Source: Canberra Times

M ove over, Osama bin Laden. You're no longer top of the pops. The free-falling global economy is a bigger threat to the security of the United States and its allies than al-Qaeda or the proliferation of weapons of mass destruction, according to America's new intelligence tsar. Admiral Dennis Blair, the Obama administration's newly appointed Director of National Intelligence, startled US senators in the past week when he told the Senate's Select Committee on Intelligence that ''The primary near-term security concern of the United States is the global economic crisis and its implications''. For more than a decade US intelligence chiefs have opened their remarks to congressional committees with a focus on terrorism and nuclear threats, but the admiral's testimony began with a bleak assessment of the financial meltdown. ''The [economic] crisis has been ongoing for over a year, and economists are divided over whether and when we could hit bottom,'' Admiral Blair said.

''Some even fear that the recession could further deepen and reach the level of the Great Depression. Of course, all of us recall the dramatic political consequences wrought by the economic turmoil of the 1920s and 1930s in Europe, the instability and high levels of violent extremism. Though we do not know its eventual scale, it already looms as the most serious global economic and financial crisis in decades.'' Admiral Blair noted that what had begun as an American and European crisis had now spread worldwide. ''Even China and India have seen their dynamic growth engines take a hit as they grapple with falling demand for their exports and a slowdown in foreign direct and portfolio investments.'' The US intelligence community expects things will get a lot worse before they get better, with ''the financial crisis and global recession ... likely to produce a wave of economic crises in emerging market nations over the next year, prompting additional countries to request IMF [The International Monetary Fund] or other multilateral or bilateral support''. Significantly, Blair added that ''unlike the Asian financial crisis of 1997-98, the globally synchronised nature of this slowdown means that countries will not be able to export their way out of this recession.'' When economies tank, political turmoil and conflict generally follows. ''Roughly a quarter of the countries in the world have already experienced low-level instability such as government changes because of the current slowdown,'' Blair observed. ''Europe and the former Soviet Union have experienced the bulk of anti-state demonstrations. ''Although two-thirds of countries in the world have sufficient financial or other means to limit the impact for the moment, much of Latin America, former Soviet Union states and sub- Saharan Africa lack sufficient cash reserves, access to international aid or credit, or other coping mechanisms.'' ''Time is probably our greatest threat,'' Blair said. ''The longer it takes for the recovery to begin, the greater the likelihood of serious damage to US strategic interests.'' The crisis has already had a significant impact on America's international standing, especially given ''the widely held perception that excesses in US financial markets and inadequate regulation were responsible. ''This has led to increased criticism about free-market policies, which may make it difficult to achieve long-time US objectives such as the opening of national capital markets and increasing domestic demand in Asia.'' A recent assessment prepared by the US National Intelligence Council warned that American global primacy was eroding as other economies grew rapidly, with China ''poised to have more impact on the world over the next 20 years than any other country''. Last week the national intelligence director acknowledged that the global financial crisis could accelerate these trends. ''It already has increased questioning of US stewardship of the global economy and the international financial structure,'' Admiral Blair told Congress. ''As was the case in the Asian financial crisis, China has an opportunity to increase its prestige if Beijing can exert a stabilising influence by maintaining strong import growth and not letting its currency slide.'' That said, Blair expressed some hope that the US would have sufficient resilience and dynamism to provide international leadership and maintain its global position. ''Recessions are a relative game, and historically the United States has proven more adroit at responding to them than most. The US tradition of openness, developed skills and mobility probably puts it in a better position to reinvent itself. Moreover, in potentially leading recovery efforts in coordination with the G-20, Washington will have the opportunity to fashion new international global structures that can benefit all.'' Admiral Blair didn't play down the continuing threats of terrorism and weapons proliferation. Indeed he discussed both at length, and was modestly positive, suggesting the world was ''turning the corner on violent extremism''. A ll in all, Blair signalled a significant shift in American national security priorities, away from the Bush administration's monomaniacal focus on terrorism and towards a much broader concern with the diffuse fallout from the economic debacle. This candid assessment from America's highest intelligence official stands in contrast to the reticence of the Australian Government in discussing the implications of the global financial crisis for our own region. Initially, of course, the Rudd Labor Government argued that Asia's economic dynamism, and especially continued demand for our raw materials from China, would insulate Australia from the economic downturn. Then, as the crisis has impacted heavily on Japan, and now China, the Government has been increasingly strident in telling the Australian public and indeed the world how serious it thinks the situation is. Thus, in his recent article in the The Monthly magazine, the Prime Minister wrote of ''a crisis spreading across a broad front: it is a financial crisis which has become a general economic crisis; which is becoming an employment crisis; and which has in many countries produced a social crisis and in turn a political crisis. ... The global financial crisis has demonstrated already that it is no respecter of persons, nor of particular industries, nor of national boundaries. It is a crisis of both the developed and the developing world.'' Significantly, however, Rudd and Foreign Minister Stephen Smith have been very quiet on just what the political and strategic fallout for our neighbours may be diplomatic sensitivities perhaps precluding a more open approach. The Prime Minister's much-vaunted national security statement last December contained platitudes about ''the dawn of an Asia-Pacific century'' but offered very little on what the future might hold beyond reference to the rise of China and India and the expectation that the region's diverse countries ''will, over the long term, experience continued economic growth, development and improving governance''. Speaking to the Australia-Indonesia Conference in Sydney on Thursday, Rudd acknowledged the likelihood that advanced economies would fall into ''the worst recession since the Great Depression'' and spoke about the rapidly developing debt crisis in eastern Europe and its potential to push the global downturn into''a dangerous new phase''. Remarkably, given the context of his speech, the Prime Minister had nothing to say about the impacts in the Asia-Pacific region, apart from a brief reference to the rapid deceleration of the Chinese economy. The Government may have more to say later this year when it releases its long-awaited Defence white paper, but don't expect too much candour. No one can be sure what the future will bring, but it's already clear some of Australia's key regional partners will find the next few years very tough going. Japan warned this week that it was in the deepest economic crisis since World War II. Japan's economy contracted by 3.3 per cent in the fourth quarter of 2008 12.7per cent on an annualised basis. It was the weakest performance since 1974 when the country was reeling from the first oil crisis, and the Japanese Government has acknowledged that this slump will be even more severe. According to the latest, heavily revised, IMF forecasts for 2009, China may suffer an even greater downturn in absolute terms than the US, Japan or the European Union. Among major economies only Russia is predicted to plunge more. The expectation of continuing rapid Chinese economic growth has been a key feature of Australia's international outlook for more than a decade, and has been at the heart of Prime Minister Rudd's strategic framework, but this is now very much in question. As the Lowy Institute's East Asia program director, Malcolm Cook, observed recently, the financial crisis is centred on China's largest and most sensitive export markets the EU, the US and now Japan. This poses acute external challenges while at the same time Beijing may have to deal with significant social unrest, possibly spilling over into criticisms of China's one-party rule. South Korea is also in trouble. South Korea's new finance minister, Yoon Jeung-hyun, confirmed this week that his country would fall into recession, with the economy set to shrink by at least 2 per cent this year and shed about 200,000 jobs. Similarly, it was confirmed this week that Taiwan's economy shrank at a record annual rate of more than 8 per cent in the fourth quarter of last year, tipping the island into a recession. Closer to home, Australia's nearest Asian neighbour has also been hard hit. As early as last October, President Susilo Bambang Yudhoyono acknowledged that the financial meltdown would have severe consequences for his country, including a sharp fall in revenue from oil production and the prospective return of hundreds of thousands of Indonesian guest workers from other Asian and Middle Eastern countries. Indonesia's Chamber of Commerce and Industry chief, Mohammad Sulaiman Hidayat, has spoken of ''a tsunami in the economic field''. Indonesia expects about 200,000 of its citizens employed in Malaysia to be repatriated due to the economic slowdown. Already thousands of Indonesian workers are awaiting repatriation from Kuwait. In Indonesia itself it is estimated between 200,000 and 300,000 workers will be laid off shortly, with more to follow through the year. Indonesia goes to the polls twice this year first at national legislative elections on April 9 and then at a presidential election on July 8. President Yudhoyono may well win re- election before the economic downturn bites into his political standing, but economic turmoil may well overshadow his prospective second term of office.

One of the few foreign policy experts in the Australian Parliament, Queensland Liberal Senator Russell Trood, recently took time to highlight the potential political and strategic impacts of the global financial crisis for Australia's neighbourhood. ''It is as well in this context to reflect on the Asian financial crisis of 1997,'' he told Parliament. ''When it occurred, almost nobody had any expectation that it would profoundly affect any of the governments of the Asia-Pacific region. No one anticipated that it would destabilise governments, but by May 1998 a regime which had seemed immovable, which had been in power for 30 years the Suharto regime in Indonesia had been toppled and swept from power. ... This crisis is far more serious and it will generate widespread political and strategic fallout ... profound economic dislocation almost inexorably leads to political unrest and instability and, not infrequently, to conflict.'' It would be a bold analyst who was prepared to predict precisely what course the financial crisis will take and, as Senator Trood observed, ''Whatever predictions we might make about its direction, one thing of which we can be absolutely confident is that it will have some unexpected consequences.'' What is clear is that the recent overwhelming focus on the threats posed by small groups of Islamic extremists will be submerged within a much broader and complex matrix of conflicts and turmoil. Our Defence planners will probably have to factor in an increased likelihood of overseas deployments, more likely driven by civil conflicts and humanitarian crises, while in the longer term we may be able stretch out the time frames for some major equipment acquisitions as other countries with more dire budgetary problems wind back their defence expenditure. Our intelligence agencies and strategic analysts will certainly have to broaden their focus, and redeploy capabilities that have in recent years been preoccupied with terrorism. For those with a longer perspective of history, and especially the global turmoil of the mid-20th century, it might be said that the world is getting back to normal. There is, of course, the old purported Chinese curse, ''May you live in interesting times.'' Interesting times are on the way.

Philip Dorling is National Affairs Correspondent.