Reassessing South Asian policy, structure and integration

Friday, 27 September 2013 05:10 -     - {{hitsCtrl.values.hits}}

By Kinita Shenoy The Institute of Policy Studies’ recent South Asian Economic Summit concluded with a final special event, ‘60 minutes’. Serving as a preamble to the closing ceremony, the special event was designed to provide six eminent speakers 10 minutes each to succinctly address and analyse the topic they were given. Despite the time constraint, the speakers as experts in their particular fields deftly provided in-depth analyses into their individual topics, all related to the broader theme of ‘Towards a Stronger, Dynamic and Inclusive South Asia’. The speakers included renowned Bangladeshi macroeconomist and public policy analyst Deb Bhattacharya, the Government of Pakistan’s Planning Commission Deputy Chairman Dr. Nadeem Ul Haque, National University of Singapore ISAS Research Professor S. D Muni, Indian Navy retired Rear Admiral K. Raja Menon, Senior Research Scholar at Stanford and erstwhile Stanford Shorenstein APAC Director Rafiq Dossani, as well as Nepali former Finance Minister Dr. Ram Sharan Mahat. Deb Bhattacharya: Southern Development Goals Bhattacharya kicked off the session stating that while sustainable development goals are debated globally, the major difference between the current scenario and the post-2015 scenario is the movement from SDGs to MDGs and a development-oriented framework to a more universal framework. This creates relevance for all counties globally instead of being specific to countries with low income, special needs or structurally handicapped. The immediate ongoing conversation questions how we can accommodate the concerns of special needs countries in an international framework, particularly when you bring in real issues such as climate change. One of the main issues is trying to balance rights and responsibilities. The SAARC development goals are also relevant in this context. There was an independent commission for poverty alleviation in 2005 in Dhaka, covering the four areas of South Asian development goals – livelihood, education, health and climate. These included 22 indicators and were followed by an interim report in 2010 although it eventually dissipated. Thus, at this point it is unsure whether people actually remember what happened to those SAARC development goals and if they have actually been implemented into national agendas. Looking back at the criticisms of the MDGs, we know how they have catalysed development thinking in the world with a lot more focus toward poverty alleviation and other human development paradigm-based approach. They also created new momentum with political support. However, they lack some requirements in terms of macroeconomic approaches, resource requirements and provisioning. One key criticism was identified during the bibliographic review in the post-MDG debate. It was found that 80% of all the contributions to MDGs were coming from the North or from Southern people located in the North. The redefinition of the development goals are lacking inputs from southern think tanks with practical experience as to what works and what doesn’t. This is a direct expression of knowledge asymmetry which affects the entire global debate. Knowledge asymmetry is itself a perverse expression of the power asymmetry we are experiencing. This can be corrected by connecting think tanks located in the south, in evidence based research analysis capacities, to global knowledge systems. In a reverse way, these global debates should be interpreted in the concrete context of our individual countries. Bhattacharya wrapped up his comments with a succinct look at the post 2015 scenario. Whilst developing and implementing a universal framework, do you miss out on the concerns of the disadvantaged? What indicators will involve those concerned in a framework which does not necessarily take into account the disadvantages of specific countries including those that are conflicted, fragile, least developed or small island developing states? Furthermore, what would be the priorities? Quality education has definitely come out on top, but so have new aspects such as climate, and the politics it involves. The key issue is to flexibly accommodate an international goal system into national priorities, as these are vital to the sequence of autonomous national planning. The issue of others which come in are resource requirements. The future, post MDG, will be beyond foreign aid – which is important but not everything. Other elements in play are domestic resource mobilisation, FDIs, innovative financing, sovereign bonds and other wealth issues. Thus this requires a much broader canvassing or resource positioning. The UN system has provided three or four major inputs via the high-level panel, as well as the Jeffrey Sachs sustainable development networks report, the global compact report from the private sector, as well as the UNDP task team and regional co-missions. In September we expect the UN Secretary General to lay out the post-2015 framework, as well as open working groups. Bhattacharya questioned the near future of the goals, querying, “So we must consider where we take it from September onward with a new process of negotiation – will it be of high ambition or reduced to the lowest common denominator? As this happens, can we possibly have a set of Southern development goals coming from the BRICs? Finally, whatever goal is put forward, only adequate political will and support will define and catalyse action. Political will is especially necessary in our own countries, as these goals must be national endeavours which can only be supported by international partnership- not the other way around.” Dr. Nadeem Ul Haque – Restructuring South Asia Commencing his section by commenting that he may have been handed the most difficult subject of all, Dr. Ul Haque blithely entreated the audience, “go back in history and take a look at restructuring Asia – and then have pity on me”. He added that all the way from the Christians to Muslims to the British, everyone tried to restructure South Asia, and they all became South Asian while South Asia did not change. Dr. Ul Haque admitted defeat in defining the restructuring of South Asia, stating that it simply cannot be restructured. The key reason for this is the overarching fear of growth and change in our mentality. Dr. Ul Haque then put forth three key propositions, based on the following scenario, “Now that the elephant and dragon are stumbling a little, we are less confident. Yet, a year or two ago, South Asia was bubbling and we were convinced this was our century. The power was shifting back from the West to the East, after more than a thousand years and we were sure we were going to inherit the Earth. What were we going to do about it? The West was declining, the demographics were in our favour, and we were awakening and the party was right here. But what did we do about it? Nothing. We were sure it would just come to us, we didn’t have to do anything. As a result, we in South Asia missed many parties, so to speak.  There was a renaissance, and a reformation, an industrial revolution, enlightenment – but they were all somewhere else! As emerging markets, even sitting here in Sri Lanka, we had all the MDGs but we still missed the party. So my proposition is that we can have our party – but we have to work for it. We have to ensure we don’t preserve this mindset and this status quo. We cannot keep following the MDGs that are made somewhere else. We need to think differently, we need to question what it takes to create our own MDGs.” Dr. Ul Haque highlighted that the list of donors for the conference was fairly intriguing in the sense that there was not a single South Asian ownership in the funding, either governmental or from the private sector. He added that while we can lament the fact that MDGs are made in the North, they have also spent about 50 million dollars preparing them, while we have spent virtually nothing. As for his second proposition, Dr. Ul Haque stated that if we want to have the party, we must change the way we think. He insisted that what is required is to leapfrog the thought process, with a boldness of vision. In this conference, he added that there was no mention of the global crisis, despite the fact that it has exposed macroeconomics, changed the way we look at things, and fundamentally shaken the institutional foundation of the west. He extrapolated on the need for a paradigm shift, adding that technology does not just consist of the internet, smart phones or iPads, it disrupts the way we do business. While there was a session within the SAES that addressed education, there wasn’t one that addressed talent. South Asia appears to have no respect for talent whatsoever. Technology is not only disrupting talent and the way we manage it, while gravitating it toward the west. It is also creating, as Moses Naim termed it, an “end of power” and how power and influence work. These are all background elements that have changed things, which should compel us to change too. He added that people keep mentioning gradual change- but why can’t we leapfrog at a faster pace than 65 years? That can only happen, Ul Haque added, if we think above and beyond food security and disaster risk management. Dr. Ul Haque brought his session to an end with a quick recap of his propositions. The first being that we need to change the way we think- unfortunately without funding, because South Asian governments as a general rule do not fund research, and research is dependent on donors. The second recommendation was the compulsion to break out and think anew. There are new approaches on behavioural economics and policy, which is no longer just government going out and taking charge of the market. The key word in policy these days, as popularised by Thaler and Sunstein’s book, is “nudge”. Policy is no longer blatant sledge-hammering. There has to be serious thought put into what interventions are, and information needs to be based in serious understanding. There is a whole new literature emerging in complexity, and no longer can we think sector by sector. Development is an emergent phenomenon based on the interaction of individual human beings that eventually form a collective (i.e. Google). These collective interactions cannot be predicted or changed at policy level without understanding the “nudge” involved. Yet, we are all designing and managing programs that will manage risk, insecurities and other aspects we’ve seen in the global economic crisis. Although we felt confident in our ability to manage risk, we were sitting quite comfortably while Black Swan came about. If global financial markets around the world cannot manage risk, our markets with all their vulnerabilities need to grow accordingly. Ul Haque’s third and final point was the futility of the continuation of blaming political elements or the government. He added there that it was necessary to first understand the policy process- within which intellectuals play a role via developing forward looking ideas, rather than those handed out by visionaries a decade ago. The ideas need to be bold, and capture people’s imagination, making it necessary to be the agent of change. He ended his address by admitting that, “the party could yet be here, but we might miss it because we’re not thinking anew.” Professor S.D Muni – The Need to Shape Politics to Shape SA When the SAARC was formed in 1985, it was a depoliticised regional organisation and posed a tremendous opportunity for economists to hijack the regional agenda. This also created a phenomenal knowledge base, opened up huge options in areas of cooperation, and yet we gather at such events and get frustrated that regional organisation, interpretation or cooperation is not progressing. As they say, the problem lies in politics. If politics is not managed or controlled, you cannot control economics. South Asia’s synergies have faced numerous boundaries due to politics. In order to grapple with politics, there are two levels – regional relations and domestic politics. Ours is a complex region – it is Indo-centric and highly imbalanced. India and its neighbours are lodged into each others’ intestines, which causes a fair amount of mutual influencing and spill over. India can be blamed for much of the region’s limitations, due to its bilateralism, reluctant leadership, arrogance and Marwadi psyche that expects reciprocation. However, there have been indications over the past decade that this may be changing for good, as an acute realisation dawns in India that you cannot move ahead without your neighbours. The second aspect is regarding the neighbours themselves. They have to deal with a huge elephant in their vicinity – oversized and hugely resourceful, and which they are dependent on. The regional countries have dealt with this in two ways; denial mode and counterbalancing. The denial mode hurts both India and its neighbours, whereas counterbalancing brought in expanded regional powers but also deepened the regional divide. Countries like the US and China were brought into play. There would be no problem as far as China’s economic engagement with the region was maintained. The problem arises when the China card is flashed politically and strategically. For example, upon scrutinising China’s engagement with South-East Asia, even traditional darlings of the Sino state such as Myanmar are getting uncomfortable. Thus there is a need to make room for bridging and bonding in place of balancing, which would change the spectrum and dynamics. In terms of domestic politics, Professor Muni asserted that stability and order are absolutely essential, stating: “If there are problems at home, the leadership will not have any quality time to devote to the regional issues of co-operation or integration. Any kind of turbulence, such as the constitutional and electoral chaos in Nepal and the Maldives, the extremist movements in India, or the religious and ethnic issues hurt the interests of the countries. The establishment of an inclusive democracy is necessary. Democracy is not just an electoral process, and it may be slow but remains sustainable in terms of decision-making. It builds grass root pressure for those in development and carries out distributive justice, therefore facilitates and reinforces the regional integration process. Democratic policies must be development-oriented, rather than chauvinist or sectarian oriented.” Professor Muni added: “In order to fix economics, we must fix politics. It is time to politicise SAARC, and put the questions of bilateral or controversial relations back on the table.” As a final suggestion, he recommended that the named be changed from the South Asian Economic Summit to the South Asian Integration or Engagement summit, to bring a political agenda to the sessions. Rear Admiral K. Raja Menon – Securing the Indian Ocean Opening his address in a light vein, Admiral Menon quipped apologetically, “I know economists find security people annoying because all they do is demand money.” He then brought the discussion back to the strategic importance of the Indian Ocean for the regional powers. Noting that in the peaceful pre-colonial days, the Indian Ocean was not policed, and truly international cities such as Malacca and Calicut flourished with Indian, Chinese, Malays, Javanese and Arabs all rubbed shoulders under the benign protection of the local sovereign. This changed completely with the advent of the colonial powers, as they brought in their naval power to back trade. This also brought enforced taxation, as the Portuguese taxed everyone passing through Goa, the Dutch taxed everyone passing through Ceylon, and the East India Company just taxed everyone altogether and eventually settled down to govern. A lot of idealists ask whether the pre-colonial era trade is possible. This is obviously impossibly because the whole pattern of trade has changed completely. The Indian Ocean has become an international through-way, and the property of the entire world. It is replete with what maritime strategists term “sea lines of communication” or “slots”. These slots are by and large left un-policed, and are left to their own protection. The country that is most concerned with this is the strongest power in the Indian Ocean, which is the US, a non-resident power. The strongest resident navy is the Indian Navy. The US has the political interest of keeping the sea lines of communication free, and it exercises with every navy in the ocean to protect them. At the same time, the ASEAN powers patrol the Straits of Malacca, and the Gulf States – particularly Oman and Saudi Arabia patrol the Straits of Hormuz. Thus in this fully international environment, it is important to query whether the South Asian power hold any special role. Unfortunately, during the Somali piracy debacle about eight years ago, it was the Western navies that reacted the quickest. Patrols were arranged under the EU and NATO, and eventually grouped under an international commander. Pakistan joined this international convene and even commanded the group at some stage. Indian foreign policy however does not permit in these initiatives unless they are commanded by the UN. Thus India, China and Russia all cooperated but did not participate in this patrol. So although it would be beneficial to see the Indian Ocean navies taking control of the area in that situation, this hasn’t happened. Partly the reason for this is that the Indian Ocean navies are fairly small, and maintaining international patrols is expensive. India has not pushed in this area, as they have been careful of the sentiments of the smaller navies who may be overwhelmed by larger powers pushing them in directions they don’t want to go. India however has tried to stem deficiencies by transferring small ships and aircrafts to Sri Lanka, Mauritius and the Seychelles, and also conducts bilateral naval exercises. In the years to come, the largest user of the Indian Ocean is likely to be China, for the transit of goods garnered from every part of Africa. In this case, the question arises as it did with the East India Company – will flag follow trade? Will the Chinese Navy enter the Indian Ocean to protect trade or as a part of geo politics, as a competitor and replacement of the United States and their position in the world’s hegemony? There are some unresolved maritime disputes, mostly dormant. There are a number of small islands in the Indian Ocean which are small economic entities with enormous strategic significance because their control by any unwanted power could create bases in the region which could change the balance of power. Most maritime boundaries within the region have been clearly demarcated except the India-Pakistan boundary and the India-Bangladesh boundary. However, by this time, everyone has a rough idea of where the maritime boundaries are, except the fish, which are then followed by fishermen and then caught in foreign waters. Thus, in South Asia we have the unfortunate predicament of catching fishermen rather than fish. In conclusion, although man is a land animal, he has made a fairly good mess of things on land, luckily the situation is a little better at sea although not ideal. Rafiq Dossani – Navigating the Global Rebalancing This section of the session took a swift look at the critical factors that individual countries and the region as a whole must consider whilst assessing their future. In the hope of offering a diagnostic framework, Dossani discussed the imperatives for South Asia to position itself amidst the evolving global economic landscape. He submitted that although his framework looks at causes and outcomes it does not address constraints as carefully. Causes include a low state capacity to devise, design and implement trade policy, low competitiveness of businesses, and a bilateral trust deficit between countries. Dossani justified his conclusions, explaining that he not only looked into the trade ratio but also went across countries interviewing policy makers and businessmen. A quick look at the first cause, low state capacity to formulate and implement policy is unfortunately prevalent across Asia. In terms of low business competitiveness, India, Pakistan and Nepal appear to be the most problematic. Dossani added that the bilateral trust deficit exists between pairs of countries, namely India and Pakistan, India and Nepal, India and Sri Lanka, and Bangladesh and Pakistan. Dossani asserted that a change was afoot, stating that “Although these critical factors do tend to change as regimes do, the one thing that happened in the last decade and half during India’s NDA government was an understanding that trade policy was an important part of foreign policy and must be seen with a long-term view in mind. The hope and aim now is to create lasting policy that gets embedded and endures beyond possible hostility between governments.” The adverse outcomes include bilateralism which is invariably led by the “larger” country, generally India, which reserves the right to initiate at its own preferred time and conditions, while smaller countries cannot do. This is a negative thing as bilateralism allows for the exercise of asymmetric power, which is resented and resisted unsuccessfully by the smaller countries. High non-tariff measures are another adverse outcome of these causes, and remain acceptable in a WTO tariff-declining world. As far as the capacity of policymakers goes, there is a tendency to focus on finished goods and depend on NTMs as a form of bureaucratic self-protection. Even the most arguably successful FTA, the Sri Lanka-India agreement, is technically a failure in terms of integration. If one takes a look at the two countries’ cores, all the items that are called to trade are not included, and above 80% is outside the FTA. Thus, protectionism is rife. In terms of remedies, one of the key aspects is the necessity to build the state’s capacity for foreign policy. The remedy for this is to train ministries of commerce on governance, for example on managing the competing interests of ministries, accommodating user groups (businesses, consumers, labourers), and understanding value chain negotiations. The solutions for the lack of business competitiveness range from the possible introduction of competition policy in selected sectors and removal of the distorting web of subsidies to training trade associations into long-term mentalities and the creation of comprehensive business analyses. Dossani described the third and final aspect, the bilateral trade deficit as counter-intuitive as India lacks trust in its neighbours and vice versa due to a string of bad experiences. One possible way to fix this would be to identify bilateral projects with regional potential and use them as a base to build further. Dr. Ram Sharan Mahat – Rhetoric vs. Reality: Political Impediments to SA Cooperation South Asian cooperation, according to Dr. Mahat, started little over three decades ago. He added that despite the power of rhetoric, the SAARC’s concrete achievements are fairly disappointing. Intra-regional trade as a result of SAFTA, etc., remains less than 3% of regional GDP, it is no more than 3% while for ASEAN countries, it is about 27%. He lamented the fact that we are still bogged down in negotiation over limiting items and removing tariff constraints that hamper regional trade. Our trade potential has been severely constrained, even to coastal countries. He added that transit costs and time could be reduced substantially. “The shallow nature of political commitment is key in the non-implementation of practical policies,”  Dr. Mahat claimed, adding that the countries in the region are limited in resources, authority and quality manpower required for implementation, while progress is limited due to the political environment. SAARC’s progress has essentially become hostage to the changing relationship between India and Pakistan. He further stated: “There has been an excessive obsession with security and political issues, while the primary issues should be economic integration and trade. Economics has been relegated to a peripheral issue, which probably explains the lack of progress in regional cooperation.” On the flip side, Dr. Mahat stressed that in recent years there has also been some positive development. The high growth in China and India despite the setback over the past two years has created tremendous opportunity in terms of investment and trade. He added that while we discuss a large amount of negative aspects, there is a growing appetite for South Asia as the outside world sees a lot of potential in us. Increasing engagement and collaboration would be in South Asia’s mutual interests. Meanwhile, Pakistan has also indicated that it is willing to offer India the MFM status, which would potentially give India-Pakistan trade a big boost from its current standing at less than three billion to go up to six billion within the decade. Another positive development is India’s role, which being responsible for ¾ of the subcontinent’s GDP remains, its pre-eminent power. Dr. Mahat hailed the increasing engagement at the non-state level as another positive point, via think tanks and forum which have demonstrated a lot of passion and enthusiasm in their deliberations. However, he also felt that there must be institutional introspection, as SAARC has been overburdened with mandate and requires prioritisation. He wrapped up his section stressing that “SAARC has grown like a tree with extensive foliage and limited roots. It is time we nurture root aspects, and weed out the unnecessary ones via effective mechanisms to track milestones and how many proposals have been translated into action.” Pix by Upul Abayasekara