Bolivian President Evo Morales traveled to Peru yesterday to meet with his Peruvian counterpart President Ollanta Humala. Bolivia’s access to the Port of Ilo and surrounding territory and the expansion of port facilities were presumably key issues to be discussed. In 1992 then Peruvian President Alberto Fujimori offered Bolivia access to this territory with a 99-year, potentially renewable lease. The understanding was that Bolivia would cover the cost of building the requisite infrastructure. Though the treaty was never ratified its status was of relatively little importance as La Paz lacked the funds to invest in the project. In recent years the Bolivian economy has improved to such a degree that it has the capital which it lacked in the past. For this reason the implementation of the agreement is a key geopolitical imperative for La Paz as it would functionally change Bolivia from a landlocked country to a maritime power.
Bolivia has been fairly successful in recent years. The country’s economy grew an estimated 6.5% in 2013, the budget is balanced, inflation is under control, and debts are manageable. Though the country's success has been aided by the high price of commodities in recent years and thus is subject to market fluctuations (it is already estimated that 2014’s growth will be lower than in 2013) the fact that La Paz has foreign reserves worth an estimated $14 Billion gives the country room to maneuver. Such a nest egg could help fund the expansions of Ilo’s port. Bolivia is also attempting to reduce its dependency on primary commodities. In August 2013 Bolivia and the Netherlands signed a letter of intent in which they agreed to cooperate in developing Bolivia’s substantial lithium deposits to manufacture batteries in Bolivian territory. Though a letter of intent is not a firm agreement, access to adequate port facilities would make Bolivian batteries more competitive thus the development of Ilo could help to transform this letter of intent into a legally binding document. The development of the port could also afford Bolivia the opportunity to set up Export Processing Zones and profit from the types of manufacturing that has helped countries, such as China, develop. Linking the port to the Interoceanic Highway (which connects Brazil to Peru) would also help Bolivia further expand its manufacturing industry and make the country’s exports more competitive.
Access to the sea has long been a contentious issue in Bolivia. The 1879-84 War of the Pacific saw a victorious Chile seizing Bolivia's coastal territory. Bolivia has long sought to address this issue. In April 2013 Bolivia filed a case against Chile with the International Court of Justice. Despite Peru's success in reclaiming land from Chile last month we must note that the cases are different so Peru’s victory is not a precedent which will see Bolivia reclaiming the territory that it lost during the war. Access to Ilo mitigates this issue. No matter what happens the combination of access to adequate port facilities, a well managed economy, developing infrastructure, positive growth, and valuable resources will go a long way towards restoring the investor confidence which Bolivia lost in 2006 when President Morales put the country’s energy sector under state control. Many investors are pulling out of emerging markets for a variety of reasons such as tapering. Exiting emerging markets without taking the time to differentiate between them is short sighted and could stop investors from putting their money in a place where it could contribute to economic development and provide impressive returns. Bolivia may very well be one of these places.
Friday, February 28, 2014
Friday, February 21, 2014
The Impact of Turkish, Georgian and Azerbaijani Infrastructure Projects on European and Asian Markets
On Wednesday the foreign ministers of Turkey, Azerbaijan and Georgia met in Ganja, Azerbaijan to discuss regional cooperation. This is the most recent step in the ongoing integration of the three countries which, amongst other things, links Caspian energy resources to the Mediterranean. This development is occurring at a time when the instability in Ukraine calls into question the viability of that country as a transit state for energy that is intended for Europe. After all the deep divisions between Eastern and Western Ukraine and the reality that the opposition movement is highly fragmented makes it questionable that today’s concessions by the Yanukovych administration will lead to long term political stability in Ukraine. Existing and proposed infrastructure in the Azerbaijan, Georgia, Turkey corridor could help offset disruptions that instability in Ukraine might produce.
In 2012 the Trabzon Declaration called for stronger economic, energy and political relations between Ankara, Tbilisi and Baku. This declaration formalized an existing pattern of relations between Turkey, Georgia and Azerbaijan which has resulted in several important infrastructure projects. The Baku-Tbilisi-Ceyhan (BTC) Pipeline transports crude oil from the Caspian Sea to the Turkish coast of the Mediterranean. This pipeline is complemented by the Baku-Tbilisi-Erzurum Gas Pipeline which aids the export of natural gas. The Baku-Tbilisi-Kars Railway is expected to be completed by the end of 2014. This corridor will connect Azerbaijan, Georgian and Turkish railways and will expand freight service which should make the export of raw material from Central Asia more economical. These projects can help develop the region and could serve as an important source of primary commodities for Asian and European markets.
Despite Turkey’s current political turmoil, the ability to serve as an energy corridor to the Mediterranean benefits whoever is in power in Ankara while the expansion of rail services would help Georgia and Azerbaijan’s exports. For these regions all parties have an incentive to cooperate. Though Russia will not want to see its control over energy exports to Europe lessened it is important to note that Moscow could benefit from these projects. For example, there are ongoing talks between Moscow and Baku to reverse the flow of oil through the Baku-Novorossiysk Pipeline with the intent of sending some of the oil through the Baku-Tbilisi-Ceyhan Pipeline which in theory could be a more economical manner for Russia to serve some of its European clients. There have also been proposals to link regional railways to Russian rail infrastructure which would aid Russian exports. Though it is likely that Russia would attempt to stop the development of an alternative energy source to Europe it is not unreasonable to think that the development of an alternative energy corridor in which Moscow has a degree of control would be allowed to progress without Russian interference. No matter what happens the development of pipelines and railways in the Azerbaijan, Georgia, Turkey corridor could lead to greater development in the region and serve as a reliable supply of raw materials to Asian and European (and potentially East and Southern African) markets.
In 2012 the Trabzon Declaration called for stronger economic, energy and political relations between Ankara, Tbilisi and Baku. This declaration formalized an existing pattern of relations between Turkey, Georgia and Azerbaijan which has resulted in several important infrastructure projects. The Baku-Tbilisi-Ceyhan (BTC) Pipeline transports crude oil from the Caspian Sea to the Turkish coast of the Mediterranean. This pipeline is complemented by the Baku-Tbilisi-Erzurum Gas Pipeline which aids the export of natural gas. The Baku-Tbilisi-Kars Railway is expected to be completed by the end of 2014. This corridor will connect Azerbaijan, Georgian and Turkish railways and will expand freight service which should make the export of raw material from Central Asia more economical. These projects can help develop the region and could serve as an important source of primary commodities for Asian and European markets.
Despite Turkey’s current political turmoil, the ability to serve as an energy corridor to the Mediterranean benefits whoever is in power in Ankara while the expansion of rail services would help Georgia and Azerbaijan’s exports. For these regions all parties have an incentive to cooperate. Though Russia will not want to see its control over energy exports to Europe lessened it is important to note that Moscow could benefit from these projects. For example, there are ongoing talks between Moscow and Baku to reverse the flow of oil through the Baku-Novorossiysk Pipeline with the intent of sending some of the oil through the Baku-Tbilisi-Ceyhan Pipeline which in theory could be a more economical manner for Russia to serve some of its European clients. There have also been proposals to link regional railways to Russian rail infrastructure which would aid Russian exports. Though it is likely that Russia would attempt to stop the development of an alternative energy source to Europe it is not unreasonable to think that the development of an alternative energy corridor in which Moscow has a degree of control would be allowed to progress without Russian interference. No matter what happens the development of pipelines and railways in the Azerbaijan, Georgia, Turkey corridor could lead to greater development in the region and serve as a reliable supply of raw materials to Asian and European (and potentially East and Southern African) markets.
Wednesday, February 12, 2014
Will Spain’s Anti-Abortion Law Increase the Number and Size of Protests in Europe?
Generally speaking I focus on tangible resources in these posts. These physical goods range from oil to infrastructure. That said, we must note that some resources are valuable yet intangible. A lack of a concrete form does not mean that they do not merit discussion. These abstract resources can take many forms such as obtaining a quality education, the ability to utilize a specific service, and an institutional structure that provides the vast majority of a population with the opportunity to provide for themselves and their family. A codified sets of rights also falls under the rubric of intangible resources as they guarantee the population specified rights and privileges. By limiting a woman’s right to an abortion Madrid may very well have added more fuel to the protest movements in Spain. As we have seen with the Arab Spring such a shift has the ability to spread far beyond the borders of one state impacting the political, social, economic, and security stability of an entire region.
Between alleged corruption in the royal family, an unpopular government, and a crippling economic crisis Spain's situation is terrible to say the least. This does not mean that things cannot get worse. When peoples’ rights are stripped from them they will often protest. It is likely that the demonstrations that have already occurred in response to the new abortion law will only become larger given that opinion polls are estimating that up to 80% of Spaniards, including practicing Catholics, feel that the proposed law was not necessary. (It is important to note that "opposing" and "not necessary" are not the same thing. That said, it is also safe to say that there is significant opposition to the law.). As we have seen with other protest movements, such as the Occupy Movement, protests attract protestors even if their personal cause is not the purpose of the protest. On one hand this hinders the development of effective leadership, as the demonstrations are not cohesive. On the other hand the increased turnout can lead to increased social instability.
Protest movements can start and spread due to unexpected incidents. Mohamed Bouazizi’s self-immolation quite literally sparked the Arab Spring. The causes of demonstrations can also be relatively unnecessary. The protests in Ukraine, which started when Kiev froze negotiations to further integrate with the EU, had diminished until President Yankuvych passed an anti-protest law that compromised Ukrainians' freedom to protest. Given many Ukrainians' response to the attempted removal of a right it is neither unreasonable to think that Spain’s new abortion law will provoke massive demonstrations nor is it unrealistic to think that Spaniards who have other grievances will use these protests to make their voices heard. If such incidents were to occur it is also possible that they could further provoke protest movements in other countries. These demonstration could help increase the power of political parties that want to limit European integration. Nationalist Parties such as Marine Le Pen’s National Front in France, Geert Wilders’s Freedom Party in the Netherlands, and Greece’s Golden Dawn are examples of political movements whose ideologies have historically been relatively fringe yet have become far more popular as the economic crisis has carried on in Europe. The increased protests that Spain’s recent actions might provoke could serve as an ideal fora for these groups to attract more support.
Europe will not see the sort of instability that we have seen in North Africa and Southwest Asia as Europe is democratic (and thus unpopular leaders can be voted out) and significantly richer. That said, an increase of protests is the last thing that Europe need during a crucial year in which May’s European Parliamentary Elections could see nationalist parties make political gains which would further limit Brussels ability to act decisively. The forthcoming stress tests for many European banks will also add a greater degree of economic instability to existing political, social and security concerns. Is Europe doomed in the long term? No. Even if the EU as we know it sees a fundamental institutional shift we are still looking at a region with a massive amount of financial and human capital as well as an important geographic location and the infrastructure to maximize its utility. Though a rising dependency ratio will cause problems in the coming decades and some countries of the European Periphery will remain poor the European Core will remain significant. That said, the potential for instability that Madrid has just unleashed is the last thing that Europe needs in 2014.
Between alleged corruption in the royal family, an unpopular government, and a crippling economic crisis Spain's situation is terrible to say the least. This does not mean that things cannot get worse. When peoples’ rights are stripped from them they will often protest. It is likely that the demonstrations that have already occurred in response to the new abortion law will only become larger given that opinion polls are estimating that up to 80% of Spaniards, including practicing Catholics, feel that the proposed law was not necessary. (It is important to note that "opposing" and "not necessary" are not the same thing. That said, it is also safe to say that there is significant opposition to the law.). As we have seen with other protest movements, such as the Occupy Movement, protests attract protestors even if their personal cause is not the purpose of the protest. On one hand this hinders the development of effective leadership, as the demonstrations are not cohesive. On the other hand the increased turnout can lead to increased social instability.
Protest movements can start and spread due to unexpected incidents. Mohamed Bouazizi’s self-immolation quite literally sparked the Arab Spring. The causes of demonstrations can also be relatively unnecessary. The protests in Ukraine, which started when Kiev froze negotiations to further integrate with the EU, had diminished until President Yankuvych passed an anti-protest law that compromised Ukrainians' freedom to protest. Given many Ukrainians' response to the attempted removal of a right it is neither unreasonable to think that Spain’s new abortion law will provoke massive demonstrations nor is it unrealistic to think that Spaniards who have other grievances will use these protests to make their voices heard. If such incidents were to occur it is also possible that they could further provoke protest movements in other countries. These demonstration could help increase the power of political parties that want to limit European integration. Nationalist Parties such as Marine Le Pen’s National Front in France, Geert Wilders’s Freedom Party in the Netherlands, and Greece’s Golden Dawn are examples of political movements whose ideologies have historically been relatively fringe yet have become far more popular as the economic crisis has carried on in Europe. The increased protests that Spain’s recent actions might provoke could serve as an ideal fora for these groups to attract more support.
Europe will not see the sort of instability that we have seen in North Africa and Southwest Asia as Europe is democratic (and thus unpopular leaders can be voted out) and significantly richer. That said, an increase of protests is the last thing that Europe need during a crucial year in which May’s European Parliamentary Elections could see nationalist parties make political gains which would further limit Brussels ability to act decisively. The forthcoming stress tests for many European banks will also add a greater degree of economic instability to existing political, social and security concerns. Is Europe doomed in the long term? No. Even if the EU as we know it sees a fundamental institutional shift we are still looking at a region with a massive amount of financial and human capital as well as an important geographic location and the infrastructure to maximize its utility. Though a rising dependency ratio will cause problems in the coming decades and some countries of the European Periphery will remain poor the European Core will remain significant. That said, the potential for instability that Madrid has just unleashed is the last thing that Europe needs in 2014.
Friday, February 7, 2014
Will Shifts In East Asian Demographics Impact Reactions To North Korean Aggression?
Relations between Seoul and Pyongyang are especially tense this month due to the annual "Foal Eagle" joint military drill conducted by the US and South Korea that will be held at the end of February. North Korea views these exercises as a provocation and has already threatened to cancel the proposed family reunions scheduled for February 20th to the 25th stating that "Dialogue and exercises of war" are incompatible. This comes at a time when Kim Jong Un is trying to consolidate his power with the recent execution of his uncle Chang Song-thaek providing an example of the brutality of this process.
When we look at the current tensions on the Korean Peninsula it is important to remember that North Korea has a history of taking action when the US military is in the region. For example the attacks on Yeonpyeong Island on November 23rd, 2010 coincided with the Hoguk Exercises which were a joint Korean-US undertaking on the western shore of the Korean Peninsula. Last year’s drills were especially tense provoking North Korea to threaten pre-emptive nuclear strikes. Given the statements coming out of Pyongyang this year it is likely that tensions will be as bad if not worse. For these reasons some form of aggression from North Korea would not be unexpected. What is different this year is that the geopolitical climate of East Asia has shifted. This shift is attributed to numerous factors one of the most important of which is changing demographics.
Much of East Asia is facing a demographic crisis in which the population is aging rapidly while birth rates have fallen. Since 1978 China has had a one-child policy (which is now being reformed) and in the past few decades certain parts of Japan and South Korea have in many ways had a de facto one child policy due to a variety of reasons such as the high cost of raising children. 1984 was the last year that South Korea’s total fertility rate was 2.0. This metric has fluctuated between 1.1 and 1.2 for over a decade. Japan’s total fertility rate has not been 2.0 since 1974 and has ranged from 1.3 and 1.4 since 2002. From an economic standpoint this demographic shift is a challenge as the youth must provide more support to the elderly than in previous decades and the percentage of the population that can be classified as elderly is becoming much larger. This change is also forcing countries to stake territorial claims and make security arrangements now when they are in a position of relative strength.
From a security standpoint declining populations will mean a significant decrease in the number of people who are fit for military duty (immigration could mitigate this issue but at the present none of the countries in question are particularly keen on welcoming large numbers of foreigners). This dynamic combined with the reality that the US will not guarantee security in the manner that it has in the past are forcing China, South Korea, and Japan to shift their policies in a more aggressive manner. This change takes numerous forms such as the establishment of China’s Air Defense Identification Zone over a significant portion of the East China Sea and Japan’s efforts to build up its military. Such a situation increases the chance for conflict. In the past North Korea has been able to get away with a high degree of brinkmanship. Given the current geopolitical shift and evidence that Beijing is beginning to lose patience with Pyongyang it is not impossible that acts of aggression that in the past would only provoke condemnation might now produce more concrete action. For these reason we must be particularly concerned with East Asia this February. History provides us with countless examples of incidents that usually would have stayed minor but have become amplified due to social, political and economic changes such as a major shift in the demographics of a country. Though it can be a challenge to predict the exact form that a potential conflict will take we do know that major structural shift will usually increase tensions. Understanding the nature of these shifts better equips us to address these challenges.
When we look at the current tensions on the Korean Peninsula it is important to remember that North Korea has a history of taking action when the US military is in the region. For example the attacks on Yeonpyeong Island on November 23rd, 2010 coincided with the Hoguk Exercises which were a joint Korean-US undertaking on the western shore of the Korean Peninsula. Last year’s drills were especially tense provoking North Korea to threaten pre-emptive nuclear strikes. Given the statements coming out of Pyongyang this year it is likely that tensions will be as bad if not worse. For these reasons some form of aggression from North Korea would not be unexpected. What is different this year is that the geopolitical climate of East Asia has shifted. This shift is attributed to numerous factors one of the most important of which is changing demographics.
Much of East Asia is facing a demographic crisis in which the population is aging rapidly while birth rates have fallen. Since 1978 China has had a one-child policy (which is now being reformed) and in the past few decades certain parts of Japan and South Korea have in many ways had a de facto one child policy due to a variety of reasons such as the high cost of raising children. 1984 was the last year that South Korea’s total fertility rate was 2.0. This metric has fluctuated between 1.1 and 1.2 for over a decade. Japan’s total fertility rate has not been 2.0 since 1974 and has ranged from 1.3 and 1.4 since 2002. From an economic standpoint this demographic shift is a challenge as the youth must provide more support to the elderly than in previous decades and the percentage of the population that can be classified as elderly is becoming much larger. This change is also forcing countries to stake territorial claims and make security arrangements now when they are in a position of relative strength.
From a security standpoint declining populations will mean a significant decrease in the number of people who are fit for military duty (immigration could mitigate this issue but at the present none of the countries in question are particularly keen on welcoming large numbers of foreigners). This dynamic combined with the reality that the US will not guarantee security in the manner that it has in the past are forcing China, South Korea, and Japan to shift their policies in a more aggressive manner. This change takes numerous forms such as the establishment of China’s Air Defense Identification Zone over a significant portion of the East China Sea and Japan’s efforts to build up its military. Such a situation increases the chance for conflict. In the past North Korea has been able to get away with a high degree of brinkmanship. Given the current geopolitical shift and evidence that Beijing is beginning to lose patience with Pyongyang it is not impossible that acts of aggression that in the past would only provoke condemnation might now produce more concrete action. For these reason we must be particularly concerned with East Asia this February. History provides us with countless examples of incidents that usually would have stayed minor but have become amplified due to social, political and economic changes such as a major shift in the demographics of a country. Though it can be a challenge to predict the exact form that a potential conflict will take we do know that major structural shift will usually increase tensions. Understanding the nature of these shifts better equips us to address these challenges.
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