Australia Defence and Security Report Q4 2008

In July 2008, Australia participated in the 21st Exercise Rim of the Pacific (Rimpac) in Hawaiian waters.

The joint military exercise involved armed services from Canada, Chile, Japan, Netherlands, Peru, Republic of Korea, Singapore, the United Kingdom, the United States and, of course, Australia. Australia had a large presence in the exercise, with four HMA ships participating, as well as the Australian Clearance Diving Team 4, and two AP3C Orion maritime patrol aircraft. At the event, the Royal Australian Navy successfully fired a new heavyweight torpedo. The MK 48 Mod 7 Common Broadband Advanced Sonar System (CBASS) torpedo, designed for countermeasure and shallow water environments, is a joint project of the RAN and US Navy.

Australia continues to maintain an active presence in the Solomon Islands as part of the Regional Assistance Mission to Solomon Islands (RAMSI). In August 2008, the Minister of Defence, the Hon. Joel Fitzgibbon announced the latest deployment of army reserve soldiers. Mr Fitzgibbon said that: 'During the fourmonth deployment the soldiers will carry out 24hour street patrols and other designated tasks in support of the Participating Police Forces within the Solomon Islands.' In excess of 140 reservists were deployed.

With respect to foreign relations, it was notable that the Australian government, led by Prime Minister Kevin Rudd, made attempts to extend the country's influence in South East Asia. Australia sent defence officials to Indonesia, and signed an agreement on closer cooperation, including on military matters, with Malaysia, in mid July. Towards the end of the month Rudd appointed an envoy to the Association of South East Asian Nations. Rudd is clearly committed to being a major voice in the region.

On the domestic front, however, the popularity of Rudd is likely to continue declining from record highs, as his new Labor government faces rising economic challenges. Dealing with rising living costs is crucial for Rudd to avoid facing the same fate as former Prime Minister John Howard at the hands of high inflation and rising interest rates.

Turning, finally, to the macroeconomic picture, in prcis, we find that the continued strength of Australia's economy, in particular domestic demand, is reassuring the government at a time of global economic uncertainty. However, strong growth is also continuing to fuel concerns over domestic inflationary pressures. Despite higher than expected real GDP growth in Q108, significant downside risks remain, and we expect growth to moderate over the coming quarters. Indeed, more timely data are already pointing towards a slowdown.