Lowy Institute

Papua New Guinea is on track to have the highest rate of GDP growth in the world this year. So why is it struggling to pay its bills and restricting foreign exchange access? This two-part series looks at the external shocks and poor fiscal management that have put the country into such a difficult position. 

PNG Kina vs $US: May 2006 to August 2015 (dataset)

Dashed line denotes introduction of exchange rate rationing. (Source: OANDA monthly bid averages.)

Exchange rate management isn't a topic I expect will vault me to the top of The Interpreter's most-read, but it is of vital importance to the health of PNG's economy. PNG's exchange rate soared in 2011 and 2012 on the back of high commodity prices and as the construction phase of a huge LNG project entered full swing. In 2013, however, the PNG currency, the kina, began depreciating as high levels of government spending injected more money into the economy. The exchange rate slipped even more rapidly in 2014 thanks to a combination of lower commodity prices (that reduced the value of PNG exports), a higher US dollar, and the end of LNG construction, all of which helped reduce international demand for the kina.

In reaction to this sharp drop in the exchange rate, in June 2014 the PNG Central Bank implemented a trading band that immediately increased the kina's exchange rate with the US dollar by 16%, well above the market exchange rate (see graph above). The move was arguably justified to prevent excess profits,  inject confidence into the business community by removing a degree of volatility, and allow the kina to depreciate at a controlled rate. Why the Central Bank actually introduced the band remains unclear. The steady decline of the exchange rate since may be evidence of this policy at work, or it may simply reflect a steadily appreciating US dollar.

While a controlled depreciation of an exchange rate can almost be justified, however, it is not without economic consequences.

The inflated exchange rate is being managed by a rationing of foreign exchange, demonstrated by the K1.5 billion in outstanding import bills waiting to be processed as of March 2015. Such controls can significantly undermine private sector performance.

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A recent ANZ business survey found that '88% of firms highlight difficulties (accessing foreign exchange), with 49% of them noting that it is a “significant” cost to business.' The most high-profile example came last month when PNG's largest petrol retailer, Puma Energy, stopped providing gas to petrol stations as it lacked access to sufficient foreign exchange to pay its suppliers. While the fuel is flowing again,such extreme controls on private sector operations are no doubt undermining the O'Neill Government's reputation as pragmatic and private sector friendly.

This controlled depreciation has also not occurred in a vacuum. While PNG's exchange rate is steadily approaching its pre-trading band levels, the global collapse in commodity prices (particularly oil) has shifted the market-clearing exchange rate even lower. Recent research into the 15 most resource-dependent countries that have floating exchange rates (a group that includes PNG) shows an average depreciation in their exchange rates versus the US dollar of 14.5% since May 2014. This suggests the kina still has a long way to fall before it hits a market clearing level, a depreciation which will hurt both exporters (it makes their products less globally competitive) and importers (because many are struggling to access foreign exchange). If global trends are anything to go by, PNG's exchange rate will have to continue to fall for the rationing of exchange to stop, as was noted by the IMF in late 2014.

Adding to the issue of PNG's overvalued exchange rate, foreign exchange reserves held by the Central Bank have halved since 2012 from US$4 billion to just above $2 billion on the back of higher import demands from the Government's expansionary fiscal policy. This was one of the primary reasons cited by Moody's when it recently downgraded PNG's credit rating outlook from stable to negative. While foreign exchange reserves appear to have stabilised at $2 billion, enough to cover eight to nine months of imports, this calculation does not take into account the outstanding import bills mentioned above. If those still haven't been cleared, PNG could have as little as four to five months of import coverage.

Foreign exchange reserves and coverage

Dashed line denotes introduction of exchange rate rationing. (Source.)

Incoming revenue from the LNG project should have boosted foreign exchange reserves, but the decline in global oil prices (which I will discuss further in part two of this series) has led to diverging forecasts for PNG's reserves. The PNG Central Bank unrealistically expected reserves to increase by 45% this year alone, but last month it adjusted its forecasts and now expects reserves to stay flat for at least the next two years. ANZ, by contrast, expects reserves to stay steady in 2015 and increase by 40% in 2016, while others see the downward trend persisting and completely depleting reserves over the next two years.

Whatever the exact figure, management of the foreign exchange system in PNG doesn't look to be getting any easier in the short term. The central bank needs to act by allowing the exchange rate to depreciate at a more accelerated pace towards a market clearing rate. While this may further reduce the central bank's reserves in the short term as back orders for foreign exchange are cleared, it will give business a much needed boost in confidence as additional controls over their operations are lifted. It is also entirely possible the depreciation will have little impact on reserves as imports (now at their lowest levels since 2005) become more expensive. This, however, will hurt the middle class (the government’s primary support base) as staple goods such as rice become more expensive making the exchange rate saga one of politics versus business for the O’Neill government. In the land of the unpredictable, it’s unclear which side will win.


Thomas Piketty might be the rock-star of the income-inequality debate, but Angus Deaton has won the Nobel Prize for economics, and deservedly so. 

Perhaps you first heard about his impending fame here on The Interpreter: his book, The Great Escape, was my book of the year in 2014 and I thought he got the better of the income inequality debate with Piketty. The Nobel, however, demonstrates that his contributions go back a long way, and cover much wider ground. You can read the short version of his contributions here and the long version here.

Most of his early work at the World Bank is quite technical, setting up the means for measuring and comparing income across disparate countries and over time, solving difficult issues of income aggregations and comparison. This analysis provided the bedrock data to support his various arguments. He provided a bridge between the arm-waving debate on poverty and the rigour of the academic world.

Tyler Cohen describes Deaton's contribution in more practical terms: 'understanding what economic progress really means'. 

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While Piketty was largely focused on rising inequality in mature economies, Deaton was telling a parallel story of a billion people in emerging economies (notably China and India) shifted out of poverty, dramatically reducing income disparities between rich and poor countries. Hong Kong, Singapore, South Korea and Taiwan demonstrated what a couple of decades of fast growth can do to raise living standards. China, India, Indonesia and a raft of others followed.

Instead of making comparisons of income, Deaton focused on the specifics of consumption measured in intuitively understandable terms: the spectacular general improvements in health and education:

The world is a healthier place now than at almost any time in the past. People live longer, they are taller and stronger, and their children are less likely to be sick or to die. Better health...allows us to do more with our lives, to work more effectively, to earn more, to spend more time learning, and to spend more time with our families and friends.

Not every country is succeeding, and inequality within the success stories is typically getting worse. Deaton captures this diversity with the image of a crowd running forward, holding national flags. Some advance faster than others. Some country groups start behind others. Within each country group the fastest runners are getting well ahead of their compatriots and steadily catching up to those who started in front. The overall result: fewer left behind in abject poverty but many still quite poor; a huge increase in the world's middle class; and a rapid expansion in that small group of the super-rich, holding an assortment of country flags.

Deaton accepts 'the deep conflict between incentives and inequality', but he reminds us that there is more to a better life than just income. Technology, dissemination of knowledge and improved social structures have dramatically raised living standards and life expectancy, making us healthier (and thus probably happier). In the past half-century, the poor have largely caught up with the longer life expectancy that the rich have enjoyed for more than two centuries. Life expectancy in India is now the same as it was in the UK in 1850, when UK income was far higher than India's today.

The foreign-aid industry may have mixed feelings about this award. Deaton was sceptical that foreign aid does much good. Particularly in Africa, fiscal dependence on aid flows has undermined the development of domestic tax administration and institutions.

While Piketty caught the zeitgeist of increasing concern about growing income inequality in mature countries, Deaton added a more cheerful and perhaps more important message: that opportunity – particularly opportunity for education and health – are hugely important to a well-functioning and equitable society. We can take heart from the upbeat opening line of The Great Escape: 'Life is better now than at almost any time in history.'

  • The US Ambassador to Myanmar spoke on Myanmar's upcoming elections.
  • Ahead of the signing of Myanmar's Nationwide Ceasefire Agreement here's an excellent brief from the Institute for Security and Development Policy.
  • Zach Abuza looks ahead to Vietnam's 12th Congress.
  • The hazing scandals in Thailand reflect deeper problems in social relations, argues Thongchai Winichakul.
  • Thailand's PM calls for calm after protests in Phuket.
  • The spike in dengue across Southeast Asia may be linked to the new El Nino weather pattern.
  • CSIS looks at the conclusion of TPP negotiations
  • Graeme Dobell: should Canberra join ASEAN? The affirmative case here and negative here.
  • Fortify Rights and Harvard Law School released a joint report on the 'Crackdown at Letpadan: Excessive Use of Force and Violations of the Rights to Freedom of Peaceful Assembly and Expression in Letpadan, Bago Region, Myanmar'.
  • Myanmar needs to focus more on landmines and unexploded ordnance, says Gregory Cathcart.
  • Elsewhere, 'the haze' dominated headlines:


The Stimson Center in Washington DC has maintained a long and important interest in the future of the Mekong River and, in particular, on hydropower developments associated with the river. Its publications on this topic have always been worth reading. The latest, Letters from the Mekong: Time for New Narrative on Mekong Hydropower, is particularly worthy of attention as it offers a more optimistic view of the future than has been reflected in my own, and indeed others', assessments of the likely future of the river.

An attempt to summarise a 37-page paper in a single post risks being both unfair to its authors and providing insufficient space to some highly contestable conclusions. So the following focuses on, in my judgment, the key issues over which there is ground for debate and disagreement:

  1. That the planned and already undertaken alterations to the design of the Xayaburi dam in Laos, now under construction, will substantially mitigate the barriers to fish migration through the dam.
  2. That in the case of the planned Don Sahong dam in southern Laos, where preliminary work has already begun on the work site but not on the dam itself,  there is reason to believe that there are an additional two channels through which fish can migrate over the Khone Falls rather than the one channel that has been identified previously and on which the dam is projected to be built.
  3. That increased civil society action and an awareness on the part of Mekong countries, particularly Laos, is likely to lead to greater oversight of future hydropower developments on the river, including at Pak Beng (the subject of my post of 2 October) but perhaps not the Lower Se San 2 dam in Cambodia, where construction is continuing. The argument of the Stimson paper here is that future dam projects may not proceed because of civil society opposition. But the dangers of the Lower Se San 2 dam are very considerable indeed. So, even if there is a restriction on the construction of future dams the most concerning horse has already bolted.

These are important judgments and to question them in detail would require considerable space.

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In relation to the first point concerning Xayaburi, it will not be until the dam is completed, probably in 2019, that the validity of Stimson's optimism will be tested. Meanwhile, the available research published in Catch and Culture by the Fisheries Division of the Mekong River Commission in 2008 and later in Fish Migration, Dams, and Loss of Ecosystem Services in the Mekong Basin is highly sceptical of the possibility of mitigation along the lines described by the Stimson Paper.

On the second point, even more than is the case in relation to Xayaburi, the proof of the fish pie will be in its eating. We simply will not know whether the assessment the Stimson paper records will be sustained until the dam is built. All that can be said for the moment is that the overwhelming majority of scientific analysis (beginning with this and this) offers a contrary view.

As for the possibility that the Lao and Cambodian governments will change their attitudes, we shall have to wait to see, but it is worth noting that highly regarded research in relation to the Lower Se San 2 dam paints a disturbing picture: a dam on this tributary could alone lead to a diminution of fish stocks in the Mekong River of more than 9% of current catches.

In fairness to Stimson, I must record the paper's own observation that 'The changes to Xayaburi and research results from Don Sahong are a positive step forward--but they do not mask the fact that major obstacles and concerns remain around both projects.' And more generally, picking up on the 'domino effect' to which I have referred on various occasions (that is, the concern that once one or more dams are built this will encourage the building of additional dams): 'The "domino narrative" , may still occur even in the face of rising political, financial , and diplomatic risks'.

I should also acknowledge the authors' kindness in referring to my own work in relation to the Mekong's future.

Photo by Flickr user Timothy Neesam.


In part one of an analysis of the 30 September bombings in Guangxi, South China, Alexandra Grey examined how fury over corruption and uneven economic progress can turn deadly. This piece examines suggestions ethnic unrest had a role in the blasts.

Mourners at the scene of the Kunming Railway Station attack, March 2014. (Flickr/Zhoumingjia.)

Until the alleged bomber behind the 30 September tragedy was identified as a disgruntled quarry owner, the Guangxi bombings were ripe for interpretation as the latest example of ethno-nationalist violence in China. And the door on that line of thought has still not shut completely, as it now appears the alleged culprit died in the blasts and could therefore not have been responsible for the parcel bomb that exploded the following day. It is likely the second incident was a left-over from the previous day's blasts but we are unlikely to know for sure because, as noted in the South China Morning Post, authorities have gagged reporting on the incident.

So is there any basis to justify continued speculation of Uyghur militant involvement?

The Uyghur are an officially recognised minority ethnic group in China, with the majority living in Xinjiang Uyghur Autonomous Region. There is alleged to be an 'underground' route from Xinjiang through Yunnan and over the border to Vietnam and Thailand for smuggling out Uyghur people. Because some smuggled-out Uyghurs arrive in Vietnam, which shares a border with Guangxi in South China, some commentators suggested the Guangxi bombings might be evidence of Uyghur militant activity. But the profile of the 30 September bombings was unlike either the mass stabbing at Kunming Railway Station in Yunnan last year (Uyghur separatists have already been tried and executed for that attack), or the recent bombing in Bangkok, which some analysts suggested was linked to Uyghur militants. Moreover, the border into China from Vietnam has become increasingly closed and militarised in recent years; and there has been heightened vigilance in surveillance of Uyghur suspects in Guangxi.

Of course, new evidence could come to light that would change this conclusion. But at present, given the credible economic and governance causes discussed in part 1, suggestions of Uyghur involvement are unhelpful. 

Still, it is worth examining more broadly the ethnic angle to the Guangxi bombings.

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After all, the bombings coincided with National Day celebrations, which saw ethnic minority celebrations in Beijing and President Xi meeting '13 outstanding grass-roots ethnic solidarity representatives'. As often happens when minority ethnic groups are recognised in China, representatives at the Beijing celebration came from China's five ethnic minority autonomous regions: Guangxi is one of these, along with Xinjiang, Tibet, Inner Mongolia and Ningxia.

Three of these five regions are well known for violence perpetrated by both sides; Guangxi is not. However, it is too simplistic to conclude that Guangxi's minorities are so effectively oppressed as to cause no trouble. A more insightful approach begins with the question: why do some ethnic autonomous regions come to be regarded as sufficiently stable such that incidents like these bombings are seen as out of place, while public violence in other autonomous regions is seen as commonplace?

Guangxi was not especially closely integrated into imperial china, so its stability today is not a factor of history. In imperial times, Guangxi was regarded as a barbarian frontier, incorporated into China by governance structures rather than by ethnicity or shared nationhood. Its inhabitants were seen as non-Han in imperial circles, which were largely Han. Skipping forward to PRC times, successfully governing Guangxi was a high priority in the early years because of its strategic borderland position, and because few cadres spoke the native language of the local Zhuang minority while few Zhuang speakers spoke Han, making control uncertain. Language barriers reduced over time; nevertheless, areas around Guilin in Guangxi were reportedly unstable and off-limits to foreign journalists in the 1970s.

The prevailing image within China, and internationally, is that Guangxi is calm and not especially ethnically diverse. In fact, the eponymous Zhuang people of the Guangxi Zhuang Autonomous Region are China's most populous official minority ethnic group (approximately 16 million). But it would be unwise to assume homogeneity across views on ethnicity and government among such a large population. That most Zhuang people today can speak the Han language is often assumed to show the Zhuang have no distinct identity. My PhD research, however, suggests that a distinct Zhuang identity is alive and well, even though many Zhuang people now either speak both Zhuang and Han, or have swapped Zhuang for Han.

For most, this identity simply consists of a benign pride in Zhuang heritage. A minority of Zhuang people are unhappy about the diminishing practice of Zhuang language and culture. Of those, some see the Guangxi Zhuang Autonomous Regional government – not the Central Government – as failing to promote Zhuang interests, but also common is the view that it is the Zhuang people themselves who have allowed this to happen. Importantly, I have found these views exist without any hint of the separatism that pervades minority-majority tensions in north-west China.

Within Guangxi, Zhuang concentration in the area of the bombings (around Liuzhou) is relatively high, and the bombing suspect named in Chinese media had a common Zhuang surname (韦). That does not mean the blasts related to putative Zhuang causes (or, for that matter, were undertaken in sympathy with other minorities). The timing and the identity of the suspect merely suggest an ethnic element was possible. But it is significant the Chinese authorities avoided any mention of ethnicity in commentary on the bombings. That this angle was downplayed in Chinese media reveals something of how ethnic politics is being managed: governments and the media perceive that ethnic tensions have become increasingly flammable, even in Guangxi.

  • The World Bank has raised the global poverty line from $1.25 to $1.90 a day. Charles Kenny and Justin Sandefur explain why picking a poverty line is in the end pretty arbitrary.
  • Meanwhile, it seems there have been quite a few generations in human history promising to end global poverty.
  • Vox has an illuminating visualisation showing just how much poorer developing countries are than the US.
  • Devex has released an interview with Steve Ciobo, Australia's new Minister for International Development and the Pacific, in which he outlines his priorities for the portfolio.
  • It turns out that many low-income countries in Africa have high minimum wages, given their average wave levels. This would be a problem if compliance were ever enforced.
  • The Nobel Prize for medicine or physiology this year was awarded (along with two others) to Tu Youyou, a modest Chinese woman who forty years ago discovered Artemisinin, a drug that has significantly reduced mortality rates from Malaria.
  • Chris Blattman reflects on the role of fear in society: 'I believed, and still believe, that you can't really understand much about the world if you don't understand violence. Now I would extend this statement to fear.'
  • If you've been to the movies in Australia recently this warm and (literally) fuzzy ad for the just ratified SDGs might have popped up. Terence Wood provides his take:

  • Finally, for a bit of nerd humour in the wake of the SDGs:


Ben Bernanke was a member of the US Federal Reserve Board in the tumultuous period from 2002 until 2014 and Chairman from 2006 to 2014. His version of this period is told in The Courage to Act, his 600-page meeting-by-meeting account. This degree of detail would overload a reader who just wanted to know what the lessons were, and where we are now. This is Bernanke writing for history, and he spells out the detail of how, on each of the many decisions, he got it pretty much right.

He joined the Federal Board with the right background for the times ahead: he is an expert on the 1930s Great Depression. This gave him a head-start over most central bankers, whose mindsets were formed (and perhaps scarred) by the 'stagflation' of the 1970s. While their focus was on inflation, Bernanke had the deflationary experience of the 1930s on his mind.

Does his dovish bias explain what many would see as the Federal Reserve's initial mistake – keeping interest rates too low in 2001-2006, encouraging the housing bubble that initiated the crisis? Not really. While 'Maestro' Alan Greenspan chaired the Fed, his views dominated. He had faith that the market would sort things out. In any case the Federal Reserve could not identify bubbles beforehand and could clean up after the bubble burst. Bernanke did not differ.

Bernanke's chairmanship covers two connected but separable phases. First, the unravelling of financial stability as the knock-on effects of the bursting of the housing bubble spread. Then the aftermath, as the US (and most mature economies) struggled to recover.

The excitement starts in 2007, when the collapse of the housing bubble sets off a slow-motion chain reaction. The beginning was hardly noticed: Bear Stearns bailed-out two of its subsidiary funds in 2007, which put it on the path to failure in May the year after. One by one the pins tottered and some fell, culminating in the bankruptcy of Lehman Brothers in September 2008 and the rescue of AIG the following week. 

Beginning in 2007, the Fed and the Treasury were busy putting their fingers in the many leaking dykes. The Fed added liquidity (base money) to the financial sector, guaranteed the money-market funds, allowed investment banks such as Goldman Sachs to change their status so that they were protected by government guarantees, facilitated mergers of failing banks and saved Citibank with guarantees and capital injection. Critical to financial stability overseas, the Fed made US$600 billion of loans to foreign central banks to allow them to on-lend to dollar-short foreign commercial banks.

Ingenuity prevailed, with many late-night and weekend sessions cobbling together solutions.

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The result was a mish-mash of ad hocery, with consistency taking second place to force majeure. The Fed lends to some insolvent banks while others are taken over; Lehmans goes under but AIG is saved. If you want the minute-by-minute version of these dramtic events, read this book. You will sense the lack of preparedness and the unnoticed vulnerabilities that had evolved over the previous decade as profit-hungry financial firms pushed the risk frontier outwards. You will also hear Bernanke condemn the dysfunctional nature of the US political system.

The financial system had become inextricably interconnected and complex. The bursting of the housing bubble – not in itself catastrophic – triggered contagion, reaching to the whole globe. Each of these interconnections was fragile because everyone had borrowed up to the hilt. It was all held together by confidence that the sun would go on shining. When confidence was lost, depositors and lenders wanted their money back; risk perceptions swung from mindless optimism to deep pessimism overnight. The credit rating agencies, always assessing risk by looking in the rear-vision mirror, belatedly downgraded tottering institutions, ensuring they would topple.

Meanwhile, the US supervisory system was so compartmentalised that coordination was lacking. The huge risks on AIG's balance sheet were supervised by an obscure and understaffed regulator. Much of the shadow banking system was under the oversight of the corporate regulator. Deposit insurance was not in the hands of the Fed but a different agency with different priorities. 

Whenever the problem interfaced with the political system, ideology (in particular, free market non-interventionism) dominated. Congress was uncooperative, hobbling and delaying necessary action. The public was stunned and angry that the richly rewarded 'masters of the universe' in the financial sector turned out to be inadequate for the task. 

The second phase of the Bernanke period began in 2009, when the financial sector had regained some composure. The crisis had left a legacy of over-leveraged home borrowers and chastened banks, pushing the economy into recession followed by a feeble recovery. 

The shift of interest rates as the crisis unfolded was dramatic, with the policy rate taken almost to zero. Bernanke was ready to do more. In his 2002 speeches, he had recalled Milton Friedman's idea of 'helicopter money': the authorities could give the public extra money to spend, financed by the central bank. In fact Bernanke did not implement 'helicopter drops'. Instead, quantitative easing (QE) was deployed, which the Japanese had tried earlier in the decade to little effect. The Fed flooded the banking system with reserve money to encourage banks to lend and to push down the longer end of the yield curve.

A Friedmanite helicopter drop would have provided a powerful fiscal stimulus (similar to the Australian 'cash splash' in 2009). QE, however, is a much weaker instrument. Instead of directly providing the public with additional spending power, its aim is to lower the longer-term bond rate in the hope that this will encourage spending. It also provides a psychological message which weakens the exchange rate and pushes up equity prices, both helpful for a frail economy.

Whatever the effectiveness of QE, it is a poor substitute for adequate fiscal stimulus. This was made worse by Congress' threats to impose a debt limit on government spending. Bernanke was left to face a problem which monetary policy alone was not powerful enough to solve.

A reader might come away with the feeling that these serious deficiencies have been resolved. That would be too sanguine. Perhaps the new laws, higher capital requirements and rescue techniques pioneered in this period could do the job when needed. Macro-prudential measures are the new panacea, as yet untested. Much is made of the Fed's greater transparency, without much acknowledgment of its inability, so far, to give a clear message to financial markets, whose instinct was always to panic first and think later.

Bernanke and his colleagues can take credit for preventing an even more serious financial melt-down and recession, but the narrative of the crisis and its lackluster recovery needs a more critical vantage-point, more ready to contemplate the possibility that mistakes were made. More important still, the structure of the financial sector needs a more fundamental re-think, without pressures from Wall Street to get back to business as usual.


For decades, there has been a familiar refrain: Australia has an Asia problem. We don’t engage enough with Asia, or understand its languages or diverse cultures. From Ross Garnaut in the 1980s to the Australia in the Asian Century White Paper, the narrative has been that if only Australia could focus on Asia, all would be well. Indications are that this line will continue under Malcolm Turnbull’s prime ministership: he has urged Australians to seize the opportunities of economic change, and characterised trade with China as one of the most important foundations of Australia's prosperity. 

I don't doubt for a moment that Australia does have an Asia problem. Australia is at pitiful levels when it comes to the learning of foreign languages. Many Australians still see Asia merely as a place to fly over on the way to Europe.

However, I don't think  this is the only issue. I think potentially Asia, too, has a problem with Australia.

While Australia has a positive country brand, polling results suggest that often the countries that are most positively disposed towards Australia are those that are far away. There is potentially a big difference between Australia's positive self-image and the perception of Australia in some parts of Asia.

So how do Asians perceive Australia?

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First, Asians view Australia as rich and prosperous. This is backed by fact: every year since 2011, the UN Human Development Index has placed Australia second in the world after Norway. Australia is in its 24th year of uninterrupted growth. This economic performance gives Australia weight internationally: one of John Howard’s key insights was that national power in the end derives from economic success. As Prime Minister, Julia Gillard explicitly presented Australia's economic reform as an example to the G20. The only potential negative to this perception is if Australia’s economic success is seen as the result of dumb luck. Graeme Dobell has described how Donald Horne's The Lucky Country impacted on Asian leaders such as Lee Kuan Yew. Adapting Lee's words, Australians could be seen as 'rich white trash' whose shack happens to sit atop a mountain of iron ore.

Second, some Asians perceive Australia as racist. The legacy of the White Australian Policy and treatment of Indigenous people means that every time racial issues arise in Australia, it triggers a response in the region. There is a feeling that if you scratch beneath the surface, Australians are still racist. We might think this is unfair; that racism is not representative of a modern multicultural Australia. But the perception definitely exists in some quarters. Meg Gurry has shown it's definitely an issue in relations with India, for example.

Third, many Asians view Australia as subservient to other powers. The main issue here is Australia's alliance with the US, though having a foreign monarch as head of state probably doesn't help either. There is a sense that Australia likes great and powerful friends. In some countries, such as Indonesia, there can be a view that Australia is a local branch office of an entity called 'the West'.

Fourth, there can be a perception that Australia is selfish. We might respond that to some extent everyone is selfish in international affairs, but there are two areas in particular where Australia is being held to account. On aid, two recent rounds of cuts have been noticed and the argument that 'Australians are doing it tough' doesn't cut it among the poor of the region. Australia is well below the international target of 0.7% national income in foreign aid. On climate change, Pacific nations in particular have been pushing for a stronger response. At the Pacific Islands Forum last month, there was pressure on Australia to take more action or its membership would be reconsidered. Australia had the highest per capita greenhouse gas emissions in the world in 2012.

Fifth, some in Asia believe Australians don't understand relationships because we maintain a focus on the instrumental and transactional. Australians also have an egalitarian ethos which doesn't always sit well in Asia, where deference is sometimes more welcome. Former ambassador Rawdon Dalrymple has noted that Australia’s cultural and social values are among the most un-Asian on earth.

Finally, in some parts of Asia, there is the perception that Australia can be moralistic and hypocritical. Australia can be seen as willing to lecture others on their behaviour: for example whaling in Japan or, in Indonesia, the death penalty and live cattle exports. Australia uses its aid program to promote values such as democracy and rule of law; when Australia’s own record is not stainless, this can be viewed as hypocritical.

I am aware that this is an unflattering portrait: rich, racist, subservient, selfish, transactional and moralistic. And of course it is not a universal view. There are many Asians with positive views of Australia. There are also significant variations between countries: for example, Australia scores much higher on the 'cuddly koala' index in Japan than Indonesia. Some other parts of the Asia Pacific don't have much of a perception of Australia at all.

If, however, you accept that there may be some in Asia who hold some of these perceptions, the question becomes: what should be done about it? There is a range of options.

The first is to simply accept the situation. If some of Australia’s policies are not popular in Asia, that is not necessarily  sufficient reason for change. I recall Australian Institute of International Affairs' National President John McCarthy saying: 'If you only do what foreigners’ want, you are effectively outsourcing your foreign policy to other countries'. So, Australia might decide it is perfectly happy with existing policies and willing to live with the implications. For example, I’m unapologetic that Australia promotes good governance and human rights so long as it aspires to meet these standards in its own behaviour. I'm also unapologetic about economic success.

A second response is to view these perceptions as showing an image problem. This would suggest that Australia needs to explain itself better through more effective public diplomacy. For example, Australia can counter perceptions of racism by pointing to its demonstrably multicultural society, or deflect accusations of dumb luck by pointing to its innovative industries. However, public diplomacy can only go so far: you cannot convince overseas audiences of things that are not essentially true. And given the more than decade-long underinvestment in Australia’s diplomacy, there are real limits to Australia's capacity to promote positive views in Asia. So it is perhaps unrealistic to expect public diplomacy to be the only answer.

A third response might be for Australia to consider whether there is any truth to any of these perceptions and whether all its behaviour reflects its best self. Australia's actions are noticed in the region. The apology to Indigenous Australians was noticed and was an important part of the successful UN Security Council bid. A move for Australia to become a republic would be noticed. And many of Australia's middle-power initiatives attract attention, such as the recent work on the small arms trade.

Do Australians want their country to be seen as, in Robert Manne's words, 'the developed world’s most comfortable, complacent, privileged, self-absorbed and selfish nation'? If the answer is no, we should think not only about how to fix Australia’s Asia problem, but also Asia’s Australia problem.

This post is based on remarks delivered at the AsiaLink Leaders Program

Melissa Conley Tyler will be speaking next week at the Australian Institute of International Affairs' National Conference

Image courtesy Flickr user Tokyoform


With Russia's ongoing air strikes in Syria, including land-attack cruise missiles fired from Russian naval vessels in the Caspian Sea, Kyle Wilson has written a three-part series on Putin's strategy and motivations:

Putin has shown a gift for improvisation, especially as regards extracting advantage from setbacks. In 2004 he used the hideously botched attempt to rescue the hostages at School Number One in Beslan in the Caucasus (which left 385 dead, 186 of them children) to justify strengthening the presidency, gathering even more power into his hands. His response to that setback included another tactical hallmark: deflecting the blame for all difficulties onto foreign powers. Without naming the US, he implied it was somehow responsible for the massacre. A few years before, in 2000, his senior officials claimed the US was behind the sinking of the nuclear submarine Kursk, with a loss of 118 lives (two years later the official Russian report attributed the tragedy to 'shoddy, obsolete and poorly maintained equipment' on the vessel).

But self-disciplined and tactically adept as he may be, Putin is at times driven by his emotions, especially a visceral resentment over perceived personal slights and his intense dislike of the US and its current president.

In part 2, Kyle looked at how Russia sees the Anglosphere and Moscow's conception of power:

Australians, living in a bubble called the Anglosphere, are unaware of the toxicity of the treatment of the US in the Russian media, especially television, which is state-controlled and the main source of news and commentary for almost all Russians. A liberal Russian commentator recently noted the practice in some provincial cities of staging 'bash Obama days', in which citizens are encouraged to belabour cardboard cutouts of the US president. Racist jokes about Obama circulate in Russia. Most Russians would reject the charge of prejudice and point bitterly to what they see as stereotypes of Russians in the Anglophone media. It's true that much media commentary on Russia is poorly informed and superficial, but those media do not enact government directives (ask Tony Abbott or Kevin Rudd).

What is Putin's ultimate goal? The lifting of sanctions:

The sanctions are a key concern driving Putin's resort to the classic Soviet tactic of a peace offensive. This involves giving the Russian leadership a media make-over as newly minted moderates in a mood for compromise and willing to be flexible and reasonable. Propaganda outlets have reduced references to NATO and moderated the tone of their anti-American rhetoric. Ukraine has virtually disappeared from Russian television, to be replaced by Syria. Russia's ambassadors to the Nordics have presumably been told to watch their language.

At the same time, there are hints of a mini-thaw at home, signaled by the abrupt re-emergence in the Russian state-controlled media of Putin's docile prime minister, Dmitry Medvedev. After being almost invisible since 2012, he was recently shown pumping iron with Putin. Then came an article under his name setting out a program of economic reform, followed by reports of him chairing a committee on human rights. Medvedev has a reputation inside and outside Russia as a moderate, and his popping up again is a sign that Putin is, in Europe at least, momentarily on 

Rodger Shanahan defended President Obama's Syria strategy:

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Now the Russians' apparent decisiveness in deploying a modest strike force to its decades-old ally Syria has led people to claim Obama has been outmanoeuvred by Putin. But this same argument was leveled against Obama more than two years ago. It also ignores the fact that the Syria problem has always been more straightforward for Moscow than for Washington. For Russia there is simply the Assad regime and those opposed to the Assad regime. Moscow's only real question has been the degree and timing of its support to Assad.

With the US effectively taking responsibility for the air strike that killed 22 people in Afghanistan, Susanne Schmeidl said that infringement on medical neutrality in the country has been growing over the past few years:

What happened in Kunduz unfortunately highlights the infringement on medical neutrality that has been happening in Afghanistan over the last few years, and which MSF highlighted in 2014 in various workshops and in a published report. Clinics have been raided and medical staff questioned numerous times by both national and international military (though the behaviour of the latter improved with time). It is a dangerous deterioration in a war where desperation prevails and any means seem justifiable or excusable.

A recent series of explosions in Guangxi, China, last week received little to no international media attention. Alexandra Grey

Seventeen parcel bombs exploded in Guangxi Zhuang Autonomous Region last Wednesday, and there was a further explosion on Thursday. There were ten deaths, more than 50 casualties, and photos of a five storey building partly collapsed.

The story did make international news, but only just, and by the weekend it had faded, including from the homepage of China Daily Mandarin edition.

Shashank Joshi wrote an excellent piece that included some original research on the Malabar naval exercises between the US and India:

Looking at the broad arc of the Malabar exercises – the steady rise to 2007, and the slump thereafter – one sees a missed opportunity. At a time when US officials are proposing to institutionalise a multilateral format for Malabar (former US Deputy Assistant Secretary of Defense for South and Southeast Asia Vikram Singh: 'Malabar is very frustrating because...we wanted to have Japan, Australia all the time') and Australia is keen to resume participation, India seems content to let things tick over.

In a continuation of a mini-debate, Steve Grenville responded to a piece by Peter Briggs last week on Australia's future submarines:

The substantive difference between Peter Briggs and me relates to the impact of spending on submarines on the economy. It is standard practice for consultants-for-hire to make their lobbying case on the basis that spending on the target industry will boost the economy, not just by the amount of the actual expenditure, but by a multiple of this because of successive rounds of spending. This is akin to the familiar textbook multiplier process. You can go one step further (as the 'eloquent' testimony of Professor Goran Roos does) and double-count the contribution of sub-contractors. If you want to get a good reception where 'jobs and growth' are the paramount political concern, this is the way to go.

It is only in rare circumstances, however, that this makes any economic sense. 

Leon Berkelmans doesn't think the TPP is worth the risk:

First, it wouldn't be the first time we have been told that an agreement did not change our IP obligations, when it fact it did. The Department of Foreign Affairs and Trade said, before a Parliamentary Committee, that it was not aware of any changes necessitated by the Korean Free Trade Agreement, only to have to change its tune in a Question on Notice.

Second, even if our law can remain unchanged (and we await the text to see), the TPP further entrenches our intellectual property regime in international treaty. This gives us less scope to amend our own laws. As Professor Kimberly Weatherall of the University of Sydney has pointed out, this has been a problem in the past — policy supported by both sides of parliament has been rejected because it conflicted with the US-Australia FTA.

David Wells on the counter-terrorism implications of the shooting in Sydney's west on the weekend:

There is, and should be, zero tolerance of risk when it comes to the terrorist threat. One attack is one too many. But in our response to Friday's tragedy, we must be clear about why it occurred and whether it could have been prevented. And when answering the latter question, we should balance the chance of sporadic and small-scale attacks under the current framework with the risk that a reflexive, heavy-handed Government response could make us less safe.

Hillary Clinton tweeted that Xi Jinping was 'shameless' for giving a speech on gender equality at the UN while imprisoning female activists. Hannah Wurf and Marie-Alice McLean-Dreyfus on China's gender record:

To understand why China took such offence, it is worth looking at China's approach to gender equality. In China's eyes, Clinton has conflated gender equality with activism and law-breaking. China's actual record on gender equality is relatively good, while its human rights record remains problematic.

Female employment in China was 45% of the total population in 2013 and women contribute 41% to China's GDP. China also has the highest female labour participation in G20 countries. In China, it seems, women really do hold up half the sky.

Aaron Connelly wrote on the TPP and his recently published paper, Congress and Asia-Pacific Policy: Dysfunction and Neglect:

The problem is thus one of multiple audiences. The same global information environment which the Obama Administration hopes to take advantage of through the TPP also makes it more challenging to sell to Congress without agitating the very region in question. Moreover, during my research on Congressional attitudes toward Asia Pacific policy over the last year for my recent Lowy analysis on the subject, I found that the Administration's attempts to capture the attention of Congress by using China as a foil had limited reach among Republicans and almost none among Democrats.

The Administration would thus be well advised to revert to its earlier language on the TPP, which stressed the way it could draw other countries to adopt higher standards. The TPP is not about containment; the Administration should take care not to speak about it as though it is.


More China brilliance from Stephen Colbert:

Hey, it's just my opinion, but Colbert is a flat-out comedy genius. The new show is already excellent (here's a highlight), though surprisingly cerebral and political, given that he's on a big network in a key time-slot. If The Late Show with Stephen Colbert can attract ratings and stay on the air, it is sure to be indispensable during the presidential election year.

You can see most of each episode of The Late Show on its YouTube channel.


Here are part 1 and part 2 of this three-part series, in which Kyle Wilson explains the personal, domestic and international motivations behind Putin's Syria strategy. 

So what does Putin want? His recent speech to the UN General Assembly listed all his main desiderata, from the macro to the micro. He wants a new system of security for Europe modeled on the Yalta Agreement of 1945; a Yalta II. Yalta I was of course the agreement that codified Stalin's control of Eastern Europe, with nasty consequences for many of its inhabitants. Putin has also spoken of a 'greater Europe' from 'Lisbon to Vladivostok' and perhaps involving a German-led EU. Moscow sees Berlin as Europe's natural leader, one that is relatively compliant, and where Moscow can hope to recruit high-level supporters like former Chancellor Gerhard Schroeder. Then there is Putin's 'Eurasian Union', led by Russia.

This goal clearly implies another: to get the US out of Europe, where, for Putin, it has no place.

Putin told a former Secretary General of NATO that he wants to see the alliance abolished. Given his claim that Russia represents a threat to no-one other than terrorists and that the Warsaw Pact was disbanded voluntarily (in fact it was not a voluntary pact and it collapsed), for him NATO has no right to exist. This ignores the fact that the reason for NATO was not the Warsaw Pact but Russia itself; and that some of Russia's neighbours are not convinced by Moscow's argument that history is a poor guide to its behaviour and that they would still be safe even without NATO. It is Russia's task to persuade them. But the Russian ambassador to Stockholm's threat that Sweden would be targeted by Russian missiles if it joined NATO suggests that oderint dum metuant remains the motto of the Russian Foreign Ministry ('let them hate me so that they will but fear me').

In the meantime, Putin asserts he wants a 'normalisation of Euro-Atlantic relations'. That is Kremlin-speak for recognition that Crimea is part of Russia. It also means a guarantee that Ukraine will be 'neutral' and adopt a federal structure that would give its eastern provinces a special status. The irony is that this would look like a genuine federation, unlike Russia where all real power resides in the presidential office and administration. This arrangement would cement Ukraine's partition into two entities, one of them in effect a Russian protectorate, like Abkhazia and South Ossetia. Putin's conditions would doubtless include relegating to history the downing of MH17, with no legal proceedings against those responsible.

Most of all, he wants economic sanctions lifted.

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The sanctions are a key concern driving Putin's resort to the classic Soviet tactic of a peace offensive. This involves giving the Russian leadership a media make-over as newly minted moderates in a mood for compromise and willing to be flexible and reasonable. Propaganda outlets have reduced references to NATO and moderated the tone of their anti-American rhetoric. Ukraine has virtually disappeared from Russian television, to be replaced by Syria. Russia's ambassadors to the Nordics have presumably been told to watch their language.

At the same time, there are hints of a mini-thaw at home, signaled by the abrupt re-emergence in the Russian state-controlled media of Putin's docile prime minister, Dmitry Medvedev. After being almost invisible since 2012, he was recently shown pumping iron with Putin. Then came an article under his name setting out a program of economic reform, followed by reports of him chairing a committee on human rights. Medvedev has a reputation inside and outside Russia as a moderate, and his popping up again is a sign that Putin is, in Europe at least, momentarily on the peace path.

This then is the wider context in which Putin's Syrian gambit should be viewed. He is offering a deal: accept my conditions for a 'normalisation of Euro-Atlantic relations' and I will help you to extricate yourselves from the Middle Eastern quagmire you have created, thereby helping the EU to stem the tide of refugees that threatens to overwhelm it. His Syrian expedition is far more than a Xiang Zhuang sabre dance but it is usefully diverting attention from Crimea and Ukraine. And he is demonstrating yet again to his people that their resolute warrior chieftain is baffling their foes.

This all amounts to an impressive strategy. But it is fraught with risks.  A large one is that, at some stage in the course of Putin's Syria campaign, the three states with the capacity to cause Russia real difficulty if incited into active hostility may be provoked into doing so: Sunni Saudi Arabia, anti-Iranian Israel, and Sunni Turkey (whose Assad-hating leader Erdogan is already fingering the hilt of his scimitar over Russia’s ill treatment of the Crimean Tatars).

Second, most of Russia's own Muslims are Sunni. They account for 16-18% of Russia’s population and that proportion is rising fast. Putin's tactics to deal with his Muslim problem – giving autonomy to the Volga Tatars and to the Chechens in return for fealty; placing Russia's other Caucasus territories under what is in effect martial law; building Europe's biggest mosque in Moscow and maintaining a stable of well-paid loyal muftis – have not solved it. This latest gamble risks making it worse, not just by inciting the hostility of global jihadists but internal opponents too.

But the greatest immediate risk is  of a direct encounter between Russian and US aircraft — that is, a great-power military confrontation. US and Russian military planners will both be acutely aware of that contingency and it is to be hoped, though not assumed, that they will do all they can to avoid it.

But Putin appears bent on helping Assad and his Shia allies Iran, Iraq and Hezbollah, as well as some Syrian Kurds, to crush the Sunnis in Syria. And this arms-length confrontation comes at a time when US-Russia relations are as bad as at any time in the Cold War. In fact, in one important way they are worse: there is enmity and no trust whatsoever on either side. In the Cold War, the Russians had the likes of Ambassador Anatoly Dobrynin and Brezhnev's advisor on the US, Georgi Arbatov, both of whom were trusted by the Americans, just as US arms control chief Paul Nitze was trusted by the Russians. These back channels led to formalised modes of communication such as the so-called Hot Line.

Khrushchev is reliably reported to have wept when he heard of the assassination of John Kennedy, while Gorbachev and Reagan grew to respect each other. Nothing of that sort is visible today.

Photo by Flickr user Lazopoulos George.


The view from Jakarta

The Indonesian National Armed Forces celebrated 70 years on Monday amid concerns about its recent encroachment into civilian affairs. Meanwhile, authorities mulled imposing a midnight curfew on entertainment venues in the capital, and researchers debated the impact of a Giant Sea Wall planned to keep Jakarta from sinking.

In an address marking the 70th anniversary of Indonesia's armed forces (TNI) on Monday, President Jokowi urged a return to the military's roots as a 'people's army' and promoted increased engagement with civilians. He endorsed TNI's vision for a stronger military working closely with the people. For critical observers, Jokowi's rhetoric is ringing alarm bells. A report by the Institute for Policy Analysis of Conflict (IPC) earlier in the year warned of stagnation in military reform under Jokowi, and a potential return to the entrenched social and political role for the TNI seen under Suharto's New Order.

Among other things, the change has been signaled by an increasing number of Memoranda of Understanding signed by the TNI and private partners, raising questions about accountability as well as civil and political freedoms. The Commission for Missing Persons and Victims of Violence (KontraS) has called the MoU situation a 'time bomb', while human rights monitor Imparsial says it is against state law.

But Jokowi has remained quiet on the issue, having found TNI to be a rare political ally. His supportive speech for the anniversary this week stands in contrast to a much sterner speech given at the 69th anniversary of the police force in July, when he demanded a clean-up of corruption in the force. Another anniversary last week, marking 50 years since the start of the mass killings of 1965, passed without Jokowi mentioning TNI. This is despite the military's alleged role in the atrocities, as found in an investigation by the National Commission on Human Rights (Komnas HAM). In fact, the President marked the anniversary at a military monument in East Jakarta.

Elsewhere in Jakarta, the so-called 'war on drugs' continues. Members of the Jakarta City Council this week blamed nightclubs for supporting drug trafficking in the capital and demanded enforcement of a midnight curfew or for nightclubs to be banned altogether.

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The approved operating hours for nightclubs are currently from 7pm to 2am, though many stay open much later. One nightclub notorious for drug trafficking, and for remaining open at all hours, was Stadium, a nightlife institution that was shut down by the city government last year. But Jakarta Governor Basuki 'Ahok' Tjahaja Purnama has rejected the Council's plan to shorten hours or shut all clubs as a blanket solution to drug trafficking. The city's Tourism and Culture Agency chief, Purba Hutapea, agreed with the Governor, saying that nightclubs and their operating hours are not the problem and suggesting that a more effective solution would be to combat drugs in cooperation with the National Police and National Narcotics Agency. The proposed bylaw is the latest conservative push to restrict nightlife, after restrictions on the sale of alcohol were set in place earlier this year. A bill for nationwide alcohol prohibition is still under discussion. 

A more pressing matter for Jakarta as the rainy season approaches is the task of staying above water. Groundwater extraction, heavy construction and erosion (compounded by extreme weather) are causing some parts of the city to sink at a rate of up to 28cm a year. Other parts of the city are prone to flooding due to poor drainage and pollution of the waterways.

One solution being pursued is the construction of a Giant Sea Wall stretching 32km just north of Jakarta's bay. The wall has also been proposed as a site for urban development, with plans for an airport and residential and industrial areas on the 4000 hectares of space to be created. Researchers from the Maritime Affairs and Fisheries Ministry this week raised concerns that the proposed development would spell environmental disaster for Jakarta's already heavily polluted bay, affecting the remaining fish and coral. However, a hydrologist from a Dutch water research institute responded that the environmental risk was worth the effort to preserve the homes and livelihoods of millions of Jakarta's citizens.

Photo by Flickr user EastAsiaPacificBlog.


Is the TPP an effort to contain China? If you've been reading the papers or glancing at social media recently, you could be forgiven for thinking so. The New York Times didn't quite use the word containment, but argued that the agreement was a 'win for the United States in its contest with China.'

There is a strategic dimension to the American push to conclude the TPP, but it's not about containing China. Rather, the TPP is part of the Obama Administration's broader Rebalance strategy to update and reinforce the liberal international order in the Asia Pacific. 

On the political side of things, this means the peaceful resolution of disputes, ensuring freedom of navigation, and the freedom to access information. On the economic side, it means, inter alia, updating the trading rules to reflect technological advances that have increased the value of information relative to resources in global trade. These changes have required negotiators to go beyond tariffs and address behind-the-border rules that affect trade.

Those pushing a containment narrative note that the pact excludes China, but ignore the fact that American officials have repeatedly said that they are open to China's eventual accession to the agreement. The President himself made this point last December:

And by the way, there's been some suggestion that by doing TPP we're trying to contain or disadvantage China. We're actually not. What we are trying to do is make sure that rather than a race to the bottom in the region there's a reasonable bar within which we can operate. And we hope that then China actually joins us in not necessarily formally being a member of TPP but in adopting some of the best practices that ensure fairness in operations.

That said, negotiators have had to be realistic, recognising that it would have been very difficult for China to sign up to these standards at the start. Better, then, to create the partnership now with governments that are ready to go, demonstrate the agreement's value, and entice other countries, including China, to sign on to the agreement or adopt some of the standards it sets as their own.

Such hopes are not unreasonable.

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There has been persistent speculation that Chinese leaders could use TPP accession to apply external pressure in order to achieve economic reforms that domestic political interests have thus far prevented. Chinese Premier Zhu Rhongji did the same with WTO accession in the late 1990s (and as in that case, China might negotiate slightly different terms in recognition of the size of its economy and how far it would have to come to meet the new standards). Chinese accession would raise environmental and labour standards in China, and would be the best possible result for all concerned, including the US.

So why have institutions like the New York Times and the powerful American trade union federation, the AFL-CIO, bought into the containment narrative? The Obama Administration is at least partly to blame. Since early this year, the Administration has increasingly used the fear of a Chinese-dominated economic and security order as a foil to capture the attention of its domestic political audience, particularly Congress.

In his State of the Union address to Congress in January, President Obama said:

China wants to write the rules for the world's fastest-growing region. That would put our workers and our businesses at a disadvantage. Why would we let that happen? We should write those rules. We should level the playing field.

It's not exactly the stuff of containment — the focus is still on rules — but it does suggest a competition. Administration officials compounded the problem when, in an otherwise strong speech in Arizona in April, Defense Secretary Ash Carter claimed that 'in terms of our Rebalance in the broadest sense, passing TPP is as important to me as another aircraft carrier.'

Carter's comments were problematic because while much of what the US seeks to achieve through the Rebalance is unrelated to China, the US is also engaged in an effort to deter China from taking assertive actions that undermine the liberal order in the region. That effort, too, has occasionally been mischaracterised as an attempt to contain China, so mentioning aircraft carriers and the TPP in the same sentence was probably unwise.

Such rhetoric may not play well in China or even Australia, but the Administration seemed to believe it would be effective on Capitol Hill. While members of Congress have been slow to recognise the impact of a stronger commercial relationship with East Asia for American interests, they instinctively understand the impact of an aircraft carrier. While they may not realise that trade with the broader region exceeds American trade with China, fear of Chinese economic power is a common theme in American elections. And at this stage, with Congressional approval of the deal very much an open question, the Administration has sought to put the deal in terms members of Congress can understand.

The problem is thus one of multiple audiences. The same global information environment which the Obama Administration hopes to take advantage of through the TPP also makes it more challenging to sell to Congress without agitating the very region in question. Moreover, during my research on Congressional attitudes toward Asia Pacific policy over the last year for my recent Lowy analysis on the subject, I found that the Administration's attempts to capture the attention of Congress by using China as a foil had limited reach among Republicans and almost none among Democrats.

The Administration would thus be well advised to revert to its earlier language on the TPP, which stressed the way it could draw other countries to adopt higher standards. The TPP is not about containment; the Administration should take care not to speak about it as though it is.


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.

  • The number one chat app in South Korea — KakaoTalk — has reluctantly agreed to comply with the government's requests for access to online conversations. 
  • How does the Chinese Communist Party view the concept of 'internet sovereignty'?
  • A 23% increase in targeted cyber attacks on Indian organisations has prompted a warning India is becoming a strategic target for cyber crooks as the country continues to embark on ambitious technology projects.
  • Meet the man (@umarsaifpropelling Pakistan into the digital age.
  • Chinese internet giant Tencent is about to launch a consumer credit rating service based on an individual's social media networks (and it's not alone).
  • Those following next month's election in Myanmar will want to check out these new mobile apps.
  • Beyond selfie sticks and emojis, Asia's smartphone addiction is on the rise and addicts are getting younger.
  • Buzz is building around South Korean social networking mobile app Band. The app, which offers private chatting services to users, recently hit 50 million downloads and is proving popular in Taiwan, Japan and India.
  • The illicit kidney trade in South Asia has exploded as brokers use social media to find donors.
  • A 13 October hackathon is being held in Singapore to develop solutions, tools, widgets or apps that will enhance media reporting and citizens' responses to air pollution.
  • Beijing's Public Security Bureau has announced the city is now 100% covered by CCTV cameras. To prove it, the bureau even released this map which geo-locates every surveillance camera in the city:  


US-India relations are in good shape. The personal relationship between Modi and Obama appears excellent, there are big, ambitious ideas in the pipeline – like US assistance to Indian carrier development – and the strategic dialogue is getting deeper in several ways.

But things are falling short in some ways. Next week, the US and Indian navies will meet in the Bay of Bengal for the Malabar exercise, a series that began 23 years ago and represents a powerful signal of convergence in the Indo-Pacific. Japan will join them, just weeks after a ministerial trilateral between the three countries included pointed reference to the South China Sea and regional stability. Malabar is not India’s only joint naval exercise, of course. The biennial Milan series brings together over a dozen small and middle powers, and smaller exercises – including the first ever Australia-India bilateral – are routine. The Indian Navy visited 40 countries in the past year, including Iran, Israel, and Saudi Arabia within two weeks of one another.

But Malabar is uniquely important: the US remains the most important naval power in the Indo-Pacific, and military-to-military cooperation has buttressed and driven broader strategic cooperation. A strong working relationship with the US Navy will give India more options in addressing (among other challenges) what is becoming a more persistent and intrusive Chinese presence in the Indian Ocean without tying New Delhi's hands in any way.

Yet if we take a broader perspective, we see that Malabar has lost some of the momentum it built up in the mid-2000s. I've compiled data from a variety of sources showing the rise and fall in the overall size of the exercise. The first chart below shows the number of ships and submarines by country while the second shows aircraft carriers.

The rise

The exercises have their origins in the early 1990s when, with the Cold War over, the US and India began to feel one another out tentatively. In 1991, Commander US Army Pacific, Lt General Claude Kicklighter, visited New Delhi. The relationship developed quickly. As Sunanda Datta-Ray wrote in the New York Times at the time, 'what seemed like a mild flirtation..may have blossomed into a full-fledged affair'. Army, navy, and air force 'steering groups' were established in 1992.

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That same year, the US and Indian navies held exercises off the coast of Goa, on India's west coast. This was a modest affair. Two Indian ships, a destroyer and a frigate, each about half the displacement of one of India's modern Kolkata-class destroyers, practiced basic communications and manoeuvres with two American equivalents. Exercise Malabar, as it became known, was repeated twice more in the 1990s as the US-India relationship thawed further, despite tensions over issues like Indian missile testing. Although both sides avoided too much publicity, wary of Indian public opinion, by 1996 total ships participating in the exercise grew to six and the US even gave the Indians an opportunity to familiarise themselves with the P-3C maritime reconnaissance aircraft – to the chagrin of Pakistan, which took delivery of its own copies later that year, and then employed them during the Kargil War.

The peak

India's nuclear tests in 1998 cast a pall over this burgeoning defence engagement, and Malabar didn't resume until 2002. But in 2003, India brought a submarine for the first time, though not, as the US had hoped, the Kilo-class (also operated by Iran). In 2005, the year of major breakthroughs in the US-India relationship, each side bought carriers for the first time, and the exercises became more advanced, as former Indian naval officer Gurpreet Khurana sets out in an excellent paper

The real breakthrough, however, came in 2007, when Malabar was effectively held twice and – to China's great irritation – multilateralised, with the first part held off Okinawa with the participation of four Japanese ships (technically part of a separate exercise, but in practice enmeshed with the US-India effort), and the second part in the Bay of Bengal.

This latter phase included Japanese, Australian and Singaporean contributions, three carriers, US and Indian strike aircraft, and 26 ships in all, more than double those of any exercises in previous or subsequent years. This was part of a much broader deepening in the military-to-military relationship. 'More than half the military exercises the Indian Army has conducted since the US-led invasions of Iraq and Afghanistan,' noted one Indian publication in 2007, 'have been with the US Army'. A slew of major air force exercises had also taken place by then.

But 2007 also proved to be Malabar's high point, with the exercises dropping precipitously in size thereafter. 

In large part this was due to Indian concerns for Chinese sensitivities and a backlash by leftist parties in India. A 2009 cable from the US Embassy in New Delhi suggested that Defence Minister AK Antony had overruled the Indian Navy's preference for multilateral exercises. But the shift was also related to political changes in Tokyo and Canberra. 'After we stuck our neck out the Australians broke the contract', an Indian official is quoted as saying in Jeff Smith's book, Cold Peace. In February 2008, Australia announced it would be pulling out of the so-called Quadrilateral Security Dialogue (involving India, the US, and Japan), causing some concern about the direction of its foreign policy. 

The fall

Although US and Indian ships returned to the western Pacific in 2011, Japan was recovering from a devastating tsunami the previous month and so did not take part. It would not do so again until last year, when it sent just two ships, half the number that had participated seven years previously. Although the exercises have remained in many respects advanced, they have stagnated in size and scope.

In the eight years since 2007, India has not sent a single carrier, despite the US doing so four times. In the five exercises between 2002 and 2006, Malabar included an average total of eight ships; in the seven years between 2008 and 2014, it was just over nine – hardly a quantum leap, considering that US-India defence trade has been soaring. The average Indian contribution over those same periods actually fell. In 2013, the number of ships at Malabar fell to a paltry three – the lowest ever total, smaller even than the very first exercise over two decades earlier, when the US and India were basically estranged nations. And last year, Indian participation was even smaller than in 1996. The only good news was that Japan was allowed back in after a four-year absence, despite reported opposition from India's defence ministry.

These numbers only tell part of the story – the nature of ships and the sophistication of the exercises are more important – but they suggest a loss of momentum.

The future

There were hopes that all this might change. In September 2014, when Prime Minister Narendra Modi visited Washington, the joint statement noted that the two countries had 'agreed to upgrade their existing bilateral exercise Malabar', a promise reiterated during President Obama's visit to New Delhi in January 2015. This suggested that the Modi Government, clearly more positive about the US-India relationship as a whole and more comfortable with its military aspects than some of its predecessors, would be committed to restoring the exercises to their former strength. This hasn't quite happened.

The Indian Express' Sushant Singh reports that India had planned on sending the same number of ships to Malabar 2015 (three) as it did the previous year, prompting the US to complain, rightly, that India was 'trying to do the bare minimum'. India added a single vessel in response, hardly dispelling these concerns. Nor could India meet the US request to send a carrier because INS Vikramaditya is in maintenance and INS Viraat is on the cusp of being turned into a museum. Japan, too, is sending just one ship, its lowest-ever contribution.

On the plus side, as Singh notes, both the US and India will bring their long-range P-8 maritime surveillance aircraft (India bought eight in 2009, and plans to buy four more) which will bring a valuable new dimension to the exercise for all three countries, with the US increasingly rotating P-8s to the Seventh Fleet in Japan. But the P-8 is also a reminder of some of the remaining obstacles to US-India engagement. As Iskander Rehman explained last year, New Delhi's refusal to sign so-called 'foundational' agreements with Washington – including the Communications Interoperability and Security Memorandum of Agreement (CISMOA) and the Basic Exchange and Cooperation Agreement for Geospatial Cooperation (BECA) – means that the US stripped the P-8s of secure communications and navigation equipment, forcing India to rely on an inferior indigenous system and limiting inter-operability. These agreements are being debated in India and are regularly pushed by US officials, but there's no indication that India is about to take the plunge. 

Looking at the broad arc of the Malabar exercises – the steady rise to 2007, and the slump thereafter – one sees a missed opportunity. At a time when US officials are proposing to institutionalise a multilateral format for Malabar (former US Deputy Assistant Secretary of Defense for South and Southeast Asia Vikram Singh: 'Malabar is very frustrating because...we wanted to have Japan, Australia all the time') and Australia is keen to resume participation, India seems content to let things tick over.

Yet it would be a powerful boost for Modi's Act East policy if his Government were to take a series of bold steps: bring Canberra back into the fold, commit to sending INS Vikramaditya for next year's Malabar, raise the Indian contribution to at least five vessels and look seriously at a return to the Western Pacific within the next two years – all of which could be tempered by inviting China as an observer (to which the US has had no objection). This would be an excellent way to build on the ambitious language of September's inaugural US-India-Japan Trilateral Ministerial Dialogue.