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Managing the South China Sea: Where Policy Meets Science

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The South China Sea is in a crisis. The problems facing the sea are as vast, deep and seemingly intractable as the oceans themselves.

Rival countries have wrangled over a string of atolls, coral reefs, and islets in this contested region for centuries but now these competing claims are viewed as a serious challenge to peace and prosperity in the region. These disputes, which are associated with continuous coastal development, escalating reclamation, and increased maritime traffic, also draw attention to the destruction of coral reefs and the overall environmental degradation in the troubled waters.

Furthermore, they reveal how claimant nations—the People’s Republic of China (PRC), Vietnam, the Philippines, Malaysia, Brunei, and the Republic of China (ROC) on Taiwan—have a legal and ethical responsibility to ensure that none of their activities harm or create long-term damage to the fragile marine ecosystems.

In this sea of opportunities, uncertainties and threats, environmental degradation remains at the center of scientific conversation as an increasing number of marine scientists sound the alarm about how to address issues of acidification, biodiversity loss, climate change, destruction of coral reefs, and fishery collapses.

With environmental security shaping a new South China Sea narrative about the ecological challenges, this concept represents a crucial effort to link the impact of environmental change to both national and international security.

Paul Berkman, oceanographer and former head of the Arctic Ocean Geopolitics Program at the Scott Polar Research Institute, provided his own definition of environmental security. “It’s an integrated approach for assessing and responding to the risks as well as the opportunities generated by an environmental state-change.” 1

Through studying the sustainability of the biological seascape and navigating the development of science diplomacy to prevent geopolitical battles over the management of marine resources, marine biologists’ efforts to respond to the damage done to the “Global Commons” will require scientific forums and collaborative problem solving among all neighbors.

Last year, the unanimousdecision reached by The Hague’s five-judge tribunal,found that China’s large-scale reclamation and construction of artificial islands has caused severe harm to coral and violated the country’s obligation to preserve fragile marine environments. Furthermore, it denied them any legal basis to claim historic rights over a vast majority of the South China Sea. It was a striking victory for the Philippines, which filed the case. Among many dramatic findings, the tribunal declared China’s so-called “nine-dash line” invalid.

“The Tribunal has no doubt that China’s artificial island-building activities on the seven reefs in the Spratly Islands caused devastating and long-lasting damage to the marine environment,” stated the judgment. 2

In addition, the United Nations Convention on the Law of the Sea (UNCLOS) stipulates in two of the 17 Parts of UNCLOS a direct application to the merits of marine science research with an emphasis on encouraging bilateral and multilateral agreements to create favorable conditions for marine science study. 3

Professor John McManus, a marine biologist at the University of Miami and a notable coral reef specialist, who has regularly visited the region and provided analysis to the tribunal, has stated that based on satellite imagery the environmental damage done by the Chinese’s dredgers and clam poaching is most severe.

McManus has researched this region for over a quarter of a century. He knows that the most important resource in these heavily fished waters is the larvae of fish and invertebrates. As a result, he has called repeatedly for the development of an international peace park in this contested region.

“Territorial disputes have led to the establishment of environmentally destructive, socially and economically costly military outposts on many of the islands. Given the rapid proliferation of international peace parks around the world, it is time to take positive steps toward the establishment of a Spratly Islands Marine Peace Park,” claims McManus. 4

His peace park proposal includes management of the area’s natural resources and alleviation of regional tensions via a freeze on claims.

As early as 1992, McManus was one of several marine scientists who completed scientific articles advocating for an international peace park or marine protected area. Despite the geopolitical SCS intractability, the Spratly Islands appear to him as a “resource savings bank,” where fish, as trans-boundary residents, spawn in the coral reefs and encircle all of the South China Sea waters, before returning home.

Policy makers may do well to take a lesson or two from nature as they examine how best to address the complex and myriad of sovereignty claims.

Even the Association of Southeast Asian Nations (ASEAN) Working Group on Coastal and Marine Environment recognizes that the region faces enormous challenges to sustainability in coastal and shared ocean regions. Unless a scientific ecosystem approach is adopted, trans-boundary marine areas conflicts can and are getting worse.

Since ASEAN’s inception, it has been occupied with the task of identifying shared solutions to common security problems. To a large degree, one may say that security questions have been the driving force for continued regional integration in Southeast Asia. In the future questions of environmental security may play the same role.

According to Karin Dokken, a political scientist at the University of Oslo, “The states around the South China Sea are to a large degree interdependent when it comes to questions of the human environment. They are interdependent to the degree that if they fail to find common solutions to environmental problems they may end up in violent conflict against each other. In general, environmental interdependence is both a source of conflict and a potential for international integration.” 5

Without agreement on these environmental problems there’s a bleak future for the sea. Nearly 80 percent of the SCS’s coral reefs have been degraded and are under serious threat in places from sediment, overfishing, destructive fishing practices, pollution, and climate change.

Challenges around food security and renewable fish resources are fast becoming a hardscrabble reality for more than just fishermen. With dwindling fisheries in the region’s coastal areas, fishing state subsidies, overlapping EEZ claims, and mega-commercial fishing trawlers competing in a multi-billion-dollar industry, fish are now the backbone in this sea of troubles.

An ecological catastrophe is unfolding in the SCS’sonce fertile fishing grounds, as repeated reclamations destroy reefs, agricultural and industrial run-off poison coastal waters, and overfishing depletes fish stocks.

And in 2014, the Center for Biological Diversity warned that it could be a scary future indeed, with as many as 30 to 50 percent of all species possibly headed towards extinction by mid-century.” Fish catches have remained at an unsustainable 10-12 million tons per year for decades—a number that could double when Illegal, Unreported, and Unregulated (IUU) fishing practices is included.

A recent issue of The Economist underscores the importance for science diplomacy: “The littoral states ought to be working together to manage the sea, but the dispute over sovereignty fosters the fear that any collaboration will be taken as a concession.” 6

The lack of any effective international governanceremains at the epicenter of the SCS sustainability problems.As a result, the marriage of policy and science is essential to navigating these perilous geopolitical passages and to provide some science based solutions. Although not a new paradigm, more policy planners and marine scientists appear to be devoting their studies to establish the linkage that places the environment squarelyat center of national security.

After all, the United Nations Environmental Program (UNEP) confirms that the South China Sea accounts for as much as one tenth of global fish catches and by 2030, China will account for 38 percent of global fish consumption. Overfishing and widespread destruction of coral reefs now necessitates the intervention of science policy to safeguard stewardship of this vital area.

While other regions stabilized the size of their fishing fleets, Asia’s has doubled in size and makes up three quarters of the world’s powered fishing fleets.

Sent by their governments to find food for their people, fishers find themselves on the front lines of this new ecological battle. These fishing sentinels and their trawlers are fighting the maritime disputes between China and its neighbors.

This fishing competition for available fish has resulted in increased number of fishing vessel conflicts. These hostile sea encounters have been witnessed in Indonesia waters where 23 fishing boast from Vietnam and Malaysia were accused of poaching in that nation’s waters.As a result, Indonesia’s fisheries minister, Susi Pudijastuti, ordered the dynamiting of these boats and over 170 fishing vessels have been sunk in their waters over the past two years. The increasing number of fishing incidents reflects not only deeply different interpretations and application of the law of the sea, but a fundamental conflict of interest between coastal states and maritime powers.

Foreign Policy magazine asserts that these fishing incidents and direct acts of violence is significant “because it underscores how central fishing is to the simmering territorial disputes that are turning the South China Sea into a potential global flash point — and how far countries are willing to go to defend their turf, or at least what they claim is theirs.” 7

Within the disputed territory, there are over 1.9 billion people, seventy-five percent of them living within one hundred kilometers of the coast. Nearly eighty-five percent of the world’s fishers are concentrated in Asia, particularly in the South China Sea, according to the Food and Agriculture Organization of the United Nations.

Subsequently, fishing remains a politically sensitive and emotionally charged national security issue for all claimant nations. This ocean plundering presents the region witha looming food crisis. Any effort to balance the economic benefits with the security context within the South China Sea will require a coordinated, multi-level response from scientists, historically engaged in collaborative research and already addressing issues of sustained productivity and environmental security in the region.

The immense biodiversity that exists in the South China Sea cannot be ignored. The impact of continuous coastal development, escalating reclamation and increased maritime traffic is now regularly placed in front of an increasing number of marine scientists and policy strategists.

Marine biologists, who share a common language that cuts across political, economic and social differences, recognize that the structure of a coral reef is strewn with the detritus of perpetual conflict and represents one of nature’s cruelest battlefields, pitting species against species.

While traditional diplomatic and military tactics are not completely exhaustedin the latest round of diplomatic salvos between China and the U.S., perhaps the timing is excellent for the emergence of science as an optimal tool to bring together various claimants, including Brunei, China, Malaysia, the Philippines, Vietnam, and Taiwan in the highly nationalistic contested sea disputes.

For several decades, science has been adopted as a diplomatic tool for peace building by many countries, including the United States, and there are many organizations that strengthen global scientific relationships. Formed in1848, the American Association for the Advancement of Science is the largest scientific organization in the world and houses a Center for Science Diplomacy that effectively builds cooperation and collaboration. The Center’s journal, Science and Diplomacy, provides a forum for open policy discussion.

Also, representatives from the Soviet Union, the United States, and 10 other Eastern and Western bloc countries to use “scientific cooperation to build bridges across the Cold War divide, and to confront growing global problems on an international scale” established the International Institute for Applied Analysis (IIASA) in 1972. Since then, the institute has developed a mission with the help of 24 national member organizations to bring together a wide range of scientific skills to provide science-based insights into critical policy issues in international and national debates on global change.

Although nation states have different approaches toward science diplomacy, in general this type of diplomacy is defined by the American Association for the Advancement of Science (AAAS) as (i) science in diplomacy (science to inform foreign policy decisions); (ii) diplomacy for science (promotion of international scientific collaborations); and (iii) science for diplomacy (establishment of scientific cooperation to ease tensions between nations) (The Royal Society 2010). In that sense, it is widely accepted among environmental policy planners that science diplomacy positively contributes to the terms of conflict resolution.

As such, science diplomacy is not a completely new approach to international relations in general, and to South China Sea dispute management in particular. However, at this moment it seems that this type of diplomacy has raised two important questions in efforts to successfully settle the South China Sea dispute, namely: should we do it? And can it be successful?

What’s clear is that an insightful understanding of historical and scientific perspectives in the context of both Arctic and Antarctic environmental policies offers valuable lessons for possible adoption in the South China Sea. The Antarctic Treaty system involved seven claimant nations by 1943. Others signed a treaty in 1959 by 12 countries, including the seven claimants, and later to a total of 53 nations. Because of the leadership of scientists, they set Antarctica aside as a scientific preserve and recognized it as a multilateral, trans-boundary peace park in 1998.

The success of the treaty was predicated on three key elements: 1) a freeze on claims (no modifications or additions to existing claims are allowed. 2) a freeze on claim-supportive activities (nothing a claimant does during the time of the treaty can be later used in support of a claim), and 3) joint resource management.

To be clear, science diplomacy does help by directly and indirectly promoting confidence building among the parties involved in the South China Sea dispute. Science diplomacy, characterized by scientific cooperation activities, has contributed to solving many trans-boundary issues among nations sharing the same marine waters and in marine areas beyond national jurisdiction. Also, environmental monitoring successfully offers a context for countries to express their true perception of the region without being affected by other nationalistic, political, or economic factors like sovereignty or foreign policy direction.

As a result, it provides claimants and other parties involved in the South China Sea with an effective way to evaluate the political willingness of other partners and policy makers among the claimants, as well as a better understanding of the overall picture of what is happening in the South China Sea.

Consequently, claimants can be more confident in future cooperation on other issues. In other words, science diplomacy can establish a useful and convenient starting point for regional cooperation to deal with not only international environmental problems but also the achievement of a South China Sea settlement in particular and the region’s prosperity and peace in general. 7

The role of science diplomacy in solving illegal fishing in the South China Sea can be seen as an example. Fishermen act as sentinels in maritime territorial disputes where nations already employ naval forces to bolster sovereignty claims. In the contested waters, clashes between the claimant governments and foreign illegal fishermen continue. In that regard, the prospect of South China Sea claimants going to war over access to fishing waters is a real and immediate threat. 8

However, compared to other issues like the claims over sovereignty, science diplomacy’s approach to fishery collapse may be one of the most urgent but least sensitive problems, as it can be solved without provoking nationalism and other traditional concerns which are currently much higher than they need be in the region. Simply put, science diplomacy provides the parties involved in the South China Sea disputes with a rational and transparent way to avoid the worst while looking for the best.

The timing for a joint scientific declaration for urgent action on an environmental moratorium on dredging is much needed. Recent biological surveys in the region and even off Mainland China reveal that the losses of living coral reefs present a grim picture of decline, degradation, and destruction. More specifically, reef fish species in the contested region have declined precipitously to around 261 from 460 species.

After all, this environmental change is a global issue that holds no regard to sovereignty. The destruction and depletion of marine resources in the Spratly Islands harms all claimant nations. Perhaps, citizens from the region, who are directly impacted by the environmental attack on their sea and their fragile coral formations, can create something like a Coral Reef Action Network, similar to the Rainforest Action Network.

Protected marine reserves are an emerging tool for marine conservation and management. Sometimes called “ecological reserves” or “no take areas,” these marine protected areas are designated to enhance conservation of marine resources. 9

Vietnam, another claimant nation is wasting little time responding to the region’s environmental challenges and is fast-tracking its own model marine protected area program.

Cu Lao Cham is located about 20 kilometers off Vietnam’s central coast. The Cham Islands is a marine protected area (MPA) that was established by the Provincial People’s Committee of Quang Nam Province in December 2005. Professor Chu Manh Trinh, a 53-year-old Da Nang University biology professor, is largely responsible for mapping out the agreed upon objectives of protecting natural resources, and cultural and historical values of the Cham archipelago. In 2009, the area was designated a World Biosphere Reserve by UNESCO.10

“Yes, it took a sustained educational campaign to convince the population that conservation would provide long-term benefits to their way of life,” claims Trinh. 11

The senior marine science expert goes even further in reinforcing that the coral reefs in the Paracels and Spratlys need to be carefully protected for the whole East Sea region, that is not only for the life of fish but the life of people in the region and the world.

Vietnam has adopted marine protected areas to address present and future food security issues. These MPAs play an important role in the development of the marine economy; improve livelihoods of coastal fishing communities, and also serves to protect national sovereignty claims.

Scientific and policy cooperation required

This paper’s position is that it’s time to bring together the most qualified scientists who have experience studying the marine biodiversity and environmental sustainability in the troubled SCS waters to participate in a science policy forum.

While other types of diplomacy tend only to solve issues at the state level, like sovereignty or territorial integrity, science research cooperation in the South China Sea is aimed at a more “down-to-earth” approach, namely ensuring that fishermen can fish safely, marine products are unpolluted, and marine resources are protected correctly.

Their collaborative work may lead to the successful development of a South China Sea International Science Commission. As a result, their scientific efforts may then inspire the Association of Southeast Asian Nations (ASEAN) to cooperate in responding to regional resource management by issuing a call for a moratorium on any further damaging reclamation work.

Of course, China has many excellent coral reef scientists of its own, who recognize it is in the best interests of Beijing to protect coral reefs, maintain sustainable fisheries, and to eventually avail themselves of ecofriendly tourism once tensions decline.

Thus, it came as a surprise and somewhat of a mystery to scientists last year why China insisted that the portions of the coral reefs on which they have built consisted of dead corals.

Dr. Wu Shicun, president and senior research fellow of the National Institute for South China Sea Studies, claims that the Spratly Islands are territory of China, and that his country has adopted “green engineering” measures before, during, and after the completion of its entire reclamation in the South China Sea in order to protect the region’s ecology.

In an email, Wu claims that, “China carries out its construction projects on the inner reef flat where corals have basically died. China gathers loose soil for its land reclamation on the flat lagoon basin, which is not fit for coral growth. China has adopted “natural simulation,” applied a new type of “cutter-suction dredging and land reclamation method,” and has paid attention to the spread of sediment floating in its construction.”

There are many inconsistencies associated with China’s assertions about conservation.  The most revealing includes Google satellite images that identified hundreds of these clam “cutter boats” operating on an unidentifiable reef located between Thitu Island and Tieshi Jiao referred to now as “Checkmark Reef”,where large areas of sand and dead coral were piled into arc-like ridges. In most of the area, there was not a single living organism—no visible sea urchins, sea cucumbers, worms, corals or other organisms present.

Revisited satellite imagery of the Spratly Islands, which is freely available on Google Earth, confirms that for each of China’s newly constructed islands, the cutter boats had been operating on the reef prior to construction. Thus, it seems likely that when the coral reef scientists had been asked to assess each potential site, they truthfully reported that the coral was dead.

Professor McManus claims that “these areas of living coral reef would have been killed as the sand and silt from dredging and island construction leaked out to envelop them, just as is happening around the cutter boats. It can take a reef in these areas a thousand years to create a meter or so of gravel, sand, and silt, and so places from which they have been removed are essentially permanently altered.” 12

The common ground shared by all claimants is that an increasing number of South China Sea fisheries are hurtling towards collapse and this translates into a looming environmental security issue, and the outcome is all too likely to be conflict. The global scientific, conservation and legal communities must unite to halt the coral reef destruction, biodiversity loss, and fisheries depletion.

China with the world’s largest fleet of deep-sea fishing vessels is plundering the ocean to feed their enormous population. China’s distant-water fishing fleet has grown to nearly 2,600 vessels (the United States has fewer than one-tenth as many), with 400 boats coming into service between 2014 and 2016. The data is clear: these unsustainable fishing practices threaten food security for the region and the world. 13

Since there remain serious concerns about what will happen next to address further ecological damage, it may be thatscientific interest and environmental objectives in the region could strengthen diplomacy within both legal and scientific frameworks and lead to cooperation and to insuring environmental security for all in the region.

For ASEAN, the South China Sea links their global economies, remains an energy-shipping route and provides the essential sea lanes between Southeast Asian islands. With an escalation of fishing boat clashes, ASEAN leaders may be taking notes on how to reduce fishing incidents rather than to resorting to sending more fleets into the commons.

For many policy observers, it’s odd that while ASEAN countries quickly reached a consensus to issue statements to address the terror attacks in Istanbul;they failed to be united on the international tribunal’s ruling.

Since last year’s tribunal decision was the first international rulingon the South China Sea, it offered an opportunity for measured steps towards peace and security. Of course, ASEAN has demonstrated a weak institutional capacity to address complex political and environmental issues simultaneously, but the world, including the United Nations and Washington are watching carefully how international law and its application on various claims can lead to a peaceful and lawful path forward.

Lawrence E. Susskind, a Ford Professor of Urban and Environmental Planning at Massachusetts Institute of Technology (MIT), also raises the issue of China’s support for science diplomacy. He asserts that although China did not join a few of the science diplomacy initiatives in the past, Beijing has its own agencies to deal with environmental issues. 14

However, it’s telling that China is not among the states that share data with the Pacific Tsunami Warning Center in Hawaii (PTWC), which collaborates with countries all over the globe to warn at-risk populations of impending tsunami. Conversely, China established its own tsunami-warning center in the South China Sea, which it counts among its diplomatic rationales for its South China Sea activities. So China may already have its own science policy in the South China Sea, which could simultaneously prove both diplomatic and controlling. Consequently, Beijing may tend not to protest other, similar initiatives.

The Philippines and Vietnam have time and again chosen to look at the South China Sea as a sea that binds rather than divides claimant nations by trying to promote cooperation on common interests.

The Joint Oceanographic Marine Scientific Research Expedition organized between the Philippine Maritime and Ocean Affairs and the Vietnamese Institute of Oceanography provides evidence that science offers confidence-building opportunities through diffusion and exchange of information on marine resources. There have been three joint science operations conducted between 1996-2007 covering the southern part of the South China Sea. 15

Informal conversations are now taking place between the Philippines and Vietnam about reviving joint maritime research activities in 2018.

But the crucial point here is that the assemblage of the South China Sea is increasingly shaped in scientific terms. Nevertheless, it’s painfully clear that today’s ecological policy issues face formidable challenges to inform policy deliberations. As the disposition of regional maritime space becomes greater, adding seabed research, geology and mapping, deep-sea biology, underwater archaeology, cultural registers, environmental symposia, and marine protected areas, it revealsmore avenues for thecreation of common ground for all claimants. In this unfolding maritime drama, science offers all claimants the ability to monitor and to intervene.

Although science diplomacy is not a completely new approach to solving conflicts in general and in South China dispute management in particular, the urgent adoption of such a peace-building mechanism by all claimants is desperately needed.

Perhaps a few of these suggested actions directed to all claimant nations marine scientists and policy shapers may bolster peace building in the region:

  • Create regional Marine Science Council to address environmental degradation issues;
  • Expand science cooperation among ASEAN marine scientists through more informal workshops;
  • Provide an ASEAN regional cooperation science framework that mobilizes countries to address trans-boundary issues;
  • Place aside all territorial claims;
  • Establish complete freedom of scientific investigation in the contested atolls and reclaimed islands;
  • Foster dialogue for a proposed marine peace park;
  • Propose a science-led ASEAN committee to study the Antarctica Treaty and the United Nations Environmental Program initiative under the East Asian Seas Action Plan;

ASEAN does recognize the importance of fisheries to food security and to the economy. Because China has become the world’s top producer and exporter of fishery products, there’s more responsibility for them to operate in alignment with shared sustainable practices among their neighbors.

If there are to be any fish left in the contested sea, an ASEAN ecological agreement––led by Brunei, Malaysia, the Philippines, and Vietnam––can steer others to unite around a proposed international peace park or at the very least, a cooperative marine protected area situated prominently in the Spratlys.

It’s the first step in supporting trust and confidence among neighbors and in implementing a common conservation policy.

After all, coral reefs are the cathedrals of the South China Sea. It’s time for more citizens and policy shapers to join the chorus and rally around marine scientists so that they can “net” regional cooperation and ocean stewardship to benefit all before it’s too late.

Endnotes

1.Berkman, Paul, Power point presentation. http://www.envirosecurity.org/arctic/Presentations/EAC_Berkman. 
pdf

2.https://pca-cpa.org/wp-content/uploads/sites/175/2016/07/PH-CN- 20160712-Press-Release-No-11-English.pdf

3.Nordquist, Myron H., Ronan Long, Tomas H. Heidar, and John Norton Moore, Ed.

                2007    Law, Science & Ocean Management, Leiden/Boston: Martinus Nijhoff Publishers. Pp 271-293.

4.http://www.csmonitor.com/World/Asia-Pacific/2016/0720/In-South-China-Sea-case-ruling-on-environment-hailed-as-precedent

5.http://www.tandfonline.com/doi/abs/10.1080/09512740110087311

http://www.economist.com/news/leaders/21650122-disputed-sea- growing-security-nightmareand-increasingly-ecological-one-sea- 
troubles

Hong, Nong. “Marine Environmental Security as a Driving Force of Cooperation in the South China Sea.” Paper presented at Taiwan and the 2016 Elections: The Road Ahead- The Twenty-Fourth Annual Conference on Taiwan Affairs, Walker Institute of International and Area Studies University of South Carolina, September 24, 2016.

Bergenas, Johan, and Ariella Knight. Secure Oceans: Collaborative Policy and Technology Recommendations for the World’s Largest Crime Scene. Washington, DC: The Stimson Center, 2016 https://www.stimson.org/sites/default/files/file-attachments/Secure-Oceans.pdf.

http://foreignpolicy.com/2016/04/07/fishing-disputes-could-spark-a-south-china-sea-crisis/

http://marineprotectedareas.noaa.gov/pdf/helpful-resources/factsheets/reserves-factsheet2014.pdf

Interview conducted with Professor Chu Manh Trinh in Cu Lao Cham June 2, 2016.

Panelist Dr. John McManus at the East West Center in Washington DC on May 3, 2016.

https://www.nytimes.com/2017/04/30/world/asia/chinas-appetite-pushes-fisheries-to-the-brink.html

https://lawrencesusskind.mit.edu/blog/we-need-science-diplomacy

http://www.international-relations.com/CM7-1WB/SouthChinaSea.htm

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Southeast Asia

Infrastructure Drive, Strong Domestic Demand to Sustain Philippine Growth

MD Staff

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The Philippines’ economic growth is expected to sustain its quick pace in 2018 and 2019 as the government’s infrastructure program is rolled out, says a new Asian Development Bank (ADB) report.

In its new Asian Development Outlook (ADO) 2018, ADB projects Philippine gross domestic product (GDP) growth at 6.8% this year and 6.9% in 2019, up from 6.7% in 2017. Rising domestic demand, remittances, and employment, in addition to infrastructure spending, will drive growth. ADO is ADB’s flagship annual economic publication.

“Along with domestic demand, the government’s infrastructure investments will fuel the country’s growth in the next few years, supported by a sound economic policy setting,” said Kelly Bird, ADB Country Director for the Philippines. “We expect this growth to further lift wage employment numbers, add to household incomes, and benefit more poor families across the archipelago.”

The Philippines remained one of the strongest growing economies in Southeast Asia in 2017. Domestic investment recorded 9% growth last year, moderating from a brisk 23.7% in 2016, although growth in fixed investment in industrial machinery, transport equipment, and public construction remained robust. Household consumption grew by 5.8% in 2017, from 7% in 2016, on the back of higher remittances and employment, with the unemployment rate falling by 1.3 percentage points to 5.3% in January 2018 as 2.4 million jobs were added. Public spending rose by 7.3% last year from 8.4% in 2016.

Consumer price inflation reached 3.2% last year from 1.8% in 2016 due to strong economic growth, higher international fuel prices, and Philippine peso depreciation, but well within the 2% to 4% target by the Bangko Sentral ng Pilipinas—the country’s central bank. The country’s external debt further declined to 23.3% of GDP in 2017, from 24.5% of GDP in 2016.

Moving forward, ADB projects services will continue to drive GDP growth, along with manufacturing and construction industries. The approval of the Tax Reform for Acceleration and Inclusion law in December 2017 will augment tax revenues and provide additional fiscal space for more progressive public spending. The policy reforms are expected to yield additional 90 billion to 144 billion Philippine pesos ($1.73 billion to $2.76 billion) in tax revenue collection in 2018 and 2019, respectively.

With economic growth gaining momentum, inflation is projected to reach 4% in 2018 as global oil and food prices rise, and higher excise taxes on some commodities take effect. In 2019, meanwhile, inflation is expected to marginally decline to 3.9%.

The report notes there are external risks to the Philippines’ growth outlook from heightened volatility in international financial markets and uncertainty about global trade openness, although the country’s strong external payments position would cushion these effects.

A major policy challenge to the country’s growth outlook, according to the report, is managing the rollout of the government’s “Build, Build, Build” infrastructure program, which is expected to raise public infrastructure spending to 7.3% of GDP by 2022 from 4.5% in 2016. The report provides suggestions on ways to enhance government capacity, including strengthening coordination between government agencies and improving technical capacity of staff within these agencies, and fostering stronger partnerships between government agencies, the private sector, and development partners.

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Securing the future prosperity of the Greater Mekong Subregion

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The Greater Mekong Subregion (GMS) countries have made stunning progress over the past quarter century. Once plagued by poverty, they are now economic success stories.

The GMS Economic Cooperation Program has contributed significantly to this transformation. Since it was established in 1992 as a means to enhance economic relations and promote regional cooperation, its six member countries—Cambodia, the People’s Republic of China, Lao People’s Democratic Republic, Myanmar, Thailand, and Viet Nam—have built a platform for economic cooperation that has mobilized almost $21 billion for high-priority infrastructure projects. Foreign direct investment into the subregion has surged ten-fold and trade between its countries has climbed from $5 billion to over $414 billion.

But the subregion faces challenges to its prosperity. Further reducing poverty, climate change adaptation and mitigation, energy efficiency, food security, and sustainable urbanization remain priorities of the GMS Program. Countries also face new challenges, including growing inequalities, rising levels of cross-border migration, and the potential impact on jobs of the fourth industrial revolution.

Moreover, GMS countries have agreed to significant commitments under the Sustainable Development Goals and the Paris Agreement on climate change.

There are also emerging opportunities for the region, including incorporating new technologies in various sectors such as education, agriculture, health, and finance. GMS countries are situated at the crossroads of South and Southeast Asia, and hence they can benefit from the increased momentum for growth in South Asia.

As GMS leaders gather this week in Ha Noi to chart the future of the program, it’s a good time to consider how a new generation of initiatives can ensure the GMS Program remains relevant and responsive to the subregion’s needs.

The Ha Noi Action Plan and the GMS Regional Investment Framework 2022, both proposed for adoption at the Summit, provide a platform for countries to strengthen their cooperation through continuous innovation. These two documents will have a sharpened focus on the GMS Program’s strategic goals of enhancing connectivity, competitiveness, and community in the subregion.

Connectivity, the first objective, has been dramatically improved. More than 10,000 kilometers of new or upgraded roads and 3,000 kilometers of transmission and distribution lines have been added under the program. These transport networks have been transformed into an interconnected network of transnational economic corridors, building on 25 years of work to extend the benefits of growth to remote areas. The Ha Noi Action Plan calls for the continued expansion of these economic corridors to boost connectivity both between and within countries.

The subregion’s competitiveness is improving through ongoing efforts to facilitate transport and trade flows, enhance agriculture exports, and promote the GMS as a single tourism destination after receiving a record 60 million visitors in 2016. Looking ahead, it will be important to continue cutting red tape and to remove remaining barriers to transport and trade.

Finally, communities are being strengthened through cross-border initiatives to control the spread of communicable diseases, expand educational opportunities, protect the subregion’s rich biodiversity, and mitigate the impacts of climate change.

GMS countries have identified a new pipeline of 227 projects worth about $66 billion under the GMS Regional Investment Framework 2018–2022. These projects will expand economic prosperity by developing cross-border transport and energy infrastructure.

ADB, which has been the program’s secretariat since its inception, expects to provide $7 billion over the next 5 years for a range of projects supporting transport, tourism, energy, climate change mitigation and adaptation, agribusiness value chains, and urban development. This builds on more than $8 billion in financing provided by ADB so far under the program.

To deliver these projects and make headway on other priorities such as infectious disease control and environmental preservation, strong partnerships are vital. The GMS Program depends on the collaboration of many stakeholders, including local administrations and communities, development partners, academia, and the media.

The GMS will benefit from strengthened partnerships with other regional and global cooperation platforms, leading to new opportunities for future development.

Partnerships with the private sector will also be increasingly important, and it is gratifying to see them deepening through the GMS Business Council, the Mekong Business Initiative, the e-Commerce Platform, GMS tourism and agriculture forums, and the recent Finance Sector and Trade Finance Conference.

I am optimistic that the subregion will meet its challenges and capitalize on emerging opportunities. By working together, GMS countries can deliver rapid, sustainable, and inclusive growth for another 25 years and beyond. ADB will continue to be an important and trusted partner in that endeavor.

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Vietnam continues to reduce poverty

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Poverty in Vietnam continues to fall, particularly amongst ethnic minorities, who saw their rate of poverty decline significantly by 13 percentage points, the largest decline in the past decade, says a new World Bank report.

According to Climbing the Ladder: Poverty Reduction and Shared Prosperity in Vietnam, released today by the World Bank, improving income from highland agriculture can help Vietnam further reduce poverty, which has fallen by almost 4 percentage points since 2014, to 9.8 percent in 2016. Ethnic minorities – many of them living in highland areas – account for 72 percent of Vietnam’s poor, and encouraging them to grow more profitable industrial crops may improve their earnings.

“Vietnam has achieved tremendous results in reducing poverty and improving the quality of life for millions. The decline in poverty amongst ethnic minorities is encouraging, and more focused efforts on improving their incomes can further broaden their opportunities and reduce persistent inequalities,” said Ousmane Dione, World Bank Country Director for Vietnam. “The aspirations of those with less opportunities cannot be ignored.”

Outlining recent trends and patterns of poverty in Vietnam, the report proposes solutions for that untapped agriculture potential in highland areas where the poor are concentrated. Land use and cropping decisions, for example, contribute more to agriculture income differences between households. Low-income families in highland areas use their land to grow basic crops such as rice or maize instead of raising more profitable crops such as coffee, black pepper, or rubber.

Improving access to credit may help highland farmers make the necessary investments for higher-earning agricultural production. Strengthening earning capacity can help narrow inequalities between groups.  The average per capita consumption of ethnic minorities, for example, remains less than 45 percent of the Kinh and Hoa. Moreover, the poor faces a widening gap in terms of access to upper secondary education and improved water and sanitation.

At the same time, the report recognizes that 70 percent of Vietnam’s population is now classified as economically secure, including the 13 percent who are now part of the global middle-class. These income classes are growing rapidly, rising by over 20 percentage points between 2010 and 2017. An average of 1.5 million Vietnamese joined the global middle class each year since 2014, confirming that households continue to climb the economic ladder after escaping poverty. The rise of the consumer class changes society’s aspirations and the focus of the poverty and shared prosperity agenda shifts from combatting extreme poverty to effecting broad improvements in the quality of life and supporting the further expansion of the middle class. Rapid job creation and an ongoing transition to wage employment are driving gains in poverty reduction and shared prosperity.

The report suggests several areas of strategic priorities to further reduce poverty and promote shared prosperity, including:

  • Boosting labor productivity and investing in infrastructure to sustain job creation and wage growth without losing competitiveness.
  • Implementing education reforms designed to equalize opportunities and develop workforce skills.
  • Spurring agriculture structural transformation through changing farmland use patterns, strengthening land user rights, and improving skills of the poor farmers.

While reducing inequality remains a challenge, the report notes that the number of individuals vulnerable to falling back into poverty declined to only 2 percent between 2014 and 2016. In contrast, the period saw the middle class expanding by more than 3 million people.

One of the prioritized areas under the new World Bank Group Country Partnership Framework with Vietnam for the period from FY18 – FY22 is inclusive growth, with a specific objective for the “economic integration of the poor and vulnerable groups” under which the Bank will provide support for targeted interventions to expand economic opportunities for people in lagging areas.

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