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Weekend catch-up: Beyond the Boom, Indonesia, debt, Indian foreign policy and much more

Weekend catch-up: Beyond the Boom, Indonesia, debt, Indian foreign policy and much more
Published 28 Jun 2014   Follow @SamRoggeveen

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

This week the Lowy Institute revived its Lowy Institute Papers series, now to be published in cooperation with Penguin Australia. The first paper in the series (Beyond the Boom by John Edwards) looked at Australia's mining boom, asking whether the boom is really over and questioning how much it contributed to Australia's prosperity. We've kicked off a debate on these questions and John summarised his arguments for Interpreter readers:

The investment phase is certainly beginning to wind down but the mining boom is not over – and in some important respects it has barely begun. Anyway, the mining boom does not explain Australia's long run of economic success. Australia's economy grew faster in the ten years before the boom began than it did in the ten years after, and incomes rose more rapidly. Exports increased much more in the ten years before the boom began than the ten years since. Over its first decade the mining boom saw an expansion of the resources sector by something like 3% of GDP and an addition to Australian income of something like 3% of GDP – both useful contributions, but much less than the imagined gain.

The first response to John's paper came from Alex Tabbarok, a professor in economics at George Mason University:

Edwards focuses on the past. I will say more about the future. First, a simple point about China. China does not have the institutions — rule of law, honest government, sound property rights and so forth — to push beyond middle-income status. China's growth rate, therefore, while it has been astonishing, will decline. The Chinese economy will get bigger, just at a slower rate. Thus, the demand for Australian exports will remain high even as prices moderate and, with its recent investments in infrastructure, Australia is well placed to deliver exports profitably even at lower prices. Second, mining is not just about getting stuff out of the ground. Mining is about transportation, automation, and logistics. Rio Tinto's driverless train system, for example, is the most advanced in the world. Exporting logistic services is another boom field for Australia.

As Jon Stewart memorably illustrated, every US president since Nixon has called for freeing the US from 'dependence on foreign oil' (within ten years!). Every president has failed. Fracking, however, has delivered the goods. Fracking has reduced the price of energy while generating millions of jobs and reducing net emissions of greenhouse gases. The fracking revolution has only just begun in Australia. Australia has abundant supplies of natural gas and if it creates a national market and avoids parochial calls for price controls and environmental NIMBYism it will certainly become the world's largest exporter. While profiting from natural gas production and infrastructure investment, Australia will also help the world to move closer to greenhouse gas targets.

The Interpreter had a scoop this week (welcome to all our new readers), with Indonesia Fellow Aaron Connelly suggesting that Prabowo Subianto might now be the favourite in Indonesia's presidential election, which is less than a fortnight away: [fold]

New polling data on Indonesia's presidential election — and the lack of it from certain critical quarters — suggests that Jakarta Governor Joko Widodo's 38-point lead of three months ago has evaporated. He and his opponent, former military commander Prabowo Subianto, may be locked in a dead heat. 

If the race is as close as it appears, that would favour Prabowo. Local party officials who have kept a foot in both camps as the race tightened are now likely to board the Prabowo bandwagon as it picks up momentum. Moreover, businessmen are now likely to place new bets on Prabowo's already well funded campaign. As The Economist noted last week, those close to the Jokowi campaign say that a sense of panic has set in among his campaign staff.

Prabowo Subianto must now be considered the favourite to win the 9 July presidential election, a result that was unthinkable just a month ago.

Still on Indonesia, Catriona Croft-Cusworth reported on the foreign and defence policy debate between the two presidential contenders:

It's not surprising to hear nationalist rhetoric in the lead-up to a presidential election. Jokowi's prepared comments on Indonesia's 'integrity' were likely drafted to dispel the public perception that Prabowo would be a more firm and decisive leader than Jokowi, who tends to solve problems via consultation and consensus. Prabowo's comments about military and economic might are surely also playing to this perception.

However, Australia should take note that its relationship with Indonesia was considered important enough to be raised during Sunday night's debate. Regardless of who emerges as Indonesia's new leader in the coming months, the Lowy poll and the televised debate suggest that Australian attitudes towards Indonesia play a crucial role in the relationship.

Kadira Pethiyagoda wrote on the the importance of cultural identity and values in the formulation of Indian foreign policy:

Despite the BJP's reputation, a focus on cultural identity won't necessarily convert to hyper-nationalism; it can also be part of India's enormous potential in the field of 'soft power'. For instance, Modi justified the maintenance of India's 'no first use' (NFU) nuclear policy by calling it a reflection of the country's cultural heritage. Granted, India's nuclear competitors don't trust the NFU pledge, but it is likely that Modi's statement is more than just spin.

Modi is likely to follow the tradition of the last BJP government (1998-2004), which did not seriously consider nuclear weapons as useable war-fighting instruments. 

In the View from Rangoon, Elliot Brennan discussed the recent political maneuvering of Aung San Suu Kyi (and constitutional reform in Myanmar more broadly):

In organising these mass rallies and upping the rhetoric around the discussion of constitutional amendments, Aung San Suu Kyi has challenged the military establishment to change its role in the country. It's a challenge that has come too soon for some. The powerful figurehead and Commander-in-Chief of the Armed Forces, General Min Aung Hlaing, is unmoved. He argued in an Armed Forces Day speech in March that the Tatmadaw (the armed forces) was 'mainly responsible for safeguarding the constitution'.

Concern over sovereignty is the chosen argument of the naysayers to the amendments. This is sensitive issue, with bubbling ethnic tensions and a violent and highly volatile situation in Rakhine state with ongoing persecution of the Rohingya, locally known as Bengalis. Any change to the constitution would likely open a Pandora's Box, opening calls for a complete rewrite. Many would want a debate on a new Panglong agreement, a federal system, which has long been popular among ethnic groups.

Switching to economics, here's Stephen Grenville on the legal complications of sovereign debt restructuring:

Just as individuals default, countries also reach a stage where they can't repay their debts in full. Simply insisting on the 'sanctity of contract' doesn't get us far in resolving the issues. The debt problem is usually as much the fault of the creditor as the debtor — remember all those Euro-periphery bonds that were bought at yields almost the same as Germany's? Sitting down to reach a practicable resolution makes sense. When the clear majority of the creditors have done exactly that, those who come along afterwards to buy the 'hold-out' debt at a heavily-discounted price and then act as if they should be paid in full shouldn't be surprised if they earn the title of 'vultures'.

The damage is now done. Sovereign debt resolution can't be left in this unsatisfactory state. Europe provides many examples (Greece being the most prominent) of where the outstanding debt is clearly unsustainable and more restructuring is needed.

And Julian Snelder on China's banking sector:

Risk of loss is the root problem. Both Chinese industry and banks lack real equity. The economy is highly credit intensive, yet banks must continue underwriting loans to keep it running. But investors have lost confidence in the true state of the banks, which are in turn forced to issue junk capital. Investors are unwilling to buy it except at a high price, perhaps 7-8%pa for the best banks, which means 10%pa or more for the weaker ones. No investor really expects a state-owned bank to go bust (if they did they'd demand a lot more than 7%) but they are nonetheless scared of corporate losses piling up at the banks.

Under China's bold new economic reforms, it still isn't clear whether and how major financial losses will be permitted. Beijing needs somehow to untangle this knot and begin the recapitalisation of the banks and the entire economy: more equity, less debt.

 The sentencing of journalist Peter Greste in Egypt this week understandably caused much outrage in Australia. Anthony Bubalo reminded us not to forget the broader political situation in Egypt:

It is these arrests that make a mockery of the regime's claim that it is only fighting terrorists. Indeed, even if every charge the regime has made against the Muslim Brotherhood is true (and some of them are), this still does not explain or excuse the wider crackdown.

Journalists like Greste are being arrested or intimated precisely because, to use the words of the Prime Minister, they 'report the Brotherhood', or anything else the regime does not like. What the Greste case demonstrates is that both as a matter of principle, and on very practical grounds, the international community cannot turn a blind eye to the wider assault on Egyptian citizens while expecting special protections for its own.

Still on the Middle East, Thomas Lonergan looked at an innovative solution to the potential problem of extremists returning to Australia after fighting in Syria and Iraq:

Government should consider establishing a Joint Inter-Agency Task Force (JIATF) to address the urgent Australian jihadist threat. The JIATF's mission would be to gather and analyse intelligence, liaise with allied and other foreign partners and take law enforcement action against Australian jihadists (it should also ensure that things like this don't happen again). At home, increased messaging to deter and prevent travel, and an invigorated effort to counter violent extremism, would be essential. 

To work, the JIATF must have a binding command and management mechanism. The JIATF's senior leaders must be given the legislative authority to give direction and make decisions for all the participating agencies. Furthermore, operational funding should be provided directly to the JIATF and not be 'filtered' by parent agencies.

Finally, here's an interesting piece by Robert Kelly on the 'dangerous indulgence' that is the debate on history between South Korea and Japan:

The Korea-Japan dispute over history is back yet again, with the Japanese Government this week releasing a 'review' of the drafting of the 'Kono Statement.'

That statement is the 1993 Japanese admission, by Chief Cabinet Secretary Yohei Kono, that the Imperial military during the Pacific War organised military brothels in which Korean women were often forced to serve. The Japanese euphemisms for this is 'comfort women' and 'comfort stations'; in reality, this was enforced prostitution that inevitably included beatings and other abuse. As the Japanese empire expanded, the practice spread across Asia, including women in Japan's Southeast Asian holdings.

Much of this is well known and widely accepted outside of Japan. There is a fairly substantial literature on it, especially in Korea where the practice was widespread (this is a good place to start). Even within Japan, it is really only the hard right which disputes this history, insisting that all these women were voluntary prostitutes (for a colourful example of the sort of hate mail I get on this, try here). Kono himself says there is nothing to add to the previous statement, and even the US has urged Japan to leave it alone.

Photo by Flickr user Ed Yourdon.

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