On only its first full day in office, the Biden administration was facing its first big foreign policy test in the same place that hung over its predecessor for four years: Russia.
Living up to a campaign commitment, the White House said on Thursday it wanted a straight extension of a nuclear arms control agreement with the Kremlin that faces imminent expiry, an overture former president Donald Trump long resisted.
But the invitation from President Joe Biden to extend the so-called New Start agreement for five years was offered even as incoming officials have condemned what analysts view as some of the Kremlin’s most aggressive anti-western actions in years.
In the days leading up to Mr Biden’s inauguration, US security services uncovered a massive cyber-espionage attack on US government computers they have blamed on Russia, and Moscow at the weekend arrested Alexei Navalny, the opposition leader who has accused Russian spies of nearly killing him in August.
“We are seven years into a US-Russia crisis where Washington has been on the back foot,” said Andrew Weiss, a Russia expert at the Carnegie Endowment for International Peace, dating the start of current tensions between the two countries to Moscow’s 2014 annexation of Crimea.
For Mr Biden, who is committed to restoring American multilateralism, extending the nuclear weapons treaty would mark a sharp break from Mr Trump, who pulled out of most remaining bilateral agreements with Moscow over the course of his presidency.
“New Start is the only remaining treaty constraining Russian nuclear forces and is an anchor of strategic stability between our two countries,” Jen Psaki, the White House press secretary, said on Thursday.
Despite condemnation of Mr Navalny’s arrest and the so-called SolarWinds cyber attack, the White House has thus far stopped short of any action to punish the Kremlin.
Instead, Ms Psaki said the president had tasked the US intelligence community for its “full assessment” of both incidents — as well as over allegations of Russian interference in US elections and reports that Moscow paid local fighters to kill American soldiers in Afghanistan.
Biden aides have signalled they would prefer to take a harder line with Moscow than either Mr Trump or Barack Obama, who started his presidency with a “reset” policy aimed at warming relations that had iced over after Russian troops invaded parts of Georgia.
Antony Blinken, Mr Biden’s pick for US secretary of state, told his Senate confirmation hearing this week that he supported providing lethal weapons to Ukraine to defend itself against Russia and inviting Georgia, a former Soviet republic, to join Nato — assertive policies that Mr Obama resisted.
Mr Blinken joined incoming national security adviser Jake Sullivan in condemning the treatment of Mr Navalny. Mr Sullivan has called for the immediate release of Mr Navalny, who was arrested on his return to Moscow on Sunday following his recovery from nerve agent poisoning.
“[T]he perpetrators of the outrageous attack on his life must be held accountable,” Mr Sullivan wrote on Twitter.
The new administration faces a difficult balancing act, attempting to both resurrect the cold war-era security architecture Mr Trump cast aside but also hold Vladimir Putin, Russian president, responsible for his increasingly bold anti-western actions.
The risk facing Mr Biden, Mr Weiss said, was that Russia would become “more dangerous and unpredictable” in the face of new American pressure, and the best the new president could hope for was to try to keep things from “spinning out of control”.
But Mr Putin has only made it more difficult to find a way back to normalised relations, Mr Weiss argued, by latching on to Mr Trump’s attempts to undermine Mr Biden’s presidency from inception, adding the Kremlin kept “banging the drum” for the idea that Mr Biden’s presidency was illegitimate.
New Start may be Mr Biden’s best hope at finding a way to engage Mr Putin. Neither side needs to make any concessions to agree to a clean five-year extension of the 10-year treaty, which is due to expire on February 5.
The Trump administration repeatedly failed in its bid for a shorter extension, which it sought in order to extract concessions from Russia and enlist China’s inclusion in the deal, which remains unlikely.
“Extending the treaty’s limitations on stockpiles of strategic nuclear weapons until 2026 allows time and space for our two nations to explore new verifiable arms control arrangements that could further reduce risks to Americans,” said John Kirby, the new Pentagon spokesman.
He added the US needed New Start’s intrusive inspection and notification regime, arguing that its loss would risk weakening America’s understanding of Russia’s long-range nuclear forces.
The Kremlin has already said it was ready to extend New Start. Last year, Mr Putin offered Mr Trump a one-year extension with no new conditions.
“Russia and its president are in favour of preserving this agreement,” Mr Putin’s spokesman Dmitry Peskov told reporters on Wednesday. “If our American colleagues will demonstrate the political will to preserve this pact by extending it, this can only be welcomed.”
Additional reporting by Henry Foy in Moscow and Lauren Fedor in Washington
Covid gives Japan ‘last chance’ to reverse digital defeat
Each day, dozens of residents in Tokyo’s Setagaya district visit an office to sign up for a My Number identification card. Officials take each visitor’s photo, make copies of their existing ID documents and ask them to write down four passwords. The information is sent back to the local government and it can take months before the card is issued.
The process has been slow because of Covid-related restrictions. Residents are asked to book appointments in advance and slots are limited to prevent overcrowding. One resident received a notice in May but her nearest office did not have a slot open until July.
The 12-digit My Number card, which can be used for making online applications for administrative procedures as well as for opening bank accounts and other services that require ID verification, could have flourished during Covid-19. Instead, it has become a symbol of a digitally ill-prepared Japan. The government launched the project in 2015 and spent ¥880bn ($8bn) to make and distribute the cards. But only 15 per cent of the population had received a card by the time the outbreak began.
That meant Japan had no choice but to rely on paper and manual labour, a system that has been largely unchanged for decades and has proved to be extremely inefficient during the pandemic.
Last year’s emergency cash handout programme required residents to fill in applications and send them by post. Municipalities had to print and mail the applications to households, set up call centres to respond to inquiries and manually process each application sent back to them. Residents had to make copies of ID documents, creating queues in convenience stores with printers. The policy was announced in April 2020 but municipalities could not start delivering the checks until June. “I called the help desk 200 times but couldn’t get through,” reads one complaint from an Osaka resident.
A year later, Japan is struggling with similar bottlenecks. Many countries operate online vaccine booking systems using residents’ IDs or mobile phone numbers. But Japan began its vaccination programme by having local municipalities send out physical vaccination tickets to eligible residents. The operation was both costly and slow, resulting in fewer than three doses administered per 100 people at the end of April. Frustrated, prime minister Yoshihide Suga instructed the Self-Defense Forces to operate large inoculation centres in Tokyo and Osaka. The SDF began doing so on May 24 and the number of daily vaccinations has since surged.
These are just some of the many policies that have since been summed up as Japan’s “digital defeat”.
This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.
The recent embarrassments have renewed a sense of urgency and prompted Suga to launch an all-out effort to go digital. He is setting up a powerful digital agency that is expected eventually to control the government’s entire IT system budget, which was worth about ¥800bn in the fiscal year 2020. By streamlining the software and standards across all ministries and local governments, he plans to expedite a digital overhaul of administrative procedures as well as of key sectors such as healthcare and education.
Suga has moved swiftly. He tapped Takuya Hirai, an IT expert within the ruling Liberal Democratic party, to set up the digital agency and appointed Taro Kono, known for his social media savvy, as the minister for administrative reform. Sweeping legal changes to enable the transfer of authority from each ministry and municipality were approved in May, paving the way for the agency’s scheduled launch in September.
The ingredients for a modern digital economy are already there. Japan was an early mover in building internet infrastructure and was on the cutting edge of mobile telephony until the introduction of smartphones. The country’s rapidly ageing population means there is strong demand to increase productivity through technology. Making bold moves to boost the digital competitiveness of the public and private sectors could add up to ¥79tn to Japan’s gross domestic product by 2030, estimates McKinsey Global Institute.
Some experts say Suga faces an uphill battle in creating a competent digital organisation. The endeavour will require attracting talent from Japan’s tech sector, which is already making up for an engineer shortage by hiring foreign talent. Hirai has ruled out this solution. The digital agency, he said, “will not hire foreign nationals as civil servants”.
Unifying systems across ministries also means busting the sectionalism, or walls, built up within each bureau over decades, known as tatewari gyosei.
And a digital push in areas such as healthcare is already being met with hesitancy from the private sector. “This is asking for a fight,” said Timothy Langley, chief executive of consultancy Langley Esquire. “The set-up of a digital agency means: I’m going to take power from all of you ministries. You can’t hide any more.”
The idea is for the agency to combine top-down decision-making with the private sector’s tech expertise. It will be placed directly under the cabinet office and will be led by the prime minister, with the digital minister running the day-to-day operations. A digital expert will advise the minister, a post that Hirai said could go to a private sector hire. The agency plans for 120 of its 500 employees to come from the private sector and universities.
Hirai has taken his “government as a start-up” slogan on a media blitz to promote the agency’s tech friendliness, appearing on talk shows on YouTube and social media apps such as Clubhouse. He has not minced his words in calling Japan’s past digital policies a failure. “This digital defeat is our last chance,” he declared during an online forum last year.
Hiring is being conducted by the information technology strategy office, a division of Japan’s Cabinet Secretariat. When the project was launched in September, Hirai tapped a group of young officials to lead on-the-ground operations. He also brought in tech industry executives as advisers. Discussions led to the IT strategy office awarding a contract to Tokyo-based start-up Herp to provide online software that manages the remote hiring process.
One adviser called this a symbolic move: the IT strategy office had previously told applicants to send in their documents by post.
“We are really a venture,” said Herp’s chief executive Ichiro Shoda, “so we have never done a government project. I think there was a credibility risk but I think we were chosen because [the officials] sympathised with our ideas.”
Shoda said his team was surprised by how quickly the members involved in the recruitment process were able to grasp its software. “Officials from ministries, external advisers and aides were all using our service. We didn’t spend much time explaining how to use it.”
Whether bureaucrats and engineers from the private sector can work in harmony will have big implications for Japan’s digital policies. A string of new laws recently passed by parliament defines the digital agency’s role as an “overall co-ordinator” and gives the digital minister authority to make recommendations to the heads of other government ministries and agencies. The agency also has the power to build core systems on its own.
The projects it will oversee include having the entire population obtain a My Number card by March 2023, bringing 98 per cent of administrative procedures online by 2025, transferring data kept in each municipality to the cloud and creating a new digital category for civil servant exams.
The targets seem ambitious. In reality, they are goals that Japan’s peers have already been tackling for years. India launched its national identification system, Aadhaar, in 2010, and nearly all of its 1.3bn people have since registered. Singapore plans to make all government services available online by 2023. Only 7.5 per cent of Japan’s 55,765 administrative procedures could be completed online as of 2019, according to the Japan Research Institute.
Japan ranked 27th in the IMD World Digital Competitiveness Ranking 2020, down from 23rd in 2015. The fall contrasted with China’s rise from 33rd in 2015 to 16th and with South Korea, which jumped from 18th to eighth.
Japan was not always a laggard in digital technology. It built out its internet infrastructure by 2000, when it had the second most internet users in the world, just behind the US. In 2001, then prime minister Yoshiro Mori had a plan drafted for Japan to become a global IT leader within five years.
The country reached some goals, such as laying fibre-optic cables across the nation. But targets such as streamlining government IT systems were largely abandoned. That left each ministry and municipality to manage its own systems. Most organisations lacked technical expertise and outsourced the projects to system integrators such as NTT, Fujitsu and NEC, creating a fragmented environment in which data cannot be shared.
One early IT adviser to the economy ministry said he was surprised by how new contracts were being awarded without much being completed. “It was like constructing a building without a door and then starting a door construction project,” the person recalled. “There was always an excuse for not being able to finish the original plan.”
The lack of change came to haunt the country during the pandemic. In February, the health ministry said it had found a glitch in its contact tracing app for Android users. The app failed to notify users when they came in close contact with another user who had tested positive for Covid-19. Health minister Norihisa Tamura shocked the public by admitting the app “essentially had not been functioning since September”.
Why did the ministry fail to notice the glitch for more than four months? In May 2020 the ministry awarded the contract to Persol Process & Technology, a subsidiary of staffing firm Persol Holdings. In turn, Persol subcontracted the project to five companies, a move it said was due to the short timeframe given to complete the project. Because the responsibilities were sliced up and spread across different companies, “there was no shared understanding over who was actually performing the final quality control”, the ministry concluded after investigating the issue.
Langley says the digital agency should shoot for some quick victories to gain the public’s trust. Those would include abolishing the hanko stamps that the Japanese use instead of signatures and shedding a reliance on fax machines, especially at local government offices.
Bigger reforms such as in the healthcare system are more challenging and cracks are already starting to appear. Plans to enable the My Number card to be used as an insurance card at hospitals, dentists and drugstores were delayed from the initial target date in late March. The health ministry blamed errors in some of the insurance data registered in the system. But many hospitals are also wary of the additional system costs. The ministry had planned to start trials at 500 hospitals and pharmacies but only 54 joined.
The use of overseas cloud services to store and analyse data is another potential landmine. Japan has no local equivalent to services provided by US tech giants Amazon and Microsoft. Some parts of the government already use cloud services such as Amazon Web Services. But “will the prime minister allow his own medical records to be stored on AWS?” wondered a health ministry adviser. “The debate is just starting.”
Hirai believes that starting the debate is an important step forward. “Gathering the authority of each ministry and agency in one place, including the budget . . . consensus building for such a move will not be possible unless it is an emergency,” he said earlier this year. “The sense of speed is unprecedented but it is probably the only way to do it.”
A version of this article was first published by Nikkei Asia on June 15 2021. ©2021 Nikkei Inc. All rights reserved.
Raisi victory secures control for Iran’s hardliners
When Ebrahim Raisi first contested Iran’s presidency in 2017, the sombre conservative cleric lost badly, failing to win over aspirational voters who had pinned their hopes on the republic’s nuclear deal to open up the country.
Four years on, the collapse of the 2015 accord Iran signed with world powers, a withering economic crisis triggered by US sanctions, disillusioned voters and the regime’s determination to have a hardliner back in office paved the way for his election victory with 62 per cent of the vote.
But to many inside and outside the republic his win bears the marks of a pyrrhic victory.
More than half of voters chose not to cast a ballot in what reformers described as a rare act of civil disobedience. Turnout of 48.8 per cent was the lowest in the Islamic republic’s history, and 3.7m people chose to spoil their ballots, more than voted for either of Raisi’s rivals.
“The election’s message is that the dissident faction is much bigger than Raisi’s supporters,” said Hossein Yazdi, a reformist activist.
Many of those who stayed away from polling stations assumed the result was preordained after the authorities barred leading reformist candidates from standing. It was widely assumed that Raisi, the judiciary chief, was backed by Ayatollah Ali Khamenei, the supreme leader, with hardliners using the election to regain control of all the important branches of the state for the first time in almost a decade.
Analysts said Raisi’s victory increased his chances of succeeding the 82-year-old Khamenei as supreme leader on his death. But only if he can navigate the challenges he is inheriting — an economy battered by sanctions and coronavirus, and a polarised society that is vulnerable to unrest.
His supporters hope he can end the factional infighting that has blighted the regime during President Hassan Rouhani’s second and final term, which finishes in August. Unity within the theocratic system, which has competing centres of power, and a smooth succession are deemed Khamenei’s priorities. These aims have become more pressing as the republic has endured its most turbulent period since the Iran-Iraq war in the 1980s.
“One nation, one team, one goal,” was one of Raisi’s election slogans.
“I believe in Raisi because he’s 100 per cent in line with the leadership,” said a regime insider. “The parliament, the leadership, the judiciary — they will all be in line and perform better.”
The catalyst for Iran’s recent malaise was Donald Trump’s decision to pull the US out of the nuclear accord. He imposed crippling sanctions on the republic and individuals including Raisi, strangling Iran’s ability to export oil and plunging it into recession.
The turmoil emboldened hardliners and crushed the dreams of the 24m Iranians who had voted for Rouhani in 2017 in the hope that the nuclear deal would usher in change and prosperity.
Their disillusionment played into Raisi’s hands. His conservative constituency heeded its leaders’ calls to vote, while reformists stayed at home.
So although he technically won a landslide, he faces serious challenges without the strong popular mandate of his predecessors.
“Raisi has entered into a game which he will lose. In the public’s eyes, rightly or wrongly, his victory was pre-determined,” said a reformist analyst. “This makes people angry.”
Others fear hardliners will seek to further marginalise and oppress pro-democracy activists.
“Without any doubt there will be suppression of pro-democracy people,” Yazdi, the activist, said.
There have long been concerns about Raisi’s human rights record. Now it threatens to tarnish his credibility at home and abroad while Tehran is negotiating with world powers to reach an agreement to bring the US back to the nuclear accord and lift sanctions.
President Joe Biden has said he will rejoin the accord if Iran fully complies with the deal. But the new government will be led by a man whom the Trump administration accused of overseeing executions, “torture and other inhumane treatment of prisoners” when it imposed sanctions on Raisi in 2019.
He is alleged to have been linked to the execution of thousands of political prisoners when he was a state prosecutor in the late 1980s. He has not commented on that period.
Born to a clerical family, Raisi’s path to the top became evident five years ago when Khamenei named him as custodian of the Imam Reza shrine in his home city of Mashhad, a powerful position overseeing Iran’s holiest site.
After Khamenei appointed him head of the judiciary, one of the main centres of hardline power, in 2019, he used the post to launch a crusade against corruption that earned him plaudits, even among some of his critics. Others, however, viewed the move as the relaunch of his political ambitions.
During the election campaign, he offered few policy details, but said domestic issues were his priority. He sought to appeal to Iranians who have suffered economic hardship, at times referring to his own modest upbringing.
“I’ve not only known poverty, I’ve tasted poverty,” was a phrase he repeated.
He has made only fleeting references to foreign policy and few expect significant changes, whether it be to Iran’s hostile relations with the US, its support for regional militant groups or expanding its missile programme.
Unlike Rouhani, Raisi has had little overseas exposure, and regional policy and big security decisions are made by Khamenei.
Analysts add that he will probably be less overtly radical than Mahmoud Ahmadi-Nejad, Iran’s last hardline president. His first term was characterised by bombastic tirades against the US and Israel and costly, populist domestic policies that sparked economic chaos.
But even conservatives acknowledge that Raisi faces a daunting mission.
“It’s not unlikely that Raisi’s term becomes similar to Ahmadi-Nejad’s and Rouhani’s [chaotic last years],” said Mohammad Mohajeri, a conservative analyst. “The boat of politics in Iran rocks a lot.”
Nathan Anderson, the Hindenburg founder taking on Spacs
Nathan Anderson has achieved enough notoriety digging into alleged corporate fraud that he knows he may be persona non grata at New York parties.
“I don’t lead with, ‘hello, my name is Nate and I’m a short seller’,” the Hindenburg Research founder says. “That’s a pretty good way to get ejected from any party or social setting.”
Anderson has made a name for himself taking on some of the most popular businesses to go public in the recent blank-cheque company bonanza, including electric truck start-ups Nikola and Lordstown Motors.
This week he dropped a bombshell on the already struggling market for special purpose acquisition companies by targeting DraftKings, the sports betting business widely regarded as the catalyst of the boom. Shares initially fell more than 11 per cent but have since largely recovered.
Spacs are having a record-breaking year with more than $100bn raised so far, according to Refinitiv, but for Anderson the repeated targeting of the sector is unintentional. “We don’t really set out and say, ‘hey we’re going to look at Spacs today’,” he says, adding that his team “kind of just follow” apparent fraud.
The 37-year-old, who has built a small team at Hindenburg with five full-time employees and a handful of contractors, has staked his livelihood on critical research he says serves an important role in today’s markets.
“Not every stock is deserving of going up to the moon”, he says.
Affable and at times self-deprecating, Anderson grew up in a small town in Connecticut and went on to study international business management at the University of Connecticut. Wanting “a more diverse set of life experiences”, he opted for a stint studying abroad in Jerusalem where he also volunteered for a local ambulance service — an experience that still informs his approach to short selling.
“As an ambulance medic, you’re trying your best to heal things that are broken”, he says. At Hindenburg, “we come in and try to illuminate some of these problems that might be lurking under the surface at some of these companies, in some of these industries, and see if we can make things better”.
Back in the US, Anderson took a consulting job with financial software company FactSet managing client accounts for investment managers where he realised “the processes across these firms were virtually the same, and not particularly incisive”.
Roles at broker-dealer firms in Washington and New York followed, including doing due diligence on hedge funds and investment opportunities. He began noticing potential pyramid schemes and, “fuelled by a combination of fascination and horror”, he began researching them on his own time.
His first big break came as he sought to hone his investigative skills. Anderson contacted Harry Markopolos, the investigator known for flagging Bernard Madoff’s Ponzi scheme, and they teamed up on a case against Platinum Partners, the hedge fund eventually charged over a $1bn fraud.
Anderson and Markopolos have not previously been identified as sounding the alarm on the case, in which seven top executives were indicted criminally and several pleaded guilty.
“He’s a world-class digger,” says Markopolos, whom Anderson considers a mentor. “If there are facts he will find them and all too often he’ll discover that there are skeletons in the closet.”
At times having to “labour to keep the lights on”, Anderson bolstered his shoestring budget by selling portions of his cases to members of a small group of like-minded researchers in return for a share of any payout. He initially went after small companies but has since hit his stride.
“Nikola was his breakthrough in size and in notoriety,” says Markopolos. “He’s on a roll and companies fear him.”
Anderson’s emergence comes at a difficult time for short sellers, which have been brutalised by the longest bull market in history. Even heavyweights such as Jim Chanos and David Einhorn have struggled in a market that has headed relentlessly upwards; others, including Bill Ackman, have stopped betting against companies altogether.
This year has been particularly fraught, with the emergence of the Reddit trading army who band together to boost shorted stocks and for whom short sellers are public enemy number one. Anderson has been the target of countless posts on day trader forums but he takes it all in his stride. “Finance before memes was a lot less interesting”, he says.
A particular favourite of his is a video depicting Chamath Palihapitiya — the prolific Spac sponsor who took Clover Health public — as King Kong and Hindenburg, which published critical research of the firm, as Godzilla. In the clip, “King Kong absolutely beats the living tar out of Godzilla, and we were like, that’s really well done”.
Other finance professionals, even on the buyside, say they welcome his research. Tony Kypreos, an investment advisory firm founder who first met Anderson eight years ago, says there are relatively few people doing comparable work.
Anderson “is doing a very noble service, because if you’re showing that public companies or private funds are putting out data that are incorrect, it’s a big deal”, Kypreos said.
Companies targeted by Hindenburg do not exactly feel the same way, and have either disputed or played down his allegations, with some claiming his reports are a publicity stunt.
Anderson insists he is not completely sour on blank-cheque vehicles.
“I’m still keeping my mind open to the fact that there could be a good Spac out there,” he says. “I just haven’t seen it yet.”
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