India and Japan: a confluence of interests

ShiABE

By Dr Sanjaya Baru, Director for Geo-economics and Strategy

India’s Prime Minister Manmohan Singh arrives in Tokyo this week for what may well be his most important foreign visit in his second term in office. The visit’s importance derives as much from the particular economic interests of India and Japan, as both economies seek to boost growth, trade and investment, as it does from the realisation that they must work together to temper China’s ‘new assertiveness’ in its neighbourhood.

Confluence of the two seas
After a gap of nearly six years, there may once again be a meeting of minds between Prime Minister Singh and his host, Japan’s bold ‘new’ leader Shinzo Abe, who, during his first term in office in 2006–07, took the initiative to seek a ‘new relationship’ with India.

On a visit in August 2007, he told the Indian Parliament that Japan had ‘rediscovered’ India ‘as a partner that shares the same values and interests and also as a friend that will work alongside us to enrich the seas of freedom and prosperity, which will be open and transparent to all’.

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Rio’s man takes WTO reins

Roberto Azevedo WTO Photo

Sanjaya Baru’s most recent column in the Indian Express focuses on Brazil’s Roberto Carvalho de Azevedo, who has just been announced as the next director general of the World Trade Organisation (WTO). Azevedo will be the first Latin American in the job when he takes over from Pascal Lamy on 1 September.

Baru, the IISS director for geo-economics, says that the media stereotyped the Brazilian Azevedo as the voice of protectionism and of the global south in his race for the job against Mexico’s Herminio Blanco. But the full picture is much more complex.

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Avoiding the resource curse

Traders in the Ghanaian Stock Exchange World Bank Photo Collection

By Elly Jupp, Research Associate, IISS-Middle East

Today Economist readers voted in the newspaper’s latest debate that Africa’s rise is real. But the margin was ‘surprisingly narrow’. This is a resource-rich continent where economic growth has often been hampered by corruption and poor governance. Indeed, countries such as the Democratic Republic of the Congo, Nigeria and Uganda have all at times faced what is commonly called ‘the resource curse’, where the discovery and sale of oil or valuable minerals benefits only a small percentage of the population, and dominates the economy to the detriment of other industries.

In such situations, an influx of foreign investments can push up the value of the local currency, making other exports uncompetitive and depressing the wider economy. The jobs created for local people in resource-extraction tend to be relatively few and low-skilled, with the processing and manufacturing of the raw product moved abroad. Exporters are also vulnerable to the vagaries of the commodities markets, whose violent price swings affect the poorest hardest and make growth unsustainable. Sometimes the profits from commodities simply disappear into the pockets of kleptocratic regimes.

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Decoding Manmohan Singh’s red lines

Manmohan Singh meeting soldiers on National Army Day, 15 January. Photo: Office of the India Prime Minister

Manmohan Singh meeting soldiers on National Army Day, 15 January.

By Dr Sanjaya Baru, Director for Geo-economics and Strategy

Many eyebrows were raised in Delhi and around the world when Prime Minister Manmohan Singh asserted that ‘it cannot be business as usual’ with Pakistan after the recent incident on the Line of Control (LoC). Because these remarks came after the National Security Adviser briefed opposition leaders about the government’s approach to the issue, the leader of the opposition in the Lok Sabha took credit for the prime minister’s tough stance, while welcoming it. However, it has since become clear that Singh was adopting a more nuanced approach, not the sledgehammer response that the Bharatiya Janata Party and hotheads in the media were seeking.

The many expressions of surprise, accompanied by gratuitous remarks about Singh’s ‘uncharacteristic’ toughness, ignore the fact that on vital national-security and foreign-policy issues, the prime minister has always drawn red lines and stuck to them. These red lines have been drawn both with respect to political parties and ministerial colleagues at home and foreign governments. When it comes to foreign policy, Singh has jealously guarded prime ministerial turf and defended the national interest.

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The union at Europe’s heart is frayed

French President Francois Hollande and German Chancellor Angela Merkel hold at press conference in Berlin. Photo: Bundesregierung/Denzel

Today is the fiftieth anniversary of the Elysee Treaty – the document signed by Paris and Berlin in an attempt to turn two hostile neighbours and rivals into allies, and to ultimately lay the groundwork for the European Union. As IISS Chairman Francois Heisbourg points out in the Financial Times, it comes at a time of strain in the Franco-German partnership.

France’s Le Monde newspaper has already been very dismissive about the scheduled joint session of the French and German parliaments in Berlin’s Reichstag building today. Heisbourg writes that: ‘From the eurozone crisis to intervention in Libya and Mali, and the failed merger of EADS and BAE Systems, the differences and tensions between Paris and Berlin are palpable.’

He admits that shaping a joint strategic future takes time, but says that France and Germany have recently lost the will to overcome other national differences – a process aided by their shifting relative strength, the expansion of the EU, and the arrival of a new generation of leaders ‘who no longer carry the historical baggage of the founding fathers’.

Yet the factor that could now have the biggest impact on France and Germany’s partnership is a third player: Britain.

Read the article at the Financial Times (subscription required)


Setting the agenda for Russia’s G20 presidency

Russian G20 presidency. Photo G20
Russia has assumed the helm of the G20 forum of leading economies at a time of concern that the group – so decisive in the wake of 2008 global financial crisis – is in danger of losing its way. What can Moscow do during its year-long presidency to help restore the group’s credibility?

Colleagues at the Council on Foreign Relations have canvassed opinion, ‘hoping to assist the government of Russia in defining priorities’. As part of its Council of Councils initiative, which includes the IISS, the CFR has published a collection of policy ‘memos’; one comes from Sanjaya Baru, IISS director for Geo-economics and Strategy, and Samuel Charap, our senior fellow for Russia and Eurasia.

In ‘Russia and the G20′, Baru and Charap point out that Russia is unique in being both a member of the G8 leading industrialised nations and one of the BRICS (the term for the world’s fastest-growing emerging markets, which also refers to Brazil, India, China and South Africa). Although Moscow has a mixed record in leveraging its position between the West and ‘the rest’, it does have the potential to act as a bridge between advanced and developing economies, they believe.

Russian President Vladimir Putin has set out five central issues for the G20 summit in St Petersburg this September, from reforming the international currency system to advancing discussions on energy security and climate change. Meanwhile, emerging nations have been calling for a greater role in international financial institutions like the IMF and World Bank, and the latest round of WTO trade negotiations has long been stalled.

The IISS authors focus on the ways in which the G20 could respond to its critics by taking forward the agenda agreed at its September 2009 summit in Pittsburgh to speed up the restructuring of the IMF and World Bank shareholdings, reviving the Doha Round of WTO talks and discouraging countries from ‘pursuing beggar-my-neighbor trade and currency policies’.

While they recognise the problems hampering the G20′s effectiveness – from national leaders’ current domestic preoccupations to overlap with G7, G8 and BRICS meetings – Baru and Charap suggest that the G20 has enormous influence over the IMF and the IBRD (International Bank for Reconstruction and Development), as it includes almost all the major shareholders. ‘Even the WTO can be guided by the G20′.

The same is not necessarily true, they argue, of other global negotiations, especially those relating to climate change, where many non-G20 countries have such major stakes.

Read the collected memos: ‘Prospects for the Russian Chairmanship of the G20′


What new Japanese PM Abe means for India

Shinzo Abe and Manmohan Singh

By Dr Sanjaya Baru, Director for Geo-economics and Strategy

‘The Pacific and the Indian Oceans are now bringing about a dynamic coupling as seas of freedom and of prosperity’. With those words Shinzo Abe, now re-elected prime minister of Japan, launched into an historic address to the Indian Parliament in August 2007. A ‘broader Asia’, he said … ‘is now beginning to take on a distinct form. Our two countries have the ability – and the responsibility – to ensure that it broadens yet further and to nurture and enrich these seas to become seas of clearest transparence.’

To an audience that had not yet absorbed the full import of the historic shift that Abe was seeking in Japan’s relations with India, he added: ‘This is the message I wish to deliver directly today to the one billion people of India. That is why I stand before you now in the Central Hall of the highest chamber, to speak with you, the people’s representatives of India.’

Shinzo Abe is not just another prime minister in a country where prime ministers come by the dozen. He has pedigree and has acquired courage and a vision. And over the weekend he has also won a massive and historic verdict in favour of his Liberal Democratic Party (LDP).

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Global perils for India Inc.

The airport in Male, capital of the Maldives

Indian diplomats are having to navigate a tricky course in supporting Indian businesses in the Maldives and elsewhere

A couple of seemingly unconnected stories this week have more in common than expected, IISS’s Sanjaya Baru suggests in a new column in the Economic Times. Indian-born British tycoon Lakshmi Mittal has found himself at the centre of an attack by French politicians: he is accused of ‘lying’ and failing to keep his promises to France over plans to close blast furnaces owned by his firm ArcelorMittal. Meanwhile, a spokesperson from India’s ministry of external affairs set a new benchmark in diplomacy by publicly complaining about a decision by the Maldives government to cancel Indian group GMR’s contract for the upgrade and management of the airport in Male, the Maldives capital.

Both cases raise interesting questions about government backing for domestic businesses. In these instances, the businesses are Indian, but the phenomenon cuts both ways. Western governments have also often expressed concerns about their firms and brands being targeted by campaign groups in India. ‘More recently, even Chinese diplomats have had to step in to protect the interests of their firms in India,’ Baru writes.

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Juncker: why Asia should care about the euro

By Alexa van Sickle, Assistant Editor

Now is ‘a very good time’ for Asia to be open to greater partnership with Europe, according to Jean-Claude Juncker, prime minister of Luxembourg. Delivering the seventh IISS Fullerton Lecture in Singapore this week, Juncker pointed out that Asia was Europe’s largest external trade partner, ‘with flows of goods and services growing again after the global slowdown, and stocks of foreign direct investment … amounting to more than a trillion euros’.

Juncker said cooperation between the EU and Asia was growing, with an EU–South Korea free-trade agreement coming into effect a year ago, and negotiations with several Asian partners and ASEAN on similar deals. There were also plans to finalise agreements with Singapore and India.

‘I foresee the economic health of the euro area as closely intertwined with that of its global partners, of whom Asia represents the largest,’ he said.

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Rising yuan in the land of setting yen

One Yuan Renminbi

By Dr Sanjaya Baru, Director for Geo-Economics and Strategy

The directors of the International Monetary Fund and the World Bank return to Tokyo this week for their annual meetings after a gap of 48 years. It’s a different Japan. The aging of the host nation, the rise of China, the ‘shift’ of the epicentre of global growth to mainland Asia, in more ways than one, have subdued what was in 1964 – when the Fund and Bank last met here – the ‘land of the rising Yen’. The ‘shocks’ administered to the global economy by the recent trans-Atlantic financial crisis have further accelerated these ‘shifts’, and the Yuan now rises where the Yen once shined.

First ‘Asian-origin’ president

While the Bank arrives in Tokyo with a South Korea-born American as its first ‘Asian-origin’ president, the Fund arrives with its first Chinese deputy managing director, who got the job as part of a deal with the European Union. This would rub even more salt into the wounded pride of a Japan that tried hard for long to get one of the top jobs and repeatedly failed because the West would not accommodate Asia till China stared it in its face.

Read the full article in The Hindu


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