Wednesday, November 30, 2011

Enter the dragon; exit the eagle?

When European and Western hegemony was at its peak in the 1980s and 1990s, my late husband, Ami, often asked why people studied European languages instead of Chinese or Japanese. “Asia,” he said, “is where the future will lie.” If Ami were still alive, he would be justified in saying, “I told you so” (although Hindi, Korean and Indonesian would have been on his list now too!).

Even the US has cottoned-on now, shifting its gaze from the Middle East (where the Arab Spring is starting to look more like autumn) to Asia. The stable societies in our region continue to enjoy booming economic growth despite Europe and America’s financial crisis (which is not global at all, folks!).

That’s why US President Barack Obama hailed the decade-old “Asia-Pacific century” two weeks ago in Australia. He also announced that the US would establish a new foothold in the most dynamic part of the world by strengthening military ties with its longtime ally Down Under. It will deploy 2,500 Marine Air-Ground Task Force in Darwin by 2017 for the first time since World War II.

This generated speculation, controversy and anxiety. Some viewed it negatively, accusing the US of aggressive imperialist ambitions. They said that the move undermined efforts to make the region more peaceful and could tear ASEAN apart. Another analyst said the US had its sights on Timor Leste’s oil reserves and its troubled Freeport interests in Papua. Even our smooth-as-silk foreign minister, Marty Natalegawa, questioned American motives, hoping the deployment wouldn’t create tensions in the region. Given the US’ reputation as a bullying Globocop, these reactions were not surprising, but were they right?

The Darwin base seems to me to be more recognition of American weakness than a statement of ambition. Surely it is really about the US trying to maintain its dwindling power as China rises? It seems to me that if China thinks the US is trying to encircle them, they’d be dead right.

And you can see why: China is currently the second-largest economy after the US, contributing 30 percent of global wealth. Even by conservative estimates, it’s projected to overtake the US as world economic leader by 2027. China is also the US’ banker as well as the world’s factory floor, with global markets flooded with Chinese goods — and takeovers.

In 2005, MG Rover became the last domestically-owned mass-production car manufacturer in Britain, snapped up by the Nanjing Automobile group. Imagine — the quintessential British sports car is now Chinese, or half-Chinese at least. (Well, better Chinese than belly-up, like the eurozone.)

The point is that almost everyone else in Asia expects China’s financial invasion to be followed by military expansionism. Their shared heebie-jeebies are driving them to band together to contain the dragon. Even Vietnam is burying the hatchet of the Vietnam War and getting cosy with America. Politics do make for strange bedfellows, but is their China-phobia justified?

Maybe — history suggests that every rising imperial power has expressed itself with military force: the Greeks, the Romans, the Ottomans, Russia, Germany, Britain, Japan and America. Why would China be different?

As China builds its military and buys more of the world’s resources to fuel its growth, it is less willing to hear Americans telling it what to do (on the US’ quandary re China, read It continues to back its pariah buffer state, North Korea;
it continues to incarcerate dissidents; its threats to invade Taiwan have not been withdrawn. And now, it is making serious claims in the South China Sea.

But while China may be a rising power, the US is still a great power — in fact, for all its many faults and failings, still the dominant global power. It still has the stronger military as well as global reach, with allies and bases all over the world, particularly in regions surrounding China (Japan, Taiwan, Korea, India, etc.).

It is determined to keep China hemmed in if it can. So, like it or not, there is a real possibility of eventual conflict in the Pacific between the eagle and the dragon, as many fear.

Like Indonesia, Australians know that if an attack comes, it will be from the North as in World War II (invasion via Antarctica might be a bit tricky). This means that a “love triangle” between the US, Australia and Indonesia has its own natural geopolitical logic.

Indonesia is of increasing strategic importance to the US because it’s the obvious leader of a regional neutral block. It also controls three vital deep-water passages between the South China Sea, the Indian Ocean and the Pacific: the Lombok, Malacca and Sunda Straits.

Australia is also a natural ally of Indonesia because of the similarities between them — yes, that’s right, I did say similarities. Unlike China, both are multiparty democracies and both have open economies (and have signed free-trade deals with each other).

And whatever misgivings Indonesians and Australians may have about the US, it’s still an open society and a genuine democracy, and China is neither of those things. Shared anxieties about China will make these similarities matter more than differences.

My Chinese calendar says 2012 will be the year of the Dragon. By the looks of it, so will be many other years to come. So Ami was right — start learning Chinese, folks!

The writer Julia Suryakusuma is the author of Julia’s Jihad.

New Delhi risks upsetting Asia’s delicate weapons balance

India's ICBM

China In India's Missile Range

Sometime over the next three months,perhaps as early as December, Indian defense officials are scheduled to test the country‘s first truly intercontinental ballistic missile, the Agni-V, which theoretically brings India’s weapons program within range of most of China.

Officials insist that India has a no-strike-first policy and that the weapons are no threat to any other country in the region. Said VK Saraswat, the chief of the Defense Research & Development Organization, the federal body that oversees the country’s indigenous arms development: “We are not looking at how many missiles China or Pakistan has. With a 'no first-use' nuclear weapons policy, we only want a sufficient number of missiles to defend the country in the event of a crisis. Ours is a defensive-mode strategy, even if others have offensive postures.”

However, as governments have pondered during the missile age, how much is a sufficient number? Tthe implications for the balance of power in the region are obvious. India’s two-decades-old missile program has mostly been aimed at nullifying nullify the threat from its immediate and unremittingly hostile neighbor, Pakistan. That appears to be changing. While shorter versions of the Agni missile series cover Pakistan, Agni III and beyond are part of India’s efforts to guard against China.

The ICBM, named for the Hindu god Agni, the god of fire and the acceptor of sacrifices, is referred to by Indian officials and scientists as the “China killer,” hardly a peaceable phrase, due to its ability to target cities such as Beijing, Shanghai and reach the northernmost tips of the country.

Yet with only a handful of missiles and believed to possess only 70 nuclear weapons, India has a long way before it couldmatch up to China’s arsenal, with its missiles capable of delivering payloads up to 14,000 km, covering much of the globe. China is believed to possess at least 410 nuclear weapons. This is probably a race the world does not need, as the western powers proved from the 1960s on. The United States and Russia have slowly and reluctantly been reducing their missile capacity for almost a generation, although both retain a vast suf ficiency enough to wipe out the planet several times over.

Nonetheless, Agni-V allows India to join a select group of nations including the US, China, the UK and Russia, which possess ICBMs with the capability to strike targets at least 5,500 km away. India’s program director, Avinash Chander, said that Agni-V would be ready for incorporation into the armed forces by 2014.

Agni V’s predecessor, Agni IV, which is capable of carrying nuclear warheads with a range of 3,500 km, was tested two weeks ago, almost a year after a previous test was unsuccessful. New Delhi called the test a “stupendous success” and suggesting the test puts India’s missile capability a notch higher than Pakistan’s.

Although India’s record in developing indigenous weapons --tanks or fighter jets -- is abysmal, such as not been the case with its ballistic missile program. Some of this is due to progress in launching and installation of broadcast and remote sensing satellites in space under the aegis of the Indian Space Research Organization.

This is despite sanctions US sanctions imposed on India’s dual-use technologies. The advances in missile technology have occurred concomitantly with strides in space research as the motors used in the launch vehicles of satellites have been incorporated into missiles.

The Defense Research & Development Organization, which has an otherwise spotty record of weapons development, claims Agni-V is built almost fully with indigenous technology, although Indian scientists are known to copy readily available blueprints from Russia.

Agni-V must undergo two to four more “repeatable” tests before the weapon goes operational, Avinash Chander said. “Our aim is to take just two to three years from the first test to the induction phase.”

In June, the now-retired Air Chief Marshal PV Naik said India's rising global stature demands developing the ICBM and long-range attack capability possessed by elite nations.

“India should pursue an ICBM program to acquire ranges of 10,000 km or even more,” Naik said. “Breaking out of the regional context is important as the country's sphere of influence grows. We have no territorial designs on any country, but India needs the capability to match its sphere of influence.”

India’s deepening interest in ICBM’s has occurred even as the US has opened its defense armaments market, including dual-use technology, for Indian use, definitely moving away from a sanctions-ridden policy paradigm that harkened back to the Cold War era when India was aligned with the erstwhile Soviet Union.

Events such as the Kargil war of 1999, during which the country nearly went to war with Pakistan and the November 2008 Mumbai terror attacks orchestrated by the Pakistan-based Lashkar-e-Toiba terrorists have only heightened India’s insecurities and led to efforts to refine its ability to attack and protect itself.

Since the Mumbai attacks in November 2008, India has also accelerated its ballistic missile defense program with help from its newly friendly defense partner America, to protect against a sudden missile attack, possibly nuclear tipped, particularly from rogue elements in Pakistan.

The defense expertise can also be extended to space to protect India’s remote and communication satellites, especially after China conducted an anti-satellite test in 2007, in what is seen as a potential “Star Wars” arms race between the two Asian nations, with America strategically siding with India.

Given the closed nature of China’s polity, nobody is quite sure what kind of investments and developments are happening in China’s defense sphere. Some analysts believe that China’s military capabilities today could be superior to America’s although US defense expenditure dwarfs that of the rest of the world combined.

Pakistan is no patsy either, with a missile program that is actively promoted by China, and with the country having developed its own nuclear capability. Several of its attack ballistic missiles with the potential to destroy Indian cities are a copy of those in possession of China.

The country has test-fired the Shaheen-2, a 2000-km range missile. Pakistan, meanwhile, continues to receive military largesse from America as a partner in the global war against terror, though India has long held that such stockkpiling of weapons only adds to instability in the region.

New Delhi feels that US-supplied armaments to Pakistan are more potent against a conventional enemy rather than the amorphous terror networks that also spread over Afghanistan and need effective intelligence and pinpointed operations, such as the one that killed Osama Bin Laden, to neutralize.

India has thus been implementing a massive defense modernization effort over the past few years. Given the country’s incipient domestic inability to manufacture military hardware, most arms are imported despite the fact that the missile program remains an indigenous effort that breeds off the successes in India’s space program.

In its latest report, Swedish think tank Stockholm International Peace Research Institute, has said that India has become the biggest arms importer in the world and in the process overtaken China, though Indian observers say that a major portion of Beijing’s arms budget continues to be hidden, secret and unknown to the world.

(By Siddharth Srivastava New Delhi-based journalist)


After demonstrating commitment to an extraordinary series of social, economic and political reforms, Myanmar’s new government has launched a bold peace initiative with potential to resolve the devastating 60-year civil war with ethnic groups.

Myanmar: A New Peace Initiative, the latest report from the International Crisis Group, comes on the eve of the first visit to the country by a U.S. Secretary of State in a half century and days after ceasefires have been reached or agreed in principle with a number of ethnic armed groups. It examines the opportunity for a sustainable end of the ethnic turmoil and armed conflicts that have been devastating the country since the early days of its independence.

President Thein Sein has recognised the importance of the ethnic situation and pledged to make it a national priority. Myanmar now has an opportunity to comprehensively resolve these conflicts. The President has opened a dialogue with all armed groups and dropped key preconditions, such as the scheme to convert their armies into border guards. He has also offered an unprecedented national conference to seek political solutions to ethnic divisions. Despite serious clashes in Kachin State and parts of Shan State, momentum is now clearly building behind the government’s peace initiative.

“A lasting solution to the problem requires going beyond just stopping the wars”, says Jim Della-Giacoma, Crisis Group’s South East Asia Project Director. “Multi-ethnic, multi-lingual and multi-religious Myanmar can only achieve genuine national unity and reconciliation by embracing its diversity”.

But lasting peace is by no means assured. Ethnic minority grievances run deep since the independence of Myanmar in 1948. The military regime of the State Law and Order Restoration Council that came to power in 1988 temporarily neutralised its largest military threat in the borderlands by signing ceasefire agreements with a number of armed ethnic groups. Those ceasefires should have been a watershed, from war to peace and armed to political struggle, but this failed to happen. Instead, the agreements grew stale, as promised political talks never materialised. They collapsed when the military government tried by decree to incorporate ethnic armies into a border guard force ahead of a long-planned transition to a new structure of constitutional government.

Ensuring greater peace will take more than reaching ceasefire agreements with armed groups. It requires addressing the grievances and aspirations of all minority populations, guaranteeing equal rights, supporting socio-economic developments, granting greater regional autonomy and building trust between the communities.

The international community has an important role to play in support of peace and development in Myanmar. It should understand the complexities of the conflict and support conflict resolution without making the attainment of peace a prerequisite for improving bilateral relations or beginning to lift sanctions. Encouraging the protagonists to find their own way to stop the fighting and make headway on a political settlement would simultaneously help meet key Western benchmarks on political prisoners, human rights, and democracy.

“If major conflict persists, successful reform will remain elusive”, says Robert Templer, Crisis Group’s Asia Program Director. “That would be to the detriment of the whole country. Every effort must be made to ensure that all groups are part of this process, or it could be the beginning of a new era of conflict rather than the end of an old one”.

Tuesday, November 29, 2011

Indonesian Terror Threat Now More Local

The threat of terrorism in Indonesia remains high, with police and government bodies deemed to have transgressed against Islamic teaching now the main targets, a leading expert warned on Tuesday.

Sidney Jones, a senior adviser with the Brussels-based International Crisis Group, said it would be “difficult to reduce the level of radicalism and terrorism in Indonesia.”

“The numbers [of victims of terrorism] have indeed fallen, but the number of [terrorist] groups continues to rise,” she said on the sidelines of a public discussion of the links between terrorism, politics and Islam in Aceh.

Jones said the indications that terror cells were flourishing did not point to a failing by the police or government, but rather served to highlight how strong the radical ideology behind those groups was.

“Fortunately their capacity is still low. For instance, in recent acts of terrorism, the only fatalities have been the suicide bombers,” she said. “Nevertheless, over time they will become more effective.”

She added that their targets were also changing. Whereas in the past Western citizens and interests were the typical target for terrorists, this had now switched to police stations and government offices in areas where the authorities were deemed not to be supportive of conservative Islamic doctrine, she said.

“Their number one enemy is the police and ‘thaghut’ [infidel] government officials,” Jones said.

“Any public official who doesn’t back Shariah law is seen as an infidel, while their motivation for attacking the police is out of revenge for their colleagues who have been killed or arrested by police.”

Jones also warned that although police were constantly making progress in unearthing new terrorist cells and arresting their members, at a national level the terror network remained strong and should be a cause for concern for the government.

“There’s now a sort of changing of tactics, where terrorists realize that the bigger their organization, the easier it is for the authorities to detect,” Jones said.

“So they’re going with small cells. And there’s no need for any coordination between these cells because they’re all working for the same aims and vision.”

She added that the recruitment drive was also in full swing, with the cells deliberately going after conservative Muslims and those affiliated with Salafi jihadist groups.

“People who used to take part in rallies against the Ahmadiyah minority sect have now gone on to become members of these cells,” she said.

Jones said she hoped the government had a sound strategy in place to tackle the trend of creeping radicalization, to complement the effective law enforcement efforts being made so far.

“What’s needed now are continued preventive measures to address the issue of terrorist ideology,” the ICG adviser said. Jakarta Globe

Is a U.S. Mining Company Funding a Violent Crackdown in Indonesia?

American mining giant Freeport-McMoRan is paying the same local police who have used violence against mine workers asking for better wages

JAKARTA, Indonesia -- Up in the remote mountains of West Papua, Indonesia, a road winds along steep cliffs, tall trees, and security checkpoints to the world's richest copper and gold mine. More than four thousand meters above sea level, the mine is said to be so high that its mining trucks must be tracked via satellite, as clouds typically cloak them from view. Adding to the isolation, the American mining company, Phoenix-based Freeport-McMoRan, rarely allows visitors to enter its facilities. The access road is for official vehicles only, and foreign journalists are almost exclusively forbidden.

Yet despite its cover, Freeport's giant Grasberg mine is on high alert. Production there has ground to a near halt as 8,000 workers strike for better wages, currently set between $1.50 and $3 an hour. Now in its third month, this strike is not only the longest in Indonesian mining history, but also one of the more violent, with sabotage to pipelines and deadly attacks on company employees. "We don't feel secure to work at Freeport or to travel between the mine and our homes," said Juli Parorrongan, a spokesman for the All Indonesian Workers Union, which organized the strike. "Too many people have been killed, but we don't know who's shooting us. We need the police to protect us."

Freeport-McMoRan is one of the world's largest mining companies, with interests across the globe and just under $19 billion in revenue in 2010. The Grasberg mine, which holds the world's largest gold reserves, has been so profitable that Freeport is the Indonesian government's biggest single taxpayer, with about 1.75 billion in taxes and royalties last year alone. An analyst for projected the protests may cost the firm $250 million in revenue; a company spokesperson cited daily losses of $18 million to $19 million.

The strikers have a reason to be wary for their safety: Freeport is paying millions of dollars directly to the police officers who guard its mine, although Indonesia's police force has a history of brutality and corruption. When the National Police chief admitted to these payments last month, he called it "lunch money," writing it off as "operational funding given directly to police personnel to help them make ends meet." A 2005 investigation by the New York Times found that individual military commanders had received tens of thousands of dollars, in one case up to $150,000, from Freeport. Ironically, the mining company allowed the officers to eat lunch (and breakfast and dinner) in the company mess hall.

Rights organizations fear the security payments are tainting police neutrality in the region, creating a conflict of interest for officers who are legally bound to protect the Indonesian people. "If they receive money from Freeport, it means their boss is not the Indonesian

government, but rather Freeport -- a private company," said Poengky Indarti, executive director of the Indonesian Human Rights Monitor. "With this money, we worry that police tend to protect Freeport rather than protecting the workers."
In October, police officers opened fire on striking Freeport workers who were trying to board Freeport buses from the nearby town of Timika to demonstrate by the mine's gate. One striker died from gunshot wounds, at least six were injured, and a security officer later died from injuries sustained in the clash.

Freeport has given $79.1 million to police and military forces in the past 10 years, according to a group called Indonesian Corruption Watch. Most of that funding has been through in-kind contributions such as food, housing, fuel, and travel costs, but officers have also received direct payments. A report by the NGO Global Witness shows that, between 2001 and 2003, Freeport gave nearly $250,000 to a controversial commander who in 1999 led military action in East Timor, where soldiers killed more than a thousand people.

Since then, the security funding has grown: Freeport's financial documents show that the company paid $14 million to support government security forces in 2010, up from $10 million in 2009 and $8 million in 2008.

Eric E. Kinneberg, Director of Communications for Freeport, wrote in an email, "This provision of support is consistent with our obligations under our agreements with the respective governments, our philosophy of responsible corporate citizenship and the Voluntary Principles on Security and Human Rights. We periodically review our support practices to ensure that they are appropriate, lawful and properly controlled." Of the 2010 funding, he emphasized that "approximately 80% of that amount is non-cash, in-kind support" that is "necessitated by the remote posting."

The Guards of Grasberg

Even under normal circumstances, Freeport's Grasberg mine requires an unusually high level of security. Situated in the restive province of West Papua, the mine has long been a site of mysterious shootings by unidentified gunmen, and instances of violence have risen since the strike began in September. On November 18, gunmen wounded three police officers and killed a security officer with a shot to the head. Since early October, at least four workers and two residents have also been shot and killed by unknown gunmen near the main road.

The police say they cannot afford to protect the mine without money from Freeport, which has reported a security team of 725 company guards and 3,000 government guards. "We cannot fully equip our members [assigned to guard Freeport] or provide patrol cars. But Freeport said they could and didn't mind," National Police spokesman Senior Commander Boy Rafly Amar told the Jakarta Globe, where I work as a copy editor and reporter.

Back when Freeport set up its Grasberg operations in the late 1980s and early 90s, soldiers received a wage below the poverty line. They were encouraged to pursue local business ventures to supplement their incomes, but some exploited the local population and engaged in illegal practices, such as panning gold from the Freeport area and promoting prostitution in nearby towns. "Such military activities would adversely impact [Freeport] employees and the surrounding community," said Prakash Sethi, head of the New York-based International Center for Corporate Accountability, who traveled to West Papua between 2002 and 2007 to conduct an audit of the Grasberg mine's operations at Freeport's request.

The project allowed Sethi and a team of experts a rare look into the mining facilities, as well as access to interviews with company workers, community members and management. "It is my interpretation that ... because the military did not have adequate facilities at the mine site, Freeport agreed to provide the military with 'largely' in-kind support in terms of housing and eating facilities," Sethi wrote in an e-mail, adding that his audit did not examine how the military used those funds. "At the same time, some funding was provided for 'miscellaneous expenses.'"

That interpretation seems to be supported by a statement in Freeport's filings with the U.S. Securities and Exchange Commission in 2010: "From the outset of PT Freeport Indonesia's operations, the government has looked to PT Freeport Indonesia to provide logistical and infrastructure support and assistance for these necessary services because of the limited resources of the Indonesian government and the remote location of and lack of development in Papua."

The Problem with Pocket Money

In April, Papua Police's chief of operations sent a letter to a local rights organization, the Commission for Missing Persons and Victims of Violence, which states that security allowances were not just "incidental and administrative," and that each police officer receives $140 in direct payments every month.

The National Police has since confirmed and defended Freeport's monthly allowances. "That's only Rp 40,000 [$4.42] a day. Even if they want to spend it, the nearest shop is two and a half hours down the mountain," police spokesman Boy Rafly Amar told the Jakarta Globe. Another police spokesman said police otherwise make only Rp 53,000 in a month, or $5.86.

It is unclear exactly how the payments are made, or how security forces use the funds. According to Sethi, Freeport used to give money to security commanders because lower-level officers lacked bank accounts, and then the commanders distributed the payments themselves. "The question was, how much was actually given to the soldiers and how much was kept by the commanders in the headquarters?" said Sethi. "I don't know, and I think the company doesn't know. If you ask the question, it would look like you're insulting the professionalism of the commanders."

In addition to creating a conflict of interest for officers during the labor strike, activists worry the money helps perpetuate human rights abuses in the region, as the police and military attempt to stamp out the separatist movement. Papua formally joined Indonesia in 1969 after 1,024 Papuans voted unanimously to relinquish their sovereignty during a UN referendum (though Papuans allege that the representatives, hand-picked by the Indonesian government, were held at gunpoint during the vote). As Papuans in the region continue to fight for independence, Human Rights Watch has accused security forces of engaging in a number of rights abuses, including extrajudicial killings and torture.

Police and military officers -- who rely on Freeport for funding and equipment -- say they would not be able to perform their security operations in the region without the American company's support. In that same vein, activists argue that without Freeport, these officers would not be able to suppress the rights and independence aspirations of the Papuans to the extent that they do now.

By Samantha Michaels, a recent graduate of Northwestern University's Medill School of Journalism, who is beginning a fellowship at The Jakarta Globe. She has also written for Condé Nast Traveler and The Atlantic

HONG KONG’s Non-Election

Hong Kong’s sometimes-brusque residents have dubbed the upcoming election for chief executive as a choice between a pig and a wolf. The pig in this case is Henry Tang Ying-yen the former chief secretary for administration, who they say somewhat unkindly has the characteristics of a pig, stupid but harmless. His rival for the post of chief executive is Leung Chun-ying, said to have the cunning and ruthlessness of a wolf.

The public is not going to decide the winner of this so-called election. That will be decided in March 2012 by the Election Committee, a strong group mostly consisting of pro-government dignitaries and representatives of commercial interests. But Beijing is thought likely to have to take public opinion into account when it quietly indicates its preferences to certain members of the Election Committee. That could turn out to be a problem for Tang, who has all along been considered the front runner. Now that the two have officially declared, started making campaign speeches and parading their prominent supporters before the cameras it is evident that although Leung was relatively little known until recently, he is proving to be a much more articulate figure whose promises of change sound more convincing than those of Tang whose achievements in office as the number two in the government have been at best underwhelming.

Tang started with many advantages, not least being the son of a Shanghainese textile billionaire who became a member of Beijing’s rubber-stamp group of worthies known as the Chinese People’s Political Consultative Conference. Although his own business career appeared to consist of little more than selling textile quota earned by the previous generation he was rapidly elevated once he entered the government in 2002. His has particular expertise in fine wines and regarded as an easy going individual with a nice smile and certain charm, particularly for the ladies.

Indeed, one mark against him in the popular mind is the recent revelation of an affair. This was widely rumored to be with a colleague who was subsequently promoted to a job for which she did not appear well qualified. One affair is probably not enough to sink his chances but rumors persist of more. In a column for the South China Morning Post a former senior civil servant wrote that “there have been rumors for many years that a pre-marriage relationship by Tang produced a son”. When challenged on camera, Tang has declined to answer.

There is no doubt, however, that Tang enjoys the support of most of the big name business figures and organization such as the General Chamber of Commerce, now headed by a former civil servant female colleague, and the likes of David Li Kwok-po, the representative of the banking community and scion of one of Hong Kong’s oldest families. In 2008 Li, who heads the Bank of East Asia, paid $8 million damages to the US Securities and Exchange Commission to settle allegations of insider trading in shares of Dow Jones, of which he was a director, at the time of the Murdoch takeover bid.

Tang also has the backing of high profile entrepreneur Allan Zeman, the government’s favorite expatriate. Zeman took up the animal themes by describing Tang as a panda who he would like to hug. This caused some wry amusement in the gay community where pandas are chubby Chinese gays, though Tang is neither chubby nor gay.

Leung’s skeleton is the widespread belief that he has long been a member of the Communist party. On announcing his candidacy he formally denied this adding that he had never been approached to join. Skeptics however suggest he could be a member of one of the Communist front organization parties. It might be thought that party membership would be no bad thing given that Beijing might prefer to trust a long-time party member than the likes of Tang. However, Beijing now often puts family connections above other loyalties while Hong Kong people as a whole tend to distrust the party, which does not officially exist in Hong Kong and whose membership is secret.

Leung is a bright but ambitious figure from a modest background who rose quickly as a property surveyor, becoming local head of Jones Lang & Wootton at age 30 before starting his own firm. Until recently he was convenor of the unofficial (non-government) members of the Executive Council, a body which in principle is supposed to make decisions on government policies but in practice is a mix of talk shop and rubber stamp.

Leung is trying hard to distance himself from government policies and from the property developer interests with which he was associated as a leading surveyor. Hence a push to revive government housing is part of his platform. It remains to be seen what other new policies he proposes. Although never in government he appears well briefed on many issues and has the advantage of not being responsible for the government failures in such areas as housing and the environment.

Independent observers might think that Hong Kong needs change to meet challenges from competing cities, be they Shanghai, Shenzhen, Singapore or Sydney and address the issues raised by a rapidly aging society. However with the business elite and the Communist party stuck in a comfort zone where change is viewed as upsetting if not positively dangerous, the Leung message of change, however opportunistic, may be too much. There is nothing wrong with the status quo, they insist. The dumb pig is scant threat to their cozy situations, cartels and oligopolies.

Beijing may have reason to worry that Tang, representative of old wealth and ongoing privilege, will incite more of the so-far mild social unrest evident in Hong Kong in recent times. Nor can Tang escape the remarkably indiscreet criticism leveled at the administration of current chief executive Donald Tsang a few months ago by the head of Beijing’s representative office in the territory. While the Beijing leadership leans towards Tang, factions within the party favor Leung. Neither has especially strong connections in the capital, which will continue to put Hong Kong at a disadvantage when dealing with national interests or protecting its own.

So though this is by no stretch of the imagination a free and fair election, both candidates are approved by Beijing and neither candidate is particularly impressive, a strong public preference for Leung could make this a much closer contest than originally envisaged and make the election seem more real than is actually the case. Asia Sentinel

Malaysia's UMNO Scandals

A new set threatens

For weeks, just in time for Malaysia’s United Malays National Organization’s annual general assembly which opened this week, the party has been embroiled in an embarrassing scandal involving a 2007 government decision to spend RM300 million (US$94.3 million)to establish a national feedlot corporation to slaughter as many as 60,000 cattle annually under Islamic halal dietary requirements.

The scandal seems emblematic of a long series of such situations that imperil Prime Minister Najib Tun Razak’s vow in April 2010 that the government "can no longer tolerate practices that support the behavior of rent-seeking and patronage, which have long tarnished the altruistic aims of the New Economic Policy.”

The National Feedlot Corporation, as it is known, has never slaughtered 10 percent of the projected total and has since scaled back its target to 8,000 head but hasn’t been able to meet that target either. Worse, the company has been losing millions of dollars every year – while pouring funds into an RM10 million condominium in Kuala Lumpur, among other things, and spending RM800,000 for overseas travel and entertainment.

The scandal is doubly embarrassing because the agreement to establish the National Feedlot Corporation, made when Abdullah Ahmad Badawi was prime minister, went to the family of Shahrizat Abdul Jalil, the Minister of Women, Welfare and Community Development and head of the women’s wing of Umno. Her husband, Mohamad Salleh Ismail, is the chairman. Her three children are respectively the chief executive officer and executive directors of the company. None had any experience in cattle production or beef supply prior to the establishment of the company.

The report of the NFC’s operations was contained in the 2010 report of Malaysia’s Auditor General, which was delayed for weeks before it was finally released. The scandal has generated tensions inside UMNO, with some reformers demanding that Shahrizat be forced out of her job as minister. However, the leadership has circled the wagons to protect her. In particular, Muhyiddin Yassin, the deputy prime minister, has said there was no case to be brought against her. Muhyiddin was the agriculture minister in 2006 when the project was approved. Others who have come to her defense are Abdullah Badawi and his son-in-law, Khairy Jamaluddin, the head of the UMNO Youth Wing.

The National Feedlot scandal is said to have the potential reformers worried because party operatives thought they had the Selangor electorate turned around and that they could take the state back from the opposition Pakatan Rakyat in national elections expected to be called early next year. However, Asia Sentinel has been told, the refusal to hold anybody to account in the feedlot scandal could well turn the tide back against them, especially as other patronage scandals continue to bubble up.

The depth and breadth of the scandals also calls into question moves earlier this year with Najib launching a series of programs to develop bumiputera, or ethnic Malay companies, including allocating an RM2 billion fund for development. In the 2012 budget, Najib also announced the government would allocate RM200 million to guide 1,100 high-performing bumi companies with the potential for listing on the Kuala Lumpur Stock Exchange. Critics are concerned that the patronage system will continue unabated. The current UMNO general assembly was hoped to provide a dramatic backdrop for Najib to win back disaffected Malay voters.

For decades, this patronage has involved highway construction and defense contracts and a variety of other government arrangements with UMNO cronies in a plan formulated by former Prime Minister Mahathir Mohamad. His ambition was to create a cadre of 100 super-rich bumis who in turn would help rural Malays into prosperity under a konsep payung, or umbrella concept routed through UMNO, much the way he envisioned driving the country into industrialization through massive projects. However, many of the companies eventually collapsed and are being supported by government institutions such as Kazanah Nasional, the country's sovereign investment fund, or the Employee Provident Fund.

Contained in the same 2010 auditor general’s report, for instance, is a passage on the decision to privatize a 77-km stretch of highway from Senai to Desaru on Peninsular Malaysia’s southeastern coast. The land acquisition turned out to have doubled, from RM385 million to RM740.6 million, with the road surface described as “undulating.” The project completion “was not in accordance with specifications, causing damage to the road surface and endangering road users.” The company failed to complete construction within the stipulated period of the contract. However, the construction agreement didn’t specify damages in the event it wasn’t completed. Required maintenance is described as “unsatisfactory.”

The company that won the RM1.7 billion contract is Ranhill Corp. Sdn Bhd., which has long been described as UMNO-linked. It is partly owned by Lambang Optimia Sdn. Bhd. Both are headed by Hamdan Mohamad, described as Malaysia’s “water baron,” who operates several utilities and power companies. He was one of several ethnic Malay businessmen who followed former Prime Minister Mahathir Mohamad’s vow to take Malaysian companies overseas. Another shareholder is YPJ Corp. Sdn Bhd., an arm of the Johor State Government, and yet another appears to be UMNO itself, which owns a minority share through an account at Public Bank Bhd., according to records. Ranhill has had a lackluster two to three years, capped by disaster earlier in 2011 when its Libyan operations were caught between the Muammar Qaddafi forces and those of the Libyan rebels aided by NATO air strikes.

Also, earlier this year, Deftech, a wholly-owned subsidiary of DRB-Hicom, won a contract without an open tender to produce and deliver 237 eight-wheeled armored personnel carriers to the Ministry of Defense. DRB-Hicom is 55 percent owned by Etika Strategi Sdn. Bd., which is wholly owned by billionaire Syed Mokhtar Al Bukairy, one of Mahathir’s targeted bumiputras and a man who is extremely tight with UMNO. Opposition member Tony Pua complained on the floor of Parliament that the average price of RM29.4 million for each unit compared unfavorably with a Portuguese Army purchase of 363 similar vehicles for the equivalent of RM4.4 million each from the Swiss MOWAG CmBH Corp, Malaysia is paying a 6.6-fold increase over the Portguese purchase. Saudi Arabia, he said, bought 724 such vehicles for the equivalent of RM9.9 million from General Dynamics Land Systems-Canada, with Malaysia paying almost three times as much Government officials said the contracts don't compare with each other and that the government is getting more equipment, maintenance, etc. for its money.

“Further research has revealed that DRB-Hicom will be acquiring the AWC technology from a Turkish company – FNSS Defence Systems Inc which manufactures the Pars 8x8 AWV models,” Pua said. “With this deal, Malaysia will be its first foreign customer for this vehicle. What is perhaps of greater alarm is the fact that FNSS has announced that they have sold 257 units of Pars 8x8 AWVs to Malaysia for approximately US$600 million or RM1.83 billion or only RM7.1 million per unit,” Pua said in a prepared statement -- considerably different from what the Malaysians said they bought the vehicles for.

Pua also complained about the cost of six offshore patrol vessels from Boustead Naval Shipyard Sdn Bhd at RM1 billion each in the aftermath of another total fiasco. The Auditor General, in a 2007 report tabled in Parliament, alleged that a contract to build naval vessels given to PSC-Naval Dockyard, a subsidiary of Penang Shipbuilding & Construction Sdn Bhd, which was owned by another UMNO crony, Amin Shah Omar Shah.

PSC-Naval Dockyard, which was taken over by Boustead, contracted to deliver six patrol boats for the Malaysian Navy in 2004 and complete the delivery in 2007. Those were supposed to be the first of 27 offshore vessels ultimately to cost RM24 billion plus the right to maintain and repair all of the country's naval craft. But only two of the barely operational patrol boats had been delivered by mid 2006. There were 298 recorded complaints about the two boats, which were also found to have 100 and 383 uncompleted items aboard them respectively.

The original RM5.35 billion contract ballooned to RM6.75 billion by January 2007. The auditor also reported that the ministry had paid out RM4.26 billion to PSC up to December 2006 although only Rm2.87 billion of work had been done, an overpayment of Rm1.39 billion, or 48 percent. In addition, Malaysia’s cabinet waived late penalties of Rm214 million. Between December 1999, according to the Auditor General, 14 “progress payments” amounting to Rm943 million despite the fact that the auditor general could find no payment vouchers or relevant documents dealing with the payments.

The auditor general attributed the failure to serious financial mismanagement and technical incompetence stemming from the fact that PSC had never built anything but trawlers or police boats before being given the contract. Once called “Malaysia’s Onassis” by Daim Zainuddin, Amin Shah was in trouble almost from the start, according to a report in Singapore’s Business Times in 2005.

Eventually Boustead PSC was born out of the Royal Malaysian Navy’s dockyard facilities which were to provide ship repairs and maintenance services. Under the corporatization program advocated by the Malaysian Government, the dockyard was set up as Limbungan TLDM, a wholly owned government company. It has modern facilities to meet the maintenance requirements of the Royal Malaysian Navy fleet, from hull repairs to major overhauls and from radar refitting to weapon systems refurbishment.

The six patrol boats have now cost five times what the Royal New Zealand Navy paid for its patrol vessels, bought at only RM210 each (NZ$90 million) from BAE Systems, the second largest global defense company.

The irrepressible Raja Petra Kamarudin in early November found that the Philippines was buying Hamilton-class patrol ships from the US that would be deployed to the West Philippine Sea area to secure the country’s natural resources. The latest one is to be transferred by the first or second quarter of next year, to guard energy projects in Malampaya off Palawan.

“Malaysia is going to buy six patrol boats at a total cost of RM6 billion or RM1 billion per patrol boat. Of course, Malaysia’s patrol boats are going to be far advanced and more sophisticated than those of the Philippines who paid only RM31.5 million for theirs,” he wrote. “The Philippines’s patrol boats can only patrol the waters. Malaysia’s patrol boats can…well…patrol the waters.” Asia Sentinel

The renminbi’s internationalisation: a reality check

There is a great deal of speculation around the rise of China’s economy and the eventual changes this will supposedly bring to the international monetary system.

The potential for such change undoubtedly exists as the Chinese economy continues to grow and catches up with more-developed countries. But is growth and size enough to effect fundamental change in the current global financial landscape?
When looking at the renminbi’s future role in the international financial system, analysts must take into consideration the reasoning of institutional investors when deciding where to hold liquid balances. Like China, such investors look for safety, liquidity and the preservation of the balance’s value. But can they find these characteristics in RMB-denominated markets — offshore or onshore? Currently, it would seem not. Onshore RMB deposits are simply not accessible due to China’s currency control regime. Offshore RMB deposits in Hong Kong and elsewhere are available, and have even given rise to a great deal of excitement among academics and bankers. But the reality of the situation is not favourable to investors looking to park institutional funds in such deposits. The return is minimal and purely dependent on expectations of a sufficient appreciation of the renminbi relative to the US dollar.
Those responsible for an international institution’s financial management are unlikely to risk their career by investing other people’s money in an asset class that is solely dependent on Chinese politics. But if the renminbi were to become freely convertible, how would it stack up against the US dollar and other currencies?
Trade volume is an important determinant for private transactors keeping a ‘working’ balance for convenient settlement in a particular currency. Given China’s significant role in international trade, its currency would be attractive for keeping balances, but investors would also incur unexpected receipts and disbursement requests. This is why everybody holds positive balance sheets, despite such balances often yielding very little and having to be funded through the capital resources of the institution concerned.
So, for a currency to be attractive, there needs to be safe and efficient opportunities to borrow or invest funds for short periods in order to minimise idle balances at the end of the business day. Currency systems compete in terms of an efficient money market — with many players and instruments — subject to reasonable and prudential supervision. But China is still a long way from offering facilities that can compete with the US financial markets.
Moreover, there are four other fundamental issues concerning the relative competitiveness of a fully convertible renminbi against current alternatives. First, the renminbi’s business day ends long before the other financial systems. Operating in the US, it is only possible to adjust renminbi balances with a one-day delay, thus severely limiting the ease with which it may be used as an international currency.
Second, investors may be reluctant to keep their working balances in a jurisdiction where property rights have not been held in high esteem for centuries.
Third, when it comes to central banks’ international reserve assets and private asset managers’ long-term investments, the considerations that govern the management of working balances abroad are more relaxed. Liberalised Chinese financial markets, overseen by a decent legal system and rules of corporate governance, may well attract a portion of the world’s savings. But that differs greatly from being an international reserve asset comparable with — or superior to — the US dollar. In any case, it is those who find a currency and its financial markets sufficiently attractive to entrust their savings that decide which currencies occupy such a role.
It seems the world, including China, is stuck with the US dollar. In this respect, the so-called US ‘balance of payments deficit’ is a chimera: nobody knows exactly how much is due to excess US consumption, and how much is due to official and private investors finding US financial markets the best place to store a significant part of their ever-growing savings. Interest rates on US bonds do not support the argument that investors are particularly concerned with the risks of a US default.
And finally, investment in ‘real’ assets is simply not the answer. Buying productive assets also requires expertise in their management across different foreign environments. Chinese executives are very competent at managing productive assets in their own unique environment, and many foreign investors in China underestimate Chinese business acumen to their detriment. But whether those skills will work outside China is less clear.
The solution to this issue must be found in a drastic change in China’s political economy; China must stop subsidising US consumption and do something for the average Chinese citizen, whose living standards are still significantly lower than elsewhere in Asia. Such a policy change would be highly beneficial for the Chinese — but less so for the US. Author: Gunter Dufey, Nanyang Technological University. Gunter Dufey is an Emeritus Professor at the University of Michigan, Ann Arbor. He is currently teaching at Nanyang Business School, Nanyang Technological University. East Asia Forum

Monday, November 28, 2011

Indonesia's Bakrie Sees His Chance

If the stars align, that is

Aburizal Bakrie, one of Indonesia’s most controversial businessmen and politicians, faces serious obstacles in his bid to become president in 2014. But in Indonesia’s notoriously corrupt political system, his assets could be enough to push him through.

Nearly three years away from the election, Bakrie faces a rogues’ gallery of potential opponents, each of whom is flawed in some way. Indonesian politics are amorphous at best and change is a constant. As well, Bakrie’s record as a businessman hardly inspires confidence in his ability to steer the world’s 15th biggest economy.

The Bakrie family made its fortune under Suharto, building a vast empire including telecommunications, agriculture, construction, and mining concerns. By 2007, Bakrie and his family topped Forbes’s list of the richest Indonesians with an estimated worth over US$5 billion. He has been celebrated as one of the few pribumi, or indigenous businessmen in an economy dominated by ethnic Chinese.

But while fortunes have risen for Indonesia’s wealthiest families, Forbes has dubbed Bakrie dubbed this year’s “biggest loser,” sliding to 30th place on the list. His family fortune has been reduced to some $1.2 billion, dropping by more than 50 percent in the past year alone. The biggest hit came in early November, when the Bakrie group was forced to sell off 23.8 of mining venture Bumi PLC to avoid defaulting on a $1.35 billion debt to Credit Suisse. An initial deal with Swiss commodities trader Glencore collapsed, leaving Borneo Lumbung Energi, owned by long-time Bakrie acquaintance Samin Tan, to step in and purchase the shares.

This isn’t the first time the Bakries have been pulled back from the brink of disaster. During the 1998 financial crises, the group was saved only by a government bailout after defaulting on its debts. At the onset of the 2008 credit crunch, the company nearly collapsed again. The company’s share prices plummeted, prompting a three-day closure of Indonesia’s stock market amid allegations of share manipulations. A government bailout was blocked by then-Minister of Finance Sri Mulyani Indrawati, leaving the Bakries floundering until a Chinese sovereign wealth fund extended a $1.9 billion loan.

Throughout, he and his partners have been plagued by allegations of tax evasion, less-than-arms-length business deals and poor financial management. Most recently, Nat Rothschild, whose London-based investment vehicle Vallar formed a partnership with Bakrie flagship PT Bumi earlier this year, chided the company for being “over-leveraged” and lacking transparency, calling for “a radical ‘cleaning up’ of PT Bumi Resources’ balance sheet and corporate culture” in a Nov. 9 letter leaked to the media.

Compounding Bakrie’s financial woes is a serious image problem. While analysts suggest that allegations of financial improprieties may not resonate outside of the country’s elite, a five-years-running environmental disaster outside of the East Javanese city of Sidoarjo has had a much wider impact. In 2006, a mud volcano erupted in the immediate aftermath of technical failures in a natural gas well operated by Bakrie subsidiary Lapindo Brantas, flooding 640 hectares of densely populated land. While numerous independent investigations—and popular sentiment—pinned blame on Lapindo, local courts cleared the company of responsibility, ruling that an earthquake some 185 miles away was the culprit.

In what company spokespeople describe as an act of “corporate social responsibility” (and under significant pressure from President Susilo Bambang Yudhoyono) the company agreed to pay US$400 million in compensation to the 40,000 villagers who lost their homes, fields, and businesses in the unending flood of hot mud. In effect, these payments functioned like an out-of-court settlement—albeit one the disaster victims never signed on to. Early court rulings stated that since compensation had been paid to the victims, no concrete damages had been done. To date, however, some 28 percent of the promised sum remains unpaid, further heightening public disdain for Bakrie. In October, when Golkar formally announced Bakrie’s candidacy, hundreds of demonstrators took to the streets, blocking roads in East Java.

In addition, Bakrie, whose family hails from the island of Sumatra, faces a serious obstacle as a non-Javanese. No politician from outside this ethnic group, which makes up some 45 percent of Indonesia’s population, has ever been elected president. It would be difficult for even a popular non-Javanese politician to overcome the country’s deeply rooted ethnic politics. With East Java up in arms about the Sidoarjo mud volcano, Bakrie is likely to fare badly with the country’s largest political constituency.

However, political analysts speculate that one factor may outweigh all these others: money. In a country with poor infrastructure and more than 10,000 islands, running even a clean campaign is an expensive operation. Add in the vote- and influence-buying that have become routine features of Indonesian political life, and you need a fortune. Even with his diminished assets, Bakrie still has deep enough pockets to fund a campaign, and he is likely to be the wealthiest candidate in the running. "If you want to be president in this country, you need a lot of money. And he's got a lot of money," says political scientist Salim Said.

If disbursed properly, Bakrie’s assets might even be enough to keep his own party on his side. Lacking either a charismatic founder or a clear institutional ideology, Golkar, which served as an electoral machine during Suharto’s New Order regime, has proven particularly prone to infighting and backstabbing and jockeying for any potential source of income.

“Golkar functionaries, from the top level up to the bottom are always hungry for the money,” says Herdy Sahrasad, a researcher at Paramadina University.

It is widely speculated that in the 2004 presidential elections party factions undercut Golkar candidate Wiranto’s already-shaky presidential campaign, believing that backing the Democratic Party ticket led by Susilo Bambang Yudhoyono, with ex-Golkar member Jusuf Kalla as vice president, was likelier to yield dividends. Just ahead of the 2009 elections, Bakrie himself was among a group of Golkar leaders who called for an extraordinary party conference to unseat party chairman and presidential candidate Kalla (back, by then, in the Golkar fold).

"It’s always possible that another betrayal will occur, this time to Aburizal," says Salim. If Bakrie and his backers have enough cash to support campaigns of party members, he can be assured of their loyalty. “Golkar is a party which is very pragmatic,” Salim says. “The only way you can control the party is money.”

On the campaign trail, Bakrie will also be assisted by the less-than-stellar reputations of other prime contenders. After a lackluster presidency, Megawati Sukarnoputri, currently the most likely candidate from the Indonesian Democratic Party of Struggle (PDI-P), failed to even make it to a runoff in the 2004 elections, and lost again in 2009. And former special-forces chief Prabowo Subianto, the Gerindra Party’s leading man, is tarred by allegations of grave human rights abuses by troops under command in East Timor between 1995 and 1998, and during the 1998 Jakarta riots. Disgraced by corruption scandals surrounding the South-East Asia games, the ruling Democratic Party may have trouble even finding a credible candidate to field.

Thus the wedding last week of Yudhoyono’s son, Edhie Baskoro, to the daughter of Coordinating Minister for the Economy, Hatta Rajasa, is regarded as possibly producing Hatta as a presidential candidate that could combine the Democrats with his own National Mandate Party, or PAN, a moderate Islamist party. Other candidates that have been mentioned as long shots include Sri Mulyani Indrawati, the former Finance Minister who has since gone to the World Bank as a vice president.

Furthermore, while Bakrie may be controversial, his high profile is a definite asset in a political arena conspicuously lacking in programmatic party platforms. Politicians in Indonesia routinely switch parties, coalitions form and dissolve, and the tradition of “rainbow” or “unity” cabinets, which balance lucrative appointments among rival parties, makes it unlikely that the party affiliation of any particular president will greatly affect government policies. Thus, when voters select candidates to support, they do so on the basis of personality rather than policies—or, more pragmatically, on the basis of who can pay most for their vote.

There are still nearly three years and a parliamentary election before the presidential campaigns come to a close. But without major changes in Indonesia’s political system and a more promising crop of candidates, Aburizal Bakrie, with his well-greased political machine, is currently a front-runner. Asia Sentinel

Japan Strengthens its Southern Flank

Troop deployment too close for comfort to China and Taiwan

Alarmed by a Chinese move last year to send a fleet through the Miyako Channel 1,700 km south of Tokyo and into the open waters of the Pacific Ocean for maneuvers, Japan is deploying self-defense forces to an island that overlooks the strategic channel.

Japan’s redeployment also stems from concerns over increasing Chinese assertiveness over the disputed Senkaku chain, known as the Daioyutai to the Chinese. The deployment has not only upset the Chinese but unsettled the Taiwanese as well.

The deployment, to Yonaguni Island, is part of a general trend of transferring forces from Japan's northern flank to the extreme southern flank. Aside from a small contingent on Miyako Island, the southern islands have been totally demilitarized and vulnerable. The establishment of a so-called coastal monitoring unit can be seen as a means of asserting Japanese sovereignty over islands in a region of conflicting claims.

The decision to install a 100-man unit, estimated to cost ¥1.5 billion (US$20 million) and expected to be completed by 2015, is part of a growing trend by the nations that surround China to tighten up their defenses as they increasingly side against what they perceive as the growing belligerence of the region’s biggest country.

Yonaguni, only 28.8 sq. km in size and with a population of 1,700, overlooks the 300-km gap in the so-called First Island Chain, a maritime line running between Japan, Taiwan, the Philippines, Vietnam and Indonesia – all of which would potentially side with the US in case of war with China. If the situation were to turn sour in the West Pacific, it's the Miyako Channel where the US, Chinese and Japanese navies would likely grind together.

While the deployment has been greeted with anger in Beijing, it has also led to concern in Taipei. The island is so close to Taiwan’s east coast that seamen say on a good day they can see it, roughly 100 km east of Taiwan’s eastern town of Hualien.

Yonaguni is close to the resource-rich and strategic regions in the East China Sea that are disputed by Tokyo, Beijing and Taipei, such as the Japanese-controlled Senkaku Islands (Diaoyutai in Mandarin), which in 2010 witnessed the Japanese seizure of a Chinese fishing vessel for trespassing, setting off a major Sino-Japanese row that culminated in a Chinese threat to cut off rare metals shipments for Japanese industry. Observers say the Yonaguni deployment was chosen in this context. They say Tokyo thinks Beijing's rationale for claiming Senkaku – Chinese fishermen have visited it from time immemorial – could just as easily apply to any of Japan's southern islands, and therefore is shifting its defensive focus from guarding against a Soviet or Russian attack to one coming from China.

Aside from a small contingent on Miyako, the southern islands have been totally demilitarized and vulnerable. The deployment of a so-called coastal monitoring unit can be seen as a means of asserting Japanese sovereignty over islands in a region of conflicting claims.

The first time Japanese military plans involving Yonaguni made headlines in Taiwan was in June 2010. Tokyo had snubbed Taipei by extending its Air Defense Identification Zone (ADIZ) – an area where entering aircraft are obliged to radio their intended flight course to the respective country's air traffic controllers – from Yonaguni westwards by 22 km at Taiwan's expense without having given the long-time de facto ally a heads-up. At that time, observers close to Taiwan’s opposition anti-unification Democratic Progressive Party (DPP) saw the move as a sign that President Ma Ying-jeou’s Beijing-friendly policies had distanced Taiwan from the US and Japan, and that Tokyo had accordingly lost its trust in Taipei.

In a recent interview with Asia Sentinel, Lai I-chung, a member of the research body the Taiwan Thinktank, still supported that notion. By strengthening Yonaguni, he said, Japan hasn't so much got Senkaku in mind as hedging at a time when Taiwan is perceived as increasingly falling into China's hands and thus ceases to function as a buffer.

“The decision was already made when Taro Aso was prime minister (Sept. 2008-Sept. 2009) before the flare-up of the Senkaku dispute,” Lai said. Yonaguni's location – well south of Senkaku – suggests that there's no direct connection with that issue. Also, he said, during a possible China-Japan conflict, Yonaguni itself would be shielded by Taiwan anyway.

“It could be Japan's uneasiness with Ma's China-leaning foreign policy. The waters east of Taiwan have become of concern for Japan in recent years, and the frequency of Chinese vessels and aircraft appearing there has significantly been increasing,” Lai said.

Unsurprisingly the Chinese have their own interpretation. Beijing regards Japanese expenditure on maritime construction and reinforcing of islands in the context of Tokyo's covert quest to get rid of the constraints of its Peace Constitution, imposed on the country by the US after its defeat in World War II.

In a recent article published in the PLA Daily, the official daily of the People's Liberation Army, author Liu Liqun listed the deployment on Yonaguni in one breath with Japan's plans to start construction of two helicopter carriers in 2012, the general stockpiling and updating of military technology, the sending of warships to provide logistical support and oil to the US military, as well as the employment of anti-submarine patrol aircraft to cruise the Gulf of Aden.

“These moves to advance Japan's open-ocean strategy completely lay bare Japan's aggressive posture. When Japan's Maritime Self-Defense Force was first established, it was just a small naval force to be used for coastal defense. Now, however, it has become the most formidable maritime armed force in Asia, excluding the US Navy,” Liu wrote.

“By deploying the Self-Defense Force to islands in the southwest, […], Japan is going in a dangerous direction.”

Observers say the move's importance is out of proportion to the small numbers. James Holmes, an associate professor at the US Naval War College, said the decision is kills not only two birds with a stone but most likely quite a few more.

“Defending the island itself will obviously be a major purpose of any deployment; stationing forces there would signal China that it couldn't quickly or easily seize it. That's valuable in itself,” Holmes said. “But the passages around the island are also important.”

It was through this passage that Chinese fleet consisting of two guided missile destroyers, three frigates, two Kilo-class submarines and one supply ship crossed the strait in April of 2010 to hold sea-air joint anti-submarine warfare drills near the Okinotorishima Reef. During the exercise, China's ship-borne helicopters once came as close as 90 meters to a Japan Maritime Self-Defense Force ship. The reef lies midway between Taiwan and Guam, home to a major US naval base. Japanese media speculated that China's ships used the drills to map the ocean's bottom over which the US Pacific Fleet would pass in future conflicts on its way to Taiwan.

“Anti-ship missiles positioned on Yonaguni could help close nearby straits to Chinese warships,” Yonaguni said. “This would ease the pressure on the Japanese or Taiwanese east coasts, helping US forces steaming westward gain access to the region. A well-designed force deployment at Yonaguni could provide disproportionate bang for the buck.” Asia Sentinel

South Asia and Asia’s middle-class future

As they struggle to escape the global financial crisis, the prospect of China’s continued, powerful growth both excites and challenges the established economic powers in Europe and North America

US President Obama’s trip to Australia and the East Asia Summit last week was dominated by American strategies to deal with the challenge of China. India, it often appears, plays in to these strategies as little more than a chip in the game with China.

Think again. In a decade or two, India — 80 per cent of the South Asian economy — with its current rates of growth and demographic, nudging forward as East Asia’s China-driven growth eases off, will be nested into its own large economic and political relationship with China. Such is likely to be the power of India’s and China’s scale and their proximity in drawing their economies together and creating a new alignment of Asian interests.

Asia is predicted to add 2.5 billion people to the world’s middle classes in the next 20 years. The middle class in both China and India is growing at an extraordinary rate. As Kharas has argued: ‘if China is successful in its policy ambition to foster wage growth at least as fast as GDP growth, and if it continues to grow at its potential, its middle class could swell to 50 per cent of its population in just 12 years. India’s middle class could rise even more rapidly because Indian households benefit more from Indian growth than do Chinese households, given the prevailing distribution of income’.

The emerging middle class is already a key driver of Asia’s economic growth because of its demand for goods and services and because it is the primary source of savings and entrepreneurship that drives innovation and growth. Growth in today’s advanced economies comes mainly from new products, and most growth happens when these new products are targeted toward and adopted by the middle class.

Consumption by the global middle class (defined to include those living in households spending between $10 and $100 a day in real or purchasing power parity terms) accounts for almost one-third of total global demand, roughly divided evenly between North America, Europe and Asia, but heavily concentrated in advanced countries, currently accounting for two-thirds of total middle class consumption. These are the consumers at risk of retrenching their demand as those in China, India, Indonesia and much of the rest of Asia ramp up their spending.

The ADB’s Asia 2050 Report sees middle-class consumption in advanced countries rising by only 0.6 per cent a year for the next 20 years and thereafter beginning to decline. In Asia, the middle class is expected to lift its spending by 9 per cent a year through to 2030 (although Japanese middle-class spending — one-third that of all Asia today — is forecast to rise by only 1 per cent a year). This will be driven by the very strong growth in middle-class spending in the large Asian countries — China, India and Indonesia. This process is already under way in China, although only 12 per cent of the Chinese population yet enjoys middle-class living standards. Today, India has a tiny middle class by global standards. ‘But if it continues its growth’, the ADB Report argues, ’70 per cent of the Indian population could be middle class within 15 years’.

World Bank economist Ejaz Ghani, in this week’s lead essay, asks what will South Asia look like in 2025?

The most likely scenario is an optimistic one. ‘Growth will be propelled higher by young demographics, improved governance, rising middle class and the next wave of globalisation. There is democracy, for the first time since independence, in all countries in the [South Asian] region. Young demographics will result in nearly 20 million more people joining the labour force, every year, for the next two decades.

Almost a billion people will join the ranks of the middle class (1.2 billion by 2030 if you believe the ADB and 1.4 billion by 2050). India’s middle class is well-educated, enterprising, innovative, more demanding of better services, products and governance. The region will benefit from a new wave of globalisation in services, and increased international migration and human mobility. The drivers of growth seem to have already moved from the rich world to the poor world. The room for catch-up is huge, given the big gap in average income between South Asia and the rich countries’.

South Asia is reaching the tipping point, Ghani argues. But if the short window of opportunity is seized and policy makers redouble their efforts to promote rapid, inclusive and stable growth, South Asia is likely to join China in re-shaping tomorrow.
Author: Peter Drysdale, Editor, East Asia Forum

Obstacles to closer India–US relations

During her last visit to India in July, US Secretary of State Hillary Clinton urged India to play a bigger role in Asia.

While this predates Clinton’s more recent suggestion that India, China and the US should work more closely together, it is still widely believed that heightened India–US cooperation is aimed at encircling China. And it appears the symbolic element of official India–US interactions is often mistaken for a sustainable strategic relationship. But in both countries there are domestic obstacles to a closer relationship which are unlikely to disappear in the foreseeable future and which warrant closer scrutiny. I will focus on groups within India — the religious right, the sentimentalists, the sinocentrics and the pragmatists — that often impede this bilateral relationship.

First in this list is the religious right. The Islamic religious right has ‘obvious’ reasons to impede closer India–US relations. The anti-US camp within the Hindu religious right can be divided into two groups. One group argues that the US, as leader of the Christian West, is hell-bent on destroying Hinduism in India through the work of aid organisations and NGOs — which ostensibly serve as a cover for proselytising Westerners. This group also accuses US Baptist churches of financing terrorist organisations in India’s northeast. The other group argues that India is paying a heavy price for the Israel–US policy on Palestine, which has destabilised the Islamic world.

The second obstacle to closer India–US relations are the sentimentalists. This group stresses the impossibility of an equal relationship between the world’s two largest democracies. A variety of grievances — including the patting down of Indians at US airports to the US’ failure to support India in obscure international fora — are treated as insults, and as confirming the impossibility of an equal India–US relationship.

Third are the sinocentrics. There are three types: doctrinaire and naïve sinophiles, and sinophobes. The doctrinaire sinophiles — which include Maoist extremists and some in the mainstream leftist parties — still vaguely believe China is a communist or non-capitalist country committed to the emancipation of the third world from the neo-colonial West. And they blindly oppose any move that brings India and the US closer. There are two groups of naïve sinophiles: those still trapped in slogans like Hindi-Chini bhai bhai (Indians and Chinese march on as brothers) and the faddists. The former think that India and China can together redefine the existing world order in favour of the suffering masses across the world. But India still has a long way to go before its ties with China are strengthened to this extent; and closer ties with the US are undesirable insofar as they impede this necessary rapprochement with China. On the other hand, the faddists feel that India should imitate and befriend China and shun the company of a ‘declining’ US. Finally, the sinophobes argue that closer ties with the US will annoy China — and an already overstretched US will not intervene if China escalates tensions along the international border in the Himalayas.

The final and, in fact, the most important obstacle to closer India–US relations are the pragmatists. The pragmatists argue that forging too close a relationship with the US — which is incomparably superior to India — could be counterproductive insofar as it would require India to neglect its own core interests. And the interests of India and the US are often mutually incompatible on issues such as climate change adaptation, outsourcing, nuclear energy, genetically modified food, opening-up of services, agriculture, and retail-market sectors, Palestinian statehood, denuclearization of Iran, and sanctions against autocratic regimes. The pragmatists further argue that even if the leaders iron out differences, as in case of the nuclear deal, the elephantine bureaucracies and divisive domestic politics come in the way of timely implementation of agreements. According to the pragmatists, then, there is no reason to abandon strategic autonomy so as to align with the US — for potentially uncertain gains. A close association with the US could also expose India to international hostility, particularly in West Asia. More importantly, at a time when India is beginning to attract global attention, forging a closer — but essentially subordinate — relationship with a declining superpower is not seen as a reasonable strategy.

Given the opposition in India, a closer India–US relationship is unlikely in the near future. But some of the factors that push India’s pragmatists to steer clear of embracing the US are not country-specific. Similar factors must be compelling other like-minded rising powers to resist closer relations with the US. In the short run, US policy makers cannot change perceptions about its decline. But they can address concerns about bureaucratic delays and abstain from adopting policies on issues like business-process outsourcing, which negatively affect their own interests and the vital interests of their prospective partners in emerging economies. Author: Vikas Kumar, Azim Premji University courtesy East Asia Forum
Vikas Kumar is Assistant Professor of Economics at Azim Premji University, Bangalore.

Sunday, November 27, 2011

Asia’s dismal record on tackling war crimes is an indicator of illiberalism

BEHIND a huge bulletproof screen sit judges, lawyers and three wizened former leaders of the Khmer Rouge. In their 80s, the defendants may be the last people to be prosecuted over the deaths of at least 1.7m people in 1975-79, when the Khmer Rouge exercised monstrous power in Cambodia. Gawped at daily by busloads of onlookers—monks, black-clad teenagers, turbaned villagers, earnest foreigners—the men can expect to pass much of the rest of their lives in the Extraordinary Chambers in the Courts of Cambodia, a hybrid local and United Nations creation that sits just outside the capital, Phnom Penh.

The tribunal has an impossible job. The crimes in its ambit are too many and various for more than symbolic justice to be seen to be done. Set up in 2003 and now costing $40m a year, it has so far managed a single conviction, of Kaing Guek Eav, alias Duch, who ran the infamous Tuol Sleng prison, where 14,000 entered and only a dozen came out. Though a monster, he was a relatively low-ranking one, with a degree of remorse.

On November 21st prosecutors opened the case against the three defendants in “case 002” (numbered as if hundreds more were expected). The three are Nuon Chea, “Brother Number Two” and Pol Pot’s right-hand man; Ieng Sary, the Khmer foreign minister; and Khieu Samphan, who was once head of state. Despite mounds of evidence, convicting them will be agonisingly complicated. The charges, including war crimes, torture and genocide against minorities, are cumbersome. To make things easier, the court is breaking the trials into pieces, starting with a case over the forced removal of city dwellers to the countryside in 1975. But the case could take years, and the three may never get to answer the graver charges.

Then there is political meddling and incompetence. No case 003 seems likely. That looks suspiciously convenient for Cambodia’s current rulers and their cronies, anxious to avoid close scrutiny of their parts in the killing fields. Court officials have resigned amid fierce public feuding, some between locals and foreigners. Critics say that some judges look partial or corrupt, so the court’s credibility is at stake. Relatives of some victims are boycotting the court, and donors look twitchy.

Still, the proceedings’ integrity is still just about intact. The same cannot be said for Asia’s other current war-crimes trial, in Bangladesh. In 1971 several hundred thousand or more (mostly civilians) perished at the hands of Pakistani soldiers and local accomplices losing the bloody fight against secession. On November 20th the first defendant at the country’s International War Crimes Tribunal, Delawar Hossain Sayadee, was charged with genocide, murder, rape, arson, abduction and torture. Mr Sayadee is a leader of a prominent Islamic party, Jamaat-e-Islami. Six opposition figures will probably join him in the dock.

The tribunal could have been laudable. This was a horrific spell of history, and justice might have helped reconciliation. Instead, it risks being a travesty. The prosecutions look biased. One defence lawyer talks of a “climate of vendetta” against opponents of the prime minister, Sheikh Hasina. None of the chief perpetrators, Pakistani soldiers, will be in court. Nor will pro-independence militants be charged over smaller but still gruesome massacres of Biharis, migrants who sympathised with Pakistan.

The defendants seem to have been made targets because of their political role today as much as for earlier wrongs. Jamaat is an ally of the main opposition; some of the accused were ministers in Bangladesh’s previous government. Should they be convicted and hanged in time for the next election, that would handily weaken the opposition.

Yet a nakedly partisan trial would only deepen historical wounds, not salve them.

Outsiders, including the American government who once advised the court, look increasingly wary. Human Rights Watch says that witnesses and lawyers are being harassed, and defence lawyers lack time to prepare. Lawyers are blocked from challenging the judges’ impartiality. They say that the tribunal chairman should go, because he presided over an earlier investigation and mock trial in 1994, which condemned the accused as war criminals. They complain, too, that foreign lawyers, in theory allowed in the “international” court, are in effect barred. As a consequence of these problems, says a British lawyer, the trial “lacks even the appearance of independence or impartiality”. Journalists attempting to report as much have been intimidated.

Rule by strongmen, not by law

Asia seems unable to follow Europe, Africa or South America in setting up either strong tribunals or truth commissions, such as South Africa’s, to address old horrors. Nor will it deal with recent ones. In Sri Lanka much evidence suggests war crimes against civilians took place in 2009, as the civil war against the brutal Tamil Tigers reached a final climax. On November 20th commissioners who had led a public inquiry into “lessons learnt” from the war handed the government their report. Yet the government refuses an inquiry into those final days. Even raising the matter is risky. A UN report this year on the topic caused a bitter diplomatic row. On November 18th the ex-army chief, Sarath Fonseka, a jailed political rival of the ruling Rajapaksa family, got a new three-year prison term for suggesting that political leaders ordered rebel prisoners to be shot.

Asia pays a price for failing to secure justice over war crimes. Gary Bass of Princeton University argues that well-run trials bring real benefits. They help address “living wounds” that linger for decades after genocides, encouraging reconciliation, for example, by naming individuals, not whole groups, as guilty of particular wicked acts. More generally, they encourage respect for the law and impartial institutions. Sadly, for large parts of Asia with weak democracy and illiberal strongmen in charge, the chances of a fair reckoning for vile crimes are slender indeed.
By Banyan for The Economist

South Asia: reshaping tomorrow

What will India look like in 2025?

The optimistic outlook is that India, which accounts for 80 per cent of the regional economic output, is headed towards double digit growth rates. South Asia too will grow rapidly, primarily due to India. The pessimistic outlook is that, given huge transformational challenges facing the region, growth should not be taken for granted. Which of these two outlooks is likely to prevail? This is what this story is all about. It is about the future — what is coming, and how to get that right.

There is strong empirical justification in favour of the optimistic outlook. Growth will be propelled higher by young demographics, improved governance, rising middle class and the next wave of globalisation. There is democracy, for the first time since independence, in all countries in the region. Young demographics will result in nearly 20 million more people joining the labour force, every year, for the next two decades. Almost a billion people will join the ranks of the middle class.

India’s middle class is well-educated, enterprising, innovative, more demanding of better services, products and governance. The region will benefit from a new wave of globalisation in services, and increased international migration and human mobility. Indeed the drivers of growth seem to have already moved from the rich world to the poor world. The room for catch-up is huge, given the big gap in average income between South Asia and the rich countries.

The empirical arguments for the pessimistic outlook are equally strong. The link between demographics and growth is not automatic. Indeed, a demographic dividend, in the absence of right policies to enable people to be healthy, well-educated and well-trained in the skills demanded, could morph into a demographic disaster.

Neither does globalisation automatically engender growth. Countries need the physical infrastructure — ports, roads, electricity, water and communications — and peace and security to help ensure wider access to markets and exposure to opportunities. Increased market integration needs to be complemented with appropriate structural reforms to enable land, labour and capital to be reallocated from low productivity traditional sectors into high productivity modern sectors. A structural transformation at such a mammoth scale will not be easy.

The truth will probably lie somewhere in between. The optimistic outlook that South Asia will achieve double-digit growth rates may be too optimistic. The pessimistic outlook that growth will be derailed by corruption, dilapidated infrastructure, large informal sector traps and dismal social conditions may be too pessimistic.

What can be done? South Asia needs a bridge to the future. Policy makers should better manage the three key drivers of transformation — growth, inclusiveness and risk. South Asia has the largest concentration of poor people on earth. So the pace of growth needs to be accelerated to create jobs and reduce poverty. Rapid growth cannot be achieved without more entrepreneurs. India and other South Asian countries have too few entrepreneurs for their stage of development. While South Asia has a disproportionately high rate of self-employment and many small firms, this has not as readily translated into as many young entrepreneurial firms that create jobs and increase productivity as could be hoped. Yet there is no question that entrepreneurship works in the region. Formal-sector job growth has been strongest in regions and industries that have exhibited high rates of entrepreneurship and dynamic economies. Reducing conflict is a prerequisite to political stability,

which, in turn, is the prerequisite for implementing pro-growth policies. Even in a best-case scenario, the presence of low-level conflict constrains the policies governments can implement to promote growth.

Growth without inclusiveness will be difficult to sustain in the future. After decades of being primarily a region of farmers, South Asia is rapidly urbanising, as millions leave their stagnant villages, and move to the cities. However, urban infrastructure is decaying, and unable to serve the existing population, let alone be prepared for increased rural–urban migration. Modernisation has been partial, with a large part of the economy operating in rural and informal sectors, and only a small segment of the population thriving in the globally-integrated modern sectors.

Growth that results in partial modernisation will continue to undermine the ability to move people out of poverty, and to share the fruits of growth more widely.

Growth is not an end in itself. Policy makers should not think of growth separately from inclusion and vulnerability. Increased income disparities should not be viewed as the price to pay for high growth. Neither should gender inclusion, education and health be considered as second stage reforms. A development response that aims to promote growth first, and then deal with human misery, is not sustainable. Policies to promote social development should be designed in a manner that the growth process itself is not hampered. The region needs policies to raise growth wherever it happens. It also needs policies to redistribute the gains of growth more efficiently and effectively.

Time is of the essence. South Asia is fast reaching the tipping point. There is only a short window of opportunity. Policymakers need to redouble their efforts to promote rapid, inclusive and stable growth.

Author: Ejaz Ghani, World Bank. Ejaz Ghani is Economic Adviser at the South Asia Poverty Reduction and Economic Management, The World Bank, Washington, DC