The US, ASEAN and China: a new alignment emerging?

In November of last year, President Barack Obama pledged that he would be a “Pacific President.” While the audience in Suntory Hall may have wondered about the content of that statement few in attendance doubted the sincerity or conviction of the President. As relationships between the US, ASEAN and China have been re-drawn, especially after latest series of ASEAN hosted diplomatic meeting in Hanoi, the meaning of a Pacific President is starting to become clearer. Three sites of change in particular warrant special mention; the East Asia Summit, the South China Sea and the Korean Peninsula. In all three cases, the United States and ASEAN states are becoming closer, while China is finding itself distanced from decision-making. Put more directly, the early 21^st century phenomena of China-ASEAN relations being closer that US-ASEAN is reversing itself.

This realignment can firstly be seen in the United States advancing its claim for a seat at the East Asian Summit. Last week the US received an expression of general support from the Foreign Ministers after the Informal Consultation Meeting and Singapore’s Foreign Minister George Yeo later indicated that ASEAN has already decided to include the US in the EAS. Hilary Clinton’s determination to return to Vietnam in October for the EAS together with Obama being scheduled to attend the next year’s EAS in Indonesia suggests that the US is confident that its accession is assured over the medium term. As a part of this process, ASEAN Ministers also welcomed the decision to include the US in the first ASEAN Defence Minister's Plus with Eight Dialogue Partners scheduled for October.

Unsurprisingly perhaps, the only player to not greet increased US involvement in the region warmly was China. China’s Foreign Minister Yang Jiechi was quoted as saying that China "took notes with open attitude" of the ASEAN proposal for an expanded EAS and "look[ed] forward for consultations" with ASEAN on subject (the Nation, July 22). But while China is dissatisfied with the direction the EAS is taking; this is a battle it already knows it has lost. As Wu Jianmin (a member of the Foreign Policy Advisory Group) observed last year, ‘We know that China could not stop the US if it really wants to join the EAS.’ Indeed, according the declaration establishing the EAS, membership is determined by ASEAN alone – and while China is influential it simply can not veto a proposal (unlike in UNSC).

Moreover, China has seen the US and ASEAN draw closer on an issues of major interest to it, the territorial disputes in the South China Sea. Secretary of State Clinton’s identification of this issue as a “pivot” of regional security brings the United States back as a player after more than a decade of diplomatic passivity (to China’s notable discomfort).

The emerging US-ASEAN-China realignment can also be seen in Clinton’s proposal (together with 12 other Asian nations, including the host Vietnam) for a dispute resolution mechanism to be established. Such a mechanism would build on (or over) the 2002 Declaration on the Conduct of Parties in the South China Sea signed between ASEAN and the PRC. This Declaration can essentially be interpreted as a response to the 1992 ‘Law on the Territorial Waters and continuous Area‘, and reflects an agreement to shelve the issue rather than resolve it – hence the lack of a dispute resolution mechanism. ASEAN efforts to move from ‘shelving’ to ‘resolving’ this issue have been systematically thwarted by China, and so it unsurprising that China would again register dissatisfaction. China’s Foreign Minister Yang Jiechi noting, “turning the bilateral issue into an international, or multilateral one, would only worsen the situation and add difficulties to resolving the issue.” (WSJ China rebuts Clinton). Perhaps Yang meant to add “for China.”?

China’s 1947 Map: basis of the South China Sea Claim: fat dotted lines as limit of territory.

Lastly, this re-alignment can be seen in US-South Korea relations and posturing in the ARF over the sinking of the South Korean corvette, the Cheonan. Again China and the US found themselves in opposite corners over this issue, China reportedly working to remove references to the sinking as a North Korean attack. This disagreement over wording caused adoption of the Chairman’s statement to be delayed a day. Korea’s growing frustration with China’s role in diplomatically supporting the North has, similarly to ASEAN, caused South Korea to look to its traditional security provider, the US. This week’s war games off the Korean peninsula, while clearly focussed on the North, have caused concerns in Beijing. Yet notwithstanding the repositioning of the nuclear powered aircraft carrier the George Washington on the East side of the peninsula, the US and Korea have been willing to disregard China’s warnings. Intriguingly, Japanese officers are observing the joint U.S.-Korean exercises.

In conclusion, a realignment is underway in East Asia. Increasingly, ASEAN (and Korea) are moving closer to the geographically distant US, while China is finding itself surprising distant from its neighbours.

Fedfail Australia - RB Success!

Further to the previous post on the US federal reverse failing its own targets, and a comparison to the Australian experience. This graph show inflation back within the target zone. Which together with Australia's unemployment rate of nearly 5% indicates a 'Fed (rb) success.'

Graph from Peter Martin's Blog.

Klassic Krugman: Fed Fail!

An amusing graph by Krugman, with even more amusing assumptions.

It is called the FedFail index, and shows how far core economic indicators (inflation and employment) are from the Fed's targets. It is calculated by "1.3* ABS(unemployment – 5) + 2* ABS(core inflation – 2)." And looks like:

Having read through Rudebusch (San Fran Reserve)'s letter, I understand very roughly were Paul is getting the weightings of 1.3 and 2 for inflation and employment. But there is clearly a value judgement implicit in these weighting - i.e. employment more important than inflation. An unsurprising value judgement given Paul's politics perhaps, but something to be leery of.

Additionally, it is likely that the target for inflation and employment at the Fed has shifted - and it seems clear that they are more interested in reigning in inflation than employment.

If I get truely bored this weekend I might try to knock one of these up for Australia, see how we stack up.

For more see,

http://krugman.blogs.nytimes.com/2010/07/21/the-fedfail-index/

http://www.frbsf.org/publications/economics/letter/2009/el2009-17.html

Tachi Agare Australia!

In response to the ALP's "going forward" rhetoric the Liberal Part have come up with "standing up Australia."

May I be the first to welcome "Tachi Agare Australia."

CMIM : Phillipines an equal.

When the CMIM was declared in December of last year a political decision was made regarding each countries' contribution and multiplier. Essentially a three tier system was set up for the multiplier (the multiplier determines how many times more than the contribution a given country can access). The multiplier also determines were one stands as a giver or taker of resources and is negetively correlated to contribution - it is therefore a marker of a rule giver or taker for the CMIM as a whole.

Those with a multiplier of 1 could not extract more from the CMIM that they put in. China, Japan and Korea as the suppliers of the international public good are on this top tier. On the other extreme are the undeveloped ASEAN members (the CLMV plus Brunei) which have a multiplier of 5.

Then there are the developed ASEAN-5 members (Indonesia, Malaysia, Singapore, Thailand and the Philippines) with multipliers of 2.5. Until May, the ASEAN-5 countries contributed 4.77 billion, except the Philippines (3.6). However, at the ASEAN Finance Minister's meeting in Tashkent saw this be revised (paywalled). The ASEAN-5 (with 2.5 multipler) now have a uniformed contribution of 4.5 billion, with the Phillipines commiting more and the other pairing back their commitments.

This represents a victory of sorts for ASEAN cooperation. As "the four other ASEAN founding states had agreed to an interim arrangement to temporarily cover part of the Philippines’ obligation to the fund, pending sufficient levels of gross international reserves (GIR) to cover this regional commitment, a BSP officer explained yesterday." On the other hand, the fact that the other ASEAN countries had to reduce their commitments demonstrates that the NEA:SEA 80:20 split rule is still in force. Certainly neither China or Japan would want to reduce their commitments - while ASEAN is still more interested in what they can get out of the CMIM than what they can put in.

Before the Phillipines could agreement to expanding its commitment, it was important the its reserves be in a healthier position. Thus it was only after "The country’s GIR rose to $47 billion as of end-April, enough to cover 9.3 months of imports of goods and services. It is also equivalent to 11.8 times the country’s short-term external debt based on original maturity" that the commitment could be made. But it is worth noting that the Philippines can only source 11.38 billion from the CMIM, enough to help in the event of short-term liquidity shocks or balance-of-payments difficulties but far from what would be needed to decouple from the IMF

Just a thought but as the CMIM pact does not require an upfront transfer until after a swap request has been approved, I can not see why the Phillipines was not in position to start at 4.55 from the outset.

h/t the emerging scholars who encouraged me to restart this project