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14 April 2021

With Greg Earl

The new capitalism

Last week, the International Monetary Fund initiated a program to let poor countries swap debt for green investments and backed a “solidarity tax” on companies and individuals who have benefited from COVID-19.

In addition, the world financial watchdog expanded its reserves by US$650 billion and used a meeting with the World Bank to urge countries to spend more on vaccine distribution and stimulus measures to ensure a smooth economic recovery from the pandemic.

Clearly, these institutions – especially the IMF – have come a long way from the days when they were criticised for following a US-led “Washington Consensus” on how to run the world economy.

The term “Washington Consensus” was coined during the economic crisis in Latin America in the 1980s, when the region was offered a tough-medicine regime of public spending cuts, tax reforms, privatisation, and liberal trade and foreign investment rules in return for financial support. Similar measures sent Indonesia into a deep economic downturn in 1998.

Though some aid advocates say the Washington Consensus still exists, the IMF and the World Bank have charted a new path, independent of the US government, which involves listening more closely to emerging market countries. This shift has been reflected in the IMF’s response to the pandemic. It says spending on vaccinations will be repaid many times over by a faster recovery.

Australia’s increased aid to the Pacific and South-East Asia last year appears to be influenced by the more expansive thinking on aid modelled by the IMF. Australia was also one of the first countries to take part in converting a new release of IMF capital – known as special drawing rights – into potential funding for poorer countries.

The Morrison government’s comparatively high budget spending during the pandemic was in line with the IMF’s latest advice as well, and the IMF said Australia was showing “strong growth momentum”.

But the IMF’s latest call for governments to temporarily levy higher taxes – or COVID-19 “recovery contributions” – on the wealthy may prove more difficult for the Morrison government to accept.


Biden’s Taiwan clarity

Amid the flurry of daily announcements from the Biden administration, one announcement was easy to miss: last Friday, the decision was made to allow officials to meet representatives of Taiwan on government premises.

The seemingly benign announcement is yet another sign that the new US government is focused on warning China not to cross a vaguely defined red line on the issue of Taiwan. It comes as Beijing threatens to regain control of the island, where nationalists fled after the 1949 communist revolution.

The United States has conducted an unofficial relationship with Taiwan ever since it shifted diplomatic recognition from Taiwan to China in 1979 under a “One China” policy. This has involved the United States placing symbolic restraints on its interactions with Taiwan. Australian diplomacy has followed a similar path.

A State Department spokesperson underlined the significance of the new diplomatic guidelines by describing Taiwan as “an important security and economic partner”, and a “force for good in the international community”.

Since the announcement, US and Chinese naval vessels have shadowed each other in the region, and US secretary of state Antony Blinken has expressed concern about “increasingly aggressive actions by the government in Beijing directed at Taiwan, raising tensions in the straits”.

The United States appears to be shifting from a policy of “strategic ambiguity” – about how and under what circumstances it would defend Taiwan – towards a policy of “strategic clarity”: it will respond if China uses force. It is gambling that it won’t provoke China into military action by getting on the front foot.

Australia has maintained its own forms of ambiguity over the years, but recent US actions may force it to move towards greater clarity as well.


Pacific rollout

Australia has finally outlined a schedule for rolling out COVID-19 vaccines in its neighbourhood as part of a A$632 million aid initiative, despite growing uncertainty over its domestic vaccination program.

Australia will initially deliver about 10,000 AstraZeneca doses a week to Papua New Guinea and Timor-Leste, and it will follow this up with dispatches to Fiji, the Solomon Islands and Vanuatu.

This is the right thing to do, even though it puts the government at risk of a domestic political backlash due to local delivery problems. The initiative is consistent with the warnings of the IMF and the World Health Organization that rich countries will not be secure from the pandemic until nearby poorer countries are also secure.

To achieve that security, the size of the weekly delivery will have to increase substantially. And the Australian government will have to find ways to cooperate with other vaccine suppliers, such as China.

The government appeared to acknowledged this reality when it announced the rollout: “There are multiple pathways to full vaccine coverage,” it said in a press release, “and we will support our partners’ vaccine choices, in line with stringent regulatory authorities approvals.”

China now needs to make the approval data for its vaccines public and cooperate with regional programs, including the Quad Vaccine Partnership and the COVAX initiative.


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Realistic ambitions for US alliance system in Asia

“The United States does not need a sweeping and bold agenda to preserve the existing international order … Focusing on a few key areas is probably good enough, given the cost of the choices China is making.” Kori Schake,East Asia Forum

The Quad (finally) delivers – can it be sustained?

“If China continues to show its teeth and bully others, the Quad is more likely to be sustained. If, on the other hand, China demonstrates restraint, it will be harder to keep it going.” Susan Thornton, The Interpreter (Lowy Institute)

The Gulliver dilemma – Australia and South Pacific security

“Australia is too big for the South Pacific to ignore – and sometimes the giant gets it right, despite those big feet.” Graeme Dobell, The Strategist (ASPI)

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The Australian women who don’t officially exist

“According to multiple sources within the Australian government and in Syria, up to four Australian women remain inside al-Hawl, while around fifteen Australian women and forty children are in the al-Roj camp. They have been trapped there since early 2019 when they were captured in the final fall of IS’s ‘caliphate’.” Anthony Galloway, The Age

China’s Antarctic interest signals a new Cold War front

“China is building its fifth research station in Antarctica and has an indigenous icebreaker building capability – all permissible under the treaty system … Canberra should articulate an ‘Antarctic step up’.” Elizabeth Buchanan,The Australian Financial Review

Free from Australian Foreign Affairs

Not Always Diplomatic, book review by Melissa Conley Tyler

“Spanning thirty-four years, Not Always Diplomatic charts many changes in the status and practice of diplomacy. For instance, communications underwent a revolution during [Sue] Boyd’s career. When she started, the department had one huge computer and a typing pool. She sent messages via telex (an explanation is provided for younger readers). In East Germany, she rightly assumed she would be surveilled and her phone conversations recorded, but she didn’t have to worry about cyber threats.” Melissa Conley Tyler, HERE

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