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Operation Citadel patrol in East Timor

The 2000 Defence White Paper acknowledged that countries in Australia's immediate region faced major economic, political, governance and social challenges. This applied particularly to Indonesia, East Timor, Papua New Guinea and other island states of the South Pacific. In addition, some of these countries have made little progress against the daunting economic, political and social challenges they faced in the year 2000.

As a consequence of globalisation , Australia's region is more exposed to world events, including security threats, than it was. The terrorist attacks in the US and Bali, and the arrests in Singapore, Indonesia and elsewhere in Southeast Asia, demonstrate the reach of terrorism and show that our region is no longer immune.

By 2002, most Southeast Asian GDP levels had returned to those seen before the Asian financial crisis, but per capita incomes had not. Southeast Asian states that were struggling economically even before the extent of the terrorism problem became clear are being further weakened. Slow growth rates, insufficient employment opportunities and economic hardship reinforce popular disaffection with the West as well as their own governments. Existing political and leadership weaknesses, combined with declining governance standards, increase the vulnerability of some regional governments even before the additional challenges of dealing with terrorism and its economic effects. In some Southeast Asian countries, these economic factors combine with the misperception that the War on Terror targets Muslims to produce defensive, nationalistic reactions.

Operation Relex in Australian Waters

There is little evidence of aggressive development of military capability in Southeast Asia. Southeast Asian nations are more focused on domestic issues and economic growth than on regional disputes.

But diverse internal and transnational problems are still likely to produce non- terrorist related security challenges. People smuggling, illegal fishing and money laundering feed off and exacerbate existing difficulties. Corruption, population and environmental pressures add to the troubles. Together, these challenges leave our nearer neighbours vulnerable to transnational threats.

These are important concerns for Australia. The requirement to conduct operations in support of civilian agencies to protect Australia's borders and economic interests, including against people smuggling and illegal fishing, continues unabated.

The Australian Government will continue to place a high priority on law enforcement and intelligence cooperation within the region, and to assist regional governments to enhance their financial and border controls.

But the need to combat terrorism puts additional political pressure on already stretched Southeast Asian governments . Terrorism apart, Indonesia continues to face issues of poverty, unemployment, democratisation, economic recovery, corruption, governance and legal reform. At the same time Indonesia confronts religious, ethnic and separatist challenges to its cohesion and stability. The Bali terrorist attacks and other attacks across the archipelago over the past two years threaten Indonesia's social cohesion, its political stability and its international reputation.

Operation Citadel East Timor

Indonesia remains of enduring strategic significance to Australia. The Australian Government attaches great importance to supporting the Indonesian Government and its people as it manages its many challenges. Indonesia's territorial integrity remains in Australia's national interests. Geography dictates that the success of reform in Indonesia - and its efforts to eradicate terrorism - are crucial to the future security of both nations. With its many small islands and extensive maritime boundaries, Indonesia's effectiveness in responding to transnational threats such as smuggling - whether of arms, drugs or people - and piracy will also require international cooperation.

For these reasons the Government is strongly committed to progressing a broad-based relationship with Indonesia. In the defence arena, we have made progress in identifying areas such as maritime surveillance and intelligence exchanges where we can cooperate in our mutual interest. The Government is also considering limited cooperation with the Indonesian military forces on hostage recovery and hijack resolution - an area where, in an environment of heightened terrorist threat, Australian lives could rest on effective Indonesian capabilities and cooperation between the two defence forces. Effective cooperation is also occurring between police, immigration and intelligence organisations.

The people of East Timor, the world's newest nation, will need our support and assistance. East Timor faces daunting challenges, not least in establishing effective national institutions and a productive economy. These challenges will strain its capacity to address security challenges - which are largely internal. Australia is making a significant contribution to stability and development in East Timor through our development assistance and defence cooperation programmes. We also provide approximately 25 per cent of the UN peacekeeping force, though our contribution will draw down over the next two years. Australia will continue to assist East Timor when the peacekeeping operation comes to an end.

The 2000 Defence White Paper pointed to deep-seated social and political problems in the South Pacific. These are exacerbated by the pressing national development problems facing small and isolated nations, and the limited capacities of their police forces and wider governance. Significant progress is still needed to dispel these concerns.

Given the South Pacific's economic and social decline, Papua New Guinea and the Pacific Island Countries will continue to face serious transnational threats, such as crime and unauthorised people movements. Political, economic, and social crises that directly affect Australia, or in which Pacific countries seek Australian assistance, are likely to arise at short notice, and might require involvement, including swift deployment of the ADF. Military or civil assistance could be required to restore law and order, to evacuate Australians, or to help in humanitarian disasters. The strength of our national interests, and our prominent leadership role in the region, means that Australia could be called upon to provide assistance to the region in times of crisis, and will need to maintain the capability to respond effectively.

Operation Bel Isi II Bougainville

The past two years have seen positive developments towards the resolution of the Bougainville crisis with further steps towards peace under the Bougainville Peace Agreement. The unarmed ADF- led Peace Monitoring Group (PMG) has facilitated the peace process, and after ten years of costly rebellion there are better prospects for a peaceful future. We envisage that the PMG will be able to withdraw from around the middle of 2003, but in the meantime it will work hard to consolidate the peace.

Overall, however, Papua New Guinea's outlook is worrying. Domestically, the new Papua New Guinea Government needs to continue to work to reverse the negative trends - in particular a stagnant economy, inadequate levels of education and health care, and deteriorating law and order. Ill-discipline in the Papua New Guinea Defence Force (PNGDF) in 2001 and 2002 has further undermined confidence in this institution. The PNG government has recognised the need to downsize, reform and modernise the PNGDF. Although progress remains disappointing, we welcome Prime Minister Somare's renewed commitment to substantial PNGDF downsizing and reform made during his 2002 visit to Australia and will continue to support the PNG Government's defence reform process.

Training exercise in New Caledonia

Solomon Islands continues to face major obstacles to achieving much- needed stability. The June 2000 coup led to the formation of an Australian-led International Peace Monitoring Team (IPMT) to support efforts to preserve peace between warring ethnic groups. The IPMT - which included Defence (civilian and ADF) participation - helped oversee an end to the inter-ethnic conflict and withdrew in June 2002. But ethnic conflict has been replaced by a breakdown in law and order. Violence is a serious problem, particularly on Guadalcanal and Malaita, the economy has been wrecked and internal authority and government legitimacy are often undermined. National institutions seem powerless to halt the slide, and there has been little attempt to galvanise civil society to restrain violence and corruption.

The Australian Government should not be expected to solve the problems of Solomon Islands, and anyway cannot do so. It is only the people and their leaders who can end the violence and give Solomon Islands the stability necessary to address its economic and political problems. Australia is, however, providing substantial support to the Royal Solomon Islands Police through our aid and Defence Cooperation Programmes.

The Fiji Government has political, economic and social challenges to face. Despite recent internal problems, the Republic of Fiji Military Force (RFMF) remains an important national institution and continues to make an important contribution to peacekeeping around the world.

There is also cause for concern about developments in Vanuatu since the 2000 White Paper. Again the problems - such as conflict within the Vanuatu police force - are in part institutional and reflect a general decline in governance across this region.