Peddling Geo-Influence: PRC/Cambodia, US/Egypt

Geopolitics may have gone somewhat out of fashion after the fall of the Berlin Wall, but they've never become truly unfashionable. With the US nosediving in terms of global competitiveness and so many other things, various parts of the world are literally up for grabs to those displaying enough initiative. In other words, the "end of history" looks further away than ever with China replacing the Soviet Union with its odd hybrid of market socialism. As a sign of the times, contrast the United States which is more in prevent defence mode and China which is taking a more aggressive line.

Recently I wrote about how China used its relatively close ties with Cambodia to frustrate the latter's fellow ASEAN countries who wished to bring up the matter of the South China Sea during the most recent ASEAN Regional Forum (ARF) security meetings. As the host in 2012, recall that Cambodia essentially told the Philippines and Vietnam to shove it. Back to the future? Back to the seventies, I say (with Pol Pot in full effect). As it turns out, Cambodia is now (surprise!) reaping the rewards for its recent subservience to the PRC. That is, Cambodia remembers Hu's its daddy despite all this lip service to ASEAN solidarity:

China has pledged more than $500 million in soft loans and grants to Cambodia and Prime Minister Wen Jiabao thanked it for helping Beijing maintain good relations with the regional grouping ASEAN, a Cambodian junior minister said. A summit of the 10 members of the Association of Southeast Asian Nations (ASEAN) in July failed to issue a joint communique for the first time in the group's 45-year history after disagreement over the wording of a section on territorial claims in the South China Sea. Cambodia, which chairs ASEAN meetings this year, was accused by some countries in the group of stonewalling in support of its ally, China...

Four loan agreements for unspecified projects worth about $420 million were signed when Cambodian Prime Minister Hun Sen visited China over the weekend...[a]nother three loan agreements, worth more than $80 million, are expected to be signed this year, [Cambodian Finance Minister] Aun Porn Moniroth said, adding that Wen had also promised a grant of 150 million yuan ($24 million) as "a gift" for Cambodia to use on any priority project..."

Chinese investment in Cambodia totaled $1.9 billion last year, more than double the combined investment by ASEAN countries and 10 times more than the United States, which is trying to extend its influence in the region. Aun Porn Moniroth said Premier Wen had given "positive consideration" to Hun Sen's proposal that China provide new loans of between $300 million to $500 million per year for the next five years for unspecified projects. He also said a Chinese firm planned to invest $2 billion to build a steel plant in Cambodia employing about 10,000 people and with the capacity to produce 3 million tons of steel a year. He gave no details so it was not possible to verify how far advanced the plans were.

Cambodia parties like it's 1979--except with even more lavish benefits from its nouveau riche Chinese benefactors. Meanwhile, the United States is also lining up to purcha$$$e geopolitical influence...in Egypt. While the latter has received generous American military aid during the Mubarak years, its recently precarious financial situation appears to have occasioned even more American generosity lest Egypt slip away from the American security ambit. Recall that the IMF head was dispatched to Egypt, while various sorts of Iraq-inspired debt forgiveness deals are in the offing:

American diplomats are closing in on an agreement to dole out $1 billion in debt relief to Egypt, part of a gilded charm offensive that Washington hopes will help shore up the country's economy and prevent its new Islamist leadership from drifting beyond America's foreign-policy orbit...As the recipient of $1.3 billion in annual U.S. military aid, Egypt has historically ranked among America's top security partners in the Arab world. Its peace treaty with Israel has helped buttress regional security for more than 30 years.

U.S. diplomats say American funding for Egypt has been stalled by disagreements over how the government in Cairo will allocate the debt relief. The envoys currently in Cairo are negotiating over slightly less than half the money, which would be paid as a direct cash transfer to Egypt's budget. The larger portion, about $550 million, would be doled out in a debt-swap program in which both the U.S. and Egyptian governments would agree on how the money will be allocated.

That said, Egyptian leaders and citizens are wary of the conditionalities all this American help will entail. Once again, remember US help in addition to that offered by the IMF and fellow Arab countries will not plug Egypt's financial hole. The implicit hope is that the US and the IMF giving Egypt a thumbs-up will not only encourage others to lend to it but also invest there to create a more viable economy going forward:

Even when not imposing concrete conditions, U.S. officials have stressed the Obama administration's view that the Islamist government should maintain an inclusive posture toward all segments of Egyptian society. "Progress will only be possible if the talents of all citizens are drawn upon and all have a voice—men and women, all religious groups, and all parts of the country," Mr. Hormats said.

The aid offers will still strain to meet Egypt's estimated $12 billion in external financing needs. Last year's revolution and the subsequent 19 months of political instability have kept tourists and foreign investors at bay. Egypt's Central Bank has bled through nearly two-thirds of its $36 billion foreign-currency reserves to maintain the strength of the Egyptian currency. Many economists say a currency devaluation is inevitable.

Another prong of this American goodwill effort involves guarantees on US investment in Egypt as the State Department arranges a roadshow for American MNCs to encourage FDI:

Beyond the debt forgiveness and IMF loan, U.S. officials are also promoting two financing opportunities: $375 million in financing through the U.S. Overseas Private Investment Corp., a government development finance agency,for loan guarantees for small and midsize Egyptian businesses; and $60 million to help launch such businesses through a new U.S.-Egypt Enterprise Fund. American officials say their efforts are part of a multipronged strategy aimed at glossing Egypt's profile for international investors.

The debt-relief negotiations come as the U.S. Chamber of Commerce prepares to send a delegation of some 50 American business leaders to Egypt. The delegation, which is set to include regional Middle East heads from companies such as Boeing Co., General Electric Co., Google Inc. and Citigroup Inc. is working in partnership with the U.S. State Department.

Which is the less ambitious status quo play here? The US is keen on shoring up its Middle Eastern influence instead of extending it, while China merely used the occasion of its traditional ally Cambodia's ASEAN chairmanship in 2012 to frustrate Southeast Asian nations it has territorial disputes with. Both the US and China have more to do, but you get a stronger sense of China counting on old alliances now while it figures out what to do with those pesky other ASEAN nations in the future. After all, charm offensives must display consistency in both the economic and political realms to work.

Recall too that these are hardly "exclusive" areas of influence, with Egyptian President Morsi making his first trip outside the region to China and Missus Clinton agitating for a binding agreement between China and the Southeast Asian nations it has territorial disputes with. In geopolitics, loyalties can of course be swayed--especially with the help of wads of cash.