End of dollar diplomacy?

Both of Taiwan president Chen Shui-bian's possible successors are looking for a truce in the diplomatic war with China

By Jonathan Adams

Newsweek, February 18, 2008

For decades, Taiwan kept ahead of rival China through dollar diplomacy, luring allies with cash and aid. Then China's economy roared, and it started winning the global contest to buy friends.

Malawi, the latest target, switched allegiance to Beijing last month, and has given Taiwan until the end of this week to withdraw all embassy staff. Left with only 23 official allies, down from 30 in 2000, Taiwan accused Beijing of "buying" Malawi with $6 billion; China's Foreign Ministry rejected the charge. More important, the losses have Taiwan reconsidering what Antonio Chiang, a former official in Taiwan's National Security Council, calls "a stupid war."

This signals a warming trend on one of the world's most dangerous fronts. On March 22 Taiwan will choose a successor to independence-minded President Chen Shui-bian. Both candidates plan to curtail dollar diplomacy and tone down Chen's brash approach to Beijing, which still claims Taiwan as a renegade province. The Kuomintang's Ma Ying-jeou, the front runner, would ease restrictions on investment and travel between Taiwan and the mainland—restrictions that cramp Taiwan's economy. So would his rival Frank Hsieh, though more cautiously. Either one looks likely to be much less provocative than Chen.

Dollar diplomacy dates to the cold war, when both sides claimed to be the legitimate government of all of China. It has evolved into a feud that's more "Monty Python" than 007, with battles over the allegiance of obscure states like Nauru. Both sides accuse the other of buying recognition, but deny it themselves. So the multibillion-dollar battles rage on in the shadows, distorting global aid flows. By design or not, some of this politicized aid ends up lining the pockets of crooked politicians.

Under Chen, government officials debated dollar diplomacy's usefulness. Now, the KMT wants to abandon it as part of a plan to replace cross-strait confrontation with détente. "Checkbook diplomacy is an old game," says Su Chi, Ma's top foreign-policy adviser. "It's time for Taiwan and the mainland to sit down and talk." Hsieh believes Ma is too optimistic about negotiating with Beijing, but he would also tone down Chen's rhetoric on independence, says Hsieh adviser Hsiao Bi-khim: "If President Chen is a boxer, Hsieh is more of a tai chi fighter -- challenges will come, but he'll divert the force and fight back when he has an opportunity."

For the U.S., either successor would be a welcome change. Washington fears being drawn into a cross-strait war and sees Chen as picking needless fights with Beijing. From that perspective, the sooner a cooler head takes over, the better.

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