Default image

East Asia Forum

Australian-American partnership in 21st century Asia Pacific

Author: Robert Sutter, Georgetown University Prime Minister Julia Gillard’s visit with President Barack Obama in Washington highlights Australia’s extraordinary role in American strategy toward the Asia Pacific. Australia is the US partner with the most extensive breadth of vision, interests and resolve to provide advice, criticism and support as the United States works to foster an Asia Pacific order of peace, stability and development. The Australian visitors bring to the table an impressive record of commitment with the United States that is appreciated by all sides in politically fractious Washington: Australia’s elite troops and other support in Iraq and Afghanistan; its initiative in taking the lead in working with the United States in dealing with issues in Indonesia, other Southeast Asian countries and the Pacific Island nations; and its ability to provide perspective and experience for the United States in sometimes complicated interactions with Asia’s rising powers, especially China . Australia’s strong ties with Japan and South Korea are also the foundation for counsel and actions on North Korea’s proliferation and provocations. Despite claims of US ‘decline’ and ‘neglect,’ a comprehensive and effective US re-engagement with the Asia Pacific has emerged over the past year. America relies on and coordinates closely with Australia on these initiatives; the two powers are working together to advance American engagement beneficial to both countries and the region as a whole. The Obama administration’s diplomatic, security and economic initiatives represent the most important shift in regional dynamics in several years. They signal top priority American policy attention to the Asia Pacific region. President Obama reportedly has become convinced that the Asia Pacific is both of major importance to the United States and a world region where greater US engagement would be widely welcomed and beneficial for the United States and for the president’s standing at home and abroad. The significance of the US initiatives has been overshadowed to some degree by China’s often ham-handed treatment of security issues, territorial disputes, maritime navigation rights and other sensitive issues with its Asian Pacific neighbors. Ironically, the Chinese actions have had the effect of reinforcing the importance of the American initiatives. Concerns over China’s actions and intentions have prompted Australia and other Asian Pacific countries to support and engage with the renewed US activism; the regional governments on the one hand position their countries to work positively with rising China in areas of common interests, while on the other hand they prepare for possible contingencies involving domineering Chinese assertiveness. The stronger US engagement ranges across the entire Asia Pacific region. Firm US support for the security alliance with Japan helped Tokyo get its footing in the face of what was widely seen as Chinese ‘bullying’ over fishing disputes involving the Senkaku/Diaoyu Islands. The United States has steadily backed its South Korean ally as it sought support in the United Nations and in military exercises against North Korea’s aggression. The US intervention at the ASEAN Regional Forum (ARF) meeting in July led a collective effort by involving Australia and other participants to defend free navigation and restore stability in the disputed South China Sea . The United States joined Australia in the East Asian Summit, raising the profile of that regional body over Asian-only regional groups. Prominent advances in US military and other relations with Vietnam came in August; President Obama held a summit meeting with ASEAN leaders in September, visited Indonesia, along with India, Japan and South Korea, in November and pledged to be at the 2011 East Asian Summit meeting in Jakarta. Meanwhile, US interaction with small Pacific Island states has been upgraded with annual meetings with the Secretary of State, and New Zealand has seen the most significant breakthrough in its relations with the United States since the rupture of the alliance over 20 years ago. The Australian visitors will want an update on US engagement with Asia, especially the summit with China amid renewed Chinese reassurances and less truculent behavior coincident with President Hu Jintao’s successful visit. They will seek stronger American economic commitment in the region, assessing US follow-through on free trade initiatives with South Korea and the regional Trans Pacific Partnership that involves Australia and is forecast to reach a milestone agreement at the APEC meeting in Hawaii this year. Overall, while there are sure to be some differences in the talks, the strongly converging Australian-American interests and actions forecast a remarkably close partnership in the years ahead. Robert Sutter is Visiting Professor of Asian Studies at the School of Foreign Service at Georgetown University and Adjunct Professor of Asian Studies in the Elliott School of International Affairs at George Washington University.

Russia–Japan territorial disputes, divisive as ever

Author: Tsuneo Akaha, MIIS The Russia–Japan territorial dispute over the southern Kurils/Northern Territories is heating up again. Although the Cold War has long ended, Russian President Dmitry Medvedev’s visit to Kunashiri Island on 1 November 2010 prompted Japanese Prime Minister Naoto Kan to call it ‘an unforgivable outrage.’ Japan claims that the islands of Habomai, Shikotan, Kunashiri (Kunashir in Russian), and Etorofu (Iturup) are not part of the territories it surrendered in the 1951 San Francisco Peace Treaty. The peace accord, Japan claims, did not specify to whom the renounced territories would belong, and the Soviet Union (now Russia) could not and cannot base their sovereignty claims to the islands on a treaty the USSR refused to sign. Moscow and Tokyo agreed in their joint declaration of 1956, which restored their diplomatic relations, that the Soviet Union would return the disputed islands to Japan upon conclusion of a bilateral peace treaty. Both countries ratified the joint declaration. In 1991, the Japanese were encouraged when General Secretary Mikhail Gorbachev acknowledged that there was a territorial dispute between the two countries. They even became hopeful when the first Russian president, Boris Yeltsin, agreed in 1993 that the 1956 joint declaration was still valid. Since then, Japan has continued to insist that all of the disputed islands are inherent territory of Japan and Russia’s control of the islands is illegal. Moscow’s position is essentially that Japan has no claim to the territories because it surrendered the entire Kuril chain in the San Francisco peace treaty. The victorious Soviet Union, therefore, acquired the islands as well as the southern half of Sakhalin Island (the northern half was already Soviet territory before the Second World War) as justly deserved spoils of war — as agreed in the Yalta Conference among the allied leaders. In recent years, the Russian leadership has intensified their appeal to patriotism and used the islands issue to this end. On 7 July 2010, the Russian Duma passed legislation establishing 2 September as the day to commemorate the end of the Great Patriotic War; that date in 1945 being the day when Japan signed the instrument of surrender. On 28 September, President Medvedev and Chinese President Hu Jintao issued a joint statement commemorating the 65 th anniversary of the war and pledged further strengthening of the Sino–Russian strategic alliance. This was followed by the Russian president’s visit to Kunashiri Island, as noted above, and similar visits to the disputed territories by Defense Minister Anatoly Serdyukov, other key ministers and high-ranking officials. Ironically, the Russian leaders’ visits to the disputed islands demonstrate Moscow’s commitment to develop the long-neglected economy of the Russian Far East, including the southern Kurils; an effort in which Russia regards Japan as an important partner. Japan also sees mutual benefits in closer economic ties with Russia, particularly in the energy field. Although the eventual outcome of the territorial dispute is anybody’s guess, there is no question that the level of trust between Moscow and Tokyo must improve substantially if a mutually acceptable solution is to be reached. Several essential elements of trust-building efforts can be outlined. First, it is essential to improve and expand the relationship between the two governments so as to withstand the ups and downs of diplomatic tensions. The two countries need a more comprehensive engagement, particularly in the economic and social spheres, at both national and subnational levels, especially involving communities in the Russian Far East and northern and western regions of Japan. Second, Moscow and Tokyo should advance cooperation over transnational and global challenges; for example, nuclear proliferation, terrorism, climate change, public health (like HIV/AIDS and infectious diseases), alternative energy development, space exploration and new materials development. Third, both sides should encourage creative and innovative ideas that go beyond long-held perspectives which have proven ineffective. For one, Russia might consider returning the Habomais and Shikotan to Japan upon conclusion of a peace treaty, where the two sides commit to negotiating the status of the remaining islands. While the negotiations continued, Japan should offer assistance and encourage private investment in the development of the entire Northern Territories. Both Russians and Japanese might live side-by-side, with disputes between them to be settled in an arbitration board or a court of their choice. Finally, for any compromise to withstand inevitable criticisms at home, the political leaders in Moscow and Tokyo must build their credibility not on their ability to fan nationalism among their citizens but on their ability to ensure sustainable economic development and social stability. Professor Tsuneo Akaha is Professor of International Policy Studies and Director of the Center for East Asian Studies at the Monetary Institute of International Studies, California. China and its territorial disputes: One approach does not fit all China and its territorial disputes: One approach does not fit all Japan must acknowledge ‘territorial issue’ over islands

Mongolia’s ‘third neighbour’ policy and its impact on foreign investment

Author: Julian Dierkes, University of British Columbia Justin Li’s 2 February 2011 post is welcome in that it attempts to analyse the economic development of Mongolia in its political context. It is also significant in that it raises an important aspect of China’s perceived rise in standing and its newly assertive foreign policy, namely that this has a very specific impact on regional (security) dynamics and popular perceptions. Li’s essay mainly focuses on the extent to which politics and populism have got mixed up (I assume that’s how he might see it) with investment decisions. This ignores another political arena entirely: foreign policy. The Mongolian parliament is currently debating an updated foreign policy vision, so this particular point may well shift significantly in the coming weeks/months. Up until now the dominant stated theme of Mongolian foreign policy has been the so-called ‘third neighbour’ policy; that is, attempts by successive Mongolian administrations to build closer ties with partners other than Russia and China, its dominant neighbours. The most prominent third neighbours have been Canada, the EU (as a whole or individual countries, especially Germany and the UK, though they are both currently involved in an extradition case involving Mongolia’s spy chief, Khurts ), Japan, South Korea and the US (built to some extent on the Bush administration’s gratitude for the deployment of Mongolian troops in Iraq and Afghanistan). Mongolia has also pursued strong relations with India, Kazakhstan and Turkey. This third neighbour policy has met with some success, far from the ‘geopolitical nightmare for its leaders’ that Li describes. Japan and Korea are clearly very engaged in Mongolia (beyond the Mongolian invasion of sumo ranks, and the large number of Mongolians working in industrial jobs in Korea). Canada’s first resident ambassador, Anna Biolik, took up her post in 2008 and has since been succeeded by Greg Goldhawk. The US-Mongolia relationship seems to have weathered the transition to the Obama administration. Much of what Li describes in his essay could be interpreted as an investment policy based on this third neighbour precept. It is thus quite rational as long as one accepts the aims of the third neighbour policy. Given that Li’s post focuses on the Oyu Tolgoi project in particular, it may not be surprising, given parliament’s involvement in that decision, that the eventual investment agreement for that project involves third neighbours Australia, Canada and the UK. Sticking with a focus on economics, as Li mentions, China has been the largest investor in Mongolia for over ten years casting doubt on his assertion of irrational and imprudent resentment against Chinese investment in Mongolia. Anti-Chinese sentiment in Mongolia has indeed been stirred up by populist politicians in this period, but it is not clear that it is on the rise, rather than representing an on-going undercurrent. Li implies an upsurge of anti-Chinese sentiment with terms such as ‘rapidly capturing’ or ‘increased fear a hundred-fold,’ yet there is scant evidence that this is really a sudden increase in hostility. The fact that Chinese corporations will quite naturally be the biggest customers of any natural resource projects that are developed in Mongolia does not imply that there are incentives for the Mongolian government that these projects should also be Chinese-owned. The government has no obvious interest in creating integrated supply chains for Chinese corporations. In representing the interests of the Mongolian people, the government may be much better off in keeping initial production of raw materials separate from their sales in order to create opportunities to levy taxes and enforce environmental regulation. As to Mongolian decisions regarding railroad construction, Li might enjoy reading Asia Pacific Memo #11 on ‘Broad Gauge versus Narrow Gauge: The Politics of Dimension in Mongolia’s Railroad System’ by Jargalsaikhan Mendee or my own discussion of shifts in the political landscape in Mongolia just this month. I would, finally, take issue with Li’s use of the term ‘racism.’ Without getting into a fruitless discussion of the racial origins or make-up of different populations, it would seem more appropriate for the anti-Chinese sentiment in Mongolia to be referred to as just that, ‘anti-Chinese sentiment,’ or perhaps xenophobia, rather than ‘racism,’ as Li implies. Julian Dierkes holds the Keidanren Chair in Japanese Research, Institute of Asian Research, University of British Columbia where he also coordinates the Program on Inner Asia. Chinese investment in Mongolia: An uneasy courtship between Goliath and David Getting foreign investment policy and China right How do Australia’s foreign investment rules apply to China?

Anti-Mubarak protests in Malaysia: How Arab issues travel

Author: Farish A. Noor, RSIS The repercussions from the wave of unrest that has spread across Tunisia, Egypt, Jordan and Yemen have been felt in other countries with large Muslim populations. The effects have been felt as far as Southeast Asia with Islamists and pro-democracy activists in Malaysia taking the opportunity to join in the chorus of dissent to express their support for the protesters in Egypt. In the process, what began as an Arab concern has taken on a local meaning in the Malaysian context. On February 4, 2011, a large demonstration took place in Kuala Lumpur, where over 3,000 demonstrators took to the streets after performing their Friday prayers at two mosques close to the United States Embassy. After the prayers the crowds marched towards the embassy, which is a prominent landmark on Jalan Tun Razak — conspicuous by virtue of its size and the heavy security presence there. A memorandum was handed to American Embassy officials, calling on the United States to stop supporting Egyptian leader Hosni Mubarak and to allow for the transition to democracy in Egypt and the rest of the Arab world. Since the pro-Taliban rallies of 2002, the American Embassy has been the focal point of many anti-Western demonstrations in Malaysia, and the pattern of the demonstrations has been largely similar. In the latest incident, the anti-Mubarak demonstration led to the arrest of a small number of protesters and the use of water canons by the police to disperse the crowd. Several salient observations can be made about the 4 February demonstration in KL, which serves as an indicator of US-Malaysian relations at the moment and the level of anti-Americanism that may or may not be prevalent among Malaysians today. Firstly, many of the organisers of the demonstration came from the opposition parties of Malaysia, notably the Pan-Malaysian Islamic Party (PAS) and the Malaysian Socialist Party (PSM). A small representation of Anwar Ibrahim’s People’s Justice Party (PKR) was also at the scene. Notwithstanding the visible support of the PSM Socialists and the secular NGOs, an overwhelming majority of those who took part were Malay-Muslims. Many of the spokesmen and leaders of the demonstration were also leaders of PAS, with its leaders, Muhammad Sabu, Ridhuan Mohd Nor and Salahudin Ayub, the most prominent. Secondly, it is interesting to note that while a PKR divisional chief, Badrul Hisham Shaharin, was present, there were no major PKR figures at the demonstration. Local media reports remained silent over the question of whether members and leaders of the other opposition party, the Chinese-based Democratic Action Party (DAP), were present. Thirdly, there were relatively few arrests and no reports of extreme violence during or after the demonstration. Many of the slogans and banners used Arabic terms and phrases such as ‘ Yahya al-Sha’ab ’ (Long Live the People) and expressed solidarity with the Arabs of Egypt. As the Egyptian crisis escalated, Malaysian authorities seemed more concerned about the need to evacuate an estimated 11,000 Malaysian students studying there, most of whom had been sent to Egypt by the Malaysian government to pursue religious studies. This indicates the extent of contact between the two countries, and may account for how and why Malaysians seemed well-informed of developments in Egypt. The reaction of the Malaysian government has thus far been muted, with Prime Minister Najib Razak noting that it was and remains the right of the Egyptian people to determine their future and choose their respective leaders. The pro-government Malay press has taken a rather dim view of the developments across the Arab world, with the two most prominent pro-UMNO newspapers, Utusan Malaysia and Berita Harian , describing the demonstrations as ‘anti-government activities’ that jeopardise the security and stability of Egypt. The Malaysian opposition — notably the Islamists of PAS — have naturally taken the opposite view and have shown their support for the Egyptian protesters, particularly their compatriots in the Egyptian Islamist movement, Ikhwanul Muslimin (the Muslim Brotherhood). Prominent Malaysian religious leaders like the former Mufti of Perlis, Dr Asri Zainal Abidin, have also waded into the fray, condemning pro-government Egyptian ulama who have been supporting the beleaguered Egyptian leader. At this stage it is unlikely that the anti-Mubarak and anti-American protests in Malaysia will escalate any further (barring an escalation of violence in Cairo or elsewhere). But they serve as a convenient means to rally the opposition and to unite anti-government forces in a concerted effort to single out common opponents; in this case the US and its allies in the Arab world. But this does not necessarily suggest a heightened mood of anti-Americanism in Malaysia. Malaysian Islamists’ perception of the US has remained negative since 2001 and the invasion of Iraq and Afghanistan the following year. Prime Minister Najib has stated that Kuala Lumpur ‘would not allow anything [similar] to happen here.’ Significantly, the ruling coalition — as well as the mainstream media — has refrained from showing any unconditional support to the demonstrators in the Arab world. Farish A. Noor is a Senior Fellow at the S. Rajaratnam School of International Studies (RSIS) at the Nanyang Technological University, Singapore. This article was originally published  here , as RSIS Commentary 13/2011. Can Mubarak follow South Korea’s path? Malaysia: the political tide runs out Malaysia’s Hulu Salangor by-election and harbingers of reform

India’s seasons of inflation?

Author: Mathew Joseph, ICRIER Food inflation is reaching new heights in India, petrol prices have seen a hike for the second time in a month and the crisis is now threatening to arrest the country’s growth momentum. But to put the blame on crop failure alone, as the government is trying to do, is erroneous. Food inflation crossed the 20 per cent mark in December 2009 and remained at that level for several months. Wholesale price inflation moved to double-digits in March 2010. The wholesale price inflation and food inflation did come down from July 2010. After respite for a few months, inflation went up again in December 2010 and indications are that it will remain at uncomfortable levels for some time. The normal monsoon and expectations of a rebound in agricultural output are not providing the usual dampening effect on prices this time. In India, inflation is usually triggered by a poor agricultural crop. And the two successive poor kharif (summer) crops in 2008 and 2009 are considered to be behind the current inflationary situation. But then why has the normal crop of this year failed to subdue the rate of inflation? During the low-inflationary first half of the 2000s, the year 2002–03 stands out. In that year a severe rain shortfall brought down foodgrain production by 18 per cent, leading to a drop in agricultural GDP by 7 per cent. Still, inflation hardly rose in 2002–03 and averaged at about 3–4 per cent, the same as in 2001–02. Why? The seeming anomaly of low inflation in 2002–03 coinciding with a sharp decline in food output is explained by the fact that the previous year had seen a bumper crop which helped replenish public-sector food stocks sufficiently for the government to intervene effectively to keep prices down. The government released adequate grains through the public distribution system as well as open market sales. By contrast, the monsoon failure in 2009–10 followed a subnormal kharif crop in 2008–09; food stocks with the government at the end of 2008–09, and public release of these stocks in 2008–09 and 2009–10, were lower than in 2002–03. Also in 2002–03, the government kept the procurement price the same as in the previous year, except that a special one-time drought relief of Rp20 for a quintal of paddy and Rp10 for a quintal of wheat were added to the existing price. The drought in 2009–10, in contrast, followed a period of continuous and substantial annual increases in procurement prices since 2006–07. It, therefore, added to the upward pressure on food prices. The experience of 2002–03 demolishes the thesis that high inflation is inevitable when there is a crop failure. The fact is that the crop failures in 2008–09 and 2009–10 with no absolute decline in agricultural GDP were much less serious than the drop in 2002–03, when there was a huge decline in output. What mattered was the difference in government procurement, pricing and distribution policies between then and now. The main difference, however, is the demand situation and that mattered more. Since 2002–03, the GDP growth broke all previous records and the economy grew by an average of nearly 9 per cent per annum in the next five years. This implied a rise in per capita income in real terms at nearly 7.5 per cent per annum. During this period the per capita availability of major food crops had been, on the contrary, either stagnating or declining. Thus, while the flare up in inflation from 2008–09 can be attributed to crop failures, the building up of inflationary pressures since 2006 is due to the rising food demand-supply gap during the period. As the global crisis hit the world, all countries followed ultra-loose fiscal and monetary policies in 2008 and 2009. The Indian economy recovered from the second quarter of 2009–10, showing an average year-on-year growth of 7.9 per cent in the last three quarters of 2009–10 against an average growth of 6.1 per cent in the previous three quarters. The growth rate picked up further to 8.9 per cent in the first two quarters of 2010–11. As the economy picked up inflation also rose. Food inflation rose to 17.1 per cent during the last three quarters of 2009–10 from 10.8 per cent in the previous three quarters and further up to 18.8 per cent in the first two quarters of 2010–11. Wholesale Price Index (WPI) inflation rose to 4.7 per cent in the last three quarters of 2009–10 and shot up further to 9.9 per cent in the first two quarters of 2010–11. The Reserve Bank of India (RBI) began its monetary tightening only from mid-February 2010 , initially by raising the cash reserve ratio of banks, and the rate tightening began later from mid-March 2010. Since March, the repo rate has been raised seven times, each time by 25 basis points. The very high food inflation (17.1 per cent) and the CPI(Industrial Workers) inflation (13.5 per cent) during the last three quarters of 2009–10 clearly required the RBI to act earlier . In the short term, the only option available is a harder monetary tightening. It should be difficult to purge out the inflationary expectations that have got entrenched by now. The consequent rise in interest rates is bound to reduce corporate profitability and bring growth down. This is the inevitable cost that has to be incurred for bringing inflation down. Fundamentally, India is confronting a binding food constraint to its growth beyond the 7–8 per cent rate. To avoid a return to the pre-2000 period of inflation, India has to remove all the constraints against a breakthrough in food production. This requires agricultural reforms. The earlier round of reforms carried out in the 1990s were focused on industry, foreign trade, foreign investment and the financial sector, bypassing agriculture. The next round of reforms that is needed for raising India’s potential growth rate beyond 7–8 per cent should essentially have agriculture as an important component. The persistence of high inflation is rooted in the inability to raise food production in step with the rise in demand arising from increasing population and per capita income growth. The present ‘subsidy-control regime’ in agriculture is strangling the farmer and preventing him from achieving a breakthrough in production. The input subsidies provided through low or no price for water, electricity and urea fertilisers not only lead to overuse and erosion of soil fertility, but also ensures inefficient production of these inputs by companies. Farmers can sell their products only through government markets which involve a large number of intermediaries and lower prices. Consumer subsidies administered through the public distribution system lead to low food prices which scarcely reach the consumers as large scale leakages take place. On the other hand, the government’s food procurement with periodical hiking of the procurement prices leads to market shortages and rising food prices. Agricultural reform is the key to controlling inflation. That should involve lifting of government controls on pricing of all inputs and outputs, abolition of the monopsony of government mandis and administering all subsidies through direct cash transfers to poor farmers (owning land below two hectares) and poor consumers (below the poverty line). Mathew Joseph is a Senior Consultant at the Indian Council for Research and International Economic Relations (ICRIER), New Delhi. India: Controlling inflation without hurting growth Indian monetary policy and the RBI – Let’s focus upon inflation India’s need for a counter-inflation subsidy

Rising Asia : development challenges, and high stake in global economic recovery

Author: Maria Monica Wihardja, CSIS, Indonesia The Asian Development Bank, along with Indonesian ministries, including the Trade Ministry and the National Development Planning Ministry, this month held a symposium on ‘Asia’s Development Agenda in Regional and International Fora’ and a consultation meeting on ‘Asia 2050.’ These themes are timely; despite its growth miracles, Asia continues to face development challenges, and its stake in the global economic recovery is high. Asia’s success is not pre-ordained, according to Shigeo Katsu, a senior associate of the Centennial Group, at the Asia 2050 meeting. He suggests that the worst possible scenario for Asia by 2050 would see India and China become trapped as middle-income countries with poor institutions and governance, and growing inequality. At the middle level of development, information networks that sustain small economic activities in non-contractual and relation-based societies would no longer be able to support contract enforcements in large economies. Although state institutions are needed, the scale of activity is not yet large enough to justify the cost of establishing them, rendering the formation of contractual and rules-based societies a failure. Moreover, there are political obstacles associated with people who have sunk stakes in the old system, preventing the establishment of a new system. Emil Salim, chairman of Indonesia’s Presidential Board of Advisors, foresees an unbalanced Asia in 2050 between the  Asia 8 — India, Indonesia, Japan, Malaysia, China, South Korea, Thailand and Vietnam — and the rest of Asia, as dictated by market-based economies. Growing inequality within the countries — between a highly developed urban-based West Indonesia and an underdeveloped East Indonesia; the rapidly modernised coastal areas of east China and poverty-stricken western-most region of China ; and among Indian States with strikingly diverse poverty rates — is also foreseeable. So, is Asia moving in the wrong direction? Or should Asia look more to an equitable and sustainable trajectory? We also see ‘two faces of Asia’ on elements other than economic growth — the first face consists of Newly Industrialised Economies (including Hong Kong, South Korea, Malaysia, Singapore, Taipei and Thailand) plus China and India, while the second face consists of resource-rich, low-income, and less developed countries as well as the small states of Asia. The ‘Asia’s Development Agenda’ symposium stressed three agendas to bring more equitable development between the two faces of Asia, and within country: AID for Trade, Financial Inclusion, and the Social Safety Net. The critical issues for a rising Asia are institutional issues: social norms and culture — issues that are downplayed by many economists. Kaushik Basu, in his new book, Beyond the Invisible Hand (2010) , argues that social norms and culture are as important as law. This can be easily understood if we accept the fact that human beings are social beings — we react to what others do and most of the things we do are shaped by the cultural and social environment in which we live. ‘Equilibrium differences’ are greater than ‘innate differences.’ This is why Asia’s jewels — China, Indonesia and India — may be trapped in a ‘low equilibrium,’ with poor social attitudes reinforcing people’s behaviour, shackling their rise as market-based countries because of poor institutions, governance and political environments. The threat of a ‘middle-income trap’ is real. One other important issue is the regional and global cooperation required to build a more equitable and sustainable Asia . The foreign policies of China, India and Indonesia have been outward-looking and the stakes are high: India hosted leaders from all five permanent members of the United Nations Security Councils last year; Indonesia will host the first expanded East Asian Summit this year with two new members, Russia and the US, and with a possibility of hosting the G20 Finance Ministerial and Central Bank Governors’ Meeting in 2013; and Chinese  President Hu Jintao’s 2011 visit to the U S has set the basis for the coming decades of a bilateral relationship, the stability of which is of global importance. ‘Soft-power’ policies from the region are a priority. Mahendra Siregar, Indonesian deputy Minister of Trade and the Indonesian G20 Sherpa, reminds us that Asia’s outward looking strategies should be geared toward reorienting our focus to how Asia can contribute to the global economic recovery, and not vice versa. Without these elements a ‘rising Asia,’ hidden behind high economic growth figures, will be merely a chimera. Maria Monica Wihardja is a researcher at the Centre for Strategic and International Studies, Indonesia and is a lecturer at the Department of Economics, University of Indonesia. A version of this article was published in The Jakarta Post on 2 February 2010. Obama in Asia Wisdom of an Asia rising Indonesia and the BRICs