Governance

Indonesia’s Economic Tightrope

May 11th, 2012
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By Sakari Deichsel & George Gorman

Recent regulations in Indonesia have looked to cap foreign ownership in the high-risk mining sector, such as this coal mining operation in the Derawan Islands in the Sulawesi Sea. Source: jaundicedferret's flickr photostream, used under a creative commons license.

Indonesia’s economy saw a confidence-boosting 6.5 percent growth in GDP in 2011 fueled by a strong middle-class consumer demand and surging foreign direct investment (FDI) inflows of $19.3 billion that year. Indonesia has continued to ride a wave of investor optimism in the first quarter of 2012 with a record 30 percent surge in FDI inflows valued at $5.6 billion. With Moody and Fitch having upgraded the country’s credit rating to investment level for the first time since the 1997 Asian financial crisis, optimism about the country’s strengthening economy has prompted optimism that Indonesia is ready to join other emerging economic superstars on the world stage.

This enthusiasm has been tempered, however, by recent protectionist moves, particularly in the mining sector. The Ministry of Energy and Mineral Resources rattled investors March 7 with the announcement of new regulations aimed at restricting foreign ownership in the mining sector to 49 percent. Under the new regulations, foreign companies must gradually reduce their stake in mining enterprises to 80 percent in six years and 49 percent in 10 years. Although domestic private investors will be able to bid on foreign shares, public sector entities will be given priority. Indonesians have long called for such restrictions on foreign ownership of mining and processing out of a sense of resource nationalism, but foreign observers view the new policy as an unanticipated lurch toward protectionism.

Opaque regulatory measures like the new mining law, where no input was solicited from the industry itself, have renewed investor anxiety about the direction of Indonesian economic policy. Such protectionist measures have complex negative reverberations as investors question whether similar restrictions might be levied against the manufacturing and service sectors in the future. Apprehension about the new mining law played a role in Standard & Poor’s decision to forgo upgrading the booming market’s credit rating in response to recent “policy slippage.” (more…)

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Myanmar’s ASEAN Coming Out Party

Apr 30th, 2012
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By James Wallar

Myanmar punctuated its emergence from isolation and pursuit of reforms by announcing its desire to Chair the 2014 Summit meetings of the Association of South East Nations (ASEAN).  ASEAN (too?) quickly agreed. International scrutiny will be intense on Myanmar’s stewardship of ASEAN’s programs and on whether its domestic reforms make it a credible ASEAN representative.  It is a coming out party with high risks, but high payoffs.

Myanmar’s move to chair ASEAN is a curious twist. The country rejected being a founding member in 1967 due to concerns about intrusion in its domestic policies. Now ASEAN has transformed itself into a rule-based institution, championing good governance and democracy, and engaging on member’s national issues that affect the group’s shared commitment to security, peace, and prosperity. Myanmar is doubling down on its ASEAN gambit, with the payoff being positive regional and international recognition.

The international donor community could take advantage of the developments in Myanmar and ASEAN.  Rather than creating a new compact for assistance programs, it could use Myanmar’s commitments in ASEAN to align their assistance programs. (more…)

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Indonesia’s Economic Inflection Point

Apr 27th, 2012
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By Ernie Bower

Jakarta

Jakarta's skyline. Source: yohanes budiyanto's flickr photostream, used under a creative commons license.

The world has found Indonesia and it wants to invest.  However, under the granular focus brought on by outstanding growth and decades of latent opportunity, Indonesia’s ambiguity about how much investment and trade it wants has been revealed. U.S. companies and policymakers need to go to a new level of engagement to find alignment with their Indonesian counterparts. The fact is, both sides are interested in the same things, and a paradigm shift could offer relief, prevent counterproductive policies from being implemented, and spur sustained historic new investment and growth levels.

Indonesia’s economic situation is draped in a certain irony. The country worked hard for many years to get the attention of investors. The archipelagic nation comprised of more than 17,000 islands had a certain allure as the largest country and largest economy in ASEAN. As Soeharto fell, the country was focused on political reforms, not business and economics, becoming the world’s third-largest democracy. In addition, seemingly endemic problems ranging from lack of infrastructure to corruption to political risk assessments kept many potential investors at arm’s length. Even the world’s largest companies, those deploying proactive regional strategies in Southeast Asia, found that their market penetration and sales in Indonesia underperformed globally and relative to other ASEAN countries.

The macroeconomic situation has changed. Indonesia is now bounding forward as a large economy with a GDP of approximately $1 trillion that grew by 6.5 percent last year. The World Bank projects GDP growth will continue at 6.1 percent this year. Politics are relatively stable. Indonesians are looking to move ahead, make money, and invest in the future. They are innovators and social media mavens, creative and open to new ideas.

As investors press their noses against the proverbial shop-front window of Indonesia, peering in at the multitudinous opportunities on display, they are becoming more and more frustrated with a set of policies that smack of economic nationalism. These policies appear to want to force investors to do what investors would prefer to do without a regulatory gun to their head—namely, invest in the country. In that sense, such policies are counterproductive. (more…)

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Another One Bites the Dust: Troubles of the ECCC

Apr 1st, 2012
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By Kate Bissonnette

The future of Cambodia's prosecution of former Khmer Rouge officials is in doubt after yet another judge's resignation due to interference. Source: Extraordinary Chambers in the Courts of Cambodia's flickr photostream, used under a creative commons license.

Judge Laurent Kasper-Ansermet submitted his resignation from the Extraordinary Chambers of the Courts of Cambodia, or ECCC, on March 19 after five tumultuous months as its international co-investigating judge. The United Nations and the Cambodian government established the tribunal to prosecute crimes against humanity by the former Khmer Rouge leadership, which ran the country for a terrifying three and a half years from April 1975 through January 1979, but the ECCC has struggled to demonstrate efficacy and impartiality. Kasper-Ansermet cited repeated obstruction by his Cambodian counterpart, the national co-investigating Judge You Bunleng, and the dysfunctional situation within the ECCC as reasons for his departure.

Kasper-Ansermet’s predecessor, Judge Blunk of Germany, resigned October 31, 2011, citing similar concerns. Though Kasper-Ansermet was appointed and approved by both the United Nations and Cambodian government as a reserve judge in 2010, Judge You Bunleng’s office refused to acknowledge him as Blunk’s replacement, arguing he needed to be permanently appointed. The Cambodian Supreme Court vetoed his nomination in January, but the UN special expert to the tribunal, David Scheffer, said Kasper-Ansermet had the clear authority to proceed with investigations.

The ECCC has so far managed to bring two cases, 001 and 002, to trial, but its future rests on cases 003 and 004. Those cases involve current members of the Cambodian government, and Prime Minister Hun Sen has said he will not allow them to go to trial because their prosecution could destabilize the country, though this assertion is dubious. Initial investigations into the cases were closed in April 2011, leading to allegations of political pressure and government interference in the court. Kasper-Ansermet reopened the cases in February and attempted to push them forward by notifying suspects of the charges against them in early March, without approval or cooperation from the Cambodian side of the court. The following week, drafters of the ECCC’s 2012 and 2013 budget failed to allocate resources or time to the cases; according to the drafters of the budget, the ECCC’s investigations and Pre-Trial Chamber are expected to be phased out by 2013. (more…)

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Will India’s Future Foreign Policy run through Lucknow, Kolkata, and Chennai?

Mar 21st, 2012
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By Prashant Agrawal

As India's regional parties are thrust onto the national stage, they may become pivotal foreign policy players. Here a group of Samajwadi supporters march in Mumbai. Source aljazeeraenglish's flickr photostream, used under a creative commons license.

Diplomacy is always challenging, but understanding both where power lies in Delhi and what Delhi wants can be difficult for those that live in Delhi, much less those that live in foreign capitals.  Yet, if India’s 2012 elections portend what may happen in 2014, then understanding both who is in power in Delhi and what Delhi wants is about to become much harder.

A third front government (a coalition led by a regional party) that may come into power in 2014 will be unlike any that have come before it.  The parties that won big in the last two years have little experience at ruling in Delhi.  And their foreign policy goals are even less developed.

The last non-BJP or Congress Prime Minister was I.K. Gujral, who led the last third front government, the United Front, in 1997.  No matter how one views Gujral’s performance as Prime Minister, he was experienced in dealing with foreign leaders and he had a developed world view.  Before becoming Prime Minister, he had served as Foreign Minister and Ambassador to Moscow. He is famous for his Gujral Doctrine which amongst its five principals expounded that India would not seek reciprocity with its neighbors, “but (will) accommodate them in good faith and trust.” (more…)

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Will Elections Bring Timor Closer to a Stable Democracy?

Mar 16th, 2012
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By Kate Bissonnette

Timor-Leste National Village Elections

Timor-Leste faces a crucial step toward a consolidated democracy with the March 17 presidential election. Here Timorese vote in village elections in 2009. Source: United Nation Photo's flickr photostream, used under a creative commons license.

The people of Timor-Leste will go to the polls Saturday to elect their next president. Parliamentary elections will follow in June. This is the second election cycle for the country, and is being closely watched in Washington, New York, Canberra, and capitals around Southeast Asia. Much is at stake: whether voting on March 17 remains peaceful will help determine if the United Nations can end its peacekeeping mission by the year’s end, and if ASEAN accepts Timor-Leste’s bid for membership. Amid the U.S. rebalancing toward Asia, Washington has made it clear that another democratic voice in ASEAN would be welcome.

The United States has supported Timor-Leste since its independence, providing bilateral aid valued at $25 million in 2010, as well as multilateral aid through agencies such as the UN, the World Bank, and the Asian Development Bank. Much of this aid is focused on promoting good governance, stimulating economic development, and supporting professionalization of the military and the police.

The UN Security Council voted February 23 to extend its peacekeeping mission in Timor-Leste until the end of 2012. The UN Integrated Mission in Timor-Leste, or UNMIT, was established in 2006 to stabilize Timor-Leste as partisan violence brought it to the brink of civil war. In late 2011 an ASEAN working group was established to draft a road map for Timor-Leste to become the 11th member of ASEAN. Singapore previously rejected the country’s application, saying it did not think Timor-Leste could contribute to the grouping’s goal of establishing an economic community by 2015. (more…)

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Strategic Implications of an Open Arctic – Part 2

Mar 12th, 2012
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By Eddie Walsh

Increased competition in the Arctic is changing strategic dynamics for countries in the Pacific. Source: U.S. Geological Survey's flickr photostream, used under a creative commons license.

[Editor's Note: The following is the second post in a series on the Strategic Implications of an Open Arctic for the Pacific. You can read part one here]

Norwegian Roald Amundsen is remembered as one of the world’s great explorers. His accomplishments include reaching both the North and South Poles and being the first to sail through the Northwest Passage. Remarkably, these feats were achieved in the early-1900s, long before the age of Gore-Tex® and modern survival gear.

After all of his great adventures, Amundsen was lost not on expedition but rather conducting a rescue mission to save a friend in the Arctic. His death reflects the harsh reality of life in the High North. This is not lost on Ambassador Wegger Chr. Strommen of the Kingdom of Norway, when he pulls down an inflatable globe, points to the Arctic, and stresses, “These are extreme conditions. These are not the tropics. You have to use military assets and military equipped platforms to have any kind of presence for search and rescue.” In this respect, not a lot has changed since Amundsen’s days. But, what has changed is that the ice is melting and Arctic sea lanes are opening. This has profound strategic repercussions for the eight member states of the Arctic Council.

Eddie Walsh, a non-resident fellow at Pacific Forum CSIS, therefore sat down with Ambassador Strommen to discuss his views on the political, economic, and environmental implications of an open Arctic, both for the Arctic-Pacific region and the rest of the world.

In recent years, there has been major progress in delimiting Arctic maritime borders, including the agreement between Norway and Russia. However, a number of border disputes remain, particularly over extended continental shelves. Do you see further progress on the outstanding disputes in the years ahead? If not, can the current security architecture properly manage intractable disputes?

One has to keep these things in perspective. Too often when you study a theme, it grows before your eyes into an enormous problem. These border disputes might cover great areas but these disputes can be resolved between sensible states. What we have in the Arctic shouldn’t be exaggerated. It took us 40 years but we managed to solve our dispute with the Russians. That is a major accomplishment. It split an area almost in two of 175,000 square kilometers. In the end, we succeeded. But, we had to be patient. We now have good bilateral relations and cooperation in these areas as a result. (more…)

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Don’t Hold Your Breath for Malaysia’s Elections

Mar 5th, 2012
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By Blake Berger

Prime Minister Najib must call elections by March 2013. Source: Gen Kanai’s flickr photostream, used under a creative commons license.

The “million dollar” question in Malaysia these days is when Prime Minister Najib Razak will call parliamentary elections. The pending elections have the potential to be a watershed moment in Malaysia.

In 2008, the ruling coalition Barisan National (BN) for the first time since independence in 1957 lost its two-thirds majority in Parliament. Not long after that, Najib’s predecessor, Abdullah Badawi, was pressed to step down. Najib would certainly like to better the 2008 results to cement his grip on power.  Some speculate that he could face challenges from within his party if he doesn’t top Abdullah’s showing.

For much of last year pundits predicted Najib would call elections early in 2012.  However, recent events ranging from a series of political scandals to a flurry of new government programs  suggest that he won’t call the elections for at least the next six to eight months. Najib doesn’t have to call the elections before March 2013. (more…)

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Strategic Implications of an Open Arctic

Feb 27th, 2012
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By Eddie Walsh

The clouds begin to thin over the Arctic Ocean Aug. 19, 2009.

Increased attention for the Arctic is changing strategic dynamics for countries in the Pacific. Source: U.S. Geological Survey's flickr photostream used under a creative commons license.

[Editor's Note: The following is the first post in a series on the Strategic Implications of an Open Arctic for the Pacific.]

Norwegian Roald Amundsen is remembered as one of the world’s great explorers. His accomplishments include reaching both the North and South Poles and being the first to sail through the Northwest Passage. Remarkably, these feats were achieved in the early-1900s, long before the age of Gore-Tex® and modern survival gear.

After all of his great adventures, Amundsen was lost not on expedition but rather conducting a rescue mission to save a friend in the Arctic. His death reflects the harsh reality of life in the High North. This is not lost on Ambassador Wegger Chr. Strommen of the Kingdom of Norway, when he pulls down an inflatable globe, points to the Arctic, and stresses, “These are extreme conditions. These are not the tropics. You have to use military assets and military equipped platforms to have any kind of presence for search and rescue.” In this respect, not a lot has changed since Amundsen’s days. But, what has changed is that the ice is melting and Arctic sea lanes are opening. This has profound strategic repercussions for the eight member states of the Arctic Council.

Eddie Walsh, a non-resident fellow at Pacific Forum CSIS, therefore sat down with Ambassador Strommen to discuss his views on the political, economic, and environmental implications of an open Arctic, both for the Arctic-Pacific region and the rest of the world.

The Norwegian Minister of Foreign Affairs has said that the Arctic is the most important strategic priority of Norwegian foreign policy. What is meant by this statement and what are the implications for Norwegian foreign policy outside of the Arctic?

The Arctic is our identity. Norwegian territory is only 16% is land. The rest is water. We are basically a water country with a small land mass and large continental shelf dotted with islands. And, most of these territories are to the North. Our people are also a coastal people. Over 90% of our citizens live along the coast and they are pretty evenly dispersed. Roughly 500,000 live in the North.  So, the North is our home turf. It’s where we make our living. If you look at what pays for my shirt and my tie, its oil, shipping, fisheries, and oil supply services. Our people have always depended on such maritime resources.

With respect to our foreign policy, our renewed focus on the North will not change our international commitments. It is clear that our defense budget has not gone down and we are fortunate to have a good economy right now. There should be sufficient resources for us to do our fair share of international operations, like Afghanistan, and look after our vast maritime territory in the North. (more…)

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The Pacific’s New Market: Trading Aid for Votes in Turtle Bay

Feb 24th, 2012
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By Elke Larsen

United Nations flag. Island nations in the Pacific are increasingly likely to leverage their General Assembly votes for loans. Source: sbakshi's flickr photostream, used under a creative commons license.

When tiny Nauru, a nation of less than 10,000 people, is offered $50 million from Russia for a single vote its clear a market has emerged for purchasing support at the United Nations. As an unintended consequence of the UN system, at least 11 independent Pacific Island nations have found themselves in a unique position: they each have a vote at the United Nations and yet, because of their isolation, have no national interests in many of the distant disputes that fill the UN’s agenda. With a surplus of ‘unused’ votes, a market has been created where voting at the UN is exchanged for monetary assistance.

With a high level of dependence on foreign aid, Pacific Island nations have sought to diversify their income sources away from traditional donors such as Australia, New Zealand, and the United States in the name of increased sovereignty. The result is that, over the past four decades, the island nations have actively encouraged the formation of an “aid market.” Two negative consequences of this market can be observed from the China-Taiwan rivalry for diplomatic recognition. In 2009, it was estimated that Beijing’s aid in the South Pacific, including both grants and concessionary loans, totaled $209.9 million, while Taiwan’s was $60-$90 million. These aid transactions have not been transparent. This has less to do with undermining Western development efforts and influence and more to do with market-based incentives. (more…)

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