Feb 6th 2017

Rising Political Risk in Asia

by Daniel Wagner

Daniel Wagner is CEO of Country Risk Solutions, a Connecticut-based cross-border risk advisory firm and author of the book Managing Country Risk. CRS provides a range of services related to the management of cross-border risk. He is also Senior Advisor with Gnarus Advisors.

As the world continues to gyrate from the political paradigm shift under way with the rise of ‘alternative’ political movements, many countries will struggle to adjust to the ‘new normal’. For developing nations and emerging markets, the stakes are particularly high as, in many cases, their ability to continue to grow economically and maintain social order will depend on the continuation of a delicate balance between the rights of individuals, protection of domestic industries, minimizing income disparity, and maintaining security. Doing so becomes more difficult when the status quo elsewhere is in the process of being disrupted. Those governments that fail to anticipate the pace and depth of change may in the end fall.

         Several pivotal countries hold the key to how political change manifests itself in Asia in 2017 and beyond. Apart from the obvious influence of China, India, and Indonesia, some of the smaller and hitherto less influential nations may hold the key to just how dynamic political change in the region becomes. The Philippines has already proven that it can punch well above its weight by dramatically altering its political, security and military status quo. Its embrace of China has already succeeded in upending decades of bilateral and multilateral norms.

Another country that has the potential to alter the landscape is Malaysia, which has also extended its hand to China. Under Prime Minister Najib Razak, the government’s simultaneous embrace of the country’s Pan-Malaysian Islamic Party raises question about whether it may ultimately adopt some elements of Islamic Law, which Indonesia is also in the process of doing. Will other countries that have had an historical orientation toward the U.S. change that, as the Philippines has done, and shift toward China? Will the embrace of some aspects of Islamic law in Malaysia and Indonesia result in an inexorable move toward Islamic law more broadly with time?

Asia faces a number of key risks in 2017. If China were to overstep its bounds while flexing its muscles, widespread condemnation in Asia and beyond could result in heightened tension throughout the region. If the U.S. were to overcompensate for missing the mark in implementing its Asia Pivot and ramp up its military presence in the South China Sea – which the Trump administration threatens to do -- that would also naturally heighten regional tension. Should North Korea successfully launch long-range ICBMs, a stern response from the U.S. is likely to result, and the threat of war could spiral out of control. If the Indonesian government fails to successfully manage its Muslim extremist groups, regional terrorism could rise. And if Myanmar’s ‘experiment’ with democracy proves to be a failure, all the progress that has been made could be lost, with the military reassuming control of the government and other democratic movements in the region losing impetus as a result.

         The continuing rise of economic nationalism is perhaps the biggest threat to cross-border trade, investment and lending in Asia. Since so many Asian nations depend on international trade to maintain economic growth, a deterioration in the global trade regime will have a potentially severe impact throughout the region. A gradual rise in oil prices will place economic pressure on consuming nations. The continuing slow decline in China’s economic growth will surely be felt around the region. And as multilateralism continues to erode, and the U.S. either threatens to withdraw or actually withdraws its membership from many of the world’s most important trade and investment agreements, as it has with the TPP,  a variety of Asian countries will undoubtedly wish to do the same thing, which could lead to a vicious circle of de-multilateralization.

         Depending on how the U.S. addresses the ongoing disruption of the status quo in Asia in the coming four years, it will either choose to yield to China’s rise or exist in tandem with it. The U.S. knows it cannot supplant China’s rise, even as Beijing’s growth rates continue to decline in the longer term. The limited success of America’s Asia Pivot demonstrates the challenge any nation has in projecting its power long distances in the 21st century. The same will be true of China, as it develops its blue water navy.

That said, the U.S. is not in danger of becoming irrelevant; It has too much history and too many significant allies in the region. It is, however, in danger of becoming less relevant over time. As China, India and Indonesia continue their rise, and as Asia’s tiger economies continue to grow and mature, America’s political, economic and security role in the region will become less significant, and less meaningful. China is the logical country to pick up the slack, but when and how will this be done?

What seems clear is that 2017 presents a degree of rising political risk to Asia that has not been seen in quite some time. Asia is much better prepared to address the idea of radical political change than it has been in the past, with democracy firmly entrenched in most of the region, but history has shown that a single event can upset the proverbial apple cart, and quickly. It will be incumbent upon Asian governments, and its people, to resist the urge to over-react to the shockwaves emanating from the U.S. and Europe. If it is able to do so, Asia will find that it richly deserves the high expectations the rest of the world is placing up on it, and may serve to show the rest of the world how a diverse range of countries can weather political change while maintaining stability.

*Daniel Wagner is Managing Director of Risk Cooperative and co-author of the new book “Global Risk Agility and Decision Making”.


First published in the South China Morning Post, posted here with kind permission of the author


Daniel Wagner can be reached at: dwagner@riskcooperative.com or 1-203-570-1005.




 


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