Friday, November 14, 2014

Obama loses his shine in Asia as Xi and Putin steal the limelight

Barack Obama has lost impetus in his "pivot to Asia" policy. At home, his approval rating has fallen to a horrendous 40 per cent. The midterm elections saw his Democratic Party routed by the Republicans, who have taken control of both the Senate and the House of Representatives.


The Republicans have pledged legislation to undo all Obama's key legacies, most notably Obamacare. With two years left of his presidency, Obama looks like a sitting duck. His weakened stance in American politics has led to an awkward presence at summits in the Far East. At the same time, his Russian counterpart Vladimir Putin has emerged in Forbes' ranking as the most powerful person in the world for the second year in a row, eclipsing Obama in almost all aspects of global leadership.

In his Far East trip to the Asia Pacific Economic Cooperation Summit in China, the East Asian Summit in Myanmar and the G-20 Summit in Australia, Obama has been left with just two cards to play - the Trans-Pacific Partnership trade deal (TPP) and the South China Sea arrangement. Both issues are designed to counter China's influence in Asia. At the Apec meeting, he sought to push the TPP free-trade agreement, which excludes China, but to no avail. The strategy behind the deal is to maintain the status quo of the dollar regime.

President Xi Jinping of China dominated the Apec meeting with a proposal for a two-year study on a free-trade deal in Asia-Pacific, ahead of its deployment by 2025. China is thus playing its own game by moving forward in consolidating its financial muscle and economic clout via bilateral yuan swap agreements and other regional deals. China's single-minded aim now is to push for its yuan to become the world's international reserve currency, at the expense of the dollar.

China recently launched the Asian Infrastructure and Investment Bank, with 21 countries in Asia agreeing to join. The bank's aim is to finance infrastructure projects within Asia, where demand for funds is likely to hit $10 trillion over the next 10 years. India alone will require $5 trillion in fresh financing to fulfil its needs for infrastructure projects to cope with its rapid economic development. Eventually, the Asian Infrastructure Investment Bank will provide loans in yuan as part of broader efforts to dethrone the dollar as the world's reserve currency.

The US succeeded in persuading South Korea, Indonesia and Australia not to take part in this development bank, which it views as a rival to the World Bank and the Asian Development Bank. But China's growing clout and deep pockets are hard to resist. Many Asian countries are now more reluctant to follow the US in confronting China. Even Prime Minister Shinzo Abe of Japan has found it necessary to take a more conciliatory approach towards China. Still, his meeting with Xi could not bridge the wide gap of differences between the two North Asian giants.

Any US hopes of using the South China Sea territory dispute to contain Beijing are likely to remain unfulfilled as the balance of world power tips quickly towards the Russia-China axis and the G-7 scramble to put their financial houses in order.

At this weekend's G-20 Summit in Australia, Obama will again be playing along with a broad agenda to stabilise global economic and financial conditions and to find a way to boost growth. Yet most of the developed economies are still facing a debt overhang from the 2008 financial crisis, which hasn't gone away.

A proposal to tackle the "too-big-to-fail" banks will be one focus of the G-20's attention as they grapple with the prospect of a fresh global banking crisis. Under the proposal, the banks will no longer be bailed out with taxpayers' money from their governments. Instead, they will be required to raise huge capital as a cushion against bank runs or potential loan losses in the future. The bail-in measure is defensive in view of the deteriorating global conditions, amid which the BRICS (Brazil, Russia, India, China, South Africa) will now chart their own affairs instead of waiting for instructions from the US as they did in the past.

Against this backdrop, Obama is losing his shine on the international stage, while Putin and Xi are making a greater impact in global affairs.


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