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Is the Fed acting as the world's central bank?

'The Federal Reserve enters its second century as the closest the world has to a global central bank.' So says Ted Truman, who speaks with some authority as he played a key advisory role for many years with the Fed (the US central bank) and the US Treasury.  However, Truman's detailed account of the Fed's international role over the past three decades demonstrates how limited (and sometimes arbitrary) that role has been.

The central issue here is whether the US Fed can act for the global interest where American interests aren't involved or might conflict.

Truman identifies fourteen occasions where the Fed has acted in response to global events, and a clear pattern emerges: where US foreign policy interests are at stake, the Fed will act to assist with global problems. Thus Mexico's crises (in the 1980s and again in 1994) spurred a vigorous and helpful response. The 1998 crises in Thailand and Indonesia hardly rate a mention in Truman's account, while the concurrent crisis in South Korea (where 35,000 US troops were stationed) resulted in a path-breaking (and principles-breaking) intervention in which the US orchestrated controls on capital outflows from Korea. Foreign banks, pressured by their own national central banks, refrained from withdrawing funds which they had lent to Korean banks. An Australian bank (ANZ) was a significant participant in this stand-still, which fortunately turned out well, with Korea able to resume repayments within a short time.

The US Fed's swap operations are akin to global central bank operations, effectively making short-term US dollar loans to foreign central banks, which can on-lend these to their domestic banks to help them through a foreign currency liquidity crisis. This is analogous to traditional liquidity operations, where central banks make domestic currency loans to banks in need of liquidity.

These Fed swap arrangements have been a powerful and valuable stabilising element during global financial crises since 1965 or even earlier. Until recently, however, they have been available only to a small group of advanced economies (including Australia), plus Mexico.

In 2008 the swaps were a crucial part of the crisis response, especially for Europe. The Reserve Bank of Australia was able to use this facility to on-lend US dollars to Australian banks in need of foreign currency liquidity when the New York money market dried up. 

The usefulness of this facility was demonstrated even more powerfully in 2008 when South Korea experienced a foreign currency crisis. Its own substantial foreign exchange reserves were not sufficient to stabilise confidence. The crisis ended as soon as the Fed's swap facility was announced, arriving like the US cavalry over the horizon to save the embattled Koreans.

As the Korea experience demonstrates, the swap facility is a more powerful instrument than a country's own reserve holdings. This is a current policy issue, as many emerging economies (especially in Asia) are building up huge foreign exchange reserves in readiness for renewed episodes of capital flow volatility. Such reserve holdings have to be funded, so are expensive and often disrupt monetary policy. Wouldn't it be helpful if the Fed really did act as a global central bank, offering this swap facility to everyone?

Unsurprisingly, the Fed offers swaps only to its trusted friends. In 2008, for example, it refused Indonesia's approach for access to the swap facility. It is not, and is unlikely to become, a global facility that would make the US Fed analogous to a global central bank.

Those, like Australia, in the swap network should be grateful that this powerful facility is available to us, though we might note that Truman reports earlier efforts by the Fed staff to close down the facility.

Truman avoids specifically addressing a vexed current issue. What obligations does the Fed have to consider the impact of its policies on other countries? Financial markets certainly expect a significant global effect from the unwinding of quantitative easing (QE). Raghuram Rajan, the Indian central bank governor, sees the Fed as having important obligations to countries so affected. But beyond ensuring that these QE operations are understood by financial markets, the Fed sees itself as having no wider obligations.

It's hard to see how the Fed could act otherwise. There are, in fact, historical examples where the US has helped its closest friends and paid a price. In 1927 it lowered the discount rate in response to the entreaties of Montagu Norman, governor of the Bank of England, who was struggling to contain the damage from Churchill's disastrous return to the gold standard two years earlier. This lower interest rate encouraged the asset-price boom which ended in 1929 with the Great Crash, ushering in the Great Depression.

If the US Fed cannot be an effective global central bank, what about the IMF? Truman talks of the IMF as if it is a simple extension of US policy. Taken together, perhaps there is some truth in the idea that the US Fed and the IMF can serve as a global central bank. But a precondition for this to be acceptable to the rest of the world is to implement the IMF governance reforms (especially voting shares) which are currently held up, pending US Congressional approval.

Photo by Flickr user jareed.

Five fallacies in Australian thinking on Iraq

An RAAF C-130H Hercules deploys aid to civilians in northern Iraq. (Image courtesy of the Department of Defence.)

There's a lot to be concerned about in the way Australia is approaching the decision to intervene militarily in the civil war engulfing northern Iraq and Syria. There has been scant debate of the decision to go to war in parliament: traveling war-memorial exhibitions were more closely examined in Question Time last week than the war ADF personnel are now risking their lives in.

The rhetoric on both sides of the debate has gone straight to 11, with terms like 'genocide' and 'humanitarian catastrophe' being bandied about. Critics quick to rule out any intervention at all are making simplistic and mostly erroneous comparisons between this crisis and that of 2003. Sycophantic journalists, apparently briefed on background by the Prime Minister or his office, are detailing the military tools to be used before any public articulation of strategy has occurred. There is a real danger that by a process of incremental tactical adjustments, Australia ends up committing to a multi-year military campaign without articulating a strategy or building the political consensus necessary to support it when the going gets really tough.

I'll have more to say at a later date on the strategic options Australia might consider, and the threshold we need to cross before committing to joining the US military campaign against Islamic State. But right now, here are the top five fallacies I've seen so far in Australian thinking on the Iraq crisis.

Fallacy 1: There will be no boots on the ground

Since this crisis began our political leaders have pledged that there will be no boots on the ground. This is political code, communicating the implicit promise that there will be no Australian body bags returning from this war. As New York Times columnist Frank Bruni notes, politicians use this phrase instead of frankly discussing the costs and risk calculations of going to war: 'we're not good at discussing this, at confronting head-on what the toll of our best intentions and tortured interventions can be. We turn to abstraction'. Such abstraction is dangerous, effectively masking the spurious political promise that a country can go to war and pay no cost. 

Promising no boots on the ground is a fallacy for two reasons. Firstly, even a military campaign designed around limited air strikes to contain ISIS will require some ground combat presence: to determine what and who is to be targeted, to foster intelligence networks, to assess battle damage, and to recover any downed pilots.

More importantly though, the destruction of Islamic State cannot be achieved from the air. As the NATO experience in Libya showed, air strikes can stop insurgent forces from massing and conducting conventional military operations. But air power alone cannot destroy an insurgent group or its leadership. If our intent is to stop ISIS from catalysing barbaric violence and destabilising the Middle East, then someone will eventually have to commit ground combat forces. If Australia, the US, and other partners are unwilling to shoulder this burden then it will fall to our proxies like the Kurdish peshmerga.

Fallacy 2: This is solely a humanitarian mission

One of the Australian Government's clear talking points in the past fortnight is that Australia's military intervention in Iraq is necessary for humanitarian reasons. I can only assume the political strategy behind this is that it will distance the current operations from the Iraq conflict of the last decade. This political strategy is problematic. If Australia's pressing national interest in the region is to prevent the slaughter of civilians, then we should have intervened in Syria when civilians were gassed and children struck with barrel bombs. We should also be intervening in Burma, where more than 250,000 people have reportedly been displaced by conflict this year. And if our concern is truly humanitarian, then we had better prepare to accept a lot of refugees from northern Iraq into Australia.

The reality is that our mission is to destroy ISIS as an organisation. That means killing its fighters, dissecting its financing and recruiting operations, and negotiating political power sharing for the disaffected Sunni Muslims giving life to the organisation. None of that will be easy. But better for the Government to be upfront about what our national calculations on Iraq are, rather than seeking to change the narrative by sprinkling humanitarian dust over public statements. 

For Australia, this is also about playing an active part in an alliance that helps preserve our national interests and maintains the global order necessary for us to live our lives safely and prosperously. Though I am not yet convinced that contributing to this US campaign is the most effective way Australia can share its alliance responsibilities, it is good to see that the Government has been upfront about this aspect of our national interest.

Fallacy 3: This is just an extension of the 2003 invasion of Iraq

The current crisis in Iraq has given oxygen to all the ideological arguments of the last decade surrounding the US-led intervention. Political wars are being dusted off and refought in some quarters.

But this is not 2003 redux. For proof, look no further than the fact that France is a member of the forming military coalition against Islamic State. George W Bush is no longer in the White House, Iraq is no longer a dictatorship, and there are no grand plan for regime change in Syria. The haunting 2003 ideological strains among the analysis of Iraq operations in 2014 are not always helpful. Simplistic comparisons between the military campaigns obscure detailed analysis of the motives of the Government in intervening, and the strategic options it should be considering. Let's deal with the issue of what Australia's strategy on ISIS should be, and then we can return to resolving all the lingering issues of the conflicts of the last decade.

Fallacy 4: Military action will increase the domestic threat of terrorism in Australia

I've heard this reasoning mentioned by a few commentators now, and it doesn't stand up for me. Firstly, behind it is a logic that Australia can just tuck its head down and the evil currents in the world will wash around us. That seems unlikely. We have important interests in good global order and the security of our allies and partners from terrorism, and responsibilities as a global citizen. If we think ISIS is a threat to the global order, we shouldn't duck the fight against it (though that doesn't automatically mean we should deploy military forces into Iraq). Secondly, the terms of the conflict between ISIS and Western countries like ours are already set and there is little we can do to change them or appease Islamic State leaders. ISIS is against the rule of law, and for the rule of bloody violence. We are not.

But there is also little evidence to date that ISIS fighters plan to return to Australia and carry out acts of terrorism. Yes, Syria and Iraq are providing a terrorist university in which extremists, Australians among them, are learning advanced military tactics and developing skills in urban fighting. But, as far as I am aware, in the three years since the conflict in Syria started not a single arrest has been made of an Australian who has returned to this country with the intent to conduct a terrorist attack. Australian military contributions are not likely to significantly increase the domestic terror threat. ISIS already knows we are an ally of the US.

Fallacy 5: This problem can be solved without a strategy for Syria

Air strikes in northern Iraq can contain ISIS and limit its advance into Iraqi Kurdistan. But to deny terrorists safe haven, to destroy Islamic State as a group, to stop civilian slaughter and restore relative order in Iraq, ISIS positions and strengths in Syria need to be targeted. That means a decision to intervene in Syria's civil war and alter the power balance between the Assad regime and the forces arrayed against him. That's something Obama and his allies have avoided for three years, despite a number of provocations. And the complexity of determining a strategy on Syria is why the US has not yet formed a comprehensive strategy to deal with this current crisis.

It will not be easy, but if a case for a US military campaign against ISIS is to be made next month it will have to include a strategy for Syria. Australian decision-makers should be thinking beyond just northern Iraq to determine our view of the best outcome in Syria, and what burden we might be willing to shoulder in order to achieve it.

Syria and Iraq: Why did Obama bring religion into it?

In this fast-paced world of media grabs, it is easy for selective quoting to misrepresent what leaders say. In his 28 August press conference for instance, when President Obama was asked whether he needed Congressional approval to go into Syria and attack Islamic State, he said 'I don't want to put the cart before the horse. We don't have a strategy yet.' President Obama was excoriated for not having a Syria strategy years after the crisis began, when he was actually commenting on the military approach to IS in Syria.  Clumsy language perhaps, but he wasn't evincing a complete absence of US strategy towards Syria.

More disturbing was a comment a little further into his press conference. In talking about the future of President Bashar al Assad in light of the IS threat, Obama said 'I don't see any scenario in which Assad somehow is able to bring peace and stability to a region that is majority Sunni and has not so far, you know, shown any willingness to share power with them or in any kind of significant way deal with the longstanding grievances that they have there.'

With this simple sentence Obama virtually sidelined religious minorities in the region, appeared to indicate that Sunni Islam was the region's political as well as religious orthodoxy, and suggested that only 'they' could rule and guarantee stability at the same time. Rather than simply state that Assad's illegitimacy rested on his flouting of international norms and lack of popular consensus, Obama bought into the religious argument.

Now, one could be kind and say Obama has to talk this way because Washington is trying desperately to build a coalition of apparently reluctant regional Sunni states to take military action against Sunni jihadists operating in a Shi'a Arab majority country. But part of the problem with the region is the way in which Sunni-majority states (and some Shi'a majority states, it must be said) see religious identity is a precondition for political leadership, thereby marginalising the rest.

Obama's use of religious identity in discussing the region's politics also exposes him to accusations of double standards. What about Bahrain, for instance, where the Sunni minority actively discriminate against the Shi'a majority with no effort being made to work towards a substantive power-sharing arrangement? But the Fifth Fleet is headquartered in Bahrain, and if Obama's rather strange words are to be taken at face value, political discrimination is only practiced against Sunnis.

I'll write more in the future about the strange bedfellows that a regional and Western anti-IS coalition is going to throw up, and the double standards that are likely to abound when they take military action. But a president trying to put such a group together would do well to steer clear of any reference to religion. Religious identity is part of the problem in the region, and including it in his speeches and statements will just leave Obama open to the religious intolerance practiced by both Sunni and Shia.

Photo by Flickr user James Gordon.

Sea-basing threatens India's minimalist nuclear strategy

Both the draft nuclear doctrine released in 1999 and the official nuclear doctrine released later in 2003 state India's commitment to a minimalist nuclear posture.

This nuclear minimalism was best advocated in the policy of credible minimum deterrence (CMD). Two assumptions inform the concept of CMD. First, that deterrence can be projected at low numbers, and second, that a ready arsenal – delivery vehicles mated with warheads at continuous alert – is unnecessary. The commitment to low numbers of warheads meant that CMD could help avoid unnecessary 'vertical proliferation'. Such a posture was therefore considered propitious for nuclear stability.

But will CMD remain valid as India shifts its nuclear arsenal to the sea? The coming of the Arihant, India's first nuclear-powered and nuclear-armed ballistic missile submarine (SSBN), constitutes a formidable challenge to India's posture of credible minimum deterrence and therefore, also to strategic stability in the region.

The present configuration of INS Arihant allows it to carry 16 nuclear-tipped missiles. By the end of this decade, India plans to deploy five to six such SSBNs. Clearly, the warheads required to arm these submarines would alone be close to the current estimates of the total number of nuclear weapons (between 90-110) in India's arsenal. This increase in numbers would not be alarming if India was to shift its entire nuclear arsenal underwater as France and Britain have done. In fact, in 2000, in a well argued and equally well received book on India's nuclear strategy, Raja Menon – an influential strategic analyst and a retired rear admiral – suggested precisely this course.

Various factors militate against such a prospect, however.

For one thing, the current generation of India's sea-launched ballistic missiles lack the range for an underwater deterrent to be credible. The K-15 or Sagarika, the only missile ready to be deployed on Arihant, has an effective range of only 700km. Though this may be sufficient for projecting second-strike capability against Pakistan, it is clearly inadequate for retaliating against China. With such a short range, Indian SSBNs would have to enter dangerous waters in East Asia to release their payloads. India, therefore, will continue to rely on aircraft and missiles for nuclear delivery. The rivalry among India's army, navy and air force will also frustrate any shift to an underwater-only nuclear arsenal. All three services want a part of the nuclear arsenal, both for budgets and prestige. This is similar to the US experience during the initial years of the Cold War.

Furthermore, the number of Indian nuclear warheads would spike if the Defence Research and Development Organisation's (DRDO) ambitious plan of introducing multiple independent re-entry vehicles (MIRV) into India's nuclear delivery systems bear fruit. The DRDO claims that, in the near future, Indian missiles could be capable of carrying 4 to 12 nuclear warheads atop a single missile. Multiple warheads clearly imply a multiplying arsenal. 

Then there is the question of India's nuclear readiness. The conventional wisdom is that India's nuclear weapons are in a state of 'recessed deterrence' – disassembled, de-mated and de-alerted. In case of a nuclear emergency, operationalising the nuclear arsenal would require coordination among multiple agencies such as the DRDO, the Atomic Energy Commission (AEC) and the armed forces. All these agencies control different subsystem of the nuclear arsenal: AEC controls the nuclear core; DRDO controls the non-fissile triggers and the armed forces control the delivery vehicles. Such diffusion automatically suggests a disassembled arsenal.

However, as Vipin Narang has argued recently, the idea that 'India keeps its nuclear weapons is a disassembled state...is largely now just a myth'. DRDO has publicly articulated its position of 'canisterising' or 'encapsulating' all nuclear delivery systems, which requires that a 'warhead is likely to be pre-mated to the delivery vehicle and kept hermetically sealed for storage and transport'. The rationale emanates from the need for a credible second strike capability. As the DRDO chief explains, 'In the second strike capability, the most important thing is how fast we can react.  We are working on cannisterised systems that can launch from anywhere at anytime'.

Though last-minute checks and balances would still be in place, this is not a picture of a 'disassembled' nuclear force. This is particularly true of nuclear-armed submarines. Since such submarines may have no links with the mainland during a patrol, warheads cannot be possibly detached from the delivery vehicles. In the case of land-based and air-based delivery platforms, coordination among multiple agencies is still possible, but an underwater deterrent requires a ready arsenal. 

So Arihant and its progenies will not only increase the size of India's nuclear arsenal but also its readiness, making the idea of a CMD practically meaningless. This could have a spiral effect on Pakistan, which would increase its own weapons production and battle readiness. We are already witnessing this, with increasing numbers in her nuclear arsenal and intentions to develop tactical nuclear weapons. It may also lead to new proliferation challenges for India if Pakistan avails of China's services to acquire its own nuclear triad.

The Lowy Institute gratefully acknowledges support from the John D and Catherine T MacArthur Foundation for this Interpreter debate, which is part of a broader research, dialogue and outreach project on strategic stability in Indo-Pacific Asia.

Image courtesy of Wikipedia.

Violence against women in PNG: How men are getting away with murder

All photos by Vlad Sokhin.

In a new Lowy Institute Analysis published today, Jo Chandler presents a devastating picture of the endemic violence against women in Papua New Guinea and the role Australia can play in supporting local initiatives to address the problem. Below, Jo reflects on how remote justice is for many women. 

Over the past six years I've made numerous trips to PNG, usually intensive excursions but too quick (as media paradigms tend to dictate) and likely too ambitious, ranging across health and education and into politics, resources development and corruption. Violence was rarely the story I went looking for, but it was inevitably the one I found.

The first instinct of a journalist trying to communicate a crisis is to quantify it — to bundle it up in statistics. But the data on violence in PNG is scarce, and it is inevitably scrubbed clean of identity and humanity. The reality, by contrast, is raw, overwhelming, unfathomable, complex.

So you might describe the scores of walking wounded waiting for triage outside highlands hospitals every morning, oftentimes the bashed and basher sitting together, waiting their turn. Or you might try to capture the vulnerability of girls and women when they venture out of home, and how it shackles their movements and their prospects in city and village alike. Yet these narratives fall short when they depict PNG women as merely helpless and scared. They are also tough, funny, resourceful, cunning, resilient.

But perhaps the trickiest thing to communicate is just how formidable the landscape is for women wanting access to justice. So many obstacles. The remoteness. The poverty of resources, of cash. The lack of roads, personnel, and vehicles to respond to emergencies. The shortcomings of police capacity and culture. The brutality, often inspired by hard-wired notions of payback and supercharged by modern blights of bitterness and booze. The failure of agents of the state to honour their ethics and their obligations, and to uphold the law.

These were issues I was starting to poke around last October when I made the first of a few visits to East Sepik. I stopped over in Wewak on my way to Maprik, in the hinterland, hitching a ride with an Oxfam team visiting their local partner agency. The Nana Kundi Crisis Centre is one of a mere handful of women's refuges sprinkled across the country.

As it happened, the hotel in Wewak was overrun with Papua New Guinean and Australian officials and dignitaries all similarly preoccupied with questions of justice. They were en route to the opening of a community law and justice office in Lumi, West Sepik. Among them was Kerenga Kua, one of PNG's most distinguished lawyers before entering politics and, at that time, serving as Attorney-General and Minister for Justice. (In June this year, he was abruptly sacked by the Prime Minister.)

Kua settled down in the warm evening with myself and photographer Vlad Sokhin (his images above). In Australia, interviewing politicians is an endurance test of spin and obfuscation. In PNG, it is most commonly about Big Man bluster and posturing. In both contexts many words are spoken but little is said. This interview proved to be something else.

What I want to understand, I say, is why terrible crimes continue to be committed with such impunity. 'We have a formidable problem,' says Kua.

We have a very big land area and our population is scattered through remote communities. It would not be a problem if the culture in the community reacts positively to the established legal system. But the culture that prevails at the moment...is to look after your own. So if one of your own offends against the law, you protect him. That is what the community does, they protect perpetrators. So a victim (of violence) is not, in the first case, able to report the matter and mobilise the witnesses and bring the offender to account unless that victim has a stronger network of support (than her attacker). Then that can be used to force the issue to the proper legal system.

Many disputes never get past the informal mechanisms exercised by clans, families, and tribes outside established systems. 'If you hang around Port Moresby on the weekends you will see a lot of gatherings under the rain trees, in the shade,' he explained. 'Those are informal dispute resolution systems in progress. They don't register it in the courthouse.' Violent crimes are dealt with under the trees because people don't trust the government to support both the offender and the victim.

People have set up their own default system, so the government systems have become irrelevant, more or less. You see it at a rural level as well. You might demand that the victim and her witnesses and everybody march to the police station and lay the report and get the offender charged. But in the background the offender and their people are busy attacking the victim and her supporters and witnesses yet again.

Inevitably the winners are those with the biggest gang of wantoks (relatives), and so it will remain, says Kua, until such time as the Government secures trust and authority.

The next step up the legal ladder is the village court, which is recognised as part of the formal sector and empowered to resolve disputes by reference to customary law and practices. Village court magistrates are not supposed to deal with serious criminal matters like rape and assault, but 'of necessity they deal with it, to bring about a resolution, to bring about peace to that particular segment of the community.'

But there is little capacity for deterrence against serious crime within the 'settlements of convenience' delivered at village level. The preferred government strategy, Kua says, is to get the matters to police, charges laid, committal in the district court and, where there is a case, a full trial in the National Court.

Ultimately the solution is to 'send a more powerful message to the men — that you cannot commit, let's say, a violent sexual offence against a woman, and then you bury it at the village level, without allowing it to go through the proper court system.'

That all requires building infrastructure and capacity (courts, skills, systems, personnel) 'and that is what we are doing,' says Kua. But it is a long haul 'and as a nation our issues are many.' Justice competes against a range of other critical priorities, including transport, health, and roads.

Meanwhile his strategy is to signal the seriousness of the issue by imposing the death penalty, which remains on the books in PNG, though it has not been used since 1957. Prime Minister Peter O'Neill moved soon after taking power to reactivate it and Kua has dispatched teams overseas to investigate lethal injection. It is coming, he says.

'For want of a better solution, in desperation, when you have this kind of impunity existing and growing in a society, we are forced to a corner, where we resort to things like the death penalty for rape, for aggravated rape.' In the PNG context 'fire has to be met with fire. You use fire sometimes to kill off bigger fires elsewhere.'

We can't...allow a level of impasse and status quo to continue to permeate to the detriment of our women folk, our young girls, our vulnerable population. We have to do something about it. I hope you don't come and take offence to that. Because the European Union (and the United Nations) are openly coming out to us and saying 'listen you can't have death penalty, you can't have corporal punishment'. And I'm thinking 'where do they come from?...What solutions do they have for our issues?' (We have) no taxpayer base, very limited financial resources, (we're) trying to deal with all the human issues of life and falling short of course, as one would expect.

Kua tells me he is proud to be the Attorney-General who oversaw the enactment of family protection legislation (more than 20 years in the making) which makes it easier for victims to get interim protection orders at the grassroots village level, defines a wider range of offences, and also empowers and directs police action.

'Our heart has always been with our womenfolk, for the majority of us,' Kua says. 'We are committed to doing everything we reasonably can within the confines of the resources available to us. That is the commitment we can give them.'

Today Kerenga Kua is gone from office, another maelstrom consumes the energies of the power players, and it is business as usual in far-flung village courts and under the rain trees of Port Moresby.

Japan's continuing confidence in the alliance

The views expressed here are the author's own, and do not necessarily represent those of National Institute for Defense Studies or the Japanese Ministry of Defense.

I am inspired by the recent debate on The Interpreter about the trajectory of Japan's security strategy. Brad Glosserman's Washington Quarterly article, which prompted the debate, sketches the contemporary discourse in Japan. Many do indeed appear to accept the decline of Japan rather comfortably, which, Glosserman suggests, explains why Japan does not go beyond picking 'low-hanging fruit' in economic and security policy. Although I personally wouldn't use this expression, I agree with Brad's underlying message that the series of recently announced policy initiatives do not constitute a radical change in Japan's strategic posture.

Building on Brad's explanation, which focuses on Japan's domestic discussion, I would add another key factor which accounts for why Japan is not changing as fast or as dramatically as a number of external observers, including Hugh White, anticipate. That is: despite the hot debate about the end of the US unipolar moment, the Japanese Government continues to place a high degree of confidence in the leadership of the US, and indeed in the alliance. In other words, from a Japanese perspective, changes in the external environment have not yet reached the point where Tokyo is forced to fundamentally reconsider its post-war strategy, founded upon its alliance with the US.

The Abe Government's National Security Strategy (NSS) captures this perception: 'though its relative influence in the international community is changing, the US remains the country that has the world's largest power'.

Japan's confidence is also underscored by America's repeated commitment to the alliance, powerfully demonstrated by flying B-52s through China's so-called air defence identification zone in November 2013 and President Obama's affirmation of the US treaty obligation to defend the Senkaku Islands. The Abe Government's confidence is also widely shared by the public. According to a recent poll by the Japan Broadcasting Corporation (NHK), 70% of respondents believe the alliance should be maintained or even further reinforced. I am sure this widely shared confidence in the Japan-US alliance shapes opinions and discourses within Japan and encourages many to feel comfortable with the status quo.

Of course, this does not mean the Japanese Government is blind to some of the challenges facing the US both on its international and domestic fronts.

In order to support the US in this difficult time, Japan's policy aims to strengthen and further support the alliance rather than switching to any alternative strategy. This is, at minimum, a fourfold initiative: (1) reforming Japan's security policy and system by establishing the National Security Council, amending some long-standing self-imposed restraints and building a 'Dynamic Joint Defense Force'; (2) adjusting the alliance infrastructure, including the defence cooperation guidelines, in line with China's 'gray-zone' activities and Japan's constitutional reinterpretation; (3) reaching out to third parties who share Japan's interests and values, including most prominently Australia; and (4) attempting to manage the relationship with China.

As Malcolm Cook rightly argues, Japan's policy moves are largely consistent with what the US is trying to do in Asia. Perhaps the only existing discrepancy between Japan and the US is how successful each has been at engaging China. While the US institutionalises its relations with China through the Strategic and Economic Dialogue and regular summit meetings, so far Japan's engagement vis-à-vis China remains stagnant, despite the Japanese Government's consistent calls for dialogue.

The current status of Japan's engagement with China is a concern for the alliance. It is more difficult for regional partners to cooperate with Japan if Sino-Japanese relations remain strained. It may also slow the US-Japan initiative to work with third countries (eg. a Japan-Australia-US or Japan-Korea-US framework). Furthermore, a functioning and healthy Sino-Japanese relationship is clearly advantageous to the alliance. For example, creating a Sino-Japanese maritime communication mechanism (a key agenda of Japan's China engagement) would help Japan and China avoid accidental or inadvertent escalations and hence prevent the US from having to make a difficult decision about how to respond. This is the key reason why the US vocally supports Japan's China engagement.

The past few weeks have seen some positive signs in the Japan-China relationship. On the sidelines of this year's ASEAN Regional Forum ministerial meeting, the Japanese and Chinese foreign ministers held a dialogue for the first time since the Abe Government came to power. In addition, speaking to a visiting Japanese parliamentary delegation on 18 August, Chinese Vice-Present Li Yuan Chao made some positive remarks about the possibility of an Abe-Xi summit meeting when Prime Minister Abe visits China for APEC in November.

How effectively and quickly Japan's engagement with China is restored is still an open question. But there is no question that any progress in Japan's engagement with China will support the US-Japan alliance and thus further strengthen Japan's confidence in the alliance. 

Image courtesy of the White House.

Pacific island leadership: PNG steps up

Jenny Hayward-Jones is Director of the Lowy Institute's Melanesia Program and Tess Newton Cain is a Nonresident Fellow at the Lowy Institute.

One of the key announcements at the conclusion of the recent Pacific Islands Forum meeting in Koror, Palau was the appointment of Dame Meg Taylor as the new Secretary-General of the Forum's Secretariat. Much has been made of the fact that she is the first woman to be appointed to that role. But of equal and possibly greater significance is that she is Papua New Guinean.

Though Taylor is not the first Forum Secretary-General from PNG (Noel Levi held the position between 1998 and 2004),  given PNG's population (in excess of 7 million), economy (which continues to grow), and its strategic importance, it has for a long time punched below its regional weight.

However, since the 2012 elections which saw Peter O'Neill returned as prime minister, that situation has changed markedly. While PNG has not given up its hopes of joining ASEAN to forge stronger links with its Asian neighbours, the O'Neill Government has become much more present in the Pacific islands region in terms of investment, development assistance and diplomacy.

PNG pension fund NASFUND is a prominent investor in the Pacific and has formed joint ventures with other pension funds and PNG businesses to invest in hotels in Fiji and Solomon Islands. PNG's Bank South Pacific has pursued an expansion strategy in the region, acquiring banks in Fiji, Solomon Islands and Niue to grow its operations. PNG's BeMobile has acquired a telecommunications licence in Solomon Islands.

PNG has also increased its role as a development partner in the region, supporting more activities and devoting more money.

This has prompted some to ask whether this is appropriate, given PNG's domestic development challenges. However, the PNG Government clearly sees the increased funding as a means of improving its standing and influence among its Pacific island neighbours, so we can expect more activity of this type going forward. In addition to numerous bilateral relationships (think scholarships for students from Solomon Islands and assistance with elections for Fiji), a recent development came at the latest meeting of Pacific Island Forum leaders. A regional package of US$122 million was announced to support the development objectives of smaller Pacific island countries.

In the diplomatic sphere, PNG's activities have been numerous, although it is not clear whether there is an overarching strategy at play rather than a more opportunistic approach.

Of particular significance is the role PNG has played in assisting Australia with detention of asylum seekers. O'Neill secured a realignment of Australian aid to bring it into line with his government's objectives (though this was more about rhetoric than practice, as Australia's aid program was largely designed to support PNG's objectives anyway). In addition, he has negotiated what can be described as a preferential diplomatic relationship with Australia, including a prime ministerial dialogue forum. This is a signal that PNG's relationship with Australia is singular and prominent in both Canberra and Port Moresby.

Elsewhere, PNG has taken a greater interest in the workings of the Melanesian Spearhead Group (MSG), having hosted the most recent Special Leaders' Meeting alongside the 5th Melanesian Festival of Arts and Culture. Within the MSG Secretariat, the recently appointed Deputy Director-General is a PNG citizen, Moelan Kilepak. While the MSG has certainly become more prominent in recent times, high-level and continuing participation by its largest member is key to future growth and influence.

At the 'whole of the Pacific' level, the recent review of the Pacific Plan was led by Mekere Morauta, a former PNG prime minister. More recently, Meg Taylor, a former PNG diplomat, was appointed as Secretary-General of the Pacific Islands Forum Secretariat after intense lobbying by the O'Neill Government.

Not only has this latest development added to the list of indicators of increasing assertion of regional leadership emanating from Port Moresby, it has also served to crystalise an attendant risk: that of diplomatic tension between PNG and Fiji.

Fiji's historical role as a regional leader is well recognised. However, PNG looks to be signaling that regardless of the outcome of Fiji's 17 September elections, Suva should not expect that there will be a return to 'business as usual'. Diplomatic tensions between Fiji and PNG are evidenced in disputes over the Fiji National Provident Fund backing out of an investment in PNG, Fiji's rejection of PNG's High Commissioner as dean of the diplomatic corps in Suva, the absence of PNG's Prime Minister and Foreign Minister from some MSG meetings and Fiji's own Pacific Islands Development Forum, the absence of Fiji's Prime Minister from the MSG leaders' meeting in Port Moresby, and disagreements over the Melanesian candidate for the Pacific Islands Forum Secretariat's Secretary-General role.

Papua New Guinea is perhaps more ready now than at any time in its past to step up to a regional leadership role.  Bolstered by the election of Meg Taylor, PNG will also host the Pacific Islands Forum leaders' meeting in 2015, giving the Government in Port Moresby a rare opportunity to showcase its ambitions.  But it will need to battle a resurgent Fiji, which will be using a newly legitimate status after 17 September to reclaim its supremacy among the island states.

Image by Flickr user AK Rockefeller.

Indo-Pacific security links: Nationalist leaders, hypersonic weapons, defence industries and more

The Indo-Pacific is a strategic system encompassing the Indian and Pacific oceans, reflecting the expanding interests and reach of China and India as well as the enduring role of the US. The Lowy Institute's International Security program presents a weekly selection of links illuminating the changing security picture in this increasingly connected super-region.

  • Vietnam has sent its first envoy to China since the HYSY981 oil rig crisis.
  • With the recent election of Narendra Modi in India, speculation is emerging over the role of strong nationalist leaders throughout an already tense Indo-Pacific region.
  • Despite a recently aborted test, US experimentation with hypersonic weapons highlights an emphasis on investing in new technologies to improve capabilities.
  • News has emerged that China may be developing a next generation high-speed submarine design which would allow it to move faster by 'flying' through water.
  • Japan and India continue to express strong interest in improving their respective defence industries. 
  • This convergence has led to expectation that discussion over defence industry cooperation will be high on the agenda during the Modi-Abe Summit in Tokyo.
  • Closer to home, there is growing concern over Australia's own defence technology edge and the need for serious consideration in the upcoming Defence White Paper.

The Lowy Institute International Security Program's work on Indo-Pacific security is supported by two grants from the John D. and Catherine T. MacArthur Foundation.

Air power to the fore in the Middle East

As a former Army officer, my service bias has always made me a believer that only events on the ground matter. The air force is a great enabler but rarely the decisive factor. But my experience of the Middle East has also taught me the value that many governments place in air power.

In the Gulf in particular, technically advanced aircraft symbolise modernity and make up for the limited manpower available to staff their militaries. And it is a service that can be both a path to, or symbol of, political authority. Both Syria's Hafiz al Assad and Egypt's Hosni Mubarak were air force pilots (and later commanders), while King Abdullah of Jordan (like his late father King Hussein) and the Crown Prince of Abu Dhabi are both qualified military pilots.

But as the region reels from multiple security crises, it is interesting to note the degree to which air power is being used by regional forces for a multiplicity of purposes. A student of air power would do well to focus closely on the Middle East at the moment for the rich field of research it is proving to be.

Libya

Days of unverified reports of an aerial bombing by Egyptian and Emirati aircraft on a Libyan weapons storage area and Tripoli's international airport have now been verified by American officials (the officials claim they were not informed of the strikes beforehand, which is not to say they did not know about them beforehand). If true, the strike says much about UAE and Egyptian concerns regarding the need to contain the influence of the Muslim Brotherhood and its affiliates, as well as to stymie Qatari efforts in Libya to do the opposite. It is also further evidence that the UAE is adopting a more muscular and independent approach to regional security issues.

Gaza

Up until two weeks ago, the Israeli air force had already conducted 4900 sorties against Gaza since the most recent conflict began. And yet, just as was the case in the 2006 Lebanon war, even the Israeli air force admits it cannot completely extinguish the threat of indirect-fire weapons from Gaza. 

Iraq

As politicians mull the possibility of air strikes against Islamic State, and the US increases surveillance of possible targets in preparation for future strikes, it is interesting to note that America has already flown 1500 sorties since 8 August (about 600 of these were combat sorties, which included 96 attacks against Islamic State targets). This shows again just how resource-intensive even a 'low intensity' air campaign can be, and why regional states will need plenty of enabling support if they are to take on Islamic State.

Iran

In the east, Iran triumphantly announced the destruction of an Israeli drone spying on its Natanz nuclear facility. The truth is that the drone was more likely flown from Azerbaijan, as this detailed report outlines. Secular Shi'a Azerbaijan and religiously Shi'a Iran have a rather testy relationship and Baku's cosiness with Israel has been an irritant to Tehran for years. Whether the drone was actually shot down near the nuclear facility or somewhere much closer to the Azeri border is perhaps something we'll never know, but it reinforces the type of surveillance technology available to a wide range of states.  

Syria

To all of this we could also add the fall of Tabqa airbase, the last military base held by the Syrian Government in Raqqa province, now under the complete control of Islamic State. Syrian Government efforts at targeting the militants from the air ultimately proved futile, again showing that effective aerial campaigns against ground forces require a concentration of effort and duration that few states can manage. 

Over the next few weeks it is increasingly likely that air power will be on display in the region in a significant way. For students of air power, the Middle East is certainly the place to watch. 

Photo by Flickr user Garry Wilmore.

The Islamic State's media logic

The horrific images surrounding the gruesome execution of the US journalist Jim Foley are dominating the headlines. The Islamist group had several reasons for doing what they did, and when they did it.

It reinforces the Islamic State's reputation as the baddest Islamists of them all, a useful tool when you're looking to knock off your Islamist competitors in Syria. It also shows the US that there are costs associated with its air campaign, and the warning that there is another hostage at their mercy reinforces that warning; the English language audio track was designed for the target audience.

I don't however necessarily agree that one of the aims is to goad the West into becoming more deeply involved in Iraq. The Islamic State is as aware as anyone that neither the President nor the American people are inclined to do it, and there are many more ways to skin the Islamist cat than simply put combat troops into Iraq.

But these are relatively minor aims given the shock value that the vision was intended to produce.

People already know that the Islamic State is cruel and heartless, and they know the US isn't going to stop their air attacks just because Islamic State kills a hostage. Rather, I think the main point of the exercise was to do with the timing of the release. Islamic State had just suffered a couple of battleground reverses, having been rebuffed from Mount Sinjar and more importantly losing control over Mosul Dam, an important infrastructure prize for a putative caliphate. If you want people to stay with you, join you or submit to you, it's necessary to project an image of control and martial success. Images of destroyed Islamic State vehicles and equipment and triumphant Kurdish and Iraqi soldiers celebrating over ground you've just lost isn't good for business. In the space of a few hours though, this negative imagery was swept away by an execution video; people may have heard about Mosul Dam but they aren't reminded of it because those images are no longer displayed.

The Islamic State is very good at manipulating the social and news media space. And if it takes the beheading of someone to counter images of battlefield setbacks, then so be it. Such is the calculus of Islamic State's media department. 

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