Address to Lowy Institute

Good afternoon to this most distinguished audience, I'm absolutely delighted to be back at Lowy Institute.

Over the years, Australia has been described as a middle power. I do not believe that adequately reflects our standing or our level of influence.

While we should be careful not to overstate it, neither should we understate it.

Australia is a top 20 country in almost every relevant economic and social measure, other than population where we come in at 56th.

We have the 12th highest GDP in the world and the 5th highest GDP per capita. Australia's pool of investment funds under management is the largest in Asia and the third largest in the world, at $2.6 trillion.

Australia is the world's number one global exporter of coal, iron ore, aluminium and beef.

We are currently the third largest exporter of LNG, although on track to become the world's largest exporter by 2020.

We are fourth most attractive destination for international students, the fifth in tourism.

Importantly, we are the lifestyle capital of the world, with four Australian cities consistently ranked amongst the top 10 liveable cities across the globe.

We are a smart, creative and tolerant people with a robust economy and strong institutions.

Our society, built on waves of immigration over the course of our history, possesses the energy and entrepreneurial spirit that comes from the meeting of cultures and ideas from all corners of the world.

We are an open, liberal democracy, committed to freedoms, the rule of law, human rights and democratic institutions.

We are an open, export orientated market economy.

These two pillars are fundamental to our peace and prosperity as a nation. It is who we are and, in turn, both depend on our ability to engage with other nations and build relationships – alliances, security partnerships, trading ties.

This means using our power – our hard power, our soft power, our assets – that enable us to stand up for, and defend where necessary, our values and beliefs as a nation and at all times, promoting our national interest.

Australia relies on alliances and agreements with other nations for leverage in exercising our hard power – the use of force – such as our military action in Afghanistan.

For over 13 years we have deployed defence personnel in coalition with others in a fight against extremists and terrorists to prevent another September 11, to ensure Afghanistan does not again become a haven for terrorists.

Our military assets have also been used to support other nations achieve their security aims while also looking out for our national interest.

For example, currently in Iraq over 400 ADF personnel are training, advising and assisting the Iraqi government build the capacity of Iraqi security forces so that it can take back the territory that has been claimed by the brutal terrorist organisation known as Da'esh and protect Iraqi citizens from the violent and barbaric actions of this terrorist group.

In this way, we are working to prevent Da'esh from attracting Australian foreign terrorist fighters and supporters to its ideology thus seeking to keep Australians safe from terrorism.

Soft power, on the other hand, has been described by renowned US academic and former Dean of Harvard's Kennedy School of Government Joseph Nye as "getting others to want the outcomes you want"; co-opting people rather than coercing them.

Nye believes that "Soft power rests on the ability to shape the preferences of others" and that "A country may obtain the outcomes it wants in world politics because other countries – admiring its values, emulating its example, aspiring to its level of prosperity and openness – want to follow it."

It is our foundation as a liberal democracy with respect for the rule of law, freedom of speech, freedom of religion and freedom of political affiliation, which greatly strengthens our voice internationally.

Soft power can and does take many forms and can have a range of motivations, overlapping from pursuing economic interests to meeting our obligations as a responsible member of the international community.

Of course our hard power assets can complement the exercise of our soft power. When Cyclone Pam hit Vanuatu in March this year the island nation was devastated. Sixteen people were killed, homes, schools, agricultural crops and government buildings were destroyed.

Cyclone Pam raged over a Friday night and a Saturday making access to the Islands and Port Vila airport in particular impossible.

However, on the Sunday Australia dispatched military transport planes – C-17s C-130s and black hawk helicopters, together with life-saving supplies and equipment. HMAS Tobruk was dispatched with heavier equipment and more supplies on board. About 500 Australian defence personnel took part in the humanitarian and disaster relief effort.

Shortly after, I visited Vanuatu and many people told me they had lost everything and were in despair about their future. However, when they saw the big, grey Australian military planes overhead they wept with relief – the Australians were coming.

As a neighbour and responsible regional player Australia comes to the aid of our Pacific friends in times of need as a matter of course.

However, we should not underestimate the impact of our influence as the largest and most developed nation in our region and the responsibility that we shoulder as a consequence of being that nation in the Pacific and that was really brought home to me in Vanuatu.

This brings me to another vital aspect of our soft power and that is our foreign aid program.

In this year's Budget, the extent of the Australian Government's fiscal deterioration over the past six years was laid bare – we had inherited an unprecedented level of debt and record budget deficits.

As responsible financial managers, the Coalition is charting a credible course back to surplus but this means that many areas of government expenditure have been hit, including the foreign aid budget.

The required reduction in the forward estimates for the aid budget provided me with the opportunity to reassess our aid priorities – where, how, why, what outcomes?

Our 2015-16 aid allocations were determined by a rigorous analysis into the contribution that Australia's aid makes to partner country GDP, to global Overseas Development Assistance flows; and is based on economic growth forecasts and I believe this is the first time this analysis has been applied to our aid program.

Based on the evidence we gathered, Australia's aid allocations were focussed mainly on the particular development challenges facing our neighbours in the Pacific. It is our neighbourhood, it is where we can continue to make the biggest difference.

Australia will continue to invest significant funds in Pacific island countries. Our humanitarian and emergency relief funds will allow Australia to respond to development and humanitarian challenges, such as Cyclone Pam in Vanuatu.

Our program acknowledges the particular development challenges facing Pacific Island countries, such as the limited capacity of the public sector to provide basic services, the limited capacity of the private sector, and the geographic isolation from international markets.

We have a particular responsibility to promote stability and prosperity for the nations of the Pacific. Our aid program in the Pacific aims to reduce poverty and increase standards of living by promoting sustainable economic growth.

Stronger economic growth in the Pacific as that is the most powerful driver for lifting people out of poverty. This has been proven in Asia, where nations recording strong economic growth have seen hundreds of millions of people lifted out of poverty. China and South Korea, for example, once aid recipients are now major economies and major aid donors.

This transformation from aid recipient nation to economic partner is the aim of the fast growing economies of South-East Asia.

For example, in 2003 Thailand requested Australia no longer provide aid. Instead we signed a Free Trade Agreement and bilateral trade has doubled to over $18 billion per year – dwarfing any aid program we could possibly have envisaged. These countries want trade not aid.

In 2003, Australian aid to Indonesia was 8% of our aid budget, it grew to 13% of our aid budget as a result of the tsunami in 2004. Under this Budget it will now be normalised back to 9% and since 2004, Indonesia's economy has grown by around 6% per cent per year, GDP has increased by about 70%, Indonesia is the 16th largest economy in the world, is a member of the G20 and is on track to becoming one of the top 10 economies in the world.

These examples demonstrate why we have reduced our foreign aid in some countries, in recognition of their growth trajectory, the percentage that Australian aid makes to their economies and to their total aid.

For example, Australian aid as a percentage of Indonesia's GDP is 0.1% but in the case of Tuvalu it is closer to 25%.

Australia's assistance to growing Asia economies will focus on building economic partnerships and leveraging domestic capacity and resources to strengthen the private sector and improve development outcomes.

Another example is Africa. Evidence shows that our total aid to Africa, before this Budget, made up less than 0.7% of total ODA flows and it is a fact that Europe and the United States have primary responsibility for development outcomes in Africa just as Australia has primary responsibility for development outcomes in the Pacific.

I am also becoming increasingly aware of the significant discrepancy in the way nations report on their aid and assistance to other countries.

For example, Australia has committed $50 million in humanitarian, disaster relief and reconstruction funding to Vanuatu after Cyclone Pam.

Yet, this does not take account of the cost of our military deployment, which our Defence Department have estimated will be in the order of about $28 million. So our total assistance package is significantly larger than the sheer dollar amount through our aid program.

Another example was our response to the Philippines' Typhon Haiyan in 2013, where while Australia committed $40 million in funds, we were not initially ranked as amongst the top donors.

I was puzzled by this but it was when I analysed the rankings, that I discovered that countries that deployed only assistance via their military assets had counted that cost. Australia also deployed a significant amount of military hardware in the form of planes and ships, yet we didn't take it into consideration.

I have thus tasked the Department of Foreign Affairs and Trade to develop a reporting platform that includes all support from Australia, so that the full extent of our work and our assistance is understood.

The United States refers to this comprehensive reporting of its overall assistance for each country as its Green Book.

I believe it is vital in foreign policy terms that Australia receives appropriate credit for our support to other nations and that the true extent of our contribution is understood at home and abroad.

I intend that the Department of Foreign Affairs and Trade produce a Green Book with input from other departments and agencies so that a comprehensive picture of Australia's support can be presented to the world.

We live in interesting and ever changing times. Doing what we have always done in foreign policy will not meet all the new and emerging challenges.

That is why I am seeking to drive institutional change through our diplomatic service and through our international engagement.

Technology is changing the world, and it is important that the Department of Foreign Affairs and Trade embraces this change, and harnesses it, to the greater advantage of our nation and to the promotion of our values and our interests abroad.

We are a nation of innovators and I am seeking to embrace innovation within our foreign policy, beginning with our aid program.

Recently I launched what I call the innovationXchange, a separate entity within the Department housed within separate premises – over the road from DFAT - a bright, breezy, collaborative and creative environment – think Google and Facebook rather than RG Casey.

The innovationXchange has been charged with finding and delivering innovative solutions to some of our region's aid and more intractable development challenges.

The people selected to work in the innovationXchange are creative thinkers with flair and problem solving ability.

Their work is guided by an International Reference Group – comprising Michael Bloomberg – entrepreneur, philanthropist, UN climate change envoy, who served as mayor of New York for 11 years.

Sally Osberg - President and CEO of Skoll Foundation, author, global thought leader.

Chris Vein - former Chief Innovation Officer for Global Technology Development at the World Bank – now on secondment to our innovationXchange.

Bjorn Lomborg - named one of TIME Magazine's 100 most influential people in the world and Director of the Copenhagen Consensus Centre.

Sarah Pearson - CEO of the newly formed CBR Innovation Network and a globally recognised practitioner and advocate of innovation.

Veronica Lukito - Founder and CEO of Berkeley Investment Asia in Jakarta - an investment firm focused on venture capital and renewable energy investment.

Sam Mostyn – our very own President of the Australian Council for International Development.

Ryan Stokes - Chief Executive Officer of Seven Group Holdings, Chairman of the National Library of Australia.

Tara Nathan - Executive Director for International Development at MasterCard in the United States.

Andrew Moutu - Director of Papua New Guinea's National Museum & Art Gallery. He has a doctorate in social anthropology from Cambridge.

Sanjay Reddy - Vice Chairman of GVK, an Indian conglomerate with extensive business interests including GVK Biosciences, one of Asia's largest contract research organisations employing more than 2000 scientists.

Annie Parker - Co-Founder of Muru-D Telstra, which invests in, and nurtures, early stage startups with the objective of growing the digital economy in Australia.

Dr Sam Prince - owner of Zambrero restaurant chain and Founder of OneDisease - a not-for-profit organisation that aims to eliminate significant diseases affecting Australians today.

We had our first meeting of the International Reference Group, they Skype'd and phoned and appeared from all over the world. It was one of the most stimulating sessions I have participated in as we came up with ideas and problems that required solutions, and this combination of private sector, public sector, NGO experience was utterly stimulating.

We need bold and lateral thinkers who challenge, and in turn, are challenged by the problems presented to them.

Importantly, I am encouraging the contest of ideas; within the Department of Foreign Affairs and Trade and I hope this takes off across the public sector where the best are adopted and scaled up, and the weakest are discarded.

The establishment of the innovationXchange recognises the changing nature of international development, with private capital flows and remittances dwarfing traditional aid funding.

One of our first projects - The Seed Pacific initiative - will broker and support the most promising partnerships between global businesses and local organisations to solve development challenges in Pacific island countries.

It will incubate and then scale up business models that have commercial viability and development impact.

I am also taking innovative steps in seeking the tenders for this initiative – turning the usual practice in government tendering on its head.

Instead of excruciatingly detailed guidelines into what government believes must be done - an approach that generally receives less than 10 expressions of interest in any one aid project - we have simply stated the problem, the money available and asked the prospective tenderers to tell us, tell the government, what we should do to achieve the desired outcome. This has resulted in over 60 expressions of interest.

As well as broadening the policymaking process to bring in new participants, we are making it easier for good ideas to flow upwards.

Managing the challenges ahead will require creative thinking and willingness to engage with risk and that is a novel concept within government. We need to encourage those within our Department who have good ideas to come forward.

To this end, I have established an Ideas Challenge within the department – it was an online competition where Department of Foreign Affairs and Trade staff have offered their ideas to improve the effectiveness of our aid program and the Department's performance overall.

This has unleashed a wealth of ideas. We narrowed it down to 400, and in Eurovision style, we opened them up to a vote and 20,000 votes were cast from our diplomats and employees across the globe.

Next Monday in Canberra we will choose the winning ideas for immediate implementation. Some were so good that Secretary Varghese has already implemented changes to the way the Department does business.

Ladies and gentlemen, when I took on the role as Australia's Foreign Minister in September of 2013 I will admit that the words of two important Lowy Institute research papers were ringing in my ears.

The 2009 paper 'Australia's Diplomatic Deficit' found that "Australia has fewer diplomatic missions than all but a few OECD countries, leaving us badly underrepresented, particularly in emerging centres of power of significance to our interests."

This was followed by another in 2011 'Diplomatic Disrepair', which found that "Australia has the smallest diplomatic network of all G20 nations, and only nine of the 34 OECD countries (all far smaller than Australia) have fewer diplomatic missions. Most of them enjoy more stable geopolitical surrounds and/or can rely on the added diplomatic weight derived from membership of a regional bloc such as the European Union."

I took these words on board and requested the Department to undertake a review of our diplomatic footprint, immediately after our election in 2013.

Ten new posts were identified as priorities, although an expansion of this size in one announcement would have posed enormous logistical challenges for us and tested the patience of the Expenditure Review Committee.

While not claiming to have redressed all of the issues identified by the Lowy reports, I was pleased to announce on Budget night the single largest expansion of Australia's diplomatic network in over forty years.

This involved nearly $100 million to open five new overseas missions in consultation with host governments – Qatar, Mongolia, Papua New Guinea, Indonesia, and Thailand.

You may have noticed that four of the five nations have warmly welcomed our proposal for an increased presence, and I will continue to engage constructively with Papua New Guinea to reach mutual agreement on the best way forward.

These proposed additional posts will provide an expanded platform to build on the work of our existing diplomatic network, our consular network and provide us with the opportunity to promote another of our soft power policies encapsulated by the phrase'Economic Diplomacy'.

One of my first acts as Foreign Minister was to ask each of our embassies, high commissions and consulates to develop business plans to be implemented over the short, medium and longer term – with a view to increase the economic ties and the trade and investment opportunities between the host country and Australia.

These business plans were to include achievable goals and benchmarks. This should not have been a remarkable request. However, our Ambassadors, High Commissioners and Consul-Generals had never previously been asked to develop such plans. AusTrade of course is our agency that does this at their mandate but we have such an incredible network of diplomats who meet with businesses, governments, industry and have extraordinary networks that were not being tapped to their fullest potential.

I was delighted by the enthusiastic response to my request, and greatly impressed by the quality of the business plans submitted to DFAT headquarters in Canberra and shared with my office.

These plans encompass a wide variety of issues, including the promotion of trade and investment opportunities to Australian companies and individuals, working to strengthen the private sector in developing countries, promoting Australia as an attractive destination for tourism, education, business and much more.

The plans included about 2000 initiatives that could have been implemented immediately or at least in the short term.

We have of course continued to use traditional methods of diplomacy to achieve outcomes in our national interest. For example, our diplomatic efforts in the United Nations Security Council last July, when we sought international support for a ceasefire in eastern Ukraine, to enable independent investigators and experts access to the crash site of Malaysia Airlines MH17.

In record time, Australia authored a draft resolution circulated the draft negotiated the terms and obtained support so that a unanimous resolution could be passed on 21 July 2014 – within four days of that horrific tragedy. And it demonstrated to me that we have some of the most accomplished diplomats in the world.

At the other end of that soft power diplomacy scale is our Koala Diplomacy initiative.

In recognition of the 50th anniversary of Singapore's independence and 50 years of diplomatic relations between Australia and Singapore we arranged for the loan of four koalas to Singapore Zoo, as a further expression of our friendship.

Qantas generously supported the initiative and transported the koalas from Brisbane's Lone Pine Sanctuary free of charge and will fly loads of fresh eucalyptus leaves weekly during the loan period of up to 10 months.

Their transport and the photo opportunity of them sitting in Qantas First class and their arrival in Singapore generated an extraordinary amount of media coverage.

Predictably, the four furry ambassadors, the stars of the show have captured the hearts and minds of the Singapore public.

The arrival of the koalas in Singapore had almost 200 media outlets cover the story in print and online reaching millions of people in Singapore and around the world.

Channel News Asia ran a 16-minute feature, BBC World News ran a four minute story throughout the day to its global audience and an online story with over 600,000 visits to that webpage.

The Straits Times, Singapore's major newspaper, had a front page colour photo of the koalas and there has been extensive coverage across Europe, Canada and the United States – with the koalas even making the New York Times.

The estimated advertising value from global coverage of the Koalas to date is around $4 million and escalating.

The benefits to our nation will be exponentially greater in terms of increased tourism and through the generation of enormous good will towards our country. Our koalas have come to represent our warmth, our openness, our friendship as a nation.

Any speech that I give on soft power diplomacy must also include a reference to one of our signature foreign policy programs – the New Colombo Plan.

This is an overseas study program to provide Australian undergraduates with the opportunity to live, study and work, undertake internships, work experience and practicums in our region.

Thirty-eight locations have joined the New Colombo Plan and within three years of its establishment – that is by the end of 2016 – nearly 10,000 Australian students will have undertaken this experience to make them more Asia-literate, to better understand our place in the world, and our relationships within our region as well as giving them new perspectives, new insights, new skills, new ideas that will build our productivity and our prosperity.

Over time there will be an alumni of ambassadors with a deeper understanding of our region amongst whom will be the future community, business and political leaders of our country.

The friendships, the networks and connections that they make will endure and hopefully last a life time.

Just as the original Colombo Plan generated generations of goodwill towards our country as young people from our region studied in Australian institutions, so too will the New Colombo Plan be an investment, not only in our young people, but in our region and an investment in Australia's future.

Soft power diplomacy at its best.

As Joseph Nye observed, soft power is about getting others to "buy into our values".

I, of course, believe that a world where our values were universally embraced would be a safer and more peaceful world.

But when engaging with other nations, I do not presume to lecture them about what I believe is right or wrong about their laws, governments, values or societies.

I can however offer them the benefit of our experience – of our successful society that has welcomed people from every corner of the world to create arguably the most diverse and multicultural nation on earth.

We are a society that thrives on opportunity and reward for effort, with few barriers to those willing to work hard and achieve a higher standard of living.

Australia is without doubt one of the world's significant nations, and therein lies our diplomatic strength that I have sought to use to further our national interest, to influence others and to build prosperity and peace in our region and abroad.