Indonesia’s South China Sea Options

Indonesia has the potential to defend its maritime interests, but for now it will need a partner

Over the past few years, China has steadily increased its assertiveness in the South China Sea. Its most recent claim to fishing rights over most of this territory has given other countries in the region cause to worry that China may soon try to implement an Air Defense Identification Zone (ADIZ) across the South China Sea as it tries to assert its claim out to the controversial nine-dash line. This would put Chinese jurisdiction literally just off the shores of most Southeast Asian countries.

While all the countries neighboring China’s claims are worried about this threat to their sovereignty, few have the means to challenge it, especially on their own. Indonesia is perhaps one country that could do so with the help of a substantial ally. It also has the resources to fund a navy capable of defending its territorial waters. Nonetheless, it remains to be seen if Indonesia can harness its economic potential and transform itself into a substantial regional power.

There are already serious indications that China may try to establish an ADIZ over the South China Sea in the near future. A senior officer of the Chinese People’s Liberation Army Navy’s Military Academy, Li Jie, tested the waters on February 21, in response to a statement from an American military source saying that China plans to implement an ADIZ over the South China Sea by 2015. Li replied that the implementation was necessary for China’s long-term interests.

Indonesia’s Potential

Both Indonesia’s GDP and GDP per capita have made robust gains over the past 10 years, with GDP increasing over 400 percent to $878 billion in 2012 and GDP per capita surging to $3,557 by 2013. The per capita increase happened despite the population growing by almost 40 million people. This would imply that the government has a healthy population and revenue base from which to draw potential military funds.

The oil, gas, and mining industries have been the main drivers of Indonesia’s economic success. However, these industries are not problem free, and some of those problems are of Indonesia’s own making. The country’s oil fields are maturing and have probably already passed peak production. However, the country’s gas reserves are still substantial, and its emerging coalbed methane (CBM) industry could prove to be extremely lucrative.

The problems with Indonesia’s primary industries are definitely limiting the government’s options for dealing with regional security matters. The oil and gas sectors have a stable regulatory framework that attracts investment, but maturing fields and increased domestic consumption mean declining profit. Oil and gas contributed 22 percent of government revenue in 2011. If that number goes down then either a new source has to be found, or services (military) funding declines. Indonesia is already squeezing as much government revenue from this source as is prudent, with an effective tax rate of 44 percent in 2013. With oil production declining, natural gas will be relied upon until the next significant energy source can be developed.

With an estimated 6 percent of global reserves, CBM is set to be the country’s next big driver for energy investment. These CBM reserves are estimated to be twice the size of its natural gas reserves. This industry is, however, still new. State-owned Bukit Asam claims its Tanjung Enim site will produce enough CBM daily to power a 200MW power plant by this year. However, a deal with a utility company is still forthcoming. Even with a favorable regulatory market and geological formations, this industry will not become a significant part of Indonesia’s economy in the near future.

The regulatory climate surrounding Indonesia’s mining industry poses another large problem. A controversial 2009 mining law came into effect piecemeal on January 12, requiring companies to refine minerals within Indonesia instead of shipping ore after it’s initially extracted. The goal is to keep mining profits within the country instead of exporting the country’s wealth. However, most major foreign companies are extremely worried about the uneven application of the law across commodities, as well as ambiguity as to whether prior contracts will be affected.

Two of the largest mining companies in the country, Freeport and Newmont, claim the law could force them to lay off thousands of workers and cost billions in lost export revenue. They are threatening to take their claim that previous contracts supersede the new law before international arbitration. Compounding the problem posed by the new law are weakening commodity prices and a lack of infrastructure to refine and bring minerals to market. The mining sector tax income target was $90.5 billion for 2013, but as of September only $56 billion had been collected. The state mining sector raised $3.37 billion for the same time period, a 25.7 percent decrease year-on-year.

A growing consumer class is another potential driver of Indonesia’s economy. This part of the population is expected to grow to 150 million people over the next 10 years. Not only will this further stimulate Indonesia’s economy, it is expected to be a stabilizing factor not dependent upon commodity prices. Some of Indonesia’s resilience to the U.S. Federal Reserve tapering of its easy money policy is already being attributed to this growing consumer confidence.

This base, if it does continue to grow, will become an important part of Indonesia’s economy. However, it will not translate into large budgetary gains for the government until the end of the decade at the earliest. Turning those gains into substantial upgrades to the navy would require a further five to ten years. That timeline means the government cannot depend on this revenue source to finance its immediate military needs.

Alliance Options

Without the necessary budgetary freedom to commission a navy capable of defending its territorial waters, Indonesia is left with a few options for providing for its own defense. ASEAN has shown itself to be unhelpful in this regard, as even after China instituted its new fishing law, ASEAN was incapable of anything more than a statement recommending a diplomatic solution to the problem. Few other countries in the region have the naval capacity to work with Indonesia to provide an effective deterrent to aggression, with two exceptions: Australia and Japan.

Despite the difficulties surrounding Indonesia’s relationship with Australia, arising from foreign asylum seekers transiting from Indonesia to Australia and now reports that Australia spied on Indonesian trade deliberations with the U.S., neither issue is a strategic threat to their relationship. However, issues like this inhibit cooperation for as long as China’s assertive posture isn’t overtly militaristic. Should China decide to implement an ADIZ over the South China Sea, the relationship could change. Australia does not have any territorial claims in the South China Sea, but China asserting itself militarily over large swaths of the world’s most valuable sea lanes, carrying 50 percent of global oil tanker shipments, is a threat to Australia, especially as it brings its large natural gas reserves completely online and increases exports.

Unfortunately for Indonesia, the strain in this relationship means that an alliance with Australia would likely need to be precipitated by an incident large enough to align their interests. Such an event may mean that any alliance would be too little and too late, as China may have already dictated the course of events and seized a strategic advantage.

Japan has much more immediate and strategic reasons for helping any Southeast Asian nation counterbalance China. The recently implemented Chinese ADIZ in the East China Sea and the dispute over the Diaoyu/Senkaku islands have made Japan extremely sensitive to Chinese assertiveness. Japan is also nervous about the security of its own energy trade routes through the South China Sea.

However, Japan’s pacifist constitution does not allow for its Self Defense Forces to do anything beyond protecting its own territory. Prime Minister Shinzo Abe and the ruling LDP would like to change the constitution to allow Japan’s military to aid in protecting its allies. A change to Japan’s Article 9 would make a formal military alliance with a Southeast Asian nation extremely attractive. Yet the possibility that the Japanese government is able to change the constitution is not something that Indonesia can afford to hinge its military strategy upon, particularly given how controversial changing Japan’s military posture is both at home and within the region.

That leaves the U.S. as the only other country Indonesia could ally itself with in the near term that could substantially influence Chinese behavior in the South China Sea. The U.S. has told the Philippines it is looking to put more ships in theater. However, U.S. foreign policy is stretched by interests all over the world. A real push militarily into the South China Sea would require much more belligerence on the part of China than we’ve seen to date. Even a new ADIZ would not likely significantly change U.S. posture without a significant “incident” in theater to precipitate involvement. However much the U.S. emphasizes its “pivot” to Asia, that pivot by no means has to be immediate. In the short-term the U.S. can allow events to unfold as they will, and react accordingly in order to maintain its balance of power in the region.

This means Indonesia cannot fully depend on the U.S. to build a sufficient presence in, or even partnership with, the region before the sovereignty of its territory might be significantly impinged. Another regional actor with the same motivations and potential for loss from Chinese aggressiveness is necessary. Whether Indonesia can convince another country within the region that Chinese aggression warrants immediate action will be difficult, but it is the only option in the short to medium term.

Clint Richards is a Tokyo-based risk management and geopolitical consultant.

Bangkok Turmoil and Thailand’s Deep South

Prospects for peace in South Thailand recede as Bangkok plunges into political turmoil

Exactly one year ago, hopes were high as the Thai government under the leadership of Yingluck Shinawatra made a historic move to end a conflict that had already claimed more than 5300 lives since its brutal resurgence in 2004. With the blessings of her deposed and now exiled brother Thaksin, who had previously approached Malaysia’s Prime Minister Najib Razak for cooperation, Shinawatra initiated a formal peace dialogue with the Barisan Rovolusi Nasional (BRN), one of the main insurgent groups that operate in the three violence-ridden provinces of Thailand’s Deep South.

Despite being lauded and supported by many local religious leaders, civil society groups, and scholars working towards a peaceful bottom-up resolution to the conflict, the dialogue soon ran into challenges, lasting only three rounds. A lack of command and commitment by the representatives of both sides, the uncertain and contested role of Malaysia, and the Army’s entrenched interests and stronger role have all contributed to undermine the dialogue.

One possible way out would be to upgrade the dialogue to a negotiation process focusing on the practical aspects of some form of political autonomy for the Southern provinces, which would increase the prospects of ending one of Asia’s oldest conflicts. But this is unlikely given the current political instability in Bangkok and the uncertain future of Prime Minister Yingluck and her government, now bereft of popular support and legitimacy.

Weak Command and Commitment

Plaguing the peace process at the outset was the lack of leadership unity, legitimacy, and genuine commitment on both sides. It is widely believed among Thai security officials, especially the Army’s top brass, that the senior BRN leaders who joined the talks no longer have command over the young militants operating on the ground and that the dialogue was consequently doomed from the outset. The Army raid on militant camps in July, even while the dialogue was in process, further reflected the military’s snubbing of the BRN-Thai government official agreement to refrain from violence during Ramadan.

Repeated incidents and misunderstandings also indicated that the BRN negotiating team led by Hassan Taib was not willing to continue the peace talks. BRN’s five extreme demands, issued just before the second round, included government recognition of the independence and sovereignty of Patani Malay. This was hardly going to be acceptable to the central government and the Thai establishment. Hassan’s eccentric behavior of pressing several demands on YouTube without prior consultation with his Thai counterpart further complicated the position of the Thai negotiating team leader, National Security Council director Lt. General Paradon Pattanathabut.

Despite the BRN’s threat to pull out after its demands met with no response, constant violence on the ground and heavy criticism from security officials and politicians, the peace dialogue survived only to meet with a call for an indefinite suspension from the Thai side after the anti-government mass protests broke out in Bangkok in late November. According to Paradon, Bangkok wanted to wait until the situation in the capital calmed down. Unfortunately, the street movement evolved into prolonged mass protests and Yingluck’s focus remains on the day-to-day struggle to keep her government in power.

A further complication emerged on the insurgents’ side, now bereft of command. In his last YouTube appearance on December 1, Hassan urged the Thai side to accept the BRN’s five demands as a precondition for continuing the talks, but also indicated he was no longer the chief representative. His disappearance and silence since then have raised speculation and rumors about Malaysia’s role and possible strife inside the militant organization.

Malaysia Facilitates and Divides

The 2013 peace initiative looked promising especially because of Malaysia’s assistance as a facilitator. Thailand’s southern neighbor was known to be the hideout for most key militant commanders, and Bangkok thus expected Kuala Lumpur to have significant leverage over them. Rather than constructive facilitator, however, the external role of Malaysia has been at the center of dissension, further accentuating the lines of division between a complex set of militant outfits.

For example, in early October, one BRN faction led by spiritual leader Sapae-ing Basor, generally seen as having more clout than Taib, claimed that the unexpected peace initiative lacked its approval and expressed its opposition to the external role of Malaysia. This group maintains a deep mistrust of Malaysia, which in 1998 had turned in some of the group’s militants to Thailand. Basor has thus made his participation contingent on guarantees of immunity for him and his followers.

Malaysia’s role is also heavily criticized by Wan Kadir Che Man, the former leader of the now defunct insurgent Bersatu group, who participated in the pre-peace initiative meeting with Thaksin in Malaysia. Wan Kadir claims that the militants’ real leaders, hailing from different groups, were invited to the event but sidelined by the Malaysian authorities, which preventing them from engaging with the former Thai prime minister. Thaksin thus ended up talking to insurgents who do not control operations on the ground and who are thus unable to translate any official agreement into reality. Wan Kadir further accuses both governments of lacking a serious commitment to achieving peace and of being merely interested in fostering their respective public images.

Sources later revealed to a Deep South Watch blogger that despite the disagreement of the Dewan Penilian Party, the BRN’s ruling council, Hassan had been forced to collaborate with Malaysia in order to secure the safe haven for all Patani insurgents living on the other side of the border. Other sources suggested that the rather moderate Hassan might now be under the custody of DPP in an attempt to replace him in future talks with a new hard-core representative. If this holds true, then Bangkok will likely face an even tougher task to look for peace.

The Army Steps Up 

Even before the talks were suspended, the Thai government itself had already changed tactics, electing to get the Army involved by consulting it before the fourth meeting and also bringing in General Akanit Muensawas, a veteran negotiator with the insurgents who had earlier been strongly critical of Malaysia’s role.

At first, this can be seen as an effort by the Yingluck government to mend disunity and include more stakeholders. But the balance of forces has changed since then. Following the massive protests and political instability, the Thai prime minister and her party now owe the Thai military for not staging another coup, and there are even signs that the Army has already taken over the peace process. The military may well remain in the driving seat under a new government, particularly because the Army’s top brass tends to be aligned with the opposition.

More importantly, the Army is also known for its conservative and less flexible stance, which will most probably clash with that of the BRN and other militant groups whose ultimate objective is Patani independence. Its presence and role in the conflict area has always been the subject of controversy. Local Malay civil society tends to perceive the Thai armed forces as a troublemaker rather than a solution and has repeatedly asked the government to withdraw the Army and lift its emergency decree in all areas. In Southern eyes, the military’s extra-judicial killings, torture of insurgents, and arrest of innocent civilians have only exacerbated the conflict between the Malay Muslim community and Thai authorities.

Secret dialogues between the Thai government and the Malay Muslim militant groups took place several times in the 1990s and under every government since 2004, often with the Army as a key liaison. The military also claims wide experience in negotiating with insurgents, although its only real success came from the peaceful engagement with the communist insurgents in the 1980-90s. It thus remains doubtful that the increased role of the Army will facilitate any substantial agreement with the militants.
 
From Dialogue to Negotiating Autonomy

Successive governments have acceded to some of the insurgents’ requests to respect and promote the distinct Malay-Muslim culture in a country where the monarchy often equates national identity with Buddhist religion, followed by 94 percent of the population, and the Thai language.

There have also been significant attempts to improve the socioeconomic conditions of the region, which includes some of Thailand’s least-developed and peripheral provinces. Under the leadership of Police Col. Tawee Sodsong, who directs the government-mandated Southern Border Provinces Administrative Centre, several initiatives have also been implemented to address local concerns such as special rights for Muslim prisoners and the promotion of Malay language and culture programs.

But none of these measures have significantly reduced the levels of violence, let alone eradicated the insurgency, because they do not cover half of what the insurgents aim to achieve or are willing to compromise with.

If Thailand is truly determined to resolve the conflict peacefully, it will have to upgrade the dialogue to a negotiation process. The February 2013 initiative is a good test for Thailand to evaluate how far it can go with concessions, while genuine help from Malaysia can continue to pressure other insurgents to accept an autonomous administration under the Thai Constitution, as it achieved with the BRN. In parallel to these inducements, an efficient counterinsurgency strategy is also much needed to coerce remaining insurgents into giving up their violent methods and joining the peace dialogue. To date, Bangkok has been unable to pursue this dual strategy effectively.

The risk-averse Army and the old political establishment still fear that increased administrative autonomy could give rise to Patani independence. They are consequently inclined to maintain the current status quo based on a fragile and violent stalemate. In fact, their conservatism even rules out acceding to local demands to permit the use of both Thai and Malayu as official languages in the southern provinces.

During his recent visit to Pattani last month, the Thai Army Chief, General Prayuth Chan-ocha confirmed that the peace talks will continue. He also insisted that by generating more development projects for the Deep South, the government was taking the correct approach. This belief is, however, widely questioned. And on the operational front, the counterinsurgency has made little progress.

Only a government with strong public support will be able to take the necessary bold decisions, risks and initiatives, while possessing the required leadership authority and control to end the conflict. Thailand’s current political situation suggests no such government will emerge any time soon. And with the country on the brink of a monarchical succession and ridden by political polarization, any major initiative and focus on peace will have to wait. Until then, conflict will continue to torment the Deep South and more lives will be lost.

Sasiwan Chingchit is an independent research consultant based in Washington D.C. and a visiting international research fellow at the Institute for Defence Studies and Analyses in New Delhi, India. She previously worked as a lecturer and researcher at the Prince of Sonkhla University in Pattani.

Russia, Ukraine and the West

How will the West read Putin’s playbook? 

(Kerry’s note: Both the USA and UK leadership smack of hypocrisy over their positions regarding the Russian presence in Crimea. At least Putin is trying to protect Russians. Compare this with the USA-UK sponsored invasion of Iraq, the deaths of more than 100,000 as a result of the fabricated reason for that invasion and ultimate demise of the Saddam regime).

VLADIMIR PUTIN did not take long to show what he thought of Barack Obama’s warning shot that there would be “consequences” for continued Russian military intervention in Ukraine. The prospect of those consequences—Obama mentioned only the suspension of America’s part in the preparations for the June meeting of the G8 in Sochi—did not exactly seem to strike terror into the Russian president’s heart. Within hours he had called on and received backing in Russia’s upper house of parliament for the authorisation of troops for an invasion (or “stabilisation force” in Putinspeak). Not just of the autonomous largely Russian-speaking Crimea, where Russian troops have already seized key facilities and where Russia has a leased naval base, but potentially, and more ominously, of the whole of Ukraine.

Nor does it seem likely that the 90-minute telephone call between the two men that took place in the aftermath of the unanimous Duma vote will have persuaded Putin to pause for consideration. Although a transcript of the conversation has not been revealed, it appears that Obama was trying to nudge Putin towards working through an internationally mediated process that would involve observers on the ground to ensure that the rights of Russian-speakers in the country were not infringed and confidence-building talks with the Ukraine government to recognise the special status of Crimea. That all sounds perfectly sensible, but it is far removed from the trajectory that Putin appears to be on.

The reality is that Putin sees holding Ukraine within Russia’s sphere of influence as a vital national interest that he is willing to run pretty big risks to secure. What is more, it seems highly probable that he does not take threats from Obama particularly seriously. He has seen at close hand the American president’s disastrous vacillation over Syria, culminating in the scuttling away from his own red line declaring punishment for the Assad regime if it used chemical weapons. He no doubt also draws conclusions from big American defence spending cuts in the pipeline and Obama’s extreme sensitivity to the war-weariness of American voters.

If Putin believes (as he almost certainly does) that Obama will do little more than deliver a petulant slap on the wrist, he will have no compunction in putting into operation a familiar playbook. Everything that has happened so far is almost a carbon copy of the tactics used to occupy and effectively annex South Ossetia and Abkhazia in 2008: manipulate, provoke, foment a sense of crisis that prompts an appeal for aid and then send in Russian “peacekeepers”.

The difference is that Ukraine is a country of 46m people with by no means insignificant armed forces of its own. It is also bankrupt, and a majority of its people want to be Ukrainians, not subjects of a Russian puppet government.  Putin is thus unlikely to want to push things so far that Russian forces get sucked into a hot war in Ukraine against fellow Slavs. With his own economy stagnating, he will surely have second thoughts about taking on the burden of an occupation. Furthermore, whereas after the early 1990s Russia never recognised that South Ossetia and Abkhazia were under Georgia's control, it is a signatory of a 1994 treaty guaranteeing the territorial integrity of Ukraine.

But Ukraine's size and importance also make the current crisis a far more threatening security issue for the West than Russia’s intervention in Georgia. While it is easy to criticise Obama’s infinite capacity for thoughtful inaction, the dilemmas for Western diplomacy are real enough. The problem is that like the fox, the West knows lots of different things but is not sure what it really wants, while Putin is like the hedgehog that knows just one big thing, namely that Ukraine, especially in the south and east, is really part of Russia's world.

A military response to Russian aggression or the threat of fast-track NATO membership for Ukraine are unthinkable. So the West will fall back on lesser, diplomatic measures in an attempt to isolate Russia within the international community. First, all seven of the other G8 members could say they are not going to Sochi unless Putin backs off. Secondly, the US Congress could substantially widen the application of the so-called Magnitsky Law to include Putin and his Kremlin cronies. Thirdly, trade sanctions could be applied including work to begin freezing Russian banks out of the international financial settlement system. Fourth, a UN Security Council resolution could be prepared condemning Russia for aggression against an independent country that might attract the support of China (always first to denounce intervention in the affairs of a sovereign state) even though Russia would, of course, veto it. Last, the West needs to show ordinary Ukrainians that it will back the new government and that it, not Russia, can offer a path to prosperity.

Russia is not the old Soviet Union, which was relatively impervious to diplomatic and economic censure. Putin knows that Russia could pay a high price for what it is doing in Ukraine. For now, he believes that the risk is worth taking because he sees the West as supine and decadent, more worried about keeping Russian oil and gas exports flowing than about standing up for the idea of a Europe whole and free. It is now up to Obama whether he wants to show the leadership that will prove him wrong. ‘The Economist’