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