Australia in a post-COVID-19 world


Author: Allan Gyngell, ANU

COVID-19 has done more to close borders, reverse globalisation, decouple supply chains and marginalise multilateral institutions than the most fervent efforts of the world’s populist nationalists.

Workers make masks at a medical supplies company on 11 February 2020 (Photo: Reuters).

At a time when the world is reverting to its smallest constituent parts — from international system to nation state to city to socially-isolated family unit — it might seem premature to speculate about what happens when the crisis passes. Every Australian national security document of the past 20 years listed pandemic disease as a threat, yet Australia still found it hard to step from prediction to planning. It should not make the same mistake in thinking about what comes next.

The world before coronavirus is not returning. An economic and social shock of this scale is not a freeze-frame moment. The balance of global power, the structure of the international and national economies, the role of multilateral agencies, patterns of social interaction and ways of work will all be different.

Some existing trends in international behaviour have been strengthened by the crisis. The reassertion of state sovereignty against the fading dreams of cosmopolitanism has been powerfully reinforced. Authoritarian leaders on both the left and right have seized opportunities to strengthen their control. Across democracies, the role of the state has also been boosted.

The vulnerability of single supply lines for medical equipment, pharmaceuticals and energy will reinforce the geostrategic pressures for decoupling between China and the United States. Everywhere, calls for greater self-sufficiency will grow.

The crumbling US–China relationship has become more poisonous. Mutual accusations about responsibility for the pandemic and tit-for-tat media expulsions have brought relations to a dangerous low. China is offering its resources and experience in handling the virus to build relationships with other countries. In contrast, the United States is absent from any international leadership.

What will Australia’s world be like when this is over? The present contest is one of capability rather than system. Capable states, whether democratic or authoritarian, will address the health and social problems more effectively and get their economies moving faster when the crisis passes. Like Singapore and Germany, Australia, with its effective public institutions, should be among them — whatever the missteps along the way.

Even so, Australia is likely to find itself in a weaker overall position in the post-coronavirus world. The pattern of China’s growth, the structure of its economy and Australia’s role in it will change. The economic relationship will remain vital for both countries, but due to Chinese demand falling and Australian desire to diversify, the high point of easy integration might have passed. We will have to work harder.

The multilateral institutions most important to Australia will be weaker. From climate change and pandemics to the collapse of the world trading system, 2020 has reminded Australia that a rules-based system that gives all countries a voice is a prerequisite for success in meeting its greatest challenges. Yet some of the most important technical organisations have become stakes in the China–US geopolitical contest. For example, some tried to delegitimise the World Health Organization by painting it as a Chinese tool over the issue of when a pandemic was declared. The G20 has proved itself entirely unable to mount an effective response.

Even so, outside the formal processes of multilateralism, specialist parts of government regulatory agencies and informal research links of specialists networking with their overseas counterparts has been critical.

Since the formation of the South Seas Regional Commission in 1944 and the creation of ASEAN in 1967, support for regional organisations has been important in Australian foreign policy. But from the European Union to ASEAN, the virus has revealed incapacity and divisiveness. In addition to the health dangers, the coming financial shock wave will challenge the main pillars of Australia’s Indo-Pacific strategy, especially Indonesia and India.

Australia’s ally, the United States, looks irrevocably weakened as a global leader, although a lot will hang on the results of the November presidential election. It is hard to think of a global crisis over the past 50 years to which Washington has offered the international community so little response.

Australia needs to find its own clear and consistent voice in Washington and Beijing as it attempts to avert the worst of its deteriorating relationship. Australia should engage effectively in direct high-level discussions with both Beijing and Washington, or risk being crippled in its recovery.

Prime Minister Scott Morrison should ask the Department of Foreign Affairs and Trade to repurpose that ‘comprehensive audit of global institutions and rules-making processes where we have the greatest stake’ that he called for in October and use it in collaboration with other middle powers to identify ways of rebuilding their authority and usefulness.

The weaknesses of regional organisations means that when the next financial crisis comes, Australia’s neighbours will want to know where it stands, and how it will help. As ANU’s Adam Triggs suggests, Australia needs to support its neighbours by encouraging the United States, the IMF and the G20 to prepare a response that includes loans and currency swap lines.

The lessons of this pandemic must be learned quickly. A national and international review that includes ways of sharing information and keeping equipment and pharmaceuticals flowing, is critical. Australia should play a large part in its development.

Allan Gyngell is Honorary Professor at the College of Asia and the Pacific, the Australian National University, and National President of the Australian Institute of International Affairs.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

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Can we stop the protectionist wave?


Author: Gary Clyde Hufbauer and Euijin Jung, PIIE

Globalisation was under threat even before the pandemic. US President Donald Trump set the tone by declaring himself ‘tariff man’, imposing bogus ‘national security’ tariffs on steel and aluminium imports from allies while launching a trade war with China and eviscerating the WTO Appellate Body. But Trump was not alone in attacking the global trading system.

A worker cycles past containers outside a logistics center near Tianjin Port, in northern China (Photo: REUTERS/Jason Lee).

Since the Global Financial Crisis (GFC), G20 leaders have repeatedly promised no new trade restrictions. Yet time and again they have broken their promises. Documented by the Global Trade Alert, each year for the last decade nearly every G20 country has added to its roster of trade restrictions. The pace of new restrictions has gathered steam as the years have rolled by.

Trade is not the only target of anti-globalist policy. Foreign direct investment (FDI) is a necessary complement to supply chains and the delivery of business services and has increasingly faced policy barriers. Starting in 2017, Trump reversed long-standing US policy which embraced both inward and outward FDI. He cast aspersions on US-based multinational corporations (MNCs) investing abroad by ‘outsourcing jobs’, despite contrary evidence. With the Foreign Investment Risk Review Modernization Act of 2018, he then implemented strict reviews on foreign MNCs — particularly Chinese ones— investing in the United States.

But there have been some positive initiatives during the anti-globalist decade (2009–2019). Despite America’s retreat, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was launched, and the Regional Comprehensive Economic Partnership was agreed, even without India. The European Union concluded major trade agreements with Canada and Japan, while China signed pacts with South Korea, and many other bilateral free trade agreements were concluded.

These positive policies were more than offset by negative policies: Brexit, the near-death of and subsequent renaming of NAFTA and Trump’s tepid phase one trade deal with China. Merchandise trade grew at 56 per cent, not much faster than world GDP of 40 per cent, between 2009 and 2018. Annual FDI inflows fell from their peak, from US$1.8 trillion in 2007 to just US$1.3 trillion in 2018.

Then COVID-19 struck. The worrisome rise of protectionism instantly transformed into a global financial rout. Travel came to a standstill as one country after another closed its borders. The European Commission imposed its own ban on exports of vital medical supplies to outsider countries.

Some 54 countries have now imposed export restrictions on medical goods. Lockdowns were quickly adopted by China, South Korea and Italy and are now becoming common among all advanced countries. Enforced social distancing has caused a sharp drop in world GDP during the first and second quarters of 2020. Major banks are forecasting US GDP losses up to 20 per cent in each quarter.

These calamities almost guarantee a surge both in import protection and export controls. China is likely to restore its economic engine before advanced countries. A flood of Chinese exports might trigger a new wave of trade protectionism — antidumping duties, countervailing duties and safeguard actions — even while supply chain shortages and isolating workers limit output elsewhere. Meanwhile, wherever supply shortages erupt, an instant political response will halt exports to keep ‘essential’ goods at home. Supply surpluses may end up closely guarded out of fear. Restrictive measures so far are prioritised to secure medical supplies, but other products cannot be far behind. Soon this practice will become almost as widespread as the virus.

Whatever political purposes might be served by protectionist responses, the economic cost will be greater. We’ve already seen the cost at a local level, as people hoard necessities and ensure supplies are not available for those in dire need.

At a macroeconomic level, trade disruption will foster costly ‘self-sufficiency’ campaigns. Arch-protectionist Peter Navarro has invoked the pandemic to demand that the United States make all medical supplies, pharmaceuticals and other ‘essentials’ at home. Even Emmanuel Macron urged that vital French goods stay in France. Least developed countries with weak healthcare systems will suffer a lack of access to medical supplies.

What can be done? The WTO machinery is too weakened to provide an effective response. Given its questionable track record in keeping markets open following the GFC, the call for meaningful action from the G20 seems futile.  At their virtual summit on 26 March, the G20 leaders said: ‘Emergency measures aimed at protecting health will be targeted, proportionate, transparent, and temporary’ in their joint statement — not exactly a ringing declaration.

The best hope rests with bilateral truce agreements. China seems well positioned to take the lead, given its nascent economic recovery and pro-globalist mindset of President Xi Jinping. These agreements should provide bilateral commitments not to restrict exports to the partner. They should suspend, for the duration of the pandemic, new trade remedies — antidumping duties, countervailing duties, safeguard actions — and adopt strong language in favour of inward and outward FDI between the partners. Also recommended is a ‘trusted traveller’ protocol allowing businesspeople and even tourists who test free of virus upon departure to visit the partner country.

Plurilateral cooperation might be the ideal way to deter fresh trade restrictions. ASEAN+6 might issue a stirring declaration. But it could take months to ensure free flow of medical products in a plurilateral group. Bilateral commitments can be reached faster, perhaps as a step towards plurilateral agreements.

In time, some of the Chinese partners might sign bilateral truce agreements between themselves. New Zealand and Singapore committed unilaterally to keep their flow of essential goods and medical supplies open, and their commitment has been joined by several other countries. Eventually, such truces might be generalised as protocols to the CPTPP, other regional agreements, and even APEC and the WTO.

Gary Clyde Hufbauer is a non-resident Senior Fellow at the Peterson Institute of International Economics.

Euijin Jung is a Research Fellow at the Peterson Institute of International Economics.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

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Going the fiscal distance to save Indonesia’s economy from COVID-19


Author: M Chatib Basri, University of Indonesia

The COVID-19 outbreak recalls Albert Camus’s novel The Plague. While Camus was not writing about COVID-19, those who have read The Plague can see in it the anxiety and confusion currently gripping those isolated throughout the world.

A worker sprays disinfectant in the bus, to prevent the spread of coronavirus disease (COVID-19) in Surabaya, East Java Province, Indonesia, 22 March 2020 (Photo: Antara Foto/Zabur Karuru via REUTERS).

Doctors in Italy are being forced to choose which patients to prioritise for treatment based on who has the best chance of survival. COVID-19 is a humanitarian problem and presents true moral dilemmas. Its impact is tremendous. It’s now visible on the streets in Indonesia.

COVID-19 has caused both a demand and supply shock to economies. In terms of demand, the slowdown of the Chinese and global economy will impact the Indonesian economy through falling commodity prices and demand for mined goods.

On the supply side, the disruption to China’s economy will lead to a lack of parts and components, and capital goods needed by many countries including Indonesia. This is disrupting the production of goods and services.

Under these conditions, unleashing fiscal stimulus and monetary expansion to stimulate aggregate demand, without addressing the problem posed by the supply shock, will only increase inflation. The Indonesian Ministry of Finance predicts that the economy will only grow between 0–2.5 per cent this year. That may be optimistic.

The rapid spread of the virus has led many countries to introduce health lockdown measures. On 15 March, the Indonesian government called for social distancing, which will impact economic activities requiring employees to be physically present at their workplace.

This will result in a drop in demand and a disruption in production. The impact can be limited if these activities can be replaced with online activities. But there are many jobs that cannot move online, such as ride-sharing drivers with GoJek or Grab, day labourers, small traders, shop staff, waiters, and others.

If both production and demand are disrupted due to a lockdown or social distancing, fiscal stimulus and monetary expansion aimed at bolstering aggregate demand will not be wholly effective. The government must instead adjust its fiscal policy to suit the situation, its priorities and respond quickly. Until the government can control the spread of the virus, the Indonesian economy will continue to come under pressure.

The Indonesian government needs to take a number of steps urgently.

It should focus, first, on handling the outbreak and decreasing its spread. Indonesia has a large population and COVID-19 spreads quickly. The government must plan for scenarios where the outbreak spreads uncontrollably, as many other countries have experienced.

The government must ensure that there are enough hospitals to care for patients. Sufficient test kits, medical personnel, medicine and appropriate medical procedures are also essential. This requires huge funding. For those losing their livelihoods, monthly health insurance bills will become a significant burden. The government is rightly covering the healthcare costs of coronavirus patients. But on a larger scale, this policy will require a larger budget.

COVID-19 will clearly have a huge economic impact and many will lose their jobs. To mitigate this and ensure that the middle to lower classes are able to fulfil their daily needs, the government should increase and expand the Cash Transfer, Conditional Cash Transfer and Non-Cash Food Aid programs.

The range of households eligible for support should be expanded beyond the poor to the lower-middle class. It might be better to focus on urban areas — they are at greater risk of COVID-19 infection due to high population density. If the urban stimulus is insufficient, those who lose their jobs will return to villages, increasing the risk of urban residents spreading the virus to rural areas.

It’s vital to control food stocks and pharmaceutical supplies. Price hikes due to insufficient stock will lead to panic and social unrest. Managing this is not easy, as the supply and distribution of sufficient stock must be considered.

Businesses are going to be hard hit. There is a risk that companies will face difficulty meeting their debt obligations. So it is important to take steps to relax credit restructuring.

Everything above requires funding. But with the decrease in oil and commodity prices, as well as the slowing economy, government revenue will be hit hard. The government will have to reallocate its budget from low-urgency activities to healthcare and social safety nets.

Budget reprioritisation is important, but the budget deficit will have to rise. Budget deficit financing might be a problem. A large budget deficit will crowd out the banking sector, while financing the deficit through global bonds is expensive. So the government has to prepare to receive international support both from bilateral and multilateral agencies.

Perhaps the Indonesian government can establish a Deferred Drawdown Option — a contingent credit line that allows the borrower to rapidly meet its financing requirements following a shortfall in budget financing due to an unfavourable global bond market.

Fiscal stimulus measures need to focus on the health sector and social aid to handle the outbreak. Only after the outbreak is under control, and social distancing ends, can ‘standard fiscal stimulus and monetary policy’ be used to support aggregate demand.

All this may not be enough to solve the crisis, but as Albert Camus wrote, ‘to state quite simply what we learn in time of pestilence: that there are more things to admire in men than to despise’.

M Chatib Basri is a Senior Lecturer at the Department of Economics, the University of Indonesia, and formerly Indonesian minister of finance.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

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The coronavirus crisis calls for novel economic policy solutions


Author: Shiro Armstrong, ANU

To help save the economy in the coronavirus crisis, governments need to target and design financial assistance at different phases of shutdown, lockdown and recovery and they need to do so urgently and responsibly. The strategy needs to be simple, communicated clearly and use tried and tested Australian policy innovations to succeed longer term.

A worker sprays disinfectant on a street during the movement control order due to the outbreak of the coronavirus disease in Kuala Lumpur, Malaysia 28 March 2020 (Photo :Reuters/Lim Huey Teng).

The emergency health measures of many governments have taken out a huge chunk of national economic activity. The impact on employment through the shutdown on large swathes of economies has already seen the unemployment rate rise rapidly in many countries. It could start to approach levels not seen since the Great Depression in the 1930s in some countries. Without special help, many will become long-term unemployed.

While many stay home during a shutdown or lockdown, assistance has to be targeted to individuals to keep them fed and housed, and businesses to keep them from laying off staff and collapsing. That was the aim of the Australian government’s first two stimulus packages. The British government is paying 80 per cent of wages of many employees to achieve the same goals. Other governments are deploying similar policy strategies.

Until the health crisis is under control, assistance has to freeze parts of the economy so that it can be jump-started for rapid economic recovery when it’s over. In the recovery phase, governments will need to pump up spending quickly when it’ll be desperately needed.

Targeted assistance and then rapid stimulus needs to be deployed in a way that helps budget repair when the economy starts to recover, without slowing the recovery.

Now is not the time for complicated rules and formulas to fine tune incentives. That slows down and will ultimately foil the effective response that many economies will need. The threat to the economy from the COVID-19 health crisis is much greater than in the global financial crisis.

The government does not need to choose who gets the assistance, nor does it need banks or others to decide which businesses to stay afloat. Instead it can make extra support available to economically-distressed individuals and businesses via special emergency support (SES) loans repayable as the economy recovers. Any individual eligible for welfare support should be eligible to sign on for additional support of up to the equivalent of a minimum wage for up to a year, for example, and businesses should be able to borrow against their past revenue.

Eligibility criteria are necessary but this should not be tightly restrictive. It needs to take account of the thousands trapped in countries without citizenship or residence on work visas.

Individuals and businesses will only need to repay when their income recovery allows. As US economist and adviser to President George W Bush Greg Mankiw explains, instead of selecting who gets the assistance and screening before the fact, there’s a way to screen after the fact. This is the policy strategy that has been championed in Australia by ANU’s Warwick McKibbin and other economists.

SES assistance can be provided to all individuals and small and medium-sized businesses as a loan. But it would be a loan that is repaid only when the individual’s income or business revenue is high enough that they can afford to repay. When the economy recovers, loans can be repaid via a taxation levy after income reaches a threshold level. This is the same mechanism as the income-contingent loan scheme that ANU’s Bruce Chapman invented for higher education tuition. Under that HECS or HELP system students repay their university tuition via a repayment levy that kicks in at a certain threshold level after they enter the workforce.

An SES loan will be a loan to those who will be able to repay. For those who continue to struggle, it effectively becomes a grant. Like the income contingent loan for university tuition, loan holders cannot default on the debt. Repayment can be designed to avoid hardship. It is easy to design so that it does not distort economic behaviour and is fair and efficient.

Repayment rates can be designed so that the loan is only repaid when times are better. A low marginal rate that only starts to be collected at a high income threshold will not deter re-entry to the workforce as opportunities open up. A high marginal rate at higher incomes will not change behaviour either. The same principle applies to business revenue. Individuals with high income or businesses doing well as they come through the crisis will repay the loan faster. SES contingent loans can strengthen the progressive tax system for the recovery from the downturn.

The university tuition version of this kind of loan scheme has shown it is a trivial cost to administer through the tax office. Sign-on to the scheme could be completed through online registration through a tax office, with a simple eligibility verification process.

Much needed government assistance can be pumped into the economy now, and ramped up as needed, without queues at welfare offices or difficulties with having to show need, and without budgetary or tax restrictions. And that can be done without recklessly spending future taxpayers’ money through responsible automatic budget recovery. The scheme acts as what economists call an automatic stabiliser, providing income cover when it’s needed and automatically recouping it when it’s not.

The economic priority for governments today is to keep the economy ticking over, to keep businesses and their employees tied together, to avoid a deeper downturn that will create huge numbers of unemployed and position for a sharp recovery. Doing so via an SES income or revenue contingent loan program is fiscally responsible and will make it easier to get more assistance out faster to where it’s needed. Budget repair is not a priority now but it will be one day, hopefully soon.

Shiro Armstrong is Director of the Australia-Japan Research Centre and Director of the Asian Bureau of Economic Research, The Australian National University.

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Looking beyond Tsai’s big election win


Author: Gerrit van der Wees, George Mason University and George Washington University

President Tsai Ing-wen and her Democratic Progressive Party’s (DPP) momentous election victory on 11 January 2020 represents a significant turning point for Taiwan. It marks the culmination of a democratic transformation that started with the end of martial law in 1987 and the commencement of democratic reforms by former president Lee Teng-hui in the early 1990s. Since then, the government has changed hands three times. But a persistent public fear exists that a return of the Kuomintang (KMT) will cause Taiwan to backslide away from democracy and towards China.

Taiwan President Tsai Ing-wen listens to a speaker in New Taipei City, Taiwan, 26 December 2019 (Photo: REUTERS/Ann Wang).

This happened in 2008 when Ma Ying-jeou regained the presidency. His pro-China stance led to the 2014 Sunflower Student Movement, which changed the political landscape, and led to major defeats for the KMT in the local 2014 and national 2016 elections.

The overwhelming mandate received by President Tsai and her party significantly reduces the danger of such a pro-China agenda. The KMT candidate Han Kuo-yu lost by a margin of almost 20 per cent, demonstrating that the KMT’s pro-China approach is losing ground, especially among younger voters. In its recent search for a new chairman, the candidate elected on 7 March 2020, ‘Johnny’ Chiang Chi-chen, campaigned on the theme that he would ‘bring back’ the young voters. It remains to be seen whether he can bring about changes that appeal to young voters.

As Mark Harrison and Huong Le Thu wrote, ‘Han’s campaign machine was dysfunctional and the KMT was beset by an identity crisis. In the second half of 2019, the protests in Hong Kong left few in Taiwan under the illusion that Beijing would honour any arrangements that would respect any form of autonomy. The younger generation in particular saw an urgency to defend Taiwan’s sovereignty, maintain their democracy and refuse a future like Hong Kong’s’.

The overwhelming victory also represents a clear mandate for President Tsai and her DPP, which — in combination with several smaller parties — holds a majority of 70 seats in the 113-seat Legislative Yuan. Tsai will be able to push through legislation and continue reforms initiated by her government in its first term. These reforms include much-needed judicial reform, transitional justice measures, further economic and industrial reforms, streamlining of the economy and strengthening substantive ties with the United States, Europe, Southeast Asia, India, Japan, Australia and New Zealand.

A question remains: how will Taiwan’s relationship with China develop moving forward? If Beijing continues or intensifies its current approach of pushing Taiwan into a corner, it will increasingly find the United States and other democratic countries in the way. The democratic world has now clearly seen that President Tsai has a broad popular mandate and will be much more supportive of Taiwan and its democracy.

In this context it is important to understand that President Tsai and the DPP are the political descendents of the native Taiwanese democracy movement that brought about Taiwan’s transition to democracy in the 1980s and 1990s. Rowan Callick emphasises that the youth vote focused on issues of identity in place of issues of living standards. The majority of Taiwan now identifies as Taiwanese and not Chinese, with only 13 per cent of the population descended from those who came from mainland China in the 1940s.

This distinction is essential for understanding the Taiwan of today, as the China–Taiwan relationship has until now almost exclusively been cast by media and governments alike in terms of the historical rivalry between Mao Zedong’s People’s Republic of China (PRC) and Chiang Kai-shek’s Republic of China (ROC). This narrative asserts that Taiwan ‘split off’ from China in 1949, and that Taiwan and China were perpetual rivals dating back to the Chinese Civil War.

That may have been the case from the 1950s through the 1980s when Chiang Kai-shek’s government imposed ruthless martial law on the island while still claiming to rule all of China. During that period, ‘Taiwan’ became synonymous with Chiang Kai-shek’s ROC. But after the momentous transition to democracy in the late-1980s and early-1990s, the Taiwanese developed their own narrative, very different from  Mao Zedong’s PRC or Chiang Kai-shek’s ROC — an open and inclusive multi-ethnic identity, emphasising that all people who identify with Taiwan are Taiwanese.

A new and democratic Taiwan should prompt the international community — including China — to see Taiwan in a new light. Democratic Taiwan in 2020 is very different from the old and repressive ROC of 1979, when the United States broke relations with the regime in Taipei as it was still claiming to be the government representing all of China. Taiwan demonstrably and rightfully claims to represent itself, and it is only rational and reasonable to welcome it as a full and equal member of the international community.

Gerrit van der Wees is a former Dutch diplomat. From 1980 through 2016 he served as chief editor of Taiwan Communique. He teaches history of Taiwan at George Mason University and Current Issues in East Asia at George Washington University.

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Too little, too late? Washington rediscovers Central Asia


Author: Matthew Sussex, ANU

Does the recent visit by US Secretary of State Mike Pompeo to Kazakhstan and Uzbekistan signal renewed US interest in Central Asia? Maybe. The broader question is why Pompeo is seeking to engage with the region in the first place.

US Secretary of State Mike Pompeo meets Kazakh President Kassym-Jomart Tokayev at the Akorda presidential residence in Nur-Sultan, Kazakhstan, 2 February 2020 (Photo: Reuters/Kevin Lamarque).

Central Asia remains plagued by corruption and political instability, which translates directly into business risk. Despite the attractiveness of Central Asia’s natural resources, US and EU firms remain wary of investing in the region. Given China’s significant presence, it is reasonable to ask whether the US Secretary of State’s positive investment signals are credible.

One reason for the United States to take a fresh look at Central Asia may be the emergence of incremental regional political liberalisation. The accession of the ‘Uzbek Gorbachev’ Shavkat Mirziyoyev in 2016 and the shock resignation of Kazakhstan’s Nursultan Nazarbayev in 2019 triggered a wave of optimism that a region characterised by authoritarian governments might be witnessing a partial thaw. The power transitions in both nations were achieved in an orderly fashion, indicating that Uzbek and Kazakh elites are prepared to tolerate politicians who try to lead with a more human face.

Yet limited liberalisation only partly explains US interest in Central Asia. There are few incentives for either Mirziyoyev or Kazakhstan’s new president Qasym-Zhomart Toqaev to embrace liberal democracy. The June 2019 Kazakh presidential elections were characterised by widespread irregularities. Toqaev’s predecessor Nazarbayev continues to lead Kazakhstan’s ruling party Nur Otan, chairs the Security Council and in 2019 lent his name to the national capital Nur-Sultan (formerly Astana).

Mirziyoyev has encouraged private media outlets to report on rights abuses and purged the repressive National Security Service. But Uzbekistan still ranks at 160th in the world for press freedom. Mirziyoyev has become the personification of Uzbek political power in a political system that remains highly centralised.

Pompeo’s visit shows that the Trump administration views its interests in Central Asia through the lens of pragmatic geopolitics rather than liberal ideology. Put simply, Washington’s main motivation is to try and erode growing Chinese power in the region.

One way to do this is to leverage human rights issues. After meeting with ethnic Kazakhs whose family members had been detained in Xinjiang, Pompeo called on China to end its repression of religious minorities. He identified Central Asian nations as safe havens for those ‘seeking to flee China’.

Pompeo also extended the possibility of trade and investment deals with US companies. Inviting pointed comparisons with China’s Belt and Road Initiative (BRI), Pompeo noted that when dealing with the United States ‘You get fair deals. You get job creation. You get transparency in contracts’.

Still, it is unclear how far the United States will be able to extend its influence into Central Asia. Both Brussels and Washington have sought to court the former Soviet republics on Russia’s southern flank. Kazakhstan is known for its ‘multi-vector’ foreign policy and is prepared to seek external partnerships to balance against its participation in regional integration mechanisms such as Moscow’s Eurasian Economic Union (EEU), which it joined as a founding member in 2014.

Kazakhstan has also been courted aggressively by China, receiving US$28 billion for 55 major projects. The development of the Eurasian Land Bridge also makes Kazakhstan an important transit node in China’s BRI, which will become even more crucial once Russia completes the Meridian Highway.

Central Asia is already a crowded economic and security space, where two permanent members of the UN Security Council maintain different views about how the region should evolve. Russia would like to see Central Asia as a military–security bloc supported by trade and investment partnerships that preference the EEU. But Moscow’s vision has been overtaken by China’s capacity to offer substantial investment deals.

Russia too has become reliant on Chinese investment in its energy sector. Whereas Beijing has previously been happy to pass the burden of managing regional security affairs to Moscow, it now has growing security ties to Central Asia as a result of its geoeconomic connectivity agenda.

The United States will struggle to lure Central Asian nations away from Beijing’s orbit. During Pompeo’s visit, Kazakh Foreign Minister Mukhtar Tleuberdi welcomed the potential for economic cooperation. But he pointedly declined to comment on the Uyghur issue, consistent with Kazakhstan’s policy of not criticising China’s treatment of ethnic minorities.

Pompeo’s experience in Kazahkstan is a good example of how Central Asian nations view their engagement with the United States — keen to embrace the prospect of investment and trade, but quick to separate economic issues from security or human rights issues. This is prudent for nations with consolidated authoritarian regimes that are wary of foreign policy choices that might erode their domestic authority.

The new US posture towards Central Asia will face a similar litmus test to its other efforts to blunt China’s rise in the Asia Pacific and South Asia. For instance, its announcements of an East Asia investment fund and the ‘Blue Dot Network’ have been grand in aspiration, but much more modest in terms of cash incentives. Whereas in East Asia the United States remains the dominant security actor, its economic and strategic footprint in Central Asia is much more limited.

At best, Washington’s renewed interest in Central Asia will give the region more trade options and slightly more leverage when it comes to negotiating with Beijing. At worst, it might prove to be a case of too little, too late.

Matthew Sussex is Associate Professor at the National Security College of the Crawford School of Public Policy, The Australian National University.

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Is the Philippines moving to active middle power diplomacy?


Author: Aileen S P Baviera, University of the Philippines

The Philippines was first a colony and then a formal treaty ally of the United States for so long that many Filipinos tend to take the existence of reciprocal defence obligations for granted. For the most part, the Philippines has always supported US security objectives when asked — whether during the Pacific War, the Korean War, the Cold War, the conflicts in Indochina or the ‘Global War on Terror’.Vessels from the U.S. Navy, Indian Navy, Japan Maritime Self-Defense Force and the Philippine Navy sail in formation at sea, in this recent taken handout photo released by Japan Maritime Self-Defense Force on 9 May 2019 (Japan Maritime Self-Defense Force via Reuters).

This support was not always unconditional or particularly strong. Domestic opinion and regional sensitivities still had to be considered — including US concerns over entrapment and Philippine fears of abandonment.

But even the closure of major US military bases (Clark Air Base and Subic Naval Base) in the early 1990s following acrimonious negotiations to renew the basing agreement did not completely remove Manila’s importance as a strategic location for US operations in the Asia Pacific. In consequence, the 1998 Visiting Forces Agreement (VFA) and the 2014 Enhanced Defense Cooperation Agreement (EDCA) were put in place to ensure there was a legal framework to regulate the presence of US troops and the conduct of joint activities.

The security interests of the two sides continued to converge post-Cold War. As terrorist networks expanded across Southeast Asia and concerns grew over China’s maritime assertiveness in the disputed South China Sea, the Philippines still found the alliance useful for deterrence, capability-building and armed forces modernisation. The 2012 Scarborough Reef standoff with China and the 2017 Marawi siege by ISIS-inspired extremists are incidents etched in recent memory that underscore the continuing value of the 1951 Mutual Defense Treaty for both sides.

Many were surprised, therefore, when the Duterte administration served the US government notice of termination of the VFA on 11 February this year, to take effect after 180 days.

While the move has been justifiably criticised by many as whimsical, reckless and untimely, it has taken place in a particular context. Both internal factors — improved confidence buttressed by a growing economy, winding down of the longstanding Muslim separatist movement and a declining communist insurgency — and external factors — an improvement in bilateral relations with China, the worrisome trajectory of great power competition, the Trump administration’s credibility issues and the greater security efficacy of other middle powers — are pushing the Philippines out of path-dependent defence reliance on the United States.

Like other countries in the region, the Philippines fears getting caught in the crossfire should US–China animosity lead to conflict. China’s effective use of carrots and sticks — economic incentives alongside coercive diplomacy and economic statecraft — has left countries ambivalent about their own priorities. The prospect of economic connectivity with China via the so-called Belt and Road Initiative is one that the pragmatic elites of the region do not lightly dismiss. This has led most regional governments to adopt hedging strategies on China, rather than balancing or containment behaviour.

At the same time, the security challenges that China presents expose the inadequacy and sometimes irrelevance of traditional security approaches. ‘Grey zone’ attacks cannot be countered using the old tools that defence alliances have in their arsenals.

For the Philippines, losing control of Scarborough Shoal despite the Obama administration’s role in the 2012 negotiations, as well as subsequent US inaction while China embarked on major island construction activities in the South China Sea, brought home hard truth about what one can realistically expect from an ally.

President Duterte is the first Filipino leader to publicly acknowledge this. This does not mean that US support is no longer needed or wanted — only that Washington’s willingness to get involved cannot be assumed, and that its support carries its own risks and uncertainties.

Many countries in Asia are coming to terms with a strategic environment where China expects a louder voice in regional affairs. The challenge for these countries is binding China to a rules-based order to ensure that it respects the rights of its neighbours as sovereign if not equal states.

In Southeast Asia, the preferred order is one that is inclusive rather than exclusionary, where larger powers engage constructively. Weak or small states usually have little influence in these processes and are often pressured into taking sides or remaining silent. But middle powers may act to preserve their autonomy amid great power competition.

This could explain why Duterte invokes the need to end dependence on the United States as a justification for terminating the VFA. Interestingly, ending the VFA reinforces the Trump administration’s preference for minimising alliance obligations and comes at a time when China’s assertiveness is making the Philippines’ neighbours far more jittery. In this sense, the decision is creating more instability, not less.

Multilateral institutions such as ASEAN and its extended dialogue networks remain attractive platforms for middle powers to shape their strategic communities. But these institutions must be strengthened to remain relevant. As the concept of the ‘Indo-Pacific’ continues to be debated in terms of what it can contribute to regional stability and security, ASEAN ‘centrality’ will be challenged.

Will the Philippines gradually transform from a secondary power supportive of, and dependent on, US primacy into a middle power pursuing its own autonomous interests through more inclusive diplomacy? So far, no such vision has been articulated. But by moving farther away from the United States, Duterte is taking a gamble that may force him down this path. Otherwise, the only remaining alternative is alignment with China.

The Editorial Board and entire EAF team were saddened to learn of the death of Professor Aileen Baveira from COVID-19 in Manila on 21 March. Her scholarship on China’s relations with Southeast Asia and her contributions to this Forum are widely acknowledged and appreciated. She was a warm and generous person and a friend to EAF whose good judgment and wise counsel will be deeply missed. 

Aileen S P Baviera was Professor of China Studies and International Relations at the Asian Center, University of the Philippines, and the founding president of Asia Pacific Pathways to Progress.

This article appears in the most recent edition of East Asia Forum Quarterly, ‘Middle Power Game’, Vol. 12 No. 1.

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Assessing the economic impacts of COVID-19 on ASEAN countries


Author: Jayant Menon, ISEAS–Yusof Ishak Institute

The COVID-19 pandemic is first and foremost a human tragedy. Measures introduced to deal with the pandemic could save lives but are having wide-ranging economic effects and inducing economic contagion. There are already studies estimating the economic impact of the virus. But greater focus is needed on the transmission mechanisms of the economic contagion and in critiquing how assessments of the economic impacts are made, concentrating on the ASEAN region.

An immigration police officer wears a protective mask due to coronavirus disease (COVID-19) outbreak, at a check point in Bangkok, Thailand, 26 March 2020 (Photo: REUTERS/Soe Zeya Tun).

The effects of COVID-19 are hitting ASEAN economies at a time when other risk factors, such as a global growth slowdown, were already rising.

COVID-19 is disrupting tourism and travel, supply chains and labour supply. Uncertainty is driving negative sentiment. This all affects trade, investment and output, which in turn affects growth. Tourism and business travel, as well as related industries, especially airlines and hotels, were the first to be affected. And the conditions are worsening as more countries go into shutdown.

The supply disruptions emanating mostly from China will reverberate throughout the value chain and disrupt production. Since China is the regional hub and accounts for 12 per cent of global trade in parts and components, the cost of the disruption in the short run will be high.

The negative effects of quarantine arrangements on labour supply could also be high depending on duration and sector. Manufacturing has been hit harder than service industries, where telecommuting and other technological aids limit the fall in productivity.

All these disruptions will lead to sharp declines in domestic demand. And their impact on economic growth will further propagate these disruptions. This compounding effect can magnify and extend short-run effects into the long run.

The highest economic cost could come from the intangibles. The effects of negative sentiment about growth and general uncertainty — which is already affecting financial markets — will feed into reduced investment, consumption and growth in the long run.

Rolling recessions around the world now appear inevitable, despite the stimulus measures being contemplated. If so, there will be sharp increases in unemployment and poverty. Some degree of decoupling from China, or de-globalisation in general, may also be a permanent reminder of this pandemic.

Among ASEAN countries, Singapore, Malaysia and Thailand are heavily integrated in regional supply chains and will be the most affected by a reduction in demand for the goods produced within them. Indonesia and the Philippines have been increasing supply chain engagement and will also not be immune. Vietnam is the only new ASEAN member integrated into supply chains with China and is already suffering severe supply disruptions.

Given time, supply-side adjustments will alter trade and investment patterns. The main adjustment will involve relocating certain activities along the supply chain from China to ASEAN countries. Although the pandemic will disrupt the relocation phase, ASEAN countries can benefit from the new investments, mitigating overall negative impacts.

All ASEAN countries are dependent on tourism flows but Thailand is probably the most dependent. Cambodia and Laos receive most of their investment and aid from China, and a marked growth slowdown in China will affect them the most.

The Philippines and Mekong countries have large overseas foreign worker populations and restrictions on their movement or employment prospects as COVID-19 spreads will affect sending and receiving countries. Brunei and Malaysia are net oil exporters and the price war indirectly induced by the pandemic will hit them hard. Others will benefit from lower oil prices, as will the struggling transport sector.

In measuring the impacts of COVID-19, it is important to separate its marginal impact from observed outcomes. This is important because the remedy may vary depending on the cause of the disruption. This requires an analytical framework that can measure deviations from a baseline scenario that incorporates pre-existing trends. A model-based analysis, rather than casual empiricism, is required to reduce the problem.

Even before the outbreak, risks of a global growth slowdown were rising. The restructuring of regional supply chains had started, driven initially by rising wages in China and accelerated by the US–China trade war. While COVID-19 may further hasten the pace and extent of the restructuring, it is only partly responsible for what may happen. It would be misleading to attribute all of the current disruption to COVID-19. Had the trade war not preceded it, COVID-19 may have resulted in greater disruption to supply chains.

Any assessment of impacts must recognise that the spread of COVID-19 is unpredictable, and so too the response by governments. It is difficult to estimate the impacts of a shock that is uncertain in itself. This reiterates the need for rigorous modelling and scenario analyses. The current trend points to risks rising, often accelerating, as with previous epidemics. This uncertainty underscores the need for caution in assessing, and regular recalibration in producing assessments.

Jayant Menon is a Visiting Senior Fellow in the Regional Economic Studies Programme at the ISEAS–Yusof Ishak Institute, Singapore.

A version of this article first appeared in ISEAS Commentary.

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The damaging consequences of Modi’s Hindu agenda


Author: Ramesh Thakur, ANU

India’s slide into illiberalism began before the Bharatiya Janata Party (BJP) came into power in 2014 under Prime Minister Narendra Modi. In his book The Intolerant Indian, Gautam Adhikari contends that extremist religious ideologies and the violent politics of left and right forces alike have overshadowed the idea of a tolerant, plural society on which modern India was established.A demonstrator attends a protest against riots following clashes between people demonstrating for and against a new citizenship law in New Delhi, India, 3 March 2020 (Photo: Reuters/Adnan Abidi).

But it took a more ominous turn under the BJP. Modi’s first five-year term (2014–19) witnessed many anti-Muslim acts of commission and omission that undermined their dignity as Muslims. Now Modi seems intent on erasing their Indian identity. With changes to citizenship laws, Muslims fear that they could be declared stateless and held in detention camps.

This is the background to the bloody Delhi riots that began in late February. Some Indian commentators compare them to the 1984 anti-Sikh riots. Others point to the similarities with the 2002 anti-Muslim pogrom in Gujarat when Modi was head of the state government. Like then, the 2020 Delhi riots have seen many disturbing reports of police apathy and complicity. The Delhi High Court expressed incredulity that Delhi Police had not watched videos of BJP leader Kapil Mishra’s alleged hate speech before the riots. The Guardian reports that three-quarters of those killed were Muslims.

Many key public figures have compared the riots to Kristallnacht, when Jewish homes and buildings were destroyed across Germany in 1938. This seems apt given the risk that what happened in Delhi in February could mark the moment when the existence of Muslims in India was shattered.

Kristallnacht was the most important staging post on the road to the Nazi regime implementing its final solution. Only after the defeat of Hitler and the exorcism of Nazi ideology did the civilised community institutionalise its determination to ‘never again’ permit such horrors in several legal instruments and institutional apparatus like the Genocide Convention and the International Criminal Court. But, as we know from Cambodia, Rwanda, Bosnia, East Timor and others, the pledge of ‘never again’ is repeatedly violated.

The Islamophobic agenda is not likely to be stopped by internal forces. The Supreme Court has become unduly deferential to the government. On 16 March, former chief justice Ranjan Gogoi was nominated by the government to the Rajya Sabha (Parliament’s upper house) just four months after his retirement, fuelling suspicions that he had been rewarded for decisions that had favoured the government. Gogoi’s former colleagues, retired justices Madan B Lokur and Kurian Joseph, said that the nomination has compromised ‘the independence, impartiality and integrity of the judiciary’ because people would now begin to be sceptical of judgments in cases involving the government, wondering if judges are influenced by the lure of post-retirement appointments.

Opposition parties are in disarray and Modi towers over all rivals inside and outside the BJP. The party lost two stalwarts last year with the untimely deaths of former finance minister Arun Jaitley and former foreign minister Sushma Swaraj — the two voices of moderation, respected in the party and listened to by Modi. Without them, no one is left to counter Home Minister Amit Shah’s agenda of aggressive cultural nationalism. This makes it imperative for friendly foreign governments to speak privately and, if that fails to produce course-correction, to speak out publicly against the Hindu primacy project.

They should do so because the religious agenda has five major deleterious consequences. It undercuts the shared liberal democratic values of political pluralism. It drags down India’s economic prospects. It degrades India’s ability to propel modernisation. It risks the radicalisation of 180 million Muslims that could transform India from an effective firewall against Islamic militancy to its west into a spawning ground of Islamist terrorism with the potential to spill over across the region. And it could produce the biggest wave of refugees.

The bigger indictment of the toxic political environment in India today is the torrent of ignorant and puerile comments triggered by constructive criticism from foreign well-wishers such as the former UN secretary-general Ban Ki-moon.

‘Indo-Pacific’ has displaced ‘Asia Pacific’, primarily to incorporate India into the regional strategic framework of countries concerned about China’s growing military presence and assertiveness. In 2017 a senior White House official justified the change of terminology, saying that ‘Indo-Pacific’ ‘captures the importance of India’s rise’.

The Quadrilateral Security Dialogue (Quad) is a popular ‘Indo-Pacific’ strategic construct to supposedly counter China’s growing geopolitical clout. An important justification for these new strategic groupings is the foundational values of democracy, political pluralism and civic freedoms that bind the Quad countries — Australia, Japan, India and the United States — together. Australia’s 2016 Defence White Paper noted that Australia and India’s shared interests and democratic values form a solid basis for engagement. If not checked, India’s slide into religious intolerance erodes these common values.

India’s economy was already slowing considerably. Deadly riots in the capital are a disincentive to foreign investors. Who would want to bet on a country on the verge of going up in flames as Hindu–Muslim tensions escalate beyond control? This is even before the impact of the coronavirus pandemic begins to take toll. The economic costs to foreign governments of calling Modi out are not going to be steep. They have a bigger vested interest in India’s continued economic prosperity if Modi switches to prioritising trade and productivity-led growth, development and good governance.

India’s Muslims are being alienated. This could push them to embrace extremism. It may also lead to waves of Muslims taking to the seas on leaky boats in search of refuge in countries around the region. We all have much to lose if religion-based hatred continues to intensify and spread across India.

Ramesh Thakur is Emeritus Professor at The Australian National University and a former UN Assistant Secretary-General.

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The folly of Aung San Suu Kyi’s ‘bad apple’ defence


Author: Adam Simpson, University of South Australia

Since the communal pogroms of 2012 razed the villages of Muslim Rohingya across Myanmar’s Rakhine State, there have been debates about how to protect Rohingya populations through international legal mechanisms. The search for legal avenues gathered pace following insurgent attacks by the Arakan Rohingya Salvation Army in August 2017 that resulted in a disproportionate punishment response from the Myanmar military. This saw the slaughter of thousands of unarmed Rohingya and over 740,000 people fleeing to Bangladesh.

Gambia's Justice Minister Abubacarr Tambadou talks to the media outside the International Court of Justice (ICJ), after the ruling in a case filed by Gambia against Myanmar alleging genocide against the minority Muslim Rohingya population, in The Hague, Netherlands 23 January, 2020 (Photo: Reuters/Plevier).

The most promising avenue to date has been through the International Court of Justice (ICJ) in The Hague. On 11 November 2019, the Republic of The Gambia filed an ICJ application to start proceedings against Myanmar for violations of the Genocide Convention.

Another international legal option is to prosecute the Commander-in-Chief of Myanmar’s military Senior General Min Aung Hlaing and other military leaders at the International Criminal Court (ICC). But there are difficulties with this approach. Myanmar is not party to the Rome Statute, which created the court, and any attempt to force the ICC to take a case like this one through the UN Security Council would likely be vetoed by China and Russia.

Since Bangladesh is party to the Statute, and the Rohingya crossed the Bangladesh border, the ICC ruled that it had jurisdiction over the case. In November 2019, the ICC approved a full investigation into allegations of ‘systematic acts of violence’, deportation as a crime against humanity and persecution on the grounds of ethnicity or religion against the Rohingya. By February 2020, investigators from the ICC Office of the Prosecutor visited Rohingya refugee camps to collect evidence for their case.

As the ICC case gathered pace, the initial hearings of the ICJ case in The Hague in December 2019 provided more spectacular imagery for the world’s media. With an eye firmly on the forthcoming November 2020 national elections, Nobel Peace Laureate and Myanmar’s de facto leader Aung San Suu Kyi personally travelled to the ICJ to defend the actions of the military and the Myanmar state against charges of genocide. There is little sympathy for the Rohingya in Myanmar. Ever since the 2012 pogroms, when the United Nations and aid agencies were seen as being overly sympathetic to Muslims and the Rohingya, there has been a nationalist antipathy to what is perceived as international meddling in Myanmar’s domestic affairs. Aung San Suu Kyi’s ICJ defence was interpreted as defending the nation and was supported by large rallies throughout the country.

While giving evidence to the ICJ, Aung San Suu Kyi admitted that ‘it cannot be ruled out that disproportionate force was used by members of the defence services in some cases, in disregard of international law’. She insisted that any breaches would be investigated internally. This ‘bad apple in the military’ defence was debunked by evidence that demonstrated the erasure of Rohingya communities was systematic.

Internal judicial redress within Myanmar has been ineffectual. There have been several internal inquiries, all of which have cleared the military of any systematic crimes despite overwhelming evidence to the contrary. The government-appointed Independent Commission of Enquiry (ICOE) did find that security forces and civilians committed war crimes and violated human rights in Rakhine State but held that these were rogue elements acting in isolation rather than reflections of a more systematic policy.

In late January 2020, the Court declared that The Gambia had established prima facie a breach of the Genocide Convention. It issued several urgent measures to Myanmar to prevent further acts related to breaches of the Convention and the destruction of evidence. Myanmar is to provide regular reporting to the Court on measures undertaken. The Gambia has until 23 July 2020 to submit its full case and Myanmar has until 25 January 2021 to submit its response.

The ICJ has no power to enforce its judgements and compel a state to take action. It relies on the UN Security Council to support its judgements. As key allies to Myanmar, China — with its veto power at the Security Council — along with Vietnam refused to agree to a statement compelling Myanmar to comply with the Court’s instructions. Although the Court’s decision was celebrated by Rohingya refugees in Bangladesh’s camps, the limited powers of the ICJ mean that little may change on the ground.

The Myanmar government, led by the National League for Democracy (NLD) and Aung San Suu Kyi, has no oversight over the military and Senior General Min Aung Hlaing. But Aung San Suu Kyi is the only person capable of communicating the suffering experienced by the Rohingya effectively. Her silence on the military’s brutality and her attempts to exculpate it from wrongdoings is normalising what, under any reasonable assessment, constitutes ethnic cleansing, crimes against humanity and perhaps even genocide.

Myanmar’s politics is complex and fraught. After years of military rule, the path to democracy was never going to be smooth. But without the support of Aung San Suu Kyi, it is difficult to see justice for the Rohingya emerging anytime soon, with the potential of a coronavirus (COVID-19) outbreak in the refugee camps increasing the urgency of action. The NLD government needs international support to transform the country economically and politically. The pursuit of justice and democratic development in Myanmar will also require deeper engagement by Western companies, governments and NGOs. Right now, this pursuit is being left to the vicissitudes of foreign investment and diplomacy with China.

Foreign governments need to apply pressure on both the government and the military so that they adhere to international norms whenever they deal with Myanmar’s ethnic communities, regardless of that community’s perceived place and legitimacy in some mythical nationalist past.

Adam Simpson is Senior Lecturer of International Studies in UniSA Justice & Society and Program Director, Master of Communication, in UniSA Creative, The University of South Australia.

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