6 November 2013 | Vol. 4, № 41.

From the Editor’s Desk

Dear FDI supporters,

Welcome to the Strategic Weekly

Analysis. At the meeting of the Indian

Ocean Rim Association (IORA) Council of

Ministers in Perth late last week, Australia

took up the role of Chair. We begin this

week’s edition by considering some of the

future prospects for the organisation,

formerly known as the Indian Ocean Rim

Association for Regional Co-operation, or

IOR-ARC.

Next, we analyse the latest developments

in the US-Pakistan relationship; examining

the complicated circumstances brought

about by US drone strikes in that country.

Heading south, we report on the outcome

of the first round of the long-delayed

Madagascar presidential election. We also

consider the implications for the future,

as the country heads towards a run-off

election between the first- and second-

place getters, both of whom are proxies

for the two bitter rivals, Andry Rajoelina

and Marc Ravalomanana.

We then explore the financial implications

of piracy in the waters off Somalia. While

the number of attacks has dropped

markedly, piracy remains a big business

and produces many negative economic

effects.

Moving to Indonesia, we assess the

impact of the large-scale strikes and

protests to demand an increase in the

minimum wage, and conclude that an

increase is unlikely.

We conclude this week’s edition in

Burma/Myanmar, where we investigate

the latest crisis gripping violence-prone

Rakhine State: chronic food insecurity.

I trust you will enjoy this edition of the

Strategic Weekly Analysis.

Major General John Hartley AO (Retd) Institute Director and CEO Future Directions International

*****

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From IOR-ARC to IORA: A New Name for Indian Ocean

Regional Body

The change of name to Indian Ocean Rim Association is important, but it must be just the

first step towards raising awareness of the organisation and the work it is doing, along

with cultivating a sense of the Indian Ocean rim as a true region, rather than just a series

of sub-regions.

Background

The Indian Ocean Rim Association for Regional Co-operation (IOR-ARC) has shed part of its

clumsy nomenclature to become the Indian Ocean Rim Association, or IORA. The

announcement was made at the 13th meeting of the Council of Ministers, held in Perth on 1

November, at which Australia assumed the role of Chair and Indonesia became Vice-Chair.

The name change (or reduction), although symbolic, will be useful. Shedding the previous

acronym, which was lengthy and difficult to both pronounce and remember, is an important

step towards facilitating increased awareness of the organisation and a greater sense of

regionalism around the Indian Ocean rim.

Comment

For the next two years, Australia will hold the position of IORA Chair, with Indonesia as Vice-

Chair. In 2015, Indonesia will become Chair, with South Africa as Vice-Chair. Australia’s stint

as Chair comes at an important time to support and follow up the efforts of outgoing Chair,

India, to revitalise what has been widely perceived as a lacklustre and underperforming

organisation. Such accusations are somewhat unfair, particularly given the work that India

has put into the organisation. There are inherent difficulties in bringing together such a

diverse range of countries. These difficulties are emphasised by the tendency of the

organisation’s explicit emphasis on consensus and voluntarism to result in issues being

referred to committees, rather than being dealt with speedily.

The biggest problem is perhaps at an awareness level. Simply put, very few have actually

heard of IOR-ARC/IORA. While the relevant ministers, diplomats and policymakers are all

very aware of the grouping and keen to see it do more, awareness beyond those circles is

almost non-existent. In that sense, giving the organisation a more manageable – and,

hopefully, more memorable, name is a worthwhile move.

Also, much of the work done by IORA is quite technical in nature and does not fit the needs

of the twenty-four hour news cycle. Investigations into improving the sustainability of

fisheries and aquaculture in Eastern Africa, feasibility studies into an IORA Business Travel

Card (presumably modelled on the APEC equivalent), or training courses for diplomats from

Indian Ocean rim countries, just do not provide suitable news fodder; yet such initiatives

have the potential to improve business and living conditions around the region.

Similarly, the six priority areas adopted at the 2011 Council of Ministers meeting in

Bangalore were scaled back from the original 12 priority areas, with the aim of giving the

organisation a sharpened focus. They are all areas in which Australia especially can make a

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meaningful contribution: maritime safety and security; trade and investment facilitation;

fisheries management; disaster preparedness; academic, science and technology

cooperation; tourism and cultural exchange.

All are worthy fields, but, as ever, the challenge will be to turn the lofty goals of those six

priority areas into concrete achievements, which could then be actively publicised to raise

awareness of IORA and contribute to a greater sense of regionalism among the residents of

the Indian Ocean rim. Whatever other achievements may come out of Australia’s tenure as

IORA Chair, and hopefully they will be many, that alone would be a worthwhile

accomplishment.

Leighton G. Luke Manager Indian Ocean Research Programme lluke@futuredirections.org.au

*****

Running with the Hare and Hunting with the Hounds: Drone

Strikes and Pakistan’s Double-Game

Despite its many protestations over the US drone strikes on its territory, it appears that the

Pakistani Government has not only been aware of the strikes, but tacitly approved and

even requested them at times.

Background

The Pakistani Taliban leader, Hakimullah Mehsud, was killed in a US drone strike on

1 November, leading the Government of Pakistan to declare that it ‘condemned drone

strikes whenever they have taken place, including the two recent drone attacks that took

place on Thursday and Friday.’ The US Ambassador was called to the Pakistani Foreign

Secretary’s office to note Pakistan’s protest. On Thursday, Imran Khan, the leader of

Pakistan’s main opposition, the Tehreek-e-Insaf (Movement for Justice) party, threatened to

cut off the NATO supplies to Afghanistan being transported through Pakistan if the US

launched drone strikes during the on-going talks between the government and the Taliban,

presumably targeting the latter.

The government denounced Mehsud’s killing as a US bid to derail the talks. ‘The murder of

Hakimullah is the murder of all efforts at peace,’ said Interior Minister, Chaudhry Nisar Ali

Khan, adding: ‘Why has Hakimullah Mehsud become so important? If they were wanted

there were many opportunities, we know it and I am sure they know it ... Why target him

just a day before a three-member team of ulemas (religious leaders) was going to visit and

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start formal contacts.’ Pakistan said it would ‘review the entire gamut of bilateral ties and

co-operation’.

Comment

In the midst of debates over the legality of the drone strikes, the Interior Minister reported

to the Senate that between 2008 and 30 October 2013, there had been 317 drone strikes in

Pakistan. Those strikes resulted in the deaths of 2,160 terrorists and sixty-seven “shaheeds”

(martyrs, in this case innocent civilians). While these figures do not exactly coincide with

those of other organisations, which base their findings on media reports, it is, nevertheless,

instructive to compare the two sources to arrive at a preliminary understanding of the

Pakistani Government’s motivations.

One independent source claims that since the drone programme began in 2004, there have

been 350 strikes, with 340 of those occurring since 2008. Since 2006, the strikes have killed

an estimated 2,563 leaders and operatives (the latter as a consequence of the CIA tactic of

“signature strikes”) from the Taliban, al-Qaida and allied extremist groups. During the same

period, an estimated 153 civilians have lost their lives.

While the number of civilian deaths will always be a matter of debate, it is interesting to

note that the government, assuming the figures from independent-sources have the support

of media confirmation, downplays the number of strikes. Given their lethality and political

importance, there is a large difference between the government’s figure of 317 strikes and

the independent bodies, which claim the higher figure of 340 since 2008. There is also a big

difference in the government’s figure of 2,160 terrorists killed since 2008 and the total of

2,368 accepted by independent sources. The Government of Pakistan appears to want to

downplay the number of strikes and terrorists killed, so as to avoid a potentially politically-

dangerous situation; one in which it could lose the confidence of the Pakistani people

altogether. If that reasoning is correct, the government probably also downplays the number

of civilian deaths, to avoid greater public reprobation.

Notwithstanding the Pakistani Government’s protestations that it has not colluded with the

US in permitting drone strikes on its territory, there is evidence that it has done exactly that.

A Washington Post report shows that, despite repeated denunciations of the drone strikes

on its territory, the Government of Pakistan secretly endorsed the programme; even

receiving regular briefings and casualty reports. In fact, in the early years of the programme,

the CIA launched its Predator drones from bases in Pakistan.

But the report goes further, alleging that, according to leaked top-secret CIA and Pakistani

Government documents, between late 2007 and 2011 successive Governments of Pakistan

collaborated with the CIA’s drone programme and even chose the targets in some cases. In

April 2013, ex-President Pervez Musharraf admitted to CNN that while he was in power he

had sanctioned drone strikes. Ex-Prime Minister Yousuf Raza Gilani (2008-June 2012) denied

any such collusion, but the evidence states otherwise: a diplomatic cable from then-US

ambassador Anne Patterson in August 2008, released by WikiLeaks, indicated Gilani had

agreed to the strikes in private. One document describes hitting a location ‘at the request of

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your government’, while another refers to a joint targeting effort between the CIA and

Pakistan’s Inter-Services Intelligence agency.

Pakistan’s current rhetoric will likely ebb in the coming days and weeks as diplomatic and

financial reality takes hold. Pakistan, it appears, has had no qualms about running with the

hare, while hunting with the hounds.

Lindsay Hughes Research Analyst Indian Ocean Research Programme lhughes@futuredirections.org.au

*****

Madagascar Presidential Elections: A Move Towards Stability?

The current presidential elections have the potential to restore investor confidence and

provide stability. While neither the current nor former leaders – bitter rivals – are

standing, both are seeking to maintain their influence, potentially prolonging the

uncertainty.

Background

Since the coup in 2009, Madagascar has struggled to maintain any real social or economic

stability. Many people in Madagascar see the current government as illegitimate, and feel

that the only way out of their continuing poverty is a fairly-conducted election to choose a

leader. Both the former president, Marc Ravalomanana, and the current transitional

president, Andry Rajoelina, promised not to stand as president in future elections. But now,

in the midst of an election campaign, both are continuing to throw their support behind the

current candidates in an effort retain their influence over Madagascar’s political future.

Comment

Unhappy with the effect of certain policies initiated by the Ravalomanana Government,

Andry Rajoelina helped to lead a number of rallies in the capital, Antananarivo, in January

2009. After many demonstrations and much political unrest throughout Madagascar,

President Marc Ravalomanana signed over power to the military on 17 March 2009, before

fleeing into exile. Growing tensions subsequently led the military to hand the presidency to

the opposition leader, Rajoelina. He announced that he was President of the High

Transitional Authority of Madagascar (French: Haute Autorité de Transition de Madagascar)

and promised an election by late-2010. The United States condemned the change of power

as undemocratic and unconstitutional, labelling it a military coup d’état.

The election was postponed several times and, in the end, Rajoelina’s promised 2010

election never eventuated. There has not been an election since Ravalomanana was re-

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elected in 2006, but now, with the first round of voting completed on 25 October,

Madagascar is one step closer to a resolution. Originally, the expectation was that Rajoelina

and Ravalomanana would participate in the election but, according to the African Union,

both had broken electoral regulations and this forced them to withdraw from the race. Even

though there are 33 candidates competing for the leadership post, many will struggle

against the Rajoelina- and Ravalomanana-backed candidates. Rajoelina must remain

impartial, due to his position as interim leader, but backs his former finance minister Hery

Rajaonarimampianina, while Ravalomanana has called on his supporters to vote for Jean-

Louis Robinson, his former health minister.

Madagascar’s political unrest has caused a great deal of economic instability, which, in turn,

has seen an increase in poverty across the country. Despite having significant natural

resources, Madagascar’s recent political problems have caused the percentage of people

living under the poverty line to increase by ten points between 2008 and 2013. As a result,

around 92 per cent of Madagascans find themselves living on less than US$2 per day. In

addition, infrastructure has deteriorated due to environmental conditions and budget cuts.

The number of children not attending school has increased, prompting concern over their

future employment prospects, and many health care centres have closed down in recent

years.

With the second round of the election (between the top two candidates) to take place on 20

December, it is imperative that whoever is elected must immediately work on improving the

economic situation. A successful election period will, in itself, achieve a degree of stability,

by restoring investor confidence. Unless the winning candidate quickly takes control of the

political and economic situation, however, Madagascar’s economy will continue to

deteriorate. Even though many in Madagascar see the election as a solution to the current

instability, there are concerns over the organisation of the event. With a relatively small

population of 22 million people, spread out over an area the size of France, rural areas with

limited road access may miss much of the campaigning.

Jean-Louis Robinson is currently leading in the early stages of vote counting and, should he

win the second round, we could see the return of Marc Ravalomanana from exile. Andry

Rajoelina, on the other hand, brought legal action against Ravalomanana during his absence;

the latter was found guilty of abuse of office and his role in protests that led to the deaths of

around 30 protestors. Even though Rajoelina has now agreed to Ravalomanana’s

unconditional return home, the latter’s criminal record precludes him from the presidential

race. If Robinson were to take power, these charges may be overlooked, however, providing

a path for Ravalomanana to return to Madagascar and become politically active once more.

David Martin Research Assistant Indian Ocean Research Programme

*****

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Attacks Drop, but Cost of Somali Piracy Continues to Climb

Despite the progress made so far in resolving Somalia’s piracy problem, it may be too early

to declare a victory – the economic cost of piracy, and its unlawful economic influence,

remains an obstacle.

Background

Last January, the public retirement of notorious Somali pirate king-pin, Mohamed Abdi

Hassan, known as Afweyne, or “Big Mouth”, seemed to signal the dismantling of pirate

networks operating off the Horn of Africa. The announcement came amid a record drop in

pirate attacks in the Gulf of Aden and the western Indian Ocean. The decrease has been a

continuing trend throughout 2013, resulted from naval flotilla patrols and the deployment of

privately-hired armed guards on ships. Figures released by the International Maritime

Bureau (IMB) show a continued drop in piracy in the Horn of Africa, with Somali-related

incidents accounting for just 11 of the 206 total incidents reported worldwide as of 30

October. In spite of the drop in the number of incidents, the economic cost of piracy still

looms as a threat to economic stability.

Comment

Despite the progress made so far in

resolving the piracy problem in Somalia,

it is too early to declare a victory. It is

important to note that the available

statistics on piracy are murky. The IMB

and similar organisations rely on self-

reporting by affected mariners, but an

estimated 50 per cent of attacks go

unreported. There is reluctance among

shipowners to report incidents if it is not

economically wise to do so. Moreover,

officials often minimise pirate incidents

to provide an optimistic regional picture.

In addition, many attacks on small

vessels go unreported, adding to the

gaps in reporting.

Analysts also point to other reasons for the drop in piracy. Some credit the decline to

Kenya’s fight against al-Shabaab, a terrorist organisation with links to al-Qaida, which has

disrupted the business conditions necessary for piracy to thrive. Others acknowledge that

weather patterns in the monsoon season limit pirate activity in the area, suggesting that the

lull in piracy will not last.

Regardless of the cause of the decline, the economic cost of piracy remains problematic.

‘Pirate Trails,’ a report authored by the World Bank, the UN and Interpol, has shed light on

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the financial world of piracy.1 The report estimates that between 2005 and 2012, pirates off

the Horn of Africa obtained up to US$413 million in ransom payments from hijacked vessels.

Moreover, piracy costs the global economy an estimated US$18 billion per year in increased

trade expenses. Insurance premiums have increased, as well as the cost of rerouting

shipments. Ship owners have also incurred the cost of hiring expensive armed guards to

prevent and counter attacks. The IBRD/World Bank Report assessed that the cost of piracy

has the same effect as imposing a 1.1 per cent tax on all shipments transiting Somali waters.

The criminal influence on the economy has also become a global issue, as well as a sustained

threat to regional security. Somali piracy has evolved from small-scale, clan-based

operations into an organised transnational network, with funds and operatives coming from

abroad. Proceeds have been widely distributed through various industries. Some of the

profit has been laundered through investments in legitimate businesses, such as hotels,

restaurants, real estate and financial services. Earnings are also reinvested into future pirate

operations, with a growing number of financiers investing in other unlawful business

ventures, including human trafficking, prostitution and smuggling over Somalia’s porous

borders. Khat – a regional plant popular for its narcotic properties – has been a favoured

investment, particularly in neighbouring Kenya, where the drug is traded with little

government control.

This illegal activity has led to increases in prices and revenue losses throughout the region.

Its effects have also spilled into surrounding areas, reducing maritime activity and tourism,

and forcing the closure of money transfer services. Barclays Bank, for instance, has

threatened to withdraw its services, including closing its accounts with Dahabshiil, one of

the biggest remittance companies in Somalia.

The future of anti-piracy measures continues to depend upon diverting illegal maritime

activity into legal, profitable land- and sea-based actions. This does not necessarily translate

into state-building endeavours, but rather taking action to limit corruption, as well as

restricting incentives for pirates and their patrons. As the IBRD/World Bank report shows,

piracy continues to impose a cost on both the regional and international economies.

Unopposed, it will remain a danger to stability and, perhaps even more significantly, extend

into other forms of criminal activity.

Kaelin Lutz Research Assistant Indian Ocean Research Programme

*****

1 ‘Pirate Trails: Tracking the Illicit Financial Flows from Pirate Activities Off the Horn of Africa’,

International Bank for Reconstruction and Development/World Bank: Washington DC, 2013.

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Indonesian Wage Protests Continue Ahead of Government

Income Announcements

Wage protests have continued in Indonesia, with tens of thousands of workers striking

across the country. But, with the economy looking more uncertain, local governments are

unlikely to heed protesters’ demands when they announce income levels in the coming

weeks.

Background

Indonesia’s wage wars have continued, with tens of thousands of workers going on strike to

demand an increase in the minimum wage. The two-day national strike, which included

public demonstrations and protests, started on 31 October and reportedly covered some 22

provinces around the country. It comes barely a week after some 7,000 workers took to the

streets of Jakarta, demanding increased wages and improved social welfare. But the strike

failed to garner much popular support and, with Indonesia’s economy in a more uncertain

position, local governments are unlikely to grant major wage increases when they announce

minimum levels later this month.

Comment

The protesters, backed by several large labour groups, were demanding a 50 per cent

increase in the minimum wage. Currently, Indonesia’s poorest workers earn US$210 per

month, or around US$2,500 per year. But, increased inflation and a rise in the cost of living

have left many workers struggling to get by. They claim that the government has failed to

accurately determine the index of living, leaving many Indonesians behind, despite

impressive economic growth in the past few years.

The strike failed to attract popular support, however, hampering the protesters’ efforts to

put pressure on government officials. Unions had predicted that up to three million people

would join the walkout, yet police said only around 100,000 people took part in the strikes.

Such numbers pale in comparison to the protests that took place November last year, and it

is unlikely that similar wage increases will be seen this time around.

Having agreed to large increases in the past, Indonesia’s government fears that further

increases could drive away foreign investment and squeeze the country out of global

markets. In particular, officials are worried that the cost of rising wages and work stoppages

could dent employers’ profits, prompting many firms to move their operations to nearby

countries, such as Vietnam and the Philippines, where minimum salaries are lower.

As Yose Rizal Damuri, Head of the Economics Department at the Centre for Strategic and

International Studies, said: ‘if they increase wages by 50 per cent, it would increase the cost

by around ten to 12 per cent, which is quite high, compared to the inflation we have at the

moment’. He went on to say that ‘the government [has] already learned from … last year’s

experience, where the high increase in the minimum wage [resulted in] a lot of problems

with the business sector’. So, although negotiations between labour groups and local

governments are still ongoing, a significant increase to the minimum wage is unlikely.

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Given that Indonesia’s economy continues to waver, that might be a good thing. Last week,

the Wall Street Journal announced that Indonesia’s finance minister, Chatib Basri, had

reduced his growth projection for the country. Mr Basri said that Indonesia’s economic

outlook had worsened, with the economy now expected to grow 5.8 per cent in 2013, down

from an earlier October forecast of six per cent. That is still impressive, of course, but the

South-East Asian giant will need to continue to attract foreign investment if such levels are

to be maintained.

Few Indonesian workers are likely to be happy when local governments announce income

levels later this month. But, given the previous increases and the country’s shaky economy,

they can ill afford to raise minimum wages once again. This time, it seems, people power

cannot win the day in Indonesia.

Andrew Manners Research Analyst Indian Ocean Research Programme amanners@futuredirections.org.au

*****

Burma/Myanmar: Food Security Latest Concern in Rakhine

State

While Burma/Myanmar is regarded as a food secure state, experts are becoming

concerned by rising levels of chronic food insecurity in its central regions, including conflict-

ridden Rakhine State.

Background

Burma/Myanmar is widely considered as food-secure; capable of producing sufficient food

to meet the basic needs of its population. A report conducted by the UN and the Myanmar

Government in 2007, found that only ten per cent of households were below the national

poverty level; however, recent studies have revealed that the number of people suffering

from poverty is increasing. The cumulative impact of changing weather patterns, poor

government planning and rising food costs, has raised concerns among experts about long-

term food security in Myanmar.

Comment

The ability of Myanmar to maintain general food security has been supported by its

agricultural sector. Rice is the country’s largest and most profitable export, contributing

more than 40 per cent of annual GDP. Experts estimate that more than 70 per cent of the

population is either directly or indirectly involved in rice production, which covers more than

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60 per cent of Myanmar’s cultivated land area. Myanmar’s favourable climatic conditions

and fertile soils have historically enabled farmers to overcome poor technology and low

government investment to produce surplus crops.

In spite of its overall national food self-sufficiency, recent studies have revealed that food

insecurity in Myanmar has increased since 2007. A report released by USAID, estimated that

more than 20 per cent of Myanmar’s population has fallen below the poverty line. Food

insecurity is most acute in central areas, including conflict-ridden Rakhine state, which is

experiencing ongoing violence and instability as a result of ethnic and religious conflicts. The

disruptions have produced a large number of internally displaced persons, whose access to

water and food is insecure. In addition to the vulnerability caused by the political situation,

Rakhine is also a poor and remote state with poor infrastructure, which has lower rainfall

and less arable soil than the southern and northern parts of Myanmar. Since 2009, the

percentage of households classified as being “very food insecure” in Rakhine increased from

38 to 45 per cent.

In addition to the disruption caused by the conflict situation, many farms in Rakhine are too

small to allow farmers to produce enough food to meet their subsistence needs. The

government’s unequal land distribution schemes have left many farmers without enough

land to produce surplus crops. The schemes have had a detrimental impact on farmers in

central Myanmar, who require larger areas of land to counter the effects of lower levels of

rainfall and soil fertility. A series of prolonged droughts has forced many farmers to abandon

their land. The USAID report revealed that many farmers are forced to pursue marginal

economic activities, like wood cutting and casual labour, to support their families. Rising

food prices have made it increasingly difficult for these low income families to obtain

adequate food supplies.

Despite possessing enormous potential, Myanmar’s agricultural sector is being constrained

by a range of governmental and environmental factors, which are jeopardising the long-term

food security of millions of people. The government must improve its support of farmers, to

ensure that they can overcome these barriers. The fact that the Myanmar Government only

invests 20 per cent as much in agricultural research as neighbouring countries like Vietnam

shows the significant improvement that could be made. Increased government investment

and support will be crucial in ensuring that Myanmar’s long-term food security is protected.

Lincoln Meeking Research Assistant Global Food and Water Crises Research Programme

*****

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Any opinions or views expressed in this paper are those of the individual authors, unless stated to be those of Future Directions International. Published by Future Directions International Pty Ltd. 80 Birdwood Parade, Dalkeith, WA 6009 Tel: +61 8 9389 9831 Fax: +61 8 9389 8803 E-mail: lluke@futuredirections.org.au Web: www.futuredirections.org.au

What’s Next?

Operation Southern Katipo, the biggest international military drill held in New Zealand, runs until 29 November around the South Island city of Timaru. The three-week long exercise began on 4 November and brings together maritime, land and air assets from the defence forces of the United States, United Kingdom, Australia, Canada, France, Malaysia, Papua New Guinea, Singapore, Tonga and New Zealand.

The African Union is hosting a high-level conference titled “A Business Plan for Africa: From Vision to Execution” at its headquarters in Addis Ababa from 6-8 November.

The annual Bali Democracy Forum will be hosted by Indonesian President Susilo Bambang Yudhoyono from 7-8 November. Australian Foreign Minister Julie Bishop will speak on the topic “Building and Strengthening Democratic Institutions”.

The next round of P5+1 negotiations on Iran’s nuclear programme will take place in Geneva on 7-8 November.

A second round of voting to elect a new government is scheduled to take place in the Maldives on 9 November.

The third plenary session of the 18th Communist Party of China Central Committee will be held in Beijing from 9-12 November. On the agenda will be financial reform and the formulation of a longer-term growth strategy.

The foreign ministers of India, Russia and China will meet in New Delhi on the sidelines of the Asia-Europe Meeting on 10 November.

The Commonwealth Heads of Government Meeting will be held in the Sri Lankan capital, Colombo, from 10-17 November.