Regional Outlook: Southeast Asia 2001-2002 9789812306586

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REGIONAL OUTLOOK Southeast Asia 2001–2002

This chapter is reproduced from Regional Outlook: Southeast Asia 2001–2002, edited by Daljit Singh and Nick Freeman (Singapore: Institute of Southeast Asian Studies, 2001). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies.

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 issues and challenges of stability and security, economic development, and political and social change. The Institute’s research programmes are Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). 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. An 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 2001–2002 Editorial Committee Chairperson Professor Chia Siow Yue Editors Daljit Singh Nick J. Freeman Production Editor Tan Kim Keow

Southeast Asia 2001-2002

INSTTT\JTE OF SOUTHEAST ASIAN STUDIES

Published in Singapore in 2001 by Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Road Singapore 119614 Internet e-mail: [email protected] World Wide Web: http://www.iseas.edu.sg/pub.html All rights reserved. No part of this publication may be reproduced, translated, 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. © 2001 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. ISEAS Library Cataloguing-in-Publication Data Regional outlook: Southeast Asia. 1992–1993– Annual 1. Asia, Southeastern. DS501 S720 1992 ISSN 0218-3056 ISBN 981-230-114-3 Typeset by International Typesetters Pte. Ltd. Printed in Singapore by Seng Lee Press Pte. Ltd.

sls91-209988

CONTENTS Preface Chia Siow Yue

vii

Introduction Daljit Singh, Nick J. Freeman

ix

I

1

POLITICAL OUTLOOK 2001–2002 The ASEAN-6 A.V.M. Horton, Anthony L. Smith, John Funston, Alexander R. Magno, Derek da Cunha Indochina and Myanmar Tin Maung Maung Than, Nick J. Freeman, David Koh

II

ECONOMIC OUTLOOK 2001–2002 The ASEAN-6 Nick J. Freeman, Sakulrat Montreevat

37

Indochina and Myanmar Mya Than, Nick J. Freeman

Selected Sources of Data

93

The Contributors

94

PREFACE

R

egional Outlook was first launched in 1992. Designed for the busy executive, professional, diplomat, journalist, and interested observer under severe time constraints, this annual offers a succinct analysis of political and economic trends in the countries of Southeast Asia and the outlook for the prospective two years. In this endeavour, it is impossible not to be overtaken by events. An analysis such as this serves best when it indicates patterns of development, offers some insight into the unfolding complex dynamics, and puts its finger on emerging issues and areas of change. In this way Regional Outlook should provide the necessary background for the reader to interpret new information and data. The year 2000 was another year of gradual recovery for the region, assisted by robust global economic performance. Although all the countries of Southeast Asia have returned to positive economic growth rates, fragilities remain in the corporate and banking sectors. In addition, anxieties surrounding political instability in Indonesia and the Philippines continued to impact adversely on perceptions of the region. Regional Outlook 2001–2002 was written by a team from within the Institute and without. We thank Rajenthran Arumugam, Derek da Cunha, Nick J. Freeman, John Funston, A.V.M. Horton, David Koh, Alexander R. Magno, Mya Than, Lee Hock Guan, Lee Poh Onn, Sakulrat Montreevat, Anthony L. Smith, and Tin Maung Maung Than for their contributions. We also thank Daljit Singh and Nick J. Freeman for editing the volume. Professor Chia Siow Yue Director Institute of Southeast Asian Studies 1 November 2000

INTRODUCTION

F

or Southeast Asia the year 2000 was marked by a generally favourable external backdrop. World economic growth was robust. In the Asia-Pacific region, China’s impending membership of the World Trade Organization (WTO) was seen as propitious for both business and security. The rapprochement between the two Koreas was helping to ease tensions on that peninsula and held the potential for removing one dangerous flashpoint in East Asia, even if it also created some uncertainties about the longerterm character of U.S. military deployments in the Western Pacific. The situation in the Taiwan Straits, after Chen Shui-bian’s election as President, was dangerous, but nevertheless reasonably well managed. All three parties — China, Taiwan, and the United States — understood the dire consequences of armed conflict, though the risk of miscalculation remained. Notwithstanding this relatively benign external environment, Southeast Asia in 2000 presented a very mixed picture. The euphoria of economic recovery felt in 1999 was increasingly being dissipated by the realities of slow progress in bank and corporate restructuring and ongoing concerns about political stability. This was reflected in the performance of Southeast Asian stock markets which, having overextended themselves in 1999, adjusted downwards in 2000. The region’s currencies were also weakened by political woes in 2000, especially problems in Indonesia and the Philippines. While a repeat of the 1997–98 crisis can be discounted, the region remains vulnerable to externally induced shocks. Such shocks might potentially include a bumpy landing for the U.S. economy, a pronounced downswing in the electronics sector cycle, or the withering of the green shoots of economic recovery in Japan. Unfair or not, the perception that ASEAN lacks dynamism and unity of purpose has not gone away, especially in view of the difficult situation in its key member, Indonesia. Persistent perceptions of drift in ASEAN could prove perilous for business, given China’s impending entry into the WTO and its increasing allure as a rival destination for foreign direct investment inflows. Overall, the external environment in 2001–2002 could be more challenging than in 2000. U.S. GDP growth and world output are forecast to be lower. Strategic relations between the major powers could be more uncomfortable as a new U.S. president tries to settle in office and as China approaches leadership changes in 2002. Within Southeast Asia, Indonesia’s prospects continue to be uncertain. Different authors have contributed to this volume and we would like to thank them for their contributions. Daljit Singh Nick J. Freeman Editors 1 November 2000

POLITICAL OUTLOOK 2001–2002

POLITICAL OUTLOOK THE ASEAN-6 A.V.M. Horton • Anthony L. Smith • John Funston • Alexander R. Magno • Derek da Cunha

Brunei

2

T

he year 2000 has not been without its positive aspects for Brunei: a damaging public rift involving members of the royal family appeared to have been settled; the price of crude oil continued to rise; an economic recovery plan is in place; and the sultanate has been the focus of international attention as host of the Asia-Pacific Economic Co-operation (APEC) summit in November 2000. In late February 2000 the Brunei government opened legal proceedings against His Royal Highness (HRH) Prince Jefri Bolkiah — brother to His Majesty (HM) the Sultan — alleging improper use of funds from the Brunei Investment Agency (BIA) while he was Minister of Finance. In May the case was settled out of court. Under the agreement, all the Prince’s assets were to be returned to the state. The essential thing now is for the royal brothers to close ranks. Prince Jefri’s fall from grace notwithstanding, the existing political establishment has survived remarkably unscathed. The continuing commitment of the people (rakyat) to the Malay Islam Monarchy (Melayu Islam Beraja, MIB) project was demonstrated on National Day (23 February 2000) and again on Hari Keputeraan (15 July 2000), the latter occasion marking the fifty-fourth anniversary of the birth of HM the Sultan. Sterling work is done by HRH the Perdana Wazir, Prince Mohamed Bolkiah, who is also Foreign Minister (and who published an autobiography, Time and the River, in August 2000), and by Ambassador-atLarge HRH Princess Masna. The younger generation also shows promise: HRH Crown Prince Al-Muhtadee Billah has been assuming an increasing workload of public duties; and HRH Prince Abdul Qawi, son to the Perdana Wazir, is already Deputy Executive Director to an important company. Government stability has been maintained. There has been no free election nor public political activity worthy of the name (since 1962), and, despite the occasional reshuffle, no new blood in the cabinet since 1989. It might be noticed here, however, that two new permanent secretaries were appointed on 12 May 2000: Dato Zakaria Noordin at the Ministry of Development and Haji Abdul Rahman Ibrahim at the Ministry of Industry. In late March, plans were announced for a “transformation of governance” involving greater transparency and less regulation. One minister advocated a more technocratic approach. In line with the MIB concept, all Islamic festivals were faithfully observed throughout 2000. During the three days of the Hari Raya Aidilfitri festival in early January no fewer than 57,090 persons streamed through the Istana Nurul Iman. During the haj season there were to be eight flights for approximately 1,400 pilgrims. On Maulud (15 June), the (lunar) anniversary of the birth of the Prophet Muhammad, more than 35,000 of the ummah (Islamic community) took part in a procession in Bandar Seri Begawan (BSB). Conversion efforts proceed apace: 300 people adopted Islam between January and July 2000, bringing the total to around 10,000 in the past thirty years. This chapter is reproduced from Regional Outlook: Southeast Asia 2001–2002, edited by Daljit Singh and Nick Freeman (Singapore: Institute of Southeast Asian Studies, 2001). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies.

THE ASEAN-6

Brunei Land Area:

5,765 sq. km.

Population:

336,376 (July 2000 estimate)

Capital:

Bandar Seri Begawan

Head of State:

HM Sultan Haji Hassanal Bolkiah Mu’izzaddin Waddaulah

Currency Used:

Brunei dollar

US$ Exchange Rate on 14 November 2000:

US$1 = B$1.74

Brunei’s economy grew by 2.5 per cent in 1999, compared with a 4 per cent negative growth in 1998. In January, 3 per cent growth was forecast for the year 2000. The price of crude oil continued its ascent, a matter of no small importance to a country whose hydrocarbon sector contributes about half of the nation’s gross domestic product (GDP) and the overwhelming bulk of export value. Yet the buoyant oil price has not solved all the sultanate’s difficulties. Although government fiscal worries should now be eased, there will be no return to the halcyon days of 1979–80: in real terms, oil is still worth only one-third of what it was then. Conversely, the Brunei government needs to restrict its own spending because of recent budget deficits. Worst hit in the “ailing economy” has been the service sector, especially the construction, retail, and hotel trades. There is a glut in the property market. Thousands of foreign workers have been repatriated. Youth employment is severe: even graduates returning from a university education overseas find that there are no jobs waiting for them. The longer-term outlook may not be too bright either. In an interview granted to the Sunday Telegraph (London) on 25 June 2000, Sheikh Yamani, the former Saudi oil minister, warned that “after five years there will be a sharp drop in the price of oil” because of excess supply coupled with lower demand caused by the introduction of new technologies, such as cell-fuel cars; and within thirty years there would be “a huge amount of oil — and no buyers”. The Stone Age did not come to an end because there was any shortage of stones. The implications of these views for Brunei are serious. The logic of Sheik Yamani’s position would be that, instead of conserving reserves, Brunei ought to pump out its oil as quickly as possible while there remains a demand for it. The Brunei National Economic Council, chaired by HRH the Perdana Wazir, held its first meeting on 5 August 1998 to consider a programme of economic reform. The Council’s Report, released in February 2000, envisaged a two-stage approach. Firstly,

3

POLITICAL OUTLOOK

there would be an immediate “stimulus package” of B$200 million in order to inject liquidity into the economy and restore confidence. The money would be directed towards small businesses. Secondly, there was to be a longer-term “strategy for sustainable growth”. Privatization was recommended as a means to control government expenditure, eliminate waste, and reduce the size of the public sector. Suitable targets for sell-off included telecommunications, water supply, and electrical services. Tax reform and removal of subsidies were urged. HRH the Perdana Wazir was himself appointed to implement the policy; and on 20 March a secretariat was established. The action plan notwithstanding, six months later, bankruptcies have reached a disturbing level and business confidence remains low. In July–August, plans were announced for the establishment a “Brunei International Financial Centre”, designed to make Brunei a centre for banking, securities, and insurance. High priority was placed on the development of a niche market in Islamic financing and the prevention of money-laundering. In international affairs, HM the Sultan is well-received in Saudi Arabia and has quickly established a close rapport with the new monarchs of Jordan, Morocco, and Bahrain. Diplomatic relations were established with Lesotho (30 March), Kazakhstan (14 June), and Latvia (14 July), El Salvador (28 August), and Tanzania (6 October). Links with Africa were further upgraded by the exchange of state visits with President Rawlings of Ghana. Working visits were paid to Canada and to existing friends in Southeast Asia and the Middle East. The sultanate became the focus of international attention as host of the APEC summit in November 2000. APEC 2000, which had been given the theme “Delivering to the Community”, discussed the multilateral trading system, human resources development, and globalization. The need to take on staff to cater for about 6,000 visitors temporarily helped to ease unemployment. A boost to tourism is seen as a way of weaning the economy away from dependence on the hydrocarbon sector. The Visit Brunei Year aims to attract one million visitors in 2001. A vigorous “kingdom of unexpected treasures” promotion is under way designed to sell the sultanate around the world. Overall, as the sultanate approaches the year 2001, there are certainly some reasons for optimism, though many intractable problems remain.

Indonesia

4

I

ndonesia continues to experience serious problems since the financial crisis that began in December 1997 and culminated in a crisis of political succession in May 1998. While economic growth (currently at 4 per cent of gross domestic product [GNP]) has returned to the economy — driven by domestic consumption and exports — a myriad of economic, social, and political problems continue to haunt the archipelago. Provisions for regional autonomy, due to be implemented in 2001, represent a major challenge for Indonesia. In August 2000, President Abdurrahman Wahid (also known as Gus Dur) announced a new cabinet line-up trimming the executive from thirty-three to twenty-six. Mr Abdurrahman’s

THE ASEAN-6

Indonesia Land Area:

1,919,443 sq. km.

Population:

225 million (July 2000 estimate)

Capital:

Jakarta

Type of Government:

Presidential government based on the 1945 Constitution

Head of State:

President Abdurrahman Wahid

Next Election:

June 2004 (parliamentary) November 2004 (presidential)

Currency Used:

Rupiah

US$ Exchange Rate on 14 November 2000:

US$1 = 9,328 rupiah

reshuffle was remarkable in the sense that he defied all expectations of either a multi-party or a non-partisan technocratic cabinet and opted for an executive drawn mostly from either his own party or close supporters. The markets initially reacted badly to the cabinet, principally due to the inclusion of Prijadi Praptosuhardjo as Minister for Finance after he earlier failed a “fit-and-proper” test to run a minor bank. Given that the President’s party, the Partai Kebangkitan Bangsa (PKB), took less than 13 per cent of the vote, the new cabinet will struggle to appease a greatly empowered legislature in newly democratized Indonesia. VicePresident Megawati Soekarnoputri was noticeably unhappy about the line-up and refused to be present at the formal announcement. However, her party, the Partai Demokrasi Indonesia– Perjuangan (PDI-P), seems content to abide by Mr Abdurrahman’s decision and wait for a chance to take power somewhere down the track. The Muslim parties (sometimes collectively known as the Poros Tengah) and most of the Golkar Party prefer Mr Abdurrahman to Mrs Megawati, and in the absence of a credible challenger (and health permitting), the President seems likely to survive politically over the next twelve months (certainly until the next MPR, or People’s Consultative Assembly, session in August 2001). The current administration continues to be marred by the erratic and capricious style of the President himself. Many of his statements contradict policy proposals and the President has little grasp of the details of legislation currently under consideration. Statements on issues such as those on Aceh, Ambon, regional autonomy, and the bomb blast at the Jakarta stock exchange have all created confusion. However, the President seems determined to further remove himself from the day-to-day running of the affairs of state (although

5

POLITICAL OUTLOOK

constitutionally he retains full executive power). President Abdurrahman will continue to play the role of an overseer of the broader picture, akin to that of an aloof monarch, who intervenes when he feels it necessary. The President will also continue to play the role of international statesman, and a recent decision to consider the acquisition of a presidential jet bears all the hallmarks of a desire for international stature. Despite Mr Abdurrahman’s early rhetoric of forging an alliance, or community, of Asian nations and turning away from the West, Indonesia’s foreign policy has been far more accommodating and orthodox than it was first thought. Indonesia will remain unable to take a proactive leadership role in ASEAN; however, it will continue to value its links with members of the Association of Southeast Asian Nations (ASEAN) as the core of its foreign policy outlook. Much of Indonesia’s foreign policy efforts to date have revolved around securing the resources to ride out the effects of the financial crisis (International Monetary Fund [IMF] disbursements, bilateral aid, trade, and investment) and gaining reassurances from the global community of the ongoing recognition of Indonesia’s existing borders as a means to undercut independence movements in Aceh and West Papua. Beyond that, President Abdurrahman has personally tried to play the role of intermediary statesman in various trouble spots, notably the Middle East. In order to engage in international diplomacy (Mr Abdurrahman has set a world record for global travel during his first year in office), and also because of health reasons, he has delegated the chairmanship of the cabinet to the Vice-President. However, Mrs Megawati is equally disinterested in policy detail, and sees herself as the rightful future leader of Indonesia based on “primogeniture” rather than any policy direction which she can promise the country. With the President and Vice-President either unable and unwilling to handle policy detail, government management will increasingly fall to the two co-ordinating ministers (menteri koordinator or menko): namely, the Co-ordinating Minister for Economic Development, Rizal Ramli, and the Co-ordinating Minister for Politics and Security, Retired General Susilo Bambang Yudhoyono. Both menko come with high reputations and this current cabinet will be far more cohesive than the previous multi-party executive. Rizal Ramli is a highly respected economist and former anti-Soeharto activist, and despite his neo-protectionist views, the demands of reviving the Indonesian economy will prevent Indonesia straying too far from the IMF’s largely (but not exclusively) neo-liberal prescriptions. Bambang Yudhoyono faces the extremely difficult task of simultaneously reining in the Indonesian military (TNI) while attempting to settle security problems in Aceh, Ambon, Papua, and Timor. The TNI is, quite self-evidently, a divided institution. While reports vary on the number of factions in the military, the high command have been unable to completely control the actions of rogue military elements that support Timorese militia groups or the absurdity of the military and the police actively participating in sectarian violence on different sides in the Ambon conflict. The TNI’s power is somewhat in abeyance given its deep unpopularity amongst Indonesians and the President has demonstrated his ability to remove its senior officers at will. This should preclude the military taking formal power in the immediate future; nonetheless it is still entrenched in the bureaucracy and in business interests and remains a long-term threat to the civilian leadership. As the TNI are the main potential challenge to Indonesia’s civilian rule, the taming of the military bodes well for the (continued on page 8)

6

THE ASEAN-6

EAST TIMOR’S DIFFICULT TRANSITION TO INDEPENDENCE By Anthony L. Smith

E

ast Timor (or Timor Loro’sae) is set to gain independence some time after the 2001 general elections and will become the newest state in the AsiaPacific region. Economic prospects for the territory have never been expected to be bright, and trouble around the border continues to have a destabilizing effect. On 30 August 1999, 78.5 per cent of East Timorese chose to become independent from Indonesia after nearly a quarter of a century of massive human rights abuses. Immediately after the vote, pro-Indonesia militia groups, seemingly without any opposition from the Indonesian military (TNI), destroyed 70 per cent of East Timor’s infrastructure, killed a large number of independence supporters and forced more than 200,000 across the border into West Timor. The motive for this vengeance, almost certainly aided by elements of the TNI, appears to have been to demonstrate to other restive provinces the price to be paid for secession. This explains why there are continued security concerns in both East and West Timor which the Indonesian political authorities seem unable to allay. In March 2000 the Indonesian President, Abdurrahman Wahid, made a historic visit to East Timor and offered a full apology for the past. Much of this goodwill has been undermined by a series of subsequent events which have made it apparent that while the pro-Indonesian militia groups cannot challenge East Timor’s survival, they are proving both a major irritant to the United Nations and the East Timorese, on one hand, and an embarrassment to the Indonesian government, on the other. The deaths of two U.N. peacekeepers in East Timor and then the killings of three U.N. aid workers in West Timor with the Indonesian security forces simply looking on, provoked strong reaction from all over the world. While Alwi Shihab, Indonesia’s Minister for Foreign

Affairs, has indicated a willingness to settle the issue of East Timorese refugees in West Timor, this issue seems far from being resolved by concrete action. Security threats aside, the challenges for the new state are formidable. First of all is the need to achieve political stability and identity. United Nations sources have indicated that an election for officials will be held in the middle of 2001. Full independence will be granted to the elected officials at some point after that date. Already there are serious signs of tensions. There is well-documented tension between the U.N. Transition Authority in East Timor (UNTAET) and members of the independence umbrella grouping, the National Council of Timorese Resistance (CNRT). UNTAET has tried to devolve more responsibility to local leaders but still faces the charge that it fails to consult with the East Timorese people. There are also well-known divisions within the CNRT. Senior Falintil (the armed wing of the pro-independence movement Fretilin) members have, in recent times, attempted to preclude Nobel laureate and CNRT deputy leader, Jose Ramos-Horta, from a future leadership role. Xanana Gusmao briefly resigned as CNRT leader in August 2000 over these divisions but quickly resumed responsibilities. Gusmao appears to enjoy the support of most East Timorese and senior leaders of the CNRT, which will help to mask over coalition cracks. Gusmao would win any election in the future and seems likely to be persuaded to back away from his statements that he does not wish to run for the presidency. The administration that takes power in 2001 will need to confront some fundamental issues of statehood, such as the use of language (Tetum, Indonesian, Portuguese, and/or English); currency (UNTAET uses the U.S. dollar but Indonesian money still circulates amongst the districts); the banking system; the nature of the security forces (a plan to have no military has

7

POLITICAL OUTLOOK

EAST TIMOR’S DIFFICULT TRANSITION TO INDEPENDENCE (continued)

been quietly dropped); which international and regional organizations to join; and so on. The signs are that the foreign policy of East Timor will be accommodating to the Association of Southeast Asian Nations (ASEAN). Moving away from earlier statements made by Ramos-Horta that an independent East Timor would join the South Pacific Forum, both Gusmao and RamosHorta’s tour of ASEAN countries in early 2000 was a strong indication that either full membership of ASEAN, or some kind of observer status, will be sought by the East Timorese leadership. While Indonesia is supportive of bringing East Timor into the ASEAN fold, or at least allowing East Timor to sign agreements such as the Treaty of Amity and Co-operation, other ASEAN members are more circumspect about what this means for the intended economic integration of the regional organization. The second major challenge will be economic development. East Timor has long been aid-dependent in a sense since 1975, when Indonesia spent more on East Timor per capita than on any of its provinces. By 1999 this expenditure amounted to US$110 mil-

lion. This gap left by Indonesia will have to be filled by the international community, and so far countries have pledged more than US$165 million to the Trust Fund for East Timor (the largest amounts coming from Australia and Japan, which may be an indication of future aid patterns). There is little doubt that East Timor will be aid-dependent into the future. However, there is some economic potential which may see the territory become partially self-funding over time. East Timor has oil reserves, although these have not been successfully tapped given the difficulty of offshore drilling in the Timor gap. In the more immediate term East Timor’s arabica coffee is highly regarded and organic (by an accident of farmers being unable to afford pesticides and fertilizers), and commands a premium in affluent markets — notably, Starbucks uses East Timorese coffee. Tourism is also often cited as an economic potential as increasingly adventurous travellers demand new and pristine destinations (East Timor is both picturesque and unpolluted); however, this trade will not be actualized until there is greater security.

continuation of the democratization process which, despite the serious domestic difficulties, seems to be robust. Despite the loss of East Timor in 1999, and the heart that this has given to independence movements in Papua and Aceh, Indonesia is highly unlikely to fragment further at the margins over the next few years, although this possibility cannot be entirely precluded in the future. A Papuan congress in 2000 which virtually called for independence has angered much of the political élite in Jakarta, with some parliamentarians calling for a stern military response to alleged “treason”. The Humanitarian Pause in Aceh looks fragile and a continuing impassé remains. In both cases there will be no independence forthcoming in the immediate future as the international community will not readily give recognition to secessionist movements (East Timor, having been invaded by Indonesia in 1975, was exceptional). Many countries have already reaffirmed their commitment to Indonesia’s territorial integrity. If the Indonesian security forces are unable to cope with regional violence, pressure may grow in some sections of the international community for foreign intervention. Notably, the

8

THE ASEAN-6

violence in Ambon has continued unabated with President Abdurrahman declaring “let them fight until they are tired”. Unless there is a major escalation of the sectarian violence, the international community will most likely be content to apply pressure on Jakarta to engage in serious internal peacekeeping measures to halt the killings. Indonesia, one of the world’s most diverse countries, is due to implement provisions for regional autonomy. Laws 22/1999 (local autonomy) and 25/1999 (revenue-sharing with provinces and districts), signed in May 1999, allow for autonomy measures to be in force by May 2001, although Mr Abdurrahman has mentioned 1 January 2001 as a possible start date. Autonomy is to be given to the district level, not the provincial level. The central government will retain defence, foreign affairs, justice, overall monetary and fiscal policy, religious affairs, and the development of strategic natural and human resources, while the districts will in theory control the residual functions of government. The laws, rushed through under the Habibie administration, are poorly worded, contradictory, and inadequate. No proper formula for the distribution of resources has been decided on with expectations from both richer and poorer provinces that greater revenue will be forthcoming. Currently there is no clear picture of which authorities foreign investors will have to get approval from — national government, provincial government, and/or district representatives. Of the approximately 350 districts probably most do not have the resources to run the functions of government (inter alia, hospitals, health programmes, education, roading, transportation, and tax collection). The whole proposal will fail in many parts of Indonesia and will have to be altered significantly to be workable. The problems that face Indonesia’s political leadership are herculean in magnitude. Nevertheless there are signs of economic improvement around the archipelago, which should alleviate social problems and reduce public anger. Without the immediate prospect of Indonesia fracturing into smaller units, it will continue to muddle through the implementation of regional autonomy, which will dramatically alter the nature of governance in the country.

M

alaysia is under siege, Prime Minister Dr Mahathir told citizens in his annual independence eve address on 30 August. Jealous foreigners continued with their schemes to recolonize the country. An extremist Islamic group had just failed to overthrow the government by armed revolt. And extremist Chinese, just as dangerous as their Islamic counterparts and communists in the past, were seeking to exploit a divided and weakened Malay community. Extremists and “haters” (read: the opposition) should desist as the government would not be deterred, by international human rights concerns or anything else, if it felt national security were threatened. Dr Mahathir’s address was an acknowledgement that two years beyond the sacking of former Deputy Minister Anwar Ibrahim, and after two court cases had found Anwar guilty and sentenced to fifteen years’ jail, Malaysian society — particularly the Malays — remained deeply divided. It also revealed his preferred approach to this issue. Though the ruling Barisan Nasional (BN) won an overwhelming majority in the 1999 general election, the United Malays National Organisation (UMNO), its dominant party, lost

Malaysia

9

POLITICAL OUTLOOK

twenty-two seats in what was arguably its worst electoral performance ever. Reacting against the manner in which Dr Mahathir handled the sacking of his former deputy, and government unwillingness to embrace reformasi, Malays voted for the four-party Barisan Alternatif (BA), and particularly for Parti Islam SeMalaysia (PAS). UMNO received only around half the Malay vote (perhaps less), removing the main source of its legitimacy hitherto. Following the election, the government took several initiatives to try and curtail the BA. It adopted measures to separate religion and politics, invoked the Sedition Act against three top BA leaders and the Official Secrets Act against another, banned or reduced the frequency of the BA-affiliated media, and maintained a strict ban on public protest. A state government terminated the services of pro-BA doctors, a federal minister announced that BN supporters would henceforth have priority for educational loans, and the cabinet withdrew the payment of oil royalty to PAS-controlled Terengganu (guaranteed under a 1975 legal agreement). UMNO, on the other hand, had to be protected from divisions in Malay society by a “no contest” agreement for the top two posts at the May assembly. At this meeting, Dr Mahathir warned that the party must go back to its pro-Malay origins and become more Islamic, an approach that analysts dubbed the new “Malay Agenda”. In addition, it had to do more to “explain” government policies in what had become a “hostile” environment.

Malaysia

10

Land Area:

330,434 sq. km.

Population:

23.3 million (2000 estimate)

Capital:

Kuala Lumpur

Type of Government:

Federated parliamentary democracy with constitutional monarch

Head of State:

His Majesty the Yang di-Pertuan Agong Sultan Salahuddin Abdul Aziz Shah Alhaj

Prime Minister:

Dato’ Seri Dr Mahathir bin Mohamad

Next Election:

By 2004

Currency Used:

Ringgit

US$ Exchange Rate on 14 November 2000:

US$1 = RM3.80

THE ASEAN-6

UMNO was greatly helped by rapid economic growth (around 7 per cent), driven by a booming electronic exports sector, loose monetary and fiscal policies, and rising prices for oil exports. However, many government-linked companies remained deeply mired in debt, several large privatization projects had to be re-nationalized after massive losses, and government actions often appeared politically driven (such as the appointment of an UMNO parliamentarian to head the National Electricity Company). Foreign direct investment declined sharply for the third year in a row. Legal issues continued to embarrass the government, with four high-profile international organizations issuing a critical report on the Malaysian judicial system entitled Justice in Jeopardy in April. Subsequently it faced controversies over photographs of the Chief Justice meeting a leading lawyer on holiday, Dr Mahathir’s successful resistance to a subpoena requesting he give evidence in the Anwar sodomy case (after he had earlier given assurances he was willing to do so), and testimony at the same trial by a former head of the AntiCorruption Agency that Dr Mahathir had ordered him to stop an investigation. The guilty verdict, and the ruling that Anwar’s nine-year sentence be served consecutively with the sixyear corruption sentence, provoked strong domestic and international criticism. “Rightly or wrongly”, observed political scientist P. Ramasamy, “this will be interpreted as a political trial”. Other crises followed from mid-year. In May the head of the Malaysian Chinese Association (MCA), Datuk Seri Dr Ling Liong Sik, was pressured by his party to resign — for reasons variously attributed to family financial problems, management of MCA funds, and failure to advance MCA interests following party successes in the 1999 election — but a few days later withdrew the offer after gaining Dr Mahathir’s backing. More political fall-out followed in August when the Selangor Mentri Besar, a close ally of the Prime Minister, was forced to resign over allegations of sexual impropriety. Dr Mahathir’s view that this was a “personal problem” and should not be linked to UMNO, contrasted notably with his earlier position in relation to Anwar. Perhaps more alarming were a series of incidents that had communal overtones. The first followed Dr Mahathir’s attendance at the MCA annual assembly mid-June, where he expressed confidence that one day a Chinese or Indian could become prime minister. This did not go down well with some in UMNO, and a few days later Dr Mahathir claimed he was really warning Malays they could lose their supremacy: “If the Malays have become so weak, poor, begging from others and they are being bought with money to support the nonMalays, it is then possible that a non-Malay may hold the position.” On 2 July, Malaysians were shocked to learn of an arms heist at two army camps, subsequently attributed to an obscure Islamic sect, Al-Ma’unah. Over one hundred M-16 rifles were stolen, along with other weapons, including machine guns and grenade launchers, and a large amount of ammunition. In the ensuing conflict, two hostages and one of the gang members were killed. The security lapse, and the violence, were deeply troubling. But so too were conflicting government accounts of the circumstances surrounding the tragedy, and attempts to politicize it by linking Al-Ma’unah to PAS. The government’s account was widely disbelieved, and even dismissed as a sandiwara (drama or play). On 14 August the UMNO-linked Malay newspaper Utusan Malaysia led with the

11

POLITICAL OUTLOOK

provocative headline: “Destroy Malay Special Rights”. The article featured an interview with David Chua, Vice-Chair of the government-appointed National Economic Consultancy Council, who had spoken of reducing economic affirmative action for Malays in an interview published a week earlier in the Far Eastern Economic Review. In the days that followed, Utusan Malaysia played up the alleged threat to Malay rights, relating this particularly to “17 Points” drawn up by the Malaysian Chinese Organizations Election Appeals Committee (Suqiu) and “accepted in principle” just prior to the 1999 election. On 17 August, an emotional Dr Mahathir promised not to budge “even one step” in defending Malay rights; UMNO Youth then demanded an apology from Suqiu during an unruly demonstration in front of the Selangor Chinese Chamber of Commerce, and the new Selangor Mentri Besar promised any sacrifice, “even bloodshed”, to defend Malay rights. Finally, Dr Mahathir warned Suqiu in his independence day address. Such efforts did not help the government, or UMNO, win back support. On a visit to Kuala Lumpur in August, Singapore’s Senior Minister Lee Kuan Yew was “bewildered” and “perplexed” by the extent of cynicism and scepticism towards the government. BN retained seats during by-elections in April and June, but made no inroads on Malay support for the BA. Karim Raslan, a lawyer and writer close to BN, wrote in late August that “the UMNO machinery has spluttered to a halt”. Can UMNO regain ground? With party elections some three years off, and the next general election not due till 2004, time is on its side. UMNO has been re-energized, with more frequent meetings at all levels, regular information sessions, and up-to-date reports on the Internet. UMNO leaders speak of the need for rejuvenation, and even succession. They talk the vocabulary of good governance, going down to the masses, and opposing corruption. UMNO’s challenge is to put such idealistic concepts into practice. For that to occur there must be some let-up in the politics of confrontation, communalism, and punishment, and movement towards reconciliation. The government might support cautious steps in this direction by the new Human Rights Commission, rather than questioning the Commission’s motives. Other possible initiatives include re-examining laws restricting political participation, support for a more independent and critical media, and permitting greater democracy within UMNO. The government could also demonstrate willingness to pursue anti-corruption activities against the proverbial “big fish”, and pursue initiatives to restore the prestige of the judiciary. Should UMNO fail to move in these directions it could well follow the path of ailing dominant parties that have preceded it, including the Congress Party in India and the Kuomintang in Taiwan. The opposition coalition remained intact in 2000, against many expectations, but tensions within and between parties were often evident. Two areas will be critical in the immediate months. PAS and the predominantly Chinese Democratic Action Party must adhere to their agreement for regular BA consultation before acting on sensitive issues, and make some progress towards a programme on Islamic issues acceptable to non-Muslims. Secondly, keADILan must contain conflicts within its own ranks, and ensure the planned merger with Parti Rakyat Malaysia proceeds without creating too many divisions. Then, if UMNO fails to reform, the opposition would indeed be in a position to offer an alternatif.

12

THE ASEAN-6

T

he first year of the new century was not a good one for the Philippines. Although the Philippine economy coped with the Asian financial and economic crisis of 1997–98 quite well, retaining strong economic fundamentals and a stable financial sector, political sentiment threw a monkey wrench into the process of recovery. Concerns over cronyism and corruption discouraged investors. A spate of scandals and controversies weakened efforts to return the economy to full health. A weak presidency stalled the process of reform and caused the Philippines to miss many opportunities in the brief window for vigorous growth that had opened up after financial stability returned to the region and before rising oil prices cast a large shadow. Joseph Estrada was swept to the Philippine presidency in 1998 on the crest of populist expectations. The regional downturn undermined the legitimacy of the liberalization reforms of the previous few years. A confused and desperate people wanted economic protection restored, state subsidies reinstated, and the process of “globalization” stopped in its tracks. Estrada, politically packaged as the champion of the poor, tapped into the frustrations of the marginal sectors for electoral support. His rise to power exasperated the forward-looking sectors of the population. The first year of the Estrada presidency was characterized by confused governance. The re-emergence of businessmen associated with the Marcos dictatorship alarmed mainstream business and the middle classes. Former Marcos ally Eduardo Cojuangco took the chairmanship of San Miguel Corporation while taipan Lucio Tan moved quickly to control the Philippine Airlines and the Philippine National Bank. A slew of presidential executive orders granting special exemptions to favoured interests caused business confidence to collapse — even though most of these enactments were subsequently reversed by strong opposition. Erratic leadership and the inevitable failure to deliver on the most pompous populist promises began to take a serious toll on Estrada’s popularity ratings. For three consecutive quarters from mid-1999, Estrada’s ratings plunged perilously. In January 2000, responding to criticism from the business community about policy uncertainties, the administration established a cabinet-level Economic Co-ordinating Council (ECC). All policies affecting the macroeconomic policy architecture would need to pass this committee. Justified as a step to ensure policy coherence, the real value of the ECC was to assure investors that Estrada’s propensity to act whimsically in granting special political favours to friends without consulting his senior officials would be contained. The ECC seemed powerless, however, to prevent the most blatant cases of cronyism. These include Lucio Tan’s efforts to abrogate air agreements with Taiwan to protect his

Philippines

Editors’ Note: There have been dramatic developments in the Philippines since this piece was written at the end of September 2000. Allegations that President Estrada had received large sums of money from illegal gambling syndicates caused a public outcry and led to the impeachment of the President by the House of Representatives. A senate trial was to follow. At the time this book went to press, it was not clear if the senate would find him guilty and remove him from office, for which a two-thirds majority vote would be needed. But it seemed increasingly obvious that without a change of leadership, confidence in the economy on the part of foreign investors would not return. In the event of Estrada’s resignation or ouster, it is anticipated that Vice-President Gloria Arroyo would become President.

13

POLITICAL OUTLOOK

Philippines Land Area:

300,000 sq. km.

Population:

77 million (1998 estimate)

Capital:

Manila

Type of Government:

Republic, with American-style presidency and two-chamber Congress

Head of State:

President Joseph Estrada

Next Election:

May 2004

Currency Used:

Peso

US$ Exchange Rate on 14 November 2000:

US$1 = 49.90 pesos

airlines, his ability (again!) to avert prosecution for tax evasion involving some P25 billion and persistent reports of unexplained wealth involving President Estrada’s mistresses. The reorganization of Estrada’s staff did not dramatically improve management at the highest level nor significantly boost investor confidence. In a matter of weeks, an academic named Estrada’s chief of staff was unceremoniously fired after only a few days on the job. This happened after he publicly admitted to the continued existence of what Filipinos have nicknamed the “Midnight Cabinet” — close Estrada friends who convene at the Palace in the wee hours to keep an insomniac Chief Executive company. Investor confidence was further eroded by a scandal involving insider trading and stock price fixing at the Philippine Stock Exchange. In the face of efforts to hush up the scandal involving a close Estrada supporter, the entire Compliance and Surveillance Group of the Exchange walked out of their jobs. Hundreds of millions of dollars worth of portfolio investments left the Philippine market with them. For the remainder of the year, the Philippine stock market would remain in the doldrums. A substantial drop in direct investment flows harmed the economy even more. By April, the unemployment rate jumped up from 7.7 per cent to over 13 per cent in just four months. The portion of the population under the poverty line increased by over 2 per cent. After two years in office, the reform policies Estrada outlined to appease the business community have mostly not been delivered. Lack of presidential focus in improving coordination between the executive branch and congress led to the delay in legislating new reforms. These reforms, including a new central bank act and the privatization of the government’s electricity monopoly among others, remained stalled in one of the chambers

14

THE ASEAN-6

of the Philippine Congress. In the first two years of the Estrada presidency the LegislativeExecutive Development Advisory Council (LEDAC) — a crucial mechanism for concerted action by the two branches of government — was convened only twice, at both instances after senators passed resolutions calling for the body to be convened. The law requires that the LEDAC be convened at least once every quarter. During the Ramos presidency, this council met regularly every other week. Clearly, the instant economic gratification that the poor somehow expected by electing Estrada president was not materializing. Even the mass housing programme — officially the centrepiece of the administration’s social amelioration programme — was mired in turf fighting among the powerbrokers surrounding the President. The free-fall in Estrada’s popularity ratings encouraged rumours about possible coup attempts as well as scenarios for constitutional pre-termination of the President’s term. The rumours began to die down by June, however, as Estrada’s popularity ratings began to pick up. The recovery in approval ratings was not primarily due to improved presidential management. It was due to war. Earlier in the year, the secessionist Moro Islamic Liberation Front (MILF) began more aggressive actions to improve their leverage in negotiations. After MILF rebels overran a small town in western Mindanao, however, Estrada yielded to military suggestions for a strong response. In a military campaign lasting three months, the Philippine military dismantled a total of thirty-six MILF encampments and cleared an important highway of rebel blockades. The MILF’s main camp Abubakar was overrun in June, days before the second-quarter surveys to determine the President’s popularity were fed out to respondents nation-wide. The military victory was primarily credited for the dramatic surge in Estrada’s popularity ratings. While the Mindanao military campaign strengthened Estrada’s political position, it had devastating effects on the national economy. The images of conflict created greater political uncertainty among investors. The war itself diverted government resources. With less money available for economic investments, economic growth remained mediocre. The skirmishes between secessionist rebels and government forces received more international attention than they deserved after Abu Sayyaf bandits in the small island of Jolo kidnapped foreign tourists from the nearby Malaysian island of Sipadan. The long negotiations with the kidnappers saw the Estrada administration at its worst level of incompetence. Despite an official no-ransom policy, it was clear that money was flowing into the bandit encampments. It is estimated that the bandits made as much as US$16 million from the Sipadan hostages — the bulk of the money contributed by Libya and passed on to the rebels allegedly through the government’s own negotiating panel. The long-drawn Jolo hostage crisis became emblematic of the general ineptitude that characterizes governance under the Estrada presidency. Finally, by mid-September 2000, at the prompting of military leaders, Estrada ordered a full-scale commando assault on the encampments of the pesky Abu Sayyaf. Not coincidentally, the assault began a few days before the third-quarter surveys were to be fed out. While the necessity for a full-scale military operation was due largely to incompetent

15

POLITICAL OUTLOOK

handling of the bandits in the five months preceding, it is generally conceded that the decision to finally attack the bandit lairs in force would shore up Estrada’s popularity. After over two years with Estrada at the helm, the presidency ceased to be the vantage point for building a strong consensus on a vision of the national future. A president uninterested in grasping the nuances of policy issues squandered the vast potential of the high office for building constituencies for the reforms that will propel the nation forward in the new century. Instead, it appears that the Estrada presidency is disposed to seeing every issue as a public relations problem for which there should be a public relations solution. President Estrada seemed comfortable putting in only the most minimal amount of work to prevent his presidency from being seen as idle. He made public statements only often enough to avoid total invisibility. His closest supporters portray this as a better state of affairs than having an active presidency that intervenes inconsistently in the policy-making process and makes inconsistent statements at every turn. Partly as a result of Estrada’s general work-aversion, he had neglected building a definitive political party apparatus to back up his rule. The loose coalition that brought him to power was never even officially registered with the Commission on Elections. Consequently, there will be no “administration party” contesting the mid-term elections in May 2001. Instead, the election which will involve all local government posts, the entire House of Representatives and half of the senate, will be a free-for-all among a dozen or so political parties. Albeit belatedly, the system should begin adjusting to the reality of a weak presidency. As indicated by the establishment of the ECC, the bureaucracy will begin building coping mechanisms that will assure policy coherence and prevent the return of policy exceptionalism to any significant degree. But economic difficulties are likely to increase in the face of higher oil prices and a weaker currency. Business confidence is not likely rise in the foreseeable future. In sum, the next two years will most probably seem long and uneventful — unless by some surprising turn of events, the Estrada presidency raises its energy level dramatically and manages to evolve visionary leadership.

Singapore

16

D

omestic political issues, which have generally been kept well in the background over the past few years, will likely come to the fore in Singapore in 2001. This is because political parties in the city-state will be girding themselves for the next general election, which has to be held no later than the first-quarter of 2002, and could well take place sometime in 2001 should the ruling People’s Action Party (PAP) consider the timing propitious. One issue in which the opposition parties are likely to tap a reservoir of disaffection among Singaporeans is the widening income inequalities which have become more apparent over the past two years, particularly in the wake of the regional economic crisis. Bright and talented Singaporeans with a cosmopolitan outlook, and who are considered highly mobile

THE ASEAN-6

in their professional careers, will see significant jumps in their remuneration, commanding international, or First World, salaries. On the other hand, the majority of the population, made up of unexceptional or average abilities, will likely witness relatively sedate salary increments, and in some cases no increments or indeed a reduction in salary. This prognosis is based on the increasing ease of movement of labour among countries and the existence of a large pool of unskilled labour in many regional states, which will impact on the salaries of the not-so-able or not-so-talented in the city-state. The degree to which income inequalities had widened was highlighted in the figures released by the Department of Statistics (DOS) in May 2000. The DOS noted that more Singaporean households are now in the lower-income bracket. The number of households with monthly incomes of less than S$3,000 rose to 42 per cent in 1999, up from 40 per cent in 1998. The DOS also revealed that the top 20 per cent earned eighteen times more than those in the bottom 20 per cent; the ratio had been fifteen in 1998. As the DOS’ Chief Statistician, Paul Cheung, was to note in a press interview: “We are observing the beginning of a trend of increasing income disparity in Singapore, and the gap may remain.” Although the Singapore government’s view is that the widening income gap is the result of the effects of globalization and, therefore, is beyond the government’s control, many Singaporeans — particularly those at the bottom end of the income scale — might not view it as such. Many Singaporeans see a link between growing income inequalities and the government’s policy to throw the doors wide open to foreign talent, which is the second hot political issue that the PAP will have to manage in the run-up to the next election.

Singapore Land Area:

660 sq. km.

Population:

4,017,733 (year 2000 census)

Capital:

Singapore

Type of Government:

Parliamentary democracy

Head of State:

President S.R. Nathan

Prime Minister:

Goh Chok Tong

Next Election:

By 2002

Currency Used:

Singapore dollar

US$ Exchange Rate on 14 November 2000:

US$1 = S$1.74

17

POLITICAL OUTLOOK

While surveys in 1998 had shown that most Singaporeans were generally supportive of the move to bring in foreign talent at all levels, there was also the view expressed that too many foreigners might “destabilize Singapore”. Since then, negative sentiment towards foreign talent seems to have been on the ascendant as a result of the perception that foreigners have been taking the jobs of Singaporeans. This view gained currency in 1999 and 2000 as companies continued to retrench workers as a result of the restructuring of their operations, and notwithstanding the fact that the Singapore economy had made a relatively rapid and sharp recovery from the Asian economic crisis. The negative sentiment was made worse by revelations that Singapore’s population had hit four million in 1999, assisted largely by an influx of foreigners, with one out of four people living in Singapore now being non-Singaporean. In an interview published in the Business Week magazine in June 2000, Trade and Industry Minister Brigadier-General George Yeo revealed: “For every two babies that are born in Singapore, we bring in one foreign permanent resident.” He also said that Singapore had “become a migrant society all over again”. Those Singaporeans who have misgivings about this state of affairs focus also on the issue of benefits versus responsibilities, particularly of male Singaporeans who have to perform two to two-and-a-half years of National Service with the Singapore Armed Forces. There is also the perception that the playing field has been made uneven between foreigners and locals in certain professions. Linked to that is the sense of marginalization felt by some less well-off Singaporeans as droves of new migrants — many seen to be of merely average ability — settle in the city-state. Although these issues might erode the ruling PAP’s share of the popular vote in the forthcoming election (the PAP secured an average of 65 per cent of the popular vote in contested constituencies in the 1997 election), they might not translate into parliamentary gains for any of the opposition parties. This is primarily because, with the exception of nine single parliamentary seats, the other seats are composed of fifteen Group Representation Constituencies (GRCs), whereby political parties have to field a team of between four and six members. The PAP has always ensured that each of the fifteen GRCs are anchored by a cabinet minister. This tactical deployment has made it a herculean task for even the best opposition party teams to come close to securing a majority in the GRCs. This is largely due to the esteem and reverence with which authority figures are held in the hierarchical society that is Singapore, and cabinet ministers are at the apex of that hierarchy. Indeed, a curious situation might arise in the next election, whereby the combined opposition parties’ popular vote is enhanced but they in fact lose one of their existing two constituencies to the PAP. This is the parliamentary constituency of Potong Pasir, where the incumbent member of parliament (MP), Chiam See Tong, holds a slender majority, of 55.15 per cent of the vote, and where the PAP has been concentrating its efforts to wrest back the constituency, which it first lost to Mr Chiam in the 1984 general election. This scenario of the disjunction of seemingly growing popular disaffection, as measured in a (possible) reduction in the PAP’s share of the popular vote, and that of a lack of parliamentary voices to give expression to that disaffection seems to be well recognized by the ruling party. It has attempted to ameliorate the significance of that disjunction by providing Singaporeans with other channels to give vent to any grouses they might have. The

18

THE ASEAN-6

Nominated Member of Parliament (NMP) scheme is one such channel. This scheme allows prominent Singaporean personalities from the professions and major interest groups (like the labour movement and the chambers of commerce) to be nominated by a special selection committee, to sit in parliament for a two-year term. Their role is to provide an independent or non-partisan voice. There are currently provisions for nine NMPs, and the scheme has generally proven to be a success. The government might well expand the number of NMPs in the wake of the next general election should the opposition parties’ parliamentary presence be diminished or remain constant even though there might have been an erosion in the PAP’s share of the popular vote. Another potential channel for alternative voices to be heard is civil society. A civil society movement has not grown as much or as vibrantly as some leading lights in the movement had hoped for. And, indeed, Singapore’s experience with an embryonic civil society has been in direct contrast with that of other Asian polities, whether it be Malaysia, Indonesia, Thailand, the Philippines, Taiwan, or South Korea. In these states, civil society has emerged as a major pillar that ruling élites can no longer ignore. In Singapore, however, the combination of a tightly controlled city-state and that of the PAP’s centrality and heavy entrenchment in its body politic, has not provided for a critical mass of civil society activists to come to the fore. Moreover, public cynicism and apathy over any matter that is vaguely political has also not helped. Indeed, in so far as civil society is concerned, a large part of the public cynicism about its utility has to do with the perception that the government’s interpretation and definition of it is different from the accepted universal understanding of the concept. It would seem — or at least there is a widespread public perception — that the PAP government prefers to view civil society in terms of civic groups getting more involved in social welfare work, thereby reducing the government’s responsibility in that area, which would become an increasingly important consideration for the government in view of Singapore’s rapidly ageing population. On the other hand, the more universally accepted understanding of the concept of civil society is that of non-governmental organizations (NGOs) providing an alternative view of social and political reality to that conceived by the government, and where such organizations play a role in providing inputs into policy formulation. For the period 2001–2002, it is safe to conclude that civil society is unlikely to make much of an impact in Singapore. Notwithstanding that, there has been one recent significant modification in the atmospherics, if not substance, of Singapore’s democratic evolution, and relates to a third channel through which dissent can now be articulated. This was the establishment of a Speakers’ Corner in September 2000 in Hong Lim Park, located in Singapore’s Chinatown area. Modelled somewhat along the lines of Speakers’ Corner in London’s Hyde Park, the Singapore version is intended to provide Singaporeans a public platform to speak on issues that interest or concern them without having to apply for a permit from the police force’s Public Entertainment Licensing Unit. That said, though, Singapore’s Speakers’ Corner is not a direct replica of the one in Hyde Park. The Singapore version does not allow speakers to comment on racial, religious, or language issues that might offend the sensibilities of sections of the public. Also, speakers are not given immunity from legal action under the existing laws of defamation. Despite these constraints, the setting-up of a Speakers’ Corner

19

POLITICAL OUTLOOK

in Singapore is still a major departure from the usual PAP government stance of discouraging any kind of public discourse that might be considered adversarial. Thus far, Singapore’s Speakers’ Corner has had a mixed response. Some members of the more reputable opposition political parties have denounced it as merely tokenism on the part of the government and have refused to utilize this new public channel. Instead, they have called on the government to remove all restrictions on free speech in Singapore. However, it is likely that as there are more indications of an approaching general election, these same opposition figures might find it useful to utilize the Speakers’ Corner to spread their message since public electioneering is not allowed outside the official election campaign period, which has usually been a mere nine days. This prospective development would add to a livelier political environment in Singapore over the next year. Overall, the political outlook for Singapore over 2001–2002 is unlikely to throw up any major surprises, even though a general election is due. However, the government will have to think up novel ways to manage the aspirations of an increasingly sophisticated and demanding electorate.

Thailand

20

M

arch 2000 was a landmark month in Thai politics. In compliance with the 1997 reform constitution, voters began casting ballots in the first-ever senate election. Three weeks later, seventy-eight of 200 elected senators were disqualified because of fraud. Shortly after, the new National Counter Corruption Commission (NCCC) found the second most powerful politician in the country — Deputy Prime Minister and Minister of Interior Sanan Kachornprasat — guilty of under-declaring his assets. Sanan immediately stepped down from public office, and was forced to resign as Secretary-General of the ruling Democrat party in August when the new Constitution Court upheld the NCCC’s findings. This was not just political reform, declared journalist Kavi Chongkittavorn, but “a political revolution at its best”. But senate elections soon became messy, with another four ballots necessary before they ended. The senate could not convene until August, five months later. As the process dragged on, it attracted increasing disappointment and ridicule, and more and more allegations about the continuing influence of money politics and traditional practices. Elections for the governor of Bangkok in July saw a runaway win to controversial, right-wing, populist 65year-old Samak Sundaravej — 1,016,096 votes, compared with 521,184 for the new Thai Patriotic Party (Thai Rak Thai, or TRT), led by telecommunications billionaire Thaksin Shinawatra, and 247,650 for the Democrats. And as the general election approached, the TRT “sucked” over one hundred parliamentarians to its side in a manner reminiscent of traditional parties in the past. Besides elections, several other developments were less than encouraging. In July the government acted with unnecessary heavy-handedness — employing batons and tear gas in front of an assembled mass media — in arresting protesters against the economically and environmentally disastrous Pak Mool irrigation and hydro-electricity dam. And around

THE ASEAN-6

Thailand Land Area:

514,000 sq. km.

Population:

61.7 million (2000 estimate)

Capital:

Bangkok

Type of Government:

Parliamentary democracy with constitutional monarch

Head of State:

King Bhumibol Adulyadej

Prime Minister:

Chuan Leekpai

Next Election:

January 2001

Currency Used:

Baht

US$ Exchange Rate on 14 November 2000:

US$1 = 43.62 baht

August/September a series of seminars and other reports highlighted continuing problems of corruption. Many analysts focused on such problems, and declared the reform process had ground to a halt. In both June and September the Far Eastern Economic Review described Thailand as a mai pen rai (never mind) country — it left until tomorrow the imperatives of today, and had failed to follow through on reform. The critics were right to highlight set-backs to reform. What they failed to recognize, however, was that the overall trend remained forward. In the senate elections, over 70 per cent voted in the first round, the highest turnout ever. The new independent Election Commission (EC) was more efficient in ensuring free and fair elections than its predecessor. It demonstrated independence by acting against fraud — many of those disqualified were from rich and powerful families, unaccustomed to being treated in such a manner — and sent a warning to candidates in the forthcoming general election. Probably a majority of those elected were from respected backgrounds, including many from non-governmental organizations (NGOs). The new senate is intended to be apolitical (candidates could not be party members, and were not even allowed to campaign), and has an important watchdog role. In its first test it moved encouragingly to strengthen the power of the EC in the coming general election. The Bangkok elections were also a vote against money politics. Opinion polls showed that support for the TRT declined following its launch of an expensive, U.S.-style campaign,

21

POLITICAL OUTLOOK

and “sucking” of parliamentarians. Although its vote exceeded the Democrats, the TRT was the real loser. Engaged in its first electoral test — which the party hoped would be a launching pad to success in the general election — it suffered a crushing margin of defeat. The Democrats ran only a low-key campaign, focused less on winning than on stopping the TRT. On Pak Mool, the government made at least partial amends. A friend of the government bailed out the protesters, court charges were not pursued, and the government acceded to several protesters’ demands — though exactly how many remains contested. Prime Minister Chuan, who in the past has generally retreated behind an insistence on proper bureaucratic procedures and not intervened personally, met with the protesters and declared that as a villager himself he would ensure their concerns were addressed. Other ministers subsequently met with protesters, and participated in a four-hour televised debate between the two sides on 17 August. This was, in the words of the Nation, “a new chapter in the development of participatory democracy”. Corruption scandals and questionable government expenditure continued to raise concern throughout the year, but these were highlighted mainly because of unprecedented exposure given to them by the government, media, academia, and, for the first time, business. The Civil Service Commission sponsored four separate surveys by independent consultants, and organized a major seminar on corruption in late August. Taken together with the actions of the EC and NCCC, this was indeed progress. Reform of a different kind could also be seen in Thailand’s growing willingness to come to terms with its past, including events and individuals frowned on by traditionalists. In May the military released a heavily censored 600-page report on killings during civil conflict in May 1992; a month later it yielded to public pressure and issued an almost uncensored version. And the 11 May 2000 birth centennial of Dr Pridi Banomyong, controversial former government leader and supporter of democracy and socialism — never before officially recognized — was marked by week-long activities. A vast Pridi publishing industry also sprang up, and his life celebrated in a musical. The next big test for political reform will be general elections, now set for 6 January 2001. Money politics and other traditional practices will undoubtedly continue to be used, but they will likely be the cleanest elections ever. EC powers have been strengthened by recent legislation, which should help it complete the election process more quickly than for the senate. No one party is likely to get an absolute majority, and speculation has now come to focus on whether the ruling Democrats or the TRT will lead the next coalition. The odds are against the Democrats. No democratically elected government has ever been returned in a general election. It has been affected in recent months by adverse international economic conditions, the Sanan episode, and its initial handling of the Pak Mool dispute. Still, it remains in contention. At the time of writing, the TRT has been greatly weakened by media revelations of Thaksin’s complicated financial affairs, and the opening of an NCCC probe into his asset declarations for a brief ministerial stint in 1997. A win by the TRT is widely feared by international observers, because of Thaksin’s antiforeign populist rhetoric, big-spending promises, and important party positions occupied by

22

THE ASEAN-6 INDOCHINA AND MYANMAR

old, controversial politicians. In practice, however, TRT’s policies are unlikely to differ radically from those of the Democrats. The many new laws and institutions put in place in recent years could not be easily dismantled. TRT pronouncements differ from other parties more in terms of “can do” claims than real policy differences. And Thaksin’s modest ministerial career thus far has not given any cause for alarm. Perhaps a greater concern is the possibility of political paralysis if self-interested factions brought together in the TRT fall out squabbling among themselves. A win by the Democrats would be more popular internationally. If it emerges stronger than in the current coalition, a Chuan III government would be well placed to intensify the reform process. Re-election would also help overcome negative perceptions of Thai governments as a revolving-door phenomenon. Still, whatever the election outcome, the gradual but difficult and often contested implementation of political, social, and economic reform looks set to continue. Thailand’s increasingly influential civil society will ensure that is so.

INDOCHINA AND MYANMAR Tin Maung Maung Than • Nick J. Freeman • David Koh

A

s the millennium year came and went, the coalition government of the Cambodian People’s Party (CPP) and FUNCINPEC (National United Front for an Independent, Neutral, Peaceful and Co-operative Cambodia) was free from the sort of political crises that had plagued the country during the 1990s. All the institutions of parliamentary democracy are in place and the government has not encountered any serious challenges to its authority since 1999. Prime Minister Hun Sen’s power over the government and the CPP’s dominance of the Cambodian parliament have never been stronger. Prince Ranariddh, leader of FUNCINPEC, as Speaker of the National Assembly has very little power and influence. Even King Sihanouk, hampered by ill health, has rarely played any significant role in the country’s political arena for some time. Questions on royal succession persistently crop up but no clear answer has emerged and the King appears to be in no hurry to step down. As expected, Sam Rainsy, leader of the opposition Sam Rainsy Party (SRP), continues to be the political gadfly. The Cambodia polity seems to have accepted the political reality of the asymmetrical coalition partnership in which the CPP calls the shots. Cambodia’s foreign relations entered a new era when the country was admitted into the Association of Southeast Asian Nations (ASEAN) on 30 April 1999. It has been an active participant in the ASEAN network, while trying to enhance its diplomatic resources with external assistance.

Cambodia

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POLITICAL OUTLOOK

Cambodia Land Area:

181,040 sq. km.

Population:

12 million (2000 estimate)

Capital:

Phnom Penh

Type of Government:

Parliamentary democracy with constitutional monarch

Head of State:

King Norodom Sihanouk

Prime Minister:

Hun Sen

Currency Used:

Riel

US$ Exchange Rate on 14 November 2000:

US$1 = 3,890 riel

The apparent tranquility in Cambodia’s political arena can be largely attributed to Premier Hun Sen’s proven ability to outmanœuvre and co-opt rivals and challengers alike. However, this does not mean that there are no more deep-seated and serious problems with the potential to destabilize the country yet again. One such problem is the stalled attempt to put together a tribunal to try former Khmer Rouge leaders deemed responsible for the genocide under the late Pol Pot’s regime. In fact, very little progress was made on the much-anticipated cases of General Ta Mok, the former military chief of the Khmer Rouge (captured in March 1999) and Kang Kek Ieu (known as Duch) who had commanded the notorious Tuol Sleng detention centre in Phnom Penh and who had surrendered in May 1999. As for Ieng Sary, Noun Chea, and Khieu Sampan, they are ensconced in former Khmer Rouge enclaves with no imminent danger of being prosecuted. The one-day trial and acquittal, on 18 July, of former Khmer Rouge commander (presently a colonel in the Cambodian army) Chhouk Rin, who was charged for the kidnapping and murder of three Western backpackers in 1994, was seen by some observers as an indication of the government’s reluctance to prosecute those who surrendered under the 1994 amnesty provisions. Others pointed out that the amnesty condition under which Rin was freed could be used as a precedent for some potential defendants of the genocide trial. As for the tribunal proper, despite a memorandum of understanding between the Cambodian government and the United Nations in July 2000, the draft legislation empowering a mixed court with Cambodian and foreign judges has been moving very slowly towards eventual enactment. The government minister responsible for presenting the law to the Legislative Commission of the National Assembly (parliament) missed

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THE ASEAN-6 INDOCHINA AND MYANMAR

several deadlines and when the Commission adjourned in September only eight out of forty-seven articles in the draft had been reviewed. No target date for the conclusion of the review process was announced. Many observers have pointed out that apart from the apparent foot-dragging on the passage of the draft law, the debate in the National Assembly might be long and contentious with an uncertain outcome. Many fear that drastic revisions which will hobble the law may ensue and the outright rejection of U.N. involvement cannot be ruled out. There is also the question of who would be put on trial once the law is passed and the potential for instability and violence have been frequently cited as a reason for not prosecuting top Khmer Rouge leaders who had made peace with the government. Premier Hun Sen and influential politicians from the CPP have also alluded to the need for national reconciliation and have repeatedly asserted that the West and some ASEAN states are also culpable as they had supported the Khmer Rouge prior to the Paris Peace Accords. FUNCINPEC leaders have recently been silent on the draft law in particular and the trial in general, suggesting that they do not wish to offend the powerful coalition partner on this issue. Under these circumstances, with the contentious commune elections coming up in 2001, it is highly unlikely that the trial will take place in 2001, even in an anaemic form. Meanwhile, the ageing former Khmer Rouge leaders may die or become too ill to be fit for trial. As for the commune elections, concerns over the independence and neutrality of the National Election Committee (NEC), in which the party representation is skewed in favour of the ruling party, have been voiced. The election law that was passed by the cabinet on 18 August 2000, which allowed people to vote for a party rather than an individual is also seen as discriminating against independent candidates. There are also fears that the run-up to the elections will see an escalation of coercion and violence against candidates and activists of opposition parties and the rivalry between the two coalition partners will lead to confrontations. If the opposition, especially the SRP, stepped up the tempo of agitation and demonstrations on issues of corruption, border disputes, illegal logging, abuse of human rights, labour disputes, and local grievances, it could elicit harsh reaction by the powers that be, thereby setting off a cycle of defiance and repression leading to instability. The government’s aim to downsize the top-heavy army is likely to encounter problems due to the politicization of the military whose loyalty has been towards individual commanders and factions rather than to the state. The promised monetary compensation (US$240) is regarded as insufficient by the recipients and the resulting dissatisfaction could be a huge obstacle for the demobilization exercise. Moreover, paring the senior ranks where positions are tied to political obligations could turn out to be a contentious issue that could sorely test the coalition’s viability. Border disputes remain unresolved and will continue to create hiccups in relations with Cambodia’s neighbours. Incompatible maps, non-existent border demarcations, and the legacy of the past preclude a quick and easy solution. More specifically, Vietnam and Thailand will continue to be the source of irritation in this matter. Though the first three-quarters of the year 2000 have turned out well for Cambodian politics and external relations, there is some uncertainty for 2001 in view of the slow and meandering pace of progress on the road towards the setting-up of a genocide tribunal for

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POLITICAL OUTLOOK

former Khmer Rouge perpetrators of mass killings during the Pol Pot era. The United Nations and the Western powers may find the pace or direction of the tribunal process unsatisfactory and this could lead to rising tensions between the major aid donors and the government in 2001. The dynamics of political competition for the commune elections could also create instability and confrontation between state and society. However, Prime Minister Hun Sen is too shrewd a politician to let things get out of hand. The likelihood is that he will manage the tribunal process and the commune elections in such a way that the outcome will be in his favour but without being seen as blatantly disregarding international opinion or using excessive force.

Laos

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he year 2000 marked the twenty-fifth anniversary of the Lao People’s Democratic Republic, led by the avowedly communist Lao People’s Revolutionary Party (LPRP). Political developments in 2000 continued to play out against a backdrop of economic hardship, although there were definite signs of macroeconomic stability being regained. Normally a remarkably docile place, Laos encountered a number of disturbances in 2000, which served to both diminish the twenty-fifth anniversary celebrations and shake up some perceptions of this landlocked country. A spate of bombings in the capital, Vientiane, and a rather bizarre raid on one of its border crossings with Thailand suggest that forces opposed to the current regime have raised the ante in their previously lacklustre attempts to unseat the leadership. Although the LPRP has largely failed to improve the economic profile of Laos since taking power a quarter of a century ago — and more recently, was caught wholly off-guard by the financial crisis that erupted in neighbouring Thailand — the recent disturbances are unlikely to result in a change of regime for Laos. The LPRP is very firmly ensconced, and there are no effective rivals located within the country’s borders to pose a challenge to the current élite. Anti-government activists outside Laos have also not been able to pose a threat, and are therefore regarded by the leadership as little more than meddlesome irritants (the recent bombing campaign notwithstanding). Prince Soulivong Savang of the exiled royal family, and grandson of the last king, now resident in France, conducted two tours of Lao communities in the United States during 2000, seeking support for his return to Laos as constitutional ruler. The recent spate of bombings have hardly helped Laos in its recent tourist drive — “Visit Laos Year” — although tourism inflow numbers are reported to be up, aided by increased flights and a new visa-on-entry service at Vientiane’s airport and the Friendship Bridge border crossing. The identity of those behind the recent spate of bombings remains unclear, although the range of likely candidates is fairly small. Since 1975, Hmong insurgents have consistently engaged in a relatively low-intensity conflict (resembling simple banditry at times) in some provinces, and it is conceivable that they have sought to expand their violent activities into the capital. Extreme elements of the overseas Lao community in the United States, still loyal to the Royal Lao government of pre-1975, may also have had a hand

THE ASEAN-6 INDOCHINA AND MYANMAR

Laos Land Area:

236,800 sq. km.

Population:

5.2 million (1998 estimate)

Capital:

Vientiane

Type of Government:

Communist party-led people’s republic

Head of State (President):

General Khamtai Siphandon

Party Secretary:

General Khamtai Siphandon

Prime Minister:

General Sisavat Keobunphan

Currency Used:

Kip

US$ Exchange Rate on 14 November 2000:

US$1 = 8,182 kip

in the bombings. The latter do appear to have been implicated in the events surrounding the brief seizure of the Chong Mek border crossing in southern Laos, by sixty armed rebels, which coincided with one of two trips made by Prince Soulivong Savang to the United States in 2000. Some Lao watchers have even speculated whether the bombings stem from divisions within the LPRP itself, sensing that factions may have developed along competing lines of loyalty towards China and Vietnam. There are patchy reports of the Vietnamese military lending advisory and logistical support to the Lao army in seeking to quash the increased insurgency activity in some provinces, although press reports of direct involvement by Vietnamese troops are denied by Hanoi. The two armies of Laos and Vietnam have nonetheless pledged to “strengthen their solidarity” in opposing “hostile forces”, suggesting that military relations between Vientiane and Hanoi have become closer over the last few years. The Seventh Congress of the LPRP, the most important event in the Lao political calendar, is due to be held at some point in 2001. Changes made to the senior leadership profile of the LPRP, along with the various reports delivered at the Congress, may provide some indication of where the country is heading, in both the political and economic realms. The current eight-man politburo (a ninth member died in 1999) contains seven military officers, and it will be illuminating to see whether this high quotient of khaki persists. The extent to which Laos is looking more like a military regime, and less like a socialist regime, appears to be increasing with each passing year, and the heightened level of internal security that has followed the recent bombings has only served to strengthen this perception. Sadly,

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POLITICAL OUTLOOK

technocratic competence within the senior ranks of the LPRP and military leadership is in short supply, although some gradual improvement may become apparent through generational change, if only in the long term. Relations with neighbouring Thailand continue to blow hot and cold. Advances in delineating the mutual border have been made, and yet Laos’s armed occupation of disputed islands in the Mekong River indicates that Vientiane’s relationship with Bangkok is far from being completely harmonious. The bizarre raid on the Chong Mek border post has also soured relations, with Vientiane expressing exasperation at Bangkok’s unwillingness to extradite people known to have been involved in the attack. Nonetheless, a river navigation pact between Laos, Myanmar, Thailand, and China has been reached, on improved crossborder commercial navigation along 800 kilometres of the upper Mekong River (between Simao in Yunnan province and Luang Prabang in Laos). In addition, a second bridge across the Mekong River, linking Thailand with Laos, opened in mid-2000. Funded by Japan, the Lao-Nippon Bridge is located near the town of Pakse, in the southern panhandle of Laos. With its lofty aspirations of generating foreign exchange earnings by exporting substantial quantities of electricity to Thailand now substantially diminished, and foreign investment inflows scarce, the Lao economy will remain dependent on external assistance. But multilateral agencies and aid donors alike have begun to express their dissatisfaction with the general pace of economic reform, intimating that future levels of assistance could decline if Vientiane does not strive to allay their concerns. The apparent disappearance of two naturalized U.S. citizens has also brought the issue of human rights to the fore, and may become a hurdle to Laos attaining “normal trading relations” (NTR) status with the United States in the near term. Partly as a result, Vientiane seems to be shifting towards closer ties with both Beijing and Hanoi, while also developing its capacity to be more self-sufficient in the economic sphere, as evidenced by the recent initiative to radically increase its dry season harvest of rice and diversify its range of agricultural produce. While such a strategy does not seem likely to bring about a marked improvement in Laos’s economic condition, the leadership’s “bottom line” remains the preservation of its monopoly hold on power.

Myanmar

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he ruling military junta, now known as the State Peace and Development Council (SPDC), has been in power for twelve years and the timetable for a return to the promised “discipline flourishing multi-party democracy” is yet to be announced. The National Convention organized with the objective of establishing the fundamental principles for an “enduring” state constitution has been in recess since the end of March 1996, with no indication of a target date for the conclusion of its work. The military junta has continued to claim that it is acting to the best of its ability to improve socio-economic conditions in Myanmar and laying the foundations for a stable multi-party political system. Meanwhile, it has been responding vigorously to allegations, by Western governments and liberal-democracy lobbies, of abusing human rights and suppressing

THE ASEAN-6 INDOCHINA AND MYANMAR

the political opposition in Myanmar. According to government statistics, Myanmar has recovered from a period of retarded growth, during the second half of the 1990s, by registering double-digit growth in the fiscal year ending March 2000. On the other hand, the domestic political opposition led by Daw Aung San Suu Kyi and the ageing leadership of the National League for Democracy (NLD) has also been challenging the legitimacy and authority of the ruling junta without let-up. They have persistently claimed that party members had been intimidated and punished for exercising their legitimate “rights” in line with the party’s legal status. The NLD leadership has refused to abide by the junta’s rules of the game in Myanmar’s political transition from one-party rule to “multi-party democracy”. Externally, the adversarial relations between the junta and its Western detractors have not changed for the better over the last few years. In fact, the West’s insistence on punishing Myanmar has adversely affected relations between the Association of Southeast Asian Nations (ASEAN) and the European Union (EU) in their bloc-to-bloc relations and created some dissonance in the dialogue partnership of ASEAN with the United States and some Western states. Lobbying by the National Coalition Government of the Union of Burma (NCGUB, the Washington-based government-in-exile formed with expatriate elected representatives of NLD and its allied parties) and pro-democracy forces at the United Nations General Assembly (UNGA) has resulted in resolutions (every year since 1991) deploring the human rights situation in Myanmar. Neither those resolutions nor efforts by

Myanmar Land Area:

678,675 sq. km.

Population:

50.1 million (July 2000 estimate)

Capital:

Yangon

Type of Government:

Military

Head of State:

Chairman of State Peace and Development Council (SPDC), Senior General Than Shwe

Next Election:

Not known

Currency Used:

Kyat

US$ Exchange Rate on 14 November 2000: average for October 2000:

US$1 = 400 kyat (parallel market rate) US$1 = 6.46 kyat (official rate)

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POLITICAL OUTLOOK

the U.N. Secretary-General, through special representatives, to mediate between the junta and the NLD have resulted in breaking the impasse between the junta and the political opposition. In fact, one can say that the impasse has been there since the NLD walked out of the National Convention in November 1995. This, in turn, has resulted in estrangement between Myanmar and some Western states. Such a situation persisting after the turn of the century invites the obvious questions: What is the political outlook for Myanmar in the near future? Would it be more of the same? Or would the junta do away its ad hoc approach to the NLD’s provocations and outlaw the party? Or would the international community be able to bring about a dialogue between the two protagonists? Recent behaviour of the players in this political drama — especially the junta and the NLD leadership — would help to indicate the future direction of events. In addition there is also the international community at large and other players, such as the NCGUB, the student movement, armed opposition to the junta, and the former insurgents who had made peace with the government. However, it is the triangular relationship among the junta, the NLD, and the international community that is most likely to affect the future of Myanmar politics. Apparently, the junta has been pursuing a strategy of attrition against the NLD and its supporters and tactically engaging the NLD leadership in a seemingly reactive manner. For example, when Daw Aung San Suu Kyi and the party leaders attempted to travel outside Yangon, the authorities did not block them at departure but thwarted them at “choke points” along the way. Taking great pains to project a benign image of protecting the “wayward” politicians from becoming victims of their own follies, the authorities tolerated the stalemate for some time before swiftly “escorting” them back home in the face of intransigence. Thereafter, some temporary measures to limit the freedom of movement were imposed on the “culprits” to drive home the point. Meanwhile, the domestic polity and the international community were addressed differently in such episodes. The former was given “facts” highlighting the government’s magnanimity and the opposition’s “irresponsible” behaviour. This was accompanied by a media blitz portraying the NLD leaders as unpatriotic egotists bent on destroying peace and stability and willing to be subservient to external powers in their quest for power. The cacophony of international protest and condemnation that followed were rebuffed vigorously by invoking national security and sovereignty. The junta appears to be more confident than ever and unwilling to compromise its political stand, hoping to establish performance legitimacy by achieving substantial economic growth in the coming years. It seems to be united against common threats to regime security and military solidarity despite some dissenting voices on economic policies. Scenarios of imminent departure of the junta chairman for health reasons and the alleged split between hardliners and pragmatists are unlikely to materialize in the near future. Personalities may rise and fall but the military will maintain its tight rein over power and the “young turks” scenario is unlikely in the short run. On the other hand, the NLD leaders have very little political space and are trying to maximize international support by exploiting issues dear to the liberal notions of rights and freedom. They maintain a link to the political legitimacy bestowed by the 1990 election

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THE ASEAN-6 INDOCHINA AND MYANMAR

victory through the Committee Representing the People’s Parliament (CRPP) that was set up in 1998. Though the CRPP has been deliberating and issuing statements that are little known outside the NLD circles and its supporters abroad (except when commentaries in local newspapers decide to take issue with them), its parliamentary status remains virtually unrecognized. The strategy of the NLD seems to be to claim the right to govern on account of the people’s mandate secured in the 1990 elections and induce the international community to pressure the junta into a meaningful dialogue. Sanctions, censures, and boycotts are encouraged in this context though violence is precluded. Tactically, the party challenges the authorities at every opportunity and portrays itself as a victim of gross injustice. The party grassroots have been decimated and its national organization is probably in shambles. Nevertheless, the centre is still holding and there seem to be a hard core group of followers loyal to the leadership and prepared to be in harm’s way despite the odds. The party leadership is likely to continue its reliance on testing the parameters of tolerance and drawing international attention to keep the issues alive in the international media. Unfortunately for the party, it is increasingly being seen as drawing sustenance from overseas supporters. Sympathizers amongst the polity are also likely to have been resigned to the fact that the odds are overwhelmingly in favour of the incumbent power. Meanwhile the international community is divided into two opposing camps. States hoping that “constructive engagement” would democratize Myanmar steadily, emphasize the “carrot” approach. These are mainly the ASEAN states, China, India, and Japan. There are those that emphasize the “stick” and advocate liberal democracy for Myanmar. They also influence U.N. agencies and multilateral financial institutions, thereby linking aid to political change in a “carrot” of sorts. This group is led by the United States and includes Britain, Canada, the Scandinavian states, and the European Parliament. There also states like Australia and France acting in more than one way depending on the situation and issue, as well as those like Russia and Yugoslavia that support the junta without subscribing to constructive engagement. Moreover, there are also the expatriate Myanmar communities, the NCGUB, and other pro-democracy activists of Myanmar origin, the non-governmental organizations (NGOs), and various lobby groups that support the opposition. The liberaloriented media also play a partisan role for the anti-junta group. Amongst the second group, some Western governments and multilateral institutions are showing signs of “compassion fatigue” and “weariness”. Once the United States abrogates its vanguard role it is likely to become lackadaisical. Secretary of State Madeline Albright, the epitome of anti-junta advocacy, will soon leave the stage and her successor is unlikely to be as energetic and persistent as she has been in championing the tough stand. The EU has also found that punishing ASEAN for Myanmar’s actions bodes ill for its economically driven attempts to forge stronger relations with Asia. The rhetoric will still be there and sanctions may remain but individual states could join the engagement bandwagon, once U.S. interest wanes. The United Nations will probably continue to play an “honest broker” role but will have even less leverage once the Western bloc dithers. As for the disparate organizations on the democracy bandwagon, they will continue to blanket the Internet and gather at numerous fora, denouncing the junta and championing

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POLITICAL OUTLOOK

Daw Aung San Suu Kyi’s stand. However, their impact will be marginal. It is likely that the leaders of the All-Burma Student Democratic Front (ABSDF) who stepped down in September 2000 will split and form political organizations. The ABSDF, led by a new generation of student activists who vowed to continue armed struggle, will be a pebble in the shoes of local military units in the Thai-Myanmar border. Its more militant elements may resort to desperately violent measures to redress the group’s marginalization. The NCGUB is also under criticism by many in the democracy movement. Though its leaders promised to reform, the likelihood is that its impact on the political calculus of Myanmar will diminish rather than increase. The Shan and Kayin insurgents and a smattering of other armed ethnic rebels may also find the going too tough due to the overwhelming firepower of the military and declining resources. Peace on junta terms may soon become a serious option for the rank and file who might stage a palace coup against ageing leaders. The Kayin appear to be more susceptible to this scenario than the Shans though the latter is likely to face mounting pressures from the turf war with the Wa “peace group”. The “peace groups” (former insurgents that made peace with the government) have not yet demobilized and are the least predictable. The stalled constitutional process in which they participated indicates that there is some dissonance with the military. Moreover, issues of narcotics production (especially methamphetamines) and eventual demobilization remain sensitive and uncertain. Nevertheless, there is no evidence to suggest that the status quo will not be maintained in the coming years. All in all, in the short term, Myanmar’s junta will not let up its onslaught on the domestic opposition. It may lose patience and outlaw the NLD on grounds of having links with unlawful organizations and saboteurs. If the NLD does draw up a parallel constitution as it has indicated, the government cannot but act decisively to uphold it authority. In that case, its self-reliant agriculture-based economic strategy would be counted upon to ride out anticipated economic sanctions from the West. If, on the other hand, the NLD refrains from escalating the challenge, it will be “more of the same”.

Vietnam

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n the economic realm, structural reforms have been slow but nevertheless have been taking place. In contrast, there have been no significant structural changes in Vietnam’s political sphere since 1992, when a new constitution was adopted. Changes since then have been mainly reactive, addressing political problems cosmetically. The politics of the country is off the track of fundamental change as stability is prized as a pre-condition for economic progress. The short-term outlook for Vietnam’s political stability is good, but many long-term issues remain unresolved and could affect stability in the long run. Any assessment of the political situation of Vietnam, therefore, must acknowledge those elements that give the system some measure of fundamental stability, while recognizing the elements that could destabilize it.

THE ASEAN-6 INDOCHINA AND MYANMAR

Fundamental stability of the Vietnamese political system comes from the Vietnamese Communist Party (VCP) having its hand on most, if not all, levers of power and authority. The country’s constitution prohibits political movements other than the VCP. The security apparatus excels in limiting political challenges, including through arrests of elements of the former South Vietnam regime who sneak into the country to sow unrest, and incarceration of domestic political dissidents. The mass media is well controlled. Party members dominate the administrative apparatus of the country. Because of these instruments and many others, which have been in place in Hanoi since 1954, the chances for a transfer of political power from the VCP to other political forces in the country — if such political forces can be said to exist at all in an organized form — are slim. Therefore, the country is reluctant to embark on reforms in the direction that many Western countries would like it to go: which is, multiparty politics resulting in an end to the monopoly of political power by the VCP. In 2000, before the United States granted normal trading rights to Vietnam, some members of the House of Representatives had demanded as a pre-condition that Vietnam amend its constitution to eliminate the article which bans alternate political forces. Vietnam’s communist leadership, of course, could not agree to that. One could venture to say that the more the United States presses Vietnam’s leadership to do the above, the more determined the latter will be in refusing to change. There are some trends, however, that have the potential to generate more important political changes over the longer term. The first is a continued loosening of government restrictions on individual freedom. For instance, the government has now allowed every

Vietnam Land Area:

330,000 sq. km.

Population:

80.3 million (2000 estimate)

Capital:

Hanoi

Type of Government:

Socialist republic

Head of State:

Tran Duc Luong

Party Secretary:

Le Kha Phieu

Prime Minister:

Phan Van Khai

Currency Used:

Dong

US$ Exchange Rate on 14 November 2000:

US$1 = 14,439 dong

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POLITICAL OUTLOOK

person to hold a passport and to travel overseas for any purpose. In the past, a passport was difficult to obtain, and an exit permit was required as well, which too was not easy to obtain. Now, the passport is given one week after application, and the exit permit has been abolished. Further, there is encouragement of greater interaction and exchange with the outside world through various channels. Allowing citizens to travel and work overseas is one such channel; the easy availability of telephone services is another. Overseas news and cultural material can now enter the country more freely, unless a security alarm within the government is raised against specific items. The doors of entry include the Internet and international radio and television broadcasts which many urban Vietnamese receive via satellite dishes. Furthermore, greater efforts at promoting in-bound tourism as well as fully foreign-owned direct investments will bring fresh ideas to the mental landscape in the near future and beyond. For sure, officials responsible for thinking about politics in the country also travel much and are kept informed of the latest developments in the outside world, and many young officials and academics have been sent overseas for study and training. These officials would be at the vanguard of leadership in another one or two decades. The changes that could come about then may not conform to what Western countries want, but they are likely to grow from Vietnamese roots and thus tailored to promote stability and progress, under the guidance of the VCP. Still, the direction is forward, not backwards. The second trend is that of more government efforts in fighting bureaucratism and corruption. From 2001 the government will carry out a plan to reduce the size of the bureaucracy by a further 15 per cent. This is on top of past reductions carried out since the early 1980s. Administrative reforms to reduce red tape are going on only very slowly, now focusing more on qualitative changes than quantitative ones. The reduction of the size of the bureaucracy, however, has created a market value for positions in the bureaucracy, and many people have been known to pay several thousand American dollars for them. For effective administrative reform, it would be necessary to raise salaries of bureaucrats several-fold and to have a bigger stick in fighting corruption. However, this is not easy, and the results of efforts so far are very modest. Even the selection of bureaucrats is riddled with corruption. Yet, from newspaper reports, one can detect a greater effort by the central government to crack down on corruption at any level of government. It used to be said that the central government would cover up the tracks of corrupt but important officials from the provincial level and upwards. However, in the six months up to September 2000, at least forty-one provincial leaders have been replaced, though only four of the replacements (in the provinces of Dong Thap, Ba Ria-Vung Tau, Binh Thuan, and Nghe An) have been reported in the media. The reasons given for these four cases were either incompetence or corruption and abuse of power and authority. The fact that the fight against corruption is no longer limited to the provincial level was illustrated by the removal in 2000 of Deputy Prime Minister Ngo Xuan Loc, who, if he had not been removed, could in time have become a member of the politburo, the highest and most powerful political body of the country. Restrictions on political infighting within the VCP may limit future dismissals of high officials, though when such political infighting does

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THE ASEAN-6 INDOCHINA AND MYANMAR

take place, then even the politburo may suffer casualties, but in the name of corruption. In August 2000, an unnamed member of the politburo came under intense scrutiny and criticisms within the politburo itself for the economic activities of his family members that apparently relied on his status or position to prosper. It is not difficult for people to put this news and another rumour together to guess who the official under attack was. That rumour, though officially denied, was that politburo member and Prime Minister Phan Van Khai had wanted to resign from his government position. Therefore, the fight against corruption in some high-profile cases seems to be making some headway, while the political and administrative systems await structural changes to make them more accountable to voters. The third trend is that of more demand from grassroots for government accountability. Parts of the countryside in Vietnam have been restive. For instance, in 1997 widespread unrest broke out in rural areas of Thai Binh province. The reasons for the unrest were the corruption of local officials on issues related to sale of village land, government compensation for land requisition, and high tax burdens. Unrest in one commune soon spread to other communes, since similar grievances and complaints also existed in other communes. Local officials were held hostage, and a senior member of the politburo had to handle the unrest full time. Close to 80 per cent of communes in the province were declared “problematic” by the government. Thai Binh is an example of how lack of accountability at the local level can threaten political stability if left unaddressed over a long time. In the past three years the government has conducted studies on how to improve accountability of local officials, with the help of international agencies. But the causes of the lack of accountability are rooted in the features of the political system, which do not promote meritocracy and good governance. In other words, structural reforms are still necessary. The outcome of the Thai Binh unrest was the Regulations to Implement Democracy at the Grassroots. The government intended it as a way to check abuses of power and corruption at the commune level all over the country. The main content of the Regulations was to make commune officials consult people on some decisions that were, up till then, made exclusively by local officials. Those decisions did not include the right to nominate candidates for elections. Yet, in the 1999 people’s council elections, many people in a number of communes in the North demanded the right to nominate candidates without approval from the VCP. In Nam Dinh province, one such incident again resulted in residents taking some officials hostage, as residents regarded those elected as unfit for office. Thus, quite clearly there are pressures for change from the grassroots; in particular, there is a view that changes for accountability and good governance should start by freeing elections from control by the VCP. To conclude, the VCP is well in control in Vietnam and can be expected to remain so. Local unrest here and there is likely to occur as a result of local problems. The key to continued political stability in the long run is whether the country’s leadership can identify such local problems early and nip them in the bud to prevent them from becoming national issues which threaten the VCP’s legitimacy and control. The Ninth Party National Congress, expected in 2001, will be the most important

35

POLITICAL OUTLOOK

political event of recent years. Held once every five years, national congresses of the VCP are platforms to launch basic policy changes. They also see important personnel changes within the top hierarchy of the party. The present General-Secretary Le Kha Phieu is likely to stay on, not only because the country’s situation is broadly stable, but also because he only assumed the position in 1998 and has not made major policy mistakes. If in the last two years Phieu has been cautious in consolidating his power, he is likely to strengthen it through the Ninth Congress by getting trusted lieutenants into important party and state positions. This has already begun before the Congress, as seen by the appointment in 2000 of Nguyen Dy Nien, an ally from Phieu’s own Thanh Hoa province, as the foreign minister. With this important state position in hand, Nien is likely to be elected into the next politburo. Since the Seventh Congress in 1991, there has been a fairly stable power-sharing formula: three leaders from each of the three regions of North-Centre-South occupy the three most important positions of party general-secretary, prime minister, president. On retiring from these positions, they would become advisers to the party but still wield considerable influence. There are no signs that this formula will change for the Ninth Party Congress. President Tran Duc Luong and Prime Minister Phan Van Khai may become advisers as they would have served a full term. In recent years, however, Nong Duc Manh, Chairman of the National Assembly and senior member of the politburo, has made his state post and the National Assembly quite influential. Therefore, while formally the powersharing formula involves three persons, if Nong Duc Manh continues in his post he will be the fourth pillar of power in the VCP’s power structure. The National Assembly under his leadership has been assertive in holding the government to account, and is likely to be even more assertive in the future. Most Assembly members are, of course, VCP members.

36

ECONOMIC OUTLOOK 2001–2002

ECONOMIC OUTLOOK THE ASEAN-6 Nick J. Freeman • Sakulrat Montreevat

I

n retrospect, the global economy was relatively benevolent to Southeast Asia in 2000, as rising trade flows helped sustain the economies of the region through healthy export earnings and positive current account balances. This took some of the pressure off the region’s policy-makers, but unfortunately resulted in a loss of momentum in the pace of economic restructuring in some of the Southeast Asian countries hardest hit by

External Trade Performance in the ASEAN-5 Compared, 1996–2002F 1996

1997

1998

1999 2000E 2001F 2002F

Export growth (% change) Indonesia 5.8 Malaysia 7.1 Philippines 17.7 Singapore 6.4 Thailand –1.9

12.2 0.6 22.8 –0.2 3.8

–10.5 –6.9 16.9 –12.1 –6.8

1.6 15.3 18.8 4.6 7.4

25.0 18.0 14.0 22.0 15.0

13.0 16.5 10.0 14.1 4.8

8.0 15.4 9.5 10.5 8.3

Import growth (% change) Indonesia Malaysia Philippines Singapore Thailand

8.1 1.7 20.8 5.4 0.6

4.5 0.8 14.0 0.7 –13.4

–30.9 –26.1 –18.8 –23.1 –33.8

–3.8 12.1 4.1 15.8 16.9

22.0 26.5 14.0 19.1 25.0

20.0 22.4 16.0 15.0 6.5

15.0 20.4 13.0 11.6 8.2

Current account balance (% of GDP) Indonesia Malaysia Philippines Singapore Thailand

–3.4 –4.6 –4.7 15.9 –8.1

–2.4 –4.8 –5.3 17.9 –0.9

4.1 13.5 2.4 25.4 12.8

4.0 16.0 9.4 21.3 10.0

5.8 13.7 6.5 18.5 7.3

4.5 8.4 5.6 17.7 6.4

4.0 8.2 6.6 17.0 6.5

Debt service ratio (%) Indonesia Malaysia Philippines Thailand

34.2 9.0 12.7 12.6

37.8 7.5 11.6 15.5

39.1 7.2 12.7 19.2

34.8 6.9 13.1 14.1

— 6.8 14.3 13.5

— 6.8 14.5 12.7

— 6.3 — 11.8

E = Estimated. F = Forecast. SOURCES: Asian Development Bank, CEIC Data, Economist Intelligence Unit, ING Barings, Asian Wall Street Journal, authors.

38

This chapter is reproduced from Regional Outlook: Southeast Asia 2001–2002, edited by Daljit Singh and Nick Freeman (Singapore: Institute of Southeast Asian Studies, 2001). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies.

THE ASEAN-6

the financial crisis. Indeed, overseas investors appear to have been fairly unimpressed with the general pace of banking and corporate sector restructuring and recovery in the region, with foreign capital still not flowing into Southeast Asia at a level that could be deemed adequate for a fully fledged regional recovery drive. As rivals for finite — albeit burgeoning — foreign investment inflows, China (soon to enter the World Trade Organization [WTO]) and Latin America are becoming increasingly convincing competitors to Southeast Asia as hosts for new foreign investment. Indeed, if the current pace of corporate and debt restructuring in Southeast Asia does not pick up, we may begin to see the region falling further behind Northeast Asia’s growth trajectory in 2001–2002. At the risk of stating the obvious, such a scenario should be avoided. It remains to be seen whether sufficient resolve and dynamism can be galvanized amongst the region’s policy-makers to refocus attention on the two main tasks at hand. The first task is a complete recovery from the economic damage inflicted by the financial crisis of

Net Private Capital Flows to Four ASEAN Countries Most Impacted by the Crisis, 1996–2000 (US$ million)

Indonesia Foreign direct investment Portfolio investment Other private flows* Total private flows Malaysia Foreign direct investment Total private flows Philippines Foreign direct investment Portfolio investment Other private flows* Total private flows Thailand Foreign direct investment Portfolio investment Other private flows* Total private flows

1996

1997

1998

1999

5,594 5,005 770

1999H1 2000H1

4,499 –2,632 –5,350

–400 –1,878 –17,331

–2,817 –1,792 –6,685

11,369

–3,483

–19,609

3,528

3,648

1,860

2,524

400

762

9,180

546

–3,461

–8,381

–1,541

1,603

1,338 2,179 7,558

1,113 –351 5,831

1,592 80 –1,194

805 347 –2,159

490 290 947

118 –398 567

11,075

6,593

478

–1,007

1,727

287

— — —

3,298 –4,386 –13,614

7,361 5,854 352 383 –19,448 –16,258

2,855 66 –9,580

1,448 430 –9,721

—

–5,930

–11,735 –10,021

–6,659

–7,843

–245 –1,994 –1,093

–1,494 –23 –785

–11,294 – 3,332

–2,302

H1 = First half of the year. * Primarily bank loans and trade credits. SOURCE: Asian Development Bank.

39

ECONOMIC OUTLOOK

1997–98 on both the domestic banks and corporates. The second task is the identification, and enactment, of a new strategy for Southeast Asia’s economic and industrial development in the next decade. While such a strategy will need to vary from country to country, commensurate with each country’s individual economic profile, there will be some aspects of the strategy — and the way it is promoted — that could be tackled on a region-wide basis. In this regard, the utility of such initiatives as the ASEAN Free Trade Area (AFTA), the ASEAN Investment Area (AIA), and “e-ASEAN” have certainly not waned. Recent and rapid changes in the way the world does business, both in terms of new business models and new technology, means that Southeast Asia’s corporate communities may have some catching-up to do, if they do not wish to be left behind.

Major external threats to regional economic recovery Some of the perceived external threats to the economic recovery process in Southeast Asia have changed over recent years, while other factors have remained constant. One constant has been the disappointing performance of the domestic Japanese economy, which could have played a much more forceful role in Southeast Asia’s recovery process, primarily through increased direct investment and commercial bank lending. The contraction of Southeast Asian loan portfolios by major international commercial banks — from Japan, the European Union (EU), and the United States — has also been a constant since late 1997, along with a fairly persistent aversion to the region’s stock markets by most foreign institutional investors (notwithstanding a few brief rallies in late 1998 and early 1999). Downward revisions in recommended weightings for the region by such global indices as the Morgan Stanley Capital International (MSCI) have also not helped matters. Indeed, one global index currently recommends that equity market investors have a zero weighting for three of the major economies in Southeast Asia: Indonesia, the Philippines, and Thailand. In 1998, perhaps the single greatest perceived external threat to Southeast Asia’s economies was the feared devaluation of the Chinese renminbi. But this did not transpire. In 1999, the greatest perceived external threat was a widely anticipated pricking of the asset price bubble in the United States, resulting in a hard lending for Southeast Asia’s main export market. This too has not transpired, at least so far. In 2000, perhaps the greatest perceived peril to the region’s still-fragile economic recovery process was the spectre of oil at US$50+ per barrel, and/or a sharp dip in the business cycle for the electronics and computer industry. Within the Southeast Asia region, Brunei, Indonesia, Malaysia, and Vietnam are net exporters of oil (that is, their earnings from exporting oil exceed their import bill for petroleum and other refined oil products), and will have benefited from the recent tripling in oil prices. But even these countries would not be immune from an East Asian — or even global — economic downturn, induced as a result of high oil prices on the world market. They would also not be immune from a rise in domestic inflation, as petroleum, kerosene, and gas prices increased, thereby putting added strain on those populaces that have yet to fully recover from the imported inflation experienced in 1997–98, as a result of the sharp depreciations in most regional currencies.

40

THE ASEAN-6

Breakdown of Export Destinations for ASEAN-5 Economies in the First Half of Year 2000 (per cent)

Indonesia Malaysia Philippines Singapore Thailand

USA

EU

Japan

Others

13.9 20.5 29.5 17.0 20.6

14.3 13.9 16.9 14.3 15.7

22.0 13.0 14.4 7.5 14.9

49.8 52.6 39.2 61.2 48.8

SOURCE: ING Barings.

So what will be the external threats to economic recovery in Southeast Asia in 2001– 2002? While this is impossible to foresee, a close watch on the relative fortunes of the Japanese and U.S. economies will need to be maintained. A less-than-soft landing for the latter in 2001–2002 might be expected to have an adverse impact on Southeast Asia’s economies, unless Japan and the EU were able to pick up much of the slack. The relative ease with which China enters into the WTO may also have some impact on the Southeast Asian region, as may crude oil production targets (and the psychology of the oil markets) of the Organization of Petroleum Exporting Countries (OPEC). Any marked downturn in the global demand for electronic products and computer components could also pose problems for those countries in the region that have corporate sectors — and foreign exchange earnings — that are significantly oriented towards this particular industrial sector. Serving as a possible leading indicator, recent profit warnings from a number of electronics and computer companies in the United States suggest that some degree of concern is warranted in this regard. (Conversely, if the electronics cycle does not swing down, these same regional economies may enjoy a very fruitful year in 2001.) Judging by initial trade figures for 2000, the electronics sector currently accounts for around 70 per cent of total exports for the Philippines, 64 per cent of (non-oil domestic) exports for Singapore, 42 per cent for Malaysia, 19 per cent for Thailand, and 14 per cent for Indonesia.

Major regional threats to regional economic recovery Beyond the political sphere, the two main regional economic factors that arguably imperil the health of the economic recovery process in Southeast Asia in 2001 are the same ones that were apparent in 1999 and 2000: high aggregate debt levels (both private and sovereign) in most countries, and the slow pace of corporate and bank restructuring in some countries. The two factors are of course inter-related, as well as having wider implications for the macroeconomic fundamentals of the countries concerned, and foreign investor perceptions of the Southeast Asian region as a whole. Local banks in several countries remain burdened by disturbingly high non-performing loan (NPL) levels, which largely stem from ongoing

41

ECONOMIC OUTLOOK

Net Private Capital Flows into the Asia-Pacific Region, 1996–2001F 150

100

US$ Billion

50

0 1996

1997

1998

1999

2000E

20001F

–50

–100

Commercial bank lending Portfolio equity investment Foreign direct investment

–150 SOURCE: Institute of International Finance Inc.

Diverging GDP and Stockmarket Performances in Year 2000 10

0 Indonesia

Malaysia

Philippines

Singapore

% Change

–10

–20

–30

–40 GDP growth estimates for 2000 Stock market performance (Jan–Oct 2000) –50

SOURCES: Asian Wall Street Journal, authors.

42

Thailand

THE ASEAN-6

problems in corporate — and particularly corporate debt — restructuring in their local business communities. Until those NPL levels are genuinely brought down to a level resembling normality, the provision of new credit — necessary to finance the growth of business activity — is going to be both scarce and expensive. Policy-makers in some countries have arguably been remiss in not keeping up the pressure for corporate and bank restructuring, having allowed the surprisingly good macroeconomic “headline” numbers (such as gross domestic product [GDP] growth and current balances) of 1999–2000 to invite an arguably false — and premature — sense of well-being. It is worth noting that a number of economic forecasters envisage GDP growth rates in several Southeast Asian countries will slow in 2001.

Relative Performance of the ASEAN-5 Currencies to US$, 1995–2000 120

100

60

40

Rupiah to US$ Ringgit to US$ Peso to US$ S$ to US$ Baht to US$

20

Jul ’00

Apr ’00

Jan ’00

Oct ’99

Jul ’99

Apr ’99

Jan ’99

Oct ’98

Jul ’98

Apr ’98

Jan ’98

Oct ’97

Jul ’97

Apr ’97

Jan ’97

Oct ’96

Jul ’96

Apr ’96

Jan ’96

Oct ’95

Jul ’95

Apr ’95

0

Jan ’95

January 1995 = 100

80

SOURCE: CEIC Data.

43

ECONOMIC OUTLOOK

Interest Rates in the ASEAN-5 Countries, 1997–2000

80 Bank Indonesia Certificates (simple averages) Malaysia’s discount rate (12-month treasury bills) Philippine treasury bill rate (all maturities) Singapore’s prime lending rate (average of 10 leading banks) Bank of Thailand bank rate

70

Interest Rate (% per annum)

60

50

40

30

20

10

Jul ’00

May ’00

Mar ’00

Jan ’00

Nov ’99

Sep ’99

Jul ’99

May ’99

Mar ’99

Jan ’99

Nov ’98

Sep ’98

Jul ’98

May ’98

Mar ’98

Jan ’98

Nov ’97

Sep ’97

Jul ’97

May ’97

Mar ’97

Jan ’97

0

SOURCE: CEIC Data.

Interestingly, the macroeconomic performances of the region’s economies and their relevant stock markets seemingly diverged for much of 2000, with GDP growth rates heading north and stock exchange indices — and currencies — heading south. While some economists began to talk of “V-shaped” recoveries in Southeast Asia during 2000, the equity markets gestured something else. Although part of that de-coupling can be attributed to very specific problems with the region’s stock markets themselves, there is also something amiss in the fundamental performance of the corporate sectors in some Southeast Asian countries, as evidenced by the “barge pole treatment” they are getting from many institutional investors. As stock markets tend to act as leading indicators, “pricing in” the value of

44

THE ASEAN-6

Relative Performance of the ASEAN-5 Stock Market Indices, 1997–2000 140

120

January 1997 = 100

100

80

60

40 Jakarta Composite Index KLSE Composite Index PSE Composite Index Singapore Straits Times 55 SET Index

20

Jul ’00

May ’00

Mar ’00

Jan ’00

Nov ’99

Sep ’99

Jul ’99

May ’99

Mar ’99

Jan ’99

Nov ’98

Sep ’98

Jul ’98

May ’98

Mar ’98

Jan ’98

Nov ’97

Sep ’97

Jul ’97

May ’97

Mar ’97

Jan ’97

0

SOURCE: CEIC Data.

business assets about one to two years in advance, Southeast Asia’s policy-makers would be well-advised to consider what the markets might be signalling. (In the case of Thailand, the stock exchange had been flashing a warning signal about the state of the country for more than two years prior to the crisis that erupted in July 1997.) This is not to suggest that Southeast Asia is imminently due for another massive financial crisis in 2001, but without a more convincing restructuring and reform of the banking and corporate sectors in the region, Southeast Asia’s economic recovery process in 2001–2002 is likely to be rather fragile. This is exemplified in part by the performance of the region’s currencies in 2000, some of which have looked quite wobbly, particularly at times of “market unfriendly” news in the political realm.

45

ECONOMIC OUTLOOK

S&P’s Sovereign Ratings for ASEAN-5 (as at mid-October 2000) Long-Term Local Currency Rating Indonesia Malaysia Philippines Singapore Thailand

B A BBB+ AAA A–

(outlook stable) (outlook stable) (outlook negative) (outlook stable) (outlook stable)

Long-Term Foreign Currency Rating B– BBB BB+ AAA BBB–

(outlook stable) (outlook positive) (outlook negative) (outlook stable) (outlook stable)

AAA = extremely strong; A = strong; BBB = adequate; BB = less vulnerable; B = more vulnerable. SOURCE: Standard & Poor’s.

Thomson Financial BankWatch Sovereign Ratings for Southeast Asia (as at mid-October 2000) Indonesia Malaysia Philippines Singapore Thailand Vietnam

CCC BBB BB AA BBB– CCC

AA = highly creditworthy; A = creditworthy; BBB = less creditworthy but investment grade; BB = low-risk, speculative; B = moderate-risk, speculative; C = high-risk, speculative; D = in default. SOURCE: Thomson Financial BankWatch.

Moody’s Sovereign Country Ceilings for Southeast Asia (as at mid-October 2000) Long-Term Bonds and Notes Indonesia Malaysia Philippines Singapore Thailand Vietnam

B3 Baa3 Ba1 Aa1 Baa3 B1

Long-Term Bank Deposits Caa1 Ba1 Ba2 Aa1 Ba1 B3

(Ba1 in June 1997) (A1 in June 1997) (Ba2 in June 1997) (Aa1 in June 1997) (A3 in June 1997) (B1 in June 1997)

Investment grade (highest to lowest): Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3. Speculative grade (highest to lowest): Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C. SOURCE: Moodys.com.

46

THE ASEAN-6

Fitch Sovereign Ratings for the ASEAN-5 (as at mid-October 2000)

Indonesia Malaysia Philippines Singapore Thailand

Short-Term

Long-Term

B F2 B F1+ F3

B– (last downgrade in March 1998) BBB (last upgrade in December 1999) BB+ (no recent changes) AA+ (no recent changes) BBB– (last upgrade in June 1999)

Long-term ratings: AA = very high quality (investment grade); BBB = good credit quality (investment grade); BB = speculative; B = highly speculative. Short-term ratings: F1 = highest credit quality; F2 = good credit quality; F3 = fair credit quality; B = speculative. SOURCE: Fitch.

B

runei’s economy has not been in the best of health over recent years. However, the sharp rise in global crude oil prices since late 1999 will have been a major fillip to the economy in 2000, in a country where oil accounts for over 85 per cent of exports, about 80 per cent of government revenues, and around a third of total gross domestic product (GDP). After recording just 1 per cent GDP growth in 1998 and 2.5 per cent in 1999 — marginally below the population growth rate — economic growth of 3 to 4 per cent in both 2000 and 2001 seems wholly feasible. However, high oil prices cannot be relied upon ad infinitum, and so the newly formed Brunei Darussalam Economic Council (BDEC) unveiled a plan — in July 2000 — for renewed efforts at restructuring and diversifying the economy, away from the oil sector, designed to make the Brunei economy more sustainable in the long term. The BDEC recently conceded that a substantial budget deficit (around 15 per cent of GDP), rising unemployment, and the lack of a virile domestic private sector were just some of the problems that Brunei needs to tackle in the near term. Although unemployment is only 5 per cent at present, it is reported that 25 per cent of those entering the job market at present are unable to find positions. A key pillar in the economic diversification process is likely to be the development of Brunei’s financial sector, with Bandar Seri Begawan seeking to become an international financial centre. This is a fairly audacious move by Brunei, given the degree of competition posed by the established financial centres in Singapore and Hong Kong, and — to a lesser extent — the Malaysian island of Labuan, which is located immediately northeast of Brunei. (The sultanate currently has three local banks in operation, along with six foreign banks with branch operations.) Other business fields that may receive greater attention by Brunei policy-makers include eco-tourism and hospitality services, e-commerce, various other services, and some forms of light manufacturing. In particular, small and medium-sized enterprises will be eligible for financial assistance to develop their businesses.

Brunei

47

ECONOMIC OUTLOOK

Brunei: External Debt (US$ million) Stocks (end of period) 1998 Dec

1999 Jun

Flows

2000

Dec

Mar

Jun

1998 Year

1999 Year

2000 Q1

All maturities Bank loans Non-bank trade credits

441 851

385 729

477 601

420 —

— —

–678 827

47 –279

–50 —

Due within a year Liabilities to banks Non-bank trade credits

32 —

397 265

439 290

405 —

— —

— —

— —

— —

Memorandum items Total liabilities to banks — locational — consolidated Total trade credits Total claims on banks

443 335 851 1,256

387 490 729 1,246

480 460 601 1,178

424 425 — 1,176

— — — —

–679 — 827 480

48 — –279 –56

–49 — — 11

Q1 = First quarter of the year. SOURCE: Joint BIS-IMF-OECD-World Bank Statistics on External Debt.

In addition to efforts to diversify the economy, Brunei is likely to take steps towards improving its business environment for foreign investors (notably in terms of the regulatory regime), possibly enacting select privatizations of state assets, widening the tax base, and reducing some state subsidies. Another element of the BDEC’s plan is the appointment of a senior minister, to help guide economic policy. The senior minister is to be supported by three bodies: a local business council, comprising senior members of the domestic corporate community; an international business advisory panel, comprising international business leaders; and a semi-independent public policy think-tank providing research input. The BDEC is currently headed by Prince Mohamed Bolkiah, who is Brunei’s foreign minister, and a younger brother of the Sultan of Brunei. An out-of-court settlement of the financial scandal that rocked Brunei in 1998–99 was reached in mid-2000. This followed legal action brought against Prince Jefri Bolkiah — and the freezing of his international assets — for irregularities that led to the rather dramatic collapse of the Amedeo Corporation (a diversified construction firm) in 1998, and the apparent misappropriation of funds from the Brunei Investment Agency (BIA). Amedeo Corporation was wound up by the Brunei courts in mid-1999, still owing more than US$3.5 billion to creditors. The BIA manages a large proportion of Brunei’s very substantial financial reserves, and the original case brought against Prince Jefri and others alleged that

48

THE ASEAN-6

almost US$15 billion of BIA funds had been misappropriated. As a result, Prince Jefri vacated his position as head of the BIA in 1998, and was replaced as finance minister in 1997 by Sultan Hassanal Bolkiah, who is also prime minister and defence minister. Whether Brunei is successful or not in shifting away from an almost exclusively oil-oriented economy will depend not only in allocating funds to government initiatives but also in developing an entrepreneurial dynamic amongst the country’s third of a million citizens. This will pose a substantial challenge for a country that has not displayed much evidence of private-sector zeal thus far; the government currently employs the majority of the labour force in Brunei. Overcoming the difficulties posed by the small size of the economy will also pose a significant challenge in the years ahead, as Brunei strives to shed its reputation as the affluent “Shellfare” state.

E

conomic decision-making in Indonesia continued to play second fiddle to politics throughout 2000, and any substantial strides made in reviving the economy will depend in large part on some degree of normalcy being attained in the political realm. Thus far, progress has been slow. After virtually nil gross domestic product (GDP) growth in 1999, the year 2000 saw GDP growth of around 3 to 4 per cent. (Population growth in Indonesia is around 1.5 per cent.) At the time of writing, GDP growth of anywhere between 4 to 6 per cent in 2001 and 2002 seems likely. A new economic team entered the government in September 2000, headed by Senior Economic Minister Rizal Ramli. Although some observers have noted his “neo-protectionist” sentiments in the past, Ramli appears to have the right sort of credentials for the job, and his team is widely thought to have a fair degree of internal cohesion. (The previous economic team was made up of members from various political parties which resulted in some disunity.) However, a true indication of the policy-making competency of the economic team will only become apparent in the coming months. One of the major challenges the new economic team will face is in the area of reforming government revenues, and the complex issue of fiscal decentralization (both revenues and expenditure) in particular. The appointment of Prijadi Praptosuhardjo as Indonesia’s new finance minister surprised many, having previously failed a “fit and proper test” to manage a relatively minor commercial bank. Not surprisingly, initial market reaction to his appointment was unfavourable, and even prompted a sell-off in the local currency. In the proposed budget for 2001, the finance ministry is anticipating 4.5 per cent GDP growth and a US$/rupiah exchange rate of 7,300, and targeting a budget deficit equivalent to 3.7 per cent of GDP. The single largest budget expenditure item is 75 trillion rupiah (or about 5 per cent of GDP) to be allocated to provincial and local governments. A substantial budget revenue item is the 28 trillion rupiah that the finance ministry aims to raise from corporate asset sales by IBRA (discussed in more detail below), along with a further 5 trillion from privatizations. Should oil prices also remain above the US$22 per barrel forecast by the finance ministry, this too will be a fillip for the government’s revenue coffers in 2001. For the business community, the level of political risk in the country remains

Indonesia

49

ECONOMIC OUTLOOK

Indonesia: Selected Economic Indicators, 1996–2002F 1996 GDP growth (% change) Industry sector growth (% change) Services sector growth (% change) Agriculture sector growth (% change)

1997

1998

1999

2000E

2001F

2002F

7.8 10.7 6.8 3.1

4.7 5.2 5.6 1.0

–13.2 –15.1 –16.2 0.8

0.2 1.7 –1.5 0.7

3.5 6.0 2.3 3.0

5.0 6.6 3.9 3.5

5.0 7.5 3.9 3.0

49,200 42,900 6,300

53,500 41,700 11,800

49,100 27,300 21,800

48,600 23,900 24,700

60,750 29,160 31,590

68,650 34,995 33,655

74,140 40,250 33,890

7.9

6.2

58.5

20.5

6.0

6.0

5.0

Gross external debt (% of GDP) Foreign exchange reserves (US$ billion)

— 17.8

— 16.1

157.3 23.6

113.8 27.3

94.5 30.5

81.0 32.0

73.1 34.0

Three-month interest rate (% per annum) M2 growth (% change)

16.0 29.6

20.0 23.2

45.3 62.3

24.8 29.0

13.7 13.0

11.5 17.0

11.0 15.0

2,342

2,909

10,014

7,853

8,850

9,000

8,700

Exports (US$ million) Imports (US$ million) Trade balance (US$ million) Inflation/CPI (year end) (% change)

Exchange rate (average) (rupiah/US$1)

E = Estimated. F = Forecast. SOURCES: Asian Development Bank, ING Barings, Asian Wall Street Journal, author.

uncomfortably high, as starkly exemplified by the bombing of the Jakarta stock market building in mid-September 2000, which left fifteen people dead. A bomb attack on the Attorney-General’s office in July 2000 also illustrates the extent to which basic security, even in the capital, has deteriorated to a level that poses understandable concerns for most foreign investors. And in relatively remote areas, foreign mining companies have encountered difficulties with both local inhabitants over land rights and local governments over taxes. Jakarta’s recent pledge of greater autonomy for provinces (which felt exploited under the Soeharto regime) is not particularly welcome news for those investors that originally signed deals with the central government, and are now uncertain about establishing new relationships with regional administrations. The price of this sort of uncertainty has included a weak currency and fragile foreign capital inflows, other than funds provided by multilateral agencies. While Thailand has successfully weaned itself off International Monetary Fund (IMF) lending, ahead of schedule, Indonesia’s economy remains hooked on this life-support mechanism, and must therefore seek to comply with a relatively demanding — but largely necessary — road map of reforms spelt out in various letters of intent with the IMF. In October 2000, the “Consultative Group for Indonesia” donor community pledged a further US$5.3 billion in assistance (both loans and grants) for Indonesia in 2001, albeit tied to conditions relating to socio-political concerns.

50

THE ASEAN-6

Indonesia: External Debt (US$ million) Stocks (end of period) 1999

Flows 2000

1998 Dec

Jun

Dec

Mar

Jun

1998 Year

1999 Year

2000 Q1

All maturities Bank loans Debt securities issued abroad Non-bank trade credits Multilateral claims Official bilateral loans*

49,077 5,489 8,587 26,611 25,709

46,567 5,427 8,919 28,533 —

43,031 3,308 9,683 29,937 30,993

40,793 4,032 — 30,330 —

— 3,242 — 30,833 —

–13,146 –771 –991 7,113 1,633

–6,486 –2,187 2,206 3,197 1,829

–1,471 727 — 747 —

Due within a year Liabilities to banks Debt securities issued abroad Non-bank trade credits

23,702 1,543 —

21,647 1,322 1,344

19,035 632 1,269

19,299 1,209 —

— 1,320 —

— — —

— — —

— — —

52,560 46,617 18,663 14,418

49,746 44,968 18,413 14,287

46,680 41,654 18,951 13,854

44,361 40,503 — 12,868

— — — —

–14,141 — 1,480 2,209

–6,157 — 512 –599

–1,501 — — –889

22,713

26,319

26,445

28,461

28,687

—

—

—

Memorandum items Total liabilities to banks — locational — consolidated Total trade credits Total claims on banks International reserve assets (excluding gold)

Q1 = First quarter of the year. * Development Assistance Committee (DAC) creditors. SOURCE: Joint BIS-IMF-OECD-World Bank Statistics on External Debt.

A critical issue for Indonesia’s long-term economic recovery is the return of a very substantial part of the Indonesian corporate sector, currently held by the Indonesian Bank Restructuring Agency (IBRA), back into the hands of private investors. In September 2000, the aggregate face value of IBRA’s assets, taken from bankrupt banks and firms, was estimated to be 420 trillion rupiah, or US$47.5 billion. Of this, perhaps 30 per cent can be realized. Without marked progress in the divestment of these assets, both the corporate and banking sectors will not be able to function properly, and thereby heavily constrain the country’s macroeconomic growth potential. In a sense, this divestiture of IBRA’s holdings of distressed corporate assets entails a massive privatization programme. And this in turn necessitates the input of foreign investors, as insufficient domestic capital exists for such an exercise. But for foreign investors to have any appetite for these distressed assets — where debt levels (sometimes recorded off the balance sheet) are high and thorough due diligence is very difficult to conduct — located in a host country with such high political risk factors, (continued on page 54)

51

ECONOMIC OUTLOOK

WHITHER THE HAZE? By Lee Poh Onn

T

he haze or smog episodes of late 1997 and 1998 demonstrate the importance of curtailing transboundary environmental degradation on both the economic and social front. Not only have tourism dollars been eroded around the region, but the health of Malaysians, Bruneians, Indonesians, and Singaporeans was particularly affected. Overall, the monetary impact of the haze and fire-related damages was estimated at US$4.5 billion in 1997 alone. 20 per cent of the damages were health-related while 6 per cent were tourism-related. Land clearance, in Sumatra and Kalimantan, by plantation holders who set huge tracts of their forests ablaze to clear land for agriculture was identified as one major cause of the haze. According to a Reuters report (20 July 2000), 80 per cent of the culprits were oil palm plantation companies. In December 1997, a Regional Haze Action Plan (RHAP) was formulated by ASEAN governments, with the ambitious aim of preventing forest fires through better management policies (national preventative measures and laws), enforcement, effective monitoring and reporting capabilities, and strengthening of regional and local forest fire-fighting capabilities. Malaysia was entrusted with the role of co-ordinating preventative measures, Singapore with co-ordinating regional monitoring mechanisms, and Indonesia with enhancing fire-fighting capabilities. The RHAP, to be implemented in stages, would be in full force by 2001 (New Straits Times [Malaysia], 5 April 2000). Has progress been made since 1997 in eradicating the haze? Is a resolution of the problem clearly in sight? What are the likely prospects in the coming years? At a sweeping glance, many positive moves have been made with regard to the control of fire activity or hotspots, which are responsible for spreading the detrimental impacts of the haze across countries. Since early 1998, numerous joint ministerial meetings

52

have been held to deal with this issue. Plans and resolutions have been passed, with periodic reviews of the progress in implementing preventative measures undertaken and discussed among ministers, ambassadors, and top-level officials from the various countries in ASEAN. The governments of Singapore, Indonesia, and Malaysia have also been working closely to establish mechanisms to fulfil their respective roles in implementing various stages of the RHAP. In recent months, it was reported in the New Straits Times (5 April 2000) that permits of plantation companies have been frozen in Indonesia, monitoring has been intensified, and prevention and mitigation activities carried out to stem the open burning of forests. The Indonesian government has also threatened plantation owners with up to fifteen years’ jail for clearing land through burning. The Indonesian government, in general, seems serious about ensuring that the region will be haze-free, as State Minister for the Environment, Dr Alexander Sonny Keraf stated in a joint press conference at the end of the Informal ASEAN Ministers on Environment Meeting in May 2000. The above measures bode well for eradicating the cross-boundary impacts of the haze. Also, the political will of the Indonesian government to adopt preventative measures in fire activity appears to be moving in tandem with the concerns of its neighbouring countries . For example, in February and March 2000, the government of Indonesia stepped up measures at the central and local levels to quell the significant increase of “hot spots” in Sumatra and Kalimantan, after letters of enquiry were forwarded by the governments of Singapore and Malaysia on the matter. The measures that have been adopted include mobilizing hundreds of local personnel and fire-fighters in West Sumatra and Pekanbaru to undertake fire-suppression opera-

THE ASEAN-6

tions, mounting aerial surveillance patrols to detect open burning, and providing finance (100 million rupiah) for field operations. In addition, the Indonesian government has also formed the National Co-ordinating Team on Legal Affairs (Tim Yustisi) to deal with legal issues pertaining to land and forest fires. Subsequently, between 24 and 25 March 2000, ten companies were identified as possible culprits, with investigations continuing into four that are likely to lead to legal proceedings. However, in spite of governmental efforts by the various countries to control the spread of the haze, open fires were widespread in mid-1998. It is only because of the generally wetter conditions during that year that the transboundary impacts of the haze had been reduced. The haze resurfaced in April and August 1999, and recently in March and July 2000, casting doubts on the effectiveness of measures that have already been put in place to control open burning. Open fires were detected in Riau, North Sumatra, and West Kalimantan after the short hot and dry spell during February and March 2000. Visibility in Pekanbaru in Sumatra was reported to be around 150–250 metres. In July a significant increase in the number of hotspots due to plantation burning was detected in Central Sumatra. The Singapore Straits Times (16 and 17 July 2000) reported that the smog had affected half of Malaysia during this period, with visibility dropping to 1 kilometre in some parts of Kuala Lumpur and Penang. Even southern Thailand was affected. The intensity this time round, however, paled in comparison with the severity and extent of the haze of 1997, due to favourable weather conditions. Such occurrences strongly call into question the effectiveness of the RHAP, and notably that of the enforcement of property rights or regulations in relation to the prohibition of open burning in forests.

Challenges and prospects What are the challenges ahead? Does the situation look promising or bleak? There are many factors that need to be taken into account when considering the challenges and prospects facing the control and spread of the haze across the region. It is difficult to make generalizations, although the situation has improved markedly since 1997. However, it would not be too far wrong to say that all it takes is an extremely dry season (another El Nino) and some careless actions on the part of plantation owners for another severe episode of the haze to erupt in the region. The following are some of the factors that need to be taken into account when considering the challenges and prospects faced by ASEAN in dealing with the haze. COSTS OF ENFORCING LEGISLATION: The costs of specifying property rights are one reason that has hindered the effective prohibition of open burning, this attributed to the difficulties faced by the authorities in monitoring rough terrain and enforcing laws across wide distances between plantations. The high costs of specifying rights are attributed to what is commonly referred to in economics as the intrinsic characteristics of non-excludability and non-rivalry — in this case, of monitoring and enforcing legislation across a wide area of forests. Satellite technology lowers this cost dramatically, but cloud cover in this part of the region sometimes limits its effectiveness. Also, the detection of new hotspots by satellites is hindered once the haze sets in a dense cover of smoke. Aerial surveillance is therefore still necessary and costly. In addition, the gathering of evidence to prosecute offenders has been a difficult task, as plantation managers sometimes blame the locals for starting fires in forests.

53

ECONOMIC OUTLOOK

WHITHER THE HAZE? (continued)

FURTHER STRENGTHENING OF THE POLITICAL WILL OF THE INDONESIAN GOVERNMENT: Although, in general, there now seems to be a stronger will to curb open burning, there is evidence pointing to a lack of will in some instances. For example, the Environment Minister Dr Sonny Keraf reported in the Straits Times on 1 August 2000 that his office was at times still helpless when it came to dealing with the haze problem in Indonesia. This was due to the lack of government commitment in punishing offenders. The report also mentioned that the burning of forests has often involved government officials and military officers as their backers. ABSENCE OF A FORMAL REGIONAL AGREEMENT: Even as late as August 2000, ASEAN is yet to develop a formal agreement for addressing transboundary haze pollution issues. Such an agreement is necessary to facilitate regional co-operation by countries affected by the haze. The haze in not an isolated environmental problem, but rather one that does not respect the physical boundaries of countries. As such, the absence

of a regional agreement to control the spread of such a problem does not provide affected countries with recourse to laws to deal with and to redress negative spillover impacts that cross boundaries. TRADE-OFF BETWEEN ECONOMIC AND ENVIRONMENTAL CONSIDERATIONS: It is often believed that these two considerations exist at opposite poles — that one has to occur at the expense of the other. The issue is not as clear-cut as conventional arguments have suggested. In this instance, the haze has had negative impacts on land, sea, and air navigation; agricultural output; health and medical bills; and tourism revenues. The Asian financial crisis which erupted in 1997 has nevertheless dampened a consideration of the environment, the focus now being more on managing a country’s financial health rather than managing a country for environmental sustainability. However, environmental considerations cannot be disregarded by political decision-makers if the economic well-being of society is to be sustained in the long run.

the pricing issue is critical. As in Thailand, there appears to be a substantial — and stubbornly wide — gap between what foreign investors and domestic business interests each regard as a fair price for these Indonesian business assets. Also like Thailand, the actual implementation of the relatively new bankruptcy law in Indonesia is proving to be a slow process, as legal precedents have to be established, judges have to become familiar with the legislation, and powerful lobbies have to be overcome in cases where attempts are made to resist due legal process. One substantial distressed asset sale to have been successfully completed by IBRA was the divestment of its 40 per cent stake in the Astra conglomerate, through competitive bidding, for roughly US$500 million. The winners were a consortium led by Cycle and Carriage of Singapore and J.P. Morgan International Capital. (Of the three short-listed consortia bidding for Astra, the Government of Singapore Investment Corporation was represented in all three.) Another sale conducted in 2000 was the disposal of Bank Central Asia, through an initial public offering (IPO). Looking ahead, parts of the mighty Salim Group — numbering over a hundred different companies — are likely to come under

54

THE ASEAN-6

competitive bidding in 2001. IBRA aims to divest itself of assets cumulatively worth 28 trillion rupiah (approximately US$3 billion) in 2001, compared with the 19 trillion target for 2000 (US$2.1 billion). Meeting this target would necessitate a marked acceleration in its rate of divestments, and may oblige the agency to approach asset sales on a more wholesale basis, rather than the company-by-company basis adopted thus far. One option would be to sell stakes in the five holding companies under IBRA’s control, in which the various assets are currently bundled. It is presumed that IBRA aims to have all its assets sold by 2004, which is when the agency’s current mandate runs out. The Indonesian government is also seeking to enact a number of full or partial privatizations of state firms in the coming months, although it remains to be seen if there is adequate investor appetite for these offerings. (And if so, at what price?) Indonesia is also confronted with a substantial debt overhang. It has been reported that the country is now the world’s twentieth largest debtor, with over US$130 billion in external debts alone, approximately half of which is private sector debt. It is conceivable that Indonesia may seek to securitize at least some part of its external debt burden, using a financing instrument that resembles the Brady bonds issued by several Latin American countries following that region‘s earlier debt crisis. However, such a move would require approval from various external agencies, including the IMF and the Paris Club of creditors. In 2000, Indonesia came to agreements with both the London Club and Paris Club of creditors: the former relating to US$340 million in debts owed to over one hundred foreign commercial banks, and the latter relating to US$5.8 billion in sovereign debt owed to foreign governments. Indonesia’s private sector also owes a further 20 trillion rupiah in domestic debt. This is in addition to over 500 trillion rupiah that the government expended in trying to salvage the local banks — a process that is far from over. However, figures on Indonesia’s real domestic debt situation may be inaccurate. An investigation by the State Audit Board in 2000 revealed that over half of the 145 trillion rupiah (roughly US$17 billion) in loans extended by Bank Indonesia to forty-eight commercial banks during 1997–98, in a bid to keep them solvent, may have been used for purposes other than those intended. Rather than being used for deposit insurance, it is suspected that over 84 trillion rupiah of these central bank loans may have been used to fund proprietary trading activities, asset acquisitions, or lent on to corporate affiliates without adequate security. Of the forty-eight banks referred to by the audit agency’s investigation, eighteen have been suspended, fifteen are in the process of liquidation, ten have been instructed to freeze operations, and five have been nationalized. At the time of writing, Indonesia’s foreign exchange reserves are around US$30 billion, of which roughly half are IMF loans. If maintained, this sort of reserves level should be more than adequate to service the country’s short-term debt obligations in the near term. The recent rise in the price of oil will provide some additional support to the country’s external finances, given Indonesia’s profile as a net exporter of crude. Both the trade balance and current account balance are expected to remain firmly in positive territory. However, it should be remembered that domestic fuel prices in Indonesia are subsidized, so higher petroleum prices is not all good news for the Jakarta government. Given the country’s ongoing political risks, the rupiah seems unlikely to appreciate much above 8,200 to the U.S.

55

ECONOMIC OUTLOOK

dollar in the near term. The same shadow will hang over the price of shares traded on the Jakarta stock market, regardless of any further bomb attacks. It is very apparent that the Indonesian economy still has a long way to go before it is safely on the road to sustained recovery. In the mean time, the economy remains fragile, and will be highly exposed to any political shocks from within Indonesia, and any economic shocks from beyond the country’s borders.

Malaysia

56

M

alaysia’s gross domestic product (GDP) growth in the first half of 2000 amounted to 10.3 per cent, compared with 1.8 per cent for the same period in 1999. A slower growth momentum is likely for the second half of 2000, however, resulting in an estimated high one-digit growth for 2000. Economic expansion has been broad-based, with both buoyant exports and increased domestic demand having driven growth. Exports grew 20.3 per cent in the first half of 2000, led by the regional and U.S. demand for electronic and electrical products. Exports of electronic and electrical products account for almost 60 per cent of Malaysia’s total exports. Private consumption has shown signs of recovery, with car sales, housing starts, and retail sales all rising, owing to growing consumer confidence amid a low interest rate environment and ample liquidity. Private investment begins to recoup, with a sharp rise of 26 per cent in capital investment in the second quarter of 2000. Meanwhile, public consumption has been expanding more slowly, because of the recovery in private demand. Big infrastructure projects are back in fashion, with the government posting fiscal stimulus. Fiscal policy remains expansionary. The government is continuing to apply fiscal stimulus measures, with a projected budget deficit of 4.25 per cent of GDP in 2000, which is only slightly less than the 4.5 per cent deficit in 1999. Value added in all sectors, except the agricultural sector, recorded positive growth. The manufacturing sector continues to lead the growth. Export-oriented production grew by more than 30 per cent, while domestic-oriented production rose by around 20 per cent, in the first half of 2000. The mining sector rose by 0.8 and 2.5 per cent in the first and second quarters of 2000, on account of higher crude oil production. Meanwhile, the services sector expanded further by 5 to 6 per cent over the first half of 2000, reflecting stronger growth in the wholesale, retail trade, restaurants, and hotel sub-sector. In the agricultural sector, crude palm oil and rubber recorded negative production growth, –1.9 and –21.8 per cent, respectively, due to unfavourable prices. The government is working on plans to reduce crude palm oil output, by undertaking large-scale replanting, and to streamline natural rubber production by encouraging a consolidation of plantations to gain on economies of scale and advanced tapping techniques. In the line with the strong export growth, stronger import demand resulted in a narrowing of the trade surplus to RM29.1 billion in the first half of 2000, from RM33.7 billion in the same period of the previous year. Imports increased by 29.4 per cent in response to strong demand for exports and increased investment activity. Tourism has been a success story. In the first five months of 2000, tourist arrivals jumped almost 50 per cent

THE ASEAN-6

compared with the same period a year earlier, to 4.1 million visitors. With a strong trade surplus and net inflows of foreign direct investment, international reserves increased from US$30.8 billion at the end of 1999 to US$33.3 billion at the end of August 2000, sufficient to finance 5.5 months of retained imports, and 6.4 times of short-term external debt. The dollar peg and remaining capital controls since September 1998 have benefited exports. Inflation remains low, at 1.5 per cent during the first six months of 2000, largely because of excess industrial capacity, pegged exchange rate regime, and fixed petrol prices. However, the government is considering allowing petrol prices to rise for the first time since 1990, because of rising costs of price stablilization. Also a hike in bus fares is proposed. Inflation is expected to pick up slightly in the second half of 2000, due to rising fuel costs and continuing strong domestic demand. On average, inflation for 2000 is estimated to be low, at 2 per cent, declining from 2.8 per cent in 1999. This implies that the central bank can continue with its loose monetary policy to spur economic activity. Monetary policy remains accommodative, with a stable supply of liquidity and low interest rates. The central bank’s intervention rate was reduced to 5.5 per cent in August 1999 and has remained there since. Average lending rates have declined from 8.89 per cent in September 1999 to 6.75 per cent at the end of June 2000, in the face of increased competition and ample liquidity. Loan growth has been slow, at 2.0 per cent at the end of

Malaysia: Selected Economic Indicators, 1996–2002F 1996 GDP growth (% change) Industry sector growth (% change) Services sector growth (% change) Agriculture sector growth (% change)

1997

1998

1999

2000E

2001F

2002F

10.0 14.4 7.1 4.5

7.3 7.5 8.6 0.7

–7.4 –10.9 –4.7 –3.3

5.6 8.0 4.0 3.3

8.6 12.1 5.9 3.0

7.3 10.4 5.5 1.0

7.9 10.6 5.9 3.6

76,881 73,055 3,826

77,881 74,005 3,876

74,123 55,909 18,215

83,933 61,161 22,772

99,041 77,368 21,673

115,383 94,699 20,684

133,152 114,018 19,134

3.5

2.7

5.3

2.8

1.6

2.5

3.1

Gross external debt (% of GDP) Foreign exchange reserves (US$ billion)

39.3 27.0

47.1 20.8

61.8 25.6

53.3 30.6

47.0 34.5

45.2 32.5

44.0 31.4

Three-month interest rate (% per annum) M2 growth (% change)

7.2 19.8

7.8 22.7

9.4 1.5

4.1 13.7

3.3 6.8

4.0 9.0

4.7 12.3

Exchange rate (year end) (ringgit/US$1)

3.9

3.8

3.8

3.8

3.8

3.8

3.8

Exports (US$ million) Imports (US$ million) Trade balance (US$ million) Inflation/CPI (average) (% change)

E = Estimated. F = Forecast. SOURCES: World Bank, Economist Intelligence Unit, author.

57

ECONOMIC OUTLOOK

Malaysia: External Debt, 1998–2000Q1 (US$ million) Stocks (end of period) 1999

Flows 2000

1998 Dec

Jun

Dec

Mar

Jun

1998 Year

1999 Year

All maturities Bank loans Debt securities issued abroad Non-bank trade credits Multilateral claims Official bilateral loans*

19,844 11,463 1,410 1,476 1,998

18,648 12,684 1,354 1,402 —

16,703 13,583 1,823 1,428 2,618

16,526 13,519 — 1,406 —

— 13,587 — 1,384 —

–5,330 –649 –434 221 101

–3,897 1,850 476 –76 358

107 22 — –6 —

Due within a year Liabilities to banks Debt securities issued abroad Non-bank trade credits

9,309 445 —

7,839 287 1,154

7,748 222 1,101

7,426 228 —

— 376 —

— — —

— — —

— — —

23,645 21,334 2,711 13,051

22,072 18,839 2,501 13,847

20,285 18,270 2,977 12,062

20,246 18,058 — 13,985

— — — —

–6,716 — –243 –737

–4,051 — 201 –718

287 — — 2,050

25,559

30,571

30,588

33,626

33,666

—

—

—

Memorandum items Total liabilities to banks — locational — consolidated Total trade credits Total claims on banks International reserve assets (excluding gold)

2000 Q1

Q1 = First quarter of the year. * Development Assistance Committee (DAC) creditors. SOURCE: Joint BIS-IMF-OECD-World Bank Statistics on External Debt.

June 2000, due to a weak demand, a reluctance by banks to see another deterioration in asset quality, and banks’ preoccupation with the ongoing merger programme. New lending has generally been concentrated on the residential real estate sector. Total deposits have increased marginally, resulting in a slight increase in the loan-to-deposit ratio, to 84.3 per cent in mid-2000. In August the central bank announced an agreement with commercial banks to increase deposit rates by 25 basis points, aimed at helping the central bank head off inflationary pressures. Progress on tackling non-performing loans (NPLs) is steady but slow. The NPL ratio in the whole banking system declined from 18.9 per cent at the peak in the last quarter of 1998 to 16.2 per cent at the end of June 2000. The ten bank groups led by anchor banks had concluded merger negotiations and signed the Sales and Purchase Agreements by the end of August 2000. The merger incentives comprise exemption from stamp duty and real property gains tax, as well as tax allowance on 50 per cent of the accumulated losses of banking

58

THE ASEAN-6

Business Environment Ranking Global Rank (out of 60 countries)

Indonesia Malaysia Philippines Singapore Thailand Vietnam

Regional Rank* (out of 16 countries)

1995–99

2000–2004

1995–99

2000–2004

35 22 36 6 28 50

41 32 35 5 29 51

10 6 11 2 8 16

11 9 10 1 8 15

* Comprising Australia, China, Hong Kong, India, Indonesia, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, and Vietnam. SOURCE: Economist Intelligence Unit.

institutions that are to be acquired. The entire merger programme should be completed as planned by the end of 2000. The banking consolidation process aims at forging a core group of competitive local institutions ahead of the coming into force of the World Trade Organization’s (WTO) General Agreement on Trade and Services (GATS) in 2003. Similarly, it is planned that the country’s sixty-three stockbroking firms will be consolidated into no more than fifteen groups by the end of December 2000. With a stock market capitalization approaching 250 per cent of GDP, the stock market has played an important role in Malaysia’s economic recovery in boosting corporate investment and consumption. The Kuala Lumpur Stock Exchange (KLSE) composite index reached a peak of 1010 in February 2000, from its low of 263 in September 1998, but subsequently fell to 713 in September 2000. The index has proved to be vulnerable to declines in the U.S. and regional stock markets. On infrastructure development, the Ministry of Finance approved a request by Malaysian Airline Systems (MAS) to raise the ceiling on foreign shareholdings in the company to 45 per cent, from the maximum 30 per cent foreign shareholding in a listed company. Before this, the government increased the permitted ceiling on foreign ownership of telecommunications companies to 61 per cent, with the proviso that such interests were to be reduced to 49 per cent within five years. To boost development of the electronics business, the government has launched several initiatives to facilitate business in the sector. In June 2000, domestic banks were authorized to provide a full range of online services. An e-commerce masterplan is to be unveiled. In addition, a knowledge-based economy (K-economy) masterplan is being drafted and should be completed before the end of 2000. Malaysia is taking bold steps to transform the economy from being manufacturing-based to a more internet- and K-economyoriented one, so as to harness new sources of growth and development. (continued on page 62)

59

ECONOMIC OUTLOOK

PRIVATIZATION AND SOCIALIZING DEBTS IN MALAYSIA By Lee Hock Guan

M

alaysia was among the first developing countries to enthusiastically embrace privatization. By the early 1980s, the generally lacklustre performance of the public sector — coupled with its mounting deficit, which increased from 3.8 per cent of the gross domestic product (GDP) in 1970 to 13.5 per cent in 1980 — demanded a re-examination of the existing public sector–led economic growth. In 1983, two years after Mahathir Mohammed became Prime Minister, his administration announced its commitment to privatization. In the period 1983–85, only a handful of projects were privatized, because of the economic recession in the mid-1980s. But as the economy began to take off, the number of privatized projects increased noticeably; 156 during the period 1986–90 and 204 during 1991–95. By far the most common approach was through the sale of equity in state firms. Evidence suggests that privatization has helped to reduce public financial and administrative burdens, thus satisfying one of the government rationales for privatization. The government claims it has saved RM72.7 billion — RM52 billion alone in 1991–95 — in capital expenditure since the implementation of privatization in 1983. Savings in annual operating expenditure was estimated to be RM6.9 billion by 1995, largely due to the transfer of nearly 98,000 public employees, or 11.4 per cent of the total public work-force, to the private sector. The privatization programme also generated RM14.1 billion from the sale of assets, equities, and revenues from annual corporate taxes and recurrent incomes in the form of lease rentals. Inadvertently, the shift from public to private in the production of goods and services also means the transfer from public to private of the financial burdens for producing the goods and services. The privatization financing in Malaysia was funded largely from local sources. The capacity of local sources to finance the privatization programme was greatly aided by a

60

rapid stock market development. Beginning in the early 1990s, financial liberalization and a booming economy made Malaysia one of the hottest emerging equity markets, attracting massive portfolio capital equity flows. Within ten years, market capitalization of the Malaysian stock market as a proportion of the GDP went from 54 per cent (or RM51 billion) in 1986 to 318 per cent (or RM807 billion) in 1996. The enormous financial resources needed for privatization resulted in the private sector increasing rapidly its funds raised in the equity market and bank loans. In 1997 the private sector raised close to RM33 billion in the equity market, compared with the public sector’s paltry RM3.8 billion. The larger portion of the funds raised in the equity market by the private sector came from the stock market. In the financial market, the ratio of bank loans to the private sector measured against the GDP increased from 80 per cent in 1987 to 140 per cent in 1997. Hence, the success of the privatization was in part because funds and loans could easily be raised in the local capital and financial markets. However, if privatization has considerably reduced the government’s debt exposure, it has done so at the expense of the private sector’s mounting debt exposure. The external debt gap between the public and private sectors gradually narrowed over the years, such that by 1996 they were almost the same. With hindsight, the potentially dangerous level of domestic private sector debt and its vulnerable exposure to the volatility of the stock market and intemperate bank lending were not adequately addressed until it was too late. In the second half of 1997, the connection between the two inherently unstable markets — the market for foreign exchange and stock market — took its toll on Malaysia’s financial well-being. An immediate impact of the depreciation of the ringgit was the almost doubling of both the public and private sectors’ external debt exposure by end 1997, from 29 per cent

THE ASEAN-6

Selected Indicators, 1985–99

Kuala Lumpur Stock Market Stock market capitalization (RM billion) As a percentage of GDP (%) Net price/earning ratioa

1986

1990

1994

1995

1996

1997

1998

1999

43.8 54 —

131.7 114 20.3

508.8 275 25.1

565.6 254 24.2

806.8 318 26.8

375.8 133 11.3

374.5 132 58.6

552.7 185 —

1985

1989

1993

1995

1996

1997

1998

1999

Funds raised in the capital market By public sector (RM billion)

5.0

3.9

3.7

2.7

6.0

3.8

17.7

15.0

By private sector (RM billion) — equity market (RM billion) — bond marketb (RM billion)

0.6 0.6 —

3.2 2.5 0.7

6.8 3.4 3.4

20.6 11.4 9.2

28.3 15.9 12.4

32.8 18.4 14.4

12.6 1.8 10.8

19.2 6.1 13.1

Loans obtained from commercial banks and financing companies By public sector (RM billion) By private sectorc (RM billion)

1.1 60.2

0.9 86.1

0.5 160.5

0.4 237.4

0.7 299.6

0.7 391.4

1.8 389.5

3.9 375.0

External debt Public sector (RM billion) Private sector (RM billion)

35.2 7.2

37.5 4.6

36.6 15.5

40.7 28.1

39.7 33.0

65.4 62.1

68.1 61.5

77.0 59.4

a

Composite index. Excluding Cagamas bonds. c From 1989, excluding housing loans sold to Cagamas Berhad. SOURCE: Bank Negara Monthly Statistical Bulletin. b

of GDP in 1996 to nearly 45 per cent in 1997. Domestically, the falling ringgit led to an inevitable panic selling in the stock market, such that by the end of 1997 the market’s total capitalization was less than half what it had been in 1996. For almost a year until October 1998, the government pursued a typically IMF-type strategy, raising interest rates in particular. Consequently, huge selling pressure continued to push down the stock market till its capitalization hit a low of RM200 billion in August 1998. The dwindling equity market combined with banks’ reluctance to lend resulted in a liquidity squeeze. The liquidity squeeze forced many corporations in the

private sector — especially those that had benefited the most from privatization — to the wall. At its worst, the domestic debt (consisting of largely private-sector debt) to GDP ratio was estimated to be nearly 170 per cent — easily one of the highest in the world. Consequently, the banking system was faced with potentially huge losses as a result of the intemperate lending that helped fund the privatization programme. Since October 1998, the government’s selected fixed ringgit exchange and capital control policies have brought a large measure of stability to the local financial system. Two public bodies were established to assist the financial institutions: Danamodal to inject

61

ECONOMIC OUTLOOK

PRIVATIZATION AND SOCIALIZING DEBTS IN MALAYSIA (continued)

fresh capital and Danaharta to purchase the nonperforming loans. To recapitalize and purchase non-performing loans from the financial institutions, the government raised funds through various government-guaranteed bond issues. Besides shoring up the fragile financial system, the government also took steps to assist the private sector; for example, interest rates were lowered, soft loans were extended, corporations were encouraged to raise funds from the bond market, and a debt-restructuring institution was set up. In a sense then, in the aftermath of the 1997 financial crisis, things seem to have come full circle. While in the beginning privatization had helped to shift the debt burden from the public to the private

sector, the financial crisis has more or less reversed the trend. Thus, the various measures taken by the public sector to revive the ailing economy and assist the financial sector and selected private corporations have undoubtedly heightened its debt exposure, especially in the near future. On the other hand, despite the various government interventions, the private-sector debt remains enormous. At the end of 1999, private debt securities stood at RM111.7 billion and external debt at RM59.4 billion. In hindsight then, a key lesson of the Malaysian experience is that to avoid a potential private-debt trap, a comprehensive examination of the financing and financial consequences of privatization is imperative.

In the near term, domestic demand will stimulate economic growth, while net exports decline due to strong import demand. Since domestic demand has not yet recovered to precrisis levels, fiscal expansion will be maintained. The budget for 2001 will focus on boosting domestic spending and industrial investment, in a bid to retain economic momentum. In addition, an accommodative monetary policy will be continued, as long as the inflation rate remains low. The authorities have indicated that they have no intention of altering the fixed exchange rate regime. As such, trade will benefit economic recovery. However, Malaysia’s dependence on the global demand for electronic and electrical products, especially from the United States, remains a concern. This creates a short-term vulnerability if U.S. import demand for these products were to slow down faster than expected. Moreover, the country faces a loss of competitiveness in producing labour-intensive, low-value-added goods because of increased competition from countries with cheaper unskilled labour such as China, India, and Vietnam. Besides, China — which is poised to enter the WTO — has been absorbing a larger share of regional investment. Also, policy un-predictability and concerns over corporate opacity are factors that may discourage foreign investors. The Malaysian government aims to return to high, sustainable growth through productivity gains. The long-term strategy is to transform Malaysia into a high-skilledsector economy. The government will set out its strategy in the Eight Malaysia Plan (2001–2005), a K-economy masterplan, and the revision of the National Development Policy. A government-led approach to economic development remains a dominant theme of the Malaysian economy.

62

THE ASEAN-6

I

n terms of economic performance, it appears as if the Philippines is consistently able to avoid extremes on both the upside and downside. Having narrowly missed being caught up in the severe down-draft of the Asian crisis of 1997–98 (the economy contracted by less than 1 per cent in 1998, due primarily to problems in the agricultural sector, rather than as a result of financial contagion), the Philippine economy now appears unable to participate fully in the positive economic growth trajectories enjoyed by some of its regional neighbours. Instead, the economy is cruising along, with gross domestic product (GDP) growth seemingly range-bound at between 3 and 4 per cent per year, just ahead of the 2.5 per cent annual population growth rate. While the general absence of volatility in its macroeconomic numbers could be perceived as a good thing, it also reflects the country’s ongoing inability to fully harness its latent potential. Relatively better positioned than most other Southeast Asian countries to take advantage of new technological innovations and business models associated with the “new economy”, the Philippine economy continues to be a disappointing underperformer. To be fair, the Philippine economy’s performance is not being helped by various factors in the political sphere, which is heightening general business risk perceptions of the country, and diverting government energies away from the country’s economic reform and business liberalization agenda. At the time of writing, a concerted attempt to impeach President Estrada is just the most recent example of a series of events in the political realm that are thwarting consistent and concerted economic decision-making. Disappointment stemming from extended delays in pushing through various reform measures has prompted a number of external agencies to threaten to cancel various loan programmes. For example, the Asian Development Bank has not been pleased with slow progress in enacting a new securities law (the Revised Securities Act), to which a US$75 million loan to develop the country’s capital market was dependent. This followed a scandal in early 2000, when the stock market’s surveillance unit alleged that eight brokerage firms had been involved in share price fixing of a listed company (BW Resources), with a friend of the President portrayed as the main beneficiary. Such incidents not only have the potential to keep foreign investors away, but have also revived widespread concerns — shared by domestic and foreign observers alike — about a return of cronyism to the country. Right or wrong, such perceptions just add to the risk premium of doing business in the Philippines. Perhaps the main “Achilles heel” of the Philippine economy is the budget deficit, which at almost 4 per cent of GDP in 1999 remains uncomfortably high, and is likely to stay at around the 3 to 4 per cent level in 2000 and 2001. The application of not inconsiderable military resources in a bold bid to eradicate the Moro Islamic Liberation Front during 2000 may also put an added strain on government expenditure. (It will also indirectly have a negative impact on agricultural output on the island of Mindanao, which normally produces over half of the country’s corn crop.) Additional government revenues are expected to be derived from various privatization efforts that are in the pipeline, but the divestment of state firms is running well behind schedule: for example, the sale of a 30 per cent stake in Philippine National Bank, to Lucio Tan — majority owner of the national airline — has proved to be problematic.

Philippines

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ECONOMIC OUTLOOK

The country’s banking sector is in slightly better shape than some others in the region, with total non-performing loan (NPL) levels at round 14 to 15 per cent. In general, Philippine banks have been provisioning for bad loans in a sensible manner, although Urban Bank’s move into receivership in mid-2000 indicates that things are not completely rosy and depositors have a right to be edgy. The extension of new bank loans is fairly weak, although this partly stems from a lack of appetite by Philippine corporates to increase their debt levels, given ongoing risks in both the economic and political realms. A number of mergers and acquisitions within the Philippine banking sector have occurred in recent years, including the participation of foreign banks (particularly Singapore banks), and this trend seems set to continue. Congress passed a General Banking Act in early 2000 that allows foreign banks to wholly own local banks for the first time, having previously been capped at 60 per cent. (And non-bank foreign entities may now hold up to 40 per cent stakes in local banks, on a par with domestic non-bank institutions.) Now the only major constraint on foreign participation in the banking sector is an aggregate ceiling that the central bank must enforce, ensuring that 70 per cent of total banking assets are controlled by banks that are majority-owned by locals. The local currency has weakened in recent years, but should stay around the P46 to P48/ US$1 level in the near term, provided that some degree of political stability is maintained.

Philippines: Selected Economic Indicators, 1996–2002F 1996 GDP growth (% change) Industry sector growth (% change) Services sector growth (% change) Agriculture sector growth (% change)

1998

1999

2000E

2001F

2002F

5.8 6.4 6.4 3.8

5.2 6.1 5.5 2.9

–0.5 –1.9 3.5 –6.6

3.2 0.5 3.9 6.6

3.8 4.0 4.5 3.0

3.6 4.1 4.3 2.9

4.0 4.0 4.5 3.1

20,540 32,427 –11,887

25,228 35,933 –10,705

29,496 29,660 –164

35,033 30,726 4,307

35,232 30,673 4,559

38,755 35,580 3,175

42,435 40,205 2,230

9.0

5.9

9.8

6.6

6.5

7.5

7.0

Gross external debt (% of GDP) Foreign exchange reserves (US$ billion)

50.5 10.0

55.0 7.3

73.0 9.2

68.0 13.8

73.8 14.9

73.1 15.9

68.3 16.6

Three-month interest rate (% per annum) M2 growth (% change)

10.4 23.2

11.3 26.1

15.0 8.5

10.2 16.0

9.0 15.0

9.9 16.7

10.6 17.2

Exchange rate (average) (peso/US$1)

26.2

29.5

40.9

38.9

47.5

45.6

46.9

Exports (US$ million) Imports (US$ million) Trade balance (US$ million) Inflation/CPI (year end) (% change)

E = Estimated. F = Forecast. SOURCES: Asian Development Bank, ING Barings, author.

64

1997

THE ASEAN-6

Philippines: External Debt, 1998–2000Q1 (US$ million) Stocks (end of period) 1999

Flows 2000

1998 Dec

Jun

Dec

Mar

Jun

1998 Year

1999 Year

2000 Q1

All maturities Bank loans Debt securities issued abroad Brady bonds Non-bank trade credits Multilateral claims Official bilateral loans*

12,774 8,934 2,170 3,377 9,510 10,366

13,951 10,913 2,170 3,230 8,980 —

14,542 12,467 1,482 3,611 9,592 12,362

13,567 14,147 1,482 — 9,293 —

— 14,155 1,451 — 9,222 —

–1,873 820 –59 –577 793 230

1,363 3,482 –113 501 40 819

–779 1,731 0 — –69 —

Due within a year Liabilities to banks Debt securities issued abroad Non-bank trade credits

8,665 1,177 —

8,143 645 764

7,627 685 754

6,812 985 —

— 835 —

— — —

— — —

— — —

16,332 16,485 7,698 12,376

17,035 16,686 7,363 13,452

17,180 16,886 8,042 15,109

16,289 16,000 — 15,041

— — — —

–773 — 660 2,440

457 — 296 2,665

–672 — — 54

9,226

12,302

13,230

14,203

13,407

—

—

—

Memorandum items Total liabilities to banks — locational — consolidated Total trade credits Total claims on banks International reserve assets (excluding gold)

Q1 = First quarter of the year. * Development Assistance Committee (DAC) creditors. SOURCE: Joint BIS-IMF-OECD-World Bank Statistics on External Debt.

The country’s external debt is likely to stay around two-thirds of GDP, with a tolerable debtservice ratio of around 14 per cent of total export earnings. The Philippines is presently recording both a positive trade and current account balance. A trade balance of US$4 billion to US$5 billion in 2001 seems likely, with a current account balance of 5 to 6 per cent of GDP. As long as the global electronics cycle remains conducive, this increasingly important element of the Philippines’ total export earnings should continue to buoy the economy. In the longer term, the Philippines needs to upgrade its physical infrastructure and human capital support for businesses in the electronics sector, so that the level of domestic value added — currently about 30 per cent for the electronics sector — can be increased. Policy-makers might also be well-advised to seek and diversify the spectrum of electronics-related business conducted, and attempt to move towards more IT software activities, where the Philippine economy should enjoy some comparative advantage. Any strident moves in this direction would go

65

ECONOMIC OUTLOOK

some way towards better harnessing the real economic potential of the country. Conversely, policy-makers must be vigilant in ensuring that the cronyism associated with the Marcos period does not make a re-appearance — a clear and present danger that some observers have been warning of since Joseph Estrada assumed the presidency in mid-1998.

Singapore

66

S

ingapore built on the commendable 5.4 per cent economic growth registered in 1999, to register gross domestic product (GDP) growth of around 9–10 per cent in 2000. Despite the less-than-impressive economic growth trajectories and corporate restructuring programmes of its regional neighbours, Singapore is moving ahead in a fairly convincing — and increasingly exceptional — manner. Crucially, Singapore’s policy-makers have remained focused on implementing long-term reform measures that position the country well for the opportunities posed by a more globalized and tech-oriented international business community. And in this regard, Singapore appears to be well ahead of most other countries of the Association of Southeast Asian Nations (ASEAN). While policy-makers in some Southeast Asian countries have tended to perceive the forces of globalization largely in terms of threats and challenges, Singapore has identified the opportunities to be derived from globalization, and this may explain its willingness to embrace these forces with much greater vigour. Although to be fair, it is clear that Singapore’s capacity to leverage off the forces of globalization and technology are undoubtedly greater than some other Southeast Asian countries. As the latest International Monetary Fund (IMF) country report on Singapore indicates, the country’s “economic fundamentals and policy management has … borne the test of time, especially during the Asian crisis”. Singapore consistently ranks at the top of various global competitiveness rankings. And partly as a result, the country is currently host to the fourth largest foreign exchange centre in the world (after London, New York, and Tokyo), has the third largest oil-refining capacity in the world, and operates the world’s largest disk-drive production. And the rewards for such consistent performance have included one of the highest average per capita incomes in the world for its three million citizens. Perhaps the main challenge that Singapore faces is maintaining this track record in the future, which necessitates savvy and flexible policy-making skills at senior levels of government, managerial gumption in the corporate sector, and a perpetual upgrading of human capital throughout the community. The aim is for Singapore’s economy to keep moving up the value-added chain, thereby maintaining a healthy margin of competitiveness over its main rivals, both in Southeast Asia and beyond. Various initiatives are currently under way in a bid to meet this aim. Funding for education is to increase, from 3 to 4.5 per cent of GDP, with greater emphasis to be placed on creative learning and lateral thinking. Education and skills training for adults is also to become more prominent. Attracting “foreign talent” in those areas where the local pool of skills and experience is insufficient will continue, in a country where foreigners now constitute one in four of all inhabitants. Subsidies, incentives, and grants are also being made available to encourage start-up ventures, particularly in various “new economy” fields. A number of pre-eminent foreign business schools have also established permanent operations

THE ASEAN-6

in Singapore. The government’s presence in the domestic corporate community — through substantial equity stakes in the government-linked companies (GLCs), and held by a small number of holding companies — is likely to be diluted in the coming years. More privatizations and public listings — including Singapore Power, the Port of Singapore Authority, and the Mass Rapid Transport railway system — are anticipated. This is partly in order to allow the government to focus on its regulatory role, while allowing Singapore’s corporates to focus on profit-oriented business. The government’s substantial equity presence in GLCs, like Singapore Airlines and Singapore Telecommunications, may have posed additional problems for these firms in enacting overseas acquisitions, particularly when the target was a major company in an Asian country perceived to be in direct competition with Singapore. Singapore Airline’s acquisition of a 49 per cent stake in Virgin Airlines, however, was not a problem, and the government has indicated that it would like to see corporate Singapore learn a few lessons from such “zesty” entrepreneurs as Richard Branson. A more entrepreneurial approach towards business in general is certainly being encouraged by the government, in a bid to make local firms less risk-averse — and more creative — in their development strategies. This stems from a realization that new business models are evolving in the “new economy age”, and that success in such fields as life sciences, the Internet, and high-end integrated circuit technology (ICT) requires an entrepreneurial and creative edge. Existing laws, regulations, and tax rates — such as the bankruptcy law, the code on mergers

Singapore: Selected Economic Indicators, 1996–2002F 1996 GDP growth (% change) Industry sector growth (% change) Services sector growth (% change) Agriculture sector growth (% change)

1997

1998

1999

2000E

2001F

2002F

7.5 7.2 7.9 6.0

8.4 7.3 8.7 –5.8

0.4 0.9 1.8 –5.7

5.4 13.8 5.4 4.9

8.0 13.0 8.0 1.6

6.6 10.5 5.8 1.5

6.0 8.0 6.3 1.6

126,000 123,800 2,200

125,700 124,600 1,100

110,600 95,800 14,800

115,700 104,400 11,300

141,000 124,200 16,800

161,000 142,900 18,100

178,000 160,000 18,000

1.4

2.0

–0.3

0.9

2.0

1.8

1.7

Foreign exchange reserves (US$ billion)

77.0

71.4

75.1

77.1

78.0

80.0

82.5

Three-month interest rate (% per annum) M2 growth (% change)

— 9.8

— 10.3

2.0 8.1

2.1 8.5

2.6 4.0

3.3 7.5

3.5 7.0

Exchange rate (average) (S$1/US$1)

1.4

1.5

1.7

1.7

1.7

1.7

1.7

Exports (US$ million) Imports (US$ million) Trade balance (US$ million) Inflation/CPI (year end) (% change)

E = Estimated. F = Forecast. SOURCES: Asian Development Bank, Economist Intelligence Unit, ING Barings, Asian Wall Street Journal, author.

67

ECONOMIC OUTLOOK

Singapore: External Debt, 1998–2000Q1 (US$ million) Stocks (end of period) 1999

Flows 2000

1998 Dec

Jun

Dec

Mar

Jun

1998 Year

1999 Year

2000 Q1

All maturities Bank loans Debt securities issued abroad Non-bank trade credits Official bilateral loans*

260,570 4,919 1,422 76

214,632 6,076 1,904 —

215,520 7,200 2,196 47

198,879 7,036 — —

— 8,958 — —

–46,053 1,682 –455 –11

–54,437 2,253 968 —

–12,240 –121 — —

Due within a year Liabilities to banks Debt securities issued abroad Non-bank trade credits

109,507 466 —

96,079 525 1,419

76,935 1,009 1,685

81,375 847 —

— 1,321 —

— — —

— — —

— — —

268,213 139,356 2,012 249,099

221,379 126,159 2,427 242,843

223,458 109,755 2,688 251,374

207,508 115,592 — 252,386

— — — —

–44,361 — 179 21,476

–52,965 — 807 2,545

–11,486 —

74,928

73,766

76,843

74,334

77,483

—

—

—

Memorandum items Total liabilities to banks — locational — consolidated Total trade credits Total claims on banks International reserve assets (excluding gold)

3,582

Q1 = First quarter of the year. * Development Assistance Committee (DAC) creditors. SOURCE: Joint BIS-IMF-OECD-World Bank Statistics on External Debt.

and acquisitions, and tax rates on stock option schemes — are being refined in order to support this process. In addition, industry liberalization moves should see openings for a greater degree of participation by foreign companies. (A decision was recently made to bring forward the complete liberalization of the telecommunications industry, by two years, to April 2000.) The injection of more foreign firms will bring competitive pressure to bear on local firms, prompting them to both “shape up” at home and explore new business opportunities overseas. Singapore firms have already been leading participants in some of the asset sales conducted by neighbouring countries, as part of the latter’s post-crisis corporate restructuring programmes, and this will probably continue in the immediate years ahead. Singapore’s financial sector is midway through a five-year reform process, with a number of noteworthy developments already apparent. The former stock exchange (SES) and futures exchange (SIMEX) have both been demutualized and merged into a single entity, the Singapore Exchange (SGX) — Southeast Asia’s first wholly integrated equities and derivates exchange. The SGX also enacted an initial public offering (IPO) in late November.

68

THE ASEAN-6

More funds held by the government have been placed out to private asset management companies, in a bid to develop the fund management industry in Singapore. A more substantial bond market is also envisaged, and listed firms are under increased pressure to improve their general standards of disclosure. There has been less progress in the consolidation of the domestic banking sector, however, where the government would ideally like to see the number of big participants contract from five to two. Local banks were recently told that they have three years to dispose of their non-core assets, in businesses such as property development, and undo cross-shareholdings. Dovetailing with the drive to develop Singapore’s “new economy” business sphere, venture capital companies — necessary for pre-IPO financing of start-up companies — are also being encouraged. And foreign law firms have been given permission to set up joint ventures with local practices, in order to bolster the legal industry’s support of Singapore’s financial sector development. Meanwhile, the SGX has sought to establish alliances with overseas capital markets, such as the ASX (Australia Exchange), in anticipation of what is likely to be a gradual process towards cross-border integrated equity markets. Perhaps the greatest liability for Singapore’s economy in the next few years is the surrounding region, and Southeast Asia’s lacklustre attempt to put the problems of the recent financial crisis behind it. Although Singapore has been seeking to pitch itself as a truly international and diversified player in the global business arena, its economy remains partially oriented towards Southeast Asia, and the city-state cannot be wholly divorced from developments in the region. Therefore, as long as the economies of Indonesia, the Philippines, and even the transitional countries of Indochina, are unable to show convincing signs of sustained growth and stability, these factors will weigh on Singapore, at least to some extent. A major component of the corporate community in Singapore is foreign multinationals that use the city-state as a regional hub for their investments across the region. But if foreign investors’ perceptions of the region as a whole remains ambivalent, then their propensity to develop hub operations in Singapore will be lessened. The same applies to foreign banks’ appetite to participate in Singapore’s drive to develop a world-class financial centre, if the corporate and banking landscape in the surrounding region remains as unappealing as it does at present.

S

trong export performance has been underpinning moderate economic growth in Thailand. Thai export growth hit a high of 21.1 per cent in the first half of 2000. The increase in export value was attributable mainly to the volume of exports, as prices were still declining. Leading export items included electrical appliances, automotive, and electronic products. Major markets for Thai exports were the United States, followed by ASEAN, the European Union (EU), and Japan. Government expenditure is still playing a role in stimulating economic growth. Imports of capital goods, as a capital formation indicator, showed signs of strong growth in the second quarter of 2000. Meanwhile, private consumption has shown a possible downward trend, attributed to declining farm prices and high unemployment. Farm prices in the first half of 2000 declined

Thailand

69

ECONOMIC OUTLOOK

by 12.1 per cent, following decreasing crop and livestock prices. The unemployment rate was recorded at 4.8 per cent in February 2000, and is gradually declining, but remains still high. Slightly over 7,200 businesses closed operations in the first half of 2000; an increase of 148.8 per cent from the same period of the previous year. Also, prolonged weaknesses in the financial and corporate sectors continue to cause income uncertainty. Slowdowns in the manufacturing production index (MPI) and industrial capacity utilization also reflect weak domestic demand. The MPI indicated an increase of 6.4 per cent in the first seven months of 2000; down from 7.6 per cent in the same period of 1999. The expansion was in almost every category, with highest growth in vehicles and equipment production. A decreasing trend was found in the production of beverages, petroleum products, and textiles. Capacity utilization in July 2000 fell to 54.5 per cent, from a peak of 61.6 per cent in March 2000. Industries experiencing near-full capacity included integrated circuits, metal, zinc, tyres, paper pulp, and paper products. The services sector continued to expand at a high rate, largely due to an increase in the number of tourists, up 10.7 per cent in the first half of 2000. This resulted in the hotel occupancy rate increasing to 60.8 per cent, compared with 58.4 per cent in the same period of 1999. Health care and education services sectors also improved. In the agricultural sector, production increased in the first half of 2000, due to favourable climatic conditions for crops

Thailand: Selected Economic Indicators, 1996–2002F 1996 GDP growth (% change) Industry sector growth (% change) Services sector growth (% change) Agriculture sector growth (% change)

1997

1998

1999

2001F

2002F

5.9 10.1 4.6 –8.1

–1.7 –2.5 –0.4 –0.3

–10.2 –11.8 –10.4 0.2

4.1 9.1 0.1 4.0

4.2 7.4 2.2 2.4

4.5 6.7 3.0 2.2

4.6 7.0 3.2 2.0

54,667 70,815 –16,148

56,725 61,349 –4,624

52,878 40,643 12,235

56,800 47,529 9,271

65,320 59,411 5,909

68,455 63,273 5,182

74,137 68,461 5,676

5.8

5.6

8.1

0.3

1.8

2.9

3.0

Gross external debt (% of GDP) Foreign exchange reserves (US$ billion)

49.9 38.7

62.5 30.0

76.9 29.5

71.5 34.8

62.5 32.0

50.3 31.6

46.7 31.8

BOT interbank rate (% per annum) M2 growth (% change)

10.5 12.6

12.5 16.4

12.5 9.5

4.0 2.1

4.0 1.2

4.0 2.0

4.0 2.4

Exchange rate (year end) (baht/US$1)

25.6

47.2

36.7

37.5

41.3

41.5

41.5

Exports (US$ million) Imports (US$ million) Trade balance (US$ million) Inflation/CPI (year end) (% change)

E = Estimated. F = Forecast. SOURCES: Bank of Thailand (BOT), CEIC Data, Economist Intelligence Unit, author.

70

2000E

THE ASEAN-6

Thailand: External Debt, 1998–2000Q1 (US$ million) Stocks (end of period)

All maturities Bank loans Debt securities issued abroad Non-bank trade credits Multilateral claims Official bilateral loans* Debt due within a year Liabilities to banks Debt securities issued abroad Non-bank trade credits Memorandum items Total liabilities to banks — locational — consolidated Total trade credits Total claims on banks International reserve assets (excluding gold)

1999

Flows 2000

1998 Dec

Jun

Dec

Mar

Jun

1998 Year

1999 Year

2000 Q1

47,301 11,930 6,406

38,449 13,588 5,892

32,254 13,196 6,311

31,491 12,917 —

— 13,103 —

–28,058 –114 –1,703

–17,189 1,087 93

–177 –200 —

7,572 11,097

8,196 —

8,761 14,674

8,675 —

8,682 —

1,495 2,256

1,250 1,876

30 —

24,003 796 —

19,023 956 2,309

14,206 840 1,462

13,193 935 —

— 1,390 —

— — —

— — —

— — —

51,584 47,654 9,709 12,030

42,288 39,383 9,108 13,127

36,449 32,380 9,479 12,124

35,368 30,687 — 13,054

— — — —

–28,904 — –1,476 2,321

–17,206 — –278 3

–443 — — 1,031

28,825

30,723

34,063

31,607

31,460

—

—

—

Q1 = First quarter of the year. * Development Assistance Committee (DAC) creditors. SOURCE: Joint BIS-IMF-OECD-World Bank Statistics on External Debt.

and livestock. Meanwhile, marine products fell, resulting from increasing oil prices and the deterioration of the fish resources in Thai waters. A research study by the Ministry of Agriculture and Co-operatives shows that the Thai rice yield is low compared with Vietnam and the United States. The government has sought to provide incentives for agricultural investment. The Board of Investments (BOI) announced a benefit package which includes receiving longer tax exemption periods, the right to establish facilities outside of BOI zones, and duty-free imports of raw materials and machinery. The country will remain on track for recovery if it continues to register a current account surplus, because the surplus is needed to service external debts and pay for import bills. The trade account and current account posed declining surpluses, as imports grew faster than exports. Import growth was at 34.6 per cent over the first half of 2000, compared with 5.4 per cent in the same period of 1999, owing to domestic economic recovery and the export of manufactured products with high import contents. The acceleration in the import

71

ECONOMIC OUTLOOK

value of crude oil was mainly a result of higher oil prices, as the import volume actually contracted. The capital account became weak in the first half of 2000, registering a larger deficit of US$7.4 billion, up from US$4.4 billion in the first half of 1999. This was attributed to the surge in foreign debt repayments by the corporate sector, following an increase in interest rate differentiation between Thailand and the United States. The baht depreciated from 37.35 to 42.9 to the U.S. dollar over the first nine months of 2000, mainly due to a surge in foreign debt repayments and the depreciation of regional currencies (such as the Indonesian rupiah and Philippine peso). However, the baht depreciation has been less pronounced than the depreciation of these other regional currencies. International reserves remain comfortable at US$32.3 billion in August 2000, or equivalent to 7.1 months of imports. Moreover, short-term external debt has been falling. At this stage, there appears to be no indication of a new crisis emerging. The Bank of Thailand (BOT) forecasts that the current account will continue to show a surplus in 2000 and 2001, but this could turn into a deficit in 2002. If imports exceed exports, Thailand will have to find a way to finance its current account. Foreign investment is not going to come back on the same scale as before 1997, which would have helped finance the country’s current account. And volatility in the stock market has increased. The Stock Exchange of Thailand (SET) has lost more than 45 per cent of its value since the beginning of 2000, due to a decrease in the Morgan Stanley Capital International (MSCI) weighting for Thailand (from 2.52 to 2.08 per cent in May 2000), an increase in the U.S. Federal Reserve Funds rate, domestic political uncertainties in Thailand, and the weakening of the baht. These have led foreign investors to reduce their position in Thai stocks. Services sector promotion, especially in the tourist sector, may be one area that could help finance Thailand’s current account. On macroeconomic policy, both fiscal and monetary policies continue to support the economic recovery. The overall public sector deficit (including interest cost of financial sector restructuring) for FY2000 is projected to be around 7 per cent of gross domestic product (GDP). The FY2001 budget estimates a deficit of 105 billion baht, or around 6 per

Government Balance and Public Debt in Asian Countries (% of GDP)

Indonesia Malaysia Republic of Korea Thailand

Public Debt

Government Balance 1999

1996

1999

–1.5 –3.8 –2.7 –2.9

32.3 35.6 14.0 15.7

86.7 41.5 41.0 50.0

SOURCES: International Monetary Fund, J.P. Morgan, and World Bank.

72

THE ASEAN-6

cent of GDP, marking the fourth consecutive budget deficit since 1997 crisis. Value-added tax (VAT) is expected to rise from the current 7 per cent to 10 per cent in October 2001 (originally planned for April 2001). Policy-makers plan to finance the entire deficit through a privatization programme, syndicated loans, and domestic borrowing. As of March 2000, the public debt increased to around 55 per cent of the 1999 GDP. The World Bank forecasts that — based on the country’s growth not slowing down below 4 per cent and real interest rates not shooting up — the public-debt-to-GDP ratio can be reduced to below 40 per cent by the year 2010, with fiscal consolidation in the medium term. The BOT’s Monetary Policy Board (MPB) has maintained an accommodative policy, by keeping short-term interest rates unchanged in order to support economic recovery. Meanwhile, deposit and lending rates are expected to continue to fall, due to excess liquidity in the banking system. Nevertheless, bank credit registered a contraction of 8.4 per cent year-on-year in June 2000. High non-performing loans (NPLs) — 31.1 per cent of total loans in July 2000 down from a high of 46.8 per cent in May 1999 — are still a constraint on bank lending. The monetary authorities forecast an NPL level of 20 to 25 per cent of total loans by the end of 2000, due to the transfer of NPLs into asset management companies (AMCs). Bank credit, however, will be held back by NPLs for the next few years. On inflation targeting, the MPB has set an inflation ceiling of 3 per cent for the year 2000 and 3.5 per cent for the medium term. In spite of high oil prices and the weakening of the baht, inflation is expected to be below 3 per cent for 2000, due to low capacity utilization and declining commodity prices. To keep moving ahead, Thailand needs ample credit supply and new investment to go into viable enterprises. A significant change in corporate governance is also required. Large firms have issued debt instruments during the period of credit and capital crunch, as long as domestic interest rates were low. However, the amount of corporate bonds issued in the first half of 2000 has declined substantially, following the new requirement that all debentures must be rated after April 2000. Small- and medium-sized firms have faced the bank credit squeeze to get back on a sound footing. To help speed up new lending, the BOT recently allowed commercial banks to raise their capital through issuing hybrid debt-capital instruments. The new instruments, which are closer to capital than debt, can be classified as upper tier-2 capital. To encourage transaction in the stock market, brokerage fees were allowed to float from the floor of 0.25 per cent, instead of fixing at 0.5 per cent as before. A new Alien Business Operations Act was also implemented in March 2000 to promote capital inflow. This law liberalizes a number of business activities to foreign investors who maintain corporate transparency and regulatory compliance. A draft amendment to the Board of Investment Act was also approved, which would give more flexibility to the BOI in providing incentives to both foreign and local firms to cope with the changing business conditions. Increased foreign direct investment and progress in privatization will probably not occur until the formation of the next government. A huge public debt burden constrains fiscal expansion. Therefore, exports seem to be the main engine of economic recovery in Thailand. Based on a robust U.S. economy and accelerating growth in the Japanese economy, Thai exports are expected to continue growing strongly, helped by low inflation and a weakening baht. Continuing concerns over the weakness of the banking sector, the

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ECONOMIC OUTLOOK

slow pace of corporate restructuring, and foreign debt repayment will result in renewed weakening of the baht in 2001–2002. Domestic interest rates are expected to rise again in 2001, based on anticipation of debt repayments by corporate firms and by monetary authorities to the IMF. The Thai economy is forecast to grow at a moderate 4 to 5 per cent for 2000–2002.

INDOCHINA AND MYANMAR Mya Than • Nick J. Freeman

Cambodia

74

A

ccording to both the Asian Development Bank (ADB) and the International Monetary Fund (IMF), 1999 was a good year for Cambodia’s economy, with gross domestic product (GDP) growing by 5 per cent. This exceeded the GDP growth target of 4 per cent, and was a considerable improvement on the 1 per cent GDP growth rates recorded for 1997 and 1998. The inflation rate fell significantly, to nearly zero, after 12.6 per cent in 1998. The exchange rate was stable, at around 3,800 riel to the U.S. dollar, after a marginal appreciation of 0.1 per cent. According to Prime Minister Hun Sen, the country’s international reserves grew by 8 per cent — which can cover 3.9 months of imports. Exports increased significantly, by about 22 per cent, due largely to the growing garment industry, which now employs more than 100,000 people. This follows the country gaining Generalized System of Preferences (GSP) and Most Favoured Nation (MFN) status from its major trading partners such as Japan, the EU, the United States, Canada, and Australia. The good performance of Cambodia’s economy in 1999 was largely attributable to an improvement in the political environment, a significant growth in industrial output (12.9 per cent, according to the ADB), a recovery in the tourism sector (which grew by more than 30 per cent after plunging for two years), and favourable weather, which contributed to a good harvest. Also, domestic government revenues increased by 11.6 per cent in 1999, due to the introduction of value-added tax. Moreover, the confidence of foreign investors and local people alike was regained, mainly due to the political stability achieved after the formation of a new coalition government. The pledge of a total of US$548 million in development assistance by international donors to the country was also a conducive development. However, despite the sturdy performance of the economy in 1999, more economic reforms need to be carried out. For example, the banking sector is in urgent need of reform, as its limited credit activity continues to hamper economic development. The relatively favourable political situation and better economic news, such as the surge in textiles and garment exports, had raised hopes for an even better economic outlook in 2000. However, this optimistic outlook for Cambodia’s economy was dashed in September, due to massive flooding in the Mekong Delta, which struck a few weeks before the paddy This chapter is reproduced from Regional Outlook: Southeast Asia 2001–2002, edited by Daljit Singh and Nick Freeman (Singapore: Institute of Southeast Asian Studies, 2001). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies.

THE ASEAN-6 INDOCHINA AND MYANMAR

harvesting time. It is reported that a total of 200,000 hectares of paddy field was destroyed, adversely affecting about 200,000 people mostly from the rural areas. As agriculture is still the mainstay of the economy (agriculture’s share of Cambodia’s GDP in 1999 was 37.4 per cent), it will be difficult for the country to meet the government’s target of 4.2 per cent growth for the agriculture sector and 5.5 per cent growth for total GDP in 2000. The agricultural sector, having just recovered from the floods and droughts of 1997 and 1998, registered a sectoral growth of 2.4 per cent in 1999. Therefore, the growth rate of Cambodia’s GDP in the year 2000 is expected to be around 5.0 per cent (the government’s forecast is 5.5 per cent). In a bid to boost the economy and to alleviate poverty, the government has adopted strategies aimed at achieving the following: (1) long-term sustainable economic growth at the annual rate of 6 to 7 per cent; (2) equitable distribution of the fruits of economic growth between “haves” and ”have-nots”, between urban and rural areas, and between genders; and (3) sustainable management and utilization of the environment and natural resources. The government has also decided on six priority sectors on which to build a strong foundation for economic growth, as well as ensure Cambodia’s long-term comparative advantages. They are agriculture, physical infrastructure, transportation and telecommunications, electrical power supply, labour-intensive and export industries, tourism, and human resource development. However, to implement these programmes, the country urgently needs financial resources (domestic as well as foreign), amongst other inputs. As far as human resources are concerned, the population has a low educational attainment. According to the ADB, about 40 per cent of the population have never attended school, 32 per cent are illiterate, and less than 1 per cent have had any training beyond high school. “The skills needed to improve administrative, legal, educational, and medical institutions are therefore short of supply, often forcing Cambodia to rely on international experts.” This is partly the result of resource misallocation; the Cambodian government spends more on the military than on education and health combined. While the government’s spending on the military is about 22 per cent of its total expenditure, it spends about 8 per cent on education and around 5 per cent on health. The labour force is also characterized by low labour productivity. Unless this problem is solved, it will be difficult for Cambodia to achieve its target economic growth rate of 6 to 7 per cent in the near term. What are the economic prospects for the years 2001 and 2002? There are both positive and negative signs. Firstly, there are efforts from the government to improve general levels of governance, in accordance with the government’s action plan, presented in May 2000. Secondly, the 2000 budget provided for a substantial increase in social sector spending — about 1 per cent of GDP. At the same time, cutbacks were announced in defence and security spending, as a result of the demobilization of the military. Thirdly, the country introduced various new revenue measures, such as expanding the coverage of value-added tax (VAT) to include 500 additional firms, and better collection of revenues from tourism and arrears on telecommunication services. Fourthly, there is greater integration of the Cambodia economy into the Southeast Asian region (such as participation in the ASEAN Free-Trade Area, AFTA) and the world (accession to the WTO). Fifthly, Cambodia is receiving more

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ECONOMIC OUTLOOK

Cambodia: Selected Economic Indicators, 1998–2002E (per cent) Item

1998

1999

2000

2001E

2002E

GDP growth Gross domestic investment/GDP Gross national savings/GDP Inflation rate (CPI)a Money supply (M2) growth Fiscal balance/GDP Merchandise exports growthb Merchandise imports growthb Current account balance/GDPc Debt service/exportsd Foreign exchange rate (riel/US$1)

0.0 13.4 5.4 12.6 16.7 –6.1 8.3 –0.1 –8.0 2.9 3,744

4.0 13.1 4.7 4.0 17.3 –3.7 21.8 20.4 –8.4 2.5 3,800

5.5 13.0 4.0 5.0 12.0 –4.5 11.1 11.0 –9.0 3.0 3,800

6.0 14.0 4.0 5.0 12.0 –4.0 10.0 10.0 –10.0 3.0 4,000

6.0 14.0 5.0 6.0 15.0 –4.0 12.0 15.0 –10.0 5.0 4,000

E = Estimated. Final quarter basis. b Excluding re-exports. c Excluding official transfers. d As a percentage of domestic exports of goods and services only, in convertible currencies only. SOURCES: Asian Development Bank; Prime Minister Hun Sen’s speech, 2 June 2000, Singapore; author. a

financial aid from multilateral and bilateral agencies worth about US$548 million in 2000. Finally, the attainment of GSP and MFN status will increase the country’s exports of textiles and garments. On the other hand, the Mekong floods in 2000 and a lack of sufficient public investment in the agricultural sector, particularly in rural infrastructure and water resource management, may affect the medium- and long-term growth prospects of the country. On the whole, however, the economic outlook for the years 2001 and 2002 is optimistic, and the economy is expected to grow by around 6.0 per cent for both years.

Laos

76

P

reviously a centrally planned economy, Laos has been undergoing a gradual economic liberalization process since the late 1980s, broadly in tandem with neighbouring Vietnam. By mid-1998, this reform process — often referred to as the New Economic Mechanism (NEM) — had reached a level where the International Monetary Fund (IMF) regarded the country to have “the basic ingredients of a market-oriented economy”. There is little question that the NEM programme has brought significant gains to Laos over the last decade, including a doubling of per capita gross domestic product (GDP) to

THE ASEAN-6 INDOCHINA AND MYANMAR

around US$350 at present. Nonetheless, the country was still ranked 140th among 174 countries covered in the U.N.’s Human Development Report 2000 — the lowest of all the Southeast Asian countries. To give an indication of the country’s developmental level: average life expectancy at birth in Laos is just fifty-three, the adult illiteracy rate is in excess of 40 per cent, only 10 per cent of the work-force is salaried, a third of all villages are not accessible by vehicle, and only 20 per cent of the population has access to safe water or electricity supplies. It has become quite apparent that the pace of economic reform in Laos has slowed since the mid-1990s. Three main factors can be attributed to this marked slowdown. First, changes in the senior leadership have resulted in a more military-oriented government. The number of army officers in the politburo has risen from three to seven since 1996, and at present just one of the eight-man politburo line-up has a civilian background. Such a heavy representation of khaki is not entirely conducive to pragmatic, competent, and imaginative decision-making in the economic realm. Laos lacks competent and informed technocratic capabilities within its senior leadership ranks. The jettisoning of pro-reform Khamphoui Keoboualapha — both deputy prime minister and finance minister — in August 1999 is a clear indication that the economic reform momentum has dissipated. A second factor has been the significant challenges posed by the next tranche of economic reform measures, particularly to vested interests in the business sphere (including elements of the military), who do not wish to see their current privileges diluted by the introduction of various liberalization measures. These vested interests include the military’s own business activities. The third factor has been the financial crisis that erupted in Thailand in mid-1997, and which rapidly thrust Laos into the punishing vortex of the regional economic downturn. Not even Indonesia’s currency suffered the same degree of depreciation as Laos’s kip, losing 80 per cent of its value against the U.S. dollar within two years. (The kip plummeted to below 10,000 to the U.S. dollar in 1999, before recovering to around 7,800 in mid-2000.) Imported inflation took the consumer price index into triple figures — peaking at around 140 per cent in 1998 — and local banks’ already fragile loan portfolios deteriorated even further. Much needed foreign investment inflows — the bulk of which originate from Thailand — have dropped precipitously (see the figure on page 78). The sort of collateral damage done to the Laos economy since 1997 has served to undermine the pro-reformers’ platform, as the conservative elements have depicted these events as evidence of the perils associated with opening up the country to external trade and investment. In a bid to fill the vacuum left by the withdrawal of numerous Thai corporates from Laos since 1997, the government has been seeking to increase its business links with enterprises in China and Vietnam, with mixed success. The broad ideological fraternity that exists between these neighbouring three countries has undoubtedly been a supporting factor in this drive. But although cross-border trade volumes with China and Vietnam have risen in recent years (including some useful countertrade activities), it remains to be seen if either neighbour can provide the quantity and quality of foreign investment that Laos aspires — and needs — to attract. As part of the Asian Development Bank’s (ADB) revived Greater Mekong Sub-Region programme, an east-west economic corridor — running from central Vietnam, across the southern panhandle of Laos, and into the northeast of Thailand — is

77

ECONOMIC OUTLOOK

Foreign Direct Investment Inflow Pledges to Laos, 1988–99

Number of Projects Approved

160 2,500

No. of projects

140

2,000

120 100

1,500 80 1,000

60 40

500 20

Total value (US$ million)

Total Value (US$ Million) Cumulatively Pledged

3,000

180

0

0 1988

1989

1990 1991

1992 1993

1994

1995 1996

1997 1998 1999

SOURCES: International Monetary Fund, Lao government, and Jayant Menon.

currently at the planning stage. A second bridge across the Mekong River, near Pakse was opened in mid-2000. And a third bridge across the Mekong will be built, linking Savannakhet in Laos with Mukdaharn in northeastern Thailand. Having recorded average annual gross domestic product (GDP) growth of around 8 per cent during the early 1990s, primarily generated by burgeoning activity in the light industry and services sectors, recent years have seen GDP growth slow to around 4 to 5 per cent, with the agricultural sector becoming the most consistent performer. A sustained and substantial pick-up in the performance of the industry and services sectors is conditional in large part on a return of foreign investment inflows. This in turn necessitates that a greater political stability returns to the country (see the Political Outlook section) and that recent volatility in the monetary and macroeconomic environment is overcome. An improvement in the general health of neighbouring Thailand’s corporate sector would also be a fillip for Laos. The country’s export earnings remain fairly constant, at around US$300 million per year, derived from the sale of wood products, coffee, and some other agricultural produce, garments, electricity, and assembled motorcycles. The Lao government has aspirations to generate very substantial foreign currency earnings from electricity sales to Thailand, but the recent financial crisis has caused its southern neighbour to reassess its aggregate power demand needs, and a question mark now hangs over a number of planned hydropower projects in Laos.

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THE ASEAN-6 INDOCHINA AND MYANMAR

Laos: Selected Economic Indicators, 1996–2001F 1996

1997

1998

1999E

2000E

2001F

GDP growth (% change) Industry sector growth (% change) Services sector growth (% change) Agriculture sector growth (% change)

6.8 17.0 8.7 2.3

6.9 8.1 7.5 7.0

4.0 8.5 4.8 3.7

4.0 10.5 7.9 3.2

5.5 7.3 6.4 4.5

5.5 — — 6.0

Exports (US$ million) Imports (US$ million) Trade balance (US$ million)

321 690 –369

317 648 –331

337 553 –216

300 700 –400

340 650 –310

370 650 –280

Foreign investment inflows (US$ million)

1,293

142

122

95

—

—

7.3

26.4

142.0

86.7

15.0

5.0

Government revenue (% of GDP) Government expenditure (% of GDP)

11.3 21.3

11.2 26.9

9.9 20.2

11.3 20.6

— —

— —

Foreign exchange reserves (US$ million) External debt (convertible currency US$ million) External debt service ratio (to exports)

167 803 5.3

136 955 8.9

114 1,100 8.4

101 — —

100 — —

— — —

Exchange rate (year end) (kip/US$1)

975

2,205

4,750

9,000

7,500

7,500

Inflation/CPI (% change)

E = Estimated. F = Forecast. SOURCES: International Monetary Fund, Bank of International Settlements, Asian Development Bank, and author.

In a somewhat idiosyncratic move, the Lao government recently spent a considerable proportion of its limited foreign exchanges in a massive acquisition of water pumps. The pumps, supported by a training programme, are intended to substantially increase Laos’s dry season rice harvest in the lowland areas. Initial indications suggest that this bold move may have paid off, with the prospect of the country soon becoming self-sufficient in rice for the very first time. (In 1999, it was reported that the dry season rice crop totalled 300,000 tons, compared with less than 50,000 tons harvested in 1995.) Crop diversification programmes in lowland areas are also reaping rewards. With roughly half the country’s GDP — and about 80 per cent of all employment — stemming from the agricultural sector, these developments are very welcome news for an economy that remains dependent on external assistance. Multilateral agencies effectively payroll the country’s current account and budget deficits, each equivalent to about 10 per cent of GDP. Laos endured fairly substantial flooding damage in September 2000, with six provinces in the south particularly affected. Initial estimates put the toll of the flooding at fifteen people dead; over 450,000 people impacted to some degree; 73,500 hectares flooded, and 59,000 hectares “critically damaged”.

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ECONOMIC OUTLOOK

Laos’s aggregate debt obligation (excluding Russian debt) is slightly over US$1 billion, although much of it is on concessional terms to various multilateral agencies. A further 789 million rouble debt is owed to the Russian Federation, which awaits a revised repayment plan. Both multilateral agencies and bilateral donors alike have begun to express their disappointment at the evident slowdown in economic reform measures in recent years. A recent United Nations Development Program (UNDP) survey of donor perceptions noted that the “burdensome government decision-making process and the lack of transparency” are becoming “matters of serious concern”. Since donors help keep the Lao economy afloat, their growing disenchantment with the lack of progress in instituting new economic reforms needs to be addressed by the government, and sooner rather than later. Laos is one of fortyone countries identified under the World Bank and IMF’s Heavily Indebted Poor Countries (HIPC) initiative. Under this initiative, countries must have an unsustainable debt burden, and have established a track record of economic reforms. Looking ahead, economic progress in Laos primarily entails the same challenges of development that are faced in numerous less developed countries around the globe. Issues that should be on the long-term policy agenda include improving the living standards of the populace as a whole (average per capita GDP is as low as US$60 in some upland provinces); reversing growing income disparities between rural and urban areas; upgrading the country’s human capital levels; strengthening various state institutions; and battling fairly endemic corruption. Widening economic fault lines that exist between rural upland and rural lowland areas also need addressing, particularly where they run parallel to ethnic divisions. To date, most of the fruits of economic reform have been enjoyed by lowland Lao urbanites (about a fifth of the total population of roughly five million), through advances made in the service and industry sectors. In contrast, highland Lao have seen relatively little improvement in their conditions, where the severe inadequacies of the transport system ensure that transaction costs are high, obliging most to remain subsistence farmers. The Lao government is renewing its efforts to convert swidden (“slash and burn”) farmers in upland areas to more sedentary forms of cultivation. It is also seeking to eradicate the cultivation of opium in remote upland areas. The U.S. State Department claims that Laos is the third largest opium producer in the world, with 140 metric tons generated in 1999. The Lao government recently made an ambitious pledge to eradicate all opium production by 2006. Will Laos’s economic reform programme remain effectively stalled in 2001–2002, or will reform momentum be regained? The Lao leadership seems undecided on the right way forward, and so substantive new reform measures are on hold, by default. Unfortunately, the recent spate of bombings has created an atmosphere that is not conducive to taking bold new economic initiatives. From the perspective of the senior leadership, all reform measures entail risks, and the bombing campaign has served to heighten the leadership’s aversion to risks of any kind. (And needless to say, the bombings have not helped tourist promotion during “Visit Laos Year”.) The Seventh Party Congress of the Lao People’s Revolutionary Party is expected to take place in 2001, and decisions made at this event will set the tone of Laos’s economic agenda for the next five years. The precise policy prescriptions stemming from these decisions should become apparent in the country’s Socio-Economic Plan for 2001–2005.

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THE ASEAN-6 INDOCHINA AND MYANMAR

A

ccording to Myanmar government’s scanty statistics, the country’s gross domestic product (GDP) grew from 79,460 million kyat in 1998/99 to 87,810 million kyat in 1999/2000, with the growth rate increasing from 5.8 per cent to 10.5 per cent respectively (see the table on GDP and Structural Change below). One authority even stated that the GDP growth rate for 1999/2000 was 10.9 per cent (New Light of Myanmar, 10 May 2000). However, a former Deputy Minister of Planning discounted Myanmar’s double-digit growth figures before he left office, saying that the growth rate of GDP for 1999/2000 should in fact be around 6 per cent. Others, such as some international agencies and think-tanks, are cautiously optimistic about the growth rate. The Asian Development Bank (ADB), for example, estimated the GDP growth to be 4.5 per cent, while the London-based Economic Intelligence Unit (EIU), citing the International Monetary Fund’s (IMF) International Financial Statistics, gave a higher figure of 5.7 per cent (which is marginally lower than the 5.8 per cent of the previous year), and Regional Outlook’s estimate is 6.0 per cent. Among its economic achievements, the government reported — without providing statistics to back up its statements — that the inflation rate has declined compared with the previous year. (The inflation rate in 1998/99, as reported by the Central Statistical Organization, was 49.08 per cent, due mainly to a tenfold increase in electricity prices and an increase in transportation costs. However, in February 2000 the inflation rate showed a negative growth rate on a month-to-month basis.) The balance-of-payments position, according to a senior minister, was also better than in the previous year. So the government report further states that the main economic indicators have improved in 1999/2000. The government also put the average annual growth rate between the years 1996/97 and 1999/2000 at 7.2 per cent. However, based on ADB statistics, this figure would be only 5.4 per cent. As the government

Myanmar

Myanmar: GDP and Structural Change (at constant prices) 1997/98

1998/99

1999/2000

75,123

79,460

87,810

5.7

5.8

10.9

GDP (by sector) Industry (%) Services (%) Agriculture (%)

9.1 18.8 43.5

9.1 19.2 43.0

9.5 18.8 43.1

GDP (by ownership) State (%) Private (%) Co-operative (%)

22.5 75.4 2.1

22.6 75.3 2.1

22.3 75.8 1.9

GDP (kyat million) GDP growth rate (%)

SOURCE: Myanmar Government, March 2000.

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ECONOMIC OUTLOOK

did not publish a detailed review, including a sectoral breakdown of growth rates, it is not possible to tell which sectors contributed to the upswing in the GDP growth rate. The EIU has its own set of figures and its view is that the real economic performance was worse than 5.7 per cent, as industrial output data show steep falls for some items, while foreign direct investment (FDI) approvals have virtually collapsed. As last year’s Regional Outlook pointed out, the reasons for the fall in FDI include the impact of the financial crisis on ASEAN countries, which are the largest investors in Myanmar; sanctions imposed by the West, led by the United States and the European Union (EU); and sudden changes in the trade and foreign exchange policies, and the much overvalued exchange rate. The foreign exchange rate of the local currency (kyat), as of end September, was 420 to the U.S. dollar, whereas the official rate is around 6 kyat to the U.S. dollar. Although the government announced that the balance-of-payments situation has improved, the trade deficit in 1999 was US$1.4 billion, given the ADB’s export and import figures of US$1.2 billion and US$2.6 billion, respectively. However, the EIU reported a trade deficit of 7,343 million kyat for the eleven-month period between April 1999 and February 2000. With regard to foreign exchange reserves, these were around US$280 million (1 to 1.5 months of imports equivalent) in the first quarter of 2000 (see the table on International Liquidity below). However, Minister Brigadier-General Abel recently stated that Myanmar’s foreign reserves are sufficient to cover six months of imports. This probably includes about US$300 million received from Thailand for unrealized sale of gas. Many critics of the Myanmar government use these trade deficits and foreign exchange reserves to question the government’s performance. To make matters worse, rice exports declined from 120.4 thousand tons in 1998/99 to 53.7 thousand tons in 1999/2000 — a sharp decline of about 45 per cent. This is despite the fact that paddy production in the year was 19.92 million tons, due mainly to an increase in

Myanmar: International Liquidity (US$ milion) 1999 Q1

Q2

Q3

Q4

2000 Q1

Foreign exchange SDRs and IMF reserves Gold (national valuation)

328.6 0.1 11.0

341.0 0.1 10.8

305.0 0.3 11.2

265.3 0.2 11.1

279.2 0.3 10.9

Total international reserves

339.7

351.9

316.5

276.6

290.4

Q1, Q2, Q3, Q4 = First, second, third, fourth quarter of the year. SDRs = Special drawing rights. SOURCE: Economist Intelligence Unit Country Report, August 2000.

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THE ASEAN-6 INDOCHINA AND MYANMAR

the cultivated area of paddy. This increase in cultivated land was partly due to a new land policy introduced in January 1999. Since then, the government has leased out 400,000 hectares of vacant and virgin land for cultivation to the private sector, and introduced policies including the removal of import duties on agricultural implements, and allowing the export of 50 per cent of the produce. In short, the economic performance of Myanmar in 1999/2000 was above average, but not as high as claimed by the government. For the year 2000/2001, the economic performance may be the same as in 1999/2000. The year started with the five-to-six-fold increase in the salaries of government civil servants, including the military. Many analysts were worried that this would fuel the already growing money supply by 30 to 40 per cent per annum, which would in turn raise the already high and persistent inflation rate. To prevent rising inflation, the government opened so-called “tax-free” markets for vegetables and meat in Yangon, and promised more of such markets in regional cities. According to Brigadier-General Abel, the inflation rate stands at 7 per cent. Another piece of good news for Myanmar was that Thailand paid nearly US$300 million under its “take it or pay” agreement to buy gas from the country’s Yadana gas pipeline. However, it is not clear how much Myanmar then had to pay to the business consortium — including Total of France and Premier Oil of Britain — for its 15 per cent share in the project. As the performance of the economy largely depends on the performance of the agricultural sector, this year’s weather indicates a normal harvest, which in turn suggests economic performance similar to that in previous years. In other words, the growth rate of Myanmar’s GDP for the year 2000 (that is, fiscal year 2000/2001) is expected to be around 6 per cent. However, there are many obstacles to achieving this growth rate, some of which relate to policy issues. Overall, it seems that economic reform, which started in the late 1980s, has slowed down since 1996/97 and that “the economy remains highly controlled and has yet to adopt sound economic policies to exploit its potential and sustain economic growth” (ADB). Money supply is growing to support the expected budget deficits. Although the inflation rate is said to have slowed down, it is still relatively high, and banks’ real interest rates are negative (that is, lower than the rate of inflation). The performance of the banking system is still not up to an adequate standard, and banking efficiency is still low. The fixed exchange rate system is still intact and the country’s currency is very much overvalued. The currency hit the lowest point of 450 kyat to the U.S. dollar in October 2000 on the market, partly due to high inflation, speculation, and the weakness of the Thai baht against the U.S. dollar. Foreign exchange management remains under strict control. Many restrictions have been imposed on imports and exports since 1997. In addition, the private sector is losing out to the state sector, as a result of government restrictions that seem to favour the state sector. Many international aid agencies and non-governmental organizations (NGOs) are worried that the social indicators so far available — although the government itself does not reveal any — are not up to the standard if compared with neighbouring countries at similar levels of per capita income. According to the ADB, “estimates suggest that at least one in four households could be considered poor, with wide regional and ethnic differences. Infant mortality rate at 79 per 1,000 births is also slightly higher than the average of 68 per 1,000 births in four other Southeast Asian countries with similar level of GDP per capita.”

83

ECONOMIC OUTLOOK

However, in an interview with the press at the Chiangmai ASEAN Economic Ministers Meeting (AEM) in October 2000, Minister Abel said “There is no poverty, there’s no starvation, there’s no unemployment”. Given the impediments mentioned above, and unless more reforms are introduced, it will be hard to achieve high growth in Myanmar in the year 2000/2001. The prospects for economic growth in the next two years are not particularly bright as estimated by official sources. The political standoff between the government and an opposition political party reached a higher level in September 2000, and this may adversely affect FDI inflows, which have still not recovered from the impact of the regional crisis of 1997. More sanctions from the United States and the EU are expected. While Cambodia is enjoying its Generalized System of Preferences (GSP) and Most Favoured Nation (MFN) status by exporting garments, Myanmar’s status has been withdrawn, and this has to some extent affected the export

Myanmar: Selected Economic Indicators, 1997/98 to 2001/2002F 1997/98

1998/99a

1999/2000

2000/2001F

GDP (%) Industry (%) Services (%) Agriculture (%)

5.1 5.0 8.4 3.0

5.0 6.7 8.3 2.5

6.0 7.0 5.0 3.5

6.0 4.0 6.0 4.0

5.5 6.0 8.0 3.0

Money supply (M1) (% change)

30b

30b

22.6

30

—

Inflation/CPI (% change)

33.9

49.1

40.0b

40.0

40

Exports US$ million % change

960 9.7

1,200 25.0

6,280c —

— —

— —

Imports US$ million % change

2,145 13.3

2,600 21.2

13,623c —

— —

— —

Current account balance (US$ million)

–815

–546

–7,343c

—

—

6.2 250

6.3 320

6.3 360b

— 400b

— 420

Exchange rate Official (kyat/US$1) Market (kyat/US$1)

F = Forecast. a Plan targets. b Calendar year. c Economist Intelligence Unit, August 2000 (1 April 1999 to 27 February 2000). SOURCES: Asian Development Bank, Economist Intelligence Unit, Central Statistical Organization.

84

2001/2002F

THE ASEAN-6 INDOCHINA AND MYANMAR

sector. Although Thailand’s formal trade with Myanmar has increased this year, informal cross-border trade — which is almost equivalent to the formal trade — has been affected by off-and-on border clashes and a “drug war”. On the other hand, Myanmar is expected to receive income from the sale of gas to Thailand in the coming years, and this will improve the country’s balance-of-payments situation. Given a situation where many reform measures — especially in trade and foreign exchange regime — are stalled, and with no immediate stabilization reforms in sight, and an anticipated average performance from the agricultural sector, GDP growth rates for 2000/2001 and 2001/2002 are forecast to be between 5 and 6 per cent (see the table on Selected Economic Indicators).

H

aving seen a marked dissipation in the 8 to 9 per cent gross domestic product (GDP) growth rates of the first part of the 1990s, recent years have seen the Vietnam economy running at a much less impressive level of around 4 to 5 per cent growth. While the regional economic downturn did little to help matters, particularly in terms of a very substantial contraction in foreign investment inflows, the recent slowdown in the Vietnamese economy can also be attributed to the lessening of economic reform momentum since the mid-1990s. Having made substantial strides in liberalizing its economy during the late 1980s and early 1990s, the leadership seemed to develop doubts on the appropriate pace and depth of economic reforms in the period around the Eighth Party Congress of 1996, and reform momentum noticeably slowed. While those doubts appear to remain in the minds of some elements of the leadership, a number of developments in 2000 suggest that the economic reform momentum has not completely run out of steam, and may indeed be starting to pick up after a five-year hiatus. The introduction of a new Enterprise Law should, if enacted consistently and coherently, improve the business environment for domestic companies, and rid them of at least some of the bureaucratic hurdles that have held them back from real their performance potential. Changes to the foreign investment law have also improved the host country business environment for overseas companies, although it remains to be seen if these changes can revive very sombre foreign investor sentiment towards Vietnam. Having shied away from signing a trade deal with Washington in 1999, Hanoi finally took the plunge in mid-2000, opening up the way for Normal Trading Relations (NTR, previously known as MFN, Most Favoured Nation) status. And Vietnam finally launched its long-awaited stock exchange, located in Ho Chi Minh City. While the handful of companies listed on the exchange are currently outnumbered by the number of brokers, it could grow to become an important new element in Vietnam’s financial sector. In particular, it could assist the “equitization” programme (the partial divestment of state enterprises) by providing a secondary market for the trading of shares in equitized firms. After an agonizingly slow start, the equitization programme has picked up in pace over the last few years, but has been constrained by the lack of a market for investors to trade shares; the opening of a stock exchange could do much to lift this constraint.

Vietnam

85

ECONOMIC OUTLOOK

A clearer indication of Vietnam’s economic reform trajectory will be apparent after the Ninth Party Congress, scheduled for the first half of 2001. Both the various reports presented to the Congress, and changes in the senior leadership profile, will provide some indication as to whether Vietnam will accelerate and deepen its economic reform efforts, or continue with the current pace of incremental change. The most likely scenario is for a reaffirmation of the economic reform process, but at a gradual pace of implementation that frustrates foreign investors and lending agencies. But it is extremely unlikely that Hanoi will halt economic reforms altogether, as a number of agreements that it has now signed oblige it to move ahead on a number of business liberalization fronts. Commitments made to the ASEAN Free Trade Area (AFTA), the ASEAN Investment Area (AIA), and NTR status with the United States all necessitate that Vietnam open up its market, and these agreements will be major drivers of the economic reform agenda in Vietnam over the next decade. Having attained NTR status (albeit still pending congressional ratification in the United States), Vietnam’s leaders will

Vietnam: Selected Economic Indicators, 1996–2001F 1996 GDP growth rate (% change) Industry sector growth (% change) Services sector growth (% change) Agriculture sector growth (% change) Exports (US$ million) Imports (US$ million)) Trade balance (US$ million) Approved foreign investment inflows (US$ million) Inflation/CPI (% change) Government revenue (% of GDP) Government expenditure (% of GDP) Foreign exchange reserves (US$ million) External debt (convertible currency, US$ million) External debt service ratio (to exports) Exchange rate (year end) (dong/US$1)

1997

1998

1999

2000E

2001F

9.3 13.5 8.9 4.4

8.2 12.6 7.1 4.3

3.5 10.3 4.2 2.7

4.2 7.7 2.3 5.2

4.5 9.8 3.5 4.0

5.0 11.5 3.5 4.5

7,330 10,480 –3,150

9,145 10,313 –1,168

9,361 10,346 –985

11,523 11,636 –113

14,000 14,800 –800

16,500 17,000 –500

8,500

4,600

3,900

1,500

700

1,500

4.4

3.6

9.2

–0.2

3.5

5.0

22.9 25.9

20.5 24.5

19.0 22.1

18.7 23.6

— —

— —

—

2,063

2,097

2,150

2,300

—

8,283

9,590

12,549

13,500

14,500

—

11.5

10.4

14.1

13.0

12.5

12.2

11,150

12,292

13,896

14,028

14,300

14,750

E = Estimated. F = Forecast. SOURCES: International Monetary Fund, Government Statistical Office, Asian Development Bank, Deutsche Bank, author.

86

THE ASEAN-6 INDOCHINA AND MYANMAR

now be seeking entry to the World Trade Organization (WTO), which if achieved, will mark the last step in what has been a gradual process of re-entry for Vietnam into the global economy since the late 1980s. A recent study conducted for the World Bank estimated that attaining NTR status trade deal with the United States — and thereby lowering considerably the tariffs Vietnam’s exports to the United States face — could result in a doubling of Vietnam’s exports to the U.S. market, despite already increasing tenfold in the period between 1994 (when Washington lifted its trade embargo) and 1998. At present, major export items to the United States include coffee (25 per cent of total exports to the United States in 1998), petroleum oils, frozen seafood, footwear, and cashew nuts. As a result of the NTR, garments and footwear exports to the United States are expected to increase substantially, more in line with Vietnam’s current trading profile with the European Union (EU). But the U.S. trade deal also commits Vietnam to a wide-ranging series of reforms that extend beyond just trading issues per se, including greater transparency of its regulatory and business environment; attain WTO standards on intellectual property rights (IPRs); improved market access for the industry and services sector (including financial services, insurance, telecommunications)

Vietnam’s FDI Inflows, 1990–2001F 9,000 FDI pledges FDI disbursements

8,000 7,000

US$ Million

6,000

5,000

4,000

3,000

2,000

1,000

0 1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000E

2001F

SOURCES: International Monetary Fund, author.

87

ECONOMIC OUTLOOK

within the next five years; and lower tariffs and the removal of non-tariff barriers in order that local and foreign firms alike may trade freely across Vietnam’s borders. If Vietnam meets its various commitments in agreements such as AFTA, the AIA, and the NTR, then the country’s state enterprise sector — comprising around 6,000 firms — will face a degree of competition that it remains ill-prepared for. Although the aggregate number of state firms has been halved over the last decade, and recent equitization efforts have shown promise, the bulk of the state sector is in relatively poor shape. The debt burden arising from these state enterprises has largely been carried by the handful of state-run commercial banks, which are also ill-equipped to deal with impending liberalization measures. The International Monetary Fund (IMF), amongst others, has stressed the need for the government to tackle the problems faced by the state sector and banks in Vietnam, but Hanoi has found tackling this problem to be easier said than done. The trade deal with the United States may also help revive foreign investment inflows, which have dropped substantially since their peak of US$8.5 billion in approvals in 1996, to less than US$1 billion in 2000 — an eight-year low. Foreign-invested enterprises have played a fairly significant role in the revival of the Vietnamese economy in the 1990s, and their input — of capital, skills, technology, marketing expertise, and so forth — is undoubtedly needed if the country is to attain sustained growth rates in excess of 5 per cent. The flooding that the Mekong Delta region, as well as some central and northern provinces, endured in late 2000 — resulting in over 450 dead — is a reminder of the extent to which Vietnam’s economy remains oriented towards the agricultural sector, and therefore at the whims of the weather. Around 80 per cent of Vietnam’s population is dependent on the agricultural sector for its income, and since the enactment of reforms in the late 1980s, the country has become a major global player in a number of agricultural commodities, including rice and robusta coffee. Regardless of the leadership’s desire to create an industrialized economy, the agricultural sector will remain the backbone of the Vietnamese economy for some time to come. Beyond agricultural produce, other important sources of foreign exchange earnings for Vietnam include marine products, garments and textiles, footwear and leather goods, and crude oil. Like Laos, Vietnam exports fairly significant quantities of garments to the EU, under a quotaoriented trade agreement. These garments are an important part of the aggregate trade volume between Vietnam and the EU, which at US$4.5 billion in 1999, made the EU Vietnam’s single largest trade partner. The leadership has also made the first steps towards developing a “new economy” element in Vietnam, with the setting up of two information technology (IT) parks in Ho Chi Minh City (the “Saigon Software Park”) and Hanoi. According to the Central Institute of Economic Management, Vietnam currently has around ninety-five software companies operating, employing about 1,500 skilled personnel. On the hardware side, over 60 per cent of the 700,000 personal computers sold in Vietnam have been assembled by local firms. With regard to the Internet, Vietnam currently has five different Internet service providers (ISPs), serving about 80,000 subscribers — equivalent to one per thousand people in Vietnam. The relatively high costs of subscription and telephone charges are undoubtedly a constraint on greater Internet use in Vietnam, as is bandwidth and general service reliability.

88

THE ASEAN-6 INDOCHINA AND MYANMAR

Nonetheless, the hardware competence of those Vietnamese trained in the Soviet bloc countries, prior to 1990, plus the input of software and business skills held by overseas Vietnamese now residing in the United States (including the Silicon Valley area) could do much to buoy the development of the IT industry in Vietnam. The prospect of Vietnam developing an IT cluster in the next decade to rival others in East Asia is certainly not inconceivable. On the sovereign debt front, Hanoi appears to have renegotiated its considerable debt obligations to Russia, created during the 1970s and 1980s, when the Soviet Union provided considerable external assistance to Vietnam. The country is one of forty-one countries identified under the World Bank and IMF’s Heavily Indebted Poor Countries (HIPC) initiative.

External Debt Levels in ASEAN’s Newest Member Countries (US$ million) Stocks (end of period) 1998 Dec

Flows

1999 Jun

Sep

2000 Dec

Mar

Jun

1998 Year

1999 Year

Cambodia Bank loans Non-bank trade credits Multilateral claims Official bilateral loans*

34 5 346 245

42 3 354 —

33 — 385 —

42 4 407 242

41 — 409 —

— — 430 —

2 –3 47 –2

7 –2 61 —

Laos Bank loans Non-bank trade credits Multilateral claims Official bilateral loans*

73 23 969 25

86 20 963 —

85 — 1,021 —

79 22 1,032 41

78 — 1,015 —

— — 1,024 —

–8 –2 81 3

1 0 47 14

Myanmar Bank loans Non-bank trade credits Multilateral claims Official bilateral loans*

284 237 1,210 3,047

656 183 1,167 —

655 — 1,224 —

632 229 1,236 3,264

596 — 1,212 —

— — 1,208 —

171 –31 –1 –42

393 –17 0 —

Vietnam Bank loans Brady bonds Non-bank trade credits Multilateral claims Official bilateral loans*

1,452 559 1,056 1,623 1,845

1,356 559 867 1,689 —

1,468 559 — 1,811 —

1,405 560 1,012 1,934 2,225

1,363 560 — 1,973 —

— 560 — 2,031 —

–176 0 471 303 303

–31 0 –37 321 533

* Development Assistance Committee (DAC) creditors. SOURCE: Joint BIS-IMF-OECD-World Bank Statistics on External Debt.

89

ECONOMIC OUTLOOK

REFORMING THE LEGAL SYSTEMS IN ASEAN By Rajenthran Arumugam

T

he Asian financial crisis delivered crucial lessons to the region — amongst others, the need for a sound legal system. A legal system in its broadest form consists of a nation’s laws, legal institutions, judiciary and legal procedures. Fundamentally, the legal system is the device through which rights of the individual and community at large are protected and enforced. Full confidence in the administration of justice, nationally and internationally, is extremely crucial for economic development and social cohesion, not only in the individual countries but also in the Association of Southeast Asian Nations (ASEAN) as a regional bloc, such as in the context of the ASEAN Free Trade Area (AFTA) and the ASEAN Investment Area (AIA). The World Competitiveness Yearbook 2000 survey on the “Administration of Justice” shows that Singapore — ranked fifth globally — is the only ASEAN country in the top ten. Thailand and Malaysia are ranked at 28 and 30, respectively, while the Philippines and Indonesia are 36 and 44 among the forty-seven countries ranked. (The remaining ASEAN countries are not included in the survey.) Singapore, since its independence in 1965 has systematically enacted and modified various laws to create and sustain a proactive business environment. Furthermore, over the years the legal procedures have been streamlined, and technology has been harnessed to provide expeditious access to the courts. Concurrently, arbitration and mediation (alternative dispute resolution) are actively encouraged and used as a forum to resolve legal disputes. What are the defects in several of the ASEAN member countries’ legal systems? The legal framework to support a dynamic and proactive business environment is not fully conceptualized and implemented. Shoddy legal framework and legal loopholes create uncertainty and increased risks to the business environment. Legal expertise in complex areas of laws is scarce. Judiciaries are afflicted with bad practices like bribery, corruption, and cronyism.

90

Laws and legal institutions In the awake of the Asian financial crisis, creditors, analysts, and lawyers in Indonesia and Thailand confronted the harsh reality that a lack of security and bankruptcy/insolvency laws — and general weakness in the legal institutions — erode investor confidence. With the benefit of hindsight, one might say that the lack of bankruptcy and foreclosure laws, coupled with the readily available funds, helped encouraged profligate corporate borrowing. Thailand, under strong pressure from the International Monetary Fund (IMF), introduced a new bankruptcy law in 1998, which empowered the lenders with stronger means to enforce their rights against the borrowers. However, it seems difficult to apply the law to the fullest, due to the close connections between some lenders, borrowers, and politicians. Indonesia, also urged by the IMF, made revisions to its bankruptcy law in 1998. Although the revised bankruptcy act technically provides more leverage for lenders, overall it is still perceived to be favourable to the borrowers. It is the legitimate expectation of investors, businessmen, and financiers to depend on the laws and legal institutions to protect and enforce their legal rights arising from business contracts and engagements. In this context, the legal framework for commerce must be transparent, enshrining clear, certain, and predictable “substantive laws”, including contract law, company law, security law, taxation law, competition law, intellectual property law, investment law, “cyber laws”, and bankruptcy/insolvency laws. Furthermore, the existing laws need to be adapted to changing norms and circumstances brought about by the forces of globalization, as well as the rapid development of information technology and telecommunication. One of the major legal impediments, particularly in the transitional countries of Southeast Asia (Vietnam, Myanmar, Laos, and Cambodia) is the lack of an institutional framework and legal expertise to deal with complex areas of laws. Furthermore,

THE ASEAN-6 INDOCHINA AND MYANMAR

these countries with their communist or military backgrounds, are yet to fully embrace the principle of “rule of law”. It is important that the “procedural law”, which lays the methods and processes through which “substantive law” is addressed in a disputed matter, is clear and simple. Crucially, the legal process must be able to facilitate expeditious and inexpensive access to the courts. From the commercial perspective, this would enhance business efficacy, cost-effectiveness, and confidence in the judiciary. Conversely, a weak and encumbered “procedural law” is manifested by a backlog of cases, long drawn-out litigation, and exorbitant expenses. Singly or collectively, these have the potential to thwart the judicial mechanism — a situation currently prevalent in several of the ASEAN judiciaries. On a broader spectrum, the fundamental constitutional law, administrative law and criminal law — underpinned by universally accepted principles of “natural justice” and “rule of law” — would provide order, fairness and harmony. Basic aspects of fundamental human rights and obligations warrant embodiment in the constitution law, and should be strongly protected by the judiciary.

dealings with the judiciary, if any, should be wholly transparent, and “at arm’s length”. Needless to say, the privilege of “independence” coexists with the requirements of accountability and scrutiny.

Judicial independence The judicial systems of several ASEAN member countries have been criticized as being weak, corrupt, and lacking in independence. For instance, Indonesia’s Attorney-General, Marzuki Darusman, commented that his country’s “judicial system is an embarrassment — the recent decisions rendered on bankruptcy, corruption and administrative malfeasance cases have been heavily criticized”. At the outset, to ensure judges administer justice fairly and competently, without fear and favour, “independence” of the judiciary is manifestly important. To safeguard this, the fundamental constitutional law should address matters concerning judges and their appointment, tenure, removal, and remuneration. Furthermore, legislature/executive

Conclusion Globalization and closer economic integration of ASEAN member countries pose many challenges for Southeast Asia. To meet these challenges it is necessary for ASEAN member countries to have all the rules and regulations — and the enforcement machinery — in place. Most importantly, the legal system must enshrine the fundamental principle of “rule of law”. Legal system reform is a continuous process and ASEAN member countries could benefit by exchanging ideas and concepts. Ultimately, a legal system that is underpinned on trust and transparency, and balances local needs with international norms and trends should help spur economic development and sustain social cohesion.

Alternative dispute resolution (ADR) Alternative dispute resolution allows legal disputes to be resolved through means other than traditional and formal litigation, for instance, through arbitration and meditation. Globally, there is an increasing trend to invoke ADR as a supplement to traditional litigation. In this respect, ASEAN countries have broadly followed the global trend, particularly with regard to arbitration and mediation. By and large, ADR facilitates speed, efficiency, and cost-effectiveness, and protects confidentiality of proceedings. Furthermore, the rules and proceedings are less formal, and generally the emphasis is on settling the disputed issues amicably between all parties. In this way, ADR can protect business goodwill and reputation, and sustain social cohesion at the community level. Formal institutions, technical expertise, international linkage and public awareness should be used to lend support to an efficient ADR.

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ECONOMIC OUTLOOK

Global Competitiveness Report Rankings for Southeast Asia, 1996–2000

Singapore Malaysia Thailand Philippines Indonesia Vietnam

2000

1999

1998

1997

1996

2 25 31 37 44 53

1 16 30 33 37 48

1 17 21 33 31 39

1 9 18 34 15 49

1 10 14 31 30 n.a.

NOTE: Global rankings in a survey that spans 59 countries. SOURCE: World Economic Forum.

Southeast Asia in 2000: Some Snapshots from the World Competitiveness Rankings

Overall strength of the domestic economy at a macro level Extent a country participates in international trade and investment Extent government policies are conducive to competitiveness Performance of capital markets and quality of financial services Extent resources and systems are adequate to serve the needs of business Extent enterprises are managed in innovative, profitable, and responsible manner Scientific and technological capacity, and success of research Availability and qualifications of human resources

Average rank (out of 47)

Indonesia

Malaysia

Philippines

Singapore

Thailand

45

26

41

8

37

43

17

40

2

19

36

8

31

1

23

43

29

35

10

38

46

26

45

13

43

44

25

35

5

39

42

31

34

9

47

46

35

41

5

30

43

25

38

7

35

NOTE: 47 countries are ranked in the World Competitiveness Report: 1 = top, 47 = bottom. SOURCE: International Institute for Management Development (IMD), World Competitiveness Yearbook 2000.

92

SELECTED SOURCES OF DATA Asian Development Bank, Asian Development Outlook Asian Wall Street Journal Asiaweek Bangkok Post (Thailand) Borneo Bulletin (Brunei) BruNet (Brunei) CEIC Data, DRI Database Business Times (Singapore) Economist Intelligence Unit, Country Reports Far Eastern Economic Review Gatr (Indonesia) International Monetary Fund, Staff Country Report International Monetary Fund, World Economic Outlook Joint BIS-IMF-OECD-World Bank statistics on external debt Kompas (Indonesia) Lao Dong (Vietnam) Manila Times (Philippines) Nation (Thailand) New Light of Myanmar (Myanmar) New Straits Times (Malaysia) Philippine Daily Enquirer (Philippines) Phnom Penh Daily Post (Cambodia) Selected Monthly Economic Indicators (Myanmar) Straits Times (Singapore) Tempo (Indonesia) The Economist Utusan Malaysia (Malaysia) Vientiane Times (Laos) Vietnam News

93

This chapter is reproduced from Regional Outlook: Southeast Asia 2001–2002, edited by Daljit Singh and Nick Freeman (Singapore: Institute of Southeast Asian Studies, 2001). This version was obtained electronically direct from the publisher on condition that copyright is not infringed. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies.

93

THE CONTRIBUTORS Political Outlook 2001–2002 Derek da Cunha is a Senior Fellow at the Institute of Southeast Asian Studies. He contributed the country section on Singapore. Nick J. Freeman is a Fellow at the Institute of Southeast Asian Studies. He contributed the country section on Laos. John Funston is a Senior Fellow at the Institute of Southeast Asian Studies. He contributed the country sections on Malaysia and Thailand. A.V.M. Horton is an analyst based in Britain. He contributed the country section on Brunei. David Koh is a Research Associate at the Institute of Southeast Asian Studies. He contributed the country section on Vietnam. Alexander R. Magno is Associate Professor of Political Science at the University of the Philippines. He contributed the country section on the Philippines. Anthony L. Smith is a Fellow at the Institute of Southeast Asian Studies. He contributed the country section on Indonesia, and the section on East Timor’s Difficult Transition to Independence. Tin Maung Maung Than is a Fellow at the Institute of Southeast Asian Studies. He contributed the country sections on Cambodia and Myanmar.

Economic Outlook 2001–2002 Rajenthran Arumugam is a Fellow at the Institute of Southeast Asian Studies. He contributed the section on Reforming the Legal Systems in ASEAN. Nick J. Freeman is a Fellow at the Institute of Southeast Asian Studies. He contributed the introduction to the ASEAN-6 economies, and the country sections on Brunei, Indonesia, the Philippines, Singapore, Laos, and Vietnam. Lee Hock Guan is a Fellow at the Institute of Southeast Asian Studies. He contributed the section on Privatization and Socializing Debts in Malaysia. Lee Poh Onn is a Research Associate at the Institute of Southeast Asian Studies. He contributed the section on Whither the Haze? Sakulrat Montreevat is a Fellow at the Institute of Southeast Asian Studies. She contributed the country sections on Malaysia and Thailand. Mya Than is a Senior Research Fellow at the Institute of Southeast Asian Studies. He contributed the country sections on Cambodia and Myanmar.

94

Sea of Japan

NORTH KOREA

JAPAN

Pyongyang

Tokyo

Seoul

SOUTH KOREA

SHIKOKU

Taipei

Fo

rm

osa

Str ait

KYUSHU

MYANMAR Hanoi

V L

Vientiane

I

A

Gulf of Martaban

THAILAND

S

T

Bangkok Andaman Sea

C

I

F

I

C

O

C

E

A N

S O U T H

N CAMBODIA

Gulf of Siam

A

HAINAN

E

O

NICO ISLANBAR DS

AND A ISLA MAN NDS

Yangon

P

Phnom Penh

C H I N A

A

S E A

M Sulu

SARAWAK

Celebes Sea r

SINGAPORE

Kuching

SU

M A ATR

Mo luc ca

Kuala Lumpur lac ca

Ma

ssa

of

of M aka

S ND LA IS

O C E A N

AI AW NT ME

I N D I A N

ts

Kota Kinabalu SABAH

BANGKA KALIMANTAN

BELITUNG

HALMAHERA

aits

rai

Bandar Seri Begawan

Str

St

MINDANO

Sea

Sea

BRUNEI DARUSSALAM

SULAWESI

BURU SERAM Banda

I N D O N E S I A

IRIAN JAYA

Sea Jakarta

JAVA

BALI

SUMBAWA

PAPUA NEW GUINEA

FLORES Arafura

SUMBA

Sea