Australia Defence and Security Report Q1 2009

The three months to the end of December bought several themes to the fore in the Australian defence sector. One is the difficulty being encountered by the Royal Australian Navy (RAN) in attracting – and keeping – the skilled people that it needs. Most of the RAN’s personnel have been given leave over the Christmas/New Year period as a result of the ‘Next Generation Navy’ programme, which seeks to make the service more attractive as an employer. However, the RAN emphasised that it would maintain all commitments in the Middle East and in Operation Resolute, which handles the maritime protection of Australia’s Exclusive Economic Zone. It remains to be seen, however, how the dynamics of Australia’s labour market are changed by the global financial crisis which, as discussed below, has thus far had relatively little impact. It may be that, by the end of 2009, the RAN is finding it far easier to recruit the people that it needs.

Another key theme in the sector is the potential for trade routes between Australia and the rest of the world to be disrupted by events in South East Asia; events which may have little to do with Australia. The closure by demonstrators of Bangkok’s two main airports caused massive disruption to air travel throughout the region and between Australia and Europe. In general though, the overall security situation in South East Asia and in the immediate vicinity of Australia worsened through the last months of 2008.

This was partly because of the various developments in Thailand – and the political crisis in that country that is still far from being resolved – and partly because of a major set-back to the peace negotiations that are taking place between the Philippine government and the insurgents in Mindanao. However, and in contrast to most of the last five years, Indonesia is no longer the principal locus of security issues in South East Asia.

For the time being, we continue to expect that the Australian government will increase defence spending by 3% annually, in real terms, over the coming years. Absolute increases will depend in part on how the country’s economy fares in the face of the global financial crisis. Thus far, the economy has avoided recession, and the Australian Labor Party government led by Prime Minister Kevin Rudd has received recognition for its economic management. Australia has been helped by the Reserve Bank’s aggressive reduction in interest rates, the slippage in fuel prices (which have boosted the disposable income of Australia’s motorists) and, most importantly, the slide in the AUD relative to the US$ and most other currencies. The government’s current lack of borrowing also means that it is well placed to use fiscal policy to boost the economy (or bail-out companies and financial institutions) in coming months.