Monday, February 27, 2023

Point of Order: Two views of how the war in the Ukraine is impacting on a small country in the Pacific

Last year, when she was still Prime Minister, Jacinda Ardern described the state of world affairs as “bloody messy”. Since then there have been few, if any, signs of improvement. The war in Ukraine delivered an economic jolt to NZ, and its effects have barely dissipated. The war’s expansion would bring more pain for local business and consumers.

Without the military or economic scale to influence events directly, NZ relies on its voice and ability to persuade.

But by placing its faith in a rules-based order and United Nations processes, it also has to work with – and sometimes around – highly imperfect systems. In some areas of international law and policy, the machinery is failing. It’s unclear what the next best step might be.

New Zealanders like to think that they are backing Ukraine’s war effort by the government making financial contributions. But even there NZ would hardly get a pass mark. Of the countries which have supported Ukraine financially in resisting the Russian invasion, NZ is the second feeblest. Even if adjusted for population size, the amount of aid in millions of euros per million population is:
  • Canada 108.7
  • Australia 16.6
  • Japan 8.3
  • NZ 3.9
That is just comparing with countries not in Europe. Ireland, Norway, Finland and Denmark are all around NZ’s population and have respectively given between 17 to 60 times as much aid to Ukraine.

For a small country in an increasingly lawless world, this is both dangerous and confronting. Without the military or economic scale to influence events directly, New Zealand relies on its voice and ability to persuade.

The war has New Zealand now navigating two global camps, with political allegiance to Ukraine and the West but strong economic ties to China, a country more sympathetic to Russia.

ANZ chief economist Sharon Zollner said Vladimir Putin’s invasion last February initially caused a big jump in the price of oil.

“Prices have actually come back a long way. Essentially the shock has very much dissipated.”

Ukraine is a major grain producer and the Russian blockade of Black Sea ports choked some cereal exports.The war also added volatility to fertiliser prices.

“Again, that wasn’t as persistent as initially feared,” Zollner added.

“Turbulence in global food prices could hurt domestic consumers but high prices could also benefit New Zealand, which is a major exporter of dairy products, lamb, venison, beef, and kiwifruit. New Zealanders are on both sides of the equation … We got some of it back.”

Countries more dependent on food imports were more exposed than New Zealand.

The war shows no sign of ending, but Zollner said if the conflict was contained, economic impacts should be too.

New Zealand and Russia are not major trading partners. A nascent free trade deal proposal was scrapped in 2014 when Moscow annexed Crimea.

“We don’t export or import much from Russia – a bit of butter, a bit of wine,” Zollner said.

New Zealand imposed a 35% tariff on all imports of Russian origin and placed sanctions on Russian officials, especially military and political elites.

Kiwi parliamentarians have shown solidarity with Ukraine. One measure of the unity is evident in Russia’s decision to blacklist every MP.

The ban on MPs was perhaps the only coherent response to New Zealand’s economic and military support for Ukraine.

The Kremlin has otherwise lashed out by blacklisting some Kiwi journalists, academics, corporate executives and officials seemingly picked at random.

What the Ukraine war is underlining is that NZ’s capacity to respond in a meaningful way has steadily diminished. As Professor Alexander Gillespie of Waikato University points out in his latest essay on the issue, what has been called into question is the feasibility of NZ’s relatively low spending of 1.5% of its GDP on defence.

He says Wellington is increasingly being left out of collaborative arrangements (Aukus being just one example), which in turn reinforce alliances and provide pathways to technology.

“This is tied to the largest question of all—whether NZ wishes to relegate itself to becoming a regional ‘police officer’ or wants to carry its fair share of being part of an interlinked modern military deterrent.”

Professor Gillespie says, diplomatically, NZ also has to consider what peace would look like.

“This raises hard questions about territorial integrity, accountability for war crimes, reparations, and what might happen to populations that don’t want to belong to Ukraine.

“How Putin will respond in a war he cannot win conventionally, while risking losing popularity at home, is impossible to predict.

“Finally NZ needs to prepare for the worst.

“The war is showing no sign of calming down…If the Ukraine war spins out of control NZ would be in an emergency unlike anything it’s witnessed before”.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton

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