Regional Outlook: Southeast Asia 1994-95 9789814414067

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REGIONAL OUTLOOK Southeast Asia 1994-95

I5ER5

Institute of Southeast Asian Studies

The Institute of Southeast Asian Studies was established as an autonomous organization in 1968. It is a regional research centre for scholars and other specialists concerned with modern Southeast Asia, particularly the many-faceted problems of stability and security, economic development, and political and social change. The Institute is governed by a twenty-two-member Board of Trustees comprising nominees from the Singapore Government, the National University of Singapore, the various Chambers of Commerce, and professional and civic organizations. A ten-man Executive Committee oversees day-to-day operations; it is chaired by the Director, the Institute's chief academic and administrative officer.

REGIONAL OUTLOOK Southeast Asia 1994-95 Chairperson Professor Chan Heng Chee Co-ordinating Committee Sree Kumar Sharon Siddique Daljit Singh Tin Maung Maung Than Linda Low Toh Mun Heng Mya Than Tan Kim Keow

Southeast· Asia

1994-95

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' INSTITUTE OF·SO·UTHEAST ASIAN STUDIES

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Published by Institute of Southeast Asian Studies Heng Mui Keng Terrace Pasir Panjang Singapore 0511 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior consent of the Institute of Southeast Asian Studies.

© 1994 Institute of Southeast Asian Studies, Singapore The responsibility for facts and opinions expressed in this publication rests exclusively with the contributors and their interpretations do not necessarily reflect the views or the policy of the Institute or its supporters.

Cataloguing in Publication Data Regional outlook : Southeast Asia . 1992-931. Asia, Southeastern. DS50 1 S720 1992

sls91-209988

ISSN 0218-3056 ISBN 981-3016-73-6

Typeset by International Typesetters Printed in Singapore by Prime Packaging Industries Pte. Ltd.

CONTENTS Foreword Chan Heng Chee

POLITICAL OUTLOOK

Vll

1

Southeast Asia 1994- 95 Daljit Singh

II

POLITICAL OUTLOOK

21

Indochina 1994-95 Daljit Singh

III

POLITICAL OUTLOOK

29

~yanrnar

1994-95 Tin Maung Maung Than

IV

ECONOMIC OUTLOOK

35

ASEAN 1994-95 Linda Low and Toh Mun Heng

V

ECONOMIC OUTLOOK

55

Indochina 1994-95 Mya Than

VI

ECONOMIC OUTLOOK ~yanrnar

65

1994-95

Mya Than

Appendices

71

The Contributors

87

CONTENTS Foreword Chan Heng Chee

Vll

I

POLITICAL OUTLOOK Southeast Asia 1994-95 Daljit Singh

1

II

POLITICAL OUTLOOK Indochina 1994-95 Daljit Singh

21

III

POLITICAL OUTLOOK ~yanrnar 1994-95 Tin Maung Maung Than

29

IV ECONOMIC OUTLOOK

35

ASEAN 1994-95 Linda Low and Toh Mun Heng

V

VI

ECONOMIC OUTLOOK Indochina 1994-95 Mya Than

55

ECONOMIC OUTLOOK . ~yanrnar 1994-95 Mya Than

65

Appendices

71

The Contributors

87

FOREWORD

[T]

he vibrance and optimism in Southeast Asia during 1993 was palpable. In the wake of the end of the Cold War, the region built upon the development that was already on track . Even so , the pace has been surprising. Not only did the ASEAN economies perform w ell generally, Vietnam surged ahead in economic development, and Myanmar registered strong signs of economic growth. Politically, the region enjoys dynamic stability even though the South China Sea continues to pose a potential conflict area, and a North Korean nuclear capability will be destabilizing. The political transition in Cambodia proved to be a greater success than anticipated. The major concern remains the question of an emerging power balance in the larger Asia-Pacific region, espeCially with the new economic weight of China. What will the next year look like? Regional Outlook was first published in 1992, to meet the needs of the general reader, the busy executive and decision-maker, who seek to follow and understand the fast-changing regional scene. It aims to be succinct yet substantial, general yet nuanced in its analysis. Above all, it strives to be readable. We hope you will find this volume useful and, if you care to, tell others about it.

Professor Chan Heng Chee Director Institute of Southeast Asian Studies December 1993

SOUTHEAST ASIA 1994-95

Daljit Singh

POLITICAL OUTLOOK Overview

2

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he prospects for peace and stability in the overall East Asian/ Western Pacific region for 1994-95 remain largely positive. A credible U.S. military presence will remain, Japan will still be anchored in the security alliance with the United States, and Russia preoccupied with domestic problems. China is likely to experience more domestic stresses but there will be no reversal of the policies of economic reform. North Korea remains the biggest uncertainty. In a much changed world, will change in North Korea , which is inevitable, be managed peacefully? And will North Korea be nuclear-armed? While in the short term the strategic landscape will thus remain largely unchanged, with many familiar sign posts still in place, over the longer term a new balance of power will be shaping. It is clear that China wants to be a powerful military player and would want to acquire the necessary power projection capabilities. Japan sees this coming. Despite the reassurance provided by the Clinton Administration's new five-year defence plan, doubts remain as to whether the United States will retain credible military power or the will to carry the burdens of international security by the turn of this decade. If the economic sums do not work out as planned by a president elected to solve the country's domestic problems, the defence budget can easily become politically the least unpalatable target for more cuts. The anxieties of many countries in the AsiaPacific region over such longer-term concerns were reflected in the establishment in 1993 of the ASEAN Regional Forum (ARF), an AsiaPacific-wide forum for security discussions. Its purpose is to foster better understandings and confidence. Yet such anxieties should not be unduly exaggerated for there are also positive longer-term trends. First, there is the economic dynamism and growing interdependence of the Asia-Pacific region. Secondly, the very establishment of the ARF in such a short time indicates that there is a will among the various countries to build a climate of confidence. Thirdly, there are indications that America sees its economic destiny increasingly linked to Asia. Within Southeast Asia the two main problem areas noted last year the territorial disputes in the South China Sea and Cambodia - seem less menacing. The former will drag on but the chances of conflict breaking out in the near future seem small. The latter saw the successful holding of elections (without Khmer Rouge participation) under U.N. auspices and the formation of a coalition government by Prince Ranariddh' s FUNCINPEC and Hun Sen's Cambodian People's Party. The future will depend on the ability of these two parties to work together and on the level of international support.

- SOUTHEAST ASIA 1994 95 The domestic situations in ASEAN countries in 1994-95 can be expected to remain mostly stable. Nor is any political upheaval expected in Vietnam and Laos. In Myanmar a new political structure, in which the role of the military is institutionalized, is likely to be established. In the context of present configurations it is unlikely that in 1994-95 there will be political or security developments elsewhere that will have a significant impact on peace and stability in Southeast Asia.

.S. foreign policy as whole was rather ragged during much of The Major Powers the first year of the Clinton presidency. This was not entirely United States [] unexpected, considering the inexperience of the new president. Not only were policy goals often not consistent or clear but the implementation of policies was also not always effective. The mood in the United States seemed to be turning more inward, in view of the seemingly intractable domestic economic and social problems and the absence of any direct military threat to U.S. security. There was the danger that a muddled foreign policy and the perception of failure, as for instance in Somalia, could strengthen this trend unless the President provided the necessary leadership and a more persuasive rationale, in terms of American national interests, for engagement in selected parts of the world. Clinton seemed to be doing this towards the end of 1993 in respect of policy towards East Asia. There was more focus on East Asia as 1993 progressed as the Administration seemed to realize that this high-growth region may hold the key to American economic revival because of its potential for American exports. Hence the President's decision to have an informal summit with partners of the Asia-Pacific Economic Co-operation (APE C) in Seattle in November 1993 and the interest in promoting trade liberalization among APEC countries. U.S. relations with China and Japan , the two key East Asian states, came under more strain in 1993. The important U.S.-China relationship could here was more focus on East Asia as still get more difficult over human rights, trade, and 1993 progressed and as the nuclear proliferation issues, even though towards Administration seemed to realize that this the end of 1993 the U.S. Administration, sensing a high-growth region may hold the key to crisis in relations, seemed to change policy to one of American economic revival because of its engagement, reflected for instance, in the resumppotential for American exports. tion of high-level military contacts and the ClintonJiang Zemin summit in Seattle.

T

3

POliTICAL OUTLOOK The even more important U.S.-Japan relationship also came under pressure as the Clinton Administration attempted to set quantitative trade targets for different sectors, an approach rejected by Japan. Even if the new government in Tokyo is committed to both political and economic reforms in the broad direction favoured by the United States, it will be unable to produce quick results, given the fact that it is a relatively weak coalition government that will not have the strength to override Japan's powerful bureaucrats. It is unlikely that the critical U.S.-Japan security relationship will be affected by trade disputes during the 1994-95 period. However, if acrimonious trade disputes persist over the longer term, as theywell may, it may be difficult to insulate the defence alliance from the fallout. Partly because of the openness of its political system, the ability of the United States to conduct complex policies combining a combative trade f acrimonious trade disputes policy with a close security relationship must be persist over the longer term , as suspect. they well may, it may be difficult to The Defence Department conducted a review insulate the U.S.-Japan defence of U.S. strategy and force levels for the post-Cold alliance from the fallout. War era and announced the new five-year plan on 1 September 1993. According to the plan, in 1999 there will still be twelve aircraft carriers in the navy, a marine corps whose strength would not be different from that in 1990, and still 98,000 U.S. troops in the Western Pacific, mostly in Japan, Korea, and afloat in the Western Pacific. The plan assumes a continuing military confrontation on the Korean peninsula for the next five years. If normalcy returns to Korea, U.S. force configurations for Asia could be rather different. The new plan is reassuring in providing for a credible U.S. military presence in Asia up to the end of this decade, provided there are no revisions over the next few years if the domestic economic sums do not work out as expected. For ultimately America's ability to deal with its economic problems will decide its role in the world.

I

Japan

4

o significant changes in Japan 's security and political policies in East Asia are expected in 1994-95. Japan will remain anchored .___ __, in the security alliance with the United States while it gropes and inches forward towards a larger regional political role, in addition to its global aspirations, for example, permanent membership on the Security Council.

SOUTHEAST ASIA 1994-95 Japan 's political influence in Southeast Asia will grow but it is likely to be a gradual process. Japan still has to win trust by showing that the Japanese people are willing to honestly face up to the unpleasant facts of their conquests and occupation of other Asian countries during the Pacific War. Japan 's self-centredness and cultural aloofness is also an impediment to a larger political role in Asia . Notwithstanding the despatch of peace-keeping troops to Cambodia under the United Nations, domestic opposition to a security role in Asia beyond 1,000 kilometres from Japan 's shores or to becoming an independent military power remains strong. This is likely to continue for much of this decade provided Japan retains confidence in the willingness and ability of the United States to defend it. However, the longer-term trend would be towards Japan becoming a more "normal" power with a more independent and self-reliant military capability. A number of factors are likely to propel Japan in this direction: a new generation of Japanese leaders with different attitudes to the United States and to Japan's place in the world; strategic developments in Japan's neighbourhood, in particular China 's evident desire to become a military superpower and the possibility of a nuclear-armed Korea; and the relative decline in U.S. power. Japan would want to keep the security alliance with the United States for as long as possible while at the same he election of a non-LDP coalition time slowly preparing for the day when government in Japan in 1993 and the first circumstances require it to be an indenon-LOP prime minister since 1955 gives the pendent military power. The nuclear hope that Japan will undergo the political and option is not ruled out, as indicated, for economic reforms that will make it a much a instance, by Japan's hesitation on the more comfortable trading and political partner issue of an indefinite extension of the for the United States and other countries. But Nuclear Non-Proliferation Treaty when these changes will take place only gradually. it expires in 1995 on the grounds that it

T

would tie the hands of future Japanese governments if they face new security threats. The election of a non-LDP (Liberal Democrat Party) coalition government in Japan in 1993 and the first non-LDP prime minister since 1955 gives the hope that Japan will undergo the political and economic reforms that will make it a much more comfortable trading and political partner for the United States and other countries. But these changes will take place only gradually. Meanwhile, the bureaucrats will remain in control and the familiar problems with the rest of the world are likely to continue.

5

POLITICAl OUTLOOK China

s paramount leader Deng Xiaoping's health fails, China seems close to the post-Deng era. There will be internal stresses and tests. There may be political tension but no major upheaval is likely. And no reversal of the policy of economic reform will take place. First, the question of leadership after Deng. Jiang Zemin, the SecretaryGeneral of the Communist Party, is the designated leader. Many in the West have regarded him as a lightweight who will not last after Deng. This may be underestimating the man, for Jiang has been quite canny in appointing his men to key positions. Potential contenders may see it in their interest to seek a consensus in the short term. There may well be an understanding between the main actors on their respective roles, especially since they all attach so much importance to preserving stability. So Deng' s passing from the scene will not immediately or necessarily result in a destabilizing power struggle. The person to watch may be Qiao Shi, who is presently number three in the hierarchy, and who used to control the internal security apparatus. He has an extensive pO\Mer base and few enemies and will play a pivotal role in holding any leadership group together. If Jiang's performance is deemed after some time to be unsatisfactory, the ascendance of Qiao cannot be discounted. Secondly, China has to cope hina seems close to the postwith the problems brought about by Deng era. There will be economic liberalization and rapid internal stresses and tests but no growth. Growth in 1993 will be major upheaval is likely. And no around 13 per cent though it is exreversal of the policy of economic pected to decline in 1994. Although reform will take place . ... Deng 's China has decided to live with this passing from the scene will not pace of growth for the time being, undesirable social effects became necessarily result in a destabilizing more evident in 1993. Apart from power struggle. inflation, there is widespread corruption and glaring inequalities in incomes and wealth within and between regions. There is also peasant discontent, which, aggravated by the behaviour of rapacious party and government officials at the local level, has sometimes broken out into disturbances. The atmosphere of getting rich is permeating the whole social system as rampant capitalism brings revolutionary changes to the economic and social fabric of society. Millions of peasants have been moving from the countryside in search of higher incomes in factories in the coastal regions.

C

6

SOUTHEAST ASIA 1994-95 Such historic transformations carry inherent risks of instability and disruptions. China's leaders are conscious of the need to manage change and preserve stability. However, economic reforms and rapid growth have weakened the control of the Communist Party and the central government in Beijing over the regions. This will be a serious challenge to the post-Deng leadership, which will not have Deng's stature and authority. No major change is expected in 1994-95 in the broad thrust of China's foreign policy, proo major change is expected in 1994-95 vided that the United States does not remove in the broad thrust of China's foreign China's Most-Favoured Nation (MFN) status in policy, provided that the United States does bilateral trade. The chances are that the MFN not remove China's Most-Favoured Nation will continue to be extended annually through status in bilateral trade. The chances are the adoption of more flexible approaches by that the MFN will continue to be extended both sides in order to avoid serious damage to annually through the adoption of more relations. Any termination of the MFN status flexible approaches by both sides. could usher in a new ball game in international relations in East Asia. China makes no secret of its desire to be a major military power with a significant power projection capability, for instance the possession of aircraft carriers. It will still take a long time for it to develop and deploy such a capability for long-distance operations. However, with the acquisition of advanced aircraft and other military technology from Russia, China will be able to increase its military edge in the South China Sea over Southeast Asian countries much sooner. No change in China's posture towards Southeast Asia is expected during 1994-95. There has been some softening of the tone and atmospherics of its position on the Spratlys even though there has been no change in substance. Likewise, the posture towards Vietnam is less truculent. These changes can be attributed to China's realization that the previous tough talking was causing consternation among other countries, especially ASEAN countries.

N

rn

he possibility that the impasse with Britain over the issue of political reform in Hong Kong will not be resolved, has grown much greater recently. If no solution is found and the British go ahead to unilaterally implement the reforms, China will remove the elected structures when it takes over in 1997. An act which is so predictable in advance is unlikely to cause instability or loss of business confidence when it comes to pass.

China and Hong Kong

7

POLITICAL OUTLOOK With continuation of econom1c reform in China more or less assured, Hong Kong's future should be bright provided it does not give China cause to believe that it is a threat to the political stability of China.

ASEAN Countries Brunei Darussalam

olitical stability for 1994-95 seems assured in this oil-rich absolute monarchy. The Sultan rules with a firm hand and there is no discernible discontent of any significance. The sultanate is open to ideas of political change- through foreign broadcasts, especially radio and television of neighbouring countries, and through overseas studies and foreign travel, which many Bruneians undertake. For instance, in 1992 and 1993, Malaysian TV, which is watched in Brunei, was giving considerable coverage to the faults of rulers in Malaysia in the context of the controversy over their legal immunity. However, the small population size (270,000 people), the absence of economic discontent, and good relations with neighbours, together with active promotion of the national ideology, Melayu Islam Beraja (MIB, or Malay Muslim Monarchy), will probably prevent any significant erosion of support for the existing system for at least the shortterm future.

Brunei Darussalam

8

Land Area:

5,765 sq km

Population:

270,000

Capital:

Bandar Seri Begawan

Type of Government:

Sultanate

Head of State:

His Majesty Sultan Hassanal Bolkiah

Prime Minister:

His Majesty Sultan Hassanal Bolkiah

Currency Used:

Brunei dollar

US$ Exchange Rate on 30 November 1993:

US$1

= B$1.59

SOUTHEAST ASIA 1994 95

rn

wo factors will decide stability in Indonesia in the next few years: the ability of President Soeharto to exercise firm control over the political system and the balance between the military and civilian power elites. At present Soeharto appears to be well in charge and has lost none of his skills to keep groups he regards as antagonistic off balance. The President's strategy since he lost confidence in Benny Murdani, the former Defence Minister, some years ago has been to broaden his base of support beyond the military, especially among the Muslims, and place loyalists in key positions in the military. This is said to have created divisions in the armed forces and made at least some sections of them feel that their position in the Indonesian political system is being challenged by a Muslim-civilian-nationalist combination. Soeharto took measures in 1993 to strengthen his control further: •

Indonesia

Benny Murdani, and most of Benny's military supporters in the old cabinet, were not reappointed to the new cabinet announced in March 1993. Nevertheless Benny Murdani is still a factor in this military-civilian power play, because of his extensive support in the military in the past, especially when he was Armed Forces Commander-in-Chief.

Indonesia

Land Area:

1,919,443 sq km

Population:

181.3 million (1991 estimate)

Capital:

Jakarta

Type of Government:

Presidential government based on Pancasila Democracy

Head of State:

President Soeharto

Next Election:

1998 (presidential)

Currency Used:

rupiah

US$ Exchange Rate on 30 November 1993:

US$1 = 2,101 rupiah

9

POLITICAL OUTLOOK •

•

•

A military reshuffle saw the appointment of officers considered loyal to the President to certain key military positions. Soeharto's brother-in-law Wismoyo was made Army Chief of Staff, which paves the way for him to become the next Armed Forces Commander within two or three years. The cabinet changes saw the rise in the power and influence of Research and Science Minister B.J. Habibie, a confidante of Soeharto, who has a number of his men in the new cabinet. Also, for the first time a civilian and another Soeharto loyalist, Information Minister Harmoko, has been made chairman of Golkar. In the past the post was held by an active or retired military officer. The military's representation on Golkar' s Central Executive Board has been drastically reduced and Habibie, who is chairman of Golkar Advisory Board, is said to have had a strong influence in the selection of members to the central executive. The military, however, continues to dominate the regional Golkar machinery. Soeharto has continued to try to strengthen his mass support base. The cultivation of the Muslim ground has continued. There is a striking reduction in the number of Christians in the new cabinet - in response to feelings on the ground over the past few years that Christians were over-represented in high office in government. The President 's highly publicized meetings, symbolizing reconciliation, with two prominent members of the dissident Petition 50 Group- General A.H. Nasution and Ali Sadikincan only have gone down well with the ground.

The issue of succession to the President is not entirely unrelated to Soeharto's moves to strengthen his control, in the sense that he probably wants to ensure that, before 1998, persons loyal to him are in charge of key institutions such as the armed forces and Golkar, which also provide sizeable members to the People 's Consultative Council, the body that elects the president and vice-president. uring 1994-95 the succession However, during 1994-95 the succession issue will probably remain more in the background, coming up strongly to the issue will probably remain forefront once again only after 1995. more in the background, coming When Soeharto was elected in March 1993 to a sixth term up strongly to the forefront once of office, General Try Sutrisno, the former Armed Forces again only after 1995. Commander-in-Chief and an aide to the President in the 1970s, was elected Vice-President , though the President was said to have been annoyed by the manner in which the military had tried to force his hand by publicly nominating Try as their candidate for the post.

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SOUTHEAST ASIA 1994-95 Try's election as vice-president does not necessarily mean that he is Soeharto's choice as his successor. At best he is only the front runner. If the president is incapacitated or for some reason unable to carry out his duties before his five-year term is over, the Indonesian Constitution requires the vice-president to act in his place until the People's Consultative Council can meet to elect a new president. It is not known whom Soeharto will in the end choose as his successor. As of now, Habibie also appears to be a strong contender for the succession. During 1993 there was some shift in emphasis in economic thinking. The previous single dominant strand of thinking, namely, that of the technocrats, emphasizing deregulation and liberal free market policy, now coexists with a more nationalistic type of economic philosophy associated with Habibie, which favours more state intervention and greater emphasis on high-technology projects. The latter thinking seems to have been gaining increasing acceptance within Indonesia. Major lending agencies such as the World Bank have been critical of this approach, but not unduly. The aid consortium, the Consultative Group for Indonesia, in fact pledged a record US$5.11 billion of aid in 1993. In conclusion, Soeharto's manceuvres on the domestic political scene may continue as he prepares for the succession on his terms. However, he seems to be in control of the situation. Political stability in 1994-95 and thereafter, as the succession issue looms large again, will continue to depend upon the President's ability to maintain effective control. Stability will be threatened if his authority and control weaken because of illness or some other factor.

rn

he main political event during 1993 was the rise of Finance Minister Anwar Ibrahim as Deputy President of the United Malays National Organization (UMNO) and then Deputy Prime Minister. Thus the question of who will succeed Dr Mahathir as Prime Minister was settled. The manner in which the deputy presidency was wrested from Ghaffar Baba, even before the UMNO election, constituted an impressive display of political skills and organization by Anwar, which raised many eyebrows. In the pre-election contest for divisional nominations for the deputy presidency, with one nomination carrying ten bonus votes in the election, Anwar's well-oiled political machine, including a network of Malay youth and business organizations, swiftly undermined support for Ghaffar, a party veteran of forty years. It built up an unstoppable momentum of nominations for Anwar, 145 out of 153 divisions by

Malaysia

11

POliTICAl OUTlOOK

Malaysia

Land Area:

330,434 sq km

Population:

18.2 million (1991 estimate)

Capital:

.Kuala ~.umpur

TYPe of Government:

-'

Federated parlian'rentary democracy on Westminister model, with ,,tonstitutional mqnarchy

Next Election:

October 1995

Bead of State:

His Majesty the Yang di-Pertuan Agong Sultan Azlan Shah.

Prime Minister:

Dato' Seri Dr Mahathir bin Mohamad

Currency Used:

ringgit

US$ Exchange Rate on 30 November 1993:

l]S$1 =.2.56 ringgit

,J

mid-October. Most of the state chief ministers, cabinet ministers, and UMNO Members of Parliament (MPs) had also come out in support of Anwar. Soon afterwards Ghaffar withdrew from the contest to avoid a humiliating defeat. Anwar's position in the party and the government will now be much stronger. Not only will he be next in line to succeed Mahathir, he will also have his own "Vision Team" in place in key party positions. Anwar supporters, Defence Minister Najib Razak, Selangor Chief Minister Muhammad Taib, and Johor Chief Minister Muhyiddin Yassin swept to victory in the race for the three UMNO vice-president slots, while another supporter, Malacca Chief Minister Rahim Thambi Chik , was elected UMNO Youth Chief. Political stability is unlikely to be affected in 1994-95. It will be assured for the longer term if the transition from Mahathir to Anwar, whenever it takes place, is smooth and provided that Anwar continues with a moderate and pragmatic approach to governance in a multi-racial society when he takes over. Mahathir will probably like to remain as Prime Minister for as long as his health permits, but the question is how

12

SOUTHEAST ASIA 1994-95 long Anwar and his supporters will be prepared to wait. This will be a factor now in Mahathir's calculations. With the ascendancy of Anwar, UMNO politics may unhe people coming up with dergo an important change. The people coming up with Anwar Anwar will be relatively will be relatively youthful, in their forties and late thirties, and youthful ... and more economicmore economic- and task-oriented. Being more urban , usually and task-oriented. . they will from the professions and the corporate sector, they will consticonstitute a significant tute a significant departure from the traditional UMNO base in departure from the traditional rural areas, represented by teachers, country doctors, and small UMNO base in rural areas ... businessmen. They will be less sympathetic to Malay royalty than the more traditional Malay politicians though they recognize the need for its continued existence for some time. It is left to be seen whether the Islamic dimension will become more important when Anwar and his group take over. No other development with major implications for stability is expected in 1994-95. In Kelantan, Parti Islam SeMalaysia (PAS) has gone through the motions of getting the approval of the State Assembly to implement hudud (Islamic criminal) laws, to demonstrate that it is fulfilling its election pledge and to show up UMNO as not being genuinely committed to Islam. The two-thirds majority required in the Federal Parliament for the necessary amendment to the Federal Constitution before hudud laws can be implemented is unlikely to be obtained. The stand-off between centre and state will continue. Whether the situation will change after Anwar and his team take over in Kuala Lumpur, given the fact that some of Anwar's supporters have links with moderate elements in PAS, is too early to say. In Sabah too the status quo is likely to continue, though pressures applied by the centre could increase internal strains in Parti Bersatu Sabah (PBS).

T

rn

he faster economic growth everyone has been waiting for to make a dent on unemployment and poverty has not been coming. 1992 was the second year of stagnation, with growth in gross national product (GNP) barely reaching 1 per cent. Since the population increases by about 2.5 per cent a year, per capita income declined for the second year running. Moderate growth of 4 to 5 per cent was expected to begin in 1993, but, alas, the impediments proved to be too great. The official forecast was revised from 4.5 to 3.5 per cent, and a government minister said in July that it was likely to be only 2.5 per cent. In reality it is likely to be little more than 1 per cent. Growth in 1994 is likely to be just above the population growth rate.

Philippines

13

POLITICAL OUTLOOK

Philippines Land Area:

300,ooo s.q km

·Population:

62.9 million 11991 estimate)

Capital:

Manila.

Type .of Government:

Rep1.1blic, with President and a. Congress, as inthe United States

Head of State:

President Fidel Ramos

Next Election:

May 1998jpresidential and congressional)

Currency Used:

peso

US$ Exchange Rate on 30 November 1993:

US$1

=28.05 pesos

An important factor behind these disappointing growth prospects is the crippling energy shortage, which proved to be worse than expected. Energy Secretary Delfin Lazaro has said that the energy shortages cannot be ended before 1996, although there will be progressive improvements before then. But there are also other obstacles to growth which may not be easily or quickly overcome. The law and order situation remains a disincentive to investors, notwithstanding the efforts of Ramos to rid the police force of corruption. The economy remains stifled by monopolies and bureaucratic controls. President Ramos is trying to change this but it will take time, persistence, and courage on his part. And the Philippine Constitution, with its division of powers and complex checks and balances, is difficult to work. It is not conducive to the taking of quick and decisive action to remedy the country's many ills. Even though Ramos now has a stronger influence in the legislature, Congress can and still does block, water down, or delay necessary measures which he considers vital. However, the continuing economic problems are not likely to affect political stability during 1994-95. Ramos has been rather successful in cultivating political support. He now has majority support in the Lower Chamber of Congress, the House of Representatives, principally through defections from other parties to his Lakas-NUDC. The Rainbow Coalition in the House of Representatives, which implicitly supports the

14

SOUTHEAST ASIA 1994-95 Administration, comprises more than three-quarters of the Representatives. The situation in the Senate is somewhat different. Although after the last election in 1992 Ramos' party had only two out of twenty-four senators, the President has since strengthened his position in the Senate by investing time in personal contacts. However, senators, unlike Representatives, are elected on a nation-wide basis and see themselves as national figures. Party allegiances are not important to them. Ramos has to persuade and cajole to win their support for specific measures and it is not always forthcoming. While the patronage opportunities offered by a presidency which still has five more years is an important factor in the President's stronger position in Congress, his popularity with the general public must also be helpful. Strange though it may seem, even as living standards were declining because of the recession and power blackouts were becoming longer, Ramos' approval rating among the public, at 55 per cent during his first one hundred days, increased to 65 per cent a year later. He has tended hile the communist insurgency can carefully to the ground, not missing an opportube expected to pose a declining nity to go to the countryside and speak to the people. Thus, though the misery index of the security threat, It is unlikely to disappear people has gone up, Ramos has been able to completely so long as widespread increase their optimism and expectations for the poverty and glaring conomlc inJustice future. In other words, they believe in his sincerity remains. and ability to improve things. He has thereby bought more time for himself to produce results, though how much more is not clear. No significant security threat to the Administration is expected in 1994-95. The threat from the communist New People's Army (NPA) has declined. The government's moves to legalize the communist party, the invitation to peace talks, and the offer of unconditional amnesty have aggravated the internal crisis in the NPA. Combined with splits in the movement, the policy has weakened the resolve to persist with the armed struggle and surrenders of NPA fighters have increased. While the communist insurgency can be expected to pose a declining security threat, it is unlikely to disappear completely so long as widespread poverty and glaring economic injustice remains. In October 1993 representatives of the government and the main group in the Muslim secessionist rebellion in South Mindanao met in Jakarta with a view to ending the armed conflict. Although a cease-fire arrangement was firmed up and agreement reached to resolve the problem of Muslim autonomy, it is uncertain whether a lasting solution can be achieved to this complex conflict that has deep historical roots.

15

POLITICAl OUTlOOK Singapore

s has been the case for many years, there is no threat for the foreseeable future to the rule of the People 's Action Party (PAP). Nor is there any other significant threat to the political stability of Singapore. 1993 saw increasing disarray in the leading opposition party, the Social Democratic Party (SDP), which occupies three out of the four opposition seats in the eighty-one-seat Parliament, excluding the six nominated Members of Parliament (MPs). The opposition, which had got its act together by forging an electoral understanding for the 1991 general election , could not do so a little over a year later for the by-election to the Marine Parade Group Representation Constituency in December 1992. In 1993, Chiam See Tong, leader of the SDP, was removed as SecretaryGeneral by the Party's Central Executive Committee over differences in policies - an act preceded and followed by the sorry spectacle of public recrimination between the two sides. All this seemed a far cry from the situation less than two years earlier when, during the aftermath of the general election in August 1991, the opposition seemed, to some analysts, to be on the threshold of becoming a more significant force in Singapore's Parliament. An important development was Singapore's first presidential election on 2R August 1993. Ong Teng Cheong, former Second Deputy Prime

Singapore

16

Land Area:

633 sq km

Population:

3.0 million (1990)

Capital:

Singapore

Type of Government:

Parliamentary democracy

Head of State:

President Ong Teng Cheong

Prime Minister:

Goh Chok Tong

Next Election:

By August 1996

Currency Used:

Singapore dollar

US$ Exchange Rate on 30 November 1993:

US$1

= S$1.60

SOUTHEAST ASIA 1994- 95 Minister, won this election with 58.7 per cent of the votes cast. This was below the 61 per cent polled by the PAP in the general election of 1991. Was this an indicator of a trend of declining support for the PAP? The answer was not clear. The fact that the election was not a contest for power with the political opposition but a choice between two wellqualified establishment figures would suggest that it was not an indicator of electoral support for the PAP. On the other hand, for Ong Teng Cheong, a deputy premier until just before the election, to have obtained less than the national average the party polled at the last general election despite having at his disposal the grassroots machinery of both the National Trades Union Congress (NTUC) and the PAP to mobilize voter support, could be indicative of more voter dissatisfaction. Unlike previous unelected presidents, President Ong will have veto powers over budgetary matters, appointments to important public offices, and the manner in which the country's foreign reserves are used. However, in the present context of PAP rule there is likely to be little need for him to use his veto powers. No one has been appointed to take over from Ong Teng Cheong as Second Deputy Prime Minister when he resigned the post to contest the presidential election, leaving Brigadier-General (BG) Lee as the only deputy and successor to Goh Chok Tong. BG Lee responded very well to chemotherapy treatment for his cancer. However, remission does not mean complete cure, although there is at least 80 per cent probability that there will be no relapse over the critical next two to three years, after which the return of the disease is extremely unlikely. Goh Chok Tong had stated publicly, before BG Lee's illness was known, that he would be Prime Minister into the next century, probably meaning two full terms, that is, up to the year 2000 or 2001 . This may still be the plan. At the minimum, Chok Tong can be expected to remain in charge through the next general election, which must be held before August 1996, into some time during his next term. There is no significant discontent along political, social, or ethnic lines which could cause instability. With a healthy economic growth rate, with wages rising faster than the cost of living, and with generally good governance by the PAP, Singaporeans have no major grievances. However, the last general election had shown that the issue of cost of living had been successfully exploited by the opposition parties at the expense of the PAP. The government has been dealing with the problem through a mixture of public education and the slowing down of the reduction in subsidies in certain areas. The PAP has argued that it is not that the cost of living has risen excessively (it has in fact remained well below wage rises) ; rather it is the aspirations of Singaporeans which have risen. For

17

POLITICAl OUTlOOK instance, many more Singaporeans want to own private property and motor cars which, in Singapore, are expensive. Meanwhile communal self-help organizations such as Mendaki for the Malays, the Singapore Indian Development Association (SINDA) for the Indians, and the Chinese Development Assistance Council (CDAC) for the Chinese have been active in addressing the problems of the disadvantaged - in line with the government's thinking that such problems are most effectively dealt with by those of one's own kind.

Thailand

18

[T]

he Chuan Leekpai coalition government has survived a year in office, contrary to the forecasts of some observers when it first took office. But the government has been characterized by a lack of effective policies and sense of direction and a preoccupation with survival. This situation is expected to continue for the next one to two years. The opposition is not united enough yet to unseat the government, and the military is not in a position to reassert itself in politics. Business confidence is unlikely to be affected as weak and squabbling Thai governments have been more a norm than an exception in recent Thai history. The leaders of the two major parties allied with the Democrats in the coalition, the New Aspiration Party (NAP) and the Palang Dharma, have exercised self-restraint. To upset the coalition at this time would not go down well with the public and may also result in political parties associated with the last military take-over to form a government. General Chavalit of the NAP is a patient man and will wait until the time is ripe. Chamlong is still trying to live down the ill-repute he acquired during the political violence last year. And no one wants the military to return. Both Chavalit and Chamlong are building grassroots support for the day when they will bid for power. However, Chuan's room for manceuvre has been somewhat restricted by the need to expel the Social Action Party (SAP) from the coalition in September 1993 because it had joined an opposition alliance. The bringing into the coalition of the small Seritham Party with only eight seats in Parliament does not compensate for the loss of SAP's twenty-two seats. So instead of a majority of forty seats in Parliament the coaltion now has a majority of only twenty-six. Chuan seems determined to show that a democratically elected government has durability. He seems to want to complete the full fouryear term of the government before going for another general election. Whether he will be able to do so is left to be seen. Even if Chuan calls an

SOUTHEAST ASIA 1994-95

Thailand Land Area:

514,000 sq km

Population:

57.2 million (1991 estimate)

Capital:

Bangkok

Type of Government:

Constitutional monarchy

Head of State:

King Bhumibol Adulyadej

Prime Minister:

Chuan Leekpai

Next Election:

By September 1996

Currency Used:

baht

US$ Exchange Rate on 30 November 1993:

US$1

= 25.40 baht

early election the resulting government is likely to be a weak coalition once again. The annual military reshuffle in October 1993 saw the elimination of Class 5 as a power group. Those still in important positions in the armed forces were shunted to inactive positions, except General Vimol, the present Army Commander, who had not been involved with the junta responsible for the coup and the bloodshed in 1991 and 1992, respectively.

19

INDOCHINA

1994-95 Daljit Singh

POLITICAL OUTLOOK Vietnam

rn

he best news for Vietnam during 1993 was the withdrawal of the U.S. veto on multilateral lending. Although the embargo on bilateral U.S.-Vietnam economic relations was renewed, U.S. firms are now allowed to take part in projects funded by multilateral aid. Vietnam can at last look forward to assistance to build its infrastructure. A meeting of donor countries in November resulted in pledges of US$1.86 billion, more than what was expected. The World Bank gave a glowing report of the economic reforms implemented so far and the way Vietnam's economy has performed since the cut-off of Soviet assistance. As the influx of foreigners increases with the start of lending by multilateral agencies, there is heightened concern over the negative social consequences of reform and liberalization. There is frustration at the top levels of the party over its inability to improve law enforcement and stem evils such as corruption and smuggling, which are undermining reform. These matters, together with the related issue of declining party membership and morale, are expected to feature prominently in the first ever midterm party conference now rescheduled for January 1994. The conference is likely to see leadership changes, though these will probably not be major. Some Central Committee members may be purged and there may be a few additions to the politburo.

Vietnam

22

Land Area:

330,300 sq km

Population:

72.3 million (1993 estimate)

Capital:

Hanoi

Type of Government:

Communist people's republic

Head of State:

President Le Due Anh

Prime Minister:

Vo Van Kiet

Party Secretary-General:

Do Muoi

Currency Used:

dong

US$ Exchange Rate on 30 November 1993:

US$1

= 11,110 dong

INDOCHINA 1994-95 Also expected to feature at the mid-term conference would be the relationship between party and government and the role of the party in economic life. This is because entrenched party interests have been frustrating attempts at reform . The problem is a pervasive one because there are over 12,000 state enterprises and what happens to them touches on political nerves everywhere. Only one of the seven state companies slated for privatization in the first phase of the privatization plan launched in 1990 has so far been privatized; the other six pulled out when workers opposed the scheme on grounds of feared job cuts and lower wages. The conference will have to decide whether to push reform and privatization further at this stage or, for the time being, to consolidate and take stock, and instead pay more attention to the social and political challenges posed by the opening up of the country. The party mainstream view continues to be that while economic reform is necessary and unavoidable, he party mainstream view continues political reform in the direction of political pluralism to be that while economic reform should be avoided. This is in part a lesson which the is necessary and unvoidable, political Vietnamese communists have drawn from the collapse reform in the direction of political of the Soviet Union. There is no real threat to the pluralism should be avoided. party's monopoly of political power so long as important sections of it do not organize a break with the system as Boris Yeltsin and others did in the Soviet Union , and there is no sign that this will happen ; and so long as the army and security services remain with the orthodoxy, as they do in Vietnam. Thus the agitation by dissident monks of the former (now defunct) United Buddhist Church (UBC) - which resulted in street protests in Hue in May 1993 and clashes with the authorities in Vung Tau in Julydid not in itself constitute any direct threat to the party. However, it was still viewed with considerable concern because of the support the monks receive from Vietnamese groups overseas and their ability to attract the attention of human rights groups in the West. The monks want to reestablish the UBC, which was banned by the government in 1981, and have called for the release of detained monks. They have also accused the government of human rights violations and religious oppression. The way this problem is handled will determine whether street protests break out on other issues in the future, bearing in mind that it could also affect the attitudes of aid donors. Conservatives in the party still believe there are outside forces scheming to push Vietnam on the path of "peaceful evolution". The party fears increased pressures for "peaceful evolution" if religious and other social groups press for more autonomy and as the role of the party declines in sectors of the economy affected by reform and privatization.

T

23

POliTICAL OUTLOOK For instance, the party's domination of the countryside has declined seriously with the decline of the co-operatives when the household, instead of the co-operative, became the unit of production, so much so that it is now desperately trying to find a new role for itself in the rural areas. Hence its resistance to meeting a similar fate in manufacturing and trading sectors. In the external realm, the problem of coping with the security challenge from China remains. The Vietnamese leadership may be divided on how to deal with this problem. Some seem to favour forging a close relationship with China while maintaining a strong defence at home; others favour an omnidirectional diplomacy that seeks to win as many friends as possible. Vietnam has used its links with ASEAN countries to advantage. ASEAN's concern about China's assertive behaviour over the South China Sea territorial disputes, amply registered on the Chinese, has brought some sense of security to Vietnam, in the sense that China is now less likely to resort to the use of force to occupy Vietnameseheld territories. However, Vietnam remains seriously disadvantaged against China in respect of the balance of power in the area. Bilaterally, there have been exchanges of visits between high-level personalities from both countries and there have been discussions on issues related to the land border. In general, the overall atmosphere has improved somewhat. However, little substantive progress can be expected in resolving the major disputes between the two countries in view of the entrenched positions on the Spratlys and the ancient, deep-seated Vietnamese suspicions and resentments about China, not helped by China's evident desire to be a major military power with long-distance power projection capabilities.

Cambodia

24

fter nearly twenty years of war, there is, for the first time, an opportunity for Cambodia to take a new political course that ~:o.-=;;;.i· promises more peace and progress. However, there is the danger that Cambodians will remain too divided to take advantage of this opportunity. In the May 1993 national elections organized by the United Nations Transitional Authority in Cambodia (UNTAC), Prince Ranariddh ' s FUNCINPEC party obtained 45.2 per cent of the votes and fifty-eight seats in the 120-seat National Assembly while its nearest rival, Hun Sen 's Cambodian People's Party (CPP), obtained 38.6 per cent of the votes and fifty-one seats. A new constitution has been adopted and a new government established.

INDOCHINA 1994-95

Cambodia Land Area:

181,040 sq km

Population:

8.7 million (1993 estimate)

Capital:

Phnom Penh

Type of Government:

Constitutional monarchy

Head of State:

Prince Sihanouk ·

.. Next National Elections:

Not known

Currency Used:

riel

US$ Exchan,ge Ra!e on 30 November 1993:

US$1 = 3,333 riel

First the question of stability of the new government. Though FUNCINPEC won the most support in the election, the CPP is the stronger party. It controls the administration on the ground, the security services, and the bulk of the armed forces. The CPP was thus able to pressurize Sihanouk, under threat of disregarding the election results, even briefly partitioning the country, into giving it formal parity with FUNCINPEC in the allocation of cabinet posts in the Provisional National Government of Cambodia (PNGCJ, including a co-prime minister. The new government announced after the adoption of the new constitution continues this arrangement, though Ranariddh is now the First Prime Minister and Hun Sen the Second Prime Minister. This power-sharing arrangement between long-standing adversaries is potentially unstable. FUNCINPEC personnel will have to work in CPPcontrolled structures in the capital and the provinces. To what extent the CPP will allow FUNCINPEC a genuine share in power and policy making and what the latter will do if it does not is left to be seen. There are signs that the CPP organizational types, provincial strongmen, and military and security people want to retain their tight grip on the provinces. There may also be divisions in the CPP between those loyal to Hun Sen and those who support the more hard-line chairman of the National Assembly, Chea Sim. It may be recalled in this context that FUNCINPEC had won the elections on a platform of peace through national reconciliation and a pledge to end the corrupt and autocratic CPP rule.

25

POLITICAL OUTLOOK Sihanouk has had a crucial role in bringing about accommodation between the two parties. The prospect that ill health will keep him away from Cambodia for some months and the uncertainty about how actively he would be involved in Cambodian politics on his return lessen the chances of the coalition government working together. Sihanouk's death could precipitate a power struggle that would unravel what has been achieved so far. Secondly, no solution has yet been found to the problem of the Khmer Rouge (KR), who had boycotted the elections. So even formal national reconciliation is not complete. Unless this is achieved, the KR will try to maintain their role as spoilers. Alhe coalition government will continue so long though defections and surrenders have as both parties see this to be in their interest. increased lately, and they are without This would be the case for the present and at Chinese support, the KR should not be least the short-term future, given the critical need written off. They will be able to sustain for international economic support and the need to a low-level insurgency, and, as time co-operate against the KR. However, Sihanouk's passes, exploit issues like corruption death or withdrawal from politics could severely and inequalities in income between the cities and the countryside, as well as test the coalition. anti-Vietnamese feelings. Anxious not to be totally excluded, the KR rna~ be prepared to accept seats in a proposed upper chamber of the legislature but are unlikely to totally dismantle their armed forces. Both the CPP and the Americans would be opposed to any role for them in the government. Thirdly, the economy is in a parlous state. Gross domestic product (GDP) in 1992 had shown a 10 per cent increase because of the U.N. presence but is likely to be flat for 1993. It is crucial that the international community maintains its interest and assistance and that aid for the repair and rehabilitation of infrastructure such as roads, railways, power stations, and other services starts to flow in. The meeting of the International Committee on the Reconstruction of Cambodia in Paris in September 1993 was encouraging in this respect. To conclude, the coalition government will continue so long as both parties see this to be in their interest. This would be the case for the present and at least the short-term future, given the critical need for international economic support and the need to co-operate against the KR. However, Sihanouk's death or withdrawal from politics could severely test the coalition. Hence the need for the international community, especially the lending agencies, to insist on continuing co-operation as a condition for aid.

T

26

INDOCHINA 1994-95

lTJ

he new leadership, following the death of president and party chief Kaysone Phomvihane in late 1992, appears to have stabilized. TWo persons were appointed to posts held by Kaysone, who had been secretary-general of the party since its foundation in 1955 and head of state since 1975 when the communists took over power. Nouhak Phoumsavan and Khamtay Siphandon, the second and third highest-ranking members of Kaysone's politburo, were appointed president of the state and secretary-general of the party, respectively. Both are from the old guard of the party, being among the three remaining members of the original seven elected to the politburo by the Second Party Congress in 1972. However, by the middle of 1993 Khamtay seemed to be firmly in control of the party and the state. The new leadership has sought to portray continuity with Kaysone's policies. The policy of economic reform will remain and the government has been courting aid and investments from various sources. However, the new party leadership is as determined as Kaysone to preserve communist party rule and to disallow political pluralism. To underscore this, three activists who had been arrested in 1990 for advocating multiparty democracy were tried and given fourteen-year prison sentences. Negotiations with Thailand are being pursued for resolution of border problems and for the repatriation of Lao refugees. Thailand has

Laos

Laos

Land Area:

236,800 sq km

Population:

4.3 million (1993 estimate)

Capital:

Vientiane

Type of Government:

One-party communist people's republic

Head of State:

President Nouhak Phoumsavan

Party Chairman:

Khamtay Siphandon

Prime Minister:

Khamtay Siphandon

Currency Used:

kip

US$ Exchange Rate on 30 November 1993:

US$1 = 705 kip

27

POLITICAL OUTLOOK firmly committed itself to major increases in the purchase of electrical power supplies from Laos by the turn of the century. Laos is pursuing a pragmatic foreign policy of friendly relations with all neighbours, with a desire to benefit from regional economic developments. However, it would want to avoid domination by any country, and certainly not by Thailand. In 1993 the Lao party gave prominence to its "special relations" with Vietnam. The reality of China's proximity and size gives Beijing also a special place in the country.

28

MYANMAR 1994-95

Tin Maung Maung Than

POLITICAL OUTLOOK Myanmar

[I]

n its fifth year of rule, the State Law and Order Restoration Council (SLORC) continued to consolidate its hold on the country and measures to enhance the status and ensure continuity of the top military leadership were undertaken. In the mean time, SLORC's version of democratization has continued. The focus has been on the formulation of a "firm " constitution as a prelude to the transfer of power to a representative government. A constitutional convention was held in January with the overall objectives of establishing a genuine multi-party democracy, promoting justice, liberty, and equality, and instituting the military's participation in the national political leadership role of the future state. The "National Convention" deliberated on the principles underlying the state structure, political representation, and the administrative configuration. Some of these fundamental principles such as the executive presidency, the direct role of the military, and the statutory right of the military chief to assume state power in a national emergency, though endorsed by the National Convention Convening Commission, failed to win unanimous support among the participating groups. Nevertheless, when the Convention adjourned in September these principles appeared to have been established as a basis for further elaboration.

Myanmar

30

Land Area:

678,576 sq km

Population:

43.13 million (1993 estimate)

Capital:

Yangon

Type of Government:

Military

Head of State :

Chairman of State Law and Order Restoration Council (SLORC), Senior General Than Shwe

Next Election:

Not known

Currency Used:

kyat

US$ Exchange Rate on 30 November 1993:

US$1 = 6.08 kyat

MYANMAR 1994-95 On the opposition front, the National Coalition Government of the Union of Burma (NCGUB) appears to be in disarray with two of its ministers murdered under mysterious circumstances and its foreign minister dismissed in absentia. Although its members were favourably received by officials of some Western governments in private, the parallel government did not receive any official recognition. The government's unilateral suspension, in April 1992, of military offensives in the Karen state remains in force. On the other hand, the military component of the anti-SLORC coalition Democratic Alliance of Burma (DAB) has suffered a major set-back as the Kachin Independent Organization (KIO), its most powerful military ally, and the government announced a cease-fire in October 1993. This leaves only the Karens as a major armed opposition group and there has been speculation that they too could succumb to the government's dual track strategy of combining military pressure with extending peace initiatives towards individual dissident groups on its own terms. The government has also stepped up measures to alleviate inflationary pressures on its employees. Acts such as abolishing interest rates on housing loans and extending the loan repayment periods, another upward revision of pensions and civil service pay scales within four years, formation of a joint-venture corporation for service personnel, and the setting-up of the Government Employees Co-operative were all aimed at enhancing the loyalty, empathy, and compliance of government employees. However, since some of these measures entailed monetary expansion, it remains to be seen whether they would be counter-productive. Notwithstanding critical comments from the U.N. Secretary-General and denunciations from some Western governments, human rights organizations, and dissident individuals, SLORC has maintained its contingent interpretation of human rights, which stresses the economic dimension as well the primacy of societal requirements over inalienable individual rights and rejects the universality of Western norms. In January 1993, heavy sentences, ranging from more than ten years' imprisonment to death, on citizens convicted since the military came to power were commuted. Over 2,000 political detainees have been released since last April, although Daw Aung San Suu Kyi continues to remain under house arrest. Regarded as a threat to peace and stability, the government has always maintained the position that she could go free if she agreed to leave the country. It is highly probable that the present impasse will persist for the next few years and her incarceration prolonged. The Myanmar Government has increased its efforts in fostering favourable relations with states in the region so as to project a positive image to the world-at-large. The ASEAN policy of "constructive engage-

31

POLITICAl OUTlOOK _ ment" has been maintained despite persistent calls for sanctions and condemnations by its major dialogue partners. Myanmar has benefited from the ASEAN countries' sympathetic stance on the contextual interpretation of human rights and democracy. Since early 1993, there has been speculation about Myanmar's intention to join ASEAN, but the issue of the Muslim exodus to Bangladesh seems to have been an obstacle of sorts. On the other hand, there have been indications from the government that Myanmar is not ready to enter into multilateral arrangements. However, the stepped-up bilateral relations during 1993 with all the ASEAN states, China, and India, whereby high-level trade and goodwill missions were exchanged at both governmental and military levels, indicate Myanmar's willingness to engage in mutually beneficial bilateral interactions. All in all, Myanmar's political environment and domestic security seem to have been enhanced, albeit on the government's own terms, since the change in the SLORC chairmanship. Armed opposition to the government has considerably weakened with ten insurgent groups accepting accommodation with he stepped-up bilateral relations the government. The imperatives of miliduring 1993 with all the ASEAN tary and economic logic may push the states, China, and India ... indicate Karens and other ethnic insurgents to seek Myanmar's willingness to engage in accommodation with the Myanmar Govmutually beneficial bilateral interactions. ernment in the near future. Then, the positions of the DAB and the NCGUB would become untenable and they would be marginalized. Bilateral relations with countries in the region are expected to further improve in the near term. The Thai Foreign Ministry has indicated that Myanmar would be invited, as an observer, to the forthcoming ASEAN Ministerial Meeting in Bangkok. This may lead to a slow process of Myanmar's incorporation into the ASEAN fold. But, given Myanmar's ambivalence towards multilateral groupings and preoccupation with domestic economic reforms, it will probably be the last Southeast Asian state to join ASEAN. China, the most consistent and ardent supporter as well as the largest trading partner, will continue to be a major factor in Myanmar's geopolitical calculus. Further economic integration between northern Myanmar and Yunnan seems inevitable in the face of resource constraints imposed by the West's embargo on official development assistance. Japan has endorsed the constructive engagement strategy regarding Myanmar and may well resume its position as a major donor if the

T

32

MYANMAR 1994-95 constitutional process results in a representative government of sorts. Although the repatriation of Muslim refugees portends to be a long and arduous process, the resolution of the problem appears to be only a matter of time. Some progress has been made with over 45,000 repatriated up to the end of October 1993 and over 100,000 being cleared for repatriation amidst indications that the United Nations High Commissioner for Refugees (UNHCR) may be allowed to play a role in the repatriation process in the near future. Barring further obstacles, the physical relocation may be completed within two years. Myanmar's transitional economy remains the most vulnerable factor in the military's reshaping of the Myanmar state. The persistent inflation and prevailing economic distortions, if left unaddressed, could derail the democratization process and erode the government's control over the polity. SLORC has, so far, been successful in guiding the democratization process at its own pace and direction and there are no indications that it would be otherwise in the near future. The role of the military in politics and in the future state administration, in particular, seems assured regardless of possible contentions in the future deliberations of the National Convention. The enforced dissociation of Daw Aung San Suu Kyi from Myanmar's political arena will continue in line with the military's position of not condoning actions "to create something which is not necessary" for the country. As regards Western opposition to military rule, it appears that Myanmar will be able to overcome Western attempts to increase economic and political pressures by widening and strengthening its regional relationships.

33

A SEAN

1994-95

Linda Low and Toh Mun Heng

ECONOMIC OUTLOOK Global View

respects for the world economy appeared to be better in the first quarter of 1993 than in 1992. The U .S. economy grew by 1.6 per cent, Japan by 0.6 per cent, and the United Kingdom by 0.7 per cent. In contrast, West German gross domestic product (GDP) shrank by 3.2 per cent in the first quarter of 1993, and the hoped-for recovery in Japan appeared less likely as the economy stagnated in the second quarter of 1993. In the Asian newly industrializing economies (ANIEs), there was strong growth. Korea grew by 4.5 per cent in the second quarter, while Taiwan and Hong Kong grew by 6.2 per cent and 5 per cent, respectively, in the first quarter. Singapore's performance was robust , with a growth rate of 10.1 per cent in the second quarter, thus bringing the yearly forecast to around 8 per cent for 1993.

TABLE 1 Growth Rates in World GOP, Trade, and Inflation (In percentages) 1992

1993*

1994*

1.2 1.5 2.5 1.5 1.4 -0.5 5.1 2.0 7.0 2.4 6.0 -16 .0

1.3 1.1 2.6 0.8 -1 .8 1.7 5.5 3.0 7.2 2.5 7.0 -10.0

2.8 2.1 2.5 2.5 0.8 2.8 5.8 3.2 7.4 2.8 7.2 5.5

World trade (volume)

4.0

5.6

6.1

World inflation rate(%)

3.2

3.1

3.4

Real GOP World Industrial countries United States Japan Germany United Kingdom Developing countries Africa Asia Latin America Middle East Eastern Europe and Russia

*Forecasts from World Bank, Asian Development Bank, and country sources .

36

ASEAN 1994-95 These trends indicate a structural change that has been gathering momentum during the last few years. East Asia and ASEAN have become significant contributors to global economic growth by providing a stimulus that in the past had been provided by the Western economies. Growth in these Asian economies is expected to be sustained as foreign investments continue to flood the region. The effects of economic deregulation and liberalization, even in the former command economies, have drawn investments to this part of Asia. A large and growing population with rising per capita income also means strong domestic demand. All in all, the region is now poised to become a major production and consumer base to rival the developed markets in the years to come.

he Asia-Pacific is touted to be the fastest-growing region in the Emerging world. Economies in the region have developed rapidly and it is Regional Trends • believed that the region will be the first in the developing world New Fora to have overcome poverty. Within the region, the major participants have made dramatic efforts to group themselves into various fora for economic and political reasons. A recent development in this light is the Asia-Pacific Economic Co-operation (APEC) forum, which brings together fifteen economies. APEC has a formal Secretariat based in Singapore but the forum is meant to be a loose grouping for discussions on joint economic matters in the region. Members would like to see the Secretariat becoming an information collection, analysis, and dissemination centre, in the likes of the centre of the Organization for Economic Co-operation and Development (OECD). Within APEC there is a further loose coalition of Asian members - the East Asian he major participants have made dramatic Economic Caucus (EAEC). The EAEC memefforts to group themselves into various ber countries have sizeable markets and growfora for economic and political reasons . .. . ing purchasing power, making them formidaAPEC brings together fifteen economies . .. . ble trade partners. The need for a strong Within APEC the EAEC member countries economic leader in the caucus has been a have sizeable markets and growing purchasing contentious issue as Japan seems to be the power, making them formidable trade partners. only country in East Asia that can assume the role, and this has been seen by the United States as an attempt to exclude it and drive a wedge in its relations with Japan. The United States has thus voiced grave concerns over the formation of the EAEC; more recently, however, opposition from the United States has moderated somewhat. Japan, nevertheless, has so far been non-committal on its role within the EAEC.

D

T

37

ECONOMIC OUTLOOK East Asia

ithin the Asia-Pacific region, East Asia continues to be a powerhouse of economic prowess and growth. Japan , de.....__ _ __, spite stagnating growth, continues to be a sizeable economy with a sophisticated technological base, strong capital formation, and high purchasing power. Korea, Taiwan, and Hong Kong are all economically vibrant, and China is undergoing significant structural changes as it revamps its planned economy. Meanwhile, investments have been flowing into China from its neighbours as well as from outside the region. These ongoing features of development in China and the East Asia region in general have proved to be both a blessing and a challenge for ASEAN. Growth in China has allowed some ASEAN member countries to seek and create niches for themselves in China. Singapore and Malaysia

ASEAN AND CHINA

. W

hile some ASEAN economies are competitive with the Chinese economy, in the long run there should be room for mutual gains and collaboration. In specific areas such as infrastructure, administration of localized projects such as running airports and ports, housing, industrial estates, and other construction activities, the ASEAN countries have the expertise to impart to Chinese provinces and towns that are gradually opening up to a new system of socialist market economy. Singapore is not the only country in ASEAN that has such e~eriences to share. Large agrarian economies such as Indonesia and China would have some common problems in industrial restructuring and urban-rural migration to deal .with . .Basically, the ..•pea§ant eponomy, where land and society are the focal points of development, is very much a part of some ASEAN economies and China. Issues of incmne . distributionandequity .for peasa~ts whose lives are disrupted by industrial restr\lcturing are relevant.

38

While ASEAN is in the midst of consolidating its efforts in intra-ASEAN economic co-operation and at the same time considering enlarging its membership to include Vietnam and possibly Myanmar, the prospects available in the largest economy in transition, China, have tobe heeded as well. ASEAN businessmen and investors currently making their way into China would pertainly appreciate some official guidance, especially since the law and other legal implications are different. Protection and guarantee of their investment and transactions in China under some pilateral 6r ASEAN-China agreements or memoranda of understanding would be timely. It is noted that ASEAN has initiated attempts to increase linkages in technology with China, and more concrete projects in other areas are in the offing. Chambers of commerce and other private-sector groups advising their governments have the benefit of()verseas Chinese acting as intermediaries given the multi-ethnic context of ASEAN.culture and society.

ASEAN 1994 95

have actively sought investment opportunities in China especially in tourism-related projects, low-cost manufacturing, and infrastructure development. For other ASEAN member countries such as Indonesia and the Philippines, growth in China has meant that potential investments to their countries have been diverted. Overall, then , development in the East Asia zone has both complementary and conflicting implications for ASEAN. Nonetheless, ASEAN as a whole stands to gain from growth in China and East Asia as there are numerous spillovers in business services, finance , and manufacturing , which can be fully tapped. ASEAN has had to rethink its regional positioning within the competitive Asia-Pacific region, and East Asia can be seen as a magnet for products as well as a source of investments. The challenge has been to upgrade productivity so that a wider spectrum of production opportunities becomes available in ASEAN and it then becomes possible to find a natural fit with developments in China and the rest of East Asia.

rn

he ASEAN Free Trade Area (AFTA) Agreement was signed in January 1992. The vehicle by which AFTA is to function over the next fifteen years is the Common Effective Preferential Tariff (CEPT) scheme. The CEPT scheme has two tracks for tariff reductions a fast track for accelerated tariff reduction to 0 or 5 per cent within seven to eight years, and a normal track for tariff reduction within fifteen years. Initially, only manufactured goods were listed for tariff reduction but the list has now been expanded to include processed agricultural products. Furthermore, the original plan to have the scheme implemented in January 1993 was thwarted as industries in some member countries sought protection. These initial set-backs have now been resolved and at the recent ASEAN Economic Ministers' Meeting in Singapore, expanded lists for the CEPT were announced and the implementation plan was scheduled to begin in January 1994. This new political resolve in getting AFTA off the ground has been met with anticipation by the private sector. AFTA has now become a necessity in the light of the formation of the Single European Market (SEM) and the North American Free Trade Area (NAFTA) . ASEAN members wishing to cushion the effects of restricted market access to the SEM and NAFTA have had to think of creating a regional market of their own. More salient in the ASEAN context is the creation of a regional trade area that can continue to induce inflows of foreign investment.

ASEAN Free Trade Area

39

ECONOMIC OUTlOOK Growth Triangles

rw

hile AFTA is a regional grouping, numerous other subregional efforts at economic linkages have been pursued even before AFTA was conceived. Growth triangles linking common border areas of three or more neighbours have been forming in and around the region. The SIJORI Growth Triangle, bringing together Singapore, Malaysia, and Indonesia was the first of such triangles. It has now been in existence for over three years and industrial redistribution has taken place across the three nodes- Singapore, Johor, and Batam. More Indonesian islands in the Riau province have been drawn in with the increase in industrial relocation and the development in tourism. Meanwhile, the state of Johor in Malaysia has been witnessing a boom in investments and inward labour migration, which have only recently slowed. Another growth triangle that is forming is the IMT Growth Triangle, which will bring together Indonesia , Malaysia, and Thailand. The common border areas of Thailand and Malaysia are being actively designed for joint economic development, with north Sumatra in Indonesia as a potential third partner in the process. North Sumatra has large-scale plantation land, petroleum and natural gas, fisheries, tourism potential, and low-cost labour, while Penang and some other states in northern peninsular Malaysia have industries, technology, agrohe SIJORI Growth Triangle ... has now business, and tourism. Southern Thailand has large agriculture, fisheries, and tourism sectors with been in existence for over three years ample low-cost labour. The necessary economic ... the IMT Growth Triangle will bring complementarities are present, and. the political together Indonesia, Malaysia, and Thailand will required to get the triangle going has now ... other growth triangles bringing together been garnered. The Asian Development Bank Thailand and the Indochinese states have (ADB) is currently identifying projects for joint been operating informally. development in the IMT triangle. Further afield, other growth triangles bringing together Thailand and the Indochinese states have been operating informally. Formal arrangements are afoot, with Thailand putting together financing packages for Myanmar and the Indochinese states to develop agriculture, health and education, and transportation. Some examples of these include the Mukdahan-Danang road project and the Thailand-Cambodia-Vietnam railway rehabilitation scheme. In addition to these, hydroelectric power generation schemes such as the Nam Ngiap and Nam Ngum projects between Thailand and Laos, and the Salween project with Myanmar are in the pipeline. Other schemes for joint oil and gas exploration have also been discussed and studied.

T

40

ASEAN 1994-95

[S]

ome ASEAN member countries have become capital exporters. Singapore and Brunei have long been regarded as capital-surplus countries. Singapore first started with the globalization of its service and productive capacities so as to tap into niche markets around the world. This has now taken a regional bent as Asia has become one of the most profitable areas for investment s. Singapore's regionalization programme aims to externalize its economy through productive investments in ASEAN and the wider Asian region including India and China. The lead for this effort is being taken by governmen t-linked companies (GLCs) such as Keppel Corporatio n, which has signed a joint-ventu re deal to build an industrial township in Suzhou, China. Other investment s are also being actively sought in the Asia-Pacific . These efforts complement the developme nt of an industrial hinterland around Singapore via its active engagemen t in the SIJORI Growth Triangle. They are not attempts to detract from Singapore' s globalization efforts but rather to complement its global strategy of becoming a high value-adde d and niche market specialist.

rn

he process of regionalization is being led by large companies from the region. These new ASEAN multination al corporation s (MNCs) have begun to compete with Western MNCs to take a slice of investment opportunit ies opening up in China, Vietnam, and within ASEAN. Many of these ASEAN MNCs have grown from companies that started off as family-run businesses. Some of the better-kno wn ones among them are the Salim and Lippo groups from Indonesia, the Lee and Kuok families from Malaysia, and the Chearavan ont family from Thailand. Interestingly, all are Chinese family enterprises that are now seeking to diversify their portfolios and their geographical spread. While the Chearavanont' s CP Group was originally involved in animal feeds, poultry, and agrobusiness, the group has now diversified into petrochemi cals, brewery, and motorcycle assembly. This pattern is also apparent in other Southeast Asian MNCs. Meanwhile , in Singapore the regionalization drive is being led by GLCs such as Keppel Corporatio n. While many of these new ASEAN MNCs have sought investment s in China and Vietnam, they have also been actively seeking out other markets such as Australia and the United States. As ASEAN itself becomes a more integrated investment and trade zone, it is likely that these Southeast Asian MNCs will become much more active participant s within the region than they have been.

Regionalization

Southeast Asian MNCs

41

ECONOMIC OUTLOOK Infrastructure Development

ithin ASEAN the most pronounced trend in recent years has been massive infrastructure development. Lagging infrastructure has plagued investments flowing into the region. Indonesia intends to redress its power shortages by increasing its generating capacity by over 17 per cent a year. This is significantly more than the projected demand growth of around 12 per cent a year between 1994 and 1999; thereafter, demand growth is expected to decline to around 8 per cent a year. New combined cycle power plants in northern Jakarta and eastern Java are expected to be completed before March 1994, while other programmes for three combined cycle plants in Java are to be completed in 1995. Malaysia has agreed to purchase power from Singapore for six months while short-term measures to increase its own generating capacity are implemented. Overall generating capacity in West Malaysia is expected to double from the current level of 4,700 megawatts to meet the growing demand in the rapidly industrializing economy by the turn of the century. Malaysia has also decided to build a port at Gelang Patah in Johor, which will significantly increase port capacity in the south. Gelang Patah will be connected to Singapore by a bridge, and it will then complement Singapore by providing warehousing space and bonding facilities. In the mean time Pasir Gudang port in Johor is also being expanded. The Philippines is also attempting to overcome inadequacies in its infrastructure by seeking to increase its power-generating capacity, deregulating telecommunications, and improving transportation networks. Similar attempts are also under way in Thailand, where inadequacies in transportation and basic infrastructure for industries have become commonplace. The opening of the new highway by the Bangkok municipal authorities without the agreement of the private owners has been a symptom of the urgency with which Thailand has had to address some of these issues.

ASEAN Growth Record

SEAN has become one of the fastest-growing regions in the world. Within ASEAN, there has been some convergence of industrial, investment, and export policies as Thailand and Malaysia have now joined Singapore in the NIE league. A powerful combination of culture, geography, and socio-political factors has made the region a profitable investment location for many foreign investors. Singapore's successful development strategy predicated upon collaboration with MNCs has provided a workable model for others in ASEAN.

42

ASEAN 1994-95 The ASEAN economies have shown marked improvements. Both Singapore and Malaysia have enjoyed strong growth in the first half of 1993. Fears of overheating in Malaysia and Thailand have abated somewhat and Indonesia continues to deregulate to keep pace with other members of ASEAN. Even the Philippines has begun to consolidate its efforts to overcome political upheavals and natural calamities.

Basic Indicators in ASEAN Economies Average Annual Per Capita GNP

Country

Average Annual Inflation Rate

Population 1991 (million)

1991 (US$)

1980-91 (%)

1970-80 (%)

1980-91 (%)

0.3 186.0* 17.9 62.9 3.0* 57.7*

9,406 610 2 ,320 730 13,058* 1,420

n.a. 3.9 4.0 - 1.2 6.5 4.4

n.a. 21.5 4.9 13.3 5.1 6.2

n.a. 8.5 1.6 14.6 1.7 3.4

Brunei Indonesia Malaysia Philippines Singapore Thailand

Adult Literacy Rate 1990 (%) n.a.

77 78 90 91 93

* 1992 figures . n.a. - Not available. SouRcE: World Bank, World Development Report 1993; country sources .

Distribution of Employment, by Industry, in ASEAN Economies Country and Year Brunei (1989) Indonesia (1991) Malaysia (1990) Philippines (1990) Singapore ( 1992) Thailand (1992)

Primary (%)

Secondary (%)

Manufacturing (%)

Services (%)

Total (%)

Total (million)

12.2 52 .2 27.4 44 .9 0.3 62 .1

39 .9 19.2 25.1 28.3 34.5 13.9

n.a. 11.4 18.8 10.2 27 .5 11.0

47. 6 17.2 47.5 26.8 65.2 24.0

100.0 100.0 100.0 100.0 100.0 100.0

0.08 75.8 6.8 22.5 1.5 32.6

n.a.- Not available . SouRcE: Pacific Economic Co-operation Conference , Human Resource Development Outlook (1993-94) .

43

ECONOMIC OUTLOOK

Human Capital Formation in ASEAN Economies Scientists and Technicians per 1 ,000 of Population 1986-90

R&D Scientists and Technicians per 1 ,000 of Population 1986-90

Science Graduates as a % of All Graduates 1988-90

Mean Year of Schooling (+25) 1990

27.0 10.1 n.a. n.a. 23.6 1.2

6.3 1.7 4.0 1.3 18.7 1.6

0 11

28

5.0 3.9 5.3

30 53 18

3.9 3.8

Brunei Indonesia Malaysia Philippines Singapore Thailand

7.4

n.a.- Not available. SouRcE: United Nations Development Program , Human Development Report (1993).

Human Development Index in ASEAN Economies

Brunei Indonesia Malaysia Philippines Singapore Thailand

Life Expectancy at Birth (years)

Educational Attainment (years)

Adjusted Real GOP (US$)

Human Development Index*

GNP Rank Minus HOI Rankt

73.5 61 .5 70.1 64.2 74.0 66.1

2.08 1.88 1.92 2.37 2.04 2.16

5,017 2,181 4,901 2,303 5,043 3,986

0.847 0.515 0.790 0.603 0.849 0.715

-25 14 9 22 -17 15

*The HOI has three key components, namely, longevity measured by life expectancy at birth (column 1); knowledge measured by educational attainment (column 2); and adjusted real GOP (column 3). The larger the HOI , the better. t A positive figure shows that the HOI rank is higher than the GOP rank ; a negative figure shows the opposite . SouRcE: United Nations Development Program , Human Development Report (1993) .

44

ASEAN 1994-95

[T]

he Indonesian Government has embarked on deregulation and the reform of legal and administrative procedures to improve efficiency in the public sector. Further deregulation measures were instituted in the middle of the year as licensing and investment rules were simplified. A review of over 400 laws, including labour and wage legislation, many dating back to the Dutch period, is currently being done with a view to removing or replacing those that have become irrelevant. The review of laws is an urgent measure that has to be instituted as the region is increasingly becoming a trans-border investment zone. It is also a necessary feature in Indonesia's attempts to diversify its export base and enhance industrial competitiveness. As trade negotiations have taken on a wider ambit, Indonesia, together with Malaysia and Thailand, has had to evaluate its labour laws and workers' "rights" in a more serious light. Export strategy and industrial restructuring have also now to be thought through as a consistent package to prevent excessive distortion of prices. Thus, a package of policies consisting of those that augment export structures and others that provide protection will be implemented to support export diversification and industrial strengthening.

Indonesia

1-

Some of Indonesia 's deregulatory measures in 1993: •

• • • • • • •

exemption from import duties, surcharges, and value-added tax for materials imported by companies producing entirely for export; reducing import duties and cutting surcharges on some goods; raising the amount that companies operating in bonded zones can sell inside Indonesia from 12 to 25 per cent; reducing the number of business areas where new investment is restricted or banned; lifting the ban on the import of assembled vehicles though these are still subjected to hefty duties; improving licensing procedures, the stock exchange, and deregulating the pharmaceutical industry; cutting red tape to improve competitiveness and the investment environment; and waiving visa requirements for businessmen from forty-five countries.

l

45

ECONOMIC OUTLOOK Malaysia

Philippines

46

alaysia has been enjoying buoyant economic growth for the last few years. Strong signals have been sent to the private sector to boost investment and domestic demand. Investment flows have declined sharply and a period of consolidation has set in. Problems of lagging infrastructure programmes and excessive labour turnover are now being actively addressed. A large-scale privatization programme put in place in the previous years has reduced the publicsector burden considerably as well. Malaysia has been committed to trade liberalization and investment promotion, in keeping with its support of AFTA. On the political arena there is a sense of confidence that Mr Anwar Ibrahim will continue the policies of Dr Mahathir in the event that he succeeds him in the years to come. Malaysia has now embarked on a road to rapid development through economic diversification fuelled by foreign direct investment. In order to continue along this path, investor confidence has to be maintained and this requires continuity in existing policies. In the mean time, Malaysia is undergoing a period of consolidation as it boosts its skills capacity, improves its infrastructure, deregulates its trade regime, and raises its savings rates.

rn

he Philippine economy has significant growth potential with its large agricultural sector and an educated and trainable labour force. Yet, the economy has been inefficient as a result of distorted market structures, land ownership, and protective trade barriers. All these areas, including land tenureship , are being actively tackled by the Philippine Government. Overcoming bureaucratic inertia and deregulating sectors of the economy are high on the government 's agenda for improving economic efficiency. Some degree of success can already be seen in controlled spending levels, falling inflation rates, and a balance of payments surplus in the last year. This success has, however, become a double-edged sword as the International Monetary Fund has now indicated that the Philippines does not require aid to resuscitate its economy. While the macro-economic profile seems to have improved , there has been active interest by foreign investors in financing the agricultural , financial, and transportation sectors. A spate of kidnappings of ethnic Chinese in the early part of the year resulted in capital flight , which has now been remedied. Nonetheless, attractive investment opportunities in China have led to capital outflows that the Philippines can ill afford. These signals indicate a need to sustain robust economic policies if the Philippines is to become an important player in ASEAN.

ASEAN 1994-95

rn

he Singapore economy grew by an impressive 10.4 per cent in the second quarter of 1993 and 9.2 per cent in the third quarter. Second quarter growth was sustained mainly by 11.5 per cent growth in the manufacturing sector, especially by exports of the electronics industry. By the third quarter, this growth moderated to 10.9 per cent. While these are welcome signs, there is an underlying concern over its dependence on the U.S. market for most of these electronics exports. The significance of growth in the manufacturing sector, however, lies in growth in productivity as compared with growth in employment, as was the case in the 1980s. One reason for this is the greater capitalintensive investment employed in manufacturing, which has doubled the value-added per worker from the figures for 1989. Unfortunately, these same trends have not been replicated in the financial and business services sectors. There is now a thrust towards externalizing the economy so that growth can be sustained over the long term.

Singapore

SINGAPORE'S 11 SECOND ... Lil}ethegrowth triangle, anexternalecohomy 'Of "~econd.wing" . means m.ore tra.n~c-borde~ projects to gain "econow.k space" to overcome Shlg~pqre's.·laqk.of . ~a~d · {~· ~o~.~qes.•.T~is••·~ppear~ to be an ~lllarg~rne~t of.Jhe w:ovvthtriangle . concept,··· this •.·time •.byGLCs and MNCsgoing regional, .taking along with thenisrnaller, Joe~ companies {see,the s·ectio~s on "Regiopalization'' .and "South~;ast asian MNCs" :on_pageAl). All developed countries and tlie ~IEs have externaleconomi.e s to amplifY tlieirgr()\\ftb frontiersr.B)'" C()1Jlparisp~~.·Singapore's .ex:t~rnai.vvi~g ....... i~,m.~r~ly . ~~ ~lt~~~l!6; tqf its

figuresil:fe ()nly about dne-quarterthose of Switzerland, ~nd it wo].lld take Si11gappre .·•ten to t'y\Telve yearst() reachthe.Swisslevel ?f pversea,sipvestments, ()t half the levelip five :to seven years. China is very much in Singapore's . regionaJization map although the political implications of a lopsided Chinese.ipterest is cautioped,.f\part from China, Singapore . companies·a re also going regionaLto the

·r:st . ofj\~~AN,lnd?chipa, . SouthAsia,and ev~n to

Eastern Eti!OPy and Africa. These ~rans-bgrder·· ·•.exty~, $ins.· · ~lso•· ·•· · tef1ect··· • t.h e 36r~'73 a . ) ,. · ·• · rnPanies in, l < . .... ng in- gro\\[ing. tre11d • of ·. globa1iz~tion < (Jf .m any vested abroa,~. The stock •of Singapore-?wne.d . · MNCs as the concept borderless e,conoprivate dll:ectinvestments overseasis?~ly 8per mies Js ,t.ran§lated inlo reality, ma.d e possicent of ifsGNP.and income derived contributed ble by ecqnorhic deregulation andJibenm::.. onlY o.s· g~;t,ent of G!-{P in J990. · !Both these . zation as .well as technology.

of

47

ECONOMIC OUTlOOK On the domestic front, the implementation of the goods and services tax (GST) in April 1994 may account for a once-off inflationary impact. This would in all likelihood be moderated by compensating low-income households through higher subsidies on education and health, rebates on public housing rentals, and lower service and conservancy charges. The GST will shift the tax coverage from being income-based to a broader coverage based on consumption, to boost savings, provide incentives for work, and make exports more competitive.

Thailand

Forecasts for

1994-95

48

fter a five-year boom, the Thai economy has reached a crossroads. Long-term structural changes to the economy are now overdue and adjustments to the financial system, labour market, and legal system are being actively addressed. The successful exportled boom in Thailand has led to infrastructural lags, labour market mismatches, and shortages of skills. The budget for 1994, therefore, aims to improve infrastructure and human resources. While the private sector has been encouraged to participate in infrastructure development , the recent measure by the Bangkok local authority to open a major highway that should have been owned and operated by a private consortium has led to misapprehensions amongst investors. Nonetheless, this has raised questions regarding the nature of investments meant to benefit the public and the role of private investors in developing such public goods. Major efforts are under way to boost its human resource development, science and technology, environmental conservation, and the overall quality of life. These measures should accelerate Thailand's move into the league of the ANIEs. Thailand, despite being an aggressive and formidable exporter of manufactured goods, still has a largely rural population. Education and training are being given a push so that hidden unemployment in the rural sector can be overcome as labour migrates to the industrial sector.

rn

he emerging trends and the efforts being made by the ASEAN member countries form the backdrop to the forecasts given in this section. Real growth has been expressed with 1985 as the base year for ease of comparison across countries. GDP forecasts from 1993 to 1995 are given in Table 2. The overall economic scenario for the region appears optimistic, with Singapore, Thailand, and Malaysia taking the lead.

ASEAN 1994-95

TABLE 2 Real Growth Rates of Major Economic Components in ASEAN , in 1985 Prices (In percentages)

t t

,

Indonesia GOP Consumption expenditure Government expenditure lnvestmentt Exports+ Imports+ Inflation Malaysia GOP Consumption expenditure Government expenditure lnvestmentt Exports+ Imports+ Inflation Philippines GOP Consumption expenditure Government expenditure lnvestmentt Exports+ Imports+ Inflation Singapore GOP Consumption expenditure Government expenditure lnvestmentt Exports+ lrriports:t: Inflation Thailand GOP Consumption expenditure Government expenditure lnvestmentt Exports+ Imports+ Inflation

..

1991

1992

1993*

1994*

1995*

6.4 3.8 8.6 10.5 6.1 6.6 9.2

·5.8 3.4 5.5 7.9 9.0 6.8 7.6

6.5 4.6 4.3 12.9 12.6 10.1 7.9

6.8 5.1 4.7 12.0 12.6 11.6 6.6

6.7 5.0 4.5 ' 9.2 10.3 7.6 6.5

8.8 9.7 5.7 17.0 13.7 16.9 4.4

8.0 8.6 5.2 10.5 11.7 9.5 4.7

8.5 6.3 6.5 7.8 11.8 8.2 4.3

8.2 8.0 6.3 9.6 9.2 9.1 3.9

8.1 9.2 5.5 8.6 9.0 9.0 4.0

-0.7 2.1 -6.1 6.1 1.4 11 .1 20.7

0.0 3.2 -4.3 7.5 1.2 11.7 12.2

1.5 3.0 1.5 8.1 7.1 10.1 7.8

2.5 4.2 3.1 8.7 8.0 9.6 7.6

2.8 4.5 6.0 11 .5 7.9 9.3 7.5

8.9 4.6 7.1 10.2 10.5 8.1 2.6

7.7 5.0 7.0 10.0 6,9 7.1 3.3

7.0 4.2 8.0 9.5 5.5 6.3 2.7

8.3 7.6 4.0 11 .3 12.1 9.3 4.4

8.4 7.0 4.5 12.3 11.6 8.0 4.7

8.3 7.1 4.2 12.0 8.5 7.0 4.6

6.7 4.0 8.1 13.9 9.8 9.0 3.4 7.7 8.5 3.1 18.9 9.0 13.7 5.8

5.8 4.1 6.2 6.7 5.4 5.6 2.3 . 7.4 6.8 2.1 6.7 10.1 11 .2 4.2

* Forecasts. tGross domestic investment. +Merchandise goods and services.

49

ECONOMIC OUTLOOK Forecasts of real growth rates by sector are given in Table 3. In every ASEAN country, the service sector is seen to have become an important driver with the largest sectoral share in GDP by 1993 (see Table 4) . Singapore has the largest contribution by the service sector, a situation which is similar to that found in developed industrial economies.

50

ASEAN 1994-95

TABLE 4 Sectoral Shares of ASEAN , in 1985 Prices (In percentages)

n

f

1991

1992

1993*

1994*

1995*

Brunei Real GDP Agriculture lndustryt Services

100.0 1 .1 53.6 45.3

100.0 1.0 50.7 48.3

100.0 0.9 47.9 51.2

100.0 0.8 45.1 54.1

100.0 0.8 42.6 56.7

Indonesia Real GDP Agriculture and mining Industry Services

100.0 34.6 25.4 40.0

100.0 33.9 25 .8 40.3

100.0 33.3 26.2 40.5

100.0 32 .5 26 .7 40.8

100.0 32 .0 26 .9 41 .1

Malaysia Real GDP Agriculture and mining Industry Services

100.0 27.9 33.4 38 .7

100.0 26.8 34.6 38.6

100.0 25.0 36.4 38.6

100.0 24.9 36.6 38 .5

100.0 24.4 37.0 38.6

Philippines Real GDP Agriculture and mining Industry Services

100.0 28.4 31 .5 40.1

100.0 28.2 31 .7 40.1

100.0 28.0 32.2 39.8

100.0 27.7 32.6 39.7

100.0 27.2 32 .8 40.0

100.0 0.2 34.2 65 .1

100.0 0.2 35.1 64 .7

100.0 0.3 38.5 61.2

100.0 0.3 38.4 61 .6

100.0 0.3 38.3 61.4

100.0 14.7 34.6 50.7

100.0 13.1 35.9 51 .0

100.0 11 .9 36.8 51.3

100.0 10.4 37.9 51 .7

100.0 9.0 38 .9 52.1

Singapore Real GDP Agriculture Industry Services

:~ 1 T ::~; I,J I

I '!II .. I IIIII I

I

'

1 I

1

II Ill 1

I

·""

I II

Thailand ~~~~ Real GDP Agriculture and mining Industry Services

* Forecasts. tlncludes mining as well as manufacturing, utilities, and construction.

51

ECONOMIC OUTlOOK The unweighted real GDP growth for ASEAN as a whole between 1993 and 1995 is between 6.6 and 6.7 per cent, as shown in Table 5. When weighted by the average export trade shares for the years from 1987 to 1992, real growth in 1993 is around 7.8 per cent, moderating to 7.0 per cent by 1995. These are healthy and respectable growth rates, given the state of the global economy, the expected lower oil prices, and the more intense competition in trade.

Real GOP GroW!h Rat~sio A~EAN, 199:3~9s (lnper