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The Ministry’s long- and short-term outcomes must be pursued and delivered in a complex and changing international environment presenting significant risk, opportunities and challenges. The main longer-term trends with the potential to affect New Zealand’s policy settings and our outcomes are outlined below.
The global recession represents a paradigm shift for the world economy and for the overall environment in which the Government is seeking to lift New Zealand’s long-term growth and prosperity. It is the dominant global trend affecting all countries. At the same time, other significant global problems are intensifying, overlaid by nascent shifts in the global order. The recession has also added further pressure to states already under significant stress from threats such as terrorism, conflict or political instability, and uncertain access to resources and capital – the basis for economic growth.
The United States is still the world's most powerful country, but the emergence of other economic power centres with growing political weight is making a multi-polar world a reality. The longer-term shape of that reality, and the relative weight of the major powers, is far from clear. Relations among the great powers are generally peaceful and stable, underpinned by numerous inter-dependencies reinforced by globalisation. Tensions between states exist in parts of the world (the Middle East, the Korean peninsula) but most active conflicts are intra-state hostilities or insurgencies. Some of these spill across borders and de-stabilise neighbouring countries or provide sanctuaries from which dispersed terrorist cells or criminal syndicates can operate. Others have the potential to develop in these directions. The global recession could be a catalyst for civil unrest or re-activate dormant inter-state disputes, with negative impacts in some parts of the world on regional cooperation and regional integration initiatives. Conversely, it could hasten regional integration in other parts of the world. Among the most serious threats to global security, however, is the risk of proliferation of weapons of mass destruction, including the risk that terrorist groups may gain access to chemical, biological or nuclear weapons. This risk has become an increased focus of activity for a range of international and regional security arrangements.
Despite the global economic contraction, wealth continues to shift towards Asia. Growth in some of the region’s major emerging economies such as India and China has slowed. But the impact of the global economic crisis has been, and will be, most severe on the world's poorest, for whom the international community's ability to deliver comprehensive solutions remains limited.
The sudden and pervasive impact of the recession underlines the interdependency of the international economy. Ongoing fallout includes a sharp, widespread decline in confidence, negative growth forecasts for the world economy for the first time in 60 years, restricted access to credit, declining trade and capital flows, rising unemployment, and pressures on social security systems. The global trading system is also under pressure from growing protectionist moves, including some masked in fiscal stimulus packages designed to respond to the recession. The prospects for a global trade agreement, though more important than ever, have receded as countries turn their attention inward. Ambitions for the WTO Doha Round have not recovered since the significant blow dealt by the impasse reached in July 2008. Many countries are now more focused on completing bilateral and regional trade agreements, of varying quality, and in competition with each other. Pressure for fundamental changes in the international financial system has increased in the wake of the widespread failures of financial institutions in 2008. Better multilateral coordination in more representative international groupings would help avoid a recurrence of the crisis and have a positive influence on developing countries.
These broad global trends, and developments by region, are explored in more detail below.
The greatest contemporary challenges to international peace and security are the downside risks of the global recession to the stability of individual countries and regions, and other transboundary threats. The most serious of the latter include terrorism, the proliferation of weapons of mass destruction (WMD), cross-border expansion of long-running complex conflicts and post-conflict instability, the spread of infectious diseases and risk of pandemics, gross abuses of human rights, as well as climate change, the depletion of natural resources, and the problems of failed or failing states.
The global economic outlook has deteriorated extremely rapidly, even within the first three months of 2009. The financial crisis is now having an adverse impact on the real economy of many countries. This is reflected in global growth which is projected to be negative for 2009, the first time this has occurred since World War II, and presenting the biggest economic challenge since the Great Depression. Trade, a key driver of economic growth, has been forecast by the WTO to fall by nine percent in 2009, also the largest drop since World War II, as the recession deepens.
Despite this, the integration of major emerging markets into the global economy will continue, as major developing countries such as China, India and Brazil expand their commercial power and negotiating influence over time, albeit at a slower pace than in recent years. Technological innovation, falling information and communication costs, combined with more sophisticated global supply chains, will continue to underpin the integration of these countries into global markets for goods, services and capital. Along with efforts towards regional economic integration in Asia and the Americas, this trend will continue to shape and add to the complexity of the trading environment for some time to come.
While in the longer term trade diplomacy will remain focused on global and regional trade liberalisation, in the short term recent political reaction to the crisis means a more difficult environment for trade negotiations. Protecting existing market access and restraining protectionist measures are now important goals for countries like New Zealand with open economies. Threats to trade may increasingly be from non-tariff barriers, including trade distorting subsidies which risk weakening already low international commodity prices, particularly in dairy.
A successful outcome to the WTO’s Doha Round would do more than any other process to liberalise and develop international trade. But it is not yet clear whether the political will exists among key countries to conclude a framework agreement, let alone the wider negotiations in 2009. The pace of WTO progress has encouraged a lot of activity on bilateral and regional FTA agendas, particularly in the Asia-Pacific region. However, the WTO, with its dispute settlement procedures, continues to provide a solid rules-based system for world trade.
Growing consumer concerns about the environment, food security and domestic job security are affecting the international trading framework. Interest in how goods are produced, particularly the environmental impact of production, has popularised simplistic concepts like “food miles”. More importantly, however, it has spawned serious research into carbon foot-printing. Food safety issues will continue to require attention. Governments may come under pressure to respond with more regulation and labelling, with implications for the nexus between trade rules and environmental outcomes. Measures intended to address climate change may also impact on trade. The relationship between trade and labour is likely to attract greater scrutiny as governments seek to minimise perceived impacts on their labour markets resulting from trade liberalisation.
Terrorism remains a defining challenge for international and regional security and has the potential to compound other transnational threats such as state fragility and WMD proliferation. While government responses worldwide have generally made it more difficult for terrorist groups to operate, the risk of further attacks persists. The types of incidents and their location are also changing with a greater range of civilian activities (eg international sports teams) and countries now being targeted. This is indicative of the changing nature of the terrorist threat, as various groups decentralise and disperse into loosely related networks, or alternatively coalesce under a common ideology to pursue their objectives. Success in containing the threat to the greatest extent possible depends on the willingness and ability of governments and the international community to sustain coordinated action. Progress in ongoing stabilisation and reconstruction efforts in areas such as Afghanistan and Iraq, and positive political developments on key international issues like the Middle East peace process would help deter the recruitment of terrorists over time.
Increasingly, counter-terrorism programmes are being complemented by “soft power” approaches to stemming the terrorist threat in the medium to long term. Many governments are pursuing counter-radicalisation initiatives that address the complex inter-play of religion, culture, ideology, history and personal circumstance that can feed violent extremism. These include international inter-cultural and inter-faith initiatives as well as programmes at the national and local levels involving both governments and community organisations.
The rapidly changing international environment makes it harder to gauge how countries may contribute effectively to disarmament initiatives. Progress on reducing nuclear weapons has stalled since 2005. The five-yearly review of the Nuclear Non-Proliferation Treaty (NPT) will take place in 2010. While there are hopes the disarmament debate can be re-invigorated, the prospects for significant forward movement on the NPT are as yet unclear. The focus of collective international efforts to combat wider WMD proliferation has been concentrated on preventing new states from developing WMD capabilities (ie nuclear, chemical, biological weapons and their means of delivery (missiles)) and non-state actors (in particular terrorists) from gaining access to them. The Proliferation Security Initiative and the Global Initiative to Combat Nuclear Terrorism are foremost among recent such initiatives. There has also been renewed focus on containing the spread of conventional weapons. These efforts are directed at regulating access to inhumane and other conventional weapons as well as small arms and light weapons.
Demand for international peace support deployments is increasing, with United Nations (UN) led deployments at their highest level ever. Mission tasks are increasingly complex involving a diverse range of civil and military actors. The gap between mandates and resources is widening at a time when global economic resources are constrained.
The year 2009 will be a crucial one for international efforts to address climate change, as countries gather at the UN Climate Change Conference in Copenhagen, 7‑18 December, to shape a broad and effective long-term international response to climate change. Costs of both mitigation and adaptation will be significant, and expectations on developed countries are high. The complexity and political challenge of the negotiations, especially given the global economic recession, raise both the stakes and the difficulty of achieving a comprehensive agreement. The change in direction of United States climate change policy and its stated intention to take an international leadership role improve prospects for a lasting solution.
Severe weather events, food and water shortages, collapsing fisheries stocks, species under threat of extinction, and updated scientific information and analysis of the economic impact of these developments have also heightened political and public concern about the state of the environment more generally. Translating these concerns into effective global action remains a challenge, but has been given some impetus by the inclusion of "green" measures in governments' fiscal recovery packages in response to the global financial crisis. The necessity of finding solutions to water, energy, transport, waste and land management issues is also being increasingly recognised as important to countries' economic and social well-being.
The UN, while still the pre-eminent global organisation, faces multiple challenges. Expectations differ on the role it should play in peacekeeping, national political crises, disruptions to global food and financial markets, terrorism and climate change. Reform of its structures is a difficult but necessary task.
A secure and prosperous United States, engaged on global issues, continues to be crucial for stability and economic progress throughout the world. The United States’ strategic presence in Asia, for example, is an important element in regional security and economic diplomacy and the management of friction between states.
While the United States recession is the major domestic preoccupation for the Obama Administration, the campaign against terrorism continues to influence United States foreign policy. The new Administration has signalled that it will seek to work with other countries, not just its traditional partners, to address international security issues such as terrorism, Afghanistan, Iraq, Iran, WMD proliferation, major power relationships and the Middle East. The Obama Administration has also signalled a desire to be in the forefront of developing a response to the challenge of climate change.
Latin America, in general, is better placed to face the current global economic crisis than in the past, following a period of strong economic growth, stable governance and sound macro-economic policies. But the fall in commodity prices, weak external demand, currency depreciation and tight financial conditions are dampening growth in the region.
The global economic crisis is affecting the region with varying degrees of severity, but underscores the growing importance to New Zealand of China and India, and of supportive regional architecture in advancing New Zealand’s interests in Asia. New Zealand’s growing Asian community will play an increasing role in shaping relationships and business interaction. China’s increasing political and economic influence remains the dominant trend, with other regional players continuing to position themselves in response. Japan remains an important actor by virtue of its economic strength, but domestic political constraints have hampered its efforts to pursue a more assertive diplomatic and security role. India continues to exert political and economic influence despite deteriorating security in South Asia. The Republic of Korea has become a powerful economic player, actively strengthening relationships in the region. North Korea’s nuclear ambitions remain a focus for the international community, including China whose role in the Six-Party Talks has been indicative of its more active role in regional security. Cross-strait relations have improved significantly.
The Association of Southeast Asian Nations (ASEAN) remains the vehicle for integration in Southeast Asia, and the adoption of the ASEAN Charter will add to its standing. ASEAN will seek to maintain its centrality in the wider process of Asian integration. Indonesia is reasserting its regional leadership. Malaysia, Singapore and increasingly Viet Nam are key players in ASEAN. Thailand’s return to democracy has been marked by uncertainty. In Myanmar, the prospects for democracy remain slim. The difficulties with reconstruction and nation-building in Timor-Leste require long-term engagement by the UN and external partners.
Recent momentum towards closer regional integration and community building in Asia may be tested by growing protectionist sentiment in response to the financial crisis. Maintaining momentum will require continuing efforts to promote “open” regionalism through Asia Pacific Economic Cooperation (APEC), East Asia Summit (EAS), ASEAN and a Trans-Pacific Partnership regional FTA. Further evolution of the regional architecture is likely, with the EAS a possible basis for an emerging Asian community.
While Australia has benefited from a decade of strong mineral commodity-based economic growth and is better placed than most other developed countries to weather the global economic crisis, it is not immune from the impacts of the crisis, with rising unemployment as a result of softening global demand an early indicator of tougher times ahead. Australia is an active player in international efforts to improve global financial and economic structures, particularly through the G20, WTO and other forums. In foreign policy, the Rudd government puts major store on its important links with the US and East Asia. It has proposed new initiatives in the areas of regional structures (the Asia Pacific Community), nuclear disarmament, and engagement with the UN (including ratifying the Kyoto Protocol and seeking a non-permanent seat on the UN Security Council). Australia remains significantly engaged in the South Pacific, as a major donor, and is seeking to re-orient its development assistance through new partnerships which place emphasis on measurable results.
The outlook for the Pacific remains troubling. Weak institutions, political instability and capacity concerns are signs of persistent regional fragilities that for much of the Pacific pose risks to future stability and development. Fiji is an example, particularly in light of the 2006 coup and its aftermath. The impact of the global economic downturn will exacerbate problems around stability and sustainable economic development. Limited progress in addressing these issues has been made through the provision of targeted development and good governance assistance to regional countries by external partners. But sustained efforts over time will be needed to entrench improvements and to advance cross-boundary priorities such as fisheries, the broadening security agenda, the environment, regional approaches to trade, and to address longer-term social trends with serious implications such as population growth and migration, the threat of HIV/AIDS and land issues. The quality of the engagement by external partners will be critical to the longer-term prosperity of the region. Official development activities will need to support wealth creation and business development as well as public sector goals, if long-run contractionary influences and trends towards dependency are to be reversed by Pacific Island governments. Particular attention will be required for the countries of the Realm of New Zealand - the Cook Islands, Niue and Tokelau - as each deals with the particular challenges associated with small and diminishing populations, the lure of New Zealand for most of their peoples and in the case of the latter two, almost total reliance on New Zealand assistance.
The global recession has affected Europe, with no recovery forecast until 2010. Major economies such as Germany, Britain and Spain as well as smaller states such as Ireland are in recession. Several Central European EU members have been especially hard hit by the crisis, and the financial sectors of others - notably Austria and Ireland - have been badly affected.
In 2007 the European Union (EU) reached agreement on a new reform treaty to update its institutional structures. That treaty is expected to be ratified in late 2009, coming into force at the start of 2010. Now a union of 27 members, the continuing process of EU enlargement is focused mainly in the Balkans.
The EU can be expected to play an increasingly important global role with the combined weight of its members. It will also continue to have internal preoccupations related to its constitutional status and issues such as its ageing population, immigration policy and the security of its energy supply.
While the EU’s foreign policy efforts are focused on its own backyard (in particular the Balkans), the EU is also moving to formalise its relationships with Middle Eastern and North African countries, and with former Soviet states. China remains firmly on the EU radar screen, along with Africa (the EU is the largest ODA provider to Africa). The EU is also a large ODA donor to the Pacific. The EU is increasingly active on global issues such as climate change, sustainability and interfaith dialogue. The EU remains active in the WTO Doha round, but has broadened its trade policy approach and is increasingly seeking greater engagement with emerging economies in Asia, particularly China and India. The EU has also launched a series of free trade agreement negotiations with the Republic of Korea, Canada, India, ASEAN, and with Andean and Central American countries.
Russia remains a political and economic force in the region, particularly in the energy sector, although it too is feeling the financial and social effects of the global recession. The brief military confrontation in 2008 between Russia and Georgia did not resolve the underlying political and ethnic rivalries in the South Caucasus.
Events in Iraq, Iran, Israel/Palestine and Afghanistan demonstrate that the wider Middle East region remains a strategic fulcrum – the stage on which major international political and economic challenges are being played out. The combination of oil revenues, inter-state and intra-state tensions, religious/ideological divides, democratic deficit, population growth, economic under-performance, outside intervention, and violent extremism means ongoing risks to international security. Deteriorating situations in the Horn of Africa, its surrounding region, and in the Democratic Republic of Congo and Zimbabwe, continue to present security challenges both for African countries and for the wider international community.
The effects of the global recession are likely to be severe and protracted in their impact on developing countries. The Food and Agriculture Organization has reported that poor countries continue to suffer from the effects of high food prices, compounded by sharply lower growth and remittances, declining inward flows of investment and lack of trade finance. The World Bank estimates that every percentage reduction in developing countries’ growth pushes 20 million people back into poverty.
These trends will hinder the achievement of development targets and may even cause reversals. Projections of economic growth in New Zealand’s aid partner countries in the Pacific and Asia are being sharply revised downwards. Gains in poverty reduction are being slowed or reversed, with possible flow-on impacts even on social and political stability.
Even before the crisis, it was clear that many countries in the Pacific would struggle to meet the Millennium Development Goals (MDGs). Of 11 Pacific island countries (and Timor-Leste) where data is available, seven were assessed as unlikely to meet the first MDG to halve extreme poverty and hunger by 2015. Only a significant increase in sustainable economic growth will make success more likely. There is a danger that the Pacific will continue to be largely left behind by the extraordinary economic growth in developing countries over the past six decades.
Government and non-government aid agencies around the world continue to come under increasing pressure to strengthen the effectiveness of their aid and the evidence of its results. In 2008, New Zealand (along with more than 100 other countries and aid agencies) signed the Accra Agenda for Action which sets out the steps needed to make aid more effective. Developing countries are committing to take control of their own futures, donors to coordinating better amongst themselves, and both parties to the Agenda are pledging to account to each other and their citizens. The Accra Agenda for Action builds on the 2005 Paris Declaration on Aid Effectiveness. It agrees to strengthen predictability and transparency of aid; use partner countries’ own systems where possible; and further relax restrictions that prevent developing countries from buying the goods and services then need from whomever and wherever they can get the best value for money.
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