By Francis Hualupmomi
The US$1.37 billion Ramu NiCo project is one of the first mega foreign investments by a Chinese metrological company to have invested in PNG to drive the national economy. With the current legal dispute between relevant parties, these questions need begging, is the project a security threat to PNG’s national economy? How should relevant parties resolve this issue? We begin with some general observations and provide some thoughtful strategies at the end.
Some Observations: Security Perceptions
From observation, the Ramu NiCo project issue can be securitized as a non-conventional security issue as far as national security is concerned. The notion of non-conventional security basically refers to non-military aspect and centrally focuses on human security aspect ranging from political to cultural, for instance, human rights abuse, environmental problems, transnational crimes, food security, health issues, etc.
Socio-Environmental Frontier
The current legal dispute between the state and MCC and resource owners revolves around human rights issues and environmental impact. From information gathered, the MCC is being accused of socio-environmental implications posed to constituency of the resource site. The resource owners led by some environmental lobbyists have been on the forefront in discrediting MCC’s operation and its disposal mechanism. The disposal site has been claimed by them as environmentally unfriendly and a health hazard to local populace and bio-diversity.
There also have been numerous complaints raised by the local laborers on human rights abuses perpetrated by the MCC management which led to recent civil violence. This issue, however, has been resolved peacefully through a Melanesian style of soft power diplomacy.
Consequently, although the human rights issue may or may not hold true to some extent, in contrary, the environmental issue appears to have been calculated otherwise as speculated by state’s official position. The government believes that the MCC has been accused by the environmental lobbyist and Media with invalid and misleading information and therefore accounts to misperception by the public.
Economic Frontier
From an economic security observation, the Ramu NiCo is the first biggest investment project by a Chinese company in PNG in an era of economic struggling with boomerang aid and other Multinational Corporations (MNCs). Neither MNCs nor conventional aid donors have invested such a big slice of capital in PNG’s economy since independence. This implies trust and confidence by Chinese investors in PNG’s economy.
It is forecasted that by 2011 the project is expected to produce economies of scale with 31,150 tonnes of nickel and 3300t of cobalt per annum in a high-grade concentrate over a 20-year mine life and is also expected to extend for another 20-30 years. This economic scenario will construct a tripling effect by setting the take-off stage for the full economization of LNG projects in 2014. We expect PNG to become an economic power should these projects compounded with other factors of production are being fully economized without any distortions such as civil disruptions by landowners.
Although, there are some critical political-economic and socio-environmental implications underpinning foreign investment, playing the right card is what PNG needs to attract foreign investors. Diversifying the foreign investment is a strategic move to drive the national economy. The MCC is an important economic player in Asia. With peaceful rise of China as the second key economic player in the global economy, PNG cannot afford to lose MCC. MCC is the catalyst in driving the national economy.
Political Frontier
It has also been observed that the state through the current government has been accused by the environmental lobbyist and Media as being ill-advised in dealing with the issues. The government has been tied down to claims of governance issues with the MCC. More so, the government has been accused of signing significant deals without thoughtful considerations of its implications such as human rights issues and environmental issues. These criticisms are potentially dangerous to foreign investors.
An interesting observation is an emergence of “Cold War” or “Proxy Wars” syndrome. Some political analysts have calculated that competing interests by conventional major players’ quest for natural resources may have politically engineer an environment to contain China’s peaceful rise in the region. In this calculus, major players may possibly strategically maneuver the game by employing non-coercive forces such as lobbyist groups to influence policy outcomes in consistent with their interests.
Cooperation: “Absolute Gain is Necessary”
Confronted with these non-conventional security issues we posit this key question, how can PNG Government-Resource Owner and China-Developer cooperate to gain a win-win situation? Premised on the observation set in precedence, one can argue that PNG and China cannot afford to gain a loss-loss situation. Cooperation through soft diplomacy is absolutely necessary to gain a win-win situation for all parties, i.e. absolute gain matters.
The Chinese government with the developer should reconsider human rights issue with respect to resource owner’s demands in order to maintain its good reputation. A deeper mutual understanding and recognition between the two parties is required to settle the dispute peacefully and isolate future domino-effects.
PNG government on the other hand should pursue a neutral diplomacy between China-developer and resource owners. The government should work closely with Chinese government and the developer to reach a mutually concessional package for the resource owners without jeopardizing the project. It should also consider mediating with resource owners to peacefully resolve the legal battle.
The resource owner as an important beneficiary of the project should reconsider the case seriously with cautiousness. The project has incalculable benefits to transform its livelihood. Most importantly, the resource owners must not be misled by some politically motivated lobby groups. Adequate advisory services should be provided to the resource owner.
Conclusion
The Ramu NiCo is not a potential threat to national economy. In the interest of all parties, a mutually consensual package should be bargained and reached to gain a win-win situation. Legal disputes should be resolved peacefully in a Melanesian style of soft diplomacy.
The Author studies a Master of Arts in International Relations at the Institute of International Studies, Jilin University, China. His specializes in International Security focusing on Geopolitics of Energy Security in Asia-Pacific and Political Economy of East Asia.
Tuesday, February 15, 2011
Wednesday, February 9, 2011
Geopolitics of Energy Security and its Implications in Pacific Region and PNG: LNG Project as a Case in Point
The LNG project has geopolitical implications in the Pacific region and PNG. I attempt to explain the link between energy and security and foreign policy; and predict future outcomes with some constructive strategies at macro and micro level.
Energy constitutes both renewable and non-renewable resources but is scarce in nature. Energy security is referred to as reliable and adequate supply of energy at reasonable prices, i.e. energy must be supplied without interruption and must meet fully the needs of the world economy.
The limited composite of energy to meet unlimited needs and wants by states at its disposal constructs a global economic and security problem. States need energy to drive their modernization agenda. Since energy is scarce, the problem of allocating it efficiently becomes a security issue. This economic activity itself constructs domino-effects such as price volatility, terrorism, externality (environmental issue) etc.
Energy is both a commercial commodity and strategic tool employed by states to pursue its foreign policies. States strategically use transnational actors as its agent to secure energy resources externally to produce economies of scale to drive its modernization agenda. The unavailability of energy internally and scarcity of energy externally is both an economic and security problem of state which shapes foreign policy. In developing countries, lack of technological efficiency is a problem in utilizing energy resources, for instance, PNG is energy-rich but lack appropriate technology for down-processing and therefore can only export overseas. Big players in most cases seek energy offshore through bilateral or multilateral agreements or arrangements.
Oil and gas has always been states national interest expressed in terms of power projection (capability and capacity or authority) to co-exist in the international system. States will compete antagonistically to secure and protect its supplier sources, i.e. economic and military modernization of a state depends entirely on oil and gas to guarantee its security and survival. Thus, a foreign policy of any state constitutes national interest with an objective to secure and protect energy sources. The thirst and quest for oil is inevitable. Historical evidence strongly supports this hypothesis that imperialism has been the manifestation of “scramble for resources” in resource-rich nations leading to antagonistic competition, conflicts, wars and cooperation. However, today with complex interdependence war is unthinkable.
With globalization, economic development, industrialization, urbanization, demographic challenges, and military capability build-up and market imperatives, the demand of oil and gas will exceed supply. Intriguingly, the biggest consumers are the most advanced industrialized countries (MAIC) and newly industrialized countries (NIC), which will require more oil and gas to drive their modernization agenda. Today, with peaceful rise of China in the global economy, the demand and competition of oil will be steeper than expected with forerunners such as U.S, India, and others.
According to the latest U.S Energy Information Administration (EIA) on International Energy Outlook 2010, the world energy consumption increases by 49 percent from 2007-2035. Total energy demand increases by 84 percent in non-OECD countries than OECD countries with a 14 percent increase. The total energy use rose from 495 quadrillion British Thermal Units (Btu) in 2007 to 590 quadrillion Btu in 2020 and 739 quadrillion Btu in 2035. Oil and gas has approximately 40-60 years life span which constructs a security dilemma.
However, oil supply will be affected given the current unfavorable conditions in the Middle East. The current oil producing field is declining slowly from 2002 to 2030. This can be attributed to factors underpinning conflicts in Middle East, especially Iraq war, terrorism, religious tensions, and political instability. It is this scenario that may induce a foreign policy shift from main importers such as U.S, China, India and EU to other supplier sources such as the Pacific region.
Implications:
Macro Level: The Pacific region in the southern hemisphere is identified by political-economic powers as the last frontier of resource-rich nations, and in fact PNG is one of these key geo-strategic and economic bases or ‘sphere of influence’ for energy supply in international political and economical relations:
1. Geostrategic/military – shift in foreign policies, alliances and military doctrines and structures. As far as geo-strategic relation is concerned competition and tension between US-allies and peaceful China is inevitable. The US assumes traditional hegemonic power in the Pacific through its deputy sheriffs; Australia, New Zealand, Japan and Britain. The return of US in Pacific since Cold War indicates geostrategic shift to contain China’s peaceful rise.
2. Terrorism- there is possibility of terrorist attack on shipment route/pipeline.
3. Re-emergence of Cold War symptom.
4. Transnational crimes (continental and maritime security) – increasing international organized crimes, piratism, illegal immigrants, gun smuggling, money laundering, human rights abuse and trans-border diseases.
Micro Level: It is postulated that LNG project poses a threat and challenge to national security:
1. Terrorism attack in mine sites and in major urban centers.
2. Transnational crimes (continental and maritime security) – increasing international organized crimes, piratism, illegal immigrants, gun smuggling, money laundering, human rights abuse and trans-border diseases.
3. Price volatility – internal conflict can cause price hike affecting global markets.
4. Rebellion against state and MNCs by disgruntled resources which may possibly trigger legitimacy crises and civil violence/war. The Bougainville crisis is a classical case.
5. State graft by government officials and MNCs in siphoning project money covertly into their empires through illegal means.
6. Mercenary (military-like) build-up by resource owners.
7. Re-emergence of Cold War symptom.
8. Externalities or environmental problems.
Challenge
The government’s aspiration to attain a ‘Middle Income Country’ (MIC) by 2050 and thereby, becoming a ‘Wise, Smart, and Happy Society by 2050 may not be fully released if it does not define energy security comprehensively. This new paradigm shift in government thinking is a grand challenge as a nation state in modernization.
PNG is predicted to see a spiraling economic growth rate of about 11 percent annually come full economization of LNG projects by 2014. Although LNG projects may transform PNG into a MIC at forecasted growth rate similar to China echoed by some economic analysts, its security implications are incalculable. Securitization of energy is strategically and economically vital to assess ‘where we are, where we want go and how we will get there’. This will involve analyzing security at macro and micro level that appropriate strategies can be framed to systematically respond thoughtfully to emerging security threats. Security of the state and individual is absolutely vital to fully realize the vision.
Strategies
To effectively manage this security dilemma, a comprehensive strategic package is needed:
Macro level:
1. PNG must play a smart neutral diplomacy with major players in the region;
2. U.S must embrace China’s peaceful diplomacy; and
3. Multilateral cooperation is necessary, i.e. establish a Regional Energy Agency.
Micro level:
• PNG establish must establish an Independent Energy Authority;
• PNG must develop a National Energy Policy;
• PNG Foreign Policy, Defence Policy and Police Policy must embrace energy security comprehensively; and
• PNG must establish a Center for International Security and Strategic Studies.
Energy constitutes both renewable and non-renewable resources but is scarce in nature. Energy security is referred to as reliable and adequate supply of energy at reasonable prices, i.e. energy must be supplied without interruption and must meet fully the needs of the world economy.
The limited composite of energy to meet unlimited needs and wants by states at its disposal constructs a global economic and security problem. States need energy to drive their modernization agenda. Since energy is scarce, the problem of allocating it efficiently becomes a security issue. This economic activity itself constructs domino-effects such as price volatility, terrorism, externality (environmental issue) etc.
Energy is both a commercial commodity and strategic tool employed by states to pursue its foreign policies. States strategically use transnational actors as its agent to secure energy resources externally to produce economies of scale to drive its modernization agenda. The unavailability of energy internally and scarcity of energy externally is both an economic and security problem of state which shapes foreign policy. In developing countries, lack of technological efficiency is a problem in utilizing energy resources, for instance, PNG is energy-rich but lack appropriate technology for down-processing and therefore can only export overseas. Big players in most cases seek energy offshore through bilateral or multilateral agreements or arrangements.
Oil and gas has always been states national interest expressed in terms of power projection (capability and capacity or authority) to co-exist in the international system. States will compete antagonistically to secure and protect its supplier sources, i.e. economic and military modernization of a state depends entirely on oil and gas to guarantee its security and survival. Thus, a foreign policy of any state constitutes national interest with an objective to secure and protect energy sources. The thirst and quest for oil is inevitable. Historical evidence strongly supports this hypothesis that imperialism has been the manifestation of “scramble for resources” in resource-rich nations leading to antagonistic competition, conflicts, wars and cooperation. However, today with complex interdependence war is unthinkable.
With globalization, economic development, industrialization, urbanization, demographic challenges, and military capability build-up and market imperatives, the demand of oil and gas will exceed supply. Intriguingly, the biggest consumers are the most advanced industrialized countries (MAIC) and newly industrialized countries (NIC), which will require more oil and gas to drive their modernization agenda. Today, with peaceful rise of China in the global economy, the demand and competition of oil will be steeper than expected with forerunners such as U.S, India, and others.
According to the latest U.S Energy Information Administration (EIA) on International Energy Outlook 2010, the world energy consumption increases by 49 percent from 2007-2035. Total energy demand increases by 84 percent in non-OECD countries than OECD countries with a 14 percent increase. The total energy use rose from 495 quadrillion British Thermal Units (Btu) in 2007 to 590 quadrillion Btu in 2020 and 739 quadrillion Btu in 2035. Oil and gas has approximately 40-60 years life span which constructs a security dilemma.
However, oil supply will be affected given the current unfavorable conditions in the Middle East. The current oil producing field is declining slowly from 2002 to 2030. This can be attributed to factors underpinning conflicts in Middle East, especially Iraq war, terrorism, religious tensions, and political instability. It is this scenario that may induce a foreign policy shift from main importers such as U.S, China, India and EU to other supplier sources such as the Pacific region.
Implications:
Macro Level: The Pacific region in the southern hemisphere is identified by political-economic powers as the last frontier of resource-rich nations, and in fact PNG is one of these key geo-strategic and economic bases or ‘sphere of influence’ for energy supply in international political and economical relations:
1. Geostrategic/military – shift in foreign policies, alliances and military doctrines and structures. As far as geo-strategic relation is concerned competition and tension between US-allies and peaceful China is inevitable. The US assumes traditional hegemonic power in the Pacific through its deputy sheriffs; Australia, New Zealand, Japan and Britain. The return of US in Pacific since Cold War indicates geostrategic shift to contain China’s peaceful rise.
2. Terrorism- there is possibility of terrorist attack on shipment route/pipeline.
3. Re-emergence of Cold War symptom.
4. Transnational crimes (continental and maritime security) – increasing international organized crimes, piratism, illegal immigrants, gun smuggling, money laundering, human rights abuse and trans-border diseases.
Micro Level: It is postulated that LNG project poses a threat and challenge to national security:
1. Terrorism attack in mine sites and in major urban centers.
2. Transnational crimes (continental and maritime security) – increasing international organized crimes, piratism, illegal immigrants, gun smuggling, money laundering, human rights abuse and trans-border diseases.
3. Price volatility – internal conflict can cause price hike affecting global markets.
4. Rebellion against state and MNCs by disgruntled resources which may possibly trigger legitimacy crises and civil violence/war. The Bougainville crisis is a classical case.
5. State graft by government officials and MNCs in siphoning project money covertly into their empires through illegal means.
6. Mercenary (military-like) build-up by resource owners.
7. Re-emergence of Cold War symptom.
8. Externalities or environmental problems.
Challenge
The government’s aspiration to attain a ‘Middle Income Country’ (MIC) by 2050 and thereby, becoming a ‘Wise, Smart, and Happy Society by 2050 may not be fully released if it does not define energy security comprehensively. This new paradigm shift in government thinking is a grand challenge as a nation state in modernization.
PNG is predicted to see a spiraling economic growth rate of about 11 percent annually come full economization of LNG projects by 2014. Although LNG projects may transform PNG into a MIC at forecasted growth rate similar to China echoed by some economic analysts, its security implications are incalculable. Securitization of energy is strategically and economically vital to assess ‘where we are, where we want go and how we will get there’. This will involve analyzing security at macro and micro level that appropriate strategies can be framed to systematically respond thoughtfully to emerging security threats. Security of the state and individual is absolutely vital to fully realize the vision.
Strategies
To effectively manage this security dilemma, a comprehensive strategic package is needed:
Macro level:
1. PNG must play a smart neutral diplomacy with major players in the region;
2. U.S must embrace China’s peaceful diplomacy; and
3. Multilateral cooperation is necessary, i.e. establish a Regional Energy Agency.
Micro level:
• PNG establish must establish an Independent Energy Authority;
• PNG must develop a National Energy Policy;
• PNG Foreign Policy, Defence Policy and Police Policy must embrace energy security comprehensively; and
• PNG must establish a Center for International Security and Strategic Studies.
Saturday, February 5, 2011
Is a China a Threat to Pacific? The Rise of ‘New Imperialism or New Cold War’
Is a China a Threat to Pacific? The Rise of ‘New Imperialism or New Cold War’
By Francis Hualupmomi
Introduction
Is China a strategic threat in the Pacific Region? The Chinese dominant role and influence in the Pacific region is not a threat as perceived by the conventional hegemon, US, rather a politically meagre to destabilise the region. Chinese expansionism is premised on her Confuciasm philosophy of ‘Harmonious Society through Kindness and Friendship’ to maintain peace and stability. The competition for hegemony by US in the region can potentially or possibly trigger tension with China, which could escalate into conflict. This is calculated as an emergence of ‘New Imperialism’ or ‘New Cold War’. It is strongly argued that US has always misperceived China’s role as a threat and hegemon in the region. The scramble for energy resource is a case in point to support this theory. In order to avoid possible conflict, China must play a soft diplomacy, whilst Papua New Guinea (PNG) plays a neutral diplomacy to maintain a ‘balance of power’ (BoP) in the region.
Political Economy of Energy Security: Power and Competition in Asia-Pacific Region
The demand for these energy resources is so high compared to other market commodities as indicated by trends. The demand exceeds supply as non-renewable resources are over-consumed by industrialised states mostly NICs (Newly Industrialised Countries) and big economies such as the US, China, Japan, etc. The energy supply bases for the global market economy are mostly from resource-rich regions of South America, Africa, Asia and Pacific.
Historically countries within these regions have been conquered by European imperialists in quest for ‘scramble of resources’. The demand and supply of energy is a function of economic and military power. Energy resources will remain the national interest of any state in the drive towards modernisation and industrialisation.
US, China, Japan are the largest consumers of energy followed by ‘New Comers’, India, Pakistan, Brazil, Indonesia and others. Increasingly, as countries face rapid economic development, industrialisation, urbanisation, demographic challenges, and military capability build-up, the appetite for energy will surge and fuel stiff competition among rising powers. The rise of NICs and or emerging powers such as India, and Pakistan will also spur more fierce and intense competition, which has already create tensions between big powers in the Asia Pacific region. More over, this scenario can potentially affect the socio-economic growth instigating civil crisis mostly in developing countries as demand for energy exceeds supply.
US Perception on China
It appears that Chinese rapid expansion in the Pacific region has alarmed US hegemonic role in the region. Recently, analysts, mostly from the West, have empirically examined Chinese motives. The discourse on the motives was strategic in nature and manifold: Securing South Pacific nations’ votes in international organisations; growing Chinese communities in the region and Beijing’s responsibility to protect the Chinese Diaspora; Beijing’s diplomatic rivalry with Taipei; China’s economic interests; its thirst for natural resources; the rise of China; increasingly, China’s strategic interests; and Ideological expansionism.
China’s Foreign Policy: Energy Security and Diplomacy
Energy concerns were a minor in Beijing’s national security and strategic assessment in the first three decades (1949-1979). First oil discovered in Daqing in Northeast China in 1959 to keep her self-reliant. Since end of 1970s China reopened its doors to western community and adopted economic reform policies, its economy has been expanding at an average annual growth rate of 10 percent annually. This rapid expansion requires resources, energy and raw materials to drive and meet its growing demands. Since mid 1990s China has been seeking energy and natural resources in Africa, Middle East, Latin America, Central Asia, South Pacific, South East Asia and elsewhere.
The new energy diplomacy has become a key focus of its foreign policy. Energy is identified as its main strategic and economic tool to drive its economic and military power in 2000-2020. In 2000, about two third of its energy came from coal and over four fifth was used for electricity. In 2007, China has become a net importer of energy. After the financial crisis in 1997, the Chinese government provided stimulus package to expand consumption. Oil accounts for 19 percent in 2000, but it is predicted to increase to be more than double by 2030.This demand forms the basis of her energy diplomacy and security focus in the Pacific region.
Is China a Threat to the Pacific?
Numerous political commentators have alluded that Pacific is the 21st century ‘sphere of influence’ of the ‘New Imperialism’ or ‘New Cold War’. In perspective, the new imperialism is the re-emergence of US imperialism in new form in the region to expand its foreign policies and compete for global leadership. This approach often collides with emerging powers such as China, which can be seen in the form of new cold war. Strategically speaking, the Pacific is not a military threat to China as miscalculated by western analysts. And the reasons are manifold.
First, although it is possible through strategic thinking, that China is compel to position missiles in the Pacific as stated elsewhere, its implementation will be a difficult task. China has not prioritised military build-up in modernisation however, has centrally focused on economic development.
In addition, access to military equipment and technologies from the West is difficult. Therefore, there is still a huge gap between the West and China. China’s recent modernisation of military build-up especially, her ground and land force capabilities in Asia-Pacific is still being neutralised by the US. The US has still maintained a BoP in the region through its naval presence.
More so, China’s Defence Force Policy is mandated to protect the rights of its citizens, and states property. The policy articulated that her main concern is not external rather internal especially, with extremists, nationalist movements, terrorism, poverty, and Taiwan issue. Most importantly its Defence Force is built with a strategic objective of self-defense rather than offensive to promote peace and stability in order to create a harmonious society through kindness and friendship. China will only be offensive should and when her national security is threatened under the defensive principle to protect rights of her citizens and state property to maintain peace and stability (Guangqian, 2004).
China does not perceive Pacific as a military threat. China is a developing country and is still no match to the US. Hegemony and intervention is not in her national interest. Her main strategic high priority threat is Taiwan’s agenda. Interestingly, the current security issue in the region is energy security. The supply of energy resources has become increasingly important than that of military. The Pacific by proximity is unreliable to Chinese offensive strategy against Taiwan.
Ideological differences still exist in the region. Pacific Islands have robust relationship with their cultural and divine philosophy, which is a strong anti-communist philosophy. Chinese immigrants doing business in the Pacific is another concern in the region, which has damaged China’s image (Yang, 2007). For instance, competing in business and corrupting officials. PNG riot in 2009 and Solomon Island civil unrest in 2006 are some of the cases in point.
Although, the Pacific is strategically unimportant to both US and China, the US still maintains a BoP through Micronesia and its deputy sheriffs; Australia in Melanesia and New Zealand in Polynesia.
More increasingly important, the Small Island Developing Economies have a strong close bilateral relationship with China. They perceive China as a true friend in their modernisation and industrialisation drive. And therefore China would seek to maintain that robust cordial bilateral relationship.
Will Energy shift Balance of Power in Pacific Region?
It appears also that energy resources are predicted to shift BoP in the region. It is increasingly obvious now that competition between China, the ‘sleeping dragon’, will rise up over the US, the ‘sleepless eagle’, and assume regional leadership and stabiliser (not a hegemonic leadership as perceived by the West).
The US and Chinese apatite for resources is in high demand, however, with Chinese skilful soft diplomacy she is most likely to score more points by securing strategic and economic corridors in the region. China’s dominant role and influence in the region is an indication of the rise of new power to maintain peace and stability, although US and its deputy sheriffs will still co-exist and ponder in maintaining the regime. This does not dismiss the notion that the US will play an important role in the region.
Indeed, one can argue that China’s economic and military power has the capacity and capability to create an enabling environment for development in the region through friendship. Its unconditional dollar diplomacy is a key strategic tool to harmonise the region through mutual collaboration in sharing and exchanging information and resources in development.
And this is most evident in development aids in PNG and Solomon Islands. China has investments in Ramu Nickel, Sporting Stadium, proposed International Conference, Chinese Scholarship, defence capacity building, only to name a few. More so, China is also investing in middle power, Australia for instance, in Queensland LNG and Coal, and trade with New Zealand respectively.
Consequently, as China assumes the regional leadership as stabiliser it can be predicted that competition in power play will trigger tension leading to conflict. This scenario, one would argue, will be an emergence of ‘new cold war’ or more precisely ‘economic cold war’ between the West and China as discussed below.
Emergence of ‘New Imperialism’ or ‘New Cold War’ in Pacific Region? PNG as a Case in Point
Macro Level: The Pacific region in the southern hemisphere is identified by economic powers as the last frontier of resource-rich nations, and in fact PNG alone has been indentified as a key geo-strategic and economic base or ‘sphere of influence’ for energy supply in international relations. Therefore, Pacific in particular, PNG is or will be big powers’ national interest. As far as geo-strategic relation is concern competition and tension between China and US is inevitable.
At the macro level, the US assumes traditional hegemonic power in the Pacific through its deputy sheriffs; Australia, New Zealand, Japan and Britain. The end of Cold War delineates scaling down of US’s role in the Pacific with some of its missions being closed, for instance, in Solomon Islands.
recently, US increasingly refocus its foreign policy with respect to China’s increasing role in the region. As a result, a strategic shift took place in 2008 when US announced to have its military base be relocated to Guam with a strategic objective to contain Chinese expansionism. This was evidenced in 2008 when the then Bush Administration declared the “Pacific Year” as part of its foreign policy. The US has always perceived China as its major threat in Asia Pacific. The region is closely watched by the eagle eyes in order to contain dragon’s infiltration.
In contrary, China has always played a smart game diplomacy through soft diplomacy to secure friendship with an aim to spread its culture and philosophy across borders. Chinese diplomacy is based on Confuciasm philosophy of ‘harmonious society’. She promotes this philosophy through soft development aids unconditionally to developing countries. In so doing, China provides a win-win situation for all actors. In PNG, Chinese foreign direct investment is voluminous. For instance, Ramu Nickel mine, the proposed International Conference Center, and many others.
Consequently, Chinese dominant role in development bilateral relations in the Pacific region has stimulated and accelerated economic growth; while at the same time increasingly instils fear and insecurity to US and its deputy sheriffs in the region. Australia, though a middle power, have competed to protect US backyard through its conditional loans, is still struggling to contain Chinese influence.
Hence, Chinese soft diplomatic approach in the Pacific in assisting Small Island States such as PNG through investment in energy – LNG Projects - may perhaps be perceived by US as menace as far as regional stability is concerned. More so, whilst US may perceive China otherwise, China is also promoting ‘collaborative diplomacy’ in Pacific to secure its potential energy suppliers of oil, gas, nickel, etc, to build its economy, whilst establishing friendship to maintain peace and stability.
Hence from a hegemonic stability perspective it is argued that diverging interests and ideational dynamics can possibly cause inter-state conflict which can trigger possible conflict.
Micro Level: At micro level it appears that legitimacy crisis and civil war are potential threats to national security as far as energy security is concerned.
First, there is possibility that the disgruntled resource owners may rebel against the state which could trigger legitimacy crisis and civil war. Second, disgruntled resource-rich owners may rebel against the MNCs which can cause civil crisis or possible military intervention especially by the US (but all-out war or grand scale war is unlikely).
In the former, experiences over unresolved issues pertaining to energy economy have demonstrated a rebellious scenario. Resource owners in most mining and petroleum projects in PNG have been treated unfairly in terms of redistribution of wealth by the government. Poor Royalties and lack of development services were a great concern. This problems can lead into civil crisis when the people take the ‘rule of law’ into their own hands. The Bougainville crisis is one of the cases in point.
State graft by government officials and MNCs in siphoning project money covertly into their empires through illegal means can cause legitimacy or civil crisis. For instance, The LNG project in Southern Highlands Province is an assumed scenario. Resource owners in the province have military capability to revolt against the state. The Singirok Gun Report suggested high and semi- powered factory guns owned by the people.
In the latter, civil war between the state and MNCs is highly possible. The operations of Exxon Mobile and G4S in LNG sites have already question the sovereignty of the state and a concern to national security. Exxon Mobil is the richest US Company in the world, which has a close relationship with the US government. Exxon Mobile’s presence in PNG is a US national interest as far as its security is concern.
G4S is a highly militarised private mercenary company of US protecting its interest in different Oil fields under various berets. G4S presence in PNG also questions its immunity to the state law. The nexus between rebellious resource owners against Exxon Mobile is a threat to US and therefore is deemed as its high priority national security. In the event that the state and G4S fail to contain and stabilize the civil rebellion US military intervention is possible, although it may seem unlikely, however the 1994 Gulf War speaks for itself. There are also other civil crises such as in East Timor, Nigeria, Somalia, instigated by energy competition.
The Ramu Nickel and Copper Mine operated by the Chinese company is another case in point facing constant rebellion by the resource owners. Chinese investment in PNG is a form of foreign direct investment (FDI) which has the potential to trigger economic growth. There is already assumption in the current strategic thinking that MNCs competition in energy resources by big powers are indirectly at play influencing social or civil actors such as resource owners to disturb power expansion in the region. For instance, there is already a rumour that the West has covertly influenced the Landowners to push Chinese investors in Ramu Nickel site out of PNG. As far as security of Chinese nationals is concerned, Beijing will always resort to soft diplomacy through peaceful means in settling disputes. Military intervention by China is against her foreign policy.
More interestingly, a focus at LNG project, one would argue that Chinese investors were overlooked by the PNG government and major MNCs players. Ostensibly, it appears that Chinese investment in the project would be perceived by the U.S as a potential threat.
Ultimately, PNG government must embrace china in energy investment. China, as the second largest market economy, has the potential to transform and modernise PNG economy through energy. China as a friend is ready to invest in energy sectors, for instance, nuclear energy – solar energy, geo-thermal (hydropower), bio-fuel and others. More so China is keen in investing in clean energy to support PNG’s role in global warning.
The Challenge for PNG Government’s Vision 2050
The government’s aspiration to attain ‘Middle Income Country’ (MIC) by 2050 and thereby, becoming a ‘Wise, Smart, and Happy Society by 2050 may not be fully released if it does not critically evaluate energy security systematically and respond thoughtfully at a global scale.
This new paradigm shift in government thinking is a grand challenge as a nation state in modernisation. It appears that this vision may not achieve its stated gaols and objectives if security issues are not critically conceptualised at macro and micro level. I am of the view that the greatest conundrum will ultimately rest on energy security.
PNG is predicted to see a spiralling economic growth rate of 8.4 percent annually with the full economisation of LNG projects by 2014. Although energy projects may transform PNG into a MIC at forecasted growth rate similar to China echoed by some economic analysts, its security implications are incalculable.
Securitisation of energy is strategically and economically vital to assess ‘where we are, where we want go and how we will get there’ with energy. This will involve analysing security at macro and micro level that appropriate strategies can be framed to systematically respond thoughtfully to emerging security threats. Security of the state and individual is absolutely vital to fully realise the vision.
The Role of SINO-PNG Relations
In order to avoid possible future conflict China and PNG will have to play an important role to maintain a BoP in the region. PNG as an economic and strategic interest of economic powers in the region will have to play a neutral diplomacy within ‘great and rising powers’ whilst China continues to play a soft diplomacy based on ‘collaborative and consensus diplomacy’. China must convince US misperception in its role in the Pacific region. PNG on the other hand must refocus or res-cope its foreign policy to contextualise the regional security perspective.
Conclusion
It can be concluded that China is not a security threat to Pacific region. This is only a misperception by the West, especially US. China on the hand does not see the Pacific region as a strategic threat rather as a true friend in development.
It can also be said that energy security has the potential to reconfigure power relations in the region. China will assume peaceful regional leadership and stabiliser (not as a hegemon as perceived by the US). China’s rise in power to global and regional prominence is to promote peaceful and harmonious society through kindness and friendship based on her Confucius philosophy.
Energy security is a national security priority of any state. Competition between US and China in energy resources in the region postulates emergence of ‘New Imperialism’ or ‘New Cold War’. At macro level, since energy is scarce, competition between rival powers can cause conflict in the region. At micro level legitimacy crisis or civil war between the state and MNCs, and disgruntled resource owners is inevitable. These scenarios pose a great challenge to PNG with respect to Vision 2050. Therefore, PNG and China will play an important role to avoid such crisis and maintain a BoP in the region.
By Francis Hualupmomi
Introduction
Is China a strategic threat in the Pacific Region? The Chinese dominant role and influence in the Pacific region is not a threat as perceived by the conventional hegemon, US, rather a politically meagre to destabilise the region. Chinese expansionism is premised on her Confuciasm philosophy of ‘Harmonious Society through Kindness and Friendship’ to maintain peace and stability. The competition for hegemony by US in the region can potentially or possibly trigger tension with China, which could escalate into conflict. This is calculated as an emergence of ‘New Imperialism’ or ‘New Cold War’. It is strongly argued that US has always misperceived China’s role as a threat and hegemon in the region. The scramble for energy resource is a case in point to support this theory. In order to avoid possible conflict, China must play a soft diplomacy, whilst Papua New Guinea (PNG) plays a neutral diplomacy to maintain a ‘balance of power’ (BoP) in the region.
Political Economy of Energy Security: Power and Competition in Asia-Pacific Region
The demand for these energy resources is so high compared to other market commodities as indicated by trends. The demand exceeds supply as non-renewable resources are over-consumed by industrialised states mostly NICs (Newly Industrialised Countries) and big economies such as the US, China, Japan, etc. The energy supply bases for the global market economy are mostly from resource-rich regions of South America, Africa, Asia and Pacific.
Historically countries within these regions have been conquered by European imperialists in quest for ‘scramble of resources’. The demand and supply of energy is a function of economic and military power. Energy resources will remain the national interest of any state in the drive towards modernisation and industrialisation.
US, China, Japan are the largest consumers of energy followed by ‘New Comers’, India, Pakistan, Brazil, Indonesia and others. Increasingly, as countries face rapid economic development, industrialisation, urbanisation, demographic challenges, and military capability build-up, the appetite for energy will surge and fuel stiff competition among rising powers. The rise of NICs and or emerging powers such as India, and Pakistan will also spur more fierce and intense competition, which has already create tensions between big powers in the Asia Pacific region. More over, this scenario can potentially affect the socio-economic growth instigating civil crisis mostly in developing countries as demand for energy exceeds supply.
US Perception on China
It appears that Chinese rapid expansion in the Pacific region has alarmed US hegemonic role in the region. Recently, analysts, mostly from the West, have empirically examined Chinese motives. The discourse on the motives was strategic in nature and manifold: Securing South Pacific nations’ votes in international organisations; growing Chinese communities in the region and Beijing’s responsibility to protect the Chinese Diaspora; Beijing’s diplomatic rivalry with Taipei; China’s economic interests; its thirst for natural resources; the rise of China; increasingly, China’s strategic interests; and Ideological expansionism.
China’s Foreign Policy: Energy Security and Diplomacy
Energy concerns were a minor in Beijing’s national security and strategic assessment in the first three decades (1949-1979). First oil discovered in Daqing in Northeast China in 1959 to keep her self-reliant. Since end of 1970s China reopened its doors to western community and adopted economic reform policies, its economy has been expanding at an average annual growth rate of 10 percent annually. This rapid expansion requires resources, energy and raw materials to drive and meet its growing demands. Since mid 1990s China has been seeking energy and natural resources in Africa, Middle East, Latin America, Central Asia, South Pacific, South East Asia and elsewhere.
The new energy diplomacy has become a key focus of its foreign policy. Energy is identified as its main strategic and economic tool to drive its economic and military power in 2000-2020. In 2000, about two third of its energy came from coal and over four fifth was used for electricity. In 2007, China has become a net importer of energy. After the financial crisis in 1997, the Chinese government provided stimulus package to expand consumption. Oil accounts for 19 percent in 2000, but it is predicted to increase to be more than double by 2030.This demand forms the basis of her energy diplomacy and security focus in the Pacific region.
Is China a Threat to the Pacific?
Numerous political commentators have alluded that Pacific is the 21st century ‘sphere of influence’ of the ‘New Imperialism’ or ‘New Cold War’. In perspective, the new imperialism is the re-emergence of US imperialism in new form in the region to expand its foreign policies and compete for global leadership. This approach often collides with emerging powers such as China, which can be seen in the form of new cold war. Strategically speaking, the Pacific is not a military threat to China as miscalculated by western analysts. And the reasons are manifold.
First, although it is possible through strategic thinking, that China is compel to position missiles in the Pacific as stated elsewhere, its implementation will be a difficult task. China has not prioritised military build-up in modernisation however, has centrally focused on economic development.
In addition, access to military equipment and technologies from the West is difficult. Therefore, there is still a huge gap between the West and China. China’s recent modernisation of military build-up especially, her ground and land force capabilities in Asia-Pacific is still being neutralised by the US. The US has still maintained a BoP in the region through its naval presence.
More so, China’s Defence Force Policy is mandated to protect the rights of its citizens, and states property. The policy articulated that her main concern is not external rather internal especially, with extremists, nationalist movements, terrorism, poverty, and Taiwan issue. Most importantly its Defence Force is built with a strategic objective of self-defense rather than offensive to promote peace and stability in order to create a harmonious society through kindness and friendship. China will only be offensive should and when her national security is threatened under the defensive principle to protect rights of her citizens and state property to maintain peace and stability (Guangqian, 2004).
China does not perceive Pacific as a military threat. China is a developing country and is still no match to the US. Hegemony and intervention is not in her national interest. Her main strategic high priority threat is Taiwan’s agenda. Interestingly, the current security issue in the region is energy security. The supply of energy resources has become increasingly important than that of military. The Pacific by proximity is unreliable to Chinese offensive strategy against Taiwan.
Ideological differences still exist in the region. Pacific Islands have robust relationship with their cultural and divine philosophy, which is a strong anti-communist philosophy. Chinese immigrants doing business in the Pacific is another concern in the region, which has damaged China’s image (Yang, 2007). For instance, competing in business and corrupting officials. PNG riot in 2009 and Solomon Island civil unrest in 2006 are some of the cases in point.
Although, the Pacific is strategically unimportant to both US and China, the US still maintains a BoP through Micronesia and its deputy sheriffs; Australia in Melanesia and New Zealand in Polynesia.
More increasingly important, the Small Island Developing Economies have a strong close bilateral relationship with China. They perceive China as a true friend in their modernisation and industrialisation drive. And therefore China would seek to maintain that robust cordial bilateral relationship.
Will Energy shift Balance of Power in Pacific Region?
It appears also that energy resources are predicted to shift BoP in the region. It is increasingly obvious now that competition between China, the ‘sleeping dragon’, will rise up over the US, the ‘sleepless eagle’, and assume regional leadership and stabiliser (not a hegemonic leadership as perceived by the West).
The US and Chinese apatite for resources is in high demand, however, with Chinese skilful soft diplomacy she is most likely to score more points by securing strategic and economic corridors in the region. China’s dominant role and influence in the region is an indication of the rise of new power to maintain peace and stability, although US and its deputy sheriffs will still co-exist and ponder in maintaining the regime. This does not dismiss the notion that the US will play an important role in the region.
Indeed, one can argue that China’s economic and military power has the capacity and capability to create an enabling environment for development in the region through friendship. Its unconditional dollar diplomacy is a key strategic tool to harmonise the region through mutual collaboration in sharing and exchanging information and resources in development.
And this is most evident in development aids in PNG and Solomon Islands. China has investments in Ramu Nickel, Sporting Stadium, proposed International Conference, Chinese Scholarship, defence capacity building, only to name a few. More so, China is also investing in middle power, Australia for instance, in Queensland LNG and Coal, and trade with New Zealand respectively.
Consequently, as China assumes the regional leadership as stabiliser it can be predicted that competition in power play will trigger tension leading to conflict. This scenario, one would argue, will be an emergence of ‘new cold war’ or more precisely ‘economic cold war’ between the West and China as discussed below.
Emergence of ‘New Imperialism’ or ‘New Cold War’ in Pacific Region? PNG as a Case in Point
Macro Level: The Pacific region in the southern hemisphere is identified by economic powers as the last frontier of resource-rich nations, and in fact PNG alone has been indentified as a key geo-strategic and economic base or ‘sphere of influence’ for energy supply in international relations. Therefore, Pacific in particular, PNG is or will be big powers’ national interest. As far as geo-strategic relation is concern competition and tension between China and US is inevitable.
At the macro level, the US assumes traditional hegemonic power in the Pacific through its deputy sheriffs; Australia, New Zealand, Japan and Britain. The end of Cold War delineates scaling down of US’s role in the Pacific with some of its missions being closed, for instance, in Solomon Islands.
recently, US increasingly refocus its foreign policy with respect to China’s increasing role in the region. As a result, a strategic shift took place in 2008 when US announced to have its military base be relocated to Guam with a strategic objective to contain Chinese expansionism. This was evidenced in 2008 when the then Bush Administration declared the “Pacific Year” as part of its foreign policy. The US has always perceived China as its major threat in Asia Pacific. The region is closely watched by the eagle eyes in order to contain dragon’s infiltration.
In contrary, China has always played a smart game diplomacy through soft diplomacy to secure friendship with an aim to spread its culture and philosophy across borders. Chinese diplomacy is based on Confuciasm philosophy of ‘harmonious society’. She promotes this philosophy through soft development aids unconditionally to developing countries. In so doing, China provides a win-win situation for all actors. In PNG, Chinese foreign direct investment is voluminous. For instance, Ramu Nickel mine, the proposed International Conference Center, and many others.
Consequently, Chinese dominant role in development bilateral relations in the Pacific region has stimulated and accelerated economic growth; while at the same time increasingly instils fear and insecurity to US and its deputy sheriffs in the region. Australia, though a middle power, have competed to protect US backyard through its conditional loans, is still struggling to contain Chinese influence.
Hence, Chinese soft diplomatic approach in the Pacific in assisting Small Island States such as PNG through investment in energy – LNG Projects - may perhaps be perceived by US as menace as far as regional stability is concerned. More so, whilst US may perceive China otherwise, China is also promoting ‘collaborative diplomacy’ in Pacific to secure its potential energy suppliers of oil, gas, nickel, etc, to build its economy, whilst establishing friendship to maintain peace and stability.
Hence from a hegemonic stability perspective it is argued that diverging interests and ideational dynamics can possibly cause inter-state conflict which can trigger possible conflict.
Micro Level: At micro level it appears that legitimacy crisis and civil war are potential threats to national security as far as energy security is concerned.
First, there is possibility that the disgruntled resource owners may rebel against the state which could trigger legitimacy crisis and civil war. Second, disgruntled resource-rich owners may rebel against the MNCs which can cause civil crisis or possible military intervention especially by the US (but all-out war or grand scale war is unlikely).
In the former, experiences over unresolved issues pertaining to energy economy have demonstrated a rebellious scenario. Resource owners in most mining and petroleum projects in PNG have been treated unfairly in terms of redistribution of wealth by the government. Poor Royalties and lack of development services were a great concern. This problems can lead into civil crisis when the people take the ‘rule of law’ into their own hands. The Bougainville crisis is one of the cases in point.
State graft by government officials and MNCs in siphoning project money covertly into their empires through illegal means can cause legitimacy or civil crisis. For instance, The LNG project in Southern Highlands Province is an assumed scenario. Resource owners in the province have military capability to revolt against the state. The Singirok Gun Report suggested high and semi- powered factory guns owned by the people.
In the latter, civil war between the state and MNCs is highly possible. The operations of Exxon Mobile and G4S in LNG sites have already question the sovereignty of the state and a concern to national security. Exxon Mobil is the richest US Company in the world, which has a close relationship with the US government. Exxon Mobile’s presence in PNG is a US national interest as far as its security is concern.
G4S is a highly militarised private mercenary company of US protecting its interest in different Oil fields under various berets. G4S presence in PNG also questions its immunity to the state law. The nexus between rebellious resource owners against Exxon Mobile is a threat to US and therefore is deemed as its high priority national security. In the event that the state and G4S fail to contain and stabilize the civil rebellion US military intervention is possible, although it may seem unlikely, however the 1994 Gulf War speaks for itself. There are also other civil crises such as in East Timor, Nigeria, Somalia, instigated by energy competition.
The Ramu Nickel and Copper Mine operated by the Chinese company is another case in point facing constant rebellion by the resource owners. Chinese investment in PNG is a form of foreign direct investment (FDI) which has the potential to trigger economic growth. There is already assumption in the current strategic thinking that MNCs competition in energy resources by big powers are indirectly at play influencing social or civil actors such as resource owners to disturb power expansion in the region. For instance, there is already a rumour that the West has covertly influenced the Landowners to push Chinese investors in Ramu Nickel site out of PNG. As far as security of Chinese nationals is concerned, Beijing will always resort to soft diplomacy through peaceful means in settling disputes. Military intervention by China is against her foreign policy.
More interestingly, a focus at LNG project, one would argue that Chinese investors were overlooked by the PNG government and major MNCs players. Ostensibly, it appears that Chinese investment in the project would be perceived by the U.S as a potential threat.
Ultimately, PNG government must embrace china in energy investment. China, as the second largest market economy, has the potential to transform and modernise PNG economy through energy. China as a friend is ready to invest in energy sectors, for instance, nuclear energy – solar energy, geo-thermal (hydropower), bio-fuel and others. More so China is keen in investing in clean energy to support PNG’s role in global warning.
The Challenge for PNG Government’s Vision 2050
The government’s aspiration to attain ‘Middle Income Country’ (MIC) by 2050 and thereby, becoming a ‘Wise, Smart, and Happy Society by 2050 may not be fully released if it does not critically evaluate energy security systematically and respond thoughtfully at a global scale.
This new paradigm shift in government thinking is a grand challenge as a nation state in modernisation. It appears that this vision may not achieve its stated gaols and objectives if security issues are not critically conceptualised at macro and micro level. I am of the view that the greatest conundrum will ultimately rest on energy security.
PNG is predicted to see a spiralling economic growth rate of 8.4 percent annually with the full economisation of LNG projects by 2014. Although energy projects may transform PNG into a MIC at forecasted growth rate similar to China echoed by some economic analysts, its security implications are incalculable.
Securitisation of energy is strategically and economically vital to assess ‘where we are, where we want go and how we will get there’ with energy. This will involve analysing security at macro and micro level that appropriate strategies can be framed to systematically respond thoughtfully to emerging security threats. Security of the state and individual is absolutely vital to fully realise the vision.
The Role of SINO-PNG Relations
In order to avoid possible future conflict China and PNG will have to play an important role to maintain a BoP in the region. PNG as an economic and strategic interest of economic powers in the region will have to play a neutral diplomacy within ‘great and rising powers’ whilst China continues to play a soft diplomacy based on ‘collaborative and consensus diplomacy’. China must convince US misperception in its role in the Pacific region. PNG on the other hand must refocus or res-cope its foreign policy to contextualise the regional security perspective.
Conclusion
It can be concluded that China is not a security threat to Pacific region. This is only a misperception by the West, especially US. China on the hand does not see the Pacific region as a strategic threat rather as a true friend in development.
It can also be said that energy security has the potential to reconfigure power relations in the region. China will assume peaceful regional leadership and stabiliser (not as a hegemon as perceived by the US). China’s rise in power to global and regional prominence is to promote peaceful and harmonious society through kindness and friendship based on her Confucius philosophy.
Energy security is a national security priority of any state. Competition between US and China in energy resources in the region postulates emergence of ‘New Imperialism’ or ‘New Cold War’. At macro level, since energy is scarce, competition between rival powers can cause conflict in the region. At micro level legitimacy crisis or civil war between the state and MNCs, and disgruntled resource owners is inevitable. These scenarios pose a great challenge to PNG with respect to Vision 2050. Therefore, PNG and China will play an important role to avoid such crisis and maintain a BoP in the region.
Sunday, January 23, 2011
Is China a Threat in Asia-Pacific Region?
It appears that the peaceful rise of China is calculated by other countries as a potential threat in the international system. In essence, China is not a threat as perceived. China indeed is just another ordinary state making waves to restore her lost pride after being materially defeated, humiliated and shammed by the West and Imperial Japan in pre-modern East Asia. China accepted Western norms and aggressively integrated into a U.S-led liberal order. Her peaceful rise to global prominence is paradoxically a hybrid balance between socialism and capitalism, which many scholars are still struggling to explain. I attempt to explain China’s peaceful rise and its threat perception in Asia-Pacific region employing two levels of analysis –regional and national.
Regional Level:
China’s national interest is to attain a “Peaceful Great Power status” through economic development in the international system without upsetting the “rules of the great power game”. Her foreign policy is premised on the philosophy of national strength driven by economic power and strong leadership. The main objective is to project and build soft power diplomacy with more concentration in developing countries to share its wealth and promote peaceful and harmonious society. China does not intend to become neither a hegemon nor pursue an expansionist approach in the region or globally.
There are four reasons why China is not a threat in the Pacific region. First, China is a developing country with huge internal problems to solve. Poverty and corruption are the greatest challenges. In December 2010, President Hu Jintao when launching the new 5 year National Strategic Plan clearly announced more focus on sustaining domestic development and soft power diplomacy.
Second, geo-strategically, China is still no-match for U.S as the great power. Although China is rapidly building its strategic capability it does not necessarily predicate as a challenger. China is building a defensive military power to safeguard its sovereignty and economic interest in the neighboring maritime theater. It would take more than a decade for China to be a regional threat. History shows that rising powers and great powers collapse, Japan, Germany Britain are classical cases. The U.S, although declining in economic power still, poses unchallenged capacity and capability as a global leader. The future still remains gloomy for China; whether she will sustain her current economic growth is still unknown to us, let alone time, distance and space be foretold.
Third, China is only a rising regional power and not a global or great power. The U.S is still the great power and regional power in Asia-Pacific region. The U.S has maritime superior capability than China. China has continental capability but lacks maritime capability, which is why she depends highly on U.S blue-water shield to protect her oil shipping route in the Indian Ocean. China currently has no plan in her grand strategy to build superior maritime capability, perhaps in the future should the demand arise. More so, the multipolar system of balance of power in the region suggest otherwise. Japan, South Korea and Taiwan are U.S allies which makes it more difficult for China to challenge the status quo. India, another rising power in South Asia, South East Asians Vietnam as conventional enemy and Indonesia may rise to balance against China.
Fourth and final, interdependence facilitates cooperation and precludes war. This can be best explained in Robert Keohane and Joseph Nye scholarly work entitled "Complex Interdependence”. Both argued that today, with globalization, the complex web of interdependence makes war unthinkable and cooperation as a diplomatic means to maximize absolute gains and resolve conflicts. International institutions remove cheating and tie down rogue states through issue linkage. China needs U.S and other smaller neighboring states to drive her modernization agenda in order to co-exist in the international system. She cannot afford to lose which of them. The recent visit to U.S by Hu Jintao may reduce security dilemma or uncertainty between the two rivals in the region. The China Daily of 22nd January, 2011 reported that "The state visit is staged as a celebration of China's rise - a message from Obama to both the American people and the Chinese that the United States does not consider China a 'strategic competitor', that is, a military threat. Instead, China is now a major power that the US will treat as such."
In projecting future implications, the Chinese expansion and influence in Asia-Pacific region may perhaps be calculated as a potential threat to U.S conventional sphere of influence, and thus may most likely cause friction leading to conflict, however, war is unthinkable. In strategic terms, relative gains matters in U.S national security as China continues to strategically wield her soft power diplomacy in the region. The more China gains in the region; it will be a threat to U.S. Consequently, miscalculation of Taiwan issue may lead China to war at all cost. China firmly maintains that Taiwan-Tibet issues are internal affairs and strongly condemns Taiwan’s bid for independence. China may most likely use force should and when Taiwan and Tibet backed by allies declare independence.
National Level:
Is China a threat to PNG? There are a lot of biased opinions about China. In order to make a logical value judgment about China, one must first study Chinese history, culture and diplomacy rather than be argumentative through the lens of objective perception.
Today, China is attempting to build a good image in the international community through soft diplomacy. China aims to share her development experiences with developing countries like PNG, which is still struggling to develop with 'boomerang aid' and other issues for the last 30 donkey years.
The recent crises in PNG and Solomon Islands may have been used as a political agenda or tool to tarnish China’s good image. Beijing cannot be accused of others' actions. What had transpired may be an international organized syndicate which may not necessarily be linked to the Central Communist Party (CCP) in Beijing, which condemns such incidents and punishes perpetrators who tarnish her good image internationally.
More so, the territorial disputes between China and Japan and Vietnam are highly controversial in nature and may not necessarily be employed as a strategic calculation for China to use coercive force (military intervention) in PNG. To further cement that argument, it is almost impossible for China to use coercive force in PNG with the presence of U.S and her allies – Australia, New Zealand and Japan in the region. Strategically speaking, any country in Pacific is not a credible threat to China.
Premised on this projection, PNG has to shift her foreign policy with the current shift in global power. PNG cannot isolate herself from China, now the second global economic power. Even big powers such as U.S and Japan are investing heavily in China. Although others calculate China as a threat, PNG stands a chance to maximize absolute gains if she strategically maneuvers the game. PNG has the potential to play smart diplomacy. In sum, China’s peaceful rise is an economic advantage for PNG as a Small Island Developing Economy to play the right card to ensure a win-win situation.
Regional Level:
China’s national interest is to attain a “Peaceful Great Power status” through economic development in the international system without upsetting the “rules of the great power game”. Her foreign policy is premised on the philosophy of national strength driven by economic power and strong leadership. The main objective is to project and build soft power diplomacy with more concentration in developing countries to share its wealth and promote peaceful and harmonious society. China does not intend to become neither a hegemon nor pursue an expansionist approach in the region or globally.
There are four reasons why China is not a threat in the Pacific region. First, China is a developing country with huge internal problems to solve. Poverty and corruption are the greatest challenges. In December 2010, President Hu Jintao when launching the new 5 year National Strategic Plan clearly announced more focus on sustaining domestic development and soft power diplomacy.
Second, geo-strategically, China is still no-match for U.S as the great power. Although China is rapidly building its strategic capability it does not necessarily predicate as a challenger. China is building a defensive military power to safeguard its sovereignty and economic interest in the neighboring maritime theater. It would take more than a decade for China to be a regional threat. History shows that rising powers and great powers collapse, Japan, Germany Britain are classical cases. The U.S, although declining in economic power still, poses unchallenged capacity and capability as a global leader. The future still remains gloomy for China; whether she will sustain her current economic growth is still unknown to us, let alone time, distance and space be foretold.
Third, China is only a rising regional power and not a global or great power. The U.S is still the great power and regional power in Asia-Pacific region. The U.S has maritime superior capability than China. China has continental capability but lacks maritime capability, which is why she depends highly on U.S blue-water shield to protect her oil shipping route in the Indian Ocean. China currently has no plan in her grand strategy to build superior maritime capability, perhaps in the future should the demand arise. More so, the multipolar system of balance of power in the region suggest otherwise. Japan, South Korea and Taiwan are U.S allies which makes it more difficult for China to challenge the status quo. India, another rising power in South Asia, South East Asians Vietnam as conventional enemy and Indonesia may rise to balance against China.
Fourth and final, interdependence facilitates cooperation and precludes war. This can be best explained in Robert Keohane and Joseph Nye scholarly work entitled "Complex Interdependence”. Both argued that today, with globalization, the complex web of interdependence makes war unthinkable and cooperation as a diplomatic means to maximize absolute gains and resolve conflicts. International institutions remove cheating and tie down rogue states through issue linkage. China needs U.S and other smaller neighboring states to drive her modernization agenda in order to co-exist in the international system. She cannot afford to lose which of them. The recent visit to U.S by Hu Jintao may reduce security dilemma or uncertainty between the two rivals in the region. The China Daily of 22nd January, 2011 reported that "The state visit is staged as a celebration of China's rise - a message from Obama to both the American people and the Chinese that the United States does not consider China a 'strategic competitor', that is, a military threat. Instead, China is now a major power that the US will treat as such."
In projecting future implications, the Chinese expansion and influence in Asia-Pacific region may perhaps be calculated as a potential threat to U.S conventional sphere of influence, and thus may most likely cause friction leading to conflict, however, war is unthinkable. In strategic terms, relative gains matters in U.S national security as China continues to strategically wield her soft power diplomacy in the region. The more China gains in the region; it will be a threat to U.S. Consequently, miscalculation of Taiwan issue may lead China to war at all cost. China firmly maintains that Taiwan-Tibet issues are internal affairs and strongly condemns Taiwan’s bid for independence. China may most likely use force should and when Taiwan and Tibet backed by allies declare independence.
National Level:
Is China a threat to PNG? There are a lot of biased opinions about China. In order to make a logical value judgment about China, one must first study Chinese history, culture and diplomacy rather than be argumentative through the lens of objective perception.
Today, China is attempting to build a good image in the international community through soft diplomacy. China aims to share her development experiences with developing countries like PNG, which is still struggling to develop with 'boomerang aid' and other issues for the last 30 donkey years.
The recent crises in PNG and Solomon Islands may have been used as a political agenda or tool to tarnish China’s good image. Beijing cannot be accused of others' actions. What had transpired may be an international organized syndicate which may not necessarily be linked to the Central Communist Party (CCP) in Beijing, which condemns such incidents and punishes perpetrators who tarnish her good image internationally.
More so, the territorial disputes between China and Japan and Vietnam are highly controversial in nature and may not necessarily be employed as a strategic calculation for China to use coercive force (military intervention) in PNG. To further cement that argument, it is almost impossible for China to use coercive force in PNG with the presence of U.S and her allies – Australia, New Zealand and Japan in the region. Strategically speaking, any country in Pacific is not a credible threat to China.
Premised on this projection, PNG has to shift her foreign policy with the current shift in global power. PNG cannot isolate herself from China, now the second global economic power. Even big powers such as U.S and Japan are investing heavily in China. Although others calculate China as a threat, PNG stands a chance to maximize absolute gains if she strategically maneuvers the game. PNG has the potential to play smart diplomacy. In sum, China’s peaceful rise is an economic advantage for PNG as a Small Island Developing Economy to play the right card to ensure a win-win situation.
Friday, January 21, 2011
Encouraging Competition in State Enterprise Market Economy
Francis Hualupmomi
It appears that the current trend in competition in the state enterprise market economy is unable to meet increasing demand in consumers’ and state’s expectations. With emerging economic activities bourgeoning in PNG, the government will be under pressure to perpetuate open competition in the state enterprise market economy. The question is, is the government ready to encourage competition?
Let me begin this exposition be employing Merriam-Webster definition of competition as the conceptual premise of competition in market economy as "the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms”. Competition in the economy is strategically significant to allow two or more firms in the market to compete to secure market shares. This disposition of economic game of invisible hands constructs the propensity for firms to provide quality and affordable goods and services to consumers.
Theoretically, however, competition does not necessarily predicate advantageous in nature rather may have negative implications should it not be managed effectively and efficiently under an economic framework governed by a political and economic actor. In essence, state intervention necessitates regulated norms to ensure level playing field in the interest of relevant economic actors to maximize expected optimum output and outcome.
The political economy of state enterprise in PNG is an interesting case in point, which saw a shift from regulated market to deregulation to privatization in the market economy. Faced with domestic and external forces the state under the then leadership of Mekere’s regime provided the economic reform package in 1997 as a take-off point in an attempt to restore continued economic decline underscored by Skate’s regime.
The reform package calls for privatization in telecommunication, financial, electricity and transportation sectors respectively. The Post and Telecommunication was separated into Postal Services and PNG Telikom, PNGBC was acquired by BSP, and Air Nuigini. This reform till date still provides some economic incentives to state’s national budget.
Historical trend in public enterprise market economy in PNG evidently suggests that competition in the political economy of state enterprise remains inherently weak to meet consumer expectations and state’s economic imperatives hence, is under question. The rationale behind public enterprise privatization was twofold: poor performance or governance issues and to create competition in order to sustain the national economy through innovation in business culture. Yet, these economic actors remain at best less innovative largely due to less or weak competition.
For instance, Air Nuigini, although charging exorbitant fees, still is struggling to provide sufficient profit for the state, whilst PNG power is faced with continuous power blackouts disturbing socio-economic consumers. On the hand, PNG Telikom is also struggling to support state’s revenue base. The entry of Digicel Mobile Company has truly awakened the notion of competition in the country. More frustratingly, BSP enjoyed continuous unnecessary increase charges to clients affecting low income earners. In sum, these enterprises have enjoyed a monopolized culture consequently resulting in inefficiency and revenue loss.
With poor performance in these markets and recent boom in the economy it is imperative that the state should reconsider encouraging competition to avoid inefficiency and meet consumers’ new and diverse expectations. Competition, although is quite risky in infant economies such as PNG, it is a strategic tactic to reduce monopoly, encourages innovation in business culture and ensuring efficiency and effectiveness.
Increasingly significant, is the modernization and industrialization agenda driven by LNG projects that will require widening the size of the national economy. PNG economy is quantitatively growing in size which relatively increases and diversifies consumer base. The demand will trigger upward pressure to increase competition to meet this emerging demand. For instance, more foreign investors will spur upsurge in borderless capital transfer, which would inevitably require provision of more wide range of services in the market.
Given this unstable scenario, what should the state do as the rational actor in the national economy? The government mandated through a social contract between consumers should consider realigning its strategy by introducing competition and allowing more foreign investors to compete in the market economy.
Whilst competition is strategically vital for economic growth it is also a risky economic exercise in developing countries like PNG where the economic base is still in its infant stage. The state whilst encouraging competition to meet changing market patterns in the economy it should rationally take a cautious pragmatic approach in opening these markets.
Competition should be the way forward for PNG to avoid market distortions and increase economic wealth to attain Vision 2050’s goal as a “Middle Income Economy” by 2050.
Francis Hualupmomi studies a Master of Arts in International Relations at the Institute of International Studies, Jilin University, China. His central area of research interest is in Political Economy of East Asia and International Security focusing on Geopolitics of Energy Security. He can be reached on f.hualupmomi@yahoo.com or visit his blog: http//: asia-pacific strategic spotlight
Francis Hualupmomi
It appears that the current trend in competition in the state enterprise market economy is unable to meet increasing demand in consumers’ and state’s expectations. With emerging economic activities bourgeoning in PNG, the government will be under pressure to perpetuate open competition in the state enterprise market economy. The question is, is the government ready to encourage competition?
Let me begin this exposition be employing Merriam-Webster definition of competition as the conceptual premise of competition in market economy as "the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms”. Competition in the economy is strategically significant to allow two or more firms in the market to compete to secure market shares. This disposition of economic game of invisible hands constructs the propensity for firms to provide quality and affordable goods and services to consumers.
Theoretically, however, competition does not necessarily predicate advantageous in nature rather may have negative implications should it not be managed effectively and efficiently under an economic framework governed by a political and economic actor. In essence, state intervention necessitates regulated norms to ensure level playing field in the interest of relevant economic actors to maximize expected optimum output and outcome.
The political economy of state enterprise in PNG is an interesting case in point, which saw a shift from regulated market to deregulation to privatization in the market economy. Faced with domestic and external forces the state under the then leadership of Mekere’s regime provided the economic reform package in 1997 as a take-off point in an attempt to restore continued economic decline underscored by Skate’s regime.
The reform package calls for privatization in telecommunication, financial, electricity and transportation sectors respectively. The Post and Telecommunication was separated into Postal Services and PNG Telikom, PNGBC was acquired by BSP, and Air Nuigini. This reform till date still provides some economic incentives to state’s national budget.
Historical trend in public enterprise market economy in PNG evidently suggests that competition in the political economy of state enterprise remains inherently weak to meet consumer expectations and state’s economic imperatives hence, is under question. The rationale behind public enterprise privatization was twofold: poor performance or governance issues and to create competition in order to sustain the national economy through innovation in business culture. Yet, these economic actors remain at best less innovative largely due to less or weak competition.
For instance, Air Nuigini, although charging exorbitant fees, still is struggling to provide sufficient profit for the state, whilst PNG power is faced with continuous power blackouts disturbing socio-economic consumers. On the hand, PNG Telikom is also struggling to support state’s revenue base. The entry of Digicel Mobile Company has truly awakened the notion of competition in the country. More frustratingly, BSP enjoyed continuous unnecessary increase charges to clients affecting low income earners. In sum, these enterprises have enjoyed a monopolized culture consequently resulting in inefficiency and revenue loss.
With poor performance in these markets and recent boom in the economy it is imperative that the state should reconsider encouraging competition to avoid inefficiency and meet consumers’ new and diverse expectations. Competition, although is quite risky in infant economies such as PNG, it is a strategic tactic to reduce monopoly, encourages innovation in business culture and ensuring efficiency and effectiveness.
Increasingly significant, is the modernization and industrialization agenda driven by LNG projects that will require widening the size of the national economy. PNG economy is quantitatively growing in size which relatively increases and diversifies consumer base. The demand will trigger upward pressure to increase competition to meet this emerging demand. For instance, more foreign investors will spur upsurge in borderless capital transfer, which would inevitably require provision of more wide range of services in the market.
Given this unstable scenario, what should the state do as the rational actor in the national economy? The government mandated through a social contract between consumers should consider realigning its strategy by introducing competition and allowing more foreign investors to compete in the market economy.
Whilst competition is strategically vital for economic growth it is also a risky economic exercise in developing countries like PNG where the economic base is still in its infant stage. The state whilst encouraging competition to meet changing market patterns in the economy it should rationally take a cautious pragmatic approach in opening these markets.
Competition should be the way forward for PNG to avoid market distortions and increase economic wealth to attain Vision 2050’s goal as a “Middle Income Economy” by 2050.
Francis Hualupmomi studies a Master of Arts in International Relations at the Institute of International Studies, Jilin University, China. His central area of research interest is in Political Economy of East Asia and International Security focusing on Geopolitics of Energy Security. He can be reached on f.hualupmomi@yahoo.com or visit his blog: http//: asia-pacific strategic spotlight
Wednesday, January 12, 2011
PNG Political Economic Performance Under OLIPPAC
By Francis Hualupmomi
The purpose of this article is to provide a snapshot of the political economy of PNG before and after OLIPPAC. With confusion and illusion enslaving the public and investors about the recent National Supreme Court’s decision to nullify certain sections of OLIPPAC as unconstitutional and undemocratic, this article aims to provide some insights and foresights to make thoughtful judgement on this current political situation. By reading this analysis one must beg the question: Is change of government through a vote of no-confidence necessary at this stage?
OLIPPAC AND ITS RELATIONSHIP WITH POLITICS
In retrospect, the OLIPPAC was politically engineered by the Mekere’s regime in 2001 as part of his new reform package and subsequently, implemented by the Somare’s regime in 2002, which provided political and economic stability in PNG until its unconstitutionality.
The OLIPPAC as an Act of Parliament regulates, manages, administers and oversees political parties and candidates. It is aimed at mitigating continuous chronic political instability caused principally by weak party membership. Among many Acts in the Organic Law, OLIPPAC is strategically significant in providing political leadership in driving development agenda. Interestingly, political stability over the last 8 years has played an important role in shaping the landscape of PNG politics since independence. No government has achieved that milestone. Although, the OLIPPAC was found to be unconstitutional and undemocratic in nature by the highest jurisdiction in PNG, political stability has been maintained.
POLITICAL ECONOMY OF PNG
Before OLIPPAC: Mekere’s Regime
Before the OLIPPAC, political and economic conditions in PNG were unstable and undesirable. The late 1990s under Bill Skate was a worst case scenario of deteriorating governance, economic decline, and rising tensions in relations between the PNG government and the World Bank and other donors.
As a result a vote of no-confidence was executed successfully by Mekere Morauta in 1999. Morauta attempted to arrest the declining situation through its new policies aimed at achieving reconstruction and development by setting six objectives: To stabilize the economy; to stabilize the budget; to rebuild the institutions of state; to remove impediments to investment and growth; to reach a peaceful political settlement on Bougainville; and to create political stability and integrity.
Fiscal and broader economic measures were introduced with respect to the first two objectives followed by development of Medium Term Plan of Action for Public Sector Reform (2000–2003). Attempts were made to safeguard the independence of, and to strengthen, the Bank of PNG, the Ombudsman Commission, the Auditor General, and Public Service Commission. The Organic Law OLIPPAC was made and passed in Parliament.
Despite deployment of these strategic reforms, economic and political stability proved hard to achieve as argued by some analysts (Public Sector Reform 2010).
After OLIPPAC: Somare’s Regime
After 2002 national elections Somare was able to master a coalition government and become Prime Minister bringing political and economic stability. Somare maintained Mekere’s incomplete reform in deteriorating fiscal situation through strategic reorganisation and deployment of economic instruments to restore and progress economic growth and development. His chief policies were premised on recovery and public reform with three objectives: three main objectives, ‘good governance; export-driven economic growth; and rural development, poverty reduction and empowerment through human resource development.
A revised Medium Term Development Strategy (MTDS) 2003–2007 preceded MTDS 1997–2002 and subsequently replaced by MTDS 2005–2010. A Strategic Plan for Supporting Public Sector Reform in PNG 2003–2007, which superseded the Morauta government’s Medium Term Plan of Action for Public Sector Reform and new systems, programs and initiatives addressing particular aspects of the reform process were established within this framework. Performance Management System for Department Heads, a Medium-term Budget Framework, an Integrated Financial Management System (IFMS), and the creation of a Budget Screening Committee (BSC) were introduced (Public Sector Reform 20010).
Domestic Vs Regional Economy under Somare’s Regime
Domestically, PNG’s macroeconomic performance was outstanding under Somare’s regime. Comparably, the national economy was below 28 percent under Mekere’s regime. It picked up and accelerated rapidly from 28 percent of GDP in 2002 to 36 percent in 2006 as a result of massive increase in mineral revenues. Tight Control on spending reduced public debt from 72 per cent of GDP in 2002 to 35 percent in 2007. Foreign exchange reserves passed US$2 billion in November 2007, while inflation has remained below 5 per cent. This strong performance has been reflected in its Standard and Poor’s (S&P) credit rating, which was upgraded in 2007 to B+ for long-term foreign borrowings (Pacific Economic Survey, 2008).
Official GDP data shows PNG’s economy gathering pace in 2007 with growth of 6.2 per cent, compared to 3 percent on average for the 3 previous years. With rapid growth in the mineral sector, PNG has seen strong non-mineral growth driven by construction, telecommunications and more recently agriculture. Other data suggests PNG’s economy is buoyant. After a decade of stagnation, formal-sector employment has grown by a quarter in the last 3 years. Non-mineral corporate tax has doubled since 2000 (AusAid, 2006).
From the year 2007-2009, available economic indicators by Bank of PNG and others show that PNG national economy was growing steadily at 6 percent despite recent world economic and financial crisis. This is largely due to government’s ability to deploy economic instruments to achieve key strategic national goals and objectives.
The current deficit was lowered as a result of inflows in capital and financial accounts yielding an overall surplus. Private sector picked up well in late 2009 with significant growth with building and construction, financial/business and other services, retail and transportation sector supported by increase in private sector lending from commercial banks and partly from LNG. Increase in government spending and drawdown of trust accounts contributed to this growth.
Employment in formal sector has increased by 0.7 percent in December 2009. Inflation was decreased to 1.2 percent in the same month. Kina exchange rate appreciated against all currencies except for US dollar and Japanese yen. Overall surplus stands at K4, 158 million (Quarterly Economic Bulletin: December 2009 Issue).
Regionally, PNG experienced higher average growth of 4.1 percent in the last 3 years (2005 to 2007). PNG is among 3 fastest 6 growing countries in the Pacific. This is largely due to current government sound macroeconomic policies which have built a robust foundation for growth.
Although mining and petroleum create little direct employment, benefits of the boom for the PNG are largely through government spending. PNG has experienced rapid increases in government revenue in recent years. Mineral revenue increased roughly seven-fold, from just over US$100 million in 2002 to about US$700 million in 2007; these revenues are now equivalent to about three times Australia’s aid to PNG (Pacific Economic Survey, 2008).
In recent times, more remarkably under current regime through OLIPPAC, despite recent global economic financial crisis the national economy is growing steadily at 6 percent annual growth rate boosting investor confidence in mining and petroleum sector and construction industry. Cocoa and coffee prices have picked up respectively, which are predicted to trigger economic growth. Inflation is less than 2 percent compared to the past government. With current economic forecast, PNG is predicted to see an economic growth rate of 8.5 percent similar to that of Chinese economic growth by 2014 with full economisation of LNG projects. The Vision 2050 will strategically be the stirring core to boost this strategic thinking by the government.
Future Economic Forecast
The Economist Intelligence Unit forecasts that the rate of economic growth will accelerate in 2010-11, as several mining projects will be on stream. The current account will return to surplus in 2010-11, as export revenue will be boosted by higher global prices for gold, copper and crude oil.
The government is planning to establish an onshore sovereign wealth fund to house revenue from a large-scale liquefied natural gas (LNG) project. Revenue from LNG is estimated at US$35bn over the 30-year life of the project. The partners in a US$15bn LNG project, led by ExxonMobil, have already signed the agreement boosting confidence in the future development of PNG's economy.
More so, it is expected that a Canadian petroleum firm, InterOil, will sign an agreement for another LNG project in the near future. This will stimulate and trigger production of economies of scale to progress modernisation and industrialisation agenda.
In summative, while PNG (with five prime ministers between 1992 and 2002) went through periods of political instability, in recent years it has enjoyed more stable, longer-tenured governments. Strategic fiscal policies have reduced deficits and together with sound monetary policies kept inflation low.
STRATEGIC FORESIGHT
It is argued strongly that with the current conducive environment provided by the government, there is no turning back with the issue of OLIPPAC. Few key questions need to be enquired. Is it necessary to see an eminent change in government? Is the move by the Opposition in the national interest? Will the remaining two years be sufficient to achieve Opposition’s manifesto (strategic policies) if there is a change in government?
PNG needs to progress with changes in the global economy to remain competitive. The economy has had been underperforming for the last 20 years until the current government provided the robust leadership and foresight with Vision 2050. There is a strategic road map navigating our future. The government under the leadership of Somare knows exactly ‘where we are now, where want to go and how to get there’. The Grand Chief is strategically visionary to position PNG as one of the ‘Middle Income Economy’ where our future generations will be a ‘smart, wise, happy, healthy, and peaceful’ by 2050. Unless there is instability in political directions this desire will be achieved.
In the political frontier, after the Supreme Court’s legal interpretation and decision a lot of questions were raised. This political situation has already reconfigured a gloomy scenario. The future remains uncertain in our strategic directions. People are wondering what would happen next in the ‘Kitchen Cabinet’ where pork barrelling, political divorcing or horse trading will occur. PNG political culture is unique and unpredictable as articulated by some international political commentators.
In order to avoid catastrophic situation and maintain political and economic stability in PNG, Parliamentarians (both the government and Opposition) should comprehensively mediate and consider maintaining the current regime with some political reorganisation. At the Coalition level, the National Alliance should also re-engineer its political strategy to maintain a balance of power in the Cabinet and Parliament. This may involve:
• Removing or replacing some of its bad advisors;
• Ensure equal distribution of political representation in ministerial portfolios representing all regions. This will not upset loyal parties and public;
• Re-amend the loopholes in the certain sections of OLIPPAC that was revoked and maintain the OLIPPAC. The parliament has the power to re-amend constitutional matters; and
• ‘Collective or cooperative diplomacy’ through ‘consensus democracy’ between government and opposition is absolutely necessary.
CONCLUSION
Although the OLIPPAC is unconstitutional and undemocratic in nature it provides concrete stability over the last 8 years. PNG is performing exceptionally well under the global economic and financial crisis and is expected to be a leading market economy in the Pacific region. Investor’s confidence is high, inflation is low and employment is increasing in mining and petroleum industry and construction industry. With Vision 2050 providing the foresight and Development Strategic Plan 2030 as insight to drive PNG’s aspirations to be modernised and industrialised by 2050, political stability is absolutely necessary. Vote of no-confidence will only be a recipe of disaster.
By Francis Hualupmomi
The purpose of this article is to provide a snapshot of the political economy of PNG before and after OLIPPAC. With confusion and illusion enslaving the public and investors about the recent National Supreme Court’s decision to nullify certain sections of OLIPPAC as unconstitutional and undemocratic, this article aims to provide some insights and foresights to make thoughtful judgement on this current political situation. By reading this analysis one must beg the question: Is change of government through a vote of no-confidence necessary at this stage?
OLIPPAC AND ITS RELATIONSHIP WITH POLITICS
In retrospect, the OLIPPAC was politically engineered by the Mekere’s regime in 2001 as part of his new reform package and subsequently, implemented by the Somare’s regime in 2002, which provided political and economic stability in PNG until its unconstitutionality.
The OLIPPAC as an Act of Parliament regulates, manages, administers and oversees political parties and candidates. It is aimed at mitigating continuous chronic political instability caused principally by weak party membership. Among many Acts in the Organic Law, OLIPPAC is strategically significant in providing political leadership in driving development agenda. Interestingly, political stability over the last 8 years has played an important role in shaping the landscape of PNG politics since independence. No government has achieved that milestone. Although, the OLIPPAC was found to be unconstitutional and undemocratic in nature by the highest jurisdiction in PNG, political stability has been maintained.
POLITICAL ECONOMY OF PNG
Before OLIPPAC: Mekere’s Regime
Before the OLIPPAC, political and economic conditions in PNG were unstable and undesirable. The late 1990s under Bill Skate was a worst case scenario of deteriorating governance, economic decline, and rising tensions in relations between the PNG government and the World Bank and other donors.
As a result a vote of no-confidence was executed successfully by Mekere Morauta in 1999. Morauta attempted to arrest the declining situation through its new policies aimed at achieving reconstruction and development by setting six objectives: To stabilize the economy; to stabilize the budget; to rebuild the institutions of state; to remove impediments to investment and growth; to reach a peaceful political settlement on Bougainville; and to create political stability and integrity.
Fiscal and broader economic measures were introduced with respect to the first two objectives followed by development of Medium Term Plan of Action for Public Sector Reform (2000–2003). Attempts were made to safeguard the independence of, and to strengthen, the Bank of PNG, the Ombudsman Commission, the Auditor General, and Public Service Commission. The Organic Law OLIPPAC was made and passed in Parliament.
Despite deployment of these strategic reforms, economic and political stability proved hard to achieve as argued by some analysts (Public Sector Reform 2010).
After OLIPPAC: Somare’s Regime
After 2002 national elections Somare was able to master a coalition government and become Prime Minister bringing political and economic stability. Somare maintained Mekere’s incomplete reform in deteriorating fiscal situation through strategic reorganisation and deployment of economic instruments to restore and progress economic growth and development. His chief policies were premised on recovery and public reform with three objectives: three main objectives, ‘good governance; export-driven economic growth; and rural development, poverty reduction and empowerment through human resource development.
A revised Medium Term Development Strategy (MTDS) 2003–2007 preceded MTDS 1997–2002 and subsequently replaced by MTDS 2005–2010. A Strategic Plan for Supporting Public Sector Reform in PNG 2003–2007, which superseded the Morauta government’s Medium Term Plan of Action for Public Sector Reform and new systems, programs and initiatives addressing particular aspects of the reform process were established within this framework. Performance Management System for Department Heads, a Medium-term Budget Framework, an Integrated Financial Management System (IFMS), and the creation of a Budget Screening Committee (BSC) were introduced (Public Sector Reform 20010).
Domestic Vs Regional Economy under Somare’s Regime
Domestically, PNG’s macroeconomic performance was outstanding under Somare’s regime. Comparably, the national economy was below 28 percent under Mekere’s regime. It picked up and accelerated rapidly from 28 percent of GDP in 2002 to 36 percent in 2006 as a result of massive increase in mineral revenues. Tight Control on spending reduced public debt from 72 per cent of GDP in 2002 to 35 percent in 2007. Foreign exchange reserves passed US$2 billion in November 2007, while inflation has remained below 5 per cent. This strong performance has been reflected in its Standard and Poor’s (S&P) credit rating, which was upgraded in 2007 to B+ for long-term foreign borrowings (Pacific Economic Survey, 2008).
Official GDP data shows PNG’s economy gathering pace in 2007 with growth of 6.2 per cent, compared to 3 percent on average for the 3 previous years. With rapid growth in the mineral sector, PNG has seen strong non-mineral growth driven by construction, telecommunications and more recently agriculture. Other data suggests PNG’s economy is buoyant. After a decade of stagnation, formal-sector employment has grown by a quarter in the last 3 years. Non-mineral corporate tax has doubled since 2000 (AusAid, 2006).
From the year 2007-2009, available economic indicators by Bank of PNG and others show that PNG national economy was growing steadily at 6 percent despite recent world economic and financial crisis. This is largely due to government’s ability to deploy economic instruments to achieve key strategic national goals and objectives.
The current deficit was lowered as a result of inflows in capital and financial accounts yielding an overall surplus. Private sector picked up well in late 2009 with significant growth with building and construction, financial/business and other services, retail and transportation sector supported by increase in private sector lending from commercial banks and partly from LNG. Increase in government spending and drawdown of trust accounts contributed to this growth.
Employment in formal sector has increased by 0.7 percent in December 2009. Inflation was decreased to 1.2 percent in the same month. Kina exchange rate appreciated against all currencies except for US dollar and Japanese yen. Overall surplus stands at K4, 158 million (Quarterly Economic Bulletin: December 2009 Issue).
Regionally, PNG experienced higher average growth of 4.1 percent in the last 3 years (2005 to 2007). PNG is among 3 fastest 6 growing countries in the Pacific. This is largely due to current government sound macroeconomic policies which have built a robust foundation for growth.
Although mining and petroleum create little direct employment, benefits of the boom for the PNG are largely through government spending. PNG has experienced rapid increases in government revenue in recent years. Mineral revenue increased roughly seven-fold, from just over US$100 million in 2002 to about US$700 million in 2007; these revenues are now equivalent to about three times Australia’s aid to PNG (Pacific Economic Survey, 2008).
In recent times, more remarkably under current regime through OLIPPAC, despite recent global economic financial crisis the national economy is growing steadily at 6 percent annual growth rate boosting investor confidence in mining and petroleum sector and construction industry. Cocoa and coffee prices have picked up respectively, which are predicted to trigger economic growth. Inflation is less than 2 percent compared to the past government. With current economic forecast, PNG is predicted to see an economic growth rate of 8.5 percent similar to that of Chinese economic growth by 2014 with full economisation of LNG projects. The Vision 2050 will strategically be the stirring core to boost this strategic thinking by the government.
Future Economic Forecast
The Economist Intelligence Unit forecasts that the rate of economic growth will accelerate in 2010-11, as several mining projects will be on stream. The current account will return to surplus in 2010-11, as export revenue will be boosted by higher global prices for gold, copper and crude oil.
The government is planning to establish an onshore sovereign wealth fund to house revenue from a large-scale liquefied natural gas (LNG) project. Revenue from LNG is estimated at US$35bn over the 30-year life of the project. The partners in a US$15bn LNG project, led by ExxonMobil, have already signed the agreement boosting confidence in the future development of PNG's economy.
More so, it is expected that a Canadian petroleum firm, InterOil, will sign an agreement for another LNG project in the near future. This will stimulate and trigger production of economies of scale to progress modernisation and industrialisation agenda.
In summative, while PNG (with five prime ministers between 1992 and 2002) went through periods of political instability, in recent years it has enjoyed more stable, longer-tenured governments. Strategic fiscal policies have reduced deficits and together with sound monetary policies kept inflation low.
STRATEGIC FORESIGHT
It is argued strongly that with the current conducive environment provided by the government, there is no turning back with the issue of OLIPPAC. Few key questions need to be enquired. Is it necessary to see an eminent change in government? Is the move by the Opposition in the national interest? Will the remaining two years be sufficient to achieve Opposition’s manifesto (strategic policies) if there is a change in government?
PNG needs to progress with changes in the global economy to remain competitive. The economy has had been underperforming for the last 20 years until the current government provided the robust leadership and foresight with Vision 2050. There is a strategic road map navigating our future. The government under the leadership of Somare knows exactly ‘where we are now, where want to go and how to get there’. The Grand Chief is strategically visionary to position PNG as one of the ‘Middle Income Economy’ where our future generations will be a ‘smart, wise, happy, healthy, and peaceful’ by 2050. Unless there is instability in political directions this desire will be achieved.
In the political frontier, after the Supreme Court’s legal interpretation and decision a lot of questions were raised. This political situation has already reconfigured a gloomy scenario. The future remains uncertain in our strategic directions. People are wondering what would happen next in the ‘Kitchen Cabinet’ where pork barrelling, political divorcing or horse trading will occur. PNG political culture is unique and unpredictable as articulated by some international political commentators.
In order to avoid catastrophic situation and maintain political and economic stability in PNG, Parliamentarians (both the government and Opposition) should comprehensively mediate and consider maintaining the current regime with some political reorganisation. At the Coalition level, the National Alliance should also re-engineer its political strategy to maintain a balance of power in the Cabinet and Parliament. This may involve:
• Removing or replacing some of its bad advisors;
• Ensure equal distribution of political representation in ministerial portfolios representing all regions. This will not upset loyal parties and public;
• Re-amend the loopholes in the certain sections of OLIPPAC that was revoked and maintain the OLIPPAC. The parliament has the power to re-amend constitutional matters; and
• ‘Collective or cooperative diplomacy’ through ‘consensus democracy’ between government and opposition is absolutely necessary.
CONCLUSION
Although the OLIPPAC is unconstitutional and undemocratic in nature it provides concrete stability over the last 8 years. PNG is performing exceptionally well under the global economic and financial crisis and is expected to be a leading market economy in the Pacific region. Investor’s confidence is high, inflation is low and employment is increasing in mining and petroleum industry and construction industry. With Vision 2050 providing the foresight and Development Strategic Plan 2030 as insight to drive PNG’s aspirations to be modernised and industrialised by 2050, political stability is absolutely necessary. Vote of no-confidence will only be a recipe of disaster.
Wednesday, January 5, 2011
Shifting Foreign Policy with Shift in Power: A Focus on Energy
Shifting Foreign Policy with Shift in Global Power: A Focus on Energy
Francis Hualupmomi
Already there is a shift in global power from the West towards Asian region, especially China. Almost all scholars have generally described China as the centre of gravity in the new Asian hemisphere attracting foreign investments. PNG must shift its foreign policy with the shift in global power focusing more on international economic cooperation in order to attain Vision 2050.
The collapse of Cold War saw triumph of capitalism constructing a new US-led liberal order. Others also perceive it as the emergence of a new wave of globalization as described rightly by Thomas L. Friedman; the winner of Financial Times/Goldman Sachs Business Book of the Year entitled The World is Flat: The Globalised World in the 21st Century (2007).
China, after years of isolation and several humiliations from the West and Imperial Japan, reopened its door to international community and aggressively integrated into the new order in 1970s under a socialist manifesto. The Chinese model as a rising power is manifested in her hybrid framework of development, a model that underpins a balance between socialism and capitalism. Yet seen as paradox, the liberal order provided the stimulus for her sudden rise to attain global prominence.
Today, China is the second global economic power superseding Japan in 2009. The economy is currently growing rapidly relative to US at a growth rate of 9.1 per cent. China is now the largest consumer and exporter of US.
There is a shift in economic power to Asia, in particular China. Foreign investors see China as the new economic power in the region and begin diverting the course of direction. Most scholars and policy makers described this shift in global power as an ‘economic hollowing’ affecting big market powers such as US and EU in relative sense however, economic powers rise and fall in historical nomenclature, which should be seen as an advantage in maximizing the economy.
One of the main reasons in China’s peaceful rise is the role of her foreign policy in facilitating economic advancement and prosperity. The current China’s foreign policy is fundamentally aimed at attaining a “Peaceful Great Power” status in the future through economic development focusing on balancing soft and hard diplomacy in international relations. An important objective in the foreign policy is to build a robust soft diplomacy with developing countries to share her development aspirations. Today, Africa is China’s largest developing country partner followed by Pacific, Latin America and others.
The question now is how should PNG benefit from this new Chinese diplomacy? First in consistent with Vision 2050 it should refocus her foreign policy towards the new shift in power in global politics. It should consider emphasizing a closer economic and trade partnership with China.
China has the economic capacity and capability to assist developing countries as part of her soft diplomacy to achieve economic prosperity. PNG has vast untapped resources which can be developed by Chinese expertise. One of the important economic potential resources is energy which can by converted into energy sources and economic gains. Our foreign policy should embrace international cooperation in foreign investment in the areas f energy innovation and development.
Marketing energy potentials to China is a rational choice in the long run. Energy is the single biggest market in the global market economy and has the potential to transform the economy. If PNG can maximize energy potential through win-win diplomacy with China, I posit she may become the next economic power in the Pacific theater.
Francis Hualupmomi
Already there is a shift in global power from the West towards Asian region, especially China. Almost all scholars have generally described China as the centre of gravity in the new Asian hemisphere attracting foreign investments. PNG must shift its foreign policy with the shift in global power focusing more on international economic cooperation in order to attain Vision 2050.
The collapse of Cold War saw triumph of capitalism constructing a new US-led liberal order. Others also perceive it as the emergence of a new wave of globalization as described rightly by Thomas L. Friedman; the winner of Financial Times/Goldman Sachs Business Book of the Year entitled The World is Flat: The Globalised World in the 21st Century (2007).
China, after years of isolation and several humiliations from the West and Imperial Japan, reopened its door to international community and aggressively integrated into the new order in 1970s under a socialist manifesto. The Chinese model as a rising power is manifested in her hybrid framework of development, a model that underpins a balance between socialism and capitalism. Yet seen as paradox, the liberal order provided the stimulus for her sudden rise to attain global prominence.
Today, China is the second global economic power superseding Japan in 2009. The economy is currently growing rapidly relative to US at a growth rate of 9.1 per cent. China is now the largest consumer and exporter of US.
There is a shift in economic power to Asia, in particular China. Foreign investors see China as the new economic power in the region and begin diverting the course of direction. Most scholars and policy makers described this shift in global power as an ‘economic hollowing’ affecting big market powers such as US and EU in relative sense however, economic powers rise and fall in historical nomenclature, which should be seen as an advantage in maximizing the economy.
One of the main reasons in China’s peaceful rise is the role of her foreign policy in facilitating economic advancement and prosperity. The current China’s foreign policy is fundamentally aimed at attaining a “Peaceful Great Power” status in the future through economic development focusing on balancing soft and hard diplomacy in international relations. An important objective in the foreign policy is to build a robust soft diplomacy with developing countries to share her development aspirations. Today, Africa is China’s largest developing country partner followed by Pacific, Latin America and others.
The question now is how should PNG benefit from this new Chinese diplomacy? First in consistent with Vision 2050 it should refocus her foreign policy towards the new shift in power in global politics. It should consider emphasizing a closer economic and trade partnership with China.
China has the economic capacity and capability to assist developing countries as part of her soft diplomacy to achieve economic prosperity. PNG has vast untapped resources which can be developed by Chinese expertise. One of the important economic potential resources is energy which can by converted into energy sources and economic gains. Our foreign policy should embrace international cooperation in foreign investment in the areas f energy innovation and development.
Marketing energy potentials to China is a rational choice in the long run. Energy is the single biggest market in the global market economy and has the potential to transform the economy. If PNG can maximize energy potential through win-win diplomacy with China, I posit she may become the next economic power in the Pacific theater.
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