If military and humanitarian aid can be sometimes borderline in their geoeconomic dimension, bilateral economic (development) assistance has no such ambiguities. Not only is it often squarely geoeconomic, but—courtesy of a newly emergent set of development donors, replete with their own rules—it is also the most interesting class of aid as a geoeconomic tool. Official development assistance (ODA) reached a record high in 2013, helped along by spending increases topping 20–30 percent in countries such as Russia and Japan.135 With the rise of new donors, the profile of recipient states is shifting as well. Even as overall assistance levels touched record highs in 2013, combined assistance to Africa fell by 5.6 percent over the same period.136 Aid flows to certain middle-income states, meanwhile, are on the rise—some of the largest aid increases have gone to states such as Pakistan, Egypt, and India, which also tend to carry greater geopolitical weight. This at least raises the question of whether bilateral assistance flows are, on the whole, growing more oriented toward strategic goals than pure development ones.
No set of countries better epitomizes this new donor class than the Gulf Cooperation Council countries, nor is there any better demonstration of the geoeconomics motivating the GCC’s aid than in Egypt, where pledged GCC assistance has totaled roughly $22 billion between 2011 and 2013 alone. Between President Mubarak’s downfall in February 2011 and President Morsi’s ouster in July 2013, Qatar provided $8 billion to Egypt, including $4 billion in central bank deposits and $1 billion in grants.137 Qatar pledged a further $18 billion in 2012, intended to support tourism and industry projects along Egypt’s Mediterranean coast over five years, but the Egyptian military intervened to remove President Morsi before Doha managed to deliver on it. Other GCC states took an equal and opposite bet on Egypt’s political future. Kuwait, United Arab Emirates (UAE), and Saudi Arabia responded to Doha’s $8 billion during Morsi’s rule by raising the ante, pledging some $12 billion in Egypt immediately upon Morsi’s removal. (Kuwait, UAE, and Saudi Arabia have since given even more money to Egypt, reportedly totaling more than $20 billion as of fall 2014.) For UAE, development assistance increased 375 percent in 2013.138
At least for some Gulf countries, this strategy of propping up Morsi’s successors appears to be paying geopolitical dividends. After two years of helping the current el-Sissi regime weather economic and security woes, Saudi Arabia and Egypt marked the anniversary by signing the July 2015 Cairo Declaration, which calls for the establishment of a joint Arab military force and the expansion of economic ties between the two countries. Egypt’s first contribution to the partnership came soon after, when, in September 2015, it sent 800 troops to Yemen to join the Saudi-led fight against Houthi rebels there, lending the campaign an air of multilateralism.139
With neighbors so openly vying for influence through assistance, it is little surprise that 10 percent of Egypt’s GDP now comes from foreign assistance. A similar if scaled-down version of these events has played out in Lebanon, where the $12 billion the Lebanese government has received in GCC assistance over the past decade has so embedded itself in the country’s fiscal picture that “Lebanon cannot survive without the Gulf countries,” admits Mohammad Choucair, Lebanon’s head of commerce, industry, and agriculture.140 Gulf official donors distinguish themselves on sheer magnitude—the $8 billion in assistance Qatar spent on the Morsi government in Egypt alone in 2012 and 2013 amounts to roughly 40 percent of the entire bilateral economic assistance request presented to the U.S. Congress for 2013.
GCC donor states are also uninhibited about their geoeconomic motives. Such was Qatar’s support (economic, military, and humanitarian) for Libyan rebels that, on taking Qaddafi’s Bab al-Aziziya palace complex in August 2012, the rebels raised the Qatari flag in appreciation.141 Or take the $1.5 billion Saudi Arabia loaned to Pakistan in March 2014 “to help Islamabad shore up its foreign exchange reserves, meet debt-service obligations and undertake large energy and infrastructure projects, Pakistani officials [explained to] Reuters.”142 According to press reports, “the offer [came] in exchange for Pakistani assistance with internal security needs in Saudi Arabia.”143 However, Pakistani opposition officials claim the Saudi aid has “come at the cost of Pakistan’s independent stand on Syria.”144
It is true that virtually all of the billions in bilateral assistance dollars spent by Gulf countries remain confined to the Middle East and North Africa. But it hardly follows that Gulf leaders do not have countries outside their region in mind as primary targets of this spending. In fact, Gulf states, all too aware they are locked in a neighborhood spending race, regularly compete and spend regionally in ways designed to win the favor of the United States, or at least to shift policy in Washington.145 “Qatar is a secure little kernel with huge resources that has chosen to use those resources in foreign policy,” Middle East expert Paul Salem told the New York Times after Qatar announced new financial support for Hamas in late 2012. “They have no constraints. They can take any position anytime anywhere.”146 And the value of this dexterity goes both ways: Washington shows little pause in calling on Doha’s connections when necessary. Qatar led the negotiations with the al-Qa’ida affiliate in Syria that freed American writer Peter Theo Curtis in August 2014, and it engineered the prisoner swap that freed U.S. soldier Bowe Bergdahl in exchange for five Taliban prisoners in Guantánamo Bay.
Beyond the GCC states, this geoeconomic donor set includes new donors such as South Korea, “re-emerging donors” such as Russia, and long-standing donors such as Japan that are overhauling their traditionally large assistance portfolios to bring greater strategic returns.147 The only member of the OECD’s development assistance committee that was itself once a recipient of aid, South Korea views its overseas assistance as a centerpiece of its self-described ascent into a “global middle power.”148 Roughly two-thirds of Korea’s assistance remains in Asia, especially in Southeast Asia, where regional press commentators are quick to note that “South Korea’s official development assistance (ODA) will be a major and useful instrument for fostering a new constructive relationship with other ASEAN states.”149
Japan’s national security strategy, released in December 2013, directs Japan to step up its official development assistance and make a greater contribution to regional peace, in part through the “strategic utilization of ODA.”150 In June 2014, an expert panel under Japanese foreign minister Fumio Kishida finalized a report that recommended transforming Japan’s foreign aid policy into a strategic diplomatic tool; swiftly embracing the panel’s conclusions, Prime Minister Shinzo Abe ordered the reforms to be enacted within six months. The move marked the final about-face for Japan’s long-standing aversion to aid as a geopolitical tool.151
In its sharper varieties, however, these more geoeconomic-minded assistance sums can come with implicit noncompete clauses, as Belarus found out the hard way when it caught Moscow’s ire for seeking aid from China.152 It can also be used to supplement negative pressure, as Moscow’s December 2013 aid package to Kiev proved.153 The aid packages, promulgated as they were in conjunction with punishing trade sanctions, were Moscow’s way of making crystal clear its ability to reward and punish Kiev’s foreign policy choices with equal force.154
Among the newest, most powerful conduits for converting development-minded investment dollars into geopolitical influence are the cohort of state-owned development banks, which are extending financing to the developing world at less than market rates and in record volumes. As of April 2014, Brazil’s BNDES had amassed four times more lending capacity than the World Bank, while the China Development Bank CDB, with total assets in excess of $980 billion, offers a loan book bigger than that of JPMorgan Chase.155 These state owned banks have far, far deeper coffers than most organs of government policy; in some cases, as with China’s CDB, these banks are also under orders to build a customer base outside their domestic borders. Thus far this has included not just private clients but other foreign government entities, often drawn in by substantial financing at below-mark
et terms (the $40 billion Venezuela has received from the CDB—about $1,400 for every Venezuelan man, woman, and child—being a leading example).156
The emergence of the BRICS Bank—billed somewhat openly as a BRICS-led alternative to the World Bank—is one of the clearest signals yet that assistance will no longer always be dictated on Western terms. Capitalized initially at $100 billion and almost sure to focus on Africa, the bank will provide China with additional means of financing its expansion on that continent. But there may be more to it. Given the plethora of existing tools to finance resource investment in the developing world, the move to set up a multilateral development bank of which no Western nation is a member signals not only confidence in an alternative model but also a desire to instill it with a knowledge base and, say some, to rethink basic organizing principles of the international financial system.157 The bank is still a long way from completion, but BRICS leaders have begun to outline certain structural features—for example, the new bank will come with an agreement meant to safeguard a role for the many state-owned enterprises of its member countries (similarly, analysts expect that projects stemming from the new Chinese-led Asian Infrastructure Investment Bank will be dominated by Chinese firms).158 The idea was initiated by Beijing and met with strong interest from the remaining BRICS participants—all reportedly eager to ensure that their state champions were not cut from BRICS bank-funded projects.159
Financial and Monetary Policy
From the Maidan in Ukraine to the vegetable vendor in Tunisia, the tendency to cast popular uprisings and individual figureheads as the leading protagonists in revolution or the rise of empire seems as strong today as in Bismarck or Napoleon’s day. But several historians have tended to argue that “quiet transformations in management of finance have a much greater effect on national power and its global expressions.”160 Jeremi Suri surveys some of the world’s most dominating empires—the United Kingdom, Qing China, and the Soviet Union—to demonstrate how “ambitious ideological projects and impressive territorial conquests have less enduring influence on the leverage of states than the mobilization and management of capital.… National power is fundamentally financial.”161
Suri’s view recalls similar arguments by Paul Kennedy, Charles Tilly, Michael Mazarr, and David Landes, among others, each pointing to the availability of cheap capital for investment and spending as forming “the necessary foundation for all manifestations of state power.”162 Consider the British Empire. The single largest reason British imperialism prevailed against improbable odds and hostile powers was the late seventeenth-century creation of a new system for the management of revenue and credit. In return for favorable borrowing terms, the British crown under William III provided legal sanction for London credit markets and judicial enforcement of contract obligations, even obligations against the crown. By binding the crown as subject to credit obligations, British rulers succeeded in opening up new, vastly more affordable financing streams and flexibility that “in turn greatly strengthened its options in war and other forms of international competition,” Suri explains.163
The chief lessons learned by William III and his successors are at least as relevant today. And while again there is no shortage of casual observation linking a country’s financial and fiscal health to its power projection in general terms, strikingly few have attempted to pinpoint the precise transmission channels between the two, or to revisit how, if at all, these channels have evolved in light of the sweeping changes that have redrawn the global financial and monetary landscape over the past decade or so.164
The reasons for this may be largely structural. These fields are not well incentivized to interact, especially in Western policy-making circles. Probably more than any other dimension of geoeconomics, financial and monetary policy tends to lie beyond reach for U.S. officials primarily preoccupied with geopolitics—just as finance and monetary officials downplay the geopolitical dimensions of their work, perhaps more so than any other brand of U.S. international economic policy maker. Both sides have their reasons. And this strict bifurcation worked well enough for the more than six decades of Pax Americana.
But there are several reasons to think that over the coming years the geopolitics of monetary and financial policy might resurface in sharpened form: a rising renminbi (RMB), a set of countries agitating for a smaller role for the dollar, a euro that despite current troubles may continue to mature, and global debates about quantitative easing. If a sharpened brand of financial and monetary geopolitics does resurface, it is doubtful that the current norms—unwritten rules that keep the work of Western foreign ministries comfortably distant from that of finance ministries and central banks—will serve either side well.
Beyond the general ties linking sound monetary policy to a healthy economy and then to geopolitical influence, there are three basic transmission channels through which states can translate monetary policy tools into geopolitical influence: the global footprint of a country’s currency, the ability to raise funds at low cost, and the ability to impact another country’s borrowing costs. And while these channels themselves are not new, they operate on such a vastly altered landscape as to bear little resemblance to their former shape.
Beginning with the first of these, how does the global footprint of a country’s currency allow it to project power?
As Charles Kindleberger once put it, “a country’s exchange rate is more than a number. It is an emblem of its importance in the world, and a sort of international status symbol.”165 Consider the introduction of the euro. When the European Union launched its common currency in 2001, the euro was widely hailed as the largest development in global currency markets since the Bretton Woods conference of 1944.166 But whether or not the euro’s introduction indeed marked “the start of a new era for Europe,” a period in which European economies are knitted into a “single, more efficient, and productive whole,” these benefits were of secondary importance to the euro’s early architects.167 A clearer account begins in 1970s Germany—in particular with German chancellor Helmut Schmidt’s visit to the German Bundesbank in 1978, on the eve of the European Council gathering that initiated the European Monetary System. In a transcript that merits quoting at length, Schmidt exhorted German central bankers to support a European monetary (and currency) union—making clear that this was, above all, an issue of geopolitics:
What now concerns German policy, I will say in all simplicity, yet all urgency, without an efficiently functioning Common Market, without an economically and politically influential European Community, German foreign policy is not to be conducted successfully. German foreign policy rests on two great pillars: the European Community and the North Atlantic alliance.… The whole game that we have played in the last ten years towards the Soviet Union, towards the eastern European countries, that we have played over Berlin, in order to steady this fateful city in its position, all this would not have been possible without these two pillars behind it.…
By holding firmly to our duties we have grown ever stronger relative to our own Western allies. And we have also attained very great political weight in their eyes. It is all the more necessary for us to clothe ourselves in this European mantle. We need this mantle not only to cover our foreign policy nakednesses, like Berlin or Auschwitz, but we need it also to cover these ever-increasing relative strengths, economic, political, military, of the German Federal Republic within the West. The more they come into view, the harder it becomes to secure our room for manoeuvre. The more desirable it is that we are able to lean on these two pillars, which are simultaneously here a mantle for us, in which we can conceal our strength a bit.…
On the other hand, I said the European Monetary System involves risks. I repeat: it involves essential chances too, especially if it is successful, the chance for us that the European Community will not decay. It is really a vital precondition for German foreign policy and its autonomy. It offers chances of the economic sort too, which I have not placed in the foreground of this presentation
, but which I do not wish to hide.…
Here there are limits even for us, ladies and gentlemen. We cannot intervene ad libitum in favour of a dollar that is treated like a football by its own government, by its own treasury, by its own Federal Reserve Bank. We cannot do that. But if we then sometime have to say: this is the end of the line, we will then need allies here in Europe. For that is not so easy to do to the chief military member of the North Atlantic alliance. Then we will need comrades who will stand by us and say: yes, indeed, the Germans are right and it’s not in our French interest that European currencies constantly be sacrificed in market intervention in favour of a dollar badly treated by its own country … [F]or me the whole thing has been embedded from the start and remains embedded [in] foreign policy considerations.168
Nearly four decades on, several EU member states continue to regard the euro as mostly a geopolitical project. In January 2014, even as the euro crisis remained far from resolved, Latvia became the eighteenth EU member to adopt the currency. Headlines greeted the move in straightforwardly geoeconomic terms: “Latvia Sees Joining Euro as Extra Protection against Russia.” Latvian finance minister Andris Vilks pointed to the crisis in Ukraine as underscoring the importance of Latvia’s move toward the euro. “Russia isn’t going to change,” Vilks explained to the media.169 “We know our neighbor. There was before, and there will be, a lot of unpredictable conditions. It is very important for the countries to stick together, with the EU.” Lithuania joined in early 2015, with ministers in Vilnius couching their decision in similar terms. “It has a symbolic connotation: we see ourselves being as integrated as possible into Europe,” explained Rolandas Krisciunas, Lithuanian vice-minister for foreign affairs.170
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