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Amidst political chaos and uncertainty, Brazil’s economy continues on its path to recovery receiving a vote of confidence by ratings agency Moody’s. There is hope Brazil will be able to continue the necessary economic reforms once a new President takes office next year.

On 9 April, two days after former President Lula’s arrest, ratings agency Moody’s improved the outlook for Brazil’s sovereign credit rating from negative to stable, which was reaffirmed at Ba2. Moody’s move is contrary to those of other ratings agencies—Standard & Poor’s and Fitch—which downgraded Brazil’s credit rating this year.

S&P downgraded Brazil’s rating in January, and Fitch in February, due to the country’s difficulty in approving necessary reforms which affect long term economic recovery and an increase in public debt. It has been two years since Brazil had investment grade status—the higher the grade the safer it is for investment.

Moody’s made the decision because they believe the next government will be able to approve the required fiscal reforms to stabilize debt growth and comply with a spending cap—as improved economic forecasts in the short and medium term played a role. Moody’s also noted that the negative risks and uncertainties related to the reforms from last year have decreased as presidential candidates have acknowledged the importance of a pension reform.

Fiscal reforms and projected growth

In the detailed report, Moody’s believes the next government will work effectively with Congress to approve a pension reform that is comprehensive enough to contain the growth of compulsory expenditures and ensure compliance with the spending cap. GRI’s viewdovetails with this perspective, as all presidential candidates who are polling well at this stage, have expressed the importance of the reform for the fiscal balance and continued growth. The constant delays to the vote only make it more urgent in 2019.

The second factor leading to Moody’s decision lies in the projected average GDP growth of 2.8% in 2018 and 2019, falling interest rates, increased demand for credit and better prospects in the labor market. A continuation of the economic recovery will likely be felt in Brazilians’ wallets and increase purchasing power, especially with low inflation, which in turn makes public opinion more positive when it comes to passing reforms.

Moody’s praised the structural reforms approved by Temer’s government, since 2016, as a driver of projected growth in the medium term.

Ministry of Finance

The finance team has been working to restore fiscal balance—where they have been successful in approving a spending cap, labor reform, state fiscal recovery program, revamping the Brazilian Development Bank (BNDES) credit policies and long-term tax (TLP). In addition, the finance team is committed to fiscal consolidation and recovery of economic activity and job creation.

Finance Minister Henrique Meirelles, who has been in office since the beginning of the Temer administration, stepped down on 6 April, as he considers running in the upcoming presidential election. Eduardo Guardia, the former Executive Secretary, was named to replace Meirelles.

Guardia previously held positions in the private sector at BM&FBovespa, GP Investments, Pragma Wealth Management, as well as in the public sector at the Treasury and Sao Paulo’s Finance Department.

Guardia’s appointment signals continuity in the Meirelles finance administration, even as there are 9 months left under Temer’s government, Guardia’s position will focus on management, budget execution and the privatization of Eletrobras, instead of taking on new initiatives.

Petrobras credit rating

Simultaneously, Moody’s raised Petrobras’ credit rating from Ba3 to Ba2—seen as a stable outlook. According to Moody’s, this decision reflects the continued improvements in the State Owned Enterprise liquidity and reduction of its leverage.

Additionally, Petrobras has shown discipline in competing for profitability in the local fuel market and in improving its financial policies.

The agency expressed that Petrobras has been able to refinance its debt, which reduced the burden of its financial commitments in the short term as well as contracted U$ 4.35billion in credit to further its liquidity.

Outlook

The improvement in the outlook for Brazil’s sovereign credit rating generates positive signals to the market and may favor the attraction of investments to the country. This is particularly important as the government pushes for the privatization of Eletrobras in the coming months as well as the June pre-salt auctions – both deemed extremely important to recover fiscal balance.

Additionally, the decision by Moody’s puts a certain amount of pressure on the next government to be elected in October. At this point almost all presidential candidates have expressed how necessary economic reforms are, and that it will be a priority to their government. As the public continues to see the increase in their purchasing power they are likely to start supporting these measures, pressuring the government even more to continue a steady pace of recovery. With domestic and international pressure it is highly likely that economic reforms will pass during the first couple of years of the next president’s term.

Even though S&P and Fitch have yet to revise their ratings, overall, Brazil’s risk remains at low levels due to high international reserves (approximately U$ 383 billion) and good export performance. With international reserves that exceed its external debt, Brazil’s fiscal deterioration will likely not cause a total loss of confidence by investors – especially in debt securities. Credit ratings aside, it’s important to note that low inflation, strong oil and soy exports, and high international reserves make Brazil look like a safe place to invest.

This article was first published on Global Risk Insights, and was written by Lorena Valente.

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Last year Panama became the second Central American country to establish diplomatic ties with China. This is the latest example of how Chinese investment in the Latin American and Caribbean (LAC) region has afforded Beijing closer political ties. As the US reduces its influence south of the border, China’s economic ventures will pay dividends at the expense of its rival.

China’s Central American strategy

China’s advancement in Central America dates back to 2007, when Costa Rica became the first Central American country to establish diplomatic relations with Beijing. Since then, economic relations between both countries have developed, helping to promote China’s regional brand. Economically, China has presented itself as an attractive partner. In 2008, China purchased Costa Rican bonds in excess of $300m, offered the country aid worth $130m, and funded the $105m construction of the Estadio Nacional. Meanwhile, on March 2 Chinese state media claimed that China will finance the expansion of a highway connecting Costa Rica and the Caribbean.

Chinese activity in Costa Rica is not limited to finance. In terms of culture, students at the University of Costa Rica can study Chinese and enrol in Chinese cultural programmes. The Chinese government has also promoted the development of Chinatown in San José, Costa Rica’s capital.

Costa Rica has set an example to follow

Through the relationship with Costa Rica, China’s influence across the region has strengthened, encouraging other countries to pursue closer relations with the Asian giant. In recent years, Chinese investment in Panama has grown substantially. China is the second biggest user of the Panama Canal, which is crucial to its trade routes.

Significantly, China’s economic potency in Panama has generated close political relations between both countries. Last June, Panama formally established diplomatic relations with Beijing. Last November, Chinese President Xi Jinping and Panamanian President Juan Carlos Varela discussed the prospect of a free-trade agreement between China and Panama. After that meeting, Zhao Bentang, head of China’s foreign ministry Latin America division, declared Beijing would ‘assist Panama’s economic and social development to the best of our capacity.’ China’s inroads in Central America are not limited to Costa Rica and Panama.  In other ventures, China is financing a 170 mile Nicaraguan canal which will connect the Caribbean Sea with the Pacific Ocean. Meanwhile, in Honduras Chinese firms have shown interest in investing in hydroelectric projects.

China, Taiwan, and Central America

Given that Central America does not constitute a large market, economic interests alone do not explain China’s regional engagement. Rather, the geopolitical significance and geographic location of Central America underpin China’s financial overtures to countries in the region.

One cannot examine China’s interests in Central America without taking cognizance of its conflict with Taiwan. China sees Taiwan as a breakaway province. It does not recognise Taiwan’s sovereignty and believes that one day Taiwan will be reunited with the mainland.

Significantly, Central America represents the most concentrated global region of support for Taiwan. Out of Taiwan’s twenty diplomatic allies, ten are located in Central America and the Caribbean. Taiwan’s presence in Central America has become more conspicuous amid China’s growing interest in the region. Last year, Taiwan President Tsai Ing-wen toured Central America to reinvigorate political ties.

Beijing’s ‘One China’ policy is central to China’s strategy in Central America. The maintenance of diplomatic relations with Taiwan by these ten countries effectively precludes them from establishing political ties with China. For Costa Rica and Panama, cutting political ties with Taiwan was, thus, an essential prerequisite for establishing diplomatic relations with Beijing.

China believes it can persuade Central American countries to abandon support for Taiwan through economic incentives. This policy, to erode Taiwan’s international legitimacy and place it in further isolation, is central to China’s political and economic strategy here.

The wider region

China’s Central American interests coincide with its growing influence across Latin America. Resulting from its ‘Go Out Policy’ developed in the late 1990s, China has become a pivotal economic partner for Latin American countries through access to natural resources, foreign markets, and the diversification of Chinese firms.

China’s interest in Latin America, like Central America, is both economic and political. From 2000 to 2012, China-Latin America trade rose from $10bn to $270bn. For Brazil, Chile, and Peru, China has replaced the US as their most important trading partner. Chinese banks have been a significant source of regional finance. In exchange for oil, China has loaned in excess of $65bn and $21bn to Venezuela and Brazil respectively. China is the region’s biggest creditor and has eroded Washington’s financial power in times of economic hardship in the region.

Latin America forms part of China’s global Belt and Road Initiative (BRI). On January 22, Santiago hosted the second meeting between China and LAC countries in a bid to strengthen economic and political ties. Speaking to representatives of 33 countries, Chinese Foreign Minister Wang Yi confirmed that the region is ideal for China’s BRI plans.

Washington’s loss is Beijing’s gain

China’s economic and political gains across the LAC region contrast with North America’s reduced influence. Although the US remains the biggest economic player in Latin America, the 2008 global recession negatively affected its regional commitments. Between 2000 and 2010, the US’ share of Latin American trade fell 14%. More recently, President Donald Trump’s decision to pull out of the Trans-Pacific Partnership (TPP) and introduce import tariffs on steel and aluminium has further damaged trade relations with the South. In contrast, embracing free trade, multilateralism and globalisation, China has pledged to increase trade and investment with Latin America.

China’s ventures south of the Rio Grande and its increasing global influence appear to have escalated tensions with the US. Speaking ahead of his visit to Latin America in February, former Secretary of State Rex Tillerson warned against far-away powers ‘that do not reflect the fundamental values shared in this region’. Moreover, Washington views Beijing’s economic policies in Latin America as China’s attempt  to ‘challenge American power’. From Beijing’s perspective, Washington’s decision last June to sell arms to Taiwan indicate hostility to one of China’s core global principles.

Overall, through establishing successful economic and diplomatic relations with countries in Latin America, Beijing seeks to portray China as a beneficial and reliable partner and persuade other countries to strengthen diplomatic ties. Considering China’s economic commitment to the region over the next decade, other Central American countries will likely abandon ties with Taiwan in return for Chinese aid and investment. Furthermore, China’s growing regional influence coincides with growing tension between Washington and Beijing. As the world’s two leading powers face a potential trade war, the LAC could become a battleground as China continues to enhance its global economic and political image.

 

This article first ran on Global Risk Insights, and was written by Niall Walsh.

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Colombian presidential elections will be held on 27 May. Among its candidates, a new-born star is rising with the right-wing candidate Iván Duque, a strong opponent to the peace agreement.

Iván Duque: future President of Colombia?

According to the latest poll from Polimétrica, run by Cifras & Conceptos earlier this month, right-wing candidate Iván Duque appears most likely to win the presidential election. Per the poll, 35.4% of the interviewees claimed they would vote for him while 24.6% would vote for the leftist candidate, Gustavo Petro, the second runner up in this election and former guerrilla member.

Furthermore, not only is he the candidate with the most favourable image (49%) for Colombian electors – a percentage up from 19% in January, but he has also seen the most steady increase of the intention of votes, from 8% in January to 22% in March – equalling the intentions to vote for Gustavo Petro at that time – to now lead the polls by far (see below graphic).

Political momentum: the peace agreement in trouble

The apparent success of the front runner for the presidential election could be partly explained by two factors: (i) opinion polls against the guerrillas’ agreement and ceasefire, and (ii) the recent arrest of a major FARC figure for drug crimes.

First, according to the poll mentioned above, most of interviewees disagree with the Havana peace deal that was signed by incumbent President Juan Manuel Santos and FARC members in 2012 (51%), as well as the pending negotiations with the other major rebel group of the country, the National Liberation Army (ELN) (56%). This is likely to play in favour for Iván Duque who also stands against the bilateral ceasefire that was agreed between the latest and the government.

Second, the surprising arrest on 9 April, by the US of one of the most important members of FARC, Seuxis Paucis Hernández Santrich, for drug crimes has put a strain on the peace deal. Santrich has been a major player in the negotiations of the Havana peace deal and was about to take a seat in Colombia’s congress – as contemplated by the accord.

Santrich was arrested after evidence found that he was going to sell 10 metric tons of cocaine, therefore he faces the threat of extradition to the US – a policy that has been strictly prohibited by the peace agreement, even though it only applies for crimes committed before its signature. This dilemma could spread fear among demobilized fighters who may think twice about trusting the government and the deal’s benefits.

Who is Iván Duque Márquez ?

Senator Iván Duque, 41, is the leader of the right-wing political party Centro Democrático. Previously, Duque worked as an adviser for the Treasury Department, from 1998-2002, and as a counsellor for the Inter-American Development Bank in the US for 8 years.

During the presidential campaign, Duque promised to enhance economic and social reforms. Most importantly, he has been a fervent opponent to the peace deal and advocates to modernize the Colombian armed forces to fight drug trafficking and criminal groups, such as the ELN and dissident FARC members.

Duque gained support among traditional right-wing sectors, as well as previous sympathisers of former president Alvaro Uribe (2002-2010) – who led the “No” campaign on the peace referendum.

Among other points, Duque disagrees with the special justice put in place for guerrilla fighters as contemplated by the Havana agreement, in which he describes as a mockery and a symbol of impunity. Duque proposes a constitutional reform to ensure that drug trafficking is not eligible for impunity.

Outlook: significant changes for the peace deal likely if Duque wins

If and when, Iván Duque wins the upcoming presidential elections in May, according to the data he is on the right road to replace Santos. His win could likely weaken the Havana peace agreement that has partially managed to put an end to more than half a century of armed conflict.

In an interview with El País, Duque mentioned that if he wins, he does not intent to destroy or rip up the accords but to make significant changes to the elements that affect the rule of law. This could potentially lead former FARC members to join growing dissident groups, which would result in the renewal of attacks between militants and the government.

In the meantime, Duque’s leadership has been well received by investors who see in the right-wing candidate as a more business friendly advocate than leftist candidate Gustavo Petro for instance.

 

This article was first published on Global Risk Insights, and was written by Mathilde Tisserand.

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Regional power struggles and maritime security are at the heart of new security agreements between France and India. India is especially worried about being geopolitically isolated by China, and is seeking to expand its presence in the Indian Ocean.

Between 10 and 14 March, India and France signed a series of agreements to strengthen their strategic and commercial relations. The deals aim at deepening cooperation on a wide range of issues, especially defense, space technology, climate change, nuclear energy, urbanization and counterterrorism.  The underlying concerns, however, are ensuring maritime security in the Indian Ocean and containing China’s sphere of influence in the region.

Maritime security and India’s Indian Ocean influence

Last November, India joined discussions on the revival of a quadrilateral defence cooperation with Japan, Australia and the United States, during which the four members confirmed their commitments to establish a free and open Indo-Pacific region, promote cooperation in line with a rules-based order, respect international law, and ensure freedom of navigation, overflight, maritime security and connectivity. The agreements with France are India’s latest effort to create a multilateral network with the common aim to maintain stability and security in the Indian Ocean and the broader Asia-Pacific.

The deals have important practical implications for the regional security landscape. Specifically, India is seeking to strengthen its military presence in the Indian Ocean and to gain access to ports and naval bases in the region, which is precisely what the latest agreements with France allow. Considering France’s military presence in the Ocean through the island of La Reunion, Mayotte and the French Antarctic Lands, as well as Djibouti and Abu Dhabi, the partnership could greatly facilitate India’s desire for influence in the Western Indian Ocean.

Modi has already signed similar agreements with other partners such as Seychelles, Singapore and Oman, granting India’s access to these countries’ ports and naval facilities. Also noteworthy is the partnership with the United States, with which Modi signed a logistics agreement in 2017 to facilitate the use of US naval and air force bases in the Indian Ocean and Persian Gulf.

Presidents Modi and Macron meeting in France. Source: elysee.fr.

Countering China’s ambitions

China’s growing presence in the region is one of the main factors behind India’s recent efforts to boost its strategic cooperation with third parties. The stakes are particularly high for India because China has repeatedly shown its growing willingness to expand its influence in South Asia and in the Indian Ocean region, threatening India’s status of provider of security and stability.  Beijing showed strategic ambitions in Djibouti, where it established its first and for the moment only military base, as well as in Pakistan, Sri Lanka and the Maldives, especially through increased investment and free trade agreements.

From India’s perspective, Chinese efforts to strengthen economic ties in South Asia might culminate in the establishment of its naval bases in these key countries. The Maldives’ recent tilt towards China is especially worrisome for Modi, as he fears the possibility that Beijing will increase its economic and military presence in the island nation, thereby disrupting the current regional equilibrium.

A stronger response by India as a result of growing Sino-Indian competition would increase the risk of collision between the two regional powers over the Indian Ocean. Most importantly, the risk of military and strategic confrontation between China and India over South Asia and the Indian Ocean will increase, as India attempts to enhance its influence and power. The likely outcome is a struggle to secure bases in smaller and micro-states in the region, bringing significant political risks. Recent instances of instability in the Maldives and the consequent competition for influence between the two powers illustrate this trend, and smaller states will increasingly find themselves in a position to choose between Chinese economic incentives and maintaining their tradition of supporting India’s strategic interests.

Shared concerns, mutual benefits

Currently, Modi faces two main challenges in containing China’s influence in the Indian Ocean. These are the inability to compete with the economic benefits and foreign investment opportunities that Beijing is able to offer to less developed nations in the region, and a limited defense budget and capabilities.

As a response, India sees increased security cooperation with strategic partners such as France and the Quad as a means to establish a rules-based regional security architecture, in an attempt to attract smaller states in the region and prevent them from gravitating towards China’s sphere of influence. Moreover, France is an important partner in developing Indian military capabilities, and the purchase of French-produced Scorpene submarines and Rafale fighter jets is among the most significant contributions to India’s limited defence and naval capacity. As France is willing to cooperate with Modi and his security ambitions, similar deals will likely follow soon.

For France, India’s growing economic role on the global stage can provide important support, as Macron also seeks to build stronger bilateral relationships as a response to China and Russia’s increased assertiveness and internal changes in the European Union and in the US. In Macron’s view, India is an important partner in providing greater stability and balance in Asia, and will boost the role of France and the European Union in world affairs.

Chinese expansionism is not the only shared concern for the two leaders. Stronger maritime surveillance and space cooperation were also key component in the agreements, which included areas such high resolution earth observation, spaces situational awareness and satellite navigation. Maritime traffic security is an especially important issue for the two parties, who expressed concerns over freedom of navigation and overflight, organized crime, trafficking of weapons, smuggling and illegal fishing in the Indian Ocean and the Horn of Africa. As both India and France seek to play a stronger role in the region’s changing security landscape, cooperation between the two countries over the Indian Ocean will surely grow in the near future.

This article was first published on Global Risk Insights, and was written by Benedetta Di Matteo.

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In August 2017, two Chinese warships carrying an unidentified number of military personnel berthed on the coast of the East African nation of Djibouti, signaling the first Chinese military base outside of the South China Sea. This commitment enhances the country’s military presence in Africa, as over 3,000 troops have been stationed in Mali, Liberia and South Sudan for peacekeeping missions in the last few years.

According to Beijing, the purpose of the site is to provide medical and humanitarian assistance to China’s new-found allies within the region, as well as a logistics facility. These assertions are somewhat legitimate, considering the Chinese navy have undertaken surveillance missions in the region since 2008, along with the aforementioned humanitarian presence in other parts of Africa. Additionally, over one million Chinese nationals are based in Africa, therefore one could argue their presence has some justification.

Could any underlying motivations exist behind China’s recent military expansion in the region? Djibouti is a country with little natural resources, unlike their Gulf neighbours. The largely benevolent motives in China’s surely cannot be the only reason for its interest.

Primarily, it could be its geographic location – Djibouti meets the Gulf of Aden, which leads to the Suez Canal where about eight percent of global sea-borne trade passes through at any given moment.

China’s presence in Djibouti is not unique. Its joined other countries in the region – it used to be a colony of France and a group of French personnel remain today. Its also not surprising to have a military presence from China, considering they have contributed to peacekeeping missions in the African region.

They are joined by contingents from Japan, Italy, Germany, Saudi Arabia and, not surprisingly, the US, who took charge of a large outpost formerly held by France, in response to the September 11 attacks. With a number of significant tenants in this territory, this could be seen as another factor in its decision making. Perhaps they’re consolidating power in a region where others exist?

Beijing can also be perceived to be protecting their investments in the region. Chinese military presence, and the $20 million per year over 10 years Djibouti will receive from the move, isn’t the only benefit they receive. Firms from the country have invested heavily in the east African nation include a multimillion-dollar free trade zone, a water pipeline from Ethiopia, a railway to Ethiopian capital Addis Ababa, and a new international airport.

Djibouti’s neighbour, Ethiopia, have also benefitted from China’s presence. Between 2012 and 2017, 279 companies were operating in the country, with projects worth over $570 million. The necessity for security in the region is therefore perhaps a legitimate claim, as China has had to evacuate hundreds of nationals from Libya, Yemen and Sudan in the last few years.

Concern has been raised over the influence this gives to Beijing, none more so than from the US. Marine General Thomas Waldhauser, the top US military commander overseeing troops in Africa claimed, “If the Chinese took over that port, then the consequences could be significant.” He added, “there are some indications of (China) looking for additional facilities specifically on the eastern coast … So Djibouti happens to be the first – there will be more.” Sure, the unease from the US can be considered somewhat warranted.

One could argue Washington is in a position to comment on such actions, as they hold a considerable amount of experience on handling diplomatic issues in varied regions. It begs the question however – do they really have the right to have such sensitive geopolitical affairs?

US overseas military expansionism has been taking place since the Spanish-American war in the late nineteenth century, and along with it came the damage to communities around the world. If the US have anything negative or concerning to claim about Beijing’s military ambitions, perhaps it should take a look in the figurative mirror before passing judgement.

One country that could possess a more legitimate concern for the recent actions of China in Djibouti is India, with their concern stemming form the One Belt One Road initiative. The enterprising infrastructure project draws its inspiration from the Silk Road trading route, and intends to connect China with the rest of Asia, Europe and Africa, with 40% of GDP in the process.

The concern from Delhi has been one of sovereignty – Indian Foreign Secretary S. Jaishankar stated in 2017, “China is very sensitive about its sovereignty. The economic corridor passes through an illegal territory, an area that we call Pak-occupied Kashmir. You can imagine India’s reaction at the fact that such a project has been initiated without consulting us.” Prime Minister Narendra Modi reinforced this point, asserting that “connectivity in itself cannot override or undermine the sovereignty of other nations.” India’s seems to have a stronger case for worry, as they have a history of conflict with the East Asian giants.

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Donald Trump and Kim Jong-in plan to meet somewhere, maybe in June.

As you have probably heard. President Donald J. Trump has accepted an invitation to visit North Korean leader Kim Jong-un.* People who were genuinely worried that Trump was going to start a needless war with North Korea now seem to be nearly as worried that he is going to talk to them and inadvertently trigger a calamity. In normal circumstances, of course, as Winston Churchill reportedly said in 1954, “To jaw-jaw is always better than to war-war.” (It rhymes when Churchill says it.) Still, there is room for concern.

An Incentive to Break Coalitions

Although Trump apparently regarded the invitation itself as a major breakthrough, North Korean leaders have actually been trying to negotiate with Americans for generations. It’s the Americans who refused. Once upon a time, the North Koreans refused to talk to South Korea’s leaders at all, insisting that they must deal directly with the “puppet masters,” not the “puppets.” Over the years, they have adapted to changing circumstances and developed new ways to try to split the U.S.-South Korean alliance. Countries facing a hostile coalition will always have an incentive to try to break it up.

Thus, in giving this year’s New Year’s Day speech—in the face of a new administration in Seoul that was eager to improve relations and an administration in Washington that was intensely hostile—Kim Jong-un gave different messages geared to the primary interests of the different audiences. To Seoul he offered to begin a dialogue, ease military tensions, and create a peaceful environment; to Washington he highlighted that “the mainland of the United States is within range of our nuclear strike” and promised to accelerate the production of nuclear warheads and intercontinental ballistic missiles. This, to say the least, appears to be a combination designed to elicit a differentiated response. Given this background, it seems reasonable to expect that when Kim offered to negotiate denuclearization with the United States—an offer he made to a South Korean delegation—he may well have assumed Trump would reject the offer, further aggravating relations between Washington and Seoul. Trump’s quick and unexpected acceptance might then explain the fact that it took three weeks, a side trip to Beijing, and a secret visit by the CIA director for Kim to acknowledge that he had actually made the offer. But acknowledge it he eventually did.

Given the nature of the story so far, the summit itself may not prove very productive and could even be quite counterproductive if excessive hopes are dashed. Cause for concern can be found in the likely clash between the two sides’ expectations. What, for instance, do Trump and Kim expect to get out of the summit? And what strengths do they believe they have going into it?

Goals

In terms of goals, of course, we do not know what either man, Trump or Kim, is thinking at the moment, but we do know what each side’s expressed fundamental goals have been up to now. Those goals suggest trouble if neither side changes. North Korea’s immediate goal is to solicit acknowledgment of its status as a nuclear power and the sort of treatment that is accorded to that status, certainly to include an end to all sanctions. Kim has reportedly agreed to discuss the “denuclearization of the Korean Peninsula,” but that oft-repeated refrain is normally conditioned on guarantees of North Korean security (e.g., the withdrawal of U.S. troops from South Korea and perhaps Japan, the renunciation of the U.S.-South Korean alliance, the end of U.S. extended deterrence—the so-called nuclear umbrella—with regard to South Korea) that amount to guarantees of South Korean insecurity. No doubt, Kim has taken notice of Trump’s stated willingness to bring U.S. troops home from South Korea.

The United States’ immediate goal is the complete, verifiable, and irreversible dismantlement of North Korea’s nuclear weapons and production facilities. This has become such a standard demand that it has its own abbreviation, CVID. As generally understood, it does not include the sort of security guarantees that Pyongyang finds necessary.

Clearly the U.S. goal clashes with the North Korean goal. It will be even harder to achieve now that North Korea actually has nuclear weapons and the missiles to carry them (even if some technical finishing touches may still be required). Even in far more mundane matters than potential nuclear annihilation, psychologists tell us that people will willingly pay a higher price to avoid losing something that they already have than they will pay to acquire something new that is objectively comparable in value. To be sure, the stakes in the current situation are not mundane, and the North Koreans will not trust the Americans simply to keep their word. To Pyongyang’s way of thinking—as surprising as it will be to many Americans—the history of U.S.-North Korean negotiations has been one of unfulfilled U.S. promises, and North Koreans are quick to point out that both Saddam Hussein and Mu’ammar Qadhafi gave up their nuclear programs (in return for express guarantees from the United States in the latter case) only to be hunted down and killed by their enemies afterward, whereas the North Koreans have kept theirs and are still around to tell about it.

Leverage

If the two sides’ goals clash, what expectations do they bring to the table in terms of their relative bargaining strength? Listen to virtually any pundit on U.S. television and the impression you will get is that North Korea is coming to this summit because the United States compelled it to, be it a consequence of economic sanctions, bellicose threats, or the force of Donald Trump’s personality. This seems to be the general American perception, and it is likely one that the president shares (especially the part about the effect of Donald Trump’s personality). Having forced North Korea to the table, President Trump may well believe that he has the leverage to force Kim to accept the terms that he offers with little or no bargaining. If Trump’s view of the Iran deal is indicative, he may believe that bargaining itself is inappropriate in any case.

Kim Jong-un, however, may see it differently. Even if sanctions have played a major role in his recent actions, and it is hard to believe that they haven’t, other factors may be pushing in the same general direction and influencing his thinking. For example, China may be pressing him simply to lay off the provocations until the threat of war blows over. Or he may believe that North Korea’s success in developing nuclear weapons and intercontinental ballistic missiles has increased his own leverage and forced the United States to negotiate. After all, the United States, not North Korea, changed its position on direct negotiations. If this is the case, it makes it all the less likely that Kim will respond positively to a demand for complete, verifiable, and irreversible dismantlement.

Regarding the tactics of bargaining, Trump, referring to his experience as a deal-maker in business, has suggested that the secret to winning a negotiation is for him to threaten to take his money and walk away from the table. That may be a feasible tactic when the objective is to arrange some mutually profitable business deal, when many business entities are eager or at least willing to make that deal, and when any of them would be a viable partner. When the objective is to avoid war on the Korean Peninsula, however, there are a limited number of potential partners who can affect the outcome, and North Korea must certainly be counted among them. One cannot simply walk away and declare victory.

Finally, Trump has also suggested that his ability to withhold the recently renegotiated U.S.-South Korean trade agreement strengthens his position vis-à-vis North Korea. This assertion has confused many trade experts since it implies leverage over South Korea rather than North Korea. If the president thinks he can coerce South Korea into bringing North Korea into a deal, he has yet to explain why he thinks South Korea has such leverage but has not used it itself. Some have suggested that he just confused the two Koreas.

China: The Weak and Vital Link in the Sanctions Chain

Sitting as we do at the center of the world, Americans tend to assume that other countries are focused primarily, if not entirely, on us. With regard to North Korea’s current, troubled situation, the Americans will present demands and wait for North Korea to satisfy those demands in order to ease its circumstances. Even if sanctions are what forced North Korea to negotiate, however, the United States is not the central player; China is. The United States, to be sure, was central to crafting the sanctions regime, but it never had any trade with North Korea to curtail. Fifteen years ago, China, South Korea, and Japan each accounted for about 20 percent of North Korea’s trade, but as other countries began imposing sanctions, trade shifted to China until that country accounted for 90 percent by itself. China’s decision last year to begin enforcing sanctions seriously is what has changed the situation. Thus, China is the country that North Korea must satisfy. China is the key to breaking the sanctions coalition.

At the same time, we do not really know what demands Chinese leaders have made behind the scenes, or perhaps more importantly, what Kim believes it will take to satisfy them. In addition to being the vital link in the chain that is the sanctions regime, China is also the weak link. It was always reluctant to impose sanctions on North Korea, and a collapse of the North Korean regime is the last thing that Chinese leaders want to see, which puts natural limits on how far they are willing to press sanctions. China’s resolve may be weakened further if its leaders see Trump’s demands as unreasonable. Thus, Kim may well believe that all he has to do is convince the Chinese that he tried to negotiate with Trump but that accommodation with him proved impossible (and perhaps promise to lay off the provocations for a while). If Trump tries to take his assets and walk away from the table, deal-maker style, the result could well be to convince China that he is not serious and thus hand a diplomatic victory to Kim.

Breakthrough, Fizzle, or Calamity?

We cannot completely rule out the possibility that the Trump-Kim summit will produce a major breakthrough in U.S.-North Korean relations, or that Trump will simply accept any offer that strikes him as positive sounding at the moment, but it is not likely. Both leaders are inexperienced in such negotiations, and both seem prone to impetuous behavior (although, to be fair, Trump has never executed any of his relatives). The meeting will lack the months, sometimes years, of preliminary lower-level negotiations that usually precede a summit of this sort. The best that one could hope for might be a joint declaration of goals and perhaps an outline of how to work toward achieving them. To be honest, given the foregoing discussion, that does not seem likely either.

That leaves two possibilities. The meeting could be a fizzle, something that produces little but disappointment and perhaps a few tweets crowing about imaginary achievements, moral victories, or the deceitfulness of the other side. In that case, North Korea and China could be the most likely winners. Or, as some have feared, the meeting could result in calamity. One or both leaders could be so shocked and enraged by the other’s seemingly outlandish expectations that he, or they, resort to resolving the politics by other means. This is not a necessary outcome, but it cannot be excluded either.

*Technically, he is not President Kim Jong-un. That title is still held by his grandfather, Kim Il-sung, who died in 1994. (Evidently, president-for-life was just not good enough.) The current leader has several titles, including Chairman of the Commission on State Affairs (formerly the National Defense Commission), which is the actual leadership position in the state, and Chairman of the Korean Workers’ Party. (His late father, Kim Jong-il, is of course the Eternal General Secretary of the Workers’ Party.)

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Picture of a S-200, NATO codename SA-5 Gammon, a 1980s era missile that was able to shoot down a modern F-16I after a strike in Syria two months ago.

Syria has been the subject of international attention this week due to the recent strike by US, UK and French forces on chemical facilities operated by Syrian President Assad’s forces. Russia, Syria’s ally on the UN Security Council, has put out several statements condemning actions by Western forces, including hinting at an upgrade of Syria’s air defense capabilities if problems persist between the various actors in the region.

Russia has supplied arms to Assad’s forces in their intense fight against rebel forces in Syria. With the high level of equipment being shattered in combat, more advanced Russian combat systems have been replacing lost Syrian Army systems. Much of this equipment is designed for ground combat, including artillery systems designed to exact significant damage on rebel forces. Systems like the Russian T-90 tank is one of the most advanced tanks used in the conflict, replacing many lost T-72 tanks, a weapons system made famous during the 1991 Gulf War by Iraqi Republican Guard units using the 1980s era T-72 as their main battle tank. Russia has also shipped systems like the 2S4 Tulypan to Syria, known as the largest caliber mortar system on the modern battlefield today. While these ground systems are a significant upgrade, they were not active in targeting Western air based munitions during the attack this past week.

Anti-Air systems were the focus of the latest spat between powers in the Middle East this past week, and it is the future of the greater conflict that may be changed as opposed to whether or not chemical or other ground systems will be used in finishing off rebel forces in Syria. Syrian air defense is a mix of systems from an 80s era defense shield, mixed with more recent Russia acquisitions that are meant to target low level aircraft and cruise missile systems. The 1980s era S-125 SA-3 system makes up much of the defensive missiles protecting Syria, along with the S-200 SA-5 system that managed to down an Israeli F-16I recently over Syria, or possibly over Israel itself. More advanced systems like the 1990s era BUK and modern Pantsir-S1 likely were more successful in targeting cruise missiles in the latest attack on Syria, systems designed to combat modern missiles and drones.

Russia has openly discussed up-arming Syria with more advanced missile systems if continued threats challenge the Assad regime. A proposal of possibly arming Syria with one of the more capable versions of the S-300 system would give Syrian air defense a 300km radar range and incredible reach in the region. The S-300 may be able to target and shoot down planes over Israel as well as Turkey if positioned closer to Syria’s border regions, focusing on any type of aircraft and even civilian aircraft. While there has been no intent to target civilian aircraft, a history of mislabelled targets has led to an Iranian airliner being shot down by a US destroyer in the past, as well as a BUK system downing an airliner over Ukraine a few short years ago. The installation of an S-300 system in Syria would likely escalate tensions, a managed response by the Russian government after the US, UK and French attack on Syria. While not the beginning of a wider conflict at this point, the promotion of new systems and strategically significant announcements should be seriously considered.

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In December 2016, the Bosnia and Herzegovina (BiH) Constitutional Court ruled in the “Ljubic” decision that elements of the country’s electoral legislation undermines the rights of the country’s Constituent People’s – the Bosniaks, Serbs, and Croats – to elect their own representatives, as enshrined in the Dayton Accords.  What makes this decision so important? The court ordered BiH’s parliament to amend the election law, but Parliament has so far failed to act, causing the court to completely strike down the election code.  If legislators do not enact a new law by May, a full government will not be able to be formed following the October election.

The implications of such a scenario are hard to exaggerate. BiH would be in complete paralysis and could rapidly disintegrate without functioning institutions.  Of particular concern – Republika Srpska (RS) where Russia has dominant influence — would be the only BiH entity left with a fully functioning government, giving it every opportunity for its leaders to pursue their long-held goal of breaking away from the rest of the country.

This would have dramatic consequences for the future of BiH and the stability of the entire region. This all would serve’s Russia’s strategic goals to stop European integration.  Even worse, this crisis is being caused by the West’s inaction; Russia barely has to lift a finger to create chaos in this scenario.

Russia’s interference in the Balkans has increased considerably in the past several years.  Recent reports, including one released by the Senate Foreign Relations Committee, highlights its attempts and successes to disrupt the respective ambitions of Balkan nations toward further EU and NATO integration by using military force, cyber warfare, and disinformation campaigns.  Russia has also demonstrated its intent to overtly interfere in the political process within Southeast Europe.

As a prime example Russian intelligence was caught attempting a coup in Montenegro in October 2016, where mercenaries had planned to assassinate Milo Djukanovic, the pro-Western leader of Montenegro to prevent it from joining NATO.  Further frustrating Balkan EU/NATO integration, Russia transferred six MiG-29 fighter jets to Serbia in 2017, which suggests a newly ramped up military cooperation with Russia. In response, the Engel-Aderholt amendment to the 2017 NDAA directed the Defense and State Departments to submit a report that would analyze the “defense and security relationship between Serbia and the Russian Federation.”

Republika Srpska is one of the main playing fields for Russia’s Balkan disruption campaign.  Russia has consistently curried favor with the RS by pushing significant political, economic and military investment to prevent BiH’s NATO bid and the EU accession process.  For example, in 2017 President Putin pledged support for the Bosnian Serb’s unilateral referendum pushed by Milorad Dodik to hold a National Day for the RS entity, despite a ruling from the Constitutional Court of BiH that it violated the rights of non-Serbs living in BiH. Taking all of this to account, in January 2017 the U.S. Department of Treasury designated Milorad Dodik as a significant threat to the Dayton Accords (DPA) and imposed sanctions against him.

More recently, Dodik and Russia have taken active measures to deepen RS military ties to Russia and to undermine BiH’s prospects of joining NATO.  This includes increased Russian training RS police; Dodik refusing to recognize a BiH Constitutional Court ruling that military property in RS is owned by the Country and not RS; and Russia shipping vast amounts of military supplies to RS and already 2500 automatic rifles this year.  The RS National Assembly also held a vote in October 2017 declaring RS’s neutrality, setting up a significant roadblock to NATO membership.

However, Dodik and Russia are not the only ones to blame for this situation. The failure of Bosnian political leaders to find compromise and for Western diplomats to exert their influence on these leaders is creating a situation ripe for Russia to exploit.  The failure to reform the election law is the most acute example of this growing instability.

Recently, Croatian political parties, independent think tanks, and the Central Election Commission have all offered solutions to fix the electoral code. However, Bosniak political leaders have rejected all of these proposals without offering any compromise ideas of their own. This scenario of inaction by the FBiH Parliament caused by the unwillingness of Bosniak politicians to implement the Constitutional Court ruling will see the BiH political system collapse from within, leaving a vacuum for further Russian influence.

America has a critical national security interest in a stable and prosperous BiH. Its important for Americans to realize how important Croatians are to the overall multi-ethnic fabric of Bosnia and Herzegovina, and one could argue the glue that can keep this country together. Bosnian Croats of all stripes look West for their future and are profoundly pro-NATO and pro-European.

American and European top diplomats must act urgently to pressure political leaders in BiH to quickly produce new legislation that guarantees the rights of Constituent People to elect their own representatives in the House of Peoples and in the Presidency of BiH. However, Russia would like nothing more than for Bosnia and Herzegovina to suffer a constitutional crisis and fall into further chaos.

The failure for the United States and European Union to take more assertive action, will be devastating for Bosnia and Herzegovina, would allow Russia’s objectives in the Balkans to be further fulfilled, and would seriously weaken the United States and the European Union interests in this region.

Steve Rukavina is President of the National Federation of Croatian Americans Cultural Foundation.

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As we speak, the political situation in Bangladesh is deteriorating for the Hindu community. Millions of acres of Hindu land has been confiscated and redefined as enemy property. According to Shipan Kumer Basu, the President of the World Hindu Struggle Committee, “Local land grabber Manik Miah has occupied the properties of Ballabh Das in Majigacha village of Kachua Upazila in Chandpur district.”

He claimed that 300 Muslims accompanied by musical instruments came in order to destroy the Ballabh Das family home: “They looted many goods such as cash, gold ornaments, silver ornaments, bronze, etc. Now, the family has no place to pass the night. They lost everything except the clothes on their backs. The family asked, why do we suffer such cruel attacks against us? We are Hindus. That is our only crime. Why can’t we also live in an independent Bangladesh while Muslims are permitted to peacefully coexist with Hindus in India?”

According to Bangladesh Sishu Adhikar Forum (BSAF), between January and March of this year, over 55 Bangladeshi children were raped per month with 66 being raped in March alone. He claimed that of the 176 children that were raped over these past 3 months, 15 were between age 1 to 6 years of age and 37 were between 7 to 12 years of age. Although these statistics are low by American standards, Basu stated that these statistics on child rape exceed what existed in the past in the country, emphasizing that the rise of radical Islam in the Middle East has had an adverse effect on the situation in his country. He noted that the rate of Hindu girls who are raped is much higher than the official statistics for the general population and that the rape of Hindu women is generally not recorded in the official records.

“Rape is a heinous violent crime,” the Bangladesh Minority Council noted. “It is used as a war tool through which the invaders subjugate and humiliate the conquered population. A judicial commission concluded that over 200 Hindu women were raped following the 2001 parliamentary election. Rape and other sexual violations of minor girls belonging to the Hindu community, mainly in rural areas, remain rampant. In the conservative society of rural Bangladesh, when a girl is violated in a village, the family is left with no choice but to migrate to India. In addition, in rural areas, pressure to convert to Islam is increasing with every year. In many cases, local authorities ignore such activities because they themselves believe that if they can convert a non-Muslim to Islam, then they will be rewarded after death. This belief has caused an upsurge in the religious conversion of Hindu minors and sometimes even of entire families to Islam.”

Within Bangladesh, many Muslims hold negative beliefs about the Hindu population. According to Basu, many Muslims in Bangladesh claim that the Hindus are not patriotic, alleging that they have never died for the country nor fought a war of liberation. However, he emphasized that such statements are bigoted and simply not true: “Jagatiyoti Das was the first to be called Birshrestha (Best Hero/Fighter) of Bangladesh’s War of Liberation. At the time, Jagatiyoti’s group had 42 people. The group had some freedom fighters operating in Kalyanpur. They fired at the Pakistani Army in Shalla, Ghangia in order to help the freedom fighters in Subal Das’s team.” He claimed that by claiming that the Hindus are not patriotic and merely fled to India, the authorities are encouraging bigoted beliefs against the Hindus in Bangladesh, which can be used to encourage their silent ethnic cleansing from the country as the world turns a blind eye to it.

“The Awami League wants to destroy the Hindu culture in Bangladesh,” he emphasized. “It is very sad that Bangladesh and West Bengal celebrate the Bengali New Year on different dates. But why? The answer is that Sheikh Hasina wants to cleanse Bangladesh of Hindu culture. Her supporters are destroying temples, idols and other symbols of Hindu culture within the country. She has formed a covert alliance with ISIS in order to rid the country of the Hindu minority by slowly ethnically cleansing them from the country via murders, rapes, and looting and land seizures. However, while Sheikh Hasina is forming an alliance with radical Islamists, we Hindus protest against this and seek to establish a secular country who peacefully coexists with other religious groups, such as Muslims, Buddhists, Christians and Jews. We want to be a model for the world. Therefore, this year, we hope that you will speak out about the plight of the Hindus in Bangladesh.”

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What started off as protests spurred on by the deteriorating economic conditions in Iran and the inflation in prices of basic necessities, escalated into a rebellion against the Islamic Republic itself. But to what extent are these protests threatening the theocratic regime, and could such an upheaval foreshadow a second Iranian revolution?

The latest protests, which began in Mashhad on 28 December last year as a backlash to the economic climate in Iran, quickly intensified in nature and in geographical reach, spreading to Kashmar, Isfahan and several other places and lasting well into January 2018.

As the Washington Post explained, there are a number of interrelated factors behind the Iranian protests. Protests were incited by the leak of President Hassan Rouhani’s financial budget plan, which indicated higher fuel prices in attempts to lower government debt. This came on top of rising unemployment for young people, currently at 40%. Set against poor domestic economic conditions, there is growing anger at Iran’s foreign policy, defined by billions of dollars of investments in the Middle East. This includes the supply of weapons and fighters to Syria, as well as financial support to Lebanese Shiite group Hezbollah.

In 2015, President Rouhani signed a deal with world powers which resulted in a reduction of Iran’s nuclear activities in return for lifting the crippling sanctions that were already in place. Despite Rouhani’s promise that signing the deal would bolster economic growth, as previously stated this growth has been far from inclusive. And despite initial optimism around Iran after sanctions were lifted, Tehran is still struggling from a lack of investment.

According to CNN, they are the biggest protests since the Green Movement in 2009. Those demonstrations threatened the political stability and legitimacy of the Iranian regime at that time, held in response to the re-election of President Mahmoud Ahmadinejad. Consequently, it is important to assess whether the 2018 protests threatening Rouhani’s regime risk escalating into a second revolution.

Significance of protests as a threat to regime stability

The important point to note is that these protests were substantially economically driven, whereby frustrations with Rouhani’s political regime were a by-product of economic grievances. In this light, scholar Vali Nasr, writing for The Atlantic, stated that these protests ‘were not a repeat of past urban, secular uprising of affluent citizens demanding social and cultural change, freedom of expression, and political participation.’

Essentially, this differentiates them from the Green Movement in 2009, and the Iranian Revolution in 1979. Both of these past movements were de facto socio-political movements with economic components, rather than vice versa. Socio-political protests threaten regime stability and longevity, whereas economically driven protests are more likely to exert pressure for action from the government.

Many Iranians are seeking improved livelihood which can be achieved through the incumbent regime, especially as the economy has come out of recession since 2015. Economic growth in Iran in 2017 was a solid 5.3% for GDP. There are foundations in place for improved employment and living conditions.

Risk nationally versus internationally

The scale and geographical reach of these protests is actually much smaller than previous uprisings in the country. Consequently they have not engendered an endemic panic across other regions in Iran. The view of Rouhani himself is that the regime is comfortably equipped to deal with incidents like this.

Part of this composure on the part of the regime is also likely due to their relative receptiveness to the pleas of protesters. Iran’s parliament ultimately rejected the 2018 budget plan that proposed an increase in the price of petrol by 50%, and also rejected any calls for increases in the price of water, electricity, and gas. This apparent and genuine responsiveness from the regime should reduce the risk of future violence or the likelihood of protests escalating into a fully-fledged revolution.

Taking the matter more seriously, President Trump denounced the Iranian regime for inflicting repression on the Iranian people for years. Trump tweeted that Iranians ‘are hungry for food & for freedom’ and that ‘[a]long with human rights, the wealth of Iran is being looted’.  This reaction is typical of Western powers’ perception of the theocratic regime as one that suppresses human rights and civil liberties. This perhaps suggests how western media outlets believed it was in their interest to emphasize the intensity and seriousness of the protests in Iran.

Overall, these demonstrations are best viewed as part of Iran’s socio-economic scene. Although twenty people died in clashes with security forces, the latest demonstrations did not reach the intensity or severity of previous protests in the country. In this case, due to the small scale and specific causation of the protests, the risk of a second revolution is highly unlikely. The government has shown it is at least partially responsive to citizens’ concerns, although ongoing economic and social inequality will help to ensure that common grievances do not disappear any time soon.

 

This article was first published on Global Risk Insights, and was written by Sehr Nawaz.

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After his record landslide victory on 18 March, Russian President Vladimir Putin likely knows he cannot rest on his laurels. With oil prices unlikely to rise anytime soon, national economic stagnation, a still heavily State-and-oligarch-controlled economy and an ever-growing shadow of confrontation with the West, Putin has his work cut out for the next six years.

The turmoil of the Skripal case and the flurry of tensions with the ‘common West’ did not break the spirit of Vladimir Putin’s supporters. Thousands gathered at Manezhnaya Square to celebrate their champion’s historic victory (76.7 %, an increase of 13.1 percentage points since 2012).

But for Russia, nothing has ever been as uncertain as it is today. The question is whether Putin is ready to implement important economic reforms, at the expense of a minority that has backed him since the beginning. In addition, Putin must consider the global ramifications of Russia’s more assertive foreign policy. Finally, with the constitutional limit of two non-renewable terms, the question of Putin’s succession is on everyone’s mind.

Stagnation versus Reform and the limits of ‘Putinomics’

However much of an election or, rather, a referendum of public confidence that this presidential ballot was, it will not hide Russia’s stark economic reality. In spite of impressive progress since the Cold War, Russia remains crippled by economic stagnation. The still substantial power of the State apparatus and its enfeoffed oligarchs has led to an undiversified economy, low wages and endemic corruption.

There is no doubt that Putin has achieved substantial success in restoring order over the Russian economy. He has pursued privatization in a much less opaque way than predecessor Dmitry Medvedev, while maintaining control over key industrial and financial sectors. Since 2000, Russia’s GDP per capita has grown by 13%, generating significant improvements in living conditions. Russia’s debt-to-GDP ratio was just 12.6% in 2017, down from a massive 92.1% in 1999. Since the chaotic immediate post-Cold War years in the 1990s, there have been significant improvements in crime rates and public health.

Despite these successes, investment risks remain high. Corruption is still prevalent (with the recent tragic fire in Siberia providing a stark reminder) and remains a serious hindrance to foreign investment. Foreign firms frequently face expropriation, and this lack of long-term legal visibility and security deters investors. The current crisis with the ‘common West’ – as the phrase goes in Moscow – from Ukraine to the Skripal affair, will not help improve the situation.

With low FDI on the one hand, and contained oil prices on the other, stagnation is here to last. In many ways it was precisely through this scheme of economic stagnation, coupled with macroeconomic and political stability, that Putin consolidated his power. For many Russians, no Putin would mean a return to the 1990s, when shops were empty and people queued miles to buy daily essentials.

However, this stagnation/stability dichotomy is increasingly irrelevant. With its worrisome demographic situation, Russian politicians likely understand the need for reforms: the limits of ‘Putinomics’ have been reached. Whomever is appointed Russia’s new Prime Minister, the most probable short-term scenario is an increase in corporate tax (currently just 20%, four points below the OECD average) and personal income tax. Should new economic sanctions be imposed on Russia, a further devaluation of the ruble, albeit softer than Russia’s last devaluation, cannot be excluded either.

A more assertive foreign policy

Putin’s re-election sparked a mixed international reaction. Unsurprisingly it was met with tepid response from the West, persistently vocal in its criticism of Moscow’s obstinate behavior on the world stage. But within Europe, the rift between pro-Russia and Kremlin-wary countries is still wide. Not all of Europe joined the UK in its diplomatic retaliation to the Salisbury attack: only fifteen EU member-states decided to expel Russian diplomats. Recent visits to Moscow from Austrian Chancellor Sebastian Kurz and Belgian Prime Minister Charles Michel likely influenced both countries to stay neutral. This shows how divided Western countries can be when dealing with Putin, an aspect he can continue to exploit.

Though Putin knows the age of the liberal order may not be over, it is solidly challenged in every corner of the world by authoritarianism and ‘democratorship’ (to quote Swiss academic Max-Liniger Goumaz). China and Turkey, two countries whose leaders have recently consolidated their power, were unsurprisingly the first two countries to congratulate Putin on his re-election. Both will hope for tightened relationships with Russia in the years to come. And with a recent comeback in Africa – an old Cold War battleground – that hasn’t gone unnoticed, Russia must believe that current winds blow in its favor.

Most strikingly, Russia has been wearing down the global system of multilateralism that it has claimed to defend. Russia has long upheld the tradition of multilateralism, which has served its national interests well since 1945. But the 2008 Georgian war (later referred to as Europe’s first war of the 21st century), and later the intervention in Ukraine, reflected a significant departure in this regard. The most likely reason for this departure is nostalgia – not so much for the Soviet Union but for the two-player game.

In a world in which Russia’s ancestral enemy, the US, is still in the game, it is likely not bearable for the Russian elite to step aside, wearing the placard of historical loser. Therefrom, things that were unthinkable some years ago (like the so-called annexation of Crimea) became serious policy considerations. Putin is likely not done yet, having signaled his revived interest in solving Moldova’s Transnistria problem. But what is certain is that despite all of Putin’s flamboyant declarations on the modernisation of Russia’s nuclear arsenal, the West’s concern will lie more in Russia’s serious hybrid and high-tech war capabilities, for which development will surely stand at the top of Putin’s priorities for the next 6 years.

Last term for the Czar, but no end of reign

However pressing the challenges ahead, with a constitutional amendment highly unlikely, this is almost certainly Putin’s last Presidential term. In 2024, after almost a quarter of a century in power, Putin may even be keen to step back – back, but not out. As a former top Russian diplomat and senior political analyst informed the author several weeks ago, the most plausible scenario would be that Putin’s successor will rule the country under his mentor’s close and sharp eye. The intelligence services will still report to Putin (like during Putin’s premiership under Dmitry Medvedev’s presidency). Moreover, leaving the Kremlin may not mean leaving an official leadership position. The recent revival of the Russia-Belarus Union State represents a possible way out for Putin, enabling him to become President of an even larger entity.

As hinted at previously, it remains unclear where Putin’s heir will come from. One possibility is from the old guard of siloviki (former top officials or men of influence from the Soviet apparatus who accompanied Putin to the top and helped him reinforce his grip on power). Another possibility is from an emerging generation of young and ambitious protégés that Putin has been breeding for some time now, including his former bodyguard. Other uncertainties remain: will they come from Moscow, or from the rural provinces? Will they have a military/intelligence or civil background? Perhaps more than any other science, Kremlinology is an inexact and often surprising one.

 

This article was first published on Global Risk Insights, and was written by Gregorie Roos.

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US and South Korean army soldiers pose on a floating bridge on the Hantan River during a joint military exercise in Yeoncheon, South Korea, in December 2015. (Photo by AP)

This year’s U.S.-ROK annual joint military drills kicked off on 1 April after a delay of two months caused by the astonishingly fast-forwarded bilateral thaws between the Koreas, U.S. and China. The first part of the drills, Foal Eagle, will involve a field training exercise of 11,500 U.S. and 290,000 ROK troops and the remaining part, Key Resolve, will involve a computer-based-simulation exercise of 12,200 U.S. and 10,000 ROK troops. Although both U.S. and ROK military press releases announced that the intensity of the drills will be similar to that of last year, the drills are expected to be low-key, cautiously reflecting the thaws. The duration of Foal Eagle has been shortened from two months to one, and Key Resolve from one month to two weeks. Plans for U.S. strategic asset deployment have also been altered as the deployment of large-scale nuclear-powered aircraft carriers and submarines has been cancelled. Allegedly, however, such cancellation is offset by the deployment of other assets, including those crucial to the operation of ‘Decapitation Strike’, such as MC-130, as well as those that support marine landing in case of full-scale war, such as the amphibious assault ship group USS Wasp.

Contrary to last year, when he vociferously starred as President Trump’s evil counterpart, Kim Jong-un has remained silent since he expressed that he ‘understands South Korea’s stance’ on the drills during his meeting with President Moon’s convoys on 5 March. Once called ‘Crazy Fat Kid’, Kim Jong-un now appears on TV like any other ordinary global leader with complete disregard for the public’s willingness to accept such anomaly. The bizarre images of him awkwardly shaking hands with Chinese President Xi Jinping and IOC President Thomas Bach credit this fashion terrorist with the egregious hairstyle with rational characteristics and the capacity to run a ‘normal state’. Kim Jong-un’s gawky debut in the global diplomacy theater prior to the end of April meeting with South Korean President Moon Jae-in, followed by the May meeting with President Trump, are, nonetheless, carefully planned attempts to play soft-powered preliminary warm-up.

Many experts agree that Kim Jong-un’s recent pro-diplomacy moves reveal his disguised intent to strengthen negotiation leverage for the May meeting. It is predicted that Kim Jong-un will ultimately demand the withdrawal of U.S. forces and strategic assets from the Korean peninsula through the orderly steps of earning recognition as a normal state, signing the peace treaty with the U.S., restoring diplomatic relations with the U.S., and damaging the U.S.-ROK alliance throughout the process. Backward induction of these future strategic aims, in conjunction with Kim Jong-un’s common ground interests with China and Russia’s emphasis on ‘double-freeze’, also explains the reclusive leader’s real intent, well-observable in his first foreign trip to China. China, vexed with its dwindling influence on the Korean peninsula since the startling U.S.-DPRK thaw, warmheartedly welcomed Kim Jong-un’s visit, which restored China’s seven-year decoupled diplomatic relations with North Korea. In response, Kim Jong-un shared with President Xi his refusal to accept the Libyan denuclearization model and alternatively proposed a procedural, step-by-step model to maximize his stakes. Kim Jong-un’s seemingly desperate yet innately strategic outreach now engages China in potentially alleviating sanctions and enlarging the pie on the negotiation table of the soon-to-be held six-party talks. Such guileful outreach will extend to other stakeholders as well. A number of experts anticipate that Kim Jong-un will soon meet with Russian President Putin to discuss the May meeting.

Can South Korea Save Itself?

The South Korean Moon administration’s subtle predilection for temporary peace over Complete, Verifiable, and Irreversible Denuclearization (CVID) calls into question whether recent temporary thaws can truly evolve into perpetual peace, given the fact that South Korea cannot defend itself (but such a leftist position is sympathetically understandable considering the doomsday nature of the war with Kim Jong-un). For some Korean conservatives, the emotional aspect of the currently deepening inter-Korean rapprochement seems to blind the Korean people into realizing the realpolitik beneath the thaws, a situation reminiscent of the geopolitical conditions that led to Nixon’s pursuit of Vietnamization during the U.S.-China détente era. Unless South Korea in the divided Korean peninsula has credible capacity to defend itself, the risks involving the incremental approach toward reunification should always be managed with a keen, vigilant reciprocity-oriented mentality.

The Kim dynasty has always taken advantage of the uncertainties arising from frequent regime changes in competitive democracy between the U.S. and South Korea, while the U.S.-ROK alliance has ironically suffered from the certainty shown in the Kim dynasty’s consistent policy pursuit of WMD development. Rewarding the Kim dynasty for its temporary for-aid deception under such uncertainties has always generated more next-level costs than benefits, while the Kim dynasty has repeatedly breached the Agreed Framework by non-compliance. Thus, the Kim dynasty’s abominable past records of repeatedly withdrawing from the NPT (Nuclear Non-Proliferation Treaty) and KEDO (Korean Peninsula Energy Development Organization)’s failures to certify the Kim dynasty’s commitment to ‘freeze’ plutonium production and programs all lead to one very clear conclusion. Even if the Moon administration’s goal of denuclearizing the Korean peninsula is a procedurally long-term one and the leftist regime does not seek a regime change in North Korea, such aims must reciprocally maximize its negotiation leverage by strategically devising a step-by-step blueprint for consistently punishing and sanctioning Kim Jong-un whenever he displays detracting behaviors.

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A 2-ship of Israeli Air Force F-16s from Ramon Air Base, Israel head out to the Nevada Test and Training Range, July 17, 2009 during Red Flag 09-4. Red Flag is a realistic combat training exercise involving the air forces of the United States and its allies. The exercise is conducted on the 15,000-square-mile Nevada Test and Training Range, north of Las Vegas. Red Flag is one of a series of advanced training programs administered by the U.S. Air Force Warfare Center and Nellis, through the 414th Combat Training Squadron. Flying for Red Flag 09-4 begins July 13 and ends July 24. U.S. aircraft will come from Nellis and Creech in Nevada, South Carolina, Idaho, the United Kingdom, Washington, Oklahoma and Ohio. Aircraft types will include F-15s, F-16s, E-3s and KC-135s. In addition to U.S. aircraft, the Israeli Air Force will be flying F-16C Falcons.
(U.S. Air Force photo/ Master Sgt. Kevin J. Gruenwald) released

Iran has been ratcheting up the rhetoric while Haaretz warns of the consequences of Iran’s ambitions in Syria. It all started back in February, when an Iranian drone and an Israeli F-16 were shot down at the Syria-Israel border. More incidents and additional quarrels over the Iran Nuclear Deal could lead to more grievous confrontations between the parties involved.

The drone and the F-16: the incident

On 10 February, the Israeli Air Force (IAF – Heyl Ha’Avir) intercepted and shot down an Iranian unmanned aerial vehicle (UAV) that was flying within its borders. Soon after, the IAFdispatched its F-16I jetfighters in order to destroy the UAV control vehicle in Syrian territory. However, as the F-16Is engaged their targets, an intense barrage of anti-aircraft firewelcomed them. One F-16I was eventually shot down, while the two pilots managed to eject and landed on Israeli territory. In retaliation, Israel conducted surgical strikes against at least twelve Iranian targets within Syria.

A series of new developments

The events of 10 February represented a number of unprecedented developments. First, this was the first time that an Iranian drone penetrated Israeli airspace. Previously, Iran’s proxies – such as e.g. Hezbollah – usually carried out these tasks. This marks an upgrade in Tehran’s presence and involvement in operations against Israel. Also, the retaliation unleashed by the downing of the F-16 represented the first Israeli strike against manned Iranian bases. Hence, similarly to the Iranian counterpart, Israeli forces are not steering clear of a direct confrontation with their regional competitor.

Moreover, the IAF losing an aircraft is news in itself. Indeed, Israel had not lost a single jetfighter in a combat operation since the time of the Lebanon War at the beginning of the ‘80s. It is not clear what anti-aircraft weapon system brought the jetfighter down. IAF F-16Is are equipped with electronic countermeasures that give them an advantage against many anti-aircraft systems. There are, however, sophisticated systems in Syria – such as the Russian-made Buk-M1-2 or S-400 – that could successfully engage advanced jetfighters like the IAF F-16Is.

The loss of the jetfighter is noteworthy in another regard as well, as it could change Israel’s course of action. Indeed, Israel has been ceaselessly conducting airstrike in Syria throughout the Civil War, targeting Hezbollah’s supply chain as well as Syrian and Iranian strategic military facilities and bases. This line of conduct might be subject to change in light of these recent events; as an Iranian official commented, “the era of hit and run is over” and his words might ring partially or entirely true.

Leaders send warning from Munich

Displaying a piece of the UAV downed over the skies of Israel, Prime Minister Benjamin Netanyahu warned Iran from the stage of the Munich Security Conference to not “test Israel’s resolve”. Netanyahu asserted that Israel would not let Tehran proceed with their plans against Tel Aviv, stating that his country is ready to wage war against Iran or its proxies to defend itself.

While Iran rejected all accusations brought forth by Netanyahu, Israel’s Prime Minister might find additional reasons to reinforce his anti-Iranian foreign policies in recent domestic developments. The Israeli police recently claimed to have enough evidence to charge Netanyahu with corruption. Faced with this accusation, the Prime Minister might be strongly motivated to show resolve against Israel’s arch-enemy in order to deflect attention from himself – more so as if he can count on the Trump administration’s unconditional support and even on the assistance of countries equally worried about Iran’s rise, like Saudi Arabia.

Also in Munich, Lebanon’s Defense Minister Yaacoub Sarraf reacted to Netanyahu’s words. Commenting on the Israeli Prime Minister’s promise to go after Iran’s proxies, Sarraf asserted that the government in Beirut is ready and willing to defend its territory against external aggression. Any Israeli operations taking place on Lebanese soil would, therefore, prompt an armed reaction against it. Sarraf’s pledge may well prove empty, as it is hard to imagine Beirut conducting military operations against Tel Aviv. Nevertheless, Israel will feel forced to gauge potential reactions from other neighbouring countries besides Syria. Meanwhile, there have been further revelations about Iran allegedly having up to 10 military bases in Syria, two of them near Israel’s border.

The Nuclear Deal as the final straw?

The year 2018 will see an increase in tension between Iran and Israel. This could potentially lead to a limited, regional conflict between Tel Aviv and Tehran’s proxies. Yet, while the anti-Iranian front tightens, a more direct confrontation might arise from the Nuclear Deal. Indeed, the dissatisfaction of Israel and the USA grows, since they believe the Deal is incapable of preventing Iran from getting nuclear capabilities.

At the same time, Iran’s resentment towards the US is increasing. In particular, Iran accusesthe Trump administration of meddling in its business with other countries in order to counter the positive effects that the lifting of the sanctions ensued. Under such circumstances, the Nuclear Deal does not pay off and Iran would benefit from withdrawing. In this regard, Tehran warned its competitors that the world “would face another nuclear crisis, which would be very difficult to be resolved”, if the Nuclear Deal was to be scrapped.

If this is going to be the case, Iran will surely re-embark on its nuclear endeavour with renewed vigour. Simultaneously, Israel, the US, and the rest of the regional powers worried about Iran’s rise, might push for more aggressive solutions in order to deal with the prospects of a nuclear Iran once and for all. If diplomacy loses this round, the probability of a direct confrontation between these parties will increase dramatically.

 

This article was first published on Global Risk Insights, and was written by Mauro Lubrano.

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Today, some of Europe’s poorest countries are critical to China’s global economic development strategy. Under the 16+1 sub-regional framework, which includes eleven countries from central and eastern Europe and five from the Balkans (CEEC), China is pursuing investment opportunities in infrastructure in order to enhance its connectivity with the European region.

Thus far, Chinese interests have been universally welcomed by the sixteen nations with political elites keen to boost their fragile economies in post-recessionary times. However, as economic cooperation grows between China and its former socialist allies, the political implications are becoming more apparent. As the EU strives to sustain its ‘One-Europe’ policy with China, how some of its members and potentially future members embrace China’s global ambitions could undermine EU cohesion as it continues to endure instability.

The new Silk Road

The 16+1 framework is a key component of China’s Belt and Road Initiative (BRI) to integrate the Asian country more deeply into the world economy. The initiative, launched by President Xi Jinping in 2013, underpins the Communist Party’s economic and geopolitical vision to connect China with the world. Considered as the biggest foreign investment by any one country since the US Marshall Plan, the BRI project spans 70 countries and aims to connect Central Asia with Europe, Africa, and Oceania through investment and trade in the areas of energy, infrastructure, and transformation.

Some of the projects include a railway line from Kazakhstan to Iran, a high-speed railway running from Southern China through South-East Asia, oil pipelines connecting Russia and China, a gas pipeline in Pakistan, highways in Hungary, and a railway connecting Budapest with Belgrade. Despite the estimated $4 trillion cost of the BRI, its objectives are not only economic. Enabled by positive economic relations, cultural exchanges between China and BRI participant states have increased with more opportunities for student-exchanges while foreign literature and cinema enters the Chinese market. Most significantly, the BRI is central to China’s political ambitions. Last October, it was enshrined into the Communist Party’s constitution, signalling the centrality of foreign policy to the ruling party and Xi Jinping’s desire to enhance China’s global image. As China’s global influence continues to grow, how will the West, grappling with its own challenges, react to the rising star of the East?

China sees Europe as pivotal to the revival of the old Silk Road, which launched China’s regional development over 2000 years ago. China’s strategic ambitions in Europe are underscored by its economic initiatives in Central and Eastern Europe (CEE). According to the state-owned news agency, Xinuanet, Chinese investment in the CEE has surpassed $9 billion with $1.4 billion of investment going in the opposite direction. For some of Europe’s poorest countries, Chinese investment could be critical in building and upgrading energy plants, railways, motorways, and airports. Some of the big deals in the CEE involving Chinese investment include a €3 billion expressway connecting Montenegro and Albania; a €1.4 billion linking the Bosnian municipalities of Banja Luka and Mlinište; and a €1 billion project in the Czech Republic to create a Y-shaped canal connecting the waterways of the Danube, the Oder, and the Elbe. Moreover, in November Serbia began construction of the China-funded railway from Belgrade to Budapest worth around €3.2 billion.

The Balkans and Baltic regions are especially critical to China’s Belt and Road Initiative. Two routes outline China’s historic project: The Silk Road Economic Belt, which enters Europe through the Baltic corridor, and the 21st Century Maritime Silk Road, which passes through the Southern Balkans. In 2016, the Chinese state-owned shipping company COSCO bought a majority stake in Greece’s largest port, Piraeus. Through investment worth hundreds of millions of euros, COSCO aims to strengthen the port’s capacity and trade relations with the EU. In the Baltics, states are competing with one another for Chinese investment and exportsto China have more than doubled in recent years. Chinese tourism to the Baltic region has reached record levels, rising by 57.8% in Latvia in 2016. China sees the Baltics and Balkans as the gateway to the wider EU region and are critical to China’s new Silk Road.

Political consequences

China’s influence in the CEE transcends economic interests. On the political front, diplomatic relations have strengthened between China and several European countries. In November, China promised $3 billion in investment funds to the CEE at the fifth annual summit of the 16+1 framework in Budapest as Chinese leaders were joined by the heads of the sixteen countries. Hungary, in particular, has been very welcoming to Chinese interests. Its  right-wing Eurosceptic prime minister, Victor Orban, claimed that a new world order was forming and that ”the world economy’s centre of gravity is shifting from west to east”.

In the Czech Republic, President Milos Zeman has stressed the importance of relations with China over other actors such as the EU and NATO. In 2014, Zeman travelled to Beijing to meet Chinese President Xi Jinping and in 2016, the same meeting took place in Prague, with Jinping stating that both countries should see stronger relations ”from a strategic viewpoint and long-term perspective”.

Serbia represents another country to benefit from Chinese investment and strong political ties. Serbia, one of the Balkan countries applying for accession to the EU, has welcomed Chinese investment to improve its railways, roads, and energy plants. On his visit in June 2016, Xi Jinping said that Serbia was the point where civilisations of the west and east meet, suggesting the importance of the Balkan country to China’s BRI. In addition, China is one of the few countries to support the Serbian position of not recognising Kosovo.

Although China insists that the sub-regional 16+1 framework is central to the China-EU ”strategic partnership”, the EU is concerned that China is deploying ”divide and rule” tactics to damage European cohesion. The EU has called on all its members to respect the one-Europe policy and speak with one voice to the Chinese government. German Chancellor Angela Merkel and her Foreign Minister Sigmur Gabriel conveyed concern over Chinese influence in the EU’s periphery. Merkel stated that the 16+1 group should not contain political strings, while Gabriel warned that ”China will succeed in dividing Europe” if Europe fails to develop a single strategy towards China. China has rejected the notion of a one-Europe policy on political and economic grounds, given that ”the EU is a regional organization composed of sovereign states, not a sovereign country itself”.

There is evidence to suggest that China’s perceived strategy in Europe has caused division between Brussels and some of Europe’s sovereign nations. According to Macedonian President Gjorge Ivanov, the Balkans has no alternative but to welcome Chinese investment given the EU’s neglect of the region. Moreover, in 2016, Greece and Hungary compromisedthe EU’s legal stance on China’s territorial claims in the South China Sea, while an EUstatement criticising China’s human rights record was blocked by Greece last year.

As parts of Europe continue to suffer the consequences of the financial crisis, Chinese investment is a welcomed opportunity to create jobs, upgrade infrastructure, and enhance economic competitiveness. However, the political impact of China’s economic interests in Europe is creating the most tension, especially in Brussels. For the EU, strong relations between China and the 16+1’s eleven EU members threatens the Union’s one-Europe policyvis a vis Beijing. In addition, five non-EU countries are part of the Western Balkan enlargement strategy, which aims to integrate the region into the EU by 2025. Seeing that the EU views the Balkan’s relationship with China as gaining leverage on Brussels, growing Chinese influence in the region could undermine the future of EU enlargement.

 

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This article was first published on Global Risk Insights.

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On February 26, a 7.5 magnitude earthquake struck 35 kilometers underneath the Southern Highlands in Papua New Guinea, causing at least fifty deaths. An Australian Air Force plane carrying relief supplies landed five days later amid criticism that aid had been too slow to arrive.

The effectiveness of the Australian response in PNG will only become evident in time. Yet similar criticisms were also made in the response to Cyclone Pam, which hit Vanuatu three years ago. An internal report into Australia’s assistance in the recovery effort by the Department of Foreign Affairs and Trade (DFAT) found that progress was ‘less than expected’ and the program required ‘restorative action’. Australia committed $35m in long-term recovery money, but how that money was spent is unclear.

Cutting foreign aid

These events are a stark reminder that Canberra has been steadily cutting its foreign aid budget for years. The Abbot government retired AusAid and undermined the internal skills and knowledge built up over the years when the program was absorbed into DFAT. Similarly, the Turnbull government’s 2017 White Paper does not provide a clear guideline for Australian aid and only alludes to the program in the context of broader issues. Australia’s current aid program is consequently the least generous in history. The share of aid to gross national income was .22% in 2016-2017, and Australia’s aid program has dropped to 17th out of 29 in OECD rankings (which measure aid spending as a proportion of GDP).

These declines will be strongly felt in the South Pacific, the destination for most of Australia’s foreign aid. Climate change will adversely affect low-lying Pacific nations sooner, and to a greater extent, than most other places on Earth. Sea levels are expected to rise at least a meter by 2100, and tropical cyclones are expected to increase in frequency and intensity. Over the last ten years inclement weather has caused economic losses equivalent to 15-25%of GDP. The government of Kiribati is seriously considering abandoning the country altogether in the face of declining space and the contamination of freshwater supplies.

Australia remains the dominant donor to Pacific Island states, followed by the United States. Yet much of Australia’s aid program is now run by four private companies; Cardno Emerging Markets, Palladium International, Coffey International Development and ABT Associates, which have together been granted almost $4 billion since 2014 and $461.8 million in the last financial year. Paul Ronalds, chief executive of Save the Children, has said that outsourcing to private companies means ‘less contact’ with aid groups that have experience in local communities. It also reduces the visibility of the Australian government.

China’s growing influence

There is increasing concern that China will fill the gap. Beijing has been stepping up aid activity across the region in recent years. For example, it has committed a total of $632 million in grants and concessional loans to fund infrastructure in Papua New Guinea, including hospitals, universities, and government IT systems. Interestingly, these IT systems are contracted to Huawei, a Chinese company that was banned from participating in the construction of Australia’s National Broadband Network due to security concerns raised by national intelligence services (the company is accused of having opaque links to the Chinese military). Unlike Canberra, however, the government in Port Moresby is not in a political or financial position to refuse Beijing, as doing so may jeopardise other Chinese aid projects.

The second-largest regional recipient of Chinese aid is Fiji. Beijing is funding the construction of major roads, bridges, and seawalls, and donated 500 tons of essential supplies in the wake of Cyclone Winston in 2016. It has also donated computers to the Fijian military and anti-riot equipment to Fijian police forces in the lead-up to an election. China is now the largest foreign aid donor to Fiji, followed by Australia, and unlike Canberra has maintained ties with the government in Suva following the coup in 2006. Fijian Prime Minister Frank Bainarama has said that Fiji’s cooperation with China “reminds [Australia and New Zealand] that countries like Fiji have options”.

The strategic effects of Australia’s cuts to foreign aid funding are not yet clear. However, the Trump administration’s plan to cut foreign aid by a third will only increase the aid gap already opened by Canberra. It is therefore no surprise that Beijing has seen an opportunity to expand its influence. China is set to become the largest foreign aid donor to Samoa and Tonga, and will soon overtake Washington as the region’s second-largest donor. It is also increasing economic and military ties. Trade between China and Pacific island states doubled between 2014 and 2015 alone, and Beijing has signed memorandums of understanding with the Fijian military. It seems that the strategic competition between superpowers is spilling into the blue waters of the South Pacific.

 

This article was first published by Global Risk Insights, and was written by Ewen Levick.

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A woman is seen near posters placed at a bus stop in support of Brazilian former President Luiz Inacio Lula de Silva, in Brasilia, Brazil, January 22, 2018. A sign reads: “Lula innocent, Lula indecent”.REUTERS/Ueslei Marcelino

While difficult to measure a few months before elections are to take place, major national and regional changes are coming to the Americas, with votes likely determining the future economic and security focus of the region.

When considering NAFTA, it could be that the waves created by Trumps bargaining approach may be less of a challenge than electoral change on the US border. With Mexico having a Presidential election this year, and the next President of Mexico having one term of six years to focus on their policy file, any agreements between NAFTA partners may be re-set depending on who wins the Mexican election. It is really difficult to determine who will win in Mexico, as the current establishment party of the PRI runs a young challenger while dealing with a strong push against corruption and security in Mexico. With the PRI being seen by many as skilled practitioners of corruption historically as well as during their last mandate, the field is open for the combined PAN and PRD candidate as well as Lopez Obrador, former left leaning mayor of Mexico City. Obrador may be an interesting choice as a left leaning popular elected official to determine the future of NAFTA negotiations, but will also likely create more uncertainty where popularly elected politicians have already created mixed reactions to NAFTA talks. The PAN and PRD joint party would be an interesting outcome, as a more regional conservative party linked with a social democratic party would make for some negotiated balance in policy, perhaps acting as a bulkhead against old style PRI institutional politics as well as the election of yet another populist leader. It will be a difficult choice with no stark contenders in this year’s Mexican election.

Brazil looks to be choosing Lula in their election this year, if he does not get banned or put in jail for past accusations of corruption. With the judiciary taking to task the entire elite structure in Brazil, it seems as if everyone has been touched by corruption, and the choice between one candidate and another is like choosing between an apple with worms or an orange with mold. Openly knowing about corrupt practices of a candidate and still being elected has occurred before in the Americas, but it is not a choice a voter would like to have as it is confirming a sense of hopelessness. The law of corruption if it was to be seen as a law of physics is that once it takes hold, it is nearly impossible to remove without an excessive response. With Brazil’s judiciary going above and beyond their role as a separate branch of government, their cleaning out of their elite and institutionalized corruption has also created a political ripple effect where interested parties and have and have-nots have taken to politicize the great purge of the elite. With all of the chaos and uncertainty, it could be that the comfort and stability during Lula’s past terms in office might propel him back into office, even if he was shown to be one of the corrupt elite himself. It seems as if the law of corruption might yet again be proven.

An election in one of the largest and the most indebted region in North America, if not the world, is taking place in Canada’s own Ontario. After 15 years of the same government and massive eye watering debt and a legal sentencing coming for a former Chief of Staff coming this month, the seat of the most skilled practitioners of corruption may have a challenger. With the Premier’s approval rating narrowing towards the single digits, the Liberal Party of Ontario’s leader decided to pile on the debt by promising everything to everyone, costing inexplicable amounts more to which the Auditor General of Ontario took to challenging, along with credit rating agencies as well as citizens in Ontario from Small Business owners to Doctors to those who were recently unable to fund heating their homes a few winters ago. The effect of taking half of Canada’s economy and piling on taxes, debt and accusations against anyone who disagrees with these absurd debt laden promises will have a questionable effect on NAFTA. Raising taxes when you have record debt to preserve the political careers of a handful of failed politicians unmeasured against a US economy with low business taxes is tantamount to ignoring the laws of economic theory when you are applying the laws of corruption. With Ontario also being the economic glue that holds divisive regions together in Canada, targeting the energy industry in Alberta and asking an economically growing Quebec to pay into Ontario’s debt will create fractures in the Canadian Federation mirroring the current state of affairs in Catalonia. Accusing others of taking personal actions to cover bad decisions as well in Ottawa also will not help reduce any of these problems.

With the election of the new President in Venezuela being wholly determined by the current President of Venezuela, corruption clearly demonstrates its path to one party state rule. It is clear where corrupt practices have lead, but to move on from them may prove to be more difficult than just promising everything, looking to the past or just being a bit less corrupt than the next person running for office. As it seems, the laws of corruption tend to stand firmly in place.

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The annual full session of the National People’s Congress, which began on 5 March, sees President Xi Jinping on the way to becoming China’s “Emperor” for life.

Following the party’s Central Committee proposal of eliminating the limits for the country’s president from the constitution – currently set at a maximum of two consecutive terms – Xi is likely to remain China’s leader and rule well beyond 2023, when his five-year mandate would previously ahve come to an end.

A one-man show

In last year’s party congress, it became clear that a new era was born under Xi Jinping and he has no intention of stepping down in the future. His name and political thought theory, Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, were added to the party constitution.

“Xi Jinping has finally achieved his ultimate goal when he first embarked on Chinese politics – that is to be the Mao Zedong of the 21st century.”

– Willy Lam, political analyst at the Chinese University in Hong Kong

Xi’s presidency has been marked by an increasingly powerful cult of personality, along with a dangerous lack of political opposition and a dismal human rights record. In fact, other than being President of the People’s Republic of China, he also serves as General Secretary of the Communist Party of China and as Chairman of the Central Military Commission.

As Xi holds the top offices of the party, the state, and the military, and with the previous party congress ending without appointing a clear eventual successor, it is not difficult to see why some describe him as “China’s most authoritarian leader since Mao”.

Since Xi became president of China in 2012, his strongman image has played a key role in determining China’s domestic and foreign policies. At the domestic level, his ruthless anti-corruption campaign has become a stronghold of his consolidation of power. Used to intimidate or eliminate cadres and party members who disagree with him or represent a threat to his political ambitions, Xi Jinping’s campaign has been leading him to finally achieve his sought after one-man show.

Xi’s assertiveness is also evident at the foreign policy level. From showing off China’s hard power in the South China Sea, to its increasingly strong soft power projections in the form of billions of dollars invested in Asia and Africa, Xi Jinping’s China is more powerful and influential than before.

Emperor for life

The 64-year-old leader could now be only one step away from tightening his grip on China and stay in office indefinitely. News regarding the presidency term limits broke in a two-sentence article on 25 March, as reported by Xinhua, China’s official newswire:

“The Communist Party of China Central Committee proposed to remove the expression that the President and Vice-President of the People’s Republic of China ‘shall serve no more than two consecutive terms’ from the country’s Constitution”.

If this reform proposal encounters zero opposition at the National People’s Congress, it is fair to accept that China will continue to move forward according to Xi’s thoughts, economic reforms and political strategy. Hu Xijin, editor-in-chief of the party-run tabloid, Global Times, tweeted that the “removal of the two-term limit of the president of PRC doesn’t mean China will restore life-long tenure for state leader”. However, this unexpected announcement is likely only the beginning of an even more prominent crackdown that will affect China’s standing in the international community.

The state propaganda machine, which was immediately put in motion after the announcement to respond to the social media backlash, has not been able to mitigate the concerns of the economic and social risks linked to this reform. Given Xi’s already heavy-handed approach on China’s economy and his government’s clampdowns on freedoms – such as online censorship and human rights abuses – his “emperor for life” status doesn’t come without risks.

Heading towards a “One China, One System”?

The next challenge for Beijing will be the aftermath of the Hong Kong elections from March 11th. In the crossfire of criticism for the disqualification of activist Agnes Chow – representative of the pro-democracy party Demosisto, Xi Jinping’s government is accused of infringing the “One China, Two Systems” model that allows Hong Kong to hold a certain degree of political autonomy.

Secretary for Constitutional and Mainland Affairs, Patrick Nip, agreed to review Hong Kong’s electoral laws in the wake of a recent court ruling that granted officials’ power to ban candidates because of their political views. Beijing’s increasing assertiveness in Hong Kong is undeniable.

During the Party Congress held in October 2017, Xi Jinping reaffirmed Beijing would not allow anyone to “separate any part of the Chinese territory from China”. Fast forward to today, his statement can be interpreted as a constitutional reform by extending Xi’s mandate and, therefore imply a much-feared transformation towards a “One China, One System” model.

The post Xi Jinping: China’s Emperor for life? appeared first on Foreign Policy Blogs.

United Kingdom Prime Minister Theresa May switches on No10 Downing Street Lights for visits Brussels, Belgium to meet with Jean-Claude Juncker the President of the European Commission.

The transition agreement between the UK and EU means that although the UK will officially leave the EU in March 2019, it will still remain in the customs union and single market for another 21 months. The deal was struck after several concessions by the UK, indicating the government’s willingness to sacrifice regaining full sovereignty in order to reach a trade agreement at the end of the negotiating period.

The UK’s concessions are indicative of the government’s broader negotiating strategy with the EU. While Theresa May has often claimed that no deal would be better than a bad deal and that she is prepared to walk away from negotiations, in practice, she has been very keen to compromise in order to reach an agreement. The transition agreement was struck almost completely on the EU’s terms.

Negotiations over the transition demonstrate the UK’s desire for reaching a wider withdrawal agreement even if that may mean making concessions on their part. The transition agreement thus increases the likelihood of an orderly withdrawal which would entail at least a limited free-trade agreement. During the transition, EU migrants arriving into the UK will continue to be granted permanent residency and the EU will continue to set fishing quotas. These terms violate May’s red lines of taking back control of borders and laws immediately after Brexit, and reflect a realization that despite May’s rhetoric, the UK would bear the brunt of the economic costs that a no-deal Brexit would bring about.

Muted political backlash from Brexiteers
Given the concessions over EU citizenship rights and fishing, the backlash from the Brexiteers in the Conservative party has been subdued. Jacob Rees Mogg, the head of the pro-Brexit European Research Group (ERG) faction of the Conservative Party previously warned that a transition deal would make the UK a “vassal state,” but now argues that he could live with the transition arrangement as long as the final withdrawal arrangement is satisfactory. There has been no serious threat to rebel against the government or the Prime Minister even though she has violated most of her previous “red lines.”

There are two reasons why Conservative Eurosceptics are still overtly supporting the Prime Minister. First, any attempt to vote against the government in October on the EU Withdrawal Bill might lead to fresh elections. Polls are currently neck and neck, which means that the Labour party has a non-trivial probability of winning. Labour is committed to striking a customs arrangement with the EU, which is anathema to many Conservative Brexiteers. Therefore, this option is highly risky for them.

Second, while the ERG could try to trigger an internal Conservative Party leadership election by instigating a vote of confidence in the Prime Minister, party rules state that a majority of Tory MP’s have to vote against the incumbent leader. This is unlikely to happen because there is no credible alternative candidate who can unite the party’s Remain and Leave camps. Moreover, there is simply no appetite for a leadership election at such a critical stage in the negotiations.

Therefore, Tory Brexiteers are unable to turn their displeasure over the transition deal into concrete action. Their lukewarm opposition to the concessions to secure the transition agreement demonstrates that the Prime Minister is not as beholden to the group of hard-line Brexiteers as previously thought, which makes it more likely that a final agreement with the EU will be reached.

Updated probabilities of final outcomes
Given Theresa May’s greater latitude for action, it is worth reevaluating the likelihood and impact of three of the most probably Brexit scenarios. The most likely of these is the signing of a limited free trade agreement in goods. As the EU runs a trade deficit with the UK of around £95 billion, it would be in its interest to strike a tariff-free goods agreement. The UK, despite demanding the full restoration of its sovereignty while maintaining full access to the single market, has demonstrated an increasing willingness to compromise in these negotiations so far. The Government’s official policy that no deal is better than a bad deal does not have much credibility at the moment.

A comprehensive deal would involve facilitating trade in services, however, trade in services is usually more complex to negotiate. Negotiations are set to complete in October 2018, and there simply might not be enough time to negotiate such a comprehensive deal. Importantly, this means UK financial services will likely lose their “passporting” rights to sell their products across the EU. Given the centrality to financial services to UK’s economy, a limited free trade agreement would entail significant economic costs to the UK. However, it would be preferable to a no-deal scenario under which the UK would fall back on WTO rules.

An obstacle to this outcome is the problem of the border in Northern Ireland. Leaving the customs union would risk creating a hard border between Northern Ireland and the Republic of Ireland which would threaten the Good Friday Agreement. The UK government is committed to preventing a hard border, but has not yet laid out how it would achieve this objective if it leaves the customs union.

Alternatively, to solve the Irish border conundrum, the UK could try to strike a new customs arrangement with the rest of the EU. Although the government has ruled out a customs arrangement, there is a pro-customs union majority in Parliament at the moment. If the government does not come up with a solution of its own, it might have to soften its position and aim to strike a customs arrangement, meaning this scenario remains a real possibility.

Finally, if there is no withdrawal agreement, economic risk will be significantly heightened. Trade flows and air traffic will be significantly disrupted and the legal status of EU citizens in the UK and British citizens in the EU would be unclear, while a hard border in Ireland would be likely. However, the recent negotiations over the transition process makes this outcome highly improbable. The UK’s negotiating strategy has followed a clear trend – the further the negotiations go, the more willing the UK has become to compromise to strike an agreement. The domestic political response to the transition has exposed the limited ability of the hard-line backbench Brexiteers to force the government’s hand. Moreover, the transition agreement has also engendered a mood of cautious optimism that a deal can be reached decreasing the chances of this worst case, “no-deal” scenario.

 

This article first ran on Global Risk Insights, and was written by Aman Navani

The post Theresa May’s evolving Brexit strategy appeared first on Foreign Policy Blogs.

 

John Bolton speaks at the Conservative Political Action Conference (CPAC) in Oxon Hill, Maryland, U.S. February 24, 2017. REUTERS/Joshua Roberts/File Photo

John Bolton’s alarming return to a position of power, as top aide to the United States’ President, is cause for worry. A die-hard self-described Americanist, Bolton sees the world in black and white. In his thesis, “Should We Take Global Governance Seriously?”, published in 2000, Bolton outlined an America divided between “Globalists,” a small coterie of highly educated academic intellectuals, and “Americanists,” virtually everyone else. In a wide-ranging career in public office, Bolton has un-diplomatically torn into the United Nations, criticized international treaties, backed conspiracy theorists, supported military wars as primary solution to dictate foreign policy, and scoffed at non-governmental agendas like human rights.

Bolton’s resistance to the United Nations, the poster-organization of multilateral decision-making, underlies his studied indifference to international treaties, per se. As recently as last year, Bolton penned an essay, titled “How to Defund the UN”, in the Wall Street Journal. A graduate and undergraduate student of law from Yale University, Bolton disavows the basic tenets of international law. Most lawyers generally agree that international treaties derive their power, or legitimacy, not because they are legally binding by definition, but because they are unequivocally accepted as a legal concept and widely treated as such. For Bolton, however, adherence to international treaties maybe prompted by political or moral motivations, but never by course of legal obligations. More than that, Bolton believes that international treaties constrain the United States from acting in its own best interests.

The United States government, however, has frequently treated international treaties as legally binding for all decades in history. As far back as 1946, when France breached the Air Service Agreement, the United States asserted transgression of an international obligation and applied countermeasures. The countermeasures were upheld by an international arbitral tribunal.

Let’s consider a more recent example. In 1996, Bill Clinton became the first leader to sign onto a pact, called the Comprehensive Test Ban Treaty, that aimed to curb nuclear proliferation in the world. However, according to a constitutionally directed process, in which all treaties have to abide “by and with the advice and consent of the Senate,” the nuclear arms treaty fell into the pits of political decay. Nearly two years later, in 1999, the Senate reviewed and rejected it. Clinton, who saw the decision as a severe setback to his administration, assured allies that he would, according to the Vienna Convention of 1969, which, too, the Senate never signed as party, uphold the intent of the treaty still.

Even though the Senate’s decisions should have been to Bolton’s liking, he was infuriated. In Bolton’s eyes, Clinton should have asserted constitutional supremacy instead of cleaving unnecessarily to external constraints.

When the same treaty banning nuclear arms was revived for discussion in the Senate in 2001, Bolton, then acting as George Bush’s Under Secretary of State for Arms Control and International Security, asked the State Department’s legal office if the President could unilaterally withdraw a treaty from the Senate. The lawyers responded, and said—“no.”

In a 1997 testimony before the House International Relations Committee, Bolton claimed that the United States did not have to pay dues “decided by the General Assembly or other governing bodies”; that is, according to the United Nations Charter. Seen in this context, it is hardly surprising that the United States’ invasions of Afghanistan and Iraq in 2001 and 2003, in circumvention of the UN Security Council’s authorization, were seen by Bolton as a triumph for the nation.

Now, Trump has appointed Bolton to advise him as his National Security Advisor from April. The increasing “presidentialization” of the position, or the role of an individual alone to exercise influence in politics, and the marginalization of other key positions, like the Secretary of State, is not lost on those working in the administration. Aligned with plenty of ideas consistent with the President’s “America First” vision, Bolton has called for tearing up the Iran nuclear deal, and for preemptively striking North Korea. In the past, Bolton has also floated the idea that Israel should strike Iranian nuclear facilities. Judging by the options that have been floated so far, there is only one question left to be asked—is Bolton’s influence going to remain implicit or made explicit by the administration? 

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Sunset in Siberia, 2018. J.Quirk

Reports from Russian announced that Vladimir Putin won over 76% of the votes in his reelection bid March 18, with turnout over 67%.

The view from Siberia was a little different.

OSCE, the Organization for Security and Cooperation in Europe, sent nearly 600 short-term, long-term, and other election observers to Russia.  In its next-day report, OSCE noted that in an environment of state-owned television networks, “television coverage was characterized by extensive and unchallenged reporting of the incumbent’s official activities.” More curiously, OSCE described election day itself as technically competent but ultimately spoiled. “Overall,” it judged, “election day was conducted in an orderly manner despite shortcomings related to vote secrecy and transparency of counting.”  The election was run well, it seemed to judge, except for the voting and the counting.

OSCE dispatched more than 200 pairs of short-term observers, each with a local driver and interpreter, all over the country.  Some observers had done this many times across the Balkans and post-Soviet space, while for others it was their first mission. Observers included chief elections administrators from cities across the U.S., EU “Former Ministers of Something,” and at least one former member of the U.S. Congress.

A voter in Siberia, March 18, 2018. J.Quirk

My partner and I joined four other teams on an overnight flight to a mid-sized Siberian city; from there we drove four hours to smaller communities.  The flat, snowy landscape was broken up only by lines of birch trees and the occasional petrol station. We benefited from the beginning of spring weather and reliable roads. Other teams enjoyed 15⁰C resort-living in the south or the chance for a bit of tourism in St. Petersburg, while some endured flying ten or more hours east, or driving off the road in a snowstorm.

After two days of briefings in Moscow, the short-term observers’ work begins the day before the election. Our responsible driver and informative polyglot kept us safe and on course. We located and inspected the polling stations in a hospital, at a football stadium, at a coal mining company HQ, and in several schools.  People were generally finishing or finished with preparations for the next day. Across the towns, there were a few posters and billboards for candidates. Most, though, were targeting turnout with patriotic white, blue, and red calls to vote for “Our country, our president, our choice.”

Voting was brisk in the morning, but we had a question about mobile voting. Large percentages of voters in some polling stations were scheduled to be individually visited, handed a ballot, and have their vote collected in a mobile ballot box. These visits are a nice service for homebound voters, but they are not followed by international or local observers. In cases where mobile voting was intended to serve 20 or 30 percent of the polling station’s list of voters, we were told it was because there were many older voters. But the challenge to visit 200 or 300 voters in a few hours seemed substantial.

“Our country, our president, our choice.” J.Quirk

The counting itself gave us as much pause. It was at the individual polling stations, not regional or central locations, where the actual counting was done. In theory, a ballot box would be emptied on a large table. One by one, each and every ballot would be displayed to the polling station workers and to any observers. (There were observers from several candidates or parties at most polling stations.)  “A vote for Candidate X,” and anyone could question it. It would make for a long but accurate count. Instead, the big pile of ballots was divided by four or five poll workers into new piles, one for each candidate. Observers watched from a distance and could see some accuracy but not each ballot.  Each poll worker counted her pile (poll workers were overwhelmingly women in our area), and in turn announced simply, “Zhirinovsky, 22”, “Sobchak, 44,” “Putin, 701,” etc.  There was no recounting of someone else’s pile, and no obvious reconciliation among the number of the day’s voters and the total of the candidates’ piles. (The next-day OSCE report noted that many observation teams reported this same practice.) These tallies were recorded, entered into a computer, and sent. The ballots themselves were sealed in bags and delivered to the regional center, where we were told they would be locked in a room for a year. There seemed to be no built-in sampling of the bags of ballots, for example – “this one says Yavlinsky, 18 votes, let’s check it for accuracy.”

This doesn’t mean there was fraud at this stage: I watched one woman count her Grudinin pile. I was several feet away, but she seemed to be counting earnestly, flicking the top right corner of each ballot in her pile with her right index finger. She and I got the same number, but she went through the whole pile only one time.

At least one more difference between this election observation mission and others on which I served was the motivation of the host country.  In Albania’s 2011 local elections, for example, they needed to demonstrate that they had the technical capacity and political commitment to hold free and fair elections, as one small step on the long road to the EU.  Instead, the race for Tirana mayor was extremely close, the national election commission overruled the local ones in some key ways, and Edi Rama launched a series of controversial appeals before officially losing by just 81 votes.

Russia and President Putin didn’t seem to have to appease international observers, only national public opinion.  Live Internet webcams inside polling stations across the country captured a number of apparent irregularities, including ballot-box stuffing, that were shown on foreign newscasts around the world. But it seemed to some of us that an inspiring turnout to match the candidate-choice results was a higher priority than impressing temporary guests.

A final note: in some ways, these are not just technical, legal administrative matters, but foreign exchange programs. We met dozens of people working the polls, but also on airplanes, in hotels, in shops and cafes, and elsewhere. Most Russians were met were friendly, cooperative, and interested in doing their work while we did ours. The political atmosphere prevented more opportunities for rich, personal exchanges, but I hope my partner and I were as effective unofficial ambassadors for our countries as so many of the Russians we met were for theirs.

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