Lowy Institute

It seems my colleague Stephen Grenville is somewhat sceptical of quantitative easing (QE). He says 'QE might have been an admirable second-best policy, but it was still "beggar-thy-neighbour".'

I agree that QE (where the Federal Reserve purchased long term government bonds along with securities backed by mortgages) was second-best policy, but for different reasons. I think negative interest rates would have been better. But I strongly disagree that QE was 'beggar-thy-neighbour'.

In fact I think QE was quite effective.

My thinking on the topic has been strongly influenced by a paper released by some of my old colleagues at the Federal Reserve. In the paper they evaluate the effects of quantitative easing and the forward guidance provided by the Fed (forward guidance is when the Fed signals it will keep interest rates at zero). The authors of the paper estimate that these policies subtract 1.25 percentage points from the unemployment rate and add 0.5 of a percentage point to inflation. That's quite impressive!

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These estimates come from a large macro-econometric model of the economy called FRB/US. I worked closely with the model when I was at the Fed. The way the authors have estimated the effects of forward guidance is by changing the interest rate expectations of the private sector, keeping them lower than otherwise, which is expansionary. The effects of QE are modeled as pushing down the long term Treasury bond interest rate, which in the model positively affects stock market valuations and pushes down the corporate bond yield and the cost of borrowing for households. And yes, it also lowers the exchange rate, but it is only one channel of many that QE operates through.

It is important to emphasise that the strength of the relative channels of monetary policy are based on estimated relationships from past experience. These things are not just made up.

Now, the authors do not break out how much work is done by the exchange rate, but it beggars belief to think that the exchange rate response would account for much of that 1.25 percentage point decrease in unemployment in a relatively closed economy like the US (trade as a percentage of GDP is around 30%, which is low). Most of the work is being done by other channels, such as easier borrowing conditions for households and firms. QE and forward guidance is not beggar-thy-neighbour because most of the effect does not work through the exchange rate. QE likely has positive spillovers, as the IMF found. Quiet, sceptics!

Should we be cynical about the apparently large effects of QE?

I say 'no'. Sure, the effects are uncertain, and there should be largish confidence bands associated with these guesses. The model is not perfect after all, but I certainly think it is informative. These models are, in fact, invaluable for policy making. Without them, we would have no idea about the effects of many policy changes (economists call these policy changes 'multipliers').

Moreover, I'm confident that the guesses represent the best guesses of the authors. There would have been no political interference here to get answers that would make the Fed look good. Indeed, there are some messages in here that imply QE was not implemented optimally. For example, they state that the Federal Reserve's actions 'apparently provided only a small boost to the real economy during the recession and the initial recovery period'. Rather they find that the largest effect is happening this year, and next, well after the worst of the recession has passed.

When I worked at the Fed, there was never any trace of interference in the independent research of the staff – if there had been it would have been fiercely and stridently resisted. No, the large effects were not found in order to make QE look good. Rather, the large effects in these and other calculations likely convinced people in the Fed to apply QE with the force they did.

Photo courtesy of Flickr user International Monetary Fund.


The late-2014 'icebreaker' meeting between Philippine President Benigno Aquino and Chinese President Xi Jinping raised hopes for a de-escalation in bilateral tensions amid the ongoing territorial standoff in the South China Sea.

Benigno Aquino with Xi Jinping at APEC 2014 in Beijing. (REUTERS/Kim Kyung Hoon.)

Ecstatic about the possibility of a revival in Philippine-China relations, Aquino went so far as claiming a 'meeting of minds' with Xi during their short exchanges on the sidelines of the APEC summit in Beijing. It marked the first face-to-face talk between the two heads of state.

Since then, Filipino officials have expressed their optimism over a follow-up meeting between the two leaders in the near future, paving the way for a institutionalised high-level dialogue. A top-level Filipino diplomat recently confirmed to me that Xi and his foreign minister, Wang Yi, are expected to make an unprecedented visit to the Philippines for the 2015 APEC summit. There are, however, growing indications that the newly-generated sense of optimism has been premature, if not totally unfounded. 

To begin with, the Aquino-Xi meeting was not a pre-arranged formal dialogue; not even similar to those held between Xi and his Japanese and Vietnamese counterparts on the sidelines of APEC. While Vietnam and Japan have engaged in concerted efforts to establish crisis-management mechanisms with China, the Philippines is yet to negotiate a hotline with its northern neighbour.

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The ongoing legal standoff at The Hague, with the Arbitral Tribunal awaiting Manila's additional legal arguments against China, continues to embitter bilateral relations. Favouring bilateral dialogue and consultation, China has fervently opposed the Philippines' request for compulsory arbitration in the South China Sea, dismissing the Aquino Administration's legal maneuver as provocative and counterproductive.

Reflecting Manila's deep-seated mistrust towards Beijing, Filipino officials recently made a decision to effectively evict 18 Chinese experts employed by the National Grid Corporation of the Philippines (NGCP). The Chinese technicians, who have been involved in operating, maintaining and expanding the Philippines' electricity grid, have been working on behalf of the State Grid Corporation of China, which has a 40% stake in the NGCP. Filipino officials have (indirectly) cited national security considerations to explain Manila's refusal to renew the visas of the Chinese nationals. 

Earlier this year, Manila and Beijing once again exchanged bitter accusations when Chinese Coast Guard forces allegedly rammed three Filipino fishing boats navigating close to the Scarborough Shoal. Chinese Foreign Ministry spokesman Hong Lei tried to deflect criticism by accusing the Filipino fishermen of aggressive maneuvers while indirectly placing the blame on the Philippine Government by urging it to 'enhance supervision and allocation of its own fishermen to prevent such an incident from happening again.'

The Philippines has also been alarmed by the latest satellite imagery which indicates expanding Chinese construction activities on islands in the South China Sea. The Fiery Cross Reef, for instance, having been artificially expanded to over 11 times its original size, now hosts approximately 200 Chinese troops. Defence officials in the Philippines estimate China has completed almost 50% of its reclamation project on the contested feature, which could soon host its own airstrip as a prelude to a Chinese Air Defense Identification Zone in the South China Sea. China has also ramped up its exploration of hydrocarbon and fisheries resources in the area. While boasting the discovery of the Lingshui 17-2 gas field, located about 150km south of Hainan province, Chinese officials have also reportedly finished a comprehensive survey of fisheries resources in the contested areas.

Philippine Foreign Secretary Albert Del Rosario urged his ASEAN counterparts to show greater resolve and unity amid China's purported aim to 'establish full control' over the South China Sea. The topic was at the heart of his discussions with his Southeast Asian counterparts during the Foreign Ministers Meeting (FMM) in January. Malaysian Foreign Minister Anifah Aman tried to reassure his Filipino counterpart by stating that the other participants in the FMM 'shared the concern raised by some foreign ministers on land reclamation in the South China Sea.'

Singapore is slated to assume the role of the country coordinator for ASEAN-China relations in August 2015. There is some hope that there will be a more proactive push by ASEAN on negotiating a Code of Conduct (CoC) in the South China Sea. Singaporean Foreign Minister K Shanmugan has expressed Singapore's 'common goal to try and do as much as we can to try to get to a proper document on (the) CoC.' During the ASEAN Defence Senior Officials' Meeting Plus, held in Kuala Lumpur, the ASEAN leadership actually pushed for placing the CoC issue on the agenda of the following meeting to be held in November.

But it is far from clear whether ASEAN will find the resolve and unity to push China back to negotiating the CoC. What is increasingly clear is that Manila and Beijing have a long way to go before improving their troubled relations. 


The recently approved extension of the EU/ECB/IMF bailout program kicks the Greece debt problem four months down the road. Where to from there? Unless there is a major change in approach by both Greece and the EU, it will not be long before we are again fretting over Greece exiting the euro and the future of the euro itself.

Stephen Grenville says ‘Greek politicians have to learn to break election promises’, specifically promises that the austerity bail-out program would be rejected. Wolfgang Munchau says ‘Athens must stand firm against the Eurozone’s failed policies’, particularly the requirement to run a primary budget surplus of 3% while the country faces massive unemployment.

Both are right.

Rejecting the bail-out program would see a collapse in the Greek economy. So Greek politicians have, as Stephen recommended, broken their promises, achieving an extension to the program and agreeing to implement a series of reforms by June. While there remain doubts the Greek Government will deliver, the next hurdle is to negotiate a program to replace the one that expires in June. Here Munchau is right: Greece should stand firm in seeking changes.

Greece needs a more flexible program than the one imposed by the EU/ECB/IMF that has resulted in a 30% decline in the size of the economy and mounting poverty. It also needs a program that recognises that Greece’s debt levels are not sustainable.

But for this to happen there needs to be a major change in approach by the EU. This may be the biggest stumbling block in resolving the Greek crisis.

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Much of the focus has been on what Greece needs to do, with headlines such as ‘Greece now has a chance to change’. More attention should be placed on the need for the EU/ECB/IMF to change, and particularly to compromise on what they want from Greece. However, the politics in Europe are not compatible with the idea of compromise when it comes to Greece.

Greece has got a rough deal throughout the crisis. While it is responsible for the debt-loaded mess it is in, it was forced into a draconian and flawed bailout program in 2010. This was acknowledged in an IMF self-assessment. The Fund said the program was based on excessively optimistic assumptions, a gross underestimation of the impact of the austerity measures, and was inconsistent with the IMF’s rules that a country gaining exceptional access to resources should have a high probability that its public debt will become sustainable.

The IMF was pressured into approving the program by the EC because of the fear of contagion. If Greece’s debts were seen to be unsustainable, so might those of Portugal, Spain and Italy.

But there was also strong resentment towards Greece, particularly in Germany. The view was that Greece manipulated its statistics to get into the euro and the Greeks didn’t pay their taxes, retired too early and worked too little. There was no sympathy towards Greece.  Imposing tough conditions was necessary to obtain domestic support in Germany for a bail-out. That view remains today, evidenced by German business groups urging MPs to take a tough line on any extension.

Throughout the recent wrangling over the program, the EU was determined there be no weakening in the conditions and that Greece repay all its debts. As was the case with the initial bail-out program, this view was influenced by what was happening elsewhere in Europe rather than what is best for Greece.

The hard line taken by some EU ministers reflected the rise of anti-austerity parties in their own countries. The Spanish finance minister was particularly tough with Greece. This is not surprising because Spain’s anti-austerity party, Podemus, leads the opinion polls in the run-up to the election. If Syriza was seen to be successful, this would increase support for Podemus. Anti-euro parties are on the rise in France and Italy too.

Another factor behind the EU’s intransigence is the view that the risk of contagion is now much lower.  Europe now has  a firewall in the form of the European Stability Mechanism to support countries facing financial pressure. However, UK Chancellor George Osborne has warned that a Greek exit could be very damaging for Europe and the world. A messy Greek exit would indeed be a major shock to a fragile Europe.

The political fallout may be the most destabilising factor. Greece would default on its debts held by the ECB and EU (the IMF would likely be exempt). This would crystalise in the minds of European (particularly German) taxpayers how much has been lost in attempting to bail out Greece. This may well impact on the willingness to provide financial assistance to other countries and the commitment to the euro itself.

So the stakes are high for all parties to negotiate a successful bail-out program for Greece. The concern is that frustration and resentment towards Greece may continue to prevent Europe from making the necessary compromises.

Photo by Flickr user Glorgos.


The Asia Pacific is the most dynamic digital landscape in the world, home to the fastest adopters of new technology and the largest concentration of mobile and social media users. An escalation in online activism, changing cyber dynamics, developments in digital diplomacy and the exploitation of big data are shaping the region's engagement with the world.

  • China has dropped some of the world's largest tech companies, including Apple and Cisco, from its approved state purchases list in a move that has been linked to both Western cyber surveillance and domestic protectionism.
  • Fergus Hanson has proposed that the Government instigate a regional ICT response to discredit Islamic State messages in Southeast Asia and Australia. One of his recommendations — an interdisciplinary lab bringing together technologists, communications experts, tech firms and public servants — might be realised via the Government's newly announced body intended to monitor social media and disrupt terrorist propaganda.
  • Vietnam's regulatory approach to the internet is increasingly out of step with its booming technology sector.
  • The spokesperson for Taiwan's ruling Kuomintang party has used Foreign Policy magazine to urge his own party to turn its fortunes around by changing the way it uses the internet, shifting from thinking about it as simply a communications tool to using it to mobilise support and encourage public participation in policy development.
  • Can Tibetans trust Facebook? Prominent Tibetan author Tsering Woeser doesn't think so.
  • Based on 2013's Typhoon Yolanda in the Philippines, findings have been published showing how state-of-the-art social media processing methods can be used to assist humanitarian organisations during a crisis. More than 2 million tweets were analysed and geo-located as a part of the project.
  • After the People's Liberation Army announced strict guidelines for body weight, including that meeting the guidelines will be a promotion consideration, Chinese netizens turned on Mao Xinyu, the often-mocked and overweight grandson of Mao Zedong, who in 2010 become the youngest Major General in the PLA.

The growing geographic spread of ISIS has lately been part of the news chatter in tabloids and respected papers alike.

We know ISIS has tried to spread its propaganda to Pakistan and Afghanistan since late 2014 and proclaimed its leadership of that region in early January, with members of the Pakistani Taliban claiming loyalty to the group. One of ISIS's Afghan commanders who was in a recruitment video aimed at the region was killed at the end of January, and another was allegedly arrested by the Afghan Taliban.

However, police in Afghanistan's Ghazni province, where ISIS was reported to be fighting, recently denied the group had a presence there.

Nevertheless, many Afghan Government officials, Afghan analysts with links to Government, and some civil society activists I spoke to last year are set on making the case that ISIS is operating in Afghanistan. Their counterparts across the border in Pakistan seem to be less concerned, even if the link between the Pakistani Taliban and ISIS is ostensibly stronger.

Others however, remain sceptical, and the Taliban website has been suspiciously silent on the matter. Australia's Foreign Minister has been cautious about acknowledging an ISIS presence in Afghanistan (possibly because there is about as much evidence for its presence in Australia, considering the Sydney siege and two individuals arrested before they could strike), though the Australian Government continues to warn that ISIS may expand its operations to Afghanistan in the future.

The question is, why should we even bother looking for ISIS in Afghanistan?

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Afghanistan is in enough trouble already, and for what it's worth it has had an 'Islamic state' for much longer than Syria or Iraq. After all, the Taliban officially goes by name Islamic Emirate, and has thus long laid claim to the 'Islamic state' brand. The fact that ISIS called itself the 'Islamic State of Iraq and al-Sham' might actually be a nod of acknowledgment from one quasi-state to another that such an ambition is already established in Afghanistan.

Though much has been made of the similarities between ISIS and the Taliban, such as their focus on conquering territory, maintaining an army and governing structure (all trademarks of states), they are not the same. 

The Afghan Taliban still draws the majority of its recruits from within Afghanistan's Pashtun tribal structure, though it is known to also collaborate with many other ethnic and terrorist groups such as the Islamic Movement of Uzbekistan. There have been suggestions of Arabic trainers and mentors in Afghanistan, but generally Afghans have not liked them. Sunni Muslims have long been a majority in Afghanistan (no underdog status as in Iraq) and any sectarian problems have been predominantly of an ethnic nature, involving the Shia Hazara minority group. 

Rather than looking for ISIS, I worry more about Afghanistan's other problems, which provide ample space to breed more extremist and criminal groups, and should be addressed both by the Afghan Government and the international community.

The Afghan Taliban is losing command and control, and its self-financing structure has seen it morph more into a criminal group than an insurgency. A recent UN report argued that the Taliban was acting more like a 'godfather' than a 'government in waiting', something Gretchen Peterson argued in 2009 when she compared the Taliban to the Sopranos minus the chianti. The Taliban leadership has long denied fragmentation and emphasized its unwavering command and control. On the ground however, the story is different, and many Afghans resent the fact that some fighters no longer practice as their leadership preaches.

There is a lesson here for counter-terrorism as an answer to the problem of ISIS. Much of what the Taliban has become today can be linked to the 'kill and capture' policy of the US military, which not only alienated the local population but also eliminated a lot of older, mid-level commanders with allegiances to the old Taliban leadership and belief system. Forced to continuously refill their ranks, the Taliban fighters and commanders have become younger, many with a rather basic understanding of Islam and Taliban rules (such as the laheya). 

Thus, the very counter-terrorism policy designed to defeat the Taliban – which recently was quietly reinstated – has made the group into the different beast we are now dealing with; one that is far less likely to be reconciled into the Afghan Government. This should cause us to pause and consider if similar counter-terrorism approaches elsewhere might not also backfire. 

Another way to understand the appeal of groups such as the Taliban, or ISIS, is to recognise what I would call the enabling environment that breeds extremism.

In addition to rising poverty and unemployment in Afghanistan, high dowry prices have forced young men to delay marriage and seek work abroad, or even engage in crime or jihad to afford a wife. This creates frustration, so much so that the Taliban has tried to lower dowry prices in areas they control. ISIS's response to the same problem has been somewhat more 'creative'. Either young women are encouraged to volunteer to marry fighters or ISIS sanctions their rape, enslavement and forced marriage. The importance of this 'sexual conquest' or 'primitive gratification' in ISIS's strategy, and the attraction for many young men struggling to find their place in more modern societies, has been little analysed in trying to understand the group's universal appeal.

In many ways, what ISIS offers is what young marginalised men across the world, including in Afghanistan, seek: adventure, violence, power, sex and a sense of self and community.

If we analyse the appeal of extremists groups from this angle, then the international community needs to adjust its narrative of 'all is going well in Afghanistan' and ensure a longer-term development strategy. The Afghan Government needs to get serious about its reform agenda and address corruption within its ranks. Not an easy task, which is perhaps why some stick to the seemingly more straightforward promise of counter-terrorism, which in my opinion only fans the fire of groups like ISIS and the Taliban.

Photo courtesy of Flickr user Balazs Gardi.


Just a few moments ago I talked with the director of the Lowy Institute's International Economy program, Leon Berkelmans, about this week's developments in Europe. An interim deal has been thrashed out to give Greece a four-month extension so that it can work out how to pay its creditors. But as Leon explains, events may move faster than that timeline, with Greek tax revenues coming in at unexpectedly low levels.

We also talk about the larger significance of the Greek economy: 'why does Europe care so much about an economy smaller than that of New South Wales?', I ask. That prompts Leon to talk about confidence in the rest of the EU, and the spectre of bank runs.

Footnote: when the recording was over, Leon and I continued on the topic of bank runs, which in turn got us talking about the bank run scene in Mary Poppins. Here's the delightful number leading up to that scene, 'Fidelity Fiduciary Bank':


The view from Jakarta

You know there's something wrong with Australia's image in Indonesia when you find yourself the target of a heated tirade against your PM on the back of a motorcycle taxi first thing on a Monday morning. At the first mention of Australia my driver became livid: 'That Tony Abbott is such a bad guy! How dare he give money to Aceh and then ask for it back?'

This Jakarta driver may not have had all the facts straight, but the fact that he had heard of the efforts to return Australia's tsunami aid money showed that the movement has moved well beyond a series of tongue-in-cheek social media hashtags among students. Street protests to collect 'Coins for Australia' or 'Coins for Abbott' have spread from Aceh to the capital and beyond, with even the vice president offering to repay the $1 billion in aid contributed by Australia for recovery efforts after the 2004 Boxing Day tsunami.

The backlash stemmed from comments made by Abbott last week which implied that Indonesia could 'reciprocate' the generosity shown by Australia in 2004 by granting clemency for the two members of the Bali Nine drug syndicate now on death row. Indonesians on social media responded by offering to repay the aid in small change, using hashtags such as #KoinUntukAustralia or #CoinsForAustralia and #Coins4Abbott. Now protesters have moved offline to collect coins on the streets. Local media reported that at least one primary school in Central Java had joined the effort, with a teacher leading students to collect money outside school (a comment from one 10-year-old student: 'Even though this cuts into my pocket money, I'm proud to participate and I hope these coins can be useful for Australia').

The concept of the protest seems to have gotten lost along the way for some, but the original idea echoes the online legend of Samsung repaying a $1 billion fine to Apple over a patent infringement case in more than 30 truckloads of 5-cent pieces. As in the Samsung-Apple case, the symbolism of Indonesia returning Australia's aid in coins is intended to diminish the magnitude of the 'debt', as well as embarrass Australia for holding it over its increasingly wealthy neighbour.

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But while Indonesia is wealthy, it is also deeply unequal. If Indonesians were to repay the $1 billion to Australia in coins, all 250 million of the population would have to donate about $4 each, or about 40 one-thousand Rupiah coins. For roughly 50% of the population, that would be the equivalent of missing out on a morning coffee. For the other 50%, it would mean giving up two days of living costs. This is not to say Indonesia could not afford to repay the money — it easily could (especially with the vice president involved). My point is that while the country overall is no charity case, for the recipients of aid Australia's assistance is no small change.

It is realistic to acknowledge that states do not operate as individuals, and that Australia's aid program to Indonesia does come with some strings attached. Presumably this is what Abbott was referring to when he brought up the tsunami aid in relation to the plea for clemency for the Bali Nine members on death row. The trouble is, the main pulling point for those strings is the soft power that aid can bring for Australia. It's not difficult to imagine the offense caused by Abbott requesting the lives of two Australian drug smugglers as payback for the country's contribution to recovery efforts for a natural disaster that killed 170,000 Indonesians. It's a clumsy attempt at diplomacy that has only played into the nationalist rhetoric on sovereignty already surrounding the case in Indonesia.

It's important to remember that the aid program benefits Australia as well as Indonesia. It is in Australia's interests to maintain friendly relations with Indonesia, and to assist the country in developing an equitable and stable economy.  Soft power means Indonesian students wanting to come and study in Australia. It means a good relationship for trade, and safe travel for Australians. It means that as Indonesia's economy continues to grow, Australia is seen as a partner in the region. The cultivation of this soft power is what constitutes the strings attached to Australia's aid program. And by trying to use soft power as a point of force, Australia has found how quickly those strings can unravel.


University of Texas academic Alan Kuperman, a specialist on humanitarian military intervention, has a scathing essay (paywalled) in the latest issue of Foreign Affairs:

In retrospect, Obama’s intervention in Libya was an abject failure, judged even by its own standards. Libya has not only failed to evolve into a democracy; it has devolved into a failed state. Violent deaths and other human rights abuses have increased severalfold. Rather than helping the United States combat terrorism, as Qaddafi did during his last decade in power, Libya now serves as a safe haven for militias affiliated with both al Qaeda and the Islamic State of Iraq and al-Sham (ISIS). The Libya intervention has harmed other U.S. interests as well: undermining nuclear nonproliferation, chilling Russian cooperation at the UN, and fueling Syria’s civil war.

Despite what defenders of the mission claim, there was a better policy available—not intervening at all, because peaceful Libyan civilians were not actually being targeted. Had the United States and its allies followed that course, they could have spared Libya from the resulting chaos and given it a chance of progress under Qaddafi’s chosen successor: his relatively liberal, Western-educated son Saif al-Islam. Instead, Libya today is riddled with vicious militias and anti-American terrorists—and thus serves as a cautionary tale of how humanitarian intervention can backfire for both the intervener and those it is intended to help.

Also in the latest issue of Foreign Affairs, an essay co-authored by Interpreter contributor Tom Switzer, who writes with Bates Gill on the deepening of the US-Australia alliance

...for Washington, the U.S.–Australian partnership has become a special relationship with few equivalents in the world. But few outside a small circle of policy elites seem to have noticed.

Photo by REUTERS/Darren Whiteside.


On Tuesday New Zealand Prime Minister John Key announced in parliament that New Zealand would deploy a non-combat military mission to Iraq as part of the US-led coalition against ISIS. The 'Building Partner Capacity' mission to help train the Iraqi Security Forces will be part of a joint (albeit not an ANZAC badged) mission with Australia.

US soldiers receive a warriors welcome from New Zealand military personnel,  Afghanistan, 2004.

Notwithstanding the unresolved issue of the legal status of New Zealand defence personnel and valid concerns about force protection (more on both issues below), the critical questions relate to the nature of New Zealand's contribution: what can New Zealand do that differentiates from previously unsuccessful security sector reform efforts? And can New Zealand deliver meaningful success within the 9-24 month deployment timeframe? 

New Zealand's contribution, outlined by Chief of Defence Force General Tim Keating, is modest. It includes training in basic weapons, individual and unit-level military skills to prepare Iraqi Security Forces for combat operations, operational planning, medical and logistics training and the 'training of trainers'. Indeed, the successful training of Iraqi Security Force personnel to take over the role of delivering the training program lies at the core of the New Zealand mission.

The success of ISIS in Iraq is widely acknowledged as a testament, in part, to the failure of a decade-long security sector reform (SSR) process at a cost of over US$100 billion. As academic Andreas Krieg said last year:

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Western SSR in Iraq after the 2003 invasion has created a security sector infested with the same diseases as those that mar the security sectors in neighbouring countries, defined by politicization, patrimonies, and patronages. Widely, ISIS' success is the testimony to a failed policy of the interrelated political and security sector reform in Iraq.

General Keating said New Zealand defence personnel have an aptitude for building the capacity of indigenous forces 'from Malaya to Afghanistan'. That is true. New Zealand has an excellent reputation in international peacekeeping circles for effective engagement with local populations, including local security forces. But this is due in large part to personalities, an emphasis on relationship building and culture, rather than a clear institutional doctrine.

This is, however, Keating's point of differentiation and which underpins his vision of a 'true partnership...not a them and us approach'. Keating's core distinction between previous SSR activities in Iraq compared with New Zealand's mission is the degree to which Iraqi personnel will be integrated into the development and delivery of training, including agreement on the objectives and outcomes. 

This approach is critical to success with SSR. Local participation is fundamental to establishing the legitimacy of the mission. Without inclusive local participation from the planning phase through to monitoring and evaluation, local ownership of the training program will be difficult to achieve and sustain. Moreover, it is the sustainability of successful outcomes after the mission has left which is the ultimate benchmark of success. 

Keating has outlined what success will look like for this mission: success is an Iraqi Security Force able to undertake combat operations at a level as agreed by Iraqi and Coalition trainers. Success has also been directly linked to New Zealand's deployment timeframe, so the matching of timeframe with ambition and environment which will be critical. 

The 'training of trainers' component, if successful, will enable New Zealand to develop a transition strategy as opposed to an exit strategy. Transition strategies enable capacity builders to integrate the succession plan into the overall mission, which will influence local ownership and long-term sustainability. It will be critical that the impact and sustainability of the program be addressed even beyond the deployment to ensure that the real contribution of the mission is a reflection of broader issues of peace and stability rather than the end of the deployment cycle. 

Of course, SSR does not occur in a vacuum. There are wider dynamics which will impact upon the success of the New Zealand mission, and in fact the majority of factors which will ultimately influence the success of the mission are beyond the control of New Zealand and Coalition defence planners. Capacity development of the security sector in Iraq will be conducted in a socio-political, historical, cultural and security environment broadly (but not exclusively) defined by the legacies of the two Gulf Wars, 10 years of failed SSR programs, broader endemic Middle East dynamics and the emergence of ISIS. National will is therefore critical and is likely to shift over the duration of the mission. The success of New Zealand's mission depends on maintaining political will, which means politics is centre stage.

The outstanding issue now is the legal status of the New Zealand Defence Force personnel, a point that certainly should have been clarified before the announcement.

The options are either diplomatic immunity or a Status of Forces Agreement (SOFA). The Iraqi Government is reluctant to sign a SOFA and Australia has agreed ADF personnel will carry diplomatic passports. This is the weaker of the two options and one that led the Obama Administration to pull troops out of Iraq in 2011 because the Iraqi Government refused to give US soldiers immunity from prosecution. The legal implications of any agreement less than a SOFA requires deep scrutiny before a final decision is made. 

The issue of force protection also demands attention. Camp Taji, the military complex where New Zealand defence personnel will be based, lies at the northern entrance to Baghdad, 15km from the capital. The Camp was the focus of ISIS's efforts to secure Baghdad in June 2014. It is likely that Camp Taji, the symbol of the international coalition, will be a primary target as ISIS becomes more desperate and increasingly bold. Other equally serious threats to New Zealand defence personnel include rogue Iraqi Security Force attacks on Coalition forces – the 'green on blue' attacks that have become synonymous with SSR in Afghanistan.

Photo courtesy of Flickr user Morning Calm Weekly News.


The Indo-Pacific is a strategic system encompassing the Indian and Pacific oceans, reflecting the expanding interests and reach of China and India as well as the enduring role of the US. The Lowy Institute's International Security program presents a weekly selection of links illuminating the changing security picture in this increasingly connected super-region.

  • Shortly after the Obama Administration cleared the way for the sale of armed drones to some US allies, it has been revealed that Australian military personnel are already in the US training on the Reaper. Australia is also attempting to expand its involvement in the further development of the maritime surveillance Triton drone, of which it has committed to buy seven.
  • Indonesia has threatened to  're-evaluate' its defence procurement deals with Brazil after a major dispute over the execution of a Brazilian national charged with drug smuggling.
  • India is pushing ahead with construction of another aircraft carrier, with its two existing carriers under strain; the 56-year old INS Viraat will be decommissioned in 2016 and the MiG-29Ks of the INS Vikramaditya are experiencing engine trouble.
  • Beijing has reportedly accelerated construction on islands it occupies in the South China Sea. The debate continues over whether this is to bolster a legal claim or for more strategic reasons.
  • Also, an interesting argument in Information Dissemination for placing US military personnel on allied ships in the South China Sea.
  • Stephen Hadley and Paul Haenle examine the trajectory of US-China bilateral ties, and the attempt to move towards a 'strategic partnership'. 
  • Lastly, there are further reports that North Korea is experimenting with submarine-launched ballistic missile technology.



To everyone's surprise, it was announced on Monday that Australian Foreign Minister Julie Bishop intends to travel to Tehran in April 2015. The visit isn't about the nuclear negotiations with Iran. After all, while Australia would rather not see Iran go nuclear, it isn't exactly a foreign policy priority for Australia.

The trip will instead be about guaranteeing Australia a place in the running should the large Iranian market open up after a nuclear deal. It will also be about engaging Iran on the ISIS threat.

It's a smart move by the Government, yet Bishop's visit is surprising for a number of reasons.

First, no senior Australian official has set foot in Iran in over a decade. In fact, no senior Western official other than Catherine Ashton, the lead negotiator for the EU, has been to Iran in that time. Secondly, Iran is not a foreign policy priority for Canberra. The little communication that has existed between Canberra and Tehran focused on addressing concerns about 'boat people'. The only other way Iran figured on Canberra's radar is because of Tehran's importance to the US, Australia's most important ally.

But things have changed and Canberra is exploring its options.

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While a nuclear deal with Iran is by no means guaranteed, the P5+1 and Iran are making significant progress towards a political framework agreement. Should they sign a comprehensive agreement by mid-2015, the complex web of sanctions imposed on Iran will then begin to be untangled. This won't be easy and will likely take a number of years. But it will result in Iran's market of over 77 million people opening for business. Australia and Iran's Gulf neighbours already share a significant economic relationship, but trade with Iran is negligible: $302 million in 2013-14. It's a far cry from the early 1990s, when Iran was Australia's largest export market in the Middle East.

The potential economic relationship is not the only issue on the table. Today, the Middle East is filled with security concerns for Canberra, even after the end of Australian military operations in Afghanistan. The Government estimates that 110 Australians are fighting in Iraq and Syria (a conservative estimate compared with numbers floated by others, which go up to 205), who pose domestic security risks when they return from overseas. 

Australia was one of the first countries to respond to the US call for assistance in building a Coalition to fight ISIS. In September, Tony Abbott pledged 600 military personal and aircraft to the coalition, and more may be on the way. While the reasoning might be questionable, the decision was made and Australians are once again back in Iraq.

Why is this important? Because Iraq is a high stakes effort for Iran, more so than for the Coalition. Iraq is Iran's backyard. It is strategically significant to its national interests for economic, energy, political and religious reasons. What's more, ISIS cannot be defeated with just airstrikes. But that's the only significant contribution the West is prepared to make. The coalition needs local and regional support. 

Whether we like it or not, Iran is a large, resource-rich and a potentially powerful partner. It has the capacity to pursue a serious foreign policy in the Middle East, and it shares a 910-mile border with Iraq. What's more, only Iran has the means and the willpower to send in a large number of ground troops for a long time should it be required.

Today, Canberra is uniquely positioned to engage Tehran on this issue and to create a space for Australian businesses that could be interested in Iran.

While the US no longer needs a go-between to talk to Iran on the nuclear issue, other questions remain taboo and hardliners on both sides remain mutually suspicious. Canberra faces no such constraints. While other countries cut off diplomatic relations with Iran, Australia quietly kept its embassy open. Australian officials are not viewed with as much suspicion as other Western officials despite Canberra's sanctions on Iran. Building on the somewhat favourable view of Australians within the Iranian leadership is also important for future economic relations; it's no secret that the Iranian market is opaque and difficult to navigate. Entering it requires Iranian goodwill and assistance. Australia knows this, given the exchanges between the two countries in the 1990s. 

Accepting Foreign Minister Zarif's invitation to Tehran was a smart move by Canberra. Bishop will be the first high-level Western leader in the last decade to travel to Iran to talk to her counterpart on a range of issues unrelated to the nuclear question. It will allow Australia to register its interest in the potentially lucrative Iranian market, build trust with the leadership in Tehran and contribute to Canberra's leadership in a surprisingly unlikely, but nonetheless significant, area of international affairs.

Photo courtesy of Flickr user UN Geneva.




Mike Callaghan and Stephen Grenville recently reminded us of the debate around Australia's potential future global GDP ranking, and what that implies for our place at the G20 table in 2050. As Melissa Conley Tyler noted in October last year, this kind of debate is valuable if it leads to improved public policy that help sustain Australia as a 'top 20 country'.

But what about long-term relevance of the G20 itself? In the most recent Lowy Institute G20 Monitor, I suggested that the G20 walks a tightrope of relevancy. The G20 remains the premier forum for international economic cooperation, and is coming off a successful 2014 Australian presidency where it reminded the international community that it can focus on collective solutions to major economic challenges. However, in which there is disillusionment with the slow progress the forum has made in recent years on key global governance issues, the G20 needs to keep showing its relevance or alternative forums will be sought out. So it is important that Turkey's 2015 G20 presidency is a success. This is more than just as a matter of Turkish national pride.

The first discussions by finance ministers under the Turkish presidency, held in early February in Istanbul, were underwhelming. Despite statements from Canadian Finance Minister Joe Olivier that global growth needs a kickstart and from Christine Lagarde that this year has the potential to be a special one for collective action, the Istanbul meetings were most notable for a lack of consensus. Even after a marathon communique drafting session that lasted more than 24 hours, countries could not agree on how to spur growth and were reluctant to commit to the Turkish hosts' plans for binding investment targets.

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In the areas where agreement was possible, results were lacklustre. The G20 needs to ensure that the call for countries to each implement only the key parts of the Brisbane Action Plan does not become a step back from the G20's main achievement of 2014. The Turkish presidency rightly pointed to the IMF Executive Board's decision to establish a new $100 million Catastrophe Containment and Relief Fund, which will assist West African countries most affected by the Ebola epidemic, as the communique's clearest and most concrete outcome. While this is commendable, the G20 missed the opportunity to address the larger underlying problems affecting global health governance (a subject I will return to in a future piece). There were also some relatively routine advances in lower-key items on investment, tax and financial regulation, although these were balanced against the lack of progress on IMF reform, something Mike Callaghan and I predicted ahead of the meetings.

In all, the four-page communique read as light on substance, and it is difficult to point to headline areas where the agenda has substantially progressed since Brisbane. There is a clear disconnect between the communique and a vision that will allow the G20 to achieve all of the Turkish presidency's three I's (investment, implementation and inclusiveness). The overall impression from Istanbul is that the G20 recognises the challenges but has run out of ideas for how to collectively address them. Attention is already starting to divert to 2016 and China's impending presidency.

As Mike Callaghan noted, economic size isn't everything. And nor is G20 membership, if the forum itself continues to drift.

Photo by REUTERS/Osman Orsal.


The Prime Minister's National Security Statement included a reference to the possible stripping of citizenship from dual citizens. There has been criticism that such a move will be ineffectual. Peter Hughes claimed it was of limited use because, even though the individuals would be prevented from returning to Australia, they 'would be free to pursue extremist causes and political violence elsewhere.' And in the Sydney Morning Herald yesterday, Professor Matthew Gibney from Oxford University argued against the move from a civil libertarian perspective, saying that 'Denationalisation is thus open to the same criticism that Voltaire made of the practice in 18th century France: namely, that it simply constitutes throwing into our neighbour's yard those stones that incommode us in our own.' This largely echoed a piece  from last year by Sydney University's Professor Ben Saul.

While I acknowledge these points, they would carry more weight if the proposal to strip citizenship rendered the person stateless. The subject's failure to renounce another citizenship they possess indicates that they must continue to hold some attachment to that country, and as a continuing citizen of it, they would continue to have an identity and the safeguards afforded by that country.

The civil libertarian argument, however, fails to address what I would argue is a more serious issue: the potential eradication of targeting constraints for Australian intelligence agencies and military forces in dealing with Australian citizens engaged in terrorist activities overseas. The possession of Australian citizenship rightly imposes limitations on how much information Australia's spy agencies can collect, and perhaps more importantly who they can share it with. There have already been legislative amendments to strengthen the intelligence-collection powers of these agencies, but dealing with non-citizens gives them much greater flexibility in sharing information.

So, rather than dual citizens simply becoming someone else's problem or able to undertake violent actions elsewhere, such a move may actually free up Australian authorities to address the problem by sharing information on foreign fighters or terrorists who were formerly Australian citizens.

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This may simply mean that the former dual citizen can be arrested and jailed, or deported to their remaining country of nationality. But it may also mean they are killed in a counter-terrorist military operation. In fact, there has been criticism in the UK that people stripped of their citizenship have been killed in drone strikes shortly after, and that the information that enabled their targeting was only released to the US after they were no longer UK citizens. I think this is the more appropriate discussion to be having, rather than a civil libertarian one. To take one possible example, would the Australian public be happy to see a former dual Lebanese-Australian citizen born and raised in Sydney, but now simply a Lebanese citizen because they are fighting for ISIS, killed in a RAAF bombing mission in Iraq based on intelligence gathered by Australian agencies? I think the public would accept this.

None of the steps proposed by the Government represents a silver bullet, but incremental changes to our ability to respond represent an appropriate answer to a unique challenge. Radical jihadists are not Islamic nationalists; they recognise no authority but their interpretation of what God commands them to do. They are by definition and by action intolerant and they are as far removed from the humanist traditions of the Western societies from which some of them emerged as it is possible to be. And while Australian dual citizens fail to recognise the authority of the Commonwealth and kill in God's name, they are protected by the fact that they are citizens of a Commonwealth whose authority they have plainly rejected.

For those relatively few to whom this situation applies, we should look at the stripping of dual nationality as a military and intelligence targeting issue rather than simply a civil libertarian issue.

Photo by Flickr user Ibrahim Khalil.


On 20 February, Defence Minister Kevin Andrews outlined for the first time details of the acquisition strategy for Australia's future submarine program. An authoritative press statement was long overdue and sorely needed to provide some clarity given the recent debate and confusion on the submarine issue.

Mr Andrews' statement sought to allay domestic concerns that a future submarine contract might not provide for any significant Australian involvement in the program (notably of ASC in Adelaide) and also explained the nature of the 'competitive evaluation process' to be used in choosing an international partner to be selected from not just Japan but also Germany and France.

Effective communication with the Australian public about such a huge and expensive project spanning decades is essential if there is ever going to be anything like a consensus that spans the community and the political divide.

The public understands the need for confidentiality due to commercial or diplomatic sensitivities, especially when sensitive defence contracts are involved. However, any sniff of secret or special deals or a perceived failure to follow due process is a recipe for controversy and heightens the risk that a decision might not be well understood or broadly accepted and therefore more vulnerable to being overturned by an incoming government. Any further delay in the future submarine program or the risk of an adverse impact on our diplomatic relationships caused by further change would not be in the national interest.

Until recently Japan looked set to be awarded this contract with an initial agreement between Prime Ministers Abbott and Abe expected some time this year. The 'competitive evaluation process' seems certain to delay any such announcement at least until the end of the year and it also opens up the possibility that Japan may lose out to Germany or France. 

Notwithstanding what are likely to be strong bids from Germany and France, there is good reason to think that, despite the forebodings of some commentators about the high risks of buying Japanese submarines, Japan could still be awarded the contract in partnership with ASC.

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In fact the process outlined by Defence Minister Andrews makes it more politically manageable to award the contract to Japan than it was previously. This is because, if followed, the process outlined should help reduce public perceptions of any special deal.

Prior to the Defence Minister's announcement, there was certainly evidence of concern in Japan at recent developments in Australia. An article in the Nikkei Asian Review on 20 February penned by its Australia-based correspondent before the Andrews announcement reported that Japan is worried Prime Minister Abbott no longer wields the power he once did and that the closeness of relations between Japan and Australia seen during Mr Abbott's term so far as prime minister could be affected, particularly if he were to lose the Liberal Party leadership or the next election.

But although the formal announcement of a competitive evaluation process for Australia's future submarine program may be a short-term setback for Japan's aspirations to develop its defence export industry, Japan is still well placed to be awarded the contract, provided it is able to meet the terms of the process.

Why? Firstly, regardless of what might happen politically in Australia, Japan can be confident in its submarine technology and should be reassured by the fact that there is now a clear process. Secondly, there is a high degree of mutual trust in the bilateral relationship. What is sometimes overlooked is that this trust exists across the political divide including on defence and security issues. In other words, the relationship with Japan has long enjoyed bipartisan support.

Australia's defence and security links with Japan have certainly advanced strongly since Mr Abbott became prime minister, but this is taking place on the basis of ever-broadening cooperation that has been building up steadily over the past ten years or more. The Joint Declaration on Security Cooperation signed in March 2007 between prime ministers Howard and Abe (in Abe's first stint as prime minister) has provided the framework for rapidly expanding defence and security cooperation under not only the remaining months of the Howard Government but also under the six years of the Rudd and Gillard governments and now the Abbott Government. Australia is now solidly in position as Japan's second most important security partner. The respective alliance relationships which Australia and Japan have with the US underpin this growing security cooperation.

In Japan there is a similar degree of bipartisanship. Cooperation with Australia continued to grow strongly when the Democratic Party of Japan held office from 2009 to 2012. During this period the Acquisition and Cross-Servicing Agreement was signed and this facilitated the two countries working closely together in recovery from national disasters including the 2011 Japanese earthquake and tsunami.

There is no question that cooperation with Australia is being further facilitated by Prime Minister Abe's keen interest in regularising Japan's defence posture to enable its armed forces to take action beyond self defence (in strictly limited circumstances), and so that Japan can export its defence materiel and technology. But Japan is taking these steps because it sees them as being in its national interest, not simply because of the closeness of the relationship between the two current prime ministers.

Australia will also keenly pursue its national interests, and if that means a decision to purchase Japanese submarines then this should not, as some commentators argue, risk affecting our relations with China. Australia's national interests dictate that we place a high priority not only on our relations with Japan but also with the US, China, India, Indonesia, and other key Asian countries. Management of these relationships is not a zero-sum game. Each can be developed on its own merits and in ways that maximise Australia's national interests without making one contingent upon the other.

Photo courtesy of Wikipedia.