opposition FUNCINPEC party in the UN-sponsored elections of 1993. Four years later, in 1997, he sanctioned the use of force in a putsch that ended any possibility of Prince Ranariddh's playing an effective role in Cambodia's politics, while Hun Sen's forces carried out a large number of extra-judicial killings. This all took place after men undoubtedly linked to Hun Sen's regime mounted a fatal grenade attack against a march led by political rival Sam Rainsy.

The extent to which Hun Sen, his extended family and  long-time cronies have been associated with corrupt activity in relation to the illegal exploitation of timber reserves has been revealed in detail by Global Witness, an NGO now banned from Cambodia. A broader pattern of land grabbing for favoured associates of the regime has become so common that it receives almost no external commentary.

So far as foreign aid to Cambodia is concerned, Sebastian Strangio in his new and excellent book Hun Sen's Cambodia has observed that, 'since the first donor meeting (of the Cambodia Development Cooperation Forum) was held in Tokyo in 1992' Cambodia has shown 'a more or less complete lack of progress on various reform "benchmarks" formulated by its Western "partners"'. The result, as Strangio summarises, is that very little money has reached those it was supposed to help. Western governments continue to give aid to Cambodia almost regardless of the regime's behaviour.

So what explains this state of affairs? It is hard to go past two old fashioned words: 'shame' and 'guilt'. 

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Cambodia's involvement in the Vietnam War led to a widespread view in the West that accepted, and in many cases welcomed, the overthrow of the Lon Nol regime in 1975. Anything had to be better than what had gone before, particularly in view of Nixon's 'secret bombing' of Cambodia. Indeed, among 'progressive' opinion the Khmer Rouge regime that took power in April 1975 was lavishly praised. Those of us who took a publicly contrary view were very much in the minority. This was despite the fact that Henry Kamm of the New York Times documented what was happening within Cambodia in detail from July 1975 onwards. When other observers such as Francois Ponchaud wrote of what he had seen when Pol Pot took power in his Cambodia: Year Zero, his views were sharply discounted by such French luminaries as Jean Lacouture. When the full awfulness of the regime became apparent to even the most biased observer after the Vietnamese overthrew Pol Pot in January 1979, the result was a widespread feeling of shame and guilt.

This sense of guilt has persisted to the extent that there is still a reluctance by Western governments, Australia included, to talk about and deal with Cambodia in a frank fashion. Cambodia is treated as if it is just another Southeast Asian country. But it is not. No other ASEAN country has a leadership closely associated with an earlier genocidal regime. While no one has ever proved that Hun Sen, when he was an army officer during the Khmer Rouge regime, committed atrocities, little public discussion has taken place of the fact that he and many of his associates in high positions worked for two years or more while Pol Pot was in power, before defecting to Vietnam.

In the light of the most recent elections when his party suffered a major loss of votes, Hun Sen's survival as Cambodia's leader is facing the prospect of real challenge, not as the result of any action by the West but because of domestic reaction to his style of government. Some might argue that this is the best way for change to occur. Whether this is so, the West's failures in relation to Cambodia will be a reason for reflection for many years to come.

Photo courtesy of Wikimedia Commons.

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In 1965, a Pakistani military delegation traipsed to Beijing in hope of replacing equipment they'd lost in the previous year's war with India.

Premier Zhou Enlai, meeting the delegation, was bewildered by their request for only 14 days' ammunition. 'How can a war be fought in that short time?' Zhou then asked: 'I would be interested to know if you have prepared the people of Pakistan to operate in the rear of the enemy...I am talking about a People's Militia being based in every village and town'. The Sandhurst-educated generals were taken aback. 'What does Zhou Enlai know about soldiering anyway?'

This story appears early in Andrew Small's outstanding new book The China-Pakistan Axis: Asia's New Geopolitics. It is a reminder that the two countries are odd bedfellows, lacking the cultural affinity that might be implied by General Xiong Guangkai's quip that 'Pakistan is China's Israel'.

China has repeatedly left Pakistan to stew in its own juices in moments of peril, from 1965 to more recent crises.

During Pakistan's dismemberment in 1971, its desperate commanders sent delusional messages to troops, promising US and Chinese intervention: 'yellow from the north and white from the south'. But the cavalry never came. The economic statistics are also resoundingly underwhelming. Vietnam, with an economy half the size of Pakistan's, has four times the bilateral trade. China pledged US$66 billion of assistance to Pakistan between 2001 and 2011, but only 6% ever materialised.

This is certainly at odds with the ritualistic Pakistani hyperbole that marks every bilateral visit. As Pakistani Prime Minister Nawaz Sharif put it on his last trip, 'our friendship is higher than the Himalayas and deeper than the deepest sea in the world and sweeter than honey'. But Pakistan's real value to China, explains Small, is 'an India that is forced to look nervously over its shoulder at its western neighbour is easier for Beijing to manage'.

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And so, China accelerated Pakistan's nuclear weapons program over three decades, starting with fissile material in the 1980s, advanced missiles in the 1990s and the steady construction of new reactors (in flagrant violation of China's own non-proliferation commitments) in the 2000s and beyond. The two countries established a 'coordination bureau' in 1969 to arm, fund and train Indian insurgents, a policy from which China, argues Small, 'has never backed away entirely'. Beijing has also shielded Pakistani intelligence officers from UN terrorism sanctions.

This history is largely well known, and Small pulls it all together deftly and with meticulous sourcing. But he supplements it with extensive interviews, and these paint a richer picture of Chinese foreign policy in motion. A few themes stand out.

The first is a generational shift in China's South Asia hands, at the same time as disquiet began to rise about Pakistan's stability. Small explains that 'the older generations are almost exclusively India experts, and still stress the need for "balance" in China's relationships with the two South Asian powers'. But the younger analysts include a 'growing number of Pakistan hands who generally believe that China should accept its rivalry with India and embrace the strategic relationship with Pakistan'. If this is correct, it helps clarify Chinese behaviour towards India over the past few years, such as an oddly timed flare-up on the border just as President Xi Jinping was beginning his high profile visit to Delhi last year

China has been able to manage this relationship with Pakistan relatively well in part because of its highly flexible, narrowly focused approach towards international terrorism: 'don't bother us' – ie. keep away from Uighurs – 'and we won't bother you', a proposition sweetened with 'money or small arms supplies' to placate what might be otherwise threatening groups. These sweeteners include transfers of heavy weaponry and explosives to the Taliban, whom Beijing hosted this month, and even a reported meeting with al Qaeda 'to sound out its intentions'. The close ties between Pakistan's intelligence services and manifold jihadists, a source of serious US-Pakistan tension, has been exploited by China as an opportunity, with Pakistani spies brokering meetings and leaning on key groups to respect China's red lines.

At the same time, Small's interviewees make clear this isn't a blank cheque. 'If India launches air strikes on Pakistan, we would be willing to respond', says one Chinese expert, reflecting on the Mumbai attacks, 'but when it's Pakistan that causes the problem we can't back them'. Another, discussing Chinese contingency planning in the event of a crisis involving nuclear weapons, clarifies that 'China is willing to help Pakistan defend a Pakistani bomb. We won't help them protect an Islamic bomb'. 

Above all, Chinese officials have been disturbed by escalating violence both in Xinjiang and against the more than 10,000 Chinese nationals within Pakistan. China is particularly neuralgic about the East Turkestan Islamic Movement (ETIM), which operates in Pakistan's tribal areas. Small records a litany of complaints that could easily have come from jaded American officials: 'when we provide them (Pakistan) with intelligence on ETIM locations they give warnings before launching their attacks'; another frets about extremist sympathies in Pakistan's Army, observing that 'we're not worried about the generals, we're worried about the brigadiers'. Pakistan's recent offensive into North Waziristan, home to ETIM's Uzbek allies, the IMU, may dampen these concerns only temporarily. 

The China-Pakistan Axis concludes by connecting the bilateral relationship to broader themes in Chinese foreign policy. On the one hand, Pakistan is both a Chinese pawn (against India) and platform for power projection (Small argues, interestingly, that it's now Chinese naval strategists, not just Indian, who are seriously talking up the long-term possibilities of Pakistan's long-stalled Gwadar port). But there are limits to this approach. For instance, as Small notes, 'Beijing's counterterrorism strategy has been essentially parasitic on the United States being a more important target for transnational militant groups than China'. It's unclear how long that can last.

Nor does China want to shoulder the burden alone. When Osama bin Laden was killed at Abbotabad, the Chinese gratefully took a careful look at the crashed US stealth helicopter but then rejected Pakistan's suggestion of a defence agreement and noted, pointedly, that it 'was not going to backfill for the Americans, and Islamabad urgently needed to patch up its relationship with Washington'. Small's final chapter describes the gradual shift from suspicion towards American bases in the region to growing concern about at a hasty US departure. As the chapter heading reads, 'Lord, make them leave – but not yet'. Such is free-riding. 

The dilemma, suggests Small, is the contrast between Beijing's impatience in the seas to the east, where 'China looks uncomfortably like a bully', and its caution in the west, where 'Beijing has sat passively watching developments in the region that are inimical to its interests'. This volume makes a credible case that China is likely to respond to these challenges not by cutting Pakistan loose, as India might hope, but by deepening an admittedly complex relationship with its only real friend in the world. The question is whether the areas of growing friction will be more serious than in previous post-American spells.

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On 24 December 2014, two decades of campaigning and several years of negotiations culminated in the Arms Trade Treaty (ATT) entering into force as an internationally legally binding instrument, having been ratified by 50 countries. 

The ATT aims to provide a minimum international benchmark for responsible trade in conventional arms and addresses the roles of exporters, importers, transit states and brokering.

Australia is already ATT compliant. Australia's interest is in how the ATT can now enhance our regional security and humanitarian objectives. Entry into force is just the beginning. To use Prime Minister Abbott's simple but useful dichotomy, there is much more 'Geneva' work ahead to determine how the Treaty will work, but even more 'Jakarta' if the ATT is to serve our interests and the region's security.

Amnesty International's ATT campaign coffee mug makes the case succinctly: '1 Person Every Minute Killed by Armed Violence'. Marking Australia's signature of the ATT in 2013, then Foreign Minister Bob Carr said 'Each day there are around 2000 deaths in conflicts fuelled by illegally-traded weapons...(which) are the enablers of a catalogue of crimes, including against women and children. The greatest impact of the illicit conventional arms trade often falls on the poorest and most vulnerable communities'.

The implication is that the ATT can fix everything from gender crime to terrorism. But the ATT is not a magic wand. Bringing the treaty into force was the simple bit. Giving it teeth over time to raise levels of responsibility in the international arms trade will be harder. Helping countries to introduce and implement the controls required by the treaty will be the most difficult step.

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In contrast to the attention-seeking hyperbole that surrounded much of the ATT negotiation, Foreign Minister Julie Bishop's Christmas Eve media release marking the entry into force of the ATT was deceptively comforting. It failed to point out that the ATT entered into force only for those good international citizens who for the most part are already committed to best practice. It does not bind the other 70-odd countries who have signed it, but have yet to ratify. 

The immediate point to make is that the Asia Pacific region has not yet embraced the ATT (see here for the full text of the ATT and the full list of signatories and ratifications). Most Pacific countries have failed to sign it and only Samoa has ratified. There are of course resource challenges in the Pacific, so we have to help. 

But not one ASEAN member has ratified, and only five have signed: Cambodia, Malaysia, Philippines, Singapore and Thailand. Resource constraints should not be a factor in a region already spending large sums on arms. This poor level of ASEAN buy-in means that the region, including Australia, is for the time being getting none of the ATT's potential security benefits.

So, to the 'Jakarta' agenda. Our defence and foreign ministers should now engage their counterparts on the ATT in bilateral meetings and through regional structures such as ASEAN, the East Asian Summit and the Pacific Islands Forum. Commitment by our regional partners to ATT standards is the real test of the success of the ATT for Australia. We should begin to incorporate ATT standards into bilateral defence and diplomatic activities, flagging that as a general rule Australia considers ATT adherence as a necessary (though not sufficient) basis for all conventional arms transfers, a discipline similar to what we require on transfers of WMD-related goods.

This should be backed by a program of practical assistance to facilitate ratification and implementation of the ATT. Despite tightened aid funding, our national security interests dictate that we expand cooperation with regional partners to enable them to implement ATT obligations.

Additionally, we have to secure the adherence of key global arms exporting and importing countries. Neither Russia nor China has signed to date, severely limiting any prospect of early improvement of global standards. In North East Asia Japan has ratified, South Korea has signed but yet to ratify and the DPRK has not signed, let alone ratified. The US has signed and will most likely not ratify, but can be expected to act as if it were bound by the ATT and to support its broader application.  

Of the top arms importers — India, China, Pakistan, UAE and Saudi Arabia — only the UAE has signed.

And finally, the 'Geneva' agenda. The ATT is basically a framework that now needs to be fleshed out. The issues are set out succinctly in a recent SIPRI brief.

Key points in the brief include: preparing for the first meeting of the states parties (which must be held in 2015); establishing rules of procedure, critically the decision making processes; determining the size and location of the secretariat (the UN's nuclear watchdog, the IAEA, has a staff of 2500; the chemical weapons watchdog, the OPCW, 500; and the Biological Weapons Convention Implementation Support Unit has three; no prizes for guessing at which end of the spectrum the ATT will land); funding mechanisms; reporting models and guides; and all importantly the mechanisms for prioritising, delivering and evaluating technical assistance.

Much of the work on these issues is likely to be done in Geneva where NGOs and diplomats led the way in negotiating the ATT. With the paralysis in the UN Conference on Disarmament, there is ample spare diplomatic talent to apply to the task.

Photo courtesy of Flickr user Oxfam International.

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Ambassador Gary Quinlan chairs a UN Security Council meeting, 27 September 2013. (REUTERS/Adrees Latif.)

The farewell receptions are taking place, featuring far superior wine than is ordinarily on offer at Turtle Bay drinks parties. The diplomats that led the Australian mission at the UN during its two-year stint on the Security Council are shipping out. Ambassador Gary Quinlan and his deputy Philippa King will be missed. So will Australia's presence at the most famous table in world diplomacy. It has been an impressive stint.

The main contribution has been a significant boost in humanitarian aid to Syria. Australia authored three separate resolutions that produced the biggest humanitarian breakthrough of the near four-year conflict: allowing aid convoys to cross over the border without the permission of the Assad regime in Damascus. Up until that point over 90% of UN-administered aid had gone to government-controlled areas. Afterwards, food and medical supplies reached besieged cities where women and children had survived by eating grass.

The resolutions have also established a significant precedent, strengthening the evolving doctrine of responsibility to protect. If governments fail to protect their citizens, the international community should be able to override those governments. Small wonder that Baroness Valerie Amos, the UN humanitarian chief and, incidentally, the former British High Commissioner in Canberra, came to look upon Quinlan and his team as invaluable allies. At a small gathering last week to mark her own departure from New York, Amos was abundant in her praise.

What made Australia's humanitarian contribution all the more impressive was that it meant facing down Washington, a rarity in Australian diplomacy.

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When Quinlan and his team first started pushing a humanitarian resolution back in September 2013, the Obama Administration believed it would complicate the Geneva 2 talks process, an excruciating effort to bring the warring sides to the negotiating table. Pressing for humanitarian access, the argument went, would alienate Russia, thus weakening diplomatic pressure on Assad. With the support of Luxembourg, a surprisingly influential member on the Council, and then Jordan, the Australian mission doggedly kept making the case. The Americans, whose UN ambassador Samantha Power is often cast as the conscience of the Administration, eventually relented. It was niche and nudge diplomacy: the Australians singled out an issue where they could make a vital impact, and kept on prodding the P3 (the US, UK and France) to come on board.

Australian efforts were by no means confined to Syria. It chaired important sanctions committees on al Qaida, the Taliban and Iran and served as 'pen-holders' whenever it came to drafting resolutions on Afghanistan. But Syria is where its main legacy is to be found. And a legacy it is, despite being under-reported back home in Australia.

For much of its tenure, the Australian mission had to deal with sceptics in the Coalition Government who looked upon the bid for Security Council membership as a Kevin Rudd vanity project. Senior figures within DFAT also questioned the value of Australia's membership. All that changed, however, with the shooting down of MH17 over Ukraine. As Tony Abbott pressed for a Security Council resolution setting up an independent international investigation, Australia's presence on the Council proved invaluable, and so, too, the experience it had gleaned. By then, Quinlan had become something of a black-belt when it came to negotiating with Russia's wily permanent representative, Vitaly Churkin. The two had sparred regularly over humanitarian aid to Syria. Because of its humanitarian efforts, and the coalition-building that went with it, there was also a lot of goodwill towards Australia on the Council. With Foreign Minister Julie Bishop in New York to seal the deal, the resolution passed unanimously. 

Thereafter, Bishop became such an enthusiast that when Australia chaired the Security Council for the second time in November 2014, she flew to New York to wield the gavel during a number of sessions. Tony Abbott also occupied Australia's seat at the horseshoe table last September when President Obama convened a special meeting of the Security Council to discuss how to deal with foreign fighters heading to Syria and Iraq. That day it looked like an especially exclusive club. 

Membership also had other uses. At a time when the Abbott Government has attracted strong criticism at the UN for its inaction on climate change (Abbott turned up for the foreign fighter meeting, but not a UN climate summit held in New York the day before) and its harsh asylum seeker policies, its work on the Security Council has helped contain the diplomatic fallout. 

Throughout, Australia carved out an exceptional role at the Security Council. It could never hope to rival the heft of the veto-wielding Permanent Five (US, UK, France, China and Russia). But it was more agenda-setting and more activist than the other nine rotating members. It became what might be called a 'temporary member plus'. 

In so doing, Quinlan and his team delivered a punch that was commensurate with Australia's growing diplomatic weight. They deserve the plaudits and toasts.

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The AFR's John Kerin yesterday had the inside mail on the upcoming Defence White Paper, and his headline judgment is this:

Notwithstanding having to mention the current anxiety about resolving maritime disputes in the South and East China Seas, this is a document that will view China as more friend than foe. But it is a paper that will also emphasise safety in numbers and the need to expand relationships with regional powers such as India and Indonesia as insurance against China's rising power.

According to Kerin, the White Paper will offer a twist on the old John Howard formula that Australia does not have to choose between the US and China:

Essentially, Howard said Australia could balance its economic relationship with China and its security guarantor the US, and did not have to make a choice. In fact Abbott will go further: suggesting Australia should strengthen security ties with China too...

As Hugh White has said, that formula works so long as Washington and Beijing are getting along. But what if they aren't? It goes without saying that international cooperation, particularly with great powers who may not share your interests and values, is an important way to ameliorate the struggles and tensions of the anarchical international system. But international cooperation can't make those struggles and tensions go away. In the present case, no amount of cooperation can overcome the fact that China is a growing power which would like to see its own regional influence increase at the expense of the US, our major ally. US and Chinese interests are incompatible, which means they are likely to clash. Everything hangs on how they manage such disagreements.

So I really do wonder if anyone in the Government is actually convinced by this formula, particularly since we have just come through two years of Chinese foreign-policy assertiveness marked by the ADIZ announcement, the Vietnam oil rig incident, island-building in the South China Sea and other incidents, all of which has been counter-balanced by the Obama Administration's pivot. In fact, I strongly suspect neither side of politics really believes that the geopolitical implications of China's rise can simply be set aside if we just get close enough to Beijing. The ABC's Chris Uhlmann, who observes Canberra's politicians as closely as anybody, told me last September that the strategic implications of China's rise was a cause for private worry on both sides of politics.

Granted, as the first quote indicates, the White Paper will also recognise the need for a 'hedge' against China's rising power, but it is telling that this is reported to come in the form of expanded relationships with regional powers rather than by spending more on defence. This Government promised to return defence spending to 2% of GDP by 2023. Is it looking for ways to back out of that commitment?

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One of Australia's last acts on the UN Security Council was to vote against a resolution being brought by the Palestinian Authority.

Benjamin Netanyahu, Prime Minister of Israel and John Key, Prime Minister of New Zealand, 2009

Washington regarded this piece of paper as so one-sided against Israel that it would have wielded its veto had the necessary nine members said yes. But partly because of Australia's no, as well as Nigeria's last minute abstention, things did not need to get to that stage. 

New Zealand has begun its own two-year term (2015-2016) on the Council with a different view.

Foreign Minister Murray McCully indicated that Wellington would have either agreed or abstained on that vote, and this trans-Tasman gap has deepened with New Zealand's recent contribution to an open debate at the Council on the Middle East. Jim McLay, New Zealand's representative and a former National Party deputy prime minister, told the Council that it simply had to take the lead in encouraging movement towards a two-state solution. To not do so would mean 'an abdication of its responsibilities.'

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Wellington is also sending a message to Washington: we appreciate Secretary of State John Kerry's efforts to find peace, but they're not enough on their own.

The Obama Administration believes it is not for the Council to set artificial timetables for the completion of negotiations (assuming their resumption). But New Zealand is now saying that a schedule may be just the sort of pressure that might help. McLay also indicated that New Zealand would be available to contribute to an observer mission to step in between Israel and a Palestinian state, in the way that New Zealand contributed in the Sinai after Israel and Egypt made peace.

So at the very least, the New Zealand view is an optimistic and anticipatory one.

The New Zealand Government's explanation will be that McClay's statement reflects a long-standing 'balanced, constructive, and even-handed approach to the Arab-Israeli conflict.' In indicating the sort of final status commitment that it would like to see in a 'suitably balanced' UNSC Resolution, McLay's statement includes the widely heard call for a return to 'pre-1967 borders'.

Mr Netanyahu, now in the middle of a tense election campaign, has said that requiring Israel to agree to this step would bring 'radical Islamic elements to the suburbs of Tel Aviv and to the heart of Jerusalem.' However, New Zealand's statement sees 'agreed land swaps' as part of this territorial arrangement. This may leave open the possibility that some Jewish settlements on the West Bank would remain, despite Wellington's insistence that settlement activity is 'illegal' and 'must stop.' And McLay's language on another big issue — the need for 'a solution on the status of Jerusalem' – is suitably vague, although almost any agreement here seems hopelessly difficult. 

The New Zealand statement also makes it clear that Israel's right to security is not up for negotiation. And it refers to the role that Palestinian actions played in prompting the IDF's recent military response in Gaza, and to the provocation caused by 'increased radicalization within some Palestinian communities.' This comment certainly caught the attention of one group in New Zealand which breathlessly responded that the Government 'should step away from the hypocrisy of abandoning the defenceless Palestinian people.'

But however New Zealand might have tried, its stand in New York offers more for the Palestinian than the Israeli cause, not least because of the fundamental disagreement between the two sides on whether the UN is a suitable venue for progress. The Netanyahu Government clearly thinks it is not.

Israel's Ambassador in Wellington has already taken issue with New Zealand's appeal to its Council partners, insisting that the only course is for the Palestinian side to return to negotiations. But as we all know, these haven't been going anywhere much lately even when they have been occurring. And New Zealand clearly believes both sides are to blame for the stalemate.

New Zealand's foray marks an early attempt to deliver on the promise McCully himself made in New York on the eve of the ballot in which Spain and Turkey were also competing for a Security Council seat. In a speech which almost read as if all of the problems in the Middle East were down to the Israel-Palestine impasse, he insisted that as a small-state member, New Zealand would stand up and demand a lot more from the Council. Yet even for a small portion of his demands to be met, perpetual and united pressure from all of the other non-permanent members, and more, will be needed. 

Wellington is signaling that is has brought an independent foreign policy to Manhattan. Independent, that is, from some of its traditional partners. There is certainly no ANZUS position on this issue, and McLay was quick to challenge some rather odd speculation back home that New Zealand would be beholden for the next two years to the US.

But some of New Zealand's traditional partners, including Canberra, may ask whether more pressure on Israel from the Security Council will just make things worse.

Photo courtesy of Flickr user nznationalparty.

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Cambodian Prime Minister Hun Sen is celebrating 30 years in power. He is now the sixth-longest serving political leader in the world (in the company of the likes of Mugabe and Khamenei) and is Asia's longest serving non-monarch leader.

To commemorate the anniversary, Human Rights Watch released a report, 30 Years of Hun Sen: Violence, Repression. and Corruption. It charts the man's rise from, at 26, the world's youngest foreign minister, to today (his official title now reads Samdech Akka Moha Sena Pedei Techo, or 'princely exalted supreme great commander of gloriously victorious troops'), and earmarks allegations of corruption, human rights abuse and persecution. 

Sebastian Strangio, author of Hun Sen's Cambodia (a must-read for those wanting to understand the man), remarks of his Houdini-like knack of bending with the winds of change to hold power. On the wrong side of history at the end of the Cold War, Hun Sen waited out the storm and retained power. His deft politicking, a 'blend of threats, charity, and strongman bombast' as Strangio explains, has been his elixir de longue vie. Even his political rival Sam Rainsy concedes 'He is a genius, but a genius for himself'.

Hun Sen's long tenure has been due to his ability to instill fear of the Khmer Rouge (a better-the-devil-you-know tactic) and building a close-knit group of tycoons. His tenure has been supported by what is traditionally a passive populace, derived in part from the country's Buddhist underpinnings.

Yet while he has declared he will rule until 2026, cracks are beginning to show. Recent protests show that younger Cambodians are less swayed by the his threats of a 'return to Pol Pot'. Indeed, many have known no other political power but him. Citizens' grievances with corruption, megaprojects, and poor working conditions, among other things, coupled with the growing penetration of internet and telecoms, has led to rising social mobilisation against him. Last year, in a string of large protests, the winds of change seemed evident. 

At 62, it is an open question whether he has more political maneuver in him to withstand these changes.

Photo courtesy of Wikimedia Commons.

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The Economist has a special feature on energy this week, and it is resolutely optimistic about renewables:

Measuring progress is tricky: the cost of electricity from new solar systems can vary from $90 to $300 per megawatt hour (MWh). But it is clearly plummeting. In Japan the cost of power produced by residential photovoltaic systems fell by 21% in 2013. As a study for the United Nations Environment Programme notes, a record 39GW of solar photovoltaic capacity was constructed in 2013 at a lesser cost than the 2012 total of 31GW. In the European Union (EU), renewables, despite a 44% fall in investment, made up the largest portion (72%) of new electric generating capacity for the sixth year running.

The clearest sign of health in the renewables market is smoke-clogged China, which in 2013 invested over $56 billion, more than all of Europe, as part of a hurried shift towards clean energy. China’s investment included 16GW of wind power and 13GW of solar. The renewable-power capacity China installed in that year was bigger than its new fossil-fuel and nuclear capacity put together.

And note this:

The IEA (International Energy Agency) expects the cost of solar panels to halve in the next 20 years. By 2050, it predicts, solar will provide 16% of the world’s electric power, well up from the 11% it forecast in 2010.

So it is now remarkably cheap to generate renewable energy, but what about storing it? That relies on building better, and cheaper, batteries, and here The Economist's optimism is less well grounded in statistics. Instead it points to government subsidies (which can be and often are withdrawn at short notice) and promises by entrepreneurs such as Elon Musk to cut the cost of storing energy in batteries from US$250 per kWh to US$100.

All of this is of course excellent news for our warming planet, but the implications of a world in which 'solar power will become so cheap that energy will no longer be seen as scarce' are more far-reaching even than that. What would a world of cheap, clean and limitless energy mean for our economies and societies?

Photo by Flickr user Oregon Department of Transportation.

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The fall in the world oil price has created the opportunity to eliminate petroleum subsidies in a number of Southeast Asian countries. These subsidies have been the long-standing bane of economic reformers everywhere, but until now reducing them involved the deeply unpopular task of raising petrol prices.

But with the 50% fall in the global price of oil since June 2014, the subsidies could be eliminated by the fall in the supply price rather than by raising prices for consumers.

Indonesia illustrates just how sensitive this issue has been: during the 1997-98 Asian financial crisis, the IMF required that petrol prices should rise sharply in order to reduce the budget subsidy, as one of its conditions for providing funding support. The riots that ensued due to the price increase triggered the resignation of President Soeharto in May 1998.

Subsequent presidents have wrestled with the Sisyphean task of keeping the subsidy from overwhelming the budget as global oil prices rose over the past decade.

President Jokowi inherited a budget in which more than 20% of expenditure was allocated for energy subsidies. In November he took the courageous step of raising petrol price by more than 30%, only to find that by the end of the year world prices had fallen so far that, even with the subsidy abolished, nearly half of the November petrol price increase could be reversed. Fortune favours the brave. 

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The case for subsidising petrol in Indonesia has always looked flimsy. Petrol is characteristically consumed by middle- and upper-income groups. Nevertheless, it has proven very difficult to reduce, let alone eliminate. The direct blame rests with an imperfect political process where crass self-interest prevails and opposition parties take every opportunity to be unhelpful. But there is no doubt that this is a 'hot button' issue with the public. Historically, there has been a confused argument relating to Indonesia's role as an oil producer and net exporter: 'the oil belongs to us, the people of Indonesia, and so it should be cheap'. This perverse mind-set lasted long after Indonesia ceased to be a net oil exporter a decade ago.

The biggest subsidies are found in oil producing countries, with Venezuela's US2¢ per litre of petrol the leading example. But many developing economies which are not oil producers also subsidise some petroleum products — usually diesel and cooking energy such as kerosene or LNG. There is some argument for these subsidies on income-distribution grounds. But this policy inevitably runs into the ingenuity of consumers, who find ways to substitute diesel or even LNG for petrol.

Indonesia will continue to subsidise diesel modestly, and kerosene and LNG much more generously. Despite recent tariff adjustments, electricity subsidisation is still an expensive budget item, with the middle- and upper-income groups the main beneficiaries.

The ending of the petrol subsidy is a policy win that fell into Jokowi's lap.

Supporters of policy reform should take more heart from his willingness to take the unpopular action of raising petrol price last November. They might applaud the ending of the subsidy more strongly if the opportunity had been taken to end the authorities' price setting altogether (the price of 'premium' petrol will be set each month, based on world prices), as this would have made it easier to resist restoring the subsidy if world oil prices shift up again.

A truly bold move would have been to keep the price at its late-November level with a tax that could have supplemented Indonesia's inadequate budget. Indonesian budget revenue is only 15% of GDP, and this is expected to fall further. One reason is that Indonesia's own oil production will now be less profitable and raise less tax revenue. Thus the net effect of the ending of the petrol subsidy will be much less than the 200 trillion rupiah (say, US$17 billion) mentioned by the Minister of Finance.

Keeping the price at its higher level would not only have helped revenue, but would represent good policy in response to the substantial negative externalities associated with petrol. Even for non-believers in climate change, a tax would be justified on pollution and congestion grounds alone. A million extra cars and three million extra motorcycles are added to Indonesia's clogged roads every year, and public transport (the only viable longer-term response to this unfolding disaster) needs far more funding.

Still, Indonesia is not unique in being unable to persuade the public of the benefits of expensive petrol. Indonesia's price is now only 20% or so below Australia's, and about the same as in the US. Europe's higher petrol prices have revolutionised the size and technology of cars, but this approach is still a bridge too far for many of us.

Photo courtesy of Flickr user Riza Nugraha.

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Headlines blaming the IMF for the Ebola crisis are something you may expect in the tabloid press. However, a robust debate on the role of the IMF in the spread of Ebola was started by an article in The Lancet, a leading health journal.

Four British professors claimed that the fiscal austerity contained in IMF programs with Guinea, Sierra Leone and Liberia hampered the development of health care systems in these countries and thus contributed to the spread of Ebola. This sparked many comments, mainly on the Washington Post's Monkey Cage blog, which have been summed up nicely by Tom Murphy.

The IMF responded with a timid letter to The Lancet arguing that between 2010 and 2013, spending on health as a percentage of GDP had increased in Sierra Leone, Guinea and Liberia by 0.24, 0.7 and 1.6 percentage points respectively.

This is not much of a response.

These countries have been in IMF programs for many years (Guinea 21 years, Sierra Leone 19 years and Liberia seven years). Notwithstanding the small rise in the past three years, over the last two decades health spending as a proportion of GDP was basically constant in Sierra Leone and Guinea. There was a rise from very low levels in Liberia when the civil war ended in 2003.

The fact remains that these countries all have very weak health systems.

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As others have noted, the IMF probably wanted to say (but could not) how difficult it was to deal with war torn countries with little administrative capacity, low quality institutions and very poor overall governance.

Chris Blattman from Columbia University has led the attack against the Lancet article. He said the argument against the IMF 'just doesn't really make sense if you're familiar with the governments in these places, local politics, or more generally how weak states actually work'. He goes on to say, 'when you're three steps removed from war or a coup, and you don't have a functioning police or justice system, building a public health system is not your first investment.'

The authors of The Lancet article responded with a point-by-point rebuttal, which resulted in a further comment by Blattman. There were many other articles, some supporting Blattman, others the authors of The Lancet piece.

These debates over the IMF are not new. The Fund is regularly criticised as being 'anti-poor', with its focus on balancing a country's books, which results in a reduction in social spending. Protests were once a regularly feature at annual IMF meetings.

But the reality is that countries usually enter into IMF programs when they have significant economic problems, including unstable public finances and excessive debts. For this reason, it has been pointed out that it is not relevant to make comparisons, such as spending on health, between countries who do and do not have IMF programs. As Tom Murphy notes, 'The reason a country would get a loan from the IMF, generally a lender of last resort, means that things are not going great'.

When a country is in a mess, its fiscal position is out of control and it cannot repay its debts, it is a bit much to criticise the IMF for saying that the country has to get its finances in order. Lee Crawford argues that to criticise the IMF for telling countries they have to cut their spending is a bit like blaming firefighters for causing fires because they are always at the scene.

In Australian budget debates, when there are calls for additional spending in a particular area, politicians often say that they cannot spend money they do not have. Money is also a constraint holding back additional health spending in the three West African economies hit with Ebola.

This is the key point in Blattman's response to the counter-claims from the authors of the Lancet piece. He states: 'When someone suggests "This country should spend more on X", the most important thing you can ask is the unpleasant accounting question: "Where should that money come from?" More loans? More aid? Less spending on something else?'

Blattman is right. But one of the lessons from the Ebola crisis is that these countries must place a greater priority on improving their health systems. The authorities in these countries have to take responsibility, but this requirement also needs to be more directly taken into account in the design of Fund programs. After the Ebola crisis had spread, the IMF changed its rules to let the three West African countries borrow more and run up bigger deficits. The IMF Managing Director said that it was good to increase budget deficits at such a time, adding 'We don't say that very often'. But this was after the crisis had unfolded and thousands of people had died. We will never know the counter-factual, but in setting deficit targets in the stabilisation programs prior to the crisis, perhaps greater allowance should have been given to the need to increase spending on health.

In any event, this has to be a priority in future IMF programs.

Photo courtesy of Flickr user International Monetary Fund.

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