16
Sep

Preventing the Next Argentina

Written on September 16, 2014 by Waya Quiviger in Americas, Financial crisis, News

Investors, bankers, government officials, and academics are all scrambling to come up with fixes in hopes of preventing another debt fiasco like that of Argentina, but it likely won’t be in place by the time the next country goes belly-up.

This week the United Nations General Assembly weighed in with a resolution that was supported by an overwhelming majority of countries. China and a coalition of developing countries put it forward, but the United States, Germany, the United Kingdom, and Japan rejected it, illustrating one of many divides holding back efforts to change the system.

Argentina went into default for the eighth time at the end of July, after U.S. courts ruled that the government couldn’t continue paying bondholders who’d struck an earlier deal to accept less money without also paying holdout creditors. But default is not the end of the story.

President Cristina Fernández de Kirchner, who says the investors who took her government to court are “vultures,” still has to find some sort of resolution. Her government tried to get bondholders to trade in their bonds under U.S. law for ones governed by local Argentine law, a move that gives the debtor government more control. An exchange would also allow Argentina to avoid the U.S. ruling, but government officials acknowledged this week that bondholders weren’t going for it. The rejection was expected because the switch would have significantly lessened investors’ bargaining power in the ongoing settlement negotiations.

Trade groups, the IMF, and now the U.N. are all trying to come up with a fix. The only problem is that they have vastly different ideas for what that should look like — making it increasingly unlikely that the chaotic current system will change in any meaningful way.

The scramble is an attempt to prevent a repeat of the chaos that erupted when a U.S. court ruled that the Argentine government couldn’t continue paying bondholders who’d struck an earlier deal to accept less money without also paying a holdout group of American investors 100 cents on the dollar. The ruling was a huge win for NML Capital, which had bought the bonds on the cheap, but infuriated Argentine officials like Kirchner.

Beyond the vitriol, the court decision brought new attention to the messy default process that’s currently in place for countries that can’t pay their debts. Fixing it is increasingly important for poverty-ridden countries like Grenada and the Democratic Republic of the Congo, both of which are fighting investors in U.S. courts who are hoping to use the NML ruling to boost their case for being paid back in full. Ukraine, whose already shaky finances have gotten even rockier during its standoff with Russia, could also need a way of persuading investors to take a “haircut.” Under the current system, that won’t be easy.

Key powers at the United Nations are hoping to make it easier. Earlier this week, the U.N. General Assembly voted to put in place a new bankruptcy procedure for indebted countries that would create a global system for arbitrating debt disputes. The resolution called for an intergovernmental framework, but didn’t detail how it would work.

“The time has come to give a legal framework to the financial system for restructuring sovereign debt that respects the majority of creditors and which allows countries to come out of crises in a sustainable manner,” Argentine Foreign Minister Hector Timerman said after the vote, according to Reuters.

The nonbinding U.N. resolution garnered 124 out of 193 votes and won support from China, which holds huge amounts of debt. Eleven countries, including the United States, voted against the measure. American officials said it would create uncertainty in markets that could make it more expensive for developing countries to borrow money.

Read more…

Published on Sept. 11 in www.foreignpolicy.com by Jamila Trindle.

15
Sep

Africa Beyond Ebola

Written on September 15, 2014 by Waya Quiviger in Africa, International Development

MADRID – Among this summer’s grave global worries, the spread of the Ebola virus has monopolized the discussion of Sub-Saharan Africa and reinvigorated hoary notions of disorder and despair – at a time when a new image of a dynamic Africa was emerging. In fact, there is still strong reason for optimism about the region’s prospects.

The Ebola outbreak overshadowed three key events affecting the region. On July 1, a major organizational restructuring at the World Bank Group was implemented. Two weeks later, the BRICS (Brazil, Russia, India, China, and South Africa) announced the establishment of the New Development Bank. And, in early August, African government and business leaders gathered in Washington, DC, for a summit that could portend transformative private investment in Africa.

Such investment is essential in a world in which net private capital flows to developing countries outstrip official development assistance by a margin of ten to one. If this is to be a turning point for Africa, rather than another false dawn, this summer must be the start of a prolonged effort to stimulate private-sector engagement.

The reorganization of the World Bank is a central part of a larger effort under its president, Jim Yong Kim, to reposition the Bank as a facilitator vis-a-vis the private sector, rather than a primary provider. From 2009 to 2013, new investment commitments by the International Finance Corporation, the World Bank’s private-sector lending arm, have risen 73%. Meanwhile, the Multilateral Investment Guarantee Agency, the Bank’s provider of political risk insurance covering investments in developing countries, has moved to expand its activities, both by broadening the types of projects that it supports and widening existing definitions to allow greater coverage.

July’s restructuring occurs within the context of these broader moves. In reorganizing the World Bank Group’s central component, the International Bank for Reconstruction and Development, Kim has adopted a management-consulting model that unites expertise with regional coverage. Seeking to eliminate the bureaucratic “silos” that have isolated regional experts from one another, 14 global practice groups in areas such as energy, water, and education have been established to bring to bear the full force of the World Bank’s considerable knowledge on projects and partnerships.

Just as the World Bank was repositioning itself, the BRICS agreed to establish their own bank. There are significant outstanding issues about how the New Development Bank will operate, but early indications suggest that infrastructure will be central to its activities, with an emphasis on Africa.

The World Bank estimates that insufficient infrastructure reduces productivity in Africa by approximately 40%. The entrance of a new player with initial authorized capital of $100 billion – along with the United States’ Power Africa program, which has garnered $26 billion in commitments since its launch last year, and the World Bank’s new Global Infrastructure Facility – promises to help ease infrastructure financing significantly.

But, as of now, the New Development Bank is little more than a statement of political solidarity, and whether it comes into existence remains to be seen. Even if it does begin to function, the BRICS lack what gives development banks, and the World Bank in particular, legitimacy and weight: a staff composed mostly of dedicated experts who are among the world’s best.

Finally, the high profile of the US-Africa Leaders Summit, with more than 40 heads of state in attendance, as well as President Barack Obama’s direct involvement, generated buzz about Africa. US businesses and investors certainly gained more awareness about Africa’s potential and a deeper understanding of the variety of investment climates throughout the continent.

But, though the summit may be called a success, its long-term implications are unclear, particularly given the uncertainty about what will follow. At the moment, there does not seem to be a plan to institutionalize the summit.

Moreover, the participation of so many heads of state overshadowed that of African business leaders. The practical connections that US companies will need when deciding whether to invest could have been cultivated on the summit’s margins, or in its aftermath, but were not. Laying a foundation for future engagement requires ongoing commitment and effort that goes beyond mere publicity.

The same could be said about the World Bank. There is much work to be done in integrating the new organizational model with existing Bank structures and practice areas. Even if this transition occurs seamlessly, the Bank faces a serious internal struggle against entrenched bureaucratic interests and a pervasive institutional mindset that is overly risk-averse and fixates on processes rather than outcomes.

In recent years, Africa, once a land of pity, has emerged as a land of opportunity. If it is to become a land of performance, the goal must be to facilitate investment, both domestic and foreign. That will demand effort and commitment; given that a stable international order increasingly depends on a prosperous and growing Africa, it is a goal that the world cannot afford to miss.

By Ana Palacio. Published on Sept. 4th in http://www.project-syndicate.org

Ana Palacio, a former Spanish foreign minister and former Senior Vice President of the World Bank, is a member of the Spanish Council of State and a visiting lecturer at Georgetown University. She is also a member of IE Business School’s International Advisory Board.

Read more at http://www.project-syndicate.org/commentary/ana-palacio-says-that-the-disease-s-outbreak-has-overshadowed-three-key-recent-events-affecting-the-region#bEyEVEZOrsR5a1MH.99

12
Sep

Cambodia’s Foreign Policy Grand Strategy

Written on September 12, 2014 by Waya Quiviger in Asia, Foreign Policy, News

Cambodia’s Foreign Policy Grand Strategy

 

The glory days of the Khmer Empire, from the 9th to the 15th century, and Angkor Wat are the pride of Cambodia. The Khmer Empire was in its time a major power in Southeast Asia in terms of military might, diplomacy and trade. Unfortunately, it did not last. The collapse of the empire combined with internal conflict signaled the beginning of the Dark Ages of Cambodia, colonization, and conflict..

Today, Cambodia is perceived as a war-torn country, one plagued by civil war, landmines, and foreign intervention. Nevertheless, with civil war at an end, the country has the potential to start of a promising new chapter, one in which it pursues its core national interests, most notably stability, sovereignty, economic development, and image building. After successful national reconciliation and regional integration, Cambodia is now well on its way to becoming a lower middle-income country with annual GDP growth of around 7 percent.

However, as the international landscape changes, for instance with the rise of China and the U.S. “rebalancing” to Asia, new regional challenges are emerging. If it is to deal successfully with these challenges and become a relevant player within the region, Cambodia must have a grand strategy for its foreign policy. According to Hal Brands, a grand strategy can be an integrated set of principles and priorities that helps a country navigate a complex and dangerous international environment to achieve its national interests.

In looking at what the Cambodian government has done with its foreign policy to date, it appears that Cambodia’s grand strategy rests on three pillars.

Asian Century

The first of those pillars we might call the “Asian Century.” Certainly, the gravity of global power has shifted to the Asia-Pacific and the 21st century is shaping up to the Asian century, with most countries in the region, such as China, India, and the ASEAN countries, among them Cambodia, enjoying strong economic growth in recent years. China, the world’s second-largest economy after the United States, is also ASEAN’s largest trading partner.

Not surprisingly, Cambodia has focused most of its diplomatic efforts on ASEAN and other ASEAN-led regional forums, such as the East Asia Summit. It has strengthened its existing diplomatic ties with major powers in the region, such as China and Japan. Cambodia upgraded its diplomatic relations with China and Japan to the level of strategic partnership in 2010 and 2013, respectively.

Recently, Cambodia has also launched a diplomatic charm offensive* targeting countries such as Belarus andAzerbaijan, hoping to promote economic and trade relations. This signals another major shift in its foreign policy, from political diplomacy to economic diplomacy.

In a regional context, ASEAN and its Dialogue Partner countries are negotiating comprehensive free trade deals, such as the Regional Comprehensive Economic Partnership (RCEP). All of these efforts are designed to reap the benefit of regional integration, and represent a golden opportunity for Cambodia to focus on the Asia-Pacific to sustain its economic growth. In the context of the Asian century, ASEAN should remain the cornerstone of Cambodia’s foreign policy. But Cambodia also needs to balance its economic, military and political interests among its immediate neighbors, China, the U.S., and ASEAN. This will need to be done with skill if Cambodia wishes to remains prosperous over the long term. Read more…

11
Sep

Was8864141

 

There’s an air of tragedy about President Obama. He wants to chart a new course—pivot to the Pacific, end the long decade of war, do nation-building at home—but the old world’s most derelict, dysfunctional quarters keep pulling him back in. Now, in the cruelest irony, the gusts are pulling him back to the very land where he least wants to set foot again, the warzone that he spent most of his first term leaving: Iraq.“We will not get dragged into another ground war in Iraq,” he insisted in his televised speech Wednesday night. Instead, this will be a war where others—mainly Iraqi soldiers—fight on the ground, while American advisers devise the battle plans and American pilots pummel the enemy with missiles and bombs.Still, one could be excused for feeling a spasm of dread as the speech spilled forth. I wouldn’t be surprised if the president himself heaved a sigh while he wrote it.That said, the policy that he outlined—his strategy to “degrade and ultimately destroy” the terrorist group known as ISIS—is as reasonable, and has as much chance of succeeding, as any that might be conceived.There are two big new elements in this policy: First, air strikes will no longer be restricted to areas where ISIS poses a threat to U.S. personnel. Instead, they can strafe and bomb ISIS targets anywhere in Iraq, coordinating the strikes with assaults on the ground by Iraqi soldiers, militias, or Kurdish peshmerga.

Second, these air strikes will take out ISIS jihadists not only in Iraq but also across the border in Syria. A senior official stressed that this part of the policy is not as open-ended as the speech makes it seem. Obama is well aware that air strikes alone don’t produce victory. They need to be synchronized with ground assaults. And for now, there are no ground forces in Syria that can beat back ISIS.So, at least initially, U.S. air strikes in Syria will be clustered along the Iraqi border, to keep ISIS jihadists from moving back and forth between the countries or from seeking safe haven—in much the same way that drones were fired at northwest Pakistan to deny safe haven to Taliban who’d been fighting in Afghanistan.

However, these air strikes will eventually expand across Syria. Another part of Obama’s strategy (and he did outline this in his speech) is to train and equip the Free Syrian Army, the more moderate militiamen currently being squeezed both by ISIS and Syrian President Bashar al-Assad. (They’ll be trained by special forces on a base in Saudi Arabia.) Once they’re trained and armed, the FSA will return to Syria and—with the help of U.S. air strikes—take back their own territory from ISIS.Obama’s plan also calls for a wide coalition of European, Arab, and Muslim countries to join the fight. ISIS is an extremist Sunni movement, so it’s especially vital to get predominantly Sunni nations involved—to demonstrate that this is not an American war or a sectarian war of Sunnis versus Shiites. (For this reason, Obama is loath to bring Iran or Assad’s Syria—both Shiite regimes—into the alliance. They too deeply hate ISIS, but the Saudis and other Sunni leaders might not enter the fight if it looks like they’re supporting Iran. What arrangements are made with Iran or Syria behind the scenes is another matter.)

Obama, never prone to hype, made clear in his speech that the ISIS jihadists don’t yet pose as big a threat as al-Qaida did 13 years ago, on the eve of the World Trade Center attacks. But they are on a rampage, amassing fortunes, acquiring arsenals, led by competent commanders (many of them Saddam Hussein’s former generals), playing on anti-Shiite (and anti-Western) sentiment among Sunni radicals. If they are allowed to take over Iraq and Syria, it’s fair to ask if Jordan and Saudi Arabia might be next. They are also recruiting European jihadists, who have passports that let them travel across the continent and into the United States. Clearly, they do pose a threat. This cannot and should not be principally America’s fight; but the fact is, America is the only country that can coordinate the coalition—provide the intelligence, logistics, and accurate air strikes—needed to win.So, the cause is just, and Obama’s plan sounds reasonable, even nuanced. What could go wrong? Well, as anyone who’s studied the region (and the cavalier predictions made, time and again, by Westerners who go to war there), everything. Read more…

10
Sep

I’m in Washington today to attend the annual meeting of the American Political Science Association. The timing is fortuitous, because I’m pondering a number of big questions these days and I’ll be interested to see what some of the nation’s best scholars think about them. So for what they may be worth, here are my Top 10 Foreign Policy Puzzles:

No. 1: Will there be a deal on Ukraine?

The crisis in Ukraine has been a colossal failure of analysis and of diplomacy, with plenty of blame to share on all aides. The main victims, alas, have been the unfortunate Ukrainian people. As I’ve written before, I think the United States and the West played a key role in causing the crisis, mostly by failing to anticipate that Russia was going to respond forcefully and vigorously to what its leaders regarded as a gradual attempt to incorporate Ukraine into the West. One need not approve of Russia’s response to recognize that the United States should have seen it coming and thought more carefully about our interests and objectives beforehand.

Since the collapse of the Yanukovych government, the United States and its allies have followed the usual playbook: ramping up sanctions and waiting for Moscow to cave and give us everything we want. Unfortunately, this view fails to recognize that Russia does have valid reasons to care about its border areas and still has cards to play. Sanctions are clearly hurting, but Putin probably anticipated them and has been willing to pay the price. In the meantime, sanctions aren’t helping the sputtering European economy (see below), and Ukraine itself is going from bad to worse.

So my question is: Will someone get serious about real diplomacy, and make Putin an offer he’s unlikely to refuse? Instead of building more bases in Eastern Europe, the United States and its allies should be working to craft a deal that guarantees Ukraine’s status as an independent and neutral buffer state. And that would mean making an iron-clad declaration that Ukraine will not be part of NATO. (Just because many Ukrainians want to join doesn’t mean NATO has to let them.) Recent proposals for a deal lack that essential ingredient and aren’t going to solve the crisis.

A “Finlandized” Ukraine might not be an ideal outcome, but it is better than watching the country get destroyed. Putin may reject such a solution, of course, but surely it deserves a serious attempt before things get even worse.

 No. 2: When will anyone in Israel or Palestine try something different?

The latest Gaza war was déjà vu all over again: more people were killed, vastly more damage was done to the imprisoned civilian population of Gaza, the IDF lost more than 60 soldiers (a total more than twice the number of civilian victims from Gazan rockets and mortars over the past five years), and the eventual cease-fire agreement changed nothing of significance. On the West Bank, the occupation grinds on, while Israeli politics drift rightward. Yet despite all these worrisome trends, nobody in a position of authority seems capable of rethinking their hardened positions: not Israel, not Hamas, and not the Palestinian Authority. And certainly not the United States, either. Until one of those actors adopts a different mind-set and/or a different approach, we can count on another reprise in a few months or years.

No. 3: Will Europe ever get its act together?

There was a brief flurry of optimism a year or so ago, as the eurozone achieved some modest economic growth and interest rate spreads eased, but the French economy is now in serious trouble and even Germany’s economy contracted during the last quarter. (As noted above, this may not have been the smartest moment to impose stiffer sanctions on Russia.) Scotland’s status in the U.K. is up for grabs, and so is England’s membership in the EU. Some European Jews are heading for Israel to escape fears of rising anti-Semitism, even as some Israelis are heading the other way. Remember when Euro-optimists used to crow about it becoming a different sort of world power, based on democracy, rule of law, and “civilian power”? Today, a better question is whether Europe can retain any sense of unity, regain its economic health, and avoid geopolitical irrelevance.

No. 4: Where will the borders be drawn in the greater Middle East?

There are good reasons why existing borders tend to endure, even when they don’t conform well to ethnic, cultural, or religious boundaries. One reason is simple prudence: Once you start redrawing the map, it is hard to know where the process will end, and so existing elites will have every incentive to preserve the present arrangements, however flawed they might be. Even so, it is hard to look at what is now happening in the Middle East and believe that the current borders aren’t going to look different some years from now. Libya might break up completely. The borders drawn by Sykes and Picot may end up on the ash heap of history, and be replaced by a rump Alawite state, a radical Sunni community in eastern Syria/western Iraq, and a genuinely independent Kurdistan. The Green Line separating pre-1967 Israel from the West Bank is increasingly meaningless too, but a future “Greater Israel” would catalyze a Palestinian struggle for civil rights. I don’t know if any of these things will happen or what the final end states will be, but trying to keep the pre-2009 Humpty Dumpty together is looking like a bad bet these days.

No. 5: Will a stable equilibrium emerge in East Asia?

China’s rise has shifted the balance of power in East Asia, and Beijing continues to press various territorial claims in the East China and South China seas. There have been desultory efforts to resolve these disputes but no serious progress. In the absence of multilateral agreement, these disputes are just trouble waiting to happen, especially given U.S. treaty commitments to various regional allies and to freedom of navigation more broadly. America’s “rebalance” to Asia was supposed to help address these issues, but Washington keeps getting distracted by more dramatic but ultimately less significant events elsewhere. My guess: East Asia will be even more contentious in 2016 than it is today, and these issues are going to loom large in the next president’s agenda.

Read more…

By Stephen Walt; Published on Aug. 28 in http://www.foreignpolicy.com

Stephen M. Walt is the Robert and Renée Belfer professor of international relations at Harvard University.