How Security Problems Can Undermine Economic Progress

November 29, 2006 • Commentary
This article appeared in the Times of India on November 29, 2006.

At first glance, the prospects for continued vigorous economic growth in both East Asia and South Asia seem quite promising. A closer look, however, suggests that a miasma of uncertainty regarding the security environment in the two regions threatens those prospects.

It was no accident that North Korea’s nuclear program was a prominent topic at the APEC meeting in Hanoi in mid November. The specter that Kim Jong-il’s volatile regime might have nuclear weapons is worrisome enough, but the concerns do not stop there. Other players in the region, including Japan, South Korea, and Taiwan might decide to follow suit. A cascade of nuclear proliferation does not create the predictable, stable security environment that businesses in East Asia want as they make plans for trade and investment.

Moreover, there is a small but significant risk that the United States might do something rash in response to Pyongyang’s nuclear ambitions. U.S. officials have said that the military option remains on the table. Even the more limited measures already approved by the UN Security Council, especially the provision in the sanctions resolution authorizing member states to intercept and inspect cargoes entering or leaving North Korea, could trigger a crisis–with unpleasant economic ramifications.

The security environment in and around South Asia may be even more tense and unpredictable. Just two years ago, it looked as though the U.S.-backed government of Hamid Karzai in Afghanistan was in a strong position, and that the Taliban‐​Al Qaeda alliance was little more than a bad memory. That is no longer the case. Taliban and Al Qaeda forces have regrouped and launch ever more deadly attacks. Those forces enjoy safe havens in the border areas of Pakistan, and reports circulate that Pakistan’s security forces are again aiding their old political allies. A resurgence of instability in Afghanistan could unsettle the neighborhood as well as jeopardize important economic projects, such as the oil pipeline to Iran.

The upsurge in violence in Afghanistan, though, is dwarfed by the mounting chaos in Iraq and what it portends for the region. Washington refuses to admit the obvious: that Iraq is already plagued by a sectarian civil war. That development is a tragedy for Iraq, but it could be the beginning of a process that would have implications far beyond that country. The more worrisome danger is that sectarian strife in Iraq could be the catalyst for a regional Sunni‐​Shia conflict that would draw in such powers as Iran, Saudi Arabia, and Turkey. That level of disorder would have profoundly negative consequences for economic development in an arc from the Mediterranean Sea to the Indian Ocean.

Most worrisome of all is the crisis involving Iran’s nuclear program. If Iran continues its apparent quest for nuclear weapons, it is likely to trigger a wave of proliferation in the region. It is improbable that a wealthy neighbor such as Saudi Arabia, which has had more than its share of tensions with Tehran over the years, would choose to remain nonnuclear if Iran acquired an arsenal. Indeed, other countries are already hinting about hedging strategies. In September, Hosni Mubarak’s son and political heir apparent stated that Egypt needed to seriously consider developing a nuclear program of its own. The prospects for proliferation are all too real unless the Iranian nuclear crisis is resolved, and proliferation would greatly unsettle the economic environment.

Attempts to resolve the crisis, though, also have negative implications. The United States and the leading powers of the European Union are pushing for strong economic sanctions against Iran unless Tehran halts its enrichment of uranium. Russia and China oppose punitive sanctions, and Washington is clearly annoyed with their attitude. Either outcome is unfavorable to economic stability and growth. If the impasse on sanctions cannot be broken, serious tensions will develop in Washington’s relations with both Moscow and Beijing. That could have repercussions not just for regional economic health but for the global economy. Conversely, if Russia and China eventually capitulate, everyone must worry about how Iran would respond to strong sanctions.

Finally, there is always the danger that the United States might decide to resolve the Iranian nuclear crisis through military action. Hawks openly advocate air strikes against Iran’s nuclear installations. Indeed, U.S. military action is more likely in the case of Iran than it is in the case of North Korea, because U.S. leaders fear Tehran’s connections to Islamic terrorist groups and worry about the possible transfer of nuclear weapons to such groups. Yet if the United States attacks Iran, the consequences could be horrific, since Iran would probably not passively absorb such an assault. A response such as the closure of the Strait of Hormuz would have devastating economic effects on a global scale.

The next few years are likely to be decisive with regard to all of these security dangers. If the various problems can be resolved peacefully, the prospects for economic growth in Asia are excellent. There is a real danger, however, that the security environment will grow worse, not better, and that does not bode well for Asia’s economic future.

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