Lowy Institute

By Jenny Hayward-Jones, Director of the Lowy Institute's Melanesia Program, and Jonathan Pryke, Research Fellow.

Papua New Guinea has been in the international spotlight a lot in the last month and it has been almost all bad news. Revelations of a record budget deficit, the emerging worrying impact of a serious drought, the suspension of Ok Tedi's mining operations, more evidence of horrific sorcery-related violence against women and the reported police shooting of student protesters at the University of Goroka last week are threatening to ruin Papua New Guinea's 2015 success story.

The country should have been enjoying the reflected glory of being the fastest growing economy in the world in 2015, realising the benefits of its first shipment of LNG from Exxon Mobil's landmark project, revelling in a successful hosting of the Pacific Games and preparing to celebrate 40 years of independence from Australia.

Our own conversations in Port Moresby a couple of weeks ago did not give us significant cause for optimism.

Senior corporate figures are for the most part positive about Papua New Guinea's long-term potential but our contacts among the younger generation of Papua New Guineans in both the private and public sectors were nervous about the Government's capacity to manage the immediate challenges facing the country.

Papua New Guinea is renowned for muddling through crises and avoiding the worst-case scenarios that economic forecasters and political analysts predict for the country. This history influences a seemingly unhurried approach to crisis-management – based in part on traditional Melanesian coping mechanisms and negotiation skills, and in part on an Australian-like 'she'll be right, mate' attitude – that can both alarm and reassure.

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Prime Minister O'Neill has stepped up his rhetoric on both the economic challenges and the drought this week. He visited the parts of the country hardest hit by the drought and frosts and announced a further 25 million kina in assistance.

In a speech in Brisbane on 27 August, he outlined his strategy to address the budget deficit by 'deferring non-essential spending'. The details of these deferrals will only be unveiled in a supplementary budget to be released in October, a month before the 2016 budget is due to be handed down. With a substantial MYEFO-forecast deficit of 9.4% of GDP, a large amount of expenditure already accounted for in preparation of the Pacific Games and protection of O'Neil's 'core policy areas – of free education, the provision of universal healthcare, improving law and order, and investing in key economic infrastructure' – tough decisions must be made, all while preparing next year's budget. A tall order for any nation.

It's of course not the first time Papua New Guinea has faced serious challenges. The macro-economic and governance crises of the 1990s in Papua New Guinea and the Bougainville conflict were very troubling times for the country.

It would be wrong to assume though, that because the current crises may not yet be as serious as previous ones, Papua New Guinea has the capacity to keep muddling through. It's by no means clear how the Papua New Guinea Government plans to manage the more serious medium and longer-term challenges the current crisis points present. It needs to engage in debate with the public and with international partners, including Australia, about how it responds to the current crises and how it should manage the challenges these crises signal for the future of the country.

Papua New Guinea is fortunate to have significant endowment of natural resources but its governments have not been successful in delivering the benefits to the wider population. Signalling that the bounty from the next major resources investment will solve the problems of today is a familiar promise from Papua New Guinea's governments. Young Papua New Guineans, concerned about their future, are demanding a more sophisticated approach from their leaders.

Photo courtesy of Flickr user BYU–Hawaii.

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Over the weekend an Egypt court found Al-Jazeera journalists Peter Greste, Mohammed Fahmy and Baher Mohamed guilty on charges of operating in Egypt without a press licence and of ‘spreading false news’. Greste and Fahmy were given sentences of three years in prison; Mohamed was given three years and six months. While Fahmy and Mohamed have been returned to prison, the consequences for Greste, deported from Egypt last February, are also serious.

Greste won’t be able to travel to any country that has an extradition treaty with Egypt, a fatal impediment to his career as a foreign correspondent. He also now has a criminal record.

It had been hoped that the re-trial would find all three innocent of the charges, after their earlier trial had found them guilty and sentenced Greste and Fahmy to seven years in prison and Mohamed to ten years. Greste has called on Egypt’s president Abdel Fattah al-Sisi to grant all three a pardon. The prospects seem slim.

It may well be the case that this was part of the plan all along: that the court would find the three guilty to save the blushes of the Egyptian judiciary, and then Sisi would show his magnanimity by pardoning them.

But because Greste, the only Westerner of the three, is no longer in an Egyptian jail, Sisi will feel less pressure to act; he is hardly likely to spare much thought for Greste’s career.

Indeed these days, Sisi is getting decidedly mixed messages from Western governments. The Al-Jazeera verdict is part of a much broader assault on press and other freedoms in Egypt being mounted by the Sisi regime. In the same week as Greste and his colleagues were found guilty, Sisi introduced new draconian anti-terrorism legislation. In addition to the establishment of special fast-track courts for terrorism offences, and new protections for military and police officers that use violence against terror suspects, the law also imposes fines of between US$25,000 and US$64,000 for journalists who contradict official accounts of militant attacks.

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One human rights activist, Jamal Eid, tweeted that the law marked the establishment of a 'republic of darkness'.

Foreign Minister Julie Bishop issued a statement over the weekend saying that she was ‘dismayed’ by the Greste verdict. But she has said nothing about the implication of the new anti-terror law for press and other freedoms in Egypt. The US State Department did at least express concern 'that some measures in Egypt's new anti-terrorism law could have a significant detrimental impact on human rights and fundamental freedoms.' But the general pattern of US relations with Egypt since the July 2013 coup that brought Sisi to power has been one of gradual warming. In March of this year, for example, the US resumed military aid to Egypt.

Prime Minister Tony Abbott has also praised Sisi on a number of occasions, including in his National Security Statement last February, when he singled out Sisi’s call for a ‘religious revolution’ in Islam.

The truth is, however, that Sisi’s heavy-handed policies in Egypt will create more radicalism and militancy than it defeats. Recently, Shadi Hamid did an excellent job at summarising in Foreign Policy how counter-productive Sisi’s policies have been. Hamid’s piece should be required reading for Western policymakers as they consider their approach to Egypt.

I know it's easy to be critical from the outside, and there are few good levers for influencing the Egyptian regime. But at the very least the US and other countries, including Australia, should be delivering a strong and consistent message to the Egyptian regime, and not just when one of our own gets caught up in the regime’s repressive net.

This is not just a moral issue for the West, it is also a practical one.  Western policymakers rightly condemned the former Maliki Government in Iraq for its repressive and discriminatory policies against the Sunni minority – policies that paved the way for ISIS to roll into Mosul and other Sunni towns and cities virtually unopposed.

Yet remove the sectarian dimension, and Sisi’s policies in Egypt don’t look all that different. Under Sisi, the jihadist insurgency in Sinai has already worsened and has seen partisans of ISIS raise the movement’s black flag on the peninsula. Meanwhile, Sisi’s crackdown on the Muslim Brotherhood is driving younger members toward militancy.

Some Western policymakers will argue that sometimes you need tough measures to defeat terrorism and militancy. This is true. But it is also true that an approach that is all stick rarely ever works. Even the former Mubarak regime came to understand that.

The Sisi regime may eventually come to that realisation too. But for the moment at least, this seems unlikely. As Hamid notes towards the end of his piece: ‘when all you have is a hammer, everything looks like a nail’.

Photo courtesy of Flickr user Mohamed Azazy.

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The Syrian Arab Armed Forces (SAAF) are fighting ISIS in eastern Syria. Australia is planning to bomb ISIS targets in eastern Syria. But Australia will not be involved in the broader conflict in Syria involving the Assad regime.

If this doesn't appear to make sense to you it's because the concept doesn't stand up to scrutiny. But according to the Defence Minister Kevin Andrews last week, Australia will somehow be able to bomb ISIS targets in eastern Syria without becoming involved in the broader Syrian conflict.

The Minister somehow believes this because the RAAF will not be operating over Assad-controlled western Syria or Damascus, and that Australia can somehow magically target those ISIS elements who exclusively operate in or support the conduct of operations in Iraq. The Foreign Minister and the rest of the Government trot out the line that ISIS doesn't recognise borders and that attacking the group in Syria is the same as attacking them in Iraq.

This is of course nonsense as ISIS has the ability to redeploy forces where it perceives the operational need to be. ISIS elements in Syria operate against the Syrian regime and may also support fighting in Iraq.

The Government would somehow have us believe that the Syrian military is absent in eastern Syria. But eastern Syria is still a battleground for the regime, and there are several Syrian regular, Republican Guard and Special Forces brigades operating there.

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The main stronghold of the Syrian Army is Deir az-Zour, a tactically-significant city between Raqqa and the Iraqi border. Deir az-Zur is heavily contested between ISIS and regime forces, with the regime holding several positions including the military airport. This recent report shows how intense the fighting can be. The Syrian government also controls (along with Kurds) the northeastern provincial capital of Hassakeh which ISIS has tried to capture without success.

So targeting ISIS inside Syria may not actually impact ISIS's Iraq operations – the ISIS militants, equipment, HQ, or logistical facilities which the RAAF might target in Syria may actually have been directed against Hassakeh or Deir az-Zur rather than Iraq. And while the SAAF doesn't appear capable of mounting offensive operations in these areas, RAAF strikes could potentially aid SAAF defensive operations.

In other words the RAAF could be strengthening the hand of the SAAF in eastern Syria by bombing ISIS there. This is the law of unintended (or in the Government's case, unstated) consequences.

Now, if the proposal the Government is 'considering' is simply about allowing RAAF aircraft to engage ISIS convoys after they cross back into Syria from Iraq, or to engage ISIS weapons firing indirectly into Iraq from Syria, then RAAF targets could arguably be quarantined from the broader Syrian conflict. If the Government has another method by which it can ensure that only Iraq-bound ISIS fighters or equipment will be targeted, then they disclose this publicly.

Conversely, if the Government doesn't have the ability or intention to do this, then it should acknowledge that RAAF assets could, through their actions, be relieving some of the pressure on besieged Assad forces in eastern Syria. They could mount the argument that the threat from ISIS to Australian interests is greater than that from the SAAF in Deir az-Zour or Hassakeh, and they will therefore target ISIS regardless.

But what they shouldn't do is create the impression that an air campaign in Syria can be sanitised to such an extent that the RAAF will only be targeting ISIS fighters who will only operate in Iraq, and that the strikes will not have an impact on the broader conflict in Syria. The SAAF remain active in eastern Syria and are under attack from the very group that the Australian Government proposes we target. The Government needs to articulate very clearly how the RAAF will be able to target ISIS in eastern Syria, while avoiding involvement in the broader Syrian conflict. It's the least that the public deserves.

Photo courtesy of Australian Defence Image Library.

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Over the last few weeks, global financial markets have once again demonstrated their predilection for over-reacting to ephemeral news. For their part, the media are always happy to pad out the 24-hour news cycle with a breaking crisis. If it's transient, so much the better: you can report a fresh crisis tomorrow. Together, the drama-queens of the markets and the media might confuse us about the prospect of the global economy.

And recently China has been hogging the headlines. As Leon Berkelmans noted, we should keep calm and wait to see what develops. It's certainly true that China now has such heft in the global economy (both through the size of its GDP and its importance in international trade, particularly commodities) that its prospects matter to the rest of us. But the recent news has focused on two rather minor short-term issues: a reversal of the unsustainable equity euphoria and a minor adjustment to the exchange rate. The important underlying issues are much the same as they were a month or a year ago:

  1. The economy's rate of expansion. Is China still growing at somewhere around 7%? Scepticism about official data is an old story among China watchers, and in the past the sceptics have been confounded. Will this time be different? Maybe, but some of the best commentators remain to be convinced that China is far off its normal growth track.
  2. Can China make a smooth transition from investment-led growth to consumption-led? This path is tricky and probably not without some bumps, but the same data which gives rise to growth concerns also suggest that this transition is underway. The recent rapid growth of the service sector (larger than manufacturing and construction taken together) suggests a shift to consumption. Services expansion doesn't require big capital expenditures, but it does employ a lot of people, so this fits apparent anomalies in the current data.
  3. The 2010 stimulus not only boosted GDP growth, it also boosted debt levels. Thus, China's growth of debt remains a concern. It's an established norm that countries going through financial deregulation routinely suffer a financial crisis. Again, expect bumps along the path, but there is not much new to add to these old stories.
  4. Did the Chinese market intervention demonstrate that policymakers have lost their sure touch or that their policy approach is no longer appropriate? Not really. They are, by nature, policy activists. Free-market commentators will disparage such intervention, but the ongoing consequences of this misstep are minor. It says little about underlying policy competence.

So much for China. But closer to home, commentators can't resist drawing parallels between current events in Southeast Asia and the 1997 Asian financial crisis.

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Most egregious of these stretched comparisons is the observations that the Indonesian rupiah is now not far from its disastrous nadir during the worst days of 1998, with the implication that a repeat of the crisis is imminent.

True, the exchange rate is now 14,000 rupiah to the US dollar, compared with 16,000 on several occasions in 1998. But in 1998 this represented a drop of 80% within a few months. Those who had a loan denominated in dollars suddenly found their debt had gone up seven-fold in terms of rupiah. The current rate is down less than 10% so far this year and is around 25% below the average of recent years. This is not much different from the fall of the Australian dollar against the US dollar. The exchange rate of the rupiah against the Aussie remains around 10,000 – where it has been for the past few years. This is an unhappy outcome if you happened to have borrowed in US dollars, but it is not a national disaster.

It might even stir the authorities to focus more on economic policy, where there is much that could be done to demonstrate to financial markets that this is a routine commodity cycle, not a crisis.

What about the other emerging economies? The importance of these in global economic growth is illustrated in the chart below: it's not just China that has kept the world economy growing over the past decade, other emerging economies were important as well.

Here the news is rather mixed, as usual. Brazil has flopped back into its traditional disappointing under-performance. On the other hand, India might grow as fast as China. Around the rest of Asia, China's reduced import demand will be a dampener on growth, but once again this is a matter of degree, not crisis.

The IMF's latest forecast was made in July, before the China excitement. In any case, bureaucratic constraints prevent the Fund from ever forecasting a crisis. That said, the Fund's outlook is for 'business as usual'. As I have noted before, the Fund's commentary over the past three years has emphasised slowing economic growth, but its figures – actual and forecast – have shown a steady expansion (measured in terms of purchasing power parity) over the long-term average: around 3.5% globally, with emerging economies growing around 4.5%.

It's hard to fill the headlines with routine news. It's hard to make profits from financial trading if the markets are stable. So expect more of this confected panic from the professional doomsayers.

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As Ross Burns said in the introduction to his piece on The Interpreter this week, the brutal execution of Syrian archaeologist Khaled al Asad and the destruction of the Temple of Baalshamin by ISIS seem to have caught the worlds attention. Ross runs a website, Monuments of Syria, that is documenting the damage of Syria's antiquities in the conflict. The site is regularly updated and worth a visit. Ross wrote this week on how ISIS is using Syria's ruins and monuments as weapons:

Having moved on from blowing up remote rural shrines, treasured for decades by local villagers, ISIS has advanced to bigger-picture stuff. And there is no bigger picture than Palmyra. This jewel of the desert was an elusive destination for seventeenth century European adventurers and for scholars tracing the cross-currents shifting across the poorly defined frontiers between Classical and Persian (even Chinese) worlds. Its temples, columned streets and tower tombs, stamped with a mixture of Greco-Roman, Mesopotamian and Semitic traditions, were largely left to slumber quietly over centuries.

ISIS sees them differently. The ruins are hostages in a war where savagery on all sides has redefined the unthinkable. We have seen how ISIS videographers contrive events such as the explosion of the Baalshamin Temple. They will continue their efforts to choreograph shock, to keep the world off guard and to use the ruins as weapons.

We had another great piece from new Research Fellow Jonathan Pryke on a story in The Australian about fraud in Australia's aid programs:

Clearly, fraud should never be tolerated, and the government should strive to take all reasonable attempts to minimise fraud. But is fraud as rampant in the aid program as The Australian implies? The answer is a resounding 'no'. In 2012-13 the Australian aid program (then AusAID) reported net losses of $865,730 to fraud, equating to about 0.017% of annual aid expenditure. The Independent Review of Aid Effectiveness found that fraud in AusAID over the 2004-10 period averaged 0.017%. So not only are levels of fraud extremely low, they are also consistently low.

Rodger Shanahan covered the news this week that the US has asked Australia to expand its military campaign in Iraq against ISIS into Syria:

But for Australia to take such a course, an announcement about our willingness to contribute to the Syria campaign would need to be accompanied by a diplomatic and media campaign urging regional states to do more. When the Government releases its its legal guidance about bombing targets in Syria, it should also advise Australians whether the Arab League is committed to meeting the ISIS threat, what assets regional states are contributing to the air campaign in Syria, and what pressure Australia will put on them to be an active participant against an enemy that has already attacked them, and attracted thousands of their countrymen to fight with them. The Australian Government may also want to urge Gulf states to sign up to the Refugees Convention rather than salve their consciences by simply providing funding.

What is being said about China in the 2016 US presidential campaign so far? Bonnie Glaser:

Sometimes, promises to 'get tough' with China during the campaign simply became irrelevant as presidents, once in power, confront the demands of real-world policy challenges. When George W Bush ran for president in 2000, he criticised his predecessor Bill Clinton for calling China a strategic partner, and instead said China should be viewed as a 'strategic competitor.' After becoming president, however, Bush dropped that label. When a Chinese jet collided with a US surveillance plane over the South China Sea, Bush worked hard to avert a US-China political crisis, and after the September 11 attacks, he welcomed Beijing's proposal to fight together against terrorism.

Leon Berkelmans threw some cold water on the belief that China is undergoing an economic crisis:

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Am I foolishly saying 'This time is different'? Ken Rogoff, a former Chief Economist at the IMF who wrote the book on financial crises, may suggest that I am. I could look silly in six months. What I am not saying, however, is that China is certain to grow steadily, without incident, for years. It would be remarkable if China did not encounter turbulence. I just think we are some way from a full blown crisis.

Are Taiwans's recent protests primarily to do with an emerging unique Taiwanese identity? Marie-Alice McLean Dreyfus thinks so:

Democracy is one of the key pillars of this contemporary sense of Taiwanese self. In the case of the protests around changes to the curriculum, a key concern (aside from the content) is that changes were being implemented without adequate consultation. According to protesters, in keeping with Taiwan's democratic system, any major decisions affecting the institutions or laws of Taiwan should be made transparently and with adequate consultation with Taiwan's population, and not decided solely by the executive.

Sebastian Strangio wrote an update on recent political maneuvering in Cambodia where an opposition senator was recently arrested:

The arrest of Hong Sok Hour, despite the immunity he technically enjoys as a member of the senate, formed the exclamation point on a crackdown which has unfolded over recent weeks in Cambodia. It follows the 21 July conviction and jailing of 11 members of the opposition Cambodia National Rescue Party (CNRP) on the charge of 'insurrection' resulting from a minor clash with security forces in July 2014. Hun Sen has since warned of further arrests of opposition lawmakers and described CNRP President and long-time nemesis Sam Rainsy as the leader of 'a gang of thieves destroying the stability of this country'.

Eve Warburton from ANU weighed into a string of responses on The Interpreter to a recent Lowy Analysis, Trade Protectionism in Indonesia: Bad Times and Bad Policy:

My experience of doing research in Indonesia on resources policy has driven home how economic nationalism is undergirded by a deeply-held developmentalist ideology that is pervasive among policy makers, elected officials, and civil society. Of course, statist economic thinking has a long history in Indonesia. But as Patunru and Rahardja explain in their paper, the post-crisis neoliberal reforms Indonesia undertook in the early twenty-first century were painful. Memories of that pain have hardened the dirigiste resolve of politicians and lawmakers, who already maintained a healthy suspicion of markets, foreign capital, and liberal models of economic development.

Have you ever flown out of an airport in China? Then you may relate to a piece this week by Julian Snelder:

Here is a typical day at a major terminal. Weather permitting, the first flights embark from 6am, with delays steadily building through the morning. An 8am flight may actually take off at 10 or 11am. With luck, the backlog subsides a little in the early afternoon, but starts building again from 4pm until 10pm, with the crescendo at dinner time. On a good day, factor in two hours extra. On a bad day, with delays accumulating over time and the cascade effects of late connections, passengers could be home eight hours late. By that time, at a Chinese airport far from town, taxi drivers are scarce, surly and extortionate.

Bernard Cole on China's growing fleet of naval replenishment ships:

The increasing number of RAS ships entering China's fleet will also allow greater employment of the PLAN's aircraft carriers, the first of which, Liaoning, will within the next decade be joined by at least the first indigenously built Chinese flattop. Carrier operations require the near-constant presence of RAS ships, primarily to replenish aircraft fuel and ordnance, as well as being on-hand to refuel escorting destroyers and frigates.

Massive protests may be in store for Kuala Lumpur and other Malaysian cities this weekend. Anneliese Mcauliffe:

On Thursday, in a worrying sign for freedom of speech, Malaysia's Communications and Multimedia Commission (MCMC) banned all websites 'that promote, spread information or encourage the public to join the Bersih 4.0 demonstration.' Public universities have also warned students not to attend the rallies, saying that students could be expelled or suspended if they attend. Also on Thursday, the Malaysian military warned it will intervene if a state of emergency is declared. While this appears to be a scare tactic aimed at persuading people to stay at home, the government nonetheless seems intent on doing everything it its power to prevent a mass demonstration.

Photo courtesy of Flickr user Ed Brambley.

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The Malaysian Government has blocked internet coverage of a large anti-government rally planned for the weekend and threatened to send in the army to restore order as it scrambles to contain what is likely to be a massive public show of disapproval in the government of Prime Minister Najib Razak.

Malaysia's biggest civil society group, Bersih, is hoping that hundreds of thousands of people will take to the streets of Malaysian cities this weekend to protest against the political and financial scandals that have rocked Malaysia.

Bershih 4.0 is shaping up to be a huge rally in Kuala Lumpur on August 29-30, with satellite rallies in Kuching, the capital of the state of Sarawak, and Kota Kinabalu, the capital of Sabah. Starting at 2pm local time on Saturday, the rally will run for 34 hours with the aim of shutting down the capital, Kuala Lumpur, ahead of Merdeka Day, Malaysia's national holiday marking independence from Britain.

Bersih, which means 'clean' in Malay and refers to the Coalition of Free and Fair Elections, is an umbrella group of 84 NGOs and civil society groups. They are calling for institutional reforms and for the resignation of Prime Minister Najib Razak. Officially, Bersih 4 has several key demands: clean elections; clean government; the right to dissent; strengthening parliamentary democracy and saving the economy.

Between 2007 and 2012, Bersih organised three street protests in the capital. Organisers say 300,000 people attended in the last rally in 2012. It ended with street scuffles and police responding with water cannons and tear gas. Hundreds of protesters were arrested.

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Malaysians have been transfixed by the unfolding political and financial scandals besetting Prime Minister Najib Razak and his inner circle for the past several months. The planned protest comes amid allegations of Najib's mismanagement of the debt-laden 1 Malaysia Development fund (1MDB) and allegations of impropriety over a RM2.6 billion (US$700 million) 'donation' deposited into Najib's personal bank accounts.

The sacking of the country's most senior lawmaker, Attorney General Abdul Gani Patail, and other key ministers who spoke out about the 1MDB scandal has further incensed many Malaysians.

The political fallout is also having a financial impact. The Malaysian currency, the Ringgit, has shed 20% in value over a year as the oil-exporting country suffers from a prolonged oil price rout and escalating political scandals.

Malaysian authorities, worried that the impetus is building towards an embarrassing public spectacle, are cracking down in the hope of preventing mass participation. Malaysian police have declared the rally in Kuala Lumpur illegal, stating that proper permissions for routes and venues were not submitted for approval. The rally in Sabah has also been deemed illegal. Lawyers disagree, and the most prominent human rights legal group, Lawyers for Liberty, has posted short instructional films on Twitter to explain legal issues surrounding the protest and to offer advice for dealing with arrest and interrogation (see above). 

On Thursday, in a worrying sign for freedom of speech, Malaysia's Communications and Multimedia Commission (MCMC) banned all websites 'that promote, spread information or encourage the public to join the Bersih 4.0 demonstration.' Public universities have also warned students not to attend the rallies, saying that students could be expelled or suspended if they attend. Also on Thursday, the Malaysian military warned it will intervene if a state of emergency is declared. While this appears to be a scare tactic aimed at persuading people to stay at home, the government nonetheless seems intent on doing everything it its power to prevent a mass demonstration.

Despite these efforts, large crowds are expected. A sophisticated social media campaign has been in action for weeks and the opposition-friendly media has promoted the rallies. The hashtag #Bersih4 is trending on Twitter in Malaysia. 

If the number of protesters is large, the rallies will be seen as a public vote of no confidence in Najib. However, if the ultimate aim is to unseat him, the protests seem likely to fail. Malaysian politics has shown time and time again that the prime minister does not need the people's support to survive.

Najib seems determined to stay, perhaps worried about the legal action he could face if he stepped down. He looks increasingly likely to lead his ruling Barisan Nasional coalition into the next general election in 2017. Perhaps the best result that the Bersih 4.0 rally can hope for is to instill in the ruling UMNO leadership a sense that the Prime Minister is no longer electable. But the UMNO party leadership conference, the forum that could vote him out as leader, has been delayed for 18 months.

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I started my job at the Federal Reserve three weeks before Lehman Brothers declared bankruptcy.

I wish I had kept a diary of my initial months at the Fed, so I could recall clearly what we thought was happening each day. I do remember there was a discrete point where suddenly everything felt like it was in free-fall. It brought to mind the comment of Don Russel, Paul Keating's economic advisor, claiming there was a moment in his office when he heard the Australian economy snap, sometime in late 1989. I think I heard the US economy snap in my Washington office in 2008.

Judging by the headlines, many people heard the Chinese economy snap this week. I didn't. The stock market continues its fall, but I'm not too concerned. As I said in an earlier post, 'The stock market does not look to be of systemic importance to the Chinese economy. It is relatively small, it is not a major source of finance for firms, and stocks are not widely held.'

I do think China's next GDP numbers, to be released in October, will be disappointing. One reason is that financial services, which had accounted for a lot of growth earlier in the year (growing by 17.4%), will likely have had a poor quarter.

But there some good news stories too. Many people were concerned about low government revenue growth earlier this year, suggesting this was a sign of a weak economy. That figure has bounced back nicely, growing at 12.6%, year on year in July, and as far as I'm aware, tax rate increases are not responsible. A poor manufacturing Purchasing Managers' Index (PMI; an index gauging manufacturer's sentiment) seemed to kick off the recent round of hand wringing, but the PMI for the non-manfacturing sector has held up so far.

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This relates to a general point made by one of my favourite China experts, Nick Lardy of the Peterson Institute. Lardy thinks services are growing quite quickly. Moreover, he has this rebuttal to those who doubt the data:

Naysayers question government economic data, continuing to focus on weakness in China's industrial sector and the extremely slow growth of electric power output. But steel production, for example, is significantly more energy intensive than entertainment, so the demand for electricity has fallen sharply as the structure of the economy has evolved.

It's fair to say there is an entire industry based on the claim that Chinese GDP has long been overstated. But we don't often hear about the fact that China underestimates housing services in GDP, which is documented in the appendix of Lardy's book Sustaining China's Economic Growth After the Global Financial Crisis.

I digress. Yes, the Chinese economy faces risks. Debt has ballooned over the last eight years. The IMF, in its 2014 Article 4 consultation, had these words to say:

Looking at a sample covering 43 countries over 50 years, staff identified only four episodes that experienced a similar scale of credit growth as China's recent TSF growth. Within three years following the boom period, all four countries had a banking crisis.

That's a worry. But it does not imply that crisis is a certainty, or even the most likely result. The IMF, in its 2015 consultation, was more upbeat. And this is money the Chinese owe to themselves in their own currency. That takes off the table many of the risk factors that have plagued other emerging economies.

Am I foolishly saying 'This time is different'? Ken Rogoff, a former Chief Economist at the IMF who wrote the book on financial crises, may suggest that I am. I could look silly in six months. What I am not saying, however, is that China is certain to grow steadily, without incident, for years. It would be remarkable if China did not encounter turbulence. I just think we are some way from a full blown crisis.

Photo courtesy of Flickr user Kevin Dooley.

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A month ago, international trade was in the headlines. President Obama had just obtained Trade Promotion Authority for the Trans-Pacific Partnership (TPP), and in Australia, the China-Australia Free Trade Agreement (ChAFTA) was signed. But then all went quiet.

Trade Minister Andrew Robb.

The ministerial meeting in Hawaii that was supposed to finalise the details of TPP didn't reach full agreement. ChAFTA's passage through the Australian parliament is not without opposition. Both these initiatives, however, are still very much alive.

The TPP negotiations are being held behind closed doors, but there seem to be three problems:

  • Canada doesn't want to open up its milk market, while New Zealand (the world's biggest exporter of processed milk) sees this as an important issue.
  • In automobiles, the US wants better access to the Japanese market. Interaction between TPP and NAFTA rules are also complicating this trade.
  • The US pharmaceutical industry wants to keep its biologics testing results secret for 12 years, but Australia thinks five years would be enough.

There may be other issues as well (Australian sugar producers are still hoping to open up the US market), but these are the main stumbling blocks. None of them look insurmountable.  It's hard to see further protection for pharmaceuticals as a deal-breaker for Australia even though our trade minister has given assurances that the TPP will not undermine Australia's pharmaceutical benefits arrangements, a key component of social welfare.

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Nor will the deal be lost because of US-Japanese auto trade. Some observers would regard US manufacturers' hopes of shipping lots of cars to Japan as a conceit and a delusion. But even if there is substance in this trade-opening initiative, it's too small to stand in the way.

It seems just as unlikely that dairy trade will torpedo the agreement, although it might mean that Canada joins late (or New Zealand, as one of the initiators of the TPP, goes away very disappointed). It's just not substantive enough to stop the broad-reaching TPP from going forward.

Given Obama's high-profile commitment to the TPP and the need to put substance into the US rebalance to the Asia-Pacific, he is not going to lose this one without a very serious fight.

The wild card in all this is the US Congress. With the various delays, Congressional consideration is unlikely to take place until next year, while the presidential election is in full swing. There will be the usual Congressional histrionics in defence of local interests, and the vote could be lost, almost by accident. This is the main threat to the TPP. 

The pity of the current debate is that it largely misses the substance of the TPP. Most of this horse-trading has been old-fashioned guerrilla resistance to the longer-term inevitability of integrated global markets. The essence of the TPP is not in trade-opening measures (although they are present, of course), but rather in its effort to lay down a set of broad rules to cover general aspects of international trade, with intellectual property (IP) rights the most prominent. 

IP (and the other behind-the-border issues) are not the win-win issues which usually characterise reductions in global trade barriers. Instead, the rules around IP arbitrate the division of the benefits of innovation between owners and users – a zero-sum game. This should be settled not by an arm-wrestle between trade negotiators, but by a technical consideration of which rules offer the greatest incentives to ongoing innovation. Giving past inventors a monopoly may not be the best way to foster future innovation.

Australia's stand on pharmaceutical data secrecy is on the side of the angels. It's inefficient to keep testing data secret, because it ends up either lost to the wider community or duplicated by other researchers. But it's inconceivable that we would take our principled stance to the stage where we walked away from the negotiations. There is too much else at stake to want to infuriate the US over this issue.

If the TPP goes ahead, the outcome on these rule-setting issues (not just IP but also investor-state dispute settlement) will be a measure of how successful our negotiators have been. 

In the longer term, history may judge the most important issue to be the exclusion of China from the negotiations. Does this tactic allow a superior set of global trading rules to be put in place, with China coming to adopt these later, to everyone's benefit? Or will this turn out to be a missed opportunity to make China a responsible stakeholder in global economic infrastructure, helping to convince it that cooperation within such a framework is better than confrontation?

We don't know if Australia's negotiators ever explored this issue. But we now have the example of the Asian Infrastructure Investment Bank, which suggests that where China is blocked from full participation (as it has been in the IMF and World Bank), it seeks alternative arrangements where its role, for good or bad, will be exercised more individually.

Photo courtesy of Flickr user TPP Media Australia.

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The Asia Pacific is the most dynamic digital landscape in the world, home to the fastest adopters of new technologies 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.

  • As Cambodia's politicians are locked in a fierce Facebook battle for influence, a string of recent arrests due to Facebook posts is causing alarm.
  • A sophisticated cyber espionage campaign is after high-profile Japanese targets.
  • Social media is shaping up to be a key front in Singapore's upcoming general election.
  • Increasing numbers of Indian youth are connecting with ISIS via social media accounts managed out of the Gulf.
  • Indonesia's 30 million+ mobile gamers are the target of a new range of app games that promote wildlife conservation.
  • How does a Bitcoin transaction work and can the technology behind it help eradicate corruption in Asia?
  • New research on the implications of social media analysis tools for disaster preparedness in the Asia Pacific. 
  • An interesting blog post about how ICT tools are being used to solve agriculture problems in Bangladesh.
  • Why Chinese electronics manufacturer Xiaomi is Apple's largest threat in China (and soon everywhere else). 
  • How NGOs are using mobile apps and social media in Cambodia to counter gender-based violence.
  • In light of the government's decision to block websites spreading information about a major anti-government rally, Al Jazeera details the battle for Malaysia's cyberspace
  • Indonesia's digital economy could be world class if the right policies and incentives were put in place.
  • This short documentary on cyber security and civil society in India tackles privacy, surveillance, anonymity and free speech:

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The view from Jakarta

Jakarta this week watched the rupiah slide to its lowest point since 1998, recalling the trauma of financial crisis. Meanwhile, it was business as usual in the capital as the governor set about making friends and enemies with work on large-scale infrastructure projects.

Indonesia surpassed Malaysia for having the worst-performing currency in the region as the rupiah this week fell past 14,000 per dollar, its weakest performance since the 1998 crisis. As economies across Southeast Asia suffered losses in recent days as a result of China's devaluation of the yuan, Indonesia's finance minister and newly installed trade minister both suggested that the use of Chinese yuan for trade among ASEAN nations could help lessen the impact of regional currencies dropping in value against the US dollar.

President Jokowi called a meeting with business representatives at his residence in Bogor to discuss further strategies for overcoming Indonesia's economic challenges. Yet the finance minister was positive that Indonesia's currency slide did not signal impending crisis for the nation's economy. Minister Bambang Brodjonegoro said that despite the downturn, Indonesia's economy was still growing and that other indicators, such as inflation, growth and the trade balance, showed a much better situation to that faced in 1998.

In Jakarta, Governor Basuki 'Ahok' Tjahaja Purnama came under fire this week for his approach to various infrastructure projects in the capital. Loved and loathed for his brusque approach to governance, Ahok made one of his least sensitive moves yet by forcibly evicting residents of a neighbourhood called Kampung Pulo to make way for a revitalisation project along the banks of the Ciliwung River, with the aim of prevent flooding in the city.

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A 2000-strong security force armed with tear gas, water cannons and riot gear forced the alleged squatters from their homes this week as civil society groups prepared a legal case proving residents' ownership of the land. Several residents reportedly held Dutch-era deeds to the area where hundreds of houses had been established for generations. Evictees received no compensation from the city government after a plan to build an 'elevated village' (kampung susun) near the river was scrapped. Low-cost apartments (rusunawa) were provided for about half of the 1000-plus families evicted.

Despite criticism over the way the eviction was handled, including from the Jakarta Police, Ahok reportedly plans to push ahead with further evictions in Bukit Duri and Bidara Cina in the near future.

The governor nonetheless retains a strong support base in Jakarta, where he plans to run for re-election on an independent ticket. A group called Teman Ahok ('Friends of Ahok') is aiming to collect the required 1 million copies of supporters' identity cards to allow Ahok to run as an independent in the next local election since he quit Prabowo's Gerindra party last year.

Support for Ahok over Gerindra was demonstrated on social media this week when a Gerindra-affiliated singer publicly criticised the governor. Rock singer Ahmad Dhani, best known outside Indonesia for his Nazi-themed contribution to presidential contender Prabowo's losing campaign last year, took to Twitter this week to question Ahok's commitment to overcoming traffic congestion on one of the city's toll roads. From his account @AHMADDHANIPRAST, the singer tweeted '(Ahok)...If you can't overcome congestion on the TB Simatupang toll road...just call me...I'm waiting'.

The singer's comments caused a stir online, particularly in light of the involvement of his underage son in a fatal traffic accident on a Jakarta toll road last year. Netizens rushed to the defence of the governor, who later responded by saying that with the amount of work he was putting into Jakarta's roads and transport, things would get worse in the short term, but would bring long-term results.

Photo by Flickr user Dino Adyansyah.

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Taiwan's Ministry of National Defense on Wednesday announced that sluggish recruitment figures were once again forcing it to delay its plans to end military conscription next year, one of the major goals of the Ma Ying-jeou Administration.

Convincing enough qualified young men and women to forsake the comforts of civilian life and enlist in the armed forces will always be a great challenge, one that has been made more formidable by recent controversies such as the July 2013 death of Army conscript Hong Chung-chiu and the 'Apache-gate' scandal earlier this year. At the very least, the Government should not make matters worse by sending contradictory signals about the nature of the threat facing Taiwan to potential recruits.

Sadly, such a signal is exactly what the Chinese Nationalist Party (KMT) is about to broadcast after it allowed its honourary chairman, Lien Chan, to attend a series of events in Beijing commemorating the 70th anniversary of Japan's defeat in World War II, which will include a goose-stepping military parade on 3 September of such proportions as to bring to mind the very fascism that was defeated in the war.

The Ma Administration doesn't seem to realise that it is shooting itself in the foot. The main issue isn't the KMT's longstanding disagreement with the Chinese Communist Party over the latter's historical revisionism and the role that communist forces supposedly played in the war, a battle of ideas which is of little interest to most Taiwanese (Taiwan was part of the Japanese empire during World War II).

The real problem is that Lien's participation in the events — even if he is going as a 'private citizen' — plays directly into Beijing's propaganda campaign (it has also extended invitations to retired generals in the Taiwanese military as well as a number of politicians on the island) and risks undermining the willingness of young Taiwanese to join the military. After all, why should young men and women adopt a lifestyle of hardship and risk their lives if the nation's political leadership doesn't take the Chinese military threat seriously?

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Mr Lien, a former KMT chairman and vice president, is also expected to hold a meeting with President Xi Jinping during his 'low-key visit'. All this comes a little more than a month after footage simulating a People's Liberation Army (PLA) assault on a mock-up of Taiwan's Presidential Office was made public, and on the heels of a new recruitment video for the PLA Navy whose bombast and militarism has caused concern among China's neighbours.

Yet by attending, Lien — and by extension the KMT — will be signaling that such belligerence, which again will be on display during the Victory Day parade, is of little concern to Taiwan. Never mind that the Second Artillery Corps continues to threaten the island nation with approximately 1500 ballistic missiles, that the PLA has held several exercises practicing amphibious assaults of the kind that would be launched to invade Taiwan, or that the efforts by China's intelligence agencies to penetrate Taiwan have intensified. All of this is happening in a period when, according to President Ma, relations between the two sides are the best they've been in sixty years.

As editorials such as this one in the state-run Global Times make amply clear, an authoritarian, expansionist, and nationalistic China remains an existential threat to democratic Taiwan, a situation that could get worse in light of the trend lines in Taiwanese society and the high likelihood that the opposition Democratic Progressive Party (DPP) will return to power next year.

Besides alienating the young Taiwanese whose faith in the military establishment hangs in the balance, Mr Lien's presence in Beijing will hardly be reassuring to Taiwan's security allies, chief among them the US, where doubts about Taipei's commitment to self-defence have never been entirely dispelled.

That isn't to say that China should always be treated like an enemy and that no efforts at conciliation should be made. Quite the contrary. But such diplomacy should never occur in isolation of the optics that those exchanges generate. Sending a high-profile representative to an event that celebrates militarism by a regime that refuses to let go of the past and which continues to threaten war against Taiwan's 23 million people for expressing their legitimate right to self-determination is not a wise decision. (Although James Soong, the third presidential candidate in the 2016 elections, will not attend the ceremony, it is reported that a representative of his party will do so.)

There is no doubt that young Taiwanese men and women are dedicated to defending their country and way of life. But whether they choose to do so by enlisting in the military will be largely contingent on how seriously their government takes national defence. Cavorting with a militarist regime at a time of rising apprehensions over China's belligerence and disregard for international law accomplishes just the opposite.

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PW Singer, Strategist and Senior Fellow at the New America Foundation and author of the recently released Ghost Fleet, was at the Lowy Institute yesterday. He sat down with Michael Fullilove for a conversation about the book, his thoughts on Edward Snowden and the future of cyber relations between the US and China.

Afterwards I interviewed Peter about the Ghost Fleet and its broader themes (here's my own review of Ghost Fleet). I asked him about how the fog of war might be changing for modern, networked militaries, and whether they in fact might be becoming too confident or reliant on their access to information on the battlefield. Peter's novel also speculates on the role global technology and internet companies might take in a conflict between the US and China. In the interview, Peter talks about the differences between modern multinational corporations and their predecessors in World War II, and how the reactions of modern corporations might differ:

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Australia's Ambassador in Washington, Kim Beazley, recently said that Australia's alliance with the US had reached a level of importance greater than during the Cold War, and more akin to its crucial importance during World War II. Recent developments in the realms of security and trade, however contested, seem to underline his claims. This at a time when change is coming for Australia's representation in Washington. Coming months will see increasing speculation over who will succeed Beazley, whose extended term expires at the end of this year.

The situation gives pause for thought: what kind of attributes do we look for in Australians who can serve as Ambassador to the US?


Kim Beazley presents his credentials to President Obama, January 2012. (White House.)

At one level, the question logically incorporates generic qualities of those who are suited to serve anywhere overseas and represent Australia's interests. And the desired traits – among them, integrity, energy, acumen, fine judgement, high powers of observation and interpretation, advanced interpersonal and relationship-building skills – are, we trust, cultivated within DFAT. But with certain posts, such as London, Paris and Washington, the question takes on another dimension due to the frequency of appointments from outside the Department, and primarily from the ranks of retiring politicians.

In the case of Washington, the question of who best serves the government's representational needs is especially timely for reasons that invite looking back as well as forward. This year marks the 75th anniversary of Australian diplomatic representation in Washington. From 1940, when RG Casey headed the new Legation with a staff of five, the Embassy (embassy status came in 1946) has grown to boast more than 250 staff today, and the building is about to be rebuilt to meet expanded needs.

The work of Australia's senior diplomats in Washington was the subject of a two-day seminar held at Deakin University in October last year, the results of which will be published soon. Certain patterns emerged from the exercise, including the long-term profile of ambassadors.

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Beazley, of course, is a former Labor Party leader. Before him were two senior public servants who were trained in External Affairs/DFAT, Michael Thawley and Dennis Richardson. Before them was former Liberal Party leader, Andrew Peacock. The mix is the same when surveying Australia's Ambassadors over the whole 75 years: of the 20 Australian ambassadors to the US*, ten have been professional appointees, moving to Washington either directly from External Affairs/DFAT or from another senior public service post, and ten have been from beyond the career service**: seven former politicians, one judge, one diplomatically experienced public servant (Frederic Eggleston) and one senior public servant in Don Russell, who emerged not from DFAT but Treasury prior to his becoming principal adviser to Treasurer Paul Keating.

There is great variety among those who have held Australia's most senior post in Washington. Our first, Richard Casey, has been described as a model diplomat, winning confidences and networking brilliantly with Washington's policy-making elite in the early 1940s. His successor, former Labor politician Norman Makin, was an abstemious man whose integrity was admired, but who hated the cocktail circuit and was reluctant to engage on key policy issues. Makin's successor, Percy Spender, former senior politician in the Liberal Party and Australia's most activist ambassador, loved Washington parties as much as he loved the idea of being a second Australian Minister for External Affairs, telling Canberra what to do.

In other words, even between three early political appointees, the variability between ambassadors makes it clear that the professional/political line has limitations as a means of distinguishing the characteristics and performances of Australians in Washington.

Similarly, during the turbulent years from the mid-1960s to early 1980s, Australia's ambassadors were the cream of the Department's professional diplomats, including three former permanent secretaries: Sir James Plimsoll, Sir Alan Renouf and Sir Nicholas Parkinson. Yet their experiences varied hugely, with the consequences of withdrawal from Vietnam, searching questioning of the ANZUS Treaty and difficult dynamics between the two countries' leaders shifting the ground beneath their feet.

Among the themes to emerge from the October 2014 seminar, which featured former senior members of the embassy, was the rise of Congress as a focal point for Australian diplomats and the relative decline in opportunities for meeting with Washington's most senior members of government. Instead of Percy Spender advancing Australia's interests in the 1950s over one of his semi-regular dinners with US Secretary of State John Foster Dulles, today Ambassador Beazley might work hard to meet with a Congressional power-broker in relation to legislative measures affecting Australia's interests.

While discussion did not focus on the issue of political vs professional appointees, it was a question that was never far from the surface, and one that looms more prominently now, thinking towards Beazley's successor.

One former senior Embassy official has suggested that we might do well to tilt the balance towards professional diplomats: to the extent that ambassadors can be agents of change, diplomats' agendas tend to more ambitious and longer-term than former politicians', especially when the diplomats are not at the end of their careers. Against this view, some would argue that gravitas matters a great deal in Washington and former politicians bring a lot of this with them. If the Abbott Government is going to ready us for an announcement some time soon, we might start to see traces of one or other of these views.

* This includes the three Ministers of the Legation between 1940 and 1946: Casey, Owen Dixon, and Frederic Eggleston.

** While I have counted Casey as one of the non-career appointees, on the basis of his having been an elected member of Australian governments prior to his posting, he could also be said to represent professional diplomats, having served earlier and very successfully in Australia's High Commission in London, before a professional Australian diplomatic service existed.

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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.

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