Australia’s Gareth Evans on political risk in Asian markets

The former Australian foreign minister, Gareth Evans, outlines potential flashpoints for trouble, but in general is optimistic about the future of Asia.
Gareth Evans on political risk in Asia
Gareth Evans on political risk in Asia

Gareth Evans, Australia’s former foreign minister, told investors attending the 14th annual Credit Suisse Asian Investment Conference yesterday that he is “cautiously optimistic about the political-risk outlook” in the region.

Speaking to more than 500 people crowded into the ballroom of the JW Marriott hotel in Hong Kong for lunch, Evans was charming in his realistic-set-up, noting that risk predictions invariably miss the big events, such as the outbreak of World War I, the collapse of the Soviet Union, 9/11 and, more recently, the popular revolutions that have erupted in North Africa during the past few weeks.

Forecasters, he noted, usually get it wrong. He quoted the Berkeley psychologist Philip Tetlock, who during a 20-year period asked 284 experts to rate the probability of various things occurring in three possible ways (the status quo being maintained, or more, or less, of something happening). After analysing more than 82,000 such forecasts, Tetlock reached the famous conclusion that the experts performed worse than if they had simply assigned an equal probability to all three outcomes, and were thus poorer forecasters than dart-throwing monkeys.

Nonetheless, Evans ventured forward and made some forecasts himself. What China will do, not surprisingly, plays a big role in shaping outlooks about stability in Asia. Evans, who is also chancellor of the Australian National University and president emeritus of the International Crisis Group, landed the first caveat to his optimistic view early in his speech, which is to say that we have little visibility on the views of future Chinese leaders.

“Some leaders like Premier Wen Jiabao do seem to understand that the only long-term guarantee of internal stability is to move forward on a serious political reform agenda — and, as he said to the National People’s Congress recently, acting to ‘solve problems that cause great resentment among the masses’. But it is not clear to what extent this view is shared by the next generation of leaders shortly to take office, and by other key elements within a by no means monolithic and united governing structure. On what we have seen so far there is reason for optimism, but it has to be cautious optimism.”

He then noted that while there “is plenty to talk about, had we the time” regarding other internal situations “still festering around the region” in notably Myanmar, to some extent in Sri Lanka, and Nepal, as well as in parts of Thailand, the Philippines, India and Indonesia, “by and large, in-country political risk situations don’t have the potential to generate the wider regional or global-scale uncertainties or catastrophes that would have much greater ramifications for investment decision-making”.

Here’s what could explode
The four big issues that affect political stability in the region are crucial sets of relationships, including those between the US and China, China and its immediate neighbours, China and India, and India and Pakistan.

“If these can all be managed reasonably smoothly, with no more than the normal quota of bumps and grinds along the way, then the future is very bright indeed; but if any of them go bottom-up in a really major way, you’ll wish you’d kept your money in a mattress,” he said.

With regards to the US and China, he noted that the bilateral relationship is currently being reasonably managed by both sides, so that’s good news. Regarding China and its neighbours he pointed out that relationships with Japan, South Korea and Taiwan are all reasonably quiet right now, but there is always potential for a blow-up, noting that every commentator has a favourite flashpoint.

“Beijing’s overwhelming preoccupation is with maintaining internal stability and there is no rational basis for picking foreign policy fights in its neighbourhood or anywhere else. But there is a periodic risk in the current environment of adventurism and overreach, as we saw with some of the posturing — apparently driven by military and resource-focused interests — in both the South and East China Seas in the last year,” he said.

But it is on North Korea where Evans’ insights, as a former foreign minister, are particularly worth noting: “Senior [Chinese] officials privately claim frustration with their inability, however hard they try, to keep North Korea policy, particularly on the nuclear question, on a reasonable track. While some scepticism is in order, China ought to be taken seriously when it says it has to be cautious about applying the food and energy leverage it has, because its overwhelming priority has to be avoiding at all costs triggering the North’s implosion, with all the population movement and regional instability that that would generate.”

As for China and India, which he called the “two home-grown top dogs on the Asian block”, he acknowledged their long history of border and other tensions. He noted that this has been made worse by China’s “fairly conspicuous lack of respect towards the quality of Indian democracy and economic management”. But he doesn’t let India off the hook, noting that its resentment at China’s UN Security Council status, and activist presence in the Indian Ocean, assures that tensions continue to brew.

His biggest worry appears to be India and Pakistan. “So long as relations between these two nuclear-armed states remain as poisonous as they have traditionally been, whether the issue is Kashmir, jihadist militancy, Hindu extremism or the conduct of the war in Afghanistan — it is entirely reasonable for policymakers and investors, elsewhere in the region and the wider world, to remain quite anxious as to where it all might lead.”

Running the risk of being viewed as demented
“Overall in Asia, with the heavy qualification of what I have just been saying about the India-Pakistan relationship, I think it’s right to be cautiously optimistic about the political-risk outlook. I am well aware that to be an optimist about anything in international affairs, in today’s world of recurring disaster and drama, is to run a strong risk of being branded ignorant, incorrigibly naïve and perhaps even outright demented. But, nonetheless, I think there are some solid foundations for me to take that risk,” he said.

One such foundation is his view that the world, notably in Asia, has shifted away from its age-old instinct to resort to violent conflict to resolve problems. He admitted it is easy to lose sight of this fact, particularly considering South Asia continues to generate a great deal of anxiety, but he pointed out that Northeast and Southeast Asia have undergone significant transformations in recent decades, “from being literally the most war-torn region in the world from 1946 to the end of the 1970s, to now being just about the least violent region in the entire international system”.

“Since the end of the Cold War, as counter-intuitive as this will seem to most of you — given what’s in every newspaper you read and every TV bulletin you watch — the truth is that many more old conflicts have ended around the world than new ones have started; the number of major conflicts (those causing 1,000 or more battle deaths a year) have declined by 80%; and the number of those dying violent deaths in such conflicts has also declined by around 80% during the past 20 years.”

His explanations for the reduction of civil conflict includes the ending of the Cold War and its proxy conflicts; rising economic prosperity, which has given strength to states; greater international activism in peace-making, peace-keeping and peace-building; as well as a growing acceptance (even by China, as its non-obstructive vote in the Security Council on Libya last week shows) of growing acceptance of universal human rights, including the responsibility to protect civilians against mass atrocity crimes.

He attributes declining international conflicts to a recognition that the degree of today’s economic interdependence makes war a “crazily counterproductive option”; and also to the international conflict prevention he mentioned with regards to civil war; but finally he noted that there appears to be a “new kind of cultural aversion to war, not previously discernible in human behaviour, after the catastrophes of the 20th century”.

He concluded that another reason to be optimistic is the creation of a region-wide, policy-making architecture in the wider Asia and Asia-Pacific region that might actually work. He pointed out that it has now been agreed that from this year the East Asian Summit will include both the US and Russia, which means an annual meeting of leaders from all the regional stakeholders will take place. But here he was perhaps the most cynical, or should I write realistic, noting that real dialogue and policy cooperation is required.

“What we don’t need is just another expensive series of photo-opportunities for people posing in silly T-shirts making set-piece speeches endorsing pre-cooked, lowest-common-denominator communiqués,” he said.

“But knowing governments and officials as we do, even for the most extreme optimists among us — which I know includes most of you, because if you weren’t you would long ago have all jumped off bridges — achieving that might just be a bridge too far.”

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