Briefing MONTHLY #24 | February 2020
Animation: Rocco Fazzari
PACIFIC v SOUTH EAST ASIA
The Wallace line has divided the South East Asian ecosystem from the flora and fauna of the western Pacific since it was coined by the naturalist Alfred Russel Wallace in 1859. But this year seems set to see a new Wallace line carved through development assistance spending, as the federal government’s aid review grapples with the different challenges in Australia’s two groups of near neighbours. At the same time, the momentum towards defining aid more broadly to take account of new sources of money and new forms of economic assistance is clearly emerging as a key theme for the government.
International Development Minister Alex Hawke flagged important policy shifts in both of these areas in his most detailed speech on these issues at the Australasian Aid Conference in Canberra. Amid growing criticism of the way Australia development aid has been reduced in the more populous South East Asian countries, Hawke declared he was “absolutely biased in favour of the Pacific region.”
Meanwhile on the issue of conventional cash aid he said: “What we have seen is success in other areas of policy – remittances, private capital, foreign investment – increasingly important for our development partners throughout the region, in many cases, far outweighing ODA funds and flows that are available from governments.”
The need to treat the faster growing, wealthier SE Asia countries differently to the less populous and economically narrower Pacific countries has been building for some time. But the shift towards constructing expensive infrastructure in the Pacific in the Pacific Step-up seems set to force a broader aid step change this year.
Australia’s deputy ambassador to Indonesia Allaster Cox underlined the pitfalls by pointing out that 160 million Indonesians were living on a lower per capita income than 11 million Pacific islanders. So, expect to see more so-called partnership aid projects in SE Asia where the host country contributes money alongside Australia and the declining Australian cash contribution is more focused on ensuring the program is well run with proper analysis of the outcomes.
But even in the Pacific, where Australia is boosting its aid with large infrastructure projects such as undersea internet cables designed to push back against Chinese influence, the demand for partnership approaches is growing. Papua New Guinea’s high commissioner John Kali said Australia needed to review how it engaged with his country. “We are not mere recipients anymore. It is not what you give, it is how it is delivered.”
- Asia Society Australia’s new Executive Director, Policy, Richard Maude, argues that the aid review should be an opportunity to stabilise and recommit to Southeast Asia “which has suffered repeated cuts and changes in programming in recent years.” And while he says Australian assistance can’t ‘fix’ Southeast Asia’s many challenges, it has shown in countries like Indonesia and Vietnam that it can support good policy choices.
NEIGHBOURHOOD (DEMOCRACY) WATCH
ONE MAN BAND
Mahathir Mohamad was Malaysia’s fourth prime minister as an outsider turned irascible member of the ruling elite. And he was the country’s seventh prime minister as an unlikely reform coalition leader undoing some mistakes from the past. So, what will his third act look like? It is hard to go past the photograph on Tuesday of the nonagenarian leader at his desk in his civil servant’s uniform signing documents. His ministers were gone, the country’s parties were in turmoil and he was calmly back running the country by himself. Malaysia now has three broad political groupings – the remaining parties from the former Pakatan Harapan government, the United Malays National Organisation (UMNO)-led opposition and a fluid centre comprising parties from the two eastern states, breakaways from the government and potentially some new UMNO dissidents. All three have variously sought to claim Mahathir’s support and distance themselves from him the past few days. That seems to still leave the acting prime minister in a position to be the power broker. But, he is 94.
- This article from Malaysiakini explores the emergence of Malaysia’s three new political factions.
NO WAY FORWARD
As the surprise upstart success at last year’s Thai election, the Future Forward Party offered one of the more promising prospects of cutting through the decade-old impasse between the Bangkok yellow shirt establishment and the red shirt loyalists of exiled former prime minister Thaksin Shinawatra. Its disbanding by yet another court intervention in the country’s fractured democracy has likely improved the parliamentary position of Prime Minister Prayuth Chan-ocha, but fuelled fresh extra-parliamentary opposition to the government led by the new Future Forward Movement. And the group hasn’t lost its taste for attention grabbing attacks on the government by claiming it helped the former Malaysian government cover up the 1MDB scandal.
- Future Forward’s billionaire founder Thanathorn Juangroongruangkit remains the most charismatic figure on the Thai landscape. This Nikkei Asian Review article asks whether he can avoid Thaksin’s fate.
COMMON MAN NO MORE
Former tax collector turned politician Arvind Kejriwal may have taken down two Indian political giants with his landslide re-election as New Delhi’s chief minister on February 8. By winning 62 out of 70 assembly seats, his Delhi-based Aam Aadmi (Common Man) Party (AAP) survived a fierce campaign by Prime Minister Narendra Modi’s Bharatiya Janata Party to weaken one of Modi’s most charismatic opponents. Meanwhile moribund Congress Party – which used to dominate Delhi – has been further diminished as a viable alternative to Modi. Even though Aam Aadmi has had no success outside Delhi, some commentators are speculating that Kejriwal could have the capacity to unite other regional parties into an anti-Modi movement.
- This article from The Hindu analyses the prospects of AAP going national in a challenge to Modi.
DUTERTE’S WARS: HOME AND AWAY
While Philippines president Rodrigo Duterte’s decision not to renew a defence cooperation agreement with the US has received a lot of attention in the context of the US-China rivalry in the region, another fight at home may have more bearing on his future. Duterte’s rejection of the Visiting Forces Agreement signed in 1998 will end many defence cooperation exercises, but still leave the core alliance in place for future cooperation. And it could mean the recent rapid engagement in defence cooperation with Australia over counter terrorism may increase.
However, Duterte’s parallel fight with three of his country most powerful business families goes more directly to his ability to maintain strong public support amid erratic decision-making, and whether he can keep the economy growing. He has attacked the families over their ownership of two lucrative water supply contracts and a television network licence, prompting suggestions this may become his new populist theme after the failure of his violent crackdown on illegal drugs.
The president has the highest public opinion support of any modern president despite the criticism he receives outside the country. But if the fight with the powerful business families causes foreign investment to fall and the economy to slow, the public may lose faith with this sort of popularism.
- This Financial Times article questions whether Duterte is really taking on corporate greed to reshape the country’s family controlled economy or just his political opponents.
PARTNERS AND FRIENDS
Indonesian President Joko Widodo has left his mark on the lexicographic game of how to describe the Australia-Indonesia relationship by calling Australia his country’s “closest friend.” This has been going on since former prime minister Paul Keating sought to correct the tone of a 1990s book Strange Neighbours by declaring no country was more important to Australia than Indonesia.
His successors have mostly accepted that point while applying their own spin. In his speech to Federal Parliament in 2010, President Susilo Bambang Yudhoyono laid down the most substantial Indonesian response: “We are not just neighbours, we are not just friends; we are strategic partners. Australia and Indonesia have evolved a special relationship.”
Given that Widodo is not a big speech maker, it will be interesting to see how his definition resonates as the two countries face up to the new challenge of making their bilateral trade deal work. The Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA) faced some continued scepticism in Indonesia right up to Widodo’s visit. But on the other hand, its long negotiation and the particularly deep involvement of the business communities in the process mean that bonds should have been built to facilitate some early new commerce (See the Monash University deal below).
The countries have promised a 100-day plan to kick the trade agreement off in the next two months, a CEO Forum, and an Australian Business Week delegation to Indonesia. The joint statement between the two national leaders and Widodo’s speech outlined some other areas for future increased cooperation. He said the two countries should be anchors for development in the Pacific, helping countries fight climate change, which suggests some Indonesian alignment with Australia’s Pacific Step-up. Prime Minister Scott Morrison said they would work together on regional challenges including strategic competition, threats to international rules and violent extremism.
A bilateral meeting of economic, trade and investment ministers will be established, picking up an idea senior Labor frontbencher Chris Bowen promoted before last year’s election. They signed off on the Australia-India-Indonesia Strategic Dialogue being elevated to the foreign ministers level and further joint cooperation with India.
- The joint statement from the summit is here.
PASSAGE TO INDIA
Western Australia needs to rethink the way it views India if it is going to redress a decade-long slump in trade with one of the world’s touted future fast-growing economies, according to a new study. The Perth USAsia Centre study says a future economic relationship with India will need to be “qualitatively different to WA’s commodities-driven relationships in Northeast Asia” with a greater focus on services trade, technical partnerships, and in-market engagement.
It notes that: “In the last ten years, as India’s economy has more than doubled in size, the value of WA’s merchandise trade with India has more than halved. Consequently, India has receded from being WA’s third largest export market, to now sit outside the top ten. This is in contrast to the national trend of Australia-India trade growth.” And it says contrary to some expectations India will not need or want WA mineral and energy resources to the same extent as north Asian economies. The broader focus is with the India engagement strategy embraced by the Federal government after a report from former senior diplomat Peter Varghese.
ALIGNING WITH ASEAN
Australia has identified eight areas to focus on in a new statement on defence cooperation with South East Asian countries. The statement flows from the 2018 ASEAN Summit in Sydney, which agreed to find new areas for cooperation with the ten member ASEAN group. The nominated priorities are hardly surprising but they do give some order to more collective cooperation with ASEAN alongside existing bilateral defence cooperation.
They are: sharing experience and expertise in training; increasing female participation in regional security processes; practical support to peacekeeping forces; building capacity against terrorism; addressing threats to maritime security; boosting capacity to deal with common health threats; increasing capacity to work together on natural disasters; and increasing habits of cooperation and a common understanding of methodologies required to work together.
DEALS AND DOLLARS
It says a lot about how the focus of Australian business in Indonesia is changing that Monash University produced the only concrete new business venture during President Joko Widodo’s visit: the first foreign university to open a campus in the country.
While the new bilateral trade deal was the main focus of the visit, the Monash venture is actually driven by a broader scheme to allow foreign higher education and training institutions to enter Indonesia, which Widodo announced in 2018. But the IA-CEPA trade deal should make it easier for Monash to bring staff and materials into Indonesia.
The Indonesia campus will focus on post-graduate programs, with Monash saying it will start short executive courses this year and Masters programs late in 2021. Indonesia’s education and culture minister Nadiem Makarim optimistically forecast that the Monash branch campus would be “the first out of many other partnerships to come.”
Coronavirus may be more contagious for Australian companies than individuals with several China exposed businesses warning of the impact during the latest half yearly profits.
Hearing device maker Cochlear downgraded its full year net profit guidance by five per cent due to hospitals in greater China (including Hong Kong and Taiwan) deferring surgery to avoid the virus. Vitamins maker Blackmores axed its first half dividend, warned its second half would be worse and has outlined a new strategy for China. Treasury Wine Estates has been forced to issue two profit warnings since it announced its results as the virus spread. Bluescope Steel says its China division won’t make any profit in the June half even though its four main production sites are still operating.
But surgical gloves and protective clothing group Ansell says demand has jumped for its products and it has been given special status to fast-track imports into China until it can increase production at its Chinese factory.
HORIZON OIL SCANDAL
PNG has sought assistance from the Australian government to investigate corruption allegations surrounding Horizon Oil. Horizon's shares have fallen around 30 per cent since the Australian Financial Review first revealed the allegations, and the company has established an independent board committee to investigate. Last year PNG prime minister James Marape sought help from his Australian counterpart Scott Morrison in fighting corruption and money laundering in PNG as part of an effort to strengthen ties between the two countries.
AMP’s CHINA SALE
AMP says it has won approval from Chinese regulators for the sale of its $2.5bn life insurance business to Resolution Life, as the company pushes ahead with its bigger turnaround strategy. The company says it has approval from the China Banking and Insurance Regulatory Commission for the transfer of the 19.99 per cent stake in China Life Pension it bought in 2015. It wants to shift the investment from AMP Life – which it is selling – back to the AMP parent company.
"The Australian Government will provide a loan of $US300 million to help Papua New Guinea in its efforts to put its budget on a more sustainable trajectory, assist in the delivery of core government services, and support longer-term economic reforms."
- Minister for International Development Alex Hawke (November 23, 2019)
"When I became the foreign minister we were already part of the way through a program instituted by the Hawke government to phase-out cash support for PNG’s government and replace it with project aid. I completed that program. I didn’t want to see any cash paid into the PNG budget."
- Former foreign minister Alexander Downer (February 24, 2020)
While foreigners have been focused on reduced international flights in and out of China due to the coronavirus shutdown, the biggest impact has been on the country’s domestic carriers. Five weeks ago, China was the third largest international aviation market in the world; today it ranks 25th, just behind Portugal.
It might be the biggest cultural phenomenon from South Korea since Samsung overtook Apple in 2011 and K-pop star Psy strutted the world stage with Gangnam Style in 2012. But unlike those two attention grabbing performances, the little-expected triumph of the film Parasite at this year’s Oscars has shone more of a spotlight on real South Korean society.
The four Oscars for Parasite and its director Bong Joon-ho have been celebrated in international-image-conscious South Korea. They have drawn attention to its sophisticated cinema scene, which has been overshadowed by the country’s higher profile technology, from mobile phones to cars and pop music.
While South Korea’s economic development since the 1950s war has been world beating, its contemporary narrative is much more about intense competition for education and widening income gaps. This is the Korea at the heart of the compelling Parasite story and one that has now drawn more attention in the global media since the film’s success (see The Guardian here).
Many of these articles quote the same 2019 Korea Institute for Health and Social Affairs survey which found 85 per cent of people thought the country had big income gaps despite its overall economic success. But as the movie was being produced, South Korea’s Gini co-efficient (which measures income inequality) actually fell to a record low.
- This article from Discourse on Development looks at the contradictions in the economic success of Asia’s fourth largest economy.
- And this piece from Foreign Policy explains how a split in the family behind Samsung laid the groundwork for a creative new generation of Korean cinema.
- Anyone needing to recap the Parasite Oscar breakthrough, listen to this interview with Sydney University’s Jane Park on Radio National’s Stop Everything!
And to put the rise of non-Hollywood popular culture in a global perspective, see last month’s Briefing Monthly review of Fatima Bhutto’s book New Kings of the World.
Vanuatu is facing another fragmented parliament when the country goes to the polls on March 19 after a four year parliamentary term. None of the major parties are expected to run candidates in more than half of the country’s 52 electorates, making another coalition government inevitable. The last election in 2016 was called after 14 members of Parliament, including two former prime ministers, were charged with bribery.
Since then the new Prime Minister Charlot Salwai has managed to hold on to a rare four-year term in office through cabinet reshuffles and coalition changes. Salwai has overseen a closer relationship with China, including several infrastructure projects, which means this election will be closely watched for what it says about China’s rising influence in the South Pacific.
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