The recently concluded 28th and 29th ASEAN Summits in Vientiane, Laos again saw ASEAN give a muted response to the more contentious issues facing member states. This is largely a result of conflicting national interests between members in the absence of a cohesive framework to deal with such issues.

The recently concluded 28th and 29th ASEAN Summits in Vientiane, Laos again saw ASEAN give a muted response to the more contentious issues facing member states. This is largely a result of conflicting national interests between members in the absence of a cohesive framework to deal with such issues.

To date, ASEAN’s responses — or lack thereof — to regional disputes has relayed an impression of indecision and dysfunctionality to the international audience. However, to its credit, the regional body has worked cohesively to effectively resolve other challenges such as managing responses to natural disasters. This cooperation — in the typical ASEAN fashion of decision by consensus — has taken many years of discussion (and several devastating natural disasters) to materialise.

The majority of ASEAN states are located in geographic areas at high risk of natural disasters. Examples prevalent in the Southeast Asian region include floods, tropical cyclones, forest fires, and the occasional tsunami. A number of ASEAN states — particularly Indonesia and the Philippines —also reside geographically in the ‘Pacific ring of fire’, an unstable and volatile seismic area known for major earthquakes and volcanic eruptions.

When the 2004 Boxing Day tsunami hit Indonesia, Malaysia and Thailand, other ASEAN member states were reluctant to assist in rescue operations due to traditional apprehensions regarding state borders, military intervention and humanitarian aid.

After witnessing the consequences of their indecision — destroyed communities and fractured families — ASEAN nations learnt their lesson. In 2005, the United Nations’ World Conference on Disaster Reduction helped to create a framework for appropriate disaster relief response through the Hyogo Framework of Action. This then prompted ASEAN to initiate its own legal framework for a united and coordinated response to natural disasters. The ASEAN Agreement on Disaster Management and Emergency Response (AADMER) was signed by all members of ASEAN in 2005 and came into force in 2009.

In 2008, in the wake of Cyclone Nargis that hit Myanmar and killed at least 130,000 people, ASEAN set up an Emergency Rapid Assessment Team (ASEAN-ERAT) that assesses disasters and recommends the appropriate course of relief actions — such as water and sanitation, food, health, logistics and coordination of relief units. ASEAN-ERAT also serves to harmonise disaster relief operations by reducing confusion and delays and optimising assets and manpower deployment.

ASEAN-ERAT is now managed by the ASEAN Coordinating Centre for Humanitarian Assistance on Disaster Management (AHA Centre). The AHA Centre itself was formed in 2011 and is governed by the ASEAN Committee on Disaster Management. It even has its own strategic vision: ‘One ASEAN, One Response’.

ASEAN-ERAT also serves as the liaison between ASEAN and non-ASEAN countries involved in disaster relief in the region. Today, the ASEAN-ERAT team has 91 members from a spread of ASEAN states that are trained to respond to regional natural disasters. Since its formation, ASEAN-ERAT has been deployed on 10 operations, including the Haiyan and Rammasun typhoons and the Bohol earthquake, all of which hit the Philippines.

ASEAN has established standby arrangements through which members voluntarily offer civilian and military assets, logistic support, and supplies that can be immediately mobilised for relief operations. ASEAN has also introduced standard operating procedures that ensure smooth coordination and execution of emergency operations by the multitude of ASEAN agencies that have very different languages and work cultures.

The AHA Centre runs the ASEAN Disaster Information Network (ADInet), which provides an up-to-date database of all natural disasters reported in the region. This database is used by the AHA Centre’s Disaster Monitoring and Response System (DMRS) for analysis and disaster alerts and freely shared between member states. The AHA Centre also conducts regular executive courses and joint civilian and military training on disaster management for ASEAN members.

To further prepare for natural disaster relief operations, ASEAN has run annual disaster simulation exercises since the signing of the AADMER in 2005. These exercises test the readiness of ASEAN disaster management and emergency relief agencies, its cohesiveness and its ability to collaborate closely with other UN agencies, non-government organisations and military units.

ASEAN’s recent cooperation in the midst of natural disasters serves as a strong confidence building initiative. It is one of the few key areas in which ASEAN members can work closely with each other regardless of other strategic challenges or conflicting geopolitical interests. This bodes well for the future of ASEAN and shows that it can act cohesively and decisively in its own distinctive way to address issues that might otherwise threaten to divide one of the world’s more important regional organisations.

Natural disaster management and the future of ASEAN cohesion is republished with permission from East Asia Forum

The post Natural Disasters could Trash ASEAN appeared first on Economy Watch.

The global financial crisis raised critical questions about how international policy frameworks monitor, regulate and manage global liquidity. Liquidity is a public good and the international financial system is immediately affected by its excessive volatility. The G20 has been struggling for some time to come up with answers.

They have focused on an important array of banking and financial reforms but have stopped well short of addressing the fundamental problem of calibrating global liquidity to meet the needs of the global economy.

The global financial crisis raised critical questions about how international policy frameworks monitor, regulate and manage global liquidity. Liquidity is a public good and the international financial system is immediately affected by its excessive volatility. The G20 has been struggling for some time to come up with answers.

They have focused on an important array of banking and financial reforms but have stopped well short of addressing the fundamental problem of calibrating global liquidity to meet the needs of the global economy.

The urgency of reform is reinforced by a number of factors. Most important among them is that, over the next decade, emerging economies will likely account for at least half of global financial assets, with a number of systemically important banks emerging, particularly in Asia.

In the near term, another issue is the prospect and timing of the US Federal Reserve’s further interest rate rises. Such rises, coupled with renewed concerns about retrenchment in global capital flows, has emphasised the importance of managing liquidity as a global public good.

Central banks have tried to do this during crises by significantly increasing the number of swap agreements. However, they have stopped well short of developing an institutionalised global swap network. This is understandable as central banks are primarily driven by domestic mandates.

How then can we provide this global public good? Do we need to transform the International Monetary Fund (IMF) to become more of a global monetary institution? This debate occurs periodically but suggested reforms are never taken forward. In addition, while it helps that the IMF is now looking at the options ahead, for it to become the institution that provides liquidity a swathe of reforms will be necessary before it can do anything to regulate global financial flows.

Instead, a high-level group should be set up and charged with overseeing global liquidity. This could be a group of central bank governors that is invited to report periodically to the IMF’s International Monetary and Financial Committee and becomes part of the ministerial organ of the G20. This group of governors could comprise the governors of the central banks whose currencies are in the Special Drawing Rights (SDR) currency basket — which now includes the renminbi (RMB).

Through this recognition of its dimensions, the SDR instrument could be overhauled to fulfil the role of the regulatory instrument originally assigned to it. To restore the potential of the SDR, the managers of the system would need to have the power to use it much more flexibly and as needed depending on the global liquidity situation.

This will require the new SDR instrument to be promptly issued and, just as rapidly, mopped up to stabilise global liquidity. The current definition of this instrument should also be reviewed and the present regime of allocations — providing supplementary SDRs to countries less in need of them than others — reformed, so that SDRs can be created in crisis situations.

For this to work, full monetary status needs to be granted to the SDR, an effective condition for it to become the principal reserve asset in the international monetary system, as originally envisaged in the IMF’s Articles of Agreement. As initial steps in this direction, the SDR should be given much more visibility in the operations of the IMF and other institutions in the official sector, building its potential to become competitive with other internationally used currencies.

In parallel to these measures, the IMF should be assigned monitoring responsibility over capital and investment flows in the same way it monitors trade in goods and services. This will require amendments according to the IMF’s Article of Agreement and consensus on such amendments will be difficult to reach.

Going in this direction will be impossible unless issues of the IMF’s legitimacy and governance are effectively addressed — these issues have been particularly difficult for emerging markets, especially in Asia. What is needed is a paradigm shift in these areas driven by a proactive G20.

Certainly, steps have been taken recently. In the wake of the recent global crisis, and in response to G20 requests, the IMF has broadened its surveillance instruments and reformed its lending facilities. However, IMF surveillance, in practice, continues to have unequal effectiveness, carrying much less weight in countries with the most influence on the global environment.

Where governance issues are concerned, even with the (delayed) implementation of the 2010 quota review, the total share of votes that emerging economies in the IMF have remains well below their global share of gross domestic product (GDP). China’s voting share, for example, has now doubled, but is still just 6 percent despite its economy accounting for nearly 18 percent of global GDP.

It is time that the stability of global liquidity becomes the responsibility of an institution designated to do so by the entire global community. This could be best done through a global monetary institution — a transformed IMF — with a strong mandate for surveillance, stabilisation of exchange rates, and global liquidity as well as effective mechanisms for reducing risk and for dealing with debt restructuring.

Setting up such an institution and equipping it with the necessary monetary tools is an ambitious task that will require no less than a new Bretton Woods conference.

How to rescue the international monetary system is republished with permission from East Asia Forum

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In Hangzhou, China began the push for G20 to overcome protectionism and fuel global growth prospects. That is vital to reverse stagnation in advanced economies and slowdown in emerging nations.

On September 4-5, the leaders of the G20 economies met in Hangzhou. The summit had great symbolic importance that was easily understood in emerging economies but largely ignored in advanced economies.

In Hangzhou, China began the push for G20 to overcome protectionism and fuel global growth prospects. That is vital to reverse stagnation in advanced economies and slowdown in emerging nations.

On September 4-5, the leaders of the G20 economies met in Hangzhou. The summit had great symbolic importance that was easily understood in emerging economies but largely ignored in advanced economies.

Although economic gravity has been in emerging Asia for decades and the emerging world has fueled global growth prospects for nearly a decade, this was the first time that the G20 truly met in the territory of the future.

Nevertheless, international media, which remains headquartered in rich economies, focused on the sensational, whether it was a misreported snub of President Obama, speculative rumors about diplomatic jostling, inflated hopes associated with bilateral meetings, or British Prime Minister Theresa May’s red suit.

In reality, the G20 summit was set to achieve two main objectives.

Overcoming protectionism in the short-term

The G20 final communiqué focused on struggle against tax evasion; accelerated efforts to push international trade and investment; fiscal stimulus and innovation to boost economic growth; and strengthening support for refugees. Indeed, Hangzhou sought to reverse was the eclipse of global economic integration.

In the past half-decade, advanced economies have sustained a semblance of stability, by relying on historically ultra-low interest rates and massive injections of quantitative easing. The QE measures exceed $12 trillion, $10 trillion in negative-yielding global bonds, and there have been 660 interest rate cuts since the collapse of Lehman Brothers in 2008.

Yet, global prospects remain dim, advanced economies are amid secular stagnation and emerging economies are coping with slowdown. Global economic integration – as measured by world trade, investment and migration – has been paralyzed.

World export volumes are not just growing more slowly, but falling; not least because of trade restrictions imposed by certain G20 economies in key product categories. Meanwhile, global foreign direct investment (FDI) remains well behind the global crisis levels of 2008. Finally, global migration continues to linger.

“We aim to revive growth engines of international trade and investment,” President Xi Jinping said in a closing statement. “We will support multilateral trade mechanisms and oppose protectionism to reverse declines in global trade.”

During the summit, leaders from the world economies agreed to oppose protectionism. In the coming months, they will have to walk the talk.

Pushing emerging growth in the medium-term

A day before the summit, President Obama and President Xi announced the ratification of the Paris Agreement of the 2015 UN Climate Change Conference. Since the US and China represent 20 percent and 18 percent respectively of global carbon dioxide emissions, the two can push efforts against global warming in both advanced and emerging economies.

Initially, global climate change initially evolved in advanced economies, which industrialized in the 19^th and early 20^th century. Today, it is hurting disproportionately emerging and developing economies, which are still amid industrialization.

Ironically, while the G20 accounts for two thirds of the world population, 85 percent of global GDP and 80 percent of international trade, it, too, has served mainly the interests of advanced economies. The G7 nations comprise less than a tenth of the world’s total population, but they continue to account for almost half of the world economy.

As the G20 host, China has set a different tone, starting in May, when Foreign Minister Wang Yi said that Beijing intends to cooperate with other G20 countries to deliver ten outcomes. In particular, China’s goal is to “initiate cooperation to support industrialization of Africa and least developed countries (LDCs).”

Given its rising economic and political position in the world economy, China is seen as a more credible “broker” to leverage power between advanced, emerging and developing countries, including the least developed countries.

Starting in Hangzhou, for the first time, emerging and developing economies may have a bigger voice in the global economy. It is a very, very belated start of a long effort to transform global governance.

G20: Overcoming Protectionism, Emerging Growth is republished with permission from The Difference Group

The post Emerging Economies Belated G20 Voice appeared first on Economy Watch.

Vientiane will host the 28th ASEAN Summit this week, with the summit documents rotating around the same themes that ASEAN has been promoting for decades: unity and centrality. The worry, both at the upcoming summit and beyond, is that there is little effort to put substance into these goals.

Vientiane will host the 28th ASEAN Summit this week, with the summit documents rotating around the same themes that ASEAN has been promoting for decades: unity and centrality. The worry, both at the upcoming summit and beyond, is that there is little effort to put substance into these goals.

ASEAN faces three challenges that imperil its quest to remain unified and central: external pressure placed on ASEAN unity by rival Chinese and US ambitions, internal tensions as key states question the role of ASEAN and its version of community building, and the broad question of its legitimacy in the eyes of the people who live within its member countries. On each ASEAN needs to make substantive progress, rather than produce documents full of admirable goals and minimal commitment to realising them.

Too often discussions of the external threats to ASEAN unity focus on the South China Sea. The rival claims between China and ASEAN members — and, although less often mentioned, between ASEAN members themselves — are of great importance, but they are representative of the challenges ASEAN faces when dealing with great powers, not definitive of them.

Divisions between ASEAN members — some aligning with Washington, others with Beijing and more hedging between both — suggest that great power competition in the region cannot do anything but impede ASEAN unity. This becomes even more threatening considering that neither the United States nor China seem willing to make ASEAN unity a strategic goal in and of itself, preferring instead to harness ASEAN, unified or not, to their own ambitions.

The United States has made clear, as expressed at the February 2016 Sunnylands Summit between US President Obama and the ten ASEAN leaders, that it hopes to bring ASEAN on board as a strategic partner in defence of the rules and norms of international law. China sees this as an act of encirclement that threatens Chinese freedoms. China has close relationships with many ASEAN members, especially Cambodia which is widely understood to work as a proxy for Chinese interests within ASEAN.

The economic dimension to this great power rivalry needs remembering. On the US side, the troubled Trans-Pacific Partnership (TPP) deal includes only four ASEAN members: Brunei, Malaysia, Singapore and Vietnam. The TPP — the economic component of the US rebalance to Asia — cuts across the still evolving ASEAN Economic Community (AEC) and, of course, excludes China.

ASEAN itself has, on the other hand, led negotiations on the Regional Comprehensive Economic Partnership (RCEP), which includes all ASEAN members as well as India, China, South Korea, Japan, Australia and New Zealand. Notably RCEP does not include the United States.

What, in this context of great power rivalry, does ASEAN want to be? What does ASEAN unity mean in a world where ASEAN and its members may have to choose sides? On this, there is nothing, not even platitudes.

Internally the challenges are no less severe. ASEAN as a regional enterprise flourishes when it demonstrates its value to political elites. That value lies chiefly in protecting and promoting wealth and sovereignty.

Recently it has been adrift of these aims, undercutting the importance of ASEAN to its members. On the South China Sea issue, ASEAN has been unable to back the Philippines in the ruling of the international arbitration tribunal because of its internal divisions, resulting in ASEAN not being willing to protect the sovereign claims of one of its members.

In the economic realm, the AEC project is dogged by delays as member states count the costs of meeting all of its obligations. This is especially the case in Indonesia where President Joko Widodo has based much of his domestic political agenda on a more powerful assertion of Indonesia’s interests, which are, as he sees them, contrary to the needs of ASEAN.

The call for a ‘post-ASEAN Indonesian foreign policy’ made most clearly by Rizal Sukma, has seen Indonesia, the largest member of ASEAN, drift away from multilateralism towards a more bilateral and global heavyweight role. Post-ASEAN foreign policies are hardly emblematic of ASEAN unity or its centrality to the ambitions of its members.

Beyond great power machinations and ASEAN’s failure to meet the interest of its leaders is the third challenge — mass disenchantment. ASEAN’s regional reforms have, since the 1997 Asian financial crisis, focused in part on becoming ‘caring’, that is, taking an active interest in improving the lives of the hundreds of millions of people who live within its borders. From this concern have sprung commitments to human rights, democracy, women’s rights, the environment, migrant labour regulations and disaster management.

This edifice is built on shaky foundations — ASEAN retains its overriding commitment to non-intervention and domestic freedoms of its members, resulting in commissions that cannot enforce the standards that they are charged with protecting. This risks provoking the ire of those very people ASEAN claims to want to help. What future is there for ASEAN when it cannot bring itself to enforce its own standards and yet wants to be seen as helping its citizens?

ASEAN has always faced challenges, but the scale, nature and interpenetration of these three issues are unprecedented. What is needed is political leadership willing to make hard decisions that may put some ASEAN members offside in service of the goals that ASEAN enshrines. If ASEAN fails to act it is unlikely to fall apart.

Without such leadership, ASEAN risks being ‘hollowed out’ as a regional organisation and becoming increasingly irrelevant — a form without a function — as its members look elsewhere to achieve their aims and defend their interests.

ASEAN centrality losing ground is republished with permission from East Asia Forum

The post Hollowing Out of ASEAN is the Latest Risk appeared first on Economy Watch.

Brazil, Russia, India, China and South Africa (BRICS) have existed as a coherent economic group since 2009. They represent approximately 40 percent of the world population, generate approximately 20 percent of world output, have accounted for 50 percent of global growth since the end of 2009 and play a crucial role in developing industries dominated by global value chains.

Brazil, Russia, India, China and South Africa (BRICS) have existed as a coherent economic group since 2009. They represent approximately 40 percent of the world population, generate approximately 20 percent of world output, have accounted for 50 percent of global growth since the end of 2009 and play a crucial role in developing industries dominated by global value chains.

BRICS’ cooperation has been driven by not only economic and political factors but also the failure of the existing global economic governance framework to satisfy the needs of these countries. As a result, the BRICS countries have established a new cooperative mechanism that promotes political, security governance structure reform in the UN and in the international financial, monetary, and trade systems. Seven BRICS summits have been held thus far.

Importantly, cooperation between the BRICS countries not only produces outcomes that align with their own interests but also reflects the interests of other countries. Their cooperation will lead to progressive changes in the international system and minimise the inevitable shocks that may result from reform.

The G20 is the only global economic governance mechanism that the BRICS countries all participate in as founding and core participators. The BRICS countries also participate in regular informal leaders’ meeting during the G20 summits. This not only helps to improve BRICS’ influence through forming alliances but also provides a platform for them to express their stance on certain global issues.

Along with other more traditional multilateral economic organisations, the BRICS countries consistently weigh into international economic affairs. For instance, through APEC and the OECD forums, the BRICS countries have conducted various forms of international coordination activities in response to global and regional issues of common concern.

The financial and economic cooperation of BRICS has served as a new and innovative model for achieving further South–South cooperation. This is seen in the BRICS countries carrying out the UN Millennium Development Goals action plans and providing liquidity guarantees, debt reduction, market entry and technology transfers to support poverty-stricken countries. Individual BRICS countries have also expanded the scale of foreign aid for under-developed countries.

In general, the BRICS countries have gradually become aware that they share mutual interests in international affairs and actively participate in international multilateral cooperation. The G20 has become an important platform for them to strengthen cooperation and provides a new supporting mechanism for their participation in global economic governance.

While BRICS and other emerging economies have been pushing for deep reforms in global governance, their national interests and worldviews differ, which makes complete alignment in the G20 unrealistic. Since 2013, structural problems in BRICS’ economies have also been significant, including large income gaps, lack of financial transparency and infrastructure deficiencies.

At the same time, the external economic environment is not favourable to BRICS, with emerging market economies experiencing sharp slowdowns of late. This has led to divergent growth trends between the BRICS economies. Weak geopolitical links, complicated internal and external relations, and inadequate governance capabilities also pose challenges for BRICS.

In light of such challenges, there has never been a better time for China to stand up and play a leading role in encouraging closer cooperation among the BRICS countries. China is the host of the G20 in 2016 and from 1 January 2017, China will take on the presidency of the BRICS cooperation mechanism.

China can serve as a facilitator to advance the implementation of past policy commitments, to shore up long-term growth through innovation and structural reform, and to maintain financial stability in the emerging markets.

China can also continue to promote a stable and resilient international financial structure that improves the representativeness of emerging economies. In addition, last but not least, China can play an important role in facilitating policy coordination between BRICS and other G20 members.

There is much for BRICS to achieve, from jointly promoting global trade growth to enhancing the transparency of regional trade agreements. However, to do this, BRICS must make use of internal exchanges, share knowledge and unify their stance to ensure their voice is louder, clearer and fully reflected in the G20.

The role of BRICS in global governance is republished with permission from East Asia Forum

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The G20 has become the key vehicle for implementing and promoting global economic governance. China is set to host this year’s G20 summit in Hangzhou on 4–5 September.

What can we expect from the G20 under China’s leadership?

The G20 has become the key vehicle for implementing and promoting global economic governance. China is set to host this year’s G20 summit in Hangzhou on 4–5 September.

What can we expect from the G20 under China’s leadership?

At the 10th G20 summit, held on 15–16 November 2015 in Turkey, Chinese President Xi Jinping announced that the theme of the 2016 G20 would be ‘jointly striving for an innovative, invigorated, interconnected and inclusive world economy’. Specifically, four measures will be prioritised to promote the realisation of this goal.

The first priority will be fostering innovative approaches to growth. The global economy has entered a ‘new normal’, bringing with it a host of new problems. Old and new issues are intertwined, making the international situation increasingly complex.

To cope with these challenges and realise development aspirations, the international community should establish a global innovation system, step up global governance and transform development mechanisms to facilitate production flows on a global scale. The G20 should also seek to strengthen international production-capacity cooperation and forge an inclusive global industrial chain to enable all countries to fully realise their comparative advantage.

The Chinese G20 summit will also emphasise improving global economic and financial governance. It has been seven years since the global financial crisis, but deep-seated issues remain. Equal participation of developed and developing countries in decision-making through the G20 framework is the future of global governance.

Under China’s leadership, the G20 will continue to provide political support, promote global economic governance reform, ensure greater fairness and equitability in deepening reform, and increase the representation of emerging markets and developing countries in the institutions of global governance.

Boosted by the G20, existing international financial institutions are being reformed and crisis-response capabilities being strengthened. New institutions, such as the Asian Infrastructure Investment Bank (AIIB), established under Chinese leadership, can provide a useful supplement to the existing international financial system. The AIIB emphasises win–win cooperation and embraces openness, inclusiveness and constructiveness. As an innovation in economic and financial governance, the model provided by the AIIB should inspire the G20 summit.

The third focus at this year’s G20 summit will be on building an open world economy. This goal is critical in order to strengthen global governance and balance the developmental needs of countries at different stages of economic development. Urbanisation and industrialisation in developing countries is restricted by inadequate technology, equipment and infrastructure. In addition, in developed countries, equipment and infrastructure rejuvenation is complicated by a shortage of funds and high costs.

Opening the global economy and upgrading economic cooperation will provide new momentum for the economic development of all countries. The ‘One Belt, One Road’ initiative, proposed by China, is one avenue through which to pursue this aim. It aims to combine the strategies of voluntarily participating countries for inclusive and sustainable development through mutual consultation, construction and capacity sharing.

Under Beijing’s leadership, the G20 will prioritise inclusive and interconnected development. In the era of global value chains, no country can achieve development in isolation. The development of each country is deeply interconnected with the health of the global economy.

The global economy has been slow to recover from the 2008 global financial crisis. The crux of the problem is that the impetus for the previous round of technological and industrial revolution is all but exhausted. The problem of uneven development is far from being resolved and the inadequacies of existing economic governance mechanisms are gradually surfacing.

The world economy is still undergoing profound adjustment after the global financial crisis and the current model of economic development seems unable to solve some problems associated with economic restructuring and sustainable development. Development that is more comprehensive, fair, open and innovative is not just a moral responsibility, but is necessary for countries to achieve their economic potential.

Despite global economic difficulties, China has maintained a high growth rate and has managed to consolidate the foundation of its real economy. Its long-term economic growth and potential in sustainable growth suggest that China has unique experience in promoting development.

The 2016 G20 summit presents an opportunity for China to share its development experience with the world and for the world to re-examine China’s experience in development. If G20 countries can seize this opportunity and draw on China’s successful experience in economic governance to address their own problems, they are certain to boost confidence in the global economy.

What to expect from China’s G20 leadership is republished with permission from East Asia Forum

The post China in the G20 Spotlight appeared first on Economy Watch.

As China assumes leadership in the grouping, Beijing a wants greater role for Africa and the developing world in the G20.

When China’s Foreign Minister Wang Yi spoke in the Hangzhou Summit in May, he made it clear that Beijing intends to cooperate with other G20 countries to deliver ten outcomes. One of these focuses on Africa.

As China assumes leadership in the grouping, Beijing a wants greater role for Africa and the developing world in the G20.

When China’s Foreign Minister Wang Yi spoke in the Hangzhou Summit in May, he made it clear that Beijing intends to cooperate with other G20 countries to deliver ten outcomes. One of these focuses on Africa.

As the G20 host, China’s goal is to “initiate cooperation to support industrialization of Africa and least developed countries (LDCs).” Wang added, “This year, China will encourage G20 members to help Africa and LDCs speed up industrialization, reduce poverty and pursue sustainable development by means of capacity building, investment increase and infrastructure improvement.”

After seven decades of promises by major advanced economies, it is hardly a surprise if Africans feel somewhat wary about such pledges. However, this time may prove different.

Africa’s role in the G20

Currently, South Africa is the only G20 member from Africa. However, China wants Africa to have a greater role in the grouping and to institutionalize that role. At the Forum for China-Africa (forac) meeting in South Africa last year, President Xi pledged $60 billion toward Africa’s development agenda. To walk the talk, Chinese hosts have invited to Hangzhou more African countries. With Beijing’s support, Africa can also become a permanent subject of the G20 meetings.

Until recently, the international multilateral organizations, including the International Monetary Fund (IMF), World Trade Organization (WTO) and World Bank, have been essentially inter-governmental organizations in which advanced economies dominate financing, vote, leaders and effective policies.

Yet, a truly new, more multipolar world order has begun to emerge in the past few years, not least because the initiative of the G20, China and other large emerging economies. One of the first signs was the creation of the BRICS New Development Bank (NDB), which was followed by the institution of the Asian Infrastructure Investment Bank (AIIB). In October, the Chinese renminbi (RMB) will join the IMF’s international reserve currencies, thus paving way for Indian rupee in the future.

None of these changes came about automatically, or through advanced economies’ initiatives, or without significant behind-the-façade friction. The same goes for African industrialization, which is the explicit goal of Africa’s Agenda 2063 for all the 54 economies in the continent. That requires the core economies to push for greater regional and intra-regional cooperation. It won’t be easy. Then again, China, too, had to overcome its warlords, imperial disintegration, a century of colonial humiliation, and a bitter civil war – before even the start of industrialization.

Moreover, Chinese economy has not expanded, thanks to advice from international multilateral organizations. Actually, what Beijing has done – from Deng Xiaoping to Xi Jinping – has often violated Western doctrines.

Overcoming development bias

A decade ago, I met a senior World Bank official in Washington, D.C. Among other things, we exchanged views about advanced technology and industrialization in emerging and developing economies. In Asia, I noted, the diffusion of new technologies has resulted in more diversified industrial structures, thanks to foreign multinationals and local labor forces.

I argued that, in the future, we might see some parallels in several African economies. However, the official was skeptical.

“I agree with your view on technology diffusion in Asia,” he said, “but I doubt it’s possible in Africa.” Why? I asked. “Africa does not manufacture. African economies consume, but don’t produce.”

“If you had visited Shenzhen in the late 1970s, it was a poor fishing village of 20,000 people where most were poor and lived on a subsistence economy,” I said. “If you visit the city today, it is a megacity of millions, a thriving ICT centre and its living standards are some of the highest in China. What seems impossible today may be trivial tomorrow.”

African industrialization, with Chinese characteristics

There is no reason why some urban centers in Africa could not evolve from assembly centers to manufacturing giants. Moreover, foreign direct investment (FDI) has played a critical role in China’s rapid economic development. To China, it has meant technology and know-how; to foreign multinationals, participation in China’s growth and benefits from the mainland’s industrialization and urbanization. There is no reason why FDI could not play a similar role in Africa in the future.

The most critical need in Africa is the acceleration of industrialization vis-à-vis elevated infrastructure investment, higher agricultural productivity, faster urbanization and an enduring focus on upgrading productivity, competitiveness and human capital. Chinese lessons stress the initial role of assembly factories to support self-sufficiency in manufacturing, creating jobs, expanding the economy and boosting positive externalities. In some cases, Chinese investments in Ethiopia, Congo, Cote D’Ivoire, Mozambique and Tanzania may be illustrative.

Moreover, such objectives contribute to the diversification of the industrial structure. Many African nations still rely excessively on resource exports and remain exposed to international commodity cycles. As the recent plunge of energy prices demonstrates, this can drastically penalize economies in which most budget revenues stem from oil and gas, as evidenced by Nigeria and Angola.

Industrialization does not only support economic objectives, such as self-sufficiency and resource independence, it can boost non-economic goals – from security to human capital – but not without peace and stability and a relentless struggle against corruption.

Greater Role to Africa and Developing World in the China-Led G20 is republished with permission from The Difference Group

The post Can Africa Benefit from a Greater G20 Role? appeared first on Economy Watch.

More than seven decades after 1945, international multilateral organizations continue to represent the victors of World War II, not the economic powerhouses of the 21^st century. However, change is in the air.

More than seven decades after 1945, international multilateral organizations continue to represent the victors of World War II, not the economic powerhouses of the 21^st century. However, change is in the air.

The G20 is the premier forum for global economic governance. It accounts for two thirds of the world population, 85% of global GDP and 80% of international trade. As a result, it offers a comprehensive indicator for the health of the global economy. Nevertheless, in the past G20, like many other comparable groupings, has operated mainly under the interests of major advanced economies.

As the world will turn its eyes toward the G20 in Hangzhou, China will set a different tone. It is one that the developing world has despaired for since the postwar era, one that does not seek to threaten the existing multilateral organizations, but to complement them.

Cautious optimism

There is reason for cautious optimism.  While G20 heads of government, or heads of state, have periodically met since the fall of 2008, this is the first time that the G20 Summit will be hosted by the largest emerging economy in the world; one in which living standards on average remain far behind those in advanced economies.

The role of the living standards matters. People who are subject to similar life conditions tend to share similar needs, interests and goals, across national boundaries. Until recently, they have lacked a representative voice in most international multilateral organizations, including the International Monetary Fund (IMF), World Trade Organization (WTO) and World Bank. In the latter, advanced economies dominate financing, voting quota, leaders and thus effective policies.

Despite the sincere idealism of many in their work force, these organizations have not been truly international, but driven by the interests of, by and for major advanced economies.

Yet, a new, more multipolar world order has begun to emerge in the past few years, not least because the initiatives of China and other large emerging economies. One of the first signs was the creation of the BRICS New Development Bank (NDB), which was followed by the institution of the Asian Infrastructure Investment Bank (AIIB). In October, the Chinese renminbi (RMB) will join the IMF’s international currency reserves, perhaps paving way for Indian rupee sometime in the future.

The lesson to be learned, however, is that none of these critical initiatives came about automatically, or through advanced economies’ initiatives, or without significant behind-the-faced friction.

In effect, G20 is a case in point.

Struggle for representative global governance

In his May speech in Hangzhou, Foreign Minister Wang Yi noted that the G20 is different from previous cooperation mechanisms. “Here, developed countries and developing countries sit at the same table as equal partners, and discuss and decide on international economic matters on an equal footing,” he said. “This reflects a major change in the world economic pattern and represents historical progress in keeping with the trend of our times.”

International media, I am afraid, did not entirely catch the subtext of Wang’s comment. What he did not say – after all, he is a diplomat – is that even G20 cooperation began only at the moment when advanced economies had exhausted all other alternatives.

That moment occurred in fall 2008, when for a few weeks the G7 economies – the US, Canada, four major European economies and Japan – were facing a specter of global depression that could prove far worse than the Great Depression in the 1930s. In this sense, global cooperation did not begin in the previous decade when there were many opportunities to do so. Nor did it begin after the Cold War when military budgets were slashed and the so-called peace premium was within the reach of major advanced economies.

In effect, even though the “emerging states” have been in the effective policy agenda of the advanced economies since the 1950s, reforms in global political governance have not.

G20 as G7 creation

Even the establishment of G20 was not the result of truly global multilateral consensus. It superseded the old G33 and was formally established by the G7 finance ministers in Berlin in 1999, mainly at the initiative of then-German finance minister Hans Eichel.

The membership of the G20 was decided by Eichel’s Deputy Caio Koch-Weser and then-US treasury Secretary Larry Summers’ Deputy Timothy Geithner (Wall Street banker who later served as president of New York Fed and treasury secretary under President Obama).  Koch-Wieser and Geithner simply went down the list of potential countries, saying, Canada in, Spain out, South Africa in, Nigeria and Egypt out, and so on. As a result, most G20 member states just happen to belong to the transatlantic axis, NATO or its allies, and US free trade agreements.

Initially, then, G7 created G20 in its own image. Consequently, some large economies, such as Spain, Netherlands and Switzerland, were not included because the stated goal was global representativeness. Other motivations may have been geopolitical, which is why Iran was not included.

The only reason why the 2008 abyss was avoided was cooperation between the leading advanced economies and large emerging nations, which recognized their inter-dependency and need for collaboration. In return for cooperation, the major advanced economies pledged they would speed up structural reforms in global governance to make the key organizations more representative of the world they claim to represent.

Nevertheless, as the reforms did not follow (and some were intensely opposed behind the public façade), China and other large emerging economies, particularly Brazil, India, Russia and South Africa began to promote complementary – not substitutionary – inter-governmental multilateral organizations.

Being on the right side of history

In the past two decades, we have witnessed a massive transfer of relative economic power from advanced economies to emerging nations. Yet, economic power is only remotely associated with the size of the population.

Today, the list of the world’s 20 most populous nations includes only three advanced economies; that is, the US, Japan, and Germany. Conversely, several large nations have no voice in the current G20, representing South Asia (Pakistan, Bangladesh), Sub-Saharan Africa (Nigeria, Ethiopia, Democratic Republic of Congo), Southeast Asia (Philippines, Vietnam, Thailand), and the Middle East (Egypt, Iran).

In brief, the G7 economies comprise less than 9 percent of the world’s total population but continue to account for more than 47 percent of the world economy. Despite all the rhetoric of development in advanced economies and international multilateral organizations since 1945, barely one tenth of humanity dominates almost half of the world economy.  

It is thus hardly surprising that, in many low- and middle-income nations, development practitioners see China, given its rising economic and political position in the world economy, as a more credible “broker” to leverage power between advanced, emerging and developing countries, including the least developed countries.

It is time for emerging economies and international multilateral organizations that truly represent their interests to complement the incumbent ones. Why shouldn’t these organizations look like the people they should represent?

That’s why I believe this time is different with G20. Starting in Hangzhou, for the first time, emerging and developing economies may have a bigger voice in the global economy. It is a symbolic start of a long, complex and belated effort to shift global governance to better represent the world itself.

A New Beginning for the G20 is republished with permission from The Difference Group

The post How will the G20 Work in a Multi-polar World? appeared first on Economy Watch.

The Permanent Court of Arbitration (PCA) judgement on the South China Sea ruled that there is no legal basis for Chinese ‘historical rights’ within its claimed nine-dash line. China did not accept the judgement and has instead continued its maritime and aerial activities in the region.

The Permanent Court of Arbitration (PCA) judgement on the South China Sea ruled that there is no legal basis for Chinese ‘historical rights’ within its claimed nine-dash line. China did not accept the judgement and has instead continued its maritime and aerial activities in the region.

ASEAN has struggled to issue a strong and coherent response, largely because half of ASEAN’s members — namely Malaysia, Philippines, Vietnam, Brunei and Indonesia — are involved in overlapping claims in the South China Sea. After the recently concluded 49th ASEAN Foreign Ministers’ Meeting in Laos, ASEAN released a joint communique that was seen as ‘too soft’ on China. The communique failed to explicitly denounce China’s assertive actions in the South China Sea.

Meanwhile the United States continues to push the Southeast Asian states to endorse the PCA decision and issue a more potent response in condemning Chinese actions in the South China Sea. Even the Philippines, which had initiated the PCA case, has provided a muted response so far under its newly elected president, Rodrigo Duterte.

Such differing reactions to the PCA judgements and China’s actions in the South China Sea may appear to be confusing. However, China’s more assertive behaviour and ASEAN’s lacklustre response thus far makes sense if we consider the broader strategic background.

ASEAN is unable to cooperate on many common security issues. It was formed to soothe regional competitions and apprehensions among its pioneer members, particularly Indonesia, Malaysia, the Philippines and Singapore. ASEAN originally operated as a platform to discuss cooperation in socio-economic activities and adheres to the principle of non-interference in each other’s internal affairs.

ASEAN has since grown to include all other states in the Southeast Asia region and, with each of these additional members, their respective geopolitical preferences. Some of these states, such as Myanmar, Laos and Cambodia, are strong traditional allies of China that have no strategic interest in the South China Sea. These states also strongly rely on China for both political and economic survival.

As for those ASEAN members that have an interest in the South China Sea, they are perpetually locked in rivalry and competition among themselves in overlapping claims. Almost all of the ASEAN members are also entangled in border and territorial disputes among themselves. For example, the Philippines has not yet dropped its claim on Sabah in Malaysian Borneo.

Meanwhile Thailand has a continuing interest in working closely with China to build a canal through the Kra Isthmus in southern Thailand, similar to the Panama Canal. This project is estimated to cost close to US$30 billion and the economic trade-off for Thailand will be extraordinary. If this canal is built it will allow ships to bypass the Strait of Malacca and will result in significant loss of maritime shipping revenue for Malaysia, Singapore and Indonesia.

It would be in the strategic interests for these three states not to agitate China in case it prioritises the financing and building of this canal with Thailand. China sees this planned project as part of its new maritime Silk Road. Thailand, which has deliberated on the building of the canal since the end of the 17th century, continues to weigh up the potential returns of a geopolitical alliance with China.

With so many conflicting interests and rivalries between ASEAN members, it is not surprising that ASEAN has been unable to produce a strong joint statement condemning China’s actions in the South China Sea. China knew about these fractious issues and played its cards well. China’s rejection of the PCA ruling further indicates the impotence of international law in the face of a major power and a permanent member of the UN Security Council.

Although action can be taken unilaterally by certain trade blocs, the willpower to enforce any firm action, such as sanctions, is strongly lacking. Even US attempts to push some of its allies in the region to influence ASEAN continue to be frustrated by both ASEAN’s own internal frictions and by uncertainty over US foreign policy once a new president is elected in November 2016.

The mixed and at times muted response of ASEAN seems set to continue. This will likely result in China continuing to position itself strongly in the region and to unilaterally pursue claims in the South China Sea.

Is the South China Sea fracturing ASEAN? is republished with permission from East Asia Forum

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In December 2015, China announced that its priorities for the upcoming G20 Hangzhou summit were to make the global economy more innovative, invigorated, interconnected and inclusive. However, China is struggling to deliver practical outcomes in these areas because many of them are challenging domestic issues that lack a global focus.

Luckily, G20 finance ministers and trade ministers identified practical outcomes on the global financial safety net, growth and trade, which could be delivered, provided China is willing to broaden its priorities.

In December 2015, China announced that its priorities for the upcoming G20 Hangzhou summit were to make the global economy more innovative, invigorated, interconnected and inclusive. However, China is struggling to deliver practical outcomes in these areas because many of them are challenging domestic issues that lack a global focus.

Luckily, G20 finance ministers and trade ministers identified practical outcomes on the global financial safety net, growth and trade, which could be delivered, provided China is willing to broaden its priorities.

In practical terms, the G20 can only do three things: it can share information and best practice policies between countries; it can reform global governance by either reforming existing institutions like the IMF or creating new ones; or it can undertake what Oxford University’s David Vines calls ‘concerted unilateralism’, where countries implement policies (fiscal, monetary or structural) to suit their own economies, but do so collectively.

For China’s G20 presidency, sharing information and best practice policies is a weak political outcome, and creating new international institutions on things like innovation or inequality is neither practical nor politically feasible. This means China has to rely heavily on the third option: asking countries to undertake domestic reforms in innovation and inequality, but to do so collectively.

The problem with this is that issues like promoting innovation are complex public policy challenges. Many governments have struggled even to identify policies that are useful in promoting innovation, let alone work out how these efforts could be scaled-up to the lofty heights of the G20. For the G20 to add value, countries also need to do more than what they were doing already.

The G20 has not been good at this in recent years. The number of domestic strategies and actions plans they have created for the G20 agenda, including on growth, investment, fiscal policy, employment, anti-corruption, energy efficiency, financial inclusion and remittance flows, already exhausts G20 countries. People can legitimately question whether more domestic strategies or action plans constitute a practical outcome.

China has, though, identified a key global governance reform relating to its objective of ‘interconnectedness’. It has announced the creation of a ‘Global Infrastructure Connectivity Alliance’ to enhance the cooperation and synergy of infrastructure programs. It’s unclear what this Alliance will do specifically, but if it involves better integrating the plethora of multilateral, regional, bilateral and domestic infrastructure bodies then it is a welcome initiative.

G20 finance and trade ministers have identified other practical deliverables for the Chinese presidency, which should be prioritised.

Finance ministers warn that the global financial safety net requires urgent attention, referring to the international institutions and funds designated to fight economic crises and prevent their contagion. Ministers commissioned a report from the IMF this year to assess the adequacy of the safety net and the results were not good.

The IMF warned that the safety net was too small to deal with a widespread shock and that its fragmentation across the IMF, regional initiatives like the Chiang Mai Initiative Multilateralisation (CMIM) and bilateral currency swap lines are dangerously reducing the safety net’s coverage, speed and consistency in responding to crises.

The IMF has offered to present policy options to leaders to strengthen the safety net. It is critical that the G20 takes them up on this offer and encourages the IMF to work closely with both regional initiatives and G20 central banks to overcome these fragmentation challenges.

Finance ministers also want to give a much-needed boost to the G20’s growth agenda. In 2014, the G20 set a goal to collectively lift G20 GDP by 2 percent by 2018 through a raft of structural reforms. Instead of being 2 percent larger, G20 GDP is forecast by the IMF to be 3 percent smaller. Much more work is needed, both to replace the reforms that haven’t been implemented and to fill the growth-gap left by global challenges such as Brexit.

Finance ministers want to set priorities and guiding principles to give a boost to reform efforts and consolidate the abovementioned plethora of strategies to give a sharper focus to the reform efforts of ministers and leaders. The G20 should also lift ambition by publishing the IMF and OECD assessments of whether individual countries are complying with their commitments. G20 peer review should also be undertaken by ministers and leaders, not just officials.

On trade, G20 trade ministers have rightly recognised that protectionist politics and trade restrictive measures are on the rise in many countries. The G20 needs to do better in communicating the benefits of free trade, while giving the political push that’s needed to unlock stalled multilateral trade liberalisation.

Trade ministers recognised the need for consistency between the multilateral trading system and regional and bilateral trade agreements. The G20 needs to get back to its core focus of global governance and develop a process to explore how the WTO could be reformed and how the global system of bilateral, regional and global agreements can be made more cohesive.

Delivering a successful G20 summit in Hangzhou means tackling big global challenges through practical actions that can be understood by the public. If China refocuses its priorities to emphasise strengthening the global financial safety net, increasing trade and boosting growth it will deliver a G20 legacy that will continue well beyond its 2016 host year.

China must broaden its priorities for a successful G20 summit is republished with permission from East Asia Forum

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