At the outset, I would like to express my sincere thanks to Prime Minister Lee Hsien Loong our Singaporean host, Dr. John Chipman and the organisers of the 12th Shangri-La Dialogue for your kind invitation to me to attend and address this important forum. Since its inception 12 years ago, the Shangri-La Dialogue has truly become one of the most substantive and meaningful security dialogues in the region. I do believe that the full presence of government officials, military leaders, prestigious scholars and all distinguished delegates at this forum reflects the interest and the efforts to jointly preserve peace and security in the Asia-Pacific region in the context of a dynamically changing world.
Ladies and Gentlemen,
While languages and expressions might differ, I am sure we all agree that without trust, there would be no success and harder work asks for bigger trust. In Vietnam, there is a saying that ‘if trust is lost, all is lost.’ Trust is the beginning of all friendships and cooperation, the remedy that works to prevent calculations that could risk conflicts. Trust must be treasured and nurtured constantly by concrete, consistent actions in accordance with the common norms and with a sincere attitude.
In the 20th century, Southeast Asia in particular and the Asia-Pacific in general were fierce battlefields and deeply divided for decades. It might be said that the entire region always had a burning desire for peace. To have peace, development and prosperity, it is a must to build and consolidate strategic trust. In other words, we need to build strategic trust for peace, cooperation and prosperity in the Asia-Pacific. That is what I wish to share with you at this forum.
To begin with, Vietnam has a profound confidence in the bright future of development and cooperation in our region. Yet the trend of increased engagement and competition, particularly by big powers, not only offers positive elements but also involves negative risks that require us to take initiative and work together to prevent.
The Asia-Pacific region now enjoys dynamic development and is home to the world’s three biggest economies, and many emerging ones. Here, the trend of multi-layer, multi-sector cooperation and linkages is evolving vigorously and is becoming the prevailing one of the day. This is quite a promising prospect for us all.
However, looking back at the full picture of the region in the past years, we cannot fail to be concerned over the simmering risks and challenges to peace and security.
Competition and engagement are by themselves normal facts in the course of cooperation and development. Yet if such competition and engagement embrace calculations that are only in one’s own interest, without equality, respect of international law or transparency, then strategic trust could in no way be reinforced, and there could be a chance for the rise of division, suspicion and the risk of mutual containment, thus adversely affecting peace, cooperation and development.
The unpredictable developments in the Korean Peninsula; sovereignty and territorial disputes from the East China Sea to the East Sea (South China Sea) that are evolving with great complexity, threatening regional peace and security – firstly maritime security and safety as well as the freedom of navigation – have indeed caused deep concern to the international community. Somewhere in the region, there have emerged preferences for unilateral might, groundless claims, and actions that run counter to international law and stem from imposition and power politics.
I would like to draw your further attention to the fact that maritime transport and communications are growing in scale and acquiring a much greater significance. It is projected that three quarters of global trade will be made via maritime routes and two thirds of that will be shipped across the East Sea. A single irresponsible action or instigation of conflict could well lead to the interruption of these huge trade flows, with unforeseeable consequences not only to regional economies but also to the entire world.
In the meantime, the threats of religious and ethnic conflicts, egoistic nationalism, secessionism, violence, terrorism, cyber security, etc. are still very much present. Global challenges like climate change, the rise of sea levels, pandemics or water resources and the interests of upstream and downstream riparian countries with shared rivers, etc. have become ever more acute.
We should realize that such challenges and risks of conflict are not to be underestimated. We all understand that if this region falls into instability and especially, armed conflicts, there will be neither winners nor losers. Rather, all will lose. Suffice it to say, therefore, that working together to build and reinforce strategic trust for peace, cooperation and prosperity in the region is in the shared interest of us all. For Vietnam, strategic trust is perceived, above all, as honesty and sincerity.
Secondly, to build strategic trust, we ourselves need to abide by international law, to uphold the responsibilities of nations, especially of major powers, and work to improve the efficiency of multilateral security cooperation mechanisms.
In global history, many nations have suffered from irreparable losses when they fell victim to power politics, conflict and wars. In today’s civilised world, the UN Charter, international law and the universal principles and norms serve as the common values of all humanity and must be respected. This also represents the precondition for the building of strategic trust.
Each state should always be a responsible stakeholder in the pursuit of common peace and security. Countries, both big and small, must build their relations on the basis of equality and mutual respect and, at a higher level, on mutual strategic trust. Big states have a greater role to play and can contribute more, but they should also shoulder bigger responsibilities in the cultivation and consolidation of such strategic trust. Besides, when it comes to the right voice or beneficial initiatives, it does not matter whether they come from big or small countries. The principles of cooperation and equal, open dialogue in ASEAN and other forums advocated by ASEAN, as well as this Shangri-La Dialogue, are born from and maintained by such a mindset.
I fully share the views of H.E. President Susilo Bambang Yudhoyono of Indonesia who said last year at this forum that small and medium countries could help lock major powers into a durable regional architecture. I also agree with Prime Minister Lee Hsien Loong on what he said in a speech in Beijing last September: that a reliable and responsible cooperation between the United States and China would positively contribute to the common interest of the region. We all understand that the Asia-Pacific has sufficient room for all intra- and extra-regional countries to work together and share their interests. The future of the Asia-Pacific has been and will continue to be, shaped by the roles and interactions by all countries in the region and the world, particularly by the major powers and certainly, by the indispensable role of ASEAN.
I believe that no regional country would oppose the strategic engagement of extra-regional powers if such engagement aims to enhance cooperation for peace, stability and development. We should expect more of the roles played by major powers, particularly the United States and China – the two powers having the biggest roles in and responsibilities to the future of the region and the world. What is important is that such expectation should be reinforced by strategic trust and such strategic trust must be reflected in concrete and constructive actions of these nations.
We attach special importance to the roles played by a vigorously rising China and by the United States – a Pacific power. We would expect and support the roles of the United States and China, once their strategies and actions conform to international law and respect the independence and sovereignty of nations, to not only bring about benefits to them, but also to contribute genuinely to our common peace, cooperation and prosperity.
What I want to further underline is that the existing regional cooperation mechanisms such as the ASEAN Regional Forum (ARF), East Asia Summit (EAS), ASEAN Defence Ministers’ Meetings Plus (ADMM+) as well as the Shangri-La Dialogue offer opportunities to foster multilateral security cooperation and find solutions to the challenges that arise. Yet it could be said that what is still missing, or at least still insufficient, is the strategic trust in the implementation of those arrangements. The first and foremost thing is to build a mutual trust when confronting challenges; taking account of the impacts of interactions, and enhancing practical cooperation in various areas, and at different levels and layers – both bilateral and multilateral. Once there is sufficient strategic trust, we could advance and expand cooperation and find solutions to any problem, even the most sensitive and difficult one.
Thirdly, when talking about peace, stability, cooperation and prosperity in the Asia-Pacific, we cannot help but mention an ASEAN of unity and consensus, playing its central role in many multilateral cooperation forums.
It was hard to believe that a South East Asia once divided and embedded in conflicts during the Cold War could become a community of nations united in diversity and playing a central role in an evolving regional architecture like ASEAN today. The participation of Vietnam in ASEAN in 1995 marked a new era of development in ASEAN towards building a common house for all South East Asian nations true to its name. The success of ASEAN is the fruit of a long persevering process to build trust, nurture the culture of dialogue and cooperation, and cultivate the sense of responsibility to the shared destiny of South East Asian nations.
ASEAN is proud to be an example of the principle of consensus and mutual trust in the making of its own decisions. That principle is the foundation for equality among the member states, whether it is Indonesia with nearly a quarter of a billion people or Brunei Darussalam with less than half a million. That principle also constitutes the foundation for extra-regional countries to place their trust in ASEAN as an ‘honest broker’ in guiding the numerous regional cooperation mechanisms.
With a mindset of shared interests rather than one of win-lose, the enlargement of the East Asia Summit (EAS) to include Russia and the United States, the ADMM+ process that was put into reality in Vietnam in 2010, and the success of EAS, ARF and ADMM in the years that followed, have further consolidated the ground for a regional architecture in which ASEAN plays the central role, bringing about trust in multilateral security cooperation in the region.
I also wish to refer to Myanmar as a vivid example of the success of persevering with dialogue on the basis of building and reinforcing trust, respecting the legitimate interests of each other, which has helped open up a bright future not only for Myanmar but also for our whole region.
There have been profound lessons learned about the fundamental value of ASEAN’s consensus and unity in maintaining equal and mutually beneficial relations with partner countries and maximising its proactive role in handling strategic issues of the region. ASEAN could only be strong and able to build on its role when it is united as one. An ASEAN lacking unity will by itself, lose its place and will not act in the interest of any country, even ASEAN member states or partners. We need an ASEAN united and strong, cooperating effectively with all countries to nurture peace and prosperity in the region, not an ASEAN in which member states are forced to take sides with one country or the other for the benefit of their own relationships with big powers. We have a responsibility to multiply trust in the settlement of problems, enhance cooperation for mutual benefit, and to combine our national interest harmoniously with that of other nations and of the whole region.
Vietnam and other ASEAN members always desire that other countries, particularly the major powers, support the ASEAN Community’s central role, its principle of consensus and unity.
To return to the issue of the East Sea, ASEAN and China have travelled a long way with great difficulty to come to the Declaration on the Conduct of Parties in the South China Sea (DOC) adopted during the ASEAN Summit in Phnom Penh in 2002. To commemorate the 10th anniversary of the DOC, ASEAN and China have agreed to work towards a Code of Conduct in the South China Sea (COC). ASEAN and China need to uphold their responsibilities and mutually reinforce strategic trust, first and foremost by strictly implementing the DOC, and then redoubling efforts to formulate a COC that conforms to international law and in particular, the 1982 UN Convention on the Law of the Sea (UNCLOS).
We believe that ASEAN and its partners can work together to develop a feasible mechanism that could guarantee maritime security and safety and freedom of navigation in the region. In so doing, we will not only help ensure maritime security and safety, and freedom of navigation, and create conditions for the settlement of disputes but will also assert the fundamental principles of maintaining peace, and enhancing development cooperation in the modern world.
As for non-traditional security challenges such as the security of water resources on common rivers, by building strategic trust, enhancing cooperation and harmonizing national interests with common interests, I believe that we will able to achieve successes, thus making practical contributions to peace, cooperation and development in the region.
Ladies and Gentlemen,
Throughout her thousands of years of history, Vietnam has suffered numerous pains and losses due to wars. Vietnam always aspires to peace and desires to contribute to the consolidation of peace and enhancement of friendship and development cooperation in the region and the world. To have a genuine and lasting peace, the independence and sovereignty of any country, whether large or small, must be respected; and differences in interests, culture, etc. must be subject to open and constructive dialogues of mutual understanding and mutual respect.
We do not forget the past but need to put it behind us and look forward to the future. With the tradition of offering peace and friendship, Vietnam always desires to work with its partners to build and reinforce strategic trust for peace, cooperation and development on the basis of the principle of respect for independence, sovereignty, equality and mutual benefit.
Vietnam consistently persists with a foreign policy of independence, self-reliance, multilateralisation and diversification of external relations, being a friend and reliable partner to all nations, and a responsible member of the international community. Vietnam wishes, and has spared no efforts to build and deepen, strategic partnerships and mutually beneficial cooperative partnerships with other countries. It is also our desire to establish strategic partnerships with all the permanent members of the UN Security Council once the principles of independence, sovereignty, non-interference in the internal affairs of each other, mutual respect, equal and mutually beneficial cooperation are committed to and seriously implemented.
At this prestigious forum, I have the honour to announce that Vietnam has decided to participate in UN peacekeeping operations, first in such areas as military engineering, military medicine and military observation.
Vietnam’s defence policy is that of peace and self-defence. Vietnam will not be a military ally to any country and will not allow any country to set up military bases on Vietnamese territory. Vietnam will not ally itself with any country to counter another.
In past years, sustained high economic growth has enabled Vietnam to increase its national defence budget at a reasonable level but lower than that of economic growth. Vietnam’s army modernisation is only for self-defence and the safeguard of our legitimate interests. It does not, in any way target any other country.
With regard to the present threats and challenges to regional security such as the Korean Peninsula, the East China Sea and the East Sea, etc, Vietnam adheres to the principle of peaceful dispute settlement on the basis of international law, respecting the independence, sovereignty and the legitimate interests of each other. All parties concerned need to exercise self-restraint and must not resort to force or threat to use force.
Once again, Vietnam reiterates its consistent compliance with the ASEAN Six-point Statement on the South China Sea and will do its utmost to work together with ASEAN and China to observe the DOC seriously and soon arrive at the COC. As a coastal State, Vietnam reaffirms and defends its legitimate rights and interests in accordance with international law, especially the 1982 UNCLOS.
Ladies and Gentlemen,
Peace, cooperation and development represent the interest, the ardent aspirations and the common future of all countries and peoples. In the open spirit of the Shangri-La Dialogue, I would call upon you all to join hands and take concrete actions to build and reinforce strategic trust for an Asia-Pacific region of peace, cooperation and prosperity.
Posting granted exclusively for the Modern Diplomacy
(*)Keynote Address at the 12th Shangri-La Dialogue, Singapore, May 31st, 2013
A Reflection on the 2019 White Paper on Vietnamese National Defense
Authors: Do Quynh Anh & Yang Yizhong
Among more than one dozen of the neighbor states of China, Vietnam is of special interest in terms of their mutual relations which are based upon the past legacies, current ideologies and geopolitical concerns. Henry Kissinger wrote in his work On China that “Vietnamese national identity came to reflect the legacy of two somewhat contradictory forces: one the one hand, absorption of Chinese culture; on the other hand, opposition to Chinese political and military domination from time to time. As a result, Vietnam has confronted China with unprecedented psychological and geopolitical challenge”.
This comment is not exaggerated if we look at that Vietnamese have eyed their northern neighbor with suspicion and even fear. Yet meanwhile viewed from China, a strategic nightmare of encirclement might appear if a hostile power(s) work on a coalition with Vietnam, no matter which power is, such as the United States, Japan or the Soviet Union. After the fall of Saigon in 1975, this nightmare seemed to approach rapidly because Vietnam and the Soviet Union formed allies in 1978 and then invaded Cambodia by force. In light of this, China seemed to be in an exceptionally vulnerable position as both north and south of China’s borders were threatened by a two hostile powers. The strategic encirclement of China did disappear in the early 1990s when the Soviet Union collapsed. However, with the rapid rising of China over the past decade, the United States has been more proactive and even outrageous to bring forth in 2010-11 a U.S. “pivot” toward Asia and primarily against China. Since then, the United States has openly made efforts to forge a kind of Asian-version NATO, which would cover its core allies such as Japan and Australia, but certainly Washington eyes India and Vietnam in particular.
It is self-evident that the United States has increased its FDI into Vietnam and even tried to woo the liberal leadership in Hanoi by lifting former arms embargo against the communist-regimes, previously including Vietnam. In order to persuade Hanoi to side with it, Washington has used all kinds of means from political, economic, educational, cultural and even to military to approach Vietnam. Yet, what has Vietnam responded to the United States and its strategic encirclement of China in terms of the bilateral relations and regional stability?
True, Vietnam is a weaker power in comparison to China in all the hard terms. Thus it is sensible for Hanoi to seek for a stronger power to be its strategic partner if not an ally. In light of the de facto alliance between China and Russia, which were the vital allies during the Vietnamese war 45 years ago, Vietnam is also necessary to go to the United States for help. As Stephen Walt argued, when confronted by a significant external threat, states may either balance or bandwagon. Here balancing is defined as allying with others against the prevailing or a perceived threat. In theory and practice as well, states will select their alliance partners on the basis of whether they would ally against or with the external threat.
Taking into account all the concerns, on November 25 Vietnamese government published the2019 White Paper on its national defense and highlighted self-sufficiency and reaffirmed the consistent “Three No’s” policy. More precisely, the White Paper confirms that “Vietnam will not form military alliances with other countries, will not align with one country against another, and will not allow foreign military bases on Vietnamese soil, adding “not use force or threaten to use force in international relations.” The White Paper includes three parts: strategic context; a framework for defense policy; and the development of the Vietnam People’s Armed Forces. Yet, meanwhile the White Paper outlines a commitment to “introduce modern equipment” and continue to build defense and diplomacy ties with the international community. More other priorities are contained in the White Paper such as the requirement to continue to enhance Vietnam’s self-reliance by “building and enhancing weapons and equipment”, and to provide a level of defense investment that is “in line with the country’s economic development”.
In effect, the 2019 White Paper is seen as a sort of public diplomacy by Vietnam with a view to showing its good-will to the international community as in 2020 Vietnam will host 20 ASEAN military-defense conferences and activities, which are regarded as the primary task of Vietnam’s diplomacy for the years of 2018-20. More than this symbolic role, Vietnam is well-aware that rising U.S.-China tensions over freedom of navigation in the South China Sea have increasingly pressured other states, particularly within Southeast Asia, to choose sides. As a key maritime counterclaimant to China’s expansive sovereignty claims in the region, Vietnam in the last a few years has played a delicate balancing act. On the one hand, Hanoi has been working directly with Beijing on confidence-building measures to prevent total Chinese domination of the South China Sea. As Vietnam has worked with China to enhance mutual understanding through pragmatic cooperation between the two countries and two parties. On the other hand, Vietnam is actively pushing back against China by bolstering defense ties to major powers with a stake in maintaining the rules-based international order.
Yet, some scholars argued that the common refrain on the latter point, however, is that no one should get overly excited about Vietnam’s balancing because of the challenges inherent in its “Three Nos” defense policy—that is, no military alliances, no aligning with one country against another, and no foreign military bases on Vietnamese soil. In effect, the Three Nos first made an appearance in Vietnam’s 1998 defense white paper and then reappeared in subsequent papers issued in 2004 and the most recent in 2009. The policy is also mentioned in Hanoi’s new Law on National Defense, which was passed in June and took effect on January 2019. It is quite sure that the Three Nos policy complicate the Trump administration objective, per the National Security Strategy, to bolster Vietnam ties to counter Chinese coercion in the South China Sea and broader Indo-Pacific. Growing U.S.-Vietnam defense ties in the last a few years—headlined in March by the first U.S. aircraft carrier visit to Vietnam since the end of the Vietnam War—appeared to stumble this past fall when Hanoi abruptly cancelled 15 defense engagements for 2019. Hanoi’s decision was probably largely the result of disgruntlement over American crusade against the communists globally, but it also was, at least in part, due to growing concerns with America’s will and capacity to resist the rise of China.
To be sure, there will always be setbacks in diplomacy, yet Vietnamese leaders are very familiar with ancient Chinese statecraft and well employed its principles to significant effect against looming external threats. Historically, they took China against France and then sided with China and the Soviet Union combating the United States, followed by using the Soviets against China. Now both China and Vietnam have realized that the next context is already unfolded between themselves, for example, Vietnam in May 2019 hosted India for an unprecedented joint naval exercise in the South China Sea. It is hard to envision any country other than China that the exercise was aimed at deterring. The same could also be argued about the U.S. aircraft carrier visit. Either way, these occurrences are likely to be relatively rare, since it is patently risky for Hanoi to fully engage in military cooperation with Washington for the sake of both the terms of ideology and national security.
Fortunately, Hanoi has been quite welcoming of many foreign naval port calls to its shores, including from the United States, India, Japan, Australia, European powers, Russia, China, and others. In light of this, Vietnam necessarily makes the engagement fit within the Three Nos policy or keeps the balance of power politics relatively quiet. If Hanoi sees a benefit in a particular defense exchange, it is also the core of classical diplomacy.
What Jokowi’s anti-radicalism cabinet can do for Indonesian security
Jokowi second terms have been preoccupied with the issue of radicalism following the shocking attack to former coordinator minister of politics, law and security, Wiranto. The attack has re-write insecurity of radical movement in Indonesia.
Just in time after the attack, Jokowi needs to prepare his new cabinet as he won the presidential election for the second time. Some promising names have surprised the people namely Nadiem Makariem, Erick Tohir and former Jokowi’s opponent in the election, Prabowo Subianto. But this has not surprised me as much as Jokowi decision to entice 6 former military general to the cabinet.
Coordinator ministry of maritime and investment; Luhut Binsar Pandjaitan, presidential office stuff; Moeldoko, minister of health; Dr. Terawan, minister of defense; Prabowo Subianto, minister of home affairs; Tito Karnavian and minister of religious affairs; FachrulRazi. It was continuing Jokowi image that has a close relation with military figures.
However, some controversy popping up due to Jokowi decision to choose FachrulRazi as the minister of religious affairs. His background was far from his current position. His statement to prohibit niqab for civil servants has responded with a major disagreement. Fachrul acclaimed that it was in order to prevent radicalization in the governmental office while on the other side believed that the minister was affected by Islamist-radicalism stereotyping.
Aside from that, Jokowi himself declare that his decision to put former general at the ministry of religious affairs was in order to counter radicalization movement. Several strategic posts in the ministry have also fulfilled by a former general, such as the ministry of home affairs and presidential office stuff. Even more, coordinator ministry of politics, law and human rights, Mahfud MD, has spoken loudly in public about radicalism, and eager to challenge whoever believed in the idea of an Islamic state.
Introducing non-traditional approach to Counter radicalization
Jokowi keeps his eyes on radical movement as his efforts to maintain political stability in the country. The appointment of several military generals in the cabinet was in order to take down radicalism that has been threatened state stability. Therefore, some observers nicknamed Jokowi second term as ‘anti-radicalism cabinet’, as he put radicalism as something that we must abolish mercilessly.
However, Jokowi deradicalization efforts have not been able to prevent radical movement. Terrorism expert from University of Indonesia, Ali Abdullah Wibisono, argued in the interview with CNN Indonesia, that only about 30% of former terrorists succeeded to prevent recidivism.
It must be a concern for the government as they are trying to prevent the radical movement by using deterrent effect. This approach has been widely criticized by the experts, as Dugan and LaFree suggest that harsh counter-terrorism measures can have a backlash effect. Take, for example, Said Ali Al-Shihri, who was graduated from Saudi deradicalization program, and return to terrorism as deputy leader of Al-Qaeda in Yemen after his released.
Jessica Stern suggested that any deradicalization efforts must be based on a clear understanding of what motivates people to join or leave radical movement. She added that ideology is not an important factor of someone decision to be a terrorist, a survey of 516 Guantanamo detainees found that knowing another member of Al Qaeda was better predictor of who becomes a terrorist than was believing in the notion of Jihad.
Assigning former military general in the ministry of religious affairs to deter radicalization was an oversimplified policy, as Stern indicates in her article that deradicalization program should integrate convicted terrorists to religious reeducation, psychological healing, and assistance in finding their job. Given that, deradicalization was not only about political stability, an institution and foremost the government should also ensure personal and economic security of convicted terrorists.
The convicted terrorist might have social pressure and reluctant to accept in society. Moreover, radical groups that affiliated with international terrorism network tend to have wider potential to return in the radical group after rehabilitation. This has been important to determine through comprehensive assessment as well as a holistic understanding of the human security approach.
Furthermore, political stability and national security have been widely known as Jokowi’s ultimate dream. Yet, the cabinet should not adopt a state-centric perspective to deter radicalization. The radical group has deep rooted societal problems that should be the case for the government to look from a different angle.
Given that, deradicalization efforts have to starts from acknowledgment to protect human security. Therefore, Jokowi anti-radicalism cabinet need to have a clear understanding on societal problem of radical groups, and minimizing the use of force in order to reduce harsh backlash from the radical movements.
Belt and Road Initiative: Challenging South and Southeast Asia
The euphoria about the Belt and Road Initiative (BRI) in Indonesia and elsewhere in South and Southeast Asia (SEA) has been felt since 2017, particularly following the country’s participation in the BRI Summit in Beijing that year, where Indonesia (along with other SAARC and ASEAN member states) was expected to receive massive investments from China to support several infrastructure projects.
This year, the debates concerning the BRI are again becoming prevalent after Indonesia’s Coordinating Minister for Maritime Affairs Luhut Binsar Panjaitan as Indonesia’s representative signed 28 BRI projects last April. Among the various debated subjects is the growing concern about the real nature of the BRI. Is that a Chinese developmental initiative or a geopolitical instrument that uses debt-trap as a tool to bring targeted countries into the desired terms.
The BRI as Chinese debt trap
In the realisation of the BRI, China is targeted to spend US $ 4.4 trillion (Rp 62.7 thousand trillion) which is divided into various infrastructure projects in 65 countries. The funds from China will be disbursed from three main institutions, namely the Export-Import Bank of China, the Asia Infrastructure Investment Bank and the Silk Road Fund. However, the implementation of the BRI caused various kinds of controversy, one of which was related to the fear of a debt trap.
Sri Lanka is one of the BRI participating countries that must give up on China’s debt. The Mattala Rajapaksa International Airport (MRIA) project in Sri Lanka which costed US $ 190 million (Rp 2.7 trillion) with an interest of 6.3 percent did not benefit from the airport’s operations.
As a result, the Sri Lankan government is losing money. This made the country unable to pay debts to China. The inability to pay credit or interest, at the end of June 2016, led Sri Lanka to make an agreement with China in the form of equity (surrendering land for lease) for 99 years to the country.
According to a well-known SAARC strategic analyst based in India, Brahma Chellaney, what China does with its BRI is a debt-trap diplomacy effort, where this type of diplomacy is a bilateral relationship that is interwoven on the basis of debt. In its operations, this type of diplomacy involves a creditor country that deliberately extends excessive credit to the debtor country. If the debtor country cannot fulfill its debt obligations, often the creditor country will make it possible to interfere with economic and political conditions in the debtor country.
Acknowledging this, Malaysian Prime Minister Mahathir Mohamad in August 2018 said his country would stop funding-backed projects from China, including a railway line worth US $ 20 billion as there is a possibility that the country would be trapped in huge debts.
“We should avoid binary categorisations… However, a bilateral approach in developmental strategies historically does not bring back satisfactory results. Besides the Bretton Woods instruments – often enveloped in controversies, do not forget developmental champions. All of them are multilateral institutions of fair conditionalities, of balanced and transparent instruments: UNIDO, ADB, but also Islamic Development Bank, OFID or UNCTAD. If not a loan, ask them at least for advice”, prof. Anis H. Bajrektarevic reminded us recently in Kuala Lumpur at the Economic Forum.
Indonesia and lessons from Malaysia
The same concern is also prevalent in Indonesia, given that the country, in the midst of many of its own problems, the government seemed to be incessantly ambitious to continue to take part in the BRI. It is important to remember that currently Indonesia’s external debt has reached US$387.6 billion at the first quarter of 2019. It consists of government and central bank external debts of US$190.5 billion that have slightly rose by 3.1 percent (year-on-year) and private external debts of US$197.1 bilion that have rocketed by 12.8 percent (year-on-year).
Although the ratio of Indonesia’s external debt to Gross Domestic Product (GDP) is relatively safe at the level 36.9 percent and S&P Global Rating has just raised the long-term sovereign credit ratio for Indonesia from “BBB-“ to “BBB”, the Indonesia’s economic foundation is very fragile.
In 2018, for instance, the massive capital outflow made significant depreciation of the Rupiah against the US dollar due to the hike of Fed Fund Rates and the contagion of Turkish lira crisis. The currency hit about 15,000 rupiah against the greenbacks, the lowest level since the 1998 financial crisis, and made it one of the worst performing currencies in the region.
The extreme volatility of the Rupiah causes payments of interests and foreign debts more expensive. The 1998 financial crisis provided a precious experience that many companies faced default and the country’s economy experience chaos with economic growth of -13.1%. With such conditions, how come Indonesia dear to magnify its debts by signing massive BRI projects?
There is also a concern that the BRI projects is, instead of profiting Indonesia, putting the country at a disadvantage. One example comes from the Palembang LRT project, which has the same potential as the airport in Sri Lanka, is empty with little visitors. In fact, this project must suffer losses with an operating burden of Rp. 8.9 billion (US$618, 545) per month.
By looking at the fact that infrastructure projects have not been able to improve economic growth and to the gap in inequality – especially in the East – as well as various other disputes, the government’s decision to sign many BRI projects is certainly questionable. Also ironic is that the implementation of infrastructure development in Indonesia remains suffering from overt corruption practices. Instead of aiming at the welfare of society, infrastructure projects often become fields of concern for interested parties. Overall, there is a possibility that Indonesia will face Chinese debt trap is it is not careful, which would have negative impacts on the Indonesian economy.
The government needs to be able to make sure that participating in the BRI would not led to its loss. As what Malaysia has done, Jakarta may need to renegotiate with China on the terms and conditions of those projects. Indonesia must realise that China needs them more than they need China as the planned maritime route under the BRI would not be realised without Indonesia. Malaysian case demonstrates that negotiation is possible with China. Failure to do the above, it would not be surprising if what happened to Sri Lanka would also happen to Indonesia.
*Dendy Indramawan is a research assistant at Jakarta-based Institute for Development of Economics and Finance.
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