Insights Into The United States' Indo-Pacific Policy & Outcomes

Gessler

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by Prashant Jha, Washington DC - Hindustan Times

Donald Lu, US assistant Secretary of State for South and Central Asia, has hailed Sri Lanka as an example of the success of the administration’s Indo-Pacific strategy in collaboration with partners such as India, but warned both Delhi and Dhaka that the security situation born out of the Rohingya refugee crisis and the general instability in Myanmar will worsen and continue to have implications for neighbours.

Offering a glimpse into Washington DC’s thinking into India’s neighbourhood, Lu also said that he told authorities in Maldives during a recent visit that China will be a good partner to the country only if Beijing knew and faced “real competition” from others. He also acknowledged the Indian leadership of Indian Ocean and the need to work in the region, pointing to the imminent discussions between India and the US on what they can do together in littoral states in Africa.

Albania_US_20626.jpg-0723b.jpg

Donald Lu, US Assistant Secretary of State for South & Central Asia

Lu was speaking at a high-powered panel along with other administration officials from the State Department, National Security Council and Pentagon to mark two years of the Joe Biden administration’s Indo-Pacific strategy at US Institute of Peace (USIP), a thinktank in Washington DC, last week.

Sri Lanka’s “historic comeback”

Instead of listing out the many accomplishments of the strategy, Lu said he would like to narrate “a comeback story”.

A year-and-a-half ago, Sri Lanka was in crisis with “mass riots on the streets, lines for petrol and food… the seizing of the President’s home, protesters swimming in his swimming pool”. But, Lu added, “If you have been to Sri Lanka lately, it is a very different place. Currency is stable. Goods and fuel prices are stable. They have gotten reassurances on their debt restructuring. And IMF money is flowing.”

How did this happen? The State Department top official on the South Asia desk said that this turnaround happened “with a little help from friends”. Lu said that the Indo-Pacific strategy is based on the premise that US and like-minded partners would try to offer a better proposition.

In the case of Sri Lanka, this meant that at the beginning of the crisis, what the island state needed was humanitarian assistance. “What we saw was countries like India coming up with concessional loans that allowed Sri Lanka to bring in vital supplies during the most difficult time. USAID, during the same days, provided hundreds of millions of dollars in agricultural inputs, fertilizers and seeds, so farmers could grow their own crops.”

Anti-government_protest_in_Sri_Lanka_2022.jpg

The island nation of Sri Lanka faced mass protests & rioting in 2022, stemming from the Government's economic mismanagement

On the debt side, Lu said the creditor community led by Japan, France and India, negotiated for months to find a formula to allow Sri Lanka to restructure its debt in a sustainable manner. “That formula put pressure on the Chinese to go along with those debt reassurances. That opened up IMF funding and changes in the economy you witness today.”

Lu also referred to the US Development Finance Corporation loans worth $553 million to develop a deep water shipping container terminal in the Port of Colombo, a project which has India's Adani Group as a key partner, as evidence of a loan that doesn’t balloon debt but a private sector investment for a profitable project.

In a hint at Chinese threats in the region, Lu said that a part of what Sri Lanka “really needs” was “for all of us to be there to support its sovereignty”. “One of the ways we are doing it from the US government is by providing patrol boats to the Sri Lankan military,” Lu said.

On the security front, he also referred to the Indo-Pacific maritime domain awareness initiative. “This is a complicated way of saying we are going to provide free, near real-time, commercial satellite data in countries around the region, including in South Asia, through the Indo Pacific Information Sharing Centre that the Indians have created. This is going to be transformative and will help countries defend yourself against piracy, drug trafficking and illegal fishing”.

Myanmar-induced challenges

When asked about the friction in the region, Lu briefly referred to the India-China border conflict and the “historic, deep seated conflict” between India and Pakistan but said he spent a lot of time on the implications of the Myanmar situation on the South Asian region.

“I spend a lot of times on Bangladesh, the Rohingya refugees who are there and the effects of instability in Burma and what it means for the region,” Lu said, adding that the US worked significantly with Bangladesh to support the generosity Dhaka has shown for over a million people who have been living in the country for years. “I had a chance to visit the Cox Bazaar, the biggest refugee camp in the world, to see the tremendous generosity but also the willingness of the international community to work together to find solutions to house these refugees until it is safe enough to go back.”

Location-of-Rakhine-state-and-Coxs-Bazar-in-the-world-map.jpg

Lu said that the situation in Burma was not getting better and what worried him was that the refugee crisis and the security problems it was creating for Bangladesh and “potentially for India” could get deeper in coming days. “It is something we have to watch out for and enable our partners in the region, in this case Bangladesh and India, to cope with those stresses without it boiling over into instability in their countries as well.”

On Maldives and China

Responding to a question on how China has portrayed the administration’s Indo-Pacific strategy as directed against Beijing and how the US is managing this new world, Lu offered the example of Maldives.

“It is a place where China, US, India, lots of countries are competing for influence. The way we will prevail is by offering a better proposition…. my view is that China will be a good partner when there is genuine, actual competition. If there isn’t competition, what we have seen over and over again is China offering unsustainable debt for unsustainable projects”.

Pointing out that Maldives faces serious challenges including debt — if Maldives doesn’t get debt restructuring, it will owe more than $1.3 billion in debt payments, more than the government’s budget — Lu said that what US needed was “sustainable, profitable, private sector led investment” and pointed to economic opportunities.

India_Maldives-01.png

The archipelago country of Maldives exists on the same Chagos-Laccadive Ridge that also forms the Lakshadweep Islands, an archipelago administered by India as a Union Territory

Commenting on the security challenges the island chain faces, Lu said, “Maldives is a chain of 1200 islands, encompassing territorial waters of 53,000 kms, roughly the size of France. You think of Maldives as tiny. But it is actually enormous in terms of defence. How do you protect the sovereignty of a gigantic part of the Indian Ocean?” This can happen through “technology, training... real time commercial satellite data” as parts of the puzzle.

The US, he said, recently committed four patrol boats and is in discussion with aircrafts. “They are going to need that and more”. Lu also pointed to the climate challenges in Maldives and said it was on US and other friendly nations to provide technology and financing to ensure it is not submerged.

India is the bigger force in Indian Ocean region

When asked about the Indian Ocean, Lu first acknowledged that there was an internal governmental challenge that the US faced was that the region was “cut into pieces” into different agencies and departments. “This makes coordination more challenging… It is tricky”.

Lu said that the US was a “big force” in the Indian Ocean region but India was a much “bigger force” in the region.

“If you are going to get this right, you have to work with the Indians and make sure what we are doing is consistent with the direction they are moving in with respect to the Indian Ocean. They are historically the big player. So we are having interesting talks, including talks which will launch at the end of this month on Africa to think about how we are working together particularly in the littoral states of Africa that border Indian Ocean,”
Lu said.


++++​

That last para is pretty significant. A lot more can be achieved in the region if we stop trying to eat from each other's plate. India is the resident power and needs to be in the driver's seat if it has to live in a region where it's trying to play. Good on the US if they finally start to see it that way.

@Nilgiri @Afif @Isa Khan @Bogeyman @TR_123456 @Kartal1 @Fatman17
 
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Afif

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It is nothing new though. They have been saying similar stuffs as a diplomatic manner.

Actually, so far all the respected people I talked too (who knows regional geopolitics far better than me) told me, USA has a change of regional policy (South Asia) in alignment with its greater Asia-Pasific strategy.

Until recently, since the beigning of 'war on terror', USA viewed countries like Bangladesh through the lense of India and more or less alinged its regional interest with India and depended on it (to an extent) as the regional power to uphold it. (If you read old the documents from 2006 coup and Hasina coming to power, it is very obvious) but now, it is almost explicitly clear this is no longer the case. United States is no longer relying on India for its foreign policy interests in BD and decided to deal here directly. In fact, the competition for influence is so real that it is understood, there is almost a non-formal mutual understanding between India & PRC when it comes to supporting BAL and not to give any space to USA.

Bad news for USA, even without CHINA and India BAL is so entrenched that it will go nowhere without an economic sanction on the state.


And I can only laugh at Donald Lu's 'Sri Lanka's historic comeback'. I mean, seriously?

IMF gave $2.9 billions and they needed $4.2 billions more. Guess who came to rescue? And soon after that, Sri Lanka had to 'approved' a $4.5 billions Chinese project to build petroleum refiner.

Beijing's influence in Sri Lanka is higher than ever. If India's foreign policy objective was to contain China, it failed. The same is gradually happening with BD, under this administration, BD & PRC delcared historic strategic partnership. and I think it is fairly simple where it is heading. The more corruption and mismanagement increases in one party state, the more economy goes to gutter, and the more economy fails, the more you need China to bail you out. In the process it gets some unacceptable concessions from you that any sovereign self-respecting state will reject. But what can you do when your economy in the gutter, except to agree.
@Nilgiri @Joe Shearer
 

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there is almost a non-formal mutual understanding between India & PRC when it comes to supporting BAL and not to give any space to USA.

Not really. Of buoyancy pressure regarding balance of payments current account ( taking BD goods exports)....the US provides near 9 billion dollars per year regularly.

That compares very favourably to the 2 billion India provides and 1 billion PRC provides.

US allies provide a larger amount than the US itself.

Essentially means the US/allies has significant strength w.r.t basic equation of sustenance in economic terms.

These set the raw parameters for the capital account to begin with.

How they utilise that is seen in hindsight and is contingent on BD becoming far more economically larger + reliable to begin with.

Till then BD geography and history means its of far larger importance directly to India and thus China....relative to US which is 2 oceans away.

But there is no problem for India to see US displace China using its economic demand heft as time goes on and China gets entrenched in its own domestic problems furthermore. India will work on what it is important regarding it w.r.t BD....wherever those chips fall.

IMF gave $2.9 billions and they needed $4.2 billions more. Guess who came to rescue? And soon after that, Sri Lanka had to 'approved' a $4.5 billions Chinese project to build petroleum refiner.

The IMF bailout is an actual immediate capital injection. With capital guarantees given by India (with a 1 billion dollar credit line as well).

Very different to debt restructuring and planned investments, China, Adani or otherwise. The restructuring by China was done after the IMF bailout for a reason (i.e why they had to wait for basic solvency in SL first, rather than provide that solvency themselves).

It was very clear PRC could not provide it (for multitude of reasons including their own debt problems at home surfacing commensurate to ~ 280% of GDP level its at....especially at far lower income levels than the developed world).

Sri Lanka definitely took note of this. BD would have (behind the scenes) as well.

Again the raw current account buoyancy pressure (from SL goods exports side) is:

3 billion from US.
1 billion from India
0.5 billion from China.

Not including developed world (US allies) is that provide huge amount of the rest (The total was ~ 14 billion from world).

Not including tourism, services, remittances etc (which stack this even more to US, West and India).



Beijing's influence in Sri Lanka is higher than ever. If India's foreign policy objective was to contain China, it failed. The same is gradually happening with BD, under this administration, BD & PRC delcared historic strategic partnership. and I think it is fairly simple where it is heading. The more corruption and mismanagement increases in one party state, the more economy goes to gutter, and the more economy fails, the more you need China to bail you out. In the process it gets some unacceptable concessions from you that any sovereign self-respecting state will reject. But what can you do when your economy in the gutter, except to agree.

India's foreign policy objective was never to "contain" China. China is too large for that.

Rather it is to leverage what it has in its neighbourhood well, while it grows.

The rest can be left as reap what you sow w.r.t China.

Given where BD forex level is right now with its credit rating (BB-), it is far more beholden to and reliant upon West/US to get out of that problem.

West/US in the current account provide 40 billion USD per year roughly. None of the remittances come from China either.

China provides negligible amount in comparison and loans of about 1 billion per year and FDI of about 1 billion per year in the capital account.


i.e its clear what the donkey leading the cart here is. China has to work around the edges because BD by far pays China lot more than it gets on the BoP front.

China doesn't bailout anyone. It may restructure things on bad ROI projects, thats about it and highly dependent on your geopolitical relevance to them combined with needs of their own domestic situation.

There's a reason why all the talk of Yuan becoming some reserve currency replacement for USD in the world has evaporated along with the Chinese market cap ongoing tumble and severe bubble stresses internally.

Any problems BD runs into with its basic economy relative to world (like SL did in worse degree with a literal default), you can 100% safely say PRC will provide 0 capital injection that matters to the situation at hand.

It's already happened with the initial IMF loans BD already took (about 700 million USD of a 4.5 billion dollar package) to shore up forex level right now to begin with.

China simply does not have that kind of liquid injection money for BD (if you look at loan actualisation and restructuring timeframes over many years to begin with, these are not injections or bailouts)....and never will for forseeable future given the right mess they have made for themselves at home coming to bear increasingly each year.

Now this is all separate matter to BD improving its economic performance itself so it need not face these pressures to begin with in serious way like SL did. That is complicated multi-faceted topic, and it has only so much overlap with autocrat power system entrenching. South Korea, Singapore, Taiwan and more recently Vietnam all saw large economic growth during autocrat periods....leaaving aside China itself. There are some basics BD has not done and has now inherited as inertia.
 

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United States is no longer relying on India for its foreign policy interests in BD and decided to deal here directly. In fact, the competition for influence is so real that it is understood, there is almost a non-formal mutual understanding between India & PRC when it comes to supporting BAL and not to give any space to USA.

Yes - and the BD elections were the trial case for that.

It ended badly for the Americans, hence the diplomatic about-face is now signaled by Lu.
 

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Not really. Of buoyancy pressure regarding balance of payments current account ( taking BD goods exports)....the US provides near 9 billion dollars per year regularly.

That compares very favourably to the 2 billion India provides and 1 billion PRC provides.

US allies provide a larger amount than the US itself.

Essentially means the US/allies has significant strength w.r.t basic equation of sustenance in economic terms.

These set the raw parameters for the capital account to begin with.

How they utilise that is seen in hindsight and is contingent on BD becoming far more economically larger + reliable to begin with.

Till then BD geography and history means its of far larger importance directly to India and thus China....relative to US which is 2 oceans away.

But there is no problem for India to see US displace China using its economic demand heft as time goes on and China gets entrenched in its own domestic problems furthermore. India will work on what it is important regarding it w.r.t BD....wherever those chips fall.



The IMF bailout is an actual immediate capital injection. With capital guarantees given by India (with a 1 billion dollar credit line as well).

Very different to debt restructuring and planned investments, China, Adani or otherwise. The restructuring by China was done after the IMF bailout for a reason (i.e why they had to wait for basic solvency in SL first, rather than provide that solvency themselves).

It was very clear PRC could not provide it (for multitude of reasons including their own debt problems at home surfacing commensurate to ~ 280% of GDP level its at....especially at far lower income levels than the developed world).

Sri Lanka definitely took note of this. BD would have (behind the scenes) as well.

Again the raw current account buoyancy pressure (from SL goods exports side) is:

3 billion from US.
1 billion from India
0.5 billion from China.

Not including developed world (US allies) is that provide huge amount of the rest (The total was ~ 14 billion from world).

Not including tourism, services, remittances etc (which stack this even more to US, West and India).





India's foreign policy objective was never to "contain" China. China is too large for that.

Rather it is to leverage what it has in its neighbourhood well, while it grows.

The rest can be left as reap what you sow w.r.t China.

Given where BD forex level is right now with its credit rating (BB-), it is far more beholden to and reliant upon West/US to get out of that problem.

West/US in the current account provide 40 billion USD per year roughly. None of the remittances come from China either.

China provides negligible amount in comparison and loans of about 1 billion per year and FDI of about 1 billion per year in the capital account.


i.e its clear what the donkey leading the cart here is. China has to work around the edges because BD by far pays China lot more than it gets on the BoP front.

China doesn't bailout anyone. It may restructure things on bad ROI projects, thats about it and highly dependent on your geopolitical relevance to them combined with needs of their own domestic situation.

There's a reason why all the talk of Yuan becoming some reserve currency replacement for USD in the world has evaporated along with the Chinese market cap ongoing tumble and severe bubble stresses internally.

Any problems BD runs into with its basic economy relative to world (like SL did in worse degree with a literal default), you can 100% safely say PRC will provide 0 capital injection that matters to the situation at hand.

It's already happened with the initial IMF loans BD already took (about 700 million USD of a 4.5 billion dollar package) to shore up forex level right now to begin with.

China simply does not have that kind of liquid injection money for BD (if you look at loan actualisation and restructuring timeframes over many years to begin with, these are not injections or bailouts)....and never will for forseeable future given the right mess they have made for themselves at home coming to bear increasingly each year.

Now this is all separate matter to BD improving its economic performance itself so it need not face these pressures to begin with in serious way like SL did. That is complicated multi-faceted topic, and it has only so much overlap with autocrat power system entrenching. South Korea, Singapore, Taiwan and more recently Vietnam all saw large economic growth during autocrat periods....leaaving aside China itself. There are some basics BD has not done and has now inherited as inertia.
Correct observation.
 

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Correct observation.

Don't encourage him, he is been politely patronizing me.😡


Jokes aside, yes and no. Trade-wise BD is highly depended on the West. It is No secret, but the only way they can meaningfully leverage that is through sanction. Which obviously not gonna happen. (Any other rmethod is not working & likely won't work against BAL)

On the other hand, we need an immediate debt restructuring to save our Forex. (Chances are, we won't get out of from here wihtout it.) West is unlikely to do anything about it. And China knows this.
 

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Don't encourage him, he is been politely patronizing me.😡


Jokes aside, yes and no. Trade-wise BD is highly depended on the West. It is No secret, but the only way they can meaningfully leverage that is through sanction. Which obviously not gonna happen. (Any other rmethod is not working & likely won't work against BAL)

On the other hand, we need an immediate debt restructuring to save our Forex. (Chances are, we won't get out of from here wihtout it.) West is unlikely to do anything about it. And China knows this.

It may seem that way, but once you dig deeper there's more to the story.

Take a look at this for starters:


2016-2022 avg. growth rates of BD exports (numbers rounded)

CHN: 2% per year, total increase = 100 million USD
JPN: 6% per year, total increase = 500 million USD
IND: 20% per year, total increase = 1.3 billion USD
CAD: 9% per year, total increase = 800 million USD
UK: 6% per year, total increase = 1.4 billion USD
USA: 12% per year, total increase = 5.7 billion USD
EU: 6% per year, total increase = 6.9 billion USD

China's imports from BD have barely shifted since 2016 basically (in fact might have contracted a bit once you apply USD inflation).

The West knows this quite well and will leverage in relevant quarters (say BD commerce dept discussion with Walmart executives) with regards to where the actual growth of forex for BD provably will come from this decade in any amount that matters.

You are coming at this from a sanctions standpoint as though BD govt has erred in some immense way to Western sensibility.... when this is nowhere near the case. BD is a valued supplier in end that reduces direct income to PRC (in RMG especially) and diversifies a supply chain.

Now the shocks that came from covid and developed market recovery pangs (seen in 2020 and 2023) are essentially the why/how
of the case made for their multilateral credit institution (IMF) giving the loan package w.r.t BD forex, they are not blind to effects caused by this.

This is again communicated to BD w.r.t did PRC give liquidity given their origin role in the covid pandemic to begin with.

Likewise they definitely subtract (from the package) the impact they sense caused by PRC alone (given its low BoP supply to BD, yet relatively heavier+riskier loan projects). Those are costs for BD to bear and renegotiate with PRC. This is again all communicated with the BD govt.

This is the way US and West operated with the debt pressure in general for developing world stemming from PRC. Its not related to leveraging sanctions at all (these are developing countries where soft power w.r.t basic economic sustenace is crucial element long term)
they simply know and explain precisely the numbers where needed to BD businesses and commerce ministry for example.

That no liquidity funding will back up any bad ROI from PRC....and that will have to be dissipated with one's own wherewithal w.r.t PRC in the mid term and long term now. i.e it will be made quite crystal clear to BD how the west expects response and management here going forward from BD side.

Is this done with some larger intent to displace Hasina-autocracy? Not really, its aligned to keeping Chinese overreach (as the West, India and others see it) in the capital account in BD within limits and commensurate to its current account buoyancy. This is all known by BD best economic minds already, West just nudges this all along in making the case with executive decision making.

If China can front the similar level of BoP demand in future, it improves its ability to do the same thing. But looks like that wont happen for a very long time if ever. That's all the west needs to say about this issue.....i.e who puts sizeable money where their mouth is (not china).

i.e Doors that have long been open and proven to be win-win. Walmart literally imports 5 times (at least) more than the whole of china does from BD.

i.e You get 5 times more forex relief potential (for rest of this decade) by exploring next tier of products to target in walmart than China's whole import appetite for what BD can produce.

i.e what to do in 101 way to stabilise the current situation past the IMF loan package in forex for the mid and long term w.r.t improving the credit rating of BD and institutional capacity related to this.

There will be lot less foreign debt increase coming up for example, till BD restructures a lot w.r.t China and genuinely improves its credit rating for a chunk of years to investment grade....given it is PRC that has the highest loan intensity impact relative to other loan providers:


This effect already started (with BD and developing world at large w.r.t PRC):




If BD forex level is 20 - 25 billion USD, and its foreign debt is 100 billion USD, thats the root of the problem now (at least on BoP matters at large)....especially the specific repayment rates, and grace periods and so on that are more intense in PRC loan case as they also fund more long-term sketchy ROI stuff (given in last decade there was some sense of soft power expansion here with various developing countries govts) than West prefers to do.

Anyway world at large would want to see this ratio improve closer to 1:1....and BD prove itself credibly for the long run setting.

So that BD can then invest and create sizeable new industries and the market cap to back them (reducing reliance on foreign loans to begin with for immediate capital starting and rolling frictions present in large way within BD still, till it can grow large capital infra companies etc).

These will again be leveraged without sanctions....theres no need at all for something that drastic as the basic numbers here are fairly obvious to BD itself and future forex generation tied to improvement here....or is China going to actually step up and create that demand (and forex supply) itself?

Its not case of west doing nothing, the commensurate attention will be deployed in the relevant quarters, in far more detailed way.

If there is good opportunity for them to displace PRC by PRC own hand explained as required to BD, it will be done and there will be little need to broadcast this openly. You will simply see it in critical numbers this decade (BD own response and adjustments and hopefully improvements better attuned to supply/demand of the world in BoP and then everything else inside based on that).

I guess we can see.
 

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