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Learned Optimism

Reality checks are always needed by over-confident governments.

Martin Seligman the founder of positive psychology uncovered a pattern of behavior that he believes is responsible for greater resilience and happiness among born optimists. Whenever something good happens to the subject, that person will often attribute it to him- or herself, will tend to view the outcome as something that was within his or her control, and will regard the event as part of an ongoing streak of success.

The reverse happens when something bad happens. The subject will explain it as resulting from a specific, temporary event, and won’t regard it as part of an ongoing chain of similar defeats. This way of explaining things allows individuals to persist when others would have given up and allows them to remain confident in their abilities despite facing rejection or failure.

There are advantages to having such a positive mental attitude. CEO’s take their companies to new heights, salespeople persist despite facing rejection and eventually make their quota, and athletes remain motivated to train despite facing physical and mental challenges.

Filipinos seem to be a very optimistic lot. They tend to report higher levels of life satisfaction in surveys, higher than their income per capita warrants. Regardless of how terrible the past year might have been, they will often express hope and hold a view that things will be better in the coming one. The tagline, ‘It’s more fun in the Philippines’ seems to express this innate optimism.

Such a positive view becomes quite useful for the government which will often claim credit for successes that come as a result of good fortune and blame other factors outside its control whenever things turn sour. They say every cloud has a silver lining. Despite the economic storm clouds that engulf the nation, there are many positives that may be gleaned.

The business community remains quite bullish despite the slowdown in the pace of the economy last year. The flipside of weaker growth is lower inflation, which is providing the Bangko Sentral with enough elbow room to maneuver. The expected easing of interest rates is already fuelling a spike in the local bourse.

Expect the government to claim credit for engineering this by not spending the allotted budget last year. The contraction in fiscal spending allowing for policy space for monetary authorities will be spun as a stroke of genius on the part of this government despite the fact that it was unplanned.

Similarly as our exports decline owing to weaker demand from a troubled Europe and North America, as legislative proposals in the United States threaten our budding business process outsourcing industry, and as the Iran nuclear standoff dampens tourism because of higher fuel costs, expect the government to fall back on consumer-led growth propped up by overseas remittances.

Indeed as investors seek to put their money in developing countries with internally driven domestic economies, the Philippines has been deemed ‘the economy to watch in 2012’ having weaned itself off the need to propel itself through exports or direct foreign investments, unlike China which is still managing that transition.

You can see this when you visit places like Subic Bay Freeport as I have during a recent trip. In its efforts to stamp out illegal smuggling outside of the Freeport of liquor and automobiles entering the port duty free for repackaging or re-assembly and shipping to the rest of ASEAN, the government has resorted to taxing everything that has gone in and given rebates to products moving out of the port. As a result, bottling and car assembling activities have left.

The ACER laptop plant, the main operator in the Taiwan Industrial Estate, closed shop and moved to Mexico, while Federal Express relocated its logistics hub to Mainland China. It was the main user of the airport which is now open only to chartered flights as international and domestic flights have been re-routed to the Diosdado Macapagal International Airport due to low traffic volumes. Similarly the port is below its capacity owing to the fact that most shipments still go through Manila.

Only a few positive stories remain like the Japanese pinewood fabricating plant that I saw which ships in timber from New Zealand and re-exports them as processed wood to Japan (which has a ban on logging), the Korean shipbuilder Hanjin (shipbuilding being the only heavy industry left apart from oil refining which could I am told suffer a similar fate as the bottling and car assembling), and the dock where Brazilian ships split up their cargo of iron ore into smaller vessels that then deliver these to China. As a result of the thinning industrial base, the industrial estates barely break even.

The only thriving and growing sectors seem to be in hospitality, retail and healthcare. As a source of mine who now serves in a sensitive post in Subic Bay and I reflected on this situation, we pondered how much more output a worker in the shipbuilding industry makes and earns for the country as opposed to a staff member at an espresso bar where we had convened. This is why manufacturing is much preferred as an engine of growth compared to services.

But it seems the government is no longer in the habit of picking winners. It is more focused on bringing erring justices and former presidents to trial, which brings me back to the topic at hand, of learned optimism. Despite the biological advantages of being an optimist (it is related to longer life and happiness), there are still some evolutionary reasons why pessimism as a trait still remains.

It is often the role of pessimists to protect their tribe from irrational exuberance. CEOs without the restraints of prudent accountants and risk managers could run their companies into the ground with grand visions and plans. Rogue traders with unbridled confidence in their own abilities could bankrupt centuries’ old institutions. Governments run by wide-eyed idealists could implement unrealistic policies ill-suited for local conditions.

This is perhaps one of the dangers facing this young administration as it seeks to work out its priorities in the coming year.

The 2nd ASEAN-U.S. Summit: What’s on the Menu in Manhattan?

The 2nd ASEAN-U.S. Summit: What’s on the Menu in Manhattan?
By Ernest Bower, Director, South East Asia Program-CSIS
ABS-CBN News

Summary

President Barack Obama will host 8 of the 10 leaders from the Association of Southeast Asian Nations (ASEAN)—Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand, and Vietnam—in New York City on Friday, September 24, at the second U.S.-ASEAN Summit. The meeting underlines renewed U.S. policy energy being invested in Southeast Asia. Headlines from the discussion will likely focus on three areas:

1. Security alignment—including restatement of a common position on the South China Sea;

2. Economic growth and trade—particularly ASEAN’s leaders are seeking an update from Obama on the health of the U.S. economy and a read on whether the mid-term U.S. congressional elections might be an inflection point after which the United States can return to a proactive posture on trade; and

3. Burma—specifically exploring how the United States and ASEAN can encourage Burma’s leaders to create political space in the November elections and beyond.

The fact that the meeting is taking place in September in the United States is important in that it institutionalizes renewed U.S. engagement in ASEAN ahead of key steps forward in creating new regional security and trade architecture in Asia.

On the other hand, the fact that the summit is taking place in New York, not Washington, and without the leader of ASEAN’s largest country and economy, Indonesia, underlines the fact that while the policy intent is clearly substantive engagement, there is still much work to be done to align the United States and ASEAN.

Despite the best intentions of the principals, the meeting will certainly be viewed through the prism of perceived increased tension between China and its Asian neighbors, particularly related to disputed maritime territories.

Q1: Who is meeting and what is the agenda?

A1: President Obama will host the summit over lunch at a hotel in New York City from 12 noon to 2:30 p.m. on Friday, September 24. Eight of the 10 ASEAN leaders are confirmed to join him, except for President Susilio Bambang Yudhoyono of Indonesia and Prime Minister Thein Sein of Burma. The ASEAN secretary general, Dr. Surin Pitsuwan, will also join the meeting. The only surprise is Yudhoyono’s absence, and that is significant (see below). The Burmese were not expected to send their head of state due to poor relations with the United States and the sanctions regime currently in place. Indonesia’s President Yudhoyono will be represented by Vice President Boediono, and Burma’s Prime Minister Thein Sein will be represented by Foreign Minister U Nyan Win. The leaders will be accompanied in most cases by their ministers of foreign affairs, ambassadors to the United States and/or the United Nations, and other senior officials.

Q2: Why isn’t President Yudhoyono attending, and what are the implications of his absence?

A2: President Yudhuyono notified the White House that he could not accept President Obama’s invitation to come to New York due to domestic issues in Jakarta. Insiders confirm that Yudhoyono decided he could not come to New York because of a confluence of issues—including the fact that Obama has had to postpone planned travel to Indonesia three times since taking office and the short notice given by the White House (not quite a month in advance of the meeting). Had the summit been held in Washington, D.C., and in early October, so Yudhoyono and the other ASEAN leaders could have come on either side of their long planned visit to Brussels for the Asia-Europe Summit, the Indonesian leader would probably have come.

Yudhoyono’s absence sends a strong signal that although the U.S.-ASEAN relationship is moving in the right direction, there is work still to be done to improve alignment. Indonesia is ASEAN’s largest country and has the largest economy, both more than twice the size of the next member. It is also ASEAN’s incoming chairman for 2011. It is likely that the United States and ASEAN will get back on track next year when Indonesia hosts the third U.S.-ASEAN Summit, and after President Obama finally is able to make his long-awaited visit to Indonesia. There are quiet plans for him to visit Jakarta during his Asia trip after U.S. mid-term elections in November. That trip would include India, Indonesia, Korea for the G-20 Summit, and Japan for the APEC Leaders Summit. In sum, Yudhoyono’s absence doesn’t fully diminish the importance of the meeting in New York on Friday, but it lays down the marker that the U.S.-ASEAN relationship is trending well, but remains a work in progress. (I explore the gap between U.S. policy intentions toward ASEAN and the realities of domestic politics revealed by Yudhoyono’s absence from New York on the CSIS Southeast Asia policy blog. Click here for the article.)

Q3: What is the on the security agenda and will the South China Sea be a focus?

A3: The United States and ASEAN are working with other countries, including Australia, China, India, Japan, Korea, New Zealand, and Russia, to create new regional security architecture in Asia. To this end, the United States and Russia will be invited to join the East Asia Summit (EAS) this October during its meeting in Hanoi. Secretary of State Hillary Clinton will represent the United States at the meeting and accept the invitation. The United States will then ideally be represented by President Obama at the next EAS hosted by Indonesia in 2011 (it is likely that the U.S.-ASEAN Summit will be held in proximity). As part of its calculus in deciding to join the EAS, the United States recognized that it must strengthen its security and political ties with ASEAN and invest in supporting ASEAN’s self-defined goals to firm up its foundation through economic, political, and socioeconomic integration, as outlined in the ASEAN Charter. To this end, the United States has been moving to normalize military ties with Indonesia and to enhance military relations with Vietnam, as well as committing to join the ASEAN Defense Minister Meeting + 8 (which includes the same countries listed above who are/will be members of the EAS).

In this context, one of the existential challenges for Asia is to create structures and use diplomacy to encourage China’s peaceful rise as a major world power. The South China Sea represents a major challenge in this process. China has been very effective in its “charm offensive,” begun during the Asian financial crisis in the late 1990s, writing a script as an engaged and committed neighbor promising economic dynamism through expanded trade and investment and regional economic integration. However, China’s geopolitical interests are the other side of that coin. China’s definition of its “indisputable sovereignty” over the South China Sea, in response to Secretary of State Clinton’s reiteration of long-standing U.S. goals for maritime dispute resolution and freedom of navigation in the area based on international law and a multilateral approach, has uncovered atavistic anxieties about China’s intentions among the Southeast Asian countries. Therefore, ASEAN has welcomed a strong U.S. voice on security concerns in the South China Sea, and this has come at a time—ahead of a Chinese political cycle that will identify the country’s next generation of leaders in 2012—of heightened nationalism in China.

Neither the United States nor ASEAN wants to provoke Chinese nationalists, but both recognize the importance of being firm and sustaining a commitment to a multilateral approach to dispute resolution. Therefore, it is likely that the summit in New York will result in a joint statement that addresses the issue by reiterating the intent and direction of Secretary Clinton’s remarks at the ASEAN Regional Forum (ARF) in Hanoi with a focus on China.

Q4: How about economic growth and trade?

A4: ASEAN is concerned about the health and direction of the U.S. economy and hopes that President Obama can assure them that a recovery is underway and that he will be able to move the United States toward a more proactive posture on trade after the U.S. mid-term elections in November. These issues are fundamentally important to ASEAN because the United States is its largest overseas market (particularly when you consider the fact that many ASEAN exports go through China as part of a supply chain that ends up with products delivered to the United States), and because the United States remains one of the top and qualitatively most valuable sources of investment and technology for the region. ASEAN is collectively the most trade dependent formal grouping of nations in the world, with trade accounting for nearly 100 percent of aggregate gross domestic product. So if trade stagnates, ASEAN is the global canary in the coal mine and it suffers first and most significantly.

ASEAN will be watching the U.S.-Korea Free Trade Agreement closely as the benchmark indicator for whether Obama will use the political chits necessary to kick-start trade and make the case to Americans that long-term recovery is dependent on U.S. engagement in ASEAN, Asia, and the world. ASEAN is the United States’ fourth-largest overseas market and one that promises high-level growth for the coming years. ASEAN wants to know if the mid-term elections will be an inflection point for the U.S. stance on global trade. (Read more on the disconnect between policy and politics on trade with ASEAN in cogitASIA )

Q5: What about Burma?

A5: With Burmese elections coming up on November 7, Burma is sure to be high on the summit agenda—at least for the Unites States. While ASEAN would prefer not to have to carry the weight of Burma’s cloistered and intransigent military junta, it recognizes that having made the commitment to bring Burma into its membership it must work with the United States and others to try to encourage the creation of political space there. The Obama administration deserves credit for its courage and foresight in espousing an engagement strategy toward Burma that allowed it to reengage with ASEAN and hold meetings such as this summit. While the engagement has not produced results in Burma, the United States has changed its paradigm with ASEAN. The administration can and likely will tighten sanctions on Burma by focusing on its leaders, their families, and companies they are associated with—measures outlined in the Lantos Act. ASEAN needs to do its part and increase its normative focus on Burma to pressure the regime to create more political openness so it can truly engage in the core elements of integration defined in the ASEAN Charter. If ASEAN begins to focus on Burma, pressure may increase on China and India to refocus their current mercantilist and military policies that enable the hard-line domestic political stance of the junta and to play a role as responsible stakeholders encouraging positive change in the country.

Q6: What next?

A6: ASEAN hopes that President Obama will announce his candidate as the first U.S. ambassador to ASEAN to be resident in Jakarta. A candidate’s name is reportedly pending review and due diligence, though it is not likely that name can be announced on Friday. Additionally, the United States and ASEAN are expecting to name an Eminent Persons Group (EPG) to provide guidance and leadership for the relationship. These names have also not been announced yet.

After the New York summit, Secretary of State Hillary Clinton will be in visiting Hanoi for the EAS, and Secretary of Defense Robert Gates will visit Vietnam for the ASEAN Defense Ministers Meeting + 8. President Obama is planning to visit Indonesia in November as mentioned above.

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Ernest Bower is a senior adviser and director of the Southeast Asia Program at the Center for Strategic and International Studies in Washington, D.C.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).