St Gallen is a small university town in eastern Switzerland, across the mountain from Davos, if you like, and the St Gallen Symposium is run by students from the university for students from all over the world, including a small but growing and vocal contingent from the best Australian universities, selected by an essay competition and having all expenses paid.

Just like 'Davos', ISC brings together big names from business, politics, academia and the media. Unlike Davos, it is intimate, personal (everybody gets to talk to everybody) and unencumbered by excessive security, as on the political side it is ministers rather than prime ministers who participate, as well as past (or future) leaders of large institutions rather than the present officeholder.

ISC is above all a meeting where promising young people, somewhat pompously called 'leaders of tomorrow', occupy central stage and are not only permitted, but encouraged to take the leaders of today to task. Young Australians were very much part of the event this year. In a particularly interesting debating panel on the the proposal, 'In the long run, the West will prevail', umpired by the BBC's Peter Day, the Australians lined up without exception in the 'aye' camp.

Australia came up again in a second panel on energy, comprising the CEOs of HSBC Bank, Infosys, Glencore and the Indonesian Minister of Trade. This panel came to the interesting conclusion that, despite the current high and rising energy prices, the future was not all bleak: 'Shale gas will be a game changer, away from the Qatar's of this world and towards traditional energy producers such as the US, if and when the environmental impact of fracking can be tamed'.

Generalising from that, this year's ISC might have been a bellwether for a fundamental shift: growth will not come from the BRICs (Brazil's growth rate for 2011 was 2%!) or MISTs (Mexico, Indonesia, South Korea, Turkey) any longer but from the traditional heavies. The optimism with regard to the US economy was striking, and even the much maligned eurozone was given basic thumbs up from the all four participants of the energy panel.

Defining 'Africa' itself is problematic. Most obviously, despite the geographical and institutional associations, the divide between North and sub-Saharan Africa is significant (where Arab North Africa and the Middle East fit into Michael's classification warrants a separate discussion). Underlying the historical and cultural differences is an ethnic and racial dynamic that has in part driven the conflicts in Sudan. This was also apparent in the conflict in Libya, which saw atrocities against Africans by the liberation forces.

Even within sub-Saharan Africa there are significant differences, perhaps most apparent politically when 'leadership' of the continent is discussed. Most Africans don't subscribe to Western assumptions to the rightness of leadership claims by South Africa, Nigeria or Egypt.

The Responsibility to Protect remains highly problematic. While there may be a greater tendency towards 'non-indifference', non-interference remains the norm. The AU provided little restraint on Khartoum's campaign in Darfur and was largely irrelevant during the uprising against Qadhafi  (the self-proclaimed 'King of Africa'). Encouragingly, a number of newer African leaders have spoken out against depots such as Mugabe. More recently, the new President of Malawi spoke against Bashir of Sudan, who, while wanted by the International Criminal Court, retains the support of the African Union (AU), often moving freely around the continent.

Within Africa there is, often understandably, much distrust of global institutions, whether it is the World Bank, UN or ICC. Much of the momentum to reform the former Organisation of African Unity and promote the AU is driven by this distrust. How much the AU itself can meet these expectations remains to be seen, especially given the weakness of many of its constituent members.

While there are many positive things happening in Africa, the blight of conflict and fragility remains: Mali, once touted as evidence of democratic progress, has witnessed a coup; Kenya remains a political and ethnic powder keg; Mugabe still wields power in Zimbabwe; the LRA remains unchallenged; Eastern Congo remains in a cycle of violence and misery for millions; and Africa's newest nation, South Sudan, is on the brink of a return to its 30-year conflict with Khartoum.

Among African elites, there remains residual 'non-aligned' sentiment, most notably in the ANC. Add to this the growing 'no questions asked' influence of China and we may see a reluctance to move towards an Atlantic community and an attempt to negotiate a middle path instead.

Photo by Flickr user Emmaline. 

The 2012-13 Defence budget identifies $5.5 billion to be removed from allocations over the next four years but this is, in fact, only the minor part of a consistent defunding that is now years old. Mark Thompson of the Australian Strategic Policy Institute estimates that this has reduced earlier proposals for expenditure on the defence function by some $18 billion.

It's wishful to suppose that this is purely due to the current government and expect a quick return to anything like the 3% rate of real growth provided during the Howard years. The Commonwealth's revenue base has been substantially undermined not simply by the global financial crisis but by erosion of direct taxes following concerted income tax reductions and by structural change affecting the return from indirect taxation.

Perhaps the forthcoming White Paper should begin by asking how much taxation the Australian public is prepared to pay. The general answer appears to be 'even less', which would be unhelpful. So, despite what specific policies the Coalition parties might carry into government (and, so far, they have few) the years of big spending on defence are over for the foreseeable future.

This means that questions on the type and amounts of equipment the ADF should get will need to be decided with a very sharp and expertly applied logic. Bids for new equipment will be in a desperate competition for funds and ruthless prioritisation should be applied.

It should not be assumed that capabilities in the ADF inventory would have the protection of being, to use Jim's words, difficult to un-buy. Even amid the largess of the early years of Howard's increased defence funding, it was still found necessary to mothball some recently delivered naval vessels. The same pattern is now being repeated with the planned withdrawal of elements of the Army's tank force.

The trouble is that using military power can be very expensive if done properly. Even Hugh's modest stabilisation forces can come to quickly cost more than $1 billion a year to deploy. Trying to avoid the full extent of these costs eventually brings the distortions of false economy, as was revealed when the ADF's deployed logistics capability was shown to be totally inadequate for the East Timor operation.

False economies have been a problem for the RAN over recent years, responsible for the poor sustainability of several classes of its vessels. The 2012-13 budget and Forward Estimates reorganise $2.9 billion and reallocate it to higher priority tasks. Of this, a third is to improve the maintenance of naval vessels. The idea of the 'clockwork' Navy, which can simply be wound up and put in the water, has been exposed as starkly as that of the Army without deployable field support.

As the largest vessels ever operated by the RAN, the LHDs will be expensive to operate and that cost will have to be justified by its contribution to the goals of strategic policy. The ships may not be endangered for some time but, if costly to operate, wouldn't be the first RAN flat top mothballed in a secluded cove in Sydney Harbour.

Of course the rise of China will be a central consideration of the forthcoming White Paper. But it will not, by a long way, be the sole focus of the capability development section of that document. Planning to allow the ADF to perform the range of functions with funding much reduced is going to be challenging. Expect to see the LHD debate replicated in many other areas.

According to most accounts, Chun was already on his way to the Martyrs Mausoleum when the bombs exploded, but was late because his motorcade was stuck in traffic. Some recent reports repeat the story that he was late, but say that he arrived at the mausoleum 'a few minutes' after the bombs had exploded.

Both these accounts are inaccurate. When interviewed about this incident, both Burmese and Korean officials who were in Burma at the time, and directly involved in the state visit, told a different story.

The night before the wreath-laying ceremony, just after Chun's arrival in Rangoon, it was realised that the president's departure from the State Guest House the following morning clashed with the arrival of a group of Burmese women who were scheduled to have tea with the Korean First Lady. For reasons of both protocol and efficiency, Korean officials were anxious to separate the two events.

Korean and Burmese protocol officers discussed the problem late into the night. Their solution was for President Chun deliberately to delay his departure for a few minutes, until after all his wife's guests had arrived and been officially welcomed. However, the South Korean Ambassador to Burma would leave the State Guest House at the original time, and advise all those waiting at the mausoleum of the altered timings.

When the Ambassador's official car arrived at the mausoleum, with its South Korean flag flying, the watching North Korean agents apparently believed that it was Chun Doo-hwan. Some reports state that they heard the Burmese military band at the venue begin playing, as it too was under the impression that the President had just arrived (on time). The agents triggered the bombs.

Chun Doo-hwan's motorcade was en route to the mausoleum — through streets cleared of traffic by the local police — when the attack occurred. Informed of the incident by radio, the presidential party immediately returned to the State Guest House. It is true that he was late for the ceremony, but this was by design, not by accident. He was not held up by traffic. Nor did he ever reach the mausoleum. Only in that sense can it be said that the President ‘narrowly escaped death or injury'.

While this version of the story lacks some of the drama of the news reports, it nevertheless underlines the fact that sometimes even minor events — in this case, a scheduling error that posed protocol problems for status-conscious Korean officials — can have far-reaching historical significance. As it was, war nearly broke out on the Korean peninsula in 1983, as South Korea seriously contemplated retaliation against the North.

It is unlikely Lee Myung-bak will need to remind anyone of this incident during his visit this week. Burma's relations with North Korea grew rapidly between 2000 and 2010, but the Burmese have never forgotten what happened nearly 30 years ago. Besides, even if President Thein Sein had not undertaken to sever Burma's military links with North Korea, closer political and economic relations with Seoul promise the reformist government in Naypyidaw much more than ties with Pyongyang ever will.

Markets, investors and depositors all understand this temptation, so even when a government promises to stick to an exchange rate peg, it's rational to believe that there is a risk that at some point in the future it will make sense for the government to break this promise. 

Deciding whether or not to trust to the longevity of any given exchange rate peg then involves a calculation as to whether the costs involved in sticking to the promise to peg are greater or less than the costs involved in reneging. Inject enough doubt into this calculation, and the peg might well be doomed from the start.

One way to deal with this credibility problem is to send a strong signal about the degree of commitment to the peg, and one way to do this is to make the commitment more binding. In a rough hierarchy of commitment, the lowest might be a standard fixed exchange regime, followed by a currency board, and then full monetary union, like the eurozone.

The euro offers a solution to the credibility problem of a standard fixed exchange rate. By abandoning national currencies altogether and signing up to a regime which does not formally allow for an exit, member economies demonstrate the depth of their commitment to the exchange rate regime, and so boost the credibility of that commitment. Moreover, since the common assumption is that any attempt to exit the euro would trigger the 'the mother of all financial crises' in the departing country, the cost-benefit calculation described above is tilted heavily towards sticking the euro, which further enhances credibility. It's a sort-of roach motel version of a credibility mechanism.

The euro, then, is a machine built to maximise the credibility of an exchange rate peg, in large part by making any exit from that peg incredibly costly and painful.

Problem is, the machine has not been designed particularly well to help countries stay in the euro once they are in trouble. On the one hand, there's all the pain and trauma that an exit would bring to deter leaving. But all there is on the other hand is the recently cobbled together and so far totally inadequate set of instruments designed to stop the whole thing blowing up. Exiting the eurozone is designed to be unthinkably painful. Unfortunately, for some countries, staying in is looking like that too.

Voters across the eurozone periphery are caught inside the cogs of a terrible machine.

 Photo by Flickr user LordSchrammi.

One of the unfortunate continuities from the Howard-Downer period to the Rudd era was that the budget settings for Foreign Affairs stayed the same. It is strange that Downer and Rudd — two ex-diplomats different in character, experience and philosophy – shared the view that starving their old department was good policy.

When the Labor caucus shunted Rudd off to exile at DFAT he came to a belated recognition that he should have taken Foreign Affairs off the diet. The new fiscal feeding regime is starting slowly but it will take a long time to build muscle.
 
The budget was thus not quite the same-old-same-old for DFAT, as Alex Oliver deftly explained, with the line that Foreign Affairs' budget was, 'if not a pleasant surprise, not a complete disaster either.' DFAT has suffered many unpleasant budgets over the last decade, so one that doesn't actually draw blood seems like a relative blessing. As Alex observes, Foreign Affairs is starting the rebuild, post by post.

Putting resources into Asia would seem an obvious answer to a lot of pressing questions; the wonder is that Australian foreign ministers have managed to ignore it for so long. We are doing no more than picking up on the diplomatic zeitgeist. For instance, see this piece on the British Foreign Secretary's recent visit-cum-sales-tour of South East Asia, which remarks in passing that the British Foreign Office is placing a renewed emphasis on language-learning and is deploying 140 extra staff to Asia, some 60 of them in China. It isn't just the Americans in pivot mode.

Bob Carr doesn't have to do any pivot piece; Australia knows where the Asia action is. Carr's task is to help deliver a new normal that understands the importance of muscling-up DFAT, not fining it down.

Photo by Flickr user James Stringer.

It's not well understood that much of Australia's aid is provided bilaterally. That means aid programs are, in AusAID's own words, 'planned and implemented jointly with the partner government'. An example of how this works is PNG, where around 90% of the aid allocated is channeled through PNG government bodies in line with PNG's development priorities. Major Australian-funded development programs, such as supporting the PNG Government to improve its health services or increase the number of children attending school, are multi-year, complex activities not dissimilar to any major government investment in Australia. They require extensive planning and funding predictability.

In other words, bilateral aid isn't charity. It's not something that can be postponed with a couple of months' notice without some impact on the recipient government's own ledgers.

So it's for sound reasons that Australia has long been a leading proponent of funding predictability to bolster the effectiveness of aid. The most recent example was just six months ago, when Australia's then Foreign Minister, Kevin Rudd, signed Australia up to the Busan Partnership for Effective Development Co-operation. That declaration, endorsed by 159 countries, makes clear that predictability is a core principle underpinning aid effectiveness.

Yet just six months after signing onto this commitment, Rudd's successor, Bob Carr, found himself in a very awkward situation on budget night. While he was releasing the welcome Comprehensive Aid Policy Framework, his colleague, Treasurer Wayne Swan, was undermining the good aid principles it represented by reneging on Australia's aid commitment.

And the consequences? Apart from giving aid partners less than two months' notice about major changes to the flow of Australia's funding over the next five years, it must be making the broader international community reflect on just how reliable Australia is when it comes to the international commitments it signs onto.

Photo by Flickr user dibytes.

'We will address and take into account all reasonable concerns in order to make this Xayaburi dam a transparent dam and a role model for other dams in the mainstream of the Mekong River,' Viraphonh told reporters on 3 May at a meeting in Phuket.

That statement is hardly reassuring to those who oppose a dam which, as I have argued in previous posts, not only threatens major damage to fish stocks as well as raising other environmental concerns, but if constructed will stand as an invitation for advocates other proposed dams on the Mekong to press their case.

It is not difficult to understand the Lao Government's concern to find ways of overcoming its economic weaknesses. The thought that the Mekong might enable Laos to become 'the battery of Southeast Asia' is undoubtedly superficially appealing. But to achieve this goal at the cost of degrading the Mekong, both for itself and for its downstream neighbours, seems far to high a price to pay. And putting offside its more powerful neighbours, particularly Vietnam, hardly appears worth the dam's presumed benefits coming from the sale of electricity to Thailand.

Photo by Flickr user International Rivers.

Mr Danby: If I were to wave a magic wand and give you three figures - $25 million, $50 million and $75 million, could you, with that amount of money, work out a list of posts that you would open, given the priorities that you have outlined in the supplementary answers?

Mr Richardson: Yes.

You betcha. DFAT has now provided the Committee with a snappy and comprehensive list of priority missions to open:

• The first round ($25 million a year added to the DFAT budget, or a 2.8% increase): Astana (Kazakhstan), Ulaanbatar (Mongolia), Dakar (Senegal), Phuket (Thailand) and Funafuti (Tuvalu).
• The second round ($50 million a year added to the budget or a 5.7% increase): all of the above plus Algiers (Algeria), Luanda (Angola), Chongqing (inland China), Bogota (Colombia), and Dar es Salaam (Tanzania).
• The third round ($75 million a year or an 8.5% increase): all of the above plus Rabat (Morocco), Oslo (Norway) and Bern (Switzerland).

These line up with most of the recommendations in our submissions to the inquiry. In our final submission, I argued that Australia's international standing had deteriorated as a result of our inadequate diplomatic network, and that the increased whole-of-government presence at our overseas posts is as much (if not more) of a burden on Australia's diplomats as it is an advantage.

The Foreign Minister's announcements of two new posts are very welcome. We await the next 18.

Photo by Flickr user FredoAlvarez, used under a Creative Commons license.

That depends on whether the amphibious army is a cost-effective way to achieve our strategic objectives. That is hard to know until we have agreed what our strategic objectives are. My views on this are still pretty much as set out in Chapter 4 of the 2000 Defence White Paper.

I don't know that Jim has ever set out his views on this issue comprehensively; I'd urge him to do so. But we can get some hints from his post. He clearly does not believe we should be designing the ADF for operations against a major Asian power like China. I'd be interested to know why he thinks that. Is it because he is sure that China will never act aggressively as its power grows? Is it because he is sure that, if China does act aggressively, the US will always be there to help? Does he assume that the US would not expect or require some Australian support?

The point is critical to this debate. From what he wrote, I think Jim agrees that the amphibious army would not be cost-effective, or even viable, against a major Asian power. That is precisely why I think it's a waste of money (lighter forces for stabilisation operations are a different matter). And if its not usable against a major power, and its bigger than we need for stabilisation operations, what exactly is it for?

Finally, Jim asks what operational option Australia could use against a major Asian power. My answer is maritime denial operations. Australia's strategic geography means that we could perhaps, with real care and focus, achieve our most important strategic objectives independently if we have the capacity to deny our air and sea approaches to hostile ships and aircraft. I'm not sure that we could do this at acceptable cost. I am pretty sure that no other options are nearly as promising, so this is our best and probably our only hope. The reason is that we can achieve maritime denial without needing to achieve sea control, which I think will be very hard indeed against a major Asian power over coming decades. 

Jim will reply that sea denial will never 'win' a war. No, it will not. In the Asian Century, Australia is not going to be in the business of winning wars against major powers, but of trying to find ways to survive them.

Photo courtesy of the Defence Department.