WSJ: USA HAS BECOMING Unreliable Friend to Asian ALLIES

By MAX BOOT

The hardheaded case for President Obama's foreign policy rests on twin pillars: He is a tough commander in chief who does not hesitate to slay the nation's enemies, and he is "pivoting" from the Middle East to East Asia to confront the No. 1 threat to American power—China. There is some truth to both claims, but their essential hollowness has been revealed by a little-noticed defeat the U.S. has just suffered in a place few Americans have ever heard of.

Scarborough Shoal is a minuscule rock formation in the South China Sea that was discovered by an unlucky British East India Company ship, the Scarborough, which grounded there in 1784. This outcropping has been claimed by both China and the Philippines because of the rich fishing beds that surround it and the possibility of drilling for oil.

You would think that the Philippines would have the better claim, having built a lighthouse and planted its flag there in the 1960s. The shoal is only 140 miles west of Luzon, the main Philippine island, well within Manila's 200-mile "exclusive economic zone" as recognized under international law. It is 750 miles from the Chinese landmass.

Nevertheless, China is trying to assert its sovereignty over nine-tenths of the South China Sea based on tendentious historical "evidence" ranging from purported trips by Chinese explorers 2,000 years ago to a 1947 map issued by China's Nationalist government and recognized by no other state.

However unconvincing its claims, China is attempting to make good on them by sending fishing vessels and paramilitary patrol boats into disputed waters. In early April, a Philippine navy ship tried to prevent Chinese fishermen from poaching seafood from the area. Two armed boats from the Chinese Marine Surveillance Agency intervened and a standoff ensued.

Over the past two months, China sent more than 20 ships to the shoal, including as many as seven paramilitary vessels. The Philippines' interests were protected by two Coast Guard cutters. The standoff finally ended, at least for the time being, when the Philippines withdrew its vessels rather than risk losing them in an approaching typhoon.

The U.S. is bound to protect the Philippines under the terms of a 1951 treaty. Yet even as our ally was being bullied by China, the Obama administration adopted a pose of studied neutrality.

The Philippines has offered to submit the Scarborough Shoal dispute to an international tribunal under the Law of the Sea Treaty, which both Beijing and Manila have signed. But China refuses, no doubt knowing it would lose. The Chinese leadership must figure they have a better chance to assert their claim by force majeure because there is no way a weak state like the Philippines can stand up to them.

The Obama administration did not orchestrate an international campaign to rally support for the Philippines. And it failed to take the most dramatic step of all by not sending an American destroyer or other warship to Scarborough Shoal. Would doing so have risked war with China? Hardly. In fact China is the classic bully with a glass jaw.

For evidence, look no further than the tiny Pacific Island of Palau. In late March, at virtually the same time that the Scarborough Shoal standoff was beginning, a Chinese fishing vessel illegally entered Palau's waters. When the poachers ignored repeated demands that they leave an area designated as a shark sanctuary, police from Palau's Fish and Wildlife Division opened fire, trying to sink the offending vessel.

The result: one fisherman dead and 25 captured. A couple of weeks later, under the terms of a deal with China, the poachers were fined $1,000 each and flown back home. The Chinese must have been furious, but their diplomat on the scene had nothing to say except "it is a good outcome."

No one is suggesting that either the Philippine or U.S. navies should have opened fire over the Scarborough Shoal dispute. But it is a sad day when Palau (population 20,000) is more assertive in standing up to Chinese aggression than the United States of America. The nations of Asia are watching carefully and making their calculations accordingly. In their eyes, the U.S. just became a less reliable friend.

Mr. Boot is a senior fellow at the Council on Foreign Relations and author of the forthcoming "Invisible Armies: An Epic History of Guerrilla Warfare from Ancient Times to the Present" (Liveright).

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Philippine external debt ratio goes down but total foreign debt rises

The external debt ratio of the Philippines, or the total foreign debt taken as a percentage of the country's gross domestic product (GDP), has dropped in the first quarter of this year.

In a press statement issued on Friday, the Bangko Sentral ng Pilipinas (BSP), the country's central bank, said the external debt ratio was down to 27.4 percent from January to March this year from the 29.5 percent registered for the same period last year.

However, the BSP said that in absolute terms, the outstanding external debt of the Philippines in the first quarter rose to 62.9 billion U.S. dollars, up by 3.3 percent from 60.9 billion U.S. dollars as of the same period last year.

The BSP explained that despite the increase in the absolute amount of debt incurred by the government and the private sector for the first quarter, the debt ratio dropped because the growth of GDP in the first quarter was much faster. The country's GDP grew by 6.4 percent in the first quarter, a big jump from the 3.7 percent full-year growth in 2011.

According to BSP officials, the country's outstanding foreign debt grew because of an increase in investments.

"The increase is due largely to 2.3 billion U.S. dollars net availments (excess of borrowings over repayments) as investment and business activities by both public and private sector entities escalated due to the upbeat business sentiment," the BSP said.

Despite the higher debt level, major external debt indicators remain at prudent and comfortable levels in the first quarter, the BSP added.

The National Statistical Coordination Board (NSCB), the Philippine government agency tasked to monitor and evaluate all economic data, said that the mix of indicators used to forecast economic developments points to sustained growth for the country in the second quarter of 2012.

After a decline in the third quarter of 2011, the composite leading economic indicators, or LEIs, accelerated over the next three consecutive quarters, strongly indicating a continuation of positive outlook for the country's economy, NSCB said.

In a report posted on its website, the NSCB said that the LEIs grew 0.125 in the second quarter of the year from a revised 0.064 in the first quarter.

NSCB Secretary General Romulo A. Virola said growth in LEIs hinted at better prospects for business and, thus, economic expansion for the rest of the year.

Of the 11 indicators that make up the composite LEI, seven contributed positively in the second quarter of 2012, the NSCB said.

The LEI System, or LEIS, was developed by the NSCB and the National Economic and Development Authority to serve as basis for short-term forecasting of macroeconomic activity in the country.

The NSCB has also estimated that as of the end of last year, every Filipino owed 51,675 pesos (1,200 U.S dollars), to domestic and foreign creditors.

The Philippines has now a population of more than 95 million.

Despite its huge debt burden, the Philippines managed to lend 1 billion U.S. dollars to the International Monetary Fund (IMF).

Malaca?ang, the seat of the Philippine government, said that it was an obligation on the part of the Philippines to help countries in dire need of funding through the (IMF) as it brushed off criticisms that it was improper for the government to lend money when it needs funds for programs to alleviate poverty and hunger in the country.

Edwin Lacierda, President Benigno Aquino's spokesperson, justified the move by saying that the Philippines had been a recipient of IMF assistance for the past 40 years.

"Now that we have been considered a creditor nation, we feel it is our obligation to assist those nations who require funding from IMF," Lacierda said in a press briefing.

Lacierda said that contribution of 1 billion U.S. dollars to IMF's standby fund of 456 billion U.S. dollars "would also help in stabilizing the crisis that's going on in Europe."

"It is our responsibility; it is part of our obligation (to the) IMF who has assisted us during our times of crisis in the Philippines," Lacierda said.

In a separate statement, BSP Governor Amando Tetangco said the Philippines will get returns from the loan it extended to the IMF.

Tetangco said that for nearly 40 years until 2006, the Philippines itself was a net borrower from the IMF. "We finally fully paid our loans to IMF in December 2006 as the implementation of continuing reforms has made our economy stronger," he said.

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