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Pakistan submits to the IMF again


Author: S Akbar Zaidi, Karachi

Ten months after coming into power, Pakistan’s Prime Minister Imran Khan finally agreed to a debilitating and austere stabilisation programme with the International Monetary Fund (IMF) on 12 May 2019. Khan had previously claimed that he would rather commit suicide than go to the IMF.

Imran Khan looks on during a campaign meeting ahead of general elections in Islamabad, Pakistan, 21 July 2018 (Photo: Reuters/Athit Perawongmetha).

Khan’s bravado, which only delayed the inevitable embrace of the IMF, has cost his government and Pakistan’s economy dearly. Had his government acceded to an IMF programme soon after it was sworn in, the costs, consequences and criticism might have been less severe.

The 10-month delay cost Khan his finance minister, Asad Umar, who he summarily dismissed in April. After Umar’s ouster, Khan dismissed the governor of Pakistan’s central bank — the State Bank of Pakistan — and removed both the finance secretary and the chairman of Pakistan’s Federal Bureau of Revenue. A wholesale change in leadership was required to get the IMF deal through (initial discussions for which had started in October 2018). Following the agreement, further shuffles were made in the finance and economic departments to ensure that the IMF programme would be implemented.

The reshuffle was unprecedented in scope and scale — even for Pakistan where such wholesale changes are made frequently. So too are some of the very strict conditions that the IMF laid down for its meagre US$6 billion Extended Fund Facility (EFF). As Pakistan’s foreign exchange shortfall has been at US$8–12 billion in recent years, the hope was that the IMF would lend Pakistan twice as much as it ultimately did. Perhaps the IMF has grown wary.

This 39-month EFF Programme is Pakistan’s 22nd bailout — the 13th since the 1980s — of which only two have actually been completed. And Pakistan is known as a ‘one-tranche country’ where the government is usually unable to carry through the reforms suggested by the IMF.

It is also unprecedented that the details of the agreement have not been made public as yet. There was no joint press conference, as is practice, by the Prime Minister’s new finance minister — who, unlike his predecessor, is an unelected technocrat — and the IMF chief negotiator. Though the full agreement has not been made public, numerous aspects of it have been revealed and a series of preliminary reforms, known as prior actions, initiated.

An IMF press release publicised some of the agreement’s key requirements. Pakistan must move from a managed or dirty-float exchange rate to a free-market exchange rate, make better revenue allocations between the centre and the provinces giving more to the centre than before, and raise considerable revenue over the next two financial years to plug the fiscal deficit. These ‘prior conditions’ also include raising the prices of gas and electricity. In addition, the IMF has asked the government to request that friendly countries — China, Saudi Arabia and the UAE — ‘roll over’ the estimated US$10.2 billion they have lent to Pakistan by at least a year, if not longer.

Setting the Pakistani rupee at the free market’s mercy manifested in a 9 per cent devaluation immediately after the agreement was signed, adding to a 34 per cent erosion in the currency’s value over the last 16 months. As a pre-condition, the State Bank of Pakistan also brought its scheduled monetary policy announcement forward by 11 days and raised the basic interest rate by 150 basis points to 12.25 per cent.

The writing is on the wall for Pakistan’s economy and its people, who anticipate a considerable deterioration in their livelihoods. Pakistan’s growth rate for the fiscal year ending 30 June will be around 3 per cent at best — the lowest in nine years and almost half of what it was just a year ago.

Pakistan’s per capita income has fallen by over 8 per cent in one year, from US$1652 to US$1516, mainly on account of depreciation of the Rupee. Inflation, also nearing double digits, is the highest it has been in around five years. And things are only going to get far worse. The IMF programme requires reducing development expenditure. Further devaluation will have a considerable knock-on effect on prices and interest rates are rising.

Economists calculating the economic and social costs of the IMF programme fear inflation will rise dramatically to around 16 per cent in the next year. There are also concerns that further devaluing the rupee will affect prices, while the unemployment rate will continue to rise over the three years of the programme. They also suggest that Pakistan’s GDP growth will fall further before it begins to rise, while per capita income over the next two years will drop even more than it has this fiscal year.

Worst are assessments that the number of Pakistanis living in poverty will increase by 13 million over the next three years, and that around six million people will be unemployed in the next two years.

Addressing a gathering, Khan told his captive audience in May that they would need to bear the pain for only ‘two or two-and-a-half months’ more. After that, he said, people from all over the world would be lining up to work in Pakistan, and even day labourers would willingly pay income tax. Yet by all accounts, Pakistan might be heading into its worst economic nightmare. The tabdeeli (change) that Khan promised has certainly set in, but perhaps not in the direction his millions of supporters had hoped.

Dr S. Akbar Zaidi is a political economist based in Karachi. He also teaches at Columbia University, New York and at the Institute of Business Administration (IBA), Karachi.

This is a revised version of an article that originally appeared here on Firstpost.

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The fight isn’t over for same-sex marriage activists in Taiwan


Author: Pan Wang, UNSW

For much of its history, it has been hard to imagine Taiwan — an Asian society rooted in Confucian ethics — legalising same-sex marriage. In the 1950s and 60s, family values that emphasised filial piety, respect for authority and adherence to social norms dominated everyday life. These principles also functioned as important vehicles to ensure familial harmony and social stability. Same-sex desire was thought to be non-existent, or if it ever manifested, was condemned as immoral and abnormal.

Same-sex marriage supporters celebrate after Taiwan became the first place in Asia to legalise same-sex marriage, outside the Legislative Yuan in Taipei, Taiwan, 17 May 2019 (Photo: Reuters/Tyrone Siu).

This social prejudice remained and homosexuality was pathologised as a form of mental illness throughout the 1970s and 80s when Western medical discourses were introduced to Taiwan. Citizens involved in same-sex intimacy in public risked being arrested by police and reports of such behaviour were couched in terms of deviancy. This was in part a product of the public’s fear of AIDS, presented as a foreign disease associated with sexual promiscuity.

But the tables started to turn from 1987 when Taiwan abandoned martial law. This would lay the groundwork for the growth of open support for marriage equality in the following decades.

The growing democratic atmosphere in the years after 1987 enabled LGBT activists to form their own communities and pursue their own agendas against mainstream heterosexual marriage values. This resulted in the establishment of various gay and lesbian organisations and LGBT activist groups in the 1990s, with the first annual ‘pride’ event held in 2003.

The Taiwanese government led by the Democratic Progress Party (DPP) also implemented a series of measures in the 2010s to de-stigmatise and protect the rights of LGBT communities, introducing LGBT topics to primary school textbooks and establishing anti-discrimination rules based on sexual orientation in public and in the workplace.

Despite opposing voices from other political parties, the Constitutional Court ruled in May 2017 that same-sex couples had legal rights to marry. The Court argued that the existing civil law was unconstitutional because it failed to grant equal rights to same-sex couples.

The legislators were given two years to amend or rewrite the law. Predictably, this announcement generated a public backlash from opponents, leading to a referendum in November 2018. But the results showed that the majority voted for ‘restricting marriage under the Civil Code to one man and woman’ and ‘protecting rights of same-sex couples outside of the Civil Code’.

Yet in the end, the voices of the opposition were not as powerful as those of the supporters and decision-makers. Despite the fact that same-sex couples still do not have the same rights to child adoption and surrogacy as heterosexual couples — and gays and lesbians with certain nationalities are still unable to marry their Taiwanese partners because of marriage restrictions in their home countries — same-sex marriage was legalised in Taiwan on 24 May 2019. Same-sex marriage supporters held celebrations and expressed their gratitude to the DPP and its leaders on social media. Others expressed hope that mainland China and other Asian countries could follow in Taiwan’s footsteps.

Even so, some still hold reservations. Many are concerned that the law may be de-legislated by the conservative party once the government changes, while others have sworn to strike back in 2020 as the legal change did not reflect the results of the referendum.

It seems that the battle is far from over — conservatives will continue to fight for conventional marriages that value, first and foremost, reproduction to carry on the paternal line.

The debate is also underpinned by the ideological clash between pro-Taiwan and pro-mainland communities. The DPP is likely to fight to safeguard its ingrained pro-Taiwan political identity, which aims to build Taiwan’s international image through human rights advocacy as a way of consolidating Taiwan’s independence from mainland China. The adoption of an independent marriage system both alludes to and reinforces the ‘Two China’ conception.

Religion-affiliated parties and religious organisations also create irreconcilable political identities between different parties in Taiwan. Unlike in Japan — an approximation to a secular nation, whose party system is not operated by predetermined values and where the conflict between ideological conservatism and liberalism is less influential in the policy-making process on moral issues like homosexuality — the policy-making process in Taiwan is heavily shaped by the conflict between religious and secular politics. This leads to the formation of competing coalitions around partisanship.

Though the same-sex marriage battle may have ended on paper, the fight will continue. The campaign is not simply a case of split opinions on marriage — it touches on the paradoxes of democracy in Taiwan, including conflicted party identities that intertwine with religion and the clash of opposing political ideologies.

Dr Pan Wang is a Senior Lecturer in Chinese and Asian Studies at the University of New South Wales, Sydney.

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Both sides to blame for the US–China confrontation


Author: Editorial Board, ANU

The growing contestation between the United States and China was the major focus of this year’s Shangri-La Dialogue, Asia’s premier gathering of defence ministers and analysts in Singapore.

Acting US Defense Secretary Patrick Shanahan speaks at the IISS Shangri-la Dialogue in Singapore, 1 June 2019 (Photo: Reuters/Feline Lim).

Acting US Defense Secretary Patrick Shanahan continued the long tradition of past American defence secretaries by underscoring the United States’ ‘enduring’ commitment to the region, presenting an exhaustive list of US military, political, and economic assets in Asia, and describing America as a ‘resident power’ and ‘Pacific nation’. In contrast to many of the voices now coming out of the Trump administration, Shanahan struck a more optimistic note about the US–China relationship. Though he outlined a list of complaints about China’s militarisation of disputed features in the South China Sea, influence operations, ‘predatory economics’ and ‘state-sponsored theft’ of technology, Shanahan also argued that competition with China does not mean conflict, and suggested that his own thirty-year career as an engineer with the Boeing Company made him determined to ‘solve problems’ rather than put up walls.

China’s response was delivered by Defence Minister Wei Fenghe, the most senior Chinese official ever to attend a Shangri-La Dialogue. Against the backdrop of the stalled US–China trade negotiations, Wei made clear that China welcomed talks with the United States but that ‘if they want a fight, we will fight till the end’. Wei also put forward an unapologetic declaration of China’s core interests, prioritising the argument that China would not tolerate secession by Taiwan. Wei’s strident language was a warning directed at the Trump administration, which in May held the most senior meeting in decades when Taiwan’s National Security chief, David Lee, met with White House National Security Adviser John Bolton.

Behind the theatre of these speeches, Amy King explains in this week’s feature article that the real take-away from the Shangri-La Dialogue is that ‘there is no appetite in the region for a “new Cold War” between the United States and China’. In the march towards growing confrontation, there is blame to be found on both the US and Chinese sides. Whether either side recognises this, and understands how their own behaviour is contributing to inflame the confrontation, remains to be seen. But there is no doubt that the remarks by Shanahan and Wei failed to reassure allies and regional states in a number of ways.

In China’s case, Wei adopted Xi Jinping’s rhetoric, depicting the world as at a crossroads, with peace, development, and openness lying in one direction, and conflict, exclusion and isolation lying in the other. Most in the region welcome China’s commitment to development and share Chinese concerns about US protectionism and its undermining of the multilateral order. But their agreement with China on these issues does not mean that they are willing to line up wholeheartedly with China’s worldview. China’s rhetoric has only limited appeal for the simple reason that, whatever the United States’ faults, regional states want ongoing US engagement in Asia because of their discomfort with a more Chinese-centred order.

That discomfort is felt most keenly on the issue of the South China Sea, about which questions were raised again and again at the Dialogue by officials and analysts from around the region. Wei’s answers to these questions indicated that China continues to view the South China Sea dispute primarily through the lens of its relationship with the United States. Because US military assets pose a threat to China in the South China Sea, Wei argued, China is justified in deploying its own military facilities, including on territories such as Mischief Reef that have been declared part of the Philippines’ Exclusive Economic Zone by the Permanent Court of Arbitration.

Such a response provides little comfort to regional states that China is willing to acknowledge the existence and preferences of other claimants, or respect international law. China has undoubtedly enhanced its maritime security through the establishment of military facilities on contested islands and features in the South China Sea. But the trade-off for doing so is that the region is now much warier about China’s ambitions and its willingness to abide by international law and norms. China will need to do much more to convince regional states that its ‘win-win’ policies are indeed in the interests of all.

On the US side, Shanahan spoke to the region’s long-standing interest in economic security, stating that ‘economic security is national security’. But regional states will have been puzzled by his declaration that ‘the United States does not want any country in this region to have to choose or forgo positive economic relations with any partner’. That’s a statement that is utterly undercut by the Trump administration’s efforts to force allies and partners to choose sides This includes ‘poison pill’ trade agreement clauses that would prevent Japan and other regional states from pursuing trade deals with US-deemed ‘non-market economies’ like China, and warning allies that they may lose access to US intelligence if they allow Huawei technology into their 5G networks⁠.

Shanahan’s efforts to convince regional allies and security partners to do more to support the US-led order in Asia is also undermined by Trump administration adversarial trade policies. Its trade war with China and its assault on the WTO dispute settlement system threaten the multilateral trade regime. On all of the trade war, China is largely right and the United States is wrongly acting against the region’s own interests. Just days before Shanahan arrived in Singapore for the Shangri-La Dialogue, the Trump administration placed Singapore, Vietnam, Malaysia, Japan and South Korea on a watchlist of countries that manipulate their currencies to obtain trade advantage. And less than 24 hours before Shanahan described India as a ‘major defence partner’ in his speech, the Trump administration removed India’s status as a developing country, thereby opening the door to placing tariffs on trade with India. These are precisely the states that the United States wants as part of its networked coalition to bolster a ‘free and open Indo-Pacific’, but it is undermining incentives for that cooperation by punishing them on trade.

The region is also not optimistic about the prospects for a US–China trade deal, with the US approach to trade negotiations undermining incentives for Chinese cooperation. The heavy-handed approach to Huawei makes it more not less likely that China will view state-led industrial policy as a necessary economic development tool in a hostile world. Meanwhile, the Trump administration shows little recognition that its desire for a ‘strong’ deal with China will need to be balanced by the reality that China’s 19th and early 20th century history of being subjected to unequal treaties by foreign powers will make it particularly difficult for Xi Jinping to sign a deal perceived as ‘unfair’ or as undermining Chinese sovereignty.

We now face a stalemate between the United States and China. As King argues, there are signs that key regional states are beginning to take steps to preserve the security and economic order, with Indonesia, South Korea and Japan each taking the initiative to effect change at the WTO, on the North Korean nuclear issue, and on regional approaches to infrastructure. But much more will be needed — across issues ranging from cyber to maritime security and trade — if the region is to avoid the worst consequences of the growing confrontation between the United States and China. Sitting back and waiting for Trump and Xi to find common ground is no longer an option.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

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No appetite for a ‘new Cold War’ in Asia


Author: Amy King, ANU

Amid the escalating US–China trade war, all eyes were on US Acting Defense Secretary Patrick Shanahan and Chinese Defence Minister Wei Fenghe at the recent Shangri-La Dialogue. Those hoping for fireworks would have been disappointed. Shanahan offered a mild restatement of the Trump administration’s ‘Free and Open Indo-Pacific’ strategy, while Wei gave a robust but unsurprising rehearsal of China’s long-held core interests — particularly on the question of Taiwan.

A Gurkha officer stands guard outside the venue of the IISS Shangri-La Dialogue in Singapore, 31 May 2019 (Photo: Reuters/Feline Lim).

More significant was the language and behaviour of regional states who made it clear that there is no appetite in the region for a ‘new Cold War’ between the United States and China.

Singaporean Prime Minister Lee Hsien Loong captured the mood best when he spoke of the 200 years of great power competition that had been fought — often violently — in Southeast Asia, and that the dangerous hardening of US and Chinese postures could lead to a similar future. He challenged both the United States and China to do better — calling on the United States to preserve the multilateral order and make the ‘difficult’ but necessary adjustments to China’s rise and aspirations, and exhorting China to ‘convince other countries through its actions that it does not take a transactional and mercantilist approach’.

There may not be much that regional states can do to avert greater contestation between the United States and China. But in the meantime, a number of states are starting to make their own efforts to shape key aspects of the regional security and economic order.  Indonesia importantly has put its head above the parapet in the G20 on defending the multilateral trade order but that’s not the only sign of the regional awakening to the new reality.

On the North Korean nuclear issue, South Korean Defense Minister Jeong Kyong-doo outlined significant steps that the North and South Korean governments are taking to reduce inter-Korean hostilities. The two sides have begun implementing the 2018 Panmunjom Declaration by removing firearms from key joint guard posts within the Demilitarized Zone, and commenced the recovery of war remains from the Korean War. While Jeong welcomed the Trump administration’s bilateral negotiations with North Korea as ‘an important step towards denuclearization’, he emphasised that peace on the Korean Peninsula could only be reached by making simultaneous progress on both the inter-Korean and US–North Korean relationships.

Japan is also adjusting its approach to North Korea. In May, Prime Minister Shinzo Abe struck a note of engagement by offering an unconditional meeting with North Korean leader Kim Jong-un, and in April the government removed language about Japan applying ‘maximum pressure’ on North Korea from its 2019 Diplomatic Bluebook.

Underpinning this shift in strategy is the Japanese government’s concern that the grandiose summitry between Trump and Kim has so far failed to reach any significant deal. As Japanese Minister of Defense Takeshi Iwaya reminded his counterparts at the Shangri-La Dialogue, there has been ‘no essential change’ in North Korea’s nuclear and missile capabilities, and Pyongyang still possesses hundreds of missiles that could reach Japan.

The Shangri-La Dialogue also had much to say about infrastructure and how the region should be responding to China’s Belt and Road Initiative (BRI). The US government has described the BRI as a form of ‘debt trap diplomacy’, while China counters by extolling its ‘mutual benefits’.

Key regional countries instead offered a much messier and more realistic picture of how BRI is unfolding and how they are shaping the initiative. Ministers from Myanmar and Mongolia made clear that their countries see BRI as a great development opportunity for the region. They argued that whether Chinese investment resulted in a debt trap or loss of sovereignty for recipient countries turned on decision-making procedures and principles within the recipient country.

Japan is also playing a creative role in shaping regional — and Chinese — approaches to infrastructure development. The Abe government is working alongside traditional partners like Australia and the United States to introduce a new scheme for ‘high quality’ infrastructure development in an apparent counter to China’s BRI. But Japan is unique among US allies in simultaneously engaging China on joint development of infrastructure projects and working with key Chinese institutions to shape China’s operating principles.

In October 2018, a Memorandum of Understanding on joint infrastructure development was signed between the Japan Bank for International Cooperation (JBIC) and China Development Bank, with JBIC Governor Tadashi Maeda admitting at the Dialogue that the Chinese side surprised him by unreservedly signing on to all of Japan’s principles on transparency, inclusiveness, project viability, debt sustainability and rule of law.

These are some of the ways that key states are attempting to shore up Asia’s fragile security and economic order. But much more will be needed — across issues ranging from cyber to maritime security and trade — if the region is to avoid the worst consequences of the growing competition between the United States and China. Sitting back and waiting for Trump and Xi to find common ground is no longer possible.

Regional states will need to be prepared to take a leaf out of Lee Hsien Loong’s book and call out the misbehaviour of both the United States and China when they diverge from regional norms, and to work together to develop new norms on security and economic issues that remain under-regulated.

Dr Amy King is a Senior Lecturer at the Strategic and Defence Studies Centre, The Australian National University. Dr King was a delegate to the 2019 Shangri-La Dialogue.

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Watch and Jewellery Middle East Show

Oct 01, 2019Oct 05, 2019

Expo Centre Sharjah

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United Arab Emirates


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The 46th & 47th Editions-Twin Opportunities

The 46th and 47th editions of Watch & Jewellery Middle East Show will be other milestones and are set to be held in 2019, offering you an opportunity to capture the business opportunities of the entire year. The show is the only event that is held twice a year and opens up all possible sales avenues for you to tap the spring as well as autumn (year-end) jewellery sales seasons in their entirety.

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In the Watch & Jewellery Middle East Show, you have a trustworthy platform that will help you fortify your presence in the region, meet new customers, reach out to existing clientele and build a more established and reliable brand. Assisting you all the way is the impeccable reputation of the organiser, the extensive reach and response of its marketing drive, and some unique attributes like enviable exhibitor retention rates and biannual frequency, among others.

The show enjoys overwhelming goodwill as one of the very few trade events that have begun their journey quite early (1993 to be precise) and counts on the support of the industry and its leaders.

Celebrating Silver Jubilee

The Watch & Jewellery Middle East Show will be celebrating its silver jubilee with its 46th and 47th editions in 2019. What started off with a handful of exhibitors 24 years ago is now the most attended event of its kind in the region.

Show Contact


Abdul Rahim


(971) 65770000


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The pros and cons of Modi’s victory


Author: Mahendra Ved, New Delhi

Having secured a landslide victory in India’s 2019 elections, Prime Minister Narendra Modi is expected to consolidate his unprecedented grip on power. He is likely to deliver more of the same — positive and negative — with his fresh five-year mandate.

India's Prime Minister Narendra Modi gestures as he addresses his supporters during a public meeting in Ahmedabad, India, 26 May 2019. (Photo: Reuters/Amit Dave).

Modi will attempt to shift political discourse further to the ideological right, although it will not be easy in a country of 1.3 billion people that form the democratic world’s most populous, diverse and multi-faith polity.

Given his resolute manner, he is also bound to prioritise economic change by pushing open-market reforms further. But he faces multiple challenges on this front with an economy afflicted by high unemployment, rising inflation and persistent agricultural distress that could worsen further with a bad monsoon.

Another challenge will come from social complexities. Despite its slogan of ‘sab ka saath, sab ka vikas, sab ka vishwas’ (universal support, progress, and trust), Modi’s Bharatiya Janata Party (BJP) is often accused of exclusionary practices and fear mongering. Critical here are religious minorities and oppressed castes — particularly the 160 million Muslims, and Dalits who are traditionally economically deprived. These sections have obviously contributed to the overwhelming majority of votes Modi and his BJP won in the elections. But critics suggest that they nonetheless fear sectarian attacks. The ruling party that won 303 seats from out of 542 does not have a single Muslim.

Throughout the 40-day election campaign, there was no reference to Muslims slaughtering cows or Dalits working with leather. But they regularly fell prey to attacks from vigilantes — allegedly belonging to BJP affiliates — campaigning to ‘protect’ the cows that are worshipped by the Hindu majority. The Modi government instituted — but later quietly withdrew — a ban on beef production and export (India was then the world’s largest beef exporter), and spent millions to provide shelters for stray animals spared slaughter with limited success.

Perhaps the most important challenge for Modi’s second term is to simultaneously act upon all these issues, although they are unlikely to be publicly acknowledged in the triumphal atmosphere generated by the BJP victory. The media, and social media pivotal to Modi’s victory, now justify or downplay violence like clashes between BJP supporters and rivals in West Bengal as ‘stray incidents’ amid a largely peaceful campaign. Still, these incidents are hardly mentioned even by Modi’s opponents who conceded huge space on what they alleged was Modi’s ‘divisive’ political agenda to tilt the polity towards the majority Hindu community. In the process, the opposition conceded the political base to the majoritarian agenda, and lost badly. The worst loser, for the second consecutive time, is the Congress party, India’s oldest political party.

The word ‘secularism’ became a swear-word, while ‘socialism’ did not figure in the elections, heralding the downfall of the left — communists and socialists of various hues — that had dominated political discourse before and after independence in 1947. There may now be little scope for collective bargaining for industrial and farm labourers.

But there are also several positive takeaways from India’s most contentious election in recent memory. One is the huge majority that ensures the political stability yearned for by young Indians seeking jobs and development. If that can be delivered — even just partially — India may hope to play a role as regional and perhaps global leader.

The next five years should witness the privatisation of loss-making state-run industrial and commercial enterprises, even though they may be taken over by ‘friendly’ businesses who invested funds and faith in Modi.

With the exit of many ageing politicians — who do not easily retire — and the defeat of many family-run parties, Modi is also expected to field a younger team to battle India’s many complex problems.

Another positive is progress in women’s liberation, with women apparently voting independently of their male family members in large numbers. Among other issues, this represents Muslim women affirming their interests against the pernicious tradition of instant divorce. These developments contributed to the election of 78 female lawmakers, the highest ever. And at least one state, Odisha — which resisted the Modi juggernaut and is not governed by the BJP — has sent women as a third of its representatives to the national parliament.

Although he did not start the process, Modi has arguably taken India several notches higher in the comity of nations. The next five years should see this consolidate further.

Mahendra Ved is a New Delhi-based writer and columnist and the President of the Commonwealth Journalists Association (CJA) India.

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Senate dominance enables Duterte’s tilt to China


Author: Luke Lischin, National War College

The Philippine 2019 Congressional midterm election was essentially a referendum on President Rodrigo Duterte — and voters overwhelmingly confirmed their support for the current administration. With the support of his PDP–Laban Party and allies that were elected to supermajorities in the Senate and the House of Representatives, Duterte is poised to deepen ties with China.China's President Xi Jinping and Philippine President Rodrigo Duterte toast during a State Banquet at the Malacanang presidential palace in Manila, Philippines, 20 November 2018. (Photo: Mark Cristino/Reuters).

As Foreign Secretary Teodor Locsin Jr. explained in an interview days after the election, ‘China’s offer of a strategic partnership is a bit more attractive than the current [US] offer of strategic confusion’. While Locsin acknowledged that the US–Philippines treaty alliance was secure, his message was clear — the Philippines seeks greater cooperation with China regardless of US objections.

Emblematic of this cooperation with China is the government’s ‘Build, Build, Build program’ that aims to generate jobs and reduce poverty from 21.6 per cent in 2015 to 13–15 per cent by 2022 through development and infrastructure projects. Chinese foreign direct investment (FDI) and development assistance are integral to a growing number of these projects, exacerbating tensions with the United States.

Although the United States has managed to maintain strong ties to the Philippines’ national security establishment — clarifying its defence obligations under the Mutual Defense Treaty of 1951 and sustaining active military-to-military cooperation — it has been unsuccessful in preventing Chinese state and corporate involvement in projects relevant to US security interests. Without opposition legislators who share these concerns, this trend is likely to continue.

Once considered the last bastion of opposition to Duterte, the newly elected Senate hosts several prominent presidential surrogates including former national police chief Ronald ‘Bato’ Dela Rosa and former special assistant to the president Bong Go. Former senators Mar Roxas, Bam Aquino, and other opposition candidates from the Otso Diretso (Straight Eight) platform failed to win any of the 12 open seats. Between the support of the inbound Congress and the administration’s ongoing takeover of the Supreme Court through the appointment of friendly justices and the dismissal of chief justice Maria Lourdes Sereno, few institutional checks to the executive branch remain.

Before this session of the Congress adjourns, senators are considering allowing greater foreign investment through the amendment of the Public Services Act that mandates public services and utilities be at least 60 per cent Philippine owned. Senate Bill No. 1754 will re-define public utilities as the transmission and distribution of electricity, water works, and sewage systems — reducing or even eliminating foreign equity limits in industries like transportation and telecommunications.

The bill’s sponsor, Senator Grace Poe, argued that ‘increasing FDI and promoting national security are not conflicting goals’. If the bill does not pass during the current session, it will likely pass when the newly elected Congress reconvenes on 22 July 2019.

Reducing barriers to FDI will enable increased Chinese investment following the Belt and Road model, where Chinese companies purchase large stakes in other nations’ critical infrastructure. On 26 April 2019, the Philippines and China signed 19 business agreements valued at US$12.17 billion for projects across the country.

Among them is a US$298 million plan to develop the Grande and Chiquita islands, strategically located in Subic Bay. At the same time, two Chinese investors are competing with Japanese investors and others to take over Hanjin Heavy Industries’ shipyard in Subic Bay — the country’s largest shipyard. Formerly a US naval base, Subic Bay is still an active port for US naval vessels, recently hosting the amphibious assault ship USS Wasp during the 2019 Balikatan exercises. Consequently, both the United States and the Philippine Department of National Defense are concerned about Chinese investment in Subic Bay given the potential for tracking the movements of vessels visiting the bay.

Similar issues surround Globe Telecom’s partnership with Huawei to provide 5G service, as well as a proposed US$400 million Huawei-backed project to install a video surveillance system called ‘Safe Philippines’ in Manila and Davao City. ‘Safe Philippines’ was originally blocked due to concerns over the vetting and approval of the project but Duterte vetoed this provision citing his constitutional authority to negotiate foreign loan agreements.

Despite protests from the United States and a leaked memo from the Philippine Department of Foreign Affairs citing security risks associated with Huawei, a Philippine National Police inquiry uncovered no evidence of espionage. Although other government agencies are conducting their own assessments, the police decision is a strong indication that the Philippines will continue doing business with Huawei despite US concerns and regulatory restrictions.

As the Philippines pursues Chinese investment to finance ‘Build, Build, Build’, the US–Philippines alliance is strained by anxieties over Chinese cyber and maritime espionage. Yet the promise of future Chinese investment is a major incentive for the Duterte administration to reduce security cooperation with the United States — like the mostly unimplemented Enhanced Defense Cooperation Agreement that enables extended troop rotations and base expansion.

If the Philippines does not sustain its current economic growth and mismanages loans, its ability to pursue an independent foreign policy may be compromised by China’s ownership of Philippine debt and equity. The current drive for military modernisation and territorial defence would be jeopardised by competing priorities of servicing debt and additional funding needed to realise ‘Build, Build, Build’. Under these circumstances, the Philippines would have fewer options to fend off Chinese challenges to sovereignty, further straining the US–Philippines alliance.

While the notion that the Philippines will fall into a debt trap is contentious, a ‘rubberstamp’ Congress that is unwilling to press Duterte for accountability and transparency on national agreements with China offers few protections against this outcome.

Luke Lischin is an Assistant Research Fellow at the National War College, Washington, DC. The views expressed are his own and do not reflect the position of the US Department of Defense or the National War College.

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Nepal still awaits economic reform


Author: Sujeev Shakya, Nepal Economic Forum

Nepal is struggling to implement much-needed reforms for rapid economic growth. When Khadga Prasad Sharma Oli was sworn in as Prime Minister in March 2018, he was expected to go about delivering ‘Prosperous Nepal, Happy Nepali’ — a slogan that helped secure his landslide election victory.

Nepal's Prime Minister Khadga Prasad Sharma Oli addresses the 73rd session of the United Nations General Assembly at the UN headquarters in New York, 27 September 2018 (Photo: Reuters/Eduardo Munoz/File Photo).

Oli leads the Nepal Communist Party, a coalition of communist parties that united in May 2018. His choice of technocrat — former governor of the Central Bank Yubaraj Khatiwada — as Finance Minister sent good signals to people in Nepal and those watching from outside. In April 2018, Khatiwada released a White Paper discussing what was not working in Nepal and gave the impression that he intended to set the course right. But the new government’s first budget, presented in May 2018, did not suggest that he was pursuing substantial reforms and the second one presented in May 2019 was even worse. It propagated distributive economics and protectionist measures.

As Khatiwada prepares to submit his next budget, he is saddled with the same problems as his predecessors — growth has not been as expected, the fiscal deficit grows and capital expenditure spending is dismally low at less than 40 per cent. Promises of job creation remain unfulfilled as more Nepalis leave Nepal in search of work. Nepalis send US$8 billion home in remittances, while Indian workers in Nepal are sending back US$3 billion — making Nepal the eighth largest source of remittances to India.

As Nepal looks to graduate to a middle-income country by 2030, it faces three major problems.

Not enough foreign investment is coming into Nepal. Nepal needs over US$100 billion in investment over the next decade in order to graduate to a middle-income country. With low domestic capital formation, only foreign investments can bring about the much-needed impetus to economic growth. But while there have been many attempts to attract investment, on the ground realities pose a huge challenge. The country’s mindset cannot deal with foreign investment and still prioritise protecting domestic businesses. Nepal is yet to realise that it must compete for foreign investors with hundreds of countries — there is no queue of people wanting to come to Nepal.

The market in Nepal is dominated by ‘cartelpreneur’. Through cartels and super-cartels, the private sector acts as the biggest impediment to reforms by resisting legislative changes. For instance, construction companies have cooperated as a cartel (registered as an association) to ensure that a government law requiring the following of international standards not be promulgated. Similarly, sugar producers were able to push the government to impose bans on the import of sugar. Dairy companies pushed the government to put agriculture on the negative list for foreign investors, stopping large international companies from entering Nepal.

Many of these cartels in the garb of associations are structured to be part of a political party apparatus, allowing them to drive the parties. In the absence of legitimate funding, political parties are dependent on donations from these private sector companies with many cartels acting as fund-collecting bodies. The big dilemma for politicians and political parties is that if the number of foreign investors were to grow, they would not be able to provide funding to parties due to stringent anti-corruption laws. So, Nepal tends to attract foreign investments from companies and countries where such issues are overlooked.

Any country that is pushing a reform agenda needs a champion — and there is no such champion in Nepal. No bureaucrat or politician has come forward to push the reform agenda. With a communist regime that believes in distributive economics and promotes rent-seeking behaviour, there are also not many entrepreneurs outside the cartel circus who are advocating for reforms.

This leaves a few think tanks, organisations and individuals to push the reform agenda in whatever way they can, but they have not been able to gain the clout required to put pressure on the proceedings. Development partners also do not want to confront the government on this issue. They are happy to operate their private sector development programs with cartels and super-cartels despite knowing the plan is destined to fail.

Nepal needs a big transformation in attitudes towards reform in order to achieve ‘Prosperous Nepal, Happy Nepali’.

Sujeev Shakya is Chair of the Nepal Economic Forum and author of Unleashing Nepal.

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Dispute resolution along the Belt and Road


Author: Vivienne Bath, University of Sydney

The prospect of disputes arising in respect of projects under China’s Belt and Road Initiative (BRI) has generated considerable interest, accompanied by positioning on the part of governments, government institutions, lawyers and academics who see potential opportunities. The BRI is, of course, a very amorphous concept. Although primarily associated with infrastructure construction, which tends to involve large Chinese companies and Chinese funding, projects along the Belt and Road also involve governments other than the Chinese government and don’t necessarily include Chinese parties.

A container is loaded at the China-Pakistan Economic Corridor port in Gwadar, Pakistan (Photo: Reuters/Caren Firouz).

There are already a significant number of competing options available for the resolution of disputes arising from BRI projects — domestic courts, nominated foreign courts, domestic arbitration institutions, international arbitration institutions, ad hoc options, mediation institutions, investor-state arbitration under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID) and so on. The Chinese government’s also actively interested in strengthening Chinese institutions’ participation in BRI dispute resolution.

A range of options for the law to govern contracts and related disputes is also available, due to the generally recognised autonomy of the parties to a contract to nominate the law governing the contract. These include the law of the host state, which may well prefer major infrastructure contracts to be governed by the law where the infrastructure is located, the law favoured by the lenders or contractors, or the law of a neutral third party such as English or Hong Kong law. There may be a mixture of different laws when a project involves a range of contractors and contracts.

Logically, the law selected should also affect the location and method of commercial dispute settlement. However, this is not a requirement, and both arbitration institutions and courts are anxious to show that they are competent to deal with disputes which are subject to foreign law. Further complicating the picture, an investment treaty may specify the governing law for claims by investors against the host state as part of the substantive commitments in the treaty.

There are many methods of arbitrating commercial disputes in the Asia Pacific, including recourse to the major arbitration institutions. The China International Economic and Trade Arbitration Commission (CIETAC), the Hong Kong International Arbitration Centre (HKIAC), the Singapore International Arbitration Centre and the International Chamber of Commerce and others have taken steps to highlight their international experience, and their ability and willingness to handle BRI disputes.

The development of international commercial courts is intended to challenge international commercial arbitration as the preferred dispute resolution method of choice in Asia. Singapore led the way by setting up the Singapore International Commercial Court which offers the services of expert judges from a range of jurisdictions, flexibility in using foreign law and rules of evidence, foreign legal representation and, if desired, appeals on legal grounds.

The so-called Chinese ‘Belt and Road’ court (the Chinese International Commercial Court) offer highly experienced and internationalised Chinese commercial judges, so-called one stop diversified dispute resolution and improved procedures for the proof of foreign law, but in accordance with Chinese law do not involve foreign judges. In Hong Kong, foreign judges serve on the Court of Final Appeal.  Pursuant to a recent arrangement with China, civil commercial judgments of Hong Kong courts will soon be enforceable in China, where enforcement of foreign judgments is otherwise a difficult task.

These and other jurisdictions across Asia, such as Japan, also offer diversified or mixed-mode dispute resolution involving mediation, arbitration and litigation. This is sometimes described as reflecting Asian values by promoting consensus-based dispute resolution. Most recently in April 2019, the List of Deliverables of the Second Belt and Road Forum for International Cooperation included the establishment of the International Commercial Dispute Prevention and Settlement Organization (ICDPASO) by the ‘China Council for the Promotion of International Trade (CCPIT) and the China Chamber of International Commerce, together with industrial and commercial organisations and legal service agencies from over 30 countries and regional organisations’.

It is not clear from the announcement what the role of the ICDPASO is intended to be, although its cross-border, multi-party and non-governmental character may distinguish it from domestic institutions such as courts and national arbitration institutions.  An International Commercial Prevention and Settlement Center was also set up by the CCPIT and foreign business organisations in January 2018, with the stated objective of preventing or resolving international commercial disputes.

Notwithstanding the recent emphasis on mediation in some Asian jurisdictions, it is not clear if and when China and other nations along the BRI will sign up to the Singapore Convention on Mediation which aims to facilitate mediation by providing an effective means of enforcing settlement agreements reached through mediation.

Finally, where a host state is directly or indirectly involved in a dispute with an investor (including a major infrastructure or construction dispute), investor-state dispute settlement (ISDS) is also a possibility — though a controversial one for some Asia Pacific states. In addition to the well-established international ICSID regime, Chinese arbitration institutions such as the CIETAC and the Beijing International Arbitration Center have also issued rules allowing them to facilitate ISDS disputes in China. This is also the case for the HKIAC, which accepted two investor-state arbitrations in 2018.

There is no shortage of established and newly pending types of dispute resolution mechanisms available for the resolution of disputes along the Belt and Road. In these circumstances, it is vital for parties to make a well-informed choice in relation to dispute resolution and governing law at the negotiating stage.

In order to improve dispute settlement along the Belt and Road, rather than more methods or mechanisms directed at BRI dispute resolution, what is needed is better legislative and structural support from China and other countries along the Belt and Road for the recognition and enforcement of judgments and awards, as well as the adoption across the Asia Pacific of international conventions and model laws designed to harmonise and coordinate cross-border dispute settlement through the grant of interim measures and asset protection, smoother procedures for cooperation and prompt and effective recognition and enforcement of judgments.

Vivienne Bath is Professor of Chinese and International Business Law at the University of Sydney.

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Japan’s awakening to a multipolar world


Author: Lionel Fatton, Webster University Geneva

The world is rapidly multipolarising. Although the United States will remain the centre of the international system for the foreseeable future, the rise of China is shifting gravity towards Asia. This has resulted in growing tensions between Washington and Beijing, notably over China’s economic practices and behaviour in the South China Sea. Japan, locked between two superpowers and threatened by North Korea, is awakening to a new reality.

Japan has consequently, since the early 2010s, reoriented towards a more autonomous security policy, breaking with past practices. Nevertheless, the country continues to rely on the United States for security. Japan therefore pursues an intra-alliance hedging strategy — maintaining a robust alliance while gradually moving towards autonomous defence.

Under the traditional spear and shield alliance structure, Japan was responsible for the defence of its territory while relying on the United States for power projection capabilities. One aspect of Japan’s move toward autonomy is the duplication of these capabilities.

In December 2017, the Japanese Ministry of Defense requested funds for fighter jet-mounted long-range cruise missiles, including the Joint Air-to-Surface Standoff Missile-Extended Range (JASSM-ER). The defense minister then, Itsunori Onodera, justified the acquisition by citing the need to protect Japan’s Aegis-equipped destroyers, apparently referring to North Korea’s Nongo-class vessels endowed with anti-ship missiles. However, the JASSM-ER is exclusively suited to hitting targets on land. Although the missiles could be used to neutralise military assets on captured islands in Japan’s maritime domain, Japanese strategists also seem to seek capacity to destroy targets on North Korean territory.

Pushing for better power projection capabilities, the Medium Term Defense Program of December 2018 called for possessing aircraft carriers, with the purchasing of F-35Bs and refitting two Izumo-class helicopter carriers to carry the stealth jets.

Japan’s first amphibious brigade was launched in April 2018, an obvious duplication of US forces given that the III Marine Expeditionary Force, with some 27,000 soldiers in Okinawa, is by far strong enough to deter any potential aggressors.

In addition to duplicating US military assets, Japan is reorganising its armed forces. The three Self-Defense Force (SDF) services have traditionally been more integrated with their respective American counterparts than with each other, generally unable to operate independently. Greater joint coordination now between SDF services means more autonomy from US forces.

The greater integration between SDF services was strengthened in 2013 by the Dynamic Joint Defense Force (DJDF). The latest concept of a Multi-Domain Defense Force (MDDF), issued in 2018, aims to accelerate this process, expanding it to the cyberspace and outer space domains.

Why is Japan moving toward autonomous defence after relying on the United States for more than half a century? Drastic international changes since the early 2010s mean that Japan, for the first time, faces the simultaneous prospect of both abandonment and entrapment vis-a-vis the United States.

Beijing is becoming increasingly assertive and Tokyo’s confidence in Washington’s commitments has declined. Although still unlikely, the risk of a conflict between Japan and China over the Senkaku/Diaoyu Islands has increased, and Beijing has devised an anti-access/area denial strategy making American military intervention in East Asia prohibitively costly. Washington has little strategic interest or emotional tie with these uninhabited islands. US President Donald Trump’s transactional approach and repeated calls for Japan to pay more for hosting US troops further undermine Tokyo’s confidence in American commitments.

The risk of being abandoned by the United States has reached unprecedented levels and the Japanese government has responded by showing its value as a stronger military ally, reinforcing the alliance. The Abe administration reinterpreted the Article 9 ‘peace clause’ of the Constitution to recognise limited forms of the right to collective self-defence, something that was previously denied by official government interpretations. Moreover, active SDF involvement in US escort and protection missions is now permitted.

But this anti-abandonment posture has significantly heightened the danger of Japanese entrapment in combat, particularly on the Korean Peninsula where tensions have skyrocketed. In 2017, Japanese vessels refuelled American warships on guard against North Korean missile launches at least 17 times, and conducted several combined exercises and escort operations with US counterparts. A contingency requiring Japan to invoke the right of collective self-defence or protect US forces could have easily taken place.

If Japan decides to adopt anti-entrapment measures, distancing itself from the United States to keep out of a potential Korean war trap, it may become more vulnerable on the Chinese front amid the subsequent weakening of US commitments.

The only way to solve this entrapment–abandonment dilemma is to adopt a more autonomous security policy. Japan then reduces its dependence on the United States and mitigates the fear and the cost of a potential abandonment. More autonomy also lowers the probability of entrapment by providing Tokyo with more scrutiny over Washington’s decision-making.

Japan will continue relying on the United States for the foreseeable future as the alliance remains necessary to adjust to changing power balances. Tokyo also faces challenges impeding its move toward autonomy, including economic and socio-political constraints on defence spending, a downward demographic trend that impacts the SDF’s ability to fill its ranks, and popular opposition to a more muscular security policy.

The end product of Japan’s strategic reorientation is set to be an alliance between two more equal and self-reliant countries.

Dr Lionel Fatton is an Assistant Professor of International Relations at Webster University, Geneva. He is also a Research Collaborator at the Research Institute for the History of Global Arms Transfer, Meiji University, Tokyo, and a Fellow at the Charhar Institute, Beijing. He is a Co-Author with Dr Oreste Foppiani of the forthcoming book Japan’s Awakening: Moving Toward an Autonomous Security Policy.

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