Posts Tagged ‘Indonesia’

Emerging Asia Hit by Biggest Foreign Investor Exodus Since 2008

June 18, 2018

India, Indonesia, the Philippines, South Korea, Taiwan and Thailand have lost $19 billion so far this year

Stock fund outflows so far this year only exceeded by 2008
Philippine, Thai central banks will meet this week on policy

A falling tide lowers all boats, it seems. Amid an exodus from emerging markets, investors are pulling out of even Asian economies with solid prospects for growth and debt financing.

Overseas funds are pulling out of six major Asian emerging equity markets at a pace unseen since the global financial crisis of 2008 — withdrawing $19 billion from India, Indonesia, the Philippines, South Korea, Taiwan and Thailand so far this year, according to data compiled by Bloomberg.

While emerging markets shone in the first quarter, suggesting resilience to Federal Reserve tightening, that image has shattered over the past two months. With American money market funds now offering yields around 2 percent — where 10-year Treasuries were just last September — and prospects for more Fed hikes, the bar for heading into riskier assets has been raised. Headlines on trade disputes that could hit Asian exporters haven’t helped.

“It’s not a great set-up for emerging markets,” James Sullivan, head of Asia ex-Japan equities research at JPMorgan Chase & Co., told Bloomberg TV from Singapore. “We’ve still only priced in about two thirds of the U.S. rate increases we expect to see over the next 12 months. So the Fed is continuing to get more hawkish, but the market still hasn’t caught up.”

READ: Asia Tops Emerging-Market Scorecard After Rout as S. Africa Lags

While many emerging-market investors and analysts have praised Asian economic fundamentals, pointing to world-leading growth rates and political stability, some are starting to raise red flags as global liquidity starts to shrink. The Bloomberg JPMorgan Asia Dollar Index sank to a 2018 low on Monday, extending two weeks of declines after the Fed and European Central Bank both took steps toward policy normalization.

Yet some still remain optimistic. Bank of America Merrill Lynch expects some of the regional currencies including the baht and the Philippine peso to appreciate slightly by the end of the year, a research note sent Monday showed. Six of 10 best-performing emerging currencies so far this year are in Asia, led by the ringgit’s 1.2 percent advance and the Chinese yuan’s 1.1 percent gain.

Developing nations including Turkey, Indonesia, India and Argentina have raised rates, while Brazil’s central bank has sold extra foreign-exchange swap contracts in an effort to stabilize their markets.

In Asia this week, the Philippine central bank, which raised its key rate in May for the first time since 2014, is expected to lift the benchmark again by 25 basis points to 3.5 percent, a Bloomberg survey shows.

The Bank of Thailand will keep its benchmark unchanged at 1.5 percent the same day, according to a separate Bloomberg survey, though JPMorgan for one sees an increase coming next quarter. The baht has tumbled 4.6 percent against the dollar this quarter, despite Thailand having a current-account surplus in excess of a whopping 9 percent of gross domestic product. Thailand is also in the midst of the longest stretch of 3.5 percent plus GDP growth since the early 2000s, according to the IMF.

Thai Finance Minister Apisak Tantivorawong, for his part, said Monday he’s not concerned about capital outflows, and the country’s central bank need not follow the Fed in raising rates. Meantime, the baht hit its 2018 low in Monday trading, and the main Thai stock index was down 1.2 percent as of 2:02 p.m. in Bangkok.


Thailand May Retaliate Against Indonesia for Fruit Ban

June 15, 2018

Thailand is mulling retaliatory measures against Indonesia after the latter banned imports of Thai longan and durian during harvest seasons.

Commerce Minister Sontirat Sontijirawong said responsible authorities are studying the impact and proper retaliatory measures against Indonesia, which introduced the ban on imports of horticultural crops, especially fruit, during its annual harvest season on Jan 1.

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“Such import measures are considered unfair because their harvest seasons, particularly for longan and durian, are identical to ours,” Mr Sontirat said. “We are fighting for fair trade practices to make our products competitive.”

Sontirat Sontijirawong is Thailand’s Commerce Minister.

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Donald Trump’s retreat is the greatest threat to global security

June 14, 2018
The president intends to dismantle an alliance system that has endured for 70 years

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Donald Trump has had quite a week. At the G7 summit in Canada the US president repudiated the rules-based international order, preferring to throw a tantrum on trade. By Tuesday, he was discarding longstanding security guarantees to America’s east Asian allies at his headline-grabbing talks in Singapore with North Korean leader Kim Jong Un. The security of Europe and east Asia has been underwritten for 70 years by a US alliance system. Mr Trump is intent on dismantling it.

It takes a special talent even for this president to recast Canada as an adversary before embracing as a new-found friend a brutal dictator with a recently acquired nuclear arsenal. We should know not to measure Mr Trump against the usual norms. The chilling significance of these actions resides in the clarity they bring to his intentions.

China and Russia are throwing their hats in the air to celebrate the president’s retreat from international leadership. Absent from the Singapore summit, Xi Jinping, the Chinese president, was nonetheless a big winner. In Mr Trump’s world of everyone for themselves, China will replace the US as the pre-eminent power in east Asia. Japan, Taiwan and, in time, South Korea itself, may choose to take a tip from Mr Kim. If you want to be safe, build a bomb.

G7 leaders have been inclined to make a case that Mr Trump can be “managed”. France’s president Emmanuel Macron applied flattery. Japan’s Shinzo Abe wooed the president on the golf course. Britain’s Theresa May dangles an invitation for tea with Queen Elizabeth at Buckingham Palace. The be-nice strategy has now been derailed.

Donald Tusk, the president of the EU, speculated the other day as to whether the western political community faced a cyclical or a structural threat from US unilateralism. Mr Tusk is a thoughtful politician, someone worth listening to. He can also be over-generous. The US president has answered his question loud and clear: he disdains any such political community.

Listen: Martin Wolf — The crisis of democratic capitalism

The one good thing to say about the statement released by Mr Trump and Mr Kim in Singapore is that it seems to preclude imminent war. Not so long ago Mr Trump was threatening to reduce the Korean peninsula to rubble. The Pentagon was told to work up a war plan. Mr Trump talked about pressing his big nuclear button. Residents of Seoul will be understandably relieved that the US president now prefers to lavish praise on Pyongyang.

Canada’s prime minister, Justin Trudeau, may be termed “dishonest” and “weak”, but in the president’s mind, Mr Kim is someone America can “trust”. South Korean president Moon Jae-in deserves only praise for his role in fostering detente. Mr Moon seems genuinely to believe that Mr Kim wants to put economic modernisation before nuclear posturing. He must forgive the rest of us if we do not recognise in Mr Kim the new Mikhail Gorbachev.

The summit produced nothing new from Pyongyang in the way of promises to denuclearise. It did confer global recognition of North Korea’s nuclear status and of the legitimacy of its authoritarian leader. Mr Trump arrived in Singapore asking for a transparent process of complete, verifiable and irreversible denuclearisation. Presented with a series of rehashed, meaningless platitudes, he declared victory. More, he called a halt to joint US military exercises with Seoul. In the fullness of time, he wants to bring home the 30,000 US troops in South Korea. After all, they cost “a lot of money”. Even the optimistic Mr Moon gets a little unnerved at this point.

Mr Trump has thrown out this week the assumptions that have kept the peace in east Asia since the end of the second world war. Japan has obvious and powerful historical reasons for eschewing a strong military and the acquisition of nuclear weapons. Its pacifism has been made possible by America’s security shelter.

Policymakers in Tokyo must now ask themselves for how long that will last as China grows more assertive. Might Mr Trump sell out the US defence guarantee to Japan for a better trade deal with Beijing? He has suggested as much. Taiwanese politicians will be making a similar calculation. Take the US further out of the regional picture and so will Indonesia and the Philippines.

Mr Trump, of course, will not be pulling back US forces today, tomorrow or even the day after that. But security resides in durable trust and confidence. The leaders of these nations must look five, 10 and 20 years ahead. The current judgment has to be that the US is heading home, even if the process slows beyond Mr Trump’s presidency.

Next month it will be Europe’s turn. Mr Trump will be attending the Nato summit in Brussels. He has made a link between Washington’s disproportionate funding of the military alliance and European tariffs on US manufactures. Why should we pay if you have a trade surplus? Jim Mattis, the defence secretary, has invested much personal capital in seeking to persuade the president that the alliance is as important for the US as for European security. It is far from clear that he has succeeded.

I am sometimes asked what I consider to represent the biggest threat to global peace and stability. A nuclear North Korea looks dangerous, but containable. Mr Kim is not a madman. So the temptation is to reply that the risk is found in China’s rise or in Russian revanchism. The real answer is Mr Trump’s retreat.

Philippines demands China stop taking fishermen’s catch — “With China here, there is only China’s law.”

June 11, 2018

The Philippines on Monday demanded that China stop confiscating the catch of Filipino fishermen in the disputed South China Sea, calling the practice “unacceptable”.

The remarks by President Rodrigo Duterte’s spokesman were a rare public rebuke from Manila, which has taken a non-confrontational approach with Beijing over the resource-rich waterway.

© AFP/File | Filipino fishermen say the Chinese coast guard is seizing their catch at the disputed Scarborough Shoal

China controls several reefs in the sea including Scarborough Shoal, which Beijing seized from Manila in 2012 and is just 230 kilometres (143 miles) from the main Philippine island of Luzon.

China claims almost the entire sea, through which trillions of dollars in trade passes annually, despite competing partial claims from Brunei, Malaysia, the Philippines, Taiwan and Vietnam.

Duterte’s spokesman Harry Roque on Monday confirmed a report that Chinese Coast Guard personnel seized the catch of Filipino fishermen in the shoal in May in violation of an agreement between the two nations allowing Filipinos to fish there.

“We are demanding that the Chinese take steps to stop the coast guard from doing these acts,” Roque told reporters.

“That is unacceptable. That is why we informed the Chinese we will not allow fish to be taken from our countrymen.”

The Chinese foreign ministry said it was investigating the reports and authorities will “seriously” deal with them if they are confirmed.

“Out of friendship, China has made proper arrangements for Filipino fishermen,” ministry spokesman Geng Shuang told a regular press briefing.

“The Chinese coast guard is monitoring relevant waters to ensure peace and order in the area, and also offers humanitarian assistance to the Philippines fishermen,” Geng said.

“The Chinese coast guard always abides by the law.”

Duterte’s administration rejects criticism that its response to Chinese activities in the hotly contested waters has been weak.

China in May reportedly deployed anti-ship cruise missiles and surface-to-air missiles on the Spratly Islands and flew nuclear-capable bombers to a base in another disputed part of the sea.

Duterte’s aides have said previously the Philippines is taking “all diplomatic action” to protect its claims while insisting it would not anger China by engaging in “megaphone diplomacy”.

Manila, which has pursued trade deals and investment from China, instead holds regular talks with Beijing on the dispute.

On Monday Roque refused to describe the latest incident as harassment, adding the Chinese Coast Guard gave the Filipino fishermen noodles, cigarettes and water in exchange for their catch.

The fishermen, who appeared with Roque in the news briefing, said they were powerless to stop repeated seizures by the Chinese.

“The (Chinese coast guard personnel) board our boats, look at where we store the fish and take the best ones. We cannot do anything because their huge vessels are there,” said Romel Cejuela, one of the fishermen.


Chinese “Taking Fish” From Philippine Fishermen — Local fishermen called on the Philippine government to help

June 11, 2018
Filipino fishermen ask gov’t to act on ‘barter’ with Chinese coast guard

Fisherman Romel Cejuela says the China has control over Scarborough Shoal. PH Coast Guard is nowhere to be seen. But Cejuela belies reports of harassment. He says they often barter – noodles, cigarettes and water in exchange for fish.

Patricia Lourdes Viray ( – June 11, 2018 – 3:35pm

MANILA, Philippines — Local fishermen called on the Philippine government to address the fish-taking incident with Chinese coast guard personnel at Scarborough Shoal in the West Philippine Sea.

Presidential spokesperson Harry Roque on Monday confirmed that the Chinese coast guard has been conducting a sort of barter trade with Filipino fishermen in the traditional fishing ground off the coast of Zambales.

Speaking in a Malacañang press briefing, fisherman Romel Cejuela narrated how the Chinese have been boarding their boats and taking away their catch from Scarborough Shoal.

“Gusto lang namin ipaabot sa ating gobyerno limitahan sila na ano lalapit doon sa amin ‘yung maghihingi ng isda (We just want to ask the government to limit them from asking fish from us),” Cejuala told reporters.

The fisherman clarified there was no harassment but said the Chinese coast guard personnel were insistent on taking their fish from them.

“Linawin lang namin na wala naman ginawang pangha-harass sa amin kumbaga ano lang parang mapilit silang kukuha ng isda kasi hindi naman kami magkaintindihan ‘yung ano lang doon ‘fish’ ‘yun lang tapos aakyat sila sa amin (We will just clarify that there was no harassment, they were just insistent to take our fish but because we cannot understand each other they just say ‘fish’ and then they will go aboard our boat),” Cejuela said.

“Titignan nila ‘yung mga lalagyan namin, titignan nila yung magagandang isda. Wala naman kami magagawa kasi nakikisama lang muna kami (They will look at our container, they will look at the best fish. We can’t do anything because we were just trying to get along with them),” he added.

Cejuela compared themselves to a “crushed tin can” if they stand up against the Chinese.

Sometimes, he said, the Chinese would give noodles, cigarettes and water to the Filipino fishermen in exchange for their best catch.

The fisherman expressed concern that the Chinese may once again block them from entering the shoal if a misunderstanding would ensue between the Philippines and China over the incident.

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“Hindi naman siguro ‘yun totally harassment. Nirereklamo lang namin na siguro na mag-usap sila na anuhin ‘yung coast guard nila na maghintay lang sila kung gusto nila maghingi ng isda ‘wag sila aakyat sa bangka namin at maghalungkat pipiliin pa nila ‘yung magagandang isda (That’s not totally harassment. We’re just asking them to talk to the Chinese coast guard, instruct them to wait for the fish and stop climbing on our boat and choosing the best fish),” the fisherman said.

This happens every time Filipino fishermen go to Scarborough Shoal to catch fish, according to Cejuela.

The fisherman also lamented that there are no Philippine vessels stationed around the area while the Chinese coast guard which has constant presence in the area.

Roque, on the other hand, said that he and Foreign Affairs Secretary Alan Peter Cayetano already talked to Chinese Ambassador Zhao Jianhua about the Chinese coast guard’s harassment of Filipino fishermen.

Image result for Zhao Jianhua, duterte, photos

Chinese Ambassador Zhao Jianhua and President Duterte. FILE photo

Beijing should discipline erring Chinese coast guard personnel, according to Roque.

“In-assure naman po ako ng ambassador na hindi po ito polisiya ng Tsina, na nag-iimbestiga ang Beijing at kung mapatunayan ang sinabi ng mga mangingisda ay mayroong kaparusahan na ipapatol dito sa mga Chinese coast guard na ito (The ambassador assured me that this is not a policy of China, that Beijing is looking into it and if proven that the statements of the fishermen are true, there will be punishment for these Chinese coast guard personnel),” Roque said.




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Emerging markets await US and European Central Bank meetings

June 10, 2018

No respite seen for fragile EM countries from tighter Federal Reserve policy

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© FT montage; Getty; Bloomberg

Kate Allen, Roger Blitz and Michael Mackenzie

Central banks step into the limelight for investors this week, as European and US officials hold high-profile meetings, in what could prove a crucial moment for policymakers and particularly for emerging markets.

No respite for emerging markets from a strong dollar

Emerging markets are feeling the heat. Brazil has replaced Turkey in the pecking order of EM currencies under assault, as rising political uncertainty has pushed the real towards R$4 against the dollar, its lowest level in two years.

In recent weeks the likes of India, Indonesia, Turkey, Pakistan and the Philippines have raised their official interest rates. All told, EM countries have tightened policy 22 times in 2018 as the US dollar has gained altitude against the backdrop of the US Federal Reserve steadily retreating from easy money.

EM will find little respite from the developed market. “Despite concerns that individual EM stories are coalescing into a broader EM problem, at this stage DM central banks are unlikely to respond, with both the Fed and ECB taking further steps towards tightening/ending easing next week,” says Elsa Lignos at RBC Capital Markets. “That leaves EM central banks as the main line of defence.”

A surging dollar casts a hefty shadow over EM countries, which have been on a borrowing binge and have debt denominated in the reserve currency. A common feature of EM countries coming under the cosh are those with large current account deficits, such as Brazil, India, Indonesia, Turkey and South Africa.

JPMorgan’s EM currency index has fallen 9 per cent from its mid-February peak and loiters near the lows seen in late 2016 The worry is that this trend has room to run.

A shrinking Fed balance sheet and US money market rates near 2 per cent mean investors can be far more discerning after a prolonged period of hunting for yield, notably in EM and risky areas of credit.

The story of recent months is that money is leaving previously hot and richly priced areas of the risk spectrum and heading for safer assets such as US money market funds. These have just seen the biggest weekly inflow since 2013 when the taper tantrum resonated. EM equity and bond Funds are seeing their longest redemption streaks since the fourth quarter of 2016, says EPFR.

Some, such as Urjit Patel, the governor of India’s central bank, argue that the Fed’s balance sheet unwind, at a time of rising Treasury debt sales to fund the Trump administration’s tax cuts, is fuelling a dollar liquidity squeeze.

But EM investors hoping for the Federal Open Market Committee to cut them some slack likely face a long wait.

Other issues, such as political risk in Italy and rising trade tension, have caused market volatility and have been raised by some Fed members. But while Fed chair Jay Powell may mention these risks during his press conference on Wednesday, they are unlikely to amount to more than passing reference.

Ian Lyngen, strategists at BMO Capital Markets, notes global financial conditions have yet to hit past levels that “indicate a crisis’’ and “until that happens, or unless the Fed believes it is losing control of the pace at which markets tighten, we’re more likely to see the FOMC hold steady on its course towards higher rates’’.

Will the ECB signal an end to bond-buying?

After 43 months of bond purchases totalling €2.4tn, is the eurozone economy strong enough for its largest-ever programme of monetary stimulus to come to an end?

That is the question on the table this week as European Central Bank policymakers travel to Riga for their latest policy meeting on Thursday.

Almost six years after Mario Draghi, its president, promised the central bank would do “whatever it takes” to stabilise the bloc, the central bank is considering a return to more normal financial conditions.

Unlike other central banks around the world, the ECB has purchased corporate debt as well as government bonds, and lowered interest rates to negative levels.

The bond buying has put 22 per cent of eurozone governments’ debt on the ECB’s books, according to FT calculations, with low-debt countries such as Germany seeing more than 29 per cent of their outstanding securities purchased while the ECB owns 17 per cent of the paper of Italy, which is more heavily indebted.

And since it began buying investment grade corporate bonds in June 2016, the ECB has built up holdings of €157bn in corporate bonds — nearly 20 per cent of the company paper that is eligible to be bought.

The large-scale purchasing scheme has had a profound effect on bond yields. Spreads of companies whose debt does not qualify for purchase have trended downwards by nearly as much as those which are eligible, research by Deutsche Bank suggests.

With the programme scheduled to wind down in September, trading desks are bracing themselves for the loss of a major buyer of corporate paper.

“It does mean the market is being removed of a crutch which it has leaned on for a very long time,” said Frazer Ross, head of investment grade corporate syndicate at Deutsche Bank. He added that “in an environment where the market’s more volatile . . . the impact of the reduction is magnified”.

The wind-down is more or less inevitable, said a person who works on a debt capital markets desk in London, who added that they believed it would impact prices: “You’ve got an 800 pound gorilla that’s going to turn into the size of a flea . . . unless there’s Lehman part Two, they’re going to stop buying bonds.” Kate Allen and Chloe Cornish

Islamic State’s Attacks Raise Threat of Southeast Asia Hub

June 7, 2018

Neighbors intensify cooperation to prevent regional growth of militant group

It took Philippine forces five months to drive Islamic State-inspired rebels from Marawi City, on Mindanao Island, shown here as fighting continued in May 2017.
It took Philippine forces five months to drive Islamic State-inspired rebels from Marawi City, on Mindanao Island, shown here as fighting continued in May 2017. PHOTO: FRANCIS R. MALASIG/EUROPEAN PRSSPHOTO AGENCY

SINGAPORE—Islamic State’s collapse in Syria and Iraq leaves global jihadists looking for a new home.

Governments in Southeast Asia, a region that is home to some 270 million Muslims, fear that their part of the world may now turn into the extremists’ new area of growth. These nations are sidelining old rivalries and working together to make sure that doesn’t happen.

This cooperation includes a fresh boost in intelligence sharing and joint maritime and air patrols in the Sulu Sea, where Indonesia, the Philippines and Malaysia meet. The region’s nations are also tightening immigration rules and Indonesia, the world’s most populous Muslim country is passing new antiterrorism legislation.

Smoke rises from a blast at a Surabaya church amid a series of attacks on May 13 in the Indonesian city.
Smoke rises from a blast at a Surabaya church amid a series of attacks on May 13 in the Indonesian city. PHOTO:ANDY PINARIA/AGENCE FRANCE-PRESSE/GETTY IMAGES

Islamic radicalism has a long tradition in Southeast Asia, fueled by a separatist guerrilla war that raged since the 1970s in the predominantly Muslim parts of southern Philippines, a separatist insurgency in southern Thailand, and the communal tensions in Indonesia that allowed al Qaeda’s affiliate Jemaah Islamiyah to flourish more than a decade ago.

In addition to concerns about the Sulu Sea area, the historic hotbed of Islamic militancy, regional officials increasingly worry that the Rohingya refugee crisis in Myanmar and Bangladesh may create another extremist hot spot on the coast of Andaman Sea.

“When we are talking about terrorism, Iraq and Syria already are finished. The future threat will be in the Sulu Sea and in the Andaman Sea,” Inspector-General Hamidin, the deputy head of Indonesia’s National Counter-Terrorism Agency, said in an interview. “While ISIS has been defeated, its ideology remains.”

Several hundred radicals from Southeast Asia, particularly Indonesia, traveled to join Islamic State in Syria and Iraq when it proclaimed its “caliphate” in 2014. Many of them fought in the so-called Nusantara Brigade—and many have since then returned to the region.

Islamic State also tried to establish a ministate of its own in the Indonesian regency of Poso, on Sulawesi island, in 2015. After failing to take hold in Poso, the group focused on the southern Philippines island of Mindanao, where fighters linked to Islamic State seized the city of Marawi in May 2017. Philippines forces regained Marawi only after a five-month military campaign that displaced hundreds of thousands of people.

Officials in Southeast Asia fear Myanmar’s push to drive out predominantly Muslim Rohingya—refugees are shown here at the Bangladesh border in April—has facilitated the rise of extremism in the area.
Officials in Southeast Asia fear Myanmar’s push to drive out predominantly Muslim Rohingya—refugees are shown here at the Bangladesh border in April—has facilitated the rise of extremism in the area. PHOTO: YE AUNG THU/AGENCE FRANCE-PRESSE/GETTY IMAGES

Since then, Islamic State’s activity in Indonesia picked up again. Last month, militants affiliated with Islamic State, also known as Daesh, carried out a series of church bombings in the city of Surabaya, the country’s deadliest attack in a decade. There were several other incidents, including the attack on police by sword-carrying militants on the island of Sumatra.

“The challenges do not end when the military declares victory. While pro-Daesh groups failed to establish a strong foothold in southern Philippines and in Southeast Asia, their initial accomplishments provide a viable blueprint for terrorism operations in the region,” the Philippines secretary of national defense, Delfin Lorenzana, warned at the Shangri-La Dialogue security conference in Singapore over the weekend.

“The terrorist threat continues to threaten Southeast Asia,” echoed the Australian minister of defense, Marise Payne. “Nobody wants to see Daesh take root in our region after being denied territory and legitimacy in the Middle East.”

In Indonesia, increased police capability to monitor militants’ social media and electronic communications means that many future attacks will likely be planned by close-knit groups such as the family that carried out last month’s Surabaya church bombings, said Mr. Hamidin of the Counter-Terrorism Agency.

While Indonesia is able to keep the militant threat in check, that would become challenging if the largely dormant networks of Jemaah Islamiyah become activated again by a regional crisis such as the plight of the Rohingya, and start cooperating with the remnants of Islamic State, he added.

“We have learned from what has been happening in Indonesia: if there is conflict and violence against Muslims, terrorists usually go there,” said Mr. Hamidin.

In Indonesia, the appeal of Islamic State’s brand of radicalism is limited by the fact that rival Islamist movements have been able to achieve their goals through peaceful means. Mass Islamist-sponsored demonstrations against alleged blasphemy by the Christian governor of Jakarta in December 2016 led to his defeat in elections last year, and to a subsequent imprisonment on blasphemy charges.

There is no such peaceful outlet in the Philippines, where a state of emergency remains in force across Mindanao.

“Foreign terrorist fighters consider the south Philippines as their alternative home base. They agitate the grievances of the locals and provide ideological justifications to continue the armed rebellion,” said Rommel Banlaoi, chairman of the Philippine Institute for Peace, Violence and Terrorism Research, a think tank in Manila.

“But even without the foreign terrorist fighters, the locals are fighting for self-determination, and they want acknowledgment of historical injustice committed against them,” he said. “The foreign terrorist fighters only add fire to existing local grievances.”

In Marawi, where fighters from other Southeast Asian nations and places as remote as Saudi Arabia, Somalia and Chechnya participated in last year’s battles, Islamic State-affiliated militants surprised the Philippines army with their use of drones, radio-frequency scanners and advanced sniper rifles, among other sophisticated weaponry. Though battered after losing Marawi, many of its fighters and its key leaders, the militant group remains a potent threat in Mindanao and the nearby islands of the Philippines, security experts agree.

“In Mindanao, they still have the capabilities, they still have the money, and they still have some territory,” said Solahudin, a terrorism expert at the University of Indonesia.

Write to Yaroslav Trofimov at

India stresses free navigation, ‘rules-based order’ for Asian seas

June 1, 2018

Indian Prime Minister Narendra Modi stressed on Friday the importance of ensuring the freedom of navigation in Asian waters for free trade, days after pledging to help develop a strategic port in Indonesia.

India's Prime Minister Narendra Modi meets with Singapore's Prime Minister Lee Hsien Loong at the Istana in Singapore on Friday. REUTERS/Edgar Su

India’s Prime Minister Narendra Modi meets with Singapore’s Prime Minister Lee Hsien Loong at the Istana in Singapore on Friday. REUTERS/Edgar Su   | Photo Credit: Reuters

Modi is visiting three countries in Southeast Asia this week as part of an “Act East” policy of strengthening relations in the region amid concern over China’s rising maritime influence, in particular in the disputed South China Sea.

“We also reiterated our principal stance, as far as maritime security is concerned, our commitment to a rules-based order,” Modi said through an interpreter after holding talks with Singaporean Prime Minister Lee Hsien Loong.

India’s Prime Minister Narendra Modi is welcomed by Singapore’s Prime Minister Lee Hsien Loong at the Istana in Singapore June 1, 2018. REUTERS/Edgar Su

“We also agreed on having an open, fair and transparent maritime trade commitment in this area,” Modi said.

On Wednesday, Modi met Indonesian President Joko Widodo and pledged to develop infrastructure and an economic zone at Sabang, on the northern tip of Sumatra island at the mouth of the Malacca Strait, one of the world’s busiest shipping lanes.

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Modi stopped in Kuala Lumpur briefly on Thursday to meet newly elected Malaysian Prime Minister Mahathir Mohamad before arriving in Singapore, where he will deliver the keynote address at the annual Shangri-la Dialogue security forum.

Modi’s talks in Singapore included an agreement for greater engagement between their navies including exercises.

“Both prime ministers further agreed to India’s proposal for continuous and institutionalized naval engagements in their shared maritime space, including the establishment of maritime exercises with like-minded regional partners,” the Singapore Defence Ministry said in a statement.

Modi this year invited the leaders of all 10 Association of South East Asian Nations (ASEAN) countries to India Republic Day parade in New Delhi, the biggest such gathering of foreign leaders at the event.

There has been growing unease about China’s activity in the South China Sea, which it claims almost in full, and which Brunei, Malaysia, the Philippines, and Vietnam claim in part.

U.S. Defense Secretary Jim Mattis said on Tuesday the United States would push back against what it sees as China’s militarization of islands in the South China Sea despite China’s condemnation of a voyage through the region on the weekend by two U.S. Navy ships.

Writing by Jack Kim; Editing by Robert Birsel

Lockheed Martin F-35 Fighter Poised To Become One Of America’s Biggest Exports

May 30, 2018

The Pentagon’s F-35 fighter has completed its development program and begun deploying overseas. About 300 have been delivered, and that number will double by the end of 2020. The U.S. military plans to buy 2,443 of the stealthy aircraft in three distinct variants tailored to the needs of the Air Force, Navy and Marine Corps.

To date, public discussion of F-35 has focused mainly on what the fighter can do for U.S. warfighters, and at what cost. But there is another dimension to the F-35 story, and that is the positive impact the plane will have on America’s trade balance as overseas friends and allies acquire well over a thousand of the fighters, mainly to replace aging F-16s bought during the Cold War.

The F-35 program from its inception has had eight partner countries that helped pay for its development and now are poised to purchase over 600 of the planes. But that is just the beginning of the program’s trade impact. An additional 800 planes are expected to be bought by other countries through the Foreign Military Sales program. That process has already begun, with Israel, Japan and South Korea signing on before development was even completed.


Israel’s military has already used the stealthy F-35A to conduct operations in Iranian and Syrian air space.

Other potential customers currently include Belgium, Finland, Germany, Singapore, Spain, Switzerland and the United Arab Emirates. Over the longer term, virtually every military power that might one day need to contemplate coalition warfare with America will want to take a look, because (1) no other tactical aircraft will be as survivable, (2) no other tactical aircraft will be as versatile, (3) no other tactical aircraft will be as cost-effective, and (4) no other tactical aircraft will mesh as seamlessly with U.S. air power.

I suppose this would be a good point at which to note that F-35 prime contractor Lockheed Martin is both a contributor to my think tank and a consulting client. If I had made the above four claims a few years ago, you might rightly have questioned my objectivity. But not now. After 9,000 flight tests, F-35 has demonstrated all of the performance features expected of it, including the ability to avoid being tracked by Chinese and Russian air defenses.

In addition, the price has fallen to a level where the most common variant will soon cost no more than the latest F-16 — for a great deal more capability. For instance, the electronic warfare suite on F-35 will generate ten times more radiated power than previous fighters, meaning it will not need a jamming aircraft flying escort in order to safely penetrate hostile air space. Every military power within a thousand miles of Russia or China is likely to want that, because when combined with low observables (“stealth”) it makes F-35 unstoppable.

What could be a more credible deterrent than a supersonic (1,200 mph) strike aircraft that can’t be tracked by radar and yet can strike ground targets with pinpoint accuracy and see air targets hundreds of miles away? As if all that were not enough, neither Russia nor China are likely to have anything comparable until the 2030s — if then. Bottom line: F-35 is setting the global standard for tactical air power through mid-century, and overseas sales of the plane will deliver a powerful boost to America’s trade balance.

So how big might that boost be? I’m guessing that over the long run, it will approach a trillion dollars. For starters, if we assign a nominal price of $100 million per plane — which is close to what the most common, Air Force variant costs today — then the value of the 1,500 or so planes Lockheed currently expects to sell overseas is $150 billion. But that doesn’t include life-cycle support and services, which typically cost more than the initial purchase price over decades of operation.

Lockheed has incorporated various “sustainment” features into the F-35 design that will make it easier to maintain than legacy fighters, and more are coming. On the other hand, threats are changing so rapidly that F-35s will likely require frequent software upgrades and periodic hardware modifications across a service life stretching to 2070. Add in the government’s inflation projections across the same timespan, and the export value of the program as currently baselined is already pushing half a trillion “then-year” dollars.

Of course, if inflation were to spike at some point during this period — which it almost certainly will — then the nominal value of the program will too. Let’s leave that possibility out of the estimate since it is incalculable. But let’s not omit the likelihood of multiple wars that stimulate demand, or the need to replace planes lost in combat and training, or the new requirements that might emerge when F-35 pilots find themselves fighting novel challenges such as supersonic drones.

Let’s also bear in mind that F-35 has never lost an overseas competition in which it was entered. Avascent reported last year that over 50 competitions were under way around the world for new tactical aircraft, although less than half had been disclosed publicly. But as geopolitical developments unfold, Washington may decide it needs to sell F-35s to India, Indonesia, Saudi Arabia and other countries not currently on the short list of prospective buyers.

That doesn’t mean India can’t produce and export F-16s to countries unable or unwilling to buy F-35s (as it is currently contemplating), but India may decide it needs a “high-low mix” of fighters to deal with threats emanating from China or other neighbors. With Washington deeply valuing its strategic ties to New Delhi and F-35 poised to become the global standard for multi-role tactical aircraft, it’s easy to imagine India buying over a hundred eventually. Other customers no one is talking about today might too.

Finally, let’s keep in mind that the F-35’s arrival has dovetailed nicely with a wholesale revision of U.S. arms transfer policy by the Trump administration. The president signed a memorandum on April 19 streamlining the sale of weapons to other countries and committing the government to participating in the overseas promotion of U.S. military products. Trump rightly noted in the memorandum the multiple ways in which such sales stimulate the U.S. technology and industrial base.

That policy isn’t likely to change once Trump leaves office, because Americans would dearly like their allies to take on more of the burden of collective defense. Countries like Germany can show their commitment to shared security objectives while better defending themselves and reducing trade imbalances by buying the F-35. I won’t waste your time with conjectural calculations about how all these factors might combine to make F-35 America’s first weapons program to generate a trillion dollars in export earnings, but it’s probably going to happen.

By Loren Thompson

US plans ‘steady drumbeat’ of military exercises in South China Sea, Mattis says

May 30, 2018

US Defense Secretary James Mattis said on Tuesday that the United States will continue “a steady drumbeat” of naval exercises to challenge China’s territorial claims in the South China Sea, amid Beijing’s militarization of the contested waters.

Mattis’ comments came after Beijing expressed “firm opposition” on Sunday after two US warships sailed within 12 nautical miles of four artificial islands claimed by China in the disputed Paracel island chain, east of Vietnam.
Speaking to reporters during a flight to Hawaii, Mattis said the South China Sea was international waters and “a lot of nations” wanted to see freedom of navigation maintained in the area.

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“There’s a very steady drumbeat of freedom of navigation operations … You’ll notice there is only one country that seems to take active steps to rebuff them or state their resentment of them,” he said.
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The Chinese government, which claims much of the South China Sea as its sovereign territory, has established a significant military presence in the region, installing radar facilities and airstrips on contested islands and reefs.
Mattis said Chinese President Xi Jinping had broken the promise he made at the White House in 2015 in regards to his country’s actions in the region.
“He stated that they would not be militarizing the islands, we have seen in the last month they have done exactly that, moving weaponry in that was never there before,” Mattis said.
In May, the Chinese military landed nuclear-capable bombers on their artificial islands for the first time. Weeks earlier, US intelligence announced there was a high possibility Beijing had deployed anti-ship and anti-aircraft missiles as part of military exercises.
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Though the US’ latest freedom of navigation operation was likely planned months in advance, experts said it was suggestive of the US’ attempts to pursue a harder line against China in the South China Sea.
On Sunday, China’s Defense Ministry spokesman Wu Qian labeled the return of US warships a “provocation” which violated Chinese and international laws and blamed the US military’s exercises for the growing militarization of the region.

China disinvited from major US exercises


Mattis, who travels to the annual Shangri-La defense summit in Singapore on June 1, said the United States worked to keep their military activity in the Pacific “very transparent” and expected the same from its partners and allies.
“So, when (Beijing) do things that are opaque to the rest of us, then we cannot cooperate in areas that we would otherwise cooperate in,” he said.
Mattis’ comments appear to refer to the US’ decision to rescind an invitation to the Chinese military to participate in maritime exercises in the Pacific due to Beijing’s actions in the South China Sea, which Washington described as “inconsistent with the principles and purposes” of the exercise.
The massive military event, known as RIMPAC, is described by the US Navy as the world’s largest international maritime warfare exercise and involves more than 20 countries from across the world.
Chinese Foreign Minister Wang Yi said at the time the US decision was “very unconstructive.”
“It’s unhelpful to mutual understanding between China and the US. We hope the US will change such a negative mindset,” he told reporters in Washington.
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