Bringing together the best longer Interpreter articles you were too busy to read this week.
APEC, the IMF's World Economic Outlook and the continuation of the US shutdown meant lots of excellent economic analysis this week. Writing on the shutdown, the Lowy Institute's Mike Callaghan questioned who would be the first to 'blink' to avoid the US reaching its debt ceiling limit:
Will the US Congress fail to increase the debt ceiling and force the US government to default on its debts? The generally accepted view seems to be 'no'.
Most people believe sense will prevail and the debt ceiling will be raised. Why? Because not to do so would unleash 'a weapon of mass financial destruction', as termed by Ken Rogoff.
The consequence of a US default has been described by the US Treasury as 'catastrophic' and would precipitate another financial crisis that would put the US back in a deep economic hole.Bloomberg headlines warned that a default would cause an 'economic calamity like none the world has seen', while Warren Buffet said the US will 'go right up to the point of extreme idiocy, but we won't cross it'.
But if the consequences of a threat are so great that no-one believes the US would go through with it, what sort of threat is it? Answer: a very dangerous one, because mistakes and miscalculations can happen.
Stephen Grenville gave us two posts. The first looked at the trade agreement prospects for the new Australian Government:
The so-called free-trade agreements (FTAs) are actually preferential trade agreements (PTAs), where a country gives up the right to deal with the cheapest foreign supplier in order to get favoured access for its own exporters. The main reason for joining in these distortionary arrangements is a simple one: if everyone else is doing it, you have to join in. They result, however, in a 'noodle bowl' of complex overlapping and conflicting agreements.
Both the [Trans-Pacific Partnership] and the [Regional Comprehensive Economic Partnership] are PTAs, but of a less distorting kind. The more members there are in a PTA, the less the distortion, as there is more opportunity to trade with a low-cost efficient supplier. They represent an opportunity to mitigate the damage of bilateral PTAs, over-laying these diverse agreements with a uniform framework common to all members.
They also offer more opportunities to lower behind-the-border barriers. The TPP, for example, will cover labour regulations, investment procedures, environmental issues, competition policy and intellectual property rights. With this range of 'behind-the-border' issues, the TPP might more accurately be seen as part of an effort to establish Thomas Friedman's Golden Straitjacket — the set of universal rules which will govern international relationships.
Stephen's second post focused on the IMF's newly released World Economic Outlook, and its focus on the slowing growth rates of the major emerging markets:
For the past three months there has been a steady chant of pessimism about growth prospects in the emerging economies, with the IMF’s voice prominent in the wailing. As IMF Managing Director Christine Lagarde told the G20 meeting in September: ‘Just as some advanced economies have begun to gather momentum, many emerging markets are slowing’.
Now that the Fund has published its detailed forecasts, we can try to match the message with the numbers. Here is the emerging economies’ growth sequence, using the Fund’s fourth-quarter-on-fourth-quarter measure (which captures the shape of the cycle best):
The emerging economies slowed sharply beginning two years ago. The current year is expected to be a touch slower. Then the forecast shows acceleration for next year. The profile of these figures suggests that the sharp deceleration episode is now behind us. Whatever damage this slowing caused, we have already experienced it.
Easily our most popular post this week was Shashank Joshi's commentary on recent cooling in US-India relations:
The road ahead is rocky. Over the next eighteen months, the US-India relationship will be severely buffeted by US policy towards Afghanistan. As the American drawdown accelerates, one possibility is that the US intensifies diplomatic efforts to peel away moderate factions within the Afghan Taliban, Whether that amounts to anything or not (and few are optimistic) the process is certain to involve at least a period of deeper US-Pakistan consultations, at the expense of India. Later this month, for instance, a fourth Afghanistan-Pakistan-UK trilateral summit will take place in London. India has quietly seethed at the previous three, viewing them as a coordinated effort to reduce Indian influence.
Yet, for the United States at least, the centre of gravity of the US-India relationship is not Afghanistan, but China.
The Middle East's fast-moving and highly visible crises have briefly distracted from a slow-moving background trend: the political and economic rise of China. Yet this remains where Indian and American strategic interests are most collectively at stake, if not necessarily congruent.
Following India's most recent crisis with China, involving deep Chinese incursions into disputed territory a few months ago, New Delhi's instinctive response was not to make a prominent feint towards Washington — something that might have been the natural response of other states eager to balance against Beijing — but to engage China more intensively, including on the border dispute itself. Indeed, Singh will make a trip to Beijing next month, with indications that he may sign an upgraded border agreement.
Nothing better underscores how India's internal debate over the desired scope of its relationship with the United States is unsettled, on-going, and erratic. More generally, much of India's press and strategic community have accepted the popular narrative that American leadership, as well as American power, is in decline, and that US reliability is therefore in question. These issues are unlikely to be settled within the tenures of either Obama or Singh, leaving a lingering note of ambivalence in the US-India relationship even as it deepens outside of the high politics.
Two Southeast Asia essays this week. Elliot Brennan from Sweden's Institute for Security and Development Policy looked at political tension in Vietnam:
The key to arresting social tensions is in broader political reform and strengthening economic liberalisation, something Vietnam is trying to address through an amendment to its 1992 constitution. The amendment aims to allow changes to the economy that will provide greater benefits from Vietnam’s shift from Soviet-style central planning to a market-oriented economy. Along with the long winded debate on land reforms, the constitutional reform offers some hope for economic liberalisation.
Yet in opening this debate, the government seems to have opened a pandora's box. The government's plan for piecemeal reform has led to public calls for an upheaval of the one-party system. Despite measures by the government to appease the masses — such as a three month public consultation period on the constitution — public outcry continues to swell.
And here's Milton Osborne on the aftermath of the elections in Cambodia:
Contrary to some media reportsandphotographs of razor wire in the streets, Phnom Penh has appeared calm over the past four days I have been here. Yesterday morning there was a demonstration near the Phnom (see photo above), the city's most recognisable landmark, but it was to do with land issues, a perennial problem and one with political overtones but not directly linked to the current tensions over the disputed July election.
The two sides remain locked into their positions and there is little sign of movement. Sam Rainsy, leader of the opposition Cambodia National Rescue Party (CNRP), is overseas drumming up support for his claims that the election was rigged by the government, and the government, while ready to make some marginal concessions, is unready to grant Sam Rainsy and his colleagues their major demands, which include the presidency of the National Assembly being given to a CNRP member of parliament.
Finally, our resident migration columnist Khalid Koser asked why Australians resist international comparisons on irregular migration:
I’ve often asked Australians why they resist comparison (and whether this is specific to migration or applies to other policy areas too). Here are the three most common responses.
First, Australia is geographically unique. True, but how and why does this matter? Some people have spoken about a siege mentality when Australia’s relative isolation is breached. Others, by contrast, have stressed that as an advanced economy (and signatory of the 1951 Refugee Convention) it is the closest magnet for half of the world’s population. My own perspective is that geography matters because until very recently it has protected Australia from significant uncontrolled migration. Australia hasn’t learned to stomach irregular migration like Europe or the US, but it will.
Second, what happens in other parts of the world has no relevance for Australia (partly because of its geographical isolation). Set aside something called globalisation, and what this perspective also underestimates is the global reach of migration and migrant smuggling. It is thought that almost all the 500 or so migrants on the Lampedusa boat were Eritrean, while a recent SBS investigation has revealed a major smuggling network between Eritrea and Indonesia with Australia as a final destination.
Third, cynics (or perhaps realists) have told me that adopting a global perspective would risk exposing just how disproportionate the response of Australian people and politicians is. Certainly, more irregular migrants (both in absolute numbers and as a proportion of the national population) arrive in other industrialised countries (especially in Europe and the US) than Australia. What's more, the proportion of the world’s asylum seekers and refugees arriving in Australia is tiny compared to the global total, and more migrants die in transit elsewhere. Yet in few other countries has the issue become so obsessive.
Photo by Flickr user tranchis.