Mini-Marshall plan to rebuild RI

Mini-Marshall plan to rebuild RI

By Geoffrey Barker

The Iraq and Indonesian crises demonstrate the need for new
thinking about Australian national security.

SYDNEY: The Iraq and Indonesian crises have exposed flaws at
the heart of Australian national security policy flaws that arise
because standard political and economic assumptions do not tidily
resolve security dilemmas posed by the crises.

Australia answered Uncle Sam's call to the Gulf because it
judged deployment of the SAS troops was necessary to lock in U.S.
assistance in the unlikely event of a security crisis closer to
home, possibly arising from the financial crisis engulfing
Indonesia.

Australia's response in the Gulf was principled and prudent,
given Saddam's defiance of the United Nations, and given the
reasonable assumption that the U.S. will continue to be the
world's most powerful nation over the next 15 years.

But while marching in lockstep with the U.S. in the Gulf may
earn Australia goodwill in Washington, marching in lockstep with
the U.S. in the Asian financial crisis might not advance
Australia's long-term security interest in a stable Indonesian
neighbor.

Indeed Australia's interests might be better served if
Canberra distanced itself from the tough U.S.-backed policies
being imposed on Indonesia by the International Monetary Fund --
policies (especially the delay in the latest US$3 billion
assistance package) that may reflect a U.S. desire to encourage
President Soeharto's departure.

While the Indonesian crisis undoubtedly results, as the IMF
recognizes, from global lack of confidence in the Soeharto
regime, there seems little doubt that any replacement would (a)
be little different and (b) face the same problems. Replacing
Soeharto is not the answer. Moreover, the IMF programs have been
widely criticized by economists as inappropriate to Indonesia's
rapid contraction after years of solid economic performance; the
IMF itself has conceded the need for flexibility on Indonesia's
cooking oil and rice subsidies.

The Australian Minister for Foreign Affairs, Alexander Downer,
has praised this flexibility as evidence of IMF sensitivity to
the need to minimize social unrest. But he seems reluctant to
support Indonesia's questioning of the IMF's latest delay,
declaring neutrally that the delay is "manageable" while a new
Indonesian ministry is put in place.

Of course, it is necessary to minimize social unrest and to
achieve structural reform of Indonesia's financial and political
systems. But the problems of recapitalizing the financial system
and stabilizing the rupiah will require more focused attention
than the 50-point scattergun IMF approach and the removal of
President Soeharto.

The Soeharto regime, despite its short-comings, has been
crucial to regional stability, and Australia's security interests
would not be served by its destruction by IMF and or U.S.
economic ideologues.

Prof. Peter Sheahan, of the Center for Strategic Economic
Studies at Melbourne's Victoria University, has argued that the
IMF's primary motivating ideology is the cause of open capital
markets with unfettered movement of goods and services, finance,
investment and technology.

Its interests in national policies and institutions consistent
with such a regime have led it to see the Indonesian crisis as
the result of structural weakness in Indonesia, but it is also
possible, he argues, that the cause of the crisis was "market
failure in the global financial system leading to inappropriate
private sector decisions".

It is, of course, possible that Indonesia's structural
weaknesses were casually linked to the market failure. But it is
disturbing that together South Korea, Indonesia, Malaysia,
Thailand and the Philippines suffered net private capital
outflows totaling $12 billion in 1997 compared with inflows
totaling $93 billion in 1996. That amounts to a $105 billion
turn-around in a year.

The magnitude of these numbers would indicate that Prof.
Sheahan is right to suggest that while the long-term opening of
world financial markets may be desirable, the Asian crisis,
especially the Indonesian crisis, has demonstrated that some
financial globalization has occurred too rapidly for some
countries.

Many aspects of Australia's response to Indonesia's problems
have been admirable: it has sought IMF flexibility and committed
$1 billion to the IMF program; it is investigating food aid; it
is providing trade insurance guarantees for food exports to
Indonesia.

Regrettably, Australia is obsessed by the ideology of
financial globalization, although the operation of increasingly
global financial markets has proved anarchic in Indonesia and
potentially inimical to Australia's regional security interests.

Canberra might consider, as Prof. Sheahan has noted, that a
major Australian effort helping to rebuild Indonesia -- a mini-
Marshall Plan -- could stimulate rapid, export-oriented growth in
Australia. And significantly enhance Australian security.

-- The Australian Financial Review