Lowy Institute

In December, I gave a presentation to the Australian Naval Institute on naval diplomacy and defence engagement in the Asia-Pacific, with an eye on the upcoming Defence White Paper (DWP).

Solomon Islands Police Maritime Unit personnel on Australian supplied Pacific Patrol Boat (Photo: Aust Defence Image Library)

All too often, we take the 'Pacific' half of the Asia- and Indo-Pacific formulations as shorthand for East Asia, leaving out Melanesia and Polynesia in spite of their importance to Australia and New Zealand's security. Perhaps this is because we think that Pacific Island Countries (PICs), though prone to instability and crises locally, are insulated from the strategic rivalries that buffet the wider region.

If there is still some elemental truth to this, the arrival of a major Russian arms shipment in Fiji, with a military training mission to follow, should be a sufficiently shocking event to jolt complacent assumptions about the residual sway that Canberra and Wellington have in their maritime 'backyard'.

As outlined in the excellent post by Anna Powles and Jose Sousa, 'Russia ships arms to Fiji: What will be the quid pro quo?', the Russia-Fiji military deal is meant to be limited to Fiji's UN peacekeeping role. There are no tangible indications yet that a Russian or Chinese strategic presence in the South Pacific is on the horizon. It may never come to that, and we need to remember that the Russian deal was initiated by Fiji. Nonetheless, Russia's move back into a region that it has neglected since the Cold War is worrying on several counts and lays bare the diminishing limits to the influence of Canberra and Wellington, not just in Fiji, but across the South Pacific.

It is in this context that Canberra needs to re-evaluate its defence engagement in the region, not simply as a capacity-building adjunct to development assistance, but in support of strategic Australia's interests. The Pacific Maritime Security Program, incorporating the Pacific Patrol Boat (PPB) initiative, is the most important engagement instrument of all, currently operating across 12 countries: Papua New Guinea (PNG), Fiji, Tonga, Solomon Islands, Tuvalu, Kiribati, Samoa, Vanuatu, Micronesia, Palau, Marshall Islands and the Cook Islands. Prospects for Timor Leste joining the program are delicately poised. Right now this appears to be hostage to bilateral frictions in a further reflection of Canberra's wavering influence in the neighbourhood.

Apart from PNG, the common denominator for PPB participants is a tiny population and landmass relative to their vast exclusive economic zones (EEZ). While some need assistance more than others, none have much more than a rudimentary offshore patrol capability. The existing boats are not always properly utilised, as noted by Karl Claxton, but without a replacement capability, PICs will be less able to safeguard the marine resources that hold the key to their economic sustainability as independent states.

The existing PPB hulls, supplied from the late 1980s onwards, were given a mid-life refit during 1997-2003, but are now approaching the end of their service.

The objective of the replacement program is for 21 boats, built in Australia, to start replacing the current fleet from 2018. A request for tender, issued in March 2015, called for larger and more capable patrol boats, with a range of 2500 nautical miles, capable of going to sea for 20 days. This has led to a shortlist of two Australian-based bidders: one in Cairns, the other in Western Australia.

With an initial $600 million capital outlay, it is estimated that the PPB replacement will cost $1.4 billion to sustain through a 30-year lifetime. Granted, that is not small change. But, put in perspective, it is less than the unit cost of one Canberra-class Landing Helicopter Dock.

As a return on this investment, Australia stands to receive a number of direct and indirect benefits accruing from the original PPB program:

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  • Influence and access. Once transferred, the patrol boats become sovereign assets of the PICs. However, the presence of 24 Australian and 2 New Zealand naval staff provide ongoing access in the recipient countries at operational and, potentially, political levels.
  • Maritime security assistance from Canberra makes recipients less beholden to external capacity building offers that are inimical to Australia's interests. It also puts Australia and New Zealand in a stronger position to cooperate with China and Russia in the South Pacific, as well as like-minded partners like Japan and South Korea.
  • Improved maritime security capacity in the South Pacific can assist in conflict prevention, including in potential flashpoints such as Bougainville, where PNG and Solomon Islands currently lack the capacity to patrol their maritime border.
  • Increased patrolling within PIC EEZs will help to disrupt the ruinous losses from illegal, unreported and unregulated fishing. Giving small island states the wherewithal to protect their living and non-living marine resources is essential to weening them off aid. Smuggling is also a major drain on government revenue.
  • The PPB effectively and cheaply extends the range of Australia and New Zealand's maritime surveillance by hundreds, if not thousands, of miles. This has important advantages not only for defence, but for law-enforcement and border protection.
  • It also adds significantly to the reach of search and rescue, reducing the burden on Australia and New Zealand to respond to maritime and humanitarian emergencies in the South Pacific.

When the DWP is eventually released, I doubt the immediate focus will be on the South Pacific. Once the dust has settled, however, I hope that the Pacific Patrol Boat replacement will feature as a funded priority for Australia's defence engagement. Otherwise, someone else might soon be eating lunch in the backyard.


For the past three years, every political pundit in Malaysia has been asked a simple question: when will Najib be replaced?

A year ago Mahathir Mohammad, Malaysia’s fourth and longest-serving prime minister, in power from 1981 to 2003, was gung-ho about his ability to get rid of Najib. After all, it is on the public record that Mahathir was largely responsible for the political demise of Malaysia’s first and fifth prime ministers, Tunku Abdul Rahman and Abdullah Badawi. There was no reason to think that he could not secure the trifecta, so to speak.

Yet today, the general consensus in the ruling United Malays National Organisation (UMNO) is that Najib is quite secure despite the scandal surrounding the USD$700 million ‘political donation’ from Saudi Arabia and other shenanigans related to 1MDB, a company with quasi-status as a sovereign wealth fund and that's under investigation by Singapore, US and Swiss authorities. Mahathir and his gang are lying low, and Mahathir’s son, the chief minister of Kedah state, is under siege from Najib.

According to The Wall Street Journal, The Financial Times, The Economist and the like, Najib is 'disastrous’ for Malaysia. The Western media cannot comprehend how Najib can stay in power when it is ‘clear’ that ‘corruption’ has taken place, with huge and unexplained sums of money ending up in Najib’s personal bank account in Malaysia. The story is even more compelling when you take into account the dramatic sacking of the deputy prime minister, another senior minister from Sabah, and the attorney-general. The first two were known to be critics of Najib’s role in 1MDB. The attorney-general was replaced when he tried to charge Najib for corruption. 

The first thing the new deputy prime minister did was to pledge his loyalty to Najib and the new attorney-general has cleared Najib of any legal wrong doing in the ‘political donation’ case. It appears it is not illegal in Malaysia to receive millions of dollars in political donations from a foreign power. Najib has said he did not benefit personally, but used some of the money from the royal family in Saudi Arabia to campaign in the 2013 Malaysian general election and returned the rest.

What many foreigners and analysts fail to appreciate is the enormous power concentrated in the hands of the prime minister.

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In theory, the PM rules through a coalition government. In practice, he exercise his powers like a feudal king. He holds what are, arguably, the three most powerful offices in Malaysia; in addition to prime minister he is also finance minister and chairman of the National Security Council (NSC). He controls tenders and contracts worth billions of dollars and, through the NSC, can shut the country down by declaring an emergency. On top of government contracts, he can appoint anyone he likes to thousands of board positions in government-linked companies (GLCs). It is generally accepted these GLCs occupy the commanding heights of the Malaysian economy. Many of these board positions come with generous perks and allowances paid for very little work, other than attending board meetings.

The truth is the only people who can get rid of Najib are the UMNO ‘warlords’, the UMNO divisional chiefs, members of UMNO Supreme Council (UMNO MT), and elected representatives. There are less than 200 people in this group and most of them back Najib. They are aware of Najib’s shenanigans but there is nothing Najib has done that Mahathir, his predecessor had not done. In fact, an authoritative study of Mahathir’s financial misadventures suggests that Mahathir lost more than USD$40 billion during his reign. So what if the Swiss investigating 1MDB say USD$4 billion has been misappropriated? That's merely 10% of what Mahathir lost!

Many of the warlords support Najib for practical reasons. They are on the Najib gravy train of contracts and well-paid positions on GLCs. There are, however, three scenarios that could cause the warlords to rock the boat. These would be if:

  1. It seems likely Najib will lose the next general election (due in 2018).
  2. The Malaysian economy dives.
  3. There is an arrest warrant issued for Najib.

From my vantage point in Kuala Lumpur, the second of these is the most probable. 

Najib is unlikely to lose the next general elections as long as he can keep the East Malaysian states of Sabah and Sarawak on his side. Sarawak is due to hold a state election in April and I predict a massive victory for Najib’s Barisan National coalition. Without Sabah and Sarawak, the Barisan National government would have lost power in the 2008 general elections. In the 2013 vote it was again the East Malaysians who delivered the winning majority to BN. At present there are no indications that East Malaysia will abandon Najib or the BN, not yet anyway.

The third scenario is unlikely given international investigations are highly complex and subject to multiple jurisdictions with multiple interpretations of what is and isn’t a crime. As long as he is PM, Malaysia will refuse to cooperate with any investigations implicating Najib, thus delaying the entire process, at least until the next general election in 2018.

There is a 50/50 chance a slumping economy will end Najib’s reign. A good indicator of a country’s economy is its exchange rate. Since the middle of last year, the Malaysian ringgit has fallen by about 24% against the US dollar that dominates international trade. Malaysian businessmen are having a hard time trying to import goods and services. The drop in the price of oil has forced Najib to revise his budget and Petronas, the biggest single contributor to the Malaysian treasury, has announced it will slash USD$11.41 billion in capital and operating expenses over the next four years. If the ringgit hits RM5 to 1USD, or seems well on the way there, I predict a palace coup against Najib. Not only would the UMNO warlords politically knife Najib, Malaysian business tycoons, always an influential bloc, would join in.

Foreigners, international media and those Malaysians waiting for ‘good governance issues’ to get Najib out are living in fairy land. Like most states in the region, ultimately in Malaysia you can’t beat bread and butter politics; most Malaysians are focused on the economy and the cost of living. They don’t spend too much time worrying about corruption.

Photo: Jasper Juinen/Getty Images


By Alastair Davis, an intern in the Lowy Institute's Melanesia Program.


Luang Namtha in northern Laos is a sleepy wildlife reserve, popular with backpackers. In future it may become a vital geopolitical pivot point. Here the northern corridor to the Chinese metropolis of Kunming intersects with routes east into Myanmar, west into Vietnam, and south through Laos to Thailand, Malaysia and Singapore. It's been 15 years since I visited, but back then the main economic activity (besides tourism) appeared to be gathering rice and bundles of firewood. When Chinese bullet-trains roar over their paddies at 300km/h, the locals will be amazed. Their government in Vientiane has just committed to the first stage of the Kunming-Singapore line's construction.

The $6 billion Kunming-Vientiane section is part of China's Pan-Asia plan, three lines fanning from Kunming across southeast Asia and converging in Singapore 3900km to the south. The Laos section is on the initial central route. With the western and eastern legs, the South China Sea and Bay of Bengal will be the shores of this great network.

Beijing sees such projects as a 'soft power export' and has plans for many more worldwide. Japan too is competing for China's backyard. So determined are these rivals that economic considerations are subordinated to prestige and influence. There is a whiff of cheque-book diplomacy in the air. The decision of Vientiane to buy Chinese was never in doubt. Still, they negotiated low 3% interest rates , though the mortgaging of five potash mines to Chinese lenders has stoked grumbles over transparency.

The bidding in Indonesia and Thailand has been much livelier.

Bangkok, its junta also strongly pro-Beijing, wants to be a 'hub' in China's 'great artery', and it plans a spur to Burma along the infamous Death Railway route. Japan has a longstanding Thai presence and bid tenaciously until the very end. While now signed with Beijing , the $10 billion deal reportedly 'did not go smoothly' because 'given China's affluence, the (Thai) government has asked China to invest (more)' and at a lower interest rate. The Chinese disappointed the Thais by lowering the train's speed instead.

Indonesia's tender for the $5 billion Jakarta-Bandung express was even more hectic.

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The entire project was canceled and then mysteriously reinstated after substantial concessions were extracted. Foremost among these was China's winning formula to forego any government guarantees whatsoever, an extraordinarily generous gesture. The Indonesians can't believe their luck; the Japanese are fuming. One Tokyo official questions whether 'China understands what it's doing.' One week into construction, the project has already hit serious bureaucratic snags. Expect more strife when Chinese workers turn up.

Attention now shifts to Kuala Lumpur, which is planning its section to Singapore. Whatever suspense surrounded the multinational competition mostly dissipated by late December when Beijing's prime contractor swooped in to relieve Malaysia's troubled 1MDB fund of a key property asset at a valuation that no-one can fully explain. This followed an equally fortuitous intervention two months earlier when Chinese interests expensively acquired 1MDB's power utility Edra, exempted from foreign ownership restrictions. Malaysian governance issues aside, the Chinese press sees the irony when the ruling party UMNO pursues anti-Chinese policies domestically while cutting business deals with Beijing.

The Japanese technocrats who splutter over China's bidding irrationality are missing the point. These projects don't pay back financially, so necessarily they become political decisions. Beijing can provide 'bundled' proposals with hidden inducements that no-one else can (or wants to) match. The politics becomes more obvious when it is realised that the two neighbours least friendly to China have opted for partnerships with Japan. India recently launched its inaugural shinkansen with 'highly concessional' 50-year financing from Tokyo. Vietnam had earlier announced a mammoth $55 billion Hanoi to Saigon project to be built and financed by Japan, but backed off in 2010 after unusually acrimonious parliamentary debate. Nonetheless, Japan has the inside running for any future railways partly because of criticism over Chinese performance building the Hanoi metro.

So battalions of bulldozers will cross the Laotian border soon to lay the key link in the Pan-Asia grid. Via Kunming, Beijing is offering its neighbours the gift of connection into its mighty domestic rail system. Francis Fukuyama marvels at this projection of the 'China model', which must necessarily be lubricated with a great deal of concessionary money. To paraphrase Archimedes, give me a financial lever long enough and I can cover the entire world with railways. Friendly ASEAN states are happy to access China's construction excellence and its fantastically cheap money. Spurning such an opportunity would be an act of geopolitical independence, defiance even. In Asia, not all railroads lead to Beijing, but most do.

Photo by Flickr user Tim Zachernuk.


At the turn of the year, and officially launched by President Xi Jinping at this beginning of the week, China announced a series of major comprehensive reforms for the People's Liberation Army (PLA) that will likely shape China's military modernisation trajectory for the next decade.

The underlying rationale for the overhaul is to redefine the roles, missions and authorities of the PLA services, consolidate Party control over the nearly autonomous military branches, and ultimately attain new levels of combat effectiveness conceptualised under a new set of military guidelines of fighting and winning 'local wars under informationised conditions.'

The first wave of official announcements included changes in the organisational force structure, starting at the highest echelons of command. Specifically, the creation of a new command structure; a joint staff under the Central Military Commission that integrated the previous four general departments. The CMC will now manage the PLA through the Joint Staff Department comprised of fifteen departments, commissions and offices.

The second significant measure is the inauguration of three new services: PLA Ground Forces, PLA Rocket Forces and PLA Strategic Support Forces. The previous Second Artillery Corps, in charge of China's nuclear and conventional ballistic missiles, has been upgraded to the PLA Rocket Force, a full service branch on par with the navy, air force, and, for the first time, the army.

The third major military reform measure, announced on 1 February, is the reorganisation of the major Chinese military commands from the previous seven 'military regions' to five 'major war zones' or theatre operations. These are the Northern, Eastern, Southern, Western, and Middle or Central theaters, which are comparable to the US concept of Combatant Commands.

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Changes in the PLA's organisation force structure complement its gradual technological advances. Indeed, the PLA under President Xi Jinping has seen many accomplishments: from the introduction of next generation of supercomputers, to aviation prototypes such as the J-16, J-20, J-31, new helicopters and UAVs, to the ongoing construction of a second aircraft carrier, as well as record number of commissioned ships such as Type 054A, 056 frigates and 052C destroyers.

In the next five to ten years, China is expected to transfer many experimental models from R&D to the production stage, including a number of systems in what the PLA calls 'domains of emerging military rivalry': outer space, near space, cyber space, and under water. 

These include next generation ballistic missiles, nuclear and conventional, long-range precision-strike assets such as hypersonic vehicles, offensive and defensive cyber capabilities and new classes of submarines, supported by a variety of high-tech directional rocket rising sea mines with accurate control and guidance capacity.

PLA Strategic Support Forces

Of all the newly established units, the PLA Strategic Support Forces (SSF) represents perhaps the most significant development. While details remain hidden under a veil of secrecy, semi-authoritative sources and press reports indicate that the SSF will consist of three independent branches: 'cyber force' with 'hacker troops' responsible for cyber offense and defense; 'space force' tasked with surveillance and satellites; and 'electronic force' responsible for denial, deception, disruption of enemy radars and communications systems. 

The SSF integrates the previous PLA General Staff Headquarters Third and Fourth Departments, responsible for technical reconnaissance, electronic warfare, cyber intelligence and cyber warfare, as well as absorbing the Foreign Affairs Bureau of the former PLA General Political Department, tasked with information operations, propaganda and psychological warfare.

This corresponds to PLA writings on future conflicts such as Science of Military Strategy that emphasise a holistic perspective toward space, cyberspace and the electromagnetic spectrum that must be defended to achieve information dominance (zhi xinxi quan). This is the ability to gather, transmit, manage, analyse and exploit information, and prevent an opponent from doing the same as a key prerequisite for allowing the PLA to seize air and naval superiority. 

To this end, the PLA recognises the importance of controlling space-based information assets as a means of achieving true information dominance, calling it the 'new strategic high ground.' Consequently, establishing 'zhi tian quan' (space dominance) is an essential component of achieving 'information dominance.'

Strategic Implications

Ultimately, the key question is this: will the reforms in the PLA's organisational force structure will be reflected in its operational conduct, particularly in the PLA's capabilities to exploit cyber-kinetic strategic interactions in its regional power projection, as well as responses in potential crises and security flashpoints in East Asia?

On one hand, China's political and military elites believe that a new wave of the global Revolution in Military Affairs is gathering pace, led principally by the US, and China must therefore accelerate the pace of its military development. Internally, however, the reforms are designed primarily to close the PLA's inter-service rivalries, interoperability gaps and the dominance of the ground forces.

In other words, significant capability gaps will continue to exist.

In the long-term the coordinated exploitation of space, cyber-space, electromagnetic spectrum and strategic information operations will likely enable four critical missions for the PLA:

  1. Force enhancement to support combat operations and improve the effectiveness of military forces such as ISR, integrated tactical warning and attack assessment, command, control and communications, navigation and positioning and environmental monitoring;
  2. Counter-space missions to protect PLA forces while denying space capabilities to the adversary;
  3. Information operations to direct influence on the process and outcome in areas of strategic competition, and;
  4. Computer network operations targeting adversaries data and networks. 

Consequently, the PLA's growing military-technological developments may significantly alter both the strategic thought and operational conduct of major powers in East Asia, including the US and its allies such as Australia.

The resulting broader military innovation debates will converge on how to attain long-term credible cross-domain attack and defence in-depth capabilities, while sustaining joint operational capabilities in select contested areas in the Asia-Pacific, and simultaneously mitigating a range of escalatory risks.

Photo by ChinaFotoPress/ChinaFotoPress via Getty Images

US presidential race 2016

Results are now in for the first primary: Cruz for the Republicans, Clinton for the Democrats.

What does this mean for the US presidential election 2016?

For Republicans the Iowa result opens a can of worms. As I've argued previously, a Trump win in Iowa would have effectively ended the race. Very likely Trump would have gone on to win every state. For this reason Trump really wanted a victory in Iowa, but he didn’t expressly need one to remain the GOP frontrunner. Now we’re in for a protracted primary season.

There isn’t really a winner from Iowa on the Republican side. Ted Cruz needed to come first and he did. Yet it remains hard to see Cruz leveraging this victory to build significant momentum elsewhere. Cruz appears to be doing well until one considers that his campaign strategy depends on Trump leaving the race and inheriting his supporters. With Trump still the frontrunner, Cruz is very unlikely to win the nomination.

Marco Rubio did far better than expected, very nearly knocking Trump down to third. If Rubio had managed to finish second, it would've upended the whole primary race. As is, Rubio still has a major problem. The New Hampshire vote is far more fragmented among the establishment candidates, and Trump’s lead there is very substantial. Moreover, Cruz might have just enough momentum from Iowa to come in second in New Hampshire; and a third place finish there for Rubio won't be good enough.

Trump lost an opportunity to wrap up the nomination early, yet by winning second place he achieves his main objective. Accordingly, Trump is still likely to win the nomination. Despite the hype, the only chance for Rubio is to beat Trump in New Hampshire, and that is a remote possibility at best.

The Democrats

Sanders has been surging. As Emma Connors points out, he pulls massive crowds, brings vast numbers of young people into the political process, competes with the GOP frontrunner for votes, and has shown himself capable of raising vast sums with grassroots campaigning, with average donations of just $US27 each.

And yet coming into the Iowa caucus Hillary Clinton has uniformly remained the Democrat frontrunner – why?

South Carolina.

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South Carolina will be the fourth state to caucus (after Iowa, New Hampshire and Nevada), three days prior to the 1 March ‘Super Tuesday’ primary votes. South Carolina is Clinton’s fortress. She’s invested strongly to build a solid ground game in a state where polling has her ahead of Sanders 2-to-1.

Sanders had hoped to deliver a major upset in Iowa but Clinton held on, albeit by the slimmest of margins. There is no denying the momentum is now with Sanders and this catapults him into serious primary contention. Assuming his strong showing in Iowa is followed by a convincing victory in New Hampshire, this double-barrelled momentum might just give Sanders enough political velocity to punch through Clinton’s South Carolina walls. Nevertheless, the odds remain against Sanders.

The bottom line

For Republicans, a Cruz win in Iowa was essential for any candidate not named Trump, and Rubio’s impressive showing guarantees a drawn out primary race. But, despite the Rubio surprise, the Iowa result aligns closely with expectations, solidifying Trump’s position as the GOP frontrunner and likely nominee.

On the Democrat side, Clinton’s aura of inevitability was punctured but she held her position. The closeness of the Iowa race suggests it is by no means over for Sanders, and he will enjoy a honeymoon in media coverage. Yet Sanders must now achieve a truly dominating victory in New Hampshire if he’s to be competitive in South Carolina. Clinton is still the frontrunner.

Photo by Christopher Furlong/Getty Images

US presidential race 2016

Who'd have thunk it? A 74-year-old who wants to raise taxes, describes the US economy as rigged, hates kissing babies, is pro-choice, and in favour of gay marriage, has just become Hillary Clinton's worst nightmare.

OK so Bernie Sanders hasn't won the Iowa Democratic Caucus. But he has come so damn close, with 49.61% vs Clinton's 49.82% and 99.41% of the results tallied, that the general consensus — shared by the man himself — is it's a virtual tie

Iowa is, of course, only the first stop. There are many, many primary votes to go before we will know who will be the Democratic presidential nominee. Moreover, most states, unlike the early voting Iowa and New Hampshire, are not mostly white. So the smart money is still on Clinton who polls much better than Sanders among blacks and hispanics, as this Washington Post piece explains. But, in a presidential race that has had many, ahem, surprising aspects, the rise and rise of the grey-haired junior senator from Vermont has to be in contention for the I'll-eat-my-hat award.

Right wing leading commentators have been pouring scorn on Sanders for months. Here's Hugh Hewitt:

Bernie Sanders is not connecting, I don't believe, with anyone outside of his demographic, which are old hippies that wish Woodstock would come back.

But it turns out there are plenty of young hippies as well who are big Sanders fans and they are going to enjoy his run for as long as it lasts.

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Take this endorsement from Weekend Vampire frontman Ezra Koenig, interviewed after the band appeared at a Sanders rally over the weekend. 'I see a consistency in him that’s rare in most human beings, let alone politicians'.

And this, from another supporter, not so famous, who attended a different Iowa event. 'He’s unslick in a really slick way,' Rachel Joselson, a professor of music at the University of Iowa, told The New York Times. 'That feels real and authentic to me'.

While many older Americans are attracted by Republican outsiders who want to make America great again, Sanders is appealing to the young who want change. Radical change.

According to Nice Guys Finish Seventh: False Phrases, Spurious Sayings, and Familiar Misquotations by Ralph Keyes, it was the mid-nineteenth century French historian and statesman François Guizot who first observed: 'Not to be a republican at 20 is proof of want of heart; to be one at 30 is proof of want of head'.

While the source of the quote has been much debated, it is generally accepted the young (who often, of course, also have comparatively less income to tax) are more idealistic and it is this idealism that Sanders appeals to. Here's an excerpt from a speech he gave to students at Liberty University in September.

Now, when we talk about morality, and when we talk about justice, we have to, in my view, understand that there is no justice when so few have so much and so many have so little.

There is no justice, and I want you to hear this clearly, when the top one-tenth of 1 percent -- not 1 percent, the top one-tenth of 1 percent -- today in America owns almost as much wealth as the bottom 90 percent. And in your hearts, you will have to determine the morality of that, and the justice of that.

Liberty University is an evangelical school. Not many hippies there. But, as Margaret Talbot noted in this oft-cited New Yorker profile:

Sanders does not seem to prefer talking to people who share his views; because he is not an especially convivial person, he does not require conviviality from others. Sanders relishes the opportunity to enter enemy territory, where he believes that he can find secret allies.

 Much to the Clinton camp's consternation, he appears to have found quite a few.


The past year has tested Vanuatu’s economic and political resilience. Following the devastation wreaked by Category 5 Cyclone Pam in the island archipelago in March, economic recovery was elusive and made harder by months of political instability and constitutional uncertainty. October saw 14 members of parliament convicted for bribery, including the deputy prime minister, and an attempt by one of the convicted MPs to grant himself and his associates a presidential pardon. Eventually judicial independence and constitutional integrity won out, but the year’s hardships crippled the functioning of the national administration and delayed the passing of a 2016 national budget.

The snap election on 22 January 2016 promised a new chapter for the country, but it is still unclear whether the election result will facilitate the political stability needed to kick-start economic recovery.

The election embodied Vanuatu’s prevailing political culture: localised and clientelistic policy platforms, widespread patronage, political fragmentation, and a proliferation of small parties. Some 36 parties contested the election, along with 60 independent candidates, a record number. The official election results, announced earlier this week, indicate the unstable coalition politics that have plagued Vanuatu’s Parliament and disrupted government functions for more than two decades are likely to continue, although there is still time to run in the 21 days the victorious parties and independent MPs have to form a government.

The 52-seat parliament is constitutionally protected from dissolution during its first 12 months, however, in the absence of political integrity legislation, whatever coalition government is formed this time around will again be subject to the vagaries of political opportunism and late-night kava bar deals. The profusion of small political parties, the low total of seats won by established parties (six on average ), and the emerging ‘kingmaker’ status of the Independents (who look set to claim eight seats), foreshadows fragile coalitions and continued instability. There are likely to be only short windows for policy reform, and the functions of government will again be vulnerable to disruption.

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Well-established parties, including the Vanua’aku Pati, and the National United Party, have announced coalitions with younger, populist parties such as the Graon mo Jastis Pati to consolidate a new government of ‘Reunification for Change’. If successful, the bloc’s immediate policy agenda may include reforms to the Representation of the People Act and the potential re-uptake of political integrity legislation. Other proposed alliances have been less forthcoming about possible national reform priorities. Whatever the outcome, what Vanuatu needs most right now is a focus on state-building for the benefit of all its citizens, rather than short-term interventions based on political patronage.

Only 18 of the 52 MPs elected are incumbents, and the election results attest to an emerging new political profile for MPs, with a number of reform-minded former senior public servants set to take their seats in the new parliament. This presents an opportunity for a more robust national policy debate at the highest level. With several of these ‘new’ politicians elected under an independent or small party banner, the direction of reforms and allegiances will not be known until parliament sits on 11 February. Training of the new MPs will need to be a priority for the Vanuatu's 11th legislature.

With Cyclone Pam’s destructive visit only 11 months past, economic recovery must be high on the agenda for all MPs. The contested distribution of cyclone relief efforts (and the bribery charges against 16 MPs) were behind the June 2015 motion of no-confidence that ended 14 months of relative political stability. With the economy still yet to recover significantly, and Cyclone Pam relief funds rumoured to be still unspent, remedying the economic situation will be the first big test for the new Vanuatu government. This is a singular priority given that just last week, several international airlines cancelled routes to Port Vila’s Bauerfield International Airport, Vanuatu’s main international entry point, due to poor maintenance of the airport’s only runway. This is likely to put a dent in tourism revenues for several months, another blow for this tourism-dependent island economy.

Despite concerns before the event about electoral roll inaccuracies, low voter turnout rates and inefficient processes, the 2016 election demonstrated Vanuatu’s active democracy at work. International observers praised the Vanuatu Electoral Commission for running a peaceful and orderly election, noting the vote counting was transparent and that the media played a positive role throughout the electoral process.

If Vanuatu’s newly elected MPs can instill political confidence via the formation of a nationally-minded, stable coalition government, and steer the country back to a path of steady economic recovery, then the people’s investment in the 2016 election will have paid off.

Photo courtesy of Flickr user European Commission DG ECHO


The recent delivery of Russian weapons to Fiji raises many questions, including what they will be used for, how will Fiji's neighbours react, and whether it is a forerunner to an increased military presence by Russia and possibly China. What is certain is the 20-container shipment has shown Fiji's one-time supporters and influencers in the West, led by Australia and New Zealand, that Fiji's diplomatic and military alignments lie elsewhere. The regional implications of this shift are significant.

The weapons were 'donated' by Russia pursuant to a bilateral Memorandum of Understanding (MOU) signed in February 2015. The Fijians say the weapons are needed by the more than 1000 Fijian peacekeepers deployed in places like the Middle East because what they currently have in their inventory is obsolete. The shipment reportedly includes small arms (squad) weapons, two trucks, tear gas, other non-lethal munitions and possibly one or more helicopters. The shipment will formally be unveiled this month, in front of a Russian delegation that will include military trainers who will remain in Fiji to instruct Republic of Fiji Military Forces personnel.

As discussed by Anna Powles and Jose Sousa-Santo in their post 'Russia ships arms to Fji: What will be the quid pro qou?' Fijian opposition figures have claimed the shipment is illegal because it was not approved by parliament and because it could be used against domestic opponents of the military-backed government.

In fact, the shipment is perfectly legal as it is not part of a Treaty that needs parliamentary ratification. Plus, it is a 'donation' of military aid so it does not need parliamentary approval.

The opposition is, however, correct to be concerned about the 'dual use' potential of the weapons. Squad weapons, tear gas and non-lethal munitions can be used in peacekeeping but can also be used as instruments of crowd control at home. This is a very real possibility, given the history of the Fijian Military Forces, although it should be noted that non-lethal weapons have been sourced from other countries as well.

Depending on what it contains, the arms shipment could trigger an arms race with Tonga, which also has a military and is a rival of Fiji. The Tongans are not likely to view the shipment kindly even if it does not specifically include naval equipment. Squad weapons can and are used by navies as a matter of routine, and introduction of military helicopters into a regional rivalry is bound to cause concern in the Kingdom.

Although Fijian military inventories may well be obsolete, most UN peacekeeping missions are armed by the UN using NATO-standard equipment. That includes small arms and troop carriers used in 'blue helmet' operations. Thus, even though there are many Russian-made weapons in conflict zones, the claim that the Russian arms are needed for peacekeeping is debatable at best.

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Also, given the Fijian military is familiar with and competent in the use of small arms and knows how to drive heavy vehicles, it is unclear as to what sort of equipment requires Russian training prior to their use.

The MOU with Russia also outlines bilateral military educational exchanges. These follow on a similar program with the Chinese military (PLA). The Chinese also have funded and undertaken numerous infrastructure projects such as port dredging and road building that have a parallel 'dual use' potential: they can be used for civilian and military purposes alike.

Given the above, it is reasonable to speculate that the Chinese and/or Russians may receive forward basing rights in Fiji in the not to distant future. Under the 'Looking North' policy Fiji has clearly pivoted away from its traditional Western patrons (Australia, NZ and the US) and towards others that are less concerned about the status of Fijian democracy (such as it is, and it is not very much). Given these weapons transfers plus bilateral military education and training exercises with China and Russia, the path is cleared for the two countries to use Fiji as a means of projecting (especially maritime) power in the South Pacific.

The Chinese are already doing so, with Chinese naval ships making regular ports of call in Suva. After years of neglect, the Russian Pacific fleet has resumed long-range patrols. So the stage is set for a deepening of military ties eventually leading to a basing agreement for one or both.  In the Chinese case, this would be in line with recent basing agreements signed with Pakistan and Djibouti.

The Chinese and Russians are enjoying some of their best bilateral relations in decades. It is therefore possible that they may be working in coordinated, cooperative or complementary fashion when it comes to their overtures to the Fijians. Both seek tourism opportunities as well as preferential access to fisheries in and around Fijian territorial waters, so their non-military interests converge in that regard, which may limit the regional competition between them.

It is clear that post-election Fiji has moved from a 'guarded' democracy, in which the military acts as a check on civilian government, to a soft authoritarian regime in which the executive branch supersedes and subordinates the legislature and judiciary with military connivance. Instead of going from a 'hard' dictatorship to a 'hard' democracy after the 2014 election, Fiji has moved from a 'hard' dictatorship to a 'soft' one (for those who know Spanish and the regime transitions literature, the move was from a 'dictadura' to a 'dictablanda' rather than to a 'democradura').

Some of this is by constitutional design (since the military bureaucratic regime dictated the current constitution prior to the 2014 elections), while other aspects of the slide back towards dictatorship are de facto rather than de jure (such as the speakers' order to reduce the amount of days parliament can sit. The speaker is a member of the ruling party yet holds a position that is supposed to be apolitical). Then there are the strict restrictions on press freedom and freedom of political participation to consider. Attacks on the Methodist Church, arrests of civil society activists and claims of coup plotting by expats and local associates contribute to concerns about the state of governmental affairs.

Add to that the fact that the first Police Commissioner after the election resigned after military interference in his investigation of police officers implicated in torture, and then was replaced by a military officer (against constitutional guarantees of police and military independence) while the policemen were given military commissions (which insulated them from prosecution thanks to provisions in the 2014 constitution), and one gets the sense that Fiji is now a democracy in name only.

None of this bothers the Russians or the Chinese, both of whom resisted the imposition of sanctions on Fiji after the 2006 coup (to include vetoing UN Security Council resolutions barring Fiji from peacekeeping operations). In fact, the two countries increased their bilateral relations with Fiji in wake of the coup, putting issues other than democracy at the forefront of their relationship. That approach has continued and deepened in recent years.

All in all, the outlook is two-fold, with one trend a continuation and the other one new. Fiji is once again becoming authoritarian in governance, this time under electoral guise and a facade of constitutionalism. In parallel it has decisively turned away from the West when it comes to its diplomatic and military alignments. This turn is a direct result of the failed sanctions regime imposed on Fiji after the 2006 coup, which was too porous and too shallow to have the impact on Fiji hoped for at the time of imposition.

The outcome is a greatly diminished diplomatic influence and leverage on Fiji on the part of Australia, New Zealand and (to a lesser extent) the US and the rise of China, India and Russia as Fiji's major diplomatic interlocutors. Factor in Fiji's disdain for the Pacific Island Forum (PIF) and its continued attempt to fashion the Melanesian Spearhead Group (MSG) as a counter to it, and the makings of a regional transitional moment are clear.

The sum result of this is that the strategic balance in the South Pacific is clearly in flux. Given the US 'pivot' to Asia and the reassertion of its security ties with Australia and New Zealand, that is bound to result in increased diplomatic tensions and gamesmanship in the Western Pacific in the years to come.

Photo: Phil Walter/Getty Images


Since December 2015, a rumour has been circulating in Yangon that the Commander-in-Chief of Myanmar's armed forces is investigating several police and intelligence officers for corruption. If that is true, then it is a timely reminder of the often tense relationship between components of the country's coercive apparatus, just as Aung San Suu Kyi and the National League for Democracy are forming a new government in Naypyidaw.

Over the past five years, the armed forces (known as the Tatmadaw) and the Myanmar Police Force (MPF) have consistently received strong support from President Thein Sein. In large part, this has been to help them modernise and introduce wide-ranging reform programs. Both have modified their organisational structures, acquired new arms and equipment and made an effort to win back public respect through innovative public relations campaigns. 

Also, the Tatmadaw has stepped back from day-to-day politics and given a higher priority to territorial defence. It aims to become smaller, but more capable, more professional and better connected internationally. In an effort to civilianise Myanmar's internal security operations, the MPF plans to expand from 80,000 to 155,000 by 2020. With foreign help, it is receiving training in human rights, community policing and modern methods of crowd control.

The army and police have always worked closely together, patrolling Myanmar's borders, conducting counter-insurgency campaigns and putting down internal unrest. In intelligence operations, the military agencies have shared a range of interests with Special Branch and the Bureau of Special Investigations (BSI). There has always been rivalry between the armed forces and police, however, and this has sometimes caused problems.

After Myanmar regained its independence in 1948, U Nu's fledgling government created two police forces. One was a civil organisation that dealt with everyday policing. The other was a paramilitary force called the Union Military Police (UMP). It helped deal with problems that demanded the application of lethal force, such as operations against army mutineers, ideological and ethnic insurgents and armed bandits known as dacoits.

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The UMP cooperated with the Tatmadaw, but the two always competed for status and scarce resources. Their relations were complicated by the fact that they answered to different ministers, who were themselves rivals for political power. In 1958, the minister for home affairs ordered UMP units to march on Rangoon. He claimed it was to forestall a coup, but it was probably to settle a personal disagreement with the defence minister. 

General Ne Win always resented the fact that the Tatmadaw did not enjoy a monopoly of the means to exercise state force. In 1958, when his 'caretaker' administration took over Myanmar's government for two years, he renamed the UMP the Union Constabulary, drafted army officers into its ranks, ordered policemen to attend military-style training camps, and reduced police resources. 

After Ne Win's coup d'etat in 1962, all paramilitary police units were absorbed into the army. In 1964, the civil arm was reformed as the People's Police Force (PPF), with a military-style rank structure. Army officers were posted into senior police positions. For the next 20 years the PPF was considered the 'younger brother' of the Tatmadaw, but continued to be given a low priority for funds, arms and equipment.

The PPF developed a reputation for corruption and incompetence. After it was created in 1974, the PPF's paramilitary 'riot squad', or Lon Htein, became known for its arrogance and brutality. During the abortive 1988 pro-democracy uprising, it was considered even more ruthless than the armed forces. Myanmar's ruling military council later allocated the PPF more resources and tried to lift its standards, but with little apparent success. 

When Thein Sein took office in 2011, the government recognised that it needed to do something about the (renamed) MPF. Not only did it require radical reform, but it was also seen as a means of permitting the armed forces to relinquish some of its internal security duties and become a more conventional military organisation. Before long, blue uniforms began to replace green uniforms on the streets of Myanmar's population centres. 

A clearer differentiation between police and army roles seems an obvious step, but it carried certain risks. For example, when the Indonesian police force split from the army in 1999, disputes arose over their respective roles and responsibilities, and the allocation of resources. Both personal and institutional jealousies arose. There were a number of armed clashes as members of the two forces competed for control of off-budget finances. 

Such problems are much less likely in Myanmar. The Tatmadaw is still the country's most powerful institution, it commands the lion's share of the budget and, under the 2008 constitution, the Minister of Home Affairs is always a serving army officer. Also, the expansion of the MPF is being achieved in part through transfers from the armed forces. The chief of police and about 10% of MPF officers are former military personnel.

That said, the MPF is trying to develop its own ethos and esprit de corps. Police officers are being encouraged to see themselves as separate from the armed forces, with different responsibilities requiring different methods. If the force is able to develop independently, and receives reasonable budget allocations, then serious tensions between the Tatmadaw and MPF can be avoided. However, any obvious intrusion into police affairs by members of the armed forces could cause tensions. 

In Myanmar, all unconfirmed rumours should be treated with caution, but it is in this context that the recent story regarding the Commander-in-Chief becomes interesting. 

Senior General Min Aung Hlaing has reportedly ordered an investigation into claims that several officers from the MPF's Special Branch and the BSI have been involved in drug trafficking. In one sense, this comes as no surprise. Myanmar is ranked as one of the most corrupt countries in the world. However, the accused officers are from two agencies in the Ministry of Home Affairs with specific responsibilities for rooting out such practices. This might be why the Tatmadaw, and someone as senior as the Commander-in-Chief, is said to be involved.

Both civilian and military leaders in Myanmar would have an interest in this case. Aung San Suu Kyi has long emphasised the rule of law, and opposed corruption. She would want to be seen as supporting a strong response to any official misconduct. Also, division within the security forces is a recurring nightmare for Myanmar's generals. Past attempts to weaken the cohesion and loyalty of the state's coercive apparatus have prompted firm action. 

The significance of this rumour should not be overstated. However, if it is true, we may be seeing an early and welcome example of the country's most senior leaders acting together to tackle a problem of shared concern.

Photo by Gilles Sabrie/LightRocket via Getty Images


For centuries, the West has dominated the state-of-the-art when it comes to military technology. Nearly all the great breakthroughs in weaponry — from muskets to missiles — have originated in Europe or North America. And perhaps no field of military technology has been more consistently and overwhelmingly the purview of the occidental West than the modern jet-powered fighter aircraft.

Since the end of World War II, a handful of countries — basically, the US, the USSR/Russia, Britain, France and Sweden — have controlled the global fighter-jet industry. Even today, perhaps 90% of all combat aircraft flown by all the world's air forces are produced by these five countries, or are based on copies of their planes. In fact, one of the hardest things to do, because it is so intensely and extensively complex, is the design and development of modern fighter jets.

Many countries have tried to break this monopoly: Argentina in the 1950s, Egypt and India in the 1960s, Israel and South Africa in the 1980s; none were particularly successful, and some — such as the Indian HF-24 Marut — were spectacular failures. Today, several Asian nations are challenging this traditional Western dominance with a host of new fighter jet programs, all of which are intended to come into service over the next 10 to 20 years. India and South Korea have established indigenous aircraft industries and produced hundreds of combat aircraft, but most of these were licensed-produced copies. Both possess ambitious plans when it comes to designing and building homegrown fighters, but success has been elusive.

On the other hand, some Asian fighter aircraft producers are obviously on the rise, despite all odds. China, for example, has two 'fifth-generation' fighter jets in the works, the J-20 and the J-31. Not much is known about these aircraft; the J-20 bears a close resemblance to the F-22, while the J-31 looks a lot like the F-35 Joint Strike Fighter (JSF). Nevertheless, the existence of these parallel programs certainly demonstrates China's ambitions, and the aggressive steps it is prepared to take in order to claw its way up into the vanguard of fighter-jet producers. 

Then there is Japan. For decades, Japan was Asia's leader in aerospace. It was the only regional country that possessed a sizable military aircraft industry before World War II. It was a centre of innovation and invention when it came to aviation, and some of its combat aircraft, particularly the A6M 'Zero', were among the best in the world. After 1945, Japan spent decades rebuilding its aerospace sector.

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Yet even a technological leviathan like Japan has struggled with its aerospace and aeronautics sector, both civil and military. In the 1960s, it built the YS-11, a 60-seat turboprop commuter plane that many thought would be the first in a series of Japanese-made commercial airliners; less than 200 were built, and no follow-on programs ever materialised.

Japan's most recent homegrown fighter jet, the F-2, has been a technological and programmatic dead-end. Originally, it was supposed to be a true 'Rising Sun' combat aircraft, totally indigenous from stem to stern. Conceived in the 1980s, it was supposed to incorporate the latest technology found in Japan's highly advanced industrial base, including the heavy use of nonmetal composites and an electronically scanned, phased array radar. However, US political pressure, together with the growing realisation that a totally indigenous fighter was technologically a stretch, forced the Japanese to settle for a hybrid design, one derived from the US F-16, albeit heavily modified and optimised for maritime strike.

Even this more modest program proved to be a challenge for Japan's aerospace industry. Structural problems, including cracking in its all-composite air frame and severe flutter, set the program back years. Meanwhile, the plane became outrageously expensive, each unit costing about three times that of the F-16 on which it was based. Consequently, procurement was cut from more than 200 fighters, first to 130, and eventually to just 98 planes. The last F-2 was delivered in 2011, leaving Japan with no fighter aircraft in production. In addition, even though Japan is acquiring the F-35, its access to JSF technology will likely be severely limited. 

By the mid-2000s, Japan's aircraft industry faced a crisis of confidence. It had plenty of business, subcontracting for Boeing and Airbus on various commercial airliners, but few aircraft projects of its own. Hence, since the late 2000s, Japan has been quietly working on a fifth-generation fighter aircraft of its own, the ATD-X (Advanced Technology Demonstrator – Experimental), also called the X-2. So far, the ATD-X has cost around 39.4 billion yen (around US$331 million); it will likely fly early this year. 

Bear in mind, however, that the X-2 is just a technology demonstrator, not a prototype of a new fighter jet. According to The Diplomat, it is 'a testbed platform for multiple technologies', including next-generation electronically scanned array radar, multi-dimensional thrust vectoring, an indigenous low-bypass turbofan engine and radar-absorbing composite materials. Production of an 'F-3' fighter will not begin until 2027, at the earliest. It is likely that this plane could turn out to be so expensive — a single F-3 could cost US$200 million or more — that Japan may never buy more than a handful.

If successful, the ADT-X/F-3 could shift the centre of gravity in the fighter jet industry from the North Atlantic closer to the Asia-Pacific. If Japan decided to market this fighter to overseas customers — increasingly likely, as Tokyo is quietly watering down its near-total arms export ban — then the F-3 could seriously challenge the West's predominance in this highly lucrative business sector. That, however, depends on the cosmic alignment of a great many technological, economic and political factors, a 'harmonic convergence' that is hardly assured. Japan, despite all its advantages, will continue to struggle in building and maintaining a state-of-the-art aerospace industry.


So Japan has joined the select group of central banks that have lowered their policy interest rate into negative territory (-0.1%). The European Central Bank pioneered negative rates (-0.2%) in 2014, followed by Sweden (-1.1%) Denmark and Switzerland (both -0.75%).

Leon Berkelmans explored the case for negative rates here. I'd argue Europe and Japan have taken this step because no one can offer anything better to lift their economies out of their post-2008 torpor. For the individual countries, mildly negative rates may do no great harm, but nor are they the policy breakthrough that restore the power of monetary policy. As a cure for global weakness, they are just as likely to be harmful as beneficial. 

Why don't these initiatives signal the demise of the long-standing constraint of the 'zero lower bound' that supposedly stops interest rates from going negative? In practice, the tiny negatives which have been implemented so far aren't much different from the near-zero policy rates that are common among the advanced economies: they don't represent a breakthrough in policy, except perhaps psychologically.

In Japan's case, the move confirms to the Japanese public that the Bank of Japan (BoJ) is still trying hard to get inflation up (the target is still 2% but, like a mirage, this keeps receding into the future). At the same time, however, the new measure is also an uncomfortable reminder that previous experiments with unconventional policies haven't worked so far. It was BoJ governor Haruhiko Kuroda who invoked the Peter Pan logic of the power of confidently held expectations: Peter told Wendy that she would be able to fly, if only she believed she could. There is a corollary here with inflation which is, after all, largely driven by inflation expectations; if everyone believes inflation will run at 2%, price-setters will start increasing their prices and it will come true. But it's hard to make people believe inflation is taking off when past policy initiatives haven't gotten off the ground.

What would happen if these tentative sorties into negative territory were pushed far enough to offer borrowers the opportunity of funding that was not just free, but where their debt diminished perceptibly over time — say a negative rate of 5-10%? That would certainly seem to be an incentive to borrow and invest.

But first a technical problem would need to be solved.

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Borrowers need to be funded by lenders but who would lend if the negative return erodes their capital over time? The relevant academic analysis focuses on the role of currency holdings. Won't investors, faced with the prospect of getting negative returns on their bank deposits, respond by storing their savings under the bed in the form of currency? For some readers, the vision of Scrooge McDuck diving into the cash in Money Bin #23A may come to mind. How to make currency accumulation an unattractive option? With this challenge in mind, many ingenious schemes have been dreamt up to make sure that currency, too, loses its value over time. While these might solve the technical problem, they miss the underlying issue. Investors, faced with the choice of lending at a negative rate or investing in the many real or financial assets (such as equities) that offer some prospect of a return on their investment, will choose the latter.

Buying existing assets doesn't add to GDP; it just bids up asset prices. But does it alter the savings/investment imbalance that many think is at the heart of chronic weak growth? The impact on savings could go either way: negative interest rates might reduce the incentive to save, but if savers are targeting asset accumulation for retirement, they will have to save more rather than less. Would the higher asset prices (say, houses) raise the incentive to build new houses? It might in the short term, but if the underlying problem is low prospective returns on investment, this problem needs to be addressed directly rather than circumvented by setting off another asset price bubble. Japan's asset-bubble collapse in 1990, that ushered in the 'lost decades', is the cautionary reminder.

Of course investors could buy foreign currency or foreign assets offering a positive return. This action will depreciate the exchange rate and that will help exports and discourage imports, thus boosting the local economy. Does this sound like the answer? It has worked for the euro (which is down 20% since negative rates were introduced). Already the yen has lost a couple of per cent. Exchange-rate considerations were the main motivation for Denmark, Sweden and Switzerland: their negative rates discourage capital inflow and restrain unwanted appreciation against the euro. Alas, this is the classic 'beggar-thy-neighbour' policy: boosting your own economy at the expense of your trading partners.

One of the characteristics of the various versions of 'unconventional monetary policy' (quantitative easing, as well as negative rates) is that they have a substantial exchange rate impact; always a case of 'beggar-thy-neighbour'. Even with conventional monetary policy, the exchange rate is one channel through which policy works. It may be that the exchange rate is, in fact, the main transmission channel of unconventional monetary policy, without doing much to stimulate the domestic economy via other transmission channels. The G7 countries — the main users of unconventional monetary policy — have tried hard to downplay this aspect, in the face of accusations of 'currency wars'. No clear consensus came out of this debate, which was overtaken by issues of volatile capital flows. But heated complaints would surely arise again if negative rates were to be used in a substantive way.

This debate is, in any case, a distraction from the main problem. The weak recovery from the 2008 crisis may be attributed to the debt obsessions which prevented sustained fiscal stimulus that would have given the recovery some momentum. The time for conventional fiscal stimulus has passed. Monetary policy is already doing all that can be expected of it to assist the recovery. So what should policy do?

One option is to do nothing, in the hope that the normal self-equilibrating forces of the economy will in time shift growth closer to potential. But the BoJ move illustrates the pressure on policy-makers to 'do something'. What are the active options? Countries could use the opportunity of low interest rates to undertake infrastructure. Or they could undertake structural reform to raise the expected return on private investment. Neither of these are easy options. For infrastructure, the Japanese public would ask how many more 'bridges-to-nowhere' are needed. In emerging economies, where the need for more infrastructure is undoubted, implementation is often the bottleneck. As for structural reform, advocates of this should be required to solve the politicians' lament: 'we know what to do: we just don't know how to get re-elected after we've done it.'

Image courtesy of Flickr user Japan Kuru


For those interested in the themes raised by Michael Fullilove in his Boyer Lectures on A Larger Australia last year, I would recommend George Megalogenis' latest book, Australia's Second Chance, which makes the case that the periods of greatest Australian prosperity are linked directly to high immigration levels, and that when the country has turned its back on the outside world, it has suffered as a society and an economy.

I was reminded of this argument over the weekend while reading an interview with Ian Goldin, Professor of Globalisation and Development and Director of the Oxford Martin School at the University of Oxford. Goldin argues passionately that immigration is overwhelmingly a social and economic good. But more, he says the importance of immigration to world history and to our future is deeply under-appreciated:

One of the reasons I wrote my book, Exceptional People — which has the subtitle ‘How Migration Shaped our World and Will Define Our Future ’ — is because, as an economist, I felt this profoundly positive story is just not getting out there. It’s also a deep story. None of us would be where we are today without it, civilizations wouldn’t exist. And it continues to be a fact. If you’re trying to think about where the UK is going to be, or where the US is going to be in the future, and how we’re going to meet big challenges, it’s the key explanatory factor. That’s not getting across.

Read the whole thing.

Photo by Flickr user slgckgc.


By Chloe Hickey-Jones, an intern in the Lowy Institute's Melanesia Program.

  • Last week the Development Policy Centre launched the Australian Aid Tracker, a primer website with all kinds of useful information, visualisations, trends, maps and graphs on Australia's aid program.
  • Analysis of the Aid Tracker data is also already underway, with the first piece of commentary from Ashlee Betteridge showing that our humanitarian efforts are coming up short. Currently, Australia is ranked 12th largest OECD provider of humanitarian assistance, although our rank is expected to drop after the 3% humanitarian aid funding cut in the last budget.
  • Start your Monday off with some development trivia and take the Guardian's Global Inequality Quiz. You can also take a quiz over at Devpolicy on your knowledge of Australian aid.
  • Today, the WHO International Health Regulations Emergency Committee will convene to discuss the Zika Virus. Research for the development of a vaccine, and new tools to control mosquito populations, are being prioritised. Slate takes it a step further, arguing that we should be aiming to eradicate all of the world's mosquitoes.
  • Edge's Question of the Year 2016 was 'What do you consider the most interesting recent scientific news?' Steven Pinker's answer: that human progress is now quantifiable. He analyses the profound effect this 'feedback signal' has had on development over time. (h/t Max Roser).
  • On 26 January 2016, Campaign for Australian Aid linked up with comedian Tom Ballard to host the #Proudest100, pairing every song in the Hottest 100 to Australian aid efforts. Read WhyDev's analysis of this attempt to mobilise support and positively communicate foreign aid to a wider audience.
  • El Nino in 2016 is set to be the worst on record, with millions of people in Ethiopia, Haiti and Papua New Guinea already feeling the effects of ongoing drought and crop failure. Prices of staple food items (sugar, rice, cocoa, etc.) have increased by 5-10%.
  • Should our race for fast-paced connectivity and the 'fourth industrial revolution' be a priority for all when food and water sanitation are still not a guarantee? Ian Wishart considers that technology is an enabler but that should not necessarily mean it trumps basic needs in the delivery of humanitarian assistance.
  • Malala Yousafai and Muzoon Almellehan share their thoughts on the $1.4 billion required to educate Syrian refugee children, saying that while this upfront cost is large, the cost of a lost generation would be higher.
  • This video of Syrian refugee children experiencing snow for the first time thanks to their Canadian sponsors is sure to put a smile on your face and cure Monday-itis:


There are two problems with the way Greece is attempting — and largely failing — to manage its huge influx of migrants. The principal challenge is the sheer scale of migration faced. This is a problem for all of Europe, and indeed beyond, and one that needs a truly international effort to solve. The second problem is largely home made by Athens.

Last week the European Commission ruled in a draft report that Greece had neglected its obligation to secure the external frontier of Europe's passport-free Schengen zone. The report was presented to Athens and the rest of the world by the Greek EU Commissioner for Home Affairs Dimitris Avramopoulos. This irony of sorts illustrates the permanent 'Greek problem' within the EU. While it is not unusual for EU member countries to try and obstruct Brussels on various matters, one can argue the Greek artistry for holding up sensible European solutions in the name of sovereignty and national interest has been unparalleled since it became a member in 1981.

The Euro Crisis of the summer of 2015 was the most visible, but a far from isolated, example of the Greek tendency to claim a sort of EU birthright as 'the cradle of democracy', while refusing to play ball if Athens sees any threat to its perceived interests. For the last 10 years, for example, Greece has also blocked any proposed resolution to the Cyprus problem and then there is the dispute, dating back to the mid 1990s, with the Former Yugoslav Republic of Macedonia on the very name of its northern neighbor.

While EU membership has prevented Greece from sliding back into a political abyss such as the fascist Regime of the Colonels, in power from 1967-74, its democratic governments, including the current coalition, have consistently put their own interests first. Populism has dominated policy, as explained in this New York Times opinion piece by Nikos Konstandara,

Tired of all this, the EU has now called on Greece to at least fulfill its basic obligations under Schengen, or risk suspension from the passport-free zone. This would presumably affect the tourist trade that is so important to the stumbling Greek economy and has been roundly rejected by Athens with the Greek government blaming just about everybody else for the migrant problem.

Of course everyone is aware that improved border policing and registration of migrants in Greece would only be a small part of the solution to the migration issue which is, in effect, not just one but a set of immensely complex problems.

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The European winter has slowed the flow somewhat but it is still very difficult to see how the uncontrolled mass exodus of political refugees from Syria and Iraq, joined by a wave of economic migrants from Afghanistan and Africa, can be stopped, let alone reversed.

Sweden, often viewed as a paragon of an open and humanitarian country, has just announced it will transport about half of the 150, 000 refugees it received last year back to where they came from. 'Back to where?' one is tempted to ask, given African countries routinely refuse to issue papers to refugees in Europe, let alone allowing them to return. Sweden will no doubt find that massive financial assistance, with generous sums allocated to grease the acceptation machinery, will be required if such desperate measures to resettle denied migrants and thus prevent xenophobic backlash at home are to succeed.

There is no shortage of proposals for an overall, albeit temporary, solution for Syrian migrants, the vast majority of which can clearly not be sent back to exactly where they come from. The creation of a secure zone within Syria, policed by the US, NATO and the EU, is looking increasingly like the least worst solution. This would especially be the case if it could be joined both militarily, with a resolute push to eradicate ISIS, and politically, by forcing the Syrian parties into a solution such as that hoped for by the UN sponsored talks in Geneva.

An intriguing variation on this proposal was recently floated by a Swiss Middle Eastern expert who suggested that Israel should seriously consider allowing the UN to draw up plans for such a secure zone on the Golan Heights. There are three reasons why this makes sense. Firstly, the Golan Heights were Syrian territory, until seized by Israel in the 1967 Six-Day-War. Secondly, it is away from the Turkish border and, thirdly, it would instantly transform the Jewish state from an increasingly isolated outsider into a core player and peacemaker, giving it dividends to cash in for years to come. Of course, it is also highly unlikely to be entertained by either the present Israeli government or the various Arab regimes who won't quickly give up their one remaining bond; their historically impotent hostility to Tel Aviv.

However, another proposal, for a secure zone in the vicinity of the Turkish border does not look likely either. At least not in Erdogan's Turkey, fixated as it is on the 'Kurdish threat' to the point where the regime attacks its own citizens, as is happening in Cizre. It has also threatened to jail leading Turkish journalists for life after they revealed secret but clearly official arms shipments to Islamic, doubtlessly Sunni, extremists.

Another interim measure was recently put forward by The Financial Times foreign affairs editor Gideon Rachman. His proposal would see the two EU crisis protagonists Greece and Germany transform their mutual recrimination issues into joint assets.

Sadly, what is more likely to happen is a continuation of stop-gap measures — for which a perfectly coined German expression exists, the highly suggestive 'Durchwursteln' (literally 'sausaging through') — always in view of salvaging fundamental European achievements while hoping for better times to come. Such measures will likely include EU assistance for the Former Yugoslav Republic of Macedonia which, while aspiring to EU membership, is not part of the Schengen zone, in return for it closing its border with Greece, a member of EU and Schengen. Such paradoxical measures would demonstrate the collective EU frustration with Greece and its non-compliance with the rules of  the complex structure that is the European Union. Complex it is, but it is also vital if Europe is to not become an increasingly irrelevant addition to the Eurasian landmass, one profoundly marked by this era of 'Asia Awakening'.

Photo courtesy of Flickr user: International Federation of Red Cross and Red Crescent Societies