Saturday, April 28, 2012


The lure of Indonesian investment

Bindu N. Lohani, Jakarta | Thu, 04/26/2012 12:30 PM - Klipping The Jakarta Post
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Foreign investors are continuing to flock to Indonesia. Strong and improving economic fundamentals, public sector deleveraging, plenty of external liquidity and prudent macroeconomic policies make the country attractive.

Last year the vast archipelago’s economy grew 6.5 percent, the highest since 1996, — the year before the Asian financial crisis struck. Growth in private consumption, stronger investment, and rising exports all contributed. ADB expects the economy to expand 6.4 percent this year and 6.7 percent in 2013. 

Foreign investors have closely monitored these accomplishments, as have credit rating agencies Moody’s Investors Service and Fitch Ratings, both recently boosting Indonesia’s sovereign credit rating to investment grade.

Foreigners own some 60 percent of the shares traded on Indonesia’s stock exchange. And they hold one-third of all local currency (LCY)-denominated government debt. The Jakarta Stock Exchange Composite Index gained 3.2 percent in 2011 and is up 8.8 percent so far this year. Yields on Indonesian government bonds are third highest in Asia — after India and Vietnam. 

Continued accommodative monetary policy combined with low returns in mature markets will keep foreign portfolio investors investing in emerging markets like Indonesia — particularly those that have undergone significant capital market reforms and are strengthening macroeconomic fundamentals in support of domestic demand-led economic growth. 

Last month, the Organization for Economic Cooperation and Development (OECD) upgraded its Country Risk Classification for Indonesia, which now stands alongside Brazil, India, Peru, Russia, South Africa, Thailand, and Uruguay.

How the country survived the crippling 1997/1998 Asian financial crisis — and has thrived since — offers lessons for developing economies struggling to attract investors. The development of the Indonesian rupiah bond market — a favorite of foreign investors — is a case in point.

Indonesia had no government bond market prior to 1997, as the government required a balanced budget, thus prohibiting the issuance of LCY bonds. The crisis aftermath overhauled the financial system, allowing the issuance of recapitalized bonds that ultimately kick-started the domestic bond market development.

Indonesia’s bond market has grown steadily since. It now offers a diversified array of debt instruments catering to a broader investor base. Total LCY bonds outstanding grew 3.6 percent in 2011, worth the equivalent of US$110 billion. 

Large capital inflows are fine so long as they stay put. So Indonesia is trying to moderate the massive inflow of foreign funds, managing liquidity by gradually replacing short-term Bank Indonesia certificates with longer-term government bonds.

Market growth in recent years has been driven by the smaller corporate bond market, which expanded 28 percent in 2011. Indonesia’s bullish economic prospects, recently upgraded sovereign debt ratings, and falling yields should encourage more local companies to raise funds through bond sales. 

Yet the corporate bond market structure remains skewed with the top 30 companies accounting for nearly 80 percent of total private debt outstanding. Also, there is a lack of corporate bond market liquidity, which remains a major concern. 

Indonesia has gone through a series of ambitious bond exchanges, debt buybacks, and debt switches. Since 2003, the government ran debt buybacks to stabilize the market and reduce the level of public debt outstanding. In 2005, it began debt switches to reduce refinancing risk. And as a result, Indonesia is the only country in emerging Asia with over 40 percent of its outstanding public debt in maturities beyond 10 years.

Increased LCY borrowing and less reliance on foreign currency borrowing has helped greatly reduce the “twin mismatches” in currencies and maturities that were the root cause of the 1997/1998 crisis. The share of government financing from market sources is expected to increase to about 85 percent this year, from 60 percent in 2009, in line with official policies to develop the capital market.

The rapid development of the LCY bond market has reduced risks associated with excessive reliance on short-term external financing. The LCY bond market is an alternative to banks for channeling domestic savings into productive long-term investment — particularly for infrastructure. Finally, market development is also supporting economic and financial integration in East Asia.

Looking ahead, I am confident Indonesia will build on its successes and move closer toward joining the ranks of higher income economies. Progress in tackling structural weaknesses and addressing development challenges through sustained economic growth — particularly reducing poverty and narrowing inequality — would boost Indonesia’s economic and sovereign credit fundamentals and make its assets more attractive to foreign investors. 

The future of Indonesia’s growth and development will be shaped by the government’s continued progress in redirecting and improving the quality of its spending. Effective spending on infrastructure, education, health, along with measures to improve the business climate, could ensure Indonesia’s annual growth rate is consistently between 6 percent and 7 percent — perhaps even higher. 

Let me add a very important word here. That word is “knowledge”. Globalization has oiled the wheels of trade, investment, and finance, and production efficiency. But it has also eased the transfer, adaptation and productive use of knowledge — the internet notwithstanding. In most cases, no one has to reinvent the wheel. 

For the rest, there is innovation. Exchanging knowledge and investing in research is germane to national development — it is central to avoiding the so-called “middle income trap”. It is the essence of regional cooperation and integration, fine-tuned to the specific needs of individual economies. In short, increased investment in knowledge will also help drive Indonesia’s future growth.

Engaging in needed structural reforms and overcoming development gaps will push Indonesia’s economy toward a sustained higher growth path. It is predicated on the benefits and opportunities generated being shared equitably — to bring greater prosperity across this vast archipelagic nation.

The writer is the vice president of Knowledge Management and Sustainable Development at the 
Asian Development Bank

Wednesday, April 25, 2012


Stability in Indian Ocean : Don’t militarize the ‘great connector’

Sandy Gordon, Perth, West Australia | Tue, 04/24/2012 12:27 PM
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The Indian Ocean is Australia’s backyard — at least if one lives in the West. It also plays a major role in transporting energy from the oil- and gas-rich Persian Gulf to Australia’s principal trading partners, China and Japan.

With each passing year, these and other East Asian powers become more dependent on the free passage of oil across the Indian Ocean.

This dependency makes China nervous. India and China have an ambivalent relationship. On the one hand, they have common interests, based on growing trade and similar positions in the World Trade Organization and on climate change. But, on the other, they have abiding suspicions over the long-standing border dispute and what India sees as Chinese meddling in its own back yard: South Asia and the Indian Ocean region.

New Delhi is, above all, concerned about China’s friendship with India’s principal competitor in South Asia, Pakistan, and also with Beijing’s growing economic and military relationships in the Indian Ocean region.

For its part, Beijing is deeply concerned about India’s growing naval clout in the Indian Ocean. It fears that India, possibly in collusion with the US, could interdict its oil in times of rising tension or war. Even though India is far weaker than China, it has the advantage of occupying a strategic “box seat” in the Indian Ocean. It also shares many commonalities with the US in its longer-term strategic outlook and the two navies frequently exercise together.

All this gives rise to a classic “security dilemma” in the Indian Ocean region — one in which China fears India might cut off its oil, while India fears China’s counter-maneuvers are intended to “surround” it.

If this were not bad enough, the Indian Ocean is surrounded by some of the poorest, most troubled countries in the world. It confronts enormous issues of poverty and food and water scarcity. It suffers serious nonconventional security threats: Terrorism, people smuggling and trafficking, drug and gun smuggling, piracy and a host of environmental and natural disaster challenges.

Any actions that would have the effect of deepening this security dilemma, such as the proposals recently floated in Washington to base US reconnaissance aircraft on the Cocos (Keeling) Islands and nuclear-powered submarines at HMAS Stirling (the Royal Australian Navy’s largest base, located in the southern suburbs of Perth, West Australia) should be avoided. China would definitely interpret any such moves as an attempt to threaten its “soft underbelly” — its high dependency on Middle East oil — during times of rising tension.

What is needed instead is a strategy designed to provide for joint action in the “commons”, to alleviate the sense of insecurity on the part of the major powers that their legitimate interests in the Indian Ocean might not be met.

Unfortunately, the security-building mechanisms in the Indian Ocean are inadequate and show little prospect of improvement. Unlike the Asia-Pacific, where four great powers (the US, China, Japan and Russia) to an extent balance each other, India is by far the dominant littoral power in the Indian Ocean. Australia has the next most powerful navy, and it can only aspire to be a middle power.

This means that India is able to dominate the security-building mechanisms in the Indian Ocean: No India, no viable mechanisms. As with any great power, India will use its influence to ensure its wishes are met. Those wishes have more to do with locking out what it fears to be a China-Pakistan combination, rather than building a regime capable of solving some of the region’s manifest problems so that can all “rise on the same tide”.

So, Canberra should be working quietly trying to convince New Delhi that the best way to ensure that China doesn’t seek a permanent military presence in the Indian Ocean region would be to work with it to alleviate its concerns, through collective action to address the non-conventional and other problems of the region.

This would not be a short-term prospect, however. Australia’s challenge would be to convince Washington of this need, as much as it would be to convince India and China. But we must make a beginning. The Indian Ocean must remain “the great connector”, which has been its principal role throughout its long history.

If, indeed, US forces require reinforcing in the Indian Ocean, then at the very least it will be important to ensure that they are perceived to be, and are in fact, designed to assist the region meet its multifarious nonconventional security challenges. This would, in turn, require that Washington take a stronger interest in security building mechanisms in the region than it has hitherto.
Prof. Sandy Gordon is an associate at the Future Directions International, a think tank based in Perth, West Australia. He is a visiting fellow at the College of Arts and the Pacific, Australian National University, Canberra, and author of Security and Security Building in the Indian Ocean region. ( Klipping The Jakarta Post )

The Australia-US alliance: A cost-benefit analysis 

Cavan Hogue, Perth | Wed, 04/25/2012 7:12 AM
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The American alliance is an article of faith in Australia because it is said to underpin our security. There have been many reviews and White Papers but perhaps it is time for a hard-headed cost/benefit analysis.

Australians have always been afraid of standing on their own two feet. We need a “sugar daddy” to protect us from a potentially hostile world. Britain was that protector until the British lion lost its teeth.

We then turned to Uncle Sam, who is our current protector, but do we really need a protector? Australia and Singapore are the only countries in our immediate region whose armed forces are externally oriented.

All the others in Southeast Asia have a domestic capability directed primarily toward the suppression of internal unrest, although this also gives them a capability to defend themselves against foreign invasion.

India is developing a bluewater navy that could project power beyond its borders and China has a growing capability to operate outside its borders.

North Korea is developing missiles that could reach Southeast Asia. The only country capable of invading Australia, however, is the US and not even the looniest lefty would suggest that they have any intention of attacking us.

There is, therefore, no current external threat to the Australian continent and it is hard to see one emerging in the foreseeable future. Furthermore, in the 60 years that ANZUS has been in existence, there has been no threat of invasion to Australia.

So, the main argument for the alliance is based on the assumption that some currently unforeseen threat might emerge in the future which would require US intervention to protect us, either by coming to our aid directly or by providing a deterrent to a potential aggressor. While some people believe that China poses a future threat to Australia, most do not.

The second line of argument is that the US presence contributes to regional security and provides a balance to China and other potential hegemonic powers. It is said that most other countries in the region welcome this presence. Stability in the region protects our lines of communication.

The third benefit we get from the alliance is access to US intelligence, particularly technical capabilities, such as satellite imaging.

If we want the US cavalry to come thundering over the hill in our hour of need, then we must pay the premiums. Supporting US military adventures is the price we pay. ANZUS does not require the US to defend Australia if we are attacked, only to think about it.

Therefore, we have to keep reminding them that we are a loyal little ally deserving of their support. The alliance has got us into Vietnam, Iraq and Afghanistan, none of which, arguably, has done us much good. There will be strong pressure from the US for us to join in other military adventures that do not necessarily serve Australian interests.

The US has made it clear that it wants to be the pre-eminent power in the region, yet China also sees itself as number one. We cannot assume that the current moderate US Administration will remain in power and we may find ourselves under great pressure to declare for the US against China. Even under a moderate administration, American policymakers expect us to follow where they lead.

Another downside of the alliance is that we are seen by many other countries as a client state of the US. This may increase the risk of terrorist attacks on Australia if it is seen as a proxy for the US.

If we are to support the US in its overseas ventures, our military planners face a major problem in working out what force structure to build. Where will they ask us to join them next?

Does it really matter if other countries see us as clients of the Americans? It can be argued that being seen as such gives us some form of protection from potential aggressors, but it may also increase the risk of terrorist attacks on us.

For example, North Korea might be tempted to lob a missile at us because we are seen as a proxy for the US. If we were not, why would they bother?

Some would argue that the sacrifices made by our troops in insurance premium wars are an argument against the alliance. Perhaps so, but these forays do provide valuable combat experience for our armed forces. No amount of training can substitute for the experience of battle, even though it involves casualties.

Do we receive reliable intelligence that tells us anything we really need to know that we could not get from other sources? Does this intelligence in any way further Australian interests? To answer this question we would need access to classified material that will probably not be released.

It is worth noting, however, that US intelligence misled us on Iraq and presumably the Americans are not above doctoring what they give us in order to pursue American interests. While it may be hard to answer this question, we can ask, what kind of information do we need from the Americans to protect Australian interests? What intelligence do we get that we only need because of the alliance?

While the fall may be a long way off, the American Empire has begun its decline and the Chinese Empire is reasserting what it sees as its rightful place in the region. Many regional countries favor a balance between the two powers but we seem to be one of the few that wants an imbalance in favor of the US.

The government has said that our alliance with the US (which we seem to be building up) is not directed against China. Of course, the government must say publicly that it is not directed against China, but are we fooling anyone? If not China, then who is it directed against?

Is it possible, as the new Foreign Minister Bob Carr has suggested, to keep the alliance but to adopt a more independent posture within it? Obviously, we want to maintain good relations with the US. The question here is how independent can we be while maintaining our image in the US as a dependable ally?

It is perhaps instructive to note that the only time the US has sent a serious career ambassador (Marshall Green) to Australia was during the Whitlam years, when the US was concerned that we were becoming too independent.

 The others have been “friends of the President” who were given a comfortable job in return for domestic services rendered.

These are just some of the questions that need to be asked, but surely it is time to start asking them. It is one thing to remain a good friend, but too close an embrace will lead Americans and others to resurrect the “deputy sheriff” tag.

The Americans have always put their own interests first and will continue to do so; we should follow their good example. American interests will not always be the same as Australian and vice versa.

The bottom line, however, is the domestic political one. Australians are afraid of the outside world and convinced of their inability to cope with it. Any Australian government which suggested that we do without a great and powerful friend to look after us would have to consider the electoral implications.

The writer is an associate at Future Directions International, a private sponsored think tank based in Perth, West Australia. He has served as deputy chief of mission at the Australian Embassy in Jakarta. He is now adjunct professor in International Communication at Macquarie University, Sydney - KLIPPING THE JAKARTA POST

Strengthening Indonesia’s links, position, contribution at the G20

Maria Monica Wihardja, Jakarta | Wed, 04/25/2012 7:41 AM A | A | A| - Klipping The Jakarta Post Indonesia’s geopolitical position has been raised to the international level by its G20 membership. However, many still see it as the “elephant in the room” with its huge population and large entourage but little contribution. One of its most praised contributions and examples of leadership was its ability to phase out fossil-fuel subsidies in 2008. But, a probable failure to phase out fossil-fuel subsidies this year in the midst of increasing oil prices that threaten the national budget may be a setback to its reputation. Another widely recognized leadership example is its unilateral commitment to reduce greenhouse gas emissions by 26 percent and 41 percent with international support by 2020. However, this commitment lacks both solid evidence and a coherent implementation plan. The challenge for Indonesia now is how to strengthen its links, position and contribution at the G20; how to become an active rather than passive or reactive reformer with regard to not only national but also global issues; and how to assume a leadership role in global governance that has been in a vacuum with the decline of the old Western powers but without, as yet, the strong emergence of the new Eastern powers. In order to avoid the “elephant in the room” syndrome, Indonesia must adopt a few strategies to strengthen its links, position and contributions. Economic, political and social stability must be maintained at home. Strong, sustainable and balanced growth at home is itself a contribution to global economic recovery. However, credibility and soundness of national policies and authorities must precede this; they are not substitutes for any regional and international commitments that are not translated into domestic policies. G20 commitments must be backed by solid evidence and coherent implementation plans. The government should not use international commitments, such as efforts to mitigate climate change, just to win international community support. It must have clear scientific evidence of why such a commitment will serve the interests of the country and whether such a commitment can be feasibly implemented and undergoes a consultation period with different stakeholders at home. By looking at the trade balances of countries with the largest deficits and surpluses in the world, there is no sign of a reduction in global imbalances. Global imbalances will not disappear anytime soon. Some experts even see global rebalancing as a myth and an issue that only exists between Washington and Beijing. The highly inter-regionally integrated portfolio investment in Asia to the Europe and the US, with less than 10 percent of intra-regional integration, means that current-account rebalancing without being accompanied by capital-account rebalancing and financial development in Asia, will not be enough. For Indonesia, as it is not contributing much to the global imbalance, its focus must continue to be on increasing domestic competitiveness if it wants to catch up in the global trade supply chain, and to reorient export destinations to nontraditional market countries. Infrastructure would help toward the much-needed, long-term structural adjustments for Indonesia. It must be noted that the lack of infrastructure in Indonesia is not only a problem of financing, but a problem of institutional, especially regulatory, issues. Moreover, to ensure enough financing for infrastructure in the future, there must be huge fiscal reform, especially in phasing out energy subsidies. The regional and international appeal to finance its infrastructure development may not seem so credible if it is seen as not being serious in its own domestic fiscal reform, either because of a fragmented parliamentary system, a lack of leadership or a lack of support from the public because of a “trust deficit” due to previously high fiscal “leakages”. Despite the fact that G20 countries are committed to avoiding protectionism, they are responsible for 80 percent of the significant increase of trade-restrictive measures introduced during the second half of 2011. The number of protectionist measures in the third quarter of 2011 alone was as high as during the peak of the global financial crisis in 2008 - 2009. With increasing skepticism over globalization, Indonesia must not back down to political interests at home, but remain committed to improving the global trade environment as a whole. Indonesia may come up, for example, with initiatives to help countries who are adversely affected by free trade. Currently, Indonesia may be experiencing a “reform crisis” at home. There is no pressure to reform in a sound macroeconomic environment. But, normalcy and good times should not be excuses for complacency. Reforms must be institutionalized and not only implemented when there is a crisis, although such periods of time are the best for reform. Moreover, commitments to reform must not only be based on subjective judgments with an amount of political aroma, but objective, scientific- and data-based studies adjusted to national institutional and implementational constraints. The writer is a researcher at the Centre for Strategic and International Studies in Jakarta and a lecturer at the University of Indonesia’s school of economics.

Monday, April 23, 2012

Indonesia-Australia: Beyond bilateralism

Primo Alui Joelianto, Canberra | Tue, 04/24/2012 12:24 PM A | A | A | - Klipping The Jakarta Post After periods of fluctuation, Indonesia-Australia relations have matured into a well-developed state of friendship, probably the best that it has ever been. Indonesia’s political transformation from an authoritarian regime to a democratic state was one of the contributing factors that drove bilateral relations in a more positive direction. Other events in Indonesia and the region also shaped advances in bilateral relations. All this and more gave a new impetus for how the two nations would henceforth be closely interconnected. This realization was turned into an agreement to formulate and expand relations into a comprehensive partnership, signed in 2005 by both heads of state. This partnership reached new heights with the signing of the Lombok Treaty the following year, which outlined the two governments’ commitment toward cooperation in the political and security fields. Since those two milestones, bilateral relations have been constantly improving. As an indicator, we note that in the last four or five years, leaders of both countries have met each other at least 15 times in various forums. At the Cabinet level, both countries’ ministers have held meetings on more than 60 different occasions. All this points to the fact that the comprehensive partnership has gained speed and grows stronger every year. Many bilateral mechanisms have been made to enforce this partnership, the last three of which are the Annual Leaders’ Meeting, the 2+2 Ministerial Meeting of the Foreign and Defense Ministers, and the Indonesia-Australia Leadership Dialogue. Both governments readily acknowledge that economic and social ties between the two nations have much to be improved. The economic aspect is one example: Despite bilateral mechanisms such as the Annual Trade Ministers’ Meeting, the Working Group Meeting on Trade & Investment, and the Indonesia-Australia Ministerial Forum, the volume of trade between the two countries leaves much to be desired. In 2011, bilateral trade was at US$10 billion or up $1 billion compared to the previous year, but is dwarfed by Australia’s trade with Thailand, which reached $17 billion for the same period. Efforts are being undertaken to increase trade and investment levels between the two countries, such as through the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA). Indonesia and Australia are also ready to negotiate on the formation of the Comprehensive Economic Partnership Agreement (CEPA), which should make it easier to reach both countries’ target of $15 billion in annual trade and investment in the year 2015. At the community level, several programs have been designed to increase people-to-people contacts such as student exchanges, cross-border visits of faith leaders, an annual bilateral intermedia dialogue, the Australian Volunteers International (AVI) program, the Australian Youth Ambassadors for Development (AYAD) program, and others. The close partnership between Indonesia and Australia is not only evident at the bilateral level but also at the regional and international levels. Both countries have shared the chairmanship of regional meetings such as the Bali Process, the Inter-Faith Dialogue, the Bali Democracy Forum and others. In combating terrorism in Indonesia, Australia has not only supported but also funded the establishment of the Jakarta Center for Law Enforcement Cooperation (JCLEC) in Semarang, Central Java. When the US pioneered the Global Terrorism Forum, Indonesia and Australia both formed its Southeast Asia Working Group subdivision. Indonesia and Australia have also worked together actively in other global and regional forums. Hence, the fruits of this close partnership and its bilateral cooperation can be seen and felt at the regional and international levels. In the future, this partnership should not be just maintained but also expanded, specifically geared toward the establishment and management of a regional architecture that will in turn help support and stabilize a global architecture of nations. It is noteworthy that at the birth of the East Asia Summit, Indonesia was the only country that insisted from the beginning on the inclusion of Australia — as well as India and New Zealand — in the EAS. Indonesia’s foreign minister at the time, Hasan Wirajuda, likened the establishment of the EAS to a plane, where the inclusion of those three countries would help it fly. If the fuselage is ASEAN, then the wings are the Plus Three countries of China, Japan and Korea, while the tail wings were Australia, India and New Zealand. Nowadays, the EAS mechanism is even stronger with the addition of the US and Russia, adding to the premise that a numerical expansion will provide exponential growth. This also means that a dynamic equilibrium must be guarded and fostered in the new EAS, requiring even more understanding and unanimity among its participants on how to achieve that equilibrium. The major ingredient in attaining that equilibrium is ASEAN itself, sitting in the driver’s seat in this regional vehicle, which is why internal ASEAN consolidation must continue to be strengthened and perfected while differences should be ironed-out at each earliest opportunity. ASEAN must also be wise in answering and managing the wishes of one or more participants of the EAS regional architecture who seek a larger role within the EAS. In this regard, besides ASEAN itself, Indonesia can also call upon Australia in such efforts, specifically because both countries have the spirit of comprehensive partnership and on many occasions Australia has also endorsed the centrality of ASEAN. On the same grounds, when the idea surfaced in the Australian government to provide port and accommodation facilities to American marines on rotation in Darwin, it was incumbent upon the Australian government to convince countries in the region by providing concrete evidence that the policy was not directed at one particular country. Australia would continue to explain that the placement and rotation of US marines in Darwin was designed as a forward base for emergency relief efforts, and subsequently both the Indonesian and Chinese ambassadors in Canberra were summoned to the Australian Foreign Ministry office to be briefed about those arrangements. Thus, when President Susilo Bambang Yudhoyono suggested joint exercises between countries in the region, including China, Australia responded to this constructively. We recall that during the EAS in November 2011, Indonesia and Australia had together produced an Indonesia-Australia paper entitled “A Practical Approach to Enhance Regional Cooperation on Disaster Rapid-Response”, whose operational form did call for joint exercises between EAS participants. The paper itself gained the blessing of the participants of the EAS. It is true that participants of the EAS had previously acceded to the Treaty of Amity and Cooperation (TAC), which was then complemented with the Declaration of the EAS on the Principles of Mutually Beneficial Relations adopted at the EAS in Bali in November 2011, but the implementation phase must be safeguarded and managed in such a way that the benefits of the EAS can be felt by all its participants in equal measure. Indonesia can continue to stand at the forefront of ASEAN in the safeguarding and managing process, all the while pushing Australia to join in the effort especially in relation to its closest partners within the EAS regional architecture. If this can be achieved, the Indonesia-Australia partnership can be seen as comprehensive in the real-world meaning of the term, achieving far beyond bilateralism while also bringing a comfortable level of regional stability, which in turn will support global stability and security. The writer is the Indonesian Ambassador to Australia.

Stability in Indian Ocean : Don’t militarize the ‘great connector’

Sandy Gordon, Perth, West Australia | Tue, 04/24/2012 12:27 PM A | A | A | - Klipping The Jakarta Post The Indian Ocean is Australia’s backyard — at least if one lives in the West. It also plays a major role in transporting energy from the oil- and gas-rich Persian Gulf to Australia’s principal trading partners, China and Japan. With each passing year, these and other East Asian powers become more dependent on the free passage of oil across the Indian Ocean. This dependency makes China nervous. India and China have an ambivalent relationship. On the one hand, they have common interests, based on growing trade and similar positions in the World Trade Organization and on climate change. But, on the other, they have abiding suspicions over the long-standing border dispute and what India sees as Chinese meddling in its own back yard: South Asia and the Indian Ocean region. New Delhi is, above all, concerned about China’s friendship with India’s principal competitor in South Asia, Pakistan, and also with Beijing’s growing economic and military relationships in the Indian Ocean region. For its part, Beijing is deeply concerned about India’s growing naval clout in the Indian Ocean. It fears that India, possibly in collusion with the US, could interdict its oil in times of rising tension or war. Even though India is far weaker than China, it has the advantage of occupying a strategic “box seat” in the Indian Ocean. It also shares many commonalities with the US in its longer-term strategic outlook and the two navies frequently exercise together. All this gives rise to a classic “security dilemma” in the Indian Ocean region — one in which China fears India might cut off its oil, while India fears China’s counter-maneuvers are intended to “surround” it. If this were not bad enough, the Indian Ocean is surrounded by some of the poorest, most troubled countries in the world. It confronts enormous issues of poverty and food and water scarcity. It suffers serious nonconventional security threats: Terrorism, people smuggling and trafficking, drug and gun smuggling, piracy and a host of environmental and natural disaster challenges. Any actions that would have the effect of deepening this security dilemma, such as the proposals recently floated in Washington to base US reconnaissance aircraft on the Cocos (Keeling) Islands and nuclear-powered submarines at HMAS Stirling (the Royal Australian Navy’s largest base, located in the southern suburbs of Perth, West Australia) should be avoided. China would definitely interpret any such moves as an attempt to threaten its “soft underbelly” — its high dependency on Middle East oil — during times of rising tension. What is needed instead is a strategy designed to provide for joint action in the “commons”, to alleviate the sense of insecurity on the part of the major powers that their legitimate interests in the Indian Ocean might not be met. Unfortunately, the security-building mechanisms in the Indian Ocean are inadequate and show little prospect of improvement. Unlike the Asia-Pacific, where four great powers (the US, China, Japan and Russia) to an extent balance each other, India is by far the dominant littoral power in the Indian Ocean. Australia has the next most powerful navy, and it can only aspire to be a middle power. This means that India is able to dominate the security-building mechanisms in the Indian Ocean: No India, no viable mechanisms. As with any great power, India will use its influence to ensure its wishes are met. Those wishes have more to do with locking out what it fears to be a China-Pakistan combination, rather than building a regime capable of solving some of the region’s manifest problems so that can all “rise on the same tide”. So, Canberra should be working quietly trying to convince New Delhi that the best way to ensure that China doesn’t seek a permanent military presence in the Indian Ocean region would be to work with it to alleviate its concerns, through collective action to address the non-conventional and other problems of the region. This would not be a short-term prospect, however. Australia’s challenge would be to convince Washington of this need, as much as it would be to convince India and China. But we must make a beginning. The Indian Ocean must remain “the great connector”, which has been its principal role throughout its long history. If, indeed, US forces require reinforcing in the Indian Ocean, then at the very least it will be important to ensure that they are perceived to be, and are in fact, designed to assist the region meet its multifarious nonconventional security challenges. This would, in turn, require that Washington take a stronger interest in security building mechanisms in the region than it has hitherto. Prof. Sandy Gordon is an associate at the Future Directions International, a think tank based in Perth, West Australia. He is a visiting fellow at the College of Arts and the Pacific, Australian National University, Canberra, and author of Security and Security Building in the Indian Ocean region.

Tuesday, April 10, 2012

Defending our regional environmental security

Juwono Sudarsono, Jakarta | Tue, 04/10/2012 10:47 AM A | A | A | - Clipping The Jakarta Post

I commend the Ministry of the Environment and United States Pacific Command (PACOM) for jointly organizing and hosting a recent gathering representing 17 nations, including service personnel of ASEAN defense forces.

The meeting on “Southeast Asia Regional Environmental Security” was an integral part of our commitment to address the consequences of climate change on regional and global security. It is a practical forum to provide ideas in anticipation of the 20th anniversary of the Earth Summit in Rio de Janeiro, in mid-June 2012, which will be a defining global benchmark.

Numerous seminars and conferences have expressed the urgency for governments, businesses, NGOs and communities to adapt and prepare for climate change as a result of population growth, global warming, rising sea levels, high temperatures, deforestation, coastal inundation and the exploitation of the world’s land and undersea resources.

We seek practicable solutions on how best we consume the world’s fuel, energy and water linked to the defense of our environment, including the defense of local communities throughout Southeast Asia.

This meeting focused on the application of military resources and organizations to assist governments, societies and communities mitigate environmental degradation.

The military and security services have specific skills and resources in strategic planning under conditions of uncertainty. These organizations reinforce “whole of government” assets to engage global, regional, national, provincial and local dimensions of decision-making to provide a timely emergency response and humanitarian assistance.

USPACOM commands the strategic and the environmental dimensions of much of the world’s commons. PACOM’s critical role as “first responder” was underlined by the timely efforts it made in the aftermath of the Indian Ocean tsunami in December 2004.

Without PACOM’s ships, planes, helicopters, resources and emergency supplies, the defining moment of disaster response in the 21st century would not have been possible. PACOM is continuing to manage trans-regional cooperation together with ASEAN’s disaster management and humanitarian agencies gained support from China, Japan and Korea.

The ASEAN defense ministers meeting (ADMM) also commits itself to sustain long-term efforts at enhancing regional environmental security.

ASEAN is at an intersecting point of balancing major power political, economic and security interests and must ensure that ASEAN’s own institutions safeguard our individual and collective environmental security.

How will future environmental security cooperation fit into the above trends? What combination of “hard” and “smart” powers must leadership groups in the government, in the military, in private business and in civil society command in order to collaborate in the coming 10, 20, 30-year time horizons?

Can regional environmental security remain a central commitment among all powers that have an interest in Southeast Asia’s oil, gas, timber, water and mineral resources critical to their economic growth and to the region’s environmental sustainability?

That is the challenge facing Brunei, Cambodia, Vietnam, Laos, Indonesia, Malaysia, Thailand, Singapore, The Philippines and our South Pacific neighbors.

What will be the role of traditional “military power” compared to the growing importance of “non-military capability” such as the need to develop brain-ware, creativity, ideas and innovation, including in the vital area of environmental sustainability?

What is the optimum mix matching the ability to secure military targets with the ability to “recapture, reuse and recycle” natural and environmental resources, including promoting effective alternative energy?

How can our military officers retain our joint commitment to better interface the planning of “security” over physical space with the “non-traditional security” of environmental sustainability vital to determining Southeast Asia’s ability to thrive in a safer and peaceful regional environment?

The Indonesian doctrine of “total defense and security” is encapsulated in our officers’ and enlisted personnel’s abiding commitment that the TNI is at once “a people’s force, a fighting force, a national force and a professional force.”

Every Indonesian soldier, sailor, airman and marine is duty bound to respect and preserve the values, assets and human resources of all of our diverse cultural and belief systems.

Defense of cultural resilience is central to our conviction that the diversity of cultures resonate in the hearts and minds of all Indonesians from Sabang to Merauke.

Our notion of “total defense and security” provides “cultural space” in each locality, thereby replenishing our national commitment that “Unity in Diversity” be preserved by all Indonesians across all cultures in the islands, waterways, valleys and forests of our vast archipelago.

My distinguished compatriot, the Environment Minister Balthasar Kambuaya, hails from Papua, the most culturally diversified of provinces in Indonesia.

Papua has over 300 tribal and language groups, each with its unique affinity to the natural endowments at hand: timber, oil, gas, copper, marine and aquatic resources.

At the same time, the diversity of Papua’s cultural make-up constitutes an abiding challenge to ensure that the heritage of all tribal people in those hills and mountains, valleys, rivers, gorges and coastlines remain protected through our provincial and national commitment to sustain environmental security and should be replicated throughout Indonesia.

I am convinced that future generations of military leaders and defense managers will ensure that the shared responsibility to secure the environmental resilience of all Indonesians within each cultural cluster be respected and duly protected by all soldiers, sailors, airmen and marines that constitute the Indonesian National Defense Force.

This article is based on the keynote address presented at the Regional Environmental Security Conference, recently held in Jakarta, which was jointly organized by the Indonesian Environment Ministry & the Honolulu based US Pacific Command. The writer, a former defense minister & former environment minister, is professor emeritus of International Relations & Geo-Politics, University of Indonesia.

Juwono Sudarsono, Jakarta | Tue, 04/10/2012 10:47 AM A | A | A | I commend the Ministry of the Environment and United States Pacific Command (PACOM) for jointly organizing and hosting a recent gathering representing 17 nations, including service personnel of ASEAN defense forces.

The meeting on “Southeast Asia Regional Environmental Security” was an integral part of our commitment to address the consequences of climate change on regional and global security. It is a practical forum to provide ideas in anticipation of the 20th anniversary of the Earth Summit in Rio de Janeiro, in mid-June 2012, which will be a defining global benchmark.

Numerous seminars and conferences have expressed the urgency for governments, businesses, NGOs and communities to adapt and prepare for climate change as a result of population growth, global warming, rising sea levels, high temperatures, deforestation, coastal inundation and the exploitation of the world’s land and undersea resources.

We seek practicable solutions on how best we consume the world’s fuel, energy and water linked to the defense of our environment, including the defense of local communities throughout Southeast Asia.

This meeting focused on the application of military resources and organizations to assist governments, societies and communities mitigate environmental degradation.

The military and security services have specific skills and resources in strategic planning under conditions of uncertainty. These organizations reinforce “whole of government” assets to engage global, regional, national, provincial and local dimensions of decision-making to provide a timely emergency response and humanitarian assistance.

USPACOM commands the strategic and the environmental dimensions of much of the world’s commons. PACOM’s critical role as “first responder” was underlined by the timely efforts it made in the aftermath of the Indian Ocean tsunami in December 2004.

Without PACOM’s ships, planes, helicopters, resources and emergency supplies, the defining moment of disaster response in the 21st century would not have been possible. PACOM is continuing to manage trans-regional cooperation together with ASEAN’s disaster management and humanitarian agencies gained support from China, Japan and Korea.

The ASEAN defense ministers meeting (ADMM) also commits itself to sustain long-term efforts at enhancing regional environmental security.

ASEAN is at an intersecting point of balancing major power political, economic and security interests and must ensure that ASEAN’s own institutions safeguard our individual and collective environmental security.

How will future environmental security cooperation fit into the above trends? What combination of “hard” and “smart” powers must leadership groups in the government, in the military, in private business and in civil society command in order to collaborate in the coming 10, 20, 30-year time horizons?

Can regional environmental security remain a central commitment among all powers that have an interest in Southeast Asia’s oil, gas, timber, water and mineral resources critical to their economic growth and to the region’s environmental sustainability?

That is the challenge facing Brunei, Cambodia, Vietnam, Laos, Indonesia, Malaysia, Thailand, Singapore, The Philippines and our South Pacific neighbors.

What will be the role of traditional “military power” compared to the growing importance of “non-military capability” such as the need to develop brain-ware, creativity, ideas and innovation, including in the vital area of environmental sustainability?

What is the optimum mix matching the ability to secure military targets with the ability to “recapture, reuse and recycle” natural and environmental resources, including promoting effective alternative energy?

How can our military officers retain our joint commitment to better interface the planning of “security” over physical space with the “non-traditional security” of environmental sustainability vital to determining Southeast Asia’s ability to thrive in a safer and peaceful regional environment?

The Indonesian doctrine of “total defense and security” is encapsulated in our officers’ and enlisted personnel’s abiding commitment that the TNI is at once “a people’s force, a fighting force, a national force and a professional force.”

Every Indonesian soldier, sailor, airman and marine is duty bound to respect and preserve the values, assets and human resources of all of our diverse cultural and belief systems.

Defense of cultural resilience is central to our conviction that the diversity of cultures resonate in the hearts and minds of all Indonesians from Sabang to Merauke.

Our notion of “total defense and security” provides “cultural space” in each locality, thereby replenishing our national commitment that “Unity in Diversity” be preserved by all Indonesians across all cultures in the islands, waterways, valleys and forests of our vast archipelago.

My distinguished compatriot, the Environment Minister Balthasar Kambuaya, hails from Papua, the most culturally diversified of provinces in Indonesia.

Papua has over 300 tribal and language groups, each with its unique affinity to the natural endowments at hand: timber, oil, gas, copper, marine and aquatic resources.

At the same time, the diversity of Papua’s cultural make-up constitutes an abiding challenge to ensure that the heritage of all tribal people in those hills and mountains, valleys, rivers, gorges and coastlines remain protected through our provincial and national commitment to sustain environmental security and should be replicated throughout Indonesia.

I am convinced that future generations of military leaders and defense managers will ensure that the shared responsibility to secure the environmental resilience of all Indonesians within each cultural cluster be respected and duly protected by all soldiers, sailors, airmen and marines that constitute the Indonesian National Defense Force.

This article is based on the keynote address presented at the Regional Environmental Security Conference, recently held in Jakarta, which was jointly organized by the Indonesian Environment Ministry & the Honolulu based US Pacific Command. The writer, a former defense minister & former environment minister, is professor emeritus of International Relations & Geo-Politics, University of Indonesia.

Monday, April 2, 2012

ASEAN needs to liberalize ‘realistically’

Linda Yulisman, The Jakarta Post, Phnom Penh | Tue, 04/03/2012 10:12 AM A | A | A | -Klipping The Jakarta Post

A senior minister says Indonesia is set to propose a more “realistic” agenda for liberalizing trade and investment in Southeast Asia when the 20th ASEAN Summit begins in Phnom Penh, Cambodia, on Tuesday.

ASEAN needed to acknowledge the limits of individual member nations, despite its intention of establishing an integrated economic community in 2015, Trade Minister Gita Wirjawan said on Monday.

“Due to the limitations, we must be realistic in liberalizing trade and investment. This will also apply in the realization of the national single window,” he said after the 7th ASEAN Economic Community (AEC) Council meeting.

Awareness of the political dynamics of individual member nations was also needed to eliminate the hurdles that might block realization of the AEC, Gita added.

ASEAN, home to around 600 million people and with a combined gross domestic product (GDP) of US$1.8 trillion in 2010, has been gearing up to launch a single market in 2015 through stepped-up cooperation, including, among other things, enhancing connectivity between member nations.

Intra-ASEAN trade has rebounded from a dip resulting from the 2008 global financial crisis, reaching $519.7 billion in 2010, up from $376.2 billion in 2009 and $470 billion in 2008.

In 2010, the figure represented 25 percent of ASEAN’s total trade of $2.04 trillion.

Gita said that the two-day summit would also highlight technical steps to ease use of the ASEAN Infrastructure Fund (FIF), a financing project to help boost connectivity in the region.

Last week, ASEAN finance ministers agreed to launch a project in May to distribute $4 billion to member countries through 2020.

A shareholder agreement was recently signed by member nations and ASEAN intends to launch the fund at a meeting to be held in Manila, the Philippines, in May.

The fund will have an initial equity contribution of $485.2 million, with $335.2 million originating from nine ASEAN member nations and the remaining $150 million provided by the Asian Development Bank.

Gita said that Indonesia would raise concerns over the requirements of a member nations to access the fund.

“We don’t want the mechanism to only highlight ‘bankability’, as some nations may be more bankable than the others,” Gita said.

“We must prioritize those who really need it most,” he added.

Economic imbalances between ASEAN’s member nations have been a recurring theme, as there has been a wide gap between the association’s most developed nations.

Singapore, for example, recently reported annual per capita GDP of more than $37,000, while lesser-developed nations, such as Laos, reported per capita GDP of $980, and host country Cambodia reported a per capita GDP of $700.

Apart from the plenary session, the Indonesian delegation, to be led by Vice President Boediono and which includes Foreign Minister Marty Natalegawa, will join other leaders in a series of meetings.

On the agenda is a meeting with representatives of ASEAN’s Inter-parliamentary Assembly (AIPA) and representatives of civil society organizations on Tuesday.

Scorecards show ASEAN on track for single community

Linda Yulisman, The Jakarta Post, Phnom Penh | Tue, 04/03/2012 10:31 AM A | A | A | - Klipping The Jakarta Post

A joint assessment of the score cards evaluating the progress of each ASEAN member toward the creation of a single economic community in the region shows that all countries are on track with their commitments, a minister has said.

“Every country has achieved the requirements or is on target to achieve them. In various aspects, such as connectivity, trade in goods and services, we are ready,” said Trade Minister Gita Wirjawan after the seventh ASEAN Economic Community Council Meeting in Phnom Penh, Cambodia, on Monday.

Gita cited several achievements, which have been made recently, including the signing of a customs agreement by the region’s finance ministers in March and another agreement on a single aviation market made between transportation ministries.

As envisioned by the AEC 2015 Blueprint, the community will be supported by four pillars: a single market and production base, a highly competitive economic region, a region with equitable economic development and a region fully integrated into the global economy.

The establishment of the community will be a continuation of earlier efforts made through the ASEAN Free Trade Area (AFTA) started in 1992. Through the free trade pact, 99.11 percent of tariffs in ASEAN-6 (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand) have already been lifted since 2010, while 98.86 percent tariffs of ASEAN-4 (Cambodia, Laos, Myanmar and Vietnam) have been reduced to between 0 and 5 percent.

Despite this progress, Gita said, ASEAN countries might face tougher challenges ahead in implementing the ninth and 10th packages of the ASEAN Framework Agreement on Services (AFAS).

“Package 9 will be challenging and Package 10 will even be more so, but we’ll try to address issues pertaining to them,” he said.

In the meeting, ASEAN trade ministers agreed to make special efforts to fulfill the integration of services by using available measures to protect sensitive subsectors.

ASEAN sealed its integration commitment in the services sector through the AFAS signed by ASEAN economic ministers on Dec. 15, 1995, in Bangkok, Thailand.

It aims to boost cooperation in services among the ASEAN member states to improve efficiency and competitiveness, enlarge production capacity and the supply and distribution of services as well as improving market access.

All AFAS rules comply with international trade rules under the General Agreement on Tariffs and Trade (GATT) of the World Trade Organization (WTO), including most favored nation (MFN) rules.

Gita said that apart from these issues, ASEAN members would also work on the issue of equitable development toward the establishment of AEC through financial inclusion and diversification of export markets to nontraditional markets, such as the Middle East, South American and African countries.

Indonesia would host a conference on financial inclusion and an ASEAN-Latin America Forum in the middle of this year, which would include government officials and business communities in the region, he said.

Intra-ASEAN trade has expanded significantly in recent years, reaching US$470 billion in 2008, $376.2 billion in 2009 and $519.7 billion in 2010. Indonesia’s non-oil and gas exports to ASEAN totaled $26.99 billion in 2010 and rose by 19.4 percent to $32.22 billion last year.