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27 October 2021

With Greg Earl

Global disparities

The International Monetary Fund has warned that the pandemic has caused a “dangerous divergence” in the economic outlook of rich and developing countries.

In its latest World Economic Outlook report, the IMF suggests most rich countries will return to their pre-pandemic growth paths next year and will be ahead of them by 2024. By contrast, the output of developing countries (excluding China) will still be 5.5 per cent below pre-pandemic forecasts in 2024, resulting in a “larger setback to improvements in their living standards”.

Consumer spending and investment risk-taking is growing in advanced economies, where 60 per cent of the population is fully vaccinated. Meanwhile, in low-income countries, where 96 per cent of the people are unvaccinated, economic conditions are getting tighter – food prices are increasing, and reduced government support is “raising the risk of social unrest”.

This week, Scott Morrison flies to Rome for the annual G20 summit, where such disparities should be a key agenda item.

But the global architecture is under strain. The IMF is troubled by arguments about whether China should be given greater stature. The Biden administration has been focused on turning the G7 into a G20 lite by bringing more democracies, including Australia, into the fold. And the G20 – which was intended to increase cooperation between rich and poor countries – has lost stature.

At this year’s summit, the G20 is more likely to claim credit for the new global tax on multinationals – which will mostly benefit rich countries – than to take a leading role on the immediate challenges of distributing the COVID vaccine equitably.

Australia is set to benefit from the global tax deal but is also acutely exposed to the risks posed by low vaccination rates in the Pacific – in Papua New Guinea, just 1 per cent of population has had the jab. Morrison should be working to get the G20 back on track.


Telstra steps up

The Morrison government is spending at least US$1.33 billion to help Telstra buy telecommunications company Digicel Pacific in its biggest single initiative under the three-year-old Pacific step-up program.

Telstra will invest US$270 million and may be reimbursed through a preferred return in six years. The government’s contribution has less certain returns.

Telstra was initially approached by the government to provide technical advice on preventing Digicel falling into Chinese ownership, but it is now one of the biggest players in Australia’s Pacific rivalry with China, which has shifted its aid focus towards infrastructure.

Announcing the deal on Monday, Foreign Minister Marise Payne claimed it signals “business confidence in the future of the Pacific region”.

But Telstra CEO Andy Penn hinted at different motivations, saying the deal “represented an important milestone in the company’s relationship with the Australian government”.

The government’s investment is equivalent to more than half the A$3 billion it provided in 2018 to Export Finance Australia and the Australian Infrastructure Financing Facility for the Pacific, created under the Pacific step-up. It also exceeds the announced spending on all other AIFFP projects more than ten times over.

Telecommunications infrastructure is crucial to Pacific tourism and other sectors, and the initiative will certainly have a major impact in terms of Australian regional power.

But some Pacific countries may question whether the money could have been better spent on addressing challenges such as health care and climate change mitigation.


Biden and Taiwan

Joe Biden has raised questions about the US approach to Taiwan’s security by saying it will defend the island in a conflict with China.

“We have a commitment to do that,” said Biden at a town hall last week.

This was the second time in recent months that the president has made unscripted comments that appeared to overturn a decades-old policy of “strategic ambiguity”, which has seen the United States refuse to confirm whether it would defend Taiwan in the event of an attack.

The policy, established when the United States recognised China in 1979, is intended to discourage Taipei from declaring independence and to restrain Beijing from suddenly trying to seize it due to uncertainty about the American response.

The White House once again quickly played down Biden’s latest comments. Biden previously criticised former president George W. Bush for being inconsistent on the issue.

Australia has maintained a similarly ambiguous policy on Taiwan, with some discordant comments from past ministers over the years, but former prime minister Tony Abbott’s recent visit to Taipei was seen by China as a shift in the government’s position.

A strategic clarity policy, which some commentators have been calling for, could create new dilemmas about how to define an appropriate response to different levels of Chinese military intimidation. Supporting Taiwan’s bid to join global agencies such as the World Health Organization might be a better way to bolster Taiwan’s stature as it does not risk a military misunderstanding.



Weekly round-up

Australia lacks the diplomacy to win friends and influence

“Former politicians can bring important attributes to diplomatic jobs in some circumstances, but the current record number of such appointments can only be interpreted as a signal that the government lacks faith in the capability of its DFAT staff, or believes that no particular knowledge or training is necessary … or sees ambassadorial appointments as a costless perk.” Allan Gyngell & John McCarthy, The Australian Financial Review

Assessing Australia’s role in global vaccine equity

“Australia is among the most generous vaccine donors globally. But it has been relatively slow to deliver, favoured bilateralism over multilateralism, and its generosity appears among the most heavily influenced by geopolitical considerations.” Alyssa Leng & Roland Rajah, The Interpreter (Lowy Institute)

Quad’s India problem – no different from Beijing

“Indian nationalism can be no less pungent than China’s, yet a tough-minded Indian government has shown as much grace in submitting to tribunal awards as an equally tough-minded leadership in Beijing has shown a lack of grace in caricaturing the court … On the other hand, Beijing has never denied the freedom of transit in ways that New Delhi enforced, such as in 2015 against a neighbour.” Sourabh Gupta, RSIS Commentary

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Bolstering scrutiny of Australia’s intelligence agencies remains a vexed issue

“As Australia’s national intelligence community has grown and expanded in size and powers in the past two decades, key oversight and accountability mechanisms have remained comparatively unchanged and legislatively constrained. That necessitates enhanced oversight.” Kate Grayson, The Strategist (ASPI)

Is Kishida a dove or a hawk?

“As early as March 2021, Kishida reportedly had talks with key members of his own faction and hinted at his thinking that Japan should equip itself with the ability to strike enemy bases, a major departure from his faction’s traditional dovishness.” Kazuhiko Togo, East Asia Forum

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