Lowy Institute

For the past twelve months I have highlighted statements by Lao officials indicating the Vientiane government's determination to build its controversial dam at Don Sahong in the far south of the county (most recently in my Interpreter post of 10 November 2014). In a 19 January Voice of America interview, Director-General of the Lao Department of Energy Policy and Planning Daovong Phonekeo bluntly rejects environmental criticisms of the dam, saying: 'We are now very sure that (with) the mitigation measures we are going to do, (the dam) would have a very small impact to the downstream, or even the upstream, about fish migration.'

Davong Phonekeo is also frank in outlining the Lao construction program:

We expect to start this dry season (author note: the dry season has already begun, but many areas around the dam site will only be fully dry by the end of January), after the prior consultation (with representatives of Cambodia, Thailand and Vietnam) has been completed. The prior consultation will be completed by 25 January, 2015. After that the company (Mega First) will sign some contract agreements with the contractors...There will be some mobilisations within the (construction) camp, which takes maybe to more months. After that, they can start with the excavation and construction work. The project will be completed by 2018.

Ominously, Daovong Phonekeo also says that, in conjunction with Thailand, Vientiane has 'seven projects that are feasible to develop.'

This strikes to the heart of environmental concerns about the Mekong's future. As Phil Hirsch of the University of Sydney's Mekong Resource Centre has pointed out, once one dam has been built on the Mekong's mainstream below China, the likelihood is that others will follow.

These concerns underline the extent to which the Mekong has already been dramatically altered in character in the space of a mere thirty years.

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Before the 1980s there were no dams on the river after the Mekong flows out of Yunnan province, either in China or in Southeast Asia. But since that time China has constructed no fewer than five dams on the upper reaches of the river and is building of a further two dams with the possibility of two more to come.  And Chinese clearing of the river from northeastern Thailand to Yunnan province at the beginning of the century has opened that section of the river to navigation, which previously was very limited.

Construction of the Xayaburi dam in Laos — the first dam to be built on the Mekong below China — is already well under way.

All this is taking place at a time when there is growing concern about Chinese control of the major river systems with their origins in Tibet: the Yangtze, the Salween, the Mekong and the Brahmaputra. Brahma Chellaney discusses this in strategic terms, particularly in relation to the Indian subcontinent, in his 2012 book, Water: Asia's New Battleground, while recently Michael Buckley has focused on the environmental issues in his Meltdown in Tibet: China's Reckless Destruction of Ecosystems from the Highlands of Tibet to the Deltas of Asia.

It is hard to overstate the likely damage being done to the Mekong. The overwhelming weight of scientific opinion argues that the long-term effects of the Chinese dams will be negative for the countries downstream of China, though it may be decades before their full effects are obvious. With the dams Laos plans or is already constructing for China, the damage could be more immediate. More than 60 million people live in the Lower Mekong Basin below China and they are heavily dependent on the river for food and agriculture. One striking figure makes the point: almost 80% of the Cambodian population's annual protein intake comes from fish caught in the Mekong and its tributaries. Just as importantly Vietnam's Mekong delta region relies heavily on the Mekong for its agricultural production.

Dam building that trades future fish stocks and agricultural production against more immediate returns from the sale of electricity from hydro dams is a poor bargain.

Photo by Flickr user US Mission to the UN Rome.


Early last week, China's GDP data for 2014 was released. Many of the headlines focused on overall growth, but I want to focus on investment, and specifically on why the Chinese devote so much of their GDP to investment. I'm going to argue that the high cost of investment in China accounts for at least some of this 'imbalance'.

First, the facts. For some time now, the share of Chinese GDP devoted to investment has been high (see graph below). In fact, it has been in the high 40s as a percentage of GDP, which is basically a world record. Most developed countries have a share in the 20%-30% range.

This high level of investment is the source of a lot of angst.

Commentators are concerned that this investment is wasted (we've all heard the stories about ghost cities). The importance of debt financing has added to the hand-wringing, and there are genuine fears the situation will end up pear-shaped.

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However, an often unconsidered influence on all of this is the price of investment goods. The increase in the share of investment in GDP could be driven by either an increase in the quanitity of investment (eg. the number of buildings built), or an increase in the price of investment goods (the cost of those buildings). The price of investment goods is indicated by the investment price deflator*. Below I show the investment price deflator divided by the GDP deflator, thus showing the price of investment in China relative to the price of everything produced in the Chinese economy. [fold]
The line is upward sloping. Big deal, right? Well, yes it is.
In most countries that line slopes down. See the graph below for some examples (although, interestingly the lines slope up for Korea and Japan over the last decade). Those lines generally slope down because things like computers and other goods used for investment have been getting relatively cheaper. Why would the line slope up in China? One possible answer is the mix of investment. My guess would be that a lot more investment in China takes the form of buildings and structures than in other countries. And I would wager that building a tall residential tower in Shanghai or a subway in Chiongqing is much more expensive than it used to be.

So what? Below I show the first two lines I plotted – investment share of GDP and the relative price of investment – on the same graph. The correlation is striking. And I am not talking about the trend. It's very easy to get trends to be correlated! No, I'm talking about the wiggles away from the trend, which line up very well. So when the price of investment goes up, its share of GDP goes up, and this seems to help explain why the share of investment in GDP has increased.

Let's think about this a little deeper.

Total expenditure on investment is price times quantity. If price increases, it is not mathematically necessary that total expenditure increases – quantities may fall. What the above graph suggests is that quantities do not fall that much in China. In fact, if we were to assume that quantity is unresponsive to price, then price changes would account for 10 percentage points of the shift in the red line. That's nearly all of it.

But in other countries, it looks like investment is responsive to price. Below I show the same prices/shares graph for Australia. It is difficult to see a strong correlation between the two lines, suggesting that the quantity of investment is responsive to price, and overall expenditure is little changed.
Gazing into the crystal ball, I can't help but think that if I am right about the relationship between prices and the investment share in China, then the falls in commodity prices will help rebalance the economy. All those buildings, tunnels, and bridges will become less expensive, and thus account for less expenditure.

*The investment price deflator is available in most countries' national accounts. Unfortunately China does not provide an investment price deflator, but we can back it out at an annual frequency. (For the wonks: China provides the investment contribution to real GDP growth, and we know that real Chinese GDP is calculated using a Laspeyres index, with 1980, 1990, 2000, 2005 and 2010 used as base years. Using this information, we can calculate the investment deflator)


Last week, French Prime Minister Manuel Valls announced a raft of new government spending on security in the wake of the Charlie Hebdo attack. The plan included the creation of more than 2500 new jobs in the law, justice and defence sectors, and the ongoing surveillance of roughly 3000 individuals.

This hard-line response drew appreciative commentary in France.

Days earlier, the same media outlets were reflecting on the meaning of the 'Je suis Charlie' marches across the country and the symbolic message of unity they seemed to embody. Ironically, all this deliberation seems have to pushed to one side any commentary on the widespread political alienation felt among French migrant populations, and the extent to which this has become a wellspring for violent radicalisation.

To understand something of this alienation it is necessary to consider the marginal social and economic standing of France's second and third generation of post-war Arab and African immigrant populations.

These communities are often concentrated in the infamous banlieue neighbourhoods of France, a shorthand reference to suburbs which fringe many of France's major urban centres and are characterised by uniform and soulless public housing edifices. In media discourse les banlieues are frequently stigmatised as migrant enclaves, plagued by epidemics of crime, gang violence and rioting. The youth in these places describe their neighbourhoods as the 'occupied territories', voicing the idea that French state authority is unrecognised there, an intrusion that is resisted in the same way Palestinian populations respond to the imposition of Israel authority.

These tensions were explored in La Haine, a film directed by Mathieu Kassovitz which was released to critical acclaim in 1995.

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The film provides us with an entrée to life in the banlieu through the experiences of three young men: Vince, of Jewish origin, Saïd of Arab origin and Hubert of African origin. It opens with the voice of Hubert recounting the story of a man falling from the top of a 50-storey building. 'So far so good, so far so good' (jusqu'ici tous va bien), he repeats, to reassure himself as he falls through the air. But as Hubert concludes, its not how you fall that matters, its how you land (Mais l'important n'est pas la chute, c'est l'atterrissage). 

In the 24 hour period that we follow this trio, they move through their local neighbourhood and travel to central Paris. We watch them walking (or are they falling?) through streets which are policed not only by suspicious law officials but also violent neo-Nazi extremists, all of whom treat them with violence.

The tension mounts as we see the consequences of trio's small acts of resistance such as the spray-can tagging of public signs and train fare evasion (so far so good). But events build towards an armed stand-off with police and the final, terrible, point of violence that is their inevitable landing. The film's subtext, evident in more subtle and sometimes ironic form, expresses the profound lack of opportunity experienced by migrant populations in France, who sense that they have been betrayed by the republican ideals of a fraternal and indivisible citizenry. Billboards stating 'Le monde est à vous' ('the world is yours') seem to mock them. This sense of exclusion is captured neatly by Saïd who observes at one point, 'nous sommes enfermés dehors' ('we are locked out').

In the wake of the Charlie Hebdo attacks this observation seems particularly pertinent. In the many hours of French media coverage since the attack, French public intellectuals have ruminated over the challenge France now faces as it maintains commitments to liberty and solidarity, but also to security. 

Some of these themes are neatly captured in a media clip airing on all French free-to-air television stations commemorating the victims of the events of 6 January and to emphasise the importance of unity. This clip builds on the 'Je Suis Charlie' meme but adds names which represent the diverse groups — religious, cultural and ethnic — of France's contemporary population. It concludes with the words 'Bien differents. Bien ensemble'.

This tribute is moving at one level. But it is also deceptively simple.

It seems to gloss too easily over the political alienation of those whose lives are shaped by discrimination and inequality. And it seems to ignore how this violence might be explained as a form of resistance against forms of French republican authority experienced by many in France. It may seem strange that a self-declared 'anti-establishment' outfit like Charlie Hebdo would be viewed as synonymous with regularised systems of state authority and somehow become the target of resistance-oriented violence. But for some parts of the French population, the work of Charlie Hebdo is undoubtedly seen as simply one more place where they are diminished and belittled, emulating a pattern that is felt to be well rehearsed by other parts of French state authority.

My contention here is that this attack has its origins in the experience of marginalisation and inequality that is the lot of French immigrants and their descendants.

We too easily efface those motivations if we understand it only as an expression of Islamic radicalisation. Likewise, well-meaning slogans about the benefits of unity in the aftermath of this violence will do little to heal the wounds borne by the generations of citizens who became French as result of their forefathers' migration but live in circumstances characterised by profound exclusion.

So many times in the last two weeks, the French commentariat has reflected with puzzlement on the fact that in some schools, students refused to take part in the national commemorative minutes of silence for the Charlie Hebdo victims.

It may be 20 years since La Haine debuted in France but in this film's poignant depiction of the constrained opportunities of the French banlieue there is an answer to this puzzle. It is a work which remains as relevant today as it ever was. Many have been inspired by the sombre message of unity encapsulated in the 'Je Suis Charlie' protests. But others, indeed Kassovitz himself, have expressed discomfort with this movement even while taking part. It is an appeal masking much that deserves critical attention in French society.

Photo courtesy of Flickr user cwangdom.


Via The Browser, I find this excellent short essay on US China policy from former US diplomat and Assistant Defense Secretary Chas Freeman. This is powerful, persuasive stuff:

So far, Chinese have been considerably more deferential to international law and opinion than we Americans were at a similar stage of national development.

Around 1875, the United States passed the U.K. to became the world’s biggest economy. Soon thereafter, we pressed the ethnic cleansing of our country to a conclusion, engineered regime change in Hawaii and annexed the place, seized the Philippines and Puerto Rico from the Spanish Empire, forced Cuba to grant us Guantánamo in perpetuity, detached Panama from Colombia, and launched repeated military interventions in Honduras, Nicaragua, Mexico, Haiti, and the Dominican Republic. To date, by contrast, China has leveraged the upsurge in its power to step up its contributions to U.N. peacekeeping and to use its coast guard, construction companies, and other nonlethal means to buttress century-old claims to islands, rocks, and reefs in its near seas against more recent counterclaims by neighbors.

It says more about us than about China that we have chosen to treat its rise almost entirely as a military challenge and that we have made countering Chinese power and perpetuating our quasi-imperial, post-1945 dominance of the Western Pacific the organizing principles of our Asia policy. China’s capacity to defend its periphery is indeed growing apace with its economy. The military balance off the China coast is therefore inevitably shifting against us. This is certainly a threat to our long-established dominance of China’s periphery. It promises to deprive us of the ability to attack the Chinese homeland from there at will, as Air-Sea Battle envisages. But greater security from foreign attack for China does not imply a greater risk of Chinese or other foreign attack on the United States.

Even more important, the notion that Americans can indefinitely sustain military supremacy along the frontiers of a steadily modernizing and strengthening China is a bad bet no sober analyst would accept. Extrapolating policy from that bet, as we do in the so-called “pivot to Asia,” just invites China to call or raise it. We would be wiser and on safer ground, I think, to study how Britain finessed the challenge of America’s emergence as a counter to its global hegemony. It viewed us with realistic apprehension but accepted, accommodated, and co-opted us.

Read the whole thing.

Photo courtesy of Wikimedia Commons.


The best chance for peace in Muslim Mindanao in the Philippines has just noticeably faded.

Members of the Philippine National Police carry a body bag in Maguindanao province, 26 January 2015 (Reuters/Stringer Philippines).

The deadly clash in the early morning of Sunday 25 January between the Special Action Force of the Philippine National Police and the local command of the Moro Islamic Liberation Front (MILF) and the Bangsamoro Islamic Freedom Fighters (BIFF), in an MILF stronghold in Maguindanao, left five MILF fighters and between 30 to 60 police officers dead and up to eight captured. This is the largest number of police officers killed on duty in Philippines history.

The term 'misencounter', used by both the government and the MILF to describe the clash, seems euphemistically inadequate, as noted by opposition Senator JV Ejercito.

Four different but intertwined elements of the massacre will aggravate its damaging, potentially disastrous, impact on the progress of the peace deal signed between Manila and the MILF command in March 2014:

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  1. The massacre occurred at a sensitive time in the legislative deliberations over the draft Bangsamoro Basic Law. The Basic Law is meant to turn the March 2014 peace deal into a national law, establishing a new, more autonomous, regional government for the Moro Islamic community. This process is already months behind President Aquino's ambitious timeline, which calls for elections to this new regional government to coincide with the 2016 presidential poll and the end of Aquino's single term. With at least two of the 13 senators who co-sponsored the senate version of the draft Basic Law withdrawing their support due to the massacre, further delays are a certainty.
  2. Opposition to the draft law and the 2014 peace deal among local Mindanao politicians (Muslim and Christian) and national legal and political figures was already mounting before the massacre. The massacre will increase the number of politicians at both levels opposed to the peace deal and the Basic Law, and provides them a powerful new emotive rationale for their opposition.
  3. The fact that the slain police detachment was hunting for a known Malaysian terrorist and suspected that this senior Jemaah Islamiyah figure, 'Marwan', and his associate Basit Usman, were hiding out in the house of the local MILF commander, focuses new attention on the multiple personal links between senior personnel in MILF and regional terrorists seeking safe haven in Mindanao. Multiple reports that BIFF fighters joined in the fighting further reinforces recognition of the strong, often familial, connections between the MILF that struck the latest peace agreement with Manila and insurgent groups that reject the deal.
  4. It is reported that the nearby Philippine Army detachment was unable to provide support to the cornered and outgunned police during the 'dusk to dawn' fighting due the stipulations of the ceasefire agreement between the MILF and the Philippines Government. This could well undermine support for the ceasefire conditions among local Army and police personnel mourning their fallen peers and smarting from the seemingly one-sided outcome of the clash.

Both the MILF and the Aquino Administration have called for the peace process to continue unimpeded despite this apparent massacre, which stands out even by the violent standards of Mindanao. Many opponents to the peace deal in Manila and in Mindanao will disagree.

The decades-long search for peace in Muslim Mindanao has seen many false dawns and the recurrence of low-intensity war. While the 25 January clash may not, by itself, spoil the latest and most comprehensive peace deal, it will not be easily overcome. The delays to the peace process will put the search for peace at risk yet again. 


There are many problems with Prime Minister Abbott's now twice-stated remark that 'Social media is kind of like electronic graffiti'. Here are just three.

First, his views hit awfully close to home for the majority of Australians, because it turns out we are graffiti artists and prolific ones at that. About 60% of Australians have a social media account, ranking us sixth in the world for accounts per capita. And this addiction to online connections has been brewing for years. In 2010 we spent just seven hours a month browsing social media. Fast forward five years and an astonishing two hours every day is consumed by its use. The total number of active accounts grew by 6% in 2014 and we are now home to 13.6 million Facebook accounts, 4 million Instagram users and 2.8 million Twitter accounts. We also have a particular affection for YouTube videos, blogs and the mobile dating app Tinder.

But it is not just Australians who are social media animals and this leads to the second problem with the Prime Minister's statement. There are more than 2 billion social media users scattered across the world. The bulk, more than 1 billion, reside in our neighbourhood, the Asia Pacific. Our neighbours in the Philippines, Thailand, Malaysia, Indonesia, India and Singapore spend more time each day on social media than we do. Almost half of China's population has a social media account, 15% of the world's tweets come from Indonesia, and in 2014 India experienced a 31% hike in total social media accounts.

Unsurprisingly, in the Pacific Islands, the numbers aren't as impressive, but social media has been used to hold governments and businesses accountable for corruption and poor service delivery. Facebook discussion groups, particularly in Papua New Guinea and the Solomon Islands, have played vital roles in crowdsourcing policy ideas, shedding light on misused public funds and alerting law enforcement to domestic violence and other crimes.

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Third, governments around the world take social media seriously and are increasingly inventive in its use as a tool of communication and influence, They also use it to predict trends. At a very basic level, social media is widely used to measure changes in public opinion and to gauge sentiment when new policies are announced. The Australian Government has in fact funded and built its very own software tool to do just that. And government departments use it to communicate with and engage the public (a list of the federal government's vast collection of social media accounts can be found here).

Even in China, where internet censorship is routine (the Chinese Government is thought to employ some 2 million people to monitor Chinese social media), social media is contributing to a new responsiveness from local governments. Online activists and grassroots movements in China such as 'Not In My Backyard' have used social media to force action on a range of environmental issues..

The US Government, via various intelligence research arms, invests heavily in programs that mine social media to predict social and political events, including the spread of disease. More recently, the US Government revealed it was social media that provided the crucial link to identify those responsible for downing Malaysian Airlines Flight 17 in the Ukraine.

The Indian Government has committed to expanding its social media presence and responsiveness, particularly in the area of digital diplomacy. The way India and the US used social media (and other online tools) before and during President Obama's recent visit provides the Australian Government with some excellent lessons on how it can expand its digital diplomacy capabilities (for example, see #AskObamaModi)

The Prime Minister's antiquated remarks about #electronicgraffiti could worryingly be read to reflect a lack of understanding of both the role of social media and how widely used it is around the world, including by his own government. Social media is no longer just the purview of angsty teenagers and online gamers. It is used globally to foster development and to help shape social and political change.

26 January isn't just Australia Day, it is also India's Republic Day (an event President Obama made the centerpiece of his visit this week). In an Australia where all that is old is new again, it is perhaps awkwardly fitting that, while our Prime Minister described social media as 'graffiti that happens to be put forward by the means of IT' live on ABC news, India's soft power savvy Prime Minister was tweeting his best wishes to Australians on Australia Day (to his 9.7 million followers). It is disappointing, but not surprising, that our Prime Minister's Twitter account did not return the favour.


If you live in an authoritarian state the answer to the question 'How do you fight terrorism?' is relatively straightforward. I say 'relatively' because it is by no means a simple question even for dictators. In recent decades even authoritarian governments have had to weigh up the most effective method of fighting terrorism and it hasn't always just involved applying as much repressive force as possible.

But for a democracy, or more specifically a liberal democracy, fighting terrorism is not straightforward because it is not just a matter of efficacy; it is also a matter of rights and values. In defending itself against terrorism, a liberal democracy is not just protecting the physical security of its citizens, it is also defending the integrity of the political system in which these citizens participate.

So while an authoritarian government must simply find the most efficacious way to fight terrorism, a liberal democracy must find methods that are effective but which do not undermine the rights and values that distinguish the political system, most notably the rule of law and the various freedoms (of expression, of assembly, of the press etc) that make up our civil liberties.

I think we have entered a period, which may well last as a long as a decade, in which Australia will face a far more serious terrorist threat than it faced in the aftermath of 9/11. It is a threat we will face as much at home as we will abroad, as the events at the Lindt Café last December underline. 

But in responding to that threat it is not enough to simply ask what further powers or resources we can provide to our intelligence agencies and police forces. We also have to ask ourselves what damage these and other steps do to the values and rights that define us as a society. We have to ask ourselves: how do we find the balance between security and liberty?

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Of course, this is an old debate, predating even the terrorist threats we have faced in recent years. All democracies to some degree compromise the liberties of their citizens to protect them from a variety of domestic and external threat and to preserve the political system in which they live. Freedom does have some necessary limits.

Yet as old as this debate about liberty versus security is, we are not really having it in Australia at the moment. There are echoes and fragments of it, most often when things go wrong (either a gross transgression of liberty or a terrorist attack). But mostly the two sides of this debate talk past each other rather than at each other.

On the one hand, the proponents of liberty will focus on the rights and the freedoms they argue are being undermined in the fight against terrorism. Too often, however, this group will tend to minimize or downplay the threat. Terrorism, they say, is hyped; more people, they argue, will die falling off ladders than will die at the hands of terrorists.

On the other hand, the proponents of security will argue for significant new resources and powers for the agencies fighting terrorism and new limits placed on those parts of the community from which the threat is seen to come. But too few in this camp ask whether, in taking these measures, we are doing more damage to our society and principles than the terrorists are.

I would like to see a debate in which the proponents of liberty acknowledge the threat, understand that it provokes genuine fear in much of our society (even if more people die falling off ladders or in car accidents) and then ask themselves which of our liberties we should compromise for the sake of security. As the Charlie Hebdo case underlined, we don't even seem to be clear about the liberties we are defending.

I would like to see a debate where the proponents of security recognise that the threat to our societies comes not just from terrorism but from the way in which we fight terrorism, and that we should be prepared to accept certain levels of risks for the sake of preserving our rights and principles.

I am probably being naïve in expecting such a debate to take place. It is not just on this issue that we talk past each other. Nevertheless, I am convinced that we need to have that debate, not least because I fear that we will see more episodes like that which played at the Lindt Café in the years to come.

Photo courtesy of REUTERS/Jason Reed.


When the IMF produced its last World Economic Outlook in October, one of the risks it forecast was a possible oil price increase. A US$25 per barrel increase, the IMF said, would take at least 0.5% off global economic growth.

Now, even with the change in oil price twice as large and in the opposite direction, the IMF has once again revised its growth forecasts down, trimming 0.3% off global economic growth this year and next.

These persistent downward revisions to the IMF's forecasts (see Box 1.2 here) always hog the headlines, with their melancholy message that things are worse than we thought. But the commentary should do more than focus just on the downward revisions to the forecast numbers. The forecasts should also be put in the context of what has already happened during the recovery phase since the 2008 crisis, summarised in this table:

Table cites fourth-quarter growth rates rather than year-on-year growth, to better reflect of the shape of the cycle.

The post-2008 recovery started well enough, with worldwide fiscal stimulus boosting growth in 2009 and 2010. But the 2010 Greek crisis triggered widespread angst about excessive government debt. Fiscal stimulus was replaced by austerity.

Instead of the above-average growth normally associated with a recovery (the US, for example, typically records around 5% growth after a recession), growth in the advanced economies was anaemic. Overall global economic growth was, however, maintained at a reasonable pace by the continuing good performance of emerging economies, which grew three to four times faster than advanced economies.

So, this is not a story about a slowing global economy, either in recent years or in the forecast: global economic growth has started with a '3' for the past three years and in the two years that have been forecast. Instead of talking about forecasting failures, the theme should be why this recovery — both in the recent past and in the outlook — has been much less vigorous than usual, with the advanced economies stuck in a rut.

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So why is world GDP below trend and growing slower than normal?

(Source: Min Zhu, 'Unlocking Global Growth', International Monetary Fund)

Any explanation has to acknowledge the policy failures of the past six years: the mistaken switch from stimulus to austerity in 2010; the failure to reschedule adequately the unsustainable peripheral debt (Greece, Spain, Portugal, Ireland and Italy); the European Central Bank's ham-fisted monetary performance; and the lost opportunity to use the sustained period of low interest rates to tackle widespread infrastructure inadequacies. 

But recessions don't last forever. Eventually balance sheets are repaired; old equipment needs replacing and housing over-investment is taken up. The fiscal austerity (which took 2% off European growth in  2011 and 2012 and the same off US growth in 2012 and 2013) has now run its course. The ECB has finally agreed on some quantitative easing-style stimulus. The downward cyclical phase in the European periphery has found a turning point, with even Greece and Spain registering some growth (from a miserable starting point 25% below the 2007 GDP level). And the global oil price is down more than 50%, which the IMF says, taken by itself, would add 0.3-0.7% to global economic growth.

This might be the moment to call an end to the repeated downward revisions to growth forecasts, and take a punt on global economic growth being a bit stronger (this year and next) than the new IMF forecast predicts.


Last week Thailand's National Legislative Assembly, a junta-stuffed body, impeached the country's former prime minister, Yingluck Shinawatra. She will now be barred from politics for five years and will face criminal charges in the Supreme Court which could see her imprisoned for ten years. 

Her sentencing came at the hands of the nine-month-old Thai junta, which seized power on 22 May 2014 with the promise of reform. What this verdict shows is that the stale politics the junta swore to remove are just as entrenched as ever.

Days after enacting martial law in May, then-army chief General Prayuth Chan-ocha seized power claiming it was the only choice in order to bring an end to the six months of crippling and increasingly bloody street protests. He promised to be an impartial peacemaker and to reform the country's broken political system, which has seen numerous coup d'etats and more than a decade of growing clientelistic politics.

Few disagree that Thailand's democracy was a mess. Yingluck's rice subsidy (for which she was impeached) was so poorly implemented that it ruined an otherwise healthy economy. Yet little evidence has been made public of how directly she was involved.

Among Thailand watchers, many of us pondered whether Prayuth's power grab could indeed offer the country's broken politics a much needed restart. Yingluck's impeachment is the final breath of this dying hope. While there have been many dubious moments in the junta's maladroit statecraft – among them broken promises for elections, continued martial law, the detention of youth for Orwellian 'attitude adjustment', and the appointment of a puppet parliament – this is the most desperate.

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It shows that the junta is still prone to the beggar-thy-neighbour politics they ostensibly seized power to remove. Under the junta in August last year, charges were dismissed against Yingluck's opponents, protest leader Suthep Thaugsuban and former PM Abhisit Vejjajiva, for their role in the 2010 crackdown that left scores dead. So a dismissal of the Yingluck case would have been wise. At the very least, her case should have proceeded with transparent legal authority, and under an elected parliament with a valid constitution. 

Instead, this was a show trial.  

After a long period of cooling off, this impeachment rubs salt in old wounds. Despite a statement by Yingluck's Pheu Thai party that they will not encourage protests, the ruling has already angered her huge support base. Prayuth re-emphasised during the trial that martial law was still in place and any unauthorised assembly would be dealt with under that law. This, along with strict media control, has silenced Yingluck's supporters. But in  the long run, it will likely only make them louder and angrier.

Yingluck will now either be thrown into exile like her brother Thaksin or sentenced by the junta's Supreme Court to a decade in prison. If this happens she will become a martyr for her supporters, their own Aung San Suu Kyi.

Adding to worries of renewed political violence is the deterioration in the King's health. The passing of the much-revered 87-year-old leader would most likely lead to a 1000-day mourning process, during which no elections could be held and political manoeuvring frowned on. That would mean three more years of junta rule. That is if the highly politicised royal succession doesn't aggravate the already deep political divisions at all levels of society. 

The junta would be wise to live up to the promises that initially won at least tempered support from much of the population. Not pursuing the criminal charges against Yingluck would be a good step in that direction. Making public a detailed reform agenda or calling new elections as initially promised would also go a long way to regaining some confidence. Such confidence is crucial for businesses and the stability of the economy.

The US has a good opportunity to pursue these points next month when the the Cobra Gold joint military exercise is staged. Water cooler conversations should reiterate that the US will only accept military control and martial law in Thailand in the very short term, and that it must be accompanied by reform. Australia and other concerned states should make similar utterances.

If citizens aren't given a voice, mobilisation and mass protests will eventually spill over into violence. With the military in charge, that could be very bloody.

Photo by Flickr user APEC 2013.


I have no idea how the Greek election results are going to affect the repayment of Greece's debt. But here are a few things to keep in mind.

First, the debt burden is massive...for the Greeks. But the Greek economy is small. This morning on Twitter, Stephen Koukoulas reminded us that the Greek economy is half the size of the economy of NSW. A renegotiation or a default by the Greeks should not, by itself, cause widespread problems in the rest of the eurozone.

The problem with Greece, as it has always been, is contagion. If, due to problems in Greece, investors start to question the sustainability of the debt burdens of Europe's giants, we could be in trouble. This self-fulfilling questioning happened in 2011 and 2012. At that time, interest rates on Spanish and Italian debt rose. A debt burden that was sustainable at 4% interest was no longer sustainable at 7%.  Everything changed when Mario Draghi said the ECB would do 'whatever it takes' to save the eurozone. For this, and other reasons, the situation now appears different to 2012. Financial markets outside of Greece have not reacted too adversely to the election result...yet.

Spain has elections due at the end of the year. If the relationship between the new Greek government and creditors breaks down, and election results in Spain mimic the Greek results, then things could get rocky again. Even if Greek debt is written off smoothly, political tensions will remain. As Zsolt Darvas, a research fellow at Brugel, a think tank, said: 'How can the Spanish or Italian prime minister tell voters that Greece has a lower interest burden than we have but we still need to give them debt forgiveness?'

The Greeks, including the election winners, want to stay in the eurozone. My guess is that Greece will stay in. An exit from the euro would be complicated and likely chaotic. Barry Eichengreen has noted that there are some parallels between the gold standard and the euro, except that the euro is harder to leave. So I have a hard time seeing how it would happen.

Photo by Flickr user Cindy Photography.


When Prime Minister Tony Abbott restored knights and dames to the Australian honours list in 2014, I said in an Age column that in the symbolic landscape of Australian civic culture, his move stood as one of the most pompous, pretentious, nostalgic and self-indulgent prime ministerial decisions in a generation. 

Abbott got away with it. Imperial-era gongs were awarded to outgoing Governor General Quentin Bryce and her replacement, General Peter Cosgrove. Long-serving NSW Governor Marie Bashir was next in line. These champions of public service and community were warmly and rightly praised irrespective of the archaic honour they were receiving. 

But the consequences of the Prime Minister's decision on Australia Day to add the Duke of Edinburgh to the list goes far beyond the rarefied air of national symbols.

It goes directly to the image of this country in its own region and the wider world. Since the 1960s both Liberal and Labor governments have set about abolishing these kinds of colonial anachronisms, whether it be by removing the words 'British subject' from the cover of Australian passports or replacing God Save the Queen with Advance Australia Fair as the national anthem. At every stage of this exit from Empire, leaders on both sides of politics have pointed to the more modern, outward-looking, self-confident idea of the nation that such changes project to the rest of the world. 

Since that time, updating the trappings of nationhood has been inextricably linked with how Australia wants to be seen by both its regional neighbours and global partners. Prime Ministers from Holt to Gorton have all, in their own ways, made this connection.

So how does Abbott's decision square with his foreign policy ambition to look more to Asia than to Europe (more 'Jakarta than Geneva', as he once put it)?

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It's an odd signal to send. Paul Keating used to fume about Australians carrying the symbols of yore – principally the Union Jack in the corner of the national flag – into the region. Going with the  'ghost of empire about us',  he once commented, 'remains debilitating...to our destiny as a nation in Asia and the Pacific'. Keating's point, in essence, was that Australians had to be 'unambivalent' about who we are as a people and how we carry ourselves into the region.

So what will leaders and governments throughout Asia make of this decision? The chuckles and guffaws must be rippling through the cables being sent back to their diplomatic masters.

There is one precedent in recent Australian history that shines a light on the Prime Minister's bizarre decision, and that is the announcement in June 1963 by Prime Minister Robert Menzies that the unit of Australia's new decimal currency would be named the 'royal'. Just as in recent days, the reaction of the press was swift and relentless, producing a groundswell of popular disaffection. As Stuart Ward and I argued in our study of post-imperial Australia, The Unknown Nation, it was arguably the greatest public outcry of the Menzies era. 

Sydney's Daily Mirror led the charge: 'What in fact we've been given for our new decimal currency', it roared, 'is the most outlandish hotchpotch of medievalism you could find in fact or fiction...The Federal government has leant so far backwards that it has tumbled off the ramparts and finished up in the moat, dripping with alien imbecilities. Today we stand bewildered, angry, humiliated, incredulous'.

Other newspapers were equally unforgiving. The Courier-Mail condemned Menzies decision as 'an antiquated throwback to medieval thinking', while the Age observed pointedly that the government had 'misjudged public opinion on this matter...like money, the currency of loyalty can be debased by excess'.

Comments elicited from a broad section of community leaders echo many of those made in reaction to Abbott's so-called 'captain's call'. The idea of naming the currency the 'royal' was 'not progressive', had 'no Australian flavour', was 'unimaginative and undistinguished', 'quite useless and purposeless', reflected a 'taint of colonialism' and would inevitably become a 'joke'. The president of the Victorian Housewives Association summed up the feelings of many: 'what a ghastly choice. It's so terrible it leaves me speechless'. 

A poll by the Brisbane Telegraph at the time found 97.3% of respondents against.

To be sure, the Menzies Government's 'royal' decree was the outcome of months of deliberation and community consultation.  Treasurer Harold Holt had personally headed the special Cabinet Committee assigned the task of naming the new currency, a position that enabled him to quickly put aside tongue in cheek suggestions such as the 'coo-ee', the 'sheepsback', the 'bonzer' and even – wait for it – the 'bobmenz'. One more serious candidate, 'austral', was disqualified due to the unfortunate but inevitable slurring that would be produced by multiples ending in the letter 'n' – thus 'fourteen Australs' spoken quickly risked becoming 'forty nostrils'.

But the choice of the 'royal' (over the other shortlisted candidate, the 'regal') was at Prime Minister Menzies' personal behest.

Holt himself, not unlike many of today's federal ministry, was embarrassed at the backlash. The public and political outcry in 1963 ultimately forced the Menzies Government to retreat. 'There can be no doubt', Holt said subsequently, with barely a hint of understatement, 'that we have made a very unpopular choice of name'.  Cabinet then ended the controversy – after a particularly rancorous meeting – by adopting the 'Australian dollar'.

There are surely lessons here for the Prime Minister. He can now hardly repeal the honour he has bestowed on the Prince. But the public cynicism towards Menzies' decision on the 'royal' came when Australia was slowly and painfully emerging from Britain's shadow and trying to find a new post-imperial footing. How ludicrous it must seem to even the most impartial of observers today, then, to observe the Prime Minister's tumble into Menzian farce.

Photo courtesy of Wikimedia Commons.


We should have one ASEAN regulator for air traffic, one ASEAN safety standard, one pilot training qualification, so there will be mobility of workforce.


Thanks for checking in with us, but today is Australia Day, a public holiday around the country. Check out the Weekend Catch-up for links to all the best posts from last week, and see you tomorrow.

Photo by Flickr user Loulse.


Bringing together the best longer Interpreter articles you were too busy to read this week.

This week US President Barack Obama delivered the annual State of the Union address for 2015, and King Abdullah of Saudi Arabia passed away, with Crown Prince Salman assuming the throne. First Rodger Shanahan on Saudi Arabia after Abdullah:

The new king faces significant security challenges: ISIS on its borders in Iraq, the loosening of its grip in Yemen, plunging oil prices and a challenge for regional influence from Iran. But none of these are existential threats, and the regional situation faced by King Abdullah when he succeeded was also complex. I was in Riyadh when King Fahd died in 2005 and Saudi Arabia was in the grip of an internal security threat more serious than anything it faces now. Back then, there was a near full-scale conflict in Iraq between the US-led occupation forces and both Sunni and Shi'a insurgents, Iran had announced the resumption of uranium conversion, and shortly afterward it elected hardliner Mahmoud Ahmedinejad as president.

A few thoughts on Obama's State of the Union speech from Sam Roggeveen:

Speaking of unintended messages, what about this line: 'If you want somebody who’s going to get the job done, hire a veteran.' I wonder if John McCain smiled when he heard that. It would have made a decent campaign slogan in 2008...

I'm told Republicans regard Obama's growing informality in his successive State of the Union speeches as unbecoming because it gives the speech a campaign flavour. From an Australian perspective, I would say it gives his remarks a parliamentary tone. It's quite common here for parliamentary speakers to engage with their own side and tease the opposition. The public hates it but good parliamentarians and effective leaders know it is a crucial tool for building morale among your own MPs and undermining the opposition. Maybe Obama sees that too.

And Merriden Varrall's analysis of the Chinese media's coverage of the speech

Firstly, it would seem that at this juncture, the Chinese leadership does not want to stir up nationalist anti-US sentiment. This may imply that the Government wants to pursue engagement and discussion with the US in the near future, and wishes to create the public policy space in which to do so.

Second and relatedly, this should not be misread as any shift in China's fundamental beliefs about what the world should look like and what roles the US and China should play. The overall narrative still paints a picture of a US naturally and inherently inclined to hegemony and unilateralism, but in inevitable decline; and China as a fair, impartial and constructive global player, doing its best in a system it didn't create, and which in time will have to adjust to the rise of new global powers with different (but not threatening) views of how the world should work. 

President Obama is also off to India this week, as the guest of honour of Prime Minister Modi during India's Republic Day celebrations and parade. Shashank Joshi wrote a worthy primer on the trip:

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That said, high-level political attention can enable dramatic shifts, as it did when the Bush Administration engaged with Modi's predecessor in 2005. If Obama and Modi are willing to make the effort, and see this as a priority, they can accelerate defence cooperation more quickly than is supposed. And the onus here is on India. As Ashley Tellisobserved in the Hindustan Times on Thursday, India 'needs to explain how this affiliation with Washington stacks up against the more than 30 other strategic partnerships India enjoys with countries as diverse as Argentina, Canada, Iran, Japan, Mozambique, Russia, South Africa, and South Korea'

With two Australian citizens set to be executed in Indonesia over drug charges, Elliot Brennan explored the role of the death penalty in Southeast Asia:

For law enforcement, the trade in narcotics has its upside. Extracting bribes from tourists caught taking drugs is big business. For poorly paid police, such bribes can net thousands of dollars (sometimes a year or more worth of pay). The incentives for them to crack down on drugs are therefore skewed. The threat of capital punishment exerts fear on drug offenders and therefore increases the bribes that can be extracted. Drug kingpins are seldom charged, let alone put to death. Rather it is the lowly traffickers and drug users who suffer the most grievous of punishments.

It is perhaps a strange logic, but abolishing the death penalty will go a long way to improving law enforcement and governance in Southeast Asia, thereby diminishing drug trafficking,  which is the ultimate aim of governments that enforce the death penalty.  If the region is serious about tackling drug trafficking it would be wise to abolish the death penalty. Tackling the scourge of drugs in Southeast Asia means tackling the death penalty.

Catriona Croft-Cusworth on how Jokowi has handled the tragedy of the AirAsia Flight 8501:

Faced with tragedy, Jokowi has been praised for showing confidence as a leader and coordinating a swift and effective response. In just over two weeks, search-and-rescue efforts have uncovered the aircraft's flight data recorder and cockpit voice recorder, which are expected to provide essential evidence on the cause of the crash. The discovery of the fuselage of the aircraft last Wednesday is also hoped to signal that the bodies of all victims can now be accounted for.

But the national response has also shown the limitations of the Indonesian navy and other elements of the armed forces.

Mike Callaghan refuted some arguments about the IMF's role in the Ebola crisis in west Africa:

These debates over the IMF are not new. The Fund is regularly criticised as being 'anti-poor', with its focus on balancing a country's books, which results in a reduction in social spending. Protests were once a regularly feature at annual IMF meetings.

But the reality is that countries usually enter into IMF programs when they have significant economic problems, including unstable public finances and excessive debts. For this reason, it has been pointed out that it is not relevant to make comparisons, such as spending on health, between countries who do and do not have IMF programs. As Tom Murphy notes, 'The reason a country would get a loan from the IMF, generally a lender of last resort, means that things are not going great'.

The Panama Canal will soon have a competitor if construction is completed on the Nicaragua Canal. Julian Snelder took a look at the China connection:

The century-old Panama Canal, which is struggling through its own US$5 billion upgrade to double its potential traffic, generates about US$2 billion in annual revenues, about half of which are retained as profits. Building parallel infrastructure in Nicaragua at huge sunk expense will provoke a knife-fight response from Panama, which has capacity to spare. Although the Nicaragua canal will allow larger-sized ships to pass, Panama should retain most of the transit share, and will slash pricing to make sure. In that case, the canals' combined annual profit pool might be much less than the US$1 billion today.

Commercially speaking, this US$50 billion gambit is courageous, if not reckless.

This week also saw China report lower than expected economic growth. Stephen Grenville tried to dispel some of the speculation:

Predictions of China economic slow-down have been routine headline stories over the past few years. Judging from this Wall Street Journal reporting, it seems to have returned with a vengeance. But it is seriously misleading.

China's 'high-growth heyday' ended in 2007, when two decades of double-digit growth were punctured by the global financial crisis. An enormous fiscal and financial stimulus in 2009 temporarily took growth over 10% again, but this was unsustainable. For the pasts three years, China's growth rate has started with a '7'.

Anyone putting much weight on the decimal figure misses the point. At the current pace, China is doubling its GDP in less than a decade, is growing at over twice the US pace and 10 times as fast as Europe.

Nick Bryant reviewed Australia's time on the UN Security Council...

The farewell receptions are taking place, featuring far superior wine than is ordinarily on offer at Turtle Bay drinks parties. The diplomats that led the Australian mission at the UN during its two-year stint on the Security Council are shipping out. Ambassador Gary Quinlan and his deputy Philippa King will be missed. So will Australia's presence at the most famous table in world diplomacy. It has been an impressive stint.

The main contribution has been a significant boost in humanitarian aid to Syria. Australia authored three separate resolutions that produced the biggest humanitarian breakthrough of the near four-year conflict: allowing aid convoys to cross over the border without the permission of the Assad regime in Damascus. Up until that point over 90% of UN-administered aid had gone to government-controlled areas. Afterwards, food and medical supplies reached besieged cities where women and children had survived by eating grass.

 ...while Robert Ayson laid out New Zealand's debut:

New Zealand's foray marks an early attempt to deliver on the promise McCully himself made in New York on the eve of the ballot in which Spain and Turkey were also competing for a Security Council seat. In a speech which almost read as if all of the problems in the Middle East were down to the Israel-Palestine impasse, he insisted that as a small-state member, New Zealand would stand up and demand a lot more from the Council. Yet even for a small portion of his demands to be met, perpetual and united pressure from all of the other non-permanent members, and more, will be needed. 

Wellington is signaling that is has brought an independent foreign policy to Manhattan. Independent, that is, from some of its traditional partners. There is certainly no ANZUS position on this issue, and McLay was quick to challenge some rather odd speculation back home that New Zealand would be beholden for the next two years to the US.

Lastly, Bruce Hill raised an important and pressing issue, freedom of the press in the new democracy of Fiji:

Visitors to Fiji can see this for themselves. Just turn on the television and watch a news bulletin. It is regarded as a perfectly normal thing for a newsreader to simply read out, in full, a Government press release. This is the sort of thing you'd expect to happen in North Korea, Zimbabwe or Cuba, not a democratic Fiji.

There is a culture in Fiji of not answering questions from journalists that has grown since the military coup of 2006, and the attitude towards the media, both local and foreign, was not particularly friendly even before then. 

Photo courtesy of Flickr user Tribes of the World.