An FBI Contribution in Eastern Europe

February 21, 2018

Donald M. Blinken (Hungary, 1994-1998)

Cross posted from the New York Times

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To the Editor:

On the wall in my office is a 1996 photograph taken in Budapest. Among the 10 portrayed facing the camera are a former president of Hungary, Arpad Goncz; Louis Freeh, then the F.B.I. director; Janet Reno, then the attorney general; and me. We were celebrating the first anniversary of the 1995 founding of the International Law Enforcement Academy.

The brainchild of Mr. Freeh, the Budapest-based academy supports training for law enforcement personnel from 26 countries in Central and Eastern Europe and in Central Asia. In 2005, Robert S. Mueller III, then the F.B.I. director, attended the academy’s 10th anniversary celebrations.

Mr. Freeh, the Hungarian government and I had two goals in mind: training law enforcement personnel in the former Soviet bloc in appropriate policing and investigative methods, as enjoyed by the United States and Western Europe, and encouraging these disparate police officials to begin to talk to one another, a practice unknown in the Communist days.

The results in uprooting crime and heading off terrorism have been outstanding. I am persuaded that neither President Trump nor Devin Nunes, the chairman of the House Intelligence Committee, who released the memo critical of the F.B.I., has ever heard of the academy, but the American public deserves to know how its interests are being effectively served by the F.B.I. throughout Central and Eastern Europe.

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Politics, NAFTA and Security Make for a Bumpy Ride

February 16, 2018

Antonio Garza (Mexico, 2002-2009)

Cross posted from Ambassador Garza’s newsletter

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In two weeks, North America’s NAFTA negotiators will sit down for the seventh round of negotiations in Mexico City, and Presidents Trump and Pena Nieto have announced that they too will be meeting. The teams will have a lot on their plates, as previous rounds have eked out only slow progress on all the major issues. It is a far cry from this summer’s initial ambitious agenda that promised a modernized agreement by early 2018. Although, it’s not particularly surprising, since opening up an agreement that touches almost every sector in North America’s economies is no simple task and especially so with a U.S. team that is navigating its own domestic landmines and political risk (as I’ve written about previously). We should be preparing ourselves for a much longer timeline than initially expected, with negotiations likely stretching at least through the coming months and potentially into the coming year.

Yet, time is not on the NAFTA negotiations’ side. On July 1st, Mexicans will head to the polls to elect their next president and the pre-campaigns are already in full swing. The top three candidates have been traveling the country to meet with voters and share their campaign promises. Andrés Manuel López Obrador (AMLO) is the current leader with 23 percent of the vote. Best known for his populist platforms and discourse against the political establishment, AMLO has indirectly taken a more moderate position on NAFTA. His proposed economy minister promised to continue NAFTA negotiations and not to trash or restart the modernization process. The other top contenders—PAN party candidate Ricardo Anaya and PRI candidate José Antonio Meade (with 20.4 and 18.2 percent of the vote respectively)—have also made it clear that they would continue the talks. Yet, negotiating a thorny agreement through a political transition is sure to be a precarious endeavor.

Another controversial political issue has been the future of Mexico’s 2013 energy sector opening. While Anaya and Meade have supported the reform, AMLO has been a critical opponent, previously saying that he would roll it back or put it to a referendum. Yet AMLO’s proposed Energy Minister has adopted a less extreme path, outlining his plan to build a Mexican refinery and saying that he wouldn’t tear up existing contracts. Despite the political uncertainty, private sector interest in Mexico’s energy sector has surged. The January 31 deepwater oil and gas round was the largest to date, with investors claiming 19 of the 29 fields and pledging half a billion dollars in cash-signing bonuses. Overall, investment in the sector is estimated to reach $150 billion over the course of the current contracts.

However, while NAFTA and the energy reform are two major policy concerns, Mexicans are likely paying more attention to corruption and violence levels around the country. In the latest saga, Chihuahua Governor Javier Corral recently emerged as a national voice on corruption after his team began investigating the alleged embezzlement of more than US$12 million in state funds. The money was siphoned off under the previous (and now fugitive) governor Cesar Duarte and allegedly used to fund other PRI politicians’ campaigns. The investigation into the missing money exploded onto the national scene when it began to ensnare top PRI officials and after the federal government responded by withholding from Chihuahua $36.5 million in promised funds. The standoff led Corral to criss-cross the country protesting with a “Caravan of Dignity” and with the federal government finally backing down this past Monday and delivering the money.

These corruption scandals are also taking place in the midst of Mexico’s most violent year in recorded history. The number of homicides in 2017 surged past even the bloodiest years of the Calderón administration with no signs of slowing down. The factors driving the rise in violence are likely sub-region-specific and include everything from group infighting between different factions of the Gulf Cartel in Reynosa, local groups jockeying over lucrative poppy production in Guerrero, or fighting over who gets to sell drugs where in Ciudad Juárez. Yet one thing is clear, there has not been a strong and united federal strategy for lowering the violence. Instead, the response has been reactionary, with security issues failing to garner the same high-level attention as the country’s economic issues.

In the United States, we’ve also been grappling with our own domestic issues that directly affect Mexico. This includes the DACA debate, which will go back in front of Congress next week, and the budget’s emergency funding for the United States’ opioid crisis. Two weeks ago, U.S. Secretary of State Rex Tillerson emphasized the importance of working together with Mexico on many issues. In a speech last week at my alma mater the University of Texas at Austin, Tillerson outlined how the United States can approach cross-border security issues by improving its own drug policies and also by providing Mexico with targeted funding and training. While bilateral discussions may get overheated at times, working together on these and other cross-border issues continues to be the best way to respond to both countries’ most pressing challenges.

Put people first to get fintech right in Asia

February 12, 2018

Curtis S. Chin (Asian Development Bank, 2007-2010; Managing Director, RiverPeak Group)

and

Jose B. Collazo (Southeast Asian Analyst, RiverPeak Group)

Cross posted from the Singapore Straits Times

—–

As the Year of the Rooster gives way to the Year of the Dog, fintech remains very much in the news and on investors’ minds.

From blockchain to bitcoin, ethereum and other cryptocurrencies, and initial coin offerings that allocate “tokens” as a new means of crowdfunding capital, the language and disruptions buffeting the mainstream banking and financial services industry can seem overwhelming.

But beyond the multimillion-dollar, headline-grabbing investments and acquisitions, what does financial technology actually mean for the people of Asia? Across the region, fintech deals continue to make waves. And while much of the venture capital in Asia has predominantly flowed into China, particularly among a handful of large tech companies, other countries also are seeking to position themselves as fintech hubs, says Mr Jackson Mueller, associate director at the Milken Institute’s Centre for Financial Markets.

Multimillion-dollar investments were reported last year in Hong Kong in “digital wallet operator” TNG FinTech Group, in India in online lending platform Capital Float and in South Korea’s second-largest cryptocurrency exchange, Korbit.

In Indonesia, motorbike delivery and ride-sharing app Go-Jek is now officially a “unicorn” — a tech start-up valued at more than US$1 billion (S$1.3 billion). With Go-Jek’s acquisition of payment portals Kartuku and Midtrans, and savings and lending network Mapan, the company is not only poised to be a digital payments leader, but also is in a position to influence the shape and scope of the fintech landscape in Asean’s largest economy.

According to Bloomberg, Go-Jek and the three firms collectively now process almost US$5 billion of debit-card, credit-card and digital-wallet transactions for their customers, service providers and merchants. The growing interest in fintech’s potential across Asia beyond China was made clear at Singapore’s Fintech Festival last year. The conference in November was attended by over 30,000 people focused on sharing or learning more about fintech developments from companies large and small.

An awards program supported by the Monetary Authority of Singapore and the Association of Banks in Singapore recognized “digital disruptors” Blocko, Spark Systems, AGDelta, Flywire and six other companies for implementing innovative financial technology solutions.

For Asia’s brick-and-mortar financial institutions, the ongoing rise of fintech poses challenges to existing business models as well as opportunities to reach new customers. For policymakers and entrepreneurs, the benefits of addressing the digital divide and of harnessing the power of fintech can seem clear-cut in their combined ability to increase the level of access to capital and financial inclusion.

Across much of Southeast Asia, the unmet need for basic banking services is significant. Only 27 percent of the region’s 600 million inhabitants had a bank account in 2016, according to consulting firm KPMG. In emerging economies such as Cambodia, only 5 percent of the population have access to formal banking services. This level of the “unbanked” has negative repercussions for the region.

With little to no access to formal banking services, too many people in Asia go without the basic protections of a savings account, and may well face relatively higher costs for sending or receiving money. This, in a region where remittances were valued at US$236 billion in 2016, according to the World Bank. “Having access to basic financial services can reduce hunger, increase education and generally improve the quality of life,” said Queen Máxima of the Netherlands, the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development, in her speech at the fintech event in Singapore.

Our view too is that fintech is a disruption to be embraced. And we are not alone. Venture capitalist and fintech influencer Spiros Margaris said: “I am convinced that fintech’s greatest achievement will be not just helping the unbanked, but also the underbanked — individuals who have insufficient access to financial services — to live a better life.”

A 2017 study conducted by the Asian Development Bank and consulting firms Oliver Wyman and MicroSave found that opening the door to financial services to the unbanked could increase the gross domestic product of the Philippines and Indonesia by as much as 3 per cent and Cambodia’s by 6 percent.

Yet, the sustained benefits of fintech will be realized only if a proper ecosystem is created and maintained — one that addresses concerns of regulators while benefiting innovators and, most importantly, consumers.

Narrowing the digital divide also will continue to be a fundamental need, with increased mobile-phone ownership and Internet penetration being key factors in spurring consumer adoption of mobile financial services. Indeed, the true measure of success for fintech should not be deal size or quantity but in expanded horizons. True success is when fintech helps once-poor farming communities access funds to bring their crops to market, or helps small shopkeepers to grow bigger, or provides seed money for a young entrepreneur ready to turn a great idea into a concrete reality.

Beyond the fintech hype and jargon, let’s not forget the human element of financial technology in the year ahead. In South-east Asia and across the Asia-Pacific region, assessments of fintech must go beyond counting fortunes made and businesses disrupted or created, but also include a measure of people helped.

Twenty Years of Morocco’s Development

February 9, 2018

Edward M. Gabriel (Morocco, 1997-2001)

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Twenty years ago this year I arrived in Morocco as the new United States Ambassador. It was the beginning of a close-up view of the significant changes going on in Morocco for the next two decades.

During my first meeting with King Hassan II, shortly after my arrival, he wasted no time in addressing Morocco’s agenda with the United States, challenging me on our positions, especially the Kingdom’s existential issue regarding sovereignty over the Sahara. This unexpected candid and warm exchange set the tone for regular meetings through my tenure during which concerns and grievances were voiced in private, rather than aired publicly. King Mohammed VI would continue this practice with me after his father’s death.

My first few months in the country also coincided with the beginning of the first government of Alternance, led by opposition leader Abderrahmane El Youssoufi – a watershed moment for Morocco that many political analysts mark as the beginning of significant democratic reform and economic liberalization after years of a strong-armed approach to governing and limited civil rights. Abderrahmane El Youssoufi, whose political activities had previously resulted in two years in jail and then 15 years of exile, became Prime Minister after his party, the Socialist Union of Popular Forces (USFP), won the most seats in the November 1997 elections. And since then, the international community has confirmed elections as occurring in a fair and transparent manner.

In 1998, the unemployment rate in the country was 17% and growing, with youth making up a disproportionate percentage of the population. Women lacked equal rights with men. The percentage of the population living at or below the poverty line for lower middle income countries was around 28%, and more than half of the entire adult population was illiterate, with rates among rural women much higher. Electricity in the country reached only around 60% of the population, and almost a quarter did not have access to potable water. Infant mortality rates were 23% higher than the regional average and maternal mortality ratios were nearly double. Overall, the micro-economic picture was in dire shape.

The economy was too dependent on agriculture, accounting for 20% of GDP and heavily reliant on rainfall. Infrastructure was lacking throughout the country, and environmental degradation was widely apparent throughout the cities and the countryside, presenting a challenge to the growth of tourism. Of particular note, the northern part of Morocco was completely neglected after a series of militant actions created an irreparable rift between King Hassan and his citizens there.

In contrast to the micro economic indicators, by 1998 King Hassan had established a strong macro-economic climate: low debt to GDP ratio, a low budget deficit and an open, competitive economic system. He adopted IMF and World Bank reforms that, had Morocco been a member of the European Union, would have qualified it for the Monetary Union.

Upon his death in 1999, King Hassan left the country unified with a very strong nationalistic belief in country and King, a reasonably performing economy, and most importantly, with a solid commitment in its support for U.S. objectives regarding counterterrorism and economic openness, and in promoting peace in the Middle East.

Twenty years later, where is Morocco today? Where is it headed tomorrow?

Upon ascending to the throne in 1999, King Mohammed VI immediately gave a clear indication of his vision for reform and equality for all Moroccans, stating in his first public speech in August of 1999, “How can we talk about the progress and development of society when women who constitute half of this society are being denied their rights? Our true religion, Islam, has granted them rights that are not respected. They are equal to men.” By 2004, Morocco had passed one of the most progressive family codes in the region, the Moudawana, putting women on equal footing with men in regards to children and divorce.

Also in 2004, King Mohammed established The Equity and Reconciliation Commission to reconcile victims of previous human rights abuses, providing a public forum for victims to make their case and receive compensation.

In 2005, a massive anti-poverty program, the National Initiative for Human Development, was instituted in 600 of the most vulnerable poor areas of the country and city districts to increase job creation and provide adequate social services for the most vulnerable of the population. The poverty rate in Morocco now stands at 15.5%, nearly a 50% reduction. The per capita income in Morocco has nearly doubled during this time as well.

King Mohammed VI also took great efforts at rapprochement with the north of Morocco, indicating his intentions early on with his first official visit as King to Tangier, in September of 1999 – the first visit by a Monarch in nearly 40 years. These efforts have paid off. Rapprochement brought the establishment of economic zones, port and highway infrastructure, and tax incentives. With these and other measures, the north of Morocco has undergone an economic renaissance, and is now a hub for auto, aeronautics, and renewable energy manufacturing. And although youth unemployment is still problematic, the overall unemployment rate is now around 10.4%, nearly 40% percent less than it was in 1998.

Infant and maternal mortality rates have been cut in half. Electricity reaches 98.9% of the population and more than 85% have access to potable water. The birth rate is among the lowest in the region and is now comparable to rates in Europe. Morocco even has a new law that protects the civil liberties of migrants, making it one of the most progressive countries in the world on this issue. And today, while there is still work to be done, after concerted efforts Morocco has improved literacy among adults to around 70%, with rates reaching over 90% among youth, and even higher for those under 15 years old.

The cities are cleaner, with advances in waste collection and disposal. By 2030, Morocco aims to generate 50% of its electricity from renewable sources, making it a global leader on the environment. Tourism has increased five-fold since 1998.

The country has undergone an incredible transformation after years of serious efforts to modernize and expand its infrastructure, upgrading roads, ports, and airports to support its goal of becoming a commercial crossroads between Africa and the West. In line with these efforts, Morocco and the United States concluded a free trade agreement in 2004, and last year, Morocco reestablished its relationship with the African Union and many of its members following a 33-year absence.

Macro-economic rates, strong under King Hassan, remain strong today. Agriculture still accounts for a large percentage of GDP at 13.6%, but that marks a 32% decrease from when King Mohammed assumed the throne, and a substantial amount of the production is now irrigated, reducing reliance on rain. New highways now connect most of the major cities in Morocco, and a new high speed train from Tangier to Casablanca will begin service in 2018, cutting travel time between the two cities by more than half to just over 2 hours.

When I arrived in Morocco, the bilateral relationship with the US was at a low point largely due to the lack of public support for Morocco on the Sahara issue. The United Nations was extending its MINURSO mandate overseeing the dispute for only a few months at a time, constantly prompting US criticism of Morocco regarding their differences on this issue. Following discussions and agreement with Morocco in 1999, the United States proposed a new policy, which offered a political compromise to support an internationally accepted framework of autonomy under Moroccan sovereignty. By 2007, the United Nations and the United States were describing a new Moroccan sovereignty-autonomy initiative as serious and credible, and later Secretary Clinton called it “realistic”. The United States has since begun to fund Morocco to provide countrywide programs, services, and economic growth initiatives that include the Saharan regions. This, more than anything else, has solidified the relationship between our two countries during the past two decades.

Today, as I look back, I realize I’ve had a front row seat to Morocco’s internal and international evolution over the past twenty years. Morocco has come a long way, although more still needs to be done: addressing youth unemployment; improving education and creating jobs; tackling corruption and weaknesses with regard to the rule of law in both the public and private sectors; enforcement of existing laws; and, dealing with ongoing government inefficiencies.

In particular, there is a need to work for a greater convergence of the ambitious sectorial strategies launched and currently implemented so as to maximize their impact at the micro levels. The country has to tackle the issue of decentralization of the governance of the country, particularly in the Sahara, and with a priority emphasis on women and those regions that are the poorest. And perhaps most importantly, there is a need to insert the youth into the economy through effective education and job training programs.

It is obvious that Morocco is moving steadily forward, albeit at its own pace. It is a delicate balancing act as the King moves cautiously to make Morocco a more open and modern leader among developing countries. Change that comes too quickly could expose vulnerabilities and create an opportunity for those who wish to destabilize the country, terrorists among them. On the other hand, too slow a pace could cause Moroccans to rise up and demand change at a more striking rate. The United States should be cognizant of this challenge and seize the opportunity to work in partnership with Morocco as it finds its “sweet spot” for movement and change, as it is in America’s interest to see this Arab country remain stable and grow increasingly more prosperous and democratic.

Korea Options — Bad, Worse and Unthinkable

January 5, 2018

Richard N. Holwill (Ecuador, 1988-1989; Counselor to the U.S. Arms Control and Disarmament Agency, 1990-1993)

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When given a choice among bad options, you would normally look for the least worst. In the case of North Korea — formally the Democratic Republic of Korea or DPRK — the least worst would appear to be negotiations but, even then, the option must be approached with great care.

Secretary of State Rex Tillerson had said “We are ready to negotiate with the DPRK without preconditions.” Then, President Donald Trump pulled the Secretary back into the fantasy world of this White House saying the DPRK “must earn” the right to negotiate. What the President did not consider was the precondition that DPRK leader Kim Jong-un has imposed on negotiations. Kim wants the United States to acknowledge and accept his Country as a nuclear power before agreeing to talk, something we cannot do.

It would seem logical that China would help calm tensions on the Peninsula, but we cannot expect China to take any steps that are inconsistent with its long-term goal of maximizing its position in East Asia. That goal includes limiting U.S. access to the South and East China Seas.

China also fears having a U.S. ally such as the Republic of Korea (The ROK, also known as South Korea) on its border. For that reason, China will actively oppose any effort to destabilize the DPRK. Human rights reform, a priority for the West, is lower on Beijing’s agenda than keeping a stable client state on its border.

Just as China wants to push the United States out of East Asia, the DPRK hopes to push U.S. forces off the Korean Peninsula. In that their goals are aligned, we should not expect China to take steps contrary to its fundamental interests.

China certainly wants to ensure that the DPRK does not actually start a war and has proposed a “freeze for a freeze,” which is to say that the U.S. and South Korean governments would not conduct military training exercises in exchange for a “freeze” in the development of nuclear arms and missile delivery systems. The Trump Administration dismissed the offer. To most analysts, simply freezing the DPRK’s nuclear program is too modest a goal, particularly if any such agreement does not include a robust verification regime.

This begs the question: What then do we want? Is it possible to seek a denuclearization agreement? And, if so, what must the United States concede to achieve that goal? Let’s assume that a denuclearization agreement is theoretically possible. To be meaningful, it must include a robust verification program backed by United Nations guarantees. More critically, we should expect China to endorse and even guarantee DPRK compliance. Such an agreement must also provide a measure of security to the ROK, which would hinge other guarantees from China.

In an agreement of this type, Kim would very likely demand concessions from the United States that go well beyond a freeze on major training exercises. He would very likely demand the removal of U.S. troops from the ROK to be staged to match the staged dismantling of the DPRK nuclear and missile programs.

Even with these potential concessions, Kim Jong-un may well refuse to give up his nuclear toys. He knows that using the weapons would be suicide, but they do give him and his country a degree of standing that would otherwise be impossible to command. Abandoning the nuclear program would be such a loss of face that Kim probably cannot accept it unless he gains face some other way.

He might insist on diplomatic recognition of the DPRK and an agreement to respect its sovereignty combined with a termination of economic sanctions. This could come through a treaty resolving the 75-year-old armistice that brought the Korean War as far as a cease fire. Kim would call that a victory but would President Trump, who seems preoccupied with his own “face,” be willing to let Kim claim victory?

This scenario, admittedly a utopian fantasy, effectively guarantees a continuation of the Kim Dynasty in the DPRK. That implies that Kim can continue to impose a system of human rights abuses that can best be described as crimes against humanity. It means that nuclear blackmail will have trumped humanitarian concerns. At the end of the day, we must ask ourselves if we are willing to pay that price. We might even ask ourselves if the status quo is perhaps acceptable.

We must remember, however, that the status quo is not static. Kim’s next move could be to demonstrate the ability to launch a missile with a warhead capable of reentry carrying a nuclear weapon to be tested not in a tunnel but over open waters. Were that to happen, our options would go from bad to exponentially worse.

 

 

North Korea’s Kim, China’s Xi both had a big year. Here’s why we should care about Asia’s 2017

January 3, 2018

Curtis S. Chin (Asia Development Bank, 2007-2010; Asia Fellow, Milken Institute)

and

Jose B. Collazo

Cross posted from Fox News

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Asia was much in the news in 2017, as North Korea’s brutal dictator Kim Jong Un surprised experts around the world with rapid progress in his weapons program, testing intercontinental ballistic missiles and nuclear bombs. The United Nations and U.S. imposed sanctions on the North, but didn’t deter Kim from continuing to make military advances.

Kim and President Trump traded insults and threats but, thankfully, avoided going to war. Hopefully, war between the two nuclear nations will be averted in the year ahead as well.

President Trump gave up on President Obama’s failed “pivot to Asia” and said the U.S. would not join the Trans Pacific Partnership free trade agreement, which had been a top priority of the Obama administration. The new U.S. president instead embraced an “America First” foreign policy that amounted to a “pivot to America.”

So who was up and who was down in Asia in 2017? Here’s our assessment:

Worst Year: Aung San Suu Kyi and the Rohingya people

Once touted as a successful example of U.S. diplomatic engagement, the country now known as Myanmar – but still called Burma by many – was plunged into ethnic conflict in 2017 when the military in the primarily Buddhist nation launched attacks on the predominantly Muslim Rohingya minority.

One-time democracy icon and Nobel Peace Prize laureate Aung San Suu Kyi, who is now serving as state councilor (akin to prime minister) has drawn international criticism for standing by as more than 600,000 Rohingya have fled to neighboring Bangladesh following rapes, murders and the burning of their villages.

Whether a humanitarian and human rights nightmare or a clear case of “ethnic cleansing” – as U.S. Secretary of State Rex Tillerson has described it – the world has failed to effectively respond to Myanmar’s brutal treatment of an entire people.

Unfortunately, the year ahead doesn’t yet look any better for Suu Kyi or the Rohingya – sadly, the joint “winners” of worst year in Asia in 2017.

Bad Year: The Political Opposition

Incumbent leaders and parties in much of Asia, from India to Japan, solidified their lock on power. Opposition parties fared badly.

One-party rule continued in China, Vietnam and Laos. And in Cambodia, a Supreme Court ruling has effectively dissolved the only credible major opposition party. The result? Cambodian leader Hun Sen is likely to continue as the world’s longest serving prime minister for some time.

Elsewhere, Thailand’s return to democracy remains on hold after a May 2014 coup. And in Japan, Prime Minister Shinzo Abe’s party scored impressive election results, swamping the nascent “Party of Hope” of popular Tokyo mayor Yuriko Koike. Incumbency does have its advantages.

A Mixed Year at Best: ASEAN

The year 2017 proved both good and bad for the 10-member Association of Southeast Asia Nations, or ASEAN. A visit by President Trump and a seemingly budding bromance between the U.S. and Filipino presidents helped mark 50th anniversary celebrations for ASEAN in Manila in November.

The Southeast Asian region, with a combined gross domestic product equivalent to $2.4 trillion, is now the seventh-largest economy in the world and on track to become the fourth-largest economy by 2050. That’s good news for American businesses from Texas to Washington investing in and selling to this booming region.

But 2017 also made clear that the association’s non-confrontational, consensus-building approach – deemed the “ASEAN Way” – may well be facing a mid-life crisis in the face of China’s growing investment and assertiveness.

While ASEAN celebrates 50 years of growing prosperity, some of the region’s most pressing problems, including the Rohingya crisis and territorial disputes in the South China Sea, have also continued to fester if not grow.

Good Year: Asia’s Fintech Pioneers

As in America, technology from e-commerce to mobile banking continues to transform Asia and create vast new fortunes. Not everyone though can be a Jack Ma, the storied Chinese billionaire and co-founder of Alibaba Group. Nor can every company be an Ant Financial Services Group, the Alibaba-affiliated payments company described by The Economist as “the world’s most valuable fintech firm.”

But 2017 proved to be a good year for Asia’s pioneers in fintech – a catch-all buzzword for the financial technology that is challenging and reshaping mainstream banking and finance companies.

In the third quarter of 2017 alone, according to consulting firm KPMG, Asia was the global leader in fintech investment, outpacing Europe and the Americas, with more than $1.21 billion raised.

And with companies looking to serve the region’s “unbanked” – only 27 percent of Southeast Asia’s 600 million people have a bank account – what was a good year for fintech is likely to only get better in 2018.

Best Year: Xi Jinping & Kim Jong Un

There’s a new Mao in town. “Best Year” in Asia goes to: the leader of the most populous nation, China; and the leader of arguably the region’s most frightening nation, North Korea.

In 2017, Xi Jinping solidified his rule as China’s most powerful leader in decades at the Communist Party Congress. Progress also continued on two landmark Xi initiatives. The first is the “One Belt One Road” or “new Silk Road” infrastructure and development program, which will better connect China to key markets. The second is the Asian Infrastructure Investment Bank, a Chinese-led rival to the World Bank.

The major uncertainty in 2017 for Xi Jinping was the behavior of the man dubbed “Little Rocket Man” by President Trump – North Korea’s Kim Jong Un. Kim’s continued survival may well rest on China’s support more than on his small nuclear arsenal. Yet the North Korean leader is likely to know that an erratic North Korea is the price that China accepts for fear of a united, democratic Korea on its border.

And so, in a year that saw Xi Jinping emerge as a voice for Chinese-style globalization and Kim Jong Un survive – if not thrive – as a nuclear-armed provocateur, we give “Best Year in Asia” to a less-than-dynamic duo linked on the world stage: Xi and Kim, frenemies in 2017.

As President Trump moves to make America great again, America would do well to pay attention to what the billions of people and their leaders on the other side of the world in Asia are up to. In an ever-shrinking world, what happens on one side of the Pacific inevitably will affect the other.

Strengthen governance, PH democracy? Invest in Filipino youth

January 3, 2018

Curtis S. Chin (Asia Development Bank, 2007-2010; Asia Fellow, Milken Institute)

Cross posted from Rappler.com

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With a Filipino population of some 50 million under the age of 24, the nation’s decision-makers simply cannot afford to neglect the employment, education, and social needs of this enormous constituency

 

One could well lose heart in parts of Southeast Asia if all you did is read the headlines, or the social media feeds. The Philippines is a case in point. Even during this nation’s holiday season, today’s banner news and trending tweets and Facebook posts from this country tend to magnify the many, not insignificant challenges facing the country.

The ongoing war on drugs, the battle against violent extremists in Mindanao, and the seemingly endemic corruption and enduring poverty that has eroded public confidence in government across presidential administrations are not for the faint of heart.

Solving these problems requires not just the commitment and ingenuity of current politicians, but the engagement of the next generation of civic and political leaders.

Thankfully, the evidence suggests that today’s young generation is no stranger to the innovation that will be essential to rising to the challenge. I had the privilege of witnessing the incredible strides made by young Filipinos firsthand when I participated recently in the graduation ceremony for the International Republican Institute’s Young Leaders for Good Governance Fellowship – a year-long program for local government leaders under 40 years old. I was struck by the enthusiasm and clear vision these young officials had for their cities, municipalities, and country.

A councilor from Ilocos Sur, in the northwest of the country, spoke at length about the need for young people to learn farming techniques from aging farmers in her municipality. Many farmers have contributed significantly to the local economy, but may well retire or pass away before sharing their skills with apprentices. In response to this challenge, this councilor created the “Farmbassadors” program to pair older farmers with unemployed youth to create jobs and foster a more inclusive community.

Disruption can come in many forms. These young people are not content to wait for solutions for their problems to be delivered from the top down. Instead, they are seeking to extend their participation in politics at the same time as the national government prepares to devolve more powers to the local level to enhance public services and better respond to citizens’ needs.

With a Filipino population of some 50 million under the age of 24, the nation’s decision-makers simply cannot afford to neglect the employment, education and social needs of this enormous constituency. Poor economic opportunities, especially outside of “imperial Manila”, are contributing to feelings of disillusionment. This, in turn, may well feed into larger challenges to social cohesion including anti-social behavior, drug abuse, and even violent extremism.

As federalism moves to the forefront of Philippine President Rodrigo Duterte administration’s list of priorities, the need to recruit dedicated, energetic local officials presents an enormous opportunity for both the government to engage the young population and for young Filipinos to make their voices heard.

The inclusive implementation of federalism and decentralization policies could provide an important mechanism to address the challenges that disproportionately affect young people in the Philippines. Greater local control over resources and programs would allow representatives to respond directly to the nuanced needs of their constituents.

Decentralization and federalism have the potential to be part of the solution to these challenges. However, if local government officials are unprepared for their changing role, or if the regulatory framework does not effectively integrate independence with accountability, the country could squander this opportunity for positive change. Moreover, if local governments are unprepared for the additional responsibilities, communities are at risk for poorer quality or less reliable services as well as increased vulnerabilities to corruption.

Effective and engaged leaders who invest in building resilience to these risks are crucial to the further development of Filipino democracy. Support from ASEAN and the larger international community can also play a valuable role. As this generation of young Filipinos moves into increasingly important positions of responsibility, political leaders at all levels must seize the opportunities presented by political reforms to build a better country of all Filipinos.

That approach – investing in youth to strengthen governance – is one that could well benefit all of the region’s governments, fully democratic or not. Identifying young Southeast Asian leaders can be the easy part. Our shared, ongoing larger challenge is to invest in and support them. The result will be a stronger region for generations to come.

 

Will Ron Johnson learn to love the bomb or start worrying?

December 14, 2017

Thomas A. Loftus (Norway, 1993-1998)

Cross posted from Madison.com

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Today in Oslo the International Campaign to Abolish Nuclear Weapons will be awarded the Nobel Peace Prize for its role in getting the U.N. General Assembly to propose for ratification a treaty to outlaw the use of nuclear weapons — a move approved in July by 122 nonnuclear nations.

Today in Washington a staff person at the White House is busy dotting i’s and crossing t’s to finish an update of the Nuclear Posture Review ordered by President Trump. It will endorse a new class of more “usable” weapons and, couched in benign language, a new rationale for a president to order a first strike.

Today in the Foreign Relations Committee of the U.S. Senate there is a proposal to limit the president’s power to launch a first strike by requiring that he consult in advance with the secretaries of Defense and State and the attorney general, who would have to state that the first strike is legal. Wisconsin Sen. Ron Johnson is a member of the committee.

Today the president could alone launch Armageddon and announce it in a tweet.

The movement in the Foreign Relations Committee is prompted by the mercurial nature of President Trump. It is the first time in 40 years there is a discussion in Congress on the use and utility of nuclear weapons.

New weapons, like a low-yield warhead for a ballistic missile or nuclear-tipped Tomahawk sea-launched cruise missiles, will increase the “thinkability” of their use because fewer people would be killed.

To understand, watch the war room scene on YouTube of the film “Dr. Stangelove Or: How I Stopped Worrying and Learned to Love the Bomb,” in which General Buck Turgidson (played by George C. Scott) is pitching a first strike on the Soviet Union to President Merkin Muffley (played by Peter Sellers) and promises “10 to 20 million casualties tops.”

Sen. Johnson is a Republican and I am a Democrat, but we share Norwegian heritage and a Lutheran upbringing and with that comes an optimism that prevails in the face of all facts to the contrary.

The Nobel Peace Prize being given to ICAN today provides hope. My friend former Defense Secretary William J. Perry at age 90 is vigorously advocating for the control of nuclear weapons (www.wjperryproject.org). And the new Outrider Foundation in Madison will soon launch a public education interactive website on the threat of nuclear weapons. I am a board member (www.outriderfoundation.org).

Nuclear weapons policy is rarely presented to voters, but it has been. I was one of many members of the Wisconsin Legislature to sponsor a resolution to put on the ballot in September 1982 a referendum in support of a freeze on nuclear weapons.

It read: “Shall the Secretary of State of Wisconsin inform the President and the Congress of the United States that it is the desire of the people of Wisconsin to have the government of the United States work vigorously to negotiate a mutual nuclear weapons moratorium and reduction, with appropriate verification, with the Soviet Union and other nations?”

The referendum passed with a 75 percent vote. Much of what it called for came to pass in the START treaties.

I urge Sen. Johnson to recognize the need to restrain the power of the president to launch a first strike, and the peril of any policy that would create more “usable” nuclear weapons. Instead, I hope he is inspired by the prestigious Nobel Peace Prize being awarded today to a group seeking to abolish nuclear weapons from the face of the earth.

Gauging the Impact of Economic Sanctions

December 8, 2017

J. William Middendorf II (Netherlands, 1969-1973; Organization of American States, 1981-1985; European Union, 1985-1987)

and

Dan Negrea

Cross posted from The Washington Times

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Carl von Clausewitz thought of military war as a continuation of diplomacy through other means. Economic sanctions are economic war and should be similarly regarded as tactics subordinated to a diplomatic strategy.

Economic sanctions take many forms. The 1961 quarantine of Cuba targeted the whole country, but the 2014 Russia sanctions singled out a few economic sectors, enterprises and individuals. The Iran sanctions of a decade ago used asset freezes, an oil embargo and financial isolation, while the current sanctions against North Korea emphasize trade restrictions. And they can be imposed by single countries or multilaterally.

Sanctions can be designed to discourage behavior, punish actions, cause regime change or weaken a country’s economy. Or simply to advertise displeasure with certain behavior.

In 2014 the United States, Europe and their allies imposed economic sanctions on Russia in response to its occupation of Crimea and aggression against Eastern Ukraine. There was grave concern at the time that Russia planned to occupy even more Ukrainian territory and attack Baltic NATO members Lithuania, Latvia and Estonia. The sanctions included travel restrictions against Russian officials, transaction bans affecting certain energy firms and banks, and export controls on energy equipment. Russia was also denied access to Western capital markets. The sanctions weakened the Russian economy and depressed the ruble.

Simultaneously, NATO increased its military presence in member countries bordering Russia to discourage Russian military adventurism.

The West was signaling that changing borders by force is unacceptable. Russia was going to pay an economic price for its aggression against non-NATO member Ukraine and a military price if it attacked a NATO member. Russia did not withdraw from Crimea or stop interfering in Eastern Ukraine because of the sanctions. But the combination of sanctions and a firm NATO stance discouraged Russia from further aggression in Ukraine and a move against the Baltics.

Starting in 2006, the U.N. Security Council imposed several rounds of sanctions on Iran for violating nuclear non-proliferation agreements. Iran’s military was enriching uranium for nuclear weapons and building missiles to deliver them, while Iranian officials were making hostile statements against America and its allies. The almost-universal economic sanctions against Iran were the toughest any country had ever faced and virtually every segment of its economy was affected. The energy sector was particularly hard hit by an embargo on oil exports and restrictions on insurance for oil tankers serving the Iran trade. Iran was even cut off from SWIFT, the world’s bank transaction network, and forced to use gold as currency. The Iranian economy was on its knees: Between 2011 and 2014, Iran’s oil exports fell by half and the rial plummeted.

But the Obama administration gave it all away in exchange for the very bad Iran nuclear deal. The agreement limited Iran’s uranium enrichment only until 2025 and it did not restrict research on nuclear weapons or on testing missiles to deliver them. The Iranians were able to push President Obama into this pact because they figured out that he was desperate for a deal, any deal, to avoid military conflict. They even forced him to ignore the Syria genocide and his famous red line to get this deal. One of the authors of this article served in the Reagan administration and saw a different kind of president. Ronald Reagan walked away from the 1986 Reykjavik negotiations when he could not cut a good deal with Soviet leader Mikhail Gorbachev. The economic sanctions against Iran worked, but their effect was squandered by a flawed strategy.

President Trump’s North Korea goal is crystal-clear: Rogue North Korea will not be allowed to have nuclear weapons with which to blackmail the United States and its allies. The U.S. has enlisted almost the entire world community to impose the harshest economic sanctions on North Korea. But this will not be enough. “The North Koreans will eat grass before giving up their nukes,” said Russian President Vladimir Putin. And he is right.

But America is going beyond sanctions. Through skilled diplomacy it is further isolating North Korea from the world, even from China, its vital ally. And, critically important, the U.S. has left the military option on the table. No one can predict the outcome of this conflict, but the U.S. is getting the odds in its favor.

Reluctantly, America and its allies must sometimes use coercion to safeguard world peace. Sanctions can crush an economy, but by themselves they will not force a dictator to change course — dictators don’t care if their people become grass eaters. To be effective, sanctions must be melded with the threat of hard power and skilled diplomacy into a comprehensive strategy.

One more thing: In their opposition to dictators, America and its allies must remain confident in the superiority of our Western democratic principles. The West and the dictators are separated by a line of principle, to borrow a recently coined term, and we are on the right side of the line.

The National Security Emergency We’re Not Talking About

November 30, 2017

Madeleine K. Albright (Secretary of State, 1997-2001; United Nations, 1993-1997)

Cross posted from the New York Times

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America’s diplomatic professionals have issued a dire warning about the crisis facing the State Department: Scores of top diplomats, including some of our highest-ranked career Foreign Service officers, have left the agency at “a dizzying speed” over the past 10 months.

“The rapid loss of so many senior officers has a serious, immediate and tangible effect on the capacity of the United States to shape world events,” wrote former ambassador Barbara Stephenson, president of the American Foreign Service Association (AFSA).

As a former secretary of state, I agree. This is not a story that has two sides. It is simply a fact that the United States relies on diplomacy as our first line of defense — to cement alliances, build coalitions, address global problems and find ways to protect our interests without resorting to military force. When we must use force, as in the fight against the Islamic State, our diplomats ensure that we can do so effectively and with the cooperation of other countries.

Change within the Foreign Service and the State Department’s civil service is not unusual. In fact, the system is designed to bring in fresh blood on a regular basis. There is, however, a big difference between a transfusion and an open wound. There is nothing normal about the current exodus. President Trump is aware of the situation and has made clear that he doesn’t care: “I’m the only one that matters,” he told Fox News.

Sadly, the official who should be highlighting the State Department’s vital role has not done so. On Tuesday, Secretary of State Rex Tillerson denied that the department is being hollowed out even while defending the president’s plan for a massive reduction in his agency’s budget. Meanwhile, for reasons that make sense only to him, Tillerson has delayed filling many of the most important diplomatic posts in Washington and overseas. All too often, foreign officials have sought to engage the department at a high level only to find no one with whom they can speak.

The administration’s disdain for diplomacy would be alarming under any circumstances, but two factors make it worse. First, while the United States is tying a rope around its feet, our competitors are running ahead. Trump’s recent trip to Asia was considered by many a success because there were no obvious disasters, but that is hardly a reassuring standard by which to judge the performance of an American commander in chief. The fact is that on trade and climate change, the U.S. government is now irrelevant; on security issues, we are ineffective; and on the use of cybertools to undercut democracy, we have a president who believes Vladimir Putin.

Second, the damage being done to America’s diplomatic readiness is both intentional and long-term. The administration isn’t hurting the State Department by accident. Tillerson maintained a freeze on hiring long after most other Cabinet officials had stopped. The number of promotions has been cut in half and the quantity of incoming Foreign Service officers by more than two-thirds. He is effectively shutting down the State Department’s pipeline for new talent.

As a professor at Georgetown University’s School of Foreign Service, I see the consequences of all this firsthand. In the past, my best students have come to me seeking advice on how to enter public service. Now, more and more are telling me they do not see a future for themselves in government. In some cases, this is because they disagree with administration policies, but more often it is because they fear that their efforts and pursuit of excellence would not be valued.

This was never a problem under President Barack Obama or President George W. Bush, but it is a problem now. According to AFSA, the number of individuals taking the Foreign Service exam this year is on track to plummet by more than 50 percent.

If the U.S. military were facing a recruitment and retention crisis of this magnitude, few would hesitate to call it a national security emergency. Well, that is what we are facing. And while it saddens me to criticize one of my successors, I have to speak out because the stakes are so high.

What can we do? We can support bipartisan-minded leaders in Congress who have rejected the reckless cuts the administration proposed in our country’s budget for international affairs. We can amplify these warnings about the hollowing out of the State Department. We can strengthen our case by enlisting business leaders who understand the importance of the work our embassies do across the globe. We can help young people understand that time is sure to bring new leaders with more enlightened ideas about the importance of diplomacy and development to the interests and values of the American people.

Whenever my students ask me whether they should serve in government under this administration, I remind them that the reason we love America so much is that, here, the government is not one man or woman. The government is us, and public service is both a great privilege and a shared responsibility. This is our republic. We must do all we can to keep it strong.