Royal University of Phnom Penh Class: E4.

1
Institute of Foreign Languages IS406- LCS
Department of International Studies Group:6

Name: Chea Kanitha, Chea Daraty, Hosann Rojeth, Ly Hakseng, Rin Manath

Homework #1

Summarize: The Variable Effectiveness of Hedging Strategies.

In order to accessing the efficacy of hedging strategies, it is necessary to recognize the risks
that a strategy aim to mitigate and the rewards it seeks to facilitate. We can to check whether it
help to make the desired payoffs possible while preventing the potential treat? Or it’s can reduce
the harm? Hence, measuring success is not easy because the effective hedging strategies often
contribute to non-event. The following will be discuss about the hedging strategies including the
hedging against the risk of financial crisis and the hedging in the international security arena.
First, the hedging against the risk of financial crisis, its goals are to reducing the market crisis
and increasing trade and investment in order to boost the growth, development, and constructive
interdependence. However, determine the success or failure is requiring to look at the financial
and political costs of procuring financial hedges. Second, the hedging in the international
security arena, aims to increase the engagement and reduce the likelihood of a potential treat and
its impact. When the hedging is successes, it will produce gains from engagement with a
potentially menacing foreign state while diminishing the risk of a major security treat or be able
to setting up a protective option if the threat come. However, the hedging strategies failed when
it cannot prevent the harm and conduct the protective option to counter back.
To hedge effectively, it is required lots of attentions toward threats and the costs, but
sometimes government still lack of means to cultivate an effective protection options that can be
activated to avoid major losses- either in the form of self-help or international partnership. In
international finance, hedge can be made in various options, yet the costs seem to be high; for
instance, amassing a hard currency stockpile to cushion against future financial crisis may
require many billions of dollars. With the present of security arena, more challenges are added.
Small states and middle powers lack the resources to develop self-help option to manage with the
potential security threats, and it risks to spread an unwanted signal of distrust, hostility, and
belligerences by building up the defense. Though the government can rely on the external
security partnerships to mitigate the risk, it is uncertain about their commitments in an hour of
need which somehow could lead to the heightened danger of being left in the lurch. Moreover,
hedge against security risks can be formed in the multilateral diplomatic option, but it cannot be
used to deal with the major security risks at all which make this option is left out by the
policymakers. Last but not least, government can choose to withdraw from unnecessary the
overseas engagement like controversial military campaign, still the small states cannot repair its
geographic vulnerability by pulling back all. Through this, we can make a conclusion that much
of the efficacy of the hedging strategies in the security arena is linked on the availability of
willing and capable foreign partners, thus it depends on the systemic distribution of relevant
capabilities and the policies of the major powers from whom governments seek contingent
security support.
Royal University of Phnom Penh Class: E4.1
Institute of Foreign Languages IS406- LCS
Department of International Studies Group:6

3.2 Hedging against Chinese encroachment in the South China Sea

Most Asian governments have long perceived a potential Chinese threat in the South China
Sea, they sought many ways to adapt in order to prevent China’s power from exercising maritime
dominance. Meanwhile, Philippine and Vietnam failed to prevent China as the key state from
asserting effective control over many disputed areas of the South China Sea. In particular, the
Philippines switched from a hedging strategy to a balancing posture against China seeking
protection from a tight countervailing security alignment. Following the 2002 Declaration,
Vietnam also cooperated with China and the Philippines to joint oil and gas exploration and
sought only minor defensive capabilities, indicating a hedging strategy. While, Indonesia
emphasized multilateral approaches to the maritime dispute and hedged, partly by engaging in
military self-help maritime capabilities, but mostly through retaining a modest, versatile alliance
with the US Seventh Fleet by joint training drills, routine port visits, and defense diplomacy.

Conclusion:
The analysis shows the need for effective self-help remedies or an external counterweight to
hedge risks effectively, also provide a reminder for the small and the middle power that the
hedging strategies often contain more than self-help and counter-weight as they also include the
collective region action and multilateral diplomacy like in case of ASEAN +3 multilateralism.
However, in contrast to security sphere, China is trying to prevent the ASEAN state from
materializing the dispute and internationalizing the SCS dispute by dragging the US into the
dispute. So, hedging strategies need not succeed to be the best available policy option, as some
risks are hard to be eliminate and seeking to do can effect to other legitimate foreign policy
objectives.