The Hindu

Column in The Hindu: “Obama’s eastern pivot, made in Asia”

by Samir Saran and Dr. John C. Hulsman
8th of November 2012
Please find here the link to the original article

In his second administration, the form and contours of America’s ‘Asia Focus’ will be determined more by Asians than the U.S.

We live in an era that feeds off slogans and lives the clichés. For the Obama campaign it was the rallying cry “Forward.” And it seems that despite the ruminations of the pundits, who will complicate a straight line, the U.S. has given The President of the United States of America (POTUS) the mandate to march on, without the pressures of having to fight another election. The onus is now on President Obama to deliver on the many domestic challenges that confront his country and certainly on his vision for positioning the U.S. strongly in a rapidly changing world.

So far, the subtleties of the multipolar world — a place where America is a declining Chairman of the Board, beset by new board members with ever-growing market share — had not allowed for a bumper-sticker view of what was going on. Obama’s first term administration articulated its response to this new world in a verbal shorthand. Discussions on American foreign policy and grand strategy have been punctuated with the liberal use of terms like “Asia Pivot,” “Strategic Rebalance,” and “Asia Focus,” popularised by U.S. Defence Secretary Leon Panetta and Secretary of State Hillary Clinton. Attempts to truly decipher the underlying motivations of this new focus on the Indian and Pacific Oceans and what it means practically in policy terms have come to very little — in terms of U.S. force posture, budget (and cuts) and doctrinal shift. In other words, beyond the bumper sticker, what are we really talking about here? And how will this pan out in the second Obama administration?

LOOKING AT THE REGION

It must be clearly understood that the Asia Pivot or its various “avatars” do not signal greater U.S. engagement in and with Asia. It is a powerful historical fact that ever since the country emerged from being an isolated continental island, it has been fundamentally engaged with Asia. The U.S. has been a primary Asian Power since the dawn of the post-WWII world. Its strategic partnerships and security blanket in the western Pacific and in South-East Asia have underwritten the progress and stability of the region. It is undeniable that U.S. deployments, “East of the Suez,” in the 1960s, and in the Malacca Straits have secured trade routes, as well as the movement of energy and wealth that have benefited the Asian economies, just as much as it has helped preserve U.S. oil and market interests in the region.

So why the new slogan about America’s interest in Asia now? What does the U.S. seek to achieve? And how will this change the configuration of U.S. engagement in the region? The official American take on this subject reveals very little and certainly does not answer the pertinent strategic questions. But behind this apparent vacuum, something profound is happening.

First, the Asia pivot is all about transitioning from a world where a single great power reigned, to one where others ascend to great power status. By locking in new and old allies and strengthening its strategic position in the region, America hopes to cushion the blow of a relative global diminution in power. History is replete with examples of premier countries attempting to fight off growing rivals (Edwardian Britain and Wilhelmine Germany come to mind).

Washington is hoping to demonstrate strategic strength as a reassurance to allow for a peaceful realignment, wherein China continues to rise without its ascendancy provoking military conflict. As an American policymaker grandly stated, we are in the midst of a novel experiment where the only Hegemon is “allowing” the transfer of power peacefully (and grudgingly) to a newly-rising power. The only way this works is for basic American interests in the region to be reinforced.

Second, a lot of the “Asia pivot” narrative is about internal American discussions; it is as much a “call to action” allowing America to rouse itself, as it is a reaffirmation of commitment to its allies and new partners. Such a new strategy does away with the most indelible image of America in the new multipolar world, where it is often seen as “Uncertain Sam” or “The Reluctant Eagle.” The pivot to Asia serves as a rallying cry of decisiveness. It is also a blueprint for budget priorities, redeployments and a new and more efficient force architecture that the new administration will need to define given its campaign commitments.

Third, the pivot narrative is a comment on the changed dynamics of the Indian Ocean. Soon there will be the possibility of two or three new powerful navies (India, China and Indonesia) operating in the region. Doubtless, there will be new contests and competition for the role of commissioner of the seas.

Ranged against this, are declining American oil and natural gas interests in play as the coming fracking revolution in America itself allows for a dramatic new domestic growth in energy production. The Asia pivot at once answers why America should continue to care about what goes on in the rest of the world; America may not get its oil from Asia, but all the countries it finds itself interdependent with do. Thus, the Asia pivot sells continuing American engagement to a weary and economically overburdened American public. So, in the end, this is a bumper sticker that actually says something.

AND THE RESPONSE

While all this may explain the American pivot, what is even more interesting is how the region itself will respond. For Asia is, but an artificial grouping of nations painted with one brushstroke. A unified character is indescribable and its evolution is characterised by a mosaic of individual national experiences or, at best, by developments of subregions like Asean.

Today, Asean in a seemingly chaotic manner has accommodated the U.S. as an Asian Power while at the same time economically aligning its path primarily with that of China and some other emerging centres. Asean has in many ways already learnt the fine art of using the U.S. as a strategic balancer; for example during recent Chinese assertiveness in the South China Sea, Asean drew the U.S. in as a very useful offshore balancer. Asean’s finely-calibrated balancing act is likely to continue.

In the short to medium term, India is a key to the “Pivot Paradigm.” For India, China is a natural neighbour. Difficult as the relationship may be, trade between the newly emerging economic giants will only increase, whatever the strategic pitfalls ahead. As the relative economic and political weight of China grows, it is the Indian response that could well befuddle most American planners. Proud of its “strategic autonomy,” the Indian reaction to the pivot will be an outcome of the Chinese approach to and engagement with India. Recent developments show that while China is keen to avoid pushing India to a place where a U.S. partnership seems reassuring, the new-found chauvinism and assertiveness emanating from Beijing is disturbing New Delhi.

Therefore, China itself will ironically determine the contours of the American pivot; the biggest game changer may well be the upcoming changing of guard in Beijing — the mood and demeanour of the new leadership led by Xi Jinping. Paradoxically, and the ultimate sign that we do live in a very different era from the preceding one of American dominance, the form and content of the U.S. pivot to Asia may be determined more by Asians than Americans. And this will test the skills and will of Obama 2.0.

Samir Saran is a vice-president at Observer Research Foundation and Dr. John C. Hulsman is the president of a strategic consultancy firm.

Column in The Hindu: “Looking beyond the honeymoon”

by Samir Saran and Seema Sirohi
New Delhi, 29th of September 2012

Please find here the link to the original article.

The relationship between India and the U.S. is emerging as one of the three that will shape Asia and global politics in the decades ahead, the other two being U.S.-China and India-China

It is rare for the ideas people to be behind the curve but those who say the India-US relationship has been reduced to merely “feel good” meetings and junkets are exactly that — a little behind the curve. Critics in both Washington and New Delhi complain about the preponderance of grand rhetoric which remains unmatched by delivery. Yes, India has signed some significant defence deals with the U.S. but where’s the real beef or the strategic content, they ask.

This reductive description is more a function of the traits typical of people in the two countries — if some Americans are driven by “instant gratification,” their Indian counterparts see “melodrama” as a virtue. But beyond these personality quirks, clues point to a maturing partnership that no longer needs the adrenalin rush of big-ticket developments such as the Indo-U.S. civil nuclear agreement of 2008.

The language

It is apparent that India and the U.S. have made a long-term bet on each other even though the language reflects a cautious discretion bred in political realities. In India it is still not kosher for many to call America a good friend, a useful partner. It is ever so easy to point to the long history of Washington’s coddling of Pakistan and its disregard of Indian concerns as exhibit A. Their counterparts in Washington complain: what has India done for the U.S. lately? Remember the promise of commercial dividends from the nuclear deal?

Fortunately, those who make decisions are largely unfettered by this narrative. They don’t want the present to be completely hostage to the past. They are already moving ahead, pushed by new geographies and challenges. The India-U.S. relationship is emerging as one of the three bilateral relationships that will shape Asia and perhaps define global politics in the decades ahead. The other two being U.S.-China and India-China.

Four trends

The new India-U.S. partnership has four broad trends, which were apparent during recent discussions between Indian parliamentarians and scholars with senior officials in the departments of State and Defence, and at the National Security Council as part of a delegation organised by the Naval Post-graduate School, Monterey Bay and the Observer Research Foundation.

The relationship has moved beyond “parallel actions” where both countries despite a congruence of interests moved separately, whether in Myanmar, the Middle East or Afghanistan. The old distrust has been replaced by a new respect for this kind of independent parallelism, which now seems to be converging. This has opened up the field to a wide variety of issues for frank discussion and an exchange of ideas between the two. From Pakistan to cyber security to space, no subject is taboo.

The two main drivers for American consolidation of thought: an externality called China on the one hand, and internal doubts about the merits of unilateralism, on the other. American people have no appetite for new, expensive engagements. They imagine themselves better off “leading from behind” despite the hawkish clamour from conservative talking heads.

The second noticeable trend is the understanding between the political leadership in both countries, stressed and repeated at very senior levels. In the U.S., bipartisan support for India is public and enthusiastic, putting New Delhi in the sanguine position of not having to fret about a change of administration in Washington this November. In India, the support is pledged quietly and firmly and repeated through itinerant former foreign secretaries and retired generals. The challenge here is to overcome the inertia of the mid-level bureaucracy on both sides which can puncture their political masters’ biggest dreams with pinpricks born of residual institutional memories.

Also apparent is a new appreciation at high levels that the bet on India cannot and should not be purely for its large market. India’s emergence is good in itself because of strategic convergences. Short-term transactional expectations around that odd contract or defence deal gone awry will continue to disappoint, but policymakers understand the need for “patience” — a word that has become part of official U.S. speak on India. The understanding has opened the door to Washington looking at India in the medium-term instead of just for short-term gains. A growing number of thinkers in Washington believe the strengthening of India will be one of the main features of the U.S. presence in Asia this century.

The last and perhaps the most interesting development is the real entry of the U.S. Defense Department to try to “own and guide” the India relationship in ways that were unimaginable a few years ago. Defense Secretary Leon Panetta and Deputy Secretary Ashton Carter have taken a decision to act on some of India’s perennial complaints about tech and weapons transfer to put real meat on the bones. Almost all key U.S. relationships are driven by the Department of Defense (DoD) because of the high element of the strategic content. The trajectory from the early 1990s when the DoD hardly had any interest in India to reach a point where it wants to be the main driver is significant.

Regional issues

This has important benefits. Plain talk is one. Senior U.S. officials have apparently conveyed to the Pakistani generals that India’s strategic interests in Afghanistan far outweigh theirs because India has greater capacity, reach and ultimately more robust goals in the region. So they had better get used to the idea. The de-hyphenation is complete. This attitudinal change is a far cry from even two years ago when the Americans were hedging their bets between the two countries. But today there is greater appreciation of India’s pain. The Americans are equally perplexed about how to deal with a country that has allowed its own slow radicalisation and despite opportunities, has failed to stem the tide.

Where will the new trends lead? There could be a mismatch of expectations and capacity. For instance, the U.S. may now be willing to see India as a key balancer in the region and in Afghanistan. New Delhi, however, may be more comfortable with a far modest role. India is unlikely to agree to be a net provider of security and its strategic outlook may be limited to ensuring that anti-India forces don’t dominate Kabul. The green-on-blue attacks against U.S. troops may have already given the Indian political class jitters about training Afghan forces.

Then there is the brute reality of India itself, which can alienate the strongest ally. The Democrats and the Republicans are united in their support for India but what about the political climate in a country with narrow horizons and where short-term obsessions manifest in “tactical” moves that can derail the country’s larger strategic goals?

Seema Sirohi is a columnist based in Washington DC. Samir Saran, Vice-President at the Observer Research Foundation, was a part of the recent Track-2 interactions with the U.S. establishment.

Samir responds to the The Hindu “Who governs the high sea?”

by Samir Saran
July 2nd 2012, New Delhi
Please find here the original link to the article.
Please find here the original link to the article, Samir responded to.

At the outset it is misplaced to suggest the original opinion in any way lauded the use of firearms or the actions of the Italian Marines. It expresses apprehension that such incidents are likely to recur as armed response to threats on the high seas is seen as a viable one.

The reference to SUA is entirely misplaced. SUA was enacted pursuant to a U.N. Convention to contain acts of terrorism. The application of SUA requires sanction of the Union government. The Kerala government has for this reason made a statement in the Kerala High Court that it will withdraw the charges of SUA against the Marines.

However, one fact may clear the air further and that is the reality that St. Antony (the vessel from Kerala) is a fishing vessel and Enrica Lexie is a merchant vessel with Military Vessel Protection Detachments deployed to protect against piracy in accordance with U.N. Conventions and other laws.

“Incidents of navigation”, should not be misread as the term is interpreted in accordance with the scheme of UNCLOS, especially Article 94(7) which describes various “incidents of navigation” and includes within its fold instances such as the present one. While Article 97 applies to the High seas, Article 58(2) of UNCLOS pertaining to the EEZ specifically incorporates and extends Article 97 and others to the EEZ.

The flag state jurisdiction under UNCLOS is based on the floating territory principle viz., a ship under the flag of a state is under the protection of that state and is subject to the laws of that state. The Indian Merchant Shipping Act excludes fishing vessels from flying the Indian flag. St. Antony is not registered under the Merchant Shipping Act and was not flying the Indian flag. St. Anthony in fact is registered as a mechanised fishing boat and was authorised to ply only within Indian territorial waters, i.e. within 12 nautical miles. Thus the fact that the incident occurred outside Indian territorial waters is not in dispute. Thus there is absolutely no dispute about the jurisdiction of the flag state.

The reliance on the Lotus case is erroneous. The evolution of international law after the 1927 Lotus case has eluded the authors and UNCLOS, 1982 specifically derogated from the principles laid down in the Lotus case and gives exclusive jurisdiction to the flag state (Italy).

Italy is on thin ground on the high seas

Please find here the original link to the article.

Samir Saran and Samya Chatterjee have argued in their article “Who governs the high seas?” (June 26) that India is wrong in prosecuting the two Italian marines aboard the tanker Enrica Lexie for shooting two Indian fishermen. Italy’s contention — which Saran and Chatterjee have echoed — is that Enrica Lexie was under its flag. Hence, in accordance with the U.N. Convention of Law of Seas (UNCLOS), Italy should try the two marines. India’s position is that St. Anthony, the fishing vessel aboard which the two fishermen were killed, was an Indian vessel; and under Indian law and the Convention for the Suppression of Unlawful Acts of Violence Against the Safety of Maritime Navigation (SUA Convention), India has jurisdiction. India and Italy are signatories to both these conventions. But while Italy needs to show exclusive jurisdiction, India only needs to show that it also has jurisdiction.

Saran and Chatterjee do not discuss a larger question that provides a context to this case. This is the issue of Somali piracy and the danger of putting armed guards on board merchant vessels. In their view, the Italian marines were doing something laudable — controlling Somali piracy. What they overlook is the complaint of Somali fishermen that trigger-happy armed guards have been preventing them from fishing.

The collapse of the Somalian state meant that it was no longer able to protect its waters. To a great extent, the present problem of piracy has its origins in the complete collapse of the fishing industry. This collapse can be clearly linked to illegal fishing in Somali waters by foreign fleets and the dumping of toxic wastes.

For the rest of the world, the collapse gained importance only because the consequence — Somali piracy — threatens the trillion-dollar maritime industry. International piracy caused an estimated loss of about $7 billion in 2011 globally. As against this, the total annual illegal fishing losses worldwide is between $10 billion and $23.5 billion. This is the other “piracy” to which the international community is turning a blind eye.

The trial question

In the Enrica Lexie imbroglio, the controversy is not about the facts of the case, but about the question of who has the right to try the two Italian marines. The Italian side — which Saran and Chatterjee endorse — has invoked UNCLOS to assert its jurisdiction. Article 97 of UNCLOS, which Saran and Chatterjee quote, refers to a “collision or incident arising out of navigation” on the “high seas”. The shooting of Indian fishermen was not a collision; nor was it an incident arising out of navigation. It also did not take place on the high seas. At best it took place in India’s economic zone, which under UNCLOS is not defined as “high seas”. Italy is on thin ground here. Even if UNCLOS were applicable, the question of which is the flag state under UNCLOS remains. This requires a legal examination of where the “incident” occurred — on the Enrica Lexie or on the St. Anthony.

A case similar to the Enrica Lexie one was previously adjudicated by the Permanent Court of International Justice in 1927. In this case, a French steamer, the Lotus, collided with a Turkish vessel, the Boz-Kourt, on the high seas, killing eight of her crew and passengers. Upon the French vessel’s arrival in Istanbul, the French crew was tried by the Turkish authorities. France adopted arguments similar to those used by Italy in the present matter.

Holding against the French, the court, inter alia, observed that:

“What occurs on board a vessel on the high seas must be regarded as if it occurred on the territory of the State whose flag the ship flies. If, therefore, a guilty act committed on the high seas produces its effects on a vessel flying another flag or in foreign territory, the same principles must be applied as if the territories of two different States were concerned, and the conclusion must therefore be drawn that there is no rule of international law prohibiting the State to which the ship on which the effects of the offence have taken place belongs, from regarding the offence as having been committed in its territory and prosecuting, accordingly, the delinquent” (Emphases added).

India has also claimed its jurisdiction under the SUA Convention. Dennis Hollis, who writes a well-known legal blog Opinio Juris, writes that under Article 6 read with 3 of SUA, India can claim jurisdiction — an opinion also endorsed by a number of experts in international maritime law.

What remains of Saran and Chatterjee’s argument is that the Italian marines are in the service of the Italian state and so have “sovereign immunity”. If we accept that Indian courts have jurisdiction over the matter, then we should leave it to the courts to decide on this claim.

Prabir Purkayastha is with the Delhi Science Forum. Rishab Bailey is a lawyer.

Column in The Hindu: “Who governs the high seas?”

by Samir Saran and Samya Chatterjee
New Delhi, 26th of June 2012
Please find here the link to the original article.
Please find here the same article published in The Gulf Today.

The civilian trial of the Italian marines is affecting India’s reputation as an upholder of international law.

The International Maritime Bureau (IMB) — the anti-maritime crimes arm of the International Chambers of Commerce in its 2011 piracy report documented that there were 439 reported incidents of piracy worldwide, slightly better than 2010 during which 445 such incidents were reported. The number of such incidents is an indicator of the seriousness of this issue. Nations are responding collectively and individually. While there are macro discussions on collective action, armed escorts, insurance surcharge, armed private security personnel are already deployed by the shipping sector.

India’s growing energy and commodity needs depend on transport through sea routes with high levels of piracy, especially in the Horn of Africa. India will need to devise its own response to this challenge. Are government security personnel, say from the CISF, on board commercial vessels the answer? Or will private security deployment find greater resonance?

Larger issue

Keeping the above in mind, the recent incident of Italian marines shooting two Indian fishermen on February 15 — in what was clearly a case of response based on bad judgment against a perceived act of piracy — ought not to be viewed in an isolated manner. It should instead provoke a more considered discussion on the larger issue of increasing piracy threats, the response by states and shipping sector to piracy and other concomitant legal issues including freedom of navigation. This is important as such incidents are only likely to increase in frequency as armed response to piracy by state and private actors becomes more universal.

At the very outset two questions are important if one is to have any view on this incident. First, did the Italian marines in question act with authority, if so, whose? Second, even if they did, in whose territory does the enforcement of the allegation that they used excessive force lie: Is it the Indian Penal Code (IPC), or is it an international regime that India ratified and accepts?

The position on authority and status of the individuals, i.e. the two Italian marines, flows from an Act of Parliament of Italy, Law Decree no.107 dated July 12, 2007 converted into Law No.130 on August 2, 2011. This was enacted pursuant to the commitment of Italy to fight piracy under the United Nations Convention on the Law of the Sea (“UNCLOS”), pursuant to the U.N. Security Council Resolution 1816. Under this Act, there is the sanctioned presence of military navy detachment on board commercial vessels flying the Italian Flag. The accused were therefore not ex-servicemen, or hired guns, but serving marines deployed on the Italian ship MT Enrica Lexie.

The second critical issue is whether the Kerala police and courts are right in asserting the jurisdiction of the Union of India and hauling serving defence personnel of a foreign military through a civilian process to a local jail. Before we get into settled and accepted principles of international law, another side note must be discussed. There exists a defence cooperation agreement between India and Italy, operational since February 3, 2003. Both the nations have entered into this agreement with a desire to enhance cooperation as they were convinced that such engagement will contribute to better understanding of each other’s security concerns and consolidate their respective defence capabilities. Considering this stated intention to understand, appreciate and cooperate with each other, should the Italian marines not be recognised as military officers at the very least and thereafter given equal treatment to what would have been expected to be served to their Indian counterparts in a similar situation?

Kerala is trying in a civilian court two serving military men for actions they took in defence of their territories (floating), howsoever disproportionate the act appears post facto. Imagine trying a serving Indian soldier in an Indian civil court for an incident resulting from discharge of duty in naxal-infested areas, the northeast or Kashmir which is not deliberately criminal in construct. Section 104 of our Army Act enshrines that any such person accused of an offence must be given over to military custody.

Question of territory

Finally, what of Kerala’s assertion of territory? In the FIR and Remand Report filed by the circle inspector of police, including the report of the Coast Guard, it has been recorded that the incident took place outside the territory of India. After various iterations the Coast Guard finally confirmed that the alleged incident took place at 20.5 nautical miles from the coast line, a location outside the territory of India. The territorial jurisdiction extends to territorial water up to 12 nautical miles from the nearest point of the baseline; beyond territorial waters is the Contiguous Zone extending up to 24 nautical miles; and beyond that up to 200 nautical miles is the Exclusive Economic Zone of India. This is attested to by a reading of Article 3 of UNCLOS to which both India and Italy are signatories as well as the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (“Territorial Waters Act”).

The jurisdiction of criminal courts in India is governed by the provisions of the Criminal Procedure Code as well as the IPC which, inter alia, define the territory of India. The IPC has to be read with the international obligations of India in UNCLOS. Article 97 read with Article 58 (2) states that the courts in Italy have the sole and exclusive jurisdiction in the matter. Article 97 of the UNCLOS clearly states that penal jurisdiction in matters of collision or any other incident of navigation involving penal or disciplinary responsibility lies either with the flag state or the state of which such person is a national. Furthermore, the Act specifically states that no arrest or detention of the ship even in the course of an investigation can be ordered by any authority other than that of the flag state. The Republic of Italy will have jurisdiction under both the above-mentioned provisions.

However, in this instance, it needs to be mentioned that there is a case being built that the Italian marines failed to observe certain standard procedures laid out for countering attempted piracy attacks. The procedure includes promptly informing the IMB reporting centre about the incident, undertaking the best management practices to dissuade suspected pirates and adhering to the principle of “graduated use of force” instead of indiscriminate firing. The lack of adherence to such processes has muddled the waters in a manner of speaking. Nevertheless, this incident, even when seen as a misplaced case of piracy, will certainly be construed as a case of navigation incident leading to an offence unless other mala fide is demonstrated or alleged.

The Supreme Court of India, now apprised of this case, needs to clarify whether civilian courts in India have jurisdiction in such cases. There is an urgent need for a reasoned decision in this case based on international and other precedents keeping in mind India’s maritime interests in the South China Sea and the Horn of Africa. Additional Solicitor-General Harin Raval confirmed in open court that Kerala as well as the Union of India, indeed, did not have jurisdiction. Not surprisingly, ASG Raval was promptly removed from the case as provincial impulse took over. Most coastal states are ruled by a political dispensation different to the one at the Centre and hence domestic politics would plague such incidents in the future as well. An unambiguous interpretation from the Supreme Court is paramount, else India’s reputation as an upholder of international law will be undermined.

Samir Saran is Vice-President and Samya Chatterjee is Research Assistant at the Observer Research Foundation. Views are personal.

Column in The Hindu: “Banking on BRICS to deliver”

New Delhi, 27th of March 2012
Please find here the link to the original article

If conceptualised carefully, the Bank can help rebalance the global economy leading to equitable and resilient growth.

Even as New Delhi prepares for the arrival of BRICS Heads of States towards the later part of the week, media and experts across the world continue to debate the relevance, capacity and cohesiveness of the grouping. The common refrain in the western press is that it is a ‘motley crew’ with little in common and therefore with little capability to create institutions and multilateral platforms of substance. Well, they may be in for a surprise. In fact, BRICS may also surprise itself.

Besides the usual declarations on cooperation on political matters, social challenges, climate and energy, food and water, health and education, industry and trade, BRICS is likely to make two significant announcements this time, which will, in many ways, mark its coming of age. First — the formal launch of the “BRICS Exchange Alliance” in which the major stock exchanges of BRICS countries will offer investors index-based derivatives trading options of exchanges in domestic currency. This will allow investors within BRICS to invest in each other’s progress, expand the offerings of the individual exchanges, facilitate greater liquidity, while simultaneously strengthening efforts to deepen financial integration through market-determined mechanisms. From talking to people in the know, this alliance is good to go, and the operational modalities around currency, settlement cycles and inter-exchange regulatory coordination are all issues that have been thought through and resolved.

‘South-South bank’

The second announcement that has people most interested is on the much discussed “BRICS Bank” or the “South-South Bank” that many consider to be an Indian proposal for creating an institution that can serve the development needs and aspirations of the emerging and developing world. This proposal saw much debate (some heated) at the recent BRICS Academic Forum and surely was a key issue for deliberations at the recently concluded BRICS Finance Ministers Meeting. There are many complex and some contested issues that need to be discussed and thought through, but due to the growing support for such an institution among BRICS it is almost certain that the leaders will, at the very least, announce a working group to study the feasibility and operational modalities of such a multilateral bank. Whether they are bold enough to suggest a time line for its establishment remains to be seen but in the opinion of many, it is an idea whose time has come.

Foremost amongst the reasons for the creation of the institution is the need for BRICS to assume pole position in global financial governance. BRICS nations represent nearly half the world’s population. Two of them are already among the top five economies in purchasing power parity terms, and four are in the top 10. If conceptualised carefully, such an institution will have the potential to reshape and realign the global development agenda positively. It can also help to efficiently redistribute and redirect savings available with the emerging economies to infrastructure and social development in the same regions and, therefore, contribute to the rebalancing of the global economy.

Several multilateral banks already exist, that serve as templates for creating a new institution. The World Bank, which is deeply embedded in the global development narratives, serves as a particularly relevant example. If a multilateral BRICS bank is instituted, its functions would not supplant the role of existing multilateral banks that support development, but rather, supplement them. And this supplementary instrument is needed as multilateral banks such as the World Bank, ADB, etc., have not been growing significantly in terms of the total amount of loans disbursed. While there was a jump in disbursals following the financial crisis, the normalisation process is already under way. On the other hand, demand for funds for infrastructure and social transformation grows unabated in BRICS and the developing world.

But how would the BRICS Bank work? There are doubts expressed in some quarters on the process of capitalisation itself. The Bank would have to raise capital from open market operations; floating debt to finance lending operations. While the reliance on markets for raising capital would make the fiscal asymmetries within BRICS nations irrelevant, the sovereign ratings of some of the members, who will collectively be the shareholders of a BRICS Bank, are barely investment grade. This would limit the amount of capital that could be raised from the financial markets and also affect the cost of capital and therefore the cost of lending. One suggested solution is the sequestration of a proportion of foreign reserves of BRICS members into a trust fund that would back-stop the borrowed capital. In the case of the World Bank, the total paid-up capital is around 10 per cent while the rest is AAA rated ‘callable capital’, which has never been requisitioned. To enhance the creditworthiness further, existing multilateral banks, and other western countries could also be given minority stakes.

China’s role

The second element that is always embedded in the discussions around the bank is the role of China. An impression is sought to be created that with its massive monetary reserves and political clout, China may exert undue influence in this bank. This is unlikely. Such a bank will not require too much paid-up capital (relative to the average size of respective sovereign reserves) if intelligent financial engineering can help sequester foreign reserves. This would mean that the smallest BRICS economy, South Africa, could easily commit an amount similar to that of China in the capital structure. Such doubts could be further allayed with the institution of a rotating Presidency of, say, a two-year term that could initially be restricted to the BRICS countries alone. In any case, the charter of any modern day banking institution with sovereign stakeholders would need to include the mandates of transparency and independence, which would make the institution as viable as any.

The third aspect that remains central to the viability of such a bank is the currency of business. There would be expectations that such a bank would transact in local currencies where possible and in international currency when needed. The bank would need to work with the right currency mix to mitigate credit risk while simultaneously balancing intricate political dynamics within BRICS. For instance, being a current account deficit country, India would not be averse to the U.S. dollar being the currency of disbursal while Brazil with its appreciating “Real’ may prefer local currency. The Chinese may see this bank as a platform for promoting the Renminbi as the currency of choice, especially among the emerging and developing countries. Ultimately, the right mix would need to take into account monetary policy and exchange rate imperatives of each of the primary sovereign stakeholders and in a manner that makes this venture uncomplicated and attractive to other stakeholders as well.

The fourth aspect is the business mandate of such a bank. An effective development bank would have to integrate the multiple economic priorities. Key areas such as infrastructure and the medium and small scale enterprises sector could be natural starting points. The Brazilian Development Bank (BNDES) could be considered an exemplar. The BNDES disbursed close to $140 billion in 2011, with around 30 per cent going to the medium to small enterprises sector (MSME) and about 40 per cent going to large infrastructure projects. The BNDES also played a crucial role in stabilising the Brazilian economy after the financial crisis by stepping up development assistance. Similarly, a BRICS Bank could also assume the role of a financial support mechanism which appropriately responds to the variabilities in the global economy.

Corporations are the primary growth drivers of BRICS economies. They create economic momentum, new business opportunities and, most importantly, in the context of BRICS, employment. The creation of SPVs to cater to the investment and insurance needs of corporations would therefore complement the development agenda. The World Bank’s International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) provide readymade frameworks. The IFC provides investment solutions for the private sector through services such as equity finance and structured finance, while the MIGA provides non commercial risk insurance guarantees. Guarantees against political risk — which is a significant investment constraint in emerging markets — could facilitate a spurt of new business activity within BRICS, and lest we imagine this instrument to be risk-laden, MIGA has paid only six insurance claims since it was set up in 1988 and needs no counter guarantees.

Need for consensus

BRICS is in transition and cannot afford to lose growth momentum. Multilateral institutions such as a BRICS Bank can aid in sustaining directed, equitable and resilient growth. A consensus on the creation of such an institution would be a very real expression of intent by BRICS to craft alternative development trajectories to those passed down by the OECD countries. And it is also time to Bank with BRICS.

Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at the Observer Research Foundation. The foundation hosted the BRICS Academic Forum in March this year.

Book review on “South and Southeast Asia”, The Hindu, November 2010

Emerging geo-political and security challenges
by V. Suryanarayan
November 2, 2010

This compendium of 10 essays, presented at an interaction in 2009 among scholars of the Institute of Southeast Asian Studies, Singapore, and the Observer Research Foundation, New Delhi, covers a wide range of subjects related to the political and security trends in South Asia and Southeast Asia.. They include: the role of extra-regional powers and their growing naval presence in the Indian Ocean; the evolving Asian regionalism; India’s ‘Look East’ policy; the political situation in Myanmar; and the non-traditional security challenges to Asian security.

Since the end of World War II, the pattern of international relations in the two regions has undergone a radical transformation. This is particularly true of the role of external powers in Southeast Asia. Though the relative clout of the United States and Japan has declined, the ruling elite of the region would like Washington to maintain a high profile. The growing economic linkages between China and the United States and between India and China have a momentum of their own. However, China’s recent assertive postures in the Indian subcontinent and the South China Sea have created a sense of unease and have even given rise to suspicion about its intentions and objectives.

In South Asia, profound changes are taking place. The nuclearisation of India and Pakistan has added a new dimension to the troubled region. The struggle for democratic rights, the fight for justice by the ethnic minorities, and the secessionist movements, with covert support from external powers, pose grave challenges to the stability of South Asia.

Given the space constraints that preclude coverage of all the essays, only a limited review touching upon a few of the striking contributions is attempted here. In his analytical piece, “Major Powers in South Asia: What is their game?” Dilip Lahiri projects the scenario that is likely to emerge, one that will have profound consequences. Despite their divergent national interests, the U.S., India, Japan, South Korea, and Australia are likely to come together to ensure that the rise of China is non-threatening and does not disturb the peace and stability of the region. Admiral P.S. Das and Vijay Sakuja examine the roles of China and India as growing maritime powers. China’s deepening ties with the member-states of ASEAN and their consequences are highlighted. Equally interesting, the authors pinpoint the strengthening of the links China has established with India’s immediate neighbours — Pakistan, Bangladesh, Myanmar, and Sri Lanka. In this context, India’s ‘Look East’ policy assumes great significance. As Admiral Das points out, “looking East” is no longer an economic jargon; it is descriptive of the totality of India’s relations with Southeast Asia.

STRATEGIC UNEASE

Discussing the major powers vis-à-vis the security concerns of Southeast Asia, Daljit Singh makes the point that, while China’s image and standing in the region has “improved a great deal”, there is also a “strategic unease” about China on account of its “[huge] size, proximity, growing power, and uncertainty about its long-term intentions.” China’s bilateral relations are driven solely by considerations of realpolitik and strategic interests. Witness Beijing’s continuing support to the military regime in Myanmar, its military aid to Sri Lanka during the fourth Eelam War, and its covert support to Pakistan’s nuclear programme.

From India’s point of view, there is concern over a perceived shift in China’s position vis-à-vis Jammu and Kashmir. Hitherto, it had recognised India’s de facto control of J&K, while, at the same time, advocating a peaceful resolution of the contentious issues with Pakistan through bilateral negotiations. The recent denial of visa by China to Lieutenant General B.S. Jaswal is held out as a pointer to this subtle shift. Many scholars are so blind in their admiration for China and its remarkable achievements that they do not want to see any signal or be reminded of any historical evidence that shows it in a negative light. Such an approach will be detrimental to the interests of India. The essays — contributed among others by diplomats, naval officers and academics — are scholarly, absorbing and stimulating.

Link to original publication.